[Title 26 CFR ]
[Code of Federal Regulations (annual edition) - April 1, 2020 Edition]
[From the U.S. Government Publishing Office]
[[Page i]]
Title 26
Internal Revenue
________________________
Part 1 (Sec. 1.1551 to end of part 1)
Revised as of April 1, 2020
Containing a codification of documents of general
applicability and future effect
As of April 1, 2020
Published by the Office of the Federal Register
National Archives and Records Administration as a
Special Edition of the Federal Register
[[Page ii]]
U.S. GOVERNMENT OFFICIAL EDITION NOTICE
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[[Page iii]]
Table of Contents
Page
Explanation................................................. v
Title 26:
Chapter I--Internal Revenue Service, Department of
the Treasury (Continued) 3
Finding Aids:
Table of CFR Titles and Chapters........................ 853
Alphabetical List of Agencies Appearing in the CFR...... 873
Table of OMB Control Numbers............................ 883
List of CFR Sections Affected........................... 901
[[Page iv]]
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Cite this Code: CFR
To cite the regulations in
this volume use title,
part and section number.
Thus, 26 CFR 1.1551-1
refers to title 26, part
1, section 1551-1.
----------------------------
[[Page v]]
EXPLANATION
The Code of Federal Regulations is a codification of the general and
permanent rules published in the Federal Register by the Executive
departments and agencies of the Federal Government. The Code is divided
into 50 titles which represent broad areas subject to Federal
regulation. Each title is divided into chapters which usually bear the
name of the issuing agency. Each chapter is further subdivided into
parts covering specific regulatory areas.
Each volume of the Code is revised at least once each calendar year
and issued on a quarterly basis approximately as follows:
Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
Title 28 through Title 41...................................as of July 1
Title 42 through Title 50................................as of October 1
The appropriate revision date is printed on the cover of each
volume.
LEGAL STATUS
The contents of the Federal Register are required to be judicially
noticed (44 U.S.C. 1507). The Code of Federal Regulations is prima facie
evidence of the text of the original documents (44 U.S.C. 1510).
HOW TO USE THE CODE OF FEDERAL REGULATIONS
The Code of Federal Regulations is kept up to date by the individual
issues of the Federal Register. These two publications must be used
together to determine the latest version of any given rule.
To determine whether a Code volume has been amended since its
revision date (in this case, April 1, 2020), consult the ``List of CFR
Sections Affected (LSA),'' which is issued monthly, and the ``Cumulative
List of Parts Affected,'' which appears in the Reader Aids section of
the daily Federal Register. These two lists will identify the Federal
Register page number of the latest amendment of any given rule.
EFFECTIVE AND EXPIRATION DATES
Each volume of the Code contains amendments published in the Federal
Register since the last revision of that volume of the Code. Source
citations for the regulations are referred to by volume number and page
number of the Federal Register and date of publication. Publication
dates and effective dates are usually not the same and care must be
exercised by the user in determining the actual effective date. In
instances where the effective date is beyond the cut-off date for the
Code a note has been inserted to reflect the future effective date. In
those instances where a regulation published in the Federal Register
states a date certain for expiration, an appropriate note will be
inserted following the text.
OMB CONTROL NUMBERS
The Paperwork Reduction Act of 1980 (Pub. L. 96-511) requires
Federal agencies to display an OMB control number with their information
collection request.
[[Page vi]]
Many agencies have begun publishing numerous OMB control numbers as
amendments to existing regulations in the CFR. These OMB numbers are
placed as close as possible to the applicable recordkeeping or reporting
requirements.
PAST PROVISIONS OF THE CODE
Provisions of the Code that are no longer in force and effect as of
the revision date stated on the cover of each volume are not carried.
Code users may find the text of provisions in effect on any given date
in the past by using the appropriate List of CFR Sections Affected
(LSA). For the convenience of the reader, a ``List of CFR Sections
Affected'' is published at the end of each CFR volume. For changes to
the Code prior to the LSA listings at the end of the volume, consult
previous annual editions of the LSA. For changes to the Code prior to
2001, consult the List of CFR Sections Affected compilations, published
for 1949-1963, 1964-1972, 1973-1985, and 1986-2000.
``[RESERVED]'' TERMINOLOGY
The term ``[Reserved]'' is used as a place holder within the Code of
Federal Regulations. An agency may add regulatory information at a
``[Reserved]'' location at any time. Occasionally ``[Reserved]'' is used
editorially to indicate that a portion of the CFR was left vacant and
not dropped in error.
INCORPORATION BY REFERENCE
What is incorporation by reference? Incorporation by reference was
established by statute and allows Federal agencies to meet the
requirement to publish regulations in the Federal Register by referring
to materials already published elsewhere. For an incorporation to be
valid, the Director of the Federal Register must approve it. The legal
effect of incorporation by reference is that the material is treated as
if it were published in full in the Federal Register (5 U.S.C. 552(a)).
This material, like any other properly issued regulation, has the force
of law.
What is a proper incorporation by reference? The Director of the
Federal Register will approve an incorporation by reference only when
the requirements of 1 CFR part 51 are met. Some of the elements on which
approval is based are:
(a) The incorporation will substantially reduce the volume of
material published in the Federal Register.
(b) The matter incorporated is in fact available to the extent
necessary to afford fairness and uniformity in the administrative
process.
(c) The incorporating document is drafted and submitted for
publication in accordance with 1 CFR part 51.
What if the material incorporated by reference cannot be found? If
you have any problem locating or obtaining a copy of material listed as
an approved incorporation by reference, please contact the agency that
issued the regulation containing that incorporation. If, after
contacting the agency, you find the material is not available, please
notify the Director of the Federal Register, National Archives and
Records Administration, 8601 Adelphi Road, College Park, MD 20740-6001,
or call 202-741-6010.
CFR INDEXES AND TABULAR GUIDES
A subject index to the Code of Federal Regulations is contained in a
separate volume, revised annually as of January 1, entitled CFR Index
and Finding Aids. This volume contains the Parallel Table of Authorities
and Rules. A list of CFR titles, chapters, subchapters, and parts and an
alphabetical list of agencies publishing in the CFR are also included in
this volume.
An index to the text of ``Title 3--The President'' is carried within
that volume.
[[Page vii]]
The Federal Register Index is issued monthly in cumulative form.
This index is based on a consolidation of the ``Contents'' entries in
the daily Federal Register.
A List of CFR Sections Affected (LSA) is published monthly, keyed to
the revision dates of the 50 CFR titles.
REPUBLICATION OF MATERIAL
There are no restrictions on the republication of material appearing
in the Code of Federal Regulations.
INQUIRIES
For a legal interpretation or explanation of any regulation in this
volume, contact the issuing agency. The issuing agency's name appears at
the top of odd-numbered pages.
For inquiries concerning CFR reference assistance, call 202-741-6000
or write to the Director, Office of the Federal Register, National
Archives and Records Administration, 8601 Adelphi Road, College Park, MD
20740-6001 or e-mail [email protected].
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ELECTRONIC SERVICES
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The Office of the Federal Register also offers a free service on the
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law numbers, Federal Register finding aids, and related information.
Connect to NARA's website at www.archives.gov/federal-register.
The e-CFR is a regularly updated, unofficial editorial compilation
of CFR material and Federal Register amendments, produced by the Office
of the Federal Register and the Government Publishing Office. It is
available at www.ecfr.gov.
Oliver A. Potts,
Director,
Office of the Federal Register
April 1, 2020.
[[Page ix]]
THIS TITLE
Title 26--Internal Revenue is composed of twenty-two volumes. The
contents of these volumes represent all current regulations issued by
the Internal Revenue Service, Department of the Treasury, as of April 1,
2020. The first fifteen volumes comprise part 1 (Subchapter A--Income
Tax) and are arranged by sections as follows: Sec. Sec. 1.0-1.60;
Sec. Sec. 1.61-1.139; Sec. Sec. 1.140-1.169; Sec. Sec. 1.170-1.300;
Sec. Sec. 1.301-1.400; Sec. Sec. 1.401-1.409; Sec. Sec. 1.410-1.440;
Sec. Sec. 1.441-1.500; Sec. Sec. 1.501-1.640; Sec. Sec. 1.641-1.850;
Sec. Sec. 1.851-1.907; Sec. Sec. 1.908-1.1000; Sec. Sec. 1.1001-
1.1400; Sec. Sec. 1.1401-1.1550; and Sec. 1.1551 to end of part 1. The
sixteenth volume containing parts 2-29, includes the remainder of
subchapter A and all of Subchapter B--Estate and Gift Taxes. The last
six volumes contain parts 30-39 (Subchapter C--Employment Taxes and
Collection of Income Tax at Source); parts 40-49; parts 50-299
(Subchapter D--Miscellaneous Excise Taxes); parts 300-499 (Subchapter
F--Procedure and Administration); parts 500-599 (Subchapter G--
Regulations under Tax Conventions); and part 600 to end (Subchapter H--
Internal Revenue Practice).
The OMB control numbers for title 26 appear in Sec. 602.101 of this
chapter. For the convenience of the user, Sec. 602.101 appears in the
Finding Aids section of the volumes containing parts 1 to 599.
For this volume, Susannah C. Hurley was Chief Editor. The Code of
Federal Regulations publication program is under the direction of John
Hyrum Martinez, assisted by Stephen J. Frattini.
[[Page 1]]
TITLE 26--INTERNAL REVENUE
(This book contains part 1, Sec. 1.1551 to end of part 1)
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Part
chapter i--Internal Revenue Service, Department of the
Treasury (Continued)...................................... 1
[[Page 3]]
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)
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Editorial Note: IRS published a document at 45 FR 6088, January 25,
1980, deleting statutory sections from their regulations. In Chapter I
cross references to the deleted material have been changed to the
corresponding sections of the IRS Code of 1954 or to the appropriate
regulations sections. When either such change produced a redundancy, the
cross reference has been deleted. For further explanation, see 45 FR
20795, Mar. 31, 1980.
SUBCHAPTER A--INCOME TAX (CONTINUED)
Part Page
1 Income taxes (Continued).................... 5
Supplementary Publications: Internal Revenue Service Looseleaf
Regulations System.
Additional supplementary publications are issued covering Alcohol and
Tobacco Tax Regulations, and Regulations Under Tax Conventions.
[[Page 5]]
SUBCHAPTER A_INCOME TAX (CONTINUED)
PART 1_INCOME TAXES (CONTINUED)--Table of Contents
RELATED RULES
Sec.
1.1551-1 Disallowance of surtax exemption and accumulated earnings
credit.
1.1552-1 Earnings and profits.
Certain Controlled Corporations
1.1561-0 Table of contents.
1.1561-1 General rules regarding certain tax benefits available to the
component members of a controlled group of corporations.
1.1561-2 Special rules for allocating reductions of certain section
1561(a) tax-benefit items.
1.1561-3 Allocation of the section 1561(a) tax items.
1.1563-1 Definition of controlled group of corporations and component
members and related concepts.
1.1563-2 Excluded stock.
1.1563-3 Rules for determining stock ownership.
1.1563-4 Franchised corporations.
Individual Shared Responsibility Payment for Not Maintaining Minimum
Essential Coverage
PROCEDURE AND ADMINISTRATION
INFORMATION AND RETURNS
1.5000A-0 Table of contents.
1.5000A-1 Maintenance of minimum essential coverage and liability for
the shared responsibility payment.
1.5000A-2 Minimum essential coverage.
1.5000A-3 Exempt individuals.
1.5000A-4 Computation of shared responsibility payment.
1.5000A-5 Administration and procedure.
Tax on Certain Foreign Procurement
1.5000C-0 Outline of regulation provisions for section 5000C.
1.5000C-1 Tax on specified Federal procurement payments.
1.5000C-2 Withholding on specified Federal procurement payments.
1.5000C-3 Payment and returns of tax withheld by the acquiring agency.
1.5000C-4 Requirement for the foreign contracting party to file a return
and pay tax, and procedures for the contracting party to seek
a refund.
1.5000C-5 Anti-abuse rule.
1.5000C-6 Examples.
1.5000C-7 Effective/applicability date.
Returns and Records
Records, Statements, and Special Returns
1.6001-1 Records.
1.6001-2 Returns.
Tax Returns or Statements
1.6011-1 General requirement of return, statement, or list.
1.6011-2 Returns, etc., of DISC's and former DISC's.
1.6011-3 Requirement of statement from payees of certain gambling
winnings.
1.6011-4 Requirement of statement disclosing participation in certain
transactions by taxpayers.
1.6011-5 Required use of magnetic media for corporate income tax
returns.
1.6011-6 [Reserved]
1.6011-7 Specified tax return preparers required to file individual
income tax returns using magnetic media.
1.6011-8 Requirement of income tax return for taxpayers who claim the
premium tax credit under section 36B.
1.6012-1 Individuals required to make returns of income.
1.6012-2 Corporations required to make returns of income.
1.6012-3 Returns by fiduciaries.
1.6012-4 Miscellaneous returns.
1.6012-5 Composite return in lieu of specified form.
1.6012-6 Returns by political organizations.
1.6013-1 Joint returns.
1.6013-2 Joint return after filing separate return.
1.6013-3 Treatment of joint return after death of either spouse.
1.6013-4 Applicable rules.
1.6013-6 Election to treat nonresident alien individual as resident of
the United States.
1.6013-7 Joint return for year in which nonresident alien becomes
resident of the United States.
1.6014-1 Tax not computed by taxpayer for taxable years beginning before
January 1, 1970.
1.6014-2 Tax not computed by taxpayer for taxable years beginning after
December 31, 1969.
1.6015-0 Table of contents.
1.6015-1 Relief from joint and several liability on a joint return.
1.6015-2 Relief from liability applicable to all qualifying joint
filers.
1.6015-3 Allocation of deficiency for individuals who are no longer
married, are legally separated, or are not members of the same
household.
1.6015-4 Equitable relief.
[[Page 6]]
1.6015-5 Time and manner for requesting relief.
1.6015-6 Nonrequesting spouse's notice and opportunity to participate in
administrative proceedings.
1.6015-7 Tax Court review.
1.6015-8 Applicable liabilities.
1.6015-9 Effective date.
1.6016-1 Declarations of estimated income tax by corporations.
1.6016-2 Contents of declaration of estimated tax.
1.6016-3 Amendment of declaration.
1.6016-4 Short taxable year.
1.6017-1 Self-employment tax returns.
Information Returns
1.6031(a)-1 Return of partnership income.
1.6031(b)-1T Statements to partners (temporary).
1.6031(b)-2T REMIC reporting requirements (temporary). [Reserved]
1.6031(c)-1T Nominee reporting of partnership information (temporary).
1.6031(c)-2T Nominee reporting of REMIC information (temporary).
[Reserved]
1.6032-1 Returns of banks with respect to common trust funds.
1.6033-1 Returns by exempt organizations; taxable years beginning before
January 1, 1970.
1.6033-2 Returns by exempt organizations (taxable years beginning after
December 31, 1969) and returns by certain nonexempt
organizations (taxable years beginning after December 31,
1980).
1.6033-3 Additional provisions relating to private foundations.
1.6033-4 Required use of magnetic media for returns by organizations
required to file returns under section 6033.
1.6033-5 Disclosure by tax-exempt entities that are parties to certain
reportable transactions.
1.6033-6 Notification requirement for entities not required to file an
annual information return under section 6033(a)(1) (taxable
years beginning after December 31, 2006).
1.6034-1 Information returns required of trusts described in section
4947(a)(2) or claiming charitable or other deductions under
section 642(c).
1.6035-1 [Reserved]
1.6035-2 Transitional relief.
1.6036-1 Notice of qualification as executor or receiver.
1.6037-1 Return of electing small business corporation.
1.6037-2 Required use of magnetic media for income tax returns of
electing small business corporations.
1.6038-1 Information returns required of domestic corporations with
respect to annual accounting periods of certain foreign
corporations beginning before January 1, 1963.
1.6038-2 Information returns required of United States persons with
respect to annual accounting periods of certain foreign
corporations.
1.6038-2T Information returns required of United States persons with
respect to annual accounting periods of certain foreign
corporations beginning after December 31, 1962 (temporary).
1.6038-3 Information returns required of certain United States persons
with respect to controlled foreign partnerships (CFPs).
1.6038-4 Information returns required of certain United States persons
with respect to such person's U.S. multinational enterprise
group.
1.6038-5 Information returns required of certain United States persons
to report amounts determined with respect to certain foreign
corporations for global intangible low-taxed income (GILTI)
purposes.
1.6038A-0 Table of contents.
1.6038A-1 General requirements and definitions.
1.6038A-2 Requirement of return.
1.6038A-3 Record maintenance.
1.6038A-4 Monetary penalty.
1.6038A-5 Authorization of agent.
1.6038A-6 Failure to furnish information.
1.6038A-7 Noncompliance.
1.6038B-1 Reporting of certain transfers to foreign corporations.
1.6038B-1T Reporting of certain transactions to foreign corporations
(temporary).
1.6038B-2 Reporting of certain transfers to foreign partnerships.
1.6038D-0 Outline of regulation provisions.
1.6038D-1 Reporting with respect to specified foreign financial assets,
definition of terms.
1.6038D-2 Requirement to report specified foreign financial assets.
1.6038D-3 Specified foreign financial assets.
1.6038D-4 Information required to be reported.
1.6038D-5 Valuation guidelines.
1.6038D-6 Specified domestic entities.
1.6038D-7 Exceptions from the reporting of certain assets under Section
6038D.
1.6038D-8 Penalties for failure to disclose.
1.6039-1 Returns required in connection with certain options.
1.6039-2 Statements to persons with respect to whom information is
reported.
1.6039I-1 Reporting of certain employer-owned life insurance contracts.
1.6041-1 Return of information as to payments of $600 or more.
1.6041-2 Return of information as to payments to employees.
1.6041-3 Payments for which no return of information is required under
section 6041.
1.6041-4 Foreign-related items and other exceptions.
[[Page 7]]
1.6041-5 Information as to actual owner.
1.6041-6 Returns made on Forms 1096 and 1099 under section 6041;
contents and time and place for filing.
1.6041-7 Magnetic media requirement.
1.6041-8 Cross-reference to penalties.
1.6041-9 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
1.6041-10 Return of information as to payments of winnings from bingo,
keno, and slot machine play.
1.6041A-1 Returns regarding payments of remuneration for services and
certain direct sales.
1.6042-1 Return of information as to dividends paid in calendar years
before 1963.
1.6042-2 Returns of information as to dividends paid.
1.6042-3 Dividends subject to reporting.
1.6042-4 Statements to recipients of dividend payments.
1.6042-5 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
1.6043-1 Return regarding corporate dissolution or liquidation.
1.6043-2 Return of information respecting distributions in liquidation.
1.6043-3 Return regarding liquidation, dissolution, termination, or
substantial contraction of organizations exempt from taxation
under section 501(a).
1.6043-4 Information returns relating to certain acquisitions of control
and changes in capital structure.
1.6044-1 Returns of information as to patronage dividends with respect
to patronage occurring in taxable years beginning before 1963.
1.6044-2 Returns of information as to payments of patronage dividends.
1.6044-3 Amounts subject to reporting.
1.6044-4 Exemption for certain consumer cooperatives.
1.6044-5 Statements to recipients of patronage dividends.
1.6045-1 Returns of information of brokers and barter exchanges.
1.6045-2 Furnishing statement required with respect to certain
substitute payments.
1.6045-3 Information reporting for an acquisition of control or a
substantial change in capital structure.
1.6045-4 Information reporting on real estate transactions with dates of
closing on or after January 1, 1991.
1.6045-5 Information reporting on payments to attorneys.
1.6045A-1 Statements of information required in connection with
transfers of securities.
1.6045B-1 Returns relating to actions affecting basis of securities.
1.6046-1 Returns as to organization or reorganization of foreign
corporations and as to acquisitions of their stock.
1.6046A-1 Return requirement for United States persons who acquire or
dispose of an interest in a foreign partnership, or whose
proportional interest in a foreign partnership changes
substantially.
1.6046-2 Returns as to foreign corporations which are created or
organized, or reorganized, on or after September 15, 1960, and
before January 1, 1963.
1.6046-3 Returns as to formation or reorganization of foreign
corporations prior to September 15, 1960.
1.6047-1 Information to be furnished with regard to employee retirement
plan covering an owner-employee.
1.6047-2 Information relating to qualifying longevity annuity contracts.
1.6049-1 Returns of information as to interest paid in calendar years
before 1983 and original issue discount includible in gross
income for calendar years before 1983.
1.6049-2 Interest and original issue discount subject to reporting in
calendar years before 1983.
1.6049-3 Statements to recipients of interest payments and holders of
obligations to which there is attributed original issue
discount in calendar years before 1983.
1.6049-4 Return of information as to interest paid and original issue
discount includible in gross income after December 31, 1982.
1.6049-5 Interest and original issue discount subject to reporting after
December 31, 1982.
1.6049(d)-5T Reporting by brokers of interest and original issue
discount on and after January 1, 1986 (temporary).
1.6049-6 Statements to recipients of interest payments and holders of
obligations for attributed original issue discount.
1.6049-7 Returns of information with respect to REMIC regular interests
and collateralized debt obligations.
1.6049-8 Interest and original issue discount paid to certain
nonresident aliens.
1.6049-9 Premium subject to reporting for a debt instrument acquired on
or after January 1, 2014.
1.6049-10 Reporting of original issue discount on a tax-exempt
obligation.
1.6050A-1 Reporting requirements of certain fishing boat operators.
1.6050B-1 Information returns by person making unemployment compensation
payments.
1.6050D-1 Information returns relating to energy grants and financing.
1.6050E-1 Reporting of State and local income tax refunds.
1.6050H-0 Table of contents.
1.6050H-1 Information reporting of mortgage interest received in a trade
or business from an individual.
[[Page 8]]
1.6050H-2 Time, form, and manner of reporting interest received on
qualified mortgage.
1.6050H-3 Information reporting of mortgage insurance premiums.
1.6050I-0 Table of contents.
1.6050I-1 Returns relating to cash in excess of $10,000 received in a
trade or business.
1.6050I-2 Returns relating to cash in excess of $10,000 received as bail
by court clerks.
1.6050J-1T Questions and answers concerning information returns relating
to foreclosures and abandonments of security (temporary).
1.6050K-1 Returns relating to sales or exchanges of certain partnership
interests.
1.6050L-1 Information return by donees relating to certain dispositions
of donated property.
1.6050L-2 Information returns by donees relating to qualified
intellectual property contributions.
1.6050M-1 Information returns relating to persons receiving contracts
from certain Federal executive agencies.
1.6050N-1 Statements to recipients of royalties paid after December 31,
1986.
1.6050N-2 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
1.6050P-0 Table of contents.
1.6050P-1 Information reporting for discharges of indebtedness by
certain entities.
1.6050P-2 Organization a significant trade or business of which is the
lending of money.
1.6050S-0 Table of contents.
1.6050S-1 Information reporting for qualified tuition and related
expenses.
1.6050S-2 Information reporting for payments and reimbursements or
refunds of qualified tuition and related expenses.
1.6050S-3 Information reporting for payments of interest on qualified
education loans.
1.6050S-4 Information reporting for payments of interest on qualified
education loans.
1.6050W-1 Information reporting for payments made in settlement of
payment card and third party network transactions.
1.6050W-2 Electronic furnishing of information statements for payments
made in settlement of payment card and third party network
transactions.
1.6050Y-1 Information reporting for reportable policy sales, transfers
of life insurance contracts to foreign persons, and reportable
death benefits.
1.6050Y-2 Information reporting by acquirers for reportable policy sale
payments.
1.6050Y-3 Information reporting by 6050Y(b) issuers for reportable
policy sales and transfers of life insurance contracts to
foreign persons.
1.6050Y-4 Information reporting by payors for reportable death benefits.
1.6052-1 Information returns regarding payment of wages in the form of
group-term life insurance.
1.6052-2 Statements to be furnished employees with respect to wages paid
in the form of group-term life insurance.
1.6055-1 Information reporting for minimum essential coverage.
1.6055-2 Electronic furnishing of statements.
1.6060-1 Reporting requirements for tax return preparers.
Signing and Verifying of Returns and Other Documents
1.6061-1 Signing of returns and other documents by individuals.
1.6062-1 Signing of returns, statements, and other documents made by
corporations.
1.6063-1 Signing of returns, statements, and other documents made by
partnerships.
1.6065-1 Verification of returns.
Time for Filing Returns and Other Documents
1.6071-1 Time for filing returns and other documents.
1.6072-1 Time for filing returns of individuals, estates, and trusts.
1.6072-2 Time for filing returns of corporations.
1.6072-3 Income tax due dates postponed in case of China Trade Act
corporations.
1.6072-4 Time for filing other returns of income.
1.6073-1 Time and place for filing declarations of estimated income tax
by individuals.
1.6073-2 Fiscal years.
1.6073-3 Short taxable years.
1.6073-4 Extension of time for filing declarations by individuals.
1.6074-1 Time and place for filing declarations of estimated income tax
by corporations.
1.6074-2 Time for filing declarations by corporations in case of a short
taxable year.
1.6074-3 Extension of time for filing declarations by corporations.
Extension of Time for Filing Returns
1.6081-1 Extension of time for filing returns.
1.6081-2 Automatic extension of time to file certain returns filed by
partnerships.
1.6081-3 Automatic extension of time for filing corporation income tax
returns.
1.6081-4 Automatic extension of time for filing individual income tax
return.
1.6081-5 Extensions of time in the case of certain partnerships,
corporations and U.S. citizens and residents.
[[Page 9]]
1.6081-6 Automatic extension of time to file estate or trust income tax
return.
1.6081-7 Automatic extension of time to file Real Estate Mortgage
Investment Conduit (REMIC) income tax return.
1.6081-8 Extension of time to file certain information returns.
1.6081-9 Automatic extension of time to file exempt or political
organization returns.
1.6081-10 Automatic extension of time to file withholding tax return for
U.S. source income of foreign persons.
1.6081-11 Automatic extension of time for filing certain employee plan
returns.
Place for Filing Returns or Other Documents
1.6091-1 Place for filing returns or other documents.
1.6091-2 Place for filing income tax returns.
1.6091-3 Filing certain international income tax returns.
1.6091-4 Exceptional cases.
Miscellaneous Provisions
1.6102-1 Computations on returns or other documents.
1.6107-1 Tax return preparer must furnish copy of return or claim for
refund to taxpayer and must retain a copy or record.
1.6107-2 Form and manner of furnishing copy of return and retaining copy
or record.
1.6109-1 Identifying numbers.
1.6109-2 Tax return preparers furnishing identifying numbers for returns
or claims for refund and related requirements.
1.6115-1 Disclosure requirements for quid pro quo contributions.
Regulations Applicable to Returns or Claims for Refund Filed Prior to
January 1, 2000
1.6109-2A Furnishing identifying number of income tax return preparer.
TIME AND PLACE FOR PAYING TAX
Place and Due Date for Payment of Tax
1.6151-1 Time and place for paying tax shown on returns.
1.6153-1 Payment of estimated tax by individuals.
1.6153-2 Fiscal years.
1.6153-3 Short taxable years.
1.6153-4 Extension of time for paying the estimated tax.
Extensions of Time for Payment
1.6161-1 Extension of time for paying tax or deficiency.
1.6162-1 Extension of time for payment of tax on gain attributable to
liquidation of personal holding companies.
1.6164-1 Extensions of time for payment of taxes by corporations
expecting carrybacks.
1.6164-2 Amount of tax the time for payment of which may be extended.
1.6164-3 Computation of the amount of reduction of the tax previously
determined.
1.6164-4 Payment of remainder of tax where extension relates to only
part of the tax.
1.6164-5 Period of extension.
1.6164-6 Revised statements.
1.6164-7 Termination by district director.
1.6164-8 Payments on termination.
1.6164-9 Cross references.
1.6165-1 Bonds where time to pay the tax or deficiency has been
extended.
COLLECTION
General Provisions
1.6302-1 Deposit rules for corporation income and estimated income taxes
and certain taxes of tax-exempt organizations.
1.6302-2 Deposit rules for tax withheld on nonresident aliens and
foreign corporations.
1.6302-3 Deposit rules for estimated taxes of certain trusts.
1.6302-4 Voluntary payments by electronic funds transfer.
1.6361-1 Collection and administration of qualified State individual
income taxes.
ABATEMENTS, CREDITS, AND REFUNDS
1.6411-1 Tentative carryback adjustments.
1.6411-2 Computation of tentative carryback adjustment.
1.6411-3 Allowance of adjustments.
1.6411-4 Consolidated groups.
1.6414-1 Credit or refund of tax withheld on nonresident aliens and
foreign corporations.
1.6425-1 Adjustment of overpayment of estimated income tax by
corporation.
1.6425-2 Computation of adjustment of overpayment of estimated tax.
1.6425-3 Allowance of adjustments.
ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE PENALTIES
1.6654-1 Addition to the tax in the case of an individual.
1.6654-2 Exceptions to imposition of the addition to the tax in the case
of individuals.
1.6654-3 Short taxable years of individuals.
1.6654-4 [Reserved]
1.6654-5 Payments of estimated tax.
1.6654-6 Nonresident alien individuals.
1.6654-7 Applicability.
1.6655-0 Table of contents.
1.6655-1 Addition to the tax in the case of a corporation.
1.6655-2 Annualized income installment method.
[[Page 10]]
1.6655-2T Safe harbor for certain installments of tax due before July 1,
1987 (temporary).
1.6655-3 Adjusted seasonal installment method.
1.6655-4 Large corporations.
1.6655-5 Short taxable year.
1.6655-6 Methods of accounting.
1.6655-7 Addition to tax on account of excessive adjustment under
section 6425.
1.6655(e)-1 Time and manner for making election under the Omnibus Budget
Reconciliation Act of 1993.
1.6662-0 Table of contents.
1.6662-1 Overview of the accuracy-related penalty.
1.6662-2 Accuracy-related penalty.
1.6662-3 Negligence or disregard of rules or regulations.
1.6662-4 Substantial understatement of income tax.
1.6662-5 Substantial and gross valuation misstatements under chapter 1.
1.6662-5T Substantial and gross valuation misstatements under chapter 1
(temporary).
1.6662-6 Transactions between persons described in section 482 and net
section 482 transfer price adjustments.
1.6662-7 Omnibus Budget Reconciliation Act of 1993 changes to the
accuracy-related penalty.
1.6664-0 Table of contents.
1.6664-1 Accuracy-related and fraud penalties; definitions, effective
date and special rules.
1.6664-2 Underpayment.
1.6664-3 Ordering rules for determining the total amount of penalties
imposed.
1.6664-4 Reasonable cause and good faith exception to section 6662
penalties.
1.6664-4T Reasonable cause and good faith exception to section 6662
penalties.
1.6694-0 Table of contents.
1.6694-1 Section 6694 penalties applicable to tax return preparers.
1.6694-2 Penalty for understatement due to an unreasonable position.
1.6694-3 Penalty for understatement due to willful, reckless, or
intentional conduct.
1.6694-4 Extension of period of collection when tax return preparer pays
15 percent of a penalty for understatement of taxpayer's
liability and certain other procedural matters.
1.6695-1 Other assessable penalties with respect to the preparation of
tax returns for other persons.
1.6695-2 Tax return preparer due diligence requirements for certain tax
returns and claims.
1.6696-1 Claims for credit or refund by tax return preparers or
appraisers.
1.6709-1T Penalties with respect to mortgage credit certificates
(temporary).
JEOPARDY, BANKRUPTCY, AND RECEIVERSHIPS
1.6851-1 Termination assessments of income tax.
1.6851-2 Certificates of compliance with income tax laws by departing
aliens.
1.6851-3 Furnishing of bond to insure payment; cross reference.
THE TAX COURT
Declaratory Judgements Relating to Qualification of Certain Retirement
Plans
1.7476-1 Interested parties.
1.7476-2 Notice to interested parties.
1.7476-3 Notice of determination.
1.7519-0T Table of contents (temporary).
1.7519-1T Required payments for entities electing not to have required
year (temporary).
1.7519-2T Required payments--procedures and administration (temporary).
1.7519-3T Effective date (temporary).
General Actuarial Valuations
1.7520-1 Valuation of annuities, unitrust interests, interests for life
or terms of years, and remainder or reversionary interests.
1.7520-2 Valuation of charitable interests.
1.7520-3 Limitation on the application of section 7520.
1.7520-4 Transitional rules.
1.7701-1 Definitions; spouse, husband and wife, husband, wife, marriage.
1.7701(l)-0 Table of contents.
1.7701(l)-1 Conduit financing arrangements.
1.7701(l)-3 Recharacterizing financing arrangements involving fast-pay
stock.
1.7701(l)-4 Rules regarding inversion transactions.
1.7702-0 Table of contents.
1.7702-2 Attained age of the insured under a life insurance contract.
1.7702B-1 Consumer protection provisions.
1.7702B-2 Special rules for pre-1997 long-term care insurance contracts.
1.7703-1 Determination of marital status.
1.7704-1 Publicly traded partnerships.
1.7704-2 Transition provisions.
1.7704-3 Qualifying income.
1.7704-4 Qualifying income--mineral and natural resources.
1.7872-1--1.7872-4 [Reserved]
1.7872-5 Exempted loans.
1.7872-5T Exempted loans (temporary).
1.7872-15 Split-dollar loans.
1.7872-16 Loans to an exchange facilitator under Sec. 1.468B-6.
1.7874-1 Disregard of affiliate-owned stock.
1.7874-2 Surrogate foreign corporation.
1.7874-3 Substantial business activities.
1.7874-4 Disregard of certain stock related to the domestic entity
acquisition.
1.7874-5 Effect of certain transfers of stock related to the
acquisition.
[[Page 11]]
1.7874-6 Stock transferred by members of the EAG.
1.7874-8 Disregard of certain stock attributable to serial acquisitions.
1.7874-9 Disregard of certain stock in third-country transactions.
1.7874-10 Disregard of certain distributions.
1.7874-11 Rules regarding inversion gain.
1.7874-12 Definitions.
PUBLIC LAW 74, 84TH CONGRESS
1.9000-1 Statutory provisions.
1.9000-2 Effect of repeal in general.
1.9000-3 Requirement of statement showing increase in tax liability.
1.9000-4 Form and content of statement.
1.9000-5 Effect of filing statement.
1.9000-6 Provisions for the waiver of interest.
1.9000-7 Provisions for estimated tax.
1.9000-8 Extension of time for making certain payments.
RETIREMENT-STRAIGHT LINE ADJUSTMENT ACT OF 1958
1.9001 Statutory provisions; Retirement-Straight Line Adjustment Act of
1958.
1.9001-1 Change from retirement to straight-line method of computing
depreciation.
1.9001-2 Basis adjustments for taxable years beginning on or after 1956
adjustment date.
1.9001-3 Basis adjustments for taxable years between changeover date and
1956 adjustment date.
1.9001-4 Adjustments required in computing excess-profits credit.
DEALER RESERVE INCOME ADJUSTMENT ACT OF 1960
1.9002 Statutory provisions; Dealer Reserve Income Adjustment Act of
1960 (74 Stat. 124).
1.9002-1 Purpose, applicability, and definitions.
1.9002-2 Election to have the provisions of section 481 of the Internal
Revenue Code of 1954 apply.
1.9002-3 Election to have the provisions of section 481 of the Internal
Revenue Code of 1954 not apply.
1.9002-4 Election to pay net increase in tax in installments.
1.9002-5 Special rules relating to interest.
1.9002-6 Acquiring corporation.
1.9002-7 Statute of limitations.
1.9002-8 Manner of exercising elections.
PUBLIC DEBT AND TAX RATE EXTENSION ACT OF 1960
1.9003 Statutory provisions; section 4 of the Act of September 14, 1960
(Pub. L. 86-781, 74 Stat. 1017).
1.9003-1 Election to have the provisions of section 613(c)(2) and (4) of
the 1954 Code, as amended, apply for past years.
1.9003-2 Effect of election.
1.9003-3 Statutes of limitation.
1.9003-4 Manner of exercising election.
1.9003-5 Terms; applicability of other laws.
CERTAIN BRICK AND TILE CLAY, FIRE CLAY, AND SHALE; REGULATIONS UNDER THE
ACT OF SEPTEMBER 26, 1961
1.9004 Statutory provisions; the Act of September 26, 1961 (Pub. L. 87-
312, 75 Stat. 674).
1.9004-1 Election relating to the determination of gross income from the
property for taxable years beginning prior to 1961 in the case
of certain clays and shale.
1.9004-2 Effect of election.
1.9004-3 Statutes of limitation.
1.9004-4 Manner of exercising election.
1.9004-5 Terms; applicability of other laws.
QUARTZITE AND CLAY USED IN PRODUCTION OF REFRACTORY PRODUCTS; ELECTION
FOR PRIOR TAXABLE YEARS
1.9005 Statutory provisions; section 2 of the Act of September 26, 1961
(Pub. L. 87-321, 75 Stat. 683).
1.9005-1 Election relating to the determination of gross income from the
property for taxable years beginning prior to 1961 in the case
of clay and quartzite used in making refractory products.
1.9005-2 Effect of election.
1.9005-3 Statutes of limitation.
1.9005-4 Manner of exercising election.
1.9005-5 Terms; applicability of other laws.
Tax Reform Act of 1969
1.9006 Statutory provisions; Tax Reform Act of 1969.
1.9006-1 Interest and penalties in case of certain taxable years.
MISCELLANEOUS PROVISIONS
1.9101-1 Permission to submit information required by certain returns
and statements on magnetic tape.
1.9200-1 Deduction for motor carrier operating authority.
1.9200-2 Manner of taking deduction.
1.9300-1 Reduction in taxable income for housing displaced individuals.
Authority: 26 U.S.C. 7805, unless otherwise noted.
Section 1.1561-2 also issued under 26 U.S.C. 1561.
Section 1.5000A-3 also issued under 26 U.S.C. 5000A(e)(4).
Section 1.5000C-1 is also issued under 26 U.S.C. 5000C
Section 1.5000C-2 is also issued under 26 U.S.C. 5000C
[[Page 12]]
Section 1.5000C-3 is also issued under 26 U.S.C. 5000C
Section 1.5000C-4 is also issued under 26 U.S.C. 5000C
Section 1.5000C-5 is also issued under 26 U.S.C. 5000C
Section 1.5000C-6 is also issued under 26 U.S.C. 5000C
Section 1.6011-4T also issued under 26 U.S.C. 6001 and 6011(a).
Section 1.6011-4T also issued under 26 U.S.C. 6011.
Section 1.6011-6 also issued under 26 U.S.C. 6011(a).
Section 1.6011-7 also issued under 26 U.S.C. 6011(e).
Section 1.6012-2 is also issued under the authority of 26 U.S.C.
6011 and 6012.
Section 1.6013-6 also issued under 26 U.S.C. 7701(b)(11).
Section 1.6015-1 also issued under 26 U.S.C. 6015(h).
Section 1.6015-2 also issued under 26 U.S.C. 6015(h).
Section 1.6015-3 also issued under 26 U.S.C. 6015(h).
Section 1.6015-4 also issued under 26 U.S.C. 6015(h).
Section 1.6015-5 also issued under 26 U.S.C. 6015(h).
Section 1.6015-6 also issued under 26 U.S.C. 6015(h).
Section 1.6015-7 also issued under 26 U.S.C. 6015(h).
Section 1.6015-8 also issued under 26 U.S.C. 6015(h).
Section 1.6015-9 also issued under 26 U.S.C. 6015(h).
Section 1.6031(a)-1 also issued under section 404 of the Tax Equity
and Fiscal Responsibility Act of 1982 (Public Law 97-248; 96 Stat. 324,
669) (TEFRA).
Section 1.6033-6 also issued under 26 U.S.C. 6033(i)(1).
Section 1.6035-2 also issued under 26 U.S.C. 6035(b).
Section 1.6035-2T also issued under 26 U.S.C. 6035.
Section 1.6038-2 also issued under 26 U.S.C. 6038.
Section 1.6038-2T also issued under 26 U.S.C. 6038(d).
Section 1.6038-3 also issued under 26 U.S.C. 6038.
Section 1.6038-4 also issued under 26 U.S.C. 6001, 6011, 6012, 6031,
and 6038.
Section 1.6038-5 also issued under 26 U.S.C. 6038.
Section 1.6038A-1 also issued under 26 U.S.C. 6001.
Section 1.6038A-2 also issued under 26 U.S.C. 6001.
Section 1.6038A-3 also issued under 26 U.S.C. 6038A and 7701(l).
Section 1.6038A-4 also issued under 26 U.S.C. 6038A.
Section 1.6038A-5 also issued under 26 U.S.C. 6038A.
Section 1.6038A-6 also issued under 26 U.S.C. 6038A.
Section 1.6038A-7 also issued under 26 U.S.C. 6038A.
Section 1.6038B-1 also issued under 26 U.S.C. 6038B.
Section 1.6038B-1T also issued under 26 U.S.C 6038B.
Section 1.6038B-2 also issued under 26 U.S.C. 6038B.
Section 1.6038B-2T also issued under 26 U.S.C. 6038B.
Section 1.6038D-0 also issued under 26 U.S.C. 6038D.
Section 1.6038D-1 also issued under 26 U.S.C. 6038D.
Section 1.6038D-2 also issued under 26 U.S.C. 6038D.
Section 1.6038D-3 also issued under 26 U.S.C. 6038D.
Section 1.6038D-4 also issued under 26 U.S.C. 6038D.
Section 1.6038D-5 also issued under 26 U.S.C. 6038D.
Section 1.6038D-6 also issued under 26 U.S.C. 6038D.
Section 1.6038D-7 also issued under 26 U.S.C. 6038D.
Section 1.6038D-8 also issued under 26 U.S.C. 6038D.
Section 1.6039I-1 also issued under 26 U.S.C. 6039I.
Section 1.6041-1 also issued under 26 U.S.C. 6041(a).
Section 1.6041-2 also issued under 26 U.S.C. 6041(d).
Section 1.6041-3 also issued under 26 U.S.C. 62 and 6041(a).
Section 1.6042-3 also issued under 26 U.S.C. 6045.
Section 1.6043-4 also issued under 26 U.S.C. 6043(c).
Section 1.6045-1 also issued under 26 U.S.C. 6045.
Section 1.6045-1T also issued under 26 U.S.C. 6045(g).
Section 1.6045-2 also issued under 26 U.S.C. 6045.
Section 1.6045-3 also issued under 26 U.S.C. 6045.
Section 1.6045-4 also issued under 26 U.S.C. 6045.
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).
Section 1.6046-1 also issued 26 U.S.C. 6046(b).
Section 1.6046-1T also issued under 26 U.S.C. 6046(b).
Section 1.6046A-1 also issued under 26 U.S.C. 6046A.
Section 1.6047-2 is also issued under 26 U.S.C. 6047(d).
[[Page 13]]
Section 1.6049-4 also issued under 26 U.S.C. 6049 (a), (b), and (d).
Section 1.6049-5 also issued under 26 U.S.C. 6049 (a), (b), and (d).
Section 1.6049-5T also issued under 26 U.S.C. 6049.
Section 1.6049-6 also issued under 6049(a), (b), and (d).
Section 1.6049-7 also issued under 26 U.S.C. 860G(e), 1275(c) and 26
U.S.C. 6049(d)(7)(D).
Section 1.6049-9 also issued under 26 U.S.C. 6049(a).
Section 1.6049-10 also issued under 26 U.S.C. 6049(a).
Section 1.6050E-1 also issued under 26 U.S.C. 6050E.
Section 1.6050H-1 also issued under 26 U.S.C. 6050H.
Section 1.6050H-2 also issued under 26 U.S.C. 6050H.
Section 1.6050H-3 also issued under 26 U.S.C. 6050H(h).
Section 1.6050I-1 also issued under 26 U.S.C. 6050I.
Section 1.6050I-2 also issued under 26 U.S.C. 6050I.
Section 1.6050K-1 also issued under 26 U.S.C. 6050K.
Section 1.6050M-1 also issued under 26 U.S.C. 6050M.
Section 1.6050P-1 also issued under 26 U.S.C. 6050P.
Section 1.6050P-2 also issued under 26 U.S.C. 6050P.
Section 1.6050S-1 also issued under 26 U.S.C. 6050S(g).
Section 1.6050S-2 also issued under 26 U.S.C. 6050S(g).
Section 1.6050S-3 also issued under 26 U.S.C. 6050S(g).
Section 1.6050S-4 also issued under 26 U.S.C. 6050S(g).
Section 1.6050Y-2 also issued under 26 U.S.C. 6050Y(a).
Section 1.6050Y-3 also issued under 26 U.S.C. 6050Y(b).
Section 1.6050Y-4 also issued under 26 U.S.C. 6050Y(c).
Sections 1.6055-1 and 1.6055-2 also issued under 26 U.S.C. 6055.
Section 1.6060-1 also issued under 26 U.S.C. 6060(a).
Section 1.6061-2T also issued under 26 U.S.C. 6061.
Section 1.6065-2T also issued under 26 U.S.C. 6065.
Section 1.6081-1 also issued under 26 U.S.C. 6081.
Section 1.6081-2 also issued under 26 U.S.C. 6081.
Section 1.6081-2T also issued under 26 U.S.C. 6081.
Section 1.6081-3 also issued under 26 U.S.C. 6081.
Section 1.6081-4 also issued under 26 U.S.C. 6081.
Section 1.6081-5 also issued under 26 U.S.C. 6081.
Section 1.6081-6 also issued under 26 U.S.C. 6081.
Section 1.6081-6T also issued under 26 U.S.C. 6081.
Section 1.6081-7 also issued under 26 U.S.C. 6081.
Section 1.6081-8 also issued under 26 U.S.C. 6081(a).
Section 1.6081-9 also issued under 26 U.S.C. 6081(a).
Section 1.6081-10 also issued under 26 U.S.C. 6081.
Section 1.6081-11 also issued under 26 U.S.C. 6081.
Section 1.6109-2 also issued under 26 U.S.C. 6109(a).
Sections 1.6302-1, 1.6302-2, 1.6302-3 and 1.6302-4 also issued under
26 U.S.C. 6302(h).
Section 1.6411-4 also issued under 26 U.S.C. 6402(i) and 6411(c).
Section 1.6654-2 also issued under 26 U.S.C. 6654(n).
Section 1.6655-5 also issued under 26 U.S.C. 6655(i)(2).
Section 1.6662-6 also issued under 26 U.S.C. 6662.
Section 1.6695-1 also issued under 26 U.S.C. 6060(b) and 6695(b).
Section 1.6695-1 also issued under 26 U.S.C. 6695(b).
Section 1.6695-2 also issued under 26 U.S.C. 6695(g).
Section 1.6695-2T also issued under 26 U.S.C. 6695(g).
Section 1.6851-2 also issued under 26 U.S.C 6851(d).
Section 1.7520-1 also issued under 26 U.S.C. 7520(c)(2).
Section 1.7520-1T also issued under 26 U.S.C. 7520(c)(2).
Section 1.7520-2 also issued under 26 U.S.C. 7520(c)(2).
Section 1.7520-3 also issued under 26 U.S.C. 7520(c)(2).
Section 1.7520-4 also issued under 26 U.S.C. 7520(c)(2).
Section 1.7701(l)-1 also issued under 26 U.S.C. 7701(l).
Section 1.7701(l)-3 also issued under 26 U.S.C. 7701(l).
Section 1.7701(l)-4 also issued under 26 U.S.C. 7701(l) and
954(c)(6)(A).
Section 1.7702-2 also issued under 26 U.S.C. 7702(k).
Section 1.7872-5T also issued under 26 U.S.C. 7872.
Section 1.7872-15 also issued under 26 U.S.C. 1275 and 7872.
Section 1.7874-1 also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-1T also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-2 also issued under 26 U.S.C. 7874(c)(6) and (g).
[[Page 14]]
Section 1.7874-3 is also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-4 also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-4T also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-5 also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-5T also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-6 also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-7 also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-8 also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-9 also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-10 also issued under 26 U.S.C. 7874(c)(4) and (g).
Section 1.7874-11 also issued under 26 U.S.C. 7874(g).
Section 1.7874-12 also issued under 26 U.S.C. 7874(g).
Source: Sections 1.1401-1 through 1.1403-1 contained in T.D. 6691,
28 FR 12796, Dec. 3, 1963, unless otherwise noted.
RELATED RULES--Table of Contents
Sec. 1.1551-1 Disallowance of surtax exemption and accumulated
earnings credit.
(a) In general. If:
(1) Any corporation transfers, on or after January 1, 1951, and
before June 13, 1963, all or part of its property (other than money) to
a transferee corporation,
(2) Any corporation transfers, directly or indirectly, after June
12, 1963, all or part of its property (other than money) to a transferee
corporation, or
(3) Five or fewer individuals are in control of a corporation and
one or more of them transfer, directly or indirectly, after June 12,
1963, property (other than money) to a transferee corporation, and the
transferee was created for the purpose of acquiring such property or was
not actively engaged in business at the time of such acquisition, and if
after such transfer the transferor or transferors are in control of the
transferee during any part of the taxable year of the transferee, then
for such taxable year of the transferee the Secretary or his delegate
may disallow the surtax exemption defined in section 11(d) or the
accumulated earnings credit of $150,000 ($100,000 in the case of taxable
years beginning before January 1, 1975) provided in paragraph (2) or (3)
of section 535(c), unless the transferee establishes by the clear
preponderance of the evidence that the securing of such exemption or
credit was not a major purpose of the transfer.
(b) Purpose of section 1551. The purpose of section 1551 is to
prevent avoidance or evasion of the surtax imposed by section 11(c) or
of the accumulated earnings tax imposed by section 531. It is not
intended, however, that section 1551 be interpreted as delimiting or
abrogating any principle of law established by judicial decision, or any
existing provisions of the Code, such as sections 269 and 482, which
have the effect of preventing the avoidance or evasion of income taxes.
Such principles of law and such provisions of the Code, including
section 1551, are not mutually exclusive, and in appropriate cases they
may operate together or they may operate separately.
(c) Application of section 269(b) to cases covered by section 1551.
The provisions of section 269(b) and the authority of the district
director thereunder, to the extent not inconsistent with the provisions
of section 1551, are applicable to cases covered by section 1551.
Pursuant to the authority provided in section 269(b) the district
director may allow to the transferee any part of a surtax exemption or
accumulated earnings credit for a taxable year for which such exemption
or credit would otherwise be disallowed under section 1551(a); or he may
apportion such exemption or credit among the corporations involved. For
example, corporation A transfers on January 1, 1955, all of its property
to corporations B and C in exchange for all of the stock of such
corporations. Immediately thereafter, corporation A is dissolved and its
stockholders become the sole stockholders of corporations B and C.
Assuming that corporations B and C are unable to establish by the clear
preponderance of the evidence that the securing of the surtax exemption
defined in section 11(d) or the accumulated earnings credit provided in
section 535, or both, was not a major purpose of the transfer, the
district director is authorized under sections 1551(c) and 269(b) to
allow one
[[Page 15]]
such exemption and credit and to apportion such exemption and credit
between corporations B and C.
(d) Actively engaged in business. For purposes of this section, a
corporation maintaining an office for the purpose of preserving its
corporate existence is not considered to be ``actively engaged in
business'' even though such corporation may be deemed to be ``doing
business'' for other purposes. Similarly, for purposes of this section,
a corporation engaged in winding up its affairs, prior to an acquisition
to which section 1551 is applicable, is not considered to be ``actively
engaged in business.''
(e) Meaning and application of the term ``control''--(1) In general.
For purposes of this section, the term ``control'' means:
(i) With respect to a transferee corporation described in paragraph
(a) (1) or (2) of this section, the ownership by the transferor
corporation, its shareholders, or both, of stock possessing either (a)
at least 80 percent of the total combined voting power of all classes of
stock entitled to vote, or (b) at least 80 percent of the total value of
shares of all classes of stock.
(ii) With respect to each corporation described in paragraph (a)(3)
of this section, the ownership by five or fewer individuals of stock
possessing (a) at least 80 percent of the total combined voting power of
all classes of stock entitled to vote or at least 80 percent of the
total value of shares of all classes of the stock of each corporation,
and (b) more than 50 percent of the total combined voting power of all
classes of stock entitled to vote or more than 50 percent of the total
value of shares of all classes of stock of each corporation, taking into
account the stock ownership of each such individual only to the extent
such stock ownership is identical with respect to each such corporation.
(2) Special rules. In determining for purposes of this section
whether stock possessing at least 80 percent (or more than 50 percent in
the case of subparagraph (1)(ii)(b) of this paragraph) of the total
combined voting power of all classes of stock entitled to vote is owned,
all classes of such stock shall be considered together; it is not
necessary that at least 80 percent (or more than 50 percent) of each
class of voting stock be owned. Likewise, in determining for purposes of
this section whether stock possessing at least 80 percent (or more than
50 percent) of the total value of shares of all classes of stock is
owned, all classes of stock of the corporation shall be considered
together; it is not necessary that at least 80 percent (or more than 50
percent) of the value of shares of each class be owned. The fair market
value of a share shall be considered as the value to be used for
purposes of this computation. With respect to transfers described in
paragraph (a) (2) or (3) of this section, the ownership of stock shall
be determined in accordance with the provisions of section 1563(e) and
the regulations thereunder. With respect to transfers described in
paragraph (a)(1) of this section, the ownership of stock shall be
determined in accordance with the provisions of section 544 and the
regulations thereunder, except that constructive ownership under section
544(a)(2) shall be determined only with respect to the individual's
spouse and minor children. In determining control, no stock shall be
excluded because such stock was acquired before January 1, 1951 (the
effective date of section 1551(a)(1)), or June 13, 1963 (the effective
date of section 1551(a) (2) and (3)).
(3) Example. This paragraph may be illustrated by the following
example:
Example. On January 1, 1964, individual A, who owns 50 percent of
the voting stock of corporation X, and individual B, who owns 30 percent
of such voting stock, transfer property (other than money) to
corporation Y (newly created for the purpose of acquiring such property)
in exchange for all of Y's voting stock. After the transfer, A and B own
the voting stock of corporations X and Y in the following proportions:
------------------------------------------------------------------------
Identical
Individual Corp. X Corp. Y ownership
------------------------------------------------------------------------
A................................... 50 30 30
B................................... 30 50 30
-----------------------------------
Total............................. 80 80 60
------------------------------------------------------------------------
The transfer of property by A and B to corporation Y is a transfer
described in paragraph (a)(3) of this section since (i) A and B own at
least 80 percent of the voting stock of corporations X and Y, and (ii)
taking into account each such individual's stock ownership
[[Page 16]]
only to the extent such ownership is identical with respect to each such
corporation, A and B own more than 50 percent of the voting stock of
corporations X and Y.
(f) Taxable year of allowance or disallowance--(1) In general. The
district director's authority with respect to cases covered by section
1551 is not limited to the taxable year of the transferee corporation in
which the transfer of property occurs. Such authority extends to the
taxable year in which the transfer occurs or any subsequent taxable year
of the transferee corporation if, during any part of such year, the
transferor or transferors are in control of the transferee.
(2) Examples. This paragraph may be illustrated by the following
examples:
Example 1. On January 1, 1955, corporation D transfers property
(other than money) to corporation E, a corporation not actively engaged
in business at the time of the acquisition of such property, in exchange
for 60 percent of the voting stock of E. During a later taxable year of
E, corporation D acquires an additional 20 percent of such voting stock.
As a result of such additional acquisition, D owns 80 percent of the
voting stock of E. Accordingly, section 1551(a)(1) is applicable for the
taxable year in which the later acquisition of stock occurred and for
each taxable year thereafter in which the requisite control continues.
Example 2. On June 20, 1963, individual A, who owns all of the stock
of corporation X, transfers property (other than money) to corporation
Y, a corporation not actively engaged in business at the time of the
acquisition of such property, in exchange for 60 percent of the voting
stock of Y. During a later taxable year of Y, A acquires an additional
20 percent of such voting stock. After such acquisition A owns at least
80 percent of the voting stock of corporations X and Y. Accordingly,
section 1551(a)(3) is applicable for the taxable year in which the later
acquisition of stock occurred and for each taxable year thereafter in
which the requisite control continues.
Example 3. Individuals A and B each owns 50 percent of the stock of
corporation X. On January 15, 1964, A transfers property (other than
money) to corporation Y (newly created by A for the purpose of acquiring
such property) in exchange for all the stock of Y. In a subsequent
taxable year of Y, individual B buys 50 percent of the stock which A
owns in Y (or he transfers money to Y in exchange for its stock, as a
result of which he owns 50 percent of Y's stock). Immediately thereafter
the stock ownership of A and B in corporation Y is identical to their
stock ownership in corporation X. Accordingly, section 1551(a)(3) is
applicable for the taxable year in which B acquires stock in corporation
Y (see paragraph (g)(3) of this section) and for each taxable year
thereafter in which the requisite control continues. Moreover, if B's
acquisition of stock in Y is pursuant to a preexisting agreement with A,
A's transfer to Y and B's acquisition of Y's stock are considered a
single transaction and section 1551(a)(3) also would be applicable for
the taxable year in which A's transfer to Y took place and for each
taxable year thereafter in which the requisite control continues.
(g) Nature of transfer--(1) Corporate transfers before June 13,
1963. A transfer made before June 13, 1963, by any corporation of all or
part of its assets, whether or not such transfer qualifies as a
reorganization under section 368, is within the scope of section
1551(a)(1), except that section 1551(a)(1) does not apply to a transfer
of money only. For example, the transfer of cash for the purpose of
expanding the business of the transferor corporation through the
formation of a new corporation is not a transfer within the scope of
section 1551(a)(1), irrespective of whether the new corporation uses the
cash to purchase from the transferor corporation stock in trade or
similar property.
(2) Corporate transfers after June 12, 1963. A direct or indirect
transfer made after June 12, 1963, by any corporation of all or part of
its assets to a transferee corporation, whether or not such transfer
qualifies as a reorganization under section 368, is within the scope of
section 1551(a)(2) except that section 1551(a)(2) does not apply to a
transfer of money only. For example, if a transferor corporation
transfers property to its shareholders or to a subsidiary, the transfer
of that property by the shareholders or the subsidiary to a transferee
corporation as part of the same transaction is a transfer of property by
the transferor corporation to which section 1551(a)(2) applies. A
transfer of property pursuant to a purchase by a transferee corporation
from a transferor corporation controlling the transferee is within the
scope of section 1551(a)(2), whether or not the purchase follows a
transfer of cash from the controlling corporation.
(3) Other transfers after June 12, 1963. A direct or indirect
transfer made after June 12, 1963, by five or fewer individuals to a
transferee corporation,
[[Page 17]]
whether or not such transfer qualifies under one or more other
provisions of the Code (for example, section 351), is within the scope
of section 1551(a)(3) except that section 1551(a)(3) does not apply to a
transfer of money only. Thus, if one of five or fewer individuals who
are in control of a corporation transfers property (other than money) to
a controlled transferee corporation, the transfer is within the scope of
section 1551(a)(3) notwithstanding that the other individuals transfer
nothing or transfer only money.
(4) Examples. This paragraph may be illustrated by the following
examples:
Example 1. Individuals A and B each owns 50 percent of the voting
stock of corporation X. On January 15, 1964, A and B each acquires
property (other than money) from X and, as part of the same transaction,
each transfers such property to his wholly owned corporation (newly
created for the purpose of acquiring such property). A and B retain
substantial continuing interests in corporation X. The transfers to the
two newly created corporations are within the scope of section
1551(a)(2).
Example 2. Corporation W organizes corporation X, a wholly owned
subsidiary, for the purpose of acquiring the properties of corporation
Y. Pursuant to a reorganization qualifying under section 368(a)(1)(C),
substantially all of the properties of corporation Y are transferred on
June 15, 1963, to corporation X solely in exchange for voting stock of
corporation W. There is a transfer of property from W to X within the
meaning of section 1551(a)(2).
Example 3. Individuals A and B, each owning 50 percent of the voting
stock of corporation X, organize corporation Y to which each transfers
money only in exchange for 50 percent of the stock of Y. Subsequently, Y
uses such money to acquire other property from A and B after June 12,
1963. Such acquisition is within the scope of section 1551(a)(3).
Example 4. Individual A owns 55 percent of the stock of corporation
X. Another 25 percent of corporation X's stock is owned in the aggregate
by individuals B, C, D, and E. On June 15, 1963, individual A transfers
property to corporation Y (newly created for the purpose of acquiring
such property) in exchange for 60 percent of the stock of Y, and B, C,
and D acquire all of the remaining stock of Y. The transfer is within
the scope of section 1551(a)(3).
(h) Purpose of transfer. In determining, for purposes of this
section, whether the securing of the surtax exemption or accumulated
earnings credit constituted ``a major purpose'' of the transfer, all
circumstances relevant to the transfer shall be considered. ``A major
purpose'' will not be inferred from the mere purchase of inventory by a
subsidiary from a centralized warehouse maintained by its parent
corporation or by another subsidiary of the parent corporation. For
disallowance of the surtax exemption and accumulated earnings credit
under section 1551, it is not necessary that the obtaining of either
such credit or exemption, or both, have been the sole or principal
purpose of the transfer of the property. It is sufficient if it appears,
in the light of all the facts and circumstances, that the obtaining of
such exemption or credit, or both, was one of the major considerations
that prompted the transfer. Thus, the securing of the surtax exemption
or the accumulated earnings credit may constitute ``a major purpose'' of
the transfer, notwithstanding that such transfer was effected for a
valid business purpose and qualified as a reorganization within the
meaning of section 368. The taxpayer's burden of establishing by the
clear preponderance of the evidence that the securing of either such
exemption or credit or both was not ``a major purpose'' of the transfer
may be met, for example, by showing that the obtaining of such
exemption, or credit, or both, was not a major factor in relationship to
the other consideration or considerations which prompted the transfer.
[T.D. 6911, 32 FR 3214, Feb. 24, 1967, as amended by T.D. 7376, 40 FR
42745, Sept. 16, 1975]
Sec. 1.1552-1 Earnings and profits.
(a) General rule. For the purpose of determining the earnings and
profits of each member of an affiliated group which is required to be
included in a consolidated return for such group filed for a taxable
year beginning after December 31, 1953, and ending after August 16,
1954, the tax liability of the group shall be allocated among the
members of the group in accordance with one of the following methods,
pursuant to an election under paragraph (c) of this section:
(1)(i) The tax liability of the group shall be apportioned among the
members of the group in accordance with
[[Page 18]]
the ratio which that portion of the consolidated taxable income
attributable to each member of the group having taxable income bears to
the consolidated taxable income.
(ii) For consolidated return years beginning after December 31,
1965, a member's portion of the tax liability of the group under the
method of allocation provided by subdivision (i) of this subparagraph is
an amount equal to the tax liability of the group multiplied by a
fraction, the numerator of which is the taxable income of such member,
and the denominator of which is the sum of the taxable incomes of all
the members. For purposes of this subdivision the taxable income of a
member shall be the separate taxable income determined under Sec.
1.1502-12, adjusted for the following items taken into account in the
computation of consolidated taxable income:
(a) The portion of the consolidated net operating loss deduction,
the consolidated charitable contributions deduction, the consolidated
dividends received deduction, the consolidated section 247 deduction,
the consolidated section 582(c) net loss, and the consolidated section
922 deduction, attributable to such member;
(b) Such member's capital gain net income (net capital gain for
taxable years beginning before January 1, 1977) (determined without
regard to any net capital loss carryover attributable to such member);
(c) Such member's net capital loss and section 1231 net loss,
reduced by the portion of the consolidated net capital loss attributable
to such member; and
(d) The portion of any consolidated net capital loss carryover
attributable to such member which is absorbed in the taxable year.
If the computation of the taxable income of a member under this
subdivision results in an excess of deductions over gross income, then
for purposes of this subdivision such member's taxable income shall be
zero.
(2)(i) The tax liability of the group shall be allocated to the
several members of the group on the basis of the percentage of the total
tax which the tax of such member if computed on a separate return would
bear to the total amount of the taxes for all members of the group so
computed.
(ii) For consolidated return years beginning after December 31,
1965, a member's portion of the tax liability of the group under the
method of allocation provided by subdivision (i) of this subparagraph is
an amount equal to the tax liability of the group multiplied by a
fraction, the numerator of which is the separate return tax liability of
such member, and the denominator of which is the sum of the separate
return tax liabilities of all the members. For purposes of this
subdivision the separate return tax liability of a member is its tax
liability computed as if it has filed a separate return for the year
except that:
(a) Gains and losses on intercompany transactions shall be taken
into account as provided in Sec. 1.1502-13 as if a consolidated return
had been filed for the year;
(b) Gains and losses relating to inventory adjustments shall be
taken into account as provided in Sec. 1.1502-18 as if a consolidated
return had been filed for the year;
(c) Transactions with respect to stock, bonds, or other obligations
of members shall be reflected as provided in Sec. 1.1502-13 (f) and (g)
as if a consolidated return had been filed for the year;
(d) Excess losses shall be included in income as provided in Sec.
1.1502-19 as if a consolidated return had been filed for the year;
(e) In the computation of the deduction under section 167, property
shall not lose its character as new property as a result of a transfer
from one member to another member during the year;
(f) A dividend distributed by one member to another member during
the year shall not be taken into account in computing the deductions
under section 243(a)(1), 244(a), 245, or 247 (relating to deductions
with respect to dividends received and dividends paid);
(g) Basis shall be determined under Sec. Sec. 1.1502-31 and 1.1502-
32, and earnings and profits shall be determined under Sec. 1.1502-33,
as if a consolidated return had been filed for the year;
[[Page 19]]
(h) Subparagraph (2) of Sec. 1.1502-3(f) shall apply as if a
consolidated return had been filed for the year; and
(i) For purposes of Subtitle A of the Code, the surtax exemption of
the member shall be an amount equal to $25,000 ($50,000 in the case of a
taxable year ending in 1975), divided by the number of members (or such
portion of $25,000 or $50,000 which is apportioned to the member
pursuant to a schedule attached to the consolidated return for the
taxable year). (However, if for the taxable year some or all of the
members are component members of a controlled group of corporations
(within the meaning of section 1563) and if there are other such
component members which do not join in filing the consolidated return
for such year, the amount to be divided among the members filing the
consolidated return shall be (in lieu of $25,000 or $50,000) the sum of
the amounts apportioned to the component members which join in filing
the consolidated return (as determined for taxable years beginning after
December 31, 1974 under Sec. 1.1561-2(a)(2) or Sec. 1.1561-3,
whichever is applicable, and for taxable years beginning before January
1, 1975, under Sec. 1.561-2A(a)(2) or Sec. 1.1561-3A whichever is
applicable).)
If the computation of the separate return tax liability of a member
under this subdivision does not result in a positive tax liability, then
for purposes of this subdivision such member's separate return tax
liability shall be zero.
(3)(i) The tax liability of the group (excluding the tax increases
arising from the consolidation) shall be allocated on the basis of the
contribution of each member of the group to the consolidated taxable
income of the group. Any tax increases arising from the consolidation
shall be distributed to the several members in direct proportion to the
reduction in tax liability resulting to such members from the filing of
the consolidated return as measured by the difference between their tax
liabilities determined on a separate return basis and their tax
liabilities (determined without regard to the 2-percent increase
provided by section 1503(a) and paragraph (a) of Sec. 1.1502-30A (as
contained in the 26 CFR edition revised as of April 1, 1996) for taxable
years beginning before January 1, 1964) based on their contributions to
the consolidated taxable income.
(ii) For consolidated return years beginning after December 31,
1965, a member's portion of the tax liability of the group under the
method of allocation provided by subdivision (i) of this subparagraph
shall be determined by:
(a) Allocating the tax liability of the group in accordance with
subparagraph (1)(ii) of this paragraph, but
(b) The amount of tax liability allocated to any member shall not
exceed the separate return tax liability of such member, determined in
accordance with subparagraph (2)(ii) of this paragraph, and
(c) The sum of the amounts which would be allocated to the members
but for (b) of this subdivision (ii) shall be apportioned among the
other members in direct proportion to, but limited to, the reduction in
tax liability resulting to such other members. Such reduction for any
member shall be the excess, if any, of (1) its separate this paragraph.
(4) The tax liability of the group shall be allocated in accordance
with any other method selected by the group with the approval of the
Commissioner. No method of allocation may be approved under this
subparagraph which may result in the allocation of a positive tax
liability for a taxable year, among the members who are allocated a
positive tax liability for such year, in a total amount which is more or
less than the tax liability of the group for such year. (However, see
paragraph (d) of Sec. 1.1502-33.)
(b) Application of rules--(1) Tax liability of the group. For
purposes of section 1552 and this section, the tax liability of the
group for a taxable year shall consist of the Federal income tax
liability of the group for such year determined in accordance with Sec.
1.1502-2 or Sec. 1.1502-30A (as contained in the 26 CFR edition revised
as of April 1, 1996), which-ever is applicable. Thus, in the case of a
carryback of a loss or credit to such year, although the earnings and
profits of the members of the group may not be adjusted until the
subsequent taxable year from which the loss or credit was carried back,
the effect of the carryback, for purposes of this section, shall be
determined by allocating the amount of the adjustment as a part
[[Page 20]]
of the tax liability of the group for the taxable year to which the loss
or credit is carried. For example, if a consolidated net operating loss
is carried back from 1969 to 1967, the allocation of the tax liability
of the group for 1967 shall be recomputed in accordance with the method
of allocation used for 1967, and the changes resulting from such
recomputation shall, for accrual method taxpayers, be reflected in the
earnings and profits of the appropriate members in 1969.
(2) Effect of allocation. The amount of tax liability allocated to a
corporation as its share of the tax liability of the group, pursuant to
this section, shall (i) result in a decrease in the earnings and profits
of such corporation in such amount, and (ii) be treated as a liability
of such corporation for such amount. If the full amount of such
liability is not paid by such corporation, pursuant to an agreement
among the members of the group or otherwise, the amount which is not
paid will generally be treated as a distribution with respect to stock,
a contribution to capital, or a combination thereof, as the case may be.
(c) Method of election. (1) The election under paragraph (a) (1),
(2), or (3) of this section shall be made not later than the time
prescribed by law for filing the first consolidated return of the group
for a taxable year beginning after December 31, 1953, and ending after
August 16, 1954 (including extensions thereof). If the group elects to
allocate its tax liability in accordance with the method prescribed in
paragraph (a) (1), (2), or (3) of this section, a statement shall be
attached to the return stating which method is elected. Such statement
shall be made by the common parent corporation and shall be binding upon
all members of the group. In the event that the group desires to
allocate its tax liability in accordance with any other method pursuant
to paragraph (a)(4) of this section, approval of such method by the
Commissioner must be obtained within the time prescribed above. If such
approval is not obtained in such time, the group shall allocate in
accordance with the method prescribed in paragraph (a)(1) of this
section. The request shall state fully the method which the group wishes
to apply in apportioning the tax liability. Except as provided in
subparagraph (2) of this paragraph, an election once made shall be
irrevocable and shall be binding upon the group with respect to the year
for which made and for all future years for which a consolidated return
is filed or required to be filed unless the Commissioner authorizes a
change to another method prior to the time prescribed by law for filing
the return for the year in which such change is to be effective.
(2) Each group may make a new election to use any one of the methods
prescribed in paragraph (a) (1), (2), or (3) of this section for its
first consolidated return year beginning after December 31, 1965, or in
conjunction with an election under paragraph (d) of Sec. 1.1502-33, or
may request the Commissioner's approval of a method under paragraph
(a)(4) of this section for its first consolidated return year beginning
after December 31, 1965, irrespective of its previous method of
allocation under this section. If such new election is not made in
conjunction with an election under paragraph (d) of Sec. 1.1502-33, it
shall be effective for the first consolidated return year beginning
after December 31, 1965, and all succeeding years. (See Sec. 1.1502-33
for the method of making such new election in conjunction with an
election under paragraph (d) of Sec. 1.1502-33.) Any other such new
election (or request for the Commissioner's approval of a method under
paragraph (a)(4) of this section) shall be made within the time
prescribed by law for filing the consolidated return for the first
taxable year beginning after December 31, 1965 (including extensions
thereof), or within 60 days after July 3, 1968, whichever is later. Such
new election shall be made by attaching a statement to the consolidated
return for the first taxable year beginning after December 31, 1965, or
if such election is made within the time prescribed above but after such
return is filed, by filing a statement with the internal revenue officer
with whom such return was filed.
(d) Failure to elect. If a group fails to make an election in its
first consolidated return, or any other election, in accordance with
paragraph (c) of this section, the method prescribed under
[[Page 21]]
paragraph (a)(1) of this section shall be applicable and shall be
binding upon the group in the same manner as if an election had been
made to so allocate.
(e) Definitions. Except as otherwise provided in this section, the
terms used in this section shall have the same meaning as provided in
the regulations under section 1502.
(f) Example. The provisions of this section may be illustrated by
the following example:
Example. Corporation P is the common parent owning all of the stock
of corporations S1 and S2, members of an affiliated group. A
consolidated return is filed for the taxable year ending December 31,
1966, by P, S1, and S2. For 1966 such corporations had the following
taxable incomes or losses computed in accordance with paragraph
(a)(1)(ii) of this section:
P......................................................................0
S1................................................................$2,000
S2...............................................................(1,000)
The group has not made an election under paragraph (c) of this section
or paragraph (d) of Sec. 1.1502-33. Accordingly, the method of
allocation provided by paragraph (a)(1) of this section is in effect for
the group. Assuming that the consolidated taxable income is equal to the
sum of the members taxable income and losses, or $1,000, the tax
liability of the group for the year (assuming a 22-percent rate) is
$220, all of which is allocated to S1. S1 accordingly reduces its
earnings and profits in the amount of $220, irrespective of who actually
pays the tax liability. If S1 pays the $220 tax liability there will be
no further effect upon the income, earnings and profits, or the basis of
stock of any member. If, however, P pays the $220 tax liability (and
such payment is not in fact a loan from P to S1), then P shall be
treated as having made a contribution to the capital of S1 in the amount
of $220. On the other hand, if S2 pays the $220 tax liability (and such
payment is not in fact a loan from S2), then S2 shall be treated as
having made a distribution with respect to its stock to P in the amount
of $220, and P shall be treated as having made a contribution to the
capital of S1 in the amount of $220.
[T.D. 6962, 33 FR 9655, July 3, 1968, as amended by T.D. 7825, 42 FR
64694, Dec. 28, 1977; T.D. 7728, 45 FR 72650, Nov. 3, 1980; T.D. 8560,
59 FR 41675, Aug. 15, 1994; T.D. 8597, 60 FR 36680, July 18, 1995; T.D.
8677, 61 FR 33325, June 27, 1996]
Certain Controlled Corporations
Sec. 1.1561-0 Table of contents.
This section lists the table of contents for Sec. Sec. 1.1561-1
through 1.1561-3.
Sec. 1.1561-1 General rules regarding certain tax benefits available to
the component members of a controlled group of corporations.
(a) In general.
(1) Limitation.
(2) Definitions.
(b) Special rules.
(1) S Corporation.
(2) 52-53-week taxable year.
(c) Tax avoidance.
(d) Effective/applicability date.
Sec. 1.1561-2 Special rules for allocating reductions of certain
Section 1561(a) tax-benefit items.
(a) Additional tax.
(1) Calculation.
(2) Apportionment.
(3) Examples.
(b) Reduction to the amount exempted from the alternative minimum
tax.
(1) Calculation.
(2) Apportionment.
(3) Examples.
(c) Accumulated earnings credit.
(d) [Reserved]
(e) Short taxable year not including a December 31st date.
(1) General rule.
(2) Additional rules.
(3) Calculation of the additional tax.
(4) Calculation of the alternative minimum tax.
(5) Examples.
(f) Effective/applicability date.
Sec. 1.1561-3 Allocation of the section 1561(a) tax items.
(a) Filing of form.
(1) In general.
(2) Exception for component members that are members of a
consolidated group.
(b) No apportionment plan in effect.
(c) Apportionment plan in effect.
(1) Adoption of plan.
(2) Limitation on adopting a plan.
(3) Termination of plan.
(d) Effective/applicability date.
[T.D. 9476, 74 FR 68532, Dec. 28, 2009]
Sec. 1.1561-1 General rules regarding certain tax benefits available
to the component members of a controlled group of corporations.
(a) In general--(1)--Limitation. Part II (section 1561 and
following) of subchapter B of chapter 6 of the Internal Revenue Code
(Code) (part II) provides
[[Page 22]]
rules to limit the amounts of certain specified tax benefit items of
component members of a controlled group of corporations for their tax
years which include a particular December 31st date, or, in the case of
a short taxable year member (see section 1561(b) and Sec. 1.1561-2(e)),
the date substituted for that December 31st date. The amount of the tax
items enumerated in section 1561(a) available to any of the component
members of a controlled group shall be determined for purposes of
subtitle A of the Code as if the component members were a single
corporation. Certain other tax items also set forth in section 1561(a)
(for example, the additional tax imposed by section 11(b)(1) and the
section 55(d)(3) phase out of the alternative minimum tax exemption
amount) will be determined by combining the positive taxable income or
positive alternative minimum taxable income of the component members of
such a group and then allocating the amount of such items among those
members.
(2) Definitions. For certain definitions (including the definition
of a controlled group of corporations and a component member) and
special rules for purposes of this part II see section 1563.
(b) Special rules--(1) S Corporation. For purposes of this part II,
the term corporation includes a small business corporation (as defined
in section 1361). However, for the treatment of such a corporation as an
excluded member of a controlled group of corporations see Sec. 1.1563-
1(b)(2)(ii)(C).
(2) 52-53-week taxable year. In the case of corporations electing a
52-53-week taxable year under section 441(f)(1), the provisions of this
part II shall be applied in accordance with the special rule of section
441(f)(2)(A). See Sec. 1.441-2.
(c) Tax avoidance. The provisions of this part II do not delimit or
abrogate any principle of law established by judicial decision, or any
existing provisions of the Code, such as sections 269, 482, and 1551,
which serve to prevent any avoidance or evasion of income taxes.
(d) Effective/applicability date. This section applies to any tax
year beginning on or after December 21, 2009. However, taxpayers may
apply this section to any Federal income tax return filed on or after
December 21, 2009. For tax years beginning before December 21, 2009, see
Sec. 1.1561-1T as contained in 26 CFR part 1 in effect on April 1,
2009.
[T.D. 9476, 74 FR 68532, Dec. 28, 2009]
Sec. 1.1561-2 Special rules for allocating reductions of certain
section 1561(a) tax-benefit items.
(a) Additional tax--(1) Calculation--(i) In general. For the purpose
of determining the amount, if any, of the additional tax imposed by
section 11(b)(1) (the additional tax), the taxable incomes of all of the
component members of a controlled group of corporations shall be
combined to determine whether either of the income thresholds for
imposing the additional tax have been attained.
(ii) Special rules. For purposes of paragraph (a)(1)(i) of this
section--
(A) Component member means a corporation that is apportioned some
part of any applicable tax bracket amount; and
(B) Taxable income means the positive taxable income of a component
member for its entire tax year (even if it was not a member of the group
for each day of that tax year) that includes the same December 31st
testing date, which is also applicable to the other component members of
that same controlled group.
(2) Apportionment--(i) General rule. Any additional tax determined
under paragraph (a)(1) of this section shall be apportioned among such
members in the same manner as the corresponding tax bracket of section
11(b)(1) is apportioned. For rules to apportion the section 11(b)(1) tax
brackets among the component members of a controlled group, see Sec.
1.1561-3(b) or (c).
(ii) Apportionment methods. Unless the component members of a
controlled group elect to use the first-in-first-out (FIFO) method
described in paragraph (a)(2)(ii)(B) of this section, such members are
required to apportion the amount of the additional tax using the
proportionate method described in paragraph (a)(2)(ii)(A) of this
section. These component members may elect the FIFO method by
specifically adopting such method in their apportionment plan.
[[Page 23]]
(A) Proportionate method. Under the proportionate method, the
additional tax is allocated to each component member in the same
proportion as the portion of the tax-benefit amount that inured to a
member from utilizing lower tax brackets bears to the amount of the
group's total tax-benefit amount inuring to it from utilizing those
lower tax brackets. The tax-benefit amount that inures to a corporation
from using a particular tax bracket is the tax savings that such
corporation realizes from having a portion of its taxable income taxed
at the lower rate attributed to that tax bracket instead of the high tax
rates to which it would otherwise be subject. The steps for applying the
proportionate method of allocation are as follows:
(1) Step 1. The regular tax (not including the additional tax) owed
by a component member under a particular tax bracket is divided by the
total tax owed by all component members under that tax bracket;
(2) Step 2. The percentage calculated under Step 1 is multiplied by
the total tax-benefit amount inuring to all the members of the group
from their use of this tax bracket. This computed amount equals the
portion of the group's tax-benefit amount that inured to such member
from using its portion of this tax bracket;
(3) Step 3. The amount determined under Step 2 is divided by the
total tax-benefit amount, inuring to all the component members of the
group from using all the tax brackets to which any component member's
income was subject;
(4) Step 4. The percentage calculated under Step 3 is multiplied by
the amount of the group's additional tax. The amount determined under
this Step 4 equals the amount of the additional tax apportioned to such
member for that tax bracket; and
(5) Step 5. If a component member is liable for regular tax (not
including the additional tax) under more than one tax bracket, that
member must calculate the amount of the additional tax apportioned to it
with respect to each tax bracket. Accordingly, steps 1 through 4 must be
applied for each tax bracket applicable to that member. The sum of all
the apportioned amounts of additional tax from each tax bracket for
which the member is subject is the total amount of the additional tax
apportioned to that member.
(B) FIFO method. Under the FIFO method, the first dollars of the
additional tax are to be allocated proportionately to the members
starting with the lowest tax bracket (that is, the first tax bracket),
up to the amount of the tax benefit inuring to those members from using
that tax bracket. Any remaining amount of additional tax is then
allocated proportionately among the component members who use the next
higher tax bracket, and so on, until the entire amount of the additional
tax has been fully apportioned among the members. For example, the first
$9,500 of the additional tax liability of a controlled group is
apportioned entirely to the member(s) that availed themselves of the
benefit of the 15 percent tax bracket.
(3) Examples. The provisions of this paragraph (a) may be
illustrated by the following examples:
Example 1. (i) Facts. A controlled group of corporations consists of
three members: X, Y and Z. X owns all the stock of Y and Z. Each
corporation files its separate return on a calendar year basis. For
calendar year 2007, the component members of the controlled group have
an apportionment plan in effect. The members apportioned 80% of the 15
percent tax-bracket amount ($40,000) to X and the remaining 10%
($10,000) to Y. The members apportioned 100% of the 25 percent tax-
bracket amount ($25,000) to Y. However, these members have not adopted
the FIFO method for apportioning the additional taxes. Therefore, they
must follow the proportionate method. For 2007, X had taxable income
(TI) of $40,000, Y had TI of $60,000 and Z had TI of $100,000. Thus the
total TI of the group is $200,000.
(ii) Calculating the tax from the tax brackets and the tax benefit
derived from such tax. (A) Regular tax of group subject to a 15 percent
tax rate. (1) Calculating the group's tax which resulted from applying a
15 percent tax rate. The amount of tax under the 15 percent tax bracket
is $7,500 (15% x $50,000).
(2) The tax-benefit amount inuring to the group from using the 15
percent tax bracket. A tax benefit inures to those members of the group
who avail themselves of the 15 percent tax bracket. That tax benefit
results from having the first $50,000 of its income taxed at the 15
percent tax rate, instead of at the 34 percent tax rate. Thus, the tax-
benefit amount inuring to this group from using the
[[Page 24]]
15 percent tax bracket is $9,500 ($17,000 (34% x $50,000) minus $7,500
(15% x $50,000)).
(B) Regular tax of group subject to a 25 percent tax rate. (1)
Calculating the group's tax which resulted from applying a 25 percent
tax rate. The amount of tax under the 25 percent tax bracket is $6,250
(25% x $25,000 ($75,000-$50,000)).
(2) The tax-benefit amount inuring to the group from using the 25
percent tax bracket. A tax benefit inures to those members of the group
who avail themselves of the 25 percent tax bracket. That tax benefit
results from having $25,000 of its income taxed at the 25 percent tax
rate, instead of at the 34 percent tax rate. Thus, the tax-benefit
amount inuring to this group from using the 25 percent tax bracket is
$2,250 ($8,500 (34% x $25,000) minus $6,250 (25% x $25,000)).
(C) Regular tax of group subject to a 34 percent tax rate. (1)
Calculating the group's tax which resulted from applying a 34 percent
tax rate. The amount of tax under the 34 percent tax bracket is $42,500
(34% x $125,000 ($200,000 (total TI)-$75,000) (amount taxed at lower
rates)).
(2) The tax-benefit amount inuring to the group from using the 34
percent tax bracket. The group's total TI of $200,000 is less than the
$15,000,000 income threshold for imposing any 3 percent additional tax
on the group. Therefore, there is no tax benefit inuring to the members
of this group for using the 34 percent tax bracket.
(D) The computation of the additional tax. Since the combined TI of
the group exceeds $100,000, a 5 percent additional tax is imposed on the
group. That 5 percent additional tax is the lesser amount of 5 percent
of the group's taxable income exceeding $100,000 or $11,750. Five
percent of that excess amount of taxable income is $5,000 (5% x $100,000
($200,000-$100,000)). Since $5,000 is less than $11,750, the group's 5
percent additional tax is $5,000.
(iii) Apportioning the amount of additional tax to each applicable
tax bracket. (A) The apportioned tax under each bracket. The amount of
tax owed by each member under each tax bracket pursuant to the
apportionment plan is as follows:
----------------------------------------------------------------------------------------------------------------
Amount of tax Amount of tax Amount of tax
owed under the owed under the owed under the
Name of component member 15% tax 25% tax 34% tax
bracket bracket bracket
----------------------------------------------------------------------------------------------------------------
X............................................................... $6,000 0 0
Y............................................................... 1,500 $6,250 $8,500
Z............................................................... 0 0 34,000
----------------------------------------------------------------------------------------------------------------
(B) Apportioning the 5 percent additional tax among the component
members of the controlled group. Since the group did not elect to adopt
the FIFO method of apportionment, it is required to apportion the $5,000
of its 5 percent additional tax pursuant to the proportionate method in
the following manner:
(1) Amount of the additional tax apportioned to X. Pursuant to the
plan, X was liable for $6,000 of the group's $7,500 regular tax (80%)
owed under the 15 percent tax bracket (and X is not liable for any
regular tax under any higher tax bracket). See Step 1 of paragraph
(a)(2)(ii)(A) of this section. X's portion of the group's tax benefit
which it derived from using the 15 percent tax rate is $7,600 (0.8 x
$9,500). See Step 2. The tax benefit inuring to the entire group from
using the 15 percent and 25 percent tax brackets is $11,750 ($9,500
(from the 15 percent tax bracket) + $2,250 (from the 25 percent tax
bracket)). So, X's percentage portion of the group's total tax benefit
is $7,600/$11,750 (64.68%). See Step 3. Thus, X's allocated portion of
the 5 percent additional tax from using the 15 percent tax bracket is
$3,234 (0.6468 x $5,000). See Step 4.
(2) Amount of the additional tax apportioned to Y. (i) Regular tax
apportioned to Y from using the 15 percent tax bracket. Pursuant to the
plan, Y was liable for the remaining $1,500 of the group's $7,500
regular tax (20%) owed under the 15 percent tax bracket. See Step 1. Y's
portion of the group's tax benefit which it derived from using the 15
percent tax rate is $1,900 ($9,500-$7,600, or 0.2 x $9,500). See Step 2.
So, Y's percentage portion of the group's total tax benefit is $1,900/
$11,750 (16.17%). See Step 3. Thus, Y's allocated portion of the 5
percent additional tax from using the 15 percent tax bracket is $809
(0.1617 x $5,000). See Step 4.
(ii) Regular tax apportioned to Y from using the 25 percent tax
bracket. Pursuant to the plan, Y was liable for 100% of the group's
regular tax owed under the 25 percent tax bracket, an amount of $6,250.
See Step 1. Y is, therefore, entitled to 100% of the group's tax benefit
which it derived from using this tax bracket, an amount of $2,250. See
Step 2. So, Y's percentage portion of the group's total tax benefit is
$2,250/$11,750 (19.15%). See Step 3. Thus, Y's allocated portion of the
5 percent additional tax from using the 25 percent tax bracket is $957
(0.1915 x $5,000). See Step 4. Y's total allocated portion of the
additional tax is $1,766 ($809 + $957). See Step 5.
Example 2. (i) Facts. The facts are the same as in Example 1, except
that on August 31, 2007, X of the X-Y-Z controlled group sold all of the
stock of Z to M of the M-N controlled group, a pair of corporations
unrelated to the X-Y group. Pursuant to the terms of the sales
agreement, the members of the M-N group properly notified the members of
the X-Y group on a timely basis that Z's taxable income for its 2007 tax
year, as based on the group's December 31st testing date, was $100,000.
(ii) Controlled group analysis. On December 31st, 2007, X and Y are
members of the selling controlled group and M, N and Z are members of
the buying controlled group. However, pursuant to section 1563(b)(3), Z
is treated as an additional member of the X-Y
[[Page 25]]
group on December31st 2007, since it was a member for at least one-half
the number of days (243 out of 364) during the period beginning on
January 1 and ending on December 30, 2007. Conversely, pursuant to
section 1563(b)(2)(A), Z is treated as an excluded member of the M-N
controlled group. Therefore, on December 31st, 2007, X, Y, and Z qualify
as component members of the selling group, and only M and N qualify as
component members of the buying group.
(iii) Additional tax analysis. With regard to X and Y's 2007 tax
years, X and Y together owed $5,000 of additional tax, as calculated in
Example 1. X's allocated portion of the additional tax is $3,234, as
calculated in the manner set forth in Example 1. Y's allocated portion
of the additional tax is $1,766, also as calculated in the manner set
forth in Example 1.
Example 3. (i) Facts. The facts are the same as in Example 2, except
that in 2012, pursuant to an IRS audit, Z's 2007 taxable income was re-
determined. It was adjusted by an income increase of $10,000. Pursuant
to the terms of the sales agreement, the members of the M-N group timely
notified the members of the X-Y group of Z's income adjustment.
(ii) Additional tax analysis. For 2007 the X-Y-Z group owed a
revised additional tax in the amount of $5,500, allocated as follows:
$3,557.40 to X and $1,942.60 to Y. X and Y each filed an amended 2007
tax return to report their portions of the $500 increase to the group's
additional tax. Pursuant to their apportionment plan for allocating
their regular tax, and as a result of defaulting to the proportionate
method for allocating the group's additional tax, X reported $323.40 as
its share of the group's increase to its additional tax and Y reported
$176.60 as its share of the group's increase to its additional tax.
Example 4. The facts are the same as in Example 1, except that the
members elected in their apportionment plan to adopt the FIFO method for
apportioning the additional tax. Under the FIFO method, the 5 percent
additional tax amount of $5,000 will be apportioned entirely to those
members who would benefit from using the 15 percent tax bracket, by
reason that $5,000 of the group's additional tax is less than $9,500,
which is the full tax-benefit amount inuring to a controlled group from
having a 15 percent tax rate applied to the full income bracket subject
to that rate. Since X derived 80 percent of the group's tax benefit by
its use of the 15 percent tax bracket, its share of the group's 5
percent additional tax is $4,000 (80% x $5,000), and Y's share of the
group's 5 percent additional tax is, therefore, $1,000, which is the
remaining amount of the group's 5 percent additional tax, attributable
to the 15 percent tax bracket.
(b) Reduction to the amount exempted from the alternative minimum
tax--(1) Calculation. The alternative minimum taxable incomes of the
component members of a controlled group of corporations shall be taken
into account in calculating the reduction set forth in section 55(d)(3)
to the amount exempted from the alternative minimum tax (the exemption
amount). For purposes of the preceding sentence, alternative minimum
taxable income means the positive alternative minimum taxable income of
a component member for its entire tax year (even if it was not a member
of the group for each day of that tax year) that includes the same
December 31st testing date, which is also applicable to the other
component members of that same controlled group.
(2) Apportionment. Any reduction to the exemption amount shall be
apportioned to the component members of a controlled group in the same
manner that the amount of the exemption (provided in section 55(d)(2))
to the alternative minimum tax was allocated under section 1561(a). For
rules to apportion the section 55(d)(2) exemption amount among the
component members of a controlled group, see Sec. 1.1561-3(b) or (c).
(3) Examples. The provisions of this paragraph (b) may be
illustrated by the following example:
Example. (i) Facts. A controlled group of corporations consists of
three members: X, Y and Z. X owns all of the stock of Y and Z. Each
corporation files its separate return on a calendar year basis. For
calendar year 2007, the component members of this controlled group have
an apportionment plan in effect. The group has chosen to apportion the
entire section 55(d)(2) exemption amount of $40,000 to Z. For 2007, X
had alternative minimum taxable income (AMTI) of $40,000, Y had AMTI of
$60,000 and Z had AMTI of $100,000. Thus the total AMTI of the group is
$200,000.
(ii) Calculating the reduction to the exemption amount. Section
55(d)(3)(A) provides that the section 55(d)(2) exemption amount shall be
reduced (but not below zero) by an amount equal to 25 percent of the
amount by which the AMTI of a corporation exceeds $150,000. For the
purpose of computing the group's AMTI, the AMTI of each of the component
members, for their tax years that have the same December 31st testing
date, shall be taken into account. In accordance with these provisions,
the $40,000 exemption amount is reduced by $12,500 (25% x $50,000
($200,000-$150,000)). Pursuant to the group's allocation plan, the
entire $12,500 reduction
[[Page 26]]
to the exemption amount is allocated to Z. Thus, after such allocation,
Z's $40,000 exemption amount is reduced to $27,500 ($40,000-$12,500).
(c) Accumulated earnings credit. The component members of a
controlled group of corporations are permitted to allocate the amount of
the accumulated earnings credit unequally if they have an apportionment
plan in effect.
(d) [Reserved]
(e) Short taxable years not including a December 31st date--(1)
General rule. If a corporation has a short taxable year not including a
December 31st date and, after applying the rules of section 1561(b) and
paragraph (e)(2)(i) of this section, it qualifies as a component member
of the group with respect to its short taxable year (short-year member),
then, for purposes of subtitle A of the Internal Revenue Code, the
amount of any tax-benefit item described in section 1561(b) allocated to
that component member's short taxable year shall be the amount specified
in section 1561(a) for that item, divided by the number of corporations
which are component members of that group on the last day of that
component member's short taxable year. The component members of such
group may not apportion, by an apportionment plan, an amount of such
tax-benefit item to any short-year member that differs from equal
apportionment of that item.
(2) Additional rules. For purposes of paragraph (e)(1) of this
section--
(i) Section 1563(b) shall be applied as if the last day of the
taxable year of a short-year member were substituted for December 31st;
and
(ii) The term short taxable year does not refer to any portion of a
tax year of a corporation for which its income is required to be
included in a consolidated return pursuant to Sec. 1.1502-76(b).
(3) Calculation of the additional tax. A short-year member (as
defined in paragraph (e)(1) of this section) for its short taxable year
calculates its additional tax liability imposed by section 11(b)(1) only
on its own income, and therefore the subsequent calculation of the
additional tax liability with regard to the remaining members of the
group will not include the income of this short-year member.
(4) Calculation of the alternative minimum tax. If a component
member has a tax year of less than 12 months, whether or not such tax
year includes a December 31st date, see section 443(d) for the
annualization method required for calculating the alternative minimum
tax.
(5) Examples. The provisions of this paragraph (e) may be
illustrated by the following examples:
Example 1. Formation of a new member of a controlled group-- (i)
Facts. On January 2, 2007, corporation X transfers cash to newly formed
corporation Y (which begins business on that date) and receives all of
the stock of Y in return. X also owns all of the stock of corporation Z
on each day of 2006 and 2007. X, Y and Z have an apportionment plan in
effect, apportioning the 15 percent taxbracket amount as follows: 40%
($20,000) to each of X and Y and 20% ($10,000) to Z. X, Y and Z each
file a separate return with respect to the group's December 31st, 2007
testing date. X is on a calendar tax year and Z is on a fiscal tax year
ending on March 31. Y adopts a fiscal year ending on June 30 and timely
files a tax return for its short taxable year beginning on January 2,
2007, and ending on June 30, 2007.
(ii) Y's short taxable year. On June 30, 2007, Y is a component
member of a parentsubsidiary controlled group of corporations composed
of X, Y and Z. Pursuant to paragraph (e)(1) of this section, the group
may not apportion any amount of the 15 percent tax bracket to Y's short
taxable year ending on June 30, 2007. Rather, Y is entitled to exactly
\1/3\ of such bracket amount, or $16,667.
(iii) The members' subsequent tax years. On December 31st, 2007, X,
Y and Z are component members of a parent-subsidiary controlled group of
corporations. For their tax years that include December 31st, 2007 (X's
calendar year ending December 31st, 2007, Z's fiscal year ending March
31, 2008 and Y's fiscal year ending June 30, 2008), X, Y and Z apportion
among themselves the full amount of all of the applicable tax brackets
pursuant to their apportionment plan. For example, 40% of the 15 percent
tax-bracket amount, or $20,000, was apportioned to each of X and Y, and
the remaining 10%, or $10,000, was apportioned to Z.
Example 2. Allocating a tax bracket to the short taxable year of a
liquidated member of a controlled group-- (i) Facts. On January 1, 2007,
corporation P owns all of the stock of corporations S1,
S2 and S3 (the P group). Each of these four
component members of the P group, with respect to the group's December
31st, 2007 testing date, files its separate return on a calendar year
basis. These members have an apportionment plan in effect (the P group
plan) under which S1 and S2 are each entitled to
40% of the 15 percent
[[Page 27]]
tax-bracket amount ($20,000), and P and S3 are each entitled
to 10% of the 15 percent tax-bracket amount ($5,000). On May 31, 2007,
S1 liquidates and therefore files a return for the short
taxable year beginning on January 1, 2007, and ending on May 31, 2007.
On July 31, 2007, S2 liquidates and therefore files a return
for the short taxable year beginning on January 1, 2007 and ending on
July 31, 2007. P and S3 each file a return for their 2007
calendar tax years.
(ii) Apportionment of the 15 percent tax bracket to S1
for its short taxable year. On May 31, 2007, S1 is a
component member of the P group composed of P, S1,
S2 and S3. Pursuant to paragraph (e)(1) of this
section, the group may not apportion any amount of the 15 percent tax
bracket to S1's short taxable year ending on June 30, 2007.
Rather, S1 is entitled to exactly \1/4\ of such bracket
amount, or $12,500.
(iii) Apportionment of the 15 percent tax bracket to S2
for its short taxable year. On July 31, 2007, S2 is a
component member of the P group composed of P, S2 and
S3. Pursuant to paragraph (e)(1) of this section, the group
may not apportion any amount of the 15 percent tax bracket to
S2's short taxable year ending on June 30, 2007. Rather,
S2 is entitled to exactly \1/4\ of such bracket amount, or
$16,667.
(iv) Apportionment of the 15 percent tax bracket to P and
S3 for each of their calendar tax years. On December 31st,
2007, P and S3 are component members of the P group.
Accordingly, for P and S3's 2007 calendar tax year, they are
each apportioned $25,000 of the 15 percent tax bracket, pursuant to the
applicable P group plan.
Example 3. Liquidation of member after its transfer to another
controlled group-- (i) Facts. The facts are the same as in Example 2,
except that P, on April 30, 2007, sold all of the stock of S2
to the M-N controlled group. At the time of the sale, M and N are both
unrelated to any members of the P group. As in Example 2, S2
liquidates on July 31, 2007, and therefore files a tax return for its
short taxable year beginning on January 1, 2007, and ending on July 31,
2007. Pursuant to the sales agreement, the N-M group timely notified P
that S2 had liquidated.
(ii) Controlled group analysis. On April 30, 2007, the date of the
sale of S2, the P group reasonably expected that
S2 would be treated as an excluded member with respect to its
December 31st, 2007 testing date. On that April 30th date, S2
had been a member of the P group for less than one-half the number of
days of what it expected would be a full 2007 calendar tax year
preceding December 31st, 2007 (120 days (January 1-April 30) out of 364
days (January 1-December 30)). Yet, as a result of S2's
subsequent liquidation by the M-N group prior to December 31st, 2007,
S2 became a component member of the P group with respect to
the P group's December 31st, 2007 testing date. With respect to that
December 31st testing date, S2 thus was a member of the P
group for more than one-half of the number of days of its tax year
ending on July 31, 2007, which days proceeded December 31st, 2007 (120
days (January 1-April 30 of 2007) out of 211 days (January 1-July 30 of
2007)). The allocation of the 15 percent tax-bracket amount to the P
group members is determined in the same manner as in Example 2 and,
therefore, the bracket amounts allocated to P, S1,
S2 and S3 are the same as determined in Example 2.
The allocation of the bracket amounts would be the same if, at the time
P sold all of the S2 stock, the parties had made a section
338(h)(10) election.
Example 4. Short tax year including a December 31st date.
Corporation X owns all of the stock of corporations Y and Z. X, Y and Z
each file separate returns. X and Y are on a calendar tax year and Z is
on a fiscal tax year beginning October 1 and ending September 30. On
January 2, 2007, Z liquidates. Because Z's final tax year (beginning on
October 1, 2006 and ending on January 2, 2007) includes a December 31st
date, that is, December 31, 2006, it is therefore not subject to the
short taxable year rule provided by section 1561(b) and paragraph (e) of
this section. Accordingly, Z is a component member of the X-Y-Z group,
for the group's December 31st, 2006 testing date. Thus, the rules of
this paragraph (e) do not limit the amount of any of the tax-benefit
items of section 1561(a) available to Z or to this controlled group.
(f) Effective/applicability date. This section applies to any tax
year beginning on or after December 21, 2009. However, taxpayers may
apply this section to any Federal income tax return filed on or after
December 21, 2009. For tax years beginning before December 21, 2009, see
Sec. 1.1561-2T as contained in 26 CFR part 1 in effect on April 1,
2009.
[T.D. 9476, 74 FR 68533, Dec. 28, 2009]
Sec. 1.1561-3 Allocation of the section 1561(a) tax items.
(a) Filing of form--(1) In general. For each tax year that a
corporation is a component member of the same controlled group of
corporations on a December 31st (its testing date), or, in the case of a
short-year member (see section 1561(b) and Sec. 1.1561-2(e)), the date
substituted for that December 31st date (its testing date), such
corporation and all the other component members of such group each must
file the required form (that is, Schedule O or any successor form) with
the Federal income
[[Page 28]]
tax return for that component member's tax year that includes a
particular testing date. Each such corporation must file that form with
its return whether or not--
(i) An apportionment plan is in effect; or
(ii) Any change is made to the group's apportionment of its section
1561(a) tax benefit items from the previous year.
(2) Exception for component members that are members of a
consolidated group. If any of the component members of a controlled
group of corporations are also members of a consolidated group, the
parent of such consolidated group shall file only one form on behalf of
all such members. Such form shall contain the information required for
each such member.
(b) No apportionment plan in effect. If the component members of a
controlled group of corporations do not have an apportionment plan in
effect, the amounts of the section 1561(a) items must be divided equally
among all such members. For purposes of the preceding sentence, if any
of the component members of a controlled group of corporations are also
members of a consolidated group, such members will each be treated as a
separate component member of the controlled group.
(c) Apportionment plan in effect--(1) Adoption of plan. The
component members of a controlled group of corporations consent to the
adoption (or amendment) of an apportionment plan by checking the box to
that effect on such form. For purposes of this paragraph (c)--
(i) An apportionment plan that is adopted (including a plan that has
been amended) continues in effect until it is terminated;
(ii) A consolidated group is treated collectively as one component
member of such group. This treatment occurs even where a member of that
consolidated group has joined or left the group, if after such
corporation joins or leaves the consolidated group, that group remains
in existence, pursuant to Sec. 1.1502-75(d); and
(iii) The members must allocate the amounts of the section 1561(a)
items between/among themselves as described in the plan.
(2) Limitation on adopting a plan--(i) Sufficient statute of
limitations period for making an assessment of tax. The members may only
adopt or amend such a plan if there is at least one year remaining in
the statutory period (including any extensions thereof) for the
assessment of a deficiency against every member the tax liability of
which would be increased by the adoption of such a plan.
(ii) Insufficient statute of limitations period for making an
assessment of tax. If any member cannot satisfy the requirement of
paragraph (c)(2)(i) of this section, the members may not adopt or amend
such a plan unless the member not satisfying such requirement has
entered into an agreement with the Internal Revenue Service to extend
the statute of limitations for the limited purpose of assessing any
deficiency against such member attributable to the adoption of such a
plan.
(3) Termination of plan. An apportionment plan that is in effect for
the component members of a controlled group with respect to a preceding
December 31st is terminated with respect to the current December 31st
if--
(i) Each member of such group consents to the termination of such a
plan for the current December 31st by checking the box to that effect on
its form;
(ii) The controlled group ceases to remain in existence (within the
meaning of section 1563(a)) during the calendar year ending on the
current December 31st;
(iii) Any corporation which was a component member of such group on
the preceding December 31st is not a component member of such group on
the current December 31st; or
(iv) Any corporation which was not a component member of such group
on the preceding December 31st is a component member of such group on
the current December 31st.
(d) Effective/applicability date. This section applies to any tax
year beginning on or after December 21, 2009. However, taxpayers may
apply this section to any Federal income tax return filed on or after
December 21, 2009. For tax years beginning before December
[[Page 29]]
21, 2009, see Sec. 1.1561-3T as contained in 26 CFR part 1 in effect on
April 1, 2009.
[T.D. 9476, 74 FR 68536, Dec. 28, 2009]
Sec. 1.1563-1 Definition of controlled group of corporations and
component members and related concepts.
(a) Controlled group of corporations--(1) In general--(i) Types of
controlled groups. For purposes of sections 1561 through 1563, the term
controlled group of corporations means any group of corporations which
is--
(A) A parent-subsidiary controlled group (as defined in paragraph
(a)(2) of this section);
(B) A brother-sister controlled group (as defined in paragraph
(a)(3)(i) of this section);
(C) A combined group (as defined in paragraph (a)(4) of this
section); or
(D) A life insurance controlled group (as defined in paragraph
(a)(5) of this section).
(ii) Special rules. In determining whether a corporation is included
in a controlled group of corporations, section 1563(b) and paragraph (b)
of this section shall not be taken into account. For rules defining a
component member of a controlled group of corporations, including rules
defining an excluded member and an additional member, see section
1563(b) and paragraph (b) of this section.
(iii) Cross reference. For the exclusion of certain stock for
purposes of applying the definitions contained in this paragraph, see
section 1563(c) and Sec. 1.1563-2.
(2) Parent-subsidiary controlled group--(i) Definition. The term
parent-subsidiary controlled group means one or more chains of
corporations connected through stock ownership with a common parent
corporation if--
(A) Stock possessing at least 80 percent of the total combined
voting power of all classes of stock entitled to vote or at least 80
percent of the total value of shares of all classes of stock of each of
the corporations, except the common parent corporation, is owned
(directly and with the application of Sec. 1.1563-3(b)(1), relating to
options) by one or more of the other corporations; and
(B) The common parent corporation owns (directly and with the
application of Sec. 1.1563-3(b)(1), relating to options) stock
possessing at least 80 percent of the total combined voting power of all
classes of stock entitled to vote or at least 80 percent of the total
value of shares of all classes of stock of at least one of the other
corporations, excluding, in computing such voting power or value, stock
owned directly by such other corporations.
(ii) Examples. The definition of a parent-subsidiary controlled
group of corporations may be illustrated by the following examples:
Example 1. P Corporation owns stock possessing 80 percent of the
total combined voting power of all classes of stock entitled to vote of
S Corporation. P is the common parent of a parent-subsidiary controlled
group consisting of member corporations P and S.
Example 2. Assume the same facts as in Example 1. Assume further
that S owns stock possessing 80 percent of the total value of shares of
all classes of stock of X Corporation. P is the common parent of a
parent-subsidiary controlled group consisting of member corporations P,
S, and X. The result would be the same if P, rather than S, owned the X
stock.
Example 3. P Corporation owns 80 percent of the only class of stock
of S Corporation and S, in turn, owns 40 percent of the only class of
stock of X Corporation. P also owns 80 percent of the only class of
stock of Y Corporation and Y, in turn, owns 40 percent of the only class
of stock of X. P is the common parent of a parent-subsidiary controlled
group consisting of member corporations P, S, X, and Y.
Example 4. P Corporation owns 75 percent of the only class of stock
of Y and Z Corporations; Y owns all the remaining stock of Z; and Z owns
all the remaining stock of Y. Since intercompany stockholdings are
excluded (that is, are not treated as outstanding) for purposes of
determining whether P owns stock possessing at least 80 percent of the
voting power or value of at least one of the other corporations, P is
treated as the owner of stock possessing 100 percent of the voting power
and value of Y and of Z for purposes of paragraph (a)(2)(i)(B) of this
section. Also, stock possessing 100 percent of the voting power and
value of Y and Z is owned by the other corporations in the group within
the meaning of paragraph (a)(2)(i)(A) of this section. (P and Y together
own stock possessing 100 percent of the voting power and value of Z, and
P and Z together own stock possessing 100 percent of the voting power
and value of Y.) Therefore, P is the common parent of a parent-
subsidiary controlled group of corporations consisting of member
corporations P, Y, and Z.
[[Page 30]]
(3) Brother-sister controlled group--(i) Definition. The term
brother-sister controlled group means two or more corporations if the
same five or fewer persons who are individuals, estates, or trusts own
(directly and with the application of the rules contained in Sec.
1.1563-3(b)) stock possessing more than 50 percent of the total combined
voting power of all classes of stock entitled to vote or more than 50
percent of the total value of shares of all classes of stock of each
corporation, taking into account the stock ownership of each such person
only to the extent such stock ownership is identical with respect to
each such corporation.
(ii) Additional stock ownership requirement for purposes of certain
other provisions of law. For purposes of any provision of law (other
than sections 1561 through 1563) that incorporates the section 1563(a)
definition of a controlled group, the term brother-sister controlled
group means two or more corporations if the same five or fewer persons
who are individuals, estates, or trusts own (directly and with the
application of the rules contained in Sec. 1.1563-3(b)) stock
possessing--
(A) At least 80 percent of the total combined voting power of all
classes of stock entitled to vote or at least 80 percent of the total
value of shares of all classes of stock of each corporation (the 80
percent requirement);
(B) More than 50 percent of the total combined voting power of all
classes of stock entitled to vote or more than 50 percent of the total
value of shares of all classes of stock of each corporation, taking into
account the stock ownership of each such person only to the extent such
stock ownership is identical with respect to each such corporation (the
more-than-50 percent identical ownership requirement); and
(C) The five or fewer persons whose stock ownership is considered
for purposes of the 80 percent requirement must be the same persons
whose stock ownership is considered for purposes of the more-than-50
percent identical ownership requirement.
(iii) Examples. The principles of paragraph (a)(3)(ii) of this
section may be illustrated by the following examples:
Example 1. (i) The outstanding stock of corporations P, W, X, Y, and
Z, which have only one class of stock outstanding, is owned by the
following unrelated individuals:
--------------------------------------------------------------------------------------------------------------------------------------------------------
Individuals P (%) W (%) X (%) Y (%) Z (%) Identical ownership
--------------------------------------------------------------------------------------------------------------------------------------------------------
A........................................... 55 51 55 55 55 51.
B........................................... 45 49 ........... ........... ........... (45% in P and W).
C........................................... ........... ........... 45 ........... ...........
D........................................... ........... ........... ........... 45 ...........
E........................................... ........... ........... ........... ........... 45
-----------------------------------------------------------------------------------------------------------
Total................................... 100 100 100 100 100
--------------------------------------------------------------------------------------------------------------------------------------------------------
(ii) Corporations P and W are members of a brother-sister controlled
group of corporations. Although the more-than-50 percent identical
ownership requirement is met for all 5 corporations, corporations X, Y,
and Z are not members because at least 80 percent of the stock of each
of those corporations is not owned by the same 5 or fewer persons whose
stock ownership is considered for purposes of the more-than-50 percent
identical ownership requirement.
Example 2. (i) The outstanding stock of corporations X and Y, which
have only one class of stock outstanding, is owned by the following
unrelated individuals:
------------------------------------------------------------------------
Corporations
Individuals -------------------------
X (%) Y (%)
------------------------------------------------------------------------
A............................................. 12 12
B............................................. 12 12
C............................................. 12 12
D............................................. 12 12
E............................................. 13 13
F............................................. 13 13
G............................................. 13 13
H............................................. 13 13
-------------------------
Total..................................... 100 100
------------------------------------------------------------------------
(ii) Any group of five of the shareholders will own more than 50
percent of the stock in each corporation, in identical holdings.
However, X and Y are not members of a brother-sister controlled group
because at least 80
[[Page 31]]
percent of the stock of each corporation is not owned by the same five
or fewer persons.
Example 3. (i) Corporation X and Y each have two classes of stock
outstanding, voting common and non-voting common. (None of this stock is
excluded from the definition of stock under section 1563(c).) Unrelated
individuals A and B own the following percentages of the class of stock
entitled to vote (voting) and of the total value of shares of all
classes of stock (value) in each of corporations X and Y:
------------------------------------------------------------------------
Corporations
Individuals ---------------------------------------
X Y
------------------------------------------------------------------------
A............................... 100% voting; 60% 75% voting; 60%
value. value.
B............................... 0% voting; 10% 25% voting; 10%
value. value.
------------------------------------------------------------------------
(ii) No other shareholder of X owns (or is considered to own) any
stock in Y. X and Y are a brother-sister controlled group of
corporations. The group meets the more-than-50 percent identical
ownership requirement because A and B own more than 50 percent of the
total value of shares of all classes of stock of X and Y in identical
holdings. (The group also meets the more-than-50 percent identical
ownership requirement because of A's voting stock ownership.) The group
meets the 80 percent requirement because A and B own at least 80 percent
of the total combined voting power of all classes of stock entitled to
vote.
Example 4. Assume the same facts as in Example 3 except that the
value of the stock owned by A and B is not more than 50 percent of the
total value of shares of all classes of stock of each corporation in
identical holdings. X and Y are not a brother-sister controlled group of
corporations. The group meets the more-than-50 percent identical
ownership requirement because A owns more than 50 percent of the total
combined voting power of the voting stock of each corporation. For
purposes of the 80 percent requirement, B's voting stock in Y cannot be
combined with A's voting stock in Y since B, who does not own any voting
stock in X, is not a person whose ownership is considered for purposes
of the more-than-50 percent identical ownership requirement. Because no
other shareholder owns stock in both X and Y, these other shareholders'
stock ownership is not counted towards meeting either the more-than-50
percent identical ownership requirement or the 80 percent ownership
requirement.
(iv) Special rule if prior law applies. Paragraph (a)(3)(ii) of this
section, as amended by TD 8179, applies to taxable years ending on or
after December 31, 1970. See, however, the transitional rule in
paragraph (d) of this section.
(4) Combined group--(i) Definition. The term combined group means
any group of three or more corporations if--
(A) Each such corporation is a member of either a parent-subsidiary
controlled group of corporations or a brother-sister controlled group of
corporations; and
(B) At least one of such corporations is the common parent of a
parent-subsidiary controlled group and also is a member of a brother-
sister controlled group.
(ii) Examples. The definition of a combined group of corporations
may be illustrated by the following examples:
Example 1. A, an individual, owns stock possessing 80 percent of the
total combined voting power of all classes of the stock of corporations
X and Y. Y, in turn, owns stock possessing 80 percent of the total
combined voting power of all classes of the stock of corporation Z. X,
Y, and Z are members of the same combined group since--
(i) X, Y, and Z are each members of either a parent-subsidiary or
brother-sister controlled group of corporations; and
(ii) Y is the common parent of a parent-subsidiary controlled group
of corporations consisting of Y and Z, and also is a member of a
brother-sister controlled group of corporations consisting of X and Y.
Example 2. Assume the same facts as in Example 1, and further assume
that corporation X owns 80 percent of the total value of shares of all
classes of stock of corporation S. X, Y, Z, and S are members of the
same combined group.
(5) Life insurance controlled group--(i) Definition. The term life
insurance controlled group means two or more life insurance companies
each of which is a member of a controlled group of corporations
described in paragraph (a)(2), (a)(3)(i), or (a)(4) of this section and
to which Sec. 1.1502-47(f)(6) does not apply. Such insurance companies
shall be treated as a controlled group of corporations separate from any
other corporations which are members of a controlled group described in
such paragraph (a)(2), (a)(3)(i), or (a)(4) of this section. For
purposes of this section, the common parent of the controlled group
described in paragraph (a)(2) of this section shall be referred to as
the common parent of the life insurance controlled group.
[[Page 32]]
(ii) Examples. The following examples illustrate the definition of a
life insurance controlled group. In these examples, L indicates a life
company, another letter indicates a nonlife company and each corporation
uses the calendar year as its taxable year:
Example 1. Since January 1, 1999, corporation P has owned all the
stock of corporations L 1 and Y, and L 1 has owned
all the stock of corporation X. On January 1, 2005, Y acquired all of
the stock of corporation L 2. Since L 1 and L
2 are members of a parent-subsidiary controlled group of
corporations, such companies are treated as members of a life insurance
controlled group separate from the parent-subsidiary controlled group
consisting of P, X and Y. For purposes of this section, P is referred to
as the common parent of the life insurance controlled group even though
P is not a member of such group.
Example 2. The facts are the same as in Example 1, except that,
beginning with the 2005 tax year, the P affiliated group elected to file
a consolidated return and P made a section 1504(c)(2) election. Pursuant
to paragraph (a)(5)(i) of this section, L 1 and L
2 are not members of a separate life insurance controlled
group. Instead, P, X, Y, L 1 and L 2 constitute
one controlled group. See Sec. 1.1502-47(f)(6).
(6) Voting power of stock. For purposes of this section, and
Sec. Sec. 1.1563-2 and 1.1563-3, in determining whether the stock owned
by a person (or persons) possesses a certain percentage of the total
combined voting power of all classes of stock entitled to vote of a
corporation, consideration will be given to all the facts and
circumstances of each case. A share of stock will generally be
considered as possessing the voting power accorded to such share by the
corporate charter, by-laws, or share certificate. On the other hand, if
there is any agreement, whether express or implied, that a shareholder
will not vote his stock in a corporation, the formal voting rights
possessed by his stock may be disregarded in determining the percentage
of the total combined voting power possessed by the stock owned by other
shareholders in the corporation, if the result is that the corporation
becomes a component member of a controlled group of corporations.
Moreover, if a shareholder agrees to vote his stock in a corporation in
the manner specified by another shareholder in the corporation, the
voting rights possessed by the stock owned by the first shareholder may
be considered to be possessed by the stock owned by such other
shareholder if the result is that the corporation becomes a component
member of a controlled group of corporations.
(b) Component members--(1) In general--(i) Definition. For purposes
of sections 1561 through 1563, a corporation is with respect to its
taxable year a component member of a controlled group of corporations
for the group's testing date if such corporation--
(A) Is a member of such controlled group on such testing date and is
not treated as an excluded member under paragraph (b)(2) of this
section; or
(B) Is not a member of such controlled group on such testing date
but is treated as an additional member under paragraph (b)(3) of this
section.
(ii) Member of a controlled group of corporations. For purposes of
sections 1561 through 1563, a member of a controlled group is a
corporation connected with other member(s) of a controlled group under
the stock ownership rules and the stock qualification rules set forth in
section 1563. Under these rules, for a corporation to qualify as a
component member of the group with respect to a group's December 31st
testing date (or the short-year testing date for a short-year member),
that corporation does not have to be a member of that group on that
group's testing date. In addition, a corporation that is a member of a
controlled group on the group's testing date does not necessarily
qualify as a component member of that group with respect to that testing
date.
(iii) Additional concepts used in applying the controlled group
rules.
(A) The term testing date means the date used for determining the
status of controlled group members as either component members or
excluded members. That testing date is then also used to determine which
taxable years of those component members are to be subjected to the
controlled group rules. Generally, a member's testing date is the
December 31st date included within that member's taxable year, whether
such member is on a calendar or fiscal taxable year. However, if a
component member of a controlled group has a
[[Page 33]]
short taxable year that does not include a December 31st date, then the
last day of that short taxable year becomes that member's testing date.
(B) The term testing period means the time period used for
determining the status of controlled group members as either component
members or excluded members. The testing period begins on the first day
of a member's taxable year and ends on the day before its testing date.
(Generally, the testing date is December 31st, but for a component
member having a short taxable year not ending on December 31st, the
testing date for the short taxable year of that member (and only that
member) becomes the last day of that member's short taxable year.) Thus,
for a member on a fiscal taxable year, the portion of its taxable year
beginning on December 31st and ending on the last day of its taxable
year is not taken into account for determining its status as a component
member or an excluded member.
(2) Excluded members--(i) Temporal test. A corporation, which is a
member of a controlled group of corporations on the group's testing
date, a date included within that member's taxable year, but who was a
member of such group for less than one-half of the number of days of its
testing period, shall be treated as an excluded member of such group for
that group's testing date.
(ii) Qualification test. A corporation which is a member of a
controlled group of corporations on a testing date shall be treated as
an excluded member of such group on such date if, for its taxable year
including such date, such corporation is--
(A) Exempt from taxation under section 501(a) (except a corporation
which is subject to tax on its unrelated business taxable income under
section 511) or 521 for such taxable year;
(B) A foreign corporation not subject to taxation under section
882(a) for the taxable year;
(C) An S corporation (as defined in section 1361) for purposes of
any tax benefit item described in section 1561(a) to which it is not
subject;
(D) A franchised corporation (as defined in section 1563(f)(4) and
Sec. 1.1563-4); or
(E) An insurance company subject to taxation under section 801,
unless such insurance company (without regard to this paragraph
(b)(2)(ii)(E)) is a component member of a life insurance controlled
group described in paragraph (a)(5)(i) of this section or unless Sec.
1.1502-47(f)(6) applies (which treats a life insurance company, for
which a section 1504(c)(2) election is effective, as a member (whether
eligible or ineligible) of a life-nonlife affiliated group).
(3) Additional members. A corporation shall be treated as an
additional member of a controlled group of corporations, that is, an
additional component member, on the group's testing date if it--
(i) Is not a member of such group on such date;
(ii) Is not described, with respect to such taxable year, in
paragraph (b)(2)(ii)(A), (b)(2)(ii)(B), (b)(2)(ii)(C), (b)(2)(ii)(D), or
(b)(2)(ii)(E) of this section; and
(iii) Was a member of such group for one-half (or more) of the
number of days in its testing period.
(4) Examples. The provisions of this paragraph (b) may be
illustrated by the following examples:
Example 1. B, an individual, owns all of the stock of corporations W
and X on each day of 1964. W and X each use the calendar year as their
taxable year. On January 1, 1964, B also owns all the stock of
corporation Y (a fiscal year corporation with a taxable year beginning
on July 1, 1964, and ending on June 30, 1965), which stock he sells on
October 15, 1964. On December 1, 1964, B purchases all the stock of
corporation Z (a fiscal year corporation with a taxable year beginning
on September 1, 1964, and ending on August 31, 1965). On December 31,
1964, W, X, and Z are members of the same controlled group. However, the
component members of the group on such December 31st are W, X, and Y.
Under paragraph (b)(2)(i) of this section, Z is treated as an excluded
member of the group on December 31, 1964, since Z was a member of the
group for less than one-half of the number of days (29 out of 121 days)
during the period beginning on September 1, 1964 (the first day of its
taxable year) and ending on December 30, 1964. Under paragraph (b)(3) of
this section, Y is treated as an additional member of the group on
December 31, 1964, since Y was a member of the group for at least one-
half of the number of days (107 out of 183 days) during the period
beginning on July 1, 1964 (the first day of its taxable year) and ending
on December 30, 1964.
[[Page 34]]
Example 2. On January 1, 1964, corporation P owns all the stock of
corporation S, which in turn owns all the stock of corporation S-1. On
November 1, 1964, P purchases all of the stock of corporation X from the
public and sells all of the stock of S to the public. Corporation X owns
all the stock of corporation Y during 1964. P, S, S-1, X, and Y file
their returns on the basis of the calendar year. On December 31, 1964,
P, X, and Y are members of a parent-subsidiary controlled group of
corporations; also, corporations S and S-1 are members of a different
parent-subsidiary controlled group on such date. However, since X and Y
have been members of the parent-subsidiary controlled group of which P
is the common parent for less than one-half the number of days during
the period January 1 through December 30, 1964, they are not component
members of such group on such date. On the other hand, X and Y have been
members of a parent-subsidiary controlled group of which X is the common
parent for at least one-half the number of days during the period
January 1 through December 30, 1964, and therefore they are component
members of such group on December 31, 1964. Also since S and S-1 were
members of the parent-subsidiary controlled group of which P is the
common parent for at least one-half the number of days in the taxable
years of each such corporation during the period January 1 through
December 30, 1964, P, S, and S-1 are component members of such group on
December 31, 1964.
Example 3. Throughout 1964, corporation M owns all the stock of
corporation F which, in turn, owns all the stock of corporations
L1, L2, X, and Y. M is a domestic mutual insurance
company subject to taxation under section 821, F is a foreign
corporation not engaged in a trade or business within the United States,
L1 and L2 are domestic life insurance companies
subject to taxation under section 802, and X and Y are domestic
corporations subject to tax under section 11 of the Code. Each
corporation uses the calendar year as its taxable year. On December 31,
1964, M, F, L1, L2, X, and Y are members of a
parent-subsidiary controlled group of corporations. However, under
paragraph (b)(2)(ii) of this section, M, F, L1, and
L2 are treated as excluded members of the group on December
31, 1964. Thus, on December 31, 1964, the component members of the
parent-subsidiary controlled group of which M is the common parent
include only X and Y.
Furthermore, since paragraph (b)(2)(ii)(E) of this section does not
result in L1 and L2 being treated as excluded
members of a life insurance controlled group, L1 and
L2 are component members of a life insurance controlled group
on December 31, 1964.
Example 4. Individual A owns all of the stock of corporations X, Y
and Z. Each of these corporations is an S corporation. X, Y, and Z are
each members of a brother-sister controlled group, even though each such
corporation is treated as an excluded member of such group. See Sec.
1.1563-1(b)(2)(ii)(C).
(5) Application of constructive ownership rules. For purposes of
paragraphs (b)(2)(i) and (b)(3)(iii) of this section, it is necessary to
determine whether a corporation was a member of a controlled group of
corporations for one-half (or more) of the number of days in its taxable
year which precede the December 31st falling within such taxable year.
Therefore, the constructive ownership rules contained in Sec. 1.1563-
3(b) (to the extent applicable in making such determination) must be
applied on a day-by-day basis. For example, if P Corporation owns all
the stock of X Corporation on each day of 1964, and on December 30,
1964, acquires an option to purchase all the stock of Y Corporation (a
calendar-year taxpayer which has been in existence on each day of 1964),
the application of Sec. 1.1563-3(b)(1) on a day-by-day basis results in
Y being a member of the brother-sister controlled group on only one day
of Y's 1964 year which precedes December 31, 1964. Accordingly, since Y
is not a member of such group for one-half or more of the number of days
in its 1964 year preceding December 31, 1964, Y is treated as an
excluded member of such group on December 31, 1964.
(c) Overlapping groups--(1) In general. If on a December 31st a
corporation is a component member of a controlled group of corporations
by reason of ownership of stock possessing at least 80 percent of the
total value of shares of all classes of stock of the corporation, and if
on such December 31st such corporation is also a component member of
another controlled group of corporations by reason of ownership of other
stock (that is, stock not used to satisfy the at-least-80 percent total
value test) possessing at least 80 percent of the total combined voting
power of all classes of stock of the corporation entitled to vote, then
such corporation shall be treated as a component member only of the
controlled group of which it is a component member by reason of the
ownership of at least 80 percent of the total value of its shares.
(2) Brother-sister controlled groups--(i) One corporation. If on a
December 31st,
[[Page 35]]
a corporation would, without the application of this paragraph (c)(2),
be a component member of more than one brother-sister controlled group
on such date, the corporation will be treated as a component member of
only one such group on such date. Such corporation may elect the group
in which it is to be included by including on or with its income tax
return for the taxable year that includes such date a statement
entitled, ``STATEMENT TO ELECT CONTROLLED GROUP PURSUANT TO Sec.
1.1563-1(c)(2).'' This statement must include--
(A) A description of each of the controlled groups in which the
corporation could be included. The description must include the name and
employer identification number of each component member of each such
group and the stock ownership of the component members of each such
group; and
(B) The following representation: [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER OF CORPORATION] ELECTS TO BE TREATED AS A
COMPONENT MEMBER OF THE [INSERT DESIGNATION OF GROUP].
(ii) Multiple corporations. If more than one corporation would,
without the application of this paragraph (c)(2), be a component member
of more than one controlled group, those corporations electing to be
component members of the same group must file a single statement. The
statement must contain the information described in paragraph (c)(2)(i)
of this section, plus the names and employer identification numbers of
all other corporations designating the same group. The original
statement must be included on or with the original Federal income tax
return (including any amended return filed on or before the due date
(including extensions) of such return) of the corporation that, among
those corporations which would (without the application of this
paragraph (c)(2)) belong to more than one group, has the taxable year
including such December 31st which ends on the earliest date. That
corporation must provide a copy of the statement to each other
corporation included in the statement and represent in its statement
that it has done so. Either the original or a copy of the statement must
be retained by each corporation as part of its records. See Sec.
1.6001-1(e) of this chapter.
(iii) Election. (A) An election filed under this paragraph (c)(2) is
irrevocable and effective until a change in the stock ownership of the
corporation results in termination of membership in the controlled group
in which such corporation has been included.
(B) In the event no election is filed in accordance with the
provisions of this paragraph (c)(2), then the Internal Revenue Service
will determine the group in which such corporation is to be included.
Such determination will be binding for all subsequent years unless the
corporation files a valid election with respect to any such subsequent
year or until a change in the stock ownership of the corporation results
in termination of membership in the controlled group in which such
corporation has been included.
(iv) Examples. The provisions of this paragraph (c)(2) may be
illustrated by the following examples (in which it is assumed that all
the individuals are unrelated):
Example 1. (i) On each day of 1970 all the outstanding stock of
corporations X, Y, and Z is held in the following manner:
------------------------------------------------------------------------
Corporations
Individuals --------------------------
X (%) Y (%) Z (%)
------------------------------------------------------------------------
A............................................ 55 40 5
B............................................ 40 20 40
C............................................ 5 40 55
------------------------------------------------------------------------
(ii) Since the more-than-50 percent identical ownership requirement
of section 1563(a)(2) is met with respect to corporations X and Y and
with respect to corporations Y and Z, but not with respect to
corporations X, Y, and Z, corporation Y would, without the application
of this paragraph (c)(2), be a component member on December 31, 1970, of
overlapping groups consisting of X and Y and of Y and Z. If Y does not
file an election in accordance with paragraph (c)(2)(i) of this section,
the Internal Revenue Service will determine the group in which Y is to
be included.
Example 2. (i) On each day of 1970, all the outstanding stock of
corporations V, W, X, Y, and Z is held in the following manner:
----------------------------------------------------------------------------------------------------------------
Corporations
Individuals --------------------------------------------
V W X Y Z
----------------------------------------------------------------------------------------------------------------
D.................................................................. 52 52 52 52 52
E.................................................................. 40 2 2 2 2
F.................................................................. 2 40 2 2 2
[[Page 36]]
G.................................................................. 2 2 40 2 2
H.................................................................. 2 2 2 40 2
I.................................................................. 2 2 2 2 40
----------------------------------------------------------------------------------------------------------------
(ii) On December 31, 1970, the more-than-50 percent identical
ownership requirement of section 1563(a)(2) may be met with regard to
any combination of the corporations but all five corporations cannot be
included as component members of a single controlled group because the
inclusion of all the corporations in a single group would be dependent
upon taking into account the stock ownership of more than five persons.
Therefore, if the corporations do not file a statement in accordance
with paragraph (c)(2)(ii) of this section, the Internal Revenue Service
will determine the group in which each corporation is to be included.
The corporations or the Internal Revenue Service, as the case may be,
may designate that three corporations be included in one group and two
corporations in another, or that any four corporations be included in
one group and that the remaining corporation not be included in any
group.
(d) Transitional rules--(1) In general. Treasury decision 8179
amended paragraph (a)(3)(ii) of this section to revise the definition of
a brother-sister controlled group of corporations. In general, those
amendments are effective for taxable years ending on or after December
31, 1970.
(2) Limited nonretroactivity--(i) Old group. Under the authority of
section 7805(b), the Internal Revenue Service will treat an old group as
a brother-sister controlled group corporations for purposes of applying
sections 401, 404(a), 408(k), 409A, 410, 411, 412, 414, 415, and 4971 of
the Internal Revenue Code (Code) and sections 202, 203, 204, and 302 of
the Employment Retirement Income Security Act of 1974 (ERISA) in a plan
year or taxable year beginning before March 2, 1988, to the extent
necessary to prevent an adverse effect on any old member (or any other
corporation), or on any plan or other entity described in such sections
(including plans, etc., of corporations not part of such old group),
that would result solely from the retroactive effect of the amendment to
this section by TD 8179. An adverse effect includes the disqualification
of a plan or the disallowance of a deduction or credit for a
contribution to a plan. The Internal Revenue Service, however, will not
treat an old member as a member of an old group to the extent that such
treatment will have an adverse effect on that old member.
(ii) Old member of old group. Section 7805(b) will not be applied
pursuant to paragraph (d)(2)(i) of this section to treat an old member
of an old group as a member of a brother-sister controlled group to
prevent an adverse effect for a taxable year if, for that taxable year,
that old member treats or has treated itself as not being a member of
that old group for purposes of sections 401, 404(a), 408(k), 409A, 410,
411, 412, 414, 415, and 4971 of the Code and sections 202, 203, 204, and
302 and title IV of ERISA for such taxable year (such as by filing, with
respect to such taxable year, a return, amended return, or claim for
credit or refund in which the amount of any deduction, credit,
limitation, or tax due is determined by treating itself as not being a
member of the old group for purposes of those sections). However, the
fact that one or more (but not all) of the old members do not qualify
for section 7805(b) treatment because of the preceding sentence will not
preclude that old member (or members) from being treated as a member of
the old group under paragraph (d)(2)(i) of this section in order to
prevent the disallowance of a deduction or credit of another old member
(or other corporation) or to prevent the disqualification of, or other
adverse effect on, another old member's plan (or other entity) described
in the sections of the Code and ERISA enumerated in such paragraph.
(3) Election of general nonretroactivity. In the case of a taxable
year ending on or after December 31, 1970, and before March 2, 1988, an
old group will be treated as a brother-sister controlled group of
corporations for all purposes of the Code for such taxable year if--
(i) Each old member files a statement consenting to such treatment
for such taxable year with the District Director having audit
jurisdiction over its return within six months after March 2, 1988; and
(ii) No old member--
(A) Files or has filed, with respect to such taxable year, a return,
amended return, or claim for credit or refund in which the amount of any
deduction,
[[Page 37]]
credit, limitation, or tax due is determined by treating any old member
as not a member of the old group; or
(B) Treats the employees of all members of the old group as not
being employed by a single employer for purposes of sections 401,
404(a), 408(k), 409A, 410, 411, 412, 414, 415, and 4971 of the Code and
sections 202, 203, 204, and 302 of ERISA for such taxable year.
(4) Definitions. For purposes of this paragraph (d)--
(i) An old group is a brother-sister controlled group of
corporations, determined by applying paragraph (a)(3)(ii) of this
section as in effect before the amendments made by TD 8179, that is not
a brother-sister controlled group of corporations, determined by
applying paragraph (a)(3)(ii) of this section as amended by such
Treasury decision; and
(ii) An old member is any corporation that is a member of an old
group.
(5) Election to choose between membership in more than one
controlled group--(i) In general. A corporation may make an election
under paragraph (c)(2) of this section by filing an amended return on or
before September 2, 1988 if--
(A) An old member has filed an election under paragraph (c)(2) of
this section to be treated as a component member of an old group for a
December 31st before March 2, 1988; and
(B) That corporation would (without regard to such paragraph (c)(2))
be a component member of more than one brother-sister controlled group
(not including an old group) on December 31st.
(ii) Exception. This paragraph (d)(5) does not apply to a
corporation that is treated as a member of an old group under paragraph
(d)(3) of this section.
(6) Refunds. See section 6511(a) for period of limitation on filing
claims for credit or refund.
(e) Effective/applicability date. This section applies to taxable
years beginning on or after May 26, 2009. However, taxpayers may apply
this section to taxable years beginning before May 26, 2009. For taxable
years beginning before May 26, 2009, see Sec. 1.1563-1T as contained in
26 CFR part 1 in effect on April 1, 2009. Paragraph (a)(1)(ii) of this
section applies to taxable years beginning on or after April 11, 2011.
[T.D. 9451, 74 FR 25148, May 27, 2009, as amended by T.D. 9522, 76 FR
19907, Apr. 11, 2011]
Sec. 1.1563-2 Excluded stock.
(a) Certain stock excluded. For purposes of sections 1561 through
1563 and the regulations thereunder, the term ``stock'' does not
include:
(1) Nonvoting stock which is limited and preferred as to dividends,
and
(2) Treasury stock.
(b) Stock treated as excluded stock--(1) Parent-subsidiary
controlled group. If a corporation (hereinafter in this paragraph
referred to as ``parent corporation'') owns 50 percent or more of the
total combined voting power of all classes of stock entitled to vote or
50 percent or more of the total value of shares of all classes of stock
in another corporation (hereinafter in this paragraph referred to as
``subsidiary corporation''), the provisions of subparagraph (2) of this
paragraph shall apply. For purposes of this subparagraph, stock owned by
a corporation means stock owned directly plus stock owned with the
application of the constructive ownership rules of paragraph (b) (1) and
(4) of Sec. 1.1563-3, relating to options and attribution from
corporations. In determining whether the stock owned by a corporation
possesses the requisite percentage of the total combined voting power of
all classes of stock entitled to vote of another corporation, see
paragraph (a)(6) of Sec. 1.1563-1.
(2) Stock treated as not outstanding. If the provisions of this
subparagraph apply, then for purposes of determining whether the parent
corporation or the subsidiary corporation is a member of a parent-
subsidiary controlled group of corporations within the meaning of
paragraph (a)(2) of Sec. 1.1563-1, the following stock of the
subsidiary corporation shall, except as otherwise provided in paragraph
(c) of this section, be treated as if it were not outstanding:
(i) Plan of deferred compensation. Stock in the subsidiary
corporation held by a trust which is part of a plan of deferred
compensation for the benefit of the employees of the parent corporation
or the subsidiary corporation.
[[Page 38]]
The term ``plan of deferred compensation'' shall have the same meaning
such term has in section 406(a)(3) and the regulations thereunder.
(ii) Principal stockholders and officers. Stock in the subsidiary
corporation owned (directly and with the application of the rules
contained in paragraph (b) of Sec. 1.1563-3) by an individual who is a
principal stockholder or officer of the parent corporation. A principal
stockholder of the parent corporation is an individual who owns
(directly and with the application of the rules contained in paragraph
(b) of Sec. 1.1563-3) 5 percent or more of the total combined voting
power of all classes of stock entitled to vote or 5 percent or more of
the total value of shares of all classes of stock of the parent
corporation. An officer of the parent corporation includes the
president, vice-presidents, general manager, treasurer, secretary, and
comptroller of such corporation, and any other person who performs
duties corresponding to those normally performed by persons occupying
such positions.
(iii) Employees. Stock in the subsidiary corporation owned (directly
and with the application of the rules contained in paragraph (b) of
Sec. 1.1563-3) by an employee of the subsidiary corporation if such
stock is subject to conditions which substantially restrict or limit the
employee's right (or if the employee constructively owns such stock, the
direct owner's right) to dispose of such stock and which run in favor of
the parent or subsidiary corporation. In general, any condition which
extends, directly or indirectly, to the parent corporation or the
subsidiary corporation preferential rights with respect to the
acquisition of the employee's (or direct owner's) stock will be
considered to be a condition described in the preceding sentence. It is
not necessary, in order for a condition to be considered to be in favor
of the parent corporation or the subsidiary corporation, that the parent
or subsidiary be extended a discriminatory concession with respect to
the price of the stock. For example, a condition whereby the parent
corporation is given a right of first refusal with respect to any stock
of the subsidiary corporation offered by an employee for sale is a
condition which substantially restricts or limits the employee's right
to dispose of such stock and runs in favor of the parent corporation.
Moreover, any legally enforceable condition which prohibits the employee
from disposing of his stock without the consent of the parent (or a
subsidiary of the parent) will be considered to be a substantial
limitation running in favor of the parent corporation.
(iv) Controlled exempt organization. Stock in the subsidiary
corporation owned (directly and with the application of the rules
contained in paragraph (b) of Sec. 1.1563-3) by an organization (other
than the parent corporation):
(a) To which section 501 (relating to certain educational and
charitable organizations which are exempt from tax) applies, and
(b) Which is controlled directly or indirectly by the parent
corporation or subsidiary corporation, by an individual, estate, or
trust that is a principal stockholder of the parent corporation, by an
officer of the parent corporation, or by any combination thereof.
The terms ``principal stockholder of the parent corporation'' and
``officer of the parent corporation'' shall have the same meanings in
this subdivision as in subdivision (ii) of this subparagraph. The term
``control'' as used in this subdivision means control in fact and the
determination of whether the control requirement of (b) of this
subdivision is met will depend upon all the facts and circumstances of
each case, without regard to whether such control is legally enforceable
and irrespective of the method by which such control is exercised or
exercisable.
(3) Brother-sister controlled group. If five or fewer persons
(hereinafter referred to as common owners) who are individuals, estates,
or trusts own (directly and with the application of the rules contained
in paragraph (b) of Sec. 1.1563-3) stock possessing 50 percent or more
of the total combined voting power of all classes of stock entitled to
vote or 50 percent or more of the total value of shares of all classes
of stock in a corporation, the provisions of subparagraph (4) of this
paragraph shall apply. In determining whether the
[[Page 39]]
stock owned by such person or persons possesses the requisite percentage
of the total combined voting power of all classes of stock entitled to
vote of a corporation, see paragraph (a)(6) of Sec. 1.1563-1.
(4) Stock treated as not outstanding. If the provisions of this
subparagraph apply, then for purposes of determining whether a
corporation is a member of a brother-sister controlled group of
corporations within the meaning of paragraph (a)(3) of Sec. 1.1563-1,
the following stock of such corporation shall, except as otherwise
provided in paragraph (c) of this section, be treated as if it were not
outstanding:
(i) Exempt employees' trust. Stock in such corporation held by an
employees' trust described in section 401(a) which is exempt from tax
under section 501(a), if such trust is for the benefit of the employees
of such corporation.
(ii) Employees. Stock in such corporation owned (directly and with
the application of the rules contained in paragraph (b) of Sec. 1.1563-
3) by an employee of such corporation if such stock is subject to
conditions which run in favor of a common owner of such corporation (or
in favor of such corporation) and which substantially restrict or limit
the employee's right (or if the employee constructively owns such stock,
the record owner's right) to dispose of such stock. The principles of
subparagraph (2)(iii) of this paragraph shall apply in determining
whether a condition satisfies the requirements of the preceding
sentence. Thus, in general, a condition which extends, directly or
indirectly, to a common owner or such corporation preferential rights
with respect to the acquisition of the employee's (or record owner's)
stock will be considered to be a condition which satisfies such
requirements. For purposes of this subdivision, if a condition which
restricts or limits an employee's right (or record owner's right) to
dispose of his stock also applies to the stock in such corporation held
by such common owner pursuant to a bona fide reciprocal stock purchase
arrangement, such condition shall not be treated as one which restricts
or limits the employee's (or record owner's) right to dispose of such
stock. An example of a reciprocal stock purchase arrangement is an
agreement whereby a common owner and the employee are given a right of
first refusal with respect to stock of the employer corporation owned by
the other party. If, however, the agreement also provides that the
common owner has the right to purchase the stock of the employer
corporation owned by the employee in the event that the corporation
should discharge the employee for reasonable cause, the purchase
arrangement would not be reciprocal within the meaning of this
subdivision.
(iii) Controlled exempt organization. Stock in such corporation
owned (directly and with the application of the rules contained in
paragraph (b) of Sec. 1.1563-3) by an organization:
(a) To which section 501(c)(3) (relating to certain educational and
charitable organizations which are exempt from tax) applies, and
(b) Which is controlled directly or indirectly by such corporation,
by an individual, estate, or trust that is a principal stockholder of
such corporation, by an officer of such corporation, or by any
combination thereof.
The terms ``principal stockholder'' and ``officer'' shall have the same
meanings in this subdivision as in subparagraph (2)(ii) of this
paragraph. The term ``control'' as used in this subdivision means
control in fact and the determination of whether the control requirement
of (b) of this subdivision is met will depend upon all the facts and
circumstances of each case, without regard to whether such control is
legally enforceable and irrespective of the method by which such control
is exercised or exercisable.
(5) Other controlled groups. The provisions of subparagraphs (1),
(2), (3), and (4) of this paragraph shall apply in determining whether a
corporation is a member of a combined group (within the meaning of
paragraph (a)(4) of Sec. 1.1563-1) or an insurance group (within the
meaning of paragraph (a)(5) of Sec. 1.1563-1). For example, under
paragraph (a)(4) of Sec. 1.1563-1, in order for a corporation to be a
member of a combined group such corporation must be a member of a
parent-subsidiary group or a brother-sister group. Accordingly, the
excluded stock rules provided by
[[Page 40]]
this paragraph are applicable in determining whether the corporation is
a member of such group.
(6) Meaning of employee. For purposes of this section Sec. Sec.
1.1563-3 and 1.1563-4, the term ``employee'' has the same meaning such
term is given in section 3306(i) of the Code (relating to definitions
for purposes of the Federal Unemployment Tax Act). Accordingly, the term
employee as used in such sections includes an officer of a corporation.
(7) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. Corporation P owns 70 of the 100 shares of the only class
of stock of corporation S. The remaining shares of S are owned as
follows: 4 shares by Jones (the general manager of P), and 26 shares by
Smith (who also owns 5 percent of the total combined voting power of the
stock of P). P satisfies the 50 percent stock ownership requirement of
subparagraph (1) of this paragraph with respect to S. Since Jones is an
officer of P and Smith is a principal stockholder of P, under
subparagraph (2)(ii) of this paragraph the S stock owned by Jones and
Smith is treated as not outstanding for purposes of determining whether
P and S are members of a parent-subsidiary controlled group of
corporations within the meaning of paragraph (a)(2) of Sec. 1.1563-1.
Thus, P is considered to own stock possessing 100 percent (70 / 70) of
the total voting power and value of all the S stock. Accordingly, P and
S are members of a parent-subsidiary controlled group of corporations.
Example 2. Assume the same facts as in example (1) and further
assume that Jones owns 15 shares of the 100 shares of the only class of
stock of corporation S-1, and corporation S owns 75 shares of such
stock. P satisfies the 50 percent stock ownership requirement of
subparagraph (1) of this paragraph with respect to S-1 since P is
considered as owning 52.5 percent (70 percent x 75 percent) of the S-1
stock with the application of paragraph (b)(4) of Sec. 1.1563-3. Since
Jones is an officer of P, under subparagraph (2)(ii) of this paragraph,
the S-1 stock owned by Jones is treated as not outstanding for purposes
of determining whether S-1 is a member of the parent-subsidiary
controlled group of corporations. Thus, S is considered to own stock
possessing 88.2 percent (75 / 85) of the voting power and value of the
S-1 stock. Accordingly, P, S, and S-1 are members of a parent-subsidiary
controlled group of corporations.
Example 3. Corporation X owns 60 percent of the only class of stock
of corporation Y. Davis, the president of Y, owns the remaining 40
percent of the stock of Y. Davis has agreed that if he offers his stock
in Y for sale he will first offer the stock to X at a price equal to the
fair market value of the stock on the first date the stock is offered
for sale. Since Davis is an employee of Y within the meaning of section
3306(i) of the Code, and his stock in Y is subject to a condition which
substantially restricts or limits his right to dispose of such stock and
runs in favor of X, under subparagraph (2)(iii) of this paragraph such
stock is treated as if it were not outstanding for purposes of
determining whether X and Y are members of a parent-subsidiary
controlled group of corporations. Thus, X is considered to own stock
possessing 100 percent of the voting power and value of the stock of Y.
Accordingly, X and Y are members of a parent-subsidiary controlled group
of corporations. The result would be the same if Davis's wife, instead
of Davis, owned directly the 40 percent stock interest in Y and such
stock was subject to a right of first refusal running in favor of X.
(c) Exception--(1) General. If stock of a corporation is owned by a
person directly or with the application of the rules contained in
paragraph (b) of Sec. 1.1563-3 and such ownership results in the
corporation being a component member of a controlled group of
corporations on a December 31, then the stock shall not be treated as
excluded stock under the provisions of paragraph (b) of this section if
the result of applying such provisions is that such corporation is not a
component member of a controlled group of corporations on such December
31.
(2) Illustration. The provisions of this paragraph may be
illustrated by the following example:
Example. On each day of 1965, corporation P owns directly 50 of the
100 shares of the only class of stock of corporation S. Jones, an
officer of P, owns directly 30 shares of S stock and P has an option to
acquire such 30 shares from Jones. The remaining shares of S are owned
by unrelated persons. If, pursuant to the provisions of paragraph
(b)(2)(ii) of this section, the 30 shares of S stock owned directly by
Jones is treated as not outstanding, the result is that P would be
treated as owning stock possessing only 71 percent (50 / 70) of the
total voting power and value of S stock, and S would not be a component
member of a controlled group of corporations on December 31, 1965.
However, since P is considered as owning the 30 shares of S stock with
the application of paragraph (b)(1) of this section, and such ownership
plus the S stock directly owned by P (50 shares) results in S being a
component member of a controlled group of corporations on
[[Page 41]]
December 31, 1965, the provisions of this paragraph apply. Therefore,
the provisions of paragraph (b)(2)(ii) of this section do not apply with
respect to the 30 shares of S stock, and on December 31, 1965, S is a
component member of a controlled group of corporations consisting of P
and S.
[T.D. 6845, 30 FR 9753, Aug. 5, 1965, as amended by T.D. 7181, 37 FR
8070, Apr. 4, 1972]
Sec. 1.1563-3 Rules for determining stock ownership.
(a) In general. In determining stock ownership for purposes of
Sec. Sec. 1.1562-5, 1.1563-1, 1.1563-2, and this section, the
constructive ownership rules of paragraph (b) of this section apply to
the extent such rules are referred to in such sections. The application
of such rules shall be subject to the operating rules and special rules
contained in paragraphs (c) and (d) of this section.
(b) Constructive ownership--(1) Options. If a person has an option
to acquire any outstanding stock of a corporation, such stock shall be
considered as owned by such person. For purposes of this subparagraph,
an option to acquire such an option, and each one of a series of such
options, shall be considered as an option to acquire such stock. For
example, assume Smith owns an option to purchase 100 shares of the
outstanding stock of M Corporation. Under this subparagraph, Smith is
considered to own such 100 shares. The result would be the same if Smith
owned an option to acquire the option (or one of a series of options) to
purchase 100 shares of M stock.
(2) Attribution from partnerships. (i) Stock owned, directly or
indirectly, by or for a partnership shall be considered as owned by any
partner having an interest of 5 percent or more in either the capital or
profits of the partnership in proportion to his interest in capital or
profits, whichever such proportion is the greater.
(ii) The provisions of this subparagraph may be illustrated by the
following example:
Example. Green, Jones, and White, unrelated individuals, are
partners in the GJW partnership. The partners' interests in the capital
and profits of the partnership are as follows:
------------------------------------------------------------------------
Capital Profits
Partner -----------------------
Percent Percent
------------------------------------------------------------------------
Green........................................... 36 25
Jones........................................... 60 71
White........................................... 4 4
------------------------------------------------------------------------
The GJW partnership owns the entire outstanding stock (100 shares) of X
Corporation. Under this subparagraph, Green is considered to own the X
stock owned by the partnership in proportion to his interest in capital
(36 percent) or profits (25 percent), whichever such proportion is the
greater. Therefore, Green is considered to own 36 shares of the X stock.
However, since Jones has a greater interest in the profits of the
partnership, he is considered to own the X stock in proportion to his
interest in such profits. Therefore, Jones is considered to own 71
shares of the X stock. Since White does not have an interest of 5
percent or more in either the capital or profits of the partnership, he
is not considered to own any shares of the X stock.
(3) Attribution from estates or trusts. (i) Stock owned, directly or
indirectly, by or for an estate or trust shall be considered as owned by
any beneficiary who has an actuarial interest of 5 percent or more in
such stock, to the extent of such actuarial interest. For purposes of
this subparagraph, the actuarial interest of each beneficiary shall be
determined by assuming the maximum exercise of discretion by the
fiduciary in favor of such beneficiary and the maximum use of such stock
to satisfy his rights as a beneficiary. A beneficiary of an estate or
trust who cannot under any circumstances receive any interest in stock
held by the estate or trust, including the proceeds from the disposition
thereof, or the income therefrom, does not have an actuarial interest in
such stock. Thus, where stock owned by a decedent's estate has been
specifically bequeathed to certain beneficiaries and the remainder of
the estate is bequeathed to other beneficiaries, the stock is
attributable only to the beneficiaries to whom it is specifically
bequeathed. Similarly, a remainderman of a trust who cannot under any
circumstances receive any interest in the stock of a corporation which
is a part of the corpus of the trust (including any accumulated income
therefrom or the proceeds from a disposition thereof) does not have an
actuarial interest in such stock. However, an income beneficiary
[[Page 42]]
of a trust does have an actuarial interest in stock if he has any right
to the income from such stock even though under the terms of the trust
instrument such stock can never be distributed to him. The factors and
methods prescribed in Sec. 20.2031-7 of this chapter (Estate Tax
Regulations) for use in ascertaining the value of an interest in
property for estate tax purposes shall be used for purposes of this
subdivision in determining a beneficiary's actuarial interest in stock
owned directly or indirectly by or for a trust.
(ii) For the purposes of this subparagraph, property of a decedent
shall be considered as owned by his estate if such property is subject
to administration by the executor or administrator for the purposes of
paying claims against the estate and expenses of administration
notwithstanding that, under local law, legal title to such property
vests in the decedent's heirs, legatees or devisees immediately upon
death. With respect to an estate, the term ``beneficiary'' includes any
person entitled to receive property of the decedent pursuant to a will
or pursuant to laws of descent and distribution. A person shall no
longer be considered a beneficiary of an estate when all the property to
which he is entitled has been received by him, when he no longer has a
claim against the estate arising out of having been a beneficiary, and
when there is only a remote possibility that it will be necessary for
the estate to seek the return of property or to seek payment from him by
contribution or otherwise to satisfy claims against the estate or
expenses of administration. When pursuant to the preceding sentence, a
person ceases to be a beneficiary, stock owned by the estate shall not
thereafter be considered owned by him.
(iii) Stock owned, directly or indirectly, by or for any portion of
a trust of which a person is considered the owner under Subpart E, Part
I, Subchapter J of the Code (relating to grantors and others treated as
substantial owners) is considered as owned by such person.
(iv) This subparagraph does not apply to stock owned by any
employees' trust described in section 401(a) which is exempt from tax
under section 501(a).
(4) Attribution from corporations. (i) Stock owned, directly or
indirectly, by or for a corporation shall be considered as owned by any
person who owns (within the meaning of section 1563(d)) 5 percent or
more in value or its stock in that proportion which the value of the
stock which such person so owns bears to the value of all the stock in
such corporation.
(ii) The provisions of this subparagraph may be illustrated by the
following example:
Example. Brown, an individual, owns 60 shares of the 100 shares of
the only class of outstanding stock of corporation P. Smith, an
individual, owns 4 shares of the P stock, and corporation X owns 36
shares of the P stock. Corporation P owns, directly and indirectly, 50
shares of the stock of corporation S. Under this subparagraph, Brown is
considered to own 30 shares of the S stock (\60/100\ x 50), and X is
considered to own 18 shares of the S stock (\36/100\ x 50). Since Smith
does not own 5 percent or more in value of the P stock, he is not
considered as owning any of the S stock owned by P. If, in this example,
Smith's wife had owned directly 1 share of the P stock, Smith (and his
wife) would each own 5 shares of the P stock, and therefore Smith (and
his wife) would be considered as owning 2.5 shares of the S stock (\5/
100\ x 50).
(5) Spouse. (i) Except as provided in subdivision (ii) of this
subparagraph, an individual shall be considered to own the stock owned,
directly or indirectly, by or for his spouse, other than a spouse who is
legally separated from the individual under a decree of divorce, whether
interlocutory or final, or a decree of separate maintenance.
(ii) An individual shall not be considered to own stock in a
corporation owned, directly or indirectly, by or for his spouse on any
day of a taxable year of such corporation, provided that each of the
following conditions are satisfied with respect to such taxable year:
(a) Such individual does not, at any time during such taxable year,
own directly any stock in such corporation.
(b) Such individual is not a member of the board of directors or an
employee of such corporation and does not participate in the management
of such corporation at any time during such taxable year.
[[Page 43]]
(c) Not more than 50 percent of such corporation's gross income for
such taxable year was derived from royalties, rents, dividends,
interest, and annuities.
(d) Such stock in such corporation is not, at any time during such
taxable year, subject to conditions which substantially restrict or
limit the spouse's right to dispose of such stock and which run in favor
of the individual or his children who have not attained the age of 21
years. The principles of paragraph (b)(2)(iii) of Sec. 1.1563-2 shall
apply in determining whether a condition is a condition described in the
preceding sentence.
(iii) For purposes of subdivision (ii)(c) of this subparagraph, the
gross income of a corporation for a taxable year shall be determined
under section 61 and the regulations thereunder. The terms
``royalties'', ``rents'', ``dividends'', ``interest'', and ``annuities''
shall have the same meanings such terms are given for purposes of
section 1244(c). See paragraph (e)(1)(ii), (iii), (iv), (v), and (vi) of
Sec. 1.1244(c)-1.
(6) Children, grandchildren, parents, and grandparents. (i) An
individual shall be considered to own the stock owned, directly or
indirectly, by or for his children who have not attained the age of 21
years, and, if the individual has not attained the age of 21 years, the
stock owned, directly or indirectly, by or for his parents.
(ii) If an individual owns (directly, and with the application of
the rules of this paragraph but without regard to this subdivision)
stock possessing more than 50 percent of the total combined voting power
of all classes of stock entitled to vote or more than 50 percent of the
total value of shares of all classes of stock in a corporation, then
such individual shall be considered to own the stock in such corporation
owned, directly or indirectly, by or for his parents, grandparents,
grandchildren, and children who have attained the age of 21 years. In
determining whether the stock owned by an individual possesses the
requisite percentage of the total combined voting power of all classes
of stock entitled to vote of a corporation, see paragraph (a)(6) of
Sec. 1.1563-1.
(iii) For purposes of section 1563, and Sec. Sec. 1.1563-1 through
1.1563-4, a legally adopted child of an individual shall be treated as a
child of such individual by blood.
(iv) The provisions of this subparagraph may be illustrated by the
following example:
Example. (a) Facts. Individual F owns directly 40 shares of the 100
shares of the only class of stock of Z Corporation. His son, M (20 years
of age), owns directly 30 shares of such stock, and his son, A (30 years
of age), owns directly 20 shares of such stock. The remaining 10 shares
of the Z stock are owned by an unrelated person.
(b) F's ownership. Individual F owns 40 shares of the Z stock
directly and is considered to own the 30 shares of Z stock owned
directly by M. Since, for purposes of the more-than-50-percent stock
ownership test contained in subdivision (ii) of this subparagraph, F is
treated as owning 70 shares or 70 percent of the total voting power and
value of the Z stock, he is also considered as owning the 20 shares
owned by his adult son, A. Accordingly, F is considered as owning a
total of 90 shares of the Z stock.
(c) M's ownership. Minor son, M, owns 30 shares of the Z stock
directly, and is considered to own the 40 shares of Z stock owned
directly by his father, F. However, M is not considered to own the 20
shares of Z stock owned directly by his brother, A, and constructively
by F, because stock constructively owned by F by reason of family
attribution is not considered as owned by him for purposes of making
another member of his family the constructive owner of such stock. See
paragraph (c)(2) of this section. Accordingly, M owns and is considered
as owning a total of 70 shares of the Z stock.
(d) A's ownership. Adult son, A, owns 20 shares of the Z stock
directly. Since, for purposes of the more-than-50-percent stock
ownership test contained in subdivision (ii) of this subparagraph, A is
treated as owning only the Z stock which he owns directly, he does not
satisfy the condition precedent for the attribution of Z stock from his
father. Accordingly, A is treated as owning only the 20 shares of Z
stock which he owns directly.
(c) Operating rules and special rules--(1) In general. Except as
provided in subparagraph (2) of this paragraph, stock constructively
owned by a person by reason of the application of subparagraph (1), (2),
(3), (4), (5), or (6) of paragraph (b) of this section shall, for
purposes of applying such subparagraphs, be treated as actually owned by
such person.
(2) Members of family. Stock constructively owned by an individual
by reason of the application of subparagraph
[[Page 44]]
(5) or (6) of paragraph (b) of this section shall not be treated as
owned by him for purposes of again applying such subparagraphs in order
to make another the constructive owner of such stock.
(3) Precedence of option attribution. For purposes of this section,
if stock may be considered as owned by a person under subparagraph (1)
of paragraph (b) of this section (relating to option attribution) and
under any other subparagraph of such paragraph, such stock shall be
considered as owned by such person under subparagraph (1) of such
paragraph.
(4) Examples. The provisions of this paragraph may be illustrated by
the following examples:
Example 1. A, 30 years of age, has a 90 percent interest in the
capital and profits of a partnership. The partnership owns all the
outstanding stock of corporation X and X owns 60 shares of the 100
outstanding shares of corporation Y. Under subparagraph (1) of this
paragraph, the 60 shares of Y constructively owned by the partnership by
reason of subparagraph (4) of paragraph (b) of this section is treated
as actually owned by the partnership for purposes of applying
subparagraph (2) of paragraph (b) of this section. Therefore, A is
considered as owning 54 shares of the Y stock (90 percent of 60 shares).
Example 2. Assume the same facts as in example (1). Assume further
that B, who is 20 years of age and the brother of A, directly owns 40
shares of Y stock. Although the stock of Y owned by B is considered as
owned by C (the father of A and B) under paragraph (b)(6)(i) of this
section, under subparagraph (2) of this paragraph such stock may not be
treated as owned by C for purposes of applying paragraph (b)(6)(ii) of
this section in order to make A the constructive owner of such stock.
Example 3. Assume the same facts assumed for purposes of example
(2), and further assume that C has an option to acquire the 40 shares of
Y stock owned by his son, B. The rule contained in subparagraph (2) of
this paragraph does not prevent the reattribution of such 40 shares to A
because, under subparagraph (3) of this paragraph, C is considered as
owning the 40 shares by reason of option attribution and not by reason
of family attribution. Therefore, since A satisfies the more-than-50-
percent stock ownership test contained in paragraph (b)(6)(ii) of this
section with respect to Y, the 40 shares of Y stock constructively owned
by C are reattributed to A, and A is considered as owning a total of 94
shares of Y stock.
(d) Special rule of section 1563 (f)(3)(B)--(1) In general. If the
same stock of a corporation is owned (within the meaning of section
1563(d)) by two or more persons, then such stock shall be treated as
owned by the person whose ownership of such stock results in the
corporation being a component member of a controlled group on a December
31 which has at least one other component member on such date.
(2) Component member of more than one group. (i) If, by reason of
subparagraph (1) of this paragraph, a corporation would (but for this
subparagraph) become a component member of more than one controlled
group on a December 31, such corporation shall be treated as a component
member of only one such controlled group on such date. The determination
as to which group such corporation is treated as a component member of
shall be made in accordance with the rules contained in paragraphs
(d)(2)(ii), (iii) and (iv) of this section.
(ii) In any case in which a corporation is a component member of a
controlled group of corporations on a December 31 as a result of
treating each share of its stock as owned only by the person who owns
such share directly, then each such share shall be treated as owned by
the person who owns such share directly.
(iii) If the application of subdivision (ii) of this subparagraph
does not result in a corporation being treated as a component member of
only one controlled group on a December 31, then the stock of such
corporation described in subparagraph (1) of this paragraph shall be
treated as owned by the one person described in such subparagraph who
owns, directly and with the application of the rules contained in
paragraph (b) (1), (2), (3), and (4) of this section, the stock
possessing the greatest percentage of the total value of shares of all
classes of stock of the corporation.
(iv) Statement. If the application of paragraph (d)(2)(ii) or (iii)
of this section does not result in a corporation being treated as a
component member of only one controlled group of corporations on a
December 31, then such corporation will be treated as a component member
of only one such group on
[[Page 45]]
such date. Such corporation may elect the group in which it is to be
included by including on or with its income tax return a statement
entitled, ``STATEMENT TO ELECT CONTROLLED GROUP PURSUANT TO Sec.
1.1563-3(d)(2)(iv).'' The statement must include--
(A) A description of each of the controlled groups in which the
corporation could be included. The description must include the name and
employer identification number of each component member of each such
group and the stock ownership of the component members of each such
group; and
(B) The following representation: [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER OF CORPORATION] ELECTS TO BE TREATED AS A
COMPONENT MEMBER OF THE [INSERT DESIGNATION OF GROUP].
(v) Election--(A) Election filed. An election filed under paragraph
(d)(2)(iv) of this section is irrevocable and effective until paragraph
(d)(2)(ii) or (iii) of this section applies or until a change in the
stock ownership of the corporation results in termination of membership
in the controlled group in which such corporation has been included.
(B) Election not filed. In the event no election is filed in
accordance with the provisions of paragraph (d)(2)(iv) of this section,
then the Internal Revenue Service will determine the group in which such
corporation is to be included. Such determination will be binding for
all subsequent years unless the corporation files a valid election with
respect to any such subsequent year or until a change in the stock
ownership of the corporation results in termination of membership in the
controlled group in which such corporation has been included.
(3) Examples. The provisions of this paragraph may be illustrated by
the following examples, in which each corporation referred to uses the
calendar year as its taxable year and the stated facts are assumed to
exist on each day of 1970 (unless otherwise provided in the example):
Example 1. Jones owns all the stock of corporation X and has an
option to purchase from Smith all the outstanding stock of corporation
Y. Smith owns all the outstanding stock of corporation Z. Since the Y
stock is considered as owned by two or more persons, under subparagraph
(2)(ii) of this paragraph the Y stock is treated as owned only by Smith
since he has direct ownership of such stock. Therefore, on December 31,
1970, Y and Z are component members of the same brother-sister
controlled group. If, however, Smith had owned his stock in corporation
Z for less than one-half of the number of days of Z's 1970 taxable year,
then under subparagraph (1) of this paragraph the Y stock would be
treated as owned only by Jones since his ownership results in Y being a
component member of a controlled group on December 31, 1970.
Example 2. Individual H owns directly all the outstanding stock of
corporation M. W (the wife of H) owns directly all the outstanding stock
of corporation N. Neither spouse is considered as owning the stock
directly owned by the other because each of the conditions prescribed in
paragraph (b)(5)(ii) of this section is satisfied with respect to each
corporation's 1970 taxable year. H owns directly 60 percent of the only
class of stock of corporation P and W owns the remaining 40 percent of
the P stock. Under subparagraph (2)(iii) of this paragraph, the stock of
P is treated as owned only by H since H owns (directly and with the
application of the rules contained in paragraph (b) (1), (2), (3), and
(4) of this section) the stock possessing the greatest percentage of the
total value of shares of all classes of stock of P. Accordingly, on
December 31, 1970, P is treated as a component member of a brother-
sister group consisting of M and P.
Example 3. Unrelated individuals A and B each own 49 percent of all
the outstanding stock of corporation R, which in turn owns 70 percent of
the only class of outstanding stock of corporation S. The remaining 30
percent of the stock of corporation S is owned by unrelated individual
C. C also owns the remaining 2 percent of the stock of corporation R.
Under the attribution rule of paragraph (b)(4) of this section A and B
are each considered to own 34.3 percent of the stock of corporation S.
Accordingly, since five or fewer persons own at least 80 percent of the
stock of corporations R and S and also own more than 50 percent
identically (A's and B's identical ownership each is 34.3 percent, C's
identical ownership is 2 percent), on December 31, 1970, corporations R
and S are treated as component members of the same brother-sister
controlled group for purposes of paragraph (a)(3)(ii) of Sec. 1.1563-1.
(e) Effective/applicability date. Paragraph (d)(2)(iv) and (v) of
this section apply to any taxable year beginning on or after May 30,
2006. However, taxpayers may apply paragraph (d)(2)(iv) and (v) of this
section to any original Federal income tax return (including
[[Page 46]]
any amended return filed on or before the due date (including
extensions) of such original return) timely filed on or after May 30,
2006. For taxable years beginning before May 30, 2006, see Sec. 1.1563-
3 as contained in 26 CFR part 1 in effect on April 1, 2006.
[T.D. 6845, 30 FR 9755, Aug. 5, 1965, as amended by T.D. 7181, 37 FR
8070, Apr. 25, 1972; T.D. 7779, 46 FR 29474, June 2, 1981; T.D. 8179, 53
FR 6613, Mar. 2, 1988; T.D. 9264, 71 FR 30606, 30608, May 30, 2006; T.D.
9304, 71 FR 76913, Dec. 22, 2006; T.D. 9329, 72 FR 32806, 32807, June
14, 2007; T.D. 9451, 74 FR 25148, May 27, 2009]
Sec. 1.1563-4 Franchised corporations.
(a) In general. For purposes of paragraph (b)(2)(ii)(d) of Sec.
1.1563-1, a member of a controlled group of corporations shall be
considered to be a franchised corporation for a taxable year if each of
the following conditions is satisfied for one-half (or more) of the
number of days preceding the December 31 included within such taxable
year (or, if such taxable year does not include a December 31, for one-
half or more of the number of days in such taxable year preceding the
last day of such year):
(1) Such member is franchised to sell the products of another
member, or the common owner, of such controlled group.
(2) More than 50 percent (determined on the basis of cost) of all
the goods held by such member primarily for sale to its customers are
acquired from members or the common owner of the controlled group, or
both.
(3) The stock of such member is to be sold to an employee (or
employees) of such member pursuant to a bona fide plan designed to
eliminate the stock ownership of the parent corporation (as defined in
paragraph (b)(1) of Sec. 1.1563-2) or of the common owner (as defined
in paragraph (b)(3) of Sec. 1.1563-2) in such member.
(4) Such employee owns (or such employees in the aggregate own)
directly more than 20 percent of the total value of shares of all
classes of stock of such member. For purposes of this subparagraph, the
determination of whether an employee (or employees) owns the requisite
percentage of the total value of the stock of the member shall be made
without regard to paragraph (b) of Sec. 1.1563-2, relating to certain
stock treated as excluded stock. Furthermore, if the corporation has
more than one class of stock outstanding, the relative voting rights as
between each such class of stock shall be disregarded in making such
determination.
(b) Plan for elimination of stock ownership. (1) A plan referred to
in paragraph (a)(3) of this section must:
(i) Provide a reasonable selling price for the stock of the member,
and
(ii) Require that a portion of the employee's compensation or
dividends, or both, from such member be applied to the purchase of such
stock (or to the purchase of notes, bonds, debentures, or similar
evidences of indebtedness of such member held by the parent corporation
or the common owner).
It is not necessary, in order to satisfy the requirements of subdivision
(ii) of this subparagraph, that the plan require that a percentage of
every dollar of the compensation and dividends be applied to the
purchase of the stock (or the indebtedness). The requirements of such
subdivision are satisfied if an otherwise qualified plan provides that
under certain specified conditions (such as a requirement that the
member earn a specified profit) no portion of the compensation and/or
dividends need be applied to the purchase of the stock (or
indebtedness), provided such conditions are reasonable.
(2) A plan for the elimination of the stock ownership of the parent
corporation or of the common owner will satisfy the requirements of
paragraph (a)(3) of this section and subparagraph (1) of this paragraph
even though it does not require that the stock of the member be sold to
an employee (or employees) if it provides for the redemption of the
stock of the member held by the parent or common owner and under the
plan the amount of such stock to be redeemed during any period is
calculated by reference to the profits of such member during such
period.
[T.D. 6845, 30 FR 9757, Aug. 5, 1965]
[[Page 47]]
Individual Shared Responsibility Payment for Not Maintaining Minimum
Essential Coverage
PROCEDURE AND ADMINISTRATION--Table of Contents
Information and Returns
Sec. 1.5000A-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.5000A-1
through 1.5000A-5.
Sec. 1.5000A-1 Maintenance of minimum essential coverage and liability
for the shared responsibility payment.
(a) In general.
(b) Coverage under minimum essential coverage.
(1) In general.
(2) Special rule for United States citizens or residents residing
outside the United States or residents of territories.
(c) Liability for shared responsibility payment.
(1) In general.
(2) Liability for dependents.
(i) In general.
(ii) Special rules for dependents adopted or placed in foster care
during the taxable year.
(A) Taxpayers adopting an individual.
(B) Taxpayers placing an individual for adoption.
(C) Examples.
(3) Liability of individuals filing a joint return.
(d) Definitions.
(1) Affordable Care Act.
(2) Employee.
(3) Exchange.
(4) Family.
(5) Family coverage.
(6) Group health insurance coverage.
(7) Group health plan.
(8) Health insurance coverage.
(9) Health insurance issuer.
(10) Household income.
(i) In general.
(ii) Modified adjusted gross income.
(11) Individual market.
(12) Large and small group market.
(13) Month.
(14) Qualified health plan.
(15) Rating area.
(16) Self-only coverage.
(17) Shared responsibility family.
(18) State.
Sec. 1.5000A-2 Minimum essential coverage.
(a) In general.
(b) Government-sponsored program.
(1) In general.
(i) Medicare.
(ii) Medicaid.
(iii) Children's Health Insurance Program.
(iv) TRICARE.
(v) Veterans programs.
(vi) Peace Corp program.
(vii) Nonappropriated Fund Health Benefits Program.
(2) Certain health care coverage not minimum essential coverage
under a government-sponsored program.
(c) Eligible employer-sponsored plan.
(1) In general.
(2) Government-sponsored program generally not an eligible employer-
sponsored plan.
(d) Plan in the individual market.
(1) In general.
(2) Qualified health plan offered by an Exchange.
(e) Grandfathered health plan.
(f) Other coverage that qualifies as minimum essential coverage.
(g) Excepted benefits not minimum essential coverage.
Sec. 1.5000A-3 Exempt individuals.
(a) Members of recognized religious sects.
(1) In general.
(2) Exemption certification.
(b) Member of health care sharing ministries.
(1) In general.
(2) Health care sharing ministry.
(c) Exempt noncitizens.
(1) In general.
(2) Exempt noncitizens.
(d) Incarcerated individuals.
(1) In general.
(2) Incarcerated.
(e) Individuals with no affordable coverage.
(1) In general.
(2) Required contribution percentage.
(i) In general.
(ii) Indexing.
(iii) Plan year.
(3) Individuals eligible for coverage under eligible employer-
sponsored plans.
(i) Eligibility.
(A) In general.
(B) Multiple eligibility.
(C) Special rule for post-employment coverage.
(ii) Required contribution for individuals eligible for coverage
under an eligible employer-sponsored plan.
(A) Employees.
(B) Individuals related to employees.
(C) Required contribution for part-year period.
(D) Employer contributions to health reimbursement arrangements.
(E) Wellness program incentives.
(iii) Examples.
(4) Individuals ineligible for coverage under eligible employer-
sponsored plans.
(i) Eligibility for coverage other than an eligible employer-
sponsored plan.
(ii) Required contribution for individuals ineligible for coverage
under eligible employer-sponsored plans.
[[Page 48]]
(A) In general.
(B) Applicable plan.
(1) In general.
(2) Lowest cost bronze plan does not cover all individuals included
in the taxpayer's nonexempt family.
(i) In general.
(ii) Optional simplified method for applicable plan identification.
(C) Wellness program incentives.
(D) Credit allowable under section 36B.
(E) Required contribution for part-year period.
(iii) Examples.
(f) Household income below filing threshold.
(1) In general.
(2) Applicable filing threshold.
(i) In general.
(ii) Certain dependents.
(3) Manner of claiming the exemption.
(g) Members of Indian tribes.
(h) Individuals with hardship exemption certification.
(1) In general.
(2) Hardship exemption certification.
(3) Hardship exemption without hardship exemption certification.
(i) [Reserved]
(j) Individuals with certain short coverage gaps.
(1) In general.
(2) Short coverage gap.
(i) In general.
(ii) Coordination with other exemptions.
(iii) More than one short coverage gap during calendar year.
(3) Continuous period.
(i) In general.
(ii) Continuous period straddling more than one taxable year.
(4) Examples.
Sec. 1.5000A-4 Computation of shared responsibility payment.
(a) In general.
(b) Monthly penalty amount.
(1) In general.
(2) Flat dollar amount.
(i) In general.
(ii) Applicable dollar amount.
(iii) Special applicable dollar amount for individuals under age 18.
(iv) Indexing of applicable dollar amount.
(3) Excess income amount.
(i) In general.
(ii) Income percentage.
(c) Monthly national average bronze plan premium.
(d) Examples.
Sec. 1.5000A-5 Administration and procedure.
(a) In general.
(b) Special rules.
(1) Waiver of criminal penalties.
(2) Limitations on liens and levies.
(3) Authority to offset against overpayment.
(c) Effective/applicability date.
[T.D. 9632, 78 FR 53655, Aug. 30, 2013, as amended at 78 FR 78255, Dec.
26, 2013; T.D. 9705, 79 FR 70468, Nov. 26, 2014]
Sec. 1.5000A-1 Maintenance of minimum essential coverage and
liability for the shared responsibility payment.
(a) In general. For each month during the taxable year, a nonexempt
individual must have minimum essential coverage or pay the shared
responsibility payment. For a month, a nonexempt individual is an
individual in existence for the entire month who is not an exempt
individual described in Sec. 1.5000A-3.
(b) Coverage under minimum essential coverage--(1) In general. An
individual has minimum essential coverage for a month in which the
individual is enrolled in and entitled to receive benefits under a
program or plan identified as minimum essential coverage in Sec.
1.5000A-2 for at least one day in the month.
(2) Special rule for United States citizens or residents residing
outside the United States or residents of territories. An individual is
treated as having minimum essential coverage for a month--
(i) If the month occurs during any period described in section
911(d)(1)(A) or section 911(d)(1)(B) that is applicable to the
individual; or
(ii) If, for the month, the individual is a bona fide resident of a
possession of the United States (as determined under section 937(a)).
(c) Liability for shared responsibility payment--(1) In general. A
taxpayer is liable for the shared responsibility payment for a month for
which--
(i) The taxpayer is a nonexempt individual without minimum essential
coverage; or
(ii) A nonexempt individual for whom the taxpayer is liable under
paragraph (c)(2) or (c)(3) of this section does not have minimum
essential coverage.
(2) Liability for dependents--(i) In general. For a month when a
nonexempt individual does not have minimum essential coverage, if the
nonexempt individual is a dependent (as defined in section 152) of
another individual for
[[Page 49]]
the other individual's taxable year including that month, the other
individual is liable for the shared responsibility payment attributable
to the dependent's lack of coverage. An individual is a dependent of a
taxpayer for a taxable year if the individual satisfies the definition
of dependent under section 152, regardless of whether the taxpayer
claims the individual as a dependent on a Federal income tax return for
the taxable year. If an individual may be claimed as a dependent by more
than one taxpayer in the same calendar year, the taxpayer who properly
claims the individual as a dependent for the taxable year is liable for
the shared responsibility payment attributable to the individual. If
more than one taxpayer may claim an individual as a dependent in the
same calendar year but no one claims the individual as a dependent, the
taxpayer with priority under the rules of section 152 to claim the
individual as a dependent is liable for the shared responsibility
payment for the individual.
(ii) Special rules for dependents adopted or placed in foster care
during the taxable year--(A) Taxpayers adopting an individual. If a
taxpayer adopts a nonexempt dependent (or accepts a nonexempt dependent
who is an eligible foster child as defined in section 152(f)(1)(C))
during the taxable year and is otherwise liable for the nonexempt
dependent under paragraph (c)(2)(i) of this section, the taxpayer is
liable under paragraph (c)(2)(i) of this section for the nonexempt
dependent only for the full months in the taxable year that follow the
month in which the adoption or acceptance occurs.
(B) Taxpayers placing an individual for adoption. If a taxpayer who
is otherwise liable for a nonexempt dependent under paragraph (c)(2)(i)
of this section places (or, by operation of law, must place) the
nonexempt dependent for adoption or foster care during the taxable year,
the taxpayer is liable under paragraph (c)(2)(i) of this section for the
nonexempt dependent only for the full months in the taxable year that
precede the month in which the adoption or foster care placement occurs.
(C) Examples. The following examples illustrate the provisions of
this paragraph (c)(2)(ii). In each example the taxpayer's taxable year
is a calendar year.
Example 1. Taxpayers adopting a child. (i) E and F, married
individuals filing a joint return, initiate proceedings for the legal
adoption of a 2-year old child, G, in January 2016. On May 15, 2016, G
becomes the adopted child (within the meaning of section 152(f)(1)(B))
of E and F, and resides with them for the remainder of 2016. Prior to
the adoption, G resides with H, an unmarried individual, with H
providing all of G's support. For 2016 G meets all requirements under
section 152 to be E and F's dependent, and not H's dependent.
(ii) Under paragraph (c)(2) of this section, E and F are not liable
for a shared responsibility payment attributable to G for January
through May of 2016, but are liable for a shared responsibility payment
attributable to G, if any, for June through December of 2016. H is not
liable for a shared responsibility payment attributable to G for any
month in 2016, because G is not H's dependent for 2016 under section
152.
Example 2. Taxpayers placing a child for adoption. (i) The facts are
the same as Example 1, except the legal adoption occurs on August 15,
2016, and, for 2016, G meets all requirements under section 152 to be
H's dependent, and not E and F's dependent.
(ii) Under paragraph (c)(2) of this section, H is liable for a
shared responsibility payment attributable to G, if any, for January
through July of 2016, but is not liable for a shared responsibility
payment attributable to G for August through December of 2016. E and F
are not liable for a shared responsibility payment attributable to G for
any month in 2016, because G is not E and F's dependent for 2016 under
section 152.
(3) Liability of individuals filing a joint return. Married
individuals (within the meaning of section 7703) who file a joint return
for a taxable year are jointly liable for any shared responsibility
payment for a month included in the taxable year.
(d) Definitions. The definitions in this paragraph (d) apply to this
section and Sec. Sec. 1.5000A-2 through 1.5000A-5.
(1) Affordable Care Act. Affordable Care Act refers to the Patient
Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119
(2010)), and the Health Care and Education Reconciliation Act of 2010,
Public Law 111-152 (124 Stat. 1029 (2010)), as amended.
(2) Employee. Employee includes former employees.
(3) Exchange. Exchange has the same meaning as in 45 CFR 155.20.
[[Page 50]]
(4) Family. A taxpayer's family means the individuals for whom the
taxpayer properly claims a deduction for a personal exemption under
section 151 for the taxable year.
(5) Family coverage. Family coverage means health insurance that
covers more than one individual.
(6) Group health insurance coverage. Group health insurance coverage
has the same meaning as in section 2791(b)(4) of the Public Health
Service Act (42 U.S.C. 300gg-91(b)(4)).
(7) Group health plan. Group health plan has the same meaning as in
section 2791(a)(1) of the Public Health Service Act (42 U.S.C. 300gg-
91(a)(1)).
(8) Health insurance coverage. Health insurance coverage has the
same meaning as in section 2791(b)(1) of the Public Health Service Act
(42 U.S.C. 300gg-91(b)(1)).
(9) Health insurance issuer. Health insurance issuer has the same
meaning as in section 2791(b)(2) of the Public Health Service Act (42
U.S.C. 300gg-91(b)(2)).
(10) Household income--(i) In general. Household income means the
sum of--
(A) A taxpayer's modified adjusted gross income; and
(B) The aggregate modified adjusted gross income of all other
individuals who--
(1) Are included in the taxpayer's family under paragraph (d)(4) of
this section; and
(2) Are required to file a Federal income tax return for the taxable
year.
(ii) Modified adjusted gross income. Modified adjusted gross income
means adjusted gross income (within the meaning of section 62) increased
by--
(A) Amounts excluded from gross income under section 911; and
(B) Tax-exempt interest the taxpayer receives or accrues during the
taxable year.
(11) Individual market. Individual market has the same meaning as in
section 1304(a)(2) of the Affordable Care Act (42 U.S.C. 18024(a)(2)).
(12) Large and small group market. Large group market and small
group market have the same meanings as in section 1304(a)(3) of the
Affordable Care Act (42 U.S.C. 18024(a)(3)).
(13) Month. Month means calendar month.
(14) Qualified health plan. Qualified health plan has the same
meaning as in section 1301(a) of the Affordable Care Act (42 U.S.C.
18021(a)).
(15) Rating area. Rating area has the same meaning as in Sec.
1.36B-1(n).
(16) Self-only coverage. Self-only coverage means health insurance
that covers one individual.
(17) Shared responsibility family. Shared responsibility family
means, for a month, all nonexempt individuals for whom the taxpayer (and
the taxpayer's spouse, if the taxpayer is married and files a joint
return with the spouse) is liable for the shared responsibility payment
under paragraph (c) of this section.
(18) State. State means each of the 50 states and the District of
Columbia.
[T.D. 9632, 78 FR 53655, Aug. 30, 2013, as amended at 78 FR 78255, Dec.
26, 2013]
Sec. 1.5000A-2 Minimum essential coverage.
(a) In general. Minimum essential coverage means coverage under a
government-sponsored program (described in paragraph (b) of this
section), an eligible employer-sponsored plan (described in paragraph
(c) of this section), a plan in the individual market (described in
paragraph (d) of this section), a grandfathered health plan (described
in paragraph (e) of this section), or other health benefits coverage
(described in paragraph (f) of this section). Minimum essential coverage
does not include coverage described in paragraph (g) of this section.
All terms defined in this section apply for purposes of this section and
Sec. 1.5000A-1 and Sec. Sec. 1.5000A-3 through 1.5000A-5.
(b) Government-sponsored program--(1) In general. Except as provided
in paragraph (2), government-sponsored program means any of the
following:
(i) Medicare. The Medicare program under part A of Title XVIII of
the Social Security Act (42 U.S.C. 1395c and following sections);
(ii) Medicaid. The Medicaid program under Title XIX of the Social
Security Act (42 U.S.C. 1396 and following sections);
(iii) Children's Health Insurance Program. The Children's Health
Insurance Program (CHIP) under Title XXI of the
[[Page 51]]
Social Security Act (42 U.S.C. 1397aa and following sections);
(iv) TRICARE. Medical coverage under chapter 55 of Title 10, U.S.C.,
including coverage under the TRICARE program;
(v) Veterans programs. The following health care programs under
chapter 17 or 18 of Title 38, U.S.C.:
(A) The medical benefits package authorized for eligible veterans
under 38 U.S.C. 1710 and 38 U.S.C. 1705;
(B) The Civilian Health and Medical Program of the Department of
Veterans Affairs (CHAMPVA) authorized under 38 U.S.C. 1781; and
(C) The comprehensive health care program authorized under 38 U.S.C.
1803 and 38 U.S.C. 1821 for certain children of Vietnam Veterans and
Veterans of covered service in Korea who are suffering from spina
bifida.
(vi) Peace Corp program. A health plan under section 2504(e) of
Title 22, U.S.C. (relating to Peace Corps volunteers); and
(vii) Nonappropriated Fund Health Benefits Program. The
Nonappropriated Fund Health Benefits Program of the Department of
Defense, established under section 349 of the National Defense
Authorization Act for Fiscal Year 1995 (Pub. L. 103-337; 10 U.S.C. 1587
note).
(2) Certain health care coverage not minimum essential coverage
under a government-sponsored program. Government-sponsored program does
not mean any of the following:
(i) Optional coverage of family planning services under section
1902(a)(10)(A)(ii)(XXI) of the Social Security Act (42 U.S.C.
1396a(a)(10)(A)(ii)(XXI));
(ii) Optional coverage of tuberculosis-related services under
section 1902(a)(10)(A)(ii)(XII) of the Social Security Act (42 U.S.C.
1396a(a)(10)(A)(ii)(XII));
(iii) Coverage of pregnancy-related services under section
1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the Social Security Act
(42 U.S.C. 1396a(a)(10)(A)(i)(IV), (a)(10)(A)(ii)(IX));
(iv) Coverage limited to treatment of emergency medical conditions
in accordance with 8 U.S.C. 1611(b)(1)(A), as authorized by section
1903(v) of the Social Security Act (42 U.S.C. 1396b(v));
(v) Coverage for medically needy individuals under section
1902(a)(10)(C) of the Social Security Act (42 U.S.C. 1396a(a)(10)(C))
and 42 CFR 435.300 and following sections;
(vi) Coverage authorized under section 1115(a) of the Social
Security Act (42 U.S.C. 1315(a));
(vii) Coverage under section 1079(a), 1086(c)(1), or 1086(d)(1) of
title 10, U.S.C., that is solely limited to space available care in a
facility of the uniformed services for individuals excluded from TRICARE
coverage for care from private sector providers; and
(viii) Coverage under sections 1074a and 1074b of title 10, U.S.C.,
for an injury, illness, or disease incurred or aggravated in the line of
duty for individuals who are not on active duty.
(c) Eligible employer-sponsored plan--(1) In general. Eligible
employer-sponsored plan means, with respect to any employee:
(i) Group health insurance coverage offered by, or on behalf of, an
employer to the employee that is--
(A) A governmental plan (within the meaning of section 2791(d)(8) of
the Public Health Service Act (42 U.S.C. 300gg-91(d)(8)));
(B) Any other plan or coverage offered in the small or large group
market within a State; or
(C) A grandfathered health plan (within the meaning of paragraph (e)
of this section) offered in a group market; or
(ii) A self-insured group health plan under which coverage is
offered by, or on behalf of, an employer to the employee.
(2) Government-sponsored program generally not an eligible employer-
sponsored plan. Except for the program identified in paragraph
(b)(1)(vii) of this section, a government-sponsored program described in
paragraph (b) of this section is not an eligible employer-sponsored
plan.
(d) Plan in the individual market--(1) In general. Plan in the
individual market means health insurance coverage offered to individuals
in the individual market within a state, other than short-term limited
duration insurance within the meaning of section 2791(b)(5)
[[Page 52]]
of the Public Health Service Act (42 U.S.C. 300gg-91(b)(5)).
(2) Qualified health plan offered by an Exchange. A qualified health
plan offered by an Exchange is a plan in the individual market. If a
territory of the United States elects to establish an Exchange under
section 1323(a)(1) and (b) of the Affordable Care Act (42 U.S.C.
18043(a)(1), (b)), a qualified health plan offered by that Exchange is a
plan in the individual market.
(e) Grandfathered health plan. Grandfathered health plan means any
group health plan or group health insurance coverage to which section
1251 of the Affordable Care Act (42 U.S.C. 18011) applies.
(f) Other coverage that qualifies as minimum essential coverage.
Minimum essential coverage includes any plan or arrangement recognized
by the Secretary of Health and Human Services, in coordination with the
Secretary of the Treasury, as minimum essential coverage.
(g) Excepted benefits not minimum essential coverage. Minimum
essential coverage does not include any coverage that consists solely of
excepted benefits described in section 2791(c)(1), (c)(2), (c)(3), or
(c)(4) of the Public Health Service Act (42 U.S.C. 300gg-91(c)).
[T.D. 9632, 78 FR 53655, Aug. 30, 2013, as amended at 78 FR 78255, Dec.
26, 2013; T.D. 9705, 79 FR 70469, Nov. 26, 2014]
Sec. 1.5000A-3 Exempt individuals.
(a) Members of recognized religious sects--(1) In general. An
individual is an exempt individual for a month that includes a day on
which the individual has in effect a religious conscience exemption
certification described in paragraph (a)(2) of this section.
(2) Exemption certification. A religious conscience exemption
certification is issued by an Exchange in accordance with the
requirements of section 1311(d)(4)(H) of the Affordable Care Act (42
U.S.C. 18031(d)(4)(H)), 45 CFR 155.605(c), and 45 CFR 155.615(b) and
certifies that an individual is--
(i) A member of a recognized religious sect or division of the sect
that is described in section 1402(g)(1); and
(ii) An adherent of established tenets or teachings of the sect or
division as described in that section.
(b) Member of health care sharing ministries--(1) In general. An
individual is an exempt individual for a month that includes a day on
which the individual is a member of a health care sharing ministry.
(2) Health care sharing ministry. For purposes of this section,
health care sharing ministry means an organization--
(i) That is described in section 501(c)(3) and is exempt from tax
under section 501(a);
(ii) Members of which share a common set of ethical or religious
beliefs and share medical expenses among themselves in accordance with
those beliefs and without regard to the state in which a member resides
or is employed;
(iii) Members of which retain membership even after they develop a
medical condition;
(iv) That (or a predecessor of which) has been in existence at all
times since December 31, 1999;
(v) Members of which have shared medical expenses continuously and
without interruption since at least December 31, 1999; and
(vi) That conducts an annual audit performed by an independent
certified public accounting firm in accordance with generally accepted
accounting principles and makes the annual audit report available to the
public upon request.
(c) Exempt noncitizens--(1) In general. An individual is an exempt
individual for a month that the individual is an exempt noncitizen.
(2) Exempt noncitizens. For purposes of this section, an individual
is an exempt noncitizen for a month if the individual--
(i) Is not a U.S. citizen or U.S. national for any day during the
month; and
(ii) Is either--
(A) A nonresident alien (within the meaning of section
7701(b)(1)(B)) for the taxable year that includes the month; or
(B) An individual who is not lawfully present (within the meaning of
45 CFR 155.20) on any day in the month.
[[Page 53]]
(d) Incarcerated individuals--(1) In general. An individual is an
exempt individual for a month that includes a day on which the
individual is incarcerated.
(2) Incarcerated. For purposes of this section, the term
incarcerated means confined, after the disposition of charges, in a
jail, prison, or similar penal institution or correctional facility.
(e) Individuals with no affordable coverage--(1) In general. An
individual is an exempt individual for a month in which the individual
lacks affordable coverage. For purposes of this paragraph (e), an
individual lacks affordable coverage in a month if the individual's
required contribution (determined on an annual basis) for minimum
essential coverage for the month exceeds the required contribution
percentage (as defined in paragraph (e)(2) of this section) of the
individual's household income. For purposes of this paragraph (e), an
individual's household income is increased by any amount of the required
contribution made through a salary reduction arrangement that is
excluded from gross income.
(2) Required contribution percentage--(i) In general. Except as
provided in paragraph (e)(2)(ii) of this section, the required
contribution percentage is 8 percent.
(ii) Indexing. For plan years beginning in any calendar year after
2014, the required contribution percentage is the percentage determined
by the Department of Health and Human Services that reflects the excess
of the rate of premium growth between the preceding calendar year and
2013 over the rate of income growth for the period.
(iii) Plan year. For purposes of this paragraph (e), plan year means
the eligible employer-sponsored plan's regular 12-month coverage period,
or for a new employee or an individual who enrolls during a special
enrollment period, the remainder of a 12-month coverage period.
(3) Individuals eligible for coverage under eligible employer-
sponsored plans--(i) Eligibility--(A) In general. Except as provided in
paragraph (e)(3)(i)(B) of this section, an employee or related
individual (as defined in paragraph (e)(3)(ii)(B) of this section) is
treated as eligible for coverage under an eligible employer-sponsored
plan for a month during a plan year if the employee or related
individual could have enrolled in the plan for any day in that month
during an open or special enrollment period, regardless of whether the
employee or related individual is eligible for any other type of minimum
essential coverage.
(B) Multiple eligibility. For purposes of this paragraph (e)(3), an
employee eligible for coverage under an eligible employer-sponsored plan
offered by the employee's employer is not treated as eligible as a
related individual for coverage under an eligible employer-sponsored
plan (for example, an eligible employer-sponsored plan offered by the
employer of the employee's spouse) for any month included in the plan
year of the eligible employer-sponsored plan offered by the employee's
employer.
(C) Special rule for post-employment coverage. A former employee or
an individual related to a former employee, who may enroll in
continuation coverage required under Federal law or a state law that
provides comparable continuation coverage, or in retiree coverage under
an eligible employer-sponsored plan, is eligible for coverage under an
eligible employer-sponsored plan only if the individual enrolls in the
coverage.
(ii) Required contribution for individuals eligible for coverage
under an eligible employer-sponsored plan--(A) Employees. In the case of
an employee who is eligible to purchase coverage under an eligible
employer-sponsored plan sponsored by the employee's employer, the
required contribution is the portion of the annual premium that the
employee would pay (whether through salary reduction or otherwise) for
the lowest cost self-only coverage.
(B) Individuals related to employees. In the case of an individual
who is eligible for coverage under an eligible employer-sponsored plan
because of a relationship to an employee and for whom a personal
exemption deduction under section 151 is claimed on the employee's
Federal income tax return (related individual), the required
contribution is the portion of the annual premium that the employee
would pay
[[Page 54]]
(whether through salary reduction or otherwise) for the lowest cost
family coverage that would cover the employee and all related
individuals who are included in the employee's family and are not
otherwise exempt under Sec. 1.5000A-3.
(C) Required contribution for part-year period. For each individual
described in paragraph (e)(3)(ii)(A) or (e)(3)(ii)(B) of this section,
affordability under this paragraph (e)(3) is determined separately for
each employment period that is less than a full calendar year or for the
portions of an employer's plan year that fall in different taxable years
of the individual. Coverage under an eligible employer-sponsored plan is
affordable for a part-year period if the annualized required
contribution for self-only coverage (in the case of the employee) or
family coverage (in the case of a related individual) under the plan for
the part-year period does not exceed the required contribution
percentage of the individual's household income for the taxable year.
The annualized required contribution is the required contribution
determined under paragraph (e)(3)(ii)(A) or (e)(3)(ii)(B) of this
section for the part-year period times a fraction, the numerator of
which is 12 and the denominator of which is the number of months in the
part-year period during the individual's taxable year. Only full
calendar months are included in the computation under this paragraph
(e)(3)(ii)(C).
(D) Employer contributions to health reimbursement arrangements.
Amounts newly made available for the current plan year under a health
reimbursement arrangement that an employee may use to pay premiums, or
may use to pay cost-sharing or benefits not covered by the primary plan
in addition to premiums, are counted toward the employee's required
contribution if the health reimbursement arrangement would be
integrated, as that term is used in Notice 2013-54 (2013-40 IRB 287) or
in any successor published guidance (see Sec. 601.601(d) of this
chapter), with an eligible employer-sponsored plan for an employee
enrolled in the plan. The eligible employer-sponsored plan and the
health reimbursement arrangement must be offered by the same employer.
Employer contributions to a health reimbursement arrangement count
toward an employee's required contribution only to the extent the amount
of the annual contribution is required under the terms of the plan or
otherwise determinable within a reasonable time before the employee must
decide whether to enroll in the eligible employer-sponsored plan.
(E) Employer contributions to cafeteria plans. Amounts made
available for the current plan year under a cafeteria plan, within the
meaning of section 125, are taken into account in determining an
employee's or a related individual's required contribution if:
(1) The employee may not opt to receive the amount as a taxable
benefit;
(2) The employee may use the amount to pay for minimum essential
coverage; and
(3) The employee may use the amount exclusively to pay for medical
care, within the meaning of section 213.
(F) Wellness program incentives. Nondiscriminatory wellness program
incentives, within the meaning of Sec. 54.9802-1(f) of this chapter,
offered by an eligible employer-sponsored plan that affect premiums are
treated as earned in determining an employee's required contribution for
purposes of affordability of an eligible employer-sponsored plan to the
extent the incentives relate exclusively to tobacco use. Wellness
program incentives that do not relate to tobacco use or that include a
component unrelated to tobacco use are treated as not earned for this
purpose. For purposes of this section, the term wellness program
incentive has the same meaning as the term reward in Sec. 54.9802-
1(f)(1)(i) of this chapter.
(G) Opt-out arrangements. [Reserved]
(iii) Examples. The following examples illustrate the application of
this paragraph (e)(3). Unless stated otherwise, in each example, each
individual's taxable year is a calendar year, the individual is
ineligible for any other exemptions described in this section for a
month, the rate of premium growth has not exceeded the rate of income
growth since 2013, and the individual's employer offers a single plan
that uses a calendar plan year and is
[[Page 55]]
an eligible employer-sponsored plan as described in Sec. 1.5000A-2(c).
Example 1. Unmarried employee with no dependents. Taxpayer A is an
unmarried individual with no dependents. In November 2015, A is eligible
to enroll in self-only coverage under a plan offered by A's employer for
calendar year 2016. If A enrolls in the coverage, A is required to pay
$5,000 of the total annual premium. In 2016, A's household income is
$60,000. Under paragraph (e)(3)(ii)(A) of this section, A's required
contribution is $5,000, the portion of the annual premium A pays for
self-only coverage. Under paragraph (e)(1) of this section, A lacks
affordable coverage for 2016 because A's required contribution ($5,000)
is greater than 8% of A's household income ($4,800).
Example 2. Married employee with dependents. Taxpayers B and C are
married and file a joint return for 2016. B and C have two children, D
and E. In November 2015, B is eligible to enroll in self-only coverage
under a plan offered by B's employer for calendar year 2016 at a cost of
$5,000 to B. C, D, and E are eligible to enroll in family coverage under
the same plan for 2016 at a cost of $20,000 to B. B, C, D, and E's
household income for 2016 is $90,000. Under paragraph (e)(3)(ii)(A) of
this section, B's required contribution is B's share of the cost for
self-only coverage, $5,000. Under paragraph (e)(1) of this section, B
has affordable coverage for 2016 because B's required contribution
($5,000) does not exceed 8% of B's household income ($7,200). Under
paragraph (e)(3)(ii)(B) of this section, the required contribution for
C, D, and E is B's share of the cost for family coverage, $20,000. Under
paragraph (e)(1) of this section, C, D, and E lack affordable coverage
for 2016 because their required contribution ($20,000) exceeds 8% of
their household income ($7,200).
Example 3. Plan year is a fiscal year. (i) Taxpayer F is an
unmarried individual with no dependents. In June 2015, F is eligible to
enroll in self-only coverage under a plan offered by F's employer for
the period July 2015 through June 2016 at a cost to F of $4,750. In June
2016, F is eligible to enroll in self-only coverage under a plan offered
by F's employer for the period July 2016 through June 2017 at a cost to
F of $5,000. In 2016, F's household income is $60,000.
(ii) Under paragraph (e)(3)(ii)(C) of this section, F's annualized
required contribution for the period January 2016 through June 2016 is
$4,750 ($2,375 paid for premiums in 2016 x 12/6). Under paragraph (e)(1)
of this section, F has affordable coverage for January 2016 through June
2016 because F's annualized required contribution ($4,750) does not
exceed 8% of F's household income ($4,800).
(iii) Under paragraph (e)(3)(ii)(C) of this section, F's annualized
required contribution for the period July 2016 to December 2016 is
$5,000 ($2,500 paid for premiums in 2016 x 12/6). Under paragraph (e)(1)
of this section, F lacks affordable coverage for July 2016 through
December 2016 because F's annualized required contribution ($5,000)
exceeds 8% of F's household income ($4,800).
Example 4. Eligibility for coverage under an eligible employer-
sponsored plan and under government sponsored coverage. Taxpayer G is
unmarried and has one child, H. In November 2015, H is eligible to
enroll in family coverage under a plan offered by G's employer for 2016.
H is also eligible to enroll in the CHIP program for 2016. Under
paragraph (e)(3)(i) of this section, H is treated as eligible for
coverage under an eligible employer-sponsored plan for each month in
2016, notwithstanding that H is eligible to enroll in government
sponsored coverage for the same period.
(4) Individuals ineligible for coverage under eligible employer-
sponsored plans--(i) Eligibility for coverage other than an eligible
employer-sponsored plan. An individual is treated as ineligible for
coverage under an eligible employer-sponsored plan for a month that is
not described in paragraph (e)(3)(i) of this section.
(ii) Required contribution for individuals ineligible for coverage
under eligible employer-sponsored plans--(A) In general. In the case of
an individual who is ineligible for coverage under an eligible employer-
sponsored plan, the required contribution is the premium for the
applicable plan, reduced by the maximum amount of any credit allowable
under section 36B for the taxable year, determined as if the individual
was covered for the entire taxable year by a qualified health plan
offered through the Exchange serving the rating area where the
individual resides.
(B) Applicable plan--(1) In general. Except as provided in paragraph
(e)(4)(ii)(B)(2) of this section, applicable plan means the single
lowest cost bronze plan available in the individual market through the
Exchange serving the rating area in which the individual resides
(without regard to whether the individual purchased a qualified health
plan through the Exchange) that would cover all individuals in the
individual's nonexempt family. For purposes of this paragraph (e)(4), an
individual's nonexempt family means the family (as defined in Sec.
1.5000A-1(d)(4)) that includes the individual, excluding any family
members who are otherwise exempt
[[Page 56]]
under section 1.5000A-3 or are treated as eligible for coverage under an
eligible employer-sponsored plan under paragraph (e)(3)(i) of this
section. The premium for the applicable plan takes into account rating
factors (for example, an individual's age or tobacco use) that an
Exchange would use to determine the cost of coverage.
(2) Lowest cost bronze plan does not cover all individuals included
in the taxpayer's nonexempt family--(i) In general. If the Exchange
serving the rating area where the individual resides does not offer a
single bronze plan covering all individuals included in the individual's
nonexempt family, the premium for the applicable plan is the sum of the
premiums for the lowest cost bronze plans that are offered through the
Exchanges serving the rating areas where one or more of the individuals
reside that would cover in the aggregate all the individuals in the
individual's nonexempt family. For instance, coverage offered through
the Exchange in a rating area might not cover a family member living in
different rating area or a single policy might not cover all the members
in a taxpayer's household.
(ii) Optional simplified method for applicable plan identification.
[Reserved]
(C) Wellness programs incentives. [Reserved]
(D) Credit allowable under section 36B. For purposes of paragraph
(e)(4)(ii)(A) of this section, maximum amount of any credit allowable
under section 36B means the maximum amount of the credit that would be
allowable to the individual, or to the taxpayer who can properly claim
the individual as a dependent, under section 36B if all members of the
individual's nonexempt family enrolled in a qualified health plan
through the Exchange serving the rating area where the individual
resides.
(E) Required contribution for part-year period. For each individual,
affordability under paragraph (e)(4) of this section is determined
separately for each period described in paragraph (e)(4)(ii)(E) of this
section that is less than a 12-month period. Coverage under a plan is
affordable for a part-year period if the annualized required
contribution for coverage under the plan for the part-year period does
not exceed the required contribution percentage of the individual's
household income for the taxable year. The annualized required
contribution is the required contribution determined under paragraph
(e)(4)(ii)(A) of this section for the part-year period times a fraction,
the numerator of which is 12 and the denominator of which is the number
of months in the part-year period during the individual's taxable year.
Only full calendar months are included in the computation under this
paragraph (e)(4)(ii)(D).
(iii) Examples. The following examples illustrate the provisions of
this paragraph (e)(4). Unless stated otherwise, in each example the
taxpayer's taxable year is a calendar year, the rate of premium growth
has not exceeded the rate of income growth since 2013, and the taxpayer
is ineligible for any of the exemptions described in paragraphs (a)
through (d) and (f) through (j) of this section for a month.
Example 1. Unmarried individual with no dependents. (i) Taxpayer G
is an unmarried individual with no dependents. G is ineligible to enroll
in any minimum essential coverage other than coverage in the individual
market for all months in 2016. The annual premium for the lowest cost
bronze self-only plan in G's rating area (G's applicable plan) is
$5,000. The adjusted annual premium for the second lowest cost silver
self-only plan in G's rating area (G's applicable benchmark plan within
the meaning of Sec. 1.36B-3(f)) is $5,500. In 2016 G's household income
is $40,000, which is 358% of the Federal poverty line for G's family
size for the taxable year.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit
allowable under section 36B is determined pursuant to section 36B. With
household income at 358% of the Federal poverty line, G's applicable
percentage is 9.5. Because each month in 2016 is a coverage month
(within the meaning of Sec. 1.36B-3(c)), G's maximum credit allowable
under section 36B is the excess of G's premium for the applicable
benchmark plan over the product of G's household income and G's
applicable percentage ($1,700). Therefore, under paragraph (e)(4)(ii)(A)
of this section, G's required contribution is $3,300. Under paragraph
(e)(1) of this section, G lacks affordable coverage for 2016 because G's
required contribution ($3,300) exceeds 8% of G's household income
($3,200).
Example 2. Family. (i) In 2016 Taxpayers M and N are married and
file a joint return. M and N have two children, P and Q. M, N, P, and Q
are ineligible to enroll in minimum essential coverage other than
coverage in the
[[Page 57]]
individual market for a month in 2016. The annual premium for M, N, P,
and Q's applicable plan is $20,000. The adjusted annual premium for M,
N, P, and Q's applicable benchmark plan (within the meaning of Sec.
1.36B-3(f)) is $25,000. M and N's household income is $80,000, which is
347% of the Federal poverty line for a family size of 4 for the taxable
year.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit
allowable under section 36B is determined pursuant to section 36B. With
household income at 347% of the Federal poverty line, the applicable
percentage is 9.5. Because each month in 2016 is a coverage month
(within the meaning of Sec. 1.36B-3(c)), the maximum credit allowable
under section 36B is the excess of the premium for the applicable
benchmark plan over the product of the household income and the
applicable percentage ($17,400). Therefore, under paragraph
(e)(4)(ii)(A) of this section, the required contribution for M, N, P,
and Q is $2,600. Under paragraph (e)(1) of this section, M, N, P, and Q
have affordable coverage for 2016 because their required contribution
($2,600) does not exceed 8% of their household income ($6,400).
Example 3. Family with some members eligible for government-
sponsored coverage. (i) In 2016 Taxpayers U and V are married and file a
joint return. U and V have two children, W and X. U and V are ineligible
to enroll in minimum essential coverage other than coverage in the
individual market for all months in 2016; however, W and X are eligible
for coverage under CHIP for 2016. The annual premium for U, V, W, and
X's applicable plan is $20,000. The adjusted annual premium for the
second lowest cost silver plan that would cover U and V (the applicable
benchmark plan within the meaning of Sec. 1.36B-3(f)) is $12,500. U and
V's household income is $50,000, which is 217% of the Federal poverty
line for a family size of 4 for the taxable year. W and X do not enroll
in CHIP coverage.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit
allowable under section 36B is determined pursuant to section 36B. With
household income at 217% of the Federal poverty line, the applicable
percentage is 6.89. Each month in 2016 is a coverage month (within the
meaning of Sec. 1.36B-3(c)) for U and V, but no months in 2016 are
coverage months for W and X because they are eligible for CHIP coverage.
The maximum credit allowable under section 36B is the excess of the
premium for the applicable benchmark plan over the product of the
household income and the applicable percentage ($9,055). Therefore,
under paragraph (e)(4)(ii)(A) of this section, the required contribution
is $10,945. Under paragraph (e)(1) of this section, U, V, W, and X lack
affordable coverage for 2016 because their required contribution
($10,945) exceeds 8% of their household income ($4,000).
Example 4. Family with some members enrolled in government-sponsored
minimum essential coverage. The facts are the same as Example 3, except
W and X enroll in CHIP coverage on January 1, 2016. Under paragraph
(e)(4)(ii)(B), U, V, W, and X are members of U and V's nonexempt family
for 2016. Therefore, the annual premium for the applicable plan is the
same as in Example 3 ($20,000). The maximum credit allowable under
section 36B is also the same as in Example 3 ($9,055). Under paragraph
(e)(4)(ii)(A) of this section, the required contribution is $10,945.
Under paragraph (e)(1) of this section, U and V lack affordable coverage
for 2016 because their required contribution ($10,945) exceeds 8% of
their household income ($4,000).
(f) Household income below filing threshold--(1) In general. An
individual is an exempt individual for any taxable year for which the
individual's household income is less than the applicable filing
threshold.
(2) Applicable filing threshold--(i) In general. For purposes of
this section, applicable filing threshold means the amount of gross
income that would trigger an individual's requirement to file a Federal
income tax return under section 6012(a)(1).
(ii) Certain dependents. The applicable filing threshold for an
individual who is properly claimed as a dependent by another taxpayer is
equal to the other taxpayer's applicable filing threshold.
(3) Manner of claiming the exemption. A taxpayer is not required to
file a Federal income tax return solely to claim the exemption described
in this paragraph (f). If a taxpayer has a household income below the
applicable filing threshold and nevertheless files a Federal income tax
return, the taxpayer may claim the exemption described in this paragraph
(f) on the return.
(g) Members of Indian tribes. An individual is an exempt individual
for a month that includes a day on which the individual is a member of
an Indian tribe. For purposes of this section, Indian tribe means a
group or community described in section 45A(c)(6).
(h) Individuals with hardship exemption certification--(1) In
general. Except as provided in paragraph (h)(3) of this section, an
individual is an exempt individual for a month that includes a day on
which the individual has in effect a hardship exemption certification
[[Page 58]]
described in paragraph (h)(2) of this section.
(2) Hardship exemption certification. A hardship exemption
certification is issued by an Exchange under section 1311(d)(4)(H) of
the Affordable Care Act (42 U.S.C. 18031(d)(4)(H)), 45 CFR
155.605(g)(1), (g)(2), (g)(4) and (g)(6), 45 CFR 155.610(i), and 45 CFR
155.615(f), and certifies that an individual has suffered a hardship (as
that term is defined in 45 CFR 155.605(g)) affecting the capability to
obtain minimum essential coverage.
(3) Hardship exemption without hardship exemption certification. An
individual may claim an exemption without obtaining a hardship exemption
certification described in paragraph (h)(2) of this section for any
month that includes a day on which the individual meets the requirements
of any hardship for which:
(i) The Secretary of HHS issues guidance of general applicability
describing the hardship and indicating that an exemption for such
hardship can be claimed on a Federal income tax return pursuant to
guidance published by the Secretary; and
(ii) The Secretary issues published guidance of general
applicability, see Sec. 601.601(d)(2) of this chapter, allowing an
individual to claim the hardship exemption on a return without obtaining
a hardship exemption from an Exchange.
(i) [Reserved]
(j) Individuals with certain short coverage gaps--(1) In general. An
individual is an exempt individual for a month the last day of which is
included in a short coverage gap.
(2) Short coverage gap--(i) In general. Short coverage gap means a
continuous period of less than three months in which the individual is
not covered under minimum essential coverage. If the individual does not
have minimum essential coverage for a continuous period of three or more
months, none of the months included in the continuous period are treated
as included in a short coverage gap.
(ii) Coordination with other exemptions. For purposes of this
paragraph (j), an individual is treated as having minimum essential
coverage for a month in which an individual is exempt under any of
paragraphs (a) through (h) of this section.
(iii) More than one short coverage gap during calendar year. If a
calendar year includes more than one short coverage gap, the exemption
provided by this paragraph (j) only applies to the earliest short
coverage gap.
(3) Continuous period--(i) In general. Except as provided in
paragraph (j)(3)(ii) of this section, the number of months included in a
continuous period is determined without regard to the calendar years in
which months included in that period occur. For purposes of paragraph
(j) of this section, a continuous period begins no earlier than January
1, 2014.
(ii) Continuous period straddling more than one taxable year. If an
individual does not have minimum essential coverage for a continuous
period that begins in one taxable year and ends in the next, for
purposes of applying this paragraph (j) to the first taxable year, the
months in the second taxable year included in the continuous period are
disregarded. For purposes of applying this paragraph (j) to the second
taxable year, the months in the first taxable year included in the
continuous period are taken into account.
(4) Examples. The following examples illustrate the provisions of
this paragraph (j). Unless stated otherwise, in each example the
taxpayer's taxable year is a calendar year and the taxpayer is
ineligible for any of the exemptions described in paragraphs (a) through
(h) of this section for a month.
Example 1. Short coverage gap. Taxpayer D has minimum essential
coverage in 2016 from January 1 through March 2. After March 2, D does
not have minimum essential coverage until D enrolls in an eligible
employer-sponsored plan effective June 15. Under Sec. 1.5000A-1(b), for
purposes of section 5000A, D has minimum essential coverage for January,
February, March, and June through December. D's continuous period
without coverage is 2 months, April and May. April and May constitute a
short coverage gap under paragraph (j)(2)(i) of this section.
Example 2. Continuous period of 3 months or more. The facts are the
same as in Example 1, except D's coverage is not effective until July 1.
D's continuous period without coverage is 3 months, April, May, and
June. Under paragraph (j)(2)(i) of this section, April, May, and June
are not included in a short coverage gap.
[[Page 59]]
Example 3. Short coverage gap following exempt period. Taxpayer E is
incarcerated from January 1 through June 2. E enrolls in an eligible
employer-sponsored plan effective September 15. Under paragraph (d) of
this section, E is exempt for the period January through June. Under
paragraph (j)(2)(ii) of this section, E is treated as having minimum
essential coverage for this period, and E's continuous period without
minimum essential coverage is 2 months, July and August. July and August
constitute a short coverage gap under paragraph (j)(2)(i) of this
section.
Example 4. Continuous period covering more than one taxable year.
Taxpayer F, an unmarried individual with no dependents, has minimum
essential coverage for the period January 1 through October 15, 2016. F
is without coverage until February 15, 2017. F files his Federal income
tax return for 2016 on March 10, 2017. Under paragraph (j)(3)(ii) of
this section, November and December of 2016 are treated as a short
coverage gap. However, November and December of 2016 are included in the
continuous period that includes January 2017. The continuous period for
2017 is not less than 3 months and, therefore, January is not a part of
a short coverage gap.
Example 5. Enrollment following loss of coverage. The facts are the
same as in Example 4 except F loses coverage on June 15, 2017. F enrolls
in minimum essential coverage effective September 15, 2017. The
continuous period without minimum essential coverage in July and August
of 2017 is two months and, therefore, is a short coverage gap. Because
January 2017 was not part of a short coverage gap, the earliest short
coverage gap occurring in 2017 is the gap that includes July and August.
Example 6. Multiple coverage gaps. (i) The facts are the same as in
Example 5 except F has minimum essential coverage for November 2016.
Under paragraph (j)(3)(ii) of this section, December 2016 is treated as
a short coverage gap.
(ii) December 2016 is included in the continuous period that
includes January 2017. This continuous period is two months and,
therefore, January 2017 is the earliest month in 2017 that is included
in a short coverage gap. Under paragraph (j)(2)(iii) of this section,
the exemption under this paragraph (j) applies only to January 2017.
Thus, the continuous period without minimum essential coverage in July
and August of 2017 is not a short coverage gap.
[T.D. 9632, 78 FR 53655, Aug. 30, 2013, as amended at 78 FR 78255, Dec.
26, 2013; T.D. 9705, 79 FR 70469, Nov. 26, 2014; T.D. 9804, 81 FR 91768,
Dec. 19, 2016]
Sec. 1.5000A-4 Computation of shared responsibility payment.
(a) In general. For each taxable year, the shared responsibility
payment imposed on a taxpayer in accordance with Sec. 1.5000A-1(c) is
the lesser of--
(1) The sum of the monthly penalty amounts; or
(2) The sum of the monthly national average bronze plan premiums for
the shared responsibility family.
(b) Monthly penalty amount--(1) In general. Monthly penalty amount
means, for a month that a nonexempt individual is not covered under
minimum essential coverage, 1/12 multiplied by the greater of--
(i) The flat dollar amount; or
(ii) The excess income amount.
(2) Flat dollar amount--(i) In general. Flat dollar amount means the
lesser of--
(A) The sum of the applicable dollar amounts for all individuals
included in the taxpayer's shared responsibility family; or
(B) 300 percent of the applicable dollar amount (determined without
regard to paragraph (b)(2)(iii) of this section) for the calendar year
with or within which the taxable year ends.
(ii) Applicable dollar amount. Except as provided in paragraphs
(b)(2)(iii) and (b)(2)(iv) of this section, the applicable dollar amount
is--
(A) $95 in 2014;
(B) $325 in 2015; or
(C) $695 in 2016.
(iii) Special applicable dollar amount for individuals under age 18.
If an individual has not attained the age of 18 before the first day of
a month, the applicable dollar amount for the individual is equal to
one-half of the applicable dollar amount (as expressed in paragraph
(b)(2)(ii) of this section) for the calendar year in which the month
occurs. For purposes of this paragraph (b)(2)(iii), an individual
attains the age of 18 on the anniversary of the date when the individual
was born. For example, an individual born on March 1, 1999, attains the
age of 18 on March 1, 2017.
(iv) Indexing of applicable dollar amount. In any calendar year
after 2016, the applicable dollar amount is $695 as increased by the
product of $695 and the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year. For purposes of this paragraph
(b)(2)(iv), the cost-of-living adjustment is determined by substituting
``calendar year 2015'' for ``calendar year
[[Page 60]]
1992'' in section 1(f)(3)(B). If any increase under this paragraph
(b)(2)(iv) is not a multiple of $50, the increase is rounded down to the
next lowest multiple of $50.
(3) Excess income amount--(i) In general. Excess income amount means
the product of--
(A) The excess of the taxpayer's household income over the
taxpayer's applicable filing threshold (as defined in Sec. 1.5000A-
3(f)(2)); and
(B) The income percentage.
(ii) Income percentage. For purposes of this section, income
percentage means--
(A) 1.0 percent for taxable years beginning in 2013;
(B) 1.0 percent for taxable years beginning in 2014;
(C) 2.0 percent for taxable years beginning in 2015; or
(D) 2.5 percent for taxable years beginning after 2015.
(c) Monthly national average bronze plan premium. Monthly national
average bronze plan premium means, for a month for which a shared
responsibility payment is imposed, \1/12\ of the annual national average
premium for qualified health plans that have a bronze level of coverage,
would provide coverage for the taxpayer's shared responsibility family
members who do not have minimum essential coverage for the month, and
are offered through Exchanges for plan years beginning in the calendar
year with or within which the taxable year ends.
(d) Examples. The following examples illustrate the provisions of
this section. In each example the taxpayer's taxable year is a calendar
year and all members of the taxpayer's shared responsibility family are
ineligible for any of the exemptions described in Sec. 1.5000A-3 for a
month.
Example 1. Unmarried taxpayer without minimum essential coverage.
(i) In 2016, Taxpayer G is an unmarried individual with no dependents. G
does not have minimum essential coverage for any month in 2016. G's
household income is $120,000. G's applicable filing threshold is
$12,000. The annual national average bronze plan premium for G is
$5,000.
(ii) For each month in 2016, under paragraph (b)(2)(ii) of this
section, G's applicable dollar amount is $695. Under paragraph (b)(2)(i)
of this section, G's flat dollar amount is $695 (the lesser of $695 and
$2,085 ($695 x 3)). Under paragraph (b)(3) of this section, G's excess
income amount is $2,700 (($120,000 - $12,000) x 0.025). Therefore, under
paragraph (b)(1) of this section, the monthly penalty amount is $225
(the greater of $58 ($695/12) or $225 ($2,700/12)).
(iii) The sum of the monthly penalty amounts is $2,700 ($225 x 12).
The sum of the monthly national average bronze plan premiums is $5,000
($5,000/12 x 12). Therefore, under paragraph (a) of this section, the
shared responsibility payment imposed on G for 2016 is $2,700 (the
lesser of $2,700 or $5,000).
Example 2. Part-year coverage. The facts are the same as in Example
1, except G has minimum essential coverage for January through June. The
sum of the monthly penalty amounts is $1,350 ($225 x 6). The sum of the
monthly national average bronze plan premiums is $2,500 ($5,000/12 x 6).
Therefore, under paragraph (a) of this section, the shared
responsibility payment imposed on G for 2016 is $1,350 (the lesser of
$1,350 or $2,500).
Example 3. Family without minimum essential coverage. (i) In 2016,
Taxpayers H and J are married and file a joint return. H and J have
three children: K, age 21, L, age 15, and M, age 10. No member of the
family has minimum essential coverage for any month in 2016. H and J's
household income is $250,000. H and J's applicable filing threshold is
$24,000. The annual national average bronze plan premium for a family of
5 (3 adults, 2 children) is $15,000.
(ii) For each month in 2016, under paragraphs (b)(2)(ii) and
(b)(2)(iii) of this section, the applicable dollar amount is $2,780
(($695 x 3 adults) + (($695/2) x 2 children)). Under paragraph (b)(2)(i)
of this section, the flat dollar amount is $2,085 (the lesser of $2,780
and $2,085 ($695 x 3)). Under paragraph (b)(3) of this section, the
excess income amount is $5,650 (($250,000-$24,000) x 0.025). Therefore,
under paragraph (b)(1) of this section, the monthly penalty amount is
$470.83 (the greater of $173.75 ($2,085/12) or $470.83 ($5,650/12)).
(iii) The sum of the monthly penalty amounts is $5,650 ($470.83 x
12). The sum of the monthly national average bronze plan premiums is
$15,000 ($15,000/12 x 12). Therefore, under paragraph (a) of this
section, the shared responsibility payment imposed on H and J for 2016
is $5,650 (the lesser of $5,650 or $15,000).
Example 4. Change in shared responsibility family during the year.
(i) The facts are the same as in Example 3, except J has minimum
essential coverage for January through June. The annual national average
bronze plan premium for a family of 4 (2 adults, 2 children) is $10,000.
(ii) For the period January through June 2016, under paragraphs
(b)(2)(ii) and (b)(2)(iii) of this section the applicable dollar amount
[[Page 61]]
is $2,085 (($695 x 2 adults) + (($695/2) x 2 children)). Under paragraph
(b)(2)(i) of this section, the flat dollar amount is $2,085 (the lesser
of $2,085 or $2,085 ($695 x 3)).
(iii) For the period July through December 2016, the applicable
dollar amount is $2,780 (($695 x 3 adults) + (($695/2) x 2 children)).
Under paragraph (b)(2) of this section, the flat dollar amount is $2,085
(the lesser of $2,780 or $2,085 ($695 x 3)). Under paragraph (b)(3) of
this section, the excess income amount is $5,650 (($250,000-$24,000) x
0.025). Therefore, under paragraph (b)(1) of this section, for January
through June the monthly penalty amount is $470.83 (the greater of
$173.75 ($2,085/12) or $470.83 ($5,650/12)). The monthly penalty amount
for July through December is $470.83 (the greater of $173.75 ($2,085/12)
or $470.83 ($5,650/12)).
(iv) The sum of the monthly penalty amounts is $5,650 ($470.83 x
12). The sum of the monthly national average bronze plan premiums is
$12,500 ((($10,000/12) x 6) + (($15,000/12) x 6))). Therefore, under
paragraph (a) of this section, the shared responsibility payment imposed
on H and J for 2016 is $5,650 (the lesser of $5,650 or $12,500).
Example 5. Eighteenth birthday during the year. (i) In 2016
Taxpayers S and T are married and file a joint return. S and T have one
child, U, who turns 18 years old on June 28. S, T, and U do not enroll
in, and as a result are not eligible to receive benefits under,
affordable employer-sponsored coverage offered by T's employer for 2016.
S and T's household income is $60,000. S and T's applicable filing
threshold is $24,000. The annual national average bronze plan premium
for a family of 3 (2 adults, 1 child) is $11,000.
(ii) For the period January through June 2016, under paragraphs
(b)(2)(ii) and (b)(2)(iii) of this section, the applicable dollar amount
is $1,737.50 (($695 x 2 adults) + ($695/2) x 1 child)). Under paragraph
(b)(2) of this section, the flat dollar amount is $1,737.50 (the lesser
of $1,737.50 or $2,085 ($695 x 3)).
(iii) For the period July through December 2016, the applicable
dollar amount is $2,085 ($695 x 3). Under paragraph (b)(2)(i) of this
section, the flat dollar amount is $2,085 (the lesser of $2,085 or
$2,085 ($695 x 3)). Under paragraph (b)(3) of this section, the excess
income amount is $900 (($60,000-$24,000) x 0.025). Therefore, under
paragraph (b)(1) of this section, for January through June the monthly
penalty amount is $144.79 (the greater of $144.79 ($1,737.50/12) or $75
($900/12)). The monthly penalty amount for July through December is
$173.75 (the greater of $173.75 ($2,085/12) or $75 ($900/12)).
(iv) The sum of the monthly penalty amounts is $1,911.24 (($144.79 x
6) + ($173.75 x 6)). The sum of the monthly national average bronze plan
premiums is $11,000 ($11,000/12 x 12). Therefore, under paragraph (a) of
this section, the shared responsibility payment imposed on S and T for
2016 is $1,911.24 (the lesser of $1,911.24 or $11,000).
[T.D. 9632, 78 FR 53655, Aug. 30, 2013, as amended at 78 FR 78255, Dec.
26, 2013; T.D. 9705, 79 FR 70469, Nov. 26, 2014]
Sec. 1.5000A-5 Administration and procedure.
(a) In general. A taxpayer's liability for the shared responsibility
payment for a month must be reported on the taxpayer's Federal income
tax return for the taxable year that includes the month. The period of
limitations for assessing the shared responsibility payment is the same
as that prescribed by section 6501 for the taxable year to which the
Federal income tax return on which the shared responsibility payment is
to be reported relates. The shared responsibility payment is payable
upon notice and demand by the Secretary, and except as provided in
paragraph (b) of this section, is assessed and collected in the same
manner as an assessable penalty under subchapter B of chapter 68 of the
Internal Revenue Code. The shared responsibility payment is not subject
to deficiency procedures of subchapter B of chapter 63 of the Internal
Revenue Code. Interest on this payment accrues in accordance with the
rules in section 6601.
(b) Special rules. Notwithstanding any other provision of law--
(1) Waiver of criminal penalties. In the case of a failure by a
taxpayer to timely pay the shared responsibility payment, the taxpayer
is not subject to criminal prosecution or penalty for the failure.
(2) Limitations on liens and levies. If a taxpayer fails to pay the
shared responsibility payment imposed by this section and Sec. Sec.
1.5000A-1 through 1.5000A-4, the Secretary will not file notice of lien
on any property of the taxpayer, or levy on any property of the taxpayer
for the failure.
(3) Authority to offset against overpayment. Nothing in this section
prohibits the Secretary from offsetting any liability for the shared
responsibility payment against any overpayment due the taxpayer, in
accordance with section 6402(a) and its corresponding regulations.
[[Page 62]]
(c) Effective/applicability date. This section and Sec. Sec.
1.5000A-1 through 1.5000A-4 apply for months beginning after December
31, 2013.
[T.D. 9632, 78 FR 53655, Aug. 30, 2013]
Tax on Certain Foreign Procurement
Sec. 1.5000C-0 Outline of regulation provisions for section 5000C.
This section lists the captions contained in Sec. Sec. 1.5000C-1
through 1.5000C-7.
Sec. 1.5000C-1 Tax on specified Federal procurement payments.
(a) Overview.
(b) Imposition of tax.
(c) Definitions.
(d) Exemptions.
(1) Simplified acquisitions.
(2) Emergency acquisitions.
(3) Certain personal service contracts.
(4) Certain foreign humanitarian assistance contracts.
(5) Certain international agreements.
(6) Goods manufactured or produced or services provided in the
United States.
(7) Goods manufactured or produced or services provided in a country
that is a party to an international procurement agreement.
(e) Country in which goods are manufactured or produced or services
provided.
(1) Goods manufactured or produced.
(2) Provision of services.
(3) Allocation of total contract price to determine the nonexempt
amount.
(4) Reduction or elimination of withholding by an acquiring agency.
Sec. 1.5000C-2 Withholding on specified Federal procurement payments.
(a) In general.
(b) Steps in determining the obligation to withhold under section
5000C.
(1) Determine whether the payment is pursuant to a contract for
goods or services.
(2) Determine whether the payment is made pursuant to a contract
with a U.S. person.
(3) Determine whether the payment is for purchases under the
simplified acquisition procedures.
(4) Determine whether the payment is for emergency acquisitions.
(5) Determine whether the payment is for personal services under the
simplified acquisition threshold.
(6) Determine whether the payment is pursuant to a foreign
humanitarian assistance contract.
(7) Determine whether the foreign contracting party is entitled to
relief pursuant to an international agreement.
(8) Determine whether the contract is for goods manufactured or
produced or services provided in the United States or in a foreign
country that is a party to an international procurement agreement.
(9) Compute amounts to withhold.
(10) Deposit and report amounts withheld.
(c) Determining whether the contracting party is a U.S. person.
(1) In general.
(2) Determination based on Taxpayer Identification Number (TIN).
(3) Determination based on the Form W-9.
(4) Contracting party treated as a foreign contracting party.
(d) Withholding when a foreign contracting party submits a Section
5000C Certificate.
(1) In general.
(2) Exemption for a foreign contracting party entitled to the
benefit of relief pursuant to certain international agreements.
(3) Exemption when goods are manufactured or produced or services
provided in the United States, or in a foreign country that is a party
to an international procurement agreement.
(4) Information required for Section 5000C Certificate.
(5) Validity period of Section 5000C Certificate.
(6) Change in circumstances.
(7) Form W-14.
(8) Time for submitting Section 5000C Certificate.
(e) Offset for underwithholding or overwithholding.
(1) In general.
(2) Underwithholding.
(3) Overwithholding.
Sec. 1.5000C-3 Payment and returns of tax withheld by the acquiring
agency.
(a) In general.
(b) Deposit rules.
(1) Acquiring agency with a chapter 3 deposit requirement treats
amounts withheld as under chapter 3.
(2) Acquiring agency with no chapter 3 filing obligation deposits
withheld amounts monthly.
(c) Return requirements.
(1) In general.
(2) Classified or confidential contracts.
(d) Special arrangement for certain contracts.
Sec. 1.5000C-4 Requirement for the foreign contracting party to file a
return and pay tax, and procedures for the contracting party to seek a
refund.
(a) In general.
(b) Tax obligation of foreign contracting party independent of
withholding.
(c) Return of tax by the foreign contracting party.
(d) Time and manner of paying tax.
(e) Refund requests when amount withheld exceeds tax liability.
[[Page 63]]
Sec. 1.5000C-5 Anti-abuse rule.
Sec. 1.5000C-6 Examples.
Sec. 1.5000C-7 Effective/applicability date.
[T.D. 9782, 81 FR 55137, Aug. 18, 2016]
Sec. 1.5000C-1 Tax on specified Federal procurement payments.
(a) Overview. This section provides definitions and general rules
relating to the imposition of, and exemption from, the tax on specified
Federal procurement payments under section 5000C. Section 1.5000C-2
provides rules concerning withholding under section 5000C(d)(1),
including the steps that must be taken to determine the obligation to
withhold and whether an exemption from withholding applies. Section
1.5000C-3 provides the time and manner for depositing the amounts
withheld under section 5000C and the related reporting requirements.
Section 1.5000C-4 contains the rules that apply to a foreign contracting
party that must pay and report the tax under section 5000C when the tax
obligation under section 5000C is not fully satisfied by withholding, as
well as procedures by which a contracting party may seek a refund when
the amount withheld exceeds its tax liability under section 5000C.
Section 1.5000C-5 contains an anti-abuse rule. Section 1.5000C-6
contains examples illustrating the principles of Sec. Sec. 1.5000C-1
through 1.5000C-4. Finally, Sec. 1.5000C-7 contains the effective/
applicability date for Sec. Sec. 1.5000C-1 through 1.5000C-7.
(b) Imposition of tax. Except as otherwise provided, section 5000C
imposes on any foreign contracting party a tax equal to 2 percent of the
amount of a specified Federal procurement payment. In general, the tax
imposed under section 5000C applies to specified Federal procurement
payments received pursuant to contracts entered into on and after
January 2, 2011. Specified Federal procurement payments received by a
nominee or agent on behalf of a contracting party are considered to be
received by that contracting party. The tax imposed under section 5000C
is to be applied in a manner consistent with U.S. obligations under
international agreements. Payments for the purchase or lease of land or
an interest in land are not subject to the tax imposed under section
5000C.
(c) Definitions. Solely for purposes of section 5000C and Sec. Sec.
1.5000C-1 through 1.5000C-7, the following definitions apply:
(1) The term acquiring agency means the U.S. government department,
agency, independent establishment, or corporation described in paragraph
(c)(7) of this section that is a party to the contract. To the extent
that a U.S. government department or agency, other than the acquiring
agency, is making the payments pursuant to the contract, that department
or agency is also considered to be the acquiring agency.
(2) The term contract has the same meaning as provided in 48 CFR
2.101, and thus does not include a grant agreement or a cooperative
agreement within the meaning of 31 U.S.C. 6304 and 6305, respectively. A
contract may include an agreement that is not executed under the Federal
Acquisition Regulations (FAR), 48 CFR Chapter 1.
(3) The term contract ratio refers to the nonexempt amount over the
total contract price.
(4) The term contracting party means any person that is a party to a
contract with the U.S. government that is entered into on or after
January 2, 2011. See Sec. 1.5000C-1(b) for situations involving a
nominee or agent.
(5) The term foreign contracting party means a contracting party
that is a foreign person.
(6) The term foreign person means any person other than a United
States person (as defined in section 7701(a)(30)).
(7) The term Government of the United States or U.S. government
means the executive departments specified in 5 U.S.C. 101, the military
departments specified in 5 U.S.C. 102, the independent establishments
specified in 5 U.S.C. 104(1), and wholly owned government corporations
specified in 31 U.S.C. 9101(3). Unless otherwise specified in 5 U.S.C.
101, 102, or 104(1), or 31 U.S.C. 9101(3), the term Government of the
United States or U.S. government does not include any quasi-governmental
entities or instrumentalities of the U.S. government.
[[Page 64]]
(8) The term international procurement agreement means the World
Trade Organization Government Procurement Agreement within the meaning
of 48 CFR 25.400(a)(1) and any free trade agreement to which the United
States is a party that includes government procurement obligations that
provide appropriate competitive government procurement opportunities to
U.S. goods, services, and suppliers. A party to an international
procurement agreement is a signatory to the agreement and does not
include a country that is merely an observer with respect to the
agreement.
(9) The term nonexempt amount means the portion of the contract
price allocated to nonexempt goods and nonexempt services.
(10) The term nonexempt goods means goods manufactured or produced
in a foreign country that is not a party to an international procurement
agreement with the United States.
(11) The term nonexempt services means services provided in a
foreign country that is not a party to an international procurement
agreement with the United States.
(12) The term outlying areas has the same meaning as set forth in 48
CFR 2.101(b), which includes Puerto Rico, the Northern Mariana Islands,
American Samoa, Guam, the Virgin Islands, Baker Island, Howland Island,
Jarvis Island, Johnston Atoll, Kingman Reef, Midway Islands, Navassa
Island, Palmyra Atoll, and Wake Atoll.
(13) The term qualified income tax treaty means a U.S. income tax
treaty in force that contains a nondiscrimination provision that applies
to the tax imposed under section 5000C and prohibits taxation that is
more burdensome on a foreign national than a U.S. national (or in the
case of certain income tax treaties, taxation that is more burdensome on
a foreign citizen than a U.S. citizen), regardless of its residence.
(14) The term Section 5000C Certificate means a written statement
that includes the information described in Sec. 1.5000C-2(d) that the
foreign contracting party submits to an acquiring agency for the
purposes of demonstrating that the foreign contracting party is eligible
for certain exemptions from withholding (in whole or in part) under
section 5000C with respect to a contract. The term may also include any
form that the Internal Revenue Service may prescribe as a substitute for
the Section 5000C Certificate, such as Form W-14, ``Certificate of
Foreign Contracting Party Receiving Federal Procurement Payments.''
(15) The term specified Federal procurement payment means any
payment made pursuant to a contract with a foreign contracting party
that is for goods manufactured or produced or services provided in a
foreign country that is not a party to an international procurement
agreement with the United States. For purposes of the prior sentence, a
foreign country does not include an outlying area.
(16) The term Taxpayer Identification Number or TIN means the
identifying number assigned to a person under section 6109, as defined
in section 7701(a)(41).
(17) The term total contract price means the total cost to the U.S.
Government of the goods and services procured under a contract and paid
to the contracting party.
(d) Exemptions. The tax imposed under paragraph (b) of this section
does not apply to the payments made in the following situations. For the
exemptions in paragraphs (d)(5), (6) and (7) of this section, see Sec.
1.5000C-2(d) for the procedures to eliminate withholding by an acquiring
agency.
(1) Simplified acquisitions. Payments for purchases under the
simplified acquisition procedures that do not exceed the simplified
acquisition threshold as described in 48 CFR 2.101.
(2) Emergency acquisitions. Payments made pursuant to a contract if
the contract is--
(i) Awarded under the ``unusual and compelling urgency'' authority
of 48 CFR 6.302-2, or
(ii) Entered into under the emergency acquisition flexibilities as
defined in 48 CFR part 18.
(3) Certain personal service contracts. Payments for services
provided by, and under contracts with, a single individual in which the
payments do not (and will not) exceed on an annual calendar year basis
the simplified acquisition threshold as described in 48 CFR
[[Page 65]]
2.101 for all years of the contract. Payments that satisfy this
exemption remain exempt if the contract is later renegotiated so that
future payments under the contract do not meet this exemption.
(4) Certain foreign humanitarian assistance contracts. Payments made
by the U.S. government pursuant to a contract with a foreign contracting
party to obtain goods or services described in or authorized under 7
U.S.C. 1691, et seq., 22 U.S.C. 2151, et seq., 22 U.S.C. 2601 et seq.,
22 U.S.C. 5801 et seq., 22 U.S.C. 5401 et seq., 10 U.S.C. 402, 10 U.S.C.
404, 10 U.S.C. 407, 10 U.S.C. 2557, and 10 U.S.C. 2561, if the acquiring
agency determines that the payment is for the purpose of providing
foreign humanitarian assistance.
(5) Certain international agreements. Payments made by the U.S.
government pursuant to a contract with a foreign contracting party when
the payments are entitled to relief from the tax imposed under section
5000C pursuant to an international agreement with the United States,
including relief pursuant to a nondiscrimination provision of a
qualified income tax treaty, because the foreign contracting party is
entitled to the benefit of that provision.
(6) Goods manufactured or produced or services provided in the
United States. A payment made pursuant to a contract to the extent that
the payment is for goods manufactured or produced or services provided
in the United States.
(7) Goods manufactured or produced or services provided in a country
that is a party to an international procurement agreement. A payment
made pursuant to a contract to the extent the payment is for goods
manufactured or produced or services provided in a country that is a
party to an international procurement agreement, as defined in paragraph
(c)(8) of this section.
(e) Country in which goods are manufactured or produced or services
provided--
(1) Goods manufactured or produced. Solely for purposes of section
5000C, goods are manufactured or produced in the country (or
countries)--
(i) Where property has been substantially transformed into the goods
that are procured pursuant to a contract; or
(ii) Where there has been assembly or conversion of component parts
(involving activities that are substantial in nature and generally
considered to constitute the manufacture or production of property) into
the final product that constitutes the goods procured pursuant to a
contract.
(2) Provision of services. Solely for purposes of section 5000C,
services are considered to be provided in the country where the
individuals performing the services are physically located when they
perform their duties pursuant to the contract.
(3) Allocation of total contract price to determine the nonexempt
amount. If, pursuant to a contract, goods are manufactured or produced,
or services are provided, in multiple countries and only a portion of
the goods manufactured or produced, or the services provided, pursuant
to the contract are nonexempt goods or nonexempt services, a foreign
contracting party may use a reasonable allocation method to determine
the nonexempt amount. A reasonable allocation method would include
taking into account the proportionate costs (including the cost of labor
and raw materials) incurred to manufacture or produce the goods in each
country, or taking into account the proportionate costs incurred to
provide the services in each country.
(4) Reduction or elimination of withholding by an acquiring agency.
For procedures to reduce or eliminate withholding by an acquiring agency
based on where goods are manufactured or produced or where services are
provided, including as a result of an allocation under this paragraph
(e), see Sec. 1.5000C-2(d).
[T.D. 9782, 81 FR 55138, Aug. 18, 2016]
Sec. 1.5000C-2 Withholding on specified Federal procurement payments.
(a) In general. Except as otherwise provided in this section, every
acquiring agency making a specified Federal procurement payment on which
tax is imposed under section 5000C and Sec. Sec. 1.5000C-1 through
1.5000C-7 must deduct and withhold an amount equal to 2 percent of the
payment. For rules relating to the liability of a foreign contracting
party with respect to specified Federal procurement payments not
[[Page 66]]
fully withheld upon at source, see Sec. 1.5000C-4. An acquiring agency
may rely upon any information furnished by a contracting party under
this section unless the acquiring agency has reason to know that the
information is incorrect or unreliable. An acquiring agency has reason
to know that the information is incorrect or unreliable if it has
knowledge of relevant facts or statements contained in the submitted
information such that a reasonably prudent person in the position of the
acquiring agency would know that the information provided is incorrect
or unreliable.
(b) Steps in determining the obligation to withhold under section
5000C. An acquiring agency generally determines its obligation to
withhold under section 5000C according to the steps described in this
paragraph (b). See, however, paragraph (e) of this section for
situations in which withholding may be increased in the case of
underwithholding, or may be decreased in the case of overwithholding.
(1) Determine whether the payment is pursuant to a contract for
goods or services. The acquiring agency determines whether it is making
a payment pursuant to a contract for goods or services. To the extent
that the acquiring agency is making a payment for any other purpose, it
does not have an obligation to withhold under section 5000C on the
payment.
(2) Determine whether the payment is made pursuant to a contract
with a U.S. person. The acquiring agency determines whether the payment
is made pursuant to a contract with a person considered to be a United
States person (U.S. person) in accordance with paragraph (c) of this
section. If the other contracting party is a U.S. person, the acquiring
agency does not have an obligation to withhold under section 5000C on
the payment.
(3) Determine whether the payment is for purchases under the
simplified acquisition procedures. The acquiring agency determines
whether the payment is for purchases under the simplified acquisitions
procedures that do not exceed the simplified acquisition threshold as
described in 48 CFR 2.101. If it is, the acquiring agency does not have
an obligation to withhold under section 5000C on the payment.
(4) Determine whether the payment is for emergency acquisitions. The
acquiring agency determines whether the payment is made for certain
emergency acquisitions within the meaning of Sec. 1.5000C-1(d)(2). If
it is, the acquiring agency does not have an obligation to withhold
under section 5000C on the payment.
(5) Determine whether the payment is for personal services under the
simplified acquisition threshold. The acquiring agency determines
whether payments for services under contracts with a single individual
do not exceed the simplified acquisition threshold as described in 48
CFR 2.101 on an annual basis for all years of the contract. If that is
the case, the acquiring agency does not have an obligation to withhold
under section 5000C on the payment.
(6) Determine whether the payment is pursuant to a foreign
humanitarian assistance contract. The acquiring agency determines
whether the payment is made pursuant to a foreign humanitarian
assistance contract described in Sec. 1.5000C-1(d)(4). If it is, the
acquiring agency does not have an obligation to withhold under section
5000C on the payment.
(7) Determine whether the foreign contracting party is entitled to
relief pursuant to an international agreement. If the foreign
contracting party submits a Section 5000C Certificate in accordance with
paragraph (d) of this section representing that the foreign contracting
party is entitled to relief from the tax imposed under section 5000C
pursuant to an international agreement with the United States (such as
relief pursuant to the nondiscrimination provision of a qualified income
tax treaty), the acquiring agency does not have an obligation to
withhold under section 5000C on the payment.
(8) Determine whether the contract is for goods manufactured or
produced or services provided in the United States or in a foreign
country that is a party to an international procurement agreement. If
the foreign contracting party submits a Section 5000C Certificate in
accordance with paragraph (d) of this section that represents that the
contract is for
[[Page 67]]
goods manufactured or produced or services provided in the United
States, or in a foreign country that is a party to an international
procurement agreement, the acquiring agency does not have an obligation
to withhold. If the Section 5000C Certificate provides that payments
under the contract are only partially exempt from withholding under
section 5000C, the acquiring agency must withhold to the extent
described in paragraph (b)(8) of this section.
(9) Compute amounts to withhold. If, after evaluating each step
described in this paragraph (b), the acquiring agency determines that it
has an obligation to withhold, the acquiring agency computes the amount
of withholding by multiplying the amount of the payment by 2 percent,
unless the foreign contracting party has provided a Section 5000C
Certificate or the payment is only in part for goods or services. In
cases in which the Section 5000C Certificate demonstrates that the
exemption in Step 8 applies, the acquiring agency generally computes the
amount of withholding by multiplying the amount of the payment by the
contract ratio provided on the most recent Section 5000C Certificate,
the product of which is multiplied by 2 percent. However, in cases in
which the exemption in Step 8 applies and the requirements of paragraph
(d)(4)(iii)(B)(2) of this section are met, the acquiring agency computes
the amount of withholding based on the payment for the specifically
identified items, which may be identified by the contract line item
number, or CLIN. In the case in which the payment is only in part for
goods or services, the acquiring agency reduces the amount of the
payment subject to the tax to the extent it is for something other than
goods or services. The acquiring agency withholds the computed amount
from the payment.
(10) Deposit and report amounts withheld. The acquiring agency
deposits and reports the amounts determined in the prior step in
accordance with Sec. 1.5000C-3.
(c) Determining whether the contracting party is a U.S. person--(1)
In general. An acquiring agency must rely on the provisions of this
paragraph (c) to determine the status of the contracting party as a U.S.
person for purposes of withholding under section 5000C.
(2) Determination based on Taxpayer Identification Number (TIN). An
acquiring agency must treat a contracting party as a U.S. person if the
U.S. government information system (such as the System for Award
Management (SAM)) indicates that the contracting party is a corporation
(for example, because the name listed in SAM contains the term
``Corporation,'' ``Inc.,'' or ``Corp.'') and that it has a TIN that
begins with two digits other than ``98'' (a limited liability company or
LLC is not treated as a corporation for purposes of this paragraph
(c)(2)). Further, an acquiring agency must treat a contracting party as
a U.S. person if the acquiring agency has access to a U.S. government
information system that indicates that the contracting party is an
individual with a TIN that begins with a digit other than ``9''.
(3) Determination based on the Form W-9. An acquiring agency must
treat a contracting party as a U.S. person if the person has submitted
to it a valid Form W-9, ``Request for Taxpayer Identification Number
(TIN) and Certificate'' (or valid substitute form described in Sec.
31.3406(h)-3(c)(2) of this chapter), signed under penalties of perjury.
(4) Contracting party treated as a foreign contracting party. If an
acquiring agency cannot determine that a contracting party is a U.S.
person based on application of paragraph (c)(2) or (3) of this section,
then the contracting party is treated as a foreign contracting party for
purposes of this section.
(d) Withholding when a foreign contracting party submits a Section
5000C Certificate--(1) In general. Unless the acquiring agency has
reason to know that the information is incorrect or unreliable, the
acquiring agency may rely on a claim that a foreign contracting party is
entitled to an exemption (in whole or in part) from withholding on
payments pursuant to a contract if the foreign contracting party
provides a Section 5000C Certificate to the acquiring agency as
prescribed in this paragraph (d). When a Section 5000C Certificate is
furnished, the acquiring agency
[[Page 68]]
does not withhold, or must reduce the amount of withholding, on payments
made to a foreign person if the certificate establishes that the foreign
person is wholly or partially exempt from withholding. An acquiring
agency may establish a system for a foreign contracting party to
electronically furnish a Section 5000C Certificate.
(2) Exemption for a foreign contracting party entitled to the
benefit of relief pursuant to certain international agreements. An
acquiring agency does not withhold on payments pursuant to a contract
with a foreign contracting party when the payment is entitled to relief
from the tax imposed under section 5000C pursuant to an international
agreement, including relief pursuant to a nondiscrimination provision of
a qualified income tax treaty, because the foreign contracting party is
entitled to the benefit of that agreement and the foreign contracting
party has submitted a Section 5000C Certificate that includes all of the
information described in paragraphs (d)(4)(i) and (ii) of this section.
(3) Exemption when goods are manufactured or produced or services
provided in the United States, or in a foreign country that is a party
to an international procurement agreement. An acquiring agency does not
withhold on payments pursuant to a contract with a foreign contracting
party to the extent that the payments are for goods manufactured or
produced or services provided in the United States or in a foreign
country that is a party to an international procurement agreement with
the United States, provided that the foreign contracting party has
submitted a Section 5000C Certificate that includes all of the
information described in paragraphs (d)(4)(i) and (iii) of this section.
If the Section 5000C Certificate provides that the payment is only
partially exempt from withholding under section 5000C, the acquiring
agency must withhold to the extent that the payment is not exempt.
(4) Information required for Section 5000C Certificate--(i) In
general. The Section 5000C Certificate must be signed under penalties of
perjury by the foreign contracting party and contain--
(A) The name of the foreign contracting party, country of
organization (if applicable), and permanent residence address of the
foreign contracting party;
(B) The mailing address of the foreign contracting party (if
different than the permanent residence address);
(C) The TIN assigned to the foreign contracting party (if any);
(D) The identifying or reference number on the contract (if known);
(E) The name and address of the acquiring agency;
(F) A statement that the person signing the Section 5000C
Certificate is the foreign contracting party listed in paragraph
(d)(4)(i)(A) of this section (or is authorized to sign on behalf of the
foreign contracting party);
(G) A statement that the foreign contracting party is not acting as
an agent or nominee for another foreign person with respect to the goods
manufactured or produced or services provided under the contract;
(H) A statement that the foreign contracting party agrees to pay an
amount equal to any tax (including any applicable penalties and
interest) due under section 5000C that the acquiring agency does not
withhold under section 5000C;
(I) A statement that the foreign contracting party acknowledges and
understands the rules in Sec. 1.5000C-4 relating to procedural
obligations related to section 5000C; and
(J) A statement that the foreign contracting party has not engaged
in a transaction (or series of transactions) with a principal purpose of
avoiding the tax imposed under section 5000C as defined in Sec.
1.5000C-5.
(ii) Additional information required for claiming an exemption based
on certain international agreements with the United States. In addition
to the information required by paragraph (d)(4)(i) of this section, a
foreign contracting party claiming an exemption from withholding in
reliance on a provision of an international agreement with the United
States, including a qualified income tax treaty, must provide--
(A) The name of the international agreement under which the foreign
contracting party is claiming benefits;
(B) The specific provision of the international agreement relied
upon
[[Page 69]]
(for example, the nondiscrimination article of a qualified income tax
treaty); and
(C) The basis on which it is entitled to the benefits of that
provision (for example, because the foreign contracting party is a
corporation organized in a foreign country that has in force a qualified
income tax treaty with the United States that covers all nationals,
regardless of their residence).
(iii) Additional required information for claiming exemption based
on country where goods are manufactured or services provided. (A) In
general. In addition to the information required by paragraph (d)(4)(i)
of this section, a foreign contracting party claiming an exemption from
withholding (in whole or in part) because payments will be pursuant to a
contract for goods manufactured or produced or services provided in the
United States, or a foreign country that is party to an international
procurement agreement, must describe on the Section 5000C Certificate
the relevant goods or services and the country (or countries) in which
they are manufactured or produced, or are provided, and must include the
name of the international procurement agreement or agreements (if
relevant).
(B) Information on allocation to exempt and nonexempt amounts. (1)
In general. In situations in which a foreign contracting party claims
the exemption in paragraph (d)(3) of this section with respect to only a
portion of the payments received under the contract, the Section 5000C
Certificate must include an explanation of the method used by the
foreign contracting party to allocate the total contract price among the
countries, as described in Sec. 1.5000C-1(e)(3), if applicable. In
general, the Section 5000C Certificate also must include the total
contract price and the nonexempt amount; however, when necessary, an
estimate of the total contract price or the nonexempt amount may be
used. For example, total contract price may be estimated when a Section
5000C Certificate is being completed with respect to payments to be made
pursuant to a cost-reimbursement contract that is paid on the basis of
actual incurred costs and the total amount of such costs is not known at
the time the certificate is provided.
(2) Specific identification of exempt items. If agreed to by the
acquiring agency, the Section 5000C Certificate may identify specific
exempt and nonexempt amounts. For example, specific contract line items
(such as a contract line item number or CLIN) identified in the contract
may be listed on the Section 5000C Certificate as exempt and nonexempt
amounts (in whole or in part), as applicable. When this paragraph
applies, and whether or not the contract identifies exempt and nonexempt
amounts, a foreign contracting party must provide the information
required by paragraphs (d)(4)(iii)(A) and (d)(4)(iii)(B)(1) of this
section, on the Section 5000C Certificate to explain why the contract
line items are eligible for an exemption; however, the foreign
contracting party is not required to include information about the total
contract price under this paragraph. In these circumstances, only one
Section 5000C Certificate is required to be provided identifying the
exempt and nonexempt contract line items that relate to the contract
(for example, a spreadsheet may be attached to the Section 5000C
Certificate that identifies the contract line items with an explanation
for the treatment as exempt or nonexempt).
(5) Validity period of Section 5000C Certificate. Except as
otherwise provided in paragraph (d)(6) of this section, the Section
5000C Certificate is valid for the term of the contract.
(6) Change in circumstances. A foreign contracting party must submit
a revised Section 5000C Certificate within 30 days of a change in
circumstances that causes the information in a Section 5000C Certificate
held by the acquiring agency to be incorrect with respect to the
acquiring agency's determination of whether to withhold or the amount of
withholding under Section 5000C. An acquiring agency must request a new
Section 5000C Certificate from a contracting party in circumstances in
which it knows (or has reason to know) that a previously submitted
Section 5000C Certificate becomes incorrect or unreliable. An acquiring
agency may request an updated Section 5000C Certificate at any time,
[[Page 70]]
including when other documentation is required under the contract, such
as the annual representations and certifications required in 48 CFR
4.1201. See Sec. 1.5000C-6, Example 6, for an illustration of this
paragraph (6).
(7) Form W-14. A foreign contracting party may choose to use Form W-
14, ``Certificate of Foreign Contracting Party Receiving Federal
Procurement Payments'' (or other form that the IRS may prescribe), as
its Section 5000C Certificate, provided that it includes all the
necessary information required by this paragraph (d).
(8) Time for submitting Section 5000C Certificate. A contracting
party must submit the Section 5000C Certificate (such as Form W-14 or
Form W-9) as early as practicable (for example, when the offer for the
contract is submitted to the U.S. government). In all cases, however,
the Section 5000C Certificate must be submitted to the acquiring agency
no later than the date of execution of the contract.
(e) Offset for underwithholding or overwithholding--(1) In general.
If the foreign contracting party discovers that amounts withheld on
prior payments either were insufficient or in excess of the amount
required to satisfy its tax liability under section 5000C, the foreign
contracting party may request the acquiring agency to increase or
decrease the amount of withholding on future payments for which
withholding is required under section 5000C. The request must be in
writing, signed under penalties of perjury, contain the amount by which
the foreign contracting party requests to increase or decrease future
amounts withheld under section 5000C, and explain the reason for the
request. The request may be submitted in conjunction with an original or
updated Section 5000C Certificate.
(2) Underwithholding. Upon receipt of a request described in
paragraph (e)(1) of this section, acquiring agencies may increase the
amount of withholding under this paragraph to correct underwithholding
only if the payment for which the increase is applied is otherwise
subject to withholding under section 5000C and made before the date that
Form 1042, ``Annual Withholding Tax Return for U.S. Source Income of
Foreign Persons,'' is required to be filed (not including extensions)
with respect to the payment for which the underwithholding occurred.
Amounts withheld under this paragraph must be deposited and reported in
the time and manner as prescribed by Sec. 1.5000C-3. See Sec. 1.5000C-
4 for procedures for a foreign contracting party that must pay tax due
when its tax liability under section 5000C was not fully satisfied by
withholding by an acquiring agency.
(3) Overwithholding. Upon receipt of a request described in
paragraph (e)(1) of this section, acquiring agencies may decrease the
amount of withholding on subsequent payments made to the foreign
contracting party that are otherwise subject to withholding under
section 5000C provided that the payment for which the decrease is
applied is made on or before the date on which Form 1042, ``Annual
Withholding Tax Return for U.S. Source Income of Foreign Persons,'' is
required to be filed (not including extensions) with respect to the
payment for which the overwithholding occurred. See Sec. 1.5000C-4(e)
for procedures for foreign contracting parties to file a claim for
refund for the overwithheld amount under section 5000C.
[T.D. 9782, 81 FR 55138, Aug. 18, 2016]
Sec. 1.5000C-3 Payment and returns of tax withheld by the acquiring
agency.
(a) In general. This section provides administrative procedures that
acquiring agencies must follow to satisfy their obligations to deposit
and report amounts withheld under Sec. 1.5000C-2. An acquiring agency
with a section 5000C withholding obligation must increase the amount it
deducts and withholds under chapter 3 for fixed or determinable annual
or periodical income (FDAP income) by the amount it must withhold under
Sec. 1.5000C-2. Accordingly, this section generally applies the
administrative provisions of chapter 3 for FDAP income relating to the
deposit, payment, and reporting for amounts withheld under Sec.
1.5000C-2, and contains some variation from those provisions to take
into account the nature of the tax imposed under section 5000C.
(b) Deposit rules--(1) Acquiring agency with a chapter 3 deposit
requirement
[[Page 71]]
treats amounts withheld as under chapter 3. If an acquiring agency has a
chapter 3 deposit obligation for a period, it must treat any amount
withheld under Sec. 1.5000C-2 as an additional amount of tax withheld
under chapter 3 for purposes of the deposit rules of Sec. 1.6302-2.
Thus, depending on the combined amount withheld under chapter 3 and
Sec. 1.5000C-2, an acquiring agency subject to this paragraph (b)(1)
must make monthly deposits, quarter-monthly deposits, or annual deposits
under the rules in Sec. 1.6302-2. To the extent provided in forms,
instructions, or publications prescribed by the Internal Revenue Service
(IRS), acquiring agencies must deposit all withheld amounts by
electronic funds transfer, as that term is defined in Sec. 31.6302-
1(h)(4)(i) of this chapter.
(2) Acquiring agency with no chapter 3 filing obligation deposits
withheld amounts monthly. If an acquiring agency has no chapter 3
deposit obligation to which the deposit rules of Sec. 1.6302-2 apply
for a calendar month, it must make monthly deposits of the amounts
withheld under the rules in this paragraph (b)(2). Thus, an acquiring
agency with no chapter 3 deposit obligations and that has withheld any
amount under Sec. 1.5000C-2 during any calendar month must deposit that
amount by the 15th day of the month following the payment. To the extent
provided in forms, instructions, or publications prescribed by the
Internal Revenue Service (IRS), acquiring agencies must deposit all
withheld amounts by electronic funds transfer, as that term is defined
in Sec. 31.6302-1(h)(4)(i) of this chapter.
(c) Return requirements--(1) In general. Except as provided in
paragraph (c)(2) of this section, an acquiring agency that withholds an
amount pursuant to section 5000C generally must file Form 1042-S,
``Foreign Person's U.S. Source Income Subject to Withholding,'' and Form
1042, ``Annual Withholding Tax Return for U.S. Source Income of Foreign
Persons,'' each year, or other such forms as the IRS may prescribe, to
report information related to amounts withheld under section 5000C. The
acquiring agency must prepare a Form 1042-S for each contracting party
reporting the amount withheld under section 5000C for the preceding
calendar year. The Form 1042 must show the aggregate amounts withheld
under section 5000C that were required to be reported on Forms 1042-S
(including those amounts withheld under section 5000C for which a Form
1042-S is not required to be filed pursuant to paragraph (c)(2) of this
section). The Form 1042 must also include the information required by
the form and accompanying instructions. Further, any forms required
under this paragraph (c) are due at the same time, at the same place,
and eligible for the same extended due dates and may be amended in the
same manner as Form 1042 and Form 1042-S (or such other forms as the IRS
may prescribe related to chapter 3). The acquiring agency must furnish a
copy of the Form 1042-S (or such other form as the IRS may prescribe for
the same purpose) to the contracting party for whom the form is prepared
on or before March 15 of the calendar year following the year in which
the amount subject to reporting under section 5000C was paid. It must be
filed with a transmittal form as provided in the instructions for Form
1042-S and to the transmittal form. Section 5000C Certificates or other
statements or information as prescribed by Sec. 1.5000C-2 that are
provided to the acquiring agency are not required to be attached to the
Form 1042 filed with the IRS. However, an acquiring agency that is
required to file Form 1042 must retain a copy of Form 1042, Form 1042-S,
the Section 5000C Certificates, or other statements or information
prescribed by Sec. 1.5000C-2 for at least three years from the original
due date of Form 1042 or the date it was filed, whichever is later. An
acquiring agency that is not required to file Form 1042 must retain any
Section 5000C Certificates or other statements or information as
prescribed by Sec. 1.5000C-2 for at least three years from the date the
Form 1042 would have been due had the acquiring agency had an obligation
to file.
(2) Classified or confidential contracts. An acquiring agency is not
required to report information otherwise required by this section on
Form 1042-S for payments made pursuant to classified or confidential
contracts (as described in
[[Page 72]]
section 6050M(e)(3)), unless the acquiring agency determines that the
information reported on the Form 1042-S does not compromise the
safeguarding of classified information or national security.
(d) Special arrangement for certain contracts. In limited
circumstances, the IRS may authorize the amount otherwise required to be
withheld under section 5000C to be deposited in the time and manner
mutually agreed upon by the acquiring agency and the foreign contracting
party. In these circumstances, the IRS may in its sole discretion also
modify any reporting or return requirements of the acquiring agency or
the foreign contracting party.
[T.D. 9782, 81 FR 55138, Aug. 18, 2016]
Sec. 1.5000C-4 Requirement for the foreign contracting party to file
a return and pay tax, and procedures for the contracting party to
seek a refund.
(a) In general. For purposes of subtitle F of the Internal Revenue
Code (``Procedure and Administration''), the tax imposed under section
5000C on foreign persons is treated as a tax imposed under subtitle A.
Except as provided elsewhere in the regulations under section 5000C,
forms, or accompanying instructions, the tax imposed on foreign
contracting parties under section 5000C is administered in a manner
similar to gross basis income taxes. This section provides procedures
that a foreign contracting party must follow to satisfy its obligations
to report and deposit tax due under Sec. 1.5000C-1 as well as
procedures for contracting parties to seek a refund of amounts
overwithheld.
(b) Tax obligation of foreign contracting party independent of
withholding. A foreign contracting party subject to tax under section
5000C and Sec. Sec. 1.5000C-1 through 1.5000C-7 remains liable for the
tax unless its tax obligation was fully satisfied by withholding by an
acquiring agency in accordance with Sec. Sec. 1.5000C-2 and 1.5000C-3.
(c) Return of tax by the foreign contracting party. If the tax
liability under Sec. 1.5000C-1 relating to a payment is not fully
satisfied by withholding in accordance with Sec. Sec. 1.5000C-2 and
1.5000C-3 (including as a result of the use of an estimated nonexempt
amount or estimated total contract price in computing the contract
ratio), a foreign contracting party subject to tax under Sec. 1.5000C-1
during a calendar year must make a return of tax on, for example, Form
1120-F, ``U.S. Income Tax Return of a Foreign Corporation,'' or such
other form as the Internal Revenue Service (IRS) may prescribe to report
the amount of tax due under section 5000C (required return). A foreign
contracting party with no other U.S. tax filing obligation other than
with respect to its liability for the tax imposed under section 5000C
must file its required return on or before the fifteenth day of the
sixth month following the close of its taxable year. The required return
must include the information required by the form and accompanying
instructions. The required return must be filed at the place and time
(including any extension of time to file) provided by the form and
accompanying instructions. Penalties for failure to file contained in
Subtitle F can apply to foreign contracting parties who fail to file the
required return. A foreign contracting party must attach copies of all
Forms 1042-S, ``Foreign Person's U.S. Source Income Subject to
Withholding,'' received from acquiring agencies (if any) to the required
return.
(d) Time and manner of paying tax. A foreign contracting party must
pay the tax imposed under section 5000C in the manner provided and in
the time prescribed in the required return and accompanying
instructions. In general, the foreign contracting party must pay the tax
at the time that the required return is due, excluding extensions. To
the extent provided in forms, instructions, or publications prescribed
by the IRS, each foreign contracting party must deposit tax due under
section 5000C by electronic funds transfer, as that term is defined in
Sec. 31.6302-1(h)(4)(i) of this chapter. A foreign contracting party
that fails to pay tax in the time and manner prescribed in this section
(or under forms, instructions, or publications prescribed by the IRS
under this section) may be subject to penalties and interest under
Subtitle F.
[[Page 73]]
(e) Refund requests when amount withheld exceeds tax liability.
After taking into account any offsets pursuant to Sec. 1.5000C-2(e)(3),
if the acquiring agency has overwithheld amounts under section 5000C and
has made a deposit of the amounts under Sec. 1.5000C-3(b), the
contracting party may claim a refund of the amount overwithheld pursuant
to the procedures described in chapter 65. The contracting party's claim
for refund must meet the requirements of section 6402 and the
regulations thereunder, as applicable, and must be filed before the
expiration of the period of limitations on refund in section 6511 and
the regulations thereunder. In general, the contracting party making a
refund claim must file the required return to claim a refund, stating
the grounds upon which the claim is based. A Section 5000C Certificate
and a copy of the Form 1042-S received from the acquiring agency must be
attached to the required return. For purposes of this section, an amount
is overwithheld if the amount withheld from the payment pursuant to
section 5000C and Sec. Sec. 1.5000C-1 through 1.5000C-7 exceeds the
contracting party's tax liability under Sec. 1.5000C-1, regardless of
whether the overwithholding was in error or appeared correct when it
occurred. A U.S. person may seek a refund under this paragraph (e) even
if it was treated as a foreign person under the rules in Sec. 1.5000C-2
(for example, because it neither had a taxpayer identification number on
file in the System for Award Management nor submitted Form W-9,
``Request for Taxpayer Identification Number (TIN) and Certification,''
to the acquiring agency).
[T.D. 9782, 81 FR 55138, Aug. 18, 2016]
Sec. 1.5000C-5 Anti-abuse rule.
If a foreign person engages in a transaction (or series of
transactions) with a principal purpose of avoiding the tax imposed under
section 5000C, the transaction (or series of transactions) may be
disregarded or the arrangement may be recharacterized (including
disregarding an intermediate entity), in accordance with its substance.
If this section applies, the foreign person remains liable for any tax
(including any tax obligation unsatisfied as a result of
underwithholding) and the Internal Revenue Service retains all other
rights and remedies under any applicable law available to collect any
tax imposed on the foreign contracting party by section 5000C.
[T.D. 9782, 81 FR 55138, Aug. 18, 2016]
Sec. 1.5000C-6 Examples.
The rules of Sec. Sec. 1.5000C-1 through 1.5000C-4 are illustrated
by the following examples. For purposes of the examples: All contracts
are executed with acquiring agencies on or after January 2, 2011, and
are for the provision of either goods or services; none of the
exemptions described in Sec. 1.5000C-1(d) apply, unless otherwise
explicitly stated; the acquiring agencies have no other withholding
obligations under chapter 3 of the Code and have no other contracts
subject to section 5000C; the foreign contracting parties do not have
any U.S. source income or a U.S. tax return filing obligation other than
a tax return filing obligation that arises based on the facts described
in the particular example; and none of the contracts are classified or
confidential contracts as described in section 6050M(e)(3).
Example 1. U.S. person not subject to tax; no withholding. (i)
Facts. Company A Inc., a domestic corporation and the contracting party,
enters into a contract with Agency L, the acquiring agency. Before
making its first payment under the contract (for example, on the date of
execution of the contract), pursuant to the first step in Sec. 1.5000C-
2(b), Agency L determines that the contract will be for services. Under
the second step, Agency L reviews Company A Inc.'s record in the System
for Award Management (SAM) and determines that Company A is a
corporation and is considered to be a U.S. person because Agency L's
records demonstrate that Company A Inc. is a business entity treated as
a corporation for tax purposes that has a TIN that does not begin with
``98.''
(ii) Analysis. Company A Inc. is a U.S. person and thus is not
subject to the tax under section 5000C. Moreover, because Company A Inc.
is a corporation for tax purposes that has a TIN that does not begin
with ``98,'' Agency L is able to determine that it has no obligation to
withhold any amounts under section 5000C on the payment made to Company
A Inc. For purposes of section 5000C, Company A Inc. could also
establish that it is a U.S. person by providing a Form W-9, ``Request
for Taxpayer Identification Number (TIN) and Certification,'' to Agency
L.
[[Page 74]]
Company A Inc. does not need to file a Section 5000C Certificate to
demonstrate its eligibility for an exemption from withholding.
Example 2. Foreign national entitled to the benefit of a
nondiscrimination provision of a treaty; no withholding. (i) Facts.
Company B, a foreign contracting party and a national of Country T,
provides goods to Agency M, the acquiring agency. Company B determines
that it is exempt from tax under section 5000C because it is entitled to
the benefit of the nondiscrimination article of a qualified income tax
treaty between the United States and Country T. Company B submits a
Section 5000C Certificate to Agency M when the contract is executed.
Company B uses Form W-14, ``Certificate of Foreign Contracting Party
Receiving Federal Procurement Payments,'' and properly fills the
relevant sections stating the name of the treaty, the specific article
relied upon, and the basis on which it is entitled to the benefits of
that article. Following the steps in Sec. 1.5000C-2, Agency M
determines that the nondiscrimination provision of the Country T-United
States income tax treaty applies to exempt Company B from the tax
imposed under section 5000C. Agency M makes one lump sum payment of $50
million to Company B pursuant to the contract.
(ii) Analysis. Company B has no liability for tax under section
5000C because it is entitled to the benefit of a nondiscrimination
article of a qualified income tax treaty. Because Company B submitted a
Section 5000C Certificate meeting the requirements in Sec. 1.5000C-2
and Agency M does not have reason to know that the submitted information
is incorrect or unreliable, Agency M is not required to withhold under
section 5000C. Agency M must retain the Section 5000C Certificate for at
least three years pursuant to Sec. 1.5000C-3(c)(1) from the due date
for the Form 1042 (if it were required).
Example 3. Foreign treaty beneficiary does not submit Section 5000C
Certificate; withholding required. (i) Facts. The facts are the same as
in Example 2, except that Company B does not submit a Section 5000C
Certificate to Agency M before Agency M makes the $50 million payment.
(ii) Analysis. Company B is not subject to tax under section 5000C,
but Agency M must nevertheless withhold on the payment made to Company B
because Agency M did not receive a Section 5000C Certificate from
Company B in the time and manner required pursuant to Sec. 1.5000C-
2(d). Agency M must withhold $1 million (2 percent of $50 million) on
the payment, and deposit that amount under the rules in Sec. 1.5000C-3
no later than the 15th day of the month following the month in which the
payment was made. Agency M must also complete Forms 1042, ``Annual
Withholding Tax Return for U.S. Source Income of Foreign Persons,'' and
1042-S, ``Foreign Person's U.S. Source Income Subject to Withholding,''
on or before the date specified on those forms and the accompanying
instructions. Agency M must furnish copies of Form 1042-S to Company B.
Agency M must retain a copy of the Form 1042 and the Form 1042-S for 3
years from the due date for the Form 1042 pursuant to Sec. 1.5000C-
3(c)(1). As Company B is not liable for the tax, it may later file a
claim for refund pursuant to the procedures described in chapter 65.
Example 4. Foreign contracting party partially exempt from tax under
section 5000C when goods are manufactured in different countries. (i)
Facts. Company C, a foreign contracting party, provides goods to Agency
N in 2015. The terms of the contract require that payment be made to
Company C by Agency N in two $5 million installments in 2015. Company C
has a TIN that begins with ``98'' and is not entitled to relief pursuant
to an international agreement with the United States, such as relief
pursuant to a nondiscrimination provision of a qualified income tax
treaty. Some of the goods are manufactured in Country R, which is a
party to an international procurement agreement with the United States,
with the remainder being manufactured in Country S, a country that is
not a party to an international procurement agreement with the United
States. Company C uses a reasonable allocation method based on the
information available to it at the time in accordance with Sec.
1.5000C-1(e)(3) to estimate that $3 million is the nonexempt amount that
is allocated to the goods produced in Country S. Company C submits a
valid and complete Section 5000C Certificate to Agency N in the time and
manner required by Sec. Sec. 1.5000C-1 through 1.5000C-7 that provides
that the nonexempt amount is $3 million. In 2015, Agency N pays Company
C in two installments pursuant to the terms of the contract.
(ii) Analysis. Using a reasonable allocation method to determine the
estimated nonexempt amount, Company C determines that pursuant to
section 5000C and Sec. Sec. 1.5000C-1 through 1.5000C-7, tax of $30,000
(2 percent of the $5 million payment, or $100,000 multiplied by a
fraction, the numerator of which is the estimated nonexempt amount, $3
million, and the denominator of which is the estimated total contract
price, or $10 million) is imposed on each payment made to Company C.
Because Company C has timely submitted a Section 5000C Certificate
explaining the basis for this allocation, Agency N withholds $30,000 on
each payment made to Company C. Agency N must deposit each $30,000
withholding tax under the rules in Sec. 1.5000C-3 no later than the
15th day of the month following the month in which each payment is made.
Agency N must also complete Forms 1042 and 1042-S and furnish copies of
Form 1042-S to Company C. Agency N must retain a copy of the Form 1042
and the Form 1042-S for at least three years from the due date
[[Page 75]]
for the Form 1042 pursuant to Sec. 1.5000C-3(c)(1). Provided that
Agency N properly withholds on the nonexempt portion as required under
section 5000C and Sec. Sec. 1.5000C-1 through 1.5000C-7 and that
Company C's estimate of the nonexempt amount is the actual nonexempt
amount, Company C does not have an additional tax liability or a U.S.
tax return filing obligation as a result of receiving the payments.
Example 5. Foreign contracting party liable for additional tax under
Section 5000C not fully withheld upon due to errors on the Section 5000C
Certificate. (i) Facts. The facts are the same as in Example 4, except
that the Section 5000C Certificate submitted to Agency N by Company C
erroneously provides that the estimated nonexempt amount is $1.5 million
instead of $3 million. As a result, Agency N only withholds $15,000 (2
percent of the $5 million payment multiplied by a fraction (the
numerator of which is the estimated nonexempt amount stated on the
Section 5000C Certificate, $1.5 million, and the denominator of which is
the estimated total contract price, or $10 million)) on each payment
made to Company C. Agency N neither discovered nor had reason to know
that the information on the Section 5000C Certificate was incorrect or
unreliable. After both payments have been made and after the filing due
date for Form 1042 for 2015, Company C determines that the estimated
nonexempt amount should have been stated as $3 million on the Section
5000C Certificate.
(ii) Analysis. The tax imposed under section 5000C on Company C as a
result of the receipt of specified Federal procurement payments is
$60,000 and this amount has not been fully satisfied by withholding by
Agency N. Accordingly, Company C must remit additional tax of $30,000
($60,000 tax liability less $30,000 amounts already withheld by Agency
N) and file its required return, a Form 1120-F, ``U.S. Income Tax Return
of a Foreign Corporation,'' for 2015 to report this tax liability, as
required by Sec. 1.5000C-4. Company C must explain its corrected
allocation method in its Form 1120-F. Company C must also attach a copy
of the Form 1042-S it received from Agency N to Form 1120-F.
Example 6. Foreign contracting party submits revised Section 5000C
Certificate due to change in circumstances. (i) Facts. The facts are the
same as in Example 4, except that, after the first payment, Company C
changes its business so that all of the goods manufactured with respect
to the second payment are manufactured in Country R. Prior to the second
payment, Company C submits a revised Section 5000C Certificate
indicating this change in circumstance pursuant to Sec. 1.5000C-
2(d)(6).
(ii) Analysis. Agency N withholds $30,000 on the first payment made
to Company C and does not withhold on the second payment. Company C does
not have an additional tax liability or a U.S. tax return filing
obligation as a result of receiving the payments.
[T.D. 9782, 81 FR 55138, Aug. 18, 2016]
Sec. 1.5000C-7 Effective/applicability date.
Section 5000C applies to specified Federal procurement payments
received pursuant to contracts entered into on and after January 2,
2011. Sections 1.5000C-1 through 1.5000C-7 apply on and after November
16, 2016. Contracting parties and acquiring agencies may rely upon the
rules in the regulations before such date. If a foreign contracting
party fully satisfies its tax and filing obligations under section 5000C
with respect to any payments received in tax years ending before
November 16, 2016 on or before the later of November 16, 2016 or the due
date for the foreign person's income tax return for the year in which
the payment was received in a manner consistent with the final
regulations, penalties will not be asserted on the foreign contracting
parties with respect to those payments or returns.
[T.D. 9782, 81 FR 55138, Aug. 18, 2016]
Returns and Records
Source: Sections 1.6001-1 through 1.6091-4 contained in T.D. 6500,
25 FR 12108, Nov. 26, 1960, unless otherwise noted.
Records, Statements, and Special Returns
Sec. 1.6001-1 Records.
(a) In general. Except as provided in paragraph (b) of this section,
any person subject to tax under subtitle A of the Code (including a
qualified State individual income tax which is treated pursuant to
section 6361(a) as if it were imposed by chapter 1 of subtitle A), or
any person required to file a return of information with respect to
income, shall keep such permanent books of account or records, including
inventories, as are sufficient to establish the amount of gross income,
deductions, credits, or other matters required to be shown by such
person in any return of such tax or information.
(b) Farmers and wage-earners. Individuals deriving gross income from
the business of farming, and individuals
[[Page 76]]
whose gross income includes salaries, wages, or similar compensation for
personal services rendered, are required with respect to such income to
keep such records as will enable the district director to determine the
correct amount of income subject to the tax. It is not necessary,
however, that with respect to such income individuals keep the books of
account or records required by paragraph (a) of this section. For rules
with respect to the records to be kept in substantiation of traveling
and other business expenses of employees, see Sec. 1.162-17.
(c) Exempt organizations. In addition to such permanent books and
records as are required by paragraph (a) of this section with respect to
the tax imposed by section 511 on unrelated business income of certain
exempt organizations, every organization exempt from tax under section
501(a) shall keep such permanent books of account or records, including
inventories, as are sufficient to show specifically the items of gross
income, receipts and disbursements. Such organizations shall also keep
such books and records as are required to substantiate the information
required by section 6033. See section 6033 and Sec. Sec. 1.6033-1
through 1.6033-3.
(d) Notice by district director requiring returns statements, or the
keeping of records. The district director may require any person, by
notice served upon him, to make such returns, render such statements, or
keep such specific records as will enable the district director to
determine whether or not such person is liable for tax under subtitle A
of the Code, including qualified State individual income taxes, which
are treated pursuant to section 6361(a) as if they were imposed by
chapter 1 of subtitle A.
(e) Retention of records. The books or records required by this
section shall be kept at all times available for inspection by
authorized internal revenue officers or employees, and shall be retained
so long as the contents thereof may become material in the
administration of any internal revenue law.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7122, 36 FR
11025, June 8, 1971; T.D. 7577, 43 FR 59357, Dec. 20, 1978; T.D. 8308,
55 FR 35593, Aug. 31, 1990]
Sec. 1.6001-2 Returns.
For rules relating to returns required to be made by every
individual, estate, or trust which is liable for one or more qualified
State individual income taxes, as defined in section 6362, for a taxable
year, see paragraph (b) of Sec. 301.6361-1 of this chapter (Regulations
on procedure and Administration).
[T.D. 7577, 43 FR 59357, Dec. 20, 1978]
tax returns or statements
Sec. 1.6011-1 General requirement of return, statement, or list.
(a) General rule. Every person subject to any tax, or required to
collect any tax, under Subtitle A of the Code, shall make such returns
or statements as are required by the regulations in this chapter. The
return or statement shall include therein the information required by
the applicable regulations or forms.
(b) Use of prescribed forms. Copies of the prescribed return forms
will so far as possible be furnished taxpayers by district directors. A
taxpayer will not be excused from making a return, however, by the fact
that no return form has been furnished to him. Taxpayers not supplied
with the proper forms should make application therefor to the district
director in ample time to have their returns prepared, verified, and
filed on or before the due date with the internal revenue office where
such returns are required to be filed. Each taxpayer should carefully
prepare his return and set forth fully and clearly the information
required to be included therein. Returns which have not been so prepared
will not be accepted as meeting the requirements of the Code. In the
absence of a prescribed form, a statement made by a taxpayer disclosing
his gross income and the deductions therefrom may be accepted as a
tentative return, and, if filed within the prescribed time, the
statement so made will relieve the taxpayer from liability for the
addition to tax imposed for the delinquent filing of the return,
provided that without unnecessary delay such a tentative return is
supplemented by a return made on the proper form.
[[Page 77]]
(c) Tax withheld on nonresident aliens and foreign corporations. For
requirements respecting the return of the tax required to be withheld
under chapter 3 of the Code on nonresident aliens and foreign
corporations and tax-free covenant bonds, see Sec. 1.1461-2.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6922, 32 FR
8713, June 17, 1967]
Sec. 1.6011-2 Returns, etc., of DISC's and former DISC's.
(a) Records and information. Every DISC and former DISC (as defined
in section 992(a)) must comply with section 6001 and the regulations
thereunder, relating to required records, statements, and special
returns. Thus, for example, a DISC is required to maintain the books of
account or records described in Sec. 1.6001-1(a). In addition, every
DISC must furnish to each of its shareholders on or before the last day
of the second month following the close of the taxable year of the DISC
a copy of Schedule K (Form 1120-DISC) disclosing the amounts of actual
distributions and deemed distributions from the DISC to such shareholder
for the taxable year of the DISC. In the case of a deficiency
distribution to meet qualification requirements, see Sec. 1.992-3(a)(4)
for requirements that distribution be designated in the form of a
communication sent to a shareholder and service center at the time of
distribution.
(b) Returns--(1) Requirement of return. Every DISC (as defined in
section 992(a)(1)) shall make a return of income. A former DISC (as
defined in section 992(a)(3)) shall also make a return of income in
addition to any other return required. The return required of a DISC or
former DISC under this section shall be made on Form 1120-DISC. The
provisions of Sec. 1.6011-1 shall apply with respect to a DISC and
former DISC. A former DISC should indicate clearly on Form 1120-DISC
that it is making a return of income as a former DISC (for example, by
labeling at the top of the Form 1120-DISC ``Former DISC''). In the case
of a former DISC, those items on the form which pertain to the
computation of taxable income shall not be completed, but Schedules J,
K, L, and M must be completed. Except as otherwise specifically provided
in the Code or regulations, the return of a DISC or former DISC is
considered to be an income tax return.
(2) Existence of DISC. A corporation which is a DISC and which is in
existence during any portion of a taxable year is required to make a
return for that fractional part of its taxable year during which it was
in existence.
[T.D. 7533, 43 FR 6603, Feb. 15, 1978]
Sec. 1.6011-3 Requirement of statement from payees of certain
gambling winnings.
(a) General rule. Except as provided in paragraph (c) of this
section, any person receiving a payment with respect to a wager in a
sweepstakes, wagering pool, lottery, or other wagering transaction
(including a parimutuel pool with respect to horse races, dog races, or
jai alai) shall make a statement to the payer of such winnings upon the
payer's demand. Such statements shall accompany the payer's return made
with respect to the payment as required pursuant to section 3402(q) or
6041, as the case may be.
(b) Contents of statement. The statement referred to in paragraph
(a) shall contain information (in addition to that required under
section 6041(c)) as to the amount, if any, of winnings from identical
wagers to which the recipient is entitled. If any person other than the
recipient is entitled to all or a portion of the payment, the statement
shall also include information as to the amount, if any, of winnings
from identical wagers to which each such person is entitled. The
statement shall be provided on Form W-2G or, if persons other than the
recipient are entitled to all or a portion of such payment, on Form
5754.
(c) Exception. The requirement of paragraph (a) of this section does
not apply with respect to any payment of winnings--
(1) From a slot machine play, or a bingo or keno game,
(2) Which is subject to withholding under section 3402(q) without
regard to the existence of winnings from identical wagers, or
(3) For which no return of information under section 6041 is
required of the payer.
[[Page 78]]
(d) Meaning of terms, For purposes of this section, the terms
``sweepstakes'', ``wagering pool'', ``lottery'', ``other wagering
transaction'' and ``identical wagers'' shall have the same meanings as
ascribed to them under Sec. 31.3402(q)-1.
[T.D. 7919, 48 FR 46297, Oct. 12, 1983]
Sec. 1.6011-4 Requirement of statement disclosing participation
in certain transactions by taxpayers.
(a) In general. Every taxpayer that has participated, as described
in paragraph (c)(3) of this section, in a reportable transaction within
the meaning of paragraph (b) of this section and who is required to file
a tax return must file within the time prescribed in paragraph (e) of
this section a disclosure statement in the form prescribed by paragraph
(d) of this section. The fact that a transaction is a reportable
transaction shall not affect the legal determination of whether the
taxpayer's treatment of the transaction is proper.
(b) Reportable transactions--(1) In general. A reportable
transaction is a transaction described in any of the paragraphs (b)(2)
through (7) of this section. The term transaction includes all of the
factual elements relevant to the expected tax treatment of any
investment, entity, plan, or arrangement, and includes any series of
steps carried out as part of a plan.
(2) Listed transactions. A listed transaction is a transaction that
is the same as or substantially similar to one of the types of
transactions that the Internal Revenue Service (IRS) has determined to
be a tax avoidance transaction and identified by notice, regulation, or
other form of published guidance as a listed transaction.
(3) Confidential transactions--(i) In general. A confidential
transaction is a transaction that is offered to a taxpayer under
conditions of confidentiality and for which the taxpayer has paid an
advisor a minimum fee.
(ii) Conditions of confidentiality. A transaction is considered to
be offered to a taxpayer under conditions of confidentiality if the
advisor who is paid the minimum fee places a limitation on disclosure by
the taxpayer of the tax treatment or tax structure of the transaction
and the limitation on disclosure protects the confidentiality of that
advisor's tax strategies. A transaction is treated as confidential even
if the conditions of confidentiality are not legally binding on the
taxpayer. A claim that a transaction is proprietary or exclusive is not
treated as a limitation on disclosure if the advisor confirms to the
taxpayer that there is no limitation on disclosure of the tax treatment
or tax structure of the transaction.
(iii) Minimum fee. For purposes of this paragraph (b)(3), the
minimum fee is--
(A) $250,000 for a transaction if the taxpayer is a corporation;
(B) $50,000 for all other transactions unless the taxpayer is a
partnership or trust, all of the owners or beneficiaries of which are
corporations (looking through any partners or beneficiaries that are
themselves partnerships or trusts), in which case the minimum fee is
$250,000.
(iv) Determination of minimum fee. For purposes of this paragraph
(b)(3), in determining the minimum fee, all fees for a tax strategy or
for services for advice (whether or not tax advice) or for the
implementation of a transaction are taken into account. Fees include
consideration in whatever form paid, whether in cash or in kind, for
services to analyze the transaction (whether or not related to the tax
consequences of the transaction), for services to implement the
transaction, for services to document the transaction, and for services
to prepare tax returns to the extent return preparation fees are
unreasonable in light of the facts and circumstances. For purposes of
this paragraph (b)(3), a taxpayer also is treated as paying fees to an
advisor if the taxpayer knows or should know that the amount it pays
will be paid indirectly to the advisor, such as through a referral fee
or fee-sharing arrangement. A fee does not include amounts paid to a
person, including an advisor, in that person's capacity as a party to
the transaction. For example, a fee does not include reasonable charges
for the use of capital or the sale or use of property. The IRS will
scrutinize carefully all of the facts and circumstances in determining
whether consideration received in connection with a confidential
transaction constitutes fees.
[[Page 79]]
(v) Related parties. For purposes of this paragraph (b)(3), persons
who bear a relationship to each other as described in section 267(b) or
707(b) will be treated as the same person.
(4) Transactions with contractual protection--(i) In general. A
transaction with contractual protection is a transaction for which the
taxpayer or a related party (as described in section 267(b) or 707(b))
has the right to a full or partial refund of fees (as described in
paragraph (b)(4)(ii) of this section) if all or part of the intended tax
consequences from the transaction are not sustained. A transaction with
contractual protection also is a transaction for which fees (as
described in paragraph (b)(4)(ii) of this section) are contingent on the
taxpayer's realization of tax benefits from the transaction. All the
facts and circumstances relating to the transaction will be considered
when determining whether a fee is refundable or contingent, including
the right to reimbursements of amounts that the parties to the
transaction have not designated as fees or any agreement to provide
services without reasonable compensation.
(ii) Fees. Paragraph (b)(4)(i) of this section only applies with
respect to fees paid by or on behalf of the taxpayer or a related party
to any person who makes or provides a statement, oral or written, to the
taxpayer or related party (or for whose benefit a statement is made or
provided to the taxpayer or related party) as to the potential tax
consequences that may result from the transaction.
(iii) Exceptions--(A) Termination of transaction. A transaction is
not considered to have contractual protection solely because a party to
the transaction has the right to terminate the transaction upon the
happening of an event affecting the taxation of one or more parties to
the transaction.
(B) Previously reported transaction. If a person makes or provides a
statement to a taxpayer as to the potential tax consequences that may
result from a transaction only after the taxpayer has entered into the
transaction and reported the consequences of the transaction on a filed
tax return, and the person has not previously received fees from the
taxpayer relating to the transaction, then any refundable or contingent
fees are not taken into account in determining whether the transaction
has contractual protection. This paragraph (b)(4) does not provide any
substantive rules regarding when a person may charge refundable or
contingent fees with respect to a transaction. See Circular 230, 31 CFR
part 10, for the regulations governing practice before the IRS.
(5) Loss transactions--(i) In general. A loss transaction is any
transaction resulting in the taxpayer claiming a loss under section 165
of at least--
(A) $10 million in any single taxable year or $20 million in any
combination of taxable years for corporations;
(B) $10 million in any single taxable year or $20 million in any
combination of taxable years for partnerships that have only
corporations as partners (looking through any partners that are
themselves partnerships), whether or not any losses flow through to one
or more partners; or
(C) $2 million in any single taxable year or $4 million in any
combination of taxable years for all other partnerships, whether or not
any losses flow through to one or more partners;
(D) $2 million in any single taxable year or $4 million in any
combination of taxable years for individuals, S corporations, or trusts,
whether or not any losses flow through to one or more shareholders or
beneficiaries; or
(E) $50,000 in any single taxable year for individuals or trusts,
whether or not the loss flows through from an S corporation or
partnership, if the loss arises with respect to a section 988
transaction (as defined in section 988(c)(1) relating to foreign
currency transactions).
(ii) Cumulative losses. In determining whether a transaction results
in a taxpayer claiming a loss that meets the threshold amounts over a
combination of taxable years as described in paragraph (b)(5)(i) of this
section, only losses claimed in the taxable year that the transaction is
entered into and the five succeeding taxable years are combined.
(iii) Section 165 loss--(A) For purposes of this section, in
determining the thresholds in paragraph (b)(5)(i) of this section, the
amount of a section 165
[[Page 80]]
loss is adjusted for any salvage value and for any insurance or other
compensation received. See Sec. 1.165-1(c)(4). However, a section 165
loss does not take into account offsetting gains, or other income or
limitations. For example, a section 165 loss does not take into account
the limitation in section 165(d) (relating to wagering losses) or the
limitations in sections 165(f), 1211, and 1212 (relating to capital
losses). The full amount of a section 165 loss is taken into account for
the year in which the loss is sustained, regardless of whether all or
part of the loss enters into the computation of a net operating loss
under section 172 or a net capital loss under section 1212 that is a
carryback or carryover to another year. A section 165 loss does not
include any portion of a loss, attributable to a capital loss carryback
or carryover from another year, that is treated as a deemed capital loss
under section 1212.
(B) For purposes of this section, a section 165 loss includes an
amount deductible pursuant to a provision that treats a transaction as a
sale or other disposition, or otherwise results in a deduction under
section 165. A section 165 loss includes, for example, a loss resulting
from a sale or exchange of a partnership interest under section 741 and
a loss resulting from a section 988 transaction.
(6) Transactions of interest. A transaction of interest is a
transaction that is the same as or substantially similar to one of the
types of transactions that the IRS has identified by notice, regulation,
or other form of published guidance as a transaction of interest.
(7) [Reserved]
(8) Exceptions--(i) In general. A transaction will not be considered
a reportable transaction, or will be excluded from any individual
category of reportable transaction under paragraphs (b)(3) through (7)
of this section, if the Commissioner makes a determination by published
guidance that the transaction is not subject to the reporting
requirements of this section. The Commissioner may make a determination
by individual letter ruling under paragraph (f) of this section that an
individual letter ruling request on a specific transaction satisfies the
reporting requirements of this section with regard to that transaction
for the taxpayer who requests the individual letter ruling.
(ii) Special rule for RICs. For purposes of this section, a
regulated investment company (RIC) as defined in section 851 or an
investment vehicle that is owned 95 percent or more by one or more RICs
at all times during the course of the transaction is not required to
disclose a transaction that is described in any of paragraphs (b)(3)
through (5) and (b)(7) of this section unless the transaction is also a
listed transaction or a transaction of interest.
(c) Definitions. For purposes of this section, the following
definitions apply:
(1) Taxpayer. The term taxpayer means any person described in
section 7701(a)(1), including S corporations. Except as otherwise
specifically provided in this section, the term taxpayer also includes
an affiliated group of corporations that joins in the filing of a
consolidated return under section 1501.
(2) Corporation. When used specifically in this section, the term
corporation means an entity that is required to file a return for a
taxable year on any 1120 series form, or successor form, excluding S
corporations.
(3) Participation--(i) In general--(A) Listed transactions. A
taxpayer has participated in a listed transaction if the taxpayer's tax
return reflects tax consequences or a tax strategy described in the
published guidance that lists the transaction under paragraph (b)(2) of
this section. A taxpayer also has participated in a listed transaction
if the taxpayer knows or has reason to know that the taxpayer's tax
benefits are derived directly or indirectly from tax consequences or a
tax strategy described in published guidance that lists a transaction
under paragraph (b)(2) of this section. Published guidance may identify
other types or classes of persons that will be treated as participants
in a listed transaction. Published guidance also may identify types or
classes of persons that will not be treated as participants in a listed
transaction.
(B) Confidential transactions. A taxpayer has participated in a
confidential transaction if the taxpayer's tax return
[[Page 81]]
reflects a tax benefit from the transaction and the taxpayer's
disclosure of the tax treatment or tax structure of the transaction is
limited in the manner described in paragraph (b)(3) of this section. If
a partnership's, S corporation's or trust's disclosure is limited, and
the partner's, shareholder's, or beneficiary's disclosure is not
limited, then the partnership, S corporation, or trust, and not the
partner, shareholder, or beneficiary, has participated in the
confidential transaction.
(C) Transactions with contractual protection. A taxpayer has
participated in a transaction with contractual protection if the
taxpayer's tax return reflects a tax benefit from the transaction and,
as described in paragraph (b)(4) of this section, the taxpayer has the
right to the full or partial refund of fees or the fees are contingent.
If a partnership, S corporation, or trust has the right to a full or
partial refund of fees or has a contingent fee arrangement, and the
partner, shareholder, or beneficiary does not individually have the
right to the refund of fees or a contingent fee arrangement, then the
partnership, S corporation, or trust, and not the partner, shareholder,
or beneficiary, has participated in the transaction with contractual
protection.
(D) Loss transactions. A taxpayer has participated in a loss
transaction if the taxpayer's tax return reflects a section 165 loss and
the amount of the section 165 loss equals or exceeds the threshold
amount applicable to the taxpayer as described in paragraph (b)(5)(i) of
this section. If a taxpayer is a partner in a partnership, shareholder
in an S corporation, or beneficiary of a trust and a section 165 loss as
described in paragraph (b)(5) of this section flows through the entity
to the taxpayer (disregarding netting at the entity level), the taxpayer
has participated in a loss transaction if the taxpayer's tax return
reflects a section 165 loss and the amount of the section 165 loss that
flows through to the taxpayer equals or exceeds the threshold amounts
applicable to the taxpayer as described in paragraph (b)(5)(i) of this
section. For this purpose, a tax return is deemed to reflect the full
amount of a section 165 loss described in paragraph (b)(5) of this
section allocable to the taxpayer under this paragraph (c)(3)(i)(D),
regardless of whether all or part of the loss enters into the
computation of a net operating loss under section 172 or net capital
loss under section 1212 that the taxpayer may carry back or carry over
to another year.
(E) Transactions of interest. A taxpayer has participated in a
transaction of interest if the taxpayer is one of the types or classes
of persons identified as participants in the transaction in the
published guidance describing the transaction of interest.
(F) [Reserved]
(G) Shareholders of foreign corporations--(1) In general. A
reporting shareholder of a foreign corporation participates in a
transaction described in paragraphs (b)(2) through (5) and (b)(7) of
this section if the foreign corporation would be considered to
participate in the transaction under the rules of this paragraph (c)(3)
if it were a domestic corporation filing a tax return that reflects the
items from the transaction. A reporting shareholder of a foreign
corporation participates in a transaction described in paragraph (b)(6)
of this section only if the published guidance identifying the
transaction includes the reporting shareholder among the types or
classes of persons identified as participants. A reporting shareholder
(and any successor in interest) is considered to participate in a
transaction under this paragraph (c)(3)(i)(G) only for its first taxable
year with or within which ends the first taxable year of the foreign
corporation in which the foreign corporation participates in the
transaction, and for the reporting shareholder's five succeeding taxable
years.
(2) Reporting shareholder. The term reporting shareholder means a
United States shareholder (as defined in section 951(b)) in a controlled
foreign corporation (as defined in section 957) or a 10 percent
shareholder (by vote or value) of a qualified electing fund (as defined
in section 1295).
(ii) Examples. The following examples illustrate the provisions of
paragraph (c)(3)(i) of this section:
Example 1. Notice 2003-55 (2003-2 CB 395), which modified and
superseded Notice 95-53 (1995-2 CB 334) (see Sec. 601.601(d)(2) of this
chapter), describes a lease stripping transaction
[[Page 82]]
in which one party (the transferor) assigns the right to receive future
payments under a lease of tangible property and treats the amount
realized from the assignment as its current income. The transferor later
transfers the property subject to the lease in a transaction intended to
qualify as a transferred basis transaction, for example, a transaction
described in section 351. The transferee corporation claims the
deductions associated with the high basis property subject to the lease.
The transferor's and transferee corporation's tax returns reflect tax
positions described in Notice 2003-55. Therefore, the transferor and
transferee corporation have participated in the listed transaction. In
the section 351 transaction, the transferor will have received stock
with low value and high basis from the transferee corporation. If the
transferor subsequently transfers the high basis/low value stock to a
taxpayer in another transaction intended to qualify as a transferred
basis transaction and the taxpayer uses the stock to generate a loss,
and if the taxpayer knows or has reason to know that the tax loss
claimed was derived indirectly from the lease stripping transaction,
then the taxpayer has participated in the listed transaction.
Accordingly, the taxpayer must disclose the transaction and the manner
of the taxpayer's participation in the transaction under the rules of
this section. For purposes of this example, if a bank lends money to the
transferor, transferee corporation, or taxpayer for use in their
transactions, the bank has not participated in the listed transaction
because the bank's tax return does not reflect tax consequences or a tax
strategy described in the listing notice (nor does the bank's tax return
reflect a tax benefit derived from tax consequences or a tax strategy
described in the listing notice) nor is the bank described as a
participant in the listing notice.
Example 2. XYZ is a limited liability company treated as a
partnership for tax purposes. X, Y, and Z are members of XYZ. X is an
individual, Y is an S corporation, and Z is a partnership. XYZ enters
into a confidential transaction under paragraph (b)(3) of this section.
XYZ and X are bound by the confidentiality agreement, but Y and Z are
not bound by the agreement. As a result of the transaction, XYZ, X, Y,
and Z all reflect a tax benefit on their tax returns. Because XYZ's and
X's disclosure of the tax treatment and tax structure are limited in the
manner described in paragraph (b)(3) of this section and their tax
returns reflect a tax benefit from the transaction, both XYZ and X have
participated in the confidential transaction. Neither Y nor Z has
participated in the confidential transaction because they are not
subject to the confidentiality agreement.
Example 3. P, a corporation, has an 80% partnership interest in PS,
and S, an individual, has a 20% partnership interest in PS. P, S, and PS
are calendar year taxpayers. In 2006, PS enters into a transaction and
incurs a section 165 loss (that does not meet any of the exceptions to a
section 165 loss identified in published guidance) of $12 million and
offsetting gain of $3 million. On PS' 2006 tax return, PS includes the
section 165 loss and the corresponding gain. PS must disclose the
transaction under this section because PS' section 165 loss of $12
million is equal to or greater than $2 million. P is allocated $9.6
million of the section 165 loss and $2.4 million of the offsetting gain.
P does not have to disclose the transaction under this section because
P's section 165 loss of $9.6 million is not equal to or greater than $10
million. S is allocated $2.4 million of the section 165 loss and
$600,000 of the offsetting gain. S must disclose the transaction under
this section because S's section 165 loss of $2.4 million is equal to or
greater than $2 million.
(4) Substantially similar. The term substantially similar includes
any transaction that is expected to obtain the same or similar types of
tax consequences and that is either factually similar or based on the
same or similar tax strategy. Receipt of an opinion regarding the tax
consequences of the transaction is not relevant to the determination of
whether the transaction is the same as or substantially similar to
another transaction. Further, the term substantially similar must be
broadly construed in favor of disclosure. For example, a transaction may
be substantially similar to a listed transaction even though it involves
different entities or uses different Internal Revenue Code provisions.
(See for example, Notice 2003-54 (2003-2 CB 363), describing a
transaction substantially similar to the transactions in Notice 2002-50
(2002-2 CB 98), and Notice 2002-65 (2002-2 CB 690).) The following
examples illustrate situations where a transaction is the same as or
substantially similar to a listed transaction under paragraph (b)(2) of
this section. (Such transactions may also be reportable transactions
under paragraphs (b)(3) through (7) of this section.) See Sec.
601.601(d)(2)(ii)(b) of this chapter. The following examples illustrate
the provisions of this paragraph (c)(4):
Example 1. Notice 2000-44 (2000-2 CB 255) (see Sec.
601.601(d)(2)(ii)(b) of this chapter), sets forth a listed transaction
involving offsetting options transferred to a partnership
[[Page 83]]
where the taxpayer claims basis in the partnership for the cost of the
purchased options but does not adjust basis under section 752 as a
result of the partnership's assumption of the taxpayer's obligation with
respect to the options. Transactions using short sales, futures,
derivatives or any other type of offsetting obligations to inflate basis
in a partnership interest would be the same as or substantially similar
to the transaction described in Notice 2000-44. Moreover, use of the
inflated basis in the partnership interest to diminish gain that would
otherwise be recognized on the transfer of a partnership asset would
also be the same as or substantially similar to the transaction
described in Notice 2000-44. See Sec. 601.601(d)(2)(ii)(b).
Example 2. Notice 2001-16 (2001-1 CB 730) (see Sec.
601.601(d)(2)(ii)(b) of this chapter), sets forth a listed transaction
involving a seller (X) who desires to sell stock of a corporation (T),
an intermediary corporation (M), and a buyer (Y) who desires to purchase
the assets (and not the stock) of T. M agrees to facilitate the sale to
prevent the recognition of the gain that T would otherwise report.
Notice 2001-16 describes M as a member of a consolidated group that has
a loss within the group or as a party not subject to tax. Transactions
utilizing different intermediaries to prevent the recognition of gain
would be the same as or substantially similar to the transaction
described in Notice 2001-16. An example is a transaction in which M is a
corporation that does not file a consolidated return but which buys T
stock, liquidates T, sells assets of T to Y, and offsets the gain on the
sale of those assets with currently generated losses. See Sec.
601.601(d)(2)(ii)(b).
(5) Tax. The term tax means Federal income tax.
(6) Tax benefit. A tax benefit includes deductions, exclusions from
gross income, nonrecognition of gain, tax credits, adjustments (or the
absence of adjustments) to the basis of property, status as an entity
exempt from Federal income taxation, and any other tax consequences that
may reduce a taxpayer's Federal income tax liability by affecting the
amount, timing, character, or source of any item of income, gain,
expense, loss, or credit.
(7) Tax return. The term tax return means a Federal income tax
return and a Federal information return.
(8) Tax treatment. The tax treatment of a transaction is the
purported or claimed Federal income tax treatment of the transaction.
(9) Tax structure. The tax structure of a transaction is any fact
that may be relevant to understanding the purported or claimed Federal
income tax treatment of the transaction.
(d) Form and content of disclosure statement. A taxpayer required to
file a disclosure statement under this section must file a completed
Form 8886, ``Reportable Transaction Disclosure Statement'' (or a
successor form), in accordance with this paragraph (d) and the
instructions to the form. The Form 8886 (or a successor form) is the
disclosure statement required under this section. The form must be
attached to the appropriate tax return(s) as provided in paragraph (e)
of this section. If a copy of a disclosure statement is required to be
sent to the Office of Tax Shelter Analysis (OTSA) under paragraph (e) of
this section, it must be sent in accordance with the instructions to the
form. To be considered complete, the information provided on the form
must describe the expected tax treatment and all potential tax benefits
expected to result from the transaction, describe any tax result
protection (as defined in Sec. 301.6111-3(c)(12) of this chapter) with
respect to the transaction, and identify and describe the transaction in
sufficient detail for the IRS to be able to understand the tax structure
of the reportable transaction and the identity of all parties involved
in the transaction. An incomplete Form 8886 (or a successor form)
containing a statement that information will be provided upon request is
not considered a complete disclosure statement. If the form is not
completed in accordance with the provisions in this paragraph (d) and
the instructions to the form, the taxpayer will not be considered to
have complied with the disclosure requirements of this section. If a
taxpayer receives one or more reportable transaction numbers for a
reportable transaction, the taxpayer must include the reportable
transaction number(s) on the Form 8886 (or a successor form). See Sec.
301.6111-3(d)(2) of this chapter.
(e) Time of providing disclosure--(1) In general. The disclosure
statement for a reportable transaction must be attached to the
taxpayer's tax return for each taxable year for which a taxpayer
participates in a reportable transaction. In addition, a disclosure
statement for a reportable transaction must be attached to each amended
return
[[Page 84]]
that reflects a taxpayer's participation in a reportable transaction. A
copy of the disclosure statement must be sent to OTSA at the same time
that any disclosure statement is first filed by the taxpayer pertaining
to a particular reportable transaction. If a reportable transaction
results in a loss which is carried back to a prior year, the disclosure
statement for the reportable transaction must be attached to the
taxpayer's application for tentative refund or amended tax return for
that prior year. In the case of a taxpayer that is a partnership, an S
corporation, or a trust, the disclosure statement for a reportable
transaction must be attached to the partnership, S corporation, or
trust's tax return for each taxable year in which the partnership, S
corporation, or trust participates in the transaction under the rules of
paragraph (c)(3)(i) of this section. If a taxpayer who is a partner in a
partnership, a shareholder in an S corporation, or a beneficiary of a
trust receives a timely Schedule K-1 less than 10 calendar days before
the due date of the taxpayer's return (including extensions) and, based
on receipt of the timely Schedule K-1, the taxpayer determines that the
taxpayer participated in a reportable transaction within the meaning of
paragraph (c)(3) of this section, the disclosure statement will not be
considered late if the taxpayer discloses the reportable transaction by
filing a disclosure statement with OTSA within 60 calendar days after
the due date of the taxpayer's return (including extensions). The
Commissioner in his discretion may issue in published guidance other
provisions for disclosure under Sec. 1.6011-4.
(2) Special rules--(i) Listed transactions and transactions of
interest. In general, if a transaction becomes a listed transaction or a
transaction of interest after the filing of a taxpayer's tax return
(including an amended return) reflecting the taxpayer's participation in
the listed transaction or transaction of interest and before the end of
the period of limitations for assessment of tax for any taxable year in
which the taxpayer participated in the listed transaction or transaction
of interest, then a disclosure statement must be filed, regardless of
whether the taxpayer participated in the transaction in the year the
transaction became a listed transaction or a transaction of interest,
with OTSA within 90 calendar days after the date on which the
transaction became a listed transaction or a transaction of interest.
The Commissioner also may determine the time for disclosure of listed
transactions and transactions of interest in the published guidance
identifying the transaction.
(ii) Loss transactions. If a transaction becomes a loss transaction
because the losses equal or exceed the threshold amounts as described in
paragraph (b)(5)(i) of this section, a disclosure statement must be
filed as an attachment to the taxpayer's tax return for the first
taxable year in which the threshold amount is reached and to any
subsequent tax return that reflects any amount of section 165 loss from
the transaction.
(3) Multiple disclosures. The taxpayer must disclose the transaction
in the time and manner provided for under the provisions of this section
regardless of whether the taxpayer also plans to disclose the
transaction under other published guidance, for example, Sec. 1.6662-
3(c)(2).
(4) Example. The following example illustrates the application of
this paragraph (e):
Example. In January of 2008, F, a calendar year taxpayer, enters
into a transaction that at the time is not a listed transaction and is
not a transaction described in any of the paragraphs (b)(3) through (7)
of this section. All the tax benefits from the transaction are reported
on F's 2008 tax return filed timely in April 2009. On May 2, 2011, the
IRS publishes a notice identifying the transaction as a listed
transaction described in paragraph (b)(2) of this section. Upon issuance
of the May 2, 2011 notice, the transaction becomes a reportable
transaction described in paragraph (b) of this section. The period of
limitations on assessment for F's 2008 taxable year is still open. F is
required to file Form 8886 for the transaction with OTSA within 90
calendar days after May 2, 2011.
(f) Rulings and protective disclosures--(1) Rulings. If a taxpayer
requests a ruling on the merits of a specific transaction on or before
the date that disclosure would otherwise be required under this section,
and receives a favorable ruling as to the transaction, the disclosure
rules under this section
[[Page 85]]
will be deemed to have been satisfied by that taxpayer with regard to
that transaction, so long as the request fully discloses all relevant
facts relating to the transaction which would otherwise be required to
be disclosed under this section. If a taxpayer requests a ruling as to
whether a specific transaction is a reportable transaction on or before
the date that disclosure would otherwise be required under this section,
the Commissioner in his discretion may determine that the submission
satisfies the disclosure rules under this section for the taxpayer
requesting the ruling for that transaction if the request fully
discloses all relevant facts relating to the transaction which would
otherwise be required to be disclosed under this section. The potential
obligation of the taxpayer to disclose the transaction under this
section will not be suspended during the period that the ruling request
is pending.
(2) Protective disclosures. If a taxpayer is uncertain whether a
transaction must be disclosed under this section, the taxpayer may
disclose the transaction in accordance with the requirements of this
section and comply with all the provisions of this section, and indicate
on the disclosure statement that the disclosure statement is being filed
on a protective basis. The IRS will not treat disclosure statements
filed on a protective basis any differently than other disclosure
statements filed under this section. For a protective disclosure to be
effective, the taxpayer must comply with these disclosure regulations by
providing to the IRS all information requested by the IRS under this
section.
(g) Retention of documents. (1) In accordance with the instructions
to Form 8886 (or a successor form), the taxpayer must retain a copy of
all documents and other records related to a transaction subject to
disclosure under this section that are material to an understanding of
the tax treatment or tax structure of the transaction. The documents
must be retained until the expiration of the statute of limitations
applicable to the final taxable year for which disclosure of the
transaction was required under this section. (This document retention
requirement is in addition to any document retention requirements that
section 6001 generally imposes on the taxpayer.) The documents may
include the following:
(i) Marketing materials related to the transaction;
(ii) Written analyses used in decision-making related to the
transaction;
(iii) Correspondence and agreements between the taxpayer and any
advisor, lender, or other party to the reportable transaction that
relate to the transaction;
(iv) Documents discussing, referring to, or demonstrating the
purported or claimed tax benefits arising from the reportable
transaction; and documents, if any, referring to the business purposes
for the reportable transaction.
(2) A taxpayer is not required to retain earlier drafts of a
document if the taxpayer retains a copy of the final document (or, if
there is no final document, the most recent draft of the document) and
the final document (or most recent draft) contains all the information
in the earlier drafts of the document that is material to an
understanding of the purported tax treatment or tax structure of the
transaction.
(h) Effective/applicability date--(1) In general. This section
applies to transactions entered into on or after August 3, 2007.
However, this section applies to transactions of interest entered into
on or after November 2, 2006. Paragraph (f)(1) of this section applies
to ruling requests received on or after November 1, 2006. Otherwise, the
rules that apply with respect to transactions entered into before August
3, 2007, are contained in Sec. 1.6011-4 in effect prior to August 3,
2007 (see 26 CFR part 1 revised as of April 1, 2007).
(2) [Reserved]
[T.D. 9350, 72 FR 43149, Aug. 3, 2007, as amended at 75 FR 26061, May
11, 2010]
Sec. 1.6011-5 Required use of magnetic media for corporate income
tax returns.
The return of a corporation that is required to be filed on magnetic
media under Sec. 301.6011-5 of this chapter must be filed in accordance
with Internal Revenue Service revenue procedures,
[[Page 86]]
publications, forms, or instructions, including those posted
electronically. (See Sec. 601.601(d)(2) of this chapter).
[T.D. 9364, 72 FR 63810, Nov. 13, 2007]
Sec. 1.6011-6 [Reserved]
Sec. 1.6011-7 Specified tax return preparers required to file
individual income tax returns using magnetic media.
Individual income tax returns that are required to be filed on
magnetic media by tax return preparers under section 6011(e)(3) and
Sec. 301.6011-7 of this chapter must be filed in accordance with
Internal Revenue Service regulations, revenue procedures, revenue
rulings, publications, forms or instructions, including those posted
electronically.
[T.D. 9518, 76 FR 17528, Mar. 30, 2011]
Sec. 1.6011-8 Requirement of income tax return for taxpayers who
claim the premium tax credit under section 36B.
(a) Requirement of return. Except as otherwise provided in this
paragraph (a), a taxpayer who receives the benefit of advance payments
of the premium tax credit under section 36B must file an income tax
return for that taxable year on or before the due date for the return
(including extensions of time for filing) and reconcile the advance
credit payments. However, if advance credit payments are made for
coverage of an individual for whom no taxpayer claims a personal
exemption deduction, the taxpayer who attests to the Exchange to the
intention to claim a personal exemption deduction for the individual as
part of the determination that the taxpayer is eligible for advance
credit payments must file a tax return and reconcile the advance credit
payments.
(b) Effective/applicability date. Except as otherwise provided, this
section applies for taxable years beginning after December 31, 2016.
Paragraph (a) of Sec. 1.6011-8 as contained in 26 CFR part I edition
revised as of April 1, 2016, applies to taxable years ending after
December 31, 2013, and beginning before January 1, 2017.
[T.D. 9804, 81 FR 91768, Dec. 19, 2016]
Sec. 1.6012-1 Individuals required to make returns of income.
(a) Individual citizen or resident--(1) In general. Except as
provided in subparagraph (2) of this paragraph, an income tax return
must be filed by every individual for each taxable year beginning before
January 1, 1973, during which he receives $600 or more of gross income,
and for each taxable year beginning after December 31, 1972, during
which he receives $750 or more of gross income, if such individual is:
(i) A citizen of the United States, whether residing at home or
abroad,
(ii) A resident of the United States even though not a citizen
thereof, or
(iii) An alien bona fide resident of Puerto Rico or any section 931
possession, as defined in Sec. 1.931-1(c)(1), during the entire taxable
year
(2) Special rules. (i) For taxable years beginning before January 1,
1970, an individual who is described in subparagraph (1) of this
paragraph and who has attained the age of 65 before the close of his
taxable year must file an income tax return only if he receives $1,200
or more of gross income during his taxable year.
(ii) For taxable years beginning after December 31, 1969, and before
January 1, 1973, an individual described in subparagraph (1) of this
paragraph (other than an individual referred to in section 142(b)):
(a) Who is not married (as determined by applying section 143(a) and
the regulations thereunder) must file an income tax return only if he
receives $1,700 or more of gross income during his taxable year, except
that if such an individual has attained the age of 65 before the close
of his taxable year an income tax return must be filed by such
individual only if he receives $2,300 or more of gross income during his
taxable year.
(b) Who is entitled to make a joint return under section 6013 and
the regulations thereunder must file an income tax return only if his
gross income received during his taxable year, when combined with the
gross income of his spouse received during his taxable year, is $2,300
or more. However, if such individual or his spouse has attained the age
of 65 before the close of the taxable year an income tax return must be
[[Page 87]]
filed by such individual only if their combined gross income is $2,900
or more. If both the individual and his spouse have attained the age of
65 before the close of the taxable year such return must be filed only
if their combined gross income is $3,500 or more. However, this
subdivision (ii)(b) shall not apply if the individual and his spouse did
not have the same household as their home at the close of their taxable
year, if such spouse files a separate return for a taxable year which
includes any part of such individual's taxable year, or if any other
taxpayer is entitled to an exemption for such individual or his spouse
under section 151(e) for such other taxpayer's taxable year beginning in
the calendar year in which such individual's taxable year begins. For
example, a married student more than half of whose support is furnished
by his father must file an income tax return if he receives $600 or more
of gross income during his taxable year.
(iii) For taxable years beginning after December 31, 1972, an
individual described in subparagraph (1) of this paragraph (other than
an individual referred to in section 142(b)):
(a) Who is not married (as determined by applying section 143(a) and
the regulations thereunder) must file an income tax return only if he
receives $1,750 or more of gross income during his taxable year, except
that if such an individual has attained the age of 65 before the close
of his taxable year an income tax return must be filed by such
individual only if he receives $2,500 or more of gross income during his
taxable year.
(b) Who is entitled to make a joint return under section 6013 and
the regulations thereunder must file an income tax return only if his
gross income received during his taxable year, when combined with the
gross income of his spouse received during his taxable year, is $2,500
or more. However, if such individual or his spouse has attained the age
of 65 before the close of the taxable year an income tax return must be
filed by such individual only if their combined gross income is $3,250
or more. If both the individual and his spouse attain the age of 65
before the close of the taxable year such return must be filed only if
their combined gross income is $4,000 or more. However, this subdivision
(iii)(b) shall not apply if the individual and his spouse did not have
the same household as their home at the close of their taxable year, if
such spouse files a separate return for a taxable year which includes
any part of such individual's taxable year, or if any other taxpayer is
entitled to an exemption for the taxpayer or his spouse under section
151(e) for such other taxpayer's taxable year beginning in the calendar
year in which such individual's taxable year begins. For example, a
married student more than half of whose support is furnished by his
father must file an income tax return if he receives $750 or more of
gross income during the taxable year.
(iv) For purposes of section 6012(a)(1)(A)(ii) and subdivisions
(ii)(b) and (iii)(b) of this subparagraph, an individual and his spouse
are considered to have the same household as their home at the close of
a taxable year if the same household constituted the principal place of
abode of both the individual and his spouse at the close of such taxable
year (or on the date of death, if the individual or his spouse died
within the taxable year). The individual and his spouse will be
considered to have the same household as their home at the close of the
taxable year notwithstanding a temporary absence from the household due
to special circumstances, as, for example, in the case of a nonpermanent
failure on the part of the individual and his spouse to have a common
abode by reason of illness, education, business, vacation, or military
service. For example, A, a calendar-year individual under 65 years of
age, is married to B, also under 65 years of age, and is a member of the
Armed Forces of the United States. During 1970 A is transferred to an
overseas base. A and B give up their home, which they had jointly
occupied until that time; B moves to the home of her parents for the
duration of A's absence. They fully intend to set up a new joint
household upon A's return. Neither A nor B must file a return for 1970
if their combined gross income for the year is less than $2,300 and if
no other taxpayer is entitled to a dependency exemption for A or B under
section 151(e).
[[Page 88]]
(v) In the case of a short taxable year referred to in section
443(a)(1), an individual described in subparagraph (1) of this paragraph
shall file an income tax return if his gross income received during such
short taxable year equals or exceeds his own personal exemption allowed
by section 151(b) (prorated as provided in section 443(c)) and, when
applicable, his additional exemption for age 65 or more allowed by
section 151(c)(1) (prorated as provided in section 443(c)).
(vi) For rules relating to returns required to be made by every
individual who is liable for one or more qualified State individual
income taxes, as defined in section 6362, for a taxable year, see
paragraph (b) of Sec. 301.6361-1 of this chapter (Regulations on
Procedure and Administration).
(vii) For taxable years beginning after December 31, 1978, an
individual who receives payments during the calendar year in which the
taxable year begins under section 3507 (relating to advance payment of
earned income credit) must file an income tax return.
(viii) For rules relating to returns required of taxpayers who
receive advance payments of the premium tax credit under section 36B,
see Sec. 1.6011-8(a).
(3) Earned income from without the United States and gain from sale
of residence. For the purpose of determining whether an income tax
return must be filed for any taxable year beginning after December 31,
1957, gross income shall be computed without regard to the exclusion
provided for in section 911 (relating to earned income from sources
without the United States). For the purpose of determining whether an
income tax return must be filed for any taxable year ending after
December 31, 1963, gross income shall be computed without regard to the
exclusion provided for in section 121 (relating to sale of residence by
individual who has attained age 65). In the case of an individual
claiming an exclusion under section 121, he shall attach Form 2119 to
the return required under this paragraph and in the case of an
individual claiming an exclusion under section 911, he shall attach Form
2555 to the return required under this paragraph.
(4) Return of income of minor. A minor is subject to the same
requirements and elections for making returns of income as are other
individuals. Thus, for example, for a taxable year beginning after
December 31, 1972, a return must be made by or for a minor who has an
aggregate of $1,750 of gross income from funds held in trust for him and
from his personal services, regardless of the amount of his taxable
income. The return of a minor must be made by the minor himself or must
be made for him by his guardian or other person charged with the care of
the minor's person or property. See paragraph (b)(3) of Sec. 1.6012-3.
See Sec. 1.73-1 for inclusion in the minor's gross income of amounts
received for his personal services. For the amount of tax which is
considered to have been properly assessed against the parent, if not
paid by the child, see section 6201(c) and paragraph (c) of Sec.
301.6201-1 of this chapter (Regulations on Procedure and
Administration).
(5) Returns made by agents. The return of income may be made by an
agent if, by reason of disease or injury, the person liable for the
making of the return is unable to make it. The return may also be made
by an agent if the taxpayer is unable to make the return by reason of
continuous absence from the United States (including Puerto Rico as if a
part of the United States) for a period of at least 60 days prior to the
date prescribed by law for making the return. In addition, a return may
be made by an agent if the taxpayer requests permission, in writing, of
the district director for the internal revenue district in which is
located the legal residence or principal place of business of the person
liable for the making of the return, and such district director
determines that good cause exists for permitting the return to be so
made. However, assistance in the preparation of the return may be
rendered under any circumstances. Whenever a return is made by an agent
it must be accompanied by a power of attorney (or copy thereof)
authorizing him to represent his principal in making, executing, or
filing the return. A form 2848, when properly completed, is sufficient.
In addition, where one spouse is physically unable by reason of disease
[[Page 89]]
or injury to sign a joint return, the other spouse may, with the oral
consent of the one who is incapacitated, sign the incapacitated spouse's
name in the proper place on the return followed by the words ``By
__________ Husband (or Wife),'' and by the signature of the signing
spouse in his own right, provided that a dated statement signed by the
spouse who is signing the return is attached to and made a part of the
return stating:
(i) The name of the return being filed,
(ii) The taxable year,
(iii) The reason for the inability of the spouse who is
incapacitated to sign the return, and
(iv) That the spouse who is incapacitated consented to the signing
of the return.
The taxpayer and his agent, if any, are responsible for the return as
made and incur liability for the penalties provided for erroneous,
false, or fraudulent returns.
(6) Form of return. Form 1040 is prescribed for general use in
making the return required under this paragraph. Form 1040A is an
optional short form which, in accordance with paragraph (a)(7) of this
section, may be used by certain taxpayers. A taxpayer otherwise entitled
to use Form 1040A as his return for any taxable year may not make his
return on such form if he elects not to take the standard deduction
provided in section 141, and in such case he must make his return on
Form 1040. For taxable years beginning before January 1, 1970, a
taxpayer entitled under section 6014 and Sec. 1.6014-1 to elect not to
show his tax on his return must, if he desires to exercise such
election, make his return on Form 1040A. Form 1040W is an optional short
form which, in accordance with paragraph (a)(8) of this section, may be
used only with respect to taxable years beginning after December 31,
1958, and ending before December 31, 1961.
(7)(i) Use of Form 1040A. Form 1040A may be filed only by those
individuals entitled to use such form as provided by and in accordance
with the instructions for such form.
(ii) Computation and payment of tax. Unless a taxpayer is entitled
to elect under section 6014 and Sec. 1.6014-1 not to show the tax on
Form 1040A and does so elect, he shall compute and show on his return on
Form 1040A the amount of the tax imposed by subtitle A of the Code and
shall, without notice and demand therefor, pay any unpaid balance of
such tax not later than the date fixed for filing the return.
(iii) Change of election to use Form 1040A. A taxpayer who has
elected to make his return on Form 1040A may change such election. Such
change of election shall be within the time and subject to the
conditions prescribed in section 144(b) and Sec. 1.144-2 relating to
change of election to take, or not to take the standard deduction.
(8) Use of Form 1040W for certain taxable years--(i) In general. An
individual may use Form 1040W as his return for any taxable year
beginning after December 31, 1958, and ending before December 31, 1961,
in which the gross income of the individual, regardless of the amount
thereof:
(a) Consists entirely of remuneration for personal services
performed as an employee (whether or not such remuneration constitutes
wages as defined in section 3401(a)), dividends, or interest, and
(b) Does not include more than $200 from dividends and interest.
For purposes of determining whether gross income from dividends and
interest exceeds $200, dividends from domestic corporations are taken
into account to the extent that they are includible in gross income. For
purposes of this subparagraph, any reference to Form 1040 in Sec. Sec.
1.4-2, 1.142-1, and 1.144-1 and this section shall also be deemed a
reference to Form 1040W.
(ii) Change of election to use Form 1040W. A taxpayer who has
elected to make his return on Form 1040W may change such election. Such
change of election shall be within the time and subject to the
conditions prescribed in section 144(b) and Sec. 1.144-2, relating to
change of election to take, or not to take, the standard deduction.
(iii) Joint return of husband and wife on Form 1040W. A husband and
wife, eligible under section 6013 and the regulations thereunder to file
a joint return for the taxable year, may, subject to the provisions of
this subparagraph, make a joint return on Form 1040W for
[[Page 90]]
any taxable year beginning after December 31, 1958, and ending before
December 31, 1961, in which the aggregate gross income of the spouses
(regardless of amount) consists entirely of remuneration for personal
services performed as an employee (whether or not such remuneration
constitutes wages as defined in section 3401(a)), dividends, or
interest, and does not include more than $200 from dividends and
interest. For purposes of determining whether gross income from sources
to which the $200 limitation applies exceeds such amount in cases where
both spouses receive dividends from domestic corporations, the amount of
such dividends received by each spouse is taken into account to the
extent that such dividends are includible in gross income. See section
116 and Sec. Sec. 1.116-1 and 1.116-2. If a joint return is made by
husband and wife on Form 1040W, the liability for the tax shall be joint
and several.
(9) Items of tax preference. For a taxable year ending after
December 31, 1969, an individual shall attach Form 4625 to the return
required by this paragraph if during the year the individual:
(i) Has items of tax preference (described in section 57) in excess
of its minimum tax exemption (determined under Sec. 1.58-1) or
(ii) Uses a net operating loss carryover from a prior taxable year
in which it deferred minimum tax under section 56(b).
(b) Return of nonresident alien individual--(1) Requirement of
return--(i) In general. Except as otherwise provided in subparagraph (2)
of this paragraph, every nonresident alien individual (other than one
treated as a resident under section 6013 (g) or (h)) who is engaged in
trade or business in the United States at any time during the taxable
year or who has income which is subject to taxation under subtitle A of
the Code shall make a return on Form 1040NR. For this purpose it is
immaterial that the gross income for the taxable year is less than the
minimum amount specified in section 6012(a) for making a return. Thus, a
nonresident alien individual who is engaged in a trade or business in
the United States at any time during the taxable year is required to
file a return on Form 1040 NR even though (a) he has no income which is
effectively connected with the conduct of a trade or business in the
United States, (b) he has no income from sources within the United
States, or (c) his income is exempt from income tax by reason of an
income tax convention or any section of the Code. However, if the
nonresident alien individual has no gross income for the taxable year,
he is not required to complete the return schedules but must attach a
statement to the return indicating the nature of any exclusions claimed
and the amount of such exclusions to the extent such amounts are readily
determinable.
(ii) Treaty income. If the gross income of a nonresident alien
individual includes treaty income, as defined in paragraph (b)(1) of
Sec. 1.871-12, a statement shall be attached to the return on Form
1040NR showing with respect to that income:
(a) The amounts of tax withheld,
(b) The names and post office addresses of withholding agents, and
(c) Such other information as may be required by the return form, or
by the instructions issued with respect to the form, to show the
taxpayer's entitlement to the reduced rate of tax under the tax
convention.
(2) Exceptions--(i) Return not required when tax is fully paid at
source. A nonresident alien individual (other than one treated as a
resident under section 6013 (g) or (h)) who at no time during the
taxable year is engaged in a trade or business in the United States is
not required to make a return for the taxable year if his tax liability
for the taxable year is fully satisfied by the withholding of tax at
source under chapter 3 of the Code. This subdivision does not apply to a
nonresident alien individual who has income for the taxable year which
is treated under section 871 (c) or (d) and Sec. 1.871-9 (relating to
students or trainees) or Sec. 1.871-10 (relating to real property
income) as income which is effectively connected for the taxable year
with the conduct of a trade or business in the United States by that
individual, or to a nonresident alien individual making a claim under
Sec. 301.6402-3 of this chapter (Procedure and Administration
Regulations) for the refund of an overpayment of tax for
[[Page 91]]
the taxable year. In addition, this subdivision does not apply to a
nonresident alien individual who has income for the taxable year that is
treated under section 871(b)(1) as effectively connected with the
conduct of a trade or business within the United States by reason of the
operation of section 897. For purposes of this subdivision, some of the
items of income from sources within the United States upon which the tax
liability will not have been fully satisfied by the withholding of tax
at source under chapter 3 of the Code are:
(a) Interest upon so-called tax-free covenant bonds upon which, in
accordance with section 1451 and Sec. 1.1451-1, a tax of only 2 percent
is required to be withheld at the source,
(b) In the case of bonds or other evidences of indebtedness issued
after September 28, 1965, amounts described in section 871(a)(1)(C),
(c) Capital gains described in section 871(a)(2) and paragraph (d)
of Sec. 1.871-7, and
(d) Accrued interest received in connection with the sale of bonds
between interest dates, which, in accordance with paragraph (h) of Sec.
1.1441-4, is not subject to withholding of tax at the source.
(ii) Return of individual for taxable year of change of U.S.
citizenship or residence--(a) If an alien individual becomes a citizen
or resident of the United States during the taxable year and is a
citizen or resident of the United States on the last day of such year,
he must make a return on Form 1040 for the taxable year. However, a
separate schedule is required to be attached to this return to show the
income tax computation for the part of the taxable year during which the
alien was neither a citizen nor resident of the United States, unless an
election under section 6013 (g) or (h) is in effect for the alien. A
Form 1040NR, clearly marked ``Statement'' across the top, may be used as
such a separate schedule.
(b) If an individual abandons his U.S. citizenship or residence
during the taxable year and is not a citizen or resident of the United
States on the last day of such year, he must make a return on Form
1040NR for the taxable year, even if an election under section 6013(g)
was in effect for the taxable year preceding the year of abandonment.
However, a separate schedule is required to be attached to this return
to show the income tax computation for the part of the taxable year
during which the individual was a citizen or resident of the United
States. A Form 1040, clearly marked ``Statement'' across the top, may be
used as such a separate schedule.
(c) A return is required under this subdivision (ii) only if the
individual is otherwise required to make a return for the taxable year.
(iii) Beneficiaries of estates or trusts. A nonresident alien
individual who is a beneficiary of an estate or trust which is engaged
in trade or business in the United States is not required to make a
return for the taxable year merely because he is deemed to be engaged in
trade or business within the United States under section 875(2).
However, such nonresident alien beneficiary will be required to make a
return if he otherwise satisfies the conditions of subparagraph (1)(i)
of this paragraph for making a return.
(iv) Certain alien residents of Puerto Rico. This paragraph does not
apply to a nonresident alien individual who is a bona fide resident of
Puerto Rico during the taxable year. See section 876 and paragraph
(a)(1)(iii) of this section.
(3) Representative or agent for nonresident alien individual--(i)
Cases where power of attorney is not required. The responsible
representative or agent within the United States of a nonresident alien
individual shall make on behalf of his nonresident alien principal a
return of, and shall pay the tax on, all income coming within his
control as representative or agent which is subject to the income tax
under subtitle A of the Code. The agency appointment will determine how
completely the agent is substituted for the principal for tax purposes.
Any person who collects interest or dividends on deposited securities of
a nonresident alien individual, executes ownership certificates in
connection therewith, or sells such securities under special
instructions shall not be deemed merely by reason of such acts to be the
responsible representative or agent of the nonresident
[[Page 92]]
alien individual. If the responsible representative or agent does not
have a specific power of attorney from the nonresident alien individual
to file a return in his behalf, the return shall be accompanied by a
statement to the effect that the representative or agent does not
possess specific power of attorney to file a return for such individual
but that the return is being filed in accordance with the provisions of
this subdivision.
(ii) Cases where power of attorney is required. Whenever a return of
income of a nonresident alien individual is made by an agent acting
under a duly authorized power of attorney for that purpose, the return
shall be accompanied by the power of attorney in proper form, or a copy
thereof, specifically authorizing him to represent his principal in
making, executing, and filing the income tax return. Form 2848 may be
used for this purpose. The agent, as well as the taxpayer, may incur
liability for the penalties provided for erroneous, false, or fraudulent
returns. For the requirements regarding signing of returns, see Sec.
1.6061-1. The rules of paragraph (e) of Sec. 601.504 of this chapter
(Statement of Procedural Rules) shall apply under this subparagraph in
determining whether a copy of a power of attorney must be certified.
(iii) Limitation. A return of income shall be required under this
subparagraph only if the nonresident alien individual is otherwise
required to make a return in accordance with this paragraph.
(4) Disallowance of deductions and credits. For provisions
disallowing deductions and credits when a return of income has not been
filed by or on behalf of a nonresident alien individual, see section
874(a) and the regulations thereunder.
(5) Effective date. This paragraph shall apply for taxable years
beginning after December 31, 1966, except that it shall not be applied
to require (i) the filing of a return for any taxable year ending before
January 1, 1974, which, pursuant to instructions applicable to the
return, is not required to be filed or (ii) the amendment of a return
for such a taxable year which, pursuant to such instructions, is
required to be filed. For corresponding rules applicable to taxable
years beginning before January 1, 1967, see 26 CFR 1.6012-1(b) (Revised
as of January 1, 1967).
(c) Cross reference. For returns by fiduciaries for individuals,
estates, and trusts, see Sec. 1.6012-3.
(Sec. 1445 (98 Stat. 655; 26 U.S.C. 1445), sec. 6012 (68A Stat. 732; 26
U.S.C. 6012), and 7805 (68A Stat. 917; 26 U.S.C. 7805) of the Internal
Revenue Code of 1954)
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.6012-1, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6012-2 Corporations required to make returns of income.
(a) In general--(1) Requirement of return. Except as provided in
paragraphs (e) and (g)(1) of this section with respect to charitable and
other organizations having unrelated business income and to certain
foreign corporations, respectively, every corporation, as defined in
section 7701(a)(3), subject to taxation under subtitle A of the Code
shall make a return of income regardless of whether it has taxable
income or regardless of the amount of its gross income.
(2) Existence of corporation. A corporation in existence during any
portion of a taxable year is required to make a return. If a corporation
was not in existence throughout an annual accounting period (either
calendar year or fiscal year), the corporation is required to make a
return for that fractional part of a year during which it was in
existence. A corporation is not in existence after it ceases business
and dissolves, retaining no assets, whether or not under State law it
may thereafter be treated as continuing as a corporation for certain
limited purposes connected with winding up its affairs, such as for the
purpose of suing and being sued. If the corporation has valuable claims
for which it will bring suit during this period, it has retained assets
and therefore continues in existence. A corporation does not go out of
existence if it is turned over to receivers or trustees who continue to
operate it. If a corporation has received a charter but has never
perfected its organization and has transacted no business and has no
[[Page 93]]
income from any source, it may upon presentation of the facts to the
district director be relieved from the necessity of making a return. In
the absence of a proper showing of such facts to the district director,
a corporation will be required to make a return.
(3) Form of return. The return required of a corporation under this
section shall be made on Form 1120 unless the corporation is a type for
which a special form is prescribed. The special forms of returns and
schedules required of particular types of corporations are set forth in
paragraphs (b) to (g), inclusive, of this section.
(4) Disclosure of uncertain tax positions. A corporation required to
make a return under this section shall attach Schedule UTP, Uncertain
Tax Position Statement, or any successor form, to such return, in
accordance with forms, instructions, or other appropriate guidance
provided by the IRS.
(5) Effective/applicability date. Paragraph (a)(4) of this section
applies to returns filed for tax years beginning on or after January 1,
2010.
(b) Personal holding companies. A personal holding company, as
defined in section 542, including a foreign corporation within the
definition of such section, shall attach Schedule PH, Computation of
U.S. Personal Holding Company Tax, to the return required by paragraph
(a) or (g), as the case may be, of this section.
(c) Insurance companies--(1) Domestic life insurance companies--(i)
In general. A life insurance company subject to tax under section 801
shall make a return on Form 1120-L, ``U.S. Life Insurance Company Income
Tax Return.'' Except as provided in paragraph (c)(4) of this section,
such company shall file with its return--
(A) A copy of its annual statement which shows the reserves used by
the company in computing the taxable income reported on its return; and
(B) A copy of Schedule A (real estate) and of Schedule D (bonds and
stocks), or any successor thereto, of such annual statement.
(ii) Mutual savings banks. Mutual savings banks conducting life
insurance business and meeting the requirements of section 594 are
subject to partial tax computed on Form 1120, ``U.S. Corporation Income
Tax Return,'' and partial tax computed on Form 1120-L. The Form 1120-L
is attached as a schedule to Form 1120, together with the annual
statement and schedules required to be filed with Form 1120-L.
(2) Domestic nonlife insurance companies. Every domestic insurance
company other than a life insurance company shall make a return on Form
1120-PC, ``U.S. Property and Casualty Insurance Company Income Tax
Return.'' This includes organizations described in section 501(m)(1)
that provide commercial-type insurance and organizations described in
section 833. Except as provided in paragraph (c)(4) of this section,
such company shall file with its return a copy of its annual statement
(or a pro forma annual statement), including the underwriting and
investment exhibit (or any successor thereto) for the year covered by
such return.
(3) Foreign insurance companies. The provisions of paragraphs (c)(1)
and (c)(2) of this section concerning the returns and statements of
insurance companies subject to tax under section 801 or section 831 also
apply to foreign insurance companies subject to tax under those
sections, except that the copy of the annual statement required to be
submitted with the return shall, in the case of a foreign insurance
company that is not required to file an annual statement, be a copy of
the pro forma annual statement relating to the United States business of
such company.
(4) Exception for insurance companies filing their Federal income
tax returns electronically. If an insurance company described in
paragraph (c)(1), (c)(2), or (c)(3) of this section files its Federal
income tax return electronically, it should not include on or with such
return its annual statement (or pro forma annual statement), or any
portion thereof. Such statement must be available at all times for
inspection by authorized Internal Revenue Service officers or employees
and retained for so long as such statements may be material in the
administration of any internal revenue law. See Sec. 1.6001-1(e).
(5) Definition. For purposes of this section, the term annual
statement means the annual statement, the form
[[Page 94]]
of which is approved by the National Association of Insurance
Commissioners (NAIC), which is filed by an insurance company for the
year with the insurance departments of States, Territories, and the
District of Columbia. The term annual statement also includes a pro
forma annual statement if the insurance company is not required to file
the NAIC annual statement.
(d) Affiliated groups. For the forms to be used by affiliated
corporations filing a consolidated return, see Sec. 1.1502-75.
(e) Charitable and other organizations with unrelated business
income. Every organization described in section 511(a)(2) which is
subject to the tax imposed by section 511(a)(1) on its unrelated
business taxable income shall make a return on Form 990-T for each
taxable year if it has gross income, included in computing unrelated
business taxable income for such taxable year, of $1,000 or more. The
filing of a return of unrelated business income does not relieve the
organization of the duty of filing other required returns.
(f) Subchapter T cooperatives--(1) In general. For taxable years
ending on or after December 31, 2007, a cooperative organization
described in section 1381 (including a farmers' cooperative exempt from
tax under section 521) is required to make a return, whether or not it
has taxable income and regardless of the amount of its gross income, on
Form 1120-C, ``U.S. Income Tax Return for Cooperative Associations,'' or
such other form as may be designated by the Commissioner.
(2) Farmers' cooperatives. For taxable years ending before December
31, 2007, a farmers' cooperative organization described in section
521(b)(1) (including a farmers' cooperative that is not exempt from tax
under section 521) is required to make a return on Form 990-C,
``Farmers' Cooperative Association Income Tax Return.''
(3) Effective/applicability date. This paragraph (f) is applicable
on or after July 30, 2007.
(g) Returns by foreign corporations--(1) Requirement of return--(i)
In general. Except as otherwise provided in subparagraph (2) of this
paragraph, every foreign corporation which is engaged in trade or
business in the United States at any time during the taxable year or
which has income which is subject to taxation under subtitle A of the
Code (relating to income taxes) shall make a return on Form 1120-F.
Thus, for example, a foreign corporation which is engaged in trade or
business in the United States at any time during the taxable year is
required to file a return on Form 1120-F even though (a) it has no
income which is effectively connected with the conduct of a trade or
business in the United States, (b) it has no income from sources within
the United States, or (c) its income is exempt from income tax by reason
of an income tax convention or any section of the Code. However, if the
foreign corporation has no gross income for the taxable year, it is not
required to complete the return schedules but must attach a statement to
the return indicating the nature of any exclusions claimed and the
amount of such exclusions to the extent such amounts are readily
determinable.
(ii) Treaty income. If the gross income of a foreign corporation
includes treaty income, as defined in paragraph (b)(1) of Sec. 1.871-
12, a statement shall be attached to the return on Form 1120-F showing
with respect to that income:
(a) The amounts of tax withheld,
(b) The names and post office addresses of withholding agents, and
(c) Such other information as may be required by the return form or
by the instructions issued with respect to the form, to show the
taxpayer's entitlement to the reduced rate of tax under the tax
convention.
(iii) Balance sheet and reconciliation of income. At the election of
the taxpayer, the balance sheets and reconciliation of income, as shown
on Form 1120-F, may be limited to:
(a) The assets of the corporation located in the United States and
to its other assets used in the trade or business conducted in the
United States, and
(b) Its income effectively connected with the conduct of a trade or
business in the United States and its other income from sources within
the United States.
(2) Exceptions--(i) Return not required when tax is fully paid at
source--(a) In general. A foreign corporation which at
[[Page 95]]
no time during the taxable year is engaged in a trade or business in the
United States is not required to make a return for the taxable year if
its tax liability for the taxable year is fully satisfied by the
withholding of tax at source under chapter 3 of the Code. For purposes
of this subdivision, some of the items of income from sources within the
United States upon which the tax liability will not have been fully
satisfied by the withholding of tax at source under chapter 3 of the
Code are:
(1) Interest upon so-called tax-free covenant bonds upon which, in
accordance with section 1451 and Sec. 1.1451-1, a tax of only 2 percent
is required to be withheld at source,
(2) In the case of bonds or other evidence of indebtedness issued
after September 25, 1965, amounts described in section 881(a)(3),
(3) Accrued interest received in connection with the sale of bonds
between interest dates, which, in accordance with paragraph (h) of Sec.
1.1441-4, is not subject to withholding of tax at source.
(b) Corporations not included. This subdivision (i) shall not apply:
(1) To a foreign corporation which has income for the taxable year
which is treated under section 882(d) or (e) and Sec. 1.882-2 as income
which is effectively connected for the taxable year with the conduct of
a trade or business in the United States by that corporation,
(2) To a foreign corporation making a claim under Sec. 301.6402-3
of this chapter (Procedure and Administration Regulations) for the
refund of an overpayment of tax for the taxable year, or
(3) To a foreign corporation described in paragraph (c)(2)(i) of
Sec. 1.532-1 whose accumulated taxable income for the taxable year is
determined under paragraph (b)(2) of Sec. 1.535-1.
(ii) Beneficiaries of estates or trusts. A foreign corporation which
is a beneficiary of an estate or trust which is engaged in trade or
business in the United States is not required to make a return for the
taxable year merely because it is deemed to be engaged in trade or
business within the United States under section 875(2). However, such
foreign corporation will be required to make a return if it otherwise
satisfies the conditions of subparagraph (1)(i) of this paragraph for
making a return.
(iii) Special returns and schedules. The provisions of paragraphs
(b) through (f) of this section shall apply to a foreign corporation
except that a foreign corporation which is an insurance company to which
paragraph (c)(3) of this section applies shall make a return on Form
1120-F and not on Form 1120. If a foreign corporation which is an
insurance company to which paragraph (c) (1) or (2) of this section
applies has income for the taxable year from sources within the United
States which is not effectively connected for that year with the conduct
of a trade or business in the United States by that corporation, the
corporation shall attach to its return on Form 1120L or 1120M, as the
case may be, a separate schedule showing the nature and amount of the
items of such income, the rate of tax applicable thereto, and the amount
of tax withheld therefrom under chapter 3 of the Code.
(3) Representative or agent for foreign corporation--(i) Cases where
power of attorney is not required. The responsible representative or
agent within the United States of a foreign corporation shall make on
behalf of his principal a return of, and shall pay the tax on, all
income coming within his control as representative or agent which is
subject to the income tax under subtitle A of the Code. The agency
appointment will determine how completely the agent is substituted for
the principal for tax purposes. Any person who collects interest or
dividends on deposited securities of a foreign corporation, executes
ownership certificates in connection therewith, or sells such securities
under special instructions shall not be deemed merely by reason of such
acts to be the responsible representative or agent of the foreign
corporation. If the responsible representative or agent does not have a
specific power of attorney from the foreign corporation to file a return
in its behalf, the return shall be accompanied by a statement to the
effect that the representative or agent does not possess specific power
of attorney to file a return for such corporation but that the return is
being filed in accordance with the provisions of this subdivision.
[[Page 96]]
(ii) Cases where power of attorney is required. Whenever a return of
income of a foreign corporation is made by an agent acting under a duly
authorized power of attorney for that purpose, the return shall be
accompanied by the power of attorney in proper form, or a copy thereof
specifically authorizing him to represent his principal in making,
executing, and filing the income tax return. Form 2848 may be used for
this purpose. The agent, as well as the taxpayer, may incur liability
for the penalties provided for erroneous, false, or fraudulent returns.
For the requirements regarding signing of returns, see Sec. 1.6062-1.
The rules of paragraph (e) of Sec. 601.504 of this chapter (Statement
of Procedural Rules) shall apply under this subparagraph in determining
whether a copy of a power of attorney must be certified.
(iii) Limitation. A return of income shall be required under this
subparagraph only if the foreign corporation is otherwise required to
make a return in accordance with this paragraph.
(4) Disallowance of deductions and credits. For provisions
disallowing deductions and credits when a return of income has not been
filed by or on behalf of a foreign corporation, see section 882(c)(2)
and the regulations thereunder, and paragraph (b) (2) and (3) of Sec.
1.535-1.
(5) Effective date. This paragraph shall apply for taxable years
beginning after December 31, 1966, except that it shall not be applied
to require (i) the filing of a return for any taxable year ending before
January 1, 1974, which, pursuant to instructions applicable to the
return, is not required to be filed or (ii) the amendment of a return
for such a taxable year which, pursuant to such instructions, is
required to be filed. For corresponding rules applicable to taxable
years beginning before January 1, 1967, see 26 CFR 1.6012-2(g) (Revised
as of January 1, 1967).
(h) Electing small business corporations. An electing small business
corporation, whether or not subject to the tax imposed by section 1378,
shall make a return on Form 1120-S. See also section 6037 and the
regulations thereunder.
(i) Hospital organizations with noncompliant hospital facilities.
Every hospital organization (as defined in Sec. 1.501(r)-1(b)(18)) that
is subject to the tax imposed by Sec. 1.501(r)-2(d) shall make a return
on Form 990-T. The filing of a return to pay the tax described in Sec.
1.501(r)-2(d) does not relieve the organization of the duty of filing
other required returns.
(j) Items of tax preference--(1) In general. Every corporation
required to make a return under this section, and having items of tax
preference (described in section 57 and the regulation thereunder) in an
amount specified by Form 4626, shall file such form as part of its
return.
(2) Organizations with unrelated business income and foreign
corporations. Regardless of the provisions of paragraphs (e) and (g) of
this section, any organization described in either such paragraph having
items of tax preference (described in section 57 and the regulations
thereunder) in any amount entering into the computation or unrelated
business income is required to make a return on form 990-T or form 120F,
respectively, and to attach the required form as part of such return.
(k) Other provisions. For returns by fiduciaries or corporations,
see Sec. 1.6012-3. For information returns by corporations regarding
payments of dividends, see Sec. Sec. 1.6042-1 through 1.6042-3,
inclusive; regarding corporate dissolutions or liquidations, see Sec.
1.6043-1; regarding distributions in liquidation, see Sec. 1.6043-2;
regarding payments of patronage dividends, see Sec. Sec. 1.6044-1
through 1.6044-4, inclusive; and regarding certain payments of interest,
see Sec. Sec. 1.6049-1 and 1.6049-1. For returns as to formation or
reorganization of foreign corporations, see Sec. Sec. 1.6046-1 through
1.6046-3, inclusive.
(l) Effective/applicability date. Paragraph (c) of this section
applies to any taxable year beginning on or after May 30, 2006. However,
taxpayers may apply paragraph (c) of this section to any original
Federal income tax return (including any amended return filed on or
before the due date (including extensions) of such original return)
timely filed on or after May 30, 2006. For taxable years beginning
before May 30, 2006, see Sec. 1.6012-2 as contained in 26 CFR part 1 in
effect on April 1, 2006.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
[[Page 97]]
Editorial Note: For Federal Register citations affecting Sec.
1.6012-2, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6012-3 Returns by fiduciaries.
(a) For estates and trusts--(1) In general. Every fiduciary, or at
least one of joint fiduciaries, must make a return of income on form
1041 (or by use of a composite return pursuant to Sec. 1.6012-5) and
attach the required form if the estate or trust has items of tax
preference (as defined in section 57 and the regulations thereunder) in
any amount:
(i) For each estate for which he acts if the gross income of such
estate for the taxable year is $600 or more;
(ii) For each trust for which he acts, except a trust exempt under
section 501(a), if such trust has for the taxable year any taxable
income, or has for the taxable year gross income of $600 or more
regardless of the amount of taxable income; and
(iii) For each estate and each trust for which he acts, except a
trust exempt under section 501(a), regardless of the amount of income
for the taxable year, if any beneficiary of such estate or trust is a
nonresident alien.
(iv) For each trust electing to be taxed as, or as part of, an
estate under section 645 for which a trustee acts, and for each related
estate joining in a section 645 election for which an executor acts, if
the aggregate gross income of the electing trust(s) and related estate,
if any, joining in the election for the taxable year is $600 or more.
(For the respective filing requirements of the trustee of each electing
trust and executor of any related estate, see Sec. 1.645-1).
(2) Wills and trust instruments. At the request of the Internal
Revenue Service, a copy of the will or trust instrument (including any
amendments), accompanied by a written declaration of the fiduciary under
the penalties of perjury that it is a true and complete copy, shall be
filed together with a statement by the fiduciary indicating the
provisions of the will or trust instrument (including any amendments)
which, in the fiduciary's opinion, determine the extent to which the
income of the estate or trust is taxable to the estate or trust, the
beneficiaries, or the grantor, respectively.
(3) Domiciliary and ancillary representatives. In the case of an
estate required to file a return under subparagraph (1) of this
paragraph, having both domiciliary and ancillary representatives, the
domiciliary and ancillary representatives must each file a return on
Form 1041. The domiciliary representative is required to include in the
return rendered by him as such domiciliary representative the entire
income of the estate. The return of the ancillary representative shall
be filed with the district director for his internal revenue district
and shall show the name and address of the domiciliary representative,
the amount of gross income received by the ancillary representative, and
the deductions to be claimed against such income, including any amount
of income properly paid or credited by the ancillary representative to
any legatee, heir, or other beneficiary. If the ancillary representative
for the estate of a nonresident alien is a citizen or resident of the
United States, and the domiciliary representative is a nonresident
alien, such ancillary representative is required to render the return
otherwise required of the domiciliary representative.
(4) Two or more trusts. A trustee of two or more trusts must make a
separate return for each trust, even though such trusts were created by
the same grantor for the same beneficiary or beneficiaries.
(5) Trusts with unrelated business income. Every fiduciary for a
trust described in section 511(b)(2) which is subject to the tax imposed
on its unrelated business taxable income by section 511(b)(1) shall make
a return on Form 990-T for each taxable year if the trust has gross
income, included in computing unrelated business taxable income for such
taxable year, of $1,000 or more. The filing of a return of unrelated
business income does not relieve the fiduciary of such trust from the
duty of filing other required returns.
(6) Charitable remainder trusts. Every fiduciary for a charitable
remainder annuity trust (as defined in Sec. 1.664-2) or a charitable
remainder unitrust (as defined in Sec. 1.664-3) shall make a return on
Form 1041-B for each taxable year of
[[Page 98]]
the trust even though it is nonexempt because it has unrelated business
taxable income. The return on Form 1041-B shall be made in accordance
with the instructions for the form and shall be filed with the
designated Internal Revenue office on or before the 15th day of the
fourth month following the close of the taxable year of the trust. A
copy of the instrument governing the trust, accompanied by a written
declaration of the fiduciary under the penalties of perjury that it is a
true and complete copy, shall be attached to the return for the first
taxable year of the trust.
(7) Certain trusts described in section 4947(a)(1). For taxable
years beginning after December 31, 1980, in the case of a trust
described in section 4947(a)(1) which has no taxable income for a
taxable year, the filing requirements of section 6012 and this section
shall be satisfied by the filing, pursuant to Sec. 53.6011-1 of this
chapter (Foundation Excise Tax Regulations) and Sec. 1.6033-2(a), by
the fiduciary of such trust of--
(i) Form 990-PF if such trust is treated as a private foundation, or
(ii) Form 990 if such trust is not treated as a private foundation.
When the provisions of this paragraph (a)(7) are met, the fiduciary
shall not be required to file Form 1041.
(8) Estate and trusts liable for qualified tax. In the case of an
estate or trust which is liable for one or more qualified State
individual income taxes, as defined in section 6362, for a taxable year,
see paragraph (b) of Sec. 301.6361-1 of this chapter (Regulations on
Procedure and Administration) for rules relating to returns required to
be made.
(9) A trust any portion of which is treated as owned by the grantor
or another person pursuant to sections 671 through 678. In the case of a
trust any portion of which is treated as owned by the grantor or another
person under the provisions of subpart E (section 671 and following)
part I, subchapter J, chapter 1 of the Internal Revenue Code see Sec.
1.671-4.
(10) Hospital organizations organized as trusts with noncompliant
hospital facilities. Every fiduciary for a hospital organization (as
defined in Sec. 1.501(r)-1(b)(18)) organized as a trust described in
section 511(b)(2) that is subject to the tax imposed by Sec. 1.501(r)-
2(d) shall make a return on Form 990-T. The filing of a return to pay
the tax described in Sec. 1.501(r)-2(d) does not relieve the
organization of the duty of filing other required returns.
(b) For other persons--(1) Decedents. The executor or administrator
of the estate of a decedent, or other person charged with the property
of a decedent, shall make the return of income required in respect of
such decedent. For the decedent's taxable year which ends with the date
of his death, the return shall cover the period during which he was
alive. For the filing of returns of income for citizens and alien
residents of the United States, and alien residents of Puerto Rico, see
paragraph (a) of Sec. 1.6012-1. For the filing of a joint return after
death of spouse, see paragraph (d) of Sec. 1.6013-1.
(2) Nonresident alien individuals--(i) In general. A resident or
domestic fiduciary or other person charged with the care of the person
or property of a nonresident alien individual shall make a return for
that individual and pay the tax unless:
(a) The nonresident alien individual makes a return of, and pays the
tax on, his income for the taxable year,
(b) A responsible representative or agent in the United States of
the nonresident alien individual makes a return of, and pays the tax on,
the income of such alien individual for the taxable year, or
(c) The nonresident alien individual has appointed a person in the
United States to act as his agent for the purpose of making a return of
income and, if such fiduciary is required to file a Form 1041 for an
estate or trust of which such alien individual is a beneficiary, such
fiduciary attaches a copy of the agency appointment to his return on
Form 1041.
(ii) Income to be returned. A return of income shall be required
under this subparagraph only if the nonresident alien individual is
otherwise required to make a return in accordance with paragraph (b) of
Sec. 1.6012-1. The provisions of that paragraph shall apply in
determining the form of return to be used and the income to be returned.
(iii) Disallowance of deductions and credits. For provisions
disallowing deductions and credits when a return of
[[Page 99]]
income has not been filed by or on behalf of a nonresident alien
individual, see section 874 and the regulations thereunder.
(iv) Alien resident of Puerto Rico. This subparagraph shall not
apply to the return of a nonresident alien individual who is a bona fide
resident of Puerto Rico during the entire taxable year. See Sec. 1.876-
1.
(v) Cross reference. For requirements of withholding tax at source
on nonresident alien individuals and of returns with respect to such
withheld taxes, see Sec. Sec. 1.1441-1 to 1.1465-1, inclusive.
(3) Persons under a disability. A fiduciary acting as the guardian
of a minor, or as the guardian or committee of an insane person, must
make the return of income required in respect of such person unless, in
the case of a minor, the minor himself makes the return or causes it to
be made.
(4) Corporations. A receiver, trustee in dissolution, trustee in
bankruptcy, or assignee, who, by order of a court of competent
jurisdiction, by operation of law or otherwise, has possession of or
holds title to all or substantially all the property or business of a
corporation, shall make the return of income for such corporation in the
same manner and form as corporations are required to make such returns.
Such return shall be filed whether or not the receiver, trustee, or
assignee is operating the property or business of the corporation. A
receiver in charge of only a small part of the property of a
corporation, such as a receiver in mortgage foreclosure proceedings
involving merely a small portion of its property, need not make the
return of income. See also Sec. 1.6041-1, relating to returns regarding
information at source; Sec. Sec. 1.6042-1 to 1.6042-3, inclusive,
relating to returns regarding payments of dividends; Sec. Sec. 1.6044-1
to 1.6044-4, inclusive, relating to returns regarding payments of
patronage dividends; and Sec. Sec. 1.6049-1 and 1.6049-2, relating to
returns regarding certain payments of interest.
(5) Individuals in receivership. A receiver who stands in the place
of an individual must make the return of income required in respect of
such individual. A receiver of only part of the property of an
individual need not file a return, and the individual must make his own
return.
(c) Joint fiduciaries. In the case of joint fiduciaries, a return is
required to be made by only one of such fiduciaries. A return made by
one of joint fiduciaries shall contain a statement that the fiduciary
has sufficient knowledge of the affairs of the person for whom the
return is made to enable him to make the return, and that the return is,
to the best of his knowledge and belief, true and correct.
(d) Other provisions. For the definition of the term ``fiduciary'',
see section 7701(a)(6) and the regulations thereunder. For information
returns required to be made by fiduciaries under section 6041, see Sec.
1.6041-1. As to further duties and liabilities of fiduciaries, see
section 6903 and Sec. 301.6903-1 of this chapter (Regulations on
Procedure and Administration).
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.6012-3, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6012-4 Miscellaneous returns.
For returns by regulated investment companies of tax on
undistributed capital gain designated for special treatment under
section 852(b)(3)(D), see Sec. 1.852-9. For returns with respect to tax
withheld on nonresident aliens and foreign corporations and on tax-free
covenant bonds, see Sec. Sec. 1.1461-1 to 1.1465-1, inclusive. For the
requirement of an annual report by persons completing a Government
contract, see 26 CFR (1939) 17.16 (Treasury Decision 4906, approved June
23, 1939), and 26 CFR (1939) 16.15 (Treasury Decision 4909, approved
June 28, 1939) , as made applicable to section 1471 of the 1954 Code by
Treasury Decision 6091, approved August 16, 1954 (19 FR 5167, C.B. 1954-
2, 47). See also Sec. 1.1471-1.
[T.D. 7332, 39 FR 44231, Dec. 23, 1974, as amended by T.D. 9849, 84 FR
9237, Mar. 14, 2019]
Editorial Note: For the convenience of the user Sec. Sec. 16.15 and
17.16 of 26 CFR (1939) are set forth below:
Sec. 16.15 Annual reports for income taxable years.
[[Page 100]]
(a) General requirements. Every contracting party completing a
contract or subcontract within the contracting party's income-taxable
year ending after April 3, 1939 shall file with the district director of
internal revenue for the internal revenue district in which the
contracting party's Federal income tax returns are required to be filed
an annual report on the prescribed form of the profit and excess profit
on all contracts and subcontracts coming within the scope of the act and
the regulations in this part and completed within the particular income-
taxable year. There shall be included as a part of such a report a
statement, preferably in columnar form, showing separately for each such
contract or subcontract completed by the contracting party within the
income-taxable year the total contract price, the cost of performing the
contract or subcontract and the resulting profit or loss on each
contract or subcontract together with a summary statement showing in
detail the computation of the net profit or net loss upon all contracts
and subcontracts completed within the income-taxable year and the amount
of the excess profit, if any, for the income-taxable year covered by the
report. A copy of the report made to the Secretary of the Army (see
Sec. 16.14) with respect to each contract or subcontract covered in the
annual report, shall be filed as a part of such annual report. In case
the income-taxable year of the contracting party is a period of less
than twelve months (see Sec. 16.1), the report required by this section
shall be made for such period and not for a full year.
(b) Time for filing annual reports. Annual reports of contracts and
subcontracts coming within the scope of the act and the regulations in
this part completed by a contracting party within an income-taxable year
must be filed on or before the 15th day of the ninth month following the
close of the contracting party's income-taxable year. It is important
that the contracting party render on or before the due date an annual
report as nearly complete and final as it is possible for the
contracting party to prepare. An extension of time granted the
contracting party for filing its Federal income tax return does not
serve to extend the time for filing the annual report required by this
section. Authority consistent with authorizations for granting
extensions of time for filing Federal income tax returns is hereby
delegated to the various collectors of internal revenue for granting
extensions of time for filing the reports required by this section.
Application for extensions of time for filing such reports should be
addressed to the district director of internal revenue for the district
in which the contracting party files its Federal income tax returns and
must contain a full recital of the causes for the delay.
Sec. 17.16 Annual reports for income-taxable years.
(a) General requirements. Every contracting party completing a
contract or subcontract within the contracting party's income-taxable
year ending after April 3, 1939 shall file, with the district director
of internal revenue for the internal revenue district in which the
contracting party's Federal income tax return is required to be filed,
annual reports on the prescribed forms of the profit and excess profit
on all contracts and subcontracts coming within the scope of the act. If
any contracts or subcontracts so completed by the contracting party were
entered into for the construction or manufacture of any complete naval
vessel or any portion thereof, the profit and excess profit on all such
contracts and subcontracts completed within the income-taxable year
ending after April 3, 1939 shall be computed in accordance with the
provisions of Sec. 17.6. If any contracts or subcontracts so completed
by the contracting party were entered into for the construction or
manufacture of any complete naval aircraft or any portion thereof, the
profit and excess profit on all such contracts and subcontracts
completed within the income-taxable year ending after April 3, 1939
shall be computed in accordance with the provisions of Sec. 17.7. There
shall be included as a part of the annual report a statement, preferably
in columnar form, showing separately for each contract or subcontract
completed by the contracting party within the income-taxable year and
covered by the report, the total contract price, the cost of performing
the contract or subcontract and resulting profit or loss on each
contract or subcontract together with a summary statement showing in
detail the computation of the net profit or net loss upon each group of
contracts and subcontracts covered by the report and the amount of the
excess profit, if any, with respect to each group of contracts and
subcontracts covered by the report. A copy of the report made to the
Secretary of the Navy (see Sec. 17.15) with respect to each contract or
subcontract covered in the annual report, shall be filed as a part of
such annual report. In case the income-taxable year of the contracting
party is a period of less than twelve months (see Sec. 17.1), the
reports required by this section shall be made for such period and not
for a full year.
(b) Time for filing annual reports. Annual reports of contracts and
subcontracts completed by a contracting party within an income-taxable
year ending after April 3, 1939 shall be filed on or before the 15th day
of the ninth month following the close of the contracting party's
income-taxable year. It is important that the contracting party render
on or before the due date annual reports as nearly complete and final as
it is possible for the contracting party to prepare. An extension of
time granted the contracting party
[[Page 101]]
for filing its Federal income tax return does not serve to extend the
time for filing the annual reports required by this section. Authority
consistent with authorizations for granting extensions of time for
filing Federal income tax returns is hereby delegated to the various
district directors of internal revenue for granting extensions of time
for filing the reports required by this section. Application for
extension of time for filing such reports should be addressed to the
district director of internal revenue for the district in which the
contracting party files its Federal income tax returns and must contain
a full recital of the causes for the delay.
Sec. 1.6012-5 Composite return in lieu of specified form.
The Commissioner may authorize the use, at the option of a person
required to make a return, of a composite return in lieu of any form
specified in this part for use by such a person, subject to such
conditions, limitations, and special rules governing the preparation,
execution, filing, and correction thereof as the Commissioner may deem
appropriate. Such composite return shall consist of a form prescribed by
the Commissioner and an attachment or attachments of magnetic tape or
other approved media. Notwithstanding any provisions in this part to the
contrary, a single form and attachment may comprise the returns of more
than one such person. To the extent that the use of a composite return
has been authorized by the Commissioner, references in this part to a
specific form for use by such a person shall be deemed to refer also to
a composite return under this section.
[T.D. 7200, 37 FR 16544, Aug. 16, 1972]
Sec. 1.6012-6 Returns by political organizations.
(a) Requirement of return--(1) In general. For taxable years
beginning after December 31, 1974, every political organization
described in section 527(e)(1), and every fund described in section
527(f)(3) or section 527(g), and every organization described in section
501(c) and exempt from taxation under section 501(a) shall, if a tax is
imposed on such an organization or fund by section 527(b), make a return
of income on or before the fifteenth day of the fourth month following
the close of the taxable year.
(2) Taxable years beginning after December 31, 1971, and before
January 1, 1975. For taxable years beginning after December 31, 1971,
and before January 1, 1975, any political organization which would be
described in section 527(e)(1) if such section applied to such years
shall not be required to make a return if such organization would not be
required to make a return under paragraph (a)(1) of this section.
(b) Form of return. The return required by an organization or fund
upon which a tax is imposed by section 527(b) shall be made on Form
1120-POL.
(c) Applicability date. This section applies to returns filed on or
after January 30, 2020. Section 1.6012-6T (as contained in 26 CFR part
1, revised April 2019) applies to returns filed before January 30, 2020.
[T.D. 7516, 42 FR 57312, Nov. 2, 1977; 43 FR 2721, Jan. 19, 1978; T.D.
9821, 82 FR 33444, July 20, 2017; T.D. 9892, 85 FR 5324, Jan. 30, 2020]
Sec. 1.6013-1 Joint returns.
(a) In general. (1) A husband and wife may elect to make a joint
return under section 6013(a) even though one of the spouses has no gross
income or deductions. For rules for determining whether individuals
occupy the status of husband and wife for purposes of filing a joint
return, see paragraph (a) of Sec. 1.6013-4. For any taxable year with
respect to which a joint return has been filed, separate returns shall
not be made by the spouses after the time for filing the return of
either has expired. See, however, paragraph (d)(5) of this section for
the right of an executor to file a late separate return for a deceased
spouse and thereby disaffirm a timely joint return made by the surviving
spouse.
(2) A joint return of a husband and wife (if not made by an agent of
one or both spouses) shall be signed by both spouses. The provisions of
paragraph (a)(5) of Sec. 1.6012-1, relating to returns made by agents,
shall apply where one spouse signs a return as agent for the other, or
where a third party signs a return as agent for one or both spouses.
(b) Nonresident alien. A joint return shall not be made if either
the husband or wife at any time during the taxable year is a nonresident
alien, unless an election is in effect for the taxable
[[Page 102]]
year under section 6013 (g) or (h) and the regulations thereunder.
(c) Different taxable years. Except as otherwise provided in this
section, a husband and wife shall not file a joint return if they have
different taxable years.
(d) Joint return after death. (1) Section 6013(a)(2) provides that a
joint return may be made for the survivor and the deceased spouse or for
both deceased spouses if the taxable years of such spouses begin on the
same day and end on different days only because of the death of either
or both. Thus, if a husband and wife make this return on a calendar year
basis, and the wife dies on August 1, 1956, a joint return may be made
with respect to the calendar year 1956 of the husband and the taxable
year of the wife beginning on January 1, 1956, and ending with her death
on August 1, 1956. Similarly, if husband and wife both make their
returns on the basis of a fiscal year beginning on July 1 and the wife
dies on October 1, 1956, a joint return may be made with respect to the
fiscal year of the husband beginning on July 1, 1956, and ending on June
30, 1957, and with respect to the taxable year of the wife beginning on
July 1, 1956, and ending with her death on October 1, 1956.
(2) The provision allowing a joint return to be made for the taxable
year in which the death of either or both spouses occurs is subject to
two limitations. The first limitation is that if the surviving spouse
remarries before the close of his taxable year, he shall not make a
joint return with the first spouse who died during the taxable year. In
such a case, however, the surviving spouse may make a joint return with
his new spouse provided the other requirements with respect to the
filing of a joint return are met. The second limitation is that the
surviving spouse shall not make a joint return with the deceased spouse
if the taxable year of either spouse is a fractional part of a year
under section 443(a)(1) resulting from a change of accounting period.
For example, if a husband and wife make their returns on the calendar
year basis and the wife dies on March 1, 1956, and thereafter the
husband receives permission to change his annual accounting period to a
fiscal year beginning July 1, 1956, no joint return shall be made for
the short taxable year ending June 30, 1956. Similarly, if a husband and
wife who make their returns on a calendar year basis receive permission
to change to a fiscal year beginning July 1, 1956, and the wife dies on
June 1, 1956, no joint return shall be made for the short taxable year
ending June 30, 1956.
(3) Section 6013(a)(3) provides for the method of making a joint
return in the case of the death of one spouse or both spouses. The
general rule is that, in the case of the death of one spouse, or of both
spouses, the joint return with respect to the decedent may be made only
by his executor or administrator, as defined in paragraph (c) of Sec.
1.6013-4. An exception is made to this general rule whereby, in the case
of the death of one spouse, the joint return may be made by the
surviving spouse with respect to both him and the decedent if all the
following conditions exist:
(i) No return has been made by the decedent for the taxable year in
respect of which the joint return is made;
(ii) No executor or administrator has been appointed at or before
the time of making such joint return; and
(iii) No executor or administrator is appointed before the last day
prescribed by law for filing the return of the surviving spouse.
These conditions are to be applied with respect to the return for each
of the taxable years of the decedent for which a joint return may be
made if more than one such taxable year is involved. Thus, in the case
of husband and wife on the calendar year basis, if the wife dies in
February 1957, a joint return for the husband and wife for 1956 may be
made if the conditions set forth in this subparagraph are satisfied with
respect to such return. A joint return also may be made by the survivor
for both himself and the deceased spouse for the calendar year 1957 if
it is separately determined that the conditions set forth in this
subparagraph are satisfied with respect to the return for such year. If,
however, the deceased spouse should, prior to her death, make a return
for 1956, the surviving spouse may not thereafter make a joint return
for himself and the deceased spouse for 1956.
[[Page 103]]
(4) If an executor or administrator is appointed at or before the
time of making the joint return or before the last day prescribed by law
for filing the return of the surviving spouse, the surviving spouse
cannot make a joint return for himself and the deceased spouse whether
or not a separate return for the deceased spouse is made by such
executor or administrator. In such a case, any return made solely by the
surviving spouse shall be treated as his separate return. The joint
return, if one is to be made, must be made by both the surviving spouse
and the executor or administrator. In determining whether an executor or
administrator is appointed before the last day prescribed by law for
filing the return of the surviving spouse, an extension of time for
making the return is included.
(5) If the surviving spouse makes the joint return provided for in
subparagraph (3) of this paragraph and thereafter an executor or
administrator of the decedent is appointed, the executor or
administrator may disaffirm such joint return. This disaffirmance, in
order to be effective, must be made within one year after the last day
prescribed by law for filing the return of the surviving spouse
(including any extension of time for filing such return) and must be
made in the form of a separate return for the taxable year of the
decedent with respect to which the joint return was made. In the event
of such proper disaffirmance the return made by the survivor shall
constitute his separate return, that is, the joint return made by him
shall be treated as his return and the tax thereon shall be computed by
excluding all items properly includible in the return of the deceased
spouse. The separate return made by the executor or administrator shall
constitute the return of the deceased spouse for the taxable year.
(6) The time allowed the executor or administrator to disaffirm the
joint return by the making of a separate return does not establish a new
due date for the return of the deceased spouse. Accordingly, the
provisions of sections 6651 and 6601, relating to delinquent returns and
delinquency in payment of tax, are applicable to such return made by the
executor in disaffirmance of the joint return.
(e) Return of surviving spouse treated as joint return. For
provisions relating to the treatment of the return of a surviving spouse
as a joint return for each of the next two taxable years following the
year of the death of the spouse, see section 2 and Sec. 1.2-2.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7274, 38 FR
11345, May 7, 1973; T.D. 7670, 45 FR 6929, Jan. 31, 1980]
Sec. 1.6013-2 Joint return after filing separate return.
(a) In general. (1) Where an individual has filed a separate return
for a taxable year for which a joint return could have been made by him
and his spouse under section 6013(a), and the time prescribed by law for
filing the return for such taxable year has expired, such individual and
his spouse may, under conditions hereinafter set forth, make a joint
return for such taxable year. The joint return filed pursuant to section
6013(b) shall constitute the return of the husband and wife for such
year, and all payments, credits, refunds, or other repayments, made or
allowed with respect to the separate return of either spouse are to be
taken into account in determining the extent to which the tax based on
the joint return has been paid.
(2) If a joint return is made under section 6013(b), any election,
other than the election to file a separate return, made by either spouse
in his separate return for the taxable year with respect to the
treatment of any income, deduction, or credit of such spouse shall not
be changed in the making of the joint return where such election would
have been irrevocable if the joint return had not been made. Thus, if
one spouse has made an irrevocable election to adopt and use the last-
in, first-out inventory method under section 472, this election may not
be changed upon making the joint return under section 6013(b).
(3) A joint return made under section 6013(b) after the death of
either spouse shall, with respect to the decedent, be made only by his
executor or administrator. Thus, where no executor or administrator has
been appointed, a joint
[[Page 104]]
return cannot be made under section 6013(b).
(4) A nonresidential alien treated as a resident under section 6013
(g) or (h) for any taxable year ending on or after December 31, 1975,
and the alien's U.S. citizen or resident spouse may file a joint return
for that taxable year, even though one or both of the spouses have
previously filed separate returns for that taxable year. In this case,
the rule in paragraph (a)(3) of this section does not apply.
(b) Limitations with respect to making of election. A joint return
shall not be made under section 6013(b)(1) with respect to a taxable
year:
(1) Beginning on or before July 30, 1996, unless there is paid in
full at or before the time of the filing of the joint return the amount
shown as tax upon such joint return; or
(2) After the expiration of three years from the last day prescribed
by law for filing the return for such taxable year determined without
regard to any extension of time granted to either spouse; or
(3) After there has been mailed to either spouse, with respect to
such taxable year, a notice of deficiency under section 6212, if the
spouse, as to such notice, files a petition with the Tax Court of the
United States within the time prescribed in section 6213; or
(4) After either spouse has commenced a suit in any court for the
recovery of any part of the tax for such taxable year; or
(5) After either spouse has entered into a closing agreement under
section 7121 with respect to such taxable year, or after any civil or
criminal case arising against either spouse with respect to such taxable
year has been compromised under section 7122.
(c) When return deemed filed; assessment and collection; credit or
refund. (1) For the purpose of section 6501, relating to the period of
limitations upon assessment and collection, and section 6651, relating
to delinquent returns, a joint return made under section 6013(b) shall
be deemed to have been filed, giving due regard to any extension of time
granted to either spouse, on the following date:
(i) Where both spouses filed separate returns, prior to making the
joint return under section 6013(b), on the date the last separate return
of either spouse was filed for the taxable year, but not earlier than
the last date prescribed by law for the filing of the return of either
spouse;
(ii) Where only one spouse was required and did file a return prior
to the making of the joint return under section 6013(b), on the date of
the filing of the separate return, but not earlier than the last day
prescribed by law for the filing of such return; or
(iii) Where both spouses were required to file a return, but only
one spouse did so file, on the date of the filing of the joint return
under section 6013(b).
(2) For the purpose of section 6511, relating to refunds and
credits, a joint return made under section 6013(b) shall be deemed to
have been filed on the last date prescribed by law for filing the return
for such taxable year, determined without regard to any extension of
time granted to either spouse for filing the return or paying the tax.
(d) Additional time for assessment. In the case of a joint return
made under section 6013(b), the period of limitations provided in
sections 6501 and 6502 shall not be less than one year after the date of
the actual filing of such joint return. The expiration of the one year
is to be determined without regard to the rules provided in paragraph
(c)(1) of this section, relating to the application of sections 6501 and
6651 with respect to a joint return made under section 6013(b).
(e) Additions to the tax and penalties. (1) Where the amount shown
as the tax by the husband and wife on a joint return made under section
6013(b) exceeds the aggregate of the amounts shown as tax on the
separate return of each spouse, and such excess is attributable to
negligence, intentional disregard of rules and regulations, or fraud at
the time of the making of such separate return, there shall be assessed,
collected, and paid in the same manner as if it were a deficiency an
additional amount as provided by the following:
(i) If any part of such excess is attributable to negligence, or
intentional disregard of rules and regulations, at the time of the
making of such separate return, but without any intent to
[[Page 105]]
defraud, this additional amount shall be 5 percent of the total amount
of the excess.
(ii) If any part of such excess is attributable to fraud with intent
to evade tax at the time of the making of such separate return, this
additional amount shall be 50 percent of the total amount of the excess.
The latter addition is in lieu of the 50 percent addition to the tax
provided in section 6653(b).
(2) For purposes of section 7206 (1) and (2) and section 7207
(relating to criminal penalties in the case of fraudulent returns), the
term ``return'' includes a separate return filed by a spouse with
respect to a taxable year for which a joint return is made under section
6013(b) after the filing of a separate return.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7670, 45 FR
6929, Jan. 31, 1980; T.D. 8725, 62 FR 39117, July 22, 1997]
Sec. 1.6013-3 Treatment of joint return after death of either spouse.
For purposes of section 21 (relating to change in rates during a
taxable year), section 443 (relating to returns for a period of less
than 12 months), and section 7851(a)(1)(A) (relating to the
applicability of certain provisions of the Internal Revenue Code of 1954
and the Internal Revenue Code of 1939), where the husband and wife have
different taxable years because of death of either spouse, the joint
return shall be treated as if the taxable years of both ended on the
date of the closing of the surviving spouse's taxable year. Thus, in
cases where the Internal Revenue Code of 1939 otherwise would apply to
the taxable year of the decedent spouse and the Internal Revenue Code of
1954 would apply to the taxable year of the surviving spouse, this
provision makes the Internal Revenue Code of 1954 applicable to the
taxable years of both spouses if a joint return is filed.
Sec. 1.6013-4 Applicable rules.
(a) Status as husband and wife. For the purpose of filing a joint
return under section 6013, the status as husband and wife of two
individuals having taxable years beginning on the same day shall be
determined:
(1) If the taxable year of each individual is the same, as of the
close of such year; and
(2) If the close of the taxable year is different by reason of the
death of one spouse, as of the time of such death.
An individual legally separated from his spouse under a decree of
divorce or of separate maintenance shall not be considered as married.
However, the mere fact that spouses have not lived together during the
course of the taxable year shall not prohibit them from making a joint
return. A husband and wife who are separated under an interlocutory
decree of divorce retain the relationship of husband and wife until the
decree becomes final. The fact that the taxpayer and his spouse are
divorced or legally separated at any time after the close of the taxable
year shall not deprive them of their right to file a joint return for
such taxable year under section 6013.
(b) Computation of income, deductions, and tax. If a joint return is
made, the gross income and adjusted gross income of husband and wife on
the joint return are computed in an aggregate amount and the deductions
allowed and the taxable income are likewise computed on an aggregate
basis. Deductions limited to a percentage of the adjusted gross income,
such as the deduction for charitable, etc., contributions and gifts,
under section 170, will be allowed with reference to such aggregate
adjusted gross income. A similar rule is applied in the case of the
limitation of section 1211(b) on the allowance of losses resulting from
the sale or exchange of capital assets (see Sec. 1.1211-1). Although
there are two taxpayers on a joint return, there is only one taxable
income. The tax on the joint return shall be computed on the aggregate
income and the liability with respect to the tax shall be joint and
several. For computation of tax in the case of a joint return, see Sec.
1.2-1. For tax in the case of a joint return of husband and wife
electing to pay the optional tax under section 3, see Sec. 1.3-1. For
the election not to show on a joint return the amount of tax due in
connection therewith, see paragraph (c) of Sec. 1.6014-1 and paragraph
(d) of Sec. 1.6014-2. For separate computations of the self-employment
[[Page 106]]
tax of each spouse on a joint return, see paragraph (b) of Sec. 1.6017-
1.
(c) Definition of executor or administrator. For purposes of section
6013 the term ``executor or administrator'' means the person who is
actually appointed to such office and not a person who is merely in
charge of the property of the decedent.
(d) Return signed under duress. If an individual asserts and
establishes that he or she signed a return under duress, the return is
not a joint return. The individual who signed such return under duress
is not jointly and severally liable for the tax shown on the return or
any deficiency in tax with respect to the return. The return is adjusted
to reflect only the tax liability of the individual who voluntarily
signed the return, and the liability is determined at the applicable
rates in section 1(d) for married individuals filing separate returns.
Section 6212 applies to the assessment of any deficiency in tax on such
return.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7102, 36 FR
5497, Mar. 24, 1971; T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6013-6 Election to treat nonresident alien individual
as resident of the United States.
(a) Election for special treatment--(1) In general. Two individuals
who are husband and wife at the close of a taxable year ending on or
after December 31, 1975, may make an election under this section for
that taxable year if, at the close of that year, one spouse is a citizen
or resident of the United States and the other spouse is a nonresident
alien. The effect of the election is that each spouse is treated as a
resident of the United States for purposes of chapters 1, 5, and 24 and
sections 6012, 6013, 6072, and 6091 of the Code for the entire taxable
year. An election made under this section is in effect for the taxable
year for which made and for all subsequent years of the husband and
wife, except:
(i) Any taxable year for which the election is suspended, as
described in paragraph (a)(3) of this section, and
(ii) Any taxable year for which the election is terminated in
accordance with paragraph (b) of this section and all subsequent taxable
years.
A husband and wife may not make an election if an election previously
made under this section by either spouse has been terminated under
paragraph (b) of this section.
(2) Particular rules. (i) As used in paragraph (a)(3) of this
section, the term ``U.S. spouse'' means any married individual who is a
citizen or resident of the United States at any time during a taxable
year.
(ii) An individual's residence is determined by application of the
principles of Sec. Sec. 301.7701(b)-1 through 301.7701(b)-9 of this
chapter relating to what constitutes residence in the United States by
an alien individual.
(iii) Whether two individuals are married at the close of a taxable
year is determined by application of the rules in Sec. 1.6013-4(a).
(iv) The provisions of section 879 and the regulations thereunder
shall not apply for any taxable year for which an election under this
section is in effect.
(v) An individual who makes an election under this section may not,
for United States income tax purposes, claim under any United States
income tax treaty not to be a U.S. resident. The relationship of U.S.
income tax treaties and the election under this section is illustrated
by the following example.
Example. H, a U.S. citizen, is married to W, a nonresident alien of
the United States and a domiciliary of country X. H and W maintain their
only permanent home in country X. W receives both U.S. source and
country X source interest during the taxable year. The interest is not
effectively connected with a permanent establishment or a fixed base in
any country. H and W make the section 6013 (g) election. Under article
ii (1) of the United States--country X Income Tax Convention interest
derived and beneficially owned by a resident of one contracting state is
exempt from tax in the other contracting state. Article 4 (1) of the
treaty provides that an individual is a resident of a contracting state
if subject to tax in that country by reason of the individual's
domicile, residence, or citizenship. Under article 4 (1) of the treaty,
W is a resident of country X by virtue of her domicile in country X and
also of the United States by virtue of the section 6013 (g) election.
Article 4 (2) of the treaty provides that if an individual is a resident
of both the United States and country X by reason of article 4 (1), the
individual shall be deemed to be a resident of the contracting state in
[[Page 107]]
which he or she has a permanent home available. Because W's sole
permanent home is in country X, under article 4 (2) of the treaty W is
treated as a resident of country X for purposes of the treaty. Because W
has elected under section 6013(g) to be treated as a U.S. resident (and
thus to be taxed on worldwide income), W may not, for U.S. income tax
purposes, claim under the treaty not to be a U.S. resident. W,
therefore, is subject to U.S. income tax on the interest. For purposes
of country X income tax, W is considered a resident of country X under
the treaty.
(3) Suspension of election. (i) An election made under this section
is suspended and is not in effect for a taxable year subsequent to the
first taxable year for which made if neither spouse is a U.S. spouse
during that subsequent taxable year. Thus, for example, the election is
in suspense if both spouses are nonresident aliens for the entire
taxable year.
(ii) If either spouse dies during any taxable year for which the
election under this section is in effect, other than the first taxable
year for which the election is to be in effect, the taxable year shall
include, solely for purposes of this paragraph (a)(3), only those days
during the taxable year on which both spouses are alive. Thus, for
example, if the U.S. spouse dies during the taxable year, the election
is not suspended for that year even if the surviving nonresident alien
spouse never acquires U.S. citizenship or residency. Similarly, if the
nonresident alien spouse dies during the taxable year, the election is
not suspended for that year even if the surviving U.S. spouse
subsequently abandons U.S. citizenship or residency. However, if neither
spouse was a U.S. spouse at any time during the period of the taxable
year when both spouses were alive, the election is suspended for that
year even if the surviving spouse subsequently acquires U.S. citizenship
or residency.
For the effect of the death of either spouse on the status of the
election in subsequent taxable years, see paragraph (b)(2) of this
section.
(4) Time and manner of making an election. (i) A husband and wife
shall make the election under this section by attaching a statement to a
joint return for the first taxable year for which the election is to be
in effect. The election must be made before the expiration of the period
prescribed by section 6511(a) (or section 6511(c) if the period is
extended by agreement) for making a claim for credit or refund. If
either or both spouses die after the close of the taxable year but
before the joint return is filed, the election may be made by the
executor, administrator, or other person charged with the property of
the deceased spouse. If the election is made with a joint amended
return, the amended return should be made on Form 1040 or 1040A, the
word ``Amended'' should be written clearly on the front of the return,
and an amended return also must be filed for each subsequent taxable
year as to which a return previously has been filed by either spouse.
(ii) The statement must contain a declaration that the election is
being made and that the requirements of paragraph (a)(1) of this section
are met for the taxable year. The statement must also contain the name,
address, and taxpayer identifying number of each spouse. If the election
is being made on behalf of a deceased spouse, the statement must contain
the name and address of the executor, administrator, or other person
making the election on behalf of the decreased spouse. The statement
must be signed by both persons making the election.
(b) Termination of election--(1) Revocation. (i) An election under
this section shall terminate if either spouse revokes the election. An
election that is revoked terminates as of the first taxable year for
which the last day prescribed by section 6072(a) and 6081(a) for filing
the return of tax has not yet occurred.
(ii) Revocation of the election is made by filing a statement of
revocation in the following manner. If the spouse revoking the election
is required to file a return under section 6012, the statement is filed
by attaching it to the return for the first taxable year to which the
revocation applies. If the spouse revoking the election is not required
to file a return under section 6012, but files a claim for refund under
section 6511, the statement is filed by attaching it to the claim for
refund. If the spouse revoking the election is not required to file a
return and does not file a claim for refund, the statement is
[[Page 108]]
filed by submitting it to the service center director with whom was
filed the most recent joint return of the spouses. The revocation may,
if the revoking spouse dies after the close of the first taxable year to
which the revocation applies but before the return, claim for refund, or
statement of revocation is filed, be made by the executor, administrator
or other person charged with the property of the deceased spouse.
(iii) A revocation of the election is effective as of a particular
taxable year if it is filed on or before the last day prescribed by
section 6072(a) and 6081(a) for filing the return of tax for that
taxable year. However, the revocation is not final until that last day.
(iv) The statement of revocation must contain a declaration that the
election under this section is being revoked. The statement must also
contain the name, address, and taxpayer identifying number of each
spouse. If the revocation is being made on behalf of a deceased spouse,
the statement must contain the name and address of the executor,
administrator, or other person revoking the election on behalf of the
deceased spouse. The statement must also include a list of the States,
foreign countries, and possessions of the United States which have
community property laws and in which:
(A) Each spouse is domiciled, or
(B) real property is located from which either of the spouses
receives income.
The statement must be signed by the person revoking the election.
(2) Death. An election under this section shall terminate if either
spouse dies. An election that terminates on account of death terminates
as of the first taxable year of the surviving spouse following the
taxable year in which the death occurred. However, if the surviving
spouse is a citizen or resident of the United States who is entitled to
the benefits of section 2, the election terminates as of the first
taxable year following the last taxable year for which the surviving
spouse is entitled to the benefits of section 2. If both spouses die
within the same taxable year, the election terminates as of the first
day after the close of the taxable year in which the deaths occurred.
(3) Legal separation. An election under this section terminates if
the spouses legally separate under a degree of divorce or of separate
maintenance. An election that terminates on account of legal separation
terminates as of the close of the taxable year preceding the taxable
year in which the separation occurs. The rules in Sec. 1.6013-4(a) are
relevant in determining whether two spouses are legally separated.
(4) Inadequate records. An election under this section may be
terminated by the Commissioner if it is determined that either spouse
has failed to keep adequate records. An election that is terminated on
account of inadequate records terminates as of the close of the taxable
year preceding the taxable year for which the Commissioner determines
that the election should be terminated. Adequate records are the books,
records, and other information reasonably necessary to ascertain the
amount of liability for taxes under chapters 1, 5, and 24 of the code of
either spouse for the taxable year. Adequate records also includes the
granting of access to the books and records.
(c) Illustrations. The application of this section is illustrated by
the following examples. In each case the individual's taxable year is
the calendar year and the spouses are not legally separated.
Example 1. W, a U.S. citizen for the entire taxable year 1979, is
married to H, a nonresident alien individual. W and H may make the
section 6013(g) election for 1979 by filing the statement of election
with a joint return. If W and H make the election, income from sources
within and without the United States received by W and H in 1979 and
subsequent years must be included in gross income for each taxable year
unless the election later is terminated or suspended. While W and H must
file a joint return for 1979, joint or separate returns may be filed for
subsequent years.
Example 2. H and W are husband and wife and are both nonresident
alien individuals. In June 1980 H becomes a U.S. resident and remains a
resident for the balance of the year. H and W may make the section
6013(g) election for 1980. If H and W make the election, income from
sources within and without the United States received by H and W for the
entire taxable year 1980 and subsequent years must be included in gross
income for each taxable year, unless the election later is terminated or
suspended.
[[Page 109]]
Example 3. W, a U.S. resident on December 31, 1981, is married to H,
a nonresident alien. W and H make the section 6013(g) election and file
joint returns for 1981 and succeeding years. On January 10, 1987, W
becomes a nonresident alien. H has remained a nonresident alien. W and H
may file a joint return or separate returns for 1987. As neither W or H
is a U.S. resident at any time during 1988, their election is suspended
for 1988. If W and H have U.S. source or foreign source income
effectively connected with the conduct of a U.S. trade or business in
1988, they must file separate returns as nonresident aliens. W becomes a
U.S. resident again on January 5, 1990. Their election no longer is in
suspense. Income from sources within and without the United States
received by W or H in the years their election is not suspended must be
included in gross income for each taxable year.
Example 4. H, a U.S. citizen for the entire taxable year 1979, is
married to W, who is not a U.S. citizen. While W believes that she is a
U.S. resident, H and W make the section 6013(g) election for 1979 to
cover the possibility that later it would be determined that she is a
nonresident alien during 1979. The election for 1979 will not be
considered evidence that W was a nonresident alien in prior years.
Income from sources within and without the United States received by H
and W in 1979 and subsequent years must be included in gross income for
each taxable year, unless the election later is terminated or suspended.
[T.D. 7670, 45 FR 6929, Jan. 31, 1980, as amended by T.D. 7842, 47 FR
49842, Nov. 3, 1982; T.D. 8411, 57 FR 15241, Apr. 27, 1992]
Sec. 1.6013-7 Joint return for year in which nonresident alien
becomes resident of the United States.
(a) Election for special treatment--(1) In general. Two individuals
who are husband and wife at the close of a taxable year ending on or
after December 31, 1975, may make an election under this section for
that taxable year if one spouse is a citizen or resident of the United
States on the last day of that taxable year and the other spouse is a
nonresident alien at the beginning of that taxable year and a citizen or
resident of the United States at the close of that taxable year. Two
married individuals who are nonresident aliens at the beginning of a
taxable year and who are U.S. citizens or residents on the last day of
that taxable year qualify for the election. The effect of the election
is that each spouse is treated as a resident of the United States for
purposes of chapters 1, 5, and 24 and sections 6012, 6013, 6072, and
6091 of the code for all of that taxable year. A husband and wife may
not make an election if an election has previously been made under this
section by either spouse.
(2) Particular rules. The rules in subdivisions (ii) through (v) of
Sec. 1.6013-6(a)(2) are applicable to this section.
(3) Time and manner of making an election. A husband and wife shall
make the election under this section in accordance with the rules in
Sec. 1.6013-6(a)(4).
(b) Section 6013(g) election in effect. If an election under section
6013(g) is in effect for a year subsequent to the first taxable year for
which made and during that subsequent year the husband and wife meet the
requirements of section 6013(h) and paragraph (a)(1) of this section,
then the election under section 6013(g) shall apply to that subsequent
taxable year. A separate election under section 6013(h) is not required
for that subsequent taxable year.
[T.D. 7670, 45 FR 6931, Jan. 31, 1980]
Sec. 1.6014-1 Tax not computed by taxpayer for taxable years
beginning before January 1, 1970.
(a) In general. If an individual is entitled under paragraph (a)(7)
of Sec. 1.6012-1 to use as his return Form 1040A, he may elect not to
show thereon the amount of the tax due in connection with such return if
his gross income is less than $5,000.
(b) Computation and payment of tax. A taxpayer who, in accordance
with paragraph (a) of this section, elects not to show the tax on Form
1040A is not required to pay the unpaid balance of such tax at the time
he files the return. In such case, the tax will be computed for the
taxpayer by the Internal Revenue Service, and a notice will be mailed to
the taxpayer stating the amount of tax due. Where it is determined that
a refund of tax is due, the Internal Revenue Service will send such
refund to the taxpayer. See paragraph (c) of Sec. 301.6402-3 of this
chapter (Regulations on Procedure and Administration).
(c) Joint return. (1) A husband and wife who, pursuant to paragraph
(a)(7) of Sec. 1.6012-1, file a joint return on Form
[[Page 110]]
1040A may elect not to show the tax on such return if their aggregate
gross income for the taxable year is less than $5,000.
(2) The tax computed for the taxpayer who files Form 1040A and
elects not to show thereon the tax due shall be the lesser of the
following amounts:
(i) A tax computed as though the return on Form 1040A constituted
the separate returns of the spouses, or
(ii) A tax computed as though the return on Form 1040A constituted a
joint return.
(d) Married individuals filing separate returns. In the case of a
married individual who files a separate return and who elects under this
section not to show his tax on Form 1040A his tax shall be computed with
reference to the 10-percent standard deduction rather than the minimum
standard deduction.
(e) This section shall apply to taxable years beginning before
January 1, 1970.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6581, 26 FR
11678, Dec. 6, 1961; T.D. 6792, 30 FR 531, Jan. 15, 1965; T.D. 7102, 36
FR 5497, Mar. 24, 1971]
Sec. 1.6014-2 Tax not computed by taxpayer for taxable years
beginning after December 31, 1969.
(a) In general. An individual subject to the tax imposed by section
1 of the Code may, in accordance with the instructions applicable to the
income tax return to be filed, elect, for any taxable year beginning
after December 31, 1969, not to show on his income tax return for such
year the amount of tax due in connection with such return.
(b) Restriction on making an election. The election pursuant to this
section shall not be made by an individual who does not file his return
(or amended return) making such election on or before the date
prescribed in section 6072(a) for the filing of the original return
(determined without regard to any extension of time).
(c) Effects of election. (1) A taxpayer who, in accordance with the
provisions of this section, elects not to show the tax on his income tax
return is not required to pay the unpaid balance of such tax at the time
he files the return. In such case, the tax will be computed for the
taxpayer by the Internal Revenue Service, and a notice will be mailed to
the taxpayer stating the amount of tax due. Where it is determined that
a refund of tax is due, the Internal Revenue Service will send such
refund to the taxpayer. See paragraph (c) of Sec. 301.6402-3 of this
chapter (Regulations on Procedure and Administration). The computation
of tax by the Internal Revenue Service shall be treated for purposes of
this chapter as if made by the taxpayer, and such computation or the
issuance of a notice or refund pursuant thereto shall not relieve the
taxpayer of liability for any deficiency (although the deficiency is
based upon an amount of tax different from that computed for the
taxpayer by the Internal Revenue Service) or affect the rights of the
Internal Revenue Service with respect to any subsequent audit or other
review of the taxpayer's return.
(2) Where the election provided for in this section is made by a
taxpayer who takes the standard deduction and who has adjusted gross
income of less than $10,000, such election constitutes an election to
pay the tax imposed by section 3.
(3) A taxpayer who makes an election under section 6014 shall not be
precluded from claiming:
(i) Status as a head of household or a surviving spouse;
(ii) The credit under section 31 (relating to tax withheld on
wages);
(iii) The credit under section 37 (relating to retirement income);
(iv) The credit under section 38 (relating to investment in certain
depreciable property);
(v) The credit under section 39 (relating to certain uses of
gasoline and lubricating oil);
(vi) The credit under section 41 (relating to contributions to
candidates for public office);
(vii) The credit under section 42 (relating to personal exemptions);
(viii) The credit under section 43 (relating to earned income);
(ix) The credit under section 44 (relating to purchase of new
principal residence); or
(x) The credit under section 45 (relating to overpayments of tax).
(d) Joint returns. (1) A husband and wife who file a joint return
may elect not to show the tax on such return in
[[Page 111]]
accordance with the rules prescribed in paragraphs (a) and (b) of this
section.
(2) The tax computed for a husband and wife who elect pursuant to
this section not to show their tax on their joint income tax return
shall be the lesser of the following amounts:
(i) A tax computed as though the return of income constituted a
joint return, or
(ii) If sufficient information is provided for the taxable income of
each spouse to be determined, a tax computed as though the return of
income constituted the separate returns of the spouses.
(e) Married individuals filing separate returns. This section shall
apply to married individuals filing separate returns unless otherwise
provided in the instructions accompanying a return. The instructions may
require the taxpayer to attach to his return a statement to the effect
that his tax and the tax of his spouse were determined in accordance
with the rules of sections 141(d) and 142(a).
(f) Revocation of election. An election pursuant to this section may
be revoked on an amended return (whether such return is filed before or
after the date prescribed in section 6072(a) for filing the original
return).
[T.D. 7102, 36 FR 5497, Mar. 24, 1971, as amended by T.D. 7298, 38 FR
35234, Dec. 26, 1973; T.D. 7391, 40 FR 55856, Dec. 2, 1975]
Sec. 1.6015-0 Table of contents.
This section lists captions contained in Sec. Sec. 1.6015-1 through
1.6015-9.
Sec. 1.6015-1 Relief from joint and several liability on a joint
return.
(a) In general.
(b) Duress.
(c) Prior closing agreement or offer in compromise.
(1) In general.
(2) Exception for agreements relating to TEFRA partnership
proceedings.
(3) Examples.
(d) Fraudulent scheme.
(e) Res judicata and collateral estoppel.
(f) Community property laws.
(1) In general.
(2) Example.
(g) Scope of this section and Sec. Sec. 1.6015-2 through 1.6015-9.
(h) Definitions.
(1) Requesting spouse.
(2) Nonrequesting spouse.
(3) Item.
(4) Erroneous item.
(5) Election or request.
(i) [Reserved]
(j) Transferee liability.
(1) In general.
(2) Example.
Sec. 1.6015-2 Relief from liability applicable to all qualifying joint
filers.
(a) In general.
(b) Understatement.
(c) Knowledge or reason to know.
(d) Inequity.
(e) Partial relief.
(1) In general.
(2) Example.
Sec. 1.6015-3 Allocation of liability for individuals who are no longer
married, are legally separated, or are not members of the same
household.
(a) Election to allocate liability.
(b) Definitions.
(1) Divorced.
(2) Legally separated.
(3) Members of the same household.
(i) Temporary absences.
(ii) Separate dwellings.
(c) Limitations.
(1) No refunds.
(2) Actual knowledge.
(i) In general.
(A) Omitted income.
(B) Deduction or credit.
(1) Erroneous deductions in general.
(2) Fictitious or inflated deduction.
(ii) Partial knowledge.
(iii) Knowledge of the source not sufficient.
(iv) Factors supporting actual knowledge.
(v) Abuse exception.
(3) Disqualified asset transfers.
(i) In general.
(ii) Disqualified asset defined.
(iii) Presumption.
(4) Examples.
(d) Allocation.
(1) In general.
(2) Allocation of erroneous items.
(i) Benefit on the return.
(ii) Fraud.
(iii) Erroneous items of income.
(iv) Erroneous deduction items.
(3) Burden of proof.
(4) General allocation method.
(i) Proportionate allocation.
(ii) Separate treatment items.
(iii) Child's liability.
(iv) Allocation of certain items.
(A) Alternative minimum tax.
(B) Accuracy-related and fraud penalties.
(5) Examples.
(6) Alternative allocation methods.
(i) Allocation based on applicable tax rates.
(ii) Allocation methods provided in subsequent published guidance.
[[Page 112]]
(iii) Example.
Sec. 1.6015-4 Equitable relief.
Sec. 1.6015-5 Time and manner for requesting relief.
(a) Requesting relief.
(b) Time period for filing a request for relief.
(1) In general.
(2) Definitions.
(i) Collection activity.
(ii) Section 6330 notice.
(3) Requests for relief made before commencement of collection
activity.
(4) Examples.
(5) Premature requests for relief.
(c) Effect of a final administrative determination.
Sec. 1.6015-6 Nonrequesting spouse's notice and opportunity to
participate in administrative proceedings.
(a) In general.
(b) Information submitted.
(c) Effect of opportunity to participate.
(2) Waiver of the restrictions on collection.
Sec. 1.6015-7 Tax Court review.
(a) In general.
(b) Time period for petitioning the Tax Court.
(c) Restrictions on collection and suspension of the running of the
period of limitations.
(1) Restrictions on collection under Sec. 1.6015-2 or 1.6015-3.
(2) Waiver of the restrictions on collection.
(3) Suspension of the running of the period of limitations.
(i) Relief under Sec. 1.6015-2 or 1.6015-3.
(ii) Relief under Sec. 1.6015-4.
(4) Definitions.
(i) Levy.
(ii) Proceedings in court.
(iii) Assessment to which the election relates.
Sec. 1.6015-8 Applicable liabilities.
(a) In general.
(b) Liabilities paid on or before July 22, 1998.
(c) Examples.
Sec. 1.6015-9 Effective date.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-1 Relief from joint and several liability on a joint
return.
(a) In general. (1) An individual who qualifies and elects under
section 6013 to file a joint Federal income tax return with another
individual is jointly and severally liable for the joint Federal income
tax liabilities for that year. A spouse or former spouse may be relieved
of joint and several liability for Federal income tax for that year
under the following three relief provisions:
(i) Innocent spouse relief under Sec. 1.6015-2.
(ii) Allocation of deficiency under Sec. 1.6015-3.
(iii) Equitable relief under Sec. 1.6015-4.
(2) A requesting spouse may submit a single claim electing relief
under both or either Sec. Sec. 1.6015-2 and 1.6015-3, and requesting
relief under Sec. 1.6015-4. However, equitable relief under Sec.
1.6015-4 is available only to a requesting spouse who fails to qualify
for relief under Sec. Sec. 1.6015-2 and 1.6015-3. If a requesting
spouse elects the application of either Sec. 1.6015-2 or 1.6015-3, the
Internal Revenue Service will consider whether relief is appropriate
under the other elective provision and, to the extent relief is
unavailable under either, under Sec. 1.6015-4. If a requesting spouse
seeks relief only under Sec. 1.6015-4, the Secretary may not grant
relief under Sec. 1.6015-2 or 1.6015-3 in the absence of an affirmative
election made by the requesting spouse under either of those sections.
If in the course of reviewing a request for relief only under Sec.
1.6015-4, the IRS determines that the requesting spouse may qualify for
relief under Sec. 1.6015-2 or 1.6015-3 instead of Sec. 1.6015-4, the
Internal Revenue Service will correspond with the requesting spouse to
see if the requesting spouse would like to amend his or her request to
elect the application of Sec. 1.6015-2 or 1.6015-3. If the requesting
spouse chooses to amend the claim for relief, the requesting spouse must
submit an affirmative election under Sec. 1.6015-2 or 1.6015-3. The
amended claim for relief will relate back to the original claim for
purposes of determining the timeliness of the claim.
(3) Relief is not available for liabilities that are required to be
reported on a joint Federal income tax return but are not income taxes
imposed under Subtitle A of the Internal Revenue Code (e.g., domestic
service employment taxes under section 3510).
(b) Duress. For rules relating to the treatment of returns signed
under duress, see Sec. 1.6013-4(d).
[[Page 113]]
(c) Prior closing agreement or offer in compromise--(1) In general.
A requesting spouse is not entitled to relief from joint and several
liability under Sec. 1.6015-2, 1.6015-3, or 1.6015-4 for any tax year
for which the requesting spouse has entered into a closing agreement
with the Commissioner that disposes of the same liability that is the
subject of the claim for relief. In addition, a requesting spouse is not
entitled to relief from joint and several liability under Sec. 1.6015-
2, 1.6015-3, or 1.6015-4 for any tax year for which the requesting
spouse has entered into an offer in compromise with the Commissioner.
For rules relating to the effect of closing agreements and offers in
compromise, see sections 7121 and 7122, and the regulations thereunder.
(2) Exception for agreements relating to TEFRA partnership
proceedings. The rule in paragraph (c)(1) of this section regarding the
unavailability of relief from joint and several liability when the
liability to which the claim for relief relates was the subject of a
prior closing agreement entered into by the requesting spouse, shall not
apply to an agreement described in section 6224(c) with respect to
partnership items (or any penalty, addition to tax, or additional amount
that relates to adjustments to partnership items) that is entered into
while the requesting spouse is a party to a pending partnership-level
proceeding conducted under the provisions of subchapter C of chapter 63
of subtitle F of the Internal Revenue Code (TEFRA partnership
proceeding). If, however, a requesting spouse enters into a closing
agreement pertaining to any penalty, addition to tax, or additional
amount that relates to adjustments to partnership items, at a time when
the requesting spouse is not a party to a pending TEFRA partnership
proceeding (e.g., in connection with an affected items proceeding), then
the provisions of paragraph (c)(1) shall apply. Similarly, if a
requesting spouse enters into a closing agreement with respect to both
partnership items (including affected items) and nonpartnership items,
while the requesting spouse is a party to a pending TEFRA partnership
proceeding, the provisions of paragraph (c)(1) shall apply to the
portion of the closing agreement that relates to nonpartnership items
and the provisions of this paragraph (c)(2) shall apply to the remainder
of the closing agreement.
(3) Examples. The following examples illustrate the rules of this
paragraph (c):
Example 1. H and W file joint returns for taxable years 2002-2004,
on which they claim losses attributable to H's limited partnership
interest in Partnership A. In January 2006, the Internal Revenue Service
commences an audit under the provisions of subchapter C of chapter 63 of
subtitle F of the Internal Revenue Code (TEFRA partnership proceeding)
regarding Partnership A's 2002-2004 taxable years, and sends H and W a
notice under section 6223(a)(1). In September 2007, H files a bankruptcy
petition under chapter 7 of the Bankruptcy Code and receives a discharge
in April 2008. In August 2008, H and W enter into a closing agreement
with the Internal Revenue Service, in which H and W agree to the
disallowance of some of the claimed losses from Partnership A for
taxable years 2002 through 2007. W may not later claim relief from joint
and several liability under section 6015 as to the disallowed losses
attributable to Partnership A for taxable years 2002 to 2007. This is
because at the time W entered into the closing agreement, H's
partnership items attributable to Partnership A had converted to
nonpartnership items as a result of H's filing of the bankruptcy
petition. The conversion of H's items also terminated W's status as a
partner in the TEFRA partnership proceeding regarding Partnership A.
Consequently, the closing agreement did not pertain to partnership items
and W was not a party to a pending partnership-level proceeding
regarding Partnership A when she entered into the closing agreement.
Accordingly, the exception in paragraph (c)(2) of this section for
agreements relating to TEFRA partnership proceedings does not apply.
Example 2. H and W file a joint return for taxable year 2002, on
which they claim $25,000 in losses attributable to H's general
partnership interest in Partnership B. In November 2003, the Service
proposes a deficiency in tax relating to H's and W's 2002 joint return
arising from omitted taxable interest income in the amount of $2,000
that is attributable to H. In July 2005, the Internal Revenue Service
commences a TEFRA partnership proceeding regarding Partnership B's 2002
and 2003 taxable years, and sends H and W a notice under section
6223(a)(1). In March 2006, H and W enter into a closing agreement with
the Service. The closing agreement provides for the disallowance of the
claimed losses from Partnership B in excess of H's and W's out-of-pocket
expenditures relating to Partnership B for taxable year 2002 and
[[Page 114]]
any subsequent year(s) in which H and W claimed losses from Partnership
B. In addition, H and W agree to the imposition of the accuracy-related
penalty under section 6662 with respect to the disallowed losses
attributable to partnership B. In the closing agreement, H and W also
agree to the deficiency resulting from the omitted interest income for
taxable year 2002. W may not later claim relief from joint and several
liability under section 6015 as to the deficiency in tax attributable to
the omitted income of $2,000 for taxable year 2002, because this portion
of the closing agreement pertains to nonpartnership items. In contrast,
W may claim relief from joint and several liability as to the disallowed
losses and accuracy-related penalty attributable to Partnership B for
taxable year 2002 or any subsequent year(s). This is because this
portion of the closing agreement pertains to partnership and affected
items and was entered into at a time when W was a party to the pending
partnership-level proceeding regarding Partnership B. Consequently, W
never had the opportunity to raise the innocent spouse defense in the
course of that TEFRA partnership proceeding. (See Sec. 1.6015-5(b)(5)
relating to premature claims).
(d) Fraudulent scheme. If the Secretary establishes that a spouse
transferred assets to the other spouse as part of a fraudulent scheme,
relief is not available under section 6015, and section 6013(d)(3)
applies to the return. For purposes of this section, a fraudulent scheme
includes a scheme to defraud the Service or another third party,
including, but not limited to, creditors, ex-spouses, and business
partners.
(e) Res judicata and collateral estoppel. A requesting spouse is
barred from relief from joint and several liability under section 6015
by res judicata for any tax year for which a court of competent
jurisdiction has rendered a final decision on the requesting spouse's
tax liability if relief under section 6015 was at issue in the prior
proceeding, or if the requesting spouse meaningfully participated in
that proceeding and could have raised relief under section 6015. A
requesting spouse has not meaningfully participated in a prior
proceeding if, due to the effective date of section 6015, relief under
section 6015 was not available in that proceeding. Also, any final
decisions rendered by a court of competent jurisdiction regarding issues
relevant to section 6015 are conclusive and the requesting spouse may be
collaterally estopped from relitigating those issues.
(f) Community property laws--(1) In general. In determining whether
relief is available under Sec. 1.6015-2, 1.6015-3, or 1.6015-4, items
of income, credits, and deductions are generally allocated to the
spouses without regard to the operation of community property laws. An
erroneous item is attributed to the individual whose activities gave
rise to such item. See Sec. 1.6015-3(d)(2).
(2) Example. The following example illustrates the rule of this
paragraph (f):
Example. (i) H and W are married and have lived in State A (a
community property state) since 1987. On April 15, 2003, H and W file a
joint Federal income tax return for the 2002 taxable year. In August
2005, the Internal Revenue Service proposes a $17,000 deficiency with
respect to the 2002 joint return. A portion of the deficiency is
attributable to $20,000 of H's unreported interest income from his
individual bank account. The remainder of the deficiency is attributable
to $30,000 of W's disallowed business expense deductions. Under the laws
of State A, H and W each own \1/2\ of all income earned and property
acquired during the marriage.
(ii) In November 2005, H and W divorce and W timely elects to
allocate the deficiency. Even though the laws of State A provide that
\1/2\ of the interest income is W's, for purposes of relief under this
section, the $20,000 unreported interest income is allocable to H, and
the $30,000 disallowed deduction is allocable to W. The community
property laws of State A are not considered in allocating items for this
purpose.
(g) Scope of this section and Sec. Sec. 1.6015-2 through 1.6015-9.
This section and Sec. Sec. 1.6015-2 through 1.6015-9 do not apply to
any portion of a liability for any taxable year for which a claim for
credit or refund is barred by operation of law or rule of law.
(h) Definitions--(1) Requesting spouse. A requesting spouse is an
individual who filed a joint return and elects relief from Federal
income tax liability arising from that return under Sec. 1.6015-2 or
1.6015-3, or requests relief from Federal income tax liability arising
from that return under Sec. 1.6015-4.
(2) Nonrequesting spouse. A nonrequesting spouse is the individual
with whom the requesting spouse filed the joint return for the year for
which relief from liability is sought.
[[Page 115]]
(3) Item. An item is that which is required to be separately listed
on an individual income tax return or any required attachments. Items
include, but are not limited to, gross income, deductions, credits, and
basis.
(4) Erroneous item. An erroneous item is any item resulting in an
understatement or deficiency in tax to the extent that such item is
omitted from, or improperly reported (including improperly
characterized) on an individual income tax return. For example,
unreported income from an investment asset resulting in an
understatement or deficiency in tax is an erroneous item. Similarly,
ordinary income that is improperly reported as capital gain resulting in
an understatement or deficiency in tax is also an erroneous item. In
addition, a deduction for an expense that is personal in nature that
results in an understatement or deficiency in tax is an erroneous item
of deduction. An erroneous item is also an improperly reported item that
affects the liability on other returns (e.g., an improper net operating
loss that is carried back to a prior year's return). Penalties and
interest are not erroneous items. Rather, relief from penalties and
interest will generally be determined based on the proportion of the
total erroneous items from which the requesting spouse is relieved. If a
penalty relates to a particular erroneous item, see Sec. 1.6015-
3(d)(4)(iv)(B).
(5) Election or request. A qualifying election under Sec. 1.6015-2
or 1.6015-3, or request under Sec. 1.6015-4, is the first timely claim
for relief from joint and several liability for the tax year for which
relief is sought. A qualifying election also includes a requesting
spouse's second election to seek relief from joint and several liability
for the same tax year under Sec. 1.6015-3 when the additional
qualifications of paragraphs (h)(5)(i) and (ii) of this section are
met--
(i) The requesting spouse did not qualify for relief under Sec.
1.6015-3 when the Internal Revenue Service considered the first election
solely because the qualifications of Sec. 1.6015-3(a) were not
satisfied; and
(ii) At the time of the second election, the qualifications for
relief under Sec. 1.6015-3(a) are satisfied.
(i) [Reserved]
(j) Transferee liability--(1) In general. The relief provisions of
section 6015 do not negate liability that arises under the operation of
other laws. Therefore, a requesting spouse who is relieved of joint and
several liability under Sec. 1.6015-2, 1.6015-3, or 1.6015-4 may
nevertheless remain liable for the unpaid tax (including additions to
tax, penalties, and interest) to the extent provided by Federal or state
transferee liability or property laws. For the rules regarding the
liability of transferees, see sections 6901 through 6904 and the
regulations thereunder. In addition, the requesting spouse's property
may be subject to collection under Federal or state property laws.
(2) Example. The following example illustrates the rule of this
paragraph (j):
Example. H and W timely file their 1998 joint income tax return on
April 15, 1999. H dies in March 2000, and the executor of H's will
transfers all of the estate's assets to W. In July 2001, the Internal
Revenue Service assesses a deficiency for the 1998 return. The items
giving rise to the deficiency are attributable to H. W is relieved of
the liability under section 6015, and H's estate remains solely liable.
The Internal Revenue Service may seek to collect the deficiency from W
to the extent permitted under Federal or state transferee liability or
property laws.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-2 Relief from liability applicable to all qualifying
joint filers.
(a) In general. A requesting spouse may be relieved of joint and
several liability for tax (including additions to tax, penalties, and
interest) from an understatement for a taxable year under this section
if the requesting spouse elects the application of this section in
accordance with Sec. Sec. 1.6015-1(h)(5) and 1.6015-5, and--
(1) A joint return was filed for the taxable year;
(2) On the return there is an understatement attributable to
erroneous items of the nonrequesting spouse;
(3) The requesting spouse establishes that in signing the return he
or she did not know and had no reason to know of the understatement; and
(4) It is inequitable to hold the requesting spouse liable for the
deficiency attributable to the understatement.
[[Page 116]]
(b) Understatement. The term understatement has the meaning given to
such term by section 6662(d)(2)(A) and the regulations thereunder.
(c) Knowledge or reason to know. A requesting spouse has knowledge
or reason to know of an understatement if he or she actually knew of the
understatement, or if a reasonable person in similar circumstances would
have known of the understatement. For rules relating to a requesting
spouse's actual knowledge, see Sec. 1.6015-3(c)(2). All of the facts
and circumstances are considered in determining whether a requesting
spouse had reason to know of an understatement. The facts and
circumstances that are considered include, but are not limited to, the
nature of the erroneous item and the amount of the erroneous item
relative to other items; the couple's financial situation; the
requesting spouse's educational background and business experience; the
extent of the requesting spouse's participation in the activity that
resulted in the erroneous item; whether the requesting spouse failed to
inquire, at or before the time the return was signed, about items on the
return or omitted from the return that a reasonable person would
question; and whether the erroneous item represented a departure from a
recurring pattern reflected in prior years' returns (e.g., omitted
income from an investment regularly reported on prior years' returns).
(d) Inequity. All of the facts and circumstances are considered in
determining whether it is inequitable to hold a requesting spouse
jointly and severally liable for an understatement. One relevant factor
for this purpose is whether the requesting spouse significantly
benefitted, directly or indirectly, from the understatement. A
significant benefit is any benefit in excess of normal support. Evidence
of direct or indirect benefit may consist of transfers of property or
rights to property, including transfers that may be received several
years after the year of the understatement. Thus, for example, if a
requesting spouse receives property (including life insurance proceeds)
from the nonrequesting spouse that is beyond normal support and
traceable to items omitted from gross income that are attributable to
the nonrequesting spouse, the requesting spouse will be considered to
have received significant benefit from those items. Other factors that
may also be taken into account, if the situation warrants, include the
fact that the requesting spouse has been deserted by the nonrequesting
spouse, the fact that the spouses have been divorced or separated, or
that the requesting spouse received benefit on the return from the
understatement. For guidance concerning the criteria to be used in
determining whether it is inequitable to hold a requesting spouse
jointly and severally liable under this section, see Rev. Proc. 2000-15
(2000-1 C.B. 447), or other guidance published by the Treasury and IRS
(see Sec. 601.601(d)(2) of this chapter).
(e) Partial relief--(1) In general. If a requesting spouse had no
knowledge or reason to know of only a portion of an erroneous item, the
requesting spouse may be relieved of the liability attributable to that
portion of that item, if all other requirements are met with respect to
that portion.
(2) Example. The following example illustrates the rules of this
paragraph (e):
Example. H and W are married and file their 2004 joint income tax
return in March 2005. In April 2006, H is convicted of embezzling $2
million from his employer during 2004. H kept all of his embezzlement
income in an individual bank account, and he used most of the funds to
support his gambling habit. H and W had a joint bank account into which
H and W deposited all of their reported income. Each month during 2004,
H transferred an additional $10,000 from the individual account to H and
W's joint bank account. W paid the household expenses using this joint
account, and regularly received the bank statements relating to the
account. W had no knowledge or reason to know of H's embezzling
activities. However, W did have knowledge and reason to know of $120,000
of the $2 million of H's embezzlement income at the time she signed the
joint return because that amount passed through the couple's joint bank
account. Therefore, W may be relieved of the liability arising from
$1,880,000 of the unreported embezzlement income, but she may not be
relieved of the liability for the deficiency arising from $120,000 of
the unreported embezzlement income of which she knew and had reason to
know.
[T.D. 9003, 67 FR 47285, July 18, 2002]
[[Page 117]]
Sec. 1.6015-3 Allocation of deficiency for individuals who are no
longer married, are legally separated, or are not members of the
same household.
(a) Election to allocate deficiency. A requesting spouse may elect
to allocate a deficiency if, as defined in paragraph (b) of this
section, the requesting spouse is divorced, widowed, or legally
separated, or has not been a member of the same household as the
nonrequesting spouse at any time during the 12-month period ending on
the date an election for relief is filed. For purposes of this section,
the marital status of a deceased requesting spouse will be determined on
the earlier of the date of the election or the date of death in
accordance with section 7703(a)(1). Subject to the restrictions of
paragraph (c) of this section, an eligible requesting spouse who elects
the application of this section in accordance with Sec. Sec. 1.6015-
1(h)(5) and 1.6015-5 generally may be relieved of joint and several
liability for the portion of any deficiency that is allocated to the
nonrequesting spouse pursuant to the allocation methods set forth in
paragraph (d) of this section. Relief may be available to both spouses
filing the joint return if each spouse is eligible for and elects the
application of this section.
(b) Definitions--(1) Divorced. A determination of whether a
requesting spouse is divorced for purposes of this section will be made
in accordance with section 7703 and the regulations thereunder. Such
determination will be made as of the date the election is filed.
(2) Legally separated. A determination of whether a requesting
spouse is legally separated for purposes of this section will be made in
accordance with section 7703 and the regulations thereunder. Such
determination will be made as of the date the election is filed.
(3) Members of the same household--(i) Temporary absences. A
requesting spouse and a nonrequesting spouse are considered members of
the same household during either spouse's temporary absences from the
household if it is reasonable to assume that the absent spouse will
return to the household, and the household or a substantially equivalent
household is maintained in anticipation of such return. Examples of
temporary absences may include, but are not limited to, absence due to
incarceration, illness, business, vacation, military service, or
education.
(ii) Separate dwellings. A husband and wife who reside in the same
dwelling are considered members of the same household. In addition, a
husband and wife who reside in two separate dwellings are considered
members of the same household if the spouses are not estranged or one
spouse is temporarily absent from the other's household within the
meaning of paragraph (b)(3)(i) of this section.
(c) Limitations--(1) No refunds. Relief under this section is only
available for unpaid liabilities resulting from understatements of
liability. Refunds are not authorized under this section.
(2) Actual knowledge--(i) In general. If, under section
6015(c)(3)(C), the Secretary demonstrates that, at the time the return
was signed, the requesting spouse had actual knowledge of an erroneous
item that is allocable to the nonrequesting spouse, the election to
allocate the deficiency attributable to that item is invalid, and the
requesting spouse remains liable for the portion of the deficiency
attributable to that item. The Service, having both the burden of
production and the burden of persuasion, must establish, by a
preponderance of the evidence, that the requesting spouse had actual
knowledge of the erroneous item in order to invalidate the election.
(A) Omitted income. In the case of omitted income, knowledge of the
item includes knowledge of the receipt of the income. For example,
assume W received $5,000 of dividend income from her investment in X Co.
but did not report it on the joint return. H knew that W received $5,000
of dividend income from X Co. that year. H had actual knowledge of the
erroneous item (i.e., $5,000 of unreported dividend income from X Co.),
and no relief is available under this section for the deficiency
attributable to the dividend income from X Co. This rule applies equally
in situations where the other spouse has unreported income although the
spouse does not have an actual receipt of cash
[[Page 118]]
(e.g., dividend reinvestment or a distributive share from a flow-through
entity shown on Schedule K-1, ``Partner's Share of Income, Credits,
Deductions, etc.'').
(B) Deduction or credit--(1) Erroneous deductions in general. In the
case of an erroneous deduction or credit, knowledge of the item means
knowledge of the facts that made the item not allowable as a deduction
or credit.
(2) Fictitious or inflated deduction. If a deduction is fictitious
or inflated, the IRS must establish that the requesting spouse actually
knew that the expenditure was not incurred, or not incurred to that
extent.
(ii) Partial knowledge. If a requesting spouse had actual knowledge
of only a portion of an erroneous item, then relief is not available for
that portion of the erroneous item. For example, if H knew that W
received $1,000 of dividend income and did not know that W received an
additional $4,000 of dividend income, relief would not be available for
the portion of the deficiency attributable to the $1,000 of dividend
income of which H had actual knowledge. A requesting spouse's actual
knowledge of the proper tax treatment of an item is not relevant for
purposes of demonstrating that the requesting spouse had actual
knowledge of an erroneous item. For example, assume H did not know W's
dividend income from X Co. was taxable, but knew that W received the
dividend income. Relief is not available under this section. In
addition, a requesting spouse's knowledge of how an erroneous item was
treated on the tax return is not relevant to a determination of whether
the requesting spouse had actual knowledge of the item. For example,
assume that H knew of W's dividend income, but H failed to review the
completed return and did not know that W omitted the dividend income
from the return. Relief is not available under this section.
(iii) Knowledge of the source not sufficient. Knowledge of the
source of an erroneous item is not sufficient to establish actual
knowledge. For example, assume H knew that W owned X Co. stock, but H
did not know that X Co. paid dividends to W that year. H's knowledge of
W's ownership in X Co. is not sufficient to establish that H had actual
knowledge of the dividend income from X Co. In addition, a requesting
spouse's actual knowledge may not be inferred when the requesting spouse
merely had reason to know of the erroneous item. Even if H's knowledge
of W's ownership interest in X Co. indicates a reason to know of the
dividend income, actual knowledge of such dividend income cannot be
inferred from H's reason to know. Similarly, the IRS need not establish
that a requesting spouse knew of the source of an erroneous item in
order to establish that the requesting spouse had actual knowledge of
the item itself. For example, assume H knew that W received $1,000, but
he did not know the source of the $1,000. W and H omit the $1,000 from
their joint return. H has actual knowledge of the item giving rise to
the deficiency ($1,000), and relief is not available under this section.
(iv) Factors supporting actual knowledge. To demonstrate that a
requesting spouse had actual knowledge of an erroneous item at the time
the return was signed, the IRS may rely upon all of the facts and
circumstances. One factor that may be relied upon in demonstrating that
a requesting spouse had actual knowledge of an erroneous item is whether
the requesting spouse made a deliberate effort to avoid learning about
the item in order to be shielded from liability. This factor, together
with all other facts and circumstances, may demonstrate that the
requesting spouse had actual knowledge of the item, and the requesting
spouse's election would be invalid with respect to that entire item.
Another factor that may be relied upon in demonstrating that a
requesting spouse had actual knowledge of an erroneous item is whether
the requesting spouse and the nonrequesting spouse jointly owned the
property that resulted in the erroneous item. Joint ownership is a
factor supporting a finding that the requesting spouse had actual
knowledge of an erroneous item. For purposes of this paragraph, a
requesting spouse will not be considered to have had an ownership
interest in an item based solely on the operation of community property
law. Rather, a requesting spouse who resided in a community property
state at the time the return
[[Page 119]]
was signed will be considered to have had an ownership interest in an
item only if the requesting spouse's name appeared on the ownership
documents, or there otherwise is an indication that the requesting
spouse asserted dominion and control over the item. For example, assume
H and W live in State A, a community property state. After their
marriage, H opens a bank account in his name. Under the operation of the
community property laws of State A, W owns \1/2\ of the bank account.
However, W does not have an ownership interest in the account for
purposes of this paragraph (c)(2)(iv) because the account is not held in
her name and there is no other indication that she asserted dominion and
control over the item.
(v) Abuse exception. If the requesting spouse establishes that he or
she was the victim of domestic abuse prior to the time the return was
signed, and that, as a result of the prior abuse, the requesting spouse
did not challenge the treatment of any items on the return for fear of
the nonrequesting spouse's retaliation, the limitation on actual
knowledge in this paragraph (c) will not apply. However, if the
requesting spouse involuntarily executed the return, the requesting
spouse may choose to establish that the return was signed under duress.
In such a case, Sec. 1.6013-4(d) applies.
(3) Disqualified asset transfers--(i) In general. The portion of the
deficiency for which a requesting spouse is liable is increased (up to
the entire amount of the deficiency) by the value of any disqualified
asset that was transferred to the requesting spouse. For purposes of
this paragraph (c)(3), the value of a disqualified asset is the fair
market value of the asset on the date of the transfer.
(ii) Disqualified asset defined. A disqualified asset is any
property or right to property that was transferred from the
nonrequesting spouse to the requesting spouse if the principal purpose
of the transfer was the avoidance of tax or payment of tax (including
additions to tax, penalties, and interest).
(iii) Presumption. Any asset transferred from the nonrequesting
spouse to the requesting spouse during the 12-month period before the
mailing date of the first letter of proposed deficiency (e.g., a 30-day
letter or, if no 30-day letter is mailed, a notice of deficiency) is
presumed to be a disqualified asset. The presumption also applies to any
asset that is transferred from the nonrequesting spouse to the
requesting spouse after the mailing date of the first letter of proposed
deficiency. The presumption does not apply, however, if the requesting
spouse establishes that the asset was transferred pursuant to a decree
of divorce or separate maintenance or a written instrument incident to
such a decree. If the presumption does not apply, but the Internal
Revenue Service can establish that the purpose of the transfer was the
avoidance of tax or payment of tax, the asset will be disqualified, and
its value will be added to the amount of the deficiency for which the
requesting spouse remains liable. If the presumption applies, a
requesting spouse may still rebut the presumption by establishing that
the principal purpose of the transfer was not the avoidance of tax or
payment of tax.
(4) Examples. The following examples illustrate the rules in this
paragraph (c):
Example 1. Actual knowledge of an erroneous item. (i) H and W file
their 2001 joint Federal income tax return on April 15, 2002. On the
return, H and W report W's self-employment income, but they do not
report W's self-employment tax on that income. H and W divorce in July
2003. In August 2003, H and W receive a 30-day letter from the Internal
Revenue Service proposing a deficiency with respect to W's unreported
self-employment tax on the 2001 return. On November 4, 2003, H files an
election to allocate the deficiency to W. The erroneous item is the
self-employment income, and it is allocable to W. H knows that W earned
income in 2001 as a self-employed musician, but he does not know that
self-employment tax must be reported on and paid with a joint return.
(ii) H's election to allocate the deficiency to W is invalid
because, at the time H signed the joint return, H had actual knowledge
of W's self-employment income. The fact that H was unaware of the tax
consequences of that income (i.e., that an individual is required to pay
self-employment tax on that income) is not relevant.
Example 2. Actual knowledge not inferred from a requesting spouse's
reason to know. (i) H has long been an avid gambler. H supports his
gambling habit and keeps all of his gambling winnings in an individual
bank account, held solely in his name. W knows about H's gambling habit
and that he keeps
[[Page 120]]
a separate bank account, but she does not know whether he has any
winnings because H does not tell her, and she does not otherwise know of
H's bank account transactions. H and W file their 2001 joint Federal
income tax return on April 15, 2002. On October 31, 2003, H and W
receive a 30-day letter proposing a $100,000 deficiency relating to H's
unreported gambling income. In February 2003, H and W divorce, and in
March 2004, W files an election under section 6015(c) to allocate the
$100,000 deficiency to H.
(ii) While W may have had reason to know of the gambling income
because she knew of H's gambling habit and separate account, W did not
have actual knowledge of the erroneous item (i.e., the gambling
winnings). The Internal Revenue Service may not infer actual knowledge
from W's reason to know of the income. Therefore, W's election to
allocate the $100,000 deficiency to H is valid.
Example 3. Actual knowledge and failure to review return. (i) H and
W are legally separated. In February 1999, W signs a blank joint Federal
income tax return for 1998 and gives it to H to fill out. The return was
timely filed on April 15, 1999. In September 2001, H and W receive a 30-
day letter proposing a deficiency relating to $100,000 of unreported
dividend income received by H with respect to stock of ABC Co. owned by
H. W knew that H received the $100,000 dividend payment in August 1998,
but she did not know whether H reported that payment on the joint
return.
(ii) On January 30, 2002, W files an election to allocate the
deficiency from the 1998 return to H. W claims she did not review the
completed joint return, and therefore, she had no actual knowledge that
there was an understatement of the dividend income. W's election to
allocate the deficiency to H is invalid because she had actual knowledge
of the erroneous item (dividend income from ABC Co.) at the time she
signed the return. The fact that W signed a blank return is irrelevant.
The result would be the same if W had not reviewed the completed return
or if W had reviewed the completed return and had not noticed that the
item was omitted.
Example 4. Actual knowledge of an erroneous item of income. (i) H
and W are legally separated. In June 2004, a deficiency is proposed with
respect to H's and W's 2002 joint Federal income tax return that is
attributable to $30,000 of unreported income from H's plumbing business
that should have been reported on a Schedule C. No Schedule C was
attached to the return. At the time W signed the return, W knew that H
had a plumbing business but did not know whether H received any income
from the business. W's election to allocate to H the deficiency
attributable to the $30,000 of unreported plumbing income is valid.
(ii) Assume the same facts as in paragraph (i) of this Example 5
except that, at the time W signed the return, W knew that H received
$20,000 of plumbing income. W's election to allocate to H the deficiency
attributable to the $20,000 of unreported plumbing income (of which W
had actual knowledge) is invalid. W's election to allocate to H the
deficiency attributable to the $10,000 of unreported plumbing income (of
which W did not have actual knowledge) is valid.
(iii) Assume the same facts as in paragraph (i) of this Example 5
except that, at the time W signed the return, W did not know the exact
amount of H's plumbing income. W did know, however, that H received at
least $8,000 of plumbing income. W's election to allocate to H the
deficiency attributable to $8,000 of unreported plumbing income (of
which W had actual knowledge) is invalid. W's election to allocate to H
the deficiency attributable to the remaining $22,000 of unreported
plumbing income (of which W did not have actual knowledge) is valid.
(iv) Assume the same facts as in paragraph (i) of this Example 5
except that H reported $26,000 of plumbing income on the return and
omitted $4,000 of plumbing income from the return. At the time W signed
the return, W knew that H was a plumber, but she did not know that H
earned more than $26,000 that year. W's election to allocate to H the
deficiency attributable to the $4,000 of unreported plumbing income is
valid because she did not have actual knowledge that H received plumbing
income in excess of $26,000.
(v) Assume the same facts as in paragraph (i) of this Example 5
except that H reported only $20,000 of plumbing income on the return and
omitted $10,000 of plumbing income from the return. At the time W signed
the return, W knew that H earned at least $26,000 that year as a
plumber. However, W did not know that, in reality, H earned $30,000 that
year as a plumber. W's election to allocate to H the deficiency
attributable to the $6,000 of unreported plumbing income (of which W had
actual knowledge) is invalid. W's election to allocate to H the
deficiency attributable to the $4,000 of unreported plumbing income (of
which W did not have actual knowledge) is valid.
Example 5. Actual knowledge of a deduction that is an erroneous
item. (i) H and W are legally separated. In February 2005, a deficiency
is asserted with respect to their 2002 joint Federal income tax return.
The deficiency is attributable to a disallowed $1,000 deduction for
medical expenses H claimed he incurred. At the time W signed the return,
W knew that H had not incurred any medical expenses. W's election to
allocate to H the deficiency attributable to the disallowed medical
expense deduction is invalid because W had actual knowledge that H had
not incurred any medical expenses.
(ii) Assume the same facts as in paragraph (i) of this Example 6
except that, at the time W signed the return, W did not know whether
[[Page 121]]
H had incurred any medical expenses. W's election to allocate to H the
deficiency attributable to the disallowed medical expense deduction is
valid because she did not have actual knowledge that H had not incurred
any medical expenses.
(iii) Assume the same facts as in paragraph (i) of this Example 6
except that the Internal Revenue Service disallowed $400 of the $1,000
medical expense deduction. At the time W signed the return, W knew that
H had incurred some medical expenses but did not know the exact amount.
W's election to allocate to H the deficiency attributable to the
disallowed medical expense deduction is valid because she did not have
actual knowledge that H had not incurred medical expenses (in excess of
the floor amount under section 213(a)) of more than $600.
(iv) Assume the same facts as in paragraph (i) of this Example 6
except that H claims a medical expense deduction of $10,000 and the
Internal Revenue Service disallows $9,600. At the time W signed the
return, W knew H had incurred some medical expenses but did not know the
exact amount. W also knew that H incurred medical expenses (in excess of
the floor amount under section 213(a)) of no more than $1,000. W's
election to allocate to H the deficiency attributable to the portion of
the overstated deduction of which she had actual knowledge ($9,000) is
invalid. W's election to allocate the deficiency attributable to the
portion of the overstated deduction of which she had no knowledge ($600)
is valid.
Example 6. Disqualified asset presumption. (i) H and W are divorced.
In May 1999, W transfers $20,000 to H, and in April 2000, H and W
receive a 30-day letter proposing a $40,000 deficiency on their 1998
joint Federal income tax return. The liability remains unpaid, and in
October 2000, H elects to allocate the deficiency under this section.
Seventy-five percent of the net amount of erroneous items are allocable
to W, and 25% of the net amount of erroneous items are allocable to H.
(ii) In accordance with the proportionate allocation method (see
paragraph (d)(4) of this section), H proposes that $30,000 of the
deficiency be allocated to W and $10,000 be allocated to himself. H
submits a signed statement providing that the principal purpose of the
$20,000 transfer was not the avoidance of tax or payment of tax, but he
does not submit any documentation indicating the reason for the
transfer. H has not overcome the presumption that the $20,000 was a
disqualified asset. Therefore, the portion of the deficiency for which H
is liable ($10,000) is increased by the value of the disqualified asset
($20,000). H is relieved of liability for $10,000 of the $30,000
deficiency allocated to W, and remains jointly and severally liable for
the remaining $30,000 of the deficiency (assuming that H does not
qualify for relief under any other provision).
Example 7. Disqualified asset presumption inapplicable. On May 1,
2001, H and W receive a 30-day letter regarding a proposed deficiency on
their 1999 joint Federal income tax return relating to unreported
capital gain from H's sale of his investment in Z stock. W had no actual
knowledge of the stock sale. The deficiency is assessed in November
2001, and in December 2001, H and W divorce. According to a decree of
divorce, H must transfer \1/2\ of his interest in mutual fund A to W.
The transfer takes place in February 2002. In August 2002, W elects to
allocate the deficiency to H. Although the transfer of \1/2\ of H's
interest in mutual fund A took place after the 30-day letter was mailed,
the mutual fund interest is not presumed to be a disqualified asset
because the transfer of H's interest in the fund was made pursuant to a
decree of divorce.
Example 8. Overcoming the disqualified asset presumption. (i) H and
W are married for 25 years. Every September, on W's birthday, H gives W
a gift of $500. On February 28, 2002, H and W receive a 30-day letter
from the Internal Revenue Service relating to their 1998 joint
individual Federal income tax return. The deficiency relates to H's
Schedule C business, and W had no knowledge of the items giving rise to
the deficiency. H and W are legally separated in June 2003, and, despite
the separation, H continues to give W $500 each year for her birthday. H
is not required to give such amounts pursuant to a decree of divorce or
separate maintenance.
(ii) On January 27, 2004, W files an election to allocate the
deficiency to H. The $1,500 transferred from H to W from February 28,
2001 (a year before the 30-day letter was mailed) to the present is
presumed disqualified. However, W may overcome the presumption that such
amounts were disqualified by establishing that such amounts were
birthday gifts from H and that she has received such gifts during their
entire marriage. Such facts would show that the amounts were not
transferred for the purpose of avoidance of tax or payment of tax.
(d) Allocation--(1) In general. (i) An election to allocate a
deficiency limits the requesting spouse's liability to that portion of
the deficiency allocated to the requesting spouse pursuant to this
section.
(ii) Only a requesting spouse may receive relief. A nonrequesting
spouse who does not also elect relief under this section remains liable
for the entire amount of the deficiency. Even if both spouses elect to
allocate a deficiency under this section, there may be a portion of the
deficiency that is not allocable, for which both spouses remain jointly
and severally liable.
[[Page 122]]
(2) Allocation of erroneous items. For purposes of allocating a
deficiency under this section, erroneous items are generally allocated
to the spouses as if separate returns were filed, subject to the
following four exceptions:
(i) Benefit on the return. An erroneous item that would otherwise be
allocated to the nonrequesting spouse is allocated to the requesting
spouse to the extent that the requesting spouse received a tax benefit
on the joint return.
(ii) Fraud. The Internal Revenue Service may allocate any item
between the spouses if the Internal Revenue Service establishes that the
allocation is appropriate due to fraud by one or both spouses.
(iii) Erroneous items of income. Erroneous items of income are
allocated to the spouse who was the source of the income. Wage income is
allocated to the spouse who performed the services producing such wages.
Items of business or investment income are allocated to the spouse who
owned the business or investment. If both spouses owned an interest in
the business or investment, the erroneous item of income is generally
allocated between the spouses in proportion to each spouse's ownership
interest in the business or investment, subject to the limitations of
paragraph (c) of this section. In the absence of clear and convincing
evidence supporting a different allocation, an erroneous income item
relating to an asset that the spouses owned jointly is generally
allocated 50% to each spouse, subject to the limitations in paragraph
(c) of this section and the exceptions in paragraph (c)(2)(iv) of this
section. For rules regarding the effect of community property laws, see
Sec. 1.6015-1(f) and paragraph (c)(2)(iv) of this section.
(iv) Erroneous deduction items. Erroneous deductions related to a
business or investment are allocated to the spouse who owned the
business or investment. If both spouses owned an interest in the
business or investment, an erroneous deduction item is generally
allocated between the spouses in proportion to each spouse's ownership
interest in the business or investment. In the absence of clear and
convincing evidence supporting a different allocation, an erroneous
deduction item relating to an asset that the spouses owned jointly is
generally allocated 50% to each spouse, subject to the limitations in
paragraph (c) of this section and the exceptions in paragraph (d)(4) of
this section. Deduction items unrelated to a business or investment are
also generally allocated 50% to each spouse, unless the evidence shows
that a different allocation is appropriate.
(3) Burden of proof. Except for establishing actual knowledge under
paragraph (c)(2) of this section, the requesting spouse must prove that
all of the qualifications for making an election under this section are
satisfied and that none of the limitations (including the limitation
relating to transfers of disqualified assets) apply. The requesting
spouse must also establish the proper allocation of the erroneous items.
(4) General allocation method--(i) Proportionate allocation. (A) The
portion of a deficiency allocable to a spouse is the amount that bears
the same ratio to the deficiency as the net amount of erroneous items
allocable to the spouse bears to the net amount of all erroneous items.
This calculation may be expressed as follows:
[GRAPHIC] [TIFF OMITTED] TR18JY02.004
where X = the portion of the deficiency allocable to the spouse.
(B) The proportionate allocation applies to any portion of the
deficiency other than--
(1) Any portion of the deficiency attributable to erroneous items
allocable to the nonrequesting spouse of which the requesting spouse had
actual knowledge;
[[Page 123]]
(2) Any portion of the deficiency attributable to separate treatment
items (as defined in paragraph (d)(4)(ii) of this section);
(3) Any portion of the deficiency relating to the liability of a
child (as defined in paragraph (d)(4)(iii) of this section) of the
requesting spouse or nonrequesting spouse;
(4) Any portion of the deficiency attributable to alternative
minimum tax under section 55;
(5) Any portion of the deficiency attributable to accuracy-related
or fraud penalties;
(6) Any portion of the deficiency allocated pursuant to alternative
allocation methods authorized under paragraph (d)(6) of this section.
(ii) Separate treatment items. Any portion of a deficiency that is
attributable to an item allocable solely to one spouse and that results
from the disallowance of a credit, or a tax or an addition to tax (other
than tax imposed by section 1 or section 55) that is required to be
included with a joint return (a separate treatment item) is allocated
separately to that spouse. If such credit or tax is attributable in
whole or in part to both spouses, then the IRS will determine on a case
by case basis how such item will be allocated. Once the proportionate
allocation is made, the liability for the requesting spouse's separate
treatment items is added to the requesting spouse's share of the
liability.
(iii) Child's liability. Any portion of a deficiency relating to the
liability of a child of the requesting and nonrequesting spouse is
allocated jointly to both spouses. For purposes of this paragraph, a
child does not include the taxpayer's stepson or stepdaughter, unless
such child was legally adopted by the taxpayer. If the child is the
child of only one of the spouses, and the other spouse had not legally
adopted such child, any portion of a deficiency relating to the
liability of such child is allocated solely to the parent spouse.
(iv) Allocation of certain items--(A) Alternative minimum tax. Any
portion of a deficiency relating to the alternative minimum tax under
section 55 will be allocated appropriately.
(B) Accuracy-related and fraud penalties. Any accuracy-related or
fraud penalties under section 6662 or 6663 are allocated to the spouse
whose item generated the penalty.
(5) Examples. The following examples illustrate the rules of this
paragraph (d). In each example, assume that the requesting spouse or
spouses qualify to elect to allocate the deficiency, that any election
is timely made, and that the deficiency remains unpaid. In addition,
unless otherwise stated, assume that neither spouse has actual knowledge
of the erroneous items allocable to the other spouse. The examples are
as follows:
Example 1. Allocation of erroneous items. (i) H and W file a 2003
joint Federal income tax return on April 15, 2004. On April 28, 2006, a
deficiency is assessed with respect to their 2003 return. Three
erroneous items give rise to the deficiency--
(A) Unreported interest income, of which W had actual knowledge,
from H's and W's joint bank account;
(B) A disallowed business expense deduction on H's Schedule C; and
(C) A disallowed Lifetime Learning Credit for W's post-secondary
education, paid for by W.
(ii) H and W divorce in May 2006, and in September 2006, W timely
elects to allocate the deficiency. The erroneous items are allocable as
follows:
(A) The interest income would be allocated \1/2\ to H and \1/2\ to
W, except that W has actual knowledge of it. Therefore, W's election to
allocate the portion of the deficiency attributable to this item is
invalid, and W remains jointly and severally liable for it.
(B) The business expense deduction is allocable to H.
(C) The Lifetime Learning Credit is allocable to W.
Example 2. Proportionate allocation. (i) W and H timely file their
2001 joint Federal income tax return on April 15, 2002. On August 16,
2004, a $54,000 deficiency is assessed with respect to their 2001 joint
return. H and W divorce on October 14, 2004, and W timely elects to
allocate the deficiency. Five erroneous items give rise to the
deficiency--
(A) A disallowed $15,000 business deduction allocable to H;
(B) $20,000 of unreported income allocable to H;
(C) A disallowed $5,000 deduction for educational expense allocable
to H;
(D) A disallowed $40,000 charitable contribution deduction allocable
to W; and
(E) A disallowed $40,000 interest deduction allocable to W.
(ii) In total, there are $120,000 worth of erroneous items, of which
$80,000 are attributable to W and $40,000 are attributable to H.
[[Page 124]]
W's items .. ......... H's items
------------------------------------------------------------- -----------------------------------------------
$40,000 charitable deduction .. $15,000 business deduction
40,000 interest deduction .. 20,000 unreported income
................................................. .. 5,000 education deduction
---------- -----------
$80,000 ................................................. .. $40,000
(iii) The ratio of erroneous items allocable to W to the total
erroneous items is \2/3\ ($80,000/$120,000). W's liability is limited to
$36,000 of the deficiency (\2/3\ of $54,000). The Internal Revenue
Service may collect up to $36,000 from W and up to $54,000 from H (the
total amount collected, however, may not exceed $54,000). If H also made
an election, there would be no remaining joint and several liability,
and the Internal Revenue Service would be permitted to collect $36,000
from W and $18,000 from H.
Example 3. Proportionate allocation with joint erroneous item. (i)
On September 4, 2001, W elects to allocate a $3,000 deficiency for the
1998 tax year to H. Three erroneous items give rise to the deficiency--
(A) Unreported interest in the amount of $4,000 from a joint bank
account;
(B) A disallowed deduction for business expenses in the amount of
$2,000 attributable to H's business; and
(C) Unreported wage income in the amount of $6,000 attributable to
W's second job.
(ii) The erroneous items total $12,000. Generally, income,
deductions, or credits from jointly held property that are erroneous
items are allocable 50% to each spouse. However, in this case, both
spouses had actual knowledge of the unreported interest income.
Therefore, W's election to allocate the portion of the deficiency
attributable to this item is invalid, and W and H remain jointly and
severally liable for this portion. Assume that this portion is $1,000. W
may allocate the remaining $2,000 of the deficiency.
H's items .. ......... W's items
------------------------------------------------------------- -----------------------------------------------
$2,000 business deduction .. $6,000 wage income
Total allocable items: $8,000
(iii) The ratio of erroneous items allocable to W to the total
erroneous items is \3/4\ ($6,000/$8,000). W's liability is limited to
$1,500 of the deficiency (\3/4\ of $2,000) allocated to her. The
Internal Revenue Service may collect up to $2,500 from W (\3/4\ of the
total allocated deficiency plus $1,000 of the deficiency attributable to
the joint bank account interest) and up to $3,000 from H (the total
amount collected, however, cannot exceed $3,000).
(iv) Assume H also elects to allocate the 1998 deficiency. H is
relieved of liability for \3/4\ of the deficiency, which is allocated to
W. H's relief totals $1,500 (\3/4\ of $2,000). H remains liable for
$1,500 of the deficiency (\1/4\ of the allocated deficiency plus $1,000
of the deficiency attributable to the joint bank account interest).
Example 4. Separate treatment items (STIs). (i) On September 1,
2006, a $28,000 deficiency is assessed with respect to H's and W's 2003
joint return. The deficiency is the result of 4 erroneous items--
(A) A disallowed Lifetime Learning Credit of $2,000 attributable to
H;
(B) A disallowed business expense deduction of $8,000 attributable
to H;
(C) Unreported income of $24,000 attributable to W; and
(D) Unreported self-employment tax of $14,000 attributable to W.
(ii) H and W both elect to allocate the deficiency.
(iii) The $2,000 Lifetime Learning Credit and the $14,000 self-
employment tax are STIs totaling $16,000. The amount of erroneous items
included in computing the proportionate allocation ratio is $32,000
($24,000 unreported income and $8,000 disallowed business expense
deduction). The amount of the deficiency subject to proportionate
allocation is reduced by the amount of STIs ($28,000-$16,000 = $12,000).
(iv) Of the $32,000 of proportionate allocation items, $24,000 is
allocable to W, and $8,000 is allocable to H.
W's share of allocable items .. H's share of allocable items
\3/4\ ($24,000/$32,000) .. \1/4\ ($8,000/$32,000)
(v) W's liability for the portion of the deficiency subject to
proportionate allocation is limited to $9,000 (\3/4\ of $12,000) and H's
liability for such portion is limited to $3,000 (\1/4\ of $12,000).
[[Page 125]]
(vi) After the proportionate allocation is completed, the amount of
the STIs is added to each spouse's allocated share of the deficiency.
W's share of total deficiency .. ......... H's share of total deficiency
------------------------------------------------------------- -----------------------------------------------
$ 9,000 allocated deficiency .. $3,000 allocated deficiency
14,000 self-employment tax .. 2,000 Lifetime Learning Credit
---------- -----------
$23,000 ................................................. .. $5,000
(vii) Therefore, W's liability is limited to $23,000 and H's
liability is limited to $5,000.
Example 5. Requesting spouse receives a benefit on the joint return
from the nonrequesting spouse's erroneous item. (i) In 2001, H reports
gross income of $4,000 from his business on Schedule C, and W reports
$50,000 of wage income. On their 2001 joint Federal income tax return, H
deducts $20,000 of business expenses resulting in a net loss from his
business of $16,000. H and W divorce in September 2002, and on May 22,
2003, a $5,200 deficiency is assessed with respect to their 2001 joint
return. W elects to allocate the deficiency. The deficiency on the joint
return results from a disallowance of all of H's $20,000 of deductions.
(ii) Since H used only $4,000 of the disallowed deductions to offset
gross income from his business, W benefitted from the other $16,000 of
the disallowed deductions used to offset her wage income. Therefore,
$4,000 of the disallowed deductions are allocable to H and $16,000 of
the disallowed deductions are allocable to W. W's liability is limited
to $4,160 (\4/5\ of $5,200). If H also elected to allocate the
deficiency, H's election to allocate the $4,160 of the deficiency to W
would be invalid because H had actual knowledge of the erroneous items.
Example 6. Calculation of requesting spouse's benefit on the joint
return when the nonrequesting spouse's erroneous item is partially
disallowed. Assume the same facts as in Example 5, except that H deducts
$18,000 for business expenses on the joint return, of which $16,000 are
disallowed. Since H used only $2,000 of the $16,000 disallowed
deductions to offset gross income from his business, W received benefit
on the return from the other $14,000 of the disallowed deductions used
to offset her wage income. Therefore, $2,000 of the disallowed
deductions are allocable to H and $14,000 of the disallowed deductions
are allocable to W. W's liability is limited to $4,550 (\7/8\ of
$5,200).
(6) Alternative allocation methods--(i) Allocation based on
applicable tax rates. If a deficiency arises from two or more erroneous
items that are subject to tax at different rates (e.g., ordinary income
and capital gain items), the deficiency will be allocated after first
separating the erroneous items into categories according to their
applicable tax rate. After all erroneous items are categorized, a
separate allocation is made with respect to each tax rate category using
the proportionate allocation method of paragraph (d)(4) of this section.
(ii) Allocation methods provided in subsequent published guidance.
Additional alternative methods for allocating erroneous items under
section 6015(c) may be prescribed by the Treasury and IRS in subsequent
revenue rulings, revenue procedures, or other appropriate guidance.
(iii) Example. The following example illustrates the rules of this
paragraph (d)(6):
Example. Allocation based on applicable tax rates. H and W timely
file their 1998 joint Federal income tax return. H and W divorce in
1999. On July 13, 2001, a $5,100 deficiency is assessed with respect to
H's and W's 1998 return. Of this deficiency, $2,000 results from
unreported capital gain of $6,000 that is attributable to W and $4,000
of capital gain that is attributable to H (both gains being subject to
tax at the 20% marginal rate). The remaining $3,100 of the deficiency is
attributable to $10,000 of unreported dividend income of H that is
subject to tax at a marginal rate of 31%. H and W both timely elect to
allocate the deficiency, and qualify under this section to do so. There
are erroneous items subject to different tax rates; thus, the
alternative allocation method of this paragraph (d)(6) applies. The
three erroneous items are first categorized according to their
applicable tax rates, then allocated. Of the total amount of 20% tax
rate items ($10,000), 60% is allocable to W and 40% is allocable to H.
Therefore, 60% of the $2,000 deficiency attributable to these items (or
$1,200) is allocated to W. The remaining 40% of this portion of the
deficiency ($800) is allocated to H. The only 31% tax rate item is
allocable to H. Accordingly, H is liable for $3,900 of the deficiency
($800 + $3,100), and W is liable for the remaining $1,200.
[T.D. 9003, 67 FR 47285, July 18, 2002]
[[Page 126]]
Sec. 1.6015-4 Equitable relief.
(a) A requesting spouse who files a joint return for which a
liability remains unpaid and who does not qualify for full relief under
Sec. 1.6015-2 or 1.6015-3 may request equitable relief under this
section. The Internal Revenue Service has the discretion to grant
equitable relief from joint and several liability to a requesting spouse
when, considering all of the facts and circumstances, it would be
inequitable to hold the requesting spouse jointly and severally liable.
(b) This section may not be used to circumvent the limitation of
Sec. 1.6015-3(c)(1) (i.e., no refunds under Sec. 1.6015-3). Therefore,
relief is not available under this section to obtain a refund of
liabilities already paid, for which the requesting spouse would
otherwise qualify for relief under Sec. 1.6015-3.
(c) For guidance concerning the criteria to be used in determining
whether it is inequitable to hold a requesting spouse jointly and
severally liable under this section, see Rev. Proc. 2000-15 (2000-1 C.B.
447), or other guidance published by the Treasury and IRS (see Sec.
601.601(d)(2) of this chapter).
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-5 Time and manner for requesting relief.
(a) Requesting relief. To elect the application of Sec. 1.6015-2 or
1.6015-3, or to request equitable relief under Sec. 1.6015-4, a
requesting spouse must file Form 8857, ``Request for Innocent Spouse
Relief'' (or other specified form); submit a written statement
containing the same information required on Form 8857, which is signed
under penalties of perjury; or submit information in the manner
prescribed by the Treasury and IRS in forms, relevant revenue rulings,
revenue procedures, or other published guidance (see Sec. 601.601(d)(2)
of this chapter).
(b) Time period for filing a request for relief--(1) In general. To
elect the application of Sec. 1.6015-2 or 1.6015-3, or to request
equitable relief under Sec. 1.6015-4, a requesting spouse must file
Form 8857 or other similar statement with the Internal Revenue Service
no later than two years from the date of the first collection activity
against the requesting spouse after July 22, 1998, with respect to the
joint tax liability.
(2) Definitions--(i) Collection activity. For purposes of this
paragraph (b), collection activity means a section 6330 notice; an
offset of an overpayment of the requesting spouse against a liability
under section 6402; the filing of a suit by the United States against
the requesting spouse for the collection of the joint tax liability; or
the filing of a claim by the United States in a court proceeding in
which the requesting spouse is a party or which involves property of the
requesting spouse. Collection activity does not include a notice of
deficiency; the filing of a Notice of Federal Tax Lien; or a demand for
payment of tax. The term property of the requesting spouse, for purposes
of this paragraph (b), means property in which the requesting spouse has
an ownership interest (other than solely through the operation of
community property laws), including property owned jointly with the
nonrequesting spouse.
(ii) Section 6330 notice. A section 6330 notice refers to the notice
sent, pursuant to section 6330, providing taxpayers notice of the
Service's intent to levy and of their right to a collection due process
(CDP) hearing.
(3) Requests for relief made before commencement of collection
activity. An election or request for relief may be made before
collection activity has commenced. For example, an election or request
for relief may be made in connection with an audit or examination of the
joint return or a demand for payment, or pursuant to the CDP hearing
procedures under section 6320 in connection with the filing of a Notice
of Federal Tax Lien. For more information on the rules regarding
collection due process for liens, see the Treasury regulations under
section 6320. However, no request for relief may be made before the date
specified in paragraph (b)(5) of this section.
(4) Examples. The following examples illustrate the rules of this
paragraph (b):
Example 1. On January 11, 2000, a section 6330 notice is mailed to H
and W regarding their 1997 joint Federal income tax liability. The
Internal Revenue Service levies on W's
[[Page 127]]
employer on June 5, 2000. The Internal Revenue Service levies on H's
employer on July 10, 2000. An election or request for relief must be
made by January 11, 2002, which is two years after the Internal Revenue
Service sent the section 6330 notice.
Example 2. The Internal Revenue Service offsets an overpayment
against a joint liability for 1995 on January 12, 1998. The offset only
partially satisfies the liability. The Internal Revenue Service takes no
other collection actions. On July 24, 2001, W elects relief with respect
to the unpaid portion of the 1995 liability. W's election is timely
because the Internal Revenue Service has not taken any collection
activity after July 22, 1998; therefore, the two-year period has not
commenced.
Example 3. Assume the same facts as in Example 2, except that the
Internal Revenue Service sends a section 6330 notice on January 22,
1999. W's election is untimely because it is filed more than two years
after the first collection activity after July 22, 1998.
Example 4. H and W do not remit full payment with their timely filed
joint Federal income tax return for the 1989 tax year. No collection
activity is taken after July 22, 1998, until the United States files a
suit against both H and W to reduce the tax assessment to judgment and
to foreclose the tax lien on their jointly-held business property on
July 1, 1999. H elects relief on October 2, 2000. The election is timely
because it is made within two years of the filing of a collection suit
by the United States against H.
Example 5. W files a Chapter 7 bankruptcy petition on July 10, 2000.
On September 5, 2000, the United States files a proof of claim for her
joint 1998 income tax liability. W elects relief with respect to the
1998 liability on August 20, 2002. The election is timely because it is
made within two years of the date the United States filed the proof of
claim in W's bankruptcy case.
(5) Premature requests for relief. The Internal Revenue Service will
not consider premature claims for relief under Sec. 1.6015-2, 1.6015-3,
or 1.6015-4. A premature claim is a claim for relief that is filed for a
tax year prior to the receipt of a notification of an audit or a letter
or notice from the IRS indicating that there may be an outstanding
liability with regard to that year. Such notices or letters do not
include notices issued pursuant to section 6223 relating to TEFRA
partnership proceedings. A premature claim is not considered an election
or request under Sec. 1.6015-1(h)(5).
(c) Effect of a final administrative determination--(1) In general.
A requesting spouse is entitled to only one final administrative
determination of relief under Sec. 1.6015-1 for a given assessment,
unless the requesting spouse properly submits a second request for
relief that is described in Sec. 1.6015-1(h)(5).
(2) Example. The following example illustrates the rule of this
paragraph (c):
Example: In January 2001, W becomes a limited partner in partnership
P, and in February 2001, she starts her own business from which she
earns $100,000 of net income for the year. H and W file a joint return
for tax year 2001, on which they claim $20,000 in losses from their
investment in P, and they omit W's self-employment tax. In March 2003,
the Internal Revenue Service commences an audit under the provisions of
subchapter C of chapter 63 of subtitle F of the Internal Revenue Code
(TEFRA partnership proceeding) and sends H and W a notice under section
6223(a)(1). In September 2003, the Internal Revenue Service audits H's
and W's 2001 joint return regarding the omitted self-employment tax. H
may file a claim for relief from joint and several liability for the
self-employment tax liability because he has received a notification of
an audit indicating that there may be an outstanding liability on the
joint return. However, his claim for relief regarding the TEFRA
partnership proceeding is premature under paragraph (b)(5) of this
section. H will have to wait until the Internal Revenue Service sends
him a notice of computational adjustment or assesses the liability
resulting from the TEFRA partnership proceeding before he files a claim
for relief with respect to any such liability. The assessment relating
to the TEFRA partnership proceeding is separate from the assessment for
the self-employment tax; therefore, H's subsequent claim for relief for
the liability from the TEFRA partnership proceeding is not precluded by
his previous claim for relief from the self-employment tax liability
under this paragraph (c).
[T.D. 9003, 67 FR 47285, July 18, 2002, as amended at 67 FR 54735, Aug.
26, 2002]
Sec. 1.6015-6 Nonrequesting spouse's notice and opportunity to
participate in administrative proceedings.
(a) In general. (1) When the Internal Revenue Service receives an
election under Sec. 1.6015-2 or 1.6015-3, or a request for relief under
Sec. 1.6015-4, the Internal Revenue Service must send a notice to the
nonrequesting spouse's last known address that informs the nonrequesting
spouse of the requesting spouse's claim for relief. For further guidance
regarding the definition of last known address, see Sec. 301.6212-2 of
this chapter.
[[Page 128]]
The notice must provide the nonrequesting spouse with an opportunity to
submit any information that should be considered in determining whether
the requesting spouse should be granted relief from joint and several
liability. A nonrequesting spouse is not required to submit information
under this section. Upon the request of either spouse, the Internal
Revenue Service will share with one spouse the information submitted by
the other spouse, unless such information would impair tax
administration.
(2) The Internal Revenue Service must notify the nonrequesting
spouse of the Service's preliminary and final determinations with
respect to the requesting spouse's claim for relief under section 6015.
(b) Information submitted. The Internal Revenue Service will
consider all of the information (as relevant to each particular relief
provision) that the nonrequesting spouse submits in determining whether
relief from joint and several liability is appropriate, including
information relating to the following--
(1) The legal status of the requesting and nonrequesting spouses'
marriage;
(2) The extent of the requesting spouse's knowledge of the erroneous
items or underpayment;
(3) The extent of the requesting spouse's knowledge or participation
in the family business or financial affairs;
(4) The requesting spouse's education level;
(5) The extent to which the requesting spouse benefitted from the
erroneous items;
(6) Any asset transfers between the spouses;
(7) Any indication of fraud on the part of either spouse;
(8) Whether it would be inequitable, within the meaning of
Sec. Sec. 1.6015-2(d) and 1.6015-4, to hold the requesting spouse
jointly and severally liable for the outstanding liability;
(9) The allocation or ownership of items giving rise to the
deficiency; and
(10) Anything else that may be relevant to the determination of
whether relief from joint and several liability should be granted.
(c) Effect of opportunity to participate. The failure to submit
information pursuant to paragraph (b) of this section does not affect
the nonrequesting spouse's ability to seek relief from joint and several
liability for the same tax year. However, information that the
nonrequesting spouse submits pursuant to paragraph (b) of this section
is relevant in determining whether relief from joint and several
liability is appropriate for the nonrequesting spouse should the
nonrequesting spouse also submit an application for relief.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-7 Tax Court review.
(a) In general. Requesting spouses may petition the Tax Court to
review the denial of relief under Sec. 1.6015-1.
(b) Time period for petitioning the Tax Court. Pursuant to section
6015(e), the requesting spouse may petition the Tax Court to review a
denial of relief under Sec. 1.6015-1 within 90 days after the date
notice of the Service's final determination is mailed by certified or
registered mail (90-day period). If the IRS does not mail the requesting
spouse a final determination letter within 6 months of the date the
requesting spouse files an election under Sec. 1.6015-2 or 1.6015-3,
the requesting spouse may petition the Tax Court to review the election
at any time after the expiration of the 6-month period, and before the
expiration of the 90-day period. The Tax Court also may review a claim
for relief if Tax Court jurisdiction has been acquired under another
section of the Internal Revenue Code such as section 6213(a) or 6330(d).
(c) Restrictions on collection and suspension of the running of the
period of limitations--(1) Restrictions on collection under Sec.
1.6015-2 or 1.6015-3. Unless the Internal Revenue Service determines
that collection will be jeopardized by delay, no levy or proceeding in
court shall be made, begun, or prosecuted against a requesting spouse
electing the application of Sec. 1.6015-2 or 1.6015-3 for the
collection of any assessment to which the election relates until the
expiration of the 90-day period described in paragraph (b) of this
section, or if a petition is filed with the Tax Court, until the
decision of the Tax Court becomes final under section 7481. For more
information regarding the date on which a decision of the Tax Court
[[Page 129]]
becomes final, see section 7481 and the regulations thereunder.
Notwithstanding the above, if the requesting spouse appeals the Tax
Court's decision, the Internal Revenue Service may resume collection of
the liability from the requesting spouse on the date the requesting
spouse files the notice of appeal, unless the requesting spouse files an
appeal bond pursuant to the rules of section 7485. Jeopardy under this
paragraph (c)(1) means conditions exist that would require an assessment
under section 6851 or 6861 and the regulations thereunder.
(2) Waiver of the restrictions on collection. A requesting spouse
may, at any time (regardless of whether a notice of the Service's final
determination of relief is mailed), waive the restrictions on collection
in paragraph (c)(1) of this section.
(3) Suspension of the running of the period of limitations--(i)
Relief under Sec. 1.6015-2 or 1.6015-3. The running of the period of
limitations in section 6502 on collection against the requesting spouse
of the assessment to which an election under Sec. 1.6015-2 or 1.6015-3
relates is suspended for the period during which the Internal Revenue
Service is prohibited by paragraph (c)(1) of this section from
collecting by levy or a proceeding in court and for 60 days thereafter.
However, if the requesting spouse signs a waiver of the restrictions on
collection in accordance with paragraph (c)(2) of this section, the
suspension of the period of limitations in section 6502 on collection
against the requesting spouse will terminate on the date that is 60 days
after the date the waiver is filed with the Internal Revenue Service.
(ii) Relief under Sec. 1.6015-4. If a requesting spouse seeks only
equitable relief under Sec. 1.6015-4, the restrictions on collection of
paragraph (c)(1) of this section do not apply. Accordingly, the request
for relief does not suspend the running of the period of limitations on
collection.
(4) Definitions--(i) Levy. For purposes of this paragraph (c), levy
means an administrative levy or seizure described by section 6331.
(ii) Proceedings in court. For purposes of this paragraph (c),
proceedings in court means suits filed by the United States for the
collection of Federal tax. Proceedings in court does not refer to the
filing of pleadings and claims and other participation by the Internal
Revenue Service or the United States in suits not filed by the United
States, including Tax Court cases, refund suits, and bankruptcy cases.
(iii) Assessment to which the election relates. For purposes of this
paragraph (c), the assessment to which the election relates is the
entire assessment of the deficiency to which the election relates, even
if the election is made with respect to only part of that deficiency.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6015-8 Applicable liabilities.
(a) In general. Section 6015 applies to liabilities that arise after
July 22, 1998, and to liabilities that arose prior to July 22, 1998,
that were not paid on or before July 22, 1998.
(b) Liabilities paid on or before July 22, 1998. A requesting spouse
seeking relief from joint and several liability for amounts paid on or
before July 22, 1998, must request relief under section 6013(e) and the
regulations thereunder.
(c) Examples. The following examples illustrate the rules of this
section:
Example 1. H and W file a joint Federal income tax return for 1995
on April 15, 1996. There is an understatement on the return attributable
to an omission of H's wage income. On October 15, 1998, H and W receive
a 30-day letter proposing a deficiency on the 1995 joint return. W pays
the outstanding liability in full on November 30, 1998. In March 1999, W
files Form 8857, requesting relief from joint and several liability
under section 6015(b). Although W's liability arose prior to July 22,
1998, it was unpaid as of that date. Therefore, section 6015 is
applicable.
Example 2. H and W file their 1995 joint Federal income tax return
on April 15, 1996. On October 14, 1997, a deficiency of $5,000 is
assessed regarding a disallowed business expense deduction attributable
to H. On June 30, 1998, the Internal Revenue Service levies on the
$3,000 in W's bank account in partial satisfaction of the outstanding
liability. On August 31, 1998, W files a request for relief from joint
and several liability. The liability arose prior to July 22, 1998.
Section 6015 is applicable to the $2,000 that remained unpaid as of July
22, 1998, and section 6013(e) is applicable to the $3,000 that was paid
prior to July 22, 1998.
[T.D. 9003, 67 FR 47285, July 18, 2002]
[[Page 130]]
Sec. 1.6015-9 Effective date.
Sections 1.6015-0 through 1.6015-9 are applicable for all elections
under Sec. 1.6015-2 or 1.6015-3 or any requests for relief under Sec.
1.6015-4 filed on or after July 18, 2002.
[T.D. 9003, 67 FR 47285, July 18, 2002]
Sec. 1.6016-1 Declarations of estimated income tax by corporations.
(a) Requirement. For taxable years ending on or after December 31,
1955, a declaration of estimated tax shall be made by every corporation
(including unincorporated business enterprises electing to be taxed as
domestic corporations under section 1361), which is subject to taxation
under section 11 or 1201(a), or subchapter L, chapter 1 of the Code
(relating to insurance companies), if its income tax under such sections
or such subchapter L for the taxable year can reasonably be expected to
exceed the sum of $100,000 plus the amount of any estimated credits
allowable under section 32 (relating to tax withheld at source on
nonresident aliens and foreign corporations and on tax-free covenant
bonds), section 33 (relating to taxes of foreign countries and
possessions of the United States), and section 38 (relating to
investment in certain depreciable property).
(b) Definition of estimated tax. The term ``estimated tax'', in the
case of a corporation, means the excess of the amount which such
corporation estimates as its income tax liability for the taxable year
under section 11 or 1201(a), or subchapter L, chapter 1 of the Code,
over the sum of $100,000 and any estimated credits under sections 32,
33, and 38. However, for the rule with respect to the limitation upon
the $100,000 exemption for members of certain electing affiliated
groups, see section 243(b)(3)(C)(v) and the regulations thereunder.
(c) Examples. The application of this section may be illustrated by
the following examples:
Example 1. M, a corporation subject to tax under section 11,
reasonably anticipates that it will have taxable income of $224,000 for
the calendar year 1964. The normal tax and surtax result in an expected
liability of $105,000. M determines that it will not have any allowable
credits under sections 32, 33, and 38 for 1964. Since M's expected tax
($105,000) exceeds the exemption ($100,000), a declaration of estimated
tax is required to be filed, reporting an estimated tax of $5,000
($105,000-$100,000) for the calendar year 1964.
Example 2. Under the facts stated in example (1), except that M
estimates it will have an allowable foreign tax credit under section 33
in the amount of $4,000 and an allowable investment credit under section
38 in the amount of $3,000, no declaration is required, since M's
expected tax ($105,000) does not exceed the $100,000 plus the allowable
credits totaling $7,000.
[T.D. 6768, 29 FR 14921, Nov. 4, 1964]
Sec. 1.6016-2 Contents of declaration of estimated tax.
(a) In general. The declaration of estimated tax by a corporation
shall be made on Form 1120-ES. For the purpose of making the
declaration, the estimated tax should be based upon the amount of gross
income which the taxpayer can reasonably be expected to receive or
accrue as the case may be, depending upon the method of accounting upon
the basis of which the taxable income is computed, and the amount of the
estimated allowable deductions and credits to be taken into account.
Such amounts of gross income, deductions, and credits should be
determined upon the basis of facts and circumstances existing as at the
time prescribed for the filing of the declaration as well as those
reasonably to be anticipated for the taxable year.
(b) Use of prescribed form. Copies of Form 1120-ES will so far as
possible be furnished taxpayers by district directors. A taxpayer will
not be excused from making a declaration, however, by the fact that no
form has been furnished. Taxpayers not supplied with the proper form
should make application therefor to the district director in ample time
to have their declarations prepared, verified, and filed with the
district director on or before the date prescribed for filing the
declaration. If the prescribed form is not available a statement
disclosing the estimated income tax after the exemption and the credits,
if any, should be filed as a tentative declaration within the prescribed
time, accompanied by the payment of the required installment. Such
tentative declaration should be supplemented, without unnecessary delay,
by a declaration made on the proper form.
[[Page 131]]
Sec. 1.6016-3 Amendment of declaration.
In the making of a declaration of estimated tax the corporation is
required to take into account the then existing facts and circumstances
as well as those reasonably to be anticipated relating to prospective
gross income, allowable deductions, and estimated credits for the
taxable year. Amended or revised declarations may be made in any case in
which the corporation estimates that its gross income, deductions, or
credits will materially change the estimated tax reported in the
previous declaration. However, for the rule with respect to the number
of amended declarations which may be filed for taxable years beginning
after December 31, 1963, see paragraph (d)(2) of Sec. 1.6074-1. Such
amended declaration may be made on either Form 1120-ES (marked
``Amended'') or on the reverse side of the installment notice furnished
the corporation by the district director. See, however, paragraph (b) of
Sec. 1.6016-2 for procedure to be followed if the prescribed form is
not available.
[T.D. 6768, 29 FR 14922, Nov. 4, 1964]
Sec. 1.6016-4 Short taxable year.
(a) Requirement of declaration. No declaration may be made for a
period of more than 12 months. For purposes of this section a taxable
year of 52 or 53 weeks, in the case of a corporation which computes its
taxable income in accordance with the election permitted by section
441(f), shall be deemed a period of 12 months. For special rules
affecting the time for filing declarations and paying estimated tax by
such corporation, see paragraph (b) of Sec. 1.441-2. A separate
declaration is required where a corporation is required to submit an
income tax return for a period of less than 12 months, but only if such
short period ends on or after December 31, 1955. However, no declaration
is required if the short taxable year:
(1) Begins on or before December 31, 1963, and is:
(i) A period of less than 9 months, or
(ii) A period of 9 or more months but less than 12 months and the
requirements of section 6016(a) are not met before the 1st day of the
last month in the short taxable year, or
(2) Begins after December 31, 1963, and is:
(i) A period of less than 4 months, or
(ii) A period of 4 or more months but less than 12 months and the
requirements of section 6016(a) are not met before the 1st day of the
last month in the short taxable year.
(b) Income placed on an annual basis. In cases where the short
taxable year results from a change of annual accounting period, for the
purpose of determining whether the anticipated income for a short
taxable year will result in an estimated tax liability requiring the
filing of a declaration, such income shall be placed on an annual basis
in the manner prescribed in section 443(b)(1). If a tax computed on such
annualized income exceeds the sum of $100,000 and any credits under part
IV, of subchapter A, chapter 1 of the Code, the estimated tax shall be
the same part of the excess so computed as the number of months in the
short period is of 12 months. Thus, for example, a corporation which
changes from a calendar year basis to a fiscal year basis beginning
October 1, 1956, will have a short taxable year beginning January 1,
1956, and ending September 30, 1956. If on or before August 31, 1956,
the taxpayer anticipates that it will have income of $264,000 for the 9-
month taxable year the estimated tax is computed as follows:
(1) Anticipated taxable income for 9 months................. $264,000
(2) Annualized income ($264,000 x 12 / 9)................... 352,000
(3) Tax liability on item (2)............................... 177,540
(4) Item (3) reduced by $100,000 (there are no credits under 77,540
part IV, subchapter A, chapter 1 of the Code)..............
(5) Estimated tax for 9-month period ($77,540 x 9 / 12)..... 58,155
Since the tax liability on the annualized income is in excess of
$100,000, a declaration is required to be filed, reporting an estimated
tax of $58,155 for the 9-month taxable period. This paragraph has no
application where the short taxable year does not result from a change
in the taxpayer's annual accounting period.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6768, 29 FR
14922, Nov. 4, 1964]
[[Page 132]]
Sec. 1.6017-1 Self-employment tax returns.
(a) In general. (1) Every individual, other than a nonresident
alien, having net earnings from self-employment, as defined in section
1402, of $400 or more for the taxable year shall make a return of such
earnings. For purposes of this section, an individual who is a resident
of the Virgin Islands, Puerto Rico, or (for any taxable year beginning
after 1960) Guam or American Samoa is not to be considered a nonresident
alien individual. See paragraph (d) of Sec. 1.1402(b)-1. A return is
required under this section if an individual has self-employment income,
as defined in section 1402(b), even though he may not be required to
make a return under section 6012 for purposes of the tax imposed by
section 1 or 3. Provisions applicable to returns under section 6012(a)
shall be applicable to returns under this section.
(2) Except as otherwise provided in this subparagraph, the return
required by this section shall be made on Form 1040. The form to be used
by residents of the Virgin Islands, Guam, or American Samoa is From
1040SS. In the case of a resident of Puerto Rico who is not required to
make a return of income under section 6012(a), the form to be used is
Form 1040SS, except that Form 1040PR shall be used if it is furnished by
the Internal Revenue Service to such resident for use in lieu of Form
1040SS.
(b) Joint returns. (1) In the case of a husband and wife filing a
joint return under section 6013, the tax on self-employment income is
computed on the separate self-employment income of each spouse, and not
on the aggregate of the two amounts. The requirement of section
6013(d)(3) that in the case of a joint return the tax is computed on the
aggregate income of the spouses is not applicable with respect to the
tax on self-employment income. Where the husband and wife each has net
earnings from self-employment of $400 or more, it will be necessary for
each to complete separate schedules of the computation of self-
employment tax with respect to the net earnings of each spouse, despite
the fact that a joint return is filed. If the net earnings from self-
employment of either the husband or the wife are less than $400, such
net earnings are not subject to the tax on self-employment income, even
though they must be shown on the joint return for purposes of the tax
imposed by section 1 or 3.
(2) Except as otherwise expressly provided, section 6013 is
applicable to the return of the tax on self-employment income;
therefore, the liability with respect to such tax in the case of a joint
return is joint and several.
(c) Social security account numbers. (1) Every individual making a
return of net earnings from self-employment for any period commencing
before January 1, 1962, is required to show thereon his social security
account number, or, if he has no such account number, to make
application therefor on Form SS-5 before filing such return. However,
the failure to apply for or receive a social security account number
will not excuse the individual from the requirement that he file such
return on or before the due date thereof. Form SS-5 may be obtained from
any district office of the Social Security Administration or from any
district director. The application shall be filed with a district office
of the Social Security Administration or, in the case of an individual
not in the United States, with the district office of the Social
Security Administration at Baltimore, Md. An individual who has
previously secured a social security account number as an employee shall
use that account number on his return of net earnings from self-
employment.
(2) For provisions applicable to the securing of identifying numbers
and the reporting thereof on returns and schedules for periods
commencing after December 31, 1961, see Sec. 1.6109-1.
(d) Declaration of estimated tax with respect to taxable years
beginning after December 31, 1966. For taxable years beginning after
December 31, 1966, section 6015 provides that the term ``estimated tax''
includes the amount which an individual estimates as the amount of self-
employment tax imposed by chapter 2 for the taxable year. Thus,
individuals upon whom self-employment tax is imposed by section 1401
must make a declaration of estimated tax if they meet the requirements
of section
[[Page 133]]
6015(a); except as otherwise provided under section 6015(i).
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6691, 28 FR
12816, Dec. 3, 1963; T.D. 7427, 41 FR 34028, Aug. 12, 1976]
information returns
Sec. 1.6031(a)-1 Return of partnership income.
(a) Domestic partnerships--(1) Return required. Except as provided
in paragraphs (a)(3) and (c) of this section, every domestic partnership
must file a return of partnership income under section 6031 (partnership
return) for each taxable year on the form prescribed for the partnership
return. The partnership return must be filed for the taxable year of the
partnership regardless of the taxable years of the partners. For taxable
years of a partnership and of a partner, see section 706 and Sec.
1.706-1. For the rules governing partnership statements to partners and
nominees, see Sec. 1.6031(b)-1T. For the rules requiring the disclosure
of certain transactions, see Sec. 1.6011-4T.
(2) Content of return. The partnership return must contain the
information required by the prescribed form and the accompanying
instructions.
(3) Special rule. (i) A partnership that has no income, deductions,
or credits for federal income tax purposes for a taxable year is not
required to file a partnership return for that year.
(ii) The Commissioner may, in guidance published in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter),
provide for an exception to partnership reporting under section 6031 and
for conditions for the exception, if all or substantially all of a
partnership's income is derived from the holding or disposition of tax-
exempt obligations (as defined in section 1275(a)(3) and Sec. 1.1275-
1(e)) or shares in a regulated investment company (as defined in section
851(a)) that pays exempt-interest dividends (as defined in section
852(b)(5)).
(4) Failure to file. For the consequences of a failure to comply
with the requirements of section 6031(a) and this paragraph (a), see
sections 6229(a), 6231(f), 6698, and 7203.
(b) Foreign partnerships--(1) General rule. (i) Filing requirement.
A foreign partnership is not required to file a partnership return, if
the foreign partnership does not have gross income that is (or is
treated as) effectively connected with the conduct of a trade or
business within the United States (ECI) and does not have gross income
(including gains) derived from sources within the United States (U.S.-
source income). Except as provided in paragraphs (b)(2) and (3) of this
section, a foreign partnership that has ECI or has U.S.-source income
that is not ECI must file a partnership return for its taxable year in
accordance with the rules for domestic partnerships in paragraph (a) of
this section.
(ii) Special rule. For purposes of this paragraph (b)(1) and
paragraph (b)(3)(iii) of this section, a foreign partnership will not be
considered to have derived income from sources within the United States
solely because a U.S. partner marks to market his pro rata share of PFIC
stock held by the foreign partnership pursuant to an election under
section 1296.
(2) Foreign partnerships with de minimis U.S.-source income and de
minimis U.S. partners. A foreign partnership (other than a withholding
foreign partnership, as defined in Sec. 1.1441-5(c)(2)(i)) that has
$20,000 or less of U.S.-source income and has no ECI during its taxable
year is not required to file a partnership return if, at no time during
the partnership taxable year, one percent or more of any item of
partnership income, gain, loss, deduction, or credit is allocable in the
aggregate to direct United States partners. The United States partners
must directly report their shares of the allocable items of partnership
income, gain, loss, deduction, and credit.
(3) Filing obligations for certain other foreign partnerships with
no ECI--(i) General requirements for modified filing obligations. A
foreign partnership will be subject to the modified filing obligations
in paragraphs (b)(3)(ii) and (iii) of this section if, in addition to
satisfying the requirements contained in paragraphs (b)(3)(ii) and (iii)
of this section--
(A) The partnership is not a withholding foreign partnership as
defined in Sec. 1.1441-5(c)(2)(i);
[[Page 134]]
(B) Forms 1042 and 1042-S are filed by the partnership with respect
to the amounts subject to reporting under Sec. 1.1461-1(b) and (c),
unless the partnership is not required to file such returns under Sec.
1.1461-1(b)(2) and (c)(4), in which case Forms 1042 and 1042-S must be
filed by another withholding agent or agents; and
(C) The tax liability of the partners with respect to such amounts
has been fully satisfied by the withholding of tax at the source, if
applicable, under chapter 3 of the Internal Revenue Code.
(ii) Foreign partnerships with U.S.-source income but no U.S.
partners. A foreign partnership that has U.S.-source income is not
required to file a partnership return if the partnership has no ECI and
no United States partners at any time during the partnership's taxable
year.
(iii) Foreign partnerships with U.S.-source income and U.S.
partners. Except as provided in paragraph (b)(2) of this section, a
foreign partnership with one or more United States partners that has
U.S.-source income but no ECI must file a partnership return. However,
such a foreign partnership need not file Statements of Partner's Share
of Income, Credit, Deduction, etc. (Schedules K-1) for any partners
other than its direct United States partners and its passthrough
partners (whether U.S. or foreign) through which United States partners
hold an interest in the foreign partnership. Schedules K-1 that are not
excepted from filing under this paragraph (b)(3)(iii) must contain the
same information required of a domestic partnership filing under
paragraph (a) of this section.
(4) Information or returns required of partners who are United
States persons--(i) In general. If a United States person is a partner
in a partnership that is not required to file a partnership return, the
district director or director of the relevant service center may require
that person to render the statements or provide the information
necessary to verify the accuracy of the reporting by that person of any
items of partnership income, gain, loss, deduction, or credit.
(ii) Controlled foreign partnerships. Certain United States persons
who are partners in a foreign partnership controlled (within the meaning
of section 6038(e)(1)) by United States persons may be required to
provide information with respect to the partnership under section 6038.
(5) Certain partnership elections. For a partnership that is not
otherwise required to file a partnership return, if an election that can
only be made by the partnership under section 703 (affecting the
computation of taxable income derived from a partnership) is to be made
by or for the partnership, a return on the form prescribed for the
partnership return must be filed for the partnership. Unless otherwise
provided in the form or the accompanying instructions, a return filed
solely to make an election need only contain a written statement citing
paragraph (b)(5)(ii) of this section, listing the name and address of
the partnership making the election, and clearly identifying the
specific election being made. A return filed under paragraph (b)(5)(ii)
of this section solely to make an election is not a partnership return.
Thus, such a return is not a return filed under section 6031(a) for
purposes of sections 6501 (except regarding the specific election
issue), 6231(a)(1)(A), and 6233. The return must be signed by--
(i) Each partner that is a partner in the partnership at the time
the election is made; or
(ii) Any partner of the partnership who is authorized (under local
law or the partnership's organizational documents) to make the election
and who represents to having such authorization under penalties of
perjury.
(6) Exclusion for certain organizations. The return requirement of
section 6031 and this section does not apply to the International
Telecommunications Satellite Organization, the International Maritime
Satellite Organization, or any organization that is a successor of
either.
(c) Partnerships excluded from the application of subchapter K of
the Internal Revenue Code--(1) Wholly excluded--(i) Year of election. An
eligible partnership as described in Sec. 1.761-2(a) that elects to be
excluded from all the provisions of subchapter K of chapter 1 of the
Internal Revenue Code in the manner specified by Sec. 1.761-2(b)(2)(i)
must timely file
[[Page 135]]
the form prescribed for the partnership return for the taxable year for
which the election is made. In lieu of the information otherwise
required, the return must contain or be accompanied by the information
required by Sec. 1.761-2(b)(2)(i).
(ii) Subsequent years. Except as otherwise provided in paragraph
(c)(1)(i) of this section, an eligible partnership that elects to be
wholly excluded from the application of subchapter K is not required to
file a partnership return.
(2) Deemed excluded. An eligible partnership that is deemed to have
elected exclusion from the application of subchapter K beginning with
its first taxable year, as specified in Sec. 1.761-2(b)(2)(ii), is not
required to file a partnership return.
(d) Definitions--(1) Partnership. For the meaning of the term
partnership, see Sec. 1.761-1(a).
(2) United States person. In applying this section, a United States
person is a person described in section 7701(a)(30); the government of
the United States, a State, or the District of Columbia (including an
agency or instrumentality thereof); or a corporation created or
organized in Guam, the Commonwealth of Northern Mariana Islands, the
U.S. Virgin Islands, and American Samoa, if the requirements of section
881(b)(1)(A), (B), and (C) are met for such corporation. The term does
not include an alien individual who is a resident of Puerto Rico, Guam,
the Commonwealth of Northern Mariana Islands, the U.S. Virgin Islands,
or American Samoa, as determined under Sec. 301.7701(b)-1(d) of this
chapter.
(3) United States partner. In applying this section, a United States
partner is any United States person who holds a direct or indirect
interest in the partnership.
(4) Indirect interest. An indirect interest is any interest held
through one or more passthrough partners, as defined in section
6231(a)(9).
(e) Procedural requirements--(1) Place for filing. The return of a
partnership must be filed with the service center prescribed in the
relevant IRS revenue procedure, publication, form, or instructions to
the form (see Sec. 601.601(d)(2)).
(2) Time for filing. The return of a partnership must be filed on or
before the date prescribed by section 6072(b).
(3) Magnetic media filing. For magnetic media filing requirements
with respect to partnerships, see section 6011(e)(2) and the regulations
thereunder.
(f) Applicability date. This section applies to returns filed on or
after January 30, 2020. Section 1.6031(a)-1T (as contained in 26 CFR
part 1, revised April 2019) applies to returns filed before January 30,
2020.
[T.D. 8841, 64 FR 61500, Nov. 12, 1999, as amended by T.D. 9000, 67 FR
41328, June 18, 2002; T.D. 9094, 68 FR 63734, Nov. 10, 2003; 68 FR
70584, Dec. 18, 2003; T.D. 9123, 69 FR 24078, May 3, 2004; T.D. 9177, 70
FR 7176, Feb. 11, 2005; T.D. 9821, 82 FR 33444, July 20, 2017; T.D.
9892, 85 FR 5324, Jan. 30, 2020]
Sec. 1.6031(b)-1T Statements to partners (temporary).
(a) Statement required to be furnished to partners--(1) In general.
Except as provided in this paragraph (a)(1) and paragraph (a)(2)(ii) of
this section, any partnership required under section 6031(a) and the
regulations thereunder to file a partnership return for a taxable year
shall furnish to every person who was a partner (within the meaning of
section 7701(a)(2)) at any time during the taxable year a written
statement containing the information described in paragraph (a)(3) of
this section. This section shall not apply to a real estate mortgage
investment conduit (REMIC) treated as a partnership under subtitle F of
the Code by reason of section 860F(e). For the reporting requirements
applicable to REMICs see Sec. 1.6031(b)-2T.
(2) Special rules applicable to partnership interests held by
nominees--(i) Statements furnished to nominees. For any partnership
taxable year beginning after October 22, 1986, a partnership shall
provide a person that holds (directly or indirectly) an interest in such
partnership as a nominee on behalf of another person at any time during
such year with a statement under paragraph (a)(1) of this section with
respect to such interest if--
(A) Such nominee has not furnished the statement required under
Sec. 1.6031(c)-1T(a)(1)(i) to the partnership with respect to such
other person;
[[Page 136]]
(B) Such nominee either holds legal title to such partnership
interest in its own name or is identified in a statement provided to the
partnership pursuant to Sec. 1.6031(c)-1T(a)(1)(i) by another nominee
as the person on whose behalf such other nominee holds such interest;
and
(C) Such nominee is not a person described in Sec. 1.6031(c)-
1T(a)(2) (relating to the special rule for clearing agencies).
In such case, the partnership shall assume, for purposes of this
section, that the nominee is the beneficial owner of the partnership
interest.
(ii) Statements not required to be furnished to partners holding
partnership interests through nominees. A partnership shall not be
required to furnish a statement under paragraph (a)(1) of this section
to a partner with respect to any portion of such partner's interest in
the partnership that is owned through a nominee if--
(A) Such nominee has not furnished (or is not required to furnish
under Sec. 1.6031(c)-1T(a)(2)), a statement to the partnership under
Sec. 1.6031(c)-1T(a)(1)(i) with respect to such partner; and
(B) Such partner has not furnished (or is not required to furnish) a
statement to the partnership under Sec. 1.6031(c)-1T(a)(3), with
respect to such interest in the partnership.
(3) Contents of statement. The statement required under paragraph
(a)(1) of this section shall include the following information:
(i) The partner's distributive share of partnership income, gain,
loss, deduction, or credit required to be shown on the partnership
return (or, for taxable years beginning before January 1, 1987, the
partner's distributive share of partnership income, gain, loss,
deduction, or credit shown on the partnership return); and
(ii) To the extent provided by form or the accompanying
instructions, any additional information that may be required to apply
particular provisions of subtitle A of the Code to the partner with
respect to items related to the partnership.
(b) Time for furnishing statement. The statement required to be
furnished by the partnership under paragraph (a)(1) of this section
shall be furnished on or before the day on which the partnership return
for that taxable year is required to be filed (determined with regard to
extensions). For partnership returns the due date for which (determined
without regard to extensions) is before January 1, 1987, the statement
required to be furnished by the partnership under paragraph (a)(1) of
this section shall be furnished on or before the day on which the
partnership return is filed.
(c) Statement may be provided to agent. If a partner designates
another person, such as an attorney or an investment advisor, as the
partner's (or nominee's) agent in dealing with the partnership, the
partnership may provide the statement required under paragraph (a)(1) of
this section with respect to such partner to such other person instead
of the partner.
(d) Penalties. For penalties for failure to comply with the
requirements of section 6031(b) and paragraph (a) of this section, see
section 6722(a).
(e) Effective date. Except as otherwise provided in this section,
the provisions of this section apply to partnership taxable years
beginning after September 3, 1982.
[T.D. 8225, 53 FR 34490, Sept. 7, 1988]
Sec. 1.6031(b)-2T REMIC reporting requirements (temporary).
[Reserved]
Sec. 1.6031(c)-1T Nominee reporting of partnership information
(temporary).
(a) Statements required to be furnished to partnership--(1)
Statement from nominee--(i) In general. Except as otherwise provided in
this section, any person who holds, directly or indirectly, an interest
in a partnership (required under section 6031(a) and the regulations
thereunder to file a partnership return for a taxable year) as a nominee
on behalf of another person at any time during the partnership taxable
year shall furnish to the partnership a written statement (or
statements) for that taxable year with respect to such other person
containing the information described in paragraph (a)(1)(ii) of this
section.
(ii) Contents of statement. The statement required under paragraph
(a)(1)(i)
[[Page 137]]
of this section shall, except as otherwise provided in paragraph (a)(4)
of this section, include the following information:
(A) The name, address, and taxpayer identification number of the
nominee;
(B) The name, address, and taxpayer identification number of such
other person;
(C) Whether such other person is--
(1) A person that is not a United States person;
(2) A foreign government, an international organization, or any
wholly-owned agency or instrumentality of either of the foregoing; or
(3) A tax-exempt entity (within the meaning of section 168(h)(2));
(D) A description of any interest in the partnership held by the
nominee on behalf of such other person at the beginning of the
partnership taxable year;
(E) A description of any interest in the partnership that the
nominee acquires (within the meaning of paragraph (g)(1) of this
section) on behalf of such other person during the partnership taxable
year, the method of acquisition (e.g., purchase, exchange, acquisition
at death, gift, or commencement of nominee relationship) and acquisition
cost (within the meaning of paragraph (g)(2) of this section) of such
interest, and the date of the acquisition of such interest; and
(F) A description of any interest in the partnership that the
nominee transfers (within the meaning of paragraph (g)(5) of this
section) on behalf of such other person during the partnership taxable
year, the net proceeds from the transfer (within the meaning of
paragraph (g)(6) of this section) of such interest, and the date of the
transfer of such interest.
A description of a partnership interest must include sufficient detail
to enable the partnership to furnish to such other person the statement
required under Sec. 1.6031(b)-1T (a).
(2) Special rule for clearing agencies. A clearing agency registered
pursuant to the provisions of section 17A of the Securities Exchange Act
of 1934 (or its nominee) that holds an interest in a partnership as a
nominee on behalf of another person shall not be required to furnish any
statement described in paragraph (a)(1)(i) of this section with respect
to such interest.
(3) Special rule for brokers and financial institutions--(i)
Additional statement required. Any broker (within the meaning of
paragraph (g)(3) of this section) or financial institution (within the
meaning of paragraph (g)(4) of this section) that holds an interest in a
partnership indirectly through a nominee described in paragraph (a)(2)
of this section at any time during a partnership taxable year shall
furnish (in addition to any statement (or statements) required under
paragraph (a)(1)(i) of this section) to the partnership a written
statement (or statements) containing the information described in
paragraph (a)(3)(ii) of this section with respect to any interest in
such partnership that it holds (directly or indirectly) for its own
account at any time during such partnership taxable year.
(ii) Contents of statement. The statement required under paragraph
(a)(3)(i) of this section shall, except as otherwise provided in
paragraph (a)(4) of this section, include the following information:
(A) The name, address, and taxpayer identification number of the
broker or financial institution;
(B) Whether such broker of financial institution is a person that is
not a United States person;
(C) A description of any interest in the partnership held by the
broker or financial institution for its own account at the beginning of
the partnership taxable year;
(D) A description of any interest in the partnership that the broker
or financial institution acquires for its own account during the
partnership taxable year, the method of acquisition and acquisition cost
of such interest, and the date of the acquisition of such interest; and
(E) A description of any interest in the partnership that the broker
or financial institution transfers for its own account during the
partnership taxable year, the net proceeds from the transfer of such
interest, and the date of the transfer of such interest.
A description of a partnership interest held by a broker or financial
institution for its own account must include
[[Page 138]]
sufficient detail to enable the partnership to furnish to the broker or
financial institution the statement required under Sec. 1.6031(b)-1T
(a).
(4) Exception--(i) In general. Except as otherwise provided in this
paragraph (a)(4), any statement required under paragraph (a) (1)(i) or
(3)(i) of this section for a taxable year is not required to include--
(A) That part of the information described in paragraph (a)
(1)(ii)(E) and (3)(ii)(D) of this section regarding the method of
acquisition and acquisition cost; or
(B) That part of the information described in paragraph
(a)(1)(ii)(F) and (3)(ii)(E) of this section regarding the net proceeds
from the transfer;
to the extent that, prior to the beginning of the partnership taxable
year, the partnership has provided the nominee with a written statement
that the nominee need not provide such information to the partnership,
and the partnership has not modified or revoked such statement. For
purposes of the preceding sentence, the modification or revocation of a
statement furnished to a nominee is effective for a partnership taxable
year if and only if the partnership notifies the nominee of such
modification or revocation by a written statement more than 60 days
before the beginning of the partnership taxable year. The nominee shall
retain a copy of any statement that is furnished to it by the
partnership under this paragraph (a)(4) in the nominee's records so long
as the contents thereof may become material in the administration of any
internal revenue law.
(ii) Effect of election under section 754. Paragraph (a)(4)(i)(A) of
this section shall not apply to a partnership taxable year if--
(A) The partnership has an election in effect under section 754
(relating to optional adjustment to basis of partnership property) for
such taxable year; and
(B) The nominee knows or has reason to know of such election more
than 60 days before the beginning of such taxable year.
(5) Examples. The following examples illustrate the application of
this paragraph (a):
Example 1. B, a broker, holds 50 units of interest in Partnership P,
a calendar year partnership, in street name for customer A, the
beneficial owner. B holds the units on behalf of A at all times during
1989. B must furnish a statement to P for calendar year 1989 under
paragraph (a)(1)(i) of this section that includes the information
required under paragraph (a)(1)(ii) (A) through (D) of this section. The
description of the partnership interest held by B on A's behalf on
January 1, 1989, must identify the number of units of P held by B on A's
behalf at that time (50), and the class of the partnership interest
(including the Committee on Uniform Security Identification Procedures
(CUSIP) number of the partnership interest, if known).
Example 2. The facts are the same as in example (1), except that
pursuant to A's instructions, B sells 25 of A's units of interest in P
on August 1, 1989, receiving net proceeds from the transfer of $500. In
addition to the information described in example (1), the statement that
B must furnish to P must include the class of the partnership interest
transferred (including the CUSIP number of the partnership interest, if
known), the number of units transferred (25), the net proceeds from the
transfer ($500), and the date of the transfer (August 1, 1989.)
Example 3. The facts are the same as in example (1), except that A
is not the beneficial owner, but rather holds the units as a nominee on
behalf of C, the beneficial owner, at all times during 1989. In addition
to the statement that B must furnish to P (as described in Example (1)
of this paragraph (a)(5)), A must furnish a statement to P for calendar
year 1989 under paragraph (a)(1)(i) of this section that includes the
information required under paragraph (a)(1)(ii) (A) through (D) of this
section. If both A and B provide P with the statement required under
paragraph (a)(1)(i) of this section, P must provide C with the statement
required under Sec. 1.6031(b)-1T (a)(1).
(b) Time for furnishing statements. A nominee may furnish to the
partnership any statement required under paragraph (a) of this section
annually, quarterly, monthly, or on any other basis, provided that all
statements required to be furnished under paragraph (a) of this section
for a partnership taxable year shall be furnished on or before the last
day of the first month following the close of such partnership taxable
year.
(c) Use of magnetic media. A nominee required to furnish a written
statement under paragraph (a) of this section, may, in lieu of
furnishing such written statement, furnish the required information on
magnetic tape or by other
[[Page 139]]
media if the partnership and the nominee so agree.
(d) Use of single document. Any person who holds interests in a
partnership as a nominee on behalf of more than one other person during
the partnership taxable year, may, in lieu of furnishing to the
partnership a separate statement for each such other person, furnish to
the partnership a single document which includes, for each such other
person, the information described in paragraph (a)(1)(ii) of this
section. To the extent that a single document is used, references in
this section to the statement required under paragraph (a)(1)(i) of this
section shall be deemed to refer also to the information included in a
single document under this paragraph (d).
(e) Retention of information. The nominee shall retain a copy of any
statement that is furnished to the partnership under this section in the
nominee's records so long as the contents thereof may become material in
the administration of any internal revenue law.
(f) Use of agent. If a partnership has designated another person,
such as a clearing organization, as the partnership's agent for purposes
of receiving the statements required under paragraph (a) of this
section, such statements may be furnished to that other person instead
of the partnership. If a nominee has designated another person as its
agent for purposes of furnishing to the partnership (or its agent) the
statements required under paragraph (a) of this section, that other
person may furnish such statements to the partnership (or its agent) on
behalf of the nominee.
(g) Meaning of terms. For purposes of this section, the following
terms have the meanings set forth below:
(1) The term acquires means--
(i) A purchase or other acquisition of a partnership interest; or
(ii) The commencement of a nominee relationship, including the
substitution of one nominee for another.
(2) The term acquisition cost means the sum of any money paid and
the fair market value of any property (other than money) transferred to
acquire a partnership interest increased by any expenses paid or
incurred with respect to the acquisition (such as broker's fees or
commissions).
(3) The term broker shall have the meaning set forth in paragraph
(a)(1) of Sec. 1.6045ca-1.
(4) The term financial institution means a financial institution
such as a bank, mutual savings bank, savings and loan association,
building and loan association, cooperative bank, homestead association,
credit union, industrial loan association or bank or other similar
organization.
(5) The term transfer means--
(i) A sale, exchange, or other disposition of a partnership
interest; or
(ii) The termination of a nominee relationship, including the
substitution of one nominee for another.
(6) The term net proceeds from the transfer means the sum of any
money and the fair market value of any property (other than money)
received in connection with a transfer of a partnership interest reduced
by any expenses paid or incurred with respect to the transfer (such as
broker's fees or commissions).
(7) The term person includes the United States, a State, the
District of Columbia, a foreign government, a political subdivision of a
State or foreign government, or an international organization.
(h) Statement required by nominees that do not comply with Sec.
1.6031(c)-1T (a)--(1) In general. Any person that--
(i) Holds an interest in a partnership as a nominee (other than a
nominee described in paragraph (a)(3) of this section) on behalf of
another person at any time during the partnership taxable year;
(ii) Does not furnish to such partnership the statement required
under paragraph (a)(1)(i) of this section for such other person with
respect to such interest in the partnership; and
(iii) Receives from such partnership the statement described in
paragraph (a)(1) of Sec. 1.6031(b)-1T with respect to such interest in
the partnership;
shall furnish to such other person a written statement containing the
information described in paragraph (h)(2) of this section with respect
to such interest in the partnership.
(2) Contents of statement. The statement required under paragraph
(h)(1) of
[[Page 140]]
this section shall contain the following information:
(i) The distributive share of partnership income, gain, loss,
deduction or credit required to be shown on the partnership return that
is allocable to such interest in the partnership; and
(ii) Any additional information that may be required to apply
particular provisions of subtitle A of the Code to the beneficial owner
of such interest in the partnership in connection with items related to
the partnership.
(3) Time for furnishing statements. A nominee shall furnish the
statement required under paragraph (h)(1) of this section within 30 days
after receiving the statement described in paragraph (a) of Sec.
1.6031(b)-1T.
(i) REMICs. This section shall not apply with respect to any
interest in a real estate mortgage investment conduit (REMIC) treated as
a partnership under subtitle F of the Code by reason of section 860F(e).
For the nominee reporting requirements with respect to REMICs see Sec.
1.6031(c)-2T.
(j) Penalties. [Reserved]
(k) Effective date--(1) In general. Except as otherwise provided in
paragraph (k)(2) of this section, the provisions of this section shall
apply to partnership taxable years beginning after October 22, 1986.
(2) Transitional rule for taxable years beginning before January 1,
1989. For partnership taxable years beginning before January 1, 1989,--
(i) Any statement that a nominee is required to furnish to a
partnership under paragraph (a)(1) of this section shall not be required
to include the following information:
(A) The information described in paragraph (a)(1)(ii)(C) of this
section;
(B) That part of the information described in paragraph
(a)(1)(ii)(E) of this section regarding the method of acquisition and
acquisition cost of a partnership interest; or
(C) That part of the information described in paragraph
(a)(1)(ii)(F) of this section regarding the net proceeds from the
transfer of a partnership interest.
(ii) A broker or financial institution shall not be required to
furnish the additional statement described in paragraph (a)(3)(i) of
this section.
[T.D. 8225, 53 FR 34491, Sept. 7, 1988]
Sec. 1.6031(c)-2T Nominee reporting of REMIC information (temporary).
[Reserved]
Sec. 1.6032-1 Returns of banks with respect to common trust funds.
(a) Every bank (as defined in section 581) maintaining a common
trust fund shall make a return of income of the common trust fund,
regardless of the amount of its taxable income. Member banks of an
affiliated group that serve as co-trustees with respect to a common
trust fund must act jointly in making a return for the fund. If a bank
maintains more than one common trust fund, a separate return shall be
made for each. No particular form is prescribed for making the return
under this section, but Form 1065 may be used if it is designated by the
bank as the return of a common trust fund. The return shall be made for
the taxable year of the common trust fund and shall be filed on or
before the date prescribed by section 6072(b) with the service center
prescribed in the relevant Internal Revenue Service revenue procedure,
publication, form, or instructions to the form (see Sec. 601.601(d)(2)
of this chapter). Such return shall state specifically with respect to
the fund the items of gross income and the deductions allowed by
subtitle A of the Internal Revenue Code, shall include each
participant's name and address, the participant's proportionate share of
taxable income or net loss (exclusive of gains and losses from sales or
exchanges of capital assets), the participant's proportionate share of
gains and losses from sales or exchanges of capital assets, and the
participant's share of items which enter into the determination of the
tax imposed by section 56. See Sec. Sec. 1.584-2 and 1.58-5. If the
common trust fund is maintained by two or more banks that are members of
the same affiliated group, the return must also identify the member bank
in the group that has contributed each participant's property or money
to the fund. A copy of the plan of the common trust fund must be filed
with the return. If, however, a copy of such plan
[[Page 141]]
has once been filed with a return, it need not again be filed if the
return contains a statement showing when and where it was filed. If the
plan is amended in any way after such copy has been filed, a copy of the
amendment must be filed with the return for the taxable year in which
the amendment was made. For the signing of a return of a bank with
respect to common trust funds, see Sec. 1.6062-1, relating to the
manner prescribed for the signing of a return of a corporation.
(b) This section applies to returns filed on or after January 30,
2020. Section 1.6032-1T (as contained in 26 CFR part 1, revised April
2019) applies to taxable years beginning before January 30, 2020.
[T.D. 9892, 85 FR 5324, Jan. 30, 2020]
Sec. 1.6033-1 Returns by exempt organizations; taxable years
beginning before January 1, 1970.
(a) In general. (1) Except as provided in section 6033(a) and
paragraph (g) of this section, every organization exempt from taxation
under section 501(a) shall file an annual return of information
specifically stating its items of gross income, receipts and
disbursements, and such other information as may be prescribed in the
instructions issued with respect to the return. Such information return
shall be filed annually regardless of the amount or source of the income
or receipts of the organization. Except as provided in paragraph (d) of
this section, such return shall be filed annually regardless of whether
such organization is chartered by, or affiliated or associated with, any
central, parent, or other organization.
(2)(i) Except as otherwise provided in this subparagraph, every
organization exempt from taxation under section 501 (a), and required to
file a return under section 6033 and this section, other than an
organization described in section 401 (a), 501(c)(3), or 501(d), shall
file its annual return on Form 990. However, such an exempt
organization, instead of filing Form 990, may file its annual return on
Form 990 (SF), a short form, if its gross receipts for the taxable year
do not exceed $10,000 and its total assets on the last day of its
taxable year do not exceed $10,000.
(ii) For purposes of this subparagraph and subparagraph (4) of this
paragraph, ``gross receipts'' means the gross amount received by the
organization during its annual accounting period from all sources
without reduction for any costs or expenses including, for example, cost
of goods or assets sold, cost of operations, or expenses of earning,
raising, or collecting such amounts. Thus, ``gross receipts'' includes,
but is not limited to, (a) the gross amount received as contributions,
gifts, grants, and similar amounts without reduction for the expenses of
raising and collecting such amounts, (b) the gross amount received as
dues or assessments from members or affiliated organizations without
reduction for expenses attributable to the receipt of such amounts, (c)
gross sales or receipts from business activities (including business
activities unrelated to the purpose for which the organization received
an exemption, the net income or loss from which may be required to be
reported on Form 990-T), (d) the gross amount received from the sale of
assets without reduction for cost or other basis and expenses of sale,
and (e) the gross amount received as investment income such as interest,
dividends, rents, and royalties.
(3) Every employees' trust described in section 401 (a) which is
exempt from taxation under section 501 (a) shall file an annual return
on Form 990-P. The return shall include the information required by
paragraph (b)(5)(ii) of Sec. 1.401-1. In addition, the trust must file
the information required to be filed by the employer pursuant to the
provisions of Sec. 1.404(a)-2, unless the employer has notified the
trustee in writing that he has or will timely file such information. If
the trustee has received such notification from the employer, then such
notification, or a copy thereof, shall be retained by the trust as a
part of its records.
(4) Except as otherwise provided in this subparagraph, every
organization described in section 501(c)(3), which is required to file a
return under section 6033 and this section, shall file its annual return
on Form 990-A. However, such an exempt organization, instead of filing
Form 990-A, may file its annual return on Form 990-A (SF), a
[[Page 142]]
short form, if its gross receipts for the taxable year do not exceed
$10,000 and its total assets on the last day of its taxable year do not
exceed $10,000. For purposes of this subparagraph, ``gross receipts''
shall be defined in the manner prescribed in subparagraph (2)(ii) of
this paragraph. The forms prescribed by this subparagraph shall be as
follows:
(i) Form 990-A shall consist of parts I and II. Part I shall
contain, in addition to information required in part II, such
information as may be prescribed in the return and instructions which is
required to be furnished by section 6033(a) or which is necessary to
show whether or not such organization is exempt from tax under section
501(a). Part II, which shall be open to public inspection pursuant to
section 6104 and other applicable sections and the regulations
thereunder, shall contain principally the information required by
section 6033(b) and the regulations thereunder. The information
contained in part II, to be furnished by the organization in duplicate
in the manner prescribed by the instructions issued with respect to the
return, is as follows:
(a) Its gross income for the year. For this purpose, gross income
includes tax-exempt income, but does not include contributions, gifts,
grants, and similar amounts received. Whether or not an item constitutes
a contribution, gift, grant, or similar amount, depends upon all the
surrounding facts and circumstances.
(b) Its expenses attributable to such income and incurred within the
year.
(c) Its disbursements out of income (including prior years'
accumulations) made within the year for the purposes for which it is
exempt. Information shall be included as to the class of activity with a
separate total for each activity as well as the name, address, and
amount received by each individual or organization receiving cash, other
property, or services within the taxable year. If the donee is related
by blood, marriage, adoption, or employment (including children of
employees) to any person or corporation having an interest in the exempt
organization, such as a creator, donor, director, trustee, or officer,
the relationship of the donee shall be stated. Activities shall be
classified according to purpose in greater detail than merely
charitable, educational, religious, or scientific. For example, payments
for nursing service, for laboratory construction, for fellowships, or
for assistance to indigent families shall be so identified. Where the
fair market value of the property at the time of disbursement is used as
the measure of the disbursement, the book value of such property (and a
statement of how book value was determined) shall also be furnished, and
any difference between the fair market value at the time of disbursement
and the book value should be reflected in the books of account. The
expenses allocable to making the disbursements shall be set forth in
such detail as is prescribed by the form or instructions.
(d) Its accumulation of income within the year. The amount of such
accumulation is obtained by subtracting from the amount in (a) of this
subdivision the sum of the amounts determined in (b) and (c) of this
subdivision and the expenses allocable to carrying out the purposes for
which it is exempt.
(e) Its aggregate accumulation of income at the beginning and end of
the year. The aggregate accumulation of income shall be divided between
that which is attributable to the gain or loss on the sale of assets
(excluding inventory items) and that which is attributable to all other
income. For this purpose expenses and disbursements shall be allocated
on the basis of accounting records, the governing instrument, or
applicable local law.
(f) Its disbursements out of principal in the current and prior
years for the purposes for which it is exempt. In addition, the same
type of information shall be required with respect to disbursements out
of principal made in the current year as is prescribed by (c) of this
subdivision with respect to disbursements out of income.
(g) A balance sheet showing its assets, liabilities, and net worth
as of the beginning and end of such year. Detailed information on the
assets, liabilities, and net worth shall be furnished on the schedule
provided for this purpose on the Form 990-A. Such schedule
[[Page 143]]
shall be supplemented by attachments where appropriate.
(h) The total of the contributions and gifts received by it during
the year. A statement shall be included showing the gross amount of
contributions and gifts collected by the organization, the expenses
incurred by the organization in collecting such amount, and the net
proceeds.
(i) In addition to the information required in (a) through (h) of
this subdivision, the organization shall furnish such specific
information and answer such specific questions as are required by the
form or instructions.
(ii) Form 990-A (SF) is a short form consisting of a single part
which contains such information as may be prescribed in the return and
instructions which is required to be furnished by section 6033(a) or
which is necessary to show whether or not such organization is exempt
from tax under section 501(a). In addition, Form 990-A (SF) shall
contain the information required by section 6033(b) which must be
furnished in the manner prescribed in the instructions issued with
respect to the return. Form 990-A (SF) shall be open to public
inspection pursuant to section 6104 and other applicable sections and
the regulations thereunder.
(5)(i) Every religious or apostolic association or corporation
described in section 501 (d) which is exempt from taxation under section
501(a) shall file a return on Form 1065 for each taxable year, stating
specifically the items of gross income and deductions, and its taxable
income. There shall be attached to the return as a part thereof a
statement showing the name and address of each member of the association
or corporation and the amount of his distributive share of the taxable
income of the association or corporation for such year.
(ii) If the taxable year of any member is different from the taxable
year of the association or corporation, the distributive share of the
taxable income of the association or corporation to be included in the
gross income of the member for his taxable year shall be based upon the
taxable income of the association or corporation for its taxable year
ending with or within the taxable year of the member.
(b) Accounting period for filing return. A return on Form 990, 990-
A, 990 (SF), 990-A (SF), or 990-P shall be on the basis of the
established annual accounting period of the organization. If the
organization has no such established accounting period, such return
shall be on the basis of the calendar year.
(c) Returns when exempt status not established. An information
return on Form 990, 990-A, 990 (SF), or 990-A (SF) is not required to be
filed by an organization claiming an exempt status under section 501(a)
prior to the establishment by the organization of such exempt status
under section 501 and Sec. 1.501(a)-1. If the date for filing an income
tax return and paying the tax occurs before the tax-exempt status of the
organization has been established, the organization is required to file
the income tax return and pay the tax. However, see sections 6081 and
6161 and the regulations thereunder for extensions of time for filing
the return and paying the tax. Upon establishment of its exempt status,
the organization may file a claim for a refund of income taxes paid for
the period for which its exempt status is established.
(d) Group returns. (1) A central, parent, or like organization
(referred to in this paragraph as ``central organization''), exempt
under section 501(a) and described in section 501(c), although required
to file a separate annual return for itself under section 6033 and
paragraph (a) of this section, may file annually, in addition to such
separate annual return, a group return on Form 990 or 990-A, 990 (SF),
or 990-A (SF), as may be appropriate. Form 990 (SF) or 990-A (SF) may be
used where each local organization qualifies under paragraph (a) of this
section. Such group return may be filed for two or more of the local
organizations, chapters, or the like (referred to in this paragraph as
``local organizations'') which are (i) affiliated with such central
organization at the close of its annual accounting period, (ii) subject
to the general supervision or control of the central organization, and
(iii) exempt from taxation under the same paragraph of section 501(c) of
the Code, although the local organizations are not necessarily exempt
under the paragraph under
[[Page 144]]
which the central organization is exempt.
(2)(i) The filing of the group return shall be in lieu of the filing
of a separate return by each of the local organizations included in the
group return. The group return shall include only those local
organizations which in writing have authorized the central organization
to include them in the group return, and which have made and filed, with
the central organization, their statements, specifically stating their
items of gross income, receipts, and disbursements, and such other
information relating to them as is required to be stated in the group
return. Such an authorization by a local organization shall be made
annually, under the penalties of perjury, and shall be signed by a duly
authorized officer of the local organization in his official capacity
and shall contain the following statement, or a statement of like
import: ``I hereby declare under the penalties of perjury that this
authorization (including any accompanying schedules and statements) has
been examined by me and to the best of my knowledge and belief is true,
correct and complete and made in good faith for the taxable year
stated.'' Such authorizations and statements shall be permanently
retained by the central organization.
(ii) There shall be attached to the group return and made a part
thereof a schedule showing the name and address of each of the local
organizations and the total number thereof included in such return, and
a schedule showing the name and address of each of the local
organizations and the total number thereof not included in the group
return.
(3) The group return shall be on the basis of the established annual
accounting period of the central organization. Where such central
organization has no established annual accounting period, such return
shall be on the basis of the calendar year. The same income, receipts,
and disbursements of a local organization shall not be included in more
than one group return.
(4) The group return shall be filed in accordance with these
regulations and the instructions issued with respect to Form 990, 990-A,
990 (SF), or 990-A (SF), whichever is appropriate, and shall be
considered the return of each local organization included therein. The
tax-exempt status of a local organization must be established under a
group exemption letter issued to the central organization before a group
return including the local organization will be considered as the return
of the local organization. See Sec. 1.501(a)-1 for requirements for
establishing a tax-exempt status.
(e) Time and place for filing. The annual return of information on
Form 990, 990-A, 990 (SF), 990-A (SF), or 990-P shall be filed on or
before the 15th day of the fifth calendar month following the close of
the period for which the return is required to be filed. The annual
return on Form 1065 required to be filed by a religious or apostolic
association or corporation shall be filed on or before the 15th day of
the fourth month following the close of the taxable year for which the
return is required to be filed. Each such return shall be filed in
accordance with the instructions applicable thereto.
(f) Penalties. For criminal penalties for failure to file a return
and filing a false or fraudulent return, see sections 7203, 7206, and
7207.
(g) Organizations not required to file annual returns. (1)(i) Annual
returns on Form 990-A or Form 990-A (SF) are not required to be filed by
an organization described in section 501(c)(3) which has established its
right to exemption from taxation under section 501 (a) and which is:
(a) Organized and operated exclusively for religious purposes;
(b) Operated, supervised, or controlled by or in connection with an
organization which is organized and operated exclusively for religious
purposes;
(c) An educational organization which normally maintains a regular
faculty and curriculum and normally has a regularly organized body of
pupils or students in attendance at the place where its educational
activities are regularly carried on; or
(d) A charitable organization, or an organization for the prevention
of cruelty to children or animals, which is supported, in whole or in
part, by funds contributed by the United States or
[[Page 145]]
any State or political subdivision thereof, or which is primarily
supported by contributions of the general public.
(ii) An educational organization which normally maintains and has a
regular faculty, curriculum, and student body and meets the conditions
of subdivision (i)(c) of this subparagraph, which relieves it from the
requirement of filing annual returns, shall not be considered as having
thereafter failed to continue meeting such conditions if it is
temporarily compelled to curtail or discontinue its normal and regular
activities during the existence of abnormal circumstances and
conditions.
(iii) An organization organized and operated exclusively for
charitable purposes or for the prevention of cruelty to children or
animals is ``primarily supported by contributions of the general
public'' for any accounting period if more than 50 percent of its income
and receipts for such period is actually derived from voluntary
contributions and gifts made by the general public, as distinguished
from a few contributors or donors or from related or associated persons.
For purposes of this subdivision, the words ``related or associated
persons'' refer to persons of a particular group who are connected with
or are interested in the activities of the organization, such as
founders, incorporators, shareholders, members, fiduciaries, officers,
employees, or the like, or who are connected with such persons by family
or business relationships. An organization claiming an exception from
the filing of an information return under this subdivision must maintain
adequate records in order to substantiate such claim. Furthermore, if it
is doubtful to an organization that it falls within this exception for
filing annual information returns, it must file the return on Form 990-A
or Form 990-A (SF).
(2) The annual return on Form 990 or Form 990 (SF) need not be filed
by:
(i) A fraternal beneficiary society, order, or association,
described in section 501(c)(8), or
(ii) An organization described in section 501(c)(1) if it is a
corporation wholly owned by the United States or any agency or
instrumentality thereof, or is a wholly owned subsidiary of such a
corporation,
which has established its exemption from tax under section 501(a).
(3) The provisions of section 6033(a) relieving certain specified
types of organizations exempt from tax under section 501(a) from filing
annual returns do not abridge or impair in any way the powers and
authority of district directors or directors of service centers provided
for in other provisions of the Code and in the regulations thereunder to
require the filing of such returns by such organizations. See section
6001 and Sec. 1.6001-1.
(h) Records, statements, and other returns of tax-exempt
organizations. (1) An organization which has established its right to
exemption from tax under section 501(a) and has also established that it
is not required to file annually the return of information on Form 990,
990-A, 990 (SF), or 990-A (SF) shall immediately notify in writing the
district director for the internal revenue district in which its
principal office is located of any changes in its character, operations,
or purpose for which it was originally created.
(2) Every organization which has established its right to exemption
from tax, whether or not it is required to file an annual return of
information, shall submit such additional information as may be required
by the district director for the purpose of enabling him to inquire
further into its exempt status and to administer the provisions of
subchapter F (section 501 and following), chapter 1 of the Code, and of
section 6033. See section 6001 and Sec. 1.6001-1 with respect to the
authority of the district director or directors of service centers to
require such additional information and with respect to the permanent
books of account or records to be kept by such organizations.
(3) An organization which has established its right to exemption
from tax under section 501(a), including an organization which is
relieved under section 6033 and this section from filing annual returns
of information, is not, however, relieved from the duty of filing other
returns of information. See, for example, sections 6041 and 6051 and the
regulations thereunder.
[[Page 146]]
(i) Unrelated business tax returns. In addition to the foregoing
requirements of this section, certain organizations otherwise exempt
from tax under section 501(a) and described in section 501(c) (2), (3),
(5), (6), or (17) or section 401(a) which are subject to tax on
unrelated business taxable income are also required to file returns on
Form 990-T. See paragraph (e) of Sec. 1.6012-2 and paragraph (a)(5) of
Sec. 1.6012-3 for requirements with respect to such returns.
(j) Effective date. The provisions of this section shall apply with
respect to returns filed for taxable years beginning before January 1,
1970.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6722, 29 FR
5075, Apr. 14, 1964; T.D. 6972, 33 FR 12907, Sept. 12, 1968; T.D. 6980,
33 FR 16446, Nov. 9, 1968; T.D. 7122, 36 FR 11026, June 8, 1971]
Sec. 1.6033-2 Returns by exempt organizations (taxable years
beginning after December 31, 1969) and returns by certain nonexempt
organizations (taxable years beginning after December 31, 1980).
(a) In general. (1) Except as provided in section 6033(a)(3) and
paragraph (g) of this section, every organization exempt from taxation
under section 501(a) shall file an annual information return
specifically setting forth its items of gross income, gross receipts and
disbursements, and such other information as may be prescribed in the
instructions, issued with respect to the return. Except as provided in
paragraph (d) of this section, such return shall be filed annually
regardless of whether such organization is chartered by, or affiliated
or associated with, any central, parent, or other organization.
(2)(i) Except as otherwise provided in this paragraph and paragraph
(g) of this section, every organization exempt from taxation under
section 501(a), and required to file a return under section 6033 and
this section (including, for taxable years ending before December 31,
1972, private foundations, as defined in section 509(a)), other than an
organization described in section 401(a) or 501(d), shall file its
annual return on Form 990. For taxable years ending on or after December
31, 1972, every private foundation shall file Form 990-PF as its annual
information return. For taxable years beginning after December 31, 1977,
every section 501(c)(21) black lung trust shall file an annual
information return on Form 990-BL or any other form prescribed by the
Internal Revenue Service for that purpose.
(ii) The information generally required to be furnished by an
organization exempt under section 501(a) is:
(a) Its gross income for the year. For this purpose, gross income
includes tax-exempt income, but does not include contributions, gifts,
grants, and similar amounts received. Whether an item constitutes a
contribution, gift, grant, or similar amount depends upon all the
surrounding facts and circumstances. The computation of gross income
shall be made by subtracting the cost of goods sold from all receipts
other than gross contributions, gifts, grants, and similar amounts
received and nonincludible dues and assessments from members and
affiliates.
(b) To the extent not included in gross income, its dues and
assessments from members and affiliates for the year.
(c) Its expenses incurred within the year attributable to gross
income.
(d) Its disbursements (including prior years' accumulations) made
within the year for the purposes for which it is exempt.
(e) A balance sheet showing its assets, liabilities, and net worth
as of the beginning and end of such year. Detailed information relating
to the assets, liabilities, and net worth shall be furnished on the
schedule provided for this purpose on the return required by this
section. Such schedule shall be supplemented by attachments where
appropriate.
(f) The total of the contributions, gifts, grants and similar
amounts received by it during the taxable year, and the names and
addresses of all persons who contributed, bequeathed, or devised $5,000
or more (in money or other property) during the taxable year. In the
case of a private foundation (as defined in section 509(a)), the names
and addresses of all persons who became substantial contributors (as
defined in section 507(d)(2)) during the taxable year shall be
furnished. In addition, for its first taxable year beginning after
December 31, 1969, each private foundation shall furnish the
[[Page 147]]
names and addresses of all persons who became substantial contributors
before such taxable year. For special rules with respect to contributors
and donors, see subdivision (iii) of this subparagraph.
(g) The names and addresses of all officers, directors, or trustees
(or any person having responsibilities or powers similar to those of
officers, directors or trustees) of the organization, and, in the case
of a private foundation, all persons who are foundation managers, within
the meaning of section 4946(b)(1). Organizations must also attach a
schedule showing the names and addresses and/or total numbers of key
employees, highly compensated employees, and independent contractors as
prescribed by publication, form, or instructions.
(h) A schedule showing the compensation and other payments made to
each person whose name is required to be listed pursuant to paragraph
(a)(2)(ii)(g) of this section during the calendar year ending within the
organization's annual accounting period, or during such other period as
prescribed by publication, form, or instructions.
(i) For any taxable year ending on or after December 31, 1971, such
information as is required by Forms 4848 and 4849 and, only with respect
to any such taxable year ending before December 31, 1972, such
information as is required by Form 2950. Such forms are required by this
section to be filed by an organization exempt from tax under section
501(a) which is an employer who maintains a funded pension or annuity
plan for its employees. See paragraph (g) of this section for exceptions
from filing. Form 4849 need not be filed by the organization if the
fiduciary for the plan has given written notification to the
organization that such form will be filed as an attachment to Form 990-P
filed by the fiduciary. Form 4848 (and Form 4849 if required to be filed
by the organization) shall be filed as a separate return on or before
the due date for Form 990. For rules relating to the extension of time
for filing, see section 6081 and the regulations thereunder and the
instructions for Form 4848. A central organization which files Form 990
as a group return under paragraph (d) of this section may also file Form
4848 as a group return. The rules provided by paragraph (d) of this
section with respect to a group return filed on Form 990 shall apply to
a group return filed on Form 4848. Unless otherwise expressly provided
therein, an authorization to include a local organization in a group for
purposes of filing Form 990 as a group return shall be treated as an
authorization to include such local organization in a group for purposes
of filing Form 4848 as a group return. A group return on Form 4848 shall
be filed in accordance with this section and the instructions to Form
4848 and shall be considered the return of each local organization
included therein. In addition to the information required to be
furnished by Forms 4848 and 4849, the district director may require any
further information that he considers necessary to determine
qualification of the plan under section 401 or the taxability under
section 403(b) of a beneficiary under an annuity purchased by a section
501(c)(3) organization.
(j) In the case of a private foundation liable for tax imposed under
chapter 42, such information as is required by Form 4720.
(k) Its lobbying expenditures, grass roots expenditures, exempt
purpose expenditures, lobbying nontaxable amount, and grass roots
nontaxable amount for the taxable year and for prior taxable years that
are base years (within the meaning of Sec. 1.501(h)-3(c)(7)), if the
organization has an election under section 501(h) in effect for the
taxable year. An organization that is a member of an affiliated group of
organizations (as defined in Sec. 56.4911-7(e)) but that is not a
member of a limited affiliated group (as defined in Sec. 56.4911-10(b))
shall report this information based on the expenditures of all members
of the group during the taxable year of the group that ends with or
within the member's taxable year and for prior taxable years of the
group that are base years (within the meaning of Sec. 56.4911-9(b)).
For additional information required to be furnished by members of an
affiliated group of organizations, and by controlling members in a
limited affiliated group, see Sec. Sec. 56.4911-9(d) and 56.4911-
10(f)(1), respectively.
[[Page 148]]
(l) In the case of a hospital organization (as defined in Sec.
1.501(r)-1(b)(18)) described in section 501(c)(3) during the taxable
year--
(1) A copy of its audited financial statements for the taxable year
(or, in the case of an organization the financial statements of which
are included in consolidated financial statements with other
organizations, such consolidated financial statements);
(2) Either a copy of the most recently adopted implementation
strategy, within the meaning of Sec. 1.501(r)-3(c), for each hospital
facility it operates or the URL of each Web page where it has made each
such implementation strategy widely available on a Web site within the
meaning of Sec. 1.501(r)-1(b)(29) along with or as part of the report
documenting the community health needs assessment (CHNA) to which the
implementation strategy relates;
(3) For each hospital facility it operates, a description of the
actions taken during the taxable year to address the significant health
needs identified through its most recently conducted CHNA, within the
meaning of Sec. 1.501(r)-3(b), or, if no actions were taken with
respect to one or more of these health needs, the reason(s) why no
actions were taken; and
(4) The amount of the excise tax imposed on the organization under
section 4959 during the taxable year.
(iii) Special rules. In providing the names and addresses of
contributors and donors under subdivision (ii)(f) of this subparagraph:
(a) An organization described in section 501(c)(3) which meets the
33\1/3\ percent-of-support test of the regulations under section
170(b)(1)(A)(vi) (without regard to whether such organization otherwise
qualifies as an organization described in section 170(b)(1)(A)) is
required to provide the name and address of a person who contributed,
bequeathed, or devised $5,000 or more during the year only if his amount
is in excess of 2 percent of the total contributions, bequests and
devises received by the organization during the year.
(b) An organization other than a private foundation is required to
report only the names and addresses of contributors of whom it has
actual knowledge. For instance, an organization need not require an
employer who withholds contributions from the compensation of employees
and pays over to the organization periodically the total amounts
withheld, to specify the amounts paid over with respect to a particular
employee. In such case, unless the organization has actual knowledge
that a particular employee gave more than $5,000 (and in excess of 2
percent if (a) of this subdivision is applicable), the organization need
report only the name and address of the employer, and the total amount
paid over by him.
(c) Separate and independent gifts made by one person in a
particular year need be aggregated to determine if his contributions and
bequests exceed $5,000 (and in excess of 2 percent if (a) of this
subdivision is applicable), only if such gifts are of $1,000 or more.
(d)(1) Organizations described in section 501(c) (8) or (10) (and,
for taxable years beginning after December 31, 1970, organizations
described in section 501(c)(7)) that receive contributions or bequests
to be used exclusively for purposes described in section 170(c)(4),
2055(a)(3), or 2522(a)(3), must attach a schedule with respect to all
gifts which aggregate more than $1,000 from any one person showing the
name of the donor, the amount of the contribution or bequest, the
specific purpose for which such amount was received, and the specific
use to which such amount was put. In the case of an amount set aside for
such purposes, the organization shall indicate the manner in which such
amount is held (for instance, whether such amount is commingled with
amounts held for other purposes). If the contribution or bequest was
transferred to another organization, the schedule must include the name
of the transferee organization, a description of the nature of such
organization, and a description of the relationship between the
transferee and transferor organizations.
(2) For taxable years beginning after December 31, 1970, such
organizations must also attach a statement showing the total dollar
amount of contributions and bequests received for such purposes which
are $1,000 or less.
[[Page 149]]
(iv) Listing of States. A private foundation is required to attach
to its return required by this section a list of all States:
(a) To which the organization reports in any fashion concerning its
organization, assets, or activities, or
(b) With which the organization has registered (or which it has
otherwise notified in any manner) that it intends to be, or is, a
charitable organization or a holder of property devoted to a charitable
purpose.
(3)(i) For taxable years beginning after December 31, 1969, and
ending before December 31, 1971, every employee's trust described in
section 401(a) which is exempt from taxation under section 501(a) shall
file an annual return on Form 990-P. The return shall include the
information required by paragraph (b)(5)(ii) of Sec. 1.401-1. For such
years, in addition, the trust must file the information required to be
filed by the employer pursuant to the provisions of Sec. 1.404(a)-2,
unless the employer has notified the trustee in writing that he has
filed or will timely file such information. If the trustee has received
such notification from the employer, then such notification, or a copy
thereof, shall be retained by the trust as a part of its records.
(ii) For taxable years ending on or after December 31, 1971, and
before December 31, 1975, every employee's trust described in section
401(a) which is exempt from taxation under section 501(a) shall file an
annual return on Form 990-P. The trust shall furnish such information as
is required by such form and the instructions issued with respect
thereto.
(4) For taxable years beginning after December 31, 1980, trusts
described in section 4947(a)(1) and nonexempt private foundations shall
comply with the requirements of section 6033 and this section in the
same manner as organizations described in section 501(c)(3) which are
exempt from tax under section 501(a). This section shall be applied for
taxable years beginning after December 31, 1980 as if trusts described
in section 4947(a)(1) and nonexempt private foundations were described
in section 501(c)(3). Therefore, for purposes of this section, all
references to exempt organizations shall include section 4947(a)(1)
trusts and nonexempt private foundations and all references to private
foundations shall include section 4947(a)(1) trusts that would be
private foundations if they were described in section 501(c)(3) and all
nonexempt private foundations. Similarly, for purposes of paragraph
(a)(2)(ii)(d), the purposes for which a section 4947(a)(1) trust or a
nonexempt private foundation is organized shall be treated as the
purposes for which it is exempt. For purposes of this section, the term
``nonexempt private foundation'' means a taxable organization (other
than a section 4947(a)(1) trust) that is a private foundation. See
section 509(b) and Sec. 1.509(b)-1. See also section 642(c)(6) and
Sec. 1.642(c)-4.
(b) Accounting period for filing return. A return required by this
section shall be on the basis of the established annual accounting
period of the organization. If the organization has no such established
accounting period, such return shall be on the basis of the calendar
year.
(c) Returns when exempt status not established. An organization
claiming an exempt status under section 501(a) prior to the
establishment of such exempt status under section 501 and Sec.
1.501(a)-1, shall file a return required by this section in accordance
with the instructions applicable thereto. In such case the organization
must indicate on such return that it is being filed in the belief that
the organization is exempt under section 501(a), but that the Internal
Revenue Service has not yet recognized such exemption.
(d) Group returns. (1) A central, parent, or like organization
(referred to in this paragraph as ``central organization''), exempt
under section 501(a) and described in section 501(c) (other than a
private foundation), although required to file a separate annual return
for itself under section 6033 and paragraph (a) of this section, may
file annually, in addition to such separate annual return, a group
return on Form 990. Such group return may be filed for two or more of
the local organizations, chapters, or the like (referred to in this
paragraph as ``local organizations'') which are (i) affiliated with such
central organization at the close of its annual accounting period, (ii)
subject to
[[Page 150]]
the general supervision or control of the central organization, and
(iii) exempt from taxation under the same paragraph of section 501(c) of
the Code, although the local organizations are not necessarily exempt
under the paragraph under which the central organization is exempt. Such
group return may not be filed for a local organization which is a
private foundation.
(2)(i) The filing of the group return shall be in lieu of the filing
of a separate return by each of the local organizations included in the
group return. The group return shall include only those local
organizations which in writing have authorized the central organization
to include them in the group return, and which have made and filed, with
the central organization, their statements, specifically stating their
items of gross income, receipts, and disbursements, and such other
information relating to them as is required to be stated in the group
return. Such an authorization and statement by a local organization
shall be made under the penalties of perjury, shall be signed by a duly
authorized officer of the local organization in his official capacity,
and shall contain the following statement, or a statement of like
import: ``I hereby declare under the penalties of perjury that this
authorization (including any accompanying schedules and statements) has
been examined by me and to the best of my knowledge and belief is true,
correct and complete and made in good faith.'' Such authorization and
statement with respect to a local organization shall be retained by the
central organization until the expiration of 6 years after the last
taxable year for which a group return filed by such central organization
includes such local organization.
(ii) There shall be attached to the group return and made a part
thereof a schedule showing the name, address, and employer
identification number of each of the local organizations and the total
number thereof included in such return, and a schedule showing the name,
address, and employer identification number of each of the local
organizations and the total number thereof not included in the group
return.
(3) The group return shall be on the basis of the established annual
accounting period of the central organization. Where such central
organization has no established annual accounting period, such return
shall be on the basis of the calendar year. The same income, receipts,
and disbursements of a local organization shall not be included in more
than one group return.
(4) The group return shall be filed in accordance with these
regulations and the instructions issued with respect to Form 990, and
shall be considered the return of each local organization included
therein. The tax exempt status of a local organization must be
established under a group exemption letter issued to the central
organization before a group return including the local organization will
be considered as the return of the local organization. See Sec.
1.501(a)-1 for requirements for establishing a tax-exempt status.
(5) In providing the information required by paragraph (a)(2)(ii)
(f), (g), and (h) of this section, such information may be provided:
(i) With respect to the central or parent organization on its Form
990, and with respect to the local organizations on separate schedules
attached to the group return for the year, or
(ii) On a consolidated basis for all the local organizations and the
central or parent organization on the group return.
Such information need be provided only with respect to those local
organizations which are not excepted from filing under the provisions of
paragraph (g) of this section. A central or parent organization shall
indicate whether it has provided such information in the manner
described in subdivision (i) or in subdivision (ii) of this
subparagraph, and may not change the manner in which it provides such
information without the consent of the Commissioner.
(e) Time and place for filing. The annual return required by this
section shall be filed on or before the 15th day of the fifth month
following the close of the period for which the return is required to be
filed. The annual return on
[[Page 151]]
Form 1065 required to be filed by a religious or apostolic association
or corporation shall be filed on or before the date prescribed by
section 6072(b). Each such return shall be filed in accordance with the
instructions applicable thereto.
(f) Penalties and additions to tax. For penalties and additions to
tax for failure to file a return and filing a false or fraudulent
return, see sections 6652, 7203, 7206, and 7207.
(g) Organizations not required to file annual returns. (1) Annual
returns required by this section are not required to be filed by an
organization exempt from taxation under section 501(a) which is:
(i) A church, an interchurch organization of local units of a
church, a convention or association of churches, or an integrated
auxiliary of a church (as defined in paragraph (h) of this section);
(ii) An exclusively religious activity of any religious order;
(iii) An organization (other than a private foundation) described in
section 6033(a)(3)(C), the gross receipts of which in each taxable year
are normally not more than $5,000 (as described in paragraph (g)(3) of
this section);
(iv) A mission society (other than an organization described in
section 509(a)(3)) sponsored by or affiliated with one or more churches
or church denominations, more than one-half of the activities of which
society are conducted in, or directed at persons in foreign countries;
(v) A State institution, the income of which is excluded from gross
income under section 115(a);
(vi) An organization described in section 501(c)(1); or
(vii) An educational organization (below college level) that is
described in section 170(b)(1)(A)(ii), that has a program of a general
academic nature, and that is affiliated (within the meaning of paragraph
(h)(2) of this section) with a church or operated by a religious order.
(2) The provisions of section 6033(a) relieving certain specified
types of organizations exempt from taxation under section 501(a) from
filing annual returns do not abridge or impair in any way the powers and
authority of district directors or directors of service centers provided
for in other provisions of the Code and in regulations thereunder to
require the filing of returns or notices by such organizations. See
section 6001 and Sec. 1.6001-1.
(3) For purposes of subparagraph (1)(iii) of this paragraph, the
gross receipts (as defined in subparagraph (4) of this paragraph) of an
organization are normally not more than $5,000 if:
(i) In the case of an organization which has been in existence for 1
year or less, the organization has received, or donors have pledged to
give, gross receipts of $7,500 or less during the first taxable year of
the organization,
(ii) In the case of an organization which has been in existence for
more than one but less than 3 years, the average of the gross receipts
received by the organization in its first 2 taxable years is $6,000 or
less, and
(iii) In the case of an organization which has been in existence for
3 years or more, the average of the gross receipts received by the
organization in the immediately preceding 3 taxable years, including the
year for which the return would be required to be filed, is $5,000 or
less.
(4) For purposes of this paragraph and paragraph (a)(2) of this
section, ``gross receipts'' means the gross amount received by the
organization during its annual accounting period from all sources
without reduction for any costs or expenses including, for example, cost
of goods or assets sold, cost of operations, or expenses of earning,
raising, or collecting such amounts. Thus ``gross receipts'' includes,
but is not limited to (i) the gross amount received as contributions,
gifts, grants, and similar amounts without reduction for the expenses of
raising and collecting such amounts, (ii) the gross amount received as
dues or assessments from members or affiliated organizations without
reduction for expenses attributable to the receipt of such amounts,
(iii) gross sales or receipts from business activities (including
business activities unrelated to the purpose for which the organization
qualifies for exemption, the net income or loss from which may be
required to be reported on Form 990-T), (iv) the
[[Page 152]]
gross amount received from the sale of assets without reduction for cost
or other basis and expenses of sale, and (v) the gross amount received
as investment income, such as interest, dividends, rents, and royalties.
(5) [Reserved]
(6) The Commissioner may relieve any organization or class of
organizations (other than an organization described in section
509(a)(3)) from filing, in whole or in part the annual return required
by this section where he determines that such returns are not necessary
for the efficient administration of the internal revenue laws.
(h) Integrated auxiliary--(1) In general. For purposes of this
title, the term integrated auxiliary of a church means an organization
that is--
(i) Described both in sections 501(c)(3) and 509(a) (1), (2), or
(3);
(ii) Affiliated with a church or a convention or association of
churches; and
(iii) Internally supported.
(2) Affiliation. An organization is affiliated with a church or a
convention or association of churches, for purposes of paragraph
(h)(1)(ii) of this section, if--
(i) The organization is covered by a group exemption letter issued
under applicable administrative procedures, (such as Rev. Proc. 80-27
(1980-1 C.B. 677); See Sec. 601.601(a)(2)(ii)(b)), to a church or a
convention or association of churches;
(ii) The organization is operated, supervised, or controlled by or
in connection with (as defined in Sec. 1.509(a)-4) a church or a
convention or association of churches; or
(iii) Relevant facts and circumstances show that it is so
affiliated.
(3) Facts and circumstances. For purposes of paragraph (h)(2)(iii)
of this section, relevant facts and circumstances that indicate an
organization is affiliated with a church or a convention or association
of churches include the following factors. However, the absence of one
or more of the following factors does not necessarily preclude
classification of an organization as being affiliated with a church or a
convention or association of churches--
(i) The organization's enabling instrument (corporate charter, trust
instrument, articles of association, constitution or similar document)
or by-laws affirm that the organization shares common religious
doctrines, principles, disciplines, or practices with a church or a
convention or association of churches;
(ii) A church or a convention or association of churches has the
authority to appoint or remove, or to control the appointment or removal
of, at least one of the organization's officers or directors;
(iii) The corporate name of the organization indicates an
institutional relationship with a church or a convention or association
of churches;
(iv) The organization reports at least annually on its financial and
general operations to a church or a convention or association of
churches;
(v) An institutional relationship between the organization and a
church or a convention or association of churches is affirmed by the
church, or convention or association of churches, or a designee thereof;
and
(vi) In the event of dissolution, the organization's assets are
required to be distributed to a church or a convention or association of
churches, or to an affiliate thereof within the meaning of this
paragraph (h).
(4) Internal support. An organization is internally supported, for
purposes of paragraph (h)(1)(iii) of this section, unless it both--
(i) Offers admissions, goods, services or facilities for sale, other
than on an incidental basis, to the general public (except goods,
services, or facilities sold at a nominal charge or for an insubstantial
portion of the cost); and
(ii) Normally receives more than 50 percent of its support from a
combination of governmental sources, public solicitation of
contributions, and receipts from the sale of admissions, goods,
performance of services, or furnishing of facilities in activities that
are not unrelated trades or businesses.
(5) Special rule. Men's and women's organizations, seminaries,
mission societies, and youth groups that satisfy paragraphs (h)(1) (i)
and (ii) of this section are integrated auxiliaries of a church
regardless of whether such an
[[Page 153]]
organization meets the internal support requirement under paragraph
(h)(1)(iii) of this section.
(6) Effective date. This paragraph (h) applies for returns filed for
taxable years beginning after December 31, 1969. For returns filed for
taxable years beginning after December 31, 1969 but beginning before
December 20, 1995, the definition for the term integrated auxiliary of a
church set forth in Sec. 1.6033-2(g)(5) (as contained in the 26 CFR
edition revised as of April 1, 1995) may be used as an alternative
definition to such term set forth in this paragraph (h).
(7) Examples of internal support. The internal support test of this
paragraph (h) is illustrated by the following examples, in each of which
it is assumed that the organization's provision of goods and services
does not constitute an unrelated trade or business:
Example 1. Organization A is described in sections 501(c)(3) and
509(a)(2) and is affiliated (within the meaning of this paragraph (h))
with a church. Organization A publishes a weekly newspaper as its only
activity. On an incidental basis, some copies of Organization A's
publication are sold to nonmembers of the church with which it is
affiliated. Organization A advertises for subscriptions at places of
worship of the church. Organization A is internally supported,
regardless of its sources of financial support, because it does not
offer admissions, goods, services, or facilities for sale, other than on
an incidental basis, to the general public. Organization A is an
integrated auxiliary.
Example 2. Organization B is a retirement home described in sections
501(c)(3) and 509(a)(2). Organization B is affiliated (within the
meaning of this paragraph (h)) with a church. Admission to Organization
B is open to all members of the community for a fee. Organization B
advertises in publications of general distribution appealing to the
elderly and maintains its name on non-denominational listings of
available retirement homes. Therefore, Organization B offers its
services for sale to the general public on more than an incidental
basis. Organization B receives a cash contribution of $50,000 annually
from the church. Fees received by Organization B from its residents
total $100,000 annually. Organization B does not receive any government
support or contributions from the general public. Total support is
$150,000 ($100,000 + $50,000), and $100,000 of that total is from
receipts from the performance of services (66\2/3\% of total support).
Therefore, Organization B receives more than 50 percent of its support
from receipts from the performance of services. Organization B is not
internally supported and is not an integrated auxiliary.
Example 3. Organization C is a hospital that is described in
sections 501(c)(3) and 509(a)(1). Organization C is affiliated (within
the meaning of this paragraph (h)) with a church. Organization C is open
to all persons in need of hospital care in the community, although most
of Organization C's patients are members of the same denomination as the
church with which Organization C is affiliated. Organization C maintains
its name on hospital listings used by the general public, and
participating doctors are allowed to admit all patients. Therefore,
Organization C offers its services for sale to the general public on
more than an incidental basis. Organization C annually receives $250,000
in support from the church, $1,000,000 in payments from patients and
third party payors (including Medicare, Medicaid and other insurers) for
patient care, $100,000 in contributions from the public, $100,000 in
grants from the federal government (other than Medicare and Medicaid
payments) and $50,000 in investment income. Total support is $1,500,000
($250,000 + $1,000,000 + $100,000 + $100,000 + $50,000), and $1,200,000
($1,000,000 + $100,000 + $100,000) of that total is support from
receipts from the performance of services, government sources, and
public contributions (80% of total support). Therefore, Organization C
receives more than 50 percent of its support from receipts from the
performance of services, government sources, and public contributions.
Organization C is not internally supported and is not an integrated
auxiliary.
(i) Records, statements, and other returns of tax-exempt
organizations. (1) An organization that is exempt from taxation under
section 501(a) and is not required to file annually an information
return required by this section shall immediately notify in writing
Exempt Organizations Determinations, at an address prescribed by
publication (including publication on the Internal Revenue Service Web
site), of any changes in its character, operations, or purpose for which
it was originally created.
(2) Every organization which is exempt from tax, whether or not it
is required to file an annual information return, shall submit such
additional information as may be required by the Internal Revenue
Service for the purpose of inquiring into its exempt status and
administering the provisions of subchapter F (section 501 and
following), chapter 1 of subtitle A of the Code, section 6033, and
chapter 42 of
[[Page 154]]
subtitle D of the Code. See section 6001 and Sec. 1.6001-1 with respect
to the authority of the district directors or directors of service
centers to require such additional information and with respect to the
books of account or records to be kept by such organizations.
(3) An organization which has established its exemption from
taxation under section 501(a), including an organization which is
relieved under section 6033 and this section from filing annual returns
of information, is not relieved of the duty of filing other returns of
information. See, for example, sections 6041, 6043, 6051, 6057, and 6058
and the regulations thereunder.
(j) Unrelated business tax returns. In addition to the foregoing
requirements of this section, certain organizations otherwise exempt
from tax under section 501(a) which are subject to tax on unrelated
business taxable income are also required to file returns on Form 990-T.
See paragraph (e) of Sec. 1.6012-2 and paragraph (a)(5) of Sec.
1.6012-3 for requirements with respect to such returns.
(k) Applicability date. This section applies to returns filed on or
after January 30, 2020. Section 1.6033-2T (as contained in 26 CFR part
1, revised April 2019) applies to returns filed before January 30, 2020.
[T.D. 7122, 36 FR 11026, June 8, 1971]
Editorial Note: For Federal Register citations affecting Sec.
1.6033-2, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6033-3 Additional provisions relating to private foundations.
(a) In general. The foundation managers (as defined in section
4946(b)) of every organization (including a trust described in section
4947(a)(1)) which is (or is treated as) a private foundation (as defined
in section 509) the assets of which are at least $5,000 at any time
during a taxable year shall include the following information on its
annual return in addition to that information required under Sec.
1.6033-2(a):
(1) An itemized statement of its securities and all other assets at
the close of the year, showing both book and market value,
(2) An itemized list of all grants and contributions made or
approved for future payment during the year, showing the amount of each
such grant or contribution, the name and address of the recipient (other
than a recipient who is not a disqualified person and who receives, from
the foundation, grants to indigent or needy persons that, in the
aggregate, do not exceed $1,000 during the year), any relationship
between any individual recipient and the foundation's managers or
substantial contributors, and a concise statement of the purpose of each
such grant or contribution,
(3) The address of the principal office of the foundation and (if
different) of the place where its books and records are maintained,
(4) The names and addresses of its foundation managers (within the
meaning of section 4946(b)), that are substantial contributors (within
the meaning of section 507(d)(2)) or that own 10 percent or more of the
stock of any corporation of which the foundation owns 10 percent or more
of the stock, or corresponding interests in partnerships or other
entities, in which the foundation has a 10 percent or greater interest.
For purposes of subparagraph (2) of this paragraph, the business address
of an individual grant recipient or foundation manager may be used by
the foundation in its annual return in lieu of the home address of such
recipient or manager, and the term ``relationship'' shall include, but
is not limited to, any case in which an individual recipient of a grant
or contribution by a private foundation is (i) a member of the family
(as defined in section 4946(d)) of a substantial contributor or
foundation manager of such foundation, (ii) a partner of such
substantial contributor or foundation manager, or (iii) an employee of
such substantial contributor or foundation manager or of an organization
which is effectively controlled (within the meaning of section
4946(a)(1)(H)(i) and the regulations thereunder), directly or
indirectly, by one or more such substantial contributors or foundation
managers.
(b) Notice to public of availability of annual return. A copy of the
notice required by section 6104(d) (relating to
[[Page 155]]
public inspection of private foundations' annual returns), and proof of
publication thereof, shall be filed with the annual return required by
Sec. 1.6033-2(a). A copy of such notice as published, and a statement
signed by a foundation manager stating that such notice was published,
setting forth the date of publication and the publication in which it
appeared, shall be sufficient proof of publication for purposes of this
paragraph.
(c) Special rules--(1) Furnishing of copies to State officers. The
foundation managers of a private foundation shall furnish a copy of the
annual return required by section 6033 and Sec. 1.6033-2 to the
Attorney General of:
(i) Each State which the foundation is required to list on its
return pursuant to Sec. 1.6033-2(a)(2)(iv),
(ii) The State in which is located the principal office of the
foundation, and
(iii) The State in which the foundation was incorporated or created.
The annual return shall be sent to each Attorney General described in
paragraphs (c)(1) (i), (ii), or (iii) of this section at the same time
as it is sent to the Internal Revenue Service. Upon request the
foundation managers shall also furnish a copy of the annual return to
the Attorney General or other appropriate State officer (within the
meaning of section 6104 (c)(2)) of any State. The foundation managers
shall attach to each copy of the annual return sent to State officers
under this subparagraph a copy of the Form 4720, if any, filed by the
foundation for the year.
(2) Cross-reference. For additional rules with respect to private
foundations' returns and the public inspection of such returns, see
section 6104(d) and the regulations thereunder.
(d) Special rules for certain foreign organizations. The provisions
of paragraphs (b) and (c) of this section shall not apply with respect
to an organization described in section 4948(b). The foundation managers
of such organizations are not required to publish notice of availability
of the annual return for inspection, to make the annual return available
at the principal office of the foundation for public inspection under
section 6104(d), or to send copies of the annual return to State
officers.
(e) Effective date. The provisions of this section shall apply with
respect to returns filed for taxable years beginning after December 31,
1980.
[T.D. 8026, 50 FR 20756, May 20, 1985]
Sec. 1.6033-4 Required use of magnetic media for returns by
organizations required to file returns under section 6033.
The return of an organization that is required to be filed on
magnetic media under Sec. 301.6033-4 of this chapter must be filed in
accordance with Internal Revenue Service revenue procedures,
publications, forms, or instructions, including those posted
electronically. (See Sec. 601.601(d)(2) of this chapter).
[T.D. 9364, 72 FR 63810, Nov. 13, 2007]
Sec. 1.6033-5 Disclosure by tax-exempt entities that are parties
to certain reportable transactions.
(a) In general. Every tax-exempt entity (as defined in section
4965(c)) shall file with the IRS on Form 8886-T, ``Disclosure by Tax-
Exempt Entity Regarding Prohibited Tax Shelter Transaction'' (or a
successor form), in accordance with this section and the instructions to
the form, a disclosure of--
(1) Such entity's being a party (as defined in Sec. 53.4965-4 of
this chapter) to a prohibited tax shelter transaction (as defined in
section 4965(e)); and
(2) The identity of any other party (whether taxable or tax-exempt)
to such transaction that is known to the tax-exempt entity.
(b) Frequency of disclosure. A single disclosure is required for
each prohibited tax shelter transaction.
(c) By whom disclosure is made--(1) Tax-exempt entities referred to
in section 4965(c)(1), (2) or (3). In the case of tax-exempt entities
referred to in section 4965(c)(1), (2) or (3), the disclosure required
by this section must be made by the entity.
(2) Tax-exempt entities referred to in section 4965(c)(4), (5), (6)
or (7). In the case of tax-exempt entities referred to in section
4965(c)(4), (5), (6) or (7), including a fully self-directed qualified
plan, IRA, or other savings arrangement, the disclosure required by this
section must be made by the entity
[[Page 156]]
manager (as defined in section 4965(d)(2)) of the entity.
(d) Time and place for filing--(1) In general. The disclosure
required by this section shall be filed on or before May 15 of the
calendar year following the close of the calendar year during which the
tax-exempt entity entered into the prohibited tax shelter transaction.
(2) Subsequently listed transactions. In the case of subsequently
listed transactions (as defined in section 4965(e)(2)), the disclosure
required by this section shall be filed on or before May 15 of the
calendar year following the close of the calendar year during which the
transaction was identified by the Secretary as a listed transaction.
(3) Transition rule. If a tax-exempt entity entered into a
prohibited tax shelter transaction after May 17, 2006, and before
January 1, 2007, the disclosure required by this section shall be filed
on or before November 2, 2007.
(4) No disclosure. Disclosure is not required with respect to any
prohibited tax shelter transaction entered into by a tax-exempt entity
on or before May 17, 2006.
(e) Penalty for failure to provide disclosure statement. See section
6652(c)(3) for the penalty applicable to the failure to disclose a
prohibited tax shelter transaction in accordance with this section.
(f) Effective date/applicability date. This section applies with
respect to transactions entered into by a tax-exempt entity after May
17, 2006.
[T.D. 9492, 75 FR 38702, July 6, 2010]
Sec. 1.6033-6 Notification requirement for entities not required
to file an annual information return under section 6033(a)(1)
(taxable years beginning after December 31, 2006).
(a) In general. Except as otherwise provided in this paragraph,
every organization exempt from taxation under section 501(a) that is not
required to file a return described in Sec. 1.6033-2(a)(2), other than
an organization described in section 401(a) or 501(d), shall submit
annually, in electronic form, a notification setting forth the items
described in paragraph (c) of this section and such other information as
may be prescribed in the instructions and publications issued with
respect to the notification.
(b) Organizations not required to submit annual electronic
notification. (1) An organization exempt from taxation under section
501(a) that is required to file or files an annual information return
under section 6033(a)(1) shall not submit an annual electronic
notification under section 6033(i). This includes the following types of
organizations:
(i) Any organization included in a group return for that year under
Sec. 1.6033-2(d).
(ii) All private foundations required to file under Sec. 1.6033-
2(a)(2)(i) Form 990-PF, ``Return of Private Foundation or Section
4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation.''
(iii) Section 509(a)(3) supporting organizations required to file
under Sec. 1.6033-2(a)(2)(i) Form 990, ``Return of Organization Exempt
From Income Tax,'' or Form 990-EZ, ``Short Form Return of Organization
Exempt From Income Tax.''
(iv) A section 501(c)(21) black lung trust required to file under
Sec. 1.6033-2(a)(2)(i) Form 990-BL, ``Information and Initial Excise
Tax Return for Black Lung Benefit Trusts and Certain Related Persons.''
(v) Any organization that is required to file or files an annual
information return under section 6033(a)(1) on any other form prescribed
by the Internal Revenue Service for that purpose.
(2) An organization exempt from taxation under section 501(a) that
is not required to file a return under section 6033(a)(1) is also not
required to submit an annual electronic notification under section
6033(i). This includes the following types of organizations:
(i) A church, an interchurch organization of local units of a
church, a convention or association of churches, or an integrated
auxiliary of a church (as defined in Sec. 1.6033-2(h)).
(ii) An exclusively religious activity of any religious order.
(iii) A mission society sponsored by or affiliated with one or more
churches or church denominations, more than one-half of the activities
of which society are conducted in, or directed at persons in, foreign
countries.
(iv) An educational organization (below college level) described in
section 170(b)(1)(A)(ii), that has a program
[[Page 157]]
of a general academic nature, and that is affiliated (within the meaning
of Sec. 1.6033-2(h)(2)) with a church or operated by a religious order.
(v) A State institution, the income of which is excluded from gross
income under section 115(a).
(vi) An organization described in section 501(c)(1).
(vii) An organization that is a governmental unit or an affiliate of
a governmental unit exempt from Federal income tax under section 501(a).
(3) If an organization exempt from taxation under section 501(a) is
not described in paragraph (b)(1) or (2) of this section, the
organization must submit an annual electronic notification. Thus, a
black lung trust that normally has gross receipts of $25,000 or less is
not required to file Form 990-BL but is required to submit an annual
electronic notification. A section 509(a)(3) supporting organization of
a religious organization that normally has gross receipts of $5,000 or
less is not required to file Form 990 or Form 990-EZ but is required to
submit an annual electronic notification.
(c) Additional notification requirements--(1) In general. Any
organization described in paragraph (a) of this section shall submit an
annual electronic notification described in section 6033(i)(1). The
annual electronic notification shall--
(i) Be in electronic form; and
(ii) Set forth--
(A) The legal name of the organization;
(B) Any name under which the organization operates or does business;
(C) The organization's mailing address and Internet Web site address
(if any);
(D) The organization's taxpayer identification number;
(E) The name and address of a principal officer;
(F) Evidence of the continuing basis for the organization's
exemption from the filing requirements under section 6033(a)(1); and
(G) Additional information necessary to process the notification.
(2) The mailing address required by section 6033(i)(1)(C) and
submitted in the annual electronic notification shall be the
organization's last known address as provided by Sec. 301.6212-2(a) of
this chapter. This last known address may be updated as provided under
Sec. 301.6212-2 of this chapter, or by clear and concise notification.
The Internal Revenue Service will use this last known address as the
organization's address of record and will direct all mailings to this
address.
(3) By submitting the annual electronic notification described in
paragraph (c)(1) of this section, an organization acknowledges that it
is not required to file a return under section 6033(a) because its
annual gross receipts are not normally in excess of $25,000. In order to
make this determination, the organization must keep records that enable
it to calculate its gross receipts. All organizations are required to
maintain records under section 6001. These records will provide evidence
of the continuing basis for the organization's exemption from the filing
requirements under section 6033(a)(1).
(4) If an organization that is required to submit an annual
electronic notification files a complete Form 990 or Form 990-EZ, the
annual electronic notification requirement shall be deemed satisfied.
The annual electronic notification requirement is not satisfied if the
Form 990 or Form 990-EZ contains only those items of information that
would have been required by submitting the notification in electronic
form. Also, the filing of a complete Form 990 or Form 990-EZ, rather
than the submission of an annual electronic notification, is the filing
of a return that starts the period of limitations for assessment under
section 6501(g)(2).
(d) No effect on other filing requirements. An organization that is
relieved from filing an information return under section 6033(a) is
still subject to the requirements of Sec. Sec. 1.6033-2(i) and (j),
concerning: notice regarding changes in character, operations, or
purpose; provision of additional information; duty to file other returns
of information; and duty to file unrelated business tax returns. If an
organization is required to file an unrelated business tax return, Form
990-T, ``Exempt Organization Business Income Tax Return,''
[[Page 158]]
the filing of that return does not relieve the organization from the
requirement of submitting an annual electronic notification under
section 6033(i).
(e) Accounting period for submitting annual electronic notification.
An annual electronic notification required by this section shall be on
the basis of the established annual accounting period of the
organization. If the organization has no established accounting period,
the annual electronic notification shall be on the basis of the calendar
year.
(f) Time and place for submitting annual electronic notification.
The annual electronic notification required by this section shall be
submitted on or before the 15th day of the fifth calendar month
following the close of the period for which the notification is required
to be submitted. Thus, an organization with an accounting period ending
December 31, 2007, is required to submit an annual electronic
notification by May 15, 2008. The notification shall be submitted in
accordance with instructions and publications, including those provided
at the Internal Revenue Service Web site for exempt organizations.
(g) Effective/applicability date. These regulations are applicable
to annual periods beginning after 2006.
[T.D. 9454, 74 FR 36396, July 23, 2009]
Sec. 1.6034-1 Information returns required of trusts described
in section 4947(a)(2) or claiming charitable or other deductions
under section 642(c).
(a) In general. Every trust (other than a trust described in
paragraph (b) of this section) claiming a charitable or other deduction
under section 642(c) for the taxable year shall file, with respect to
such taxable year, a return of information on form 1041-A. In addition,
for taxable years beginning after December 31, 1969, every trust (other
than a trust described in paragraph (b) of this section) described in
section 4947(a)(2) (including trusts described in section 664) shall
file such return for each taxable year, unless all transfers in trust
occurred before May 27, 1969. The return shall set forth the name and
address of the trust and the following information concerning the trust
in such detail as is prescribed by the form or in the instructions
issued with respect to such form:
(1) The amount of the charitable or other deduction taken under
section 642(c) for the taxable year (and, for taxable years beginning
prior to January 1, 1970, showing separately for each class of activity
for which disbursements were made (or amounts were permanently set
aside) the amounts which, during such year, were paid out (or which were
permanently set aside) for charitable or other purposes under section
642(c));
(2) The amount paid out during the taxable year which represents
amounts permanently set aside in prior years for which charitable or
other deductions have been taken under section 642(c), and separately
listing for each class of activity, for which disbursements were made,
the total amount paid out;
(3) The amount for which charitable or other deductions have been
taken in prior years under section 642(c) and which had not been paid
out at the beginning of the taxable year;
(4)(i) The amount paid out of principal in the taxable year for
charitable, etc., purposes, and separately listing for each such class
of activity, for which disbursements were made, the total amount paid
out;
(ii) The total amount paid out of principal in prior years for
charitable, etc., purposes;
(5) The gross income of the trust for the taxable year and the
expenses attributable thereto, in sufficient detail to show the
different categories of income and of expense; and
(6) A balance sheet showing the assets, liabilities, and net worth
of the trust as of the beginning of the taxable year.
(b) Exceptions--(1) In general. A trust is not required to file a
Form 1041-A for any taxable year with respect to which the trustee is
required by the terms of the governing instrument and applicable local
law to distribute currently all of the income of the trust. For this
purpose, the income of the trust shall be determined in accordance with
section 643(b) and Sec. Sec. 1.643(b)-1 and 1.643(b)-2.
(2) Trusts described in section 4947(a)(1). For taxable years
beginning
[[Page 159]]
after December 31, 1980, a trust described in section 4947(a)(1) is not
required to file a Form 1041-A.
(c) Time and place for filing return. The return on form 1041-A
shall be filed on or before the 15th day of the 4th month following the
close of the taxable year of the trust, with the internal revenue
officer designated by the instructions applicable to such form. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(d) Other provisions. For publicity of information on Form 1041-A,
see section 6104 and the regulations thereunder in part 301 of this
chapter. For provisions relating to penalties for failure to file a
return required by this section, see section 6652(d). For the criminal
penalties for a willful failure to file a return and filing a false or
fraudulent return, see sections 7203, 7206, and 7207.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7563, 43 FR
40221, Sept. 11, 1978; T.D. 8026, 50 FR 20757, May 20, 1985]
Sec. 1.6035-1 [Reserved]
Sec. 1.6035-2 Transitional relief.
(a) Statements due before June 30, 2016. Executors and other persons
required to file or furnish a statement under section 6035(a)(1) or (2)
after July 31, 2015 and before June 30, 2016, need not have done so
until June 30, 2016.
(b) Applicability Date. This section is applicable to executors and
other persons who file a return required by section 6018(a) or (b) after
July 31, 2015.
[T.D. 9797, 81 FR 86955, Dec. 2, 2016]
Sec. 1.6036-1 Notice of qualification as executor or receiver.
For provisions relating to the notice required of fiduciaries, see
the regulations under section 6036 contained in part 301 of this chapter
(Regulations on Procedure and Administration).
Sec. 1.6037-1 Return of electing small business corporation.
(a) In general. Every small business corporation (as defined in
section 1371(a)) which has made an election under section 1372(a) not to
be subject to the tax imposed by chapter 1 of the Code shall file, with
respect to each taxable year for which the election is in effect, a
return of income on Form 1120-S. The return shall set forth the items of
gross income and the deductions allowable in computing taxable income as
required by the return form or in the instructions issued with respect
thereto and shall be signed in accordance with section 6062 by the
person authorized to sign a return. The return shall also set forth the
following information concerning the electing small business
corporation:
(1) The names and addresses of all persons owning stock in the
corporation at any time during the taxable year;
(2) The number of shares of stock owned by each shareholder at all
times during the taxable year;
(3) The amount of money and other property distributed by the
corporation during the taxable year to each shareholder;
(4) The date of each distribution of money and other property; and
(5) Such other information as is required by the form or by the
instructions issued with respect to such form.
(b) Time and place for filing return. The return shall be filed on
or before the 15th day of the third month following the close of the
taxable year with the internal revenue officer designated in the
instructions applicable to Form 1120-S. (See section 6072.)
(c) Other provisions. The return on Form 1120-S will be treated as a
return filed by the corporation under section 6012, relating to persons
required to make returns of income, for purposes of the provisions of
chapter 66 of the Code, relating to limitations. Thus, for example, the
period of limitation on assessment and collection of any corporate tax
found to be due upon a subsequent determination that the corporation was
not entitled to the benefits of subchapter S, chapter 1 of the Code,
will run from the date of filing the return under section 6037, or from
the date prescribed for filing such return, whichever is the later. For
the rules requiring the disclosure of certain transactions, see Sec.
1.6011-4T.
(d) Penalties. For criminal penalties for failure to file a return,
supply information, or pay tax, and for filing a false or fraudulent
return, statement,
[[Page 160]]
or other document, see sections 7203, 7206, and 7207.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7012, 34 FR
7690, May 15, 1969; T.D. 9000, 67 FR 41328, June 18, 2002]
Sec. 1.6037-2 Required use of magnetic media for income tax returns
of electing small business corporations.
The return of an electing small business corporation that is
required to be filed on magnetic media under Sec. 301.6037-2 of this
chapter must be filed in accordance with Internal Revenue Service
revenue procedures, publications, forms, or instructions, including
those posted electronically. (See Sec. 601.601(d)(2) of this chapter).
[T.D. 9363, 72 FR 63810, Nov. 13, 2007]
Sec. 1.6038-1 Information returns required of domestic corporations
with respect to annual accounting periods of certain foreign
corporations beginning before January 1, 1963
.
(a) Requirement of return. For taxable years beginning after
December 31, 1960, every domestic corporation shall make a separate
annual information return on Form 2952, in duplicate, with respect to
each foreign corporation which it controls, as defined in paragraph (b)
of this section, and with respect to each foreign subsidiary, as defined
in paragraph (c) of this section, for each annual accounting period
(described in paragraph (d) of this section) of each such controlled
foreign corporation or foreign subsidiary beginning after December 31,
1960, and before January 1, 1963. Such information shall not be required
to be furnished, however, with respect to a corporation defined in
section 1504(d) of the Code which makes a consolidated return for the
taxable year. For annual accounting periods beginning after December 31,
1962, see Sec. 1.6038-2.
(b) Control. A domestic corporation shall be deemed to be in control
of a foreign corporation if at any time during its taxable year it owns
more than 50 percent of the voting stock of such foreign corporation.
(c) Foreign subsidiary. A foreign corporation more than 50 percent
of the voting stock of which is owned by a controlled foreign
corporation at any time during the annual accounting period of such
controlled foreign corporation shall be considered a foreign subsidiary.
(d) Period covered by return--(1) Controlled foreign corporation.
The information with respect to a controlled foreign corporation shall
be furnished for its annual accounting period ending with or within the
domestic corporation's taxable year.
(2) Foreign subsidiary. The information with respect to a foreign
subsidiary shall be furnished for such subsidiary's annual accounting
period ending with or within the controlled foreign corporation's annual
accounting period.
(3) Annual accounting period defined. For purposes of this section,
the annual accounting period of a controlled foreign corporation or of a
foreign subsidiary is the annual period on the basis of which the
controlled foreign corporation or foreign subsidiary regularly computes
its income in keeping its books. The term ``annual accounting period''
may refer to a period of less than 1 year, where for example the foreign
income, war profits, and excess profits taxes are determined on the
basis of an accounting period of less than 1 year as described in
section 902(c)(2).
(e) Contents of return. The return on Form 2952 shall contain the
following information with respect to each controlled corporation and
each foreign subsidiary:
(1) The name and address of the corporation;
(2) The principal place of business of the corporation;
(3) The date of incorporation and the country under whose laws
incorporated;
(4) The nature of the corporation's business;
(5) As regards the outstanding stock of the corporation:
(i) A description of each class of the corporation's stock, and
(ii) The number of shares of each class outstanding at the beginning
and the end of the annual accounting period;
(6) A list showing the name and address of, and the number of shares
of
[[Page 161]]
each class of the corporation's stock held by, each citizen or resident
of the United States, and each domestic corporation, who is a
shareholder of record owning at any time during the annual accounting
period 5 percent or more in value of any class of the corporation's
outstanding stock;
(7) The amount of the corporation's gross receipts, net profits
before taxes and provision for foreign income taxes, for the annual
accounting period, as reflected on the financial statements required
under paragraph (f) of this section to be filed with the return; and
(8) A summary showing the total amount of each of the following
types of transactions of the corporation, which took place during the
annual accounting period, with the domestic corporation or any
shareholder of the domestic corporation owning at the time of the
transaction 10 percent or more of the value of any class of stock
outstanding of the domestic corporation:
(i) Sales and purchases of stock in trade;
(ii) Purchases of property of a character which is subject to the
allowance for depreciation;
(iii) Compensation paid and compensation received for the rendition
of technical, managerial, engineering, construction, scientific, or like
services;
(iv) Commissions paid and commissions received;
(v) Rents and royalties paid and rents and royalties received;
(vi) Amounts loaned and amounts borrowed (other than open accounts
which arise and are collected in the ordinary course of business);
(vii) Dividends paid and dividends received;
(viii) Interest paid and interest received; and
(ix) Premiums received for insurance or reinsurance.
If the domestic corporation is a bank, as defined in section 581, or is
controlled within the meaning of section 368(c) by a bank, the term
``transactions'' shall not, as to a corporation with respect to which a
return is filed, include banking transactions entered into on behalf of
customers; in any event, however, deposits in accounts between a
controlled foreign corporation or a foreign subsidiary and the domestic
corporation or a 10-percent shareholder described in this subparagraph
and withdrawals from such accounts shall be summarized by reporting end-
of-month balances.
(f) Financial statements. The following information with respect to
each controlled foreign corporation and each foreign subsidiary shall be
attached to and filed as part of the return required by this section:
(1) A statement of the corporation's profit and loss for the annual
accounting period;
(2) A balance sheet as of the end of the annual accounting period of
the corporation showing:
(i) The corporation's assets,
(ii) The corporation's liabilities, and
(iii) The corporation's net worth; and
(3) An analysis of changes in the corporation's surplus accounts
during the annual accounting period including both opening and closing
balances.
The statements listed in subparagraphs (1), (2), and (3) of this
paragraph shall be prepared in conformity with generally accepted
accounting principles, and in such form and detail as is customary for
the corporation's accounting records.
(g) Method of reporting. All amounts furnished under paragraphs (e)
and (f) of this section shall be expressed in United States currency
with a statement of the exchange rates used.
(h) Time and place for filing return. Returns on Form 2952 required
under paragraph (a) of this section shall be filed with the domestic
corporation's income tax return on or before the fifteenth day of the
third month following the close of such corporation's taxable year.
(i) Extensions of time for filing. District directors are authorized
to grant reasonable extensions of time for filing returns on Form 2952
in accordance with the applicable provisions of Sec. 1.6081-1. An
application by a domestic corporation for an extension of time for
filing a return of income shall also be considered as an application for
an extension of time for filing returns on Form 2952.
(j) Failure to furnish information--(1) Effect on foreign tax
credit. (i) Failure by a domestic corporation to furnish,
[[Page 162]]
in accordance with the provisions of this section, any return or any
information in any return, required to be filed for a taxable year under
authority of section 6038 on or before the date prescribed in paragraph
(h) of this section (determined with regard to any extension of time for
such filing) shall affect the application of section 902 as provided in
subparagraph (2) of this paragraph. Such failure shall affect the
application of section 902 to such domestic corporation or to any person
who acquires from any person any portion (but only to the extent of such
portion) of the interest of such domestic corporation in any controlled
foreign corporation or foreign subsidiary.
(ii) Where the domestic corporation, having filed the return
required by this section except for an omission of, or error with
respect to, some of the information referred to in paragraphs (e) and
(f) of this section, establishes to the satisfaction of the Commissioner
that such omission or error was inadvertent or for reasonable cause and
that such domestic corporation has substantially complied with this
section, such omission or error shall not constitute a failure under
this section.
(2) Reduction of foreign taxes. In the application of section 902 to
the domestic corporation or person referred to in subparagraph (1)(i) of
this paragraph for any taxable year, the amount of taxes paid or deemed
paid by each controlled foreign corporation and each foreign subsidiary
for the accounting period or periods for which the domestic corporation
was required for the taxable year of the failure to furnish information
under this section shall be reduced by 10 percent. The 10 percent
reduction is not limited to the taxes paid or deemed paid by the
controlled foreign corporation or foreign subsidiary with respect to
which there is a failure to file information but shall apply to the
taxes paid or deemed paid by all controlled foreign corporations and
foreign subsidiaries.
(3) Reduction for continued failure. (i) If the failure, referred to
in subparagraph (1)(i) of this paragraph, continues for 90 days or more
after date of written notice by the district director to the domestic
corporation, then the amount of the reduction referred to in
subparagraph (2) of this paragraph shall be 10 percent plus an
additional 5 percent for each 3-month period, or fraction thereof,
during which such failure continues after the expiration of such 90-day
period.
(ii) Taxes paid by a foreign subsidiary when once reduced for a
failure shall not be reduced again for the same failure in their status
as taxes deemed paid by a controlled foreign corporation. Where a
failure continues, each additional periodic 5 percent reduction,
referred to in subdivision (i) of this subparagraph, shall be considered
as part of the one reduction.
(4) Reasonable cause. (i) For purposes of subsection (b) of section
6038 and this section the time prescribed for furnishing information
under this paragraph, and the beginning of the 90-day period after
notice by the district director, shall be treated as being not earlier
than the last day on which (as shown to the satisfaction of the district
director) reasonable cause existed for failure to furnish such
information.
(ii) A domestic corporation, which wishes to avoid a reduction in
foreign tax credit as provided in subparagraphs (2) and (3) of this
paragraph for failure to furnish information in accordance with this
section, must make an affirmative showing of all facts alleged as a
reasonable cause for such failure in the form of a written statement
containing a declaration that it is made under the penalties of perjury.
(5) Penalties. The information required by section 6038 of the Code
must be furnished even though there are no foreign taxes which would be
reduced under the provisions of subparagraph (2) of this paragraph. For
criminal penalties for failure to file a return and filing a false or
fraudulent return, see sections 7203, 7206, and 7207 of the Code.
[T.D. 6506, 25 FR 12241, Nov. 30, 1960, as amended by T.D. 6621, 27 FR
11878, Dec. 1, 1962]
Sec. 1.6038-2 Information returns required of United States persons
with respect to annual accounting periods of certain foreign
corporations.
(a) Requirement of return. Every U.S. person shall make a separate
annual information return with respect to
[[Page 163]]
each annual accounting period (described in paragraph (e) of this
section) of each foreign corporation which that person controls (as
defined in paragraph (b) of this section) at any time during such annual
accounting period.
(1) Form 2952, ``Information Return with Respect to Controlled
Foreign Corporations,'' if such taxable year ends before December 31,
1982;
(2) Form 5471, ``Information Return of U.S. Persons with Respect to
Certain Foreign Corporations,'' if such taxable year ends on or after
December 31, 1983; or
(3) Either Form 5471 or Form 2952 if such taxable year ends on or
after December 31, 1982 and before December 31, 1963.
(b) Control. A person shall be deemed to be in control of a foreign
corporation if at any time during that person's taxable year it owns
stock possessing more than 50 percent of the total combined voting power
of all classes of stock entitled to vote, or more than 50 percent of the
total value of shares of all classes of stock of the foreign
corporation. A person in control of a corporation which, in turn, owns
more than 50 percent of the combined voting power, or of the value, of
all classes of stock of another corporation is also treated as being in
control of such other corporation. The provisions of this paragraph may
be illustrated by the following example:
Example. Corporation A owns 51 percent of the voting stock in
Corporation B. Corporation B owns 51 percent of the voting stock in
Corporation C. Corporation C in turn owns 51 percent of the voting stock
in Corporation D. Corporation D is controlled by Corporation A.
(c) Attribution rules. For the purpose of determining control of
domestic or foreign corporations the constructive ownership rules of
section 318(a) shall apply except that:
(1) Stock owned by or for a partner or a beneficiary of an estate or
trust shall not be considered owned by the partnership, estate, or trust
when the effect is to consider a United States person as owning stock
owned by a person who is not a United States person;
(2) A corporation will not be considered as owning stock owned by or
for a 50 percent or more shareholder when the effect is to consider a
United States person as owning stock owned by a person who is not a
United States person; and
(3) If 10 percent or more in value of the stock in a corporation is
owned, directly or indirectly, by or for any person, section
318(a)(2)(C) shall apply.
The constructive ownership rules of section 318(a) apply only for
purposes of determining control as defined in paragraph (b) of this
section.
(d) U.S. person--(1) In general. For purposes of section 6038 and
this section, the term United States person has the meaning assigned to
it by section 7701(a)(30), except as provided in paragraphs (d)(2) and
(3) of this section.
(2) Special rule for individuals residing in certain possessions.
(i) With respect to an individual who is a bona fide resident of Puerto
Rico, the term United States person has the meaning assigned to it by
Sec. 1.957-3 except that the rules of Sec. 1.937-2(g)(1) will apply.
(ii) With respect to an individual who is a bona fide resident of
any section 931 possession, as defined in Sec. 1.931-1(c)(1), the term
United States person has the meaning assigned to it by Sec. 1.957-3.
(3) Special rule for certain nonresident aliens. An individual for
whom an election under section 6013(g) or (h) is in effect will, subject
to the exceptions contained in paragraph (d)(2) of this section, be
considered a United States person for purposes of section 6038 and this
section.
(e) Period covered by return. The information required under
paragraphs (f) and (g) of this section with respect to a foreign
corporation shall be furnished for the annual accounting period of the
foreign corporation ending with or within the United States person's
taxable year. For purposes of this section, the annual accounting period
of a foreign corporation is the annual period on the basis of which that
corporation regularly computes its income in keeping its books. In the
case of a specified foreign corporation (as defined in section 898), the
taxable year of such corporation shall be treated as its annual
accounting period. The term annual accounting period may refer to a
period of less than one year, where, for example,
[[Page 164]]
the foreign income, war profits, and excess profits taxes are determined
on the basis of an accounting period of less than one year as described
in section 902(c)(5). If more than one annual accounting period ends
with or within the United States person's taxable year, separate annual
information returns shall be submitted for each annual accounting
period.
(f) Contents of return. The return on Form 5471 shall contain so
much of the following information, and in such form or manner, as the
form shall prescribe with respect to each foreign corporation:
(1) The name, address, and employer identification number, if any,
of the corporation;
(2) The principal place of business of the corporation;
(3) The date of incorporation and the country under whose laws
incorporated;
(4) The name and address of the foreign corporation's statutory or
resident agent in the country of incorporation;
(5) The name, address, and identifying number of any branch office
or agent of the foreign corporation located in the United States;
(6) The name and address of the person (or persons) having custody
of the books of account and records of the foreign corporation, and the
location of such books and records if different from such address;
(7) The nature of the corporation's business and the principal
places where conducted;
(8) As regards the outstanding stock of the corporation--
(i) A description of each class of the corporation's stock, and
(ii) The number of shares of each class outstanding at the beginning
and end of the annual accounting period;
(9) A list showing the name, address, and identifying number of, and
the number of shares of each class of the corporation's stock held by,
each United States person who is a shareholder owning at any time during
the annual accounting period 5 percent or more in value of any class of
the corporation's outstanding stock;
(10) For the annual accounting period, the amount of the
corporation's:
(i) Current earnings and profits;
(ii) Foreign income, war profits, and excess profits taxes paid or
accrued;
(iii) Distributions out of current earnings and profits for the
period;
(iv) Distributions other than those described in paragraph
(f)(10)(iii) of this section and the source thereof; and
(v) For Forms 5471 filed for taxable years ending after December 15,
1990, such earnings and profits information as the form shall prescribe,
including post-1986 undistributed earnings described in section
902(c)(1), pre-1987 amounts, total earnings and profits, and previously
taxed earnings and profits described in section 959(c); and
(11) Transactions with certain related parties. (i) A summary
showing the total amount of each of the following types of transactions
of the corporation, which took place during the annual accounting
period, with the person required to file this return, any other
corporation or partnership controlled by that person, or any United
States person owning at the time of the transaction 10 percent or more
in value of any class of stock outstanding of the foreign corporation,
or of any corporation controlling that foreign corporation--
(A) Sales and purchases of stock in trade;
(B) Sales and purchases of tangible property other than stock in
trade;
(C) Sales and purchases of patents, inventions, models, or designs
(whether or not patented), copyrights, trademarks, secret formulas or
processes, or any other similar property rights;
(D) Compensation paid and compensation received for the rendition of
technical, managerial, engineering, construction, scientific, or like
services;
(E) Commissions paid and commissions received;
(F) Rents and royalties paid and rents and royalties received;
(G) Amounts loaned and amounts borrowed (except open accounts
resulting from sales and purchases reported under other items listed in
this paragraph (f)(11) that arise and are collected in full in the
ordinary course of business);
(H) Dividends paid and dividends received;
[[Page 165]]
(I) Interest paid and interest received; and
(J) Premiums paid and premiums received for insurance or
reinsurance.
(ii) Special rule for banks. For purposes of this paragraph (f)(11),
if the United States person is a bank, as defined in section 581, or is
controlled within the meaning of section 368(c) by a bank, the term
transactions shall not, as to a corporation with respect to which a
return is filed, include banking transactions entered into on behalf of
customers; in any event, however, deposits in accounts between a foreign
corporation, controlled (within the meaning of paragraph (b) of this
section) by a United States person, and a person described in this
paragraph (f)(11) and withdrawals from such accounts shall be summarized
by reporting end-of-month balances.
(12) Accrued payments and receipts. For purposes of the required
summary under paragraph (f)(11) of this section, a corporation that uses
an accrual method of accounting shall use accrued payments and accrued
receipts for purposes of computing the total amount of each of the types
of transactions listed.
(g) Financial statements. The following information with respect to
the foreign corporation shall be attached to and filed as part of the
return required by this section. Forms 5471 filed after September 30,
1991, shall contain this information in such form or manner as the form
shall prescribe with respect to each foreign corporation:
(1) A statement of the corporation's profit and loss for the annual
accounting period;
(2) A balance sheet as of the end of the annual accounting period of
the corporation showing--
(i) The corporation's asset;
(ii) The corporation's liabilities; and
(iii) The corporation's net worth; and
(3) An analysis of changes in the corporation's surplus accounts
during the annual accounting period including both opening and closing
balances.
The information listed in this paragraph (g) shall be prepared in
conformity with generally accepted accounting principles, and in such
detail as is customary for the corporation's accounting records.
(h) Method of reporting. Except as provided in this paragraph (h),
all amounts furnished under paragraphs (f) and (g) of this section shall
be expressed in United States dollars with a statement of the exchange
rates used. The following rules shall apply for taxable years ending
after December 31, 1994, with respect to returns filed after December
31, 1995. All amounts furnished under paragraph (g) of this section
shall be expressed in United States dollars computed and translated in
conformity with United States generally accepted accounting principles.
Amounts furnished under paragraph (g)(1) of this section shall also be
furnished in the foreign corporation's functional currency as required
on the form. Earnings and profits amounts furnished under paragraphs
(f)(10) (i), (iii), (iv), and (v) of this section shall be expressed in
the foreign corporation's functional currency except to the extent the
form requires specific items to be translated into United States
dollars. Tax amounts furnished under paragraph (f)(10)(ii) of this
section shall be furnished in the foreign currency in which the taxes
are payable and in United States dollars translated in accordance with
section 986(a). All amounts furnished under paragraph (f)(11) of this
section shall be expressed in U.S. dollars translated from functional
currency at the weighted average exchange rate for the year as defined
in Sec. 1.989(b)-1. The foreign corporation's functional currency is
determined under section 985. All statements submitted on or with the
return required under this section shall be rendered in the English
language.
(i) Time and place for filing return. Returns on Form 5471 required
under paragraph (a) of this section shall be filed with the United
States person's income tax return on or before the date required by law
for the filing of that person's income tax return. Directors of Field
Operations and Field Directors are authorized to grant reasonable
extensions of time for filing returns on Form 5471 in accordance with
the applicable provisions of Sec. 1.6081-1 of this
[[Page 166]]
chapter. An application for an extension of time for filing a return of
income shall also be considered as an application for an extension of
time for filing returns on Form 5471.
(j) Two or more persons required to submit the same information--(1)
Return jointly made. If two or more persons are required to furnish
information with respect to the same foreign corporation for the same
period, such persons may, in lieu of making separate returns, jointly
make one return. Such joint return shall be filed with the income tax
return of any one of the persons making such joint return.
(2) Persons excepted from furnishing information--(i) Conditions.
Any person required to furnish information under this section with
respect to a foreign corporation need not furnish that information
provided all of the following conditions are met:
(A) Such person does not directly own an interest in the foreign
corporation;
(B) Such person is required to furnish the information solely by
reason of attribution of stock ownership from a United States person
under paragraph (c) of this section; and
(C) The person from whom the stock ownership is attributed furnishes
all of the information required under this section of the person to whom
the stock ownership is attributed. (For a rule regarding attribution
from a nonresident alien, see paragraph (l) of this section).
(ii) If an individual who is a United States person required to
furnish information with respect to a foreign corporation under section
6038 is entitled under a treaty to be treated as a nonresident of the
United States, and if the individual claims this treaty benefit, and if
there are no other United States persons that are required to furnish
information under section 6038 with respect to the foreign corporation,
then the individual may satisfy the requirements of paragraphs (f)(10),
(f)(11), (g), and (h) of this section by filing the audited foreign
financial statements of the foreign corporation with the individual's
return required under section 6038.
(iii) Illustrations. The rule of this paragraph (j)(2) is
illustrated by the following examples:
Example 1. A, a U.S. person owns 100 percent of the stock of M, a
domestic corporation. A also owns 100 percent of the stock of N, a
foreign corporation organized under the laws of foreign country Y. A, in
filing the information return required by this section with respect to N
Corporation, in fact furnishes all of the information required of M
Corporation with respect to N Corporation. M Corporation need not file
the information.
Example 2. X, a domestic corporation owns 100 percent of the stock
of Y, a domestic corporation, Y Corporation owns 100 percent of the
stock of Z, a foreign corporation. X Corporation is not excused by this
paragraph (j)(2) from filing information with respect to Z Corporation
because X Corporation is deemed to control Z Corporation under the
provisions of paragraph (b) of this section without recourse to the
attribution rules in paragraph (c) of this section.
(3) Statement required. Any United States person required to furnish
information under this section with his return who does not do so by
reason of the provisions of paragraph (j)(1) of this section shall file
a statement with his income tax return indicating that such requirement
has been (or will be) satisfied and identifying the return with which
the information was or will be filed and the place of filing.
(k) Failure to furnish information--(1) Dollar amount penalty--(i)
In general. If any person required to file Form 5471 under section 6038
and this section fails to furnish any information described in
paragraphs (f) and (g) of this section within the time prescribed by
paragraph (i) of this section, such person shall pay a penalty of
$10,000 for each annual accounting period of each foreign corporation
with respect to which such failure occurs.
(ii) Increase in penalty for continued failure after notification.
If a failure described in paragraph (k)(1)(i) of this section continues
for more than 90 days after the date on which the Director of Field
Operations, Area Director, or Director of Compliance Campus Operations
mails notice of such failure to the person required to file Form 5471,
such person shall pay a penalty of $10,000, in addition to the penalty
imposed by section 6038(b)(1) and paragraph (k)(1)(i) of this section,
for each 30-day period (or a fraction of) during
[[Page 167]]
which such failure continues after such 90-day period has expired. The
additional penalty imposed by section 6038(b)(2) and this paragraph
(k)(1)(ii) shall be limited to a maximum of $50,000 for each failure.
(2) Penalty of reducing foreign tax credit--(i) Effect on foreign
tax credit. Failure of a United States person to furnish, in accordance
with the provisions of this section, any return or any information in
any return, required to be filed for a taxable year under authority of
section 6038 on or before the date prescribed in paragraph (i) of this
section may affect the application of section 901 as provided in
paragraph (k)(2)(ii) of this section and may affect the application of
sections 902 and 960 as provided in paragraph (k)(2)(iii) of this
section. Such failure may affect the application of sections 902 and 960
to any such United States person which is a corporation or to any person
who acquires from any other person any portion (but only to the extent
of such portion) of the interest of such other person in any such
foreign corporation.
(ii) Application of section 901. In the application of section 901
to a United States person referred to in paragraph (k)(2)(i) of this
section, the amount of taxes paid or deemed paid by such person for any
taxable year, with or within which the annual accounting period of a
foreign corporation for which such person failed to furnish information
required under this section ended, may be reduced by 10 percent.
However, no tax reduced under paragraph (k)(2)(iii) of this section or
deemed paid under section 904(c) shall be reduced under the provisions
of this paragraph (k)(2)(ii).
(iii) Application of sections 902 and 960. In the application of
sections 902 and 960 to a United States person referred to in paragraph
(k)(2)(i) of this section for any taxable year, the amount of taxes paid
or deemed paid by each foreign corporation for the accounting period or
periods for which such person was required for the taxable year of the
failure to furnish information under this section may be reduced by 10
percent. The 10-percent reduction is not limited to the taxes paid or
deemed paid by the foreign corporation with respect to which there is a
failure to file information but may apply to the taxes paid or deemed
paid by all foreign corporations controlled by that person. In applying
subsections (a) and (b) of section 902, and in applying subsection (a)
of section 960, the reduction provided by this paragraph (k)(2) shall
not apply for purposes of determining the amount of accumulated profits
in excess of income, war profits, and excess profits taxes.
(iv) Reduction for continued failure after notice. (A) If the
failure referred to in paragraph (k)(2)(i) of this section continues for
more than 90 days after the date on which the Director of Field
Operations mails notice of such failure to such United States person,
then the amount of the reduction referred to in paragraphs (k)(2) (ii)
and (iii) of this section may be 10 percent plus an additional 5 percent
for each 3-month period, or fraction thereof, during which such failure
continues after the expiration of such 90-day period.
(B) No taxes shall be reduced under this paragraph (k)(2) more than
once for the same failure. Taxes paid by a foreign corporation when once
reduced for a failure shall not be reduced again for the same failure in
their status as taxes deemed paid by a corporate shareholder. Where a
failure continues, each additional periodic 5-percent reduction,
referred to in paragraph (k)(2)(iv)(A) of this section, shall be
considered as part of the one reduction.
(v) Limitation on reduction of foreign tax credit. The amount of the
reduction under this paragraph (k)(2) for each failure to furnish
information with respect to a foreign corporation as required under this
section shall not exceed the greater of:
(A) $10,000, or
(B) The income of the foreign corporation for its annual accounting
period with respect to which the failure occurs. For purposes of this
section if a person is required to furnish information with respect to
more than one foreign corporation, controlled (within the meaning of
paragraph (b) of this section) by that person, each failure to submit
information for each such corporation constitutes a separate failure.
(vi) Offset for dollar amount penalty imposed. The total amount of
the reduction or reductions which, but for this
[[Page 168]]
paragraph (k)(2)(vi), may be made under this paragraph (k)(2) with
respect to any separate failure, shall not exceed the maximum amount of
such reductions which may be imposed, reduced (but not below zero) by
the amount of the dollar amount penalty imposed by paragraph (k)(1) of
this section with respect to such separate failure.
(3) Reasonable cause. (i) For purposes of section 6038 (b) and (c)
and this section, the time prescribed for furnishing information under
paragraph (i) of this section, and the beginning of the 90-day period
after mailing of notice by the Director of Field Operations under
paragraphs (k)(1)(ii) and (2)(iv)(A) of this section, shall be treated
as being not earlier than the last day on which reasonable cause existed
for failure to furnish the information.
(ii) To show that reasonable cause existed for failure to furnish
information as required by section 6038 and this section, the person
required to report such information must make an affirmative showing of
all facts alleged as reasonable cause for such failure in a written
statement containing a declaration that it is made under the penalties
of prejury. The statement must be filed with the district director for
the district or the director of the service center where the return is
required to be filed. The district director or the director of the
service center shall determine whether the failure to furnish
information was due to reasonable cause, and if so, the period of time
for which such reasonable cause existed. In the case of a return that
has been filed as required by this section except for an omission of, or
error with respect to, some of the information required, if the person
who filed the return establishes to the satisfaction of the district
director or the director of the service center that the person has
substantially complied with this section, then the omission or error
shall not constitute a failure under this section.
(4) Other penalties. The information required by section 6038 and
this section must be furnished even though there are no foreign taxes
which would be reduced under the provisions of this section, and even
though the information required may not affect the amount of any tax due
under the Internal Revenue Code. For criminal penalties for failure to
file a return and filing a false or fraudulent return, see sections
7203, 7206, and 7207 of the Code.
(5) Illustrations. The provisions of this paragraph may be
illustrated by the following examples.
Example 1. M, a domestic corporation owns 100 percent of the stock
of N, a foreign corporation. Both M and N use the calendar year as a
taxable year and annual accounting period, and all of the following
events occur in or with respect to the 1980 taxable year. The dividend
from N is the only dividend from a foreign corporation received by M
during the taxable year, and the foreign taxes listed are the only
foreign taxes paid or deemed paid by M and N for the taxable year. On
March 15, 1981, M filed its income tax return and paid its income tax,
but M did not file Form 2952 with respect to N's 1980 annual accounting
period. On June 1, 1961, the district director mailed notice to M of M's
failure to file Form 2952 with respect to N. On November 30, 1981, M
filed a complete Form 2952 with respect to N's 1980 annual accounting
period.
(a) Gains, profits, and income of N........................ $100,000
(b) Foreign tax paid by N with respect to such gains, 40,000
profits, and income.......................................
(c) Reduction of foreign tax paid by N (for purposes of M's 6,000
section 902 deemed paid credit) resulting from M's failure
to file information with respect to N as required under
section 6038(a) and this section: failure to file within
the time prescribed in paragraph (i) of this section, 10-
percent reduction; continued failure for one additional 3-
month period after 90-day period after notice mailed, 5-
percent reduction; total reduction, 15 percent ($40,000
times 15 percent).........................................
(d) Foreign tax paid by N after section 6038(c)(1)(B) 34,000
reduction.................................................
(e) Dividend paid by N to M................................ 45,000
(f) Accumulated profits of N as defined in section 100,000
902(c)(1) (determined without regard to the section
6038(c)(1)(B) reduction)..................................
(g) Accumulated profits of N as described in section 902(a) 60,000
(determined without regard to the section 6038(c)(1)(B)
reduction)................................................
(h) For purposes of the section 902 credit, M is deemed to 25,500
have paid the same proportion of foreign taxes paid
(reduced as provided under section 6038(c)) with respect
to the accumulated profits described in section 902(a)
(determined without regard to the reduction provided under
section 6038(c)) as the amount of the dividend (determined
without regard to section 78) bears to such amount of
accumulated profits.......................................
(45,000 / 60,000) x 34,000 = 25,500.................
[[Page 169]]
M must include $25,500 in gross income as a dividend under the
provisions of section 78 of the Code. This example illustrates that the
reductions in foreign taxes paid by the foreign corporation provided
under section 8038(c) are taken into account in determining the amount
included in gross income of the domestic corporation under section 78 of
the Code as foreign taxes deemed paid, but such reductions are not taken
into account in computing accumulated profits for purposes of
determining the portion of foreign taxes deemed paid with respect to a
particular dividend. The dollar amount penalty imposed by section 8038
(b) and paragraph (k)(1) of this section does not apply with respect to
information for annual accounting periods ending before September 4,
1982, and therefore does not apply to M with respect to M's failure to
file Form 2952 in this example.
Example 2. The facts are the same as in example (1) except that all
of the events occur in or with respect to the 1982 taxable year. On
March 15, 1983. M filed its income tax return and paid its income tax,
but M did not file Form 2952 or Form 5471 with respect to N's 1982
annual accounting period. On June 1, 1983, the district director mailed
notice to M of M's failure to file Form 2952 or Form 5471 with respect
to N. On November 30, 1983, M filed a complete Form 5471 with respect to
N's 1982 annual accounting period. Under paragraph (k)(1)(i) of this
section, M is subject to a penalty of $1,000. Under paragraph (k)(1)(ii)
of this section, that penalty is increased by $4,000 because the failure
continued for 92 days (three full 30-day periods and a fraction of a
fourth 30-day period) after the end of the 90-day period following
mailing of the notice by the district director, bringing M's dollar
amount penalty under paragraph (k)(1) of this section to $5,000. For
purpose of determining the foreign tax credit available to M, there may
be imposed a reduction of foreign tax paid by N of $6,000, which would
be the total of reductions under paragraph (k)(2) of this section with
respect to M's failure to file under section 6038 for N's 1982 annual
accounting period, before application of paragraph (k)(2)(vi) of this
section. Under said paragraph (k)(2)(vi), the amount of the foreign tax
reduction imposed is reduced by the amount of the dollar amount penalty,
leaving a foreign tax reduction penalty of $1,000 which may be imposed
in addition to the $5,000 dollar amount penalty. If imposed, the $1,000
tax reduction would then be applied in the calculation of taxes deemed
paid by M under section 902 as in example (1), items (c), (d), and (h).
Example 3. A, a U.S. person, owns 100 percent of the stock of FC. On
April 15, 2008, A timely filed its 2007 income tax return but did not
file Form 5471 with respect to FC's 2007 annual accounting period. On
June 1, 2008, the Director of Field Operations mailed a notice to A of
A's failure to file Form 5471 for 2007 with respect to FC. On August 1,
2008, A submits a written statement asserting facts for reasonable cause
for failure to file the 2007 Form 5471 for FC. Based on A's statement
and discussions with A, the Director of Field Operations agrees that A
had reasonable cause for failure to file FC's 2007 Form 5471 and
determined that it is reasonable for A to file FC's 2007 Form 5471 by
September 15, 2008. The time prescribed for furnishing information under
paragraph (i) of this section is September 15, 2008, and the 90-day
period described under paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this
section begins on that same date. Thus, if A files a completed Form 5471
by September 15, 2008, A is not subject to the penalties under
paragraphs (k)(1) and (k)(2) of this section. If A does not file a
completed Form 5471 by December 14, 2008, in addition to the penalties
under paragraphs (k)(1) and (k)(2) of this section, A will also be
subject to the penalties for continued failure under paragraphs
(k)(1)(ii) and (k)(2)(iv)(A) of this section.
Example 4. The facts are the same as in Example 3 except A submits
the written statement to the Director before a notice of failure to
furnish information is mailed to A. The notice is mailed to A on
September 7, 2008. Under these facts, the time prescribed for furnishing
information under paragraph (i) of this section is September 15, 2008,
and the 90-day period after mailing of notice of failure under
paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this section begins on that
same date.
(l) Other persons excepted from filing. For tax years of foreign
corporations ending on or after December 29, 1999, any person required
to furnish information under this section with respect to a foreign
corporation does not have to furnish that information if the following
conditions are met--
(1) Such person does not own a direct or indirect interest in the
foreign corporation; and
(2) Such person is required to furnish information solely by reason
of attribution of stock ownership from a nonresident alien(s) under
paragraph (c) of this section.
(m) Applicability dates--(1) In general. This section applies to
taxable years of foreign corporations beginning on or after October 3,
2018. See 26 CFR 1.6038-2 (revised as of April 1, 2018) for rules
applicable to taxable years of foreign corporations beginning before
such date.
[[Page 170]]
(2) [Reserved]
[T.D. 8040, 50 FR 30163, July 24, 1985, as amended by T.D. 8573, 59 FR
64302, Dec. 14, 1994; T.D. 8733, 62 FR 53385, Oct. 14, 1997; T.D. 8850,
64 FR 72550, Dec. 28, 1999; T.D. 9194, 70 FR 18946, Apr. 11, 2005; T.D.
9268, 71 FR 35525, June 21, 2006; T.D. 9338, 72 FR 38475, July 13, 2007;
T.D. 9391, 73 FR 19376, Apr. 9, 2008; T.D. 9650, 78 FR 79611, Dec. 31,
2013; T.D. 9806, 81 FR 95470, Dec. 28, 2016; T.D. 9866, 84 FR 29369,
June 21, 2019]
Sec. 1.6038-2T Information returns required of United States
persons with respect to annual accounting periods of certain
foreign corporations beginning after December 31, 1962 (temporary).
(a) through (e) [Reserved].
(f)(1) through (15) [Reserved].
(16) Dividends for which section 245A deduction or section 954(c)(6)
exception is limited--(i) General rule. If for the annual accounting
period, the corporation distributes or receives a dividend that gives
rise to an ineligible amount (as defined in Sec. 1.245A-5T((i)(12)), a
tiered extraordinary disposition amount (as defined in Sec. 1.245A-
5T(i)(25)), or a tiered extraordinary reduction amount (as defined in
Sec. 1.245A-5T(i)(26)), then Form 5471 (or a successor form) must
contain such information about the ineligible amount, tiered
extraordinary disposition amount, or tiered extraordinary reduction
amount, as applicable, in the form and manner and to the extent
prescribed by the form, instructions to the form, publication, or other
guidance published in the Internal Revenue Bulletin.
(ii) Transition rule. If the corporation (or predecessor
corporation) distributed or received a dividend that gave rise to an
ineligible amount, a tiered extraordinary disposition amount, or a
tiered extraordinary reduction amount in an annual accounting period for
which the Form 5471 (or successor form) has been filed before the date
of publication of these Temporary regulations, the corporation must
provide the information described in paragraph (f)(16)(i) of this
section on the first Form 5471 (or successor form) filed by the
corporation after the issuance of guidance setting forth the form and
manner of reporting such information.
(g) through (l) [Reserved].
(m)(1) [Reserved].
(2) Special rule for paragraph (f)(16). Paragraph (f)(16) of this
section applies with respect to information for annual accounting
periods in which a dividend subject to Sec. 1.245A-5T is paid.
(n) Expiration date. The applicability of paragraphs (f)(16) and (m)
of this section expires June 14, 2022.
[T.D. 9865, 84 FR 28423, June 18, 2019]
Sec. 1.6038-3 Information returns required of certain United States
persons with respect to controlled foreign partnerships (CFPs).
(a) Persons required to make return--(1) Controlling fifty-percent
partners. The term controlling fifty-percent partner means a United
States person that controlled (as defined in paragraph (b)(1) of this
section) the foreign partnership at any time during the partnership's
tax year (as defined in paragraph (b)(8) of this section). Except as
provided in paragraph (c), (d), or (e) of this section, for each tax
year of a foreign partnership during which the partnership has one or
more controlling fifty-percent partners, each controlling fifty-percent
partner must complete and file Form 8865, ``Return of U.S. Persons With
Respect to Certain Foreign Partnerships,'' containing the information
described in paragraph (g) of this section.
(2) Controlling ten-percent partners. If at any point during a
foreign partnership's tax year (as defined in paragraph (b)(8) of this
section) a United States person owned a ten-percent or greater interest
in the partnership while the partnership was controlled by United States
persons owning ten-percent or greater interests, such United States
person is a controlling ten-percent partner. See paragraph (b)(1) of
this section for the definition of control. However, a United States
person is not a controlling ten-percent partner with respect to a
particular foreign partnership for a particular tax year of the foreign
partnership if at any point during that year the partnership had a
controlling fifty-percent partner, as defined in paragraph (a)(1) of
this section. Except as provided in paragraph (c), (d), or (e) of this
section, for each tax year of a partnership during which the partnership
has controlling ten-percent partners, each controlling ten-percent
[[Page 171]]
partner must complete and file Form 8865 containing the information
described in paragraph (g)(1) of this section.
(3) Separate returns for each partnership. A United States person
required to report under this paragraph (a) must file a separate Form
8865 for each foreign partnership with respect to which the person is a
controlling fifty-percent partner or a controlling ten-percent partner.
(b) Ownership determinations and definitions--(1) Control. Control
of a foreign partnership is ownership of more than a fifty-percent
interest in the partnership.
(2) Fifty-percent interest. A fifty-percent interest in a
partnership is an interest equal to fifty percent of the capital
interest in such partnership, an interest equal to fifty percent of the
profits interest in such partnership, or an interest to which fifty
percent of the deductions or losses of such partnership are allocated.
(3) Ten-percent interest. A ten-percent interest in a partnership is
an interest equal to ten percent of the capital interest in such
partnership, an interest equal to ten percent of the profits interest in
such partnership, or an interest to which ten percent of the deductions
or losses of such partnership are allocated.
(4) Constructive ownership rules. For purposes of determining an
interest in a partnership, the constructive ownership rules of section
267(c) (other than section 267(c)(3)) apply, taking into account that
such rules refer to corporations and not to partnerships. However, an
interest will be attributed from a nonresident alien under the family
attribution rules of section 267(c)(2) and (4) only if the person to
whom the interest is attributed owns a direct or indirect (under the
rules of 267(c)(1) or (5)) interest in the foreign partnership.
(5) Determination of amount of interest. Whether a person owns a
fifty-percent interest, or a ten-percent interest, as described in
paragraphs (b)(2) and (3) of this section, is determined for each tax
year of the foreign partnership by reference to the agreement of the
partners relating to such interests during that tax year.
(6) Definition of United States person. The term United States
person is defined in section 7701(a)(30).
(7) Definition of a foreign partnership. A foreign partnership is a
partnership described in section 7701(a)(5).
(8) Tax year of a foreign partnership. The tax year of a foreign
partnership is determined under section 706.
(9) Examples. The rules of paragraph (a) of this section and this
paragraph (b) are illustrated by the following examples:
Example 1. Sole U.S. partner does not own more than a fifty-percent
interest. No United States person owns any interest (directly or
constructively) in FPS, a foreign partnership whose tax year under
section 706 is the calendar year. On January 1, 2001, US, a United
States person with the calendar year as its tax year, contributes
property to FPS in exchange for a 40% interest in a section 721
transaction. No United States persons acquire directly or constructively
any other interests in FPS during FPS's 2001 tax year. US is not a
controlling fifty-percent partner during FPS's 2001 tax year. US did not
own during that tax year, either directly or constructively, more than a
50% interest in the partnership under paragraphs (b)(2) and (4) of this
section. Also, US is not a controlling ten-percent partner; although US
owned a 10% or greater interest, US persons owning at least 10%
interests did not control FPS. Therefore, US does not have to file with
its 2001 income tax return a Form 8865 with respect to FPS under section
6038. (But see section 6038B for the reporting obligations of US with
respect to its transfer of property to FPS and section 6046A for the
reporting obligation of US with respect to its acquisition of an
interest in FPS. See also Sec. 1.6046A-1(f)(1) regarding the overlap
between sections 6038B and 6046A.
Example 2. Controlling ten-percent partners. Assume the same facts
as in Example 1. In addition, on January 1, 2002, US1, a United States
person unrelated to US and a calendar year taxpayer, purchases a 15%
interest in FPS from a foreign partner of FPS. Neither US nor US1 is a
controlling fifty-percent partner during FPS's 2002 tax year because
neither one owns more than a 50% percent interest in FPS during that
year. However, US and US1 are controlling ten-percent partners for that
year because each owns at least a 10% interest (US owns a 40% interest
and US1 owns a 15% interest) and together they control FPS because
collectively they own more than a 50% interest in FPS. As controlling
ten-percent partners, under section 6038, each is required to file a
Form 8865 with its 2002 income tax return. (US1 must also report its
acquisition of the 15% interest in
[[Page 172]]
FPS under section 6046A on its Form 8865 filed with its 2002 income tax
return.)
Example 3. Constructive ownership rules. Assume the same facts as in
Example 2. In addition, on January 1, 2003, US2, a United States person
and the brother of US, purchases 50% of the stock of FC, a foreign
corporation. FC owns a 20% interest in FPS. Thus, under sections
6038(e)(3) and 267(c)(1), US2 indirectly owns a 10% interest in FPS (10%
is US2's proportionate share of FC's 20% interest in FPS), and under
sections 6038(e)(3) and 267(c)(2), US2 is attributed US's 40% interest.
Additionally, US directly owns a 40% interest in FPS and is attributed
US2's 10% interest pursuant to section 6038(e)(3) and section 267(c)(2).
Therefore, US2 is considered to own a 50% interest (10% indirectly and
40% from US) in FPS, and US is considered to own a 50% interest in FPS
(40% directly and 10% from US2). FPS has no controlling fifty-percent
partners, because neither US, US1, nor US2, owns a greater than 50%
interest. However, US, US1, and US2 are each controlling ten-percent
partners and each must file Form 8865 pursuant to section 6038 for FPS's
2003 tax year ending December 31, 2003. Each must attach Form 8865 to
its tax return for its 2003 tax year.
Example 4. Controlling fifty-percent partners. Assume the same facts
as in Example 3. In addition, on June 1, 2004, US acquires an additional
1% direct interest in FPS. US is now a controlling fifty-percent partner
of FPS, because US owns a 41% interest directly and a 10% interest
constructively from US2. US2 is also a controlling fifty-percent
partner, because US2 owns 10% indirectly and 41% constructively from US.
Both US and US2 are required to file Form 8865 containing all the
information required to be submitted by controlling fifty-percent
partners. (But see paragraph (c)(1) of this section, which contains
filing exceptions when there are multiple controlling fifty-percent
partners). US1 is no longer a controlling ten-percent partner because
FPS now has at least one controlling fifty-percent partner, and US1 does
not qualify as a controlling fifty-percent partner. Therefore, US1 is
not required to file Form 8865 under section 6038.
Example 5. Constructive ownership from a nonresident alien. US, a
United States person, does not own directly or constructively an
interest in FPS, a foreign partnership. The tax year of FPS is the
calendar year. NRA, a nonresident alien, is the mother of US. In 2002,
NRA acquires a 55% interest in FPS. Because US owns neither a direct nor
a constructive interest in FPS under sections 6038(e)(3) and 267(c)(1)
or (5), NRA's interest is not attributed to US under sections 6038(e)(3)
and 267(c)(2). If in 2003 NRA becomes a United States person, NRA's
interest will be attributed to US. However, US is excused from filing
Form 8865 if US satisfies the requirements of the constructive owners
exception in paragraph (c)(2) of this section. In 2003, NRA is a
controlling fifty-percent partner and must file a Form 8865 under
section 6038 for FPS's 2003 tax year.
(c) Exceptions when more than one United States person is required
to file Form 8865 pursuant to section 6038--(1) Multiple controlling
fifty-percent partners--(i) In general. If, with respect to the same
foreign partnership for the same tax year, more than one United States
person is a controlling fifty-percent partner, then in lieu of each
controlling fifty-percent partner filing a separate Form 8865, only one
Form 8865 from one of the controlling fifty-percent partners is
required, provided all of the requirements of paragraph (c)(1)(ii) of
this section are satisfied. A person that is a controlling fifty-percent
partner solely because of an interest to which deductions or losses are
allocated may file the single return only if there is no United States
person that is a controlling fifty-percent partner by reason of an
interest in capital or profits.
(ii) Requirements--(A) The person undertaking the filing obligation
must file Form 8865 with that person's income tax return in the manner
provided by Form 8865 and the accompanying instructions. The return must
contain all of the information that would have been required to be
reported by this section if each controlling fifty-percent partner had
filed its own Form 8865.
(B) Any controlling fifty-percent partner not filing Form 8865 must
file with its income tax return a statement titled ``Controlled Foreign
Partnership Reporting'' containing the following information--
(1) A statement that the person qualified as a controlling fifty-
percent partner, but is not submitting Form 8865 pursuant to the
multiple controlling fifty-percent partners exception;
(2) The name, address, and taxpayer identification number (if any)
of the foreign partnership of which the person qualified as a
controlling fifty-percent partner;
(3) A representation that the filing requirement has been or will be
satisfied;
(4) The name and address of the person filing the single return;
[[Page 173]]
(5) The Internal Revenue Service Center where the single return is
required to be filed; and
(6) Any additional information that Form 8865 and the accompanying
instructions require.
(iii) Penalties. If the requirements listed in paragraph (c)(1)(ii)
of this section are not satisfied, a United States person that did not
file a Form 8865 pursuant to this paragraph will be subject to the
penalties in paragraph (k) of this section, unless the reasonable cause
provision in paragraph (k)(4) of this section is satisfied.
(2) Certain constructive owners excepted from furnishing
information--(i) In general. A United States person that does not own a
direct interest in the foreign partnership and that is required to file
Form 8865 under this section solely by reason of constructive ownership
from a United States person(s) pursuant to paragraph (b)(4) of this
section (an indirect partner) is not required to file Form 8865 if all
of the requirements listed in paragraph (c)(2)(ii) of this section are
met.
(ii) Requirements--(A) The United States person(s) whose interest
the indirect partner constructively owns reports all the information
such person(s) is required to submit under this section, unless such
person also is required to file solely by reason of constructive
ownership from a United States person(s) pursuant to paragraph (b)(4) of
this section, or another person reports the information pursuant to
paragraph (c)(1) of this section.
(B) The indirect partner files with its income tax return a
statement titled ``Controlled Foreign Partnership Reporting'' containing
the following information--
(1) A representation that the indirect partner was required to file
Form 8865, but is not doing so pursuant to the constructive owners
exception;
(2) The names and addresses of the United States persons whose
interests the indirect partner constructively owns;
(3) The name and address of the foreign partnership with respect to
which the indirect partner would have had to have filed Form 8865 but
for this exception; and
(4) Any additional information that Form 8865 and the accompanying
instructions require.
(iii) Penalties. A United States person that pursuant to this
paragraph (c)(2) does not file a return will be subject to the penalties
in paragraph (k) of this section if the requirements listed in paragraph
(c)(2)(ii) of this section are not satisfied, unless such failure is due
to reasonable cause, as defined in paragraph (k)(4) of this section.
(iv) Overlap with multiple controlling fifty-percent partners
exception--(A) If a United States person qualifies for both the
exception in paragraph (c)(1) of this section and the exception in this
paragraph (c)(2), such person may only utilize the multiple controlling
fifty-percent partners exception in paragraph (c)(1) of this section to
avoid filing Form 8865.
(B) Example. The following example illustrates the operation of this
paragraph (c)(2)(iv):
Example. US is a U.S. citizen. US owns 100% of the stock of DC, a
domestic corporation. DC owns a 60% direct interest in FPS, a foreign
partnership. DC and US are the only U.S. persons that own interests
directly or constructively in FPS. DC owns directly a greater than 50%
interest in FPS. US constructively owns DC's interest pursuant to
sections 6038(e)(3) and 267(c)(1). Therefore, both DC and US are
controlling fifty-percent partners. US qualifies for both the exception
in paragraph (c)(1) of this section (multiple controlling fifty-percent
partners) and the exception in paragraph (c)(2) of this section
(constructive owner exception). US may only utilize the paragraph (c)(1)
exception to avoid its filing obligation. Accordingly, DC may file a
single Form 8865 on behalf of US and itself. However, that form must
contain all the information that would have been submitted had DC and US
each submitted a separate Form 8865.
(3) Members of an affiliated group of corporations filing a
consolidated return. If one or more members of an affiliated group of
corporations filing a consolidated return are required under section
6038 to file a Form 8865 for a particular foreign partnership, the
common parent corporation may file one Form 8865 on behalf of all of the
members of the group required to report under section 6038. Except with
respect to group members who also qualify under the exception in
paragraph (c)(2) of this section, the Form 8865 must contain all
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the information that would have been required to be submitted if each
group member were required to file its own Form 8865.
(d) Exception for certain trusts. Trusts relating to state and local
government employee retirement plans are not required to report under
this section, unless the instructions to Form 8865 provide otherwise.
(e) Reporting under this section not required with respect to
partnerships excluded from the application of subchapter K. The
reporting requirements of this section will not apply to any United
States person in respect of an eligible partnership as described in
Sec. 1.761-2(a) if such partnership has validly elected to be excluded
from all of the provisions of subchapter K of chapter 1 of the Internal
Revenue Code in the manner specified in Sec. 1.761-2(b)(2)(i), or such
partnership is deemed to have elected to be excluded from all of the
provisions of subchapter K of chapter 1 of the Internal Revenue Code in
accordance with the provisions of Sec. 1.761-2(b)(2)(ii).
(f) Period covered by return. The information required under this
section must be furnished for the tax year of the foreign partnership
ending with or within the United States person's tax year. See section
706 for rules regarding tax years of partnerships.
(g) Contents of return--(1) Information required to be submitted by
controlling fifty-percent partners and controlling ten-percent partners.
All controlling fifty-percent partners and all controlling ten-percent
partners must submit the following information on Form 8865 in the form
and manner and to the extent prescribed by Form 8865 and its
instructions--
(i) The name, address, and taxpayer identification number (if any)
of the foreign partnership of which the person qualified as a
controlling fifty-percent partner or a controlling ten-percent partner;
(ii) A statement of the income, gain, losses, deductions and credits
allocated to the direct interest in the partnership of the person
reporting under section 6038;
(iii) A list of all partnerships (foreign or domestic) in which the
foreign partnership owned a direct interest, or owned a constructive
interest of ten percent of more under the rules of section 267(c)(1) or
(5), during the partnership's tax year for which the Form 8865 is being
filed;
(iv) Information about all foreign entities that were disregarded as
entities separate from their owner under Sec. Sec. 301.7701-2 and
301.7701-3 that were owned by the foreign partnership during the
partnership's tax year for which the Form 8865 is being filed;
(v) A summary of the transactions that took place during the
partnership's tax year between the partnership and the person filing the
return, between the partnership and any other partnership of which the
person filing the return is a controlling fifty-percent partner, and
between the partnership and any corporation controlled (under section
6038(e)(2) and the regulations thereunder) by the person filing the
return; and
(vi) Any other information that Form 8865 or its accompanying
instructions require to be submitted.
(2) Additional information required to be submitted by controlling
fifty-percent partners. In addition to the information required pursuant
to paragraph (g)(1) of this section, controlling fifty-percent partners
must also submit the following information in the form and manner and to
the extent required by Form 8865 and its instructions--
(i) A list of the names, addresses and tax identification numbers
(if any) of each United States person that owned a direct interest of
ten percent or more in the partnership during the partnership's tax
year, and of each United States and foreign person whose interests in
the partnership the controlling fifty-percent partner constructively
owned under paragraph (b)(4) of this section during the partnership's
tax year;
(ii) A list of transactions between the partnership and any United
States person owning at the time of the transaction at least a 10-
percent direct interest (as defined in paragraph (b)(3) of this section)
in the foreign partnership;
(iii) A statement of the aggregate of the partners' distributive
shares of items of income, gain, losses, deductions and credits;
[[Page 175]]
(iv) A statement of income, gain, losses, deductions and credits
allocated to each United States person holding a direct interest in the
foreign partnership of ten percent or more; and
(v) Any other information Form 8865 or its accompanying instructions
require controlling fifty-percent partners to submit.
(h) Method of reporting. Except as otherwise provided on Form 8865
or the accompanying instructions, all amounts required to be furnished
on Form 8865 must be expressed in United States dollars. All statements
required on or with Form 8865 pursuant to this section must be in
English.
(i) Time and place for filing return--(1) In general. Form 8865 must
be filed with the United States person's income tax return on or before
the due date (including extensions) of that return. If the United States
person is not required to file an income tax return for its tax year
with which or within which the foreign partnership's tax year ends, but
is required to file an information return for that year (for example,
Form 1065, ``U.S. Partnership Return of Income,'' or Form 990, ``Return
of Organization Exempt from Income Tax''), the Form 8865 must be filed
with the United States person's information return filed on or before
the due date (including extensions) of that return.
(2) Duplicate return. If required by the instructions to Form 8865,
a duplicate Form 8865 (including attachments and schedules) must also be
filed.
(j) Overlap with section 6031. A partner may be required to file
Form 8865 under this section and the foreign partnership in which it is
a partner may also be required to file a Form 1065 or Form 1065-B under
section 6031(e) for the same partnership tax year. For cases where a
United States person is a controlling fifty-percent partner or a
controlling ten-percent partner with respect to a foreign partnership,
and that foreign partnership completes and files Form 1065 or Form 1065-
B, the instructions for Form 8865 will specify the filing requirements
that address this overlap in reporting obligations.
(k) Failure to comply with reporting requirement--(1) In general.
Any United States person required to file Form 8865 under Section 6038
and this section that fails to comply (as defined in paragraph (k)(2) of
this section) with the reporting requirements of this section, will be
subject to the penalties described in paragraph (k)(3) of this section.
(2) Failure to comply. A failure to comply is separately determined
for each foreign partnership for which a United States person has a
section 6038 reporting obligation. A failure to comply with the
requirements of section 6038 includes the following--
(i) The failure to report at the proper time and in the proper
manner any information required to be reported under the rules of this
section; or
(ii) The provision of false or inaccurate information in purported
compliance with the requirements of this section.
(3) Penalties. A United States person that fails to comply (as
defined in paragraph (k)(2) of this section) with the reporting
requirements of this section must pay the following penalties, subject
to the reasonable cause exception in paragraph (k)(4) of this section:
(i) Dollar amount penalty--(A) $10,000 penalty. A penalty of $10,000
shall be imposed for each tax year of each foreign partnership with
respect to which a failure to comply occurs.
(B) Increase in penalty. If a failure to comply with the applicable
reporting requirements of section 6038 and this section continues for
more than 90 days after the date on which the Commissioner or the
Commissioner's delegate mails notice of the failure to the United States
person required to file Form 8865, the person must pay an additional
penalty of $10,000 for each 30-day period (or fraction thereof) during
which the failure continues after the 90-day period has expired.
(C) Limitation. The additional penalty imposed on any United States
person by section 6038(b)(2) and paragraph (k)(3)(i)(B) of this section
is limited to a maximum of $50,000 for each partnership for each tax
year with respect to which the failure occurs.
(ii) Penalty of reducing foreign tax credit--(A) Effect on foreign
tax credit. Failure to comply with the reporting requirements of section
6038 and this section may cause a reduction of foreign tax credits under
section 901
[[Page 176]]
(taxes of foreign countries and of possessions of the United States). In
applying section 901 to a United States person for any tax year with or
within which its foreign partnership's tax year ended, the amount of
taxes paid (and deemed paid under sections 902 and 960) by the United
States person will be reduced by 10 percent if the person fails to
comply. However, no tax deemed paid under section 904(c) will be reduced
under the provisions of this paragraph (k)(3)(ii).
(B) Reduction for continued failure. If a failure to comply with the
reporting requirements of section 6038 and this section continues for
more than 90 days after the date on which the Commissioner or the
Commissioner's delegate mails notice of the failure to the person
required to file Form 8865, then the amount of the reduction in
paragraph (k)(3)(ii)(A) of this section will be 10 percent, plus an
additional 5 percent for each 3-month period (or fraction thereof)
during which the failure continues after the 90-day period has expired.
(C) Limitation on reduction. The amount of the reduction under
paragraphs (k)(3)(ii)(A) and (B) of this section for each failure to
furnish information required under this section will not exceed the
greater of $10,000, or the gross income of the foreign partnership for
its tax year with respect to which the failure occurred.
(D) Offset for dollar amount penalty imposed. The total amount of
the reduction which, but for this paragraph (k)(3)(ii)(D), may be made
under this paragraph (k)(3)(ii) with respect to any separate failure,
may not exceed the maximum amount of the reductions that may be imposed,
reduced (but not below zero) by the dollar amount penalty imposed by
paragraph (k)(3)(i) of this section with respect to the failure.
(4) Reasonable cause limitation. The time prescribed for filing a
complete Form 8865, and the beginning of the 90-day period after the
Commissioner or the Commissioner's delegate mails notice under
paragraphs (k)(3)(i)(B) and (ii)(B) of this section, will be treated as
being not earlier than the last day on which reasonable cause existed
for failure to furnish the information. The United States person may
show reasonable cause by providing a written statement to the
Commissioner's delegate having jurisdiction over the person's return to
which the Form 8865 should have been attached, setting forth the reasons
for the failure to comply. Whether a failure to comply was due to
reasonable cause will be determined by the Commissioner, or the
Commissioner's delegate, under all the facts and circumstances.
(5) Statute of limitations. For exceptions to the limitations on
assessment in the event of a failure to provide information under
section 6038, see section 6501(c)(8).
(1) Effective date. Except as otherwise provided, this section shall
apply for tax years of a foreign partnership ending on or after December
31, 2000. For tax years of a foreign partnership ending before December
23, 2002, see Sec. 1.6038-3(j) in effect prior to the amendments made
by T.D. 9033 (see 26 CFR part 1 revised April 1, 2002).
[T.D. 8850, 64 FR 72550, Dec. 28, 1999, as amended by T.D. 9033, 67 FR
78175, Dec. 23, 2002; T.D. 9065, 68 FR 39012, July 1, 2003]
Sec. 1.6038-4 Information returns required of certain United States
persons with respect to such person's U.S. multinational enterprise
group.
(a) Requirement of return. Except as provided in paragraph (h) of
this section, every ultimate parent entity of a U.S. multinational
enterprise (MNE) group must make an annual return on Form 8975, Country-
by-Country Report, setting forth the information described in paragraph
(d) of this section, and any other information required by Form 8975,
with respect to the reporting period described in paragraph (c) of this
section.
(b) Definitions--(1) Ultimate parent entity of a U.S. MNE group. An
ultimate parent entity of a U.S. MNE group is a U.S. business entity
that:
(i) Owns directly or indirectly a sufficient interest in one or more
other business entities, at least one of which is organized or tax
resident in a tax jurisdiction other than the United States, such that
the U.S. business entity is required to consolidate the accounts of the
other business entities with its own accounts under U.S. generally
accepted accounting principles,
[[Page 177]]
or would be so required if equity interests in the U.S. business entity
were publicly traded on a U.S. securities exchange; and
(ii) Is not owned directly or indirectly by another business entity
that consolidates the accounts of such U.S. business entity with its own
accounts under generally accepted accounting principles in the other
business entity's tax jurisdiction of residence, or would be so required
if equity interests in the other business entity were traded on a public
securities exchange in its tax jurisdiction of residence.
(2) Business entity. For purposes of this section, a business entity
generally is any entity recognized for federal tax purposes that is not
properly classified as a trust under Sec. 301.7701-4 of this chapter.
However, any grantor trust within the meaning of section 671, all or a
portion of which is owned by a person other an individual, is a business
entity for purposes of this section. Additionally, the term business
entity includes any entity with a single owner that may be disregarded
as an entity separate from its owner under Sec. 301.7701-3 of this
chapter and a permanent establishment, as defined in paragraph (b)(3) of
this section, that prepares financial statements separate from those of
its owner for financial reporting, regulatory, tax reporting, or
internal management control purposes. A business entity does not include
a decedent's estate or a bankruptcy estate described in section 1398.
(3) Permanent establishment. For purposes of this section, the term
permanent establishment includes:
(i) A branch or business establishment of a constituent entity in a
tax jurisdiction that is treated as a permanent establishment under an
income tax convention to which that tax jurisdiction is a party;
(ii) A branch or business establishment of a constituent entity that
is liable to tax in the tax jurisdiction in which it is located pursuant
to the domestic law of such tax jurisdiction; or
(iii) A branch or business establishment of a constituent entity
that is treated in the same manner for tax purposes as an entity
separate from its owner by the owner's tax jurisdiction of residence.
(4) U.S. business entity. A U.S. business entity is a business
entity that is organized or has its tax jurisdiction of residence in the
United States. For purposes of this section, foreign insurance companies
that elect to be treated as domestic corporations under section 953(d)
are U.S. business entities that have their tax jurisdiction of residence
in the United States.
(5) U.S. MNE group. A U.S. MNE group comprises the ultimate parent
entity of a U.S. MNE group as defined in paragraph (b)(1) of this
section and all of the business entities required to consolidate their
accounts with the ultimate parent entity's accounts under U.S. generally
accepted accounting principles, or that would be so required if equity
interests in the ultimate parent entity were publicly traded on a U.S.
securities exchange, regardless of whether any such business entities
could be excluded from consolidation solely on size or materiality
grounds.
(6) Constituent entity. With respect to a U.S. MNE group, a
constituent entity is any separate business entity of such U.S. MNE
group, except that the term constituent entity does not include a
foreign corporation or foreign partnership for which the ultimate parent
entity is not required to furnish information under section 6038(a)
(determined without regard to Sec. Sec. 1.6038-2(j) and 1.6038-3(c)) or
any permanent establishment of such foreign corporation or foreign
partnership.
(7) Tax jurisdiction. For purposes of this section, a tax
jurisdiction is a country or a jurisdiction that is not a country but
that has fiscal autonomy. For purposes of this section, a U.S. territory
or possession of the United States is considered to have fiscal
autonomy.
(8) Tax jurisdiction of residence. A business entity is considered a
resident in a tax jurisdiction if, under the laws of that tax
jurisdiction, the business entity is liable to tax therein based on
place of management, place of organization, or another similar
criterion. A business entity will not be considered a resident in a tax
jurisdiction if the business entity is liable to tax in such tax
jurisdiction only by reason of a tax imposed by reference to gross
amounts of income without any reduction for
[[Page 178]]
expenses, provided such tax applies only with respect to income from
sources in such tax jurisdiction or capital situated in such tax
jurisdiction. If a business entity is resident in more than one tax
jurisdiction, then the applicable income tax convention rules, if any,
should be applied to determine the business entity's tax jurisdiction of
residence. If a business entity is resident in more than one tax
jurisdiction and no applicable income tax convention exists between
those tax jurisdictions, or if the applicable income tax convention
provides that the determination of residence is based on a determination
by the competent authorities of the relevant tax jurisdictions and no
such determination has been made, the business entity's tax jurisdiction
of residence is the tax jurisdiction of the business entity's place of
effective management determined in accordance with Article 4 of the
Organisation for Economic Co-operation and Development Model Tax
Convention on Income and on Capital 2014, or as provided by Form 8975. A
corporation that is organized or managed in a tax jurisdiction that does
not impose an income tax on corporations will be treated as resident in
that tax jurisdiction, unless such corporation is treated as resident in
another tax jurisdiction under another provision of this section. The
tax jurisdiction of residence of a permanent establishment is the
jurisdiction in which the permanent establishment is located. If a
business entity does not have a tax jurisdiction of residence, then
solely for purposes of paragraph (b)(1) of this section, the tax
jurisdiction of residence is the business entity's country of
organization.
(9) Applicable financial statements. An applicable financial
statement is a certified audited financial statement that is accompanied
by a report of an independent certified public accountant or similarly
qualified independent professional that is used for purposes of
reporting to shareholders, partners, or similar persons; for purposes of
reporting to creditors in connection with securing or maintaining
financing; or for any other substantial non-tax purpose.
(10) U.S. territory or possession of the United States. The term
U.S. territory or possession of the United States means American Samoa,
Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin
Islands.
(11) U.S. territory ultimate parent entity. A U.S. territory
ultimate parent entity is a business entity organized in a U.S.
territory or possession of the United States that controls (as defined
in section 6038(e)) a U.S. business entity and that is not owned
directly or indirectly by another business entity that consolidates the
accounts of the U.S. territory ultimate parent entity with its accounts
under generally accepted accounting principles in the other business
entity's tax jurisdiction of residence, or would be so required if
equity interests in the other business entity were traded on a public
securities exchange in its tax jurisdiction of residence.
(c) Reporting period. The reporting period covered by Form 8975 is
the period of the ultimate parent entity's applicable financial
statement prepared for the 12-month period (or a 52-53 week period
described in section 441(f)) that ends with or within the ultimate
parent entity's taxable year. If the ultimate parent entity does not
prepare an annual applicable financial statement, then the reporting
period covered by Form 8975 is the 12-month period (or a 52-53 week
period described in section 441(f)) that ends on the last day of the
ultimate parent entity's taxable year.
(d) Contents of return--(1) Constituent entity information. The
return on Form 8975 must contain so much of the following information
with respect to each constituent entity of the U.S. MNE group, and in
such form or manner, as Form 8975 prescribes:
(i) The complete legal name of the constituent entity;
(ii) The tax jurisdiction, if any, in which the constituent entity
is resident for tax purposes;
(iii) The tax jurisdiction in which the constituent entity is
organized or incorporated (if different from the tax jurisdiction of
residence);
(iv) The tax identification number, if any, used for the constituent
entity by the tax administration of the constituent entity's tax
jurisdiction of residence; and
(v) The main business activity or activities of the constituent
entity.
[[Page 179]]
(2) Tax jurisdiction of residence information. The return on Form
8975 must contain so much of the following information with respect to
each tax jurisdiction in which one or more constituent entities of a
U.S. MNE group is resident, presented as an aggregate of the information
for the constituent entities resident in each tax jurisdiction, and in
such form or manner, as Form 8975 prescribes:
(i) Revenues generated from transactions with other constituent
entities;
(ii) Revenues not generated from transactions with other constituent
entities;
(iii) Profit or loss before income tax;
(iv) Total income tax paid on a cash basis to all tax jurisdictions,
and any taxes withheld on payments received by the constituent entities;
(v) Total accrued tax expense recorded on taxable profits or losses,
reflecting only operations in the relevant annual period and excluding
deferred taxes or provisions for uncertain tax liabilities;
(vi) Stated capital, except that the stated capital of a permanent
establishment must be reported in the tax jurisdiction of residence of
the legal entity of which it is a permanent establishment unless there
is a defined capital requirement in the permanent establishment tax
jurisdiction for regulatory purposes;
(vii) Total accumulated earnings, except that accumulated earnings
of a permanent establishment must be reported by the legal entity of
which it is a permanent establishment;
(viii) Total number of employees on a full-time equivalent basis;
and
(ix) Net book value of tangible assets, which, for purposes of this
section, does not include cash or cash equivalents, intangibles, or
financial assets.
(3) Special rules--(i) Constituent entity with no tax jurisdiction
of residence. The information listed in paragraph (d)(2) of this section
also must be provided, in the aggregate, for any constituent entity or
entities that have no tax jurisdiction of residence. In addition, if a
constituent entity is an owner of a constituent entity that does not
have a jurisdiction of tax residence, then the owner's share of such
entity's revenues and profits will be aggregated with the information
for the owner's tax jurisdiction of residence.
(ii) Definition of revenue. For purposes of this section, the term
revenue includes all amounts of revenue, including revenue from sales of
inventory and property, services, royalties, interest, and premiums. The
term revenue does not include payments received from other constituent
entities that are treated as dividends in the payor's tax jurisdiction
of residence. Distributions and remittances from partnerships and other
fiscally transparent entities and permanent establishments that are
constituent entities are not considered revenue of the recipient-owner.
The term revenue also does not include imputed earnings or deemed
dividends received from other constituent entities that are taken into
account solely for tax purposes and that otherwise would be included as
revenue by a constituent entity. With respect to a constituent entity
that is an organization exempt from taxation under section 501(a)
because it is an organization described in section 501(c), 501(d), or
401(a), a state college or university described in section 511(a)(2)(B),
a plan described in section 403(b) or 457(b), an individual retirement
plan or annuity as defined in section 7701(a)(37), a qualified tuition
program described in section 529, a qualified ABLE program described in
section 529A, or a Coverdell education savings account described in
section 530, the term revenue includes only revenue that is reflected in
unrelated business taxable income as defined in section 512.
(iii) Number of employees. For purposes of this section, the number
of employees on a full-time equivalent basis may be reported as of the
end of the accounting period, on the basis of average employment levels
for the annual accounting period, or on any other reasonable basis
consistently applied across tax jurisdictions and from year to year.
Independent contractors participating in the ordinary operating
activities of a constituent entity may be reported as employees of such
constituent entity. Reasonable rounding or approximation of the number
of employees is permissible, provided that such rounding or
approximation does
[[Page 180]]
not materially distort the relative distribution of employees across the
various tax jurisdictions. Consistent approaches should be applied from
year to year and across entities.
(iv) Income tax paid and accrued tax expense of permanent
establishment. In the case of a constituent entity that is a permanent
establishment, the amount of income tax paid and the amount of accrued
tax expense referred to in paragraphs (d)(2)(iv) and (v) of this section
should not include the income tax paid or tax expense accrued by the
business entity of which the permanent establishment would be a part,
but for the third sentence of paragraph (b)(2) of this section, in that
business entity's tax jurisdiction of residence on the income derived by
the permanent establishment.
(v) Certain transportation income. If a constituent entity of a U.S.
MNE group derives income from international transportation or
transportation in inland waterways that is covered by income tax
convention provisions that are specific to such income and under which
the taxing rights on such income are allocated exclusively to one tax
jurisdiction, then the U.S. MNE group should report the information
required under paragraph (d)(2) of this section with respect to such
income for the tax jurisdiction to which the relevant income tax
convention provisions allocate these taxing rights.
(e) Reporting of financial amounts--(1) Reporting in U.S. dollars
required. All amounts furnished under paragraph (d)(2) of this section,
other than paragraph (d)(2)(viii) of this section, must be expressed in
U.S. dollars. If an exchange rate is used other than in accordance with
U.S. generally accepted accounting principles for conversion to U.S.
dollars, the exchange rate must be indicated.
(2) Sources of financial amounts. All amounts furnished under
paragraph (d)(2) of this section, other than paragraph (d)(2)(viii) of
this section, should be based on applicable financial statements, books
and records maintained with respect to the constituent entity,
regulatory financial statements, or records used for tax reporting or
internal management control purposes for an annual period of each
constituent entity ending with or within the period described in
paragraph (c) of this section.
(f) Time and manner for filing. Returns on Form 8975 required under
paragraph (a) of this section for a reporting period must be filed with
the ultimate parent entity's income tax return for the taxable year, in
or with which the reporting period ends, on or before the due date
(including extensions) for filing that person's income tax return or as
otherwise prescribed by Form 8975.
(g) Maintenance of records. The U.S. person filing Form 8975 as an
ultimate parent entity of a U.S. MNE group must maintain records to
support the information provided on Form 8975. However, the U.S. person
is not required to create and maintain records that reconcile the
amounts provided on Form 8975 with the tax returns of any tax
jurisdiction or applicable financial statements.
(h) Exceptions to furnishing information. An ultimate parent entity
of a U.S. MNE group is not required to report information under this
section for the reporting period described in paragraph (c) of this
section if the annual revenue of the U.S. MNE group for the immediately
preceding reporting period was less than $850,000,000.
(i) [Reserved]
(j) U.S. territories and possessions of the United States. A U.S.
territory ultimate parent entity may designate a U.S. business entity
that it controls (as defined in section 6038(e)) to file Form 8975 on
the U.S. territory ultimate parent entity's behalf with respect to such
U.S. territory ultimate parent entity and the business entities that
would be required to consolidate their accounts with such U.S. territory
ultimate parent entity under U.S. generally accepted accounting
principles, or would be so required if equity interests in the U.S.
territory ultimate parent entity were publicly traded on a U.S.
securities exchange.
(k) Applicability dates. The rules of this section apply to
reporting periods of ultimate parent entities of U.S. MNE groups that
begin on or after the
[[Page 181]]
first day of a taxable year of the ultimate parent entity that begins on
or after June 30, 2016.
[T.D. 9773, 81 FR 42489, June 30, 2016; 81 FR 64061, Sept. 19, 2016]
Sec. 1.6038-5 Information returns required of certain United States
persons to report amounts determined with respect to certain foreign
corporations for global intangible low-taxed income (GILTI) purposes.
(a) Requirement of return. Except as provided in paragraph (d) of
this section, each United States person who is a United States
shareholder (as defined in section 951(b)) of any controlled foreign
corporation (as defined in section 957) must make an annual return on
Form 8992, ``U.S. Shareholder Calculation of Global Intangible Low-Taxed
Income (GILTI),'' (or successor form) for each U.S. shareholder
inclusion year (as defined in Sec. 1.951A-1(f)(7)) setting forth the
information with respect to each such controlled foreign corporation, in
such form and manner, as Form 8992 (or successor form) prescribes.
(b) Time and manner for filing. Returns on Form 8992 (or successor
form) required under paragraph (a) of this section for a taxable year
must be filed with the United States person's income tax return on or
before the due date (taking into account extensions) for filing that
person's income tax return.
(c) Failure to furnish information--(1) Penalties. If any person
required to file Form 8992 (or successor form) under section 6038 and
this section fails to furnish the information prescribed on Form 8992
within the time prescribed by paragraph (b) of this section, the
penalties imposed by section 6038(b) and (c) apply.
(2) Increase in penalty. If a failure described in paragraph (c)(1)
of this section continues for more than 90 days after the date on which
the Director of Field Operations, Area Director, or Director of
Compliance Campus Operations mails notice of such failure to the person
required to file Form 8992, such person shall pay a penalty of $10,000,
in addition to the penalty imposed by section 6038(b)(1), for each 30-
day period (or a fraction of) during which such failure continues after
such 90-day period has expired. The additional penalty imposed by
section 6038(b)(2) and this paragraph (c)(2) shall be limited to a
maximum of $50,000 for each failure.
(3) Reasonable cause--(i) For purposes of section 6038(b) and (c)
and this section, the time prescribed for furnishing information under
paragraph (b) of this section, and the beginning of the 90-day period
after mailing of notice by the director under paragraph (c)(2) of this
section, shall be treated as being not earlier than the last day on
which reasonable cause existed for failure to furnish the information.
(ii) To show that reasonable cause existed for failure to furnish
information as required by section 6038 and this section, the person
required to report such information must make an affirmative showing of
all facts alleged as reasonable cause for such failure in a written
statement containing a declaration that it is made under the penalties
of perjury. The statement must be filed with the director where the
return is required to be filed. The director shall determine whether the
failure to furnish information was due to reasonable cause, and if so,
the period of time for which such reasonable cause existed. In the case
of a return that has been filed as required by this section except for
an omission of, or error with respect to, some of the information
required, if the person who filed the return establishes to the
satisfaction of the director that the person has substantially complied
with this section, then the omission or error shall not constitute a
failure under this section.
(d) Exception from filing requirement. Any United States person that
does not own, within the meaning of section 958(a), stock of a
controlled foreign corporation in which the United States person is a
United States shareholder for a taxable year is not required to file
Form 8992. For this purpose, whether a U.S. person owns, within the
meaning of section 958(a), stock of a controlled foreign corporation is
determined under Sec. 1.951A-1(e).
(e) Applicability date. This section applies to taxable years of
controlled foreign corporations beginning on or after October 3, 2018.
[T.D. 9866, 84 FR 29369, June 21, 2019]
[[Page 182]]
Sec. 1.6038A-0 Table of contents.
This section lists the captions that appear in the regulations under
section 6038A.
Sec. 1.6038A-1 General requirements and definitions.
(a) Purpose and scope.
(b) In general.
(c) Reporting corporation.
(1) In general.
(2) 25-percent foreign-owned.
(3) 25-percent foreign shareholder.
(i) In general.
(ii) Total voting power and value.
(iii) Direct 25-percent foreign shareholder.
(iv) Indirect 25-percent foreign shareholder.
(4) Application to prior open years.
(5) Exceptions.
(i) Treaty country residents having no permanent establishment.
(ii) Qualified exempt shipping income.
(iii) Status as a foreign related party.
(d) Related party.
(e) Attribution rules.
(1) Attribution under section 318.
(2) Attribution of transactions with related parties engaged in by a
partnership.
(f) Foreign person.
(g) Foreign related party.
(h) Small corporation exception.
(i) Safe harbor for reporting corporations with related party
transactions of de minimis value.
(1) In general.
(2) Aggregate value of gross payments made or received.
(j) Related reporting corporations.
(k) Consolidated return groups.
(1) Required information.
(2) Maintenance of records and authorization of agent.
(3) Monetary penalties.
(l) District Director.
(m) Examples.
(n) Effective dates.
(1) Section 1.6038A-1.
(2) Section 1.6038A-2.
(3) Section 1.6038A-3.
(4) Section 1.6038A-4.
(5) Section 1.6038A-5.
(6) Section 1.6038A-6.
(7) Section 1.6038A-7.
Sec. 1.6038A-2 Requirement of return.
(a) Form 5472 required.
(1) In general.
(2) Reportable transaction.
(b) Contents of return.
(1) Reporting corporation.
(2) Related party.
(3) Foreign related party transactions for which only monetary
consideration is paid or received by the reporting corporation.
(4) Foreign related party transactions involving nonmonetary
consideration or less than full consideration.
(5) Additional information.
(6) Reasonable estimate.
(i) Estimate within 25 percent of actual amount.
(ii) Other estimates.
(7) Small amounts.
(8) Accrued payments and receipts.
(9) Examples.
(c) Method of reporting.
(d) Time and place for filing returns.
(e) Untimely filed return.
(f) Exceptions.
(1) No reportable transactions.
(2) Transactions solely with a domestic reporting corporation.
(3) Transactions with a corporation subject to reporting under
section 6038.
(4) Transactions with a foreign sales corporation.
(g) Filing Form 5472 when transactions with related parties engaged
in by a partnership are attributed to a reporting corporation.
(h) Effective dates for certain reporting corporations.
Sec. 1.6038A-3 Record maintenance.
(a) General maintenance requirements.
(1) Section 6001 and section 6038A.
(2) Safe harbor.
(3) Examples.
(b) Other maintenance requirements.
(1) Indirectly related records.
(2) Foreign related party or third-party maintenance.
(3) Translation of records.
(4) Exception for foreign governments.
(c) Specific records to be maintained for safe harbor.
(1) In general.
(2) Descriptions of categories of documents to be maintained.
(i) Original entry books and transaction records.
(ii) Profit and loss statements.
(iii) Pricing documents.
(iv) Foreign country and third party filings.
(v) Ownership and capital structure records.
(vi) Records of loans, services, and other non-sales transactions.
(3) Material profit and loss statements.
(4) Existing records test.
(5) Significant industry segment test.
(i) In general.
(ii) Form of the statements.
(iii) Special rule for component sales.
(iv) Level of specificity required.
(v) Examples.
(6) High profit test.
(i) In general.
(ii) Return on assets test.
(iii) Additional rules.
[[Page 183]]
(7) Definitions.
(i) U.S.-connected products or services.
(ii) Industry segment.
(iii) Gross revenue of an industry segment.
(iv) Identifiable assets of an industry segment.
(v) Operating profit of an industry segment.
(vi) Product.
(vii) Related products or services.
(viii) Model.
(ix) Product line.
(8) Example.
(i) Facts.
(ii) Existing records test.
(iii) Significant industry segments.
(iv) High profit test.
(v) Material profit and loss statements.
(d) Liability for certain partnership record maintenance.
(e) Agreements with the District Director or the Assistant
Commissioner (International).
(1) In general.
(2) Content of agreement.
(i) In general.
(ii) Significant industry segment test.
(iii) Example.
(3) Circumstances of agreement.
(4) Agreement as part of APA process.
(f) U.S. maintenance.
(1) General rule.
(2) Non-U.S. maintenance requirements.
(3) Prior taxable years.
(4) Scheduled production for high volume or other reasons.
(5) Required U.S. maintenance.
(g) Period of retention.
(h) Application of record maintenance rules to banks and other
financial institutions. [Reserved]
(i) Effective dates.
Sec. 1.6038A-4 Monetary penalty.
(a) Imposition of monetary penalty.
(1) In general.
(2) Liability for certain partnership transactions.
(3) Calculation of monetary penalty.
(b) Reasonable cause.
(1) In general.
(2) Affirmative showing required.
(i) In general.
(ii) Small corporations.
(iii) Facts and circumstances taken into account.
(c) Failure to maintain records or to cause another to maintain
records.
(d) Increase in penalty where failure continues after notification.
(1) In general.
(2) Additional penalty for another failure.
(3) Cessation of accrual.
(4) Continued failures.
(e) Other penalties.
(f) Examples.
Example (1)--Failure to file Form 5472.
Example (2)--Failure to maintain records.
(g) Effective dates.
Sec. 1.6038A-5 Authorization of agent.
(a) Failure to authorize.
(b) Authorization by related party.
(1) In general.
(2) Authorization for prior years.
(c) Foreign affiliated groups.
(1) In general.
(2) Application of noncompliance penalty adjustment.
(d) Legal effect of authorization of agent.
(1) Agent for purposes of commencing judicial proceedings.
(2) Foreign related party found where reporting corporation found.
(e) Successors in interest.
(f) Deemed compliance.
(1) In general.
(2) Reason to know.
(3) Effect of deemed compliance.
(g) Effective dates.
Sec. 1.6038A-6 Failure to furnish information.
(a) In general.
(b) Coordination with treaties.
(c) Enforcement proceeding not required.
(d) De minimis failure.
(e) Suspension of statute of limitations.
(f) Effective dates.
Sec. 1.6038A-7 Noncompliance.
(a) In general.
(b) Determination of the amount.
(c) Separate application.
(d) Effective dates.
[T.D. 8353, 56 FR 28060, June 19, 1991, as amended by T.D. 9796, 81 FR
89850, Dec. 13, 2016]
Sec. 1.6038A-1 General requirements and definitions.
(a) Purpose and scope. This section and Sec. Sec. 1.6038A-2 through
1.6038A-7 provide rules for certain foreign-owned U.S. corporations and
foreign corporations engaged in trade or business within the United
States (reporting corporations) relating to information that must be
furnished, records that must be maintained, and the authorization of the
reporting corporation to act as agent for related foreign persons for
purposes of sections 7602, 7603, and 7604 that must be executed. Section
6038A(a) and this section require that a reporting corporation furnish
certain information annually and maintain certain records relating to
transactions between the reporting corporation and certain related
parties. This section also provides definitions of terms used
[[Page 184]]
in section 6038A. Section 1.6038A-2 provides guidance concerning the
information to be submitted and the filing of the required return.
Section 1.6038A-3 provides guidance concerning the maintenance of
records. Section 1.6038A-4 provides guidance concerning the application
of the monetary penalty for the failure either to furnish information or
to maintain records. Section 1.6038A-5 provides guidance concerning the
authorization of an agent for purposes of sections 7602, 7603, and 7604.
Section 1.6038A-6 provides guidance concerning the failure to furnish
information requested by a summons. Finally, Sec. 1.6038A-7 provides
guidance concerning the application of the noncompliance penalty for
failure by the related party to authorize an agent or by the reporting
corporation to substantially comply with a summons.
(b) In general. A reporting corporation must furnish the information
described in Sec. 1.6038A-2 by filing an annual information return
(Form 5472 or any successor), and must maintain records as described in
Sec. 1.6038A-3.
(c) Reporting corporation--(1) In general. For purposes of section
6038A, a reporting corporation is either a domestic corporation that is
25-percent foreign-owned as defined in paragraph (c)(2) of this section,
or a foreign corporation that is 25-percent foreign-owned and engaged in
trade or business within the United States. After November 4, 1990, a
foreign corporation engaged in a trade or business within the United
States at any time during a taxable year is a reporting corporation. See
section 6038C. A domestic business entity that is wholly owned by one
foreign person and that is otherwise classified under Sec. 301.7701-
3(b)(1)(ii) of this chapter as disregarded as an entity separate from
its owner is treated as an entity separate from its owner and classified
as a domestic corporation for purposes of section 6038A. See Sec.
301.7701-2(c)(2)(vi) of this chapter.
(2) 25-percent foreign-owned. A corporation is 25-percent foreign-
owned if it has at least one direct or indirect 25-percent foreign
shareholder at any time during the taxable year.
(3) 25-percent foreign shareholder--(i) In general. A foreign person
is a 25-percent foreign shareholder of a corporation if the person owns
at least 25 percent of--
(A) The total voting power of all classes of stock of the
corporation entitled to vote, or
(B) The total value of all classes of stock of the corporation.
(ii) Total voting power and value. In determining whether one
foreign person owns 25 percent of the total voting power of all classes
of stock of a corporation entitled to vote or 25 percent of the total
value of all classes of stock of a corporation, consideration will be
given to all the facts and circumstances of each case, under principles
similar to Sec. 1.957-1(b)(2) (consideration of arrangements to shift
formal voting power away from a foreign person).
(iii) Direct 25-percent foreign shareholder. A foreign person is a
direct 25-percent foreign shareholder if it owns directly at least 25
percent of the stock of the reporting corporation, either by vote or by
value.
(iv) Indirect 25-percent foreign shareholder. A foreign person is an
indirect 25-percent foreign shareholder if it owns indirectly (or under
the attribution rules of section 318 is considered to own indirectly) at
least 25 percent of the stock of the reporting corporation, either by
vote or by value.
(4) Application to prior open years. For taxable years beginning
before July 11, 1989, the definition of a reporting corporation under
this paragraph applies in determining whether a foreign-owned
corporation is a reporting corporation. An examination may be reopened
if the statute of limitations period for that taxable year has not
expired. A taxable year may not be reopened under section 6038A for
examination purposes if the taxable year is open under section 6511 only
for purposes of the carryback of net operating losses or net capital
losses.
(5) Exceptions--(i) Treaty country residents having no permanent
establishment. A foreign corporation that has no permanent establishment
in the United States under an applicable income tax convention is not a
reporting corporation for purposes of section 6038A and this section.
Accordingly, such a foreign corporation is not subject to Sec. Sec.
1.6038A-2, 1.6038A-3, and 1.6038A-5. It
[[Page 185]]
must timely and fully provide the required notice to the Commissioner
under section 6114. See section 6114 and the regulations thereunder for
the notice that such a corporation must file and the applicable
penalties for failure to file such notice.
(ii) Qualified exempt shipping income. A foreign corporation whose
gross income is exempt from U.S. taxation under section 883 is not a
reporting corporation provided that it timely and fully complies with
the reporting requirements required to claim such exemption. In the
event that such a corporation does not timely and fully comply with the
reporting requirements under sections 887 and 883, it will be a
reporting corporation subject to section 6038A, including the
application of the monetary penalty for failure to file required
information.
(iii) Status as foreign related party. Nothing in this paragraph
affects the determination of whether a person is a foreign related party
as defined in paragraph (g) of this section.
(d) Related party. The term ``related party'' means--
(1) Any direct or indirect 25-percent foreign shareholder of the
reporting corporation,
(2) Any person who is related within the meaning of sections 267(b)
or 707(b)(1) to the reporting corporation or to a 25-percent foreign
shareholder of the reporting corporation, or
(3) Any other person who is related to the reporting corporation
within the meaning of section 482 and the regulations thereunder.
However, the term ``related party'' does not include any corporation
filing a consolidated federal income tax return with the reporting
corporation.
(e) Attribution rules--(1) Attribution under section 318. For
purposes of determining whether a corporation is 25-percent foreign-
owned and whether a person is a related party under section 6038A, the
constructive ownership rules of section 318 shall apply, and the
attribution rules of section 267(c) also shall apply to the extent they
attribute ownership to persons to whom section 318 does not attribute
ownership. However, ``10 percent'' shall be substituted for ``50
percent'' in section 318(a)(2)(C), and section 318(a)(3) (A), (B), and
(C) shall not be applied so as to consider a U.S. person as owning stock
that is owned by a person who is not a U.S. person. Additionally,
section 318(a)(3)(C) and Sec. 1.318-1(b) shall not be applied so as to
consider a U.S. corporation as being a reporting corporation if, but for
the application of such sections, the U.S. corporation would not be 25-
percent foreign owned.
(2) Attribution of transactions with related parties engaged in by a
partnership. The transactions in which a domestic or foreign partnership
engages shall be attributed to any reporting corporation whose interest
in the capital or profits of the partnership, either directly or
indirectly, combined with the interests of all related parties of the
reporting corporation partner, equals 25 percent or more of the total
partnership interests. Attribution of such transactions shall be made
only to the extent of the partnership interest held by that reporting
corporation partner. See sections 875 and 702(a) and the regulations
thereunder. (Attribution shall not be made however, of transactions
directly between the partnership and a reporting corporation.)
Accordingly, a reporting corporation partner that is deemed to engage in
transactions with related parties under this rule is subject to the
information reporting requirements of Sec. 1.6038A-2, to the record
maintenance requirements of Sec. 1.6038A-3, to the monetary penalty
under Sec. 1.6038A-4, to the requirement of authorization of agent
under Sec. 1.6038A-5, to the rules of Sec. 1.6038A-6 relating to the
requirement to produce records, and to the noncompliance penalty
adjustment under Sec. 1.6038A-7.
(f) Foreign person. For purposes of section 6038A, a foreign person
is--
(1) Any individual who is not a citizen or resident of the United
States, but not including any individual for whom an election under
section 6013 (g) or (h) (relating to an election to file a joint return)
is in effect;
(2) Any individual who is a citizen of any possession of the United
States and who is not otherwise a citizen or resident of the United
States;
(3) Any partnership, association, company, or corporation that is
not created or organized in the United
[[Page 186]]
States or under the law of the United States or any State thereof;
(4) Any foreign trust or foreign estate, as defined in section
7701(a)(31); or
(5) Any foreign government (or agency or instrumentality thereof).
To the extent that a foreign government is engaged in the conduct of
commercial activity as defined under section 892 and the regulations
thereunder, it will be treated as a foreign person under section 6038A
and this section only for purposes of the information reporting
requirements of Sec. 1.6038A-2. A foreign government will not be
treated as a foreign related party for purposes of Sec. Sec. 1.6038A-3
and 1.6038A-5.
For purposes of section 6038A, a possession of the United States shall
be considered to be a foreign country.
(g) Foreign related party. A foreign related party is a foreign
person as defined under paragraph (f) of this section that is also a
related party as defined under paragraph (d) of this section.
(h) Small corporation exception. A reporting corporation (other than
an entity that is a reporting corporation as a result of being treated
as a corporation under Sec. 301.7701-2(c)(2)(vi) of this chapter) that
has less than $10,000,000 in U.S. gross receipts for a taxable year is
not subject to Sec. Sec. 1.6038A-3 and 1.6038A-5 for that taxable year.
Such a corporation, however, remains subject to the information
reporting requirements of Sec. 1.6038A-2 and the general record
maintenance requirements of section 6001. For purposes of this
paragraph, U.S. gross receipts includes all amounts received or accrued
to the extent that such amounts are taken into account for the
determination and computation of the gross income of the corporation.
For purposes of this test, the U.S. gross receipts of all related
reporting corporations shall be aggregated.
(i) Safe harbor for reporting corporations with related party
transactions of de minimis value--(1) In general. A reporting
corporation (other than an entity that is a reporting corporation as a
result of being treated as a corporation under Sec. 301.7701-
2(c)(2)(vi) of this chapter) is not subject to Sec. Sec. 1.6038A-3 and
1.6038A-5 for any taxable year in which the aggregate value of all gross
payments it makes to and receives from foreign related parties with
respect to related party transactions (including monetary consideration,
nonmonetary consideration, and the value of transactions involving less
than full consideration) is not more than $5,000,000 and is less than 10
percent of its U.S. gross income. Such a corporation, however, remains
subject to the information reporting requirements of Sec. 1.6038A-2 and
the general record maintenance requirements of section 6001. For
purposes of this paragraph, U.S. gross income means the gross income
reportable by the reporting corporation (or the aggregate gross income
reportable by all related reporting corporations) for U.S. income tax
purposes. Gross payments made to or received from foreign related
parties cannot be netted; rather, the gross payments made to and
received from foreign related parties are to be aggregated. Thus, for
example, if a reporting corporation receives $4,700,000 of gross
payments from a related party and makes $500,000 of gross payments to
the same related party, it has aggregate gross payments of $5,200,000,
and, therefore, does not qualify for the safe harbor under this
paragraph.
(2) Aggregate value of gross payments made or received. The
aggregate value of gross payments made to (or received from) a foreign
related party with respect to foreign related party transactions is
determined by totaling the dollar amounts of foreign related party
transactions as described in Sec. 1.6038A-2(b) (3) and (4) on all Forms
5472 filed by the reporting corporation or related reporting
corporations.
(j) Related reporting corporations. A reporting corporation is
related to another reporting corporation if it is related to that other
reporting corporation under the principles described in paragraphs (d)
and (e) of this section.
(k) Consolidated return groups--(1) Required information. If a
reporting corporation is a member of an affiliated group for which a
U.S. consolidated income tax return is filed, the return requirement of
Sec. 1.6038A-2 may be satisfied by filing a consolidated Form 5472. The
common parent, as identified on Form 851, must attach a schedule to the
consolidated Form 5472 stating
[[Page 187]]
which members of the U.S. affiliated group are reporting corporations
under section 6038A, and which of those are joining in the consolidated
Form 5472. The schedule must provide the name, address, and taxpayer
identification number of each member whose transactions are included on
the consolidated Form 5472. A member is not required to join in filing a
consolidated Form 5472 merely because other members of the group choose
to file one or more Forms 5472 on a consolidated basis.
(2) Maintenance of records and authorization of agent. Either the
common parent or the principal operating company of an affiliated group
filing a consolidated income tax return may be authorized under Sec.
1.6038A-5 to act as the agent for foreign related persons engaged in
transactions with members of the group solely for purposes of section
7602, 7603, and 7604 under section 6038A(e)(1) and Sec. 1.6038A-5. Each
member of the group, however, must maintain the records required under
section 6038A (a) and Sec. 1.6038A-3 relating to its related party
transactions.
(3) Monetary penalties. The common parent (or principal operating
company) and all reporting corporations that join in the filing of a
consolidated Form 5472 are liable jointly and severally for penalties
for failure to file Form 5472 and for failure to mantain records under
section 6038A(d) and Sec. 1.6038A-4(e). See Sec. 1.1502-77(a)
regarding the scope of agency of the common parent corporation.
(l) District Director. For purposes of the regulations under section
6038A, the term ``District Director'' means any District Director, or
the Assistant Commissioner (International) when performing duties
similar to those of a District Director with respect to any person over
which the Assistant Commissioner (International) has appropriate
jurisdiction.
(m) Examples. The following examples illustrate the rules of this
section.
Example 1. P, a U.S. partnership that is engaged in a U.S. trade or
business, is 75 percent owned by FC1, a foreign corporation that, in
turn, is wholly owned by another foreign corporation, FC2. The remaining
25 percent of P is owned by Corp, a domestic corporation, that is wholly
owned by FC3. P engages in transactions solely with FC2 and FC3. These
transactions are attributed to FC1 and Corp. Under section 875, FC1 is
considered as being engaged in a U.S. trade or business. For purposes of
section 6038A and this section, FC1 and Corp are reporting corporations
and must report their pro rata shares of the value of the transactions
with FC2 and FC3. Thus, Corp must report 25 percent of P's transactions
with FC3 and FC1 must report 75 percent of P's transactions with FC2.
Example 2. FC2 and FC3 are both foreign corporations that are wholly
owned by FC1, also a foreign corporation. FC2 engages in a trade or
business in the United States through a branch. The branch engages in
related party transactions with FC1. FC2 is a reporting corporation. FC3
is a foreign related party. FC1 is a direct 25-percent foreign
shareholder of both FC2 and FC3. Neither FC1 nor FC3 is a reporting
corporation.
Example 3. FC1 owns 25 percent of total voting power in each of FC2
and FC3. FC2 and FC3 each own 20 percent of the total voting power of
Corp, a domestic corporation. The remaining stock of Corp is owned by an
unrelated domestic corporation. Neither FC2 nor FC3 is engaged in a U.S.
trade or business. Under section 318(a)(2)(C) and paragraph (e) of this
section, FC1 constructively owns its proportionate share of the stock of
Corp owned directly by FC2 and FC3. Thus, FCl is treated as
constructively owning five percent of Corp through each of FC2 and FC3
or a total of 10 percent of the Corp stock. Consequently, Corp is not a
reporting corporation because no 25 percent shareholder exists.
Example 4. FP owns 100 percent of FCl which, in turn, owns 100
percent of FC2. FC2 owns 100 percent of FC3 which owns 100 percent of
RC. FP, FC1, and FC2 are indirect 25-percent foreign shareholders of RC,
and FC3 is a direct 25-percent foreign shareholder.
Example 5. FP owns 100 percent of USS, a U.S. corporation, and 25
percent of FS, a foreign corporation. The remaining 75 percent of FS is
publicly owned by numerous small shareholders. Sales transactions occur
between USS and FS. Applying the rules of this section, USS is a
reporting corporation. It is determined that USS and FS are each
controlled by FP under section 482 and the regulations thereunder.
Therefore, FS is related to USS within the meaning of section 482 and is
a related party to USS. Accordingly, the sales transactions between USS
and FS are subject to section 6038A.
Example 6. The facts are the same as in Example 5, except that the
remaining 75 percent of FS is owned by one shareholder that is unrelated
to the FP group and it is determined that FS is not controlled by FP for
purposes of section 482. Under these facts, FS is not a related party of
either FP or USS. Accordingly, section 6038A does not apply to the sales
transactions between FS and USS.
[[Page 188]]
Example 7. P, a U.S. multinational, is a holding company that wholly
owns X, a U.S. operating company, which in turn wholly owns FS, a
controlled foreign corporation. Applying the rule of section
318(a)(3)(C), FS is deemed to own the stock of X that is actually held
by P. However, under the rules of paragraph (e) of this section, X will
not be a reporting corporation by reason of section 318.
(n) Effective dates--(1) Section 1.6038A-1. Paragraphs (c) (relating
to the definition of a reporting corporation), (d) (relating to the
definition of a related party), (e)(1) (relating to the application of
section 318), and (f) (relating to the definition of a foreign person)
of this section are effective for taxable Years beginning after July 10,
1989. The remaining paragraphs of this section are effective December
10, 1990, without regard to when the taxable year began. However, Sec.
1.6038A-1 as it applies to entities that are reporting corporations as a
result of being treated as a corporation under Sec. 301.7701-
2(c)(2)(vi) of this chapter applies to taxable years of such reporting
corporations beginning after December 31, 2016, and ending on or after
December 13, 2017.
(2)(Section 1.6038A-2--(i) In general. Section 1.6038A-2 (relating
to the requirement to file Form 5472) generally applies for taxable
years beginning after July 10, 1989. However, Sec. 1.6038A-2 as it
applies to reporting corporations whose sole trade or business in the
United States is a banking, financing, or similar business as defined in
Sec. 1.864-4(c)(5)(i) applies for taxable years beginning after
December 10, 1990. Section 1.6038A-2(d) applies for taxable years ending
on or after June 10, 2011. For taxable years ending on or after June 10,
2011, but before December 24, 2014, see Sec. 1.6038A-2(e) as contained
in 26 CFR part 1 revised as of April 1, 2014. For taxable years ending
before June 10, 2011, see Sec. 1.6038A-2(d) and (e) as contained in 26
CFR part 1 revised as of April 1, 2011. Section 1.6038A-2 as it applies
to entities that are reporting corporations as a result of being treated
as a corporation under Sec. 301.7701-2(c)(2)(vi) of this chapter
applies to taxable years of such reporting corporations beginning after
December 31, 2016, and ending on or after December 13, 2017. Section
1.6038A-2(a)(3), (b)(6), and (b)(7) apply to taxable years ending on or
after December 17, 2018. However, taxpayers may apply these final
regulations in their entirety for taxable years ending before December
17, 2018.
(ii) Transition rule. No penalty under sections 6038A(d) or 6038C(c)
will apply to a failure solely under Sec. 1.6038A-2(a)(3), (b)(6), or
(b)(7) that is corrected by March 6, 2020.
(3) Section 1.6038A-4. Section 1.6038A-4 (relating to the monetary
penalty) is generally effective for taxable years beginning after July
10, 1989, for the failure to file Form 5472. For the failure to maintain
records or the failure to produce documents under Sec. 1.6038A-4(f)(2),
the section is effective December 10, 1990, without regard to when the
taxable year to which the records relate began. For taxable years ending
on or before December 31, 2017, see Sec. 1.6038A-4 as contained in 26
CFR part 1 revised as of April 1, 2018.
(4) Section 1.6038A-5. Section 1.6038A-5 (relating to the
authorization of agent requirement) is effective December 10, 1990,
without regard to when the taxable year to which the records relate
began.
(5) Section 1.6038A-6. Section 1.6038A-6 (relating to the failure to
furnish information under a summons) is effective November 6, 1990,
without regard to when the taxable year to which the summons relates
began.
(6) Section 1.6038A-7. Section 1.6038A-7 (relating to the
noncompliance penalty adjustment) is effective December 10, 1990,
without regard to when the taxable year began.
[T.D. 8353, 56 FR 28061, June 19, 1991; T.D. 8353, 56 FR 41792, Aug. 23,
1991, as amended by T.D. 9161, 69 FR 55500, Sept. 15, 2004; T.D. 9456,
74 FR 38875, Aug. 4, 2009; T.D. 9529, 76 FR 33999, June 10, 2011; T.D.
9667, 78 FR 32644, June 6, 2014; T.D. 9707, 79 FR 77388, Dec. 24, 2014;
T.D. 9796, 81 FR 89850, Dec. 13, 2016; T.D. 9885, 84 FR 67044, Dec. 6,
2019]
Sec. 1.6038A-2 Requirement of return.
(a) Forms required--(1) Form 5472. Each reporting corporation as
defined in Sec. 1.6038A-1(c) (or members of an affiliated group filing
together as described in Sec. 1.6038A-1(k)) shall make a separate
annual information return on Form 5472 with respect to each related
party as defined in Sec. 1.6038A-1(d) with which the reporting
corporation (or any
[[Page 189]]
group member joining in a consolidated Form 5472) has had any reportable
transaction during the taxable year. The information required by section
6038A and this section must be furnished even though it may not affect
the amount of any tax due under the Code.
(2) Reportable transaction. A reportable transaction is any
transaction of the types listed in paragraphs (b)(3) and (4) of this
section, and, in the case of a reporting corporation that is an
applicable taxpayer, as defined under Sec. 1.59A-2(b), any other
arrangement that, to prevent avoidance of the purposes of section 59A,
is identified on Form 5472 as a reportable transaction. However, except
as the Secretary may prescribe otherwise for an applicable taxpayer, the
transaction is not a reportable transaction if neither party to the
transaction is a United States person as defined in section 7701(a)(30)
(which, for purposes of section 6038A, includes an entity that is a
reporting corporation as a result of being treated as a corporation
under Sec. 301.7701-2(c)(2)(vi) of this chapter) and the transaction--
(i) Will not generate in any taxable year gross income from sources
within the United States or income effectively connected, or treated as
effectively connected, with the conduct of a trade or business within
the United States, and
(ii) Will not generate in any taxable year any expense, loss, or
other deduction that is allocable or apportionable to such income.
(3) Form 8991. Each reporting corporation that is an applicable
taxpayer, as defined under Sec. 1.59A-2(b), must make an annual
information return on Form 8991. The obligation of an applicable
taxpayer to report on Form 8991 does not depend on applicability of tax
under section 59A or obligation to file Form 5472.
(b) Contents of return--(1) Reporting corporation. Form 5472 must
provide the following information in the manner the form prescribes with
respect to each reporting corporation:
(i) Its name, address (including mailing code), and U.S. taxpayer
identification number; each country in which the reporting corporation
files an income tax return as a resident under the tax laws of that
country; its country or countries of organization, and incorporation;
its total assets for U.S. reporting corporation; the places where it
conducts its business; and its principal business activity.
(ii) The name, address, and U.S. taxpayer identification number, if
applicable, of all its direct and indirect foreign shareholders (for an
indirect 25-percent foreign shareholder, explain the attribution of
ownership); whether any 25-percent foreign shareholder is a surrogate
foreign corporation under section 7874(a)(2)(B) or a member of an
expanded affiliated group as defined in section 7874(c)(1); each country
in which each 25-percent foreign shareholder files an income tax return
as a resident under the tax laws of that country; the places where each
25-percent shareholder conducts its business; and the country or
countries of organization, citizenship, and incorporation of each 25-
percent foreign shareholder.
(iii) The number of Forms 5472 filed for the taxable year and the
aggregate value in U.S. dollars of gross payments as defined in Sec.
1.6038A-1(h)(2) made with respect to all foreign related party
transactions reported on all Forms 5472.
(2) Related party. The reporting corporation must provide
information on Form 5472, set forth in the manner the form prescribes,
about each related party, whether foreign or domestic, with which the
reporting corporation had a transaction of the types described in
paragraphs (b) (3) and (4) of this section during its taxable year,
including the following information:
(i) The name, U.S. taxpayer identification number, if applicable,
and address of the related party.
(ii) The nature of the reated party's business and the principal
place or places where it conducts its business.
(iii) Each country in which the related party files an income tax
return as a resident under the tax laws of that country.
(iv) The relationship of the reporting corporation to the related
party (including, to the extent the form may prescribe, any intermediate
relationships).
[[Page 190]]
(3) Foreign related party transactions for which only monetary
consideration is paid or received by the reporting corporation. If the
related party is a foreign person, the reporting corporation must set
forth on Form 5472 the dollar amounts of all reportable transactions for
which monetary consideration (including U.S. and foreign currency) was
the sole consideration paid or received during the taxable year of the
reporting corporation. The total amount of such transactions, as well as
the separate amounts for each type of transaction described below, and,
to the extent the form may prescribe, any further description,
categorization, or listing of transactions within these types, must be
reported on Form 5472, in the manner the form or its instructions may
prescribe. Where actual amounts are not determinable, a reasonable
estimate (as described in paragraph (b)(6) of this section) is
permitted. The types of transactions described in this paragraph are:
(i) Sales and purchases of stock in trade (inventory);
(ii) Sales and purchases of tangible property other than stock in
trade;
(iii) Rents and royalties paid and received (other than amounts
reported under paragraph (b)(3)(iv) of this section);
(iv) Sales, purchases, and amounts paid and received as
consideration for the use of all intangible property, including (but not
limited to) copyrights, designs, formulas, inventions, models, patents,
processes, trademarks, and other similar intangible property rights;
(v) Consideration paid and received for technical, managerial,
engineering, construction, scientific, or other services;
(vi) Commissions paid and received;
(vii) Amounts loaned and borrowed (except open accounts resulting
from sales and purchases reported under other items listed in this
paragraph (b)(3) that arise and are collected in full in the ordinary
course of business), to be reported as monthly averages or outstanding
balances at the beginning and end of the taxable year, as the form shall
prescribe;
(viii) Interest paid and received;
(ix) Premiums paid and received for insurance and reinsurance;
(x) Other amounts paid or received not specifically identified in
this paragraph (b)(3) to the extent that such amounts are taken into
account for the determination and computation of the taxable income of
the reporting corporation; and
(xi) With respect to an entity that is a reporting corporation as a
result of being treated as a corporation under Sec. 301.7701-
2(c)(2)(vi) of this chapter, any other transaction as defined by Sec.
1.482-1(i)(7), such as amounts paid or received in connection with the
formation, dissolution, acquisition and disposition of the entity,
including contributions to and distributions from the entity.
(4) Foreign related party transactions involving nonmonetary
consideration or less than full consideration. If the related party is a
foreign person, the reporting corporation must provide on Form 5472 a
description of any reportable transaction, or group of reportable
transactions, listed in paragraph (b)(3) of this section, for which any
part of the consideration paid or received was not monetary
consideration, or for which less than full consideration was paid or
received. A description required under paragraph (b)(4) of this section
shall include sufficient information from which to determine the nature
and approximate monetary value of the transaction or group of
transactions, and shall include:
(i) A description of all property (including monetary
consideration), rights, or obligations transferred from the reporting
corporation to the foreign related party and from the foreign related
party to the reporting corporation;
(ii) A description of all services performed by the reporting
corporation for the foreign related party and by the foreign related
party for the reporting corporation; and
(iii) A reasonable estimate of the fair market value of all
properties and services exchanged, if possible, or some other reasonable
indicator of value.
If, for any transaction, the entire consideration received includes both
tangible and intangible property and the consideration paid is solely
monetary
[[Page 191]]
consideration, the transaction should be reported under paragraph (b)(3)
of this section if the intangible property was related and incidental to
the transfer of the tangible property (for example, a right to warranty
services.)
(5) Additional information. In addition to the information required
under paragraphs (b) (3) and (4) of this section, a reporting
corporation must provide on Form 5472, in the manner the form
prescribes, the following information:
(i) If the reporting corporation imports goods from a foreign
related party, whether the costs taken into account in computing the
basis or inventory cost of such goods are greater than the costs taken
into account in computing the valuation of the goods for customs
purposes, adjusted pursuant to section 1059A and the regulations
thereunder, and if so, the reasons for the difference.
(ii) If the costs taken into account in computing the basis or
inventory cost of such goods are greater than the costs taken into
account in computing the valuation of the goods for customs purposes,
whether the documents supporting the reporting corporation's treatment
of the items set forth in paragraph (b)(5)(i) of this section are in
existence and available in the United States at the time Form 5472 is
filed.
(6) Compilation of reportable transactions across multiple related
parties. A reporting corporation must, to the extent and in the manner
Form 5472 or its instructions may prescribe, include a schedule
tabulating information with respect to related parties for which the
reporting corporation is required to file Forms 5472. The schedule will
not require information (beyond totaling) that is not required for the
individual Forms 5472. The schedule may include the following:
(i) The identity and status of the related parties;
(ii) The reporting corporation's relationship to the related
parties;
(iii) The reporting corporation's reportable transactions with the
related parties; and
(iv) Other items required to be reported on Form 5472.
(7) Information on Form 5472 and Form 8991 regarding base erosion
payments. If any reporting corporation is an applicable taxpayer, as
defined under Sec. 1.59A-2(b), it must report the information required
by Form 8991 and by any Form 5472 it is required to file (including the
information required by their accompanying instructions), regarding:
(i) Determination of whether a taxpayer is an applicable taxpayer;
(ii) Computation of base erosion minimum tax amount, including
computation of regular tax liability as adjusted for purposes of
computing base erosion minimum tax amount;
(iii) Computation of modified taxable income;
(iv) Base erosion tax benefits;
(v) Base erosion percentage calculation;
(vi) Base erosion payments;
(vii) Amounts with respect to services as described in Sec. 1.59A-
3(b)(3)(i), including a breakdown of the amount of the total services
cost and any mark-up component;
(viii) Arrangements or transactions described in Sec. 1.59A-9;
(ix) Any qualified derivative payment, including:
(A) The aggregate amount of qualified derivative payments for the
taxable year; and
(B) A representation that all payments satisfy the requirements of
Sec. 1.59A-6(b)(2); and
(x) Any other information necessary to carry out section 59A.
(8) Reasonable estimate--(i) Estimate within 25 percent of actual
amount. Any amount reported under this section is considered to be a
reasonable estimate if it is at least 75 percent and not more than 125
percent of the actual amount.
(ii) Other estimates. If any amount reported under this paragraph
(b) of this section fails to meet the reasonable estimate test of
paragraph (b)(6)(i) of this section, the reporting corporation
nevertheless may show that such amount is a reasonable estimate by
making an affirmative showing of relevant facts and circumstances in a
written statement containing a declaration that it is made under the
penalties of perjury. The District Director shall determine whether the
amount reported was a reasonable estimate.
(9) Small amounts. If any actual amount required under this section
[[Page 192]]
does not exceed $50,000, the amount may be reported as ``$50,000 or
less.''
(10) Accrued payments and receipts. For purposes of this section, a
reporting corporation that uses an accrual method of accounting shall
use accrued payments and accrued receipts for purposes of computing the
total amount of each of the types of transactions listed in this
section.
(11) Examples. The following examples illustrate the application of
paragraph (b)(3) of this section:
Example 1. (i) In year 1, W, a foreign corporation, forms and
contributes assets to X, a domestic limited liability company that does
not elect to be treated as a corporation under Sec. 301.7701-3(c) of
this chapter. In year 2, W contributes funds to X. In year 3, X makes a
payment to W. In year 4, X, in liquidation, distributes its assets to W.
(ii) In accordance with Sec. 301.7701-3(b)(1)(ii) of this chapter,
X is disregarded as an entity separate from W. In accordance with Sec.
301.7701-2(c)(2)(vi) of this chapter, X is treated as an entity separate
from W and classified as a domestic corporation for purposes of section
6038A. In accordance with paragraphs (a)(2) and (b)(3) of this section,
each of the transactions in years 1 through 4 is a reportable
transaction with respect to X. Therefore, X has a section 6038A
reporting and record maintenance requirement for each of those years.
Example 2. (i) The facts are the same as in Example 1 of this
paragraph (b)(9) except that, in year 1, W also forms and contributes
assets to Y, another domestic limited liability company that does not
elect to be treated as a corporation under Sec. 301.7701-3(c) of this
chapter. In year 1, X and Y form and contribute assets to Z, another
domestic limited liability company that does not elect to be treated as
a corporation under Sec. 301.7701-3(c) of this chapter. In year 2, X
transfers funds to Z. In year 3, Z makes a payment to Y. In year 4, Z
distributes its assets to X and Y in liquidation.
(ii) In accordance with Sec. 301.7701-3(b)(1)(ii) of this chapter,
Y and Z are disregarded as entities separate from each other, W, and X.
In accordance with Sec. 301.7701-2(c)(2)(vi) of this chapter, Y, Z and
X are treated as entities separate from each other and W, and are
classified as domestic corporations for purposes of section 6038A. In
accordance with paragraph (b)(3) of this section, each of the
transactions in years 1 through 4 involving Z is a reportable
transaction with respect to Z. Similarly, W's contribution to Y and Y's
contribution to Z in year 1, the payment to Y in year 3, and the
distribution to Y in year 4 are reportable transactions with respect to
Y. Moreover, X's contribution to Z in Year 1, X's funds transfer to Z in
year 2, and the distribution to X in year 4 are reportable transactions
with respect to X. Therefore, Z has a section 6038A reporting and record
maintenance requirement for years 1 through 4; Y has a section 6038A
reporting and record maintenance requirement for years 1, 3, and 4; and
X has a section 6038A reporting and record maintenance requirement in
years 1, 2, and 4 in addition to its section 6038A reporting and record
maintenance described in Example 1 of this paragraph (b)(9).
(c) Method of reporting. All statements required on or with the Form
5472 or Form 8991 under this section and Sec. 1.6038A-5 must be in the
English language. All amounts required to be reported under paragraph
(b) of this section must be expressed in United States currency, with a
statement of the exchange rates used, and, to the extent the forms may
require, must indicate the method by which the amount of a reportable
transaction or item was determined.
(d) Time for filing returns.A Form 5472 and Form 8991 required under
this section must be filed with the reporting corporation's income tax
return for the taxable year by the due date (including extensions) of
that return. In the case of an entity that is a reporting corporation as
a result of being treated as a corporation under Sec. 301.7701-
2(c)(2)(vi) of this chapter, Form 5472 must be filed at such time and in
such manner as the Commissioner may prescribe in forms or instructions.
(e) Exceptions--(1) No reportable transactions. A reporting
corporation is not required to file Form 5472 if it has no transactions
of the types listed in paragraphs (b) (3) and (4) of this section during
the taxable year with any related party.
(2) Transactions solely with a domestic reporting corporation. If
all of a foreign reporting corporation's reportable transactions are
with one or more related domestic reporting corporations that are not
members of the same affiliated group, the foreign reporting corporation
shall furnish on Form 5472 only the information required under
paragraphs (b) (1) and (2) of this section, if the domestic reporting
corporations provide the information required under paragraphs (b) (3)
through (5) of this section. Such a foreign reporting corporation
nonetheless is subject to the record maintenance requirements
[[Page 193]]
of Sec. 1.6038A-3 and the requirements of Sec. Sec. 1.6038A-5 and
1.6038A-6. The name, address, and taxpayer identification number of each
domestic reporting corporation that provided such information must be
indicated on Form 5472 in the space provided for the information under
paragraphs (b) (1) and (2) of this section.
(3) Transactions with a corporation subject to reporting under
section 6038. A reporting corporation (other than an entity that is a
reporting corporation as a result of being treated as a corporation
under Sec. 301.7701-2(c)(2)(vi) of this chapter) is not required to
make a return of information on Form 5472 with respect to a related
foreign corporation for a taxable year for which a U.S. person that
controls the foreign related corporation makes a return of information
on Form 5471 that is required under section 6038 and this section, if
that return contains information required under Sec. 1.6038-2(f)(11)
with respect to the reportable transactions between the reporting
corporation and the related corporation for that taxable year. Such a
reporting corporation also is not subject to Sec. Sec. 1.6038A-3 and
1.6038A-5. It remains subject to the general record maintenance
requirements of section 6001.
(4) Transactions with a foreign sales corporation. A reporting
corporation (other than an entity that is a reporting corporation as a
result of being treated as a corporation under Sec. 301.7701-
2(c)(2)(vi) of this chapter) is not required to make a return of
information on Form 5472 with respect to a related corporation that
qualifies as a foreign sales corporation for a taxable year for which
the foreign sales corporation files Form 1120-FSC.
(f) Filing Form 5472 when transactions with related parties engaged
in by a partnership are attributed to a reporting corporation. If
transactions engaged in by a partnership are attributed under Sec.
1.6038A-1(e)(2) to a reporting corporation, the reporting corporation
need report on Form 5472 only the percentage of the value of the
transaction or transactions equal to the percentage of its partnership
interest. Thus, for example, if a partnership buys $1000 of widgets from
the foreign parent of a reporting corporation whose partnership interest
in the partnership equals 50 percent of the partnership interests (and
the remaining 50 percent is held by unrelated parties), the reporting
corporation must report $500 of purchases from a foreign related party
on Form 5472.
(g) Effective/applicability date. Except as otherwise provided, for
applicability dates for this section for certain reporting corporations,
see Sec. 1.6038A-1(n). Paragraph (b)(10) of this section applies with
respect to information for annual accounting periods beginning on or
after June 21, 2006. Paragraph (b)(7)(ix) of this section applies to
taxable years beginning on or after June 7, 2021. Before these final
regulations are applicable, a taxpayer will be treated as satisfying the
reporting requirement described in Sec. 1.59A-6(b)(2) only to the
extent that it reports the aggregate amount of qualified derivative
payments on Form 8991. See Sec. 1.59A-6(b)(2)(iv) (transition period
for qualified derivative payment reporting).
[T.D. 8353, 56 FR 28063, June 19, 1991, as amended by T.D. 9113, 69 FR
5932, Feb. 9, 2004; T.D. 9161, 69 FR 55500, Sept. 15, 2004; T.D. 9268,
71 FR 35526, June 21, 2006; T.D. 9338, 72 FR 38476, July 13, 2007; T.D.
9529, 76 FR 33999, June 10, 2011; T.D. 9667, 78 FR 32645, June 6, 2014;
T.D. 9707, 79 FR 77389, Dec. 24, 2014; T.D. 9796, 81 FR 89851, Dec. 13,
2016; T.D. 9885, 84 FR 67044, Dec. 6, 2019; T.D. 9885, 85 FR 9370, Feb.
19, 2020]
Sec. 1.6038A-3 Record maintenance.
(a) General maintenance requirements--(1) Section 6001 and section
6038A. A reporting corporation must keep the permanent books of account
or records as required by section 6001 that are sufficient to establish
the correctness of the federal income tax return of the corporation,
including information, documents, or records (``records'') to the extent
they may be relevant to determine the correct U.S. tax treatment of
transactions with related parties. Under section 6001, the District
Director may require any person to make such returns, render such
statements, or keep such specific records as will enable the District
Director to determine whether or not that person is liable for any of
the taxes to which the regulations under part I have application. See
[[Page 194]]
section 6001 and the regulations thereunder. Such records must be
permanent, accurate, and complete, and must clearly establish income,
deductions, and credits. Additionally, in appropriate cases, such
records include sufficient relevant cost data from which a profit and
loss statement may be prepared for products or services transferred
between a reporting corporation and its foreign related parties. This
requirement includes records of the reporting corporation itself, as
well as to records of any foreign related party that may be relevant to
determine the correct U.S. tax treatment of transactions between the
reporting corporation and foreign related parties. The relevance of such
records with respect to related party transactions shall be determined
upon the basis of all the facts and circumstances. Section 6038A and
this section provide detailed guidance regarding the required
maintenance of records with respect to such transactions and specify
penalties for noncompliance. Banks and other financial institutions
shall follow the specific record maintenance rules described in
paragraph (h) of this section.
(2) Safe harbor. A safe harbor for record maintenance is provided
under paragraph (c) of this section, which sets forth detailed guidance
concerning the types of records to be maintained with respect to related
party transactions. The safe harbor consists of an all-inclusive list of
record types that could be relevant to different taxpayers under a
variety of facts and circumstances. It does not constitute a checklist
of records that every reporting corporation must maintain or that
generally should be requested by the Service. A specific reporting
corporation is required to maintain, and the Service will request, only
those records enumerated in the safe harbor (including material profit
and loss statements) that may be relevant to its business or industry
and to the correct U.S. tax treatment of its transactions with its
foreign related parties. Accordingly, not every item listed in the safe
harbor must be maintained by every reporting corporation. A corporation
that maintains or causes another person to maintain the records listed
in paragraph (c)(2) of this section that may be relevant to its foreign
related party transactions and to its business or industry will be
deemed to have met the record maintenance requirements of section 6038A.
(3) Examples. The following examples illustrate the rules of this
paragraph.
Example 1. RC, a U.S. reporting corporation, is owned by two
shareholders, F and P. F is a foreign corporation that owns 30 percent
of the stock of RC. P is a domestic corporation that owns the remaining
70 percent. RC purchases tangible property from F; however, the only
potential audit issue with respect to these transactions is their
treatment under section 482. It is determined that F does not in fact
control RC and the two corporations do not constitute a group of
``controlled taxpayers'' for purposes of section 482 and the regulations
thereunder. There are no other reportable transactions between RC and F.
Under Sec. 1.6038A-1(g), F is a foreign related party with respect to
RC. Accordingly, RC is required to report its purchases of property from
F under the reporting requirements of Sec. 1.6038A-2. Nevertheless,
because section 482 is not applicable to the transactions between RC and
F, the records created by F with respect to its sales to RC are not
relevant for purposes of determining the correct tax treatment of these
transactions. RC is required to maintain its own records of these
transactions under the requirements of section 6001, but the
transactions are not subject to the record maintenance requirements of
this section. If, however, on audit it is determined that F does control
RC, all records relevant to determining the arm's length consideration
for the tangible property under section 482 will be subject to these
requirements.
Example 2. FP, a foreign person, owns 30 percent of the stock of RC,
a reporting corporation. The remaining 70 percent of RC stock is held by
persons that are not 25-percent foreign shareholders. It is determined
that FP is related to RC within the meaning of section 482 and the
regulations thereunder. The only transactions between FP and RC are FP's
capital contributions, dividends paid from RC to FP, and loans from FP
to RC. Under section 6001, RC is required to maintain all documentation
necessary to establish the U.S. tax treatment of the capital
contributions, dividends, and loans. RC is not required to maintain
records in other categories listed in paragraph (c)(3) of this section
because they are not relevant to the transactions between FP and RC.
Records of FP not related to these transactions are not subject to the
record maintenance requirements under section 6038A(a) and this section.
[[Page 195]]
Example 3. G, a foreign multinational group, creates Sub, a wholly-
owned U.S. subsidiary, in order to purchase tangible property from
unrelated parties in the United States and resell such property to G.
The property purchased by Sub is either used in G's business or resold
to other unrelated parties by G. Sub's sole function is to act as a
buyer for G and these purchases are the only transactions that G has
with any U.S. affiliates. Under all the facts and circumstances of this
case, it is determined that an analysis of the group's worldwide profit
attributable to the property it purchases from Sub is not relevant for
purposes of determining the tax treatment of the sales from Sub to G.
Therefore, the records with respect to the profitability of G are not
subject to the record maintenance requirements of this section. However,
all records related to the appropriate method under section 482 for
determining an arm's-length consideration for the property sold by Sub
to G are subject to the record maintenance requirements of this section.
Example 4. S, a U.S. reporting corporation, provides computer
consulting services for its foreign parent, X. Based on the application
of section 482 and the regulations, it is determined that the cost of
services plus method, as described in Sec. 1.482-9(e), will provide the
most reliable measure of an arm's length result, based on the facts and
circumstances of the controlled transaction between S and X. S is
required to maintain records to permit verification upon audit of the
comparable transactional costs (as described in Sec. 1.482-
9(e)(2)(iii)) used to calculate the arm's length price. Based on the
facts and circumstances, if it is determined that X's records are
relevant to determine the correct U.S. tax treatment of the controlled
transaction between S and X, the record maintenance requirements under
section 6038A(a) and this section will be applicable to the records of
X.
(b) Other maintenance requirements--(1) Indirectly related records.
This section applies to records that are directly or indirectly related
to transactions between the reporting corporation and any foreign
related parties. An example of records that are indirectly related to
such transactions is records possessed by a foreign subsidiary of a
foreign related party that document the raw material or component costs
of a product that is manufactured or assembled by the subsdiary and sold
as a finished product by the foreign related party to the reporting
corporation.
(2) Foreign related party or third-party maintenance. If records
that are required to be maintained under this section are in the control
of a foreign related party, the records may be obtained or compiled (if
not already in the possession of the foreign related party or already
compiled) under the direction of the reporting corporation and then
maintained by the reporting corporation, the foreign related party, or a
third party. Thus, for example, a foreign related party may either
itself maintain such records outside the United States or permit a third
party to maintain such records outside the United States, provided that
the conditions described in paragraph (f) of this section are met. Upon
a request for such records by the Service, a foreign related party or
third party may make arrangements with the District Director to furnish
the records directly, rather than through the reporting corporation.
(3) Translation of records. When records are provided to the Service
under a request for production, any portion of such records must be
translated into the English language within 30 days of a request for
translation of that portion by the District Director. To the extent that
any requested documents are identical to documents that have already
been translated, an explanation of how such documents are identical
instead may be provided. An extension of this time period may be
requested under paragraph (f)(4) of this section. Appropriate extensions
will be liberally granted for translation requests where circumstances
warrant. If a good faith effort is made to translate accurately the
requested documents within the specified time period, the reporting
corporation will not be subject to the penalties in Sec. Sec. 1.6038A-4
and 1.6038A-7.
(4) Exception for foreign governments. A foreign government is not
subject to the obligation to maintain records under this section.
(5) Records relating to conduit financing arrangements. See Sec.
1.881-4 relating to conduit financing arrangements.
(c) Specific records to be maintained for safe harbor--(1) In
general. A reporting corporation that maintains or causes another person
to maintain the records specified in this paragraph (c) that are
relevant to its business or industry and to the correct U.S. tax
treatment of its transactions with its foreign related
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parties will deemed to have met the record maintenance requirements of
this section. This paragraph provides general descriptions of the
categories of records to be maintained; the particular title or label
applied by a reporting corporation or related party does not control.
Functional equivalents of the specified documents are acceptable. Record
maintenance in accordance with this safe harbor, however, requires only
the maintenance of types of documents described in paragraph (c)(2) of
this section that are directly or indirectly related to transactions
between the reporting corporation and any foreign related party.
Additionally, to the extent the reporting corporation establishes that
records in a particular category are not applicable to the industry or
business of the reporting corporation and any foreign related party,
maintenance of such records is not required under this paragraph. Record
maintenance in accordance with this paragraph (c) generally does not
require the original creation of records that are ordinarily not created
by the reporting corporation or its related parties. (If, however, a
document that is actually created is described in this paragraph (c), it
is to be maintained even if the document is not of the type ordinarily
created by the reporting corporation or its related parties.) There are
two exceptions to the rule. First, basic accounting records that are
sufficient to document the U.S. tax effects of transactions between
related parties must be created and retained, if they do not otherwise
exist. Second, records sufficient to produce material profit and loss
statements as described in paragraphs (c)(2)(ii) and (3) of this section
that are relevant for determining the U.S. tax treatment of transactions
between the reporting corporation and foreign related parties must be
created if such records are not ordinarily maintained. All internal
records storage and retrieval systems used for each taxable year must be
retained.
(2) Descriptions of categories of documents to be maintained. The
following records must be maintained in order to satisfy this paragraph
(c) to the extent they may be relevant to determine the correct U.S. tax
treatment of transactions between the reporting corporation and any
foreign related party.
(i) Original entry books and transaction records. This category
includes books and records of original entry or their functional
equivalents, however designated or labelled, that are relevant to
transactions between any foreign related party and the reporting
corporation. Examples include, but are not limited to, general ledgers,
sales journals, purchase order books, cash receipts books, cash
disbursement books, canceled checks and bank statements, workpapers,
sales contracts, and purchase invoices. Descriptive material to
explicate entries in the foregoing types of records, such as a chart of
accounts or an accounting policy manual, is included in this category.
(ii) Profit and loss statements. This category includes records from
which the reporting corporation can compile and supply, within a
reasonable time, material profit and loss statements of the reporting
corporation and all related parties as defined in Sec. 1.6038A-1 (d)
(the ``related party group'') that reflect profit or loss of the related
party group attributable to U.S.-connected products or services as
defined in paragraph (c)(7)(i) of this section. The determination of
whether a profit and loss statement is material is made under the rules
provided in paragraph (c)(3) of this section. The material profit and
loss statements described in this paragraph (c)(2)(ii) must reflect the
consolidated revenue and expenses of all members of the related party
group. Thus, records in this category include the documentation of the
cost of raw materials used by a related party to manufacture finished
goods that are then sold by another related party to the reporting
corporation. The records should be kept under U.S. generally accepted
accounting principles if they are ordinarily maintained in such manner;
if not, an explanation of the material differences between the
accounting principles used and U.S. generally accepted accounting
principles must be made available. The statements need not reflect
tracing of the actual costs borne by the group with respect to its U.S.-
connected products or services; rather, any reasonable method may be
used to allocate the group's worldwide
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costs to the revenues generated by the sales of those products or
services. An explanation of the methods used to allocate specific items
to a particular profit and loss statement must be made available. The
explanation of material differences between accounting principles and
the explanation of allocation methods must be sufficient to permit a
comparison of the profitability of the group to that of the reporting
corporation attributable to the provision of U.S.-connected products or
services.
(iii) Pricing documents. This category includes all documents
relevant to establishing the appropriate price or rate for transactions
between the reporting corporation and any foreign related party.
Examples include, but are not limited to, documents related to
transactions involving the same or similar products or services entered
into by the reporting corporation or a foreign related party with
related and unrelated parties; shipping and export documents; commission
agreements; documents relating to production or assembly facilities;
third-party and intercompany purchase invoices; manuals, specifications,
and similar documents relating to or describing the performance of
functions conducted at particular locations; intercompany correspondence
discussing any instructions or assistance relating to such transactions
provided to the reporting corporations by the related foreign person (or
vice versa); intercompany and intracompany correspondence concerning the
price or the negotiation of the price used in such transactions;
documents related to the value and ownership of intangibles used or
developed by the reporting corporation or the foreign related party;
documents related to cost of goods sold and other expenses; and
documents related to direct and indirect selling, and general and
administrative expenses (for example, relating to advertising, sales
promotions, or warranties).
(iv) Foreign country and third party filings. This category includes
financial and other documents relevant to transactions between a
reporting corporation and any foreign related party filed with or
prepared for any foreign government entity, any independent commission,
or any financial institution.
(v) Ownership and capital structure records. This category includes
records or charts showing the relationship between the reporting
corporation and the foreign related party; the location, ownership, and
status (for example, joint venture, partnership, branch, or division) of
all entities and offices directly or indirectly involved in the
transactions between the reporting corporation and any foreign related
party; a worldwide organization chart; records showing the management
structure of all foreign affiliates; and loan documents, agreements, and
other documents relating to any transfer of the stock of the reporting
corporation that results in the change of the status of a foreign person
as a foreign related party.
(vi) Records of loans, services, and other non-sales transactions.
This category includes relevant documents relating to loans (including
all deposits by one foreign related party or reporting corporation with
an unrelated party and a subsequent loan by that unrelated party to a
foreign related party or reporting corporation that is in substance a
direct loan between a reporting corporation and a foreign related
party); guarantees of a foreign related party of debts of the reporting
corporation, and vice versa; hedging arrangements or other risk shifting
or currency risk shifting arrangements involving the reporting
corporation and any foreign related party; security agreements between
the reporting corporation and any foreign related party; research and
development expense allocations between any foreign related party and
the reporting corporation; service transactions between any foreign
related party and the reporting corporation, including, for example, a
description of the allocation of charges for management services, time
or travel records, or allocation studies; import and export transactions
between a reporting corporation and any foreign related party; the
registration of patents and copyrights with respect to transactions
between the reporting corporation and any foreign related party: and
documents regarding lawsuits in foreign countries that relate to such
transactions between a reporting corporation and any foreign related
party
[[Page 198]]
(for example, product liability suits for U.S. products).
(vii) Records relating to conduit financing arrangements. See Sec.
1.881-4 relating to conduit financing arrangements.
(3) Material profit and loss statements. For purposes of paragraph
(c)(2)(ii) of this section, the determination of whether a profit and
loss statement is material will be made according to the following
rules. An agreement between the reporting corporation and the District
Director as described in paragraph (e) of this section may identify
material profit and loss statements of the related party group and
describe the items to be included in any profit and loss statements for
which records are to be maintained to satisfy the requirements of
paragraph (c)(2)(ii) of this section. In the absence of such an
agreement, a profit and loss statement will be material if it meets any
of the following tests: the existing records test described in paragraph
(c)(4) of this section, the significant industry segment test described
in paragraph (c)(5) of this section, or the high profit test described
in paragraph (c)(6) of this section.
(4) Existing records test. A profit and loss statement is material
under the existing records test described in this paragraph (c)(4) if
any member of the related party group creates or compiles such statement
in the course of its business operations and the statement reflects the
profit or loss of the related party group attributable to the provision
of U.S.-connected products or services (regardless of whether the profit
and loss attributable to U.S.-connected products or services is shown
separately or included within the calculation of aggregate figures on
the statement). For example, a profit and loss statement is described in
this paragraph if it was produced for internal accounting or management
purposes, or for disclosure to shareholders, financial institutions,
government agencies, or any other persons. Such existing statements and
the records from which they were complied (to the extent such records
relate to profit and loss attributable to U.S.-connected products or
services) are subject to the record maintenance requirements described
in paragraph (c)(2)(ii) of this section.
(5) Significant industry segment test--(i) In general. A profit and
loss statement is material under the significant industry segment test
described in this paragraph (c)(5) if--
(A) The statement reflects the profit or loss of the related party
group attributable to the group's provision of U.S.-connected products
or services within a single industry segment (as defined in paragraph
(c)(7)(ii) of this section);
(B) The worldwide gross revenue attributable to such industry
segment is 10 percent or more of the worldwide gross revenue
attributable to the group's combined industry segments; and
(C) The amount of gross revenue earned by the group from the
provision of U.S.-connected products or services within such industry
segment is $25 million or more in the taxable year.
(ii) Form of the statements. Profit and loss statements compiled for
the group's provision of U.S.-connected products or services in each
significant industry segment must reflect revenues and expenses
attributable to the operations in such segment by all members of the
related party group. Statements may show each related party's revenues
and expenses separately, or may be prepared in a consolidated format.
Any reasonable method may be used to allocate the group's worldwide
costs within the industry segment to the U.S.-connected products or
services within that segment. An explanation of the methods used to
prepare consolidated statements and to allocate specific items to a
particular profit and loss statement must be made available, and the
records from which the consolidations and allocations were prepared must
be maintained.
(iii) Special rule for component sales. Where the U.S.-connected
products or services consist of components that are incorporated into
other products or services before sale to customers, the portion of the
total gross revenue derived from sales of the finished products or
services attributable to the components may be determined on the basis
of relative costs of production. Thus, where relevant for determining
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whether the $25 million threshold in paragraph (c)(5)(i)(C) of this
section has been met, the amount of gross revenue derived by the related
party group from the provision of the finished products or services may
be reduced by multiplying it by a fraction, the numerator of which is
the costs of production of the related party group attributable to the
component products or services that constitute U.S.-connected products
or services and the denominator of which is the costs of production of
the related party group attributable to the finished products in which
such components are incorporated.
(iv) Level of specificity required. In applying the significant
industry segment test of this paragraph (c)(5), groups of related
products and services must be chosen to provide a reasonable level of
specificity that results in the greatest number of separate significant
industry segments in comparison to other possible classifications. This
determination must be made on the basis of the particular facts
presented by the operations of the related party group. The following
rules, however, provide general guidelines for making such
classifications. First, the related party group's operations that
involve the provision of U.S.-connected products should be grouped into
product lines. The rules of this paragraph (c)(5) should then be applied
to determine if any such product line would, standing alone, constitute
a significant industry segment when compared to the related party
group's operations as a whole. Any significant industry segments
determined at the level of product lines should be further segregated,
and tested for significant industry segments, at the level of separate
products. Finally, any significant industry segments determined at the
level of separate products should be segregated, and tested for
significant industry segments, at the level of separate models. Similar
principles should be applied in classifying and testing types of
services. A profit and loss statement reflecting the related party
group's provision of any product or service (or group of products or
services as classified under these rules) that constitutes a significant
industry segment will be considered material for purposes of this
paragraph (c)(5). For definitions of the terms ``product'', ``related
products or services'', ``model'', and ''product line'', see paragraph
(c)(7) of this section.
(v) Examples. The rules for determining reasonable levels of
specificity for significant industry segments may be illustrated by the
following examples.
Example 1. A related party group is engaged in the manufacture and
worldwide sales of automobiles and aftermarket parts. The group's
operations within the categories of ``automobiles'' and ``aftermarket
parts''. are each sufficient to constitute significant industry segments
for the group under the rules of this paragraph (c)(5). No narrower
classification of aftermarket parts results in any significant industry
segments. Automobiles produced by the group are generally classified for
marketing purposes by trade names; aggregating groups of automobiles by
these trade names results in three significant industry segments, those
for trade names A, B, and C. Finally, two car models sold under the
trade name A (``A1'' and ``A2'') and one car model sold under the trade
name B (``B3''), produce sufficient revenue to constitute significant
industry segments. Such classifications into trade names and car models
are generally used in the related party group's industry; moreover,
different types of classifications would produce fewer significant
industry segments. Accordingly, a reasonable level of specificity for
this related party group's industry segments would be eight categories
of products consisting of ``automobiles'', ``aftermarket parts'', ``A'',
``B'', ``C'', ``A1'', ``A2'', and ``B3''.
Example 2. A related party group is engaged in manufacturing
electronic goods that are distributed at retail in the United States by
the reporting corporation. The group sells three types of products in
the United States: televisions, radios, and video cassette recorders
(VCRs). Each of these three broad product areas constitutes a
significant industry segment for the group as a whole. VCRs can be
further segregated by price into high-end and low-end models, and the
provision of each constitutes a significant industry segment for the
group. Revenues from only one VCR model, model number VCRX-10, are
sufficiently large to make the provision of that model a significant
industry segment. With respect to televisions, the group normally
accounts for these products by size. Using this classification, portable
televisions, medium-sized televisions, and consoles each constitute
significant industry segments. Narrower classifications by television
model numbers result in no additional
[[Page 200]]
significant industry segments. Finally, a single radio product line,
those sold under the trade name R, produces sufficient revenue to
constitute a significant industry segment, but no other radio models or
product groups are large enough to constitute a significant industry
segment. In each case, these classifications conform to normal business
practices in the industry and result in the greatest possible number of
significant industry segments for this related party group. Accordingly,
a reasonable level of specificity for this related party group's
industry segments would include the ten categories consisting of
``VCRs'', ``high-end VCRs'', ``low-end VCRs'', ``model number VCRX-10'',
``televisions'', ``portable televisions'', ``medium-sized televisions'',
``console televisions'', ``radios'', and ``radio trade name R''.
(6) High profit test--(i) In general. A profit and loss statement is
material under the high profit test described in this paragraph (c)(6)
if--
(A) The statement reflects the profit or loss of the related party
group attributable to the group's provision of U.S.-connected products
or services within a single industry segment (as defined in paragraph
(c)(7)(ii) of this section);
(B) The amount of gross revenue earned by the group from the
provision of U.S.-connected products or services within such industry
segment is $100 million or more in the taxable year; and
(C) The return on assets test described in paragraph (c)(6)(ii) of
this section is satisfied with respect to the products and services
attributable to such segment.
Accordingly, a significant industry segment (as determined under
paragraph (c)(5) of this section) must be divided into any narrower
industry segments that meet the high profit test of this paragraph
(c)(6), even if such narrower segments would not, standing alone, meet
the significant industry segment test of paragraph (c)(5) of this
section.
(ii) Return on assets test. An industry segment meets the return on
assets test if the rate of return on assets earned by the related party
group on its worldwide operations within this industry segment exceeds
15 percent, and is at least 200 percent of the return on assets earned
by the group in all industry segments combined. For purposes of this
paragraph, the rate of return on assets earned by an industry segment is
determined by dividing that segment's operating profit (as defined in
paragraph (c)(7)(v) of this section) by its identifiable assets (as
defined in paragraph (c)(7)(iv) of this section).
(iii) Additional rules. The rules in paragraphs (c)(5)(ii) through
(iv) of this section describing the application of the significant
industry segment test shall apply in a similar manner for purposes of
the high profit test.
(7) Definitions. The following definitions apply for purposes of
paragraphs (c)(2)(ii), (c)(5), and (c)(6) of this section.
(i) U.S.-connected products or services. The term U.S.-connected
products or services means products or services that are imported to or
exported from the United States by transfers between the reporting
corporation and any of its foreign related parties.
(ii) Industry segment. An industry segment is a segment of the
related party group's combined operations that is engaged in providing a
product or service or a group of related products or services (as
defined in paragraph (c)(7)(vii) of this section) primarily to customers
that are not members of the related party group.
(iii) Gross revenue of an industry segment. Gross revenue of an
industry segment includes receipts (prior to reduction for cost of goods
sold) both from sales to customers outside of the related party group
and from sales or transfers to other industry segments within the
related party group (but does not include sales or transfers between
members of the related party group within the same industry segment).
Interest from sources outside the related party group and interest
earned on trade receivables between industry segments is included in
gross revenue if the asset on which the interest is earned is included
among the industry segment's identifiable assets, but interest earned on
advances or loans to other industry segments is not included.
(iv) Identifiable assets of an industry segment. The identifiable
assets of an industry segment are those tangible and intangible assets
of the related party group that are used by the industry segment,
including assets that are
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used exclusively by that industry segment and an allocated portion of
assets used jointly by two or more industry segments. The value of an
identifiable asset may be determined using any reasonable method (such
as book value or fair market value) applied consistently. Any allocation
of assets among industry segments must be made on a reasonable basis,
and a description of such basis must be provided. Assets of an industry
segment that transfers products or services to another industry segment
shall not be allocated to the receiving segment. Assets that represent
part of the related party group's investment in an industry segment,
such as goodwill, shall be included in the industry segment's
identifiable assets. Assets maintained for general corporate purposes
(that is, those not used in the operations of any industry segment)
shall not be allocated to industry segments.
(v) Operating profit of an industry segment. The operating profit of
an industry segment is its gross revenue (as defined in paragraph
(c)(7)(iii) of this section) minus all operating expenses. None of the
following shall be added or deducted in computing the operating profit
of an industry segment: revenue earned at the corporate level and not
derived from the operations of any industry segment; general corporate
expenses; interest expense; domestic and foreign income taxes; and other
extraordinary items not reflecting the ongoing business operations of
the industry segment.
(vi) Product. The term product means an item of property (or
combination of component parts) that is the result of a production
process, is primarily sold to unrelated parties (or incorporated by the
related party group into other products sold to unrelated parties), and
performs a specific function.
(vii) Related products or services. The term related products or
services means groupings of products and types of services that reflect
reasonable accounting, marketing, or other business practices within the
industries in which the related party group operates.
(viii) Model. The term model means a classification of products that
incorporate particular components, options, styles, and any other unique
features resulting in product differentiation. Examples of models are
electronic products that are sold or accounted for under a single model
number and automobiles sold under a single model name.
(ix) Product line. The term product line means a group of products
that are aggregated into a single classification for accounting,
marketing, or other business purposes. Examples of product lines are
groups of products that perform similar functions; products that are
marketed under the same trade names, brand names, or trademarks; and
products that are related economically (that is, having similar rates of
profitability, similar degrees of risk, and similar opportunities for
growth).
(8) Example. The application of the rules for determining material
profit and loss statements under paragraphs (c)(4) through (7) of this
section is illustrated by the following example.
Example. (i) Facts. A multinational enterprise manufactures 50
different agricultural and chemical products that are sold through Subl,
its wholly owned U.S. subsidiary, and other subsidiaries located in
foreign countries. The parent company of the enterprise, P, is a foreign
corporation. The corporations participating in the enterprise form a
related party group, and Subl is a reporting corporation for purposes of
section 6038A. Under the facts and circumstances of this case, an
analysis of the group's worldwide profit attributable to its products
sold in the U.S. is relevant for determining an arm's length
consideration under section 482 for the transfers of goods between Subl
and its foreign affiliates.
(ii) Existing records test. For management purposes, the group
prepares profit and loss statements that are segmented by sales in
different geographic markets. One of these statements shows the combined
worldwide profitability of the group. Another statement shows the
profitability of the group attributable to its North American sales.
Both of these profit and loss statements reflect aggregate figures that
include sales to unrelated parties of products that have been
transferred from P and other group members to Subl (that is, the group's
``U.S.-connected products''). The two statements meet the existing
records test described in paragraph (c)(4) of this section.
(iii) Significant industry segments. The group's worldwide gross
revenue in all industry segments is $2 billion. An analysis of the
group's 50 products demonstrates that they are reasonably grouped into
eight industry segments (each of which earns roughly $250
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million in worldwide gross revenue). Segments 1 through 6 relate to
agricultural products and Segments 7 and 8 relate to other chemical
products. More specific categories would result in groupings that
generate less than 10 percent of the group's worldwide gross revenue
(that is, less than $200 million each); these narrower categories would
thus fail the gross revenue percentage test of paragraph (c)(5)(i)(B) of
this section. The gross revenue in each of the eight segments from the
sale to unrelated parties of U.S.-connected products is as follows: $180
million for Segment 1; $30 million for Segment 2; and less than $25
million for each of Segments 3 through 8. Under the $25 million
threshold test of paragraph (c)(5)(i)(C) of this section, the group's
significant industry segments are thus limited to Segments 1 and 2. In
addition, the combined operations of the group related to agricultural
products (encompassing Segments 1 through 6 on an aggregated basis),
constitute a single significant industry segment.
(iv) High profit test. One highly profitable product line within
Segment 1, HPPL, accounts for $120 million gross revenue from Sub1's
domestic sales of U.S.-connected products (and thus exceeds the $100
million gross revenue threshold in paragraph (c)(6)(i)(B) of this
section). The return on the identifiable assets attributable to the HPPL
product line is 85 percent, which is more than 15 percent and more than
twice the return on assets earned by the group from its worldwide
operations in its combined industry segments. The group's industry
segment for HPPL thus meets the high profit test described in paragraph
(c)(6) of this section.
(v) Material Profit and Loss Statements. The group's material profit
and loss statements consist of statements for combined worldwide sales
and North American sales (under the existing records test); Segment 1,
Segment 2, and aggregated Segments 1-6 (under the significant industry
segment test); and HPPL (under the high profit test). Under paragraph
(c) of this section, Subl is required to retain the combined worldwide
sales and North American sales profit and loss statements and to
maintain sufficient records so that it can compile and supply upon
request statements of the group's profitability from sales of its U.S.-
connected products within Segment l, Segment 2, aggregated Segments 1-6,
and HPPL. These records need not be in the possession of Subl and may be
kept under the control of and produced by P or any third party. The
statements for Segment l, Segment 2, aggregated Segments 1-6, and HPPL
do not require tracing of actual costs to the U.S.-connected products;
rather, these statements may be prepared by using any reasonable method
to allocate a portion of the industry segment's overall operating costs
to the sales of U.S.-connected products within that segment.
(d) Liability for certain partnership record maintenance. A
reporting corporation to which transactions engaged in by a partnership
are attributed under Sec. 1.6038A-1 (e)(2) is subject to the record
maintenance requirements of this section to the extent of the
transactions so attributed.
(e) Agreements with the District Director--(1) In general. The
District Director who has audit jurisdiction over the reporting
corporation may negotiate and enter into an agreement with a reporting
corporation that establishes the records the reporting corporation must
maintain or cause another to maintain, how the records must be
maintained, the period of retention for the records, and by whom the
records must be maintained in order to satisfy the reporting
corporation's obligations under this section.
(2) Content of agreement--(i) In general. The agreement may include
provisions relating to the authorization of agent requirement, the
record maintenance requirement, and the production and translation time
periods that vary the rules contained in these regulations under section
6038A. The District Director will generally require a reporting
corporation to maintain only those records specified under the safe
harbor provisions of paragraph (c) of this section that permit an
adequate audit of the income tax return of the reporting corporation and
to provide such authorizations of agent that permit adequate access to
such records. In most instances, required record maintenance for a
particular reporting corporation under a negotiated agreement will be
less than the broad range of records described under the safe harbor
provisions. Additionally, a provision specifying the effective date and
the expiration date of the agreement that may vary the effective date of
the regulations may be included.
(ii) Significant industry segment test. A District Director may
determine which industry segment profit and loss statements are material
for purposes of requiring the maintenance of records (under either
paragraph (a)(1) of this section or the safe harbor described in
paragraph (a)(2) of this section). The industry segments that the
District Director determines are material need
[[Page 203]]
not be the industry segments that meet the significant industry segment
test under paragraph (c)(5) of this section or the high profit test
under paragraph (c)(6) of this section. For this purpose, a reporting
corporation will be required to maintain only those records from which
profit and loss statements for the related party group may be
constructed with respect to industry segments identified by the District
Director. To the extent that existing profit and loss statements are
similar in scope and level of detail to statements for industry segments
that would otherwise be described under the tests of paragraphs (c)(5)
and (6) of this section, the District Director shall accept the existing
statements instead of the statements that would otherwise be required
under paragraphs (c)(5) and (6) of this section.
(iii) Example. The following example illustrates the rules of
paragraph (e)(2)(ii) of this section.
Example. The District Director determines that RC, a reporting
corporation that is a manufacturer of related chemical products, has two
industry segments, Segment 1 and Segment 2. While both industry segments
meet the significant industry segment test of paragraph (c)(5) of this
section, Segment 1 has a relatively low volume of sales to foreign
related parties. Additionally, Segment 1 consists of products that
produce only a small profit margin because the product is generic and
other companies also sell the product. The District Director enters into
an agreement with RC that requires only records from which a profit and
loss statement for the related party group can be constructed for
Segment 2. Therefore, RC is not required to maintain records for Segment
1 from which a profit and loss statement for the related party group can
be constructed. The other record maintenance requirements under this
section apply, however.
(3) Circumstances of agreement. The District Director generally will
enter into an agreement under this paragraph (e) upon request by the
reporting corporation when the District Director believes that the
District has or can obtain sufficient knowledge of the business or
industry of the reporting corporation to limit the record maintenance
requirement to particular documents.
(4) Agreement as part of APA process. An agreement with a reporting
corporation under this paragraph (e) may be entered into as a part of
the Advance Pricing Agreement (APA) process at any time during the APA
process, insofar as the agreement relates to the subject matter of the
APA.
(f) U.S. maintenance--(1) General rule. Records that must be
maintained under this section must be maintained within the United
States, unless the conditions described in paragraph (f)(2) of this
section are met.
(2) Non-U.S. maintenance requirements. A reporting corporation may
maintain outside the United States records not ordinarily maintained in
the United States but required to be maintained in the United States
under this section. However, the reporting corporation must either:
(i) Deliver to the Service the original documents (or duplicates)
requested within 60 days of the request by the Service for such records
and provide translations of such documents within 30 days of a request
for translations of specific documents; or
(ii) Move the original documents (or duplicates) requested to the
United States within 60 days of the request of the Service for such
records; provide the Service with an index to the requested records, the
name and address of a custodian located within the United States having
control over the records, and the address where the records are located
within 60 days of the Service's request for the records; and continue to
maintain the records within the United States throughout the period of
retention described in paragraph (g) of this section. For summons
procedures with respect to records that have been moved to the United
States, see sections 6038A(e), 7602, 7603, and 7604.
With respect to any material profit and loss statements required to be
created (either under paragraph (c) of this section or under an
agreement with the District Director), unless otherwise specified, ``120
days'' shall be substituted for ``60 days'' in this paragraph (f)(2),
and labels and text with respect to such statements must be in the
English language.
(3) Prior taxable years. The non-U.S. maintenance requirements
described in paragraph (f)(2) of this section apply to records located
outside the United
[[Page 204]]
States that were in existence on or after March 20, 1990, without regard
to the taxable year to which such records relate.
(4) Scheduled production for high volume or other reasons. Upon a
written request, for good cause shown, the District Director may grant
an extension of the time for the production or translation of the
requested documents. Such requests should be made within 30 days of the
request for records by the Service. If an extension is needed because of
the volume of records requested or the amount of translation requested,
the District Director may allow production or translation to be
scheduled over a period of time so that not all records need be produced
or translated at the same time.
(5) Required U.S. maintenance. The District Director (with the
concurrence of the Assistant Commissioner (International)), may require,
for cause, the maintenance within the United States of any records
specified in paragraph (f)(1) of this section. Such a requirement will
be imposed only if there exists a clear pattern of failure to maintain
or timely produce the required records. The assessment of a monetary
penalty under section 6038A(d) and Sec. 1.6038A-4 for failure to
maintain records is not necessarily sufficient to require the
maintenance of records within the United States.
(g) Period of retention. Records required to be maintained by
section 6038A(a) and this section shall be kept as long as they may be
relevant or material to determining the correct tax treatment of any
transaction between the reporting corporation and a related party, but
in no case less than the applicable statute of limitations on assessment
and collection with respect to the taxable year in which the transaction
or item to which the records relate affects the U.S. tax liability of
the reporting corporation. See section 6001 and the regulations
thereunder.
(h) Application of record maintenance rules to banks and other
financial institutions. [Reserved]
(i) Effective/applicability date--(1) In general. This section is
generally applicable on December 10, 1990. However, records described in
this section in existence on or after March 20, 1990, must be
maintained, without regard to when the taxable year to which the records
relate began. Paragraph (a)(3) Example 4 of this section is generally
applicable for taxable years beginning after July 31, 2009.
(2) Election to apply regulation to earlier taxable years. A person
may elect to apply the provisions of paragraph (a)(3) Example 4 of this
section to earlier taxable years in accordance with the rules set forth
in Sec. 1.482-9(n)(2).
[T.D. 8353, 56 FR 28065, June 19, 1991; T.D. 8353, 56 FR 41792, Aug. 23,
1991, as amended by T.D. 8611, 60 FR 41015, Aug. 11, 1995; T.D. 9278, 71
FR 44518, Aug. 4, 2006; T.D. 9456, 74 FR 38875, Aug. 4, 2009]
Sec. 1.6038A-4 Monetary penalty.
(a) Imposition of monetary penalty--(1) In general. If a reporting
corporation fails to furnish the information described in Sec. 1.6038A-
2 within the time and manner prescribed in Sec. 1.6038A-2(d), fails to
maintain or cause another to maintain records as required by Sec.
1.6038A-3, or (in the case of records maintained outside the United
States) fails to meet the non-U.S. record maintenance requirements
within the applicable time prescribed in Sec. 1.6038A-3(f), a penalty
of $25,000 shall be assessed for each taxable year with respect to which
such failure occurs. The filing of a substantially incomplete Form 5472
constitutes a failure to file Form 5472. Where, however, the information
described in Sec. 1.6038A-2(b)(3) through (5) is not required to be
reported, a Form 5472 filed without such information is not a
substantially incomplete Form 5472.
(2) Liability for certain partnership transactions. A reporting
corporation to which transactions engaged in by a partnership are
attributed under Sec. 1.6038A-1(e)(2) is subject to the rules of this
section to the extent failures occur with respect to the partnership
transactions so attributed.
(3) Calculation of monetary penalty. If a reporting corporation
fails to maintain records as required by Sec. 1.6038A-3 of transactions
with multiple related parties, the monetary penalty may be assessed for
each failure to maintain records with respect to each related party. The
monetary penalty, however,
[[Page 205]]
shall be imposed on a reporting corporation only once for a taxable year
with respect to each related party for a failure to furnish the
information required on Form 5472, for a failure to maintain or cause
another to maintain records, or for a failure to comply with the non-
U.S. maintenance requirements described in Sec. 1.6038A-3(f). An
additional penalty for another failure may be imposed, however, under
the rules of paragraph (d)(2) of this section. Thus, unless such
failures continue after notification as described in paragraph (d) of
this section, the maximum penalty under this paragraph with respect to
each related party for all such failures in a taxable year is$25,000.
The members of a group of corporations filing a consolidated return are
jointly and severally liable for any monetary penalty that may be
imposed under this section.
(b) Reasonable cause--(1) In general. Certain failures may be
excused for reasonable cause, including not timely filing Form 5472, not
maintaining or causing another to maintain records as required by Sec.
1.6038A-3, and not complying with the non-U.S. maintenance requirements
described in Sec. 1.6038A-3(f). If an affirmative showing is made that
the taxpayer acted in good faith and there is reasonable cause for a
failure that results in the assessment of the monetary penalty, the
period during which reasonable cause exists shall be treated as
beginning on the day reasonable cause is established and ending not
earlier than the last day on which reasonable cause existed for any such
failure. Additionally, the beginning of the 90-day period after mailing
of a notice by the District Director or the Director of an Internal
Revenue Service Center of a failure described in paragraph (d) of this
section shall be treated as not earlier than the last day on which
reasonable cause existed.
(2) Affirmative showing required--(i) In general. To show that
reasonable cause exists for purposes of paragraph (b)(1) of this
section, the reporting corporation must make an affirmative showing of
all the facts alleged as reasonable cause for the failure in a written
statement containing a declaration that it is made under penalties of
perjury. The statement must be filed with the District Director (in the
case of failure to maintain or furnish requested information permitted
to be maintained outside the United States within the time required
under Sec. 1.6038A-3(f) or a failure to file Form 5472) or the Director
of the Internal Revenue Service Center where the Form 5472 is required
to be filed (in the case of failure to file Form 5472). The District
Director or the Director of the Internal Revenue Service Center where
the Form 5472 is required to be filed, as appropriate, shall determine
whether the failure was due to reasonable cause, and if so, the period
of time for which reasonable cause existed. If a return has been filed
as required by Sec. 1.6038A-2 or records have been maintained as
required by Sec. 1.6038A-3, except for an omission of, or error with
respect to, some of the information required or a record to be
maintained, the omission or error shall not constitute a failure for
purposes of section 6038A(d) if the reporting corporation that filed the
return establishes to the satisfaction of the District Director or the
Director of the Internal Revenue Service Center that it has
substantially complied with the filing of Form 5472 or the requirement
to maintain records.
(ii) Small corporations. The District Director shall apply the
reasonable cause exception liberally in the case of a small corporation
that had no knowledge of the requirements imposed by section 6038A; has
limited presence in and contact with the United States; and promptly and
fully complies with all requests by the District Director to file Form
5472, and to furnish books, records, or other materials relevant to the
reportable transaction. A small corporation is a corporation whose gross
receipts for a taxable year are $20,000,000 or less.
(iii) Facts and circumstances taken into account. The determination
of whether a taxpayer acted with reasonable cause and in good faith is
made on a case-by-case basis, taking into account all pertinent facts
and circumstances. Circumstances that may indicate reasonable cause and
good faith include an honest misunderstanding of fact or law that is
reasonable in light of the experience and knowledge of the taxpayer.
Isolated computational or
[[Page 206]]
transcriptional errors generally are not inconsistent with reasonable
cause and good faith. Reliance upon an information return or on the
advice of a professional (such as an attorney or accountant) does not
necessarily demonstrate reasonable cause and good faith. Similarly,
reasonable cause and good faith is not necessarily indicated by reliance
on facts that, unknown to the taxpayer, are incorrect. Reliance on an
information return, professional advice or other facts, however,
constitutes reasonable cause and good faith if, under all the
circumstances, the reliance was reasonable. A taxpayer, for example, may
have reasonable cause for not filing a Form 5472 or for not maintaining
records under section 6038A if the taxpayer has a reasonable belief that
it is not owned by a 25-percent foreign shareholder. A reasonable belief
means that the taxpayer does not know or has no reason to know that it
is owned by a 25-percent foreign shareholder. For example, a reporting
corporation would not know or have reason to know that it is owned by a
25-percent foreign shareholder if its belief that it is not so owned is
consistent with other information reported or otherwise furnished to or
known by the reporting corporation. A taxpayer may have reasonable cause
for not treating a foreign corporation as a related party for purposes
of section 6038A where the foreign corporation is a related party solely
by reason of Sec. 1.6038A-1(d)(3) (under the principles of section
482), and the taxpayer had a reasonable belief that its relationship
with the foreign corporation did not meet the standards for related
parties under section 482.
(c) Failure to maintain records or to cause another to maintain
records. A failure to maintain records or to cause another to maintain
records is determined by the District Director upon the basis of the
reporting corporation's overall compliance (including compliance with
the non-U.S. maintenance requirements under Sec. 1.6038A-3(f)(2)) with
the record maintenance requirements. It is not an item-by-item
determination. Thus, for example, a failure to maintain a single or
small number of items may not constitute a failure for purposes of
section 6038A(d), unless the item or items are essential to the correct
determination of transactions between the reporting corporation and any
foreign related parties. The District Director shall notify the
reporting corporation in writing of any determination that it has failed
to comply with the record maintenance requirement.
(d) Increase in penalty where failure continues after notification--
(1) In general. If any failure described in this section continues for
more than 90 days after the day on which the District Director or the
Director of the Internal Revenue Service Center where the Form 5472 is
required to be filed mails notice of the failure to the reporting
corporation, the reporting corporation shall pay a penalty (in addition
to the penalty described in paragraph (a) of this section) of $25,000
with respect to each related party for which a failure occurs for each
30-day period during which the failure continues after the expiration of
the 90-day period. Any uncompleted fraction of a 30-day period shall
count as a 30-day period for purposes of this paragraph (d).
(2) Additional penalty for another failure. An additional penalty
for a taxable year may be imposed, however, if at a time subsequent to
the time of the imposition of the monetary penalty described in
paragraph (a) of this section, a second failure is determined and the
second failure continues after notification under paragraph (d)(1) of
this section. Thus, if a taxpayer fails to file Form 5472 and is
assessed a monetary penalty and later, upon audit, is determined to have
failed to maintain records, an additional penalty for the failure to
maintain records may be assessed under the rules of this paragraph if
the failure to maintain records continues after notification under this
paragraph.
(3) Cessation of accrual. The monetary penalty will cease to accrue
if the reporting corporation either files Form 5472 (in the case of a
failure to file Form 5472), furnishes information to substantially
complete Form 5472, or demonstrates compliance with respect to the
maintenance of records (in the case of a failure to maintain records)
for the taxable year in which the examination occurs and subsequent
years to
[[Page 207]]
the satisfaction of the District Director. The monetary penalty also
will cease to accrue if requested information, documents, or records,
kept outside the United States under the requirements of Sec. 1.6038A-
3(f) and not produced within the time specified are produced or moved to
the United States under the rules of paragraph (f)(2)(ii) of this
section.
(4) Continued failures. If a failure under this section relating to
a taxable year beginning before July 11, 1989 occurs, and if the failure
continues following 90 days after the notice of failure under this
paragraph is sent, the amount of the additional penalty to be assessed
under this paragraph is $25,000 for each 30-day period beginning after
November 5, 1990, during which the failure continues. There is no
limitation on the amount of the monetary penalty that may be assessed
after November 5, 1990.
(e) Other penalties. For criminal penalties for failure to file a
return and filing a false or fraudulent return, see sections 7203 and
7206 of the Code. For the penalty relating to an underpayment of tax,
see section 6662.
(f) Examples. The following examples illustrate the rules of this
section.
(1) Failure to file Form 5472. Corp X, a U.S. reporting corporation,
engages in related party transactions with FC. Corp X does not timely
file a Form 5472 or maintain records relating to the transactions with
FC for Year 1 or subsequent years. The Service Center with which Corp X
files its income tax return imposes a $25,000 penalty for each of Years
1, 2, and 3 under section 6038A (d) and this section for failure to
provide information as required on Form 5472 and mails a notice of
failure to provide inrormation. Corp X does not file Form 5472. Ninety
days following the mailing of the notice of failure to Corp X an
additional penaly of $25,000 is imposed. On the 135th day following the
mailing of the notice of failure, Corp X files Form 5472 for Years 1, 2,
and 3. The total penalty owed by Corp X for Year 1 is $75,000. ($25,000
for not timely filing Form 5472, $25,000 for the first 30-day period
following the expiration of the 90-day period, and $25,000 for the
fraction of the second 30-day period). The penalty for Years 2 and 3 for
the failure to file Form 5472 is also $75,000 for each year, calculated
in the same manner as for Year 1. The total penalty for failure to file
Form 5472 for Years 1, 2, and 3 is $225,000.
(2) Failure to maintain records.
Assume the same facts as in Example 1. In Year 5, Corp X is audited
for Years 1 through 3. Corp X has not been maintaining records relating
to the transactions with FC. The District Director issues a notice of
failure to maintain records. Corp X has already been subject to the
monetary penalty of $25,000 for each of Years 1, 2, and 3 for failure to
file Form 5472 and, therefore, a monetary penalty under paragraph (a) of
this section for failure to maintain records is not assessed. However,
an additional penalty is assessed after the 90th day following the
mailing of the notice of failure to maintain records. Corp X develops a
record maintenance system as required by section 6038A and Sec.
1.6038A-3. On the 180th day following the mailing of the notice of
failure to maintain records, Corp X demonstrates to the satisfaction of
the District Director that the newly developed record maintenance system
will comply with the requirements of Sec. 1.6038A-3 and the increase in
the monetary penalty after notification ceases to accrue. The additional
penalty for failure to maintain records is $75,000. An additional
penalty of $75,000 per year is assessed for each of years 2 and 3 for
the failure to maintain records for a total of $225,000.
(g) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28072, June 19, 1991, as amended by T.D. 9707, 79 FR
77389, Dec. 24, 2014; T.D. 9885, 84 FR 67045, Dec. 6, 2019]
Sec. 1.6038A-5 Authorization of agent.
(a) Failure to authorize. The rules of Sec. 1.6038A-7 shall apply
to any transaction between a foreign related party and a reporting
corporation (including any transaction engaged in by a partnership that
is attributed to the reporting corporation under Sec. 1.6038A-1(e)(2)),
unless the foreign related party authorizes (in the manner described in
[[Page 208]]
paragraph (b) of this section) the reporting corporation to act as its
limited agent solely for purposes of sections 7602, 7603, and 7604 with
respect to any request by the Service to examine records or produce
testimony that may be relevant to the tax treatment of such a
transaction or with respect to any summons by the Service for such
records or testimony. The fact that a reporting corporation is
authorized to act as an agent for a foreign related party is to be
disregarded for purposes of determining whether the foreign related
party either has a trade or business in the United States for purposes
of the Code or a permanent establishment or fixed base in the United
States for purposes of an income tax treaty.
(b) Authorization by related party--(1) In general. Upon request by
the Service, a foreign related party shall authorize as its agent
(solely for purposes of sections 7602, 7603, and 7604) the reporting
corporation with which it engages in transactions. The authorization
must be signed by the foreign related party or an officer of the foreign
related party possessing the authority to authorize an agent for
purposes of Rule 4 of the Federal Rules of Civil Procedure. The
reporting corporation will accept this appointment by providing a
statement to that effect, signed by an officer of the reporting
corporation possessing the authority to accept such an appointment. The
agency shall be effective at all times. For taxable years beginning
after July 10, 1989, the authorization and acceptance must be provided
to the Service within 30 days of a request by the Service to the
reporting corporation for such an authorization. The authorization must
contain a heading and statement as set forth below. A foreign government
is not subject to the authorization of agent requirement.
AUTHORIZATION OF AGENT
``[Name of foreign related party] hereby expressly authorizes [name
of reporting corporation] to act as its agent solely for purposes of
sections 7602, 7603, and 7604 of the Internal Revenue Code with respect
to any request to examine records or produce testimony that may be
relevant to the U.S. income tax treatment of any transaction between
[name of the above-named foreign related party] and [name of reporting
corporation] or with respect to any summons for such records or
testimony.
________________________________________________________________________
Signature of or for [name of foreign related party]
________________________________________________________________________
(Title)
________________________________________________________________________
(Date)
(If signed by a corporate officer, partner, or fiduciary on behalf
of a foreign related party: I certify that I have the authority to
execute this authorization of agent to act on behalf of [name of foreign
related party]).
________________________________________________________________________
Type or print your name below if signing for a foreign related party
that is not an individual.
________________________________________________________________________
[Name of reporting corporation] accepts this appointment to act as
agent for [name of foreign related party] for the above purpose.
________________________________________________________________________
Signature for (Name of Reporting Corporation]
________________________________________________________________________
(Title)
________________________________________________________________________
(Date)
I certify that I have the authority to accept this appointment to
act as agent on behalf of (name of foreign related party] and agree to
accept service of process for the above purposes.
Type or print your name below.
________________________________________________________________________
(2) Authorization for prior years. A foreign related party shall
authorize a reporting corporation to act as its agent with respect to
taxable years for which a Form 5472 is required to be filed prior to the
date on which the final regulations under section 6038A are published by
providing the above executed authorization of agent within 30 days of a
request by the Service for such an authorization.
(c) Foreign affiliated groups--(1) In general. A foreign corporation
that has effective legal authority to make the authorization of agent
under paragraph (b) of this section on behalf of any group of foreign
related parties may execute such an authorization for any members of the
group. A single authorization may be made on a consolidated basis. In
such a case, the common parent must attach a schedule to the
authorization of agent stating which members of the group would
otherwise be required to separately authorize the reporting corporation
as agent. The
[[Page 209]]
schedule must provide the name, address, relationship to the reporting
corporation, and U.S. taxpayer identification number, if applicable, of
each member.
(2) Application of noncompliance penalty adjustment. In
circumstances where a consolidated authorization of agent has been
executed, if the agency authorization for any member of the group is not
legally effective for purposes of sections 7602, 7603, and 7604, the
noncompliance penalty adjustment under section 6038A(e) and Sec.
1.6038A-7 shall apply.
(d) Legal effect of authorization of agent. The legal consequences
of a foreign related party authorizing a reporting corporation to act as
its agent for purposes of sections 7602, 7603, and 7604 of the Code are
as follows.
(1) Agent for purposes of commencing judicial proceedings. A
reporting corporation that is authorized by a foreign related party to
act as its agent for purposes of sections 7602, 7603, and 7604
(including service of process) is also the agent of the foreign related
party for purposes of--
(i) The filing of a petition to quash under section 6038A(e)(4)(A)
or a petition to review an Internal Revenue Service determination of
noncompliance under section 6038A(e)(4)(B), and
(ii) The commencement of a judicial proceeding to enforce a summons
under section 7604, whether commenced in conjunction with a petition to
quash under section 6038A(e)(4)(A) or commenced as a separate proceeding
in the federal district court for the district in which the person to
whom the summons is issued resides or is found.
(2) Foreign related party found where reporting corporation found.
For any purposes relating to sections 7602, 7603, or 7604 (including
service of process), a foreign related party that authorizes a reporting
corporation to act on its behalf under section 6038A(e)(1) and this
section may be found anywhere where the reporting corporation has
residence or is found.
(e) Successors in interest. A successor in interest to a related
party must execute the authorization of agent as described in paragraph
(b) of this section.
(f) Deemed compliance--(1) In general. In exceptional circumstances,
the District Director may treat a reporting corporation as authorized to
act as agent for a related party for purposes of sections 7602, 7603,
and 7604 in the absence of an actual agency appointment by the foreign
related party, in circumstances where the actual absence of an
appointment is reasonable. Factors to be considered include--
(i) If neither the reporting corporation nor the other party to the
transaction knew or had reason to know that the two parties were related
at the time of the transaction, and
(ii) The extent to which the taxpayer establishes to the
satisfaction of the District Director that all transactions between the
reporting corporation and the related party were on arm's length terms
and did not involve the participation of any known related party.
(2) Reason to know. Whether the reporting corporation or other party
had reason to know that the two parties were related at the time of the
transaction will be determined by all the facts and circumstances.
(3) Effect of deemed compliance. If a reporting corporation is
deemed under this paragraph (f) to have been authorized to act as an
agent for a foreign related party for purposes of sections 7602, 7603,
and 7604, such deemed compliance is applicable only for that particular
transaction and other reportable transactions entered into prior to the
time when the reporting corporation knew or had reason to know that the
related party, in fact, was related. The noncompliance rule of Sec.
1.6038A-7 shall apply to any transaction subsequent to that time with
the same related party, unless the related party actually authorizes the
reporting corporation to act as its agent under paragraph (a) of this
section. In addition, the record maintenance requirements of Sec.
1.6038A-3 will apply to all subsequent transactions and, with respect to
prior transactions, will apply to relevant records in existence at the
time the relationship was discovered.
(g) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28073, June 19, 1991; T.D. 8353, 56 FR 41792, Aug. 23,
1991]
[[Page 210]]
Sec. 1.6038A-6 Failure to furnish information.
(a) In general. The rules of Sec. 1.6038A-7 may be applied with
respect to a transaction between a foreign related party and the
reporting corporation (including any transaction engaged in by a
partnership that is attributed to the reporting corporation under Sec.
1.6038A-1(e)(2)) if a summons is issued to the reporting corporation to
produce any records or testimony, either directly or as agent for such
related party, to determine the correct treatment under title 1 of the
Code of such a transaction between the reporting corporation and the
related party; and if--
(1)(i) The summons is not quashed in a proceeding, if any, begun
under section 6038A(e)(4) and is not determined to be invalid in a
proceeding, if any, begun under section 7604 to enforce such summons;
and
(ii) The reporting corporation does not substantially and timely
comply with the summons, and the District Director has sent by certified
or registered mail a notice under section 6038A(e)(2)(C) to the
reporting corporation that it has not so complied; or
(2) The reporting corporation fails to maintain or to cause another
to maintain records as required by Sec. 1.6038A-3, and by reason of
that failure, the summons is quashed in a proceeding under section
6038A(e)(4) or in a proceeding begun under section 7604 to enforce the
summons, or the reporting corporation is not able to provide the records
requested in the summons.
(b) Coordination with treaties. Where records of a related party are
obtainable on a timely and efficient basis under information exchange
procedures provided under a tax treaty or tax information exchange
agreement (TIEA), the Service generally will make use of such procedures
before issuing a summons. The absence or pendency of a treaty or TIEA
request may not be asserted as grounds for refusing to comply with a
summons or as a defense against the assertion of the noncompliance
penalty adjustment under Sec. 1.6038A-7. For purposes of this
paragraph, information is available on a timely and efficient basis if
it can be obtained within 180 days of the request.
(c) Enforcement proceeding not required. The District Director is
not required to begin an enforcement proceeding to enforce the summons
in order to apply the rules of Sec. 1.6038A-7.
(d) De minimis failure. Where a reporting corporation's failure to
comply with the requirement to furnish information under this section is
de minimis, the District Director, in the exercise of discretion, may
choose not to apply the noncompliance penalty. Thus, for example, in
cases where a particular document or group of documents is not furnished
upon request or summons, the District Director (in the District
Director's sole discretion), may choose not to apply the noncompliance
penalty if the District Director deems the document or documents not to
have significant or sufficient value in the determination of the
correctness of the tax treatment of the related party transaction.
(e) Suspension of statute of limitations. If the reporting
corporation brings an action under section 6038A(e)(4)(A) (proceeding to
quash) or (e)(4)(B) (review of secretarial determination of
noncompliance), the running of any period of limitation under section
6501 (relating to assessment and collection of tax) or under section
6531 (relating to criminal prosecutions) for the taxable year or years
to which the summons that is the subject of such proceeding relates
shall be suspended for the period during which such proceeding, and
appeals therein, are pending. In no event shall any such period expire
before the 90th day after the day on which there is a final
determination in such proceeding.
(f) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28075, June 19, 1991]
Sec. 1.6038A-7 Noncompliance.
(a) In general. In the case of any failure described in Sec.
1.6038A-5 or Sec. 1.6038A-6, the rules of this Sec. 1.6038A-7 apply to
the reporting corporation. In such a case--
(1) The amount of the deduction allowed under subtitle A for any
amount paid or incurred by the reporting corporation to the related
party in connection with such transaction, and
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(2) The cost to the reporting corporation of any property acquired
in such transaction from the related party or transferred by such
corporation in such transaction to the related party, may be determined
by the District Director.
(b) Determination of the amount. The amount of the deduction or the
cost to the reporting corporation shall be the amount determined by the
District Director (in the District Director's sole discretion) from the
District Director's own knowledge or from such information as the
District Director may choose to obtain through testimony or otherwise.
The District Director shall consider any information or materials that
have been submitted by the reporting corporation or a foreign related
party. The District Director, however, may disregard any information,
documents, or records submitted by the reporting corporation or the
related party if (in the District Director's sole discretion) the
District Director deems that they are insufficiently probative of the
relevant facts.
(c) Separate application. If the noncompliance penalty of this
section applies with respect to transactions with a related party of the
reporting corporation, it will not be applied with respect to any other
related parties of the reporting corporation solely upon the basis of
that failure. Thus, for example, if a reporting corporation engages in
transactions with related party A and related party B, and the reporting
corporation does not respond to a summons for records related to the
transactions between the reporting corporation and related party A, the
noncompliance penalty imposed as a result of such failure will not apply
to the transactions between the reporting corporation and related party
B. If a separate summons is issued for records relating to the
transactions between the reporting corporation and related party B and
the reporting corporation does not produce such records, the
noncompliance penalty may be applied to those transactions.
(d) Effective dates. For effective dates for this section, see Sec.
1.6038A-1(n).
[T.D. 8353, 56 FR 28075, June 19, 1991]
Sec. 1.6038B-1 Reporting of certain transfers to foreign corporations.
(a) Purpose and scope. This section sets forth information reporting
requirements under section 6038B concerning certain transfers of
property to foreign corporations. Paragraph (b) of this section provides
general rules explaining when and how to carry out the reporting
required under section 6038B with respect to the transfers to foreign
corporations. Paragraph (c) of this section and Sec. 1.6038B-1T(d)
specify the information that is required to be reported with respect to
certain transfers of property that are described in section
6038B(a)(1)(A) and 367(d), respectively. Section 1.6038B-1(e) describes
the filing requirements for property transfers described in section
367(e). Paragraph (f) of this section sets forth the consequences of a
failure to comply with the requirements of section 6038B and this
section. For effective dates, see paragraph (g) of this section. For
rules regarding transfers to foreign partnerships, see section
6038B(a)(1)(B) and any regulations thereunder.
(b) Time and manner of reporting--(1) In general--(i) Reporting
procedure. Except for stock or securities qualifying under the special
reporting rule of Sec. 1.6038B-1(b)(2), and certain exchanges described
in section 354 or 356 (listed below), any U.S. person that makes a
transfer described in section 6038B(a)(1)(A), 367(d) or (e), is required
to report pursuant to section 6038B and the rules of Sec. 1.6038B-1 and
must attach the required information to Form 926, ``Return by a U.S.
Transferor of Property to a Foreign Corporation.'' In addition, if the
U.S. person files a statement under Sec. 1.367(a)-3(d)(2)(vi)(C), a
gain recognition agreement under Sec. 1.367(a)-8, or a liquidation
document under Sec. 1.367(e)-2(b), such person must comply in all
material respects with the requirements of such section pursuant to the
terms of the statement, gain recognition agreement, or liquidation
document, as applicable, in order to satisfy a reporting obligation
under section 6038B. For special rules regarding cash transfers made in
tax years beginning after February 5, 1999, see paragraphs (b)(3) and
(g) of this section. For purposes of determining a
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U.S. transferor that is subject to section 6038B, the rules of
Sec. Sec. 1.367(a)-1(c) and 1.367(a)-3(d) shall apply with respect to a
transfer described in section 367(a), and the rules of Sec. 1.367(a)-
1(c) shall apply with respect to a transfer described in section 367(d).
Additionally, if in an exchange described in section 354 or 356, a U.S.
person exchanges stock or securities of a foreign corporation in a
reorganization described in section 368(a)(1)(E), or a U.S. person
exchanges stock or securities of a domestic or foreign corporation
pursuant to an asset reorganization described in section 368(a)(1)
(involving a transfer of assets under section 361) that is not treated
as an indirect stock transfer under Sec. 1.367(a)-3(d), then the U.S.
person exchanging stock or securities is not required to report under
section 6038B. Notwithstanding any statement to the contrary on Form
926, the form and attachments must be attached to, and filed by the due
date (including extensions) of the transferor's income tax return for
the taxable year that includes the date of the transfer (as defined in
Sec. 1.6038B-1T(b)(4)). For taxable years beginning before January 1,
2003, any attachment to Form 926 required under the rules of this
section is filed subject to the transferor's declaration under penalties
of perjury on Form 926 that the information submitted is true, correct
and complete to the best of the transferor's knowledge and belief. For
taxable years beginning after December 31, 2002, Form 926 and any
attachments shall be verified by signing the income tax return with
which the form and attachments are filed.
(ii) Reporting by corporate transferor. For transfers by
corporations in taxable years beginning before January 1, 2003, Form 926
must be signed by an authorized officer of the corporation if the
transferor is not a member of an affiliated group under section
1504(a)(1) that files a consolidated Federal income tax return and by an
authorized officer of the common parent corporation if the transferor is
a member of such an affiliated group. For transfers by corporations in
taxable years beginning after December 31, 2002, Form 926 shall be
verified by signing the income tax return to which the form is attached.
(iii) Transfers of jointly-owned property. If two or more persons
transfer jointly-owned property to a foreign corporation in a transfer
with respect to which a notice is required under this section, then each
person must report with respect to the particular interest transferred,
specifying the nature and extent of the interest. However, a husband and
wife who jointly file a single Federal income tax return may file a
single Form 926 with their tax return.
(2) Exceptions and special rules for transfers of stock or
securities under section 367(a)--(i) Transfers on or after July 20,
1998. A U.S. person that transfers stock or securities on or after July
20, 1998 in a transaction described in section 6038B(a)(1)(A) will be
considered to have satisfied the reporting requirement under section
6038B and paragraph (b)(1) of this section if either--
(A) The U.S. transferor owned less than 5 percent of both the total
voting power and the total value of the transferee foreign corporation
immediately after the transfer (taking into account the attribution
rules of section 318 as modified by section 958(b)), and either:
(1) The U.S. transferor qualified for nonrecognition treatment with
respect to the transfer (i.e., the transfer was not taxable under
Sec. Sec. 1.367(a)-3(b) or (c)); or
(2) The U.S. transferor is a tax-exempt entity and the income was
not unrelated business income; or
(3) The transfer was taxable to the U.S. transferor under Sec.
1.367(a)-3(c), and such person properly reported the income from the
transfer on its timely-filed (including extensions) Federal income tax
return for the taxable year that includes the date of the transfer; or
(4) The transfer is considered to be to a foreign corporation solely
by reason of Sec. 1.83-6(d)(1) and the fair market value of the
property transferred did not exceed $100,000; or
(B) The U.S. transferor owned 5 percent or more of the total voting
power or the total value of the transferee foreign corporation
immediately after the transfer (taking into account the attribution
rules of section 318 as modified by section 958(b)) and either:
[[Page 213]]
(1) Except as provided in paragraph (b)(2)(iii) of this section, the
U.S. transferor (or one or more successors) filed an initial gain
recognition agreement under Sec. 1.367(a)-8, and filed Form 926 in
accordance with paragraph (b)(2)(iv) of this section; or
(2) The transferor is a tax-exempt entity and the income was not
unrelated business income; or
(3) The transferor properly reported the income from the transfer on
its timely-filed (including extensions) Federal income tax return for
the taxable year that includes the date of the transfer; or
(4) The transfer is considered to be to a foreign corporation solely
by reason of Sec. 1.83-6(d)(1) and the fair market value of the
property transferred did not exceed $100,000.
(ii) Transfers before July 20, 1998. With respect to transfers
occurring after December 16, 1987, and prior to July 20, 1998, a U.S.
transferor that transferred U.S. or foreign stock or securities in a
transfer described in section 367(a) is not subject to section 6038B if
such person is described in paragraph (b)(2)(i)(A) of this section.
(iii) Timely filed initial gain recognition agreement. Paragraph
(b)(2)(i)(B)(1) of this section will not apply unless the initial gain
recognition agreement is timely filed as determined under Sec.
1.367(a)-8(d)(1), but for purposes of this section, determined without
regard to Sec. 1.367(a)-8(p). However, see paragraph (f)(3) of this
section for certain relief that may be available.
(iv) Satisfaction of section 6038B reporting if a gain recognition
agreement is timely filed. If the U.S. transferor is described in
paragraph (b)(2)(i)(B)(1) of this section and is not otherwise required
to file a Form 926 with respect to a transfer of assets other than the
stock or securities to the transferee foreign corporation, the
requirements of this section are satisfied with respect to the transfer
of the stock or securities by completing Part I and Part II of Form 926,
noting on the Form 926 that a gain recognition agreement is being filed
pursuant to Sec. 1.367(a)-8; reporting on the Form 926 the fair market
value, adjusted tax basis, and gain recognized with respect to the
transferred stock or securities; submitting on the Form 926 any other
information that Form 926, its accompanying instructions, or other
applicable guidance require to be submitted with respect to the transfer
of the stock or securities; and attaching a signed copy of the Form 926
to its timely filed U.S. income tax return (including extensions) for
the year of the transfer. If the U.S. transferor is required to file
Form 926 with respect to a transfer of assets in addition to the stock
or securities, the requirements of this section are satisfied with
respect to the transfer of the stock or securities by noting on the Form
926 that a gain recognition agreement is being filed pursuant to Sec.
1.367(a)-8; reporting on the Form 926 the fair market value, adjusted
tax basis, and gain recognized with respect to the transferred stock or
securities; and submitting on the Form 926 any other information that
Form 926, its accompanying instructions, or other applicable guidance
require to be submitted with respect to the transfer of the stock or
securities.
(3) Special rule for transfers of cash. A U.S. person that transfers
cash to a foreign corporation in a transfer described in section
6038B(a)(1)(A) must report the transfer if--
(i) Immediately after the transfer such person holds directly,
indirectly, or by attribution (determined under the rules of section
318(a), as modified by section 6038(e)(2)) at least 10 percent of the
total voting power or the total value of the foreign corporation; or
(ii) The amount of cash transferred by such person or any related
person (determined under section 267(b)(1) through (3) and (10) through
(12)) to such foreign corporation during the 12-month period ending on
the date of the transfer exceeds $100,000.
(4) [Reserved]. For further guidance, see Sec. 1.6038B-1T(b)(4).
(c) Information required with respect to transfers described in
section 6038B(a)(1)(A). A United States person that transfers property
to a foreign corporation in an exchange described in section
6038B(a)(1)(A) (including cash transferred in taxable years beginning
after February 5, 1999, and other unappreciated property) must provide
the following information, in paragraphs labeled to correspond with the
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number or letter set forth in this paragraph (c) and Sec. 1.6038B-
1T(c)(1) through (5). If a particular item is not applicable to the
subject transfer, the taxpayer must list its heading and state that it
is not applicable. For special rules applicable to transfers of stock or
securities, see paragraph (b)(2)(ii) of this section.
(1) through (4) introductory text [Reserved]. For further guidance,
see Sec. 1.6038B-1T(c)(1) through (4) introductory text.
(i) Active business property. Describe any transferred property that
qualifies under Sec. 1.367(a)-2(a)(2). Provide here a general
description of the business conducted (or to be conducted) by the
transferee, including the location of the business, the number of its
employees, the nature of the business, and copies of the most recently
prepared balance sheet and profit and loss statement. Property listed
within this category may be identified by general type. For example,
upon the transfer of the assets of a manufacturing operation, a
reasonable description of the property to be used in the business might
include the categories of office equipment and supplies, computers and
related equipment, motor vehicles, and several major categories of
manufacturing equipment. However, any property that is includible in
both paragraphs (c)(4)(i) and (iii) of this section (property subject to
depreciation recapture under Sec. 1.367(a)-4(a)) must be identified in
the manner required in paragraph (c)(4)(iii) of this section. If
property is considered to be transferred for use in the active conduct
of a trade or business under a special rule in paragraph (e), (f), or
(g) of Sec. 1.367(a)-2, specify the applicable rule and provide
information supporting the application of the rule.
(ii) Stock or securities. Describe any transferred stock or
securities, including the class or type, amount, and characteristics of
the transferred stock or securities, as well as the name, address, place
of incorporation, and general description of the corporation issuing the
stock or securities.
(iii) Depreciated property. Describe any property that is subject to
depreciation recapture under Sec. 1.367(a)-4(a). Property within this
category must be separately identified to the same extent as was
required for purposes of the previously claimed depreciation deduction.
Specify with respect to each such asset the relevant recapture
provision, the number of months that such property was in use within the
United States, the total number of months the property was in use, the
fair market value of the property, a schedule of the depreciation
deduction taken with respect to the property, and a calculation of the
amount of depreciation required to be recaptured.
(iv) Property not transferred for use in the active conduct of a
trade or business. Describe any property that is eligible property, as
defined in Sec. 1.367(a)-2(b) taking into account the application of
Sec. 1.367(a)-2(c), that was transferred to the foreign corporation but
not for use in the active conduct of a trade or business outside the
United States (and was therefore not listed under paragraph (c)(4)(i) of
this section).
(v) Property transferred under compulsion. If property qualifies for
the exception of Sec. 1.367(a)-2(a)(2) under the rules of paragraph (h)
of that section, provide information supporting the claimed application
of such exception.
(vi) Certain ineligible property. Describe any property that is
described in Sec. 1.367(a)-2(c) and that therefore cannot qualify under
Sec. 1.367(a)-2(a)(2) regardless of its use in the active conduct of a
trade or business outside of the United States. The description must be
divided into the relevant categories, as follows:
(A) Inventory, etc. Property described in Sec. 1.367(a)-2(c)(1);
(B) Installment obligations, etc. Property described in Sec.
1.367(a)-2(c)(2);
(C) Foreign currency, etc. Property described in Sec. 1.367(a)-
2(c)(3); and
(D) Leased property. Property described in Sec. 1.367(a)-2(c)(4).
(vii) Other property that is ineligible property. Describe any
property, other than property described in Sec. 1.367(a)-2(c), that
cannot qualify under Sec. 1.367(a)-2(a)(2) regardless of its use in the
active conduct of a trade or business outside of the United States and
that is not subject to the rules of section 367(d) under Sec. 1.367(a)-
1(b)(5) (treatment of certain property as subject to
[[Page 215]]
section 367(d)). Each item of property must be separately identified.
(viii) [Reserved]. For further guidance, see Sec. 1.6038B-
1T(c)(4)(viii).
(5) Transfer of foreign branch with previously deducted losses. If
the property transferred is property of a foreign branch with previously
deducted losses subject to Sec. Sec. 1.367(a)-6 and -6T, provide the
following information:
(i) through (iv) [Reserved]. For further information, see Sec.
1.6038B-1T(c)(5)(i) through (iv).
(6) Transfers subject to section 367(a)(5)--(i) In general. This
paragraph (c)(6) applies to a domestic corporation (U.S. transferor)
that transfers section 367(a) property (as defined in Sec. 1.367(a)-
7(f)(10)) to a foreign corporation in a section 361 exchange (as defined
in Sec. 1.367(a)-7(f)(8)) and to which the provisions of Sec.
1.367(a)-7(c) apply. Paragraph (c)(6)(ii) of this section establishes
the time and manner for the U.S. transferor to elect to apply the
provisions of Sec. 1.367(a)-7(c). Paragraph (c)(6)(iii) of this section
establishes the manner for the U.S. transferor to satisfy the
requirement of Sec. 1.367(a)-7(c)(4).
(ii) Election. The U.S. transferor elects to apply the provisions of
Sec. 1.367(a)-7(c) by including a statement entitled, ``ELECTION TO
APPLY EXCEPTION UNDER Sec. 1.367(a)-7(c),'' with its timely filed
return (within the meaning of Sec. 1.367(a)-7(f)(12)) for the taxable
year during which the reorganization occurs and that includes the
information described in paragraphs (c)(6)(ii)(A), (c)(6)(ii)(B),
(c)(6)(ii)(C), (c)(6)(ii)(D), (c)(6)(ii)(E), (c)(6)(ii)(F),
(c)(6)(ii)(G), and (c)(6)(ii)(H) of this section. See Sec. 1.367(a)-
7(c)(5)(ii) for the statement required to be filed by a control group
member (as defined in Sec. 1.367(a)-7(f)(1)) or final distributee (as
defined in Sec. 1.367(a)-7(d)).
(A) The name and taxpayer identification number (if any) of each
control group member and final distributee (if any), the foreign
acquiring corporation, and in the case of a triangular reorganization
(within the meaning of Sec. 1.358-6(b)(2)) the corporation that
controls the foreign acquiring corporation, and the ownership interest
percentage (as defined in Sec. 1.367(a)-7(f)(7)) in the U.S. transferor
of each control group member.
(B) A calculation of the gain recognized (if any) by the U.S.
transferor under Sec. 1.367(a)-7(c)(2)(i) and (c)(2)(ii), and the basis
adjustments (if any) required to be made by each control group member
under Sec. 1.367(a)-7(c)(3).
(C) The date on which the U.S. transferor and each control group
member or final distributee entered into the written agreement described
in Sec. 1.367(a)-7(c)(5)(iv).
(D) The amount of any deductible liability (as defined by Sec.
1.367(a)-7(f)(2)).
(E) The fair market value (as defined by Sec. 1.367(a)-7(f)(3)) of
property transferred to the foreign acquiring corporation in the section
361 exchange.
(F) The inside basis (as defined by Sec. 1.367(a)-7(f)(4)).
(G) The inside gain (as defined by Sec. 1.367(a)-7(f)(5)).
(H) The section 367(a) percentage (as defined by Sec. 1.367(a)-
7(f)(9)).
(iii) Agreement to amend U.S. transferor's tax return. The U.S.
transferor complies with the requirement of Sec. 1.367(a)-7(c)(4)(i) by
attaching a statement to its timely filed return (within the meaning of
Sec. 1.367(a)-7(f)(12)) for the taxable year in which the
reorganization occurs, entitled ``STATEMENT UNDER Sec. 1.367(a)-7(c)(4)
FOR TRANSFERS OF ASSETS TO A FOREIGN CORPORATION IN A SECTION 361
EXCHANGE.'' The statement must certify that if a significant amount of
the section 367(a) property received by the foreign acquiring
corporation from the U.S. transferor in the section 361 exchange is
disposed of, directly or indirectly, in one or more related transactions
described in paragraph (c)(6)(iii)(B) of this section occurring within
the sixty (60) month period that begins on the date of distribution or
transfer (within the meaning of Sec. 1.381(b)-1(b)), then the exception
provided in Sec. 1.367(a)-7(c) will not apply to the section 361
exchange. Accordingly, the U.S. transferor will recognize the gain
realized but not recognized in the section 361 exchange, computed as if
the exception provided in Sec. 1.367(a)-7(c) had never applied. A U.S.
income tax return (or amended U.S. income tax return, as the case may
be) for the year in which the reorganization occurred reporting the gain
must be filed. If the
[[Page 216]]
section 361 exchange occurs in connection with a triangular
reorganization (within the meaning of Sec. 1.358-6(b)(2)) and the
corporation that controls the foreign acquiring corporation is foreign,
an indirect disposition of the section 367(a) property includes the
disposition by such controlling foreign corporation of the stock of the
foreign acquiring corporation.
(A) Disposition of a significant amount--(1) General rule. Except as
provided in paragraphs (c)(6)(iii)(A)(2) and (c)(6)(iii)(A)(3) of this
section, for purposes of this paragraph (c)(6)(iii), a disposition of a
significant amount occurs if, in one or more related transactions, the
foreign acquiring corporation disposes of an amount of the section
367(a) property received from the U.S. transferor in the section 361
exchange that is greater than 40 percent of the fair market value of all
of the section 367(a) property transferred in the section 361 exchange.
(2) Exception for certain nonrecognition exchanges. Section 367(a)
property that is subsequently transferred (retransferred property)
pursuant to a nonrecognition provision is not treated as disposed of for
purposes of paragraph (c)(6)(iii)(A)(1) of this section, provided such
transfer satisfies, and is treated in a manner consistent with the
principles underlying Sec. 1.367(a)-8(k). Thus, for example, if section
367(a) property is subsequently transferred to a foreign corporation in
exchange solely for stock in a transaction described in section 351,
such retransferred property is not treated as disposed of for purposes
of paragraph (c)(6)(iii)(A)(1) of this section; in such a case, however,
a subsequent disposition of either the retransferred property by the
transferee foreign corporation, or of the stock of the transferee
foreign corporation received in exchange for the retransferred property,
is subject to the provisions of paragraph (c)(6)(iii)(A)(1) of this
section.
(3) Exception for dispositions occurring in the ordinary course of
business. Dispositions of section 367(a) property described in section
1221(a)(2) occurring in the ordinary course of business of the foreign
acquiring corporation are not treated as disposed of for purposes of
paragraph (c)(6)(iii)(A)(1) of this section.
(B) Gain recognition transaction--(1) General rule. A transaction is
described in this paragraph (c)(6)(iii)(B) if the transaction is entered
into with a principal purpose of avoiding the U.S. tax that would have
been imposed on the U.S. transferor on the disposition of the property
transferred to the foreign acquiring corporation in the section 361
exchange. A disposition may have a principal purpose of tax avoidance
even if the tax avoidance purpose is outweighed by other purposes when
taken together.
(2) Presumptive tax avoidance. For purposes of this paragraph
(c)(6)(iii)(B), the principal purpose of the foreign acquiring
corporation's disposition of a significant amount of the section 367(a)
property within the two-year period that begins on the date of
distribution or transfer (within the meaning of Sec. 1.381(b)-1(b))
(whether in a recognition or nonrecognition transaction) will be
presumed to be the avoidance of the U.S. tax that would have been
imposed on the U.S. transferor on the disposition of the property
transferred to the foreign acquiring corporation in the section 361
exchange. However, this presumption will not apply if it is demonstrated
to the satisfaction of the Director of Field Operations, Large Business
& International (or any successor to the roles and responsibilities of
such person (Director) that the avoidance of U.S. tax was not a
principal purpose of the disposition.
(3) Interest. If additional tax is required to be paid as a result
of a transaction described in paragraph (c)(6)(iii)(B) of this section,
then interest must be paid on that amount at rates determined under
section 6621 with respect to the period between the date prescribed for
filing the U.S. transferor's income tax return for the year in which the
reorganization occurs and the date on which the additional tax for that
year is paid.
(d)(1) through (1)(iii) [Reserved]. For further guidance, see Sec.
1.6038B-1T(d)(1) through (1)(iii).
(iv) Intangible property transferred. Provide a description of the
intangible property transferred, including its adjusted basis.
Generally, each item of
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intangible property must be separately identified, including intangible
property described in Sec. 1.367(d)-1(g)(2)(i). Identify all property
that is subject to the rules of section 367(d) under Sec. 1.367(a)-
1(b)(5) (treatment of certain property as subject to section 367(d)).
Describe any property for which the income required to be taken into
account under section 367(d) and the regulations thereunder will be
recognized over a 20-year period pursuant to Sec. 1.367(d)-1(c)(3)(ii).
Estimate the anticipated income or cost reductions attributable to the
intangible property's use beyond the 20-year period.
(v)-(vi) [Reserved]. For further guidance, see Sec. 1.6038B-
1T(d)(1)(v) through (1)(vi).
(vii) Coordination with loss rules. List any intangible property
subject to section 367(d) the transfer of which also gives rise to the
recognition of gain under section 904(f)(3) or Sec. Sec. 1.367(a)-6 or
-6T. Provide a calculation of the gain required to be recognized with
respect to such property, in accordance with the provisions of Sec.
1.367(d)-1(g)(3).
(d)(1)(viii) through (d)(2) [Reserved]. For further guidance, see
Sec. 1.6038B-1T(d)(1)(viii) through (d)(2).
(e) Transfers subject to section 367(e)--(1) In general. If a
domestic corporation (distributing corporation) makes a distribution
described in section 367(e)(1) or section 367(e)(2), the distributing
corporation must comply with the reporting requirements of this
paragraph (e). Unless otherwise provided in this section, a distributing
corporation making a distribution described in sections 367(e)(1) or
367(e)(2) must file a Form 926, ``Return by a U.S. Transferor of
Property to a Foreign Corporation (under section 367),'' as amended and
modified by this section.
(2) Reporting requirements for section 367(e)(1) distributions of
domestic controlled corporations. A domestic distributing corporation
making a distribution of the stock or securities of a domestic
corporation under section 355 is not required to file a Form 926, as
described in paragraph (e)(1) of this section, and shall have no other
reporting requirements under section 6038B.
(3) Reporting requirements for section 367(e)(1) distributions of
foreign controlled corporations. If the distributing corporation makes a
section 355 distribution of the stock or securities of a foreign
controlled corporation to distributee shareholders who are not qualified
U.S. persons, as defined in Sec. 1.367(e)-1(b)(1), then the
distributing corporation shall complete Part 1 of the Form 926 and
attach a signed copy of such form to its U.S. income tax return for the
year of the distribution. The distributing corporation shall also attach
to its U.S. income tax return for the year of distribution a statement
signed under the penalties of perjury entitled, ``Addendum to Form
926.'' The addendum shall contain a brief description of the
transaction, state the number of shares distributed to distributees who
are not qualified U.S. persons (applying the rules contained in Sec.
1.367(e)-1(d)), and state the basis and fair market value of the
distributed stock or securities (including a list stating the amounts
that were distributed to distributees who were not qualified U.S.
persons and distributees who were qualified U.S. persons).
(4) Reporting rules for section 367(e)(2) distributions by domestic
liquidating corporations--(i) General rule. Except as provided in
paragraph (e)(4)(ii) of this section, if the distributing corporation
makes a distribution of property in complete liquidation under section
332 to a foreign distributee corporation that meets the stock ownership
requirements of section 332(b) with respect to the stock of the
distributing corporation, then the distributing corporation must
complete a Form 926 and attach a signed copy of such form to its timely
filed U.S. income tax return (including extensions) for the taxable
years that include one or more liquidating distributions. The property
description contained in Part III of the Form 926 must contain a
description, including the adjusted tax basis and fair market value, of
all property distributed by the distributing corporation (regardless of
whether the distribution of the property qualifies for nonrecognition
treatment). The description must also identify the items of property for
which nonrecognition treatment is claimed under Sec. 1.367(e)-
2(b)(2)(ii) or (iii), as applicable.
(ii) Special rule. Except as provided in paragraph (e)(4)(iii) of
this section, if
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the distributing corporation distributes items of property that will be
used by the foreign distributee corporation in the conduct of a trade or
business in the United States and the distributing corporation does not
recognize gain or loss on such distribution under Sec. 1.367(e)-
2(b)(2)(i) with respect to such property, then the distributing
corporation may satisfy the requirements of this section by completing
Part I and Part II of Form 926, noting in Part III that the information
required by Form 926 is contained in a statement required by Sec.
1.367(e)-2(b)(2)(i)(C)(2), and attaching a signed copy of Form 926 to
its timely filed U.S. income tax return (including extensions) for each
taxable year that includes one or more distributions in liquidation. In
addition, if the distributing corporation distributes stock of a
domestic subsidiary corporation and does not recognize gain or loss on
such distribution under Sec. 1.367(e)-2(b)(2)(iii) with respect to such
stock, then the distributing corporation may satisfy the requirements of
this section by completing Part I and Part II of Form 926, noting in
Part III that the information required by Form 926 is contained in a
statement required by Sec. 1.367(e)-2(b)(2)(iii)(D), and attaching a
signed copy of Form 926 to its timely filed U.S. income tax return
(including extensions) for the taxable years that include one or more
distributions of domestic subsidiary stock.
(iii) Properly filed statement. Paragraph (e)(4)(ii) will not apply
if there is a failure to file an initial liquidation document as
determined under Sec. 1.367(e)-2(e)(3)(i), but for purposes of this
section, determined without regard to Sec. 1.367(e)-2(f). However, see
paragraph (f)(3) of this section for certain relief that may be
available.
(f) Failure to comply with reporting requirements--(1) Consequences
of failure. If a U.S. person is required to file a notice (or otherwise
comply) under paragraph (b) of this section and fails to comply with the
applicable requirements of section 6038B and this section, then with
respect to the particular property as to which there was a failure to
comply--
(i) The U.S. person shall pay a penalty under section 6038B(b)(1)
equal to 10 percent of the fair market value of the transferred property
at the time of the exchange, but in no event shall the penalty exceed
$100,000 unless the failure with respect to such exchange was due to
intentional disregard (described under paragraph (g)(4) of this
section); and
(ii) The period of limitations on assessment of tax upon the
transfer of that property does not expire before the date which is 3
years after the date on which the Secretary is furnished the information
required to be reported under this section. See section 6501(c)(8) and
any regulations thereunder.
(2) Failure to comply. A failure to comply with the requirements of
section 6038B is--
(i) The failure to report at the proper time and in the proper
manner any material information required to be reported under the rules
of this section; or
(ii) The provision of false or inaccurate information in purported
compliance with the requirements of this section. Thus, a transferor
that timely files Form 926 with the attachments required under the rules
of this section shall, nevertheless, have failed to comply if, for
example, the transferor reports therein that property will be used in
the active conduct of a trade or business outside of the United States,
but in fact the property continues to be used in a trade or business
within the United States.
(iii) With respect to an initial gain recognition agreement filed
under Sec. 1.367(a)-8, a failure to comply as determined under Sec.
1.367(a)-8(j)(8), but for purposes of this section, determined without
regard to the application of Sec. 1.367(a)-8(p).
(iv) With respect to an initial liquidation document filed under
Sec. 1.367(e)-2(b)(2), a failure to comply as determined under Sec.
1.367(e)-2(e)(4)(i), but for purposes of this section, determined
without regard to the application of Sec. 1.367(e)-2(f).
(3) Reasonable cause for failure to comply--(i) Request for relief.
If the U.S. transferor fails to comply with any requirement of section
6038B and this section, the failure shall be deemed not to have occurred
if the U.S. transferor
[[Page 219]]
is able to demonstrate that the failure was due to reasonable cause and
not willful neglect using the procedure set forth in paragraph
(f)(3)(ii) of this section. Whether the failure to timely comply was due
to reasonable cause and not willful neglect will be determined by the
Director of Field Operations, Cross Border Activities Practice Area of
Large Business & International (Director) based on all the facts and
circumstances.
(ii) Procedures for establishing that a failure to timely comply was
due to reasonable cause and not willful neglect--(A) Time of submission.
A U.S. transferor's statement that the failure to timely comply was due
to reasonable cause and not willful neglect will be considered only if,
promptly after the U.S. transferor becomes aware of the failure, an
amended return is filed for the taxable year to which the failure
relates that includes the information that should have been included
with the original return for such taxable year or that otherwise
complies with the rules of this section, and that includes a written
statement explaining the reasons for the failure to timely comply.
(B) Notice requirement. In addition to the requirements of paragraph
(f)(3)(ii)(A) of this section, the U.S. transferor must comply with the
notice requirements of this paragraph (f)(3)(ii)(B). If any taxable year
of the U.S. transferor is under examination when the amended return is
filed, a copy of the amended return and any information required to be
included with such return must be delivered to the Internal Revenue
Service personnel conducting the examination. If no taxable year of the
U.S. transferor is under examination when the amended return is filed, a
copy of the amended return and any information required to be included
with such return must be delivered to the Director.
(4) Definition of intentional disregard. If the transferor fails to
qualify for the exception under paragraph (f)(3) of this section and if
the taxpayer knew of the rule or regulation that was disregarded, the
failure will be considered an intentional disregard of section 6038B,
and the monetary penalty under paragraph (f)(1)(ii) of this section will
not be limited to $100,000. See Sec. 1.6662-3(b)(2).
(g) Effective/applicability dates. (1) This section applies to
transfers occurring on or after July 20, 1998, except as provided in
paragraphs (g)(2) through (g)(7) of this section, and except for
transfers of cash made in tax years beginning on or before February 5,
1999 (which are not required to be reported under section 6038B), and
transfers described in paragraph (e) of this section (which applies to
transfers that are subject to Sec. Sec. 1.367(e)-1(f) and 1.367(e)-
2(e)). See Sec. 1.6038B-1T for transfers occurring prior to July 20,
1998. See also Sec. 1.6038B-1T(e) in effect prior to August 9, 1999 (as
contained in 26 CFR part 1 revised April 1, 1999), for transfers
described in section 367(e) that are not subject to Sec. Sec. 1.367(e)-
1(f) and 1.367(e)-2(e).
(2) The rules of paragraph (b)(1)(i) of this section as they apply
to section 368(a)(1)(A) reorganizations (including reorganizations
described in section 368(a)(2)(D) or (E)) apply to transfers occurring
on or after January 23, 2006.
(3) The rules of paragraph (b)(1)(i) of this section that provide an
exception from reporting under section 6038B for transfers of stock or
securities in a section 354 or 356 exchange, pursuant to a section
368(a)(1)(G) reorganization that is not treated as an indirect stock
transfer under Sec. 1.367(a)-3(d), apply to transfers occurring on or
after January 23, 2006.
(4) The rules of paragraph (b)(1)(i) of this section that provide an
exception from reporting under section 6038B for transfers of stock in a
section 354 or 356 exchange, pursuant to a section 368(a)(1)(E)
reorganization or an asset reorganization under section 368(a)(1) that
is not treated as an indirect stock transfer under Sec. 1.367(a)-3(d),
apply to transfers occurring on or after January 23, 2006. The rules of
paragraph (b)(1)(i) of this section that provide an exception from
reporting under section 6038B for transfers of securities in a section
354 or 356 exchange, pursuant to a section 368(a)(1)(E) reorganization
or an asset reorganization under section 368(a)(1) that is not treated
as an indirect stock transfer under Sec. 1.367(a)-3(d), apply only to
transfers occurring after January 5, 2005 (although taxpayers
[[Page 220]]
may apply such provision to transfers of securities occurring on or
after July 20, 1998 and on or before January 5, 2005 if done
consistently to all transactions). See Sec. 1.6038-1T(b)(i), as
contained in 26 CFR part 1 revised as of April 1, 2005, for transfers
occurring prior to the effective dates described in paragraphs (g)(2)
through (4) of this section.
(5) Paragraphs (c)(6) and (f)(3) of this section apply to transfers
occurring on or after April 18, 2013. For guidance with respect to
paragraphs (c)(6) and (f)(3) of this section before April 18, 2013, see
26 CFR part 1 revised as of April 1, 2012.
(6) The second sentence of paragraph (b)(1)(i) and paragraphs
(b)(2)(i)(B)(1), (b)(2)(iii), (b)(2)(iv), (c), (e)(4), (f)(2)(iii), and
(f)(2)(iv) of this section will apply to transfers for which documents
are required to be filed on or after November 19, 2014, as well as to
transfers that are the subject of requests for relief submitted on or
after November 19, 2014. The second sentence of paragraph (b)(1)(i) and
paragraphs (b)(2)(i)(B)(1), (b)(2)(iii), (b)(2)(iv), (c), and
(f)(2)(iii) of this section will also apply to any transfer that is the
subject of a request for relief submitted pursuant to Sec. 1.367(a)-
8(r)(3).
(7) Paragraphs (c)(4)(i) through (vii), (c)(5), and (d)(1)(iv) and
(vii) of this section apply to transfers occurring on or after September
14, 2015, and to transfers occurring before September 14, 2015,
resulting from entity classification elections made under Sec.
301.7701-3 that are filed on or after September 14, 2015. For guidance
with respect to paragraphs (c)(4), (c)(5), and (d)(1) of this section
before this section is applicable, see Sec. Sec. 1.6038B-1 and 1.6038B-
1T as contained in 26 CFR part 1 revised as of April 1, 2016.
[T.D. 8770, 63 FR 33568, June 19, 1998]
Editorial Note: For Federal Register citations affecting Sec.
1.6038B-1, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6038B-1T Reporting of certain transactions to foreign
corporations (temporary).
(a) through (b)(3) [Reserved]. For further guidance, see Sec.
1.6038B-1(a) through (b)(3).
(4) Date of transfer--(i) In general. For purposes of this section,
the date of a transfer described in section 367 is the first date on
which title to, possession of, or rights to the use of stock,
securities, or other property passes pursuant to the plan for purposes
of subtitle A of the Internal Revenue Code. A transfer will not be
considered to begin with a decision of a board of directors or similar
action unless the transaction otherwise takes effect for purposes of
subtitle A of the Internal Revenue Code on that date.
(ii) Termination of section 1504(d) election. A transfer deemed to
occur as a result of the termination of an election under section
1504(d) will be considered to occur on the date the contiguous country
corporation first fails to continue to qualify for the election under
section 1504(d). The rule of this paragraph (b)(3)(ii) is illustrated by
the following example.
Example. Domestic corporation W previously made a valid election
under section 1504(d) to have its Mexican subsidiary S treated as a
domestic corporation. On August 1, 1986, W disposes of its right, title,
and interest in 10 percent of the stock of S by selling such stock to an
unrelated United States person who is not a director of S. S first fails
to continue to qualify for the election under section 1504(d) on August
1, 1986, since on such date it ceases to be directly or indirectly
wholly owned or controlled by W. The constructive transfer of assets
from ``domestic'' corporation S to Mexican corporation S is considered
to occur on that date.
(iii) Change in classification. A transfer deemed to occur as a
result of a change in classification of an entity caused by a change in
the governing documents, articles, or agreements of the entity (as
described in Sec. 1.367(a)-1T(c)(6)) will be considered to occur on the
date that such changes take effect for purposes of subtitle A of the
Internal Revenue Code.
(iv) U.S. resident under section 6013 (g) or (h). A transfer made by
an alien individual who is considered to be a U.S. resident by reason of
a timely election
[[Page 221]]
under section 6013 (g) or (h) will be considered to occur, for purposes
of this section (but not for purposes of section 367), on the later of--
(A) The date on which the election under section 6013 (g) or (h) is
made; or
(B) The date on which the transfer would otherwise be considered to
occur under the rules of this paragraph (b)(3).
The rule of this paragraph (b)(3)(iv) is illustrated by the following
example.
Example. D is a nonresident alien individual who is married to a
United States citizen. On March 1, 1986, D transfers property to a
foreign corporation in an exchange described in section 351. On April
15, 1987, D and the spouse timely file with their tax return for the
taxable year ended December 31, 1986, an election under section 6013(g)
for D to be treated as a United States resident. The election is
effective on January 1, 1986. For purposes of section 6038 B, the
transfer described in section 367(a) made by D in connection with the
section 351 exchange is considered to occur on April 15, 1987, the date
on which the timely election was made under section 6013(g).
(c) Introductory text [Reserved]. For further guidance, see Sec.
1.6038B-1(c).
(1) Transferor. Provide the name, U.S. taxpayer identification
number, and address of the U.S. person making the transfer.
(2) Transfer. Provide the following information concerning the
transfer:
(i) Name, U.S. taxpayer identification number (if any), address, and
country of incorporation of transferee foreign corporation;
(ii) A general description of the transfer, and any wider
transaction of which it forms a part, including a chronology of the
transfers involved and an identification of the other parties to the
transaction to the extent known.
(3) Consideration received. Provide a description of the
consideration received by the U.S. person making the transfer, including
its estimated fair market value and, in the case of stock or securities,
the class or type, amount, and characteristics of the interest received.
(4) Property transferred. Provide a description of the property
transferred. The description must be divided into the following
categories, and must include the estimated fair market value and
adjusted basis of the property, as well as any additional information
specified below.
(i) through (c)(5) introductory text [Reserved]
(i) Branch operation. Describe the foreign branch the property of
which is transferred, in accordance with the definition of Sec.
1.367(a)-6T(g).
(ii) Branch property. Describe the property of the foreign branch,
including its adjusted basis and fair market value. For this purpose
property must be identified with reasonable particularity, but may be
identified by category rather than listing every asset separately.
Substantially similar property may be listed together for this purpose,
and property of minor value may be grouped into functional categories.
For example, a reasonable description of the property of a business
office might include the following categories: Word processing or data
processing equipment, other office equipment and furniture, and office
supplies.
(iii) Previously deducted losses. Set forth a detailed calculation
of the sum of the losses incurred by the foreign branch before the
transfer, and a detailed calculation of any reduction of such losses, in
accordance with Sec. 1.367(a)-6T (d) and (e).
(iv) Character of gain. Set forth a statement of the character of
the gain required to be recognized, in accordance with Sec. 1.367(a)-
6T(c)(1).
(6) [Reserved]. For further guidance, see Sec. 1.6038B-1(c)(6).
(d) Transfers subject to section 367(d)--(1) Initial transfer. A
U.S. person that transfers inntangible property to a foreign corporation
in an exchange described in section 351 or 361 must provide the
following information in paragraphs labelled to correspond with the
number or letter set forth below. If a particular item is not applicable
to the subject transfer, list its heading and state that it is not
applicable. The information required by subdivisions (i) through (iii)
need only be provided if such information was not otherwise provided
under paragraph (c) of this section. (Note that the U.S. transferor may
subsequently be required to file another return under paragraph (d)(2)
of this section.)
(i) Transferor. Provide the name, U.S. taxpayer identification
number, and
[[Page 222]]
address of the U.S. person making the transfer.
(ii) Transfer. Provide information concerning the transfer,
including:
(A) Name, U.S. taxpayer identification number (if any), address, and
country of incorporation of the transferee foreign corporation;
(B) A general description of the transfer, and any wider transaction
of which it forms a part, including a chronology of the transfers
involved and an identification of the other parties to the transaction
to the extent known.
(iii) Consideration received. Provide a description of the
consideration received by the U.S. person making the transfer, including
its estimated fair market value and, in the case of stock or securities,
the class or type, amount, and characteristics of the interest received.
(iv) [Reserved]
(v) Annual payment. Provide and explain the calculation of the
annual deemed payment for the use of the intangible property required to
be recognized by the transferor under the rules of section 367(d).
(vi) Election to treat as sale. List any intangible with respect to
which an election is being made under Sec. 1.367(d)-1T(g)(2) to treat
the transfer as a sale. Include the fair market value of the intangible
on the date of the transfer and a calculation of the gain required to be
recognized in the year of the transfer by reason of the election.
(vii) [Reserved]
(viii) Other intangibles. Describe any intangible property sold or
licensed by the transferor to the transferee foreign corporation, and
set forth the general terms of each sale or license.
(2) Subsequent transfers. If a U.S. person transfers intangible
property to a foreign corporation in an exchange described in section
351 or 361, and at any time thereafter (within the useful life of the
intangible property) either that U.S. person disposes of the stock of
the transferee foreign corporation or the transferee foreign corporation
disposes of the transferred intangible, then the U.S. person must
provide the following information in paragraphs labelled to correspond
with the number or letter set forth below. The information required by
subdivisions (i) and (ii) need only be provided if such information was
not otherwise provided in the same return, pursuant to paragraph (c) or
(d)(1) of this section. For purposes of determining the date on which a
return under this subparagraph (2) is required to be filed, the date of
transfer is the date of the subsequent transfer of stock or intangible
property.
(i) Transferor. Provide the name, U.S. taxpayer identification
number, and address of the U.S. person making the transfer.
(ii) Initial transfer. Provide the following information concerning
the initial transfer:
(A) The date of the transfer;
(B) The name, U.S. taxpayer identification number (if any), address,
and country of incorporation of the transferee foreign corporation; and
(C) A general description of the transfer and any wider transaction
of which it formed a part.
(iii) Subsequent transfer. Provide the following information
concerning the subsequent transfer:
(A) A general description of the subsequent transfer and any wider
transaction of which it forms a part;
(B) A calculation of any gain required to be recognized by the U.S.
person under the rules of Sec. 1.367(d)-1T (d) through (f); and
(C) The name, address, and identifying number of each person that
under the rules of Sec. 1.367(d)-1T (e) or (f) will be considered to
receive contingent annual payments for the use of the intangible
property.
(e) [Reserved]. For further guidance, see Sec. 1.6038B-1(e).
(f)(1) through (f)(3) [Reserved] For further guidance, see Sec.
1.6038B-1(f)(1) through (f)(2).
(f)(4) [Reserved] For further guidance, see Sec. 1.6038B-1T(f)(4).
(g) Effective date. This section applies to transfers occurring
after December 31, 1984. See Sec. 1.6038B-1T(a) through (b)(2), (c)
introductory text, and (f) (26 CFR part 1, revised April 1, 1998) for
transfers occurring prior to July 20,
[[Page 223]]
1998. See Sec. 1.6038B-1 for transfers occurring on or after July 20,
1998.
[T.D. 8087, 51 FR 17957, May 16, 1986, as amended by T.D. 8682, 61 FR
42177, Aug. 14, 1996; T.D. 8770, 63 FR 33570, June 19, 1998; T.D. 8834,
64 FR 43083, Aug. 9, 1999; T.D. 9100, 68 FR 70708, Dec. 19, 2003; 69 FR
5017, Feb. 3, 2004; T.D. 9243, 71 FR 4294, Jan. 26, 2006; T.D. 9300, 71
FR 71045, Dec. 8, 2006; T.D. 9615, 78 FR 17064, Mar. 19, 2013; T.D.
9760, 81 FR 15169, Mar. 22, 2016; T.D. 9803, 81 FR 91032, Dec. 16, 2016]
Sec. 1.6038B-2 Reporting of certain transfers to foreign partnerships.
(a) Reporting requirements--(1) Requirement to report transfers. A
United States person that transfers property to a foreign partnership in
a contribution described in section 721 (including section 721(b)) must
report that transfer on Form 8865 ``Information Return of U.S. Persons
With Respect to Certain Foreign Partnerships'' pursuant to section 6038B
and the rules of this section, if--
(i) Immediately after the transfer, the United States person owns,
directly, indirectly, or by attribution, at least a 10-percent interest
in the partnership, as defined in section 6038(e)(3)(C) and the
regulations thereunder;
(ii) The value of the property transferred, when added to the value
of any other property transferred in a section 721 contribution by such
person (or any related person) to the partnership during the 12-month
period ending on the date of the transfer, exceeds $100,000; or
(iii) The United States person is a U.S. transferor (as defined in
Sec. 1.721(c)-1(b)(18)) that makes a gain deferral contribution and is
required to report under Sec. 1.721(c)-6(b)(2). The reporting required
under this paragraph (a) includes the annual reporting required by Sec.
1.721(c)-6(b)(3). For purposes of applying this paragraph (a)(1)(iii) to
partnerships formed on or after January 18, 2017, a domestic partnership
is treated as a foreign partnership pursuant to section 7701(a)(4).
(2) Indirect transfer through a domestic partnership--For purposes
of this section, if a domestic partnership transfers property to a
foreign partnership in a section 721 transaction, the domestic
partnership's partners shall be considered to have transferred a
proportionate share of the property to the foreign partnership. However,
if the domestic partnership properly reports all of the information
required under this section with respect to the contribution, no partner
of the transferor partnership, whether direct or indirect (through tiers
of partnerships), is also required to report under this section. For
illustrations of this rule, see Examples 4 and 5 of paragraph (a)(7) of
this section.
(3) Indirect transfer through a foreign partnership. Solely for
purposes of this section, if a foreign partnership transfers section
721(c) property (as defined in Sec. 1.721(c)-1(b)(15)) to another
foreign partnership in a transfer described in Sec. 1.721(c)-3(d)
(tiered-partnership rules), then the transferor foreign partnership's
partners will be considered to have transferred a proportionate share of
the property to the foreign partnership.
(4) Requirement to report dispositions--(i) In general. If a United
States person was required to report a transfer to a foreign partnership
of appreciated property under paragraph (a)(1) or (2) of this section,
and the foreign partnership disposes of the property while such United
States person remains a direct or indirect partner, that United States
person must report the disposition by filing Form 8865. The form must be
attached to, and filed by the due date (including extensions) of, the
United States person's income tax return for the year in which the
disposition occurred.
(ii) Disposition of contributed property in nonrecognition
transaction. If a foreign partnership disposes of contributed
appreciated property in a nonrecognition transaction and substituted
basis property is received in exchange, and the substituted basis
property has built-in gain under Sec. 1.704-3(a)(8), the original
transferor is not required to report the disposition. However, the
transferor must report the disposition of the substituted basis property
in the same manner as provided for the contributed property.
(5) Time for filing Form 8865. The Form 8865 on which a transfer is
reported must be attached to the transferor's timely filed (including
extensions) income tax return for the tax year that
[[Page 224]]
includes the date of the transfer. If the person required to report
under this section is not required to file an income tax return for its
tax year during which the transfer occurred, but is required to file an
information return for that year (for example, Form 1065, ``U.S.
Partnership Return of Income,'' or Form 990, ``Return of Organization
Exempt from Income Tax''), the person should attach the Form 8865 to its
information return.
(6) Returns to be made--(i) Separate returns for each partnership.
If a United States person transfers property reportable under this
section to more than one foreign partnership in a taxable year, the
United States person must submit a separate Form 8865 for each
partnership.
(ii) Duplicate form to be filed. If required by the instructions
accompanying Form 8865, a duplicate Form 8865 (including attachments and
schedules) must also be filed by the due date for submitting the
original Form 8865 under paragraph (a)(5)(i) or (ii) of this section, as
applicable.
(7) Examples. The application of this paragraph (a) may be
illustrated by the following examples:
Example 1. On November 1, 2001, US, a United States person that uses
the calendar year as its taxable year, contributes $200,000 to FP, a
foreign partnership, in a transaction subject to section 721. After the
contribution, US owns a 5% interest in FP. US must report the
contribution by filing Form 8865 for its taxable year ending December
31, 2001. On March 1, 2002, US makes a $40,000 section 721 contribution
to FP, after which US owns a 6% interest in FP. US must report the
$40,000 contribution by filing Form 8865 for its taxable year ending
December 31, 2002, because the contribution, when added to the value of
the other property contributed by US to FP during the 12-month period
ending on the date of the transfer, exceeds $100,000.
Example 2. F, a nonresident alien, is the brother of US, a United
States person. F owns a 15% interest in FP, a foreign partnership. US
contributes $99,000 to FP, in exchange for a 1-percent partnership
interest. Under sections 6038(e)(3)(C) and 267(c)(2), US is considered
to own at least a 10-percent interest in FP and, therefore, US must
report the $99,000 contribution under this section.
Example 3. US, a United States person, owns 40 percent of FC, a
foreign corporation. FC owns a 20-percent interest in FP, a foreign
partnership. Under section 267(c)(1), US is considered to own 8 percent
of FP due to its ownership of FC. US contributes $50,000 to FP in
exchange for a 5-percent partnership interest. Immediately after the
contribution, US is considered to own at least a 10-percent interest in
FP and, therefore, must report the $50,000 contribution under this
section.
Example 4. US, a United States person, owns a 60-percent interest in
USP, a domestic partnership. On March 1, 2001, USP contributes $200,000
to FP, a foreign partnership, in exchange for a 5-percent partnership
interest. Under paragraph (a)(2) of this section, US is considered as
having contributed $120,000 to FP ($200,000 x 60%). However, under
paragraph (a)(2), if USP properly reports the contribution to FP, US is
not required to report its $120,000 contribution. If US directly
contributes $5,000 to FP on June 10, 2001, US must report the $5,000
contribution because US is considered to have contributed more than
$100,000 to FP in the 12-month period ending on the date of the $5,000
contribution.
Example 5. US, a United States person, owns an 80-percent interest
in USP, a domestic partnership. USP owns an 80-percent interest in USP1,
a domestic partnership. On March 1, 2001, USP1 contributes $200,000 to
FP, a foreign partnership, in exchange for a 3-percent partnership
interest. Under paragraph (a)(2) of this section, USP is considered to
have contributed $160,000 ($200,000 x 80%) to FP. US is considered to
have contributed $128,000 to FP ($200,000 x 80% x 80%). However, if USP1
reports the transfer of the $200,000 to FP, neither US nor USP are
required to report under this section the amounts they are considered to
have contributed. Additionally, regardless of whether USP1 reports the
$200,000 contribution, if USP reports the $160,000 contribution it is
considered to have made, US does not have to report under this section
the $128,000 contribution US is considered to have made.
(b) Transfers by trusts relating to state and local government
employee retirement plans. Trusts relating to state and local government
employee retirement plans are not required to report transfers under
this section, unless otherwise specified in the instructions to Form
8865.
(c) Information required with respect to transfers of property. With
respect to transfers required to be reported under paragraph (a)(1) or
(2) of this section, the return must contain information in such form or
manner as Form 8865 (and its accompanying instructions) prescribes with
respect to reportable events, including--
(1) The name, address, and U.S. taxpayer identification number of
the
[[Page 225]]
United States person making the transfer;
(2) The name, U.S. taxpayer identification number (if any), and
address of the transferee foreign partnership, and the type of entity
and country under whose laws the partnership was created or organized;
(3) A general description of the transfer, and of any wider
transaction of which it forms a part, including the date of transfer;
(4) The names and addresses of the other partners in the foreign
partnership, unless the transfer is solely of cash and the transferor
holds less than a ten-percent interest in the transferee foreign
partnership immediately after the transfer. However, for tax years of
U.S. persons beginning on or after January 1, 2000, the person reporting
pursuant to section 6038B (the transferor) must provide the names and
addresses of each United States person that owned a ten-percent or
greater direct interest in the foreign partnership during the
transferor's tax year in which the transfer occurred, and the names and
addresses of any other United States or foreign persons that were direct
partners in the foreign partnership during that tax year and that were
related to the transferor during that tax year. See paragraph (i)(4) of
this section for the definition of a related person;
(5) A description of the partnership interest received by the United
States person, including a change in partnership interest;
(6) A separate description of each item of contributed property that
is appreciated property subject to the allocation rules of section
704(c) (except to the extent that the property is permitted to be
aggregated in making allocations under section 704(c)), or is intangible
property, including its estimated fair market value and adjusted basis;
(7) A description of other contributed property, not specified in
paragraph (c)(6) of this section, aggregated by the following categories
(with, in each case, a brief description of the property)--
(i) Stock in trade of the transferor (inventory);
(ii) Tangible property (other than stock in trade) used in a trade
or business of the transferor;
(iii) Cash;
(iv) Stock, notes receivable and payable, and other securities; and
(v) Other property;
(8) With respect to reporting required under Sec. 1.721(c)-6(b)(2)
and paragraph (a)(1)(iii) of this section with regard to a gain deferral
contribution, the information required by Sec. 1.721(c)-6(b)(2); and
(9) With respect to section 721(c) property for which reporting is
required under Sec. 1.721(c)-6(b)(3) and paragraph (a)(1)(iii) of this
section, the information required by Sec. 1.721(c)-6(b)(3).
(d) Information required with respect to dispositions of property.
In respect of dispositions required to be reported under paragraph
(a)(4) of this section, the return must contain information in such form
or manner as Form 8865 (and its accompanying instructions) prescribes
with respect to reportable events, including--
(1) The date and manner of disposition;
(2) The gain and depreciation recapture amounts, if any, realized by
the partnership; and
(3) Any such amounts allocated to the United States person.
(e) Method of reporting. Except as otherwise provided on Form 8865,
or the accompanying instructions, all amounts reported as required under
this section must be expressed in United States currency, with a
statement of the exchange rates used. All statements required on or with
Form 8865 pursuant to this section must be in the English language.
(f) Reporting under this section not required of partnerships
excluded from the application of subchapter K--(1) Election to be wholly
excluded. The reporting requirements of this section will not apply to
any United States person in respect of an eligible partnership as
described in Sec. 1.761-2(a), if such partnership has validly elected
to be excluded from all of the provisions of subchapter K of chapter 1
of the Internal Revenue Code in the manner specified in Sec. 1.761-
2(b)(2)(i).
(2) Deemed excluded. The reporting requirements of this section will
not
[[Page 226]]
apply to any United States person in respect of an eligible partnership
as described in Sec. 1.761-2(a), if such partnership is validly deemed
to have elected to be excluded from all of the provisions of subchapter
K of chapter 1 of the Internal Revenue Code in accordance with the
provisions of Sec. 1.761-2(b)(2)(ii).
(g) Deemed contributions. Deemed contributions resulting from IRS-
initiated section 482 adjustments are not required to be reported under
section 6038B. However, taxpayers must report deemed contributions
resulting from taxpayer-initiated adjustments. Such information will be
furnished timely if filed by the due date, including extensions, for
filing the taxpayer's income tax return for the year in which the
adjustment is made.
(h) Failure to comply with reporting requirements--(1) Consequences
of a failure. If a United States person is required to file a return
under paragraph (a) of this section and fails to comply with the
reporting requirements of section 6038B and this section, or Sec.
1.721(c)-6, then that person is subject to the following penalties:
(i) The United States person is subject to a penalty equal to 10
percent of the fair market value of the property at the time of the
contribution. Such penalty with respect to a particular transfer is
limited to $100,000, unless the failure to comply with respect to such
transfer was due to intentional disregard.
(ii) The United States person must recognize gain (reduced by the
amount of any gain recognized, with respect to that property, by the
transferor after the transfer) as if the contributed property had been
sold for fair market value at the time of the contribution. Adjustments
to the basis of the partnership's assets and any relevant partner's
interest as a result of gain being recognized under this provision will
be made as though the gain was recognized in the year in which the
failure to report was finally determined.
(2) Failure to comply. A failure to comply with the requirements of
section 6038B includes--
(i) The failure to report at the proper time and in the proper
manner any information required to be reported under the rules of this
section; and
(ii) The provision of false or inaccurate information in purported
compliance with the requirements of this section.
(3) Reasonable cause exception. Under section 6038B(c)(2) and this
section, the provisions of paragraph (h)(1) of this section will not
apply if the United States person shows, in a timely manner, that a
failure to comply was due to reasonable cause and not willful neglect. A
United States person's statement that the failure to comply was due to
reasonable cause and not willful neglect will be considered timely only
if, promptly after the United States person becomes aware of the
failure, an amended return is filed for the taxable year to which the
failure relates that includes the information that should have been
included with the original return for such taxable year or that
otherwise complies with the rules of this section, and that includes a
written statement explaining the reasons for the failure to comply. If
any taxable year of the United States person is under examination when
the amended return is filed, a copy of the amended return must be
delivered to the Internal Revenue Service personnel conducting the
examination when the amended return is filed. If no taxable year of the
United States person is under examination when the amended return is
filed, a copy of the amended return must be delivered to the Director of
Field Operations, Cross Border Activities Practice Area of Large
Business & International (or any successor to the roles and
responsibilities of such position, as appropriate) (Director). Whether a
failure to comply was due to reasonable cause and not willful neglect
will be determined by the Director under all the facts and
circumstances.
(4) Statute of limitations. For exceptions to the limitations on
assessment in the event of a failure to provide information under
section 6038B, see section 6501(c)(8).
(i) Definitions--(1) Appreciated property. Appreciated property is
property that has a fair market value in excess of basis.
[[Page 227]]
(2) Domestic partnership. A domestic partnership is a partnership
described in section 7701(a)(4).
(3) Foreign partnership. A foreign partnership is a partnership
described in section 7701(a)(5).
(4) Related person. Persons are related persons if they bear a
relationship described in section 267(b)(1) through (3) or (10) through
(12), after application of section 267(c) (except for (c)(3)), or in
section 707(b)(1)(B).
(5) Substituted basis property. Substituted basis property is
property described in section 7701(a)(42).
(6) Taxpayer-initiated adjustment. A taxpayer-initiated adjustment
is a section 482 adjustment that is made by the taxpayer pursuant to
Sec. 1.482-1(a)(3).
(7) United States person. A United States person is a person
described in section 7701(a)(30).
(j) Effective dates--(1) In general. Except as otherwise provided in
this section, this section applies to transfers made on or after January
1, 1998. However, for a transfer made on or after January 1, 1998, but
before January 1, 1999, the filing requirements of this section may be
satisfied by--
(i) Filing a Form 8865 with the taxpayer's income tax return
(including a partnership return of income) for the first taxable year
beginning on or after January 1, 1999; or
(ii) Filing a Form 926 (modified to reflect that the transferee is a
partnership, not a corporation) with the taxpayer's income tax return
(including a partnership return of income) for the taxable year in which
the transfer occurred.
(2) Transfers made between August 5, 1997 and January 1, 1998. A
United States person that made a transfer of property between August 5,
1997, and January 1, 1998, that is required to be reported under section
6038B may satisfy its reporting requirement by reporting in accordance
with the provisions of this section or in accordance with the provisions
of Notice 98-17 (1998-11 IRB 6)(see Sec. 601.601(d)(2) of this
chapter).
(3) Special rule for transfers made before January 1, 2000. Even if
not reported in accordance with the rules provided in paragraph (a)(5)
of this section, or paragraph (j) (1) or (2) of this section, a transfer
that occurred before January 1, 2000 will nevertheless be considered
timely reported if the transferor reports it on a Form 8865 attached to
an amended tax return for the transferor's tax year in which the
transfer occurred, provided such amended return is filed no later than
September 15, 2000.
(4) Transfers of section 721(c) property. Paragraph (c)(8) of this
section applies to transfers occurring on or after August 6, 2015, and
to transfers that occurred before August 6, 2015 resulting from an
entity classification election made under Sec. 301.7701-3 of this
chapter that was effective on or before August 6, 2015 but was filed on
or after August 6, 2015. Paragraphs (a)(1)(iii), (a)(3), and (c)(9) of
this section apply to transfers occurring on or after January 18, 2017,
and to transfers that occurred before January 18, 2017 resulting from
entity classification elections made under Sec. 301.7701-3 of this
chapter that were effective on or before January 18, 2017 but were filed
on or after January 18, 2017.
(5) Reasonable cause exception. Paragraph (h)(3) of this section
applies to all requests for relief for transfers of property to
partnerships filed on or after January 18, 2017.
[T.D. 8817, 64 FR 5715, Feb. 5, 1999; 64 FR 15686, Apr. 1, 1999; T.D.
8850, 64 FR 72554, Dec. 28, 1999, as amended by T.D. 9814, 82 FR 7610,
Jan. 19, 2017; T.D. 9891, 85 FR 3851, Jan. 23, 2020]
Sec. 1.6038D-0 Outline of regulation provisions.
This section lists the table of contents for Sec. Sec. 1.6038D-1
through 1.6038D-8.
Sec. 1.6038D-1 Reporting with respect to specified foreign financial
assets, definition of terms.
(a) In general.
(1) Specified person.
(2) Specified individual.
(3) Resident alien.
(4) Bona fide resident of a U.S. possession.
(5) U.S. possession.
(6) Specified foreign financial asset.
(7) Financial account.
(8) Financial institution.
(9) Foreign financial institution.
(10) Foreign entity.
(11) Annual return.
(12) Specified domestic entity.
(13) Model 1 IGA and Model 2 IGA.
(b) Effective/applicability dates.
[[Page 228]]
(1) In general.
(2) Financial accounts.
Sec. 1.6038D-2 Requirement to report specified foreign financial
assets.
(a) Reporting requirement.
(1) In general.
(2) Special rule for married specified individuals filing a joint
annual return.
(3) Special rule for certain specified individuals living abroad.
(4) Special rule for married specified individuals filing a joint
annual return and living abroad.
(5) Assets with no positive value.
(6) Aggregate value calculation in case of specified foreign
financial asset excluded from reporting.
(i) Specified individual.
(ii) Specified domestic entity.
(7) Form 8938 filed with annual return.
(i) General rule.
(ii) Consolidated returns.
(8) Reporting required regardless of tax result.
(9) Reporting period.
(10) Successor forms.
(b) Interest in a specified foreign financial asset.
(1) In general.
(2) Property transferred in connection with the performance of
services.
(3) Special rule for parent making an election under section
1(g)(7).
(4) Entities.
(i) In general.
(ii) Specified foreign financial assets held by certain trusts.
(iii) Specified foreign financial assets held by a disregarded
entity.
(iv) Interest in a foreign trust or foreign estate.
(c) Special rules for joint interests.
(1) In general.
(i) Determining aggregate value of assets.
(ii) Reporting maximum value.
(2) Aggregate asset value for married specified individuals filing a
joint annual return.
(3) Aggregate asset value for married specified individuals filing a
separate annual return.
(i) Both spouses are specified individuals.
(ii) One spouse is not a specified individual.
(d) Annual return filed by a married specified individual.
(1) Joint annual return.
(2) Separate annual return.
(e) Special rules for dual resident taxpayers.
(1) In general.
(2) Dual resident taxpayer filing as a nonresident alien at end of
taxable year.
(3) Dual resident taxpayer filing as a resident alien at end of
taxable year.
(f) Example.
(1) Facts.
(2) Filing requirement.
(i) Married specified individuals filing separate annual returns.
(ii) Married specified individuals filing a joint annual return.
(g) Effective/applicability dates.
Sec. 1.6038D-3 Specified foreign financial assets.
(a) Financial accounts.
(1) In general.
(2) Financial account in a U.S. possession.
(3) Excepted financial accounts.
(i) Accounts maintained by U.S. payors.
(ii) Mark-to-market election under section 475.
(b) Other specified foreign financial assets.
(1) In general.
(2) Mark-to-market election under section 475.
(3) Held for investment.
(4) Trade-or-business test.
(5) Direct relationship between holding an asset and a trade or
business.
(i) In general.
(ii) Presumption of direct relationship.
(c) Special rule for interests in foreign trusts and foreign
estates.
(d) Examples.
(e) Effective/applicability dates.
Sec. 1.6038D-4 Information required to be reported.
(a) Required information.
(b) Effective/applicability dates.
Sec. 1.6038D-5 Valuation guidelines.
(a) Fair market value.
(b) Valuation of assets.
(1) Maximum value.
(2) U.S. dollars.
(3) Asset with no positive value.
(c) Foreign currency conversion.
(1) In general.
(2) Other publicly available exchange rate.
(3) Currency exchange rate.
(4) Determination date.
(d) Financial accounts.
(e) Asset held in a financial account.
(f) Other specified foreign financial assets.
(1) General rule.
(2) Interests in trusts that are specified foreign financial assets.
(i) Maximum value.
(ii) Reporting threshold.
(3) Interests in estates, pension plans, and deferred compensation
plans.
(i) Maximum value.
(ii) Reporting threshold.
(g) Effective/applicability dates.
Sec. 1.6038D-6 Specified domestic entities.
(a) Specified domestic entity.
(b) Corporations and partnerships.
(1) Formed or availed of.
(2) Closely held.
(i) Domestic corporation.
(ii) Domestic partnership.
[[Page 229]]
(iii) Constructive ownership.
(3) Determination of passive income and assets.
(i) Definition of passive income.
(ii) Exception from passive income treatment for dealers.
(iii) Related entities.
(4) Examples.
(c) Domestic trusts.
(d) Excepted domestic entities.
(1) Certain persons described in section 1473(3).
(2) Certain domestic trusts.
(3) Domestic trusts owned by one or more specified persons.
(e) Effective/applicability dates.
Sec. 1.6038D-7 Exceptions from the reporting of certain assets under
section 6038D.
(a) Elimination of duplicative reporting of assets.
(1) In general.
(2) Foreign grantor trusts.
(3) Joint Form 5471 or Form 8865 filing.
(b) Owner of certain trusts.
(c) Special rules for bona fide residents of a U.S. possession.
(d) Effective/applicability dates.
Sec. 1.6038D-8 Penalties for failure to disclose.
(a) In general.
(b) Married specified individuals filing a joint annual return.
(c) Increase in penalty.
(d) Presumption of aggregate value.
(e) Reasonable cause exception.
(1) In general.
(2) Affirmative showing required.
(3) Facts and circumstances taken into account.
(f) Penalties for underpayments attributable to undisclosed foreign
financial assets.
(1) Accuracy related penalty.
(2) Criminal penalties.
(g) Effective/applicability dates.
[T.D. 9706, 79 FR 73824, Dec. 12, 2014, as amended by T.D. 9752, 81 FR
8838, Feb. 23, 2016]
Sec. 1.6038D-1 Reporting with respect to specified foreign financial
assets, definition of terms.
(a) In general. The following definitions apply for purposes of
section 6038D and the regulations--
(1) Specified person. The term specified person means a specified
individual or a specified domestic entity.
(2) Specified individual. The term specified individual means an
individual who is a--
(i) U.S. citizen;
(ii) Resident alien of the United States for any portion of the
taxable year;
(iii) Nonresident alien for whom an election under section 6013(g)
or (h) is in effect; or
(iv) Nonresident alien who is a bona fide resident of Puerto Rico or
a section 931 possession (as defined in Sec. 1.931-1(c)(1)).
(3) Resident alien. The term resident alien has the meaning set
forth in section 7701(b) and Sec. Sec. 301.7701(b)-1 through
301.7701(b)-9 of this chapter.
(4) Bona fide resident of a U.S. possession. The term bona fide
resident of a U.S. possession means an individual who is a ``bona fide
resident'' under section 937(a) and Sec. 1.937-1.
(5) U.S. possession. The term U.S. possession means American Samoa,
Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin
Islands.
(6) Specified foreign financial asset. The term specified foreign
financial asset has the meaning set forth in Sec. 1.6038D-3.
(7) Financial account. The term financial account has the meaning
set forth in Sec. 1.1471-5(b), provided, however, that the exclusions
of retirement and pension accounts and non-retirement savings accounts
under Sec. 1.1471-5(b)(2)(i) and retirement and pension accounts, non-
retirement savings accounts, and accounts satisfying similar conditions
in an applicable Model 1 IGA or Model 2 IGA under Sec. 1.1471-
5(b)(2)(vi) shall not apply (see the section 6038D coordination rule in
Sec. 1.1471-5(b)(2)(i)(D)). See Sec. 1.6038D-3(a)(2) relating to
financial accounts maintained by a financial institution that is
organized under the laws of a U.S. possession.
(8) Financial institution. The term financial institution has the
meaning set forth in section 1471(d)(5) and the regulations thereunder.
(9) Foreign financial institution. The term foreign financial
institution has the meaning set forth in Sec. 1.1471-5(d).
(10) Foreign entity. The term foreign entity has the meaning set
forth in Sec. 1.1473-1(e).
(11) Annual return. The term annual return means an annual federal
income tax return of a specified individual or an annual federal income
tax return or
[[Page 230]]
information return of a specified domestic entity filed with the
Internal Revenue Service under section 876, 6011, 6012, 6013, 6031, or
6037, and the regulations.
(12) Specified domestic entity. The term specified domestic entity
has the meaning set forth in Sec. 1.6038D-6.
(13) Model 1 IGA and Model 2 IGA. The terms Model 1 IGA and Model 2
IGA have the meanings set forth in Sec. 1.1471-1(b)(78) and (79),
respectively.
(b) Effective/applicability dates--(1) In general. Except as
otherwise provided in this paragraph (b), this section applies to
taxable years ending after December 19, 2011. Taxpayers may elect to
apply the rules of this section to taxable years ending prior to
December 19, 2011.
(2) Financial accounts. For purposes of applying the financial
account definition in Sec. 1.6038D-1(a)(7), the treatment under Sec.
1.1471-5(b)(2)(vi) of retirement and pension accounts, non-retirement
savings accounts, and accounts satisfying similar conditions in an
applicable Model 1 IGA or Model 2 IGA (see Sec. 1.1471-1(b)(78) and
(79)) as financial accounts for purposes of the reporting required under
section 6038D and Sec. 1.6038D-2(a) shall apply to taxable years
beginning after December 12, 2014.
[T.D. 9706, 79 FR 73825, Dec. 12, 2014, as amended by T.D. 9752, 81 FR
8838, Feb. 23, 2016]
Sec. 1.6038D-2 Requirement to report specified foreign financial
assets.
(a) Reporting requirement--(1) In general. Except as otherwise
provided, a specified person that has any interest in a specified
foreign financial asset during the taxable year must attach Form 8938,
``Statement of Specified Foreign Financial Assets,'' to that specified
person's annual return for the taxable year to report the information
required by section 6038D and Sec. 1.6038D-4 if the aggregate value of
all such assets exceeds--
(i) $50,000 on the last day of the taxable year; or
(ii) $75,000 at any time during the taxable year.
(2) Special rule for married specified individuals filing a joint
annual return. Except as provided in paragraph (a)(4) of this section,
married specified individuals who file a joint annual return for the
taxable year must attach a single Form 8938 to their joint annual return
for the taxable year to report the information required by section 6038D
and Sec. 1.6038D-4 if the aggregate value of all of the specified
foreign financial assets in which either married specified individual
has an interest exceeds--
(i) $100,000 on the last day of the taxable year; or
(ii) $150,000 at any time during the taxable year.
(3) Special rule for certain specified individuals living abroad.
Except as provided in paragraph (a)(4) of this section, a specified
individual who is a qualified individual under section 911(d)(1) for the
taxable year must attach a Form 8938 to his or her annual return for the
taxable year to report the information required by section 6038D and
Sec. 1.6038D-4 if the aggregate value of the specified foreign
financial assets in which the specified individual has an interest
exceeds--
(i) $200,000 on the last day of the taxable year; or
(ii) $300,000 at any time during the taxable year.
(4) Special rule for married specified individuals filing a joint
annual return and living abroad. A specified individual who is a
qualified individual under section 911(d)(1) for the taxable year and
the qualified individual's spouse who file a joint annual return for the
taxable year must attach a single Form 8938 to their return for the
taxable year to report the information required by section 6038D and
Sec. 1.6038D-4 if the aggregate value of the all of the specified
foreign financial assets in which either married individual has an
interest exceeds--
(i) $400,000 on the last day of the taxable year; or
(ii) $600,000 at any time during the taxable year.
(5) Assets with no positive value. A specified foreign financial
asset is subject to reporting even if the specified foreign financial
asset does not have a positive value. See Sec. 1.6038D-5(b)(3) to
determine the maximum value of a specified foreign financial asset that
does not have a positive value during the taxable year.
[[Page 231]]
(6) Aggregate value calculation in case of specified foreign
financial asset excluded from reporting--(i)Specified individual. The
value of any specified foreign financial asset in which a specified
individual has an interest and that is excluded from reporting on Form
8938 pursuant to Sec. 1.6038D-7(a) (concerning certain assets reported
on another form) is included for purposes of determining the aggregate
value of specified foreign financial assets. The value of any specified
foreign financial asset in which a specified individual has an interest
and that is excluded from reporting under Sec. 1.6038D-7(b) (concerning
assets held by certain domestic trusts) or Sec. 1.6038D-7(c)
(concerning certain assets owned by a bona fide resident of a U.S.
possession) is excluded for purposes of determining the aggregate value
of specified foreign financial assets.
(ii) Specified domestic entity. The value of any specified foreign
financial asset in which a specified domestic entity has an interest and
that is excluded from reporting on Form 8938 pursuant to Sec. 1.6038D-
7(a) (concerning certain assets reported on another form) is excluded
for purposes of determining the aggregate value of specified foreign
financial assets. For purposes of determining the aggregate value of
specified foreign financial assets, a specified domestic entity that is
a corporation or partnership and that has an interest in any specified
foreign financial asset is treated as owning all the specified foreign
financial assets (excluding specified foreign financial assets excluded
from reporting on Form 8938 pursuant to Sec. 1.6038D-7(a)) held by all
domestic corporations and domestic partnerships that are closely held by
the same specified individual as determined under Sec. 1.6038D-6(b)(2).
(7) Form 8938 filed with annual return--(i) General rule. A
specified person, including a specified individual who is a bona fide
resident of a U.S. possession, is not required to file Form 8938 with
respect to a taxable year if the specified person is not required to
file an annual return with the Internal Revenue Service with respect to
such taxable year.
(ii) Consolidated returns. If a specified domestic entity is a
member of an affiliated group of corporations that files a consolidated
income tax return, the Form 8938 of the specified domestic entity must
be filed with the affiliated group's annual return.
(8) Reporting required regardless of tax result. The Form 8938
required by section 6038D and this section must be furnished by a
specified person even if none of the specified foreign financial assets
that must be reported affect the specified person's tax liability under
the Internal Revenue Code for the taxable year.
(9) Reporting period. The reporting period covered by Form 8938 is
the specified person's taxable year, except the reporting period for a
specified person that is a specified individual for less than an entire
taxable year is the portion of the taxable year that the specified
person is a specified individual.
(10) Successor forms. References to Form 8938 include any successor
form.
(b) Interest in a specified foreign financial asset--(1) In general.
A specified person has an interest in a specified foreign financial
asset if any income, gains, losses, deductions, credits, gross proceeds,
or distributions attributable to the holding or disposition of the
specified foreign financial asset are or would be required to be
reported, included, or otherwise reflected by the specified person on an
annual return. A specified person has an interest in a specified foreign
financial asset even if no income, gains, losses, deductions, credits,
gross proceeds, or distributions are attributable to the holding or
disposition of the specified foreign financial asset for the taxable
year.
(2) Property transferred in connection with the performance of
services. A specified person that is transferred property in connection
with the performance of personal services is first considered to have an
interest in the property for purposes of section 6038D on the first date
that the property is substantially vested (within the meaning of Sec.
1.83-3(b)) or, in the case of property with respect to which a specified
person makes a valid election under section 83(b), on the date of
transfer of the property.
(3) Special rule for parent making election under section 1(g)(7). A
parent who makes an election under section 1(g)(7)
[[Page 232]]
to include certain unearned income of a child in the parent's gross
income has an interest in any specified foreign financial asset held by
the child for the purposes of section 6038D and the regulations.
(4) Entities--(i) In general. Except as provided in this paragraph
(b)(4), a specified person is not treated as having an interest in any
specified foreign financial assets held by a corporation, partnership,
trust, or estate solely as a result of the specified person's status as
a shareholder, partner, or beneficiary of such entity.
(ii) Specified foreign financial assets held by certain trusts. A
specified person that is treated as the owner of a trust or any portion
of a trust under sections 671 through 679, other than a domestic
liquidating trust under Sec. 301.7701-4(d) of this chapter created
pursuant to a court order issued in a bankruptcy under Chapter 7 (11
U.S.C. 701 et seq.) or a confirmed plan under Chapter 11 (11 U.S.C. 1101
et seq.) of the Bankruptcy Code, or a domestic widely held fixed
investment trust under Sec. 1.671-5, is treated as having an interest
in any specified foreign financial assets held by the trust or the
portion of the trust.
(iii) Specified foreign financial assets held by a disregarded
entity. A specified person that owns a foreign or domestic entity that
is disregarded as an entity separate from its owner as described in
Sec. 301.7701-2 of this chapter (a disregarded entity) is treated as
having an interest in any specified foreign financial assets held by the
disregarded entity.
(iv) Interest in a foreign trust or foreign estate. See Sec.
1.6038D-3(c) to determine whether an interest in a foreign trust or
foreign estate is a specified foreign financial asset. See Sec.
1.6038D-5(f) to determine the maximum value of an interest in a foreign
trust or foreign estate.
(c) Special rules for joint interests--(1) In general--(i)
Determining aggregate value of assets. Except as otherwise provided in
this paragraph (c), each specified person that is a joint owner of a
specified foreign financial asset (whether with a spouse or other
person) must include the entire value of the specified foreign financial
asset (and not the value of the specified person's interest) for
purposes of determining whether the aggregate value of the specified
person's specified foreign financial assets exceeds the reporting
thresholds set forth in Sec. 1.6038D-2(a).
(ii) Reporting maximum value. Except as provided in paragraph (d) of
this section, a specified person that is a joint owner of a specified
foreign financial asset must report the entire value of each jointly
owned specified foreign financial asset on Form 8938.
(2) Aggregate asset value for married specified individuals filing a
joint annual return. Married specified individuals who file a joint
annual return must include the value of each specified foreign financial
asset that they jointly own or in which both have an interest under
paragraph (b)(1) of this section only once in determining whether the
aggregate value of all of the specified foreign financial assets in
which either married specified individual has an interest exceeds the
reporting thresholds set forth in Sec. 1.6038D-2(a).
(3) Aggregate asset value for married specified individual filing a
separate annual return--(i) Both spouses are specified individuals. If a
married specified individual files a separate annual return and his or
her spouse is a specified individual, the married specified individual
must include one-half of the value of a specified foreign financial
asset that the married specified individual jointly owns with his or her
spouse in determining whether the married specified individual has an
interest in specified foreign financial assets the aggregate value of
which exceeds the reporting thresholds set forth in Sec. 1.6038D-2(a).
(ii) One spouse is not a specified individual. If a married
specified individual files a separate annual return and his or her
spouse is not a specified individual, the married specified individual
must include the entire value of a specified foreign financial asset
that the married specified individual jointly owns with his or her
spouse in determining whether the married specified individual has an
interest in specified foreign financial assets the aggregate value of
which exceeds the reporting thresholds set forth in Sec. 1.6038D-2(a).
[[Page 233]]
(d) Annual return filed by a married specified individual--(1) Joint
annual return. Married specified individuals who file a joint annual
return must file a single Form 8938 to fulfill their reporting
requirements under section 6038D and Sec. 1.6038D-2(a). The single Form
8938 must report all of the specified foreign financial assets in which
either married specified individual has an interest. If both married
specified individuals jointly own a specified foreign financial asset or
if they have an interest in a specified foreign financial asset under
paragraph (b)(1) of this section, the asset must be reported only once
on the single Form 8938 filed for the taxable year.
(2) Separate annual return. A married specified individual who files
a separate annual return for the taxable year must fulfill the reporting
requirements under section 6038D and Sec. 1.6038D-2(a) by filing a
separate Form 8938 with his or her return that reports all of the
specified foreign financial assets in which the married specified
individual has an interest, including each of the assets jointly owned
with the married specified individual's spouse or with another person.
If both of the spouses are specified individuals, each specified
individual must report the entire value of each specified foreign
financial asset that the spouses jointly own on Form 8938, not the value
taken into account under paragraph (c)(3)(i) of this section for
purposes of applying the applicable reporting thresholds.
(e) Special rules for dual resident taxpayers--(1) In general.
Subject to the provisions of paragraphs (e)(2) and (3) of this section,
a specified individual is not required to report specified foreign
financial assets on Form 8938 for a taxable year or any portion of a
taxable year that the individual is a dual resident taxpayer (within the
meaning of Sec. 301.7701(b)-7(a)(1) of this chapter) who is treated as
a nonresident alien pursuant to Sec. 301.7701(b)-7 of this chapter for
purposes of computing his or her U.S. tax liability with respect to the
portion of the taxable year the individual is considered a dual resident
taxpayer.
(2) Dual resident taxpayer filing as a nonresident alien at end of
taxable year. If a specified individual to whom this paragraph (e)
applies computes his or her U.S. income tax liability as a nonresident
alien on the last day of the taxable year and complies with the filing
requirements of Sec. 301.7701(b)-7(b) and (c) of this chapter and, in
particular, such individual timely files with the Internal Revenue
Service Form 1040NR, ``U.S. Nonresident Alien Income Tax Return,'' or
Form 1040NR-EZ, ``U.S. Income Tax Return for Certain Nonresident Aliens
With No Dependents,'' as applicable, and attaches thereto Form 8833,
``Treaty-Based Return Position Disclosure Under Section 6114 or
7701(b),'' such individual will not be required to report specified
foreign financial assets on Form 8938 with respect to the portion of the
taxable year covered by Form 1040NR (or Form 1040NR-EZ).
(3) Dual resident taxpayer filing as resident alien at end of
taxable year. If a specified individual to whom this paragraph (e)
applies computes his or her U.S. income tax liability as a resident
alien on the last day of the taxable year and complies with the filing
requirements of Sec. 1.6012-1(b)(2)(ii)(a) and, in particular, such
individual timely files with the Internal Revenue Service Form 1040,
``U.S. Individual Income Tax Return,'' or Form 1040EZ, ``Income Tax
Return for Single and Joint Filers With No Dependents,'' as applicable,
and attaches a properly completed Form 8833 to the schedule required by
Sec. 1.6012-1(b)(2)(ii)(a), such individual will not be required to
report specified foreign financial assets on Form 8938 with respect to
the portion of the individual's taxable year reflected on the schedule
to such Form 1040 or Form 1040EZ required by Sec. 1.6012-
1(b)(2)(ii)(a).
(f) Example. The following example illustrates the application of
paragraph (c) of this section:
Example. (1) Facts. Two married specified individuals, H and W,
jointly own a specified foreign financial asset with a value of $90,000
at all times during the taxable year. H separately has an interest in a
specified foreign financial asset with a value of $10,000 at all times
during the taxable year. W separately has an interest in a specified
foreign financial asset with a value of $1,000 at all times during the
taxable year.
(2) Filing requirement--(i) Married specified individuals filing
separate annual returns. If H
[[Page 234]]
and W file separate annual returns, the aggregate value of the specified
foreign financial assets in which H has an interest at the end of the
taxable year is $55,000, comprising one-half of the value of the jointly
owned asset, $45,000, and the value of H's separately owned specified
foreign financial asset, $10,000. The aggregate value of the specified
foreign financial assets in which W has an interest at the end of the
taxable year is $46,000, comprising one-half of the value of the jointly
owned asset, $45,000, and the value of W's separately owned specified
foreign financial asset, $1,000. H must file Form 8938 with his annual
return for the taxable year because the aggregate value of the specified
foreign financial assets in which H has an interest exceeds the
applicable reporting threshold ($50,000) set forth in Sec. 1.6038D-
2(a)(1). H must report the maximum value of the entire jointly owned
asset, $90,000, and the maximum value of the separately owned asset,
$10,000. See Sec. 1.6038D-5(b) regarding the maximum value of a jointly
owned specified foreign financial asset to be reported by a specified
person, including a married specified individual, that is a joint owner
of an asset. The aggregate value of the specified foreign financial
assets in which W has an interest, $46,000, does not exceed the
applicable reporting threshold set forth in Sec. 1.6038D-2(a)(1). W is
not required to file Form 8938 with her separate annual return.
(ii) Married specified individuals filing a joint annual return. If
H and W file a joint annual return, they must file a single Form 8938
with their joint annual return for the taxable year because the
aggregate value of all of the specified foreign financial assets in
which either H or W have an interest ($90,000 (included only once),
$10,000, and $1000, or $101,000) exceeds the applicable reporting
threshold ($100,000) set forth in Sec. 1.6038D-2(a)(2). The single Form
8938 must report the maximum value of the jointly owned specified
foreign financial asset, $90,000, and the maximum value of the specified
foreign financial assets separately owned by H and W, $10,000 and
$1,000, respectively.
(g) Effective/applicability dates. This section, with the exception
of Sec. 1.6038D-2(a)(6)(ii), applies to taxable years ending after
December 19, 2011. Section 1.6038D-2(a)(6)(ii) applies to taxable years
beginning after December 31, 2015. Taxpayers may elect to apply the
rules of this section, with the exception of Sec. 1.6038D-2(a)(6)(ii),
to taxable years ending on or prior to December 19, 2011.
[T.D. 9706, 79 FR 73826, Dec. 12, 2014, as amended by T.D. 9752, 81 FR
8838, Feb. 23, 2016]
Sec. 1.6038D-3 Specified foreign financial assets.
(a) Financial accounts--(1) In general. Except as otherwise provided
in this section, a specified foreign financial asset includes any
financial account maintained by a foreign financial institution. An
asset held in a financial account maintained by a foreign financial
institution is not required to be separately reported on Form 8938,
``Statement of Specified Foreign Financial Assets.''
(2) Financial account in a U.S. possession. A specified foreign
financial asset includes a financial account maintained by a financial
institution that is organized under the laws of a U.S. possession.
(3) Excepted financial accounts--(i) Accounts maintained by U.S.
payors. A financial account maintained by a U.S. payor as defined in
Sec. 1.6049-5(c)(5)(i) (including assets held in such an account) is
not a specified foreign financial asset for purposes of section 6038D
and the regulations.
(ii) Mark-to-market election under section 475. A financial account
is not a specified foreign financial asset if the rules of section
475(a) apply to all of the holdings in the account or an election under
section 475(e) or (f) is made with respect to all of the holdings in the
account.
(b) Other specified foreign financial assets--(1) In general. Except
as otherwise provided in this section, a specified foreign financial
asset includes any of the following assets that are not financial
accounts and that are held for investment and not held in an account
maintained by a financial institution--
(i) Stock or securities issued by a person other than a United
States person (including stock or securities issued by a person
organized under the laws of a U.S. possession);
(ii) A financial instrument or contract that has an issuer or
counterparty which is other than a United States person (including a
financial instrument or contract issued by a person organized under the
laws of a U.S. possession); and
(iii) An interest in a foreign entity.
[[Page 235]]
(2) Mark-to-market election under section 475. An asset is not a
specified foreign financial asset if the rules of section 475(a) apply
to the asset or an election under section 475(e) or (f) is made with
respect to the asset.
(3) Held for investment. An asset is held for investment for
purposes of section 6038D and the regulations if that asset is not used
in, or held for use in, the conduct of a trade or business of a
specified person.
(4) Trade-or-business test. For purposes of section 6038D and the
regulations, an asset is used in, or held for use in, the conduct of a
trade or business and not held for investment if the asset is--
(i) Held for the principal purpose of promoting the present conduct
of the trade or business;
(ii) Acquired and held in the ordinary course of the trade or
business, as, for example, in the case of an account or note receivable
arising from that trade or business; or
(iii) Otherwise held in a direct relationship to the trade or
business as determined under paragraph (b)(5) of this section.
(5) Direct relationship between holding an asset and a trade or
business--(i) In general. In determining whether an asset is held in a
direct relationship to the conduct of a trade or business by a specified
person, principal consideration will be given to whether the asset is
needed in the trade or business of the specified person. An asset shall
be considered needed in the trade or business, for this purpose, only if
the asset is held to meet the present needs of that trade or business
and not its anticipated future needs. An asset shall be considered as
needed in the trade or business if, for example, the asset is held to
meet the operating expenses of the trade or business. Conversely, an
asset shall be considered as not needed in the trade or business if, for
example, the asset is held for the purpose of providing for future
diversification into a new trade or business, future plant replacement,
or future business contingencies. Stock is never considered used or held
for use in a trade or business for purposes of applying this test.
(ii) Presumption of direct relationship. An asset will be treated as
held in a direct relationship to the conduct of a trade or business of a
specified person if--
(A) The asset was acquired with funds generated by the trade or
business of the specified person or the affiliated group of the
specified person, if any;
(B) The income from the asset is retained or reinvested in the trade
or business; and
(C) Personnel who are actively involved in the conduct of the trade
or business exercise significant management and control over the
investment of such asset.
(c) Special rule for interests in foreign trusts and foreign
estates. An interest in a foreign trust or a foreign estate is not a
specified foreign financial asset of a specified person unless the
person knows, or has reason to know based on readily accessible
information, of the interest. Receipt of a distribution from the foreign
trust or foreign estate constitutes actual knowledge for this purpose.
(d) Examples. Examples of assets other than financial accounts that
may be considered other specified foreign financial assets include, but
are not limited to--
(1) Stock issued by a foreign corporation;
(2) A capital or profits interest in a foreign partnership;
(3) A note, bond, debenture, or other form of indebtedness issued by
a foreign person;
(4) An interest in a foreign trust;
(5) An interest rate swap, currency swap, basis swap, interest rate
cap, interest rate floor, commodity swap, equity swap, equity index
swap, credit default swap, or similar agreement with a foreign
counterparty; and
(6) Any option or other derivative instrument with respect to any of
the items listed as examples in this paragraph or with respect to any
currency or commodity that is entered into with a foreign counterparty
or issuer.
(e) Effective/applicability dates. This section applies to taxable
years ending after December 19, 2011. Taxpayers may elect to apply the
rules of this section to taxable years ending prior to December 19,
2011.
[T.D. 9706, 79 FR 73828, Dec. 12, 2014]
[[Page 236]]
Sec. 1.6038D-4 Information required to be reported.
(a) Required information. The following information must be reported
on Form 8938, ``Statement of Specified Foreign Financial Assets,'' with
respect to each specified foreign financial asset:
(1) In the case of a financial account, the name and address of the
foreign financial institution with which the account is maintained and
the account number of the financial account;
(2) In the case of stock or securities, the name and address of the
issuer, and information that identifies the class or issue of which the
stock or security is a part;
(3) In the case of a financial instrument or contract, information
that identifies the financial instrument or contract, including the
names and addresses of all issuers and counterparties;
(4) In the case of an interest in a foreign entity, information that
identifies the interest, including the name and address of the foreign
entity in which the interest is held;
(5) The maximum value of the specified foreign financial asset
during the portion of the taxable year in which the specified person has
an interest in the asset;
(6) In the case of a financial account that is a depository account
as defined in Sec. 1.1471-5(b)(3)(i) or a custodial account as defined
in Sec. 1.1471-5(b)(3)(ii), whether the account was opened or closed
during the taxable year;
(7) The date, if any, on which the specified foreign financial
asset, other than a financial account that is a depository account as
defined in Sec. 1.1471-5(b)(3)(i) or a custodial account as defined in
Sec. 1.1471-5(b)(3)(ii), was either acquired or disposed of (or both)
during the taxable year;
(8) The amount of any income, gain, loss, deduction, or credit
recognized for the taxable year with respect to the reported specified
foreign financial asset, and the schedule, form, or return filed with
the Internal Revenue Service on which the income, gain, loss, deduction,
or credit, if any, is reported or included by the specified person;
(9) The foreign currency in which the account is maintained or the
asset is denominated, the foreign currency exchange rate and, if the
source of such rate is other than as described in Sec. 1.6038D-5(c)(1),
the source of the rate used to determine the specified foreign financial
asset's U.S. dollar value, including maximum value;
(10) For any specified foreign financial asset excepted from
reporting on Form 8938 under Sec. 1.6038D-7(a), the specified person
must report the number of Forms 3520, ``Annual Return To Report
Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts,''
Forms 3520-A, ``Annual Information Return of Foreign Trust With a U.S.
Owner,'' Forms 5471, ``Information Return of U.S. Persons With Respect
To Certain Foreign Corporations,'' Forms 8621, ``Return by a Shareholder
of a Passive Foreign Investment Company or a Qualified Electing Fund,''
Forms 8865, ``Return of U.S. Persons With Respect To Certain Foreign
Partnerships,'' and, solely for taxable years beginning after March 18,
2010, and ending on or before December 31, 2013, Forms 8891, ``U.S.
Information Return for Beneficiaries of Certain Canadian Registered
Retirement Plans,'' or such other form under Title 26 of the United
States Code identified by the Secretary under Sec. 1.6038D-7(a), timely
filed with the Internal Revenue Service on which excepted foreign
financial assets are reported or reflected for the taxable year; and
(11) Such other information as may be required by Form 8938 or its
instructions or other guidance.
(b) Effective/applicability dates. This section applies to taxable
years ending after December 19, 2011. Taxpayers may elect to apply the
rules of this section to taxable years ending prior to December 19,
2011.
[T.D. 9706, 79 FR 73829, Dec. 12, 2014]
Sec. 1.6038D-5 Valuation guidelines.
(a) Fair market value. Except as provided in paragraphs (c) and (e)
of this section, the value of a specified foreign financial asset for
purposes of determining the aggregate value of specified foreign
financial assets held by a specified person and the maximum value of a
specified foreign financial asset required to be reported on Form 8938,
[[Page 237]]
``Statement of Specified Foreign Financial Assets,'' is the asset's fair
market value.
(b) Valuation of assets--(1) Maximum value. Except as provided in
this section, the maximum value of a specified foreign financial asset
means a reasonable estimate of the asset's maximum fair market value
during the taxable year.
(2) U.S. dollars. For purposes of determining the aggregate value of
specified foreign financial assets in which a specified person has an
interest and determining the maximum value of a specified foreign
financial asset, the value of a specified foreign financial asset
denominated in a foreign currency during the taxable year must be
determined in the foreign currency and then converted to U.S. dollars.
(3) Asset with no positive value. If the maximum fair market value
of a specified foreign financial asset is zero or less than zero, then
the asset's value is treated as zero for purposes of determining the
aggregate value of specified foreign financial assets in which a
specified person has an interest, and the maximum value of the specified
foreign financial asset is zero for purposes of reporting under Sec.
1.6038D-4(a)(5).
(c) Foreign currency conversion--(1) In general. Except as provided
in paragraphs (c)(2) and (d) of this section, the U.S. Treasury
Department's Bureau of the Fiscal Service foreign currency exchange rate
is to be used to convert the value of a specified foreign financial
asset into U.S. dollars for purposes of determining the aggregate value
of specified foreign financial assets in which a specified person has an
interest and determining the maximum value of a specified foreign
financial asset.
(2) Other publicly available exchange rate. If no U.S. Treasury
Department Bureau of the Fiscal Service foreign currency exchange rate
is available for a particular currency, another publicly available
foreign currency exchange rate may be used to convert the value of a
specified foreign financial asset into U.S. dollars. In such case, the
source of the foreign currency exchange rate must be disclosed on Form
8938.
(3) Currency exchange rate. In converting the currency of a foreign
country, the foreign currency exchange rate applicable for converting
the currency into U.S. dollars (that is, to purchase U.S. dollars) must
be used.
(4) Determination date. In converting the currency of a foreign
country into U.S. dollars for purposes of determining the maximum value
of a specified foreign financial asset and determining the aggregate
value of specified foreign financial assets in which a specified person
has an interest, the applicable foreign currency exchange rate is the
rate on the last day of the taxable year of the specified person, even
if the specified person sold or otherwise disposed of a specified
foreign financial asset prior to the last day of such year.
(d) Financial accounts. A specified person may rely upon periodic
account statements that are provided at least annually by or on behalf
of a financial institution maintaining an account, including the foreign
currency conversion reflected in those statements, to determine the
financial account's maximum value unless the specified person has actual
knowledge, or reason to know based on readily accessible information,
that the statements do not reflect a reasonable estimate of the maximum
account value during the taxable year.
(e) Asset held in a financial account. The value of an asset held in
a financial account maintained by a foreign financial institution is
included in determining the value of that financial account for purposes
of Sec. 1.6038D-5(a).
(f) Other specified foreign financial assets--(1) General rule.
Except as provided in paragraphs (f)(2) and (3) of this section, for
specified foreign financial assets that are not financial accounts and
that are held for investment and not held in an account maintained by a
financial institution, a specified person may use the value of the asset
as of the last day of the taxable year on which the specified person has
an interest in the asset as the maximum value of that asset, unless the
specified person has actual knowledge, or reason to know based on
readily accessible information, that the value does not reflect a
reasonable estimate of the maximum
[[Page 238]]
value of the asset during the taxable year.
(2) Interests in trusts that are specified foreign financial
assets--(i) Maximum value. If a specified person is a beneficiary of a
foreign trust, the maximum value of the specified person's interest in
the trust is the sum of--
(A) The fair market value, determined as of the last day of the
taxable year, of all of the currency or other property distributed from
the foreign trust during the taxable year to the specified person as a
beneficiary; and
(B) The value, determined as of the last day of the taxable year, of
the specified person's right as a beneficiary to receive mandatory
distributions from the foreign trust as determined under section 7520.
(ii) Reporting threshold. For purposes of determining the aggregate
value of specified foreign financial assets in which a specified person
has an interest, if the specified person does not know, or have reason
to know based on readily accessible information, the fair market value
of the person's interest in a foreign trust during the taxable year, the
value to be included in determining the aggregate value of the specified
foreign financial assets is the maximum value of the specified person's
interest in the foreign trust under paragraph (f)(2)(i) of this section.
(3) Interests in estates, pension plans, and deferred compensation
plans--(i) Maximum value. The maximum value of a specified person's
interest in a foreign estate, foreign pension plan, or foreign deferred
compensation plan is the fair market value, determined as of the last
day of the taxable year, of the specified person's beneficial interest
in the assets of the foreign estate, foreign pension plan, or foreign
deferred compensation plan. If the specified person does not know, or
have reason to know based on readily accessible information, such fair
market value, the maximum value to be reported is the fair market value,
determined as of the last day of the taxable year, of the currency and
other property distributed during the taxable year to the specified
person as a beneficiary or participant.
(ii) Reporting threshold. For purposes of determining the aggregate
value of specified foreign financial assets in which a specified person
has an interest, if the specified person does not know, or have reason
to know based on readily accessible information, the fair market value
of the person's interest in a foreign estate, foreign pension plan, or
foreign deferred compensation plan during the taxable year, the value to
be included in determining the aggregate value of the specified foreign
financial assets is the fair market value, determined as of the last day
of the taxable year, of the currency and other property distributed
during the taxable year to the specified person as a beneficiary or
participant.
(g) Effective/applicability dates. This section applies to taxable
years ending after December 19, 2011. Taxpayers may elect to apply the
rules of this section to taxable years ending prior to December 19,
2011.
[T.D. 9706, 79 FR 73830, Dec. 12, 2014]
Sec. 1.6038D-6 Specified domestic entities.
(a) Specified domestic entity. A specified domestic entity is a
domestic corporation, a domestic partnership, or a trust described in
section 7701(a)(30)(E), if such corporation, partnership, or trust is
formed or availed of for purposes of holding, directly or indirectly,
specified foreign financial assets. Whether a domestic corporation, a
domestic partnership, or a trust described in section 7701(a)(30)(E) is
a specified domestic entity is determined annually.
(b) Corporations and partnerships--(1) Formed or availed of. Except
as otherwise provided in paragraph (d) of this section, a domestic
corporation or a domestic partnership is formed or availed of for
purposes of holding, directly or indirectly, specified foreign financial
assets if and only if--
(i) The corporation or partnership is closely held by a specified
individual as determined under paragraph (b)(2) of this section; and
(ii) At least 50 percent of the corporation's or partnership's gross
income for the taxable year is passive income or at least 50 percent of
the assets held by the corporation or partnership for the taxable year
are assets that produce or are held for the production of passive income
as determined under paragraph
[[Page 239]]
(b)(3) of this section (passive assets). For purposes of this paragraph
(b)(1)(ii), the percentage of passive assets held by a corporation or
partnership for a taxable year is the weighted average percentage of
passive assets (weighted by total assets and measured quarterly), and
the value of assets of a corporation or partnership is the fair market
value of the assets or the book value of the assets that is reflected on
the corporation's or partnership's balance sheet (as determined under
either a U.S. or an international financial accounting standard).
(2) Closely held--(i) Domestic corporation. A domestic corporation
is closely held by a specified individual if at least 80 percent of the
total combined voting power of all classes of stock of the corporation
entitled to vote, or at least 80 percent of the total value of the stock
of the corporation, is owned, directly, indirectly, or constructively,
by a specified individual on the last day of the corporation's taxable
year.
(ii) Domestic partnership. A partnership is closely held by a
specified individual if at least 80 percent of the capital or profits
interest in the partnership is held, directly, indirectly, or
constructively, by a specified individual on the last day of the
partnership's taxable year.
(iii) Constructive ownership. For purposes of this paragraph (b)(2),
sections 267(c) and (e)(3) apply for the purpose of determining the
constructive ownership of a specified individual in a corporation or
partnership, except that section 267(c)(4) is applied as if the family
of an individual includes the spouses of the individual's family
members.
(3) Determination of passive income and assets--(i) Definition of
passive income. Except as provided in paragraph (b)(3)(ii) of this
section, for purposes of paragraph (b)(1)(ii) of this section, passive
income means the portion of gross income that consists of--
(A) Dividends, including substitute dividends;
(B) Interest;
(C) Income equivalent to interest, including substitute interest;
(D) Rents and royalties, other than rents and royalties derived in
the active conduct of a trade or business conducted, at least in part,
by employees of the corporation or partnership;
(E) Annuities;
(F) The excess of gains over losses from the sale or exchange of
property that gives rise to passive income described in paragraphs
(b)(3)(i)(A) through (b)(3)(i)(E) of this section;
(G) The excess of gains over losses from transactions (including
futures, forwards, and similar transactions) in any commodity, but not
including--
(1) Any commodity hedging transaction described in section
954(c)(5)(A), determined by treating the corporation or partnership as a
controlled foreign corporation; or
(2) Active business gains or losses from the sale of commodities,
but only if substantially all the corporation or partnership's
commodities are property described in paragraph (1), (2), or (8) of
section 1221(a);
(H) The excess of foreign currency gains over foreign currency
losses (as defined in section 988(b)) attributable to any section 988
transaction; and
(I) Net income from notional principal contracts as defined in Sec.
1.446-3(c)(1).
(ii) Exception from passive income treatment for dealers.
Notwithstanding paragraph (b)(3)(i) of this section, in the case of a
corporation or partnership that regularly acts as a dealer in property
described in paragraph (b)(3)(i)(F) of this section (referring to the
sale or exchange of property that gives rise to passive income), forward
contracts, option contracts, or similar financial instruments (including
notional principal contracts and all instruments referenced to
commodities), the term passive income does not include--
(A) Any item of income or gain (other than any dividends or
interest) from any transaction (including hedging transactions and
transactions involving physical settlement) entered into in the ordinary
course of such dealer's trade or business as such a dealer; and
(B) If such dealer is a dealer in securities (within the meaning of
section 475(c)(2)), any income from any transaction entered into in the
ordinary course of such trade or business as a dealer in securities.
[[Page 240]]
(iii) Related entities. For purposes of applying the passive income
and asset thresholds of paragraph (b)(1)(ii) of this section, all
domestic corporations and domestic partnerships that are closely held by
the same specified individual as determined under paragraph (b)(2) of
this section and that are connected through stock or partnership
interest ownership with a common parent corporation or partnership are
treated as owning the combined assets and receiving the combined income
of all members of that group. For purposes of the preceding sentence,
assets relating to any contract, equity, or debt existing between
members of such a group, as well as any items of gross income arising
under or from such contract, equity, or debt, are eliminated. A domestic
corporation or a domestic partnership is considered connected through
stock or partnership interest ownership with a common parent corporation
or partnership if stock representing at least 80 percent of the total
combined voting power of all classes of stock of the corporation
entitled to vote or of the value of such corporation, or partnership
interests representing at least 80 percent of the profits interests or
capital interests of such partnership, in each case other than stock of
or partnership interests in the common parent, is owned by one or more
of the other connected corporations, connected partnerships, or the
common parent.
(4) Examples. The following examples illustrate the application of
this section:
Example 1. Closely held and constructive ownership. (i) Facts. DC1
is a domestic corporation the total value of the stock of which is owned
60% by A, a specified individual, 30% by B, a member of A's family for
purposes of section 267(c)(2) who is not a specified individual, and 10%
by FC1, a foreign corporation. DC1 owns 90% of the total value of the
stock of DC2, a domestic corporation. FC2, a foreign corporation, owns
10% of DC2. Neither A nor B owns, directly, indirectly, or
constructively, any stock in FC1 or FC2.
(ii) Closely held ownership determination. A is considered to own
90% and 81% of the total value of DC1 and DC2, respectively, by
application of the rules of section 267(c) and this section. DC1 and DC2
are closely held by A within the meaning of paragraph (b)(2) of this
section because A, a specified individual, is considered to own more
than 80% of their total value.
Example 2. Application of aggregation rule and reporting threshold.
(i) Facts. L is a specified individual. In Year X, L wholly owns DC1, a
domestic corporation, and also owns a 90% capital interest in DP, a
domestic partnership. DC1 owns 80% of the sole class of stock of DC2, a
domestic corporation. DC1 has no assets other than its interest in DC2.
DC2's only assets are assets that produce passive income, with a maximum
value in Year X of $40,000 on October 12. DC2's assets are comprised in
relevant part of specified foreign financial assets with a maximum value
in Year X of $15,000 on October 12. DP's only assets are assets that
produce passive income and that are specified foreign financial assets
with a maximum value of $90,000 in Year X on October 12.
(ii) Specified domestic entity status--(A) DC1 and DC2. DC1 and DC2
are closely held by a specified individual for purposes of paragraph
(b)(2) of this section. DC1 and DC2 are considered related entities that
are connected through stock ownership with a common parent corporation
under paragraph (b)(3)(iii) of this section, because DC1 and DC2 are
closely held by L, and DC2 is connected with DC1 through DC1's ownership
of stock of DC2 representing at least 80% of the voting power or value
of DC2. As a result, for purposes of applying paragraph (b)(1)(ii) of
this section, each of DC1 and DC2 is considered as owning the combined
assets, and receiving the combined income, of both DC1 and DC2; however,
DC1's equity interest in DC2 is disregarded for this purpose under
paragraph (b)(3)(iii) of this section. Therefore, DC1 and DC2 each
satisfies the passive asset threshold of paragraph (b)(1)(ii) of this
section, because 100 percent of each company's assets is passive. DC1
and DC2 are specified domestic entities for Year X.
(B) DP. DP is closely held by a specified individual for purposes of
paragraph (b)(2) of this section. DP is not considered a related entity
with DC1 and DC2 under paragraph (b)(3)(iii) of this section, because
DC1 and DP are not owned by a common parent corporation or partnership.
As a result, whether the passive income or passive asset threshold of
paragraph (b)(1)(ii) of this section is met with respect to DP is
determined solely by reference to DP's separately earned passive income
and separately held passive assets. DP holds only passive assets during
Year X and therefore satisfies paragraph (b)(1)(ii) of this section. DP
is a specified domestic entity for Year X.
(iii) Reporting requirements--(A) DC1. Under Sec. 1.6038D-
2(a)(6)(ii), DC1 is not treated as owning the specified foreign
financial assets held by DC2 and DP for purposes of applying the
reporting threshold of Sec. 1.6038D-2(a)(1), because DC1 does not have
an interest in any specified foreign financial assets. DC1 is not
[[Page 241]]
required to file Form 8938 because DC1 does not satisfy the reporting
threshold of Sec. 1.6038D-2(a)(1).
(B) DC2 and DP. Under Sec. 1.6038D-3, DC2 and DP each has an
interest in specified foreign financial assets. For purposes of applying
the reporting threshold of Sec. 1.6038D-2(a)(1), Sec. 1.6038D-
2(a)(6)(ii) provides that DC2 is treated as owning in addition to its
own assets the assets of DP, and DP is treated as owning in addition to
its own assets the assets of DC2. As a result, DC2 and DP each satisfies
the reporting threshold of Sec. 1.6038D-2(a)(1), because the value of
the specified foreign financial assets each is considered as owning for
purposes of Sec. 1.6038D-2(a)(1) is $105,000 on October 12, Year X,
which exceeds DC2's and DP's $75,000 reporting threshold. DC2 and DP
must each file Form 8938 for Year X to report their respective specified
foreign financial assets in which they have an interest and disclose
their maximum values as provided in Sec. 1.6038D-4 ($15,000 in the case
of DC2 and $90,000 in the case of DP).
Example 3. Application of aggregation rule and entity with an active
trade or business. (i) Facts. The facts are the same as in Example 2,
except that DC2 also owns an active business. The assets attributable to
the business are not passive assets and constitute at least 60% of the
value of DC2's assets at all times during Year X. The income from the
business is not passive income and constitutes at least 60% of the gross
income generated by DC2 in Year X.
(ii) Specified domestic entity status--(A) DC1 and DC2. DC1 and DC2
are considered related entities that are connected through stock
ownership with a common parent corporation under paragraph (b)(3)(iii)
of this section because DC1 and DC2 are closely held by L, and DC2 is
connected with DC1 though DC1's ownership of stock of DC2 representing
at least 80% of the voting power or value of DC2. As a result, for
purposes of applying paragraph (b)(1)(ii) of this section, each of DC1
and DC2 is treated as owning the combined assets, and receiving the
combined income, of both DC1 and DC2; however, DC1's equity interest in
DC2 is disregarded for this purpose under paragraph (b)(3)(iii) of this
section. As a result, no more than 40 percent of the value of DC1's and
DC2's assets at all times during Year X are passive and no more than 40
percent of DC1's and DC2's gross income for Year X is passive. DC1 and
DC2 do not satisfy the passive income or passive asset threshold in
paragraph (b)(1)(ii) of this section for Year X. DC1 and DC2 are not
specified domestic entities for Year X.
(B) DP. For the reasons described in paragraph (ii)(B) of Example 2,
DP is a specified domestic entity for Year X.
(iii) Reporting requirements--(A) DC1 and DC2. DC1 and DC2 are not
specified domestic entities for Year X, and are not required to file
Form 8938.
(B) DP. Under Sec. 1.6038D-3, DP has an interest in specified
foreign financial assets. Under Sec. 1.6038D-2(a)(6)(ii), DP is treated
as owning in addition to its own assets the assets of DC2. As a result,
DP satisfies the reporting threshold of Sec. 1.6038D-2(a)(1) because
the value of the specified foreign financial assets it is considered to
own for purposes of Sec. 1.6038D-2(a)(1) is $105,000 on October 12,
Year X, which exceeds DP's $75,000 reporting threshold. DP must file
Form 8938 for Year X to report the specified foreign financial assets in
which it has an interest and disclose their maximum values as provided
in Sec. 1.6038D-4, which is $90,000.
(c) Domestic trusts. Except as otherwise provided in paragraph (d)
of this section, a trust described in section 7701(a)(30)(E) is formed
or availed of for purposes of holding, directly or indirectly, specified
foreign financial assets if and only if the trust has one or more
specified persons as a current beneficiary. The term current beneficiary
means, with respect to the taxable year, any person who at any time
during such taxable year is entitled to, or at the discretion of any
person may receive, a distribution from the principal or income of the
trust (determined without regard to any power of appointment to the
extent that such power remains unexercised at the end of the taxable
year). The term current beneficiary also includes any holder of a
general power of appointment, whether or not exercised, that was
exercisable at any time during the taxable year, but does not include
any holder of a general power of appointment that is exercisable only on
the death of the holder.
(d) Excepted domestic entities. An entity is not considered to be a
specified domestic entity if the entity is--
(1) Certain persons described in section 1473(3). An entity, except
for a trust that is exempt from tax under section 664(c), that is
excepted from the definition of the term ``specified United States
person'' under section 1473(3) and the regulations issued under that
section;
(2) Certain domestic trusts. A trust described in section
7701(a)(30)(E) provided that the trustee of the trust--
(i) Has supervisory authority over or fiduciary obligations with
regard to the specified foreign financial assets held by the trust;
[[Page 242]]
(ii) Timely files (including any applicable extensions) annual
returns and information returns on behalf of the trust; and
(iii) Is--
(A) A bank that is examined by the Office of the Comptroller of the
Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, or the National Credit Union
Administration;
(B) A financial institution that is registered with and regulated or
examined by the Securities and Exchange Commission; or
(C) A domestic corporation described in section 1473(3)(A) or (B),
and the regulations issued with respect to those provisions.
(3) Domestic trusts owned by one or more specified persons. A trust
described in section 7701(a)(30)(E) to the extent such trust or any
portion thereof is treated as owned by one or more specified persons
under sections 671 through 678 and the regulations issued under those
sections.
(e) Effective/applicability dates. This section applies to taxable
years beginning after December 31, 2015.
[T.D. 9752, 81 FR 8838, Feb. 23, 2016]
Sec. 1.6038D-7 Exceptions from the reporting of certain assets under
section 6038D.
(a) Elimination of duplicative reporting of assets--(1) In general.
A specified person is not required to report a specified foreign
financial asset on Form 8938, ``Statement of Specified Foreign Financial
Assets,'' if the specified person--
(i) Reports the asset on at least one of the following forms timely
filed with the Internal Revenue Service for the taxable year--
(A) Form 3520, ``Annual Return To Report Transactions With Foreign
Trusts and Receipt of Certain Foreign Gifts'' (in the case of a
specified person that is the beneficiary of a foreign trust);
(B) Form 5471, ``Information Return of U.S. Persons With Respect To
Certain Foreign Corporations'';
(C) Form 8621, ``Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund'';
(D) Form 8865, ``Return of U.S. Persons With Respect To Certain
Foreign Partnerships'';
(E) For taxable years beginning after March 18, 2010, and ending on
or before December 31, 2013, Form 8891, ``U.S. Information Return for
Beneficiaries of Certain Canadian Registered Retirement Plans''; or
(F) Any other form under Title 26 of the United States Code timely
filed with the Internal Revenue Service and identified for this purpose
by the Secretary in regulations or other guidance; and
(ii) Reports on Form 8938 the filing of the form on which the asset
is reported.
(2) Foreign grantor trusts. A specified person that is treated as an
owner of a foreign trust or any portion of a foreign trust under
sections 671 through 679 is not required to report any specified foreign
financial assets held by the foreign trust on Form 8938, provided--
(i) The specified person reports the trust on a Form 3520 timely
filed with the Internal Revenue Service for the taxable year;
(ii) The trust timely files Form 3520-A, ``Annual Information Return
of Foreign Trust With a U.S. Owner,'' with the Internal Revenue Service
for the taxable year; and
(iii) The Form 8938 filed by the specified person for the taxable
year reports the filing of the Form 3520 and Form 3520-A.
(3) Joint Form 5471 or Form 8865 filing. A specified person that is
included as part of a joint Form 5471 filing pursuant to Sec. 1.6038-
2(j) or a joint Form 8865 filing pursuant to Sec. 1.6038-3(c) and who
notifies the Internal Revenue Service as required by Sec. 1.6038-2(i)
or Sec. 1.6038D-(3)(c) will be considered to have filed a Form 5471 or
Form 8865 for purposes of paragraph (a)(1) of this section.
(b) Owner of certain trusts. A specified person that is treated as
an owner of any portion of a domestic trust under sections 671 through
678 is not required to file Form 8938 to report any specified foreign
financial asset held by the trust if the trust is--
(1) A widely-held fixed investment trust under Sec. 1.671-5; or
[[Page 243]]
(2) A liquidating trust within the meaning of Sec. 301.7701-4(d) of
this chapter that is created pursuant to a court order issued in a
bankruptcy under Chapter 7 (11 U.S.C. 701 et seq.) or a confirmed plan
under Chapter 11 (11 U.S.C. 1101 et seq.) of the Bankruptcy Code.
(c) Special rules for bona fide residents of a U.S. possession. A
specified individual who is a bona fide resident of a U.S. possession is
not required to include the following specified foreign financial assets
in the determination of the aggregate value of his or her specified
foreign financial assets and, if required to file Form 8938 with the
Internal Revenue Service, is not required to report the following
specified foreign financial assets:
(1) A financial account maintained by a financial institution
organized under the laws of the U.S. possession of which the specified
individual is a bona fide resident;
(2) A financial account maintained by a branch of a financial
institution not organized under the laws of the U.S. possession of which
the specified individual is a bona fide resident, if the branch is
subject to the same tax and information reporting requirements
applicable to a financial institution organized under the laws of the
U.S. possession;
(3) Stock or securities issued by an entity organized under the laws
of the U.S. possession of which the specified individual is a bona fide
resident;
(4) An interest in an entity organized under the laws of the U.S.
possession of which the specified individual is a bona fide resident;
and
(5) A financial instrument or contract held for investment, provided
each issuer or counterparty that is not a United States person is--
(i) An entity organized under the laws of the U.S. possession of
which the specified individual is a bona fide resident; or
(ii) A bona fide resident of the U.S. possession of which the
specified individual is a bona fide resident.
(d) Effective/applicability dates. This section applies to taxable
years ending after December 19, 2011. Taxpayers may elect to apply the
rules of this section to taxable years ending prior to December 19,
2011.
[T.D. 9706, 79 FR 73831, Dec. 12, 2014]
Sec. 1.6038D-8 Penalties for failure to disclose.
(a) In general. If a specified person fails to file a Form 8938,
``Statement of Specified Foreign Financial Assets,'' that includes the
information required by section 6038D(c) and Sec. 1.6038D-4 with
respect to any taxable year at the time and in the manner described in
section 6038D(a) and Sec. 1.6038D-2, a penalty of $10,000 will apply to
that specified person.
(b) Married specified individuals filing a joint annual return.
Married specified individuals who file a joint annual return and fail to
file a required Form 8938 that includes the information required by
section 6038D(c) and Sec. 1.6038D-4 with respect to any taxable year at
the time and in the manner described in section 6038D(a) and Sec.
1.6038D-2 are subject to penalties under this section as if the married
specified individuals are a single specified individual. The liability
of married specified individuals who file a joint annual return with
respect to any penalties under this section is joint and several.
(c) Increase in penalty. If any failure to comply with the
applicable reporting requirement of section 6038D and the regulations
continues for more than 90 days after the day on which the Commissioner
or his delegate mails a notice of the failure to the specified person
required to file the Form 8938, the specified person is required to pay
an additional penalty of $10,000 for each 30-day period (or fraction
thereof) during which the failure continues after the 90-day period has
expired. The additional penalty imposed by section 6038D(d)(2) and this
paragraph (c) is limited to a maximum of $50,000 for each such failure.
(d) Presumption of aggregate value. For the purpose of assessing
penalties imposed under section 6038D(d), if the Commissioner or his
delegate determines that a specified person has an interest in one or
more specified foreign financial assets and the specified person does
not provide sufficient information to demonstrate the aggregate value of
the assets upon request by the
[[Page 244]]
Commissioner or his delegate, then the aggregate value of the assets is
treated as being in excess of the applicable reporting threshold set
forth in Sec. 1.6038D-2(a).
(e) Reasonable cause exception--(1) In general. If the failure to
report the information required in section 6038D(c) and Sec. 1.6038D-4
is shown to be due to reasonable cause and not due to willful neglect,
no penalty will be imposed under section 6038D(d) or this section.
(2) Affirmative showing required. In order to show that the failure
to report the information required in section 6038D(c) and Sec.
1.6038D-4 is due to reasonable cause and not due to willful neglect for
purposes of section 6038D(g) and this section, the specified person must
make an affirmative showing of all the facts alleged as reasonable cause
for the failure to disclose.
(3) Facts and circumstances taken into account. The determination of
whether a failure to disclose a specified foreign financial asset on
Form 8938 was due to reasonable cause and not due to willful neglect is
made on a case-by-case basis, taking into account all pertinent facts
and circumstances. The fact that a foreign jurisdiction would impose a
civil or criminal penalty on the specified person (or any other person)
for disclosing the required information is not reasonable cause.
(f) Penalties for underpayments attributable to undisclosed foreign
financial assets--(1) Accuracy-related penalty. For application of the
accuracy-related penalty in the case of any portion of an underpayment
attributable to any undisclosed foreign financial asset understatement,
see section 6662(j).
(2) Criminal penalties. In addition to other penalties, failure to
comply with the reporting requirements of section 6038D and the
regulations, or any underpayment related to such failure, may result in
criminal penalties under sections 7201, 7203, 7206, et seq., or other
provisions of Federal law.
(g) Effective/applicability dates. This section applies to taxable
years ending after December 19, 2011. Taxpayers may elect to apply the
rules of this section to taxable years ending prior to December 19,
2011.
[T.D. 9706, 79 FR 73832, Dec. 12, 2014]
Sec. 1.6039-1 Returns required in connection with certain options.
(a) Requirement of return with respect to incentive stock options
under section 6039(a)(1). (1) Every corporation which in any calendar
year transfers to any person a share of stock pursuant to such person's
exercise of an incentive stock option shall, for such calendar year,
file a return with respect to each transfer made during such year. This
return must include the following information--
(i) The name, address, and employer identification number of the
corporation transferring the stock;
(ii) If other than the corporation identified in paragraph (a)(1)(i)
of this section, the name, address and employer identification number of
the corporation whose stock is being transferred;
(iii) The name, address, and identifying number of the person to
whom the share or shares of stock were transferred pursuant to the
exercise of the option;
(iv) The date the option was granted to the person;
(v) The exercise price per share;
(vi) The date the option was exercised by the person;
(vii) The fair market value of a share of stock on the date the
option was exercised by the person; and
(viii) The number of shares of stock transferred to the person
pursuant to the exercise of the option.
(2) Each return required by this paragraph (a) shall be made on Form
3921, Exercise of an Incentive Stock Option Under Section 422(b) (or its
designated successor) and shall be filed in such manner as provided in
the instructions thereto.
(b) Requirement of return with respect to stock purchased under an
employee stock purchase plan under section 6039(a)(2). (1) Every
corporation which in any calendar year records, or has by its agent
recorded, a transfer of the legal title of a share of stock acquired by
the transferor (person who acquires the shares pursuant to the exercise
of the option) pursuant to the transferor's exercise of an option
granted under an employee stock purchase plan as described in section
423(c) and where the exercise price is less than 100 percent of
[[Page 245]]
the value of the stock on date of grant or is not fixed or determinable
on the date of the grant, shall, for such calendar year, file a return
with respect to each transfer made during such year. This return must
include the following information--
(i) The name, address, and identifying number of the transferor;
(ii) The name, address and employer identification number of the
corporation whose stock is being transferred;
(iii) The date the option was granted to the transferor;
(iv) The fair market value of the stock on the date the option was
granted;
(v) The actual exercise price paid per share;
(vi) The exercise price per share determined as if the option were
exercised on the date the option was granted to the transferor (to be
provided only if the exercise price per share is not fixed or
determinable on the date the option was granted);
(vii) The date the option was exercised by the transferor;
(viii) The fair market value of the stock on the date the option was
exercised by the transferor;
(ix) The date the legal title of the shares was transferred by the
transferor (see paragraph (b)(3) of this section); and
(x) The number of shares to which legal title was transferred by the
transferor.
(2) Each return required by this paragraph (b) shall be made on Form
3922, Transfer of Stock Acquired Through an Employee Stock Purchase Plan
Under Section 423(c) (or its designated successor) and shall be filed in
such manner as provided in the instructions thereto.
(3) A return is required by reason of a transfer described in
section 6039(a)(2) only with respect to the first transfer of legal
title of the shares by the transferor, including the first transfer of
legal title to a recognized broker or financial institution. If a
contractual agreement exists or is entered into with a recognized broker
or financial institution pursuant to which shares acquired upon exercise
of the option will be immediately deposited into a brokerage account
established on behalf of the transferor, then the deposit of shares by
the transferor into the brokerage account following the exercise of the
option is the first transfer of legal title of the shares acquired by
the transferor, and the corporation is only required to file a return
relating to such transfer of legal title.
(4) Every corporation that transfers any share of stock pursuant to
the exercise of an option described in this paragraph shall identify
such stock in a manner sufficient to enable the accurate reporting of
the transfer of legal title to such shares. Such identification may be
accomplished by assigning to the certificates of stock issued pursuant
to the exercise of such options a special serial number or color.
(c) Time for filing returns. Each return required by this section
for a calendar year must be filed in accordance with the guidelines and
procedures set forth in the instructions to Form 3921 and Form 3922.
(d) Penalty. For provisions relating to the penalty applicable to
the failure to file a return under this section, see section 6721.
(e) Exception to return requirements of section 6039(a) for certain
nonresident aliens--(1) Return requirement under section 6039(a)(1). The
return requirement of section 6039(a)(1) is not applicable to the
exercise of an incentive stock option by an employee who is a
nonresident alien (as defined in section 7701(b)) and to whom the
corporation is not required to provide a Form W-2, Wage and Tax
Statement (or its designated successor) for any calendar year within the
time period beginning with the first day of the calendar year in which
the option was granted to the employee and ending on the last day of the
calendar year in which the employee exercised the option.
(2) Return requirement under section 6039(a)(2). The return
requirement of section 6039(a)(2) is not applicable to the first
transfer of legal title of a share of stock by an employee who is a
nonresident alien (as defined in section 7701(b)) and to whom the
corporation is not required to provide a Form W-2 for any calendar year
within the time period beginning with the first day of the calendar year
in which the option was granted to the employee and ending on
[[Page 246]]
the last day of the calendar year in which the employee first
transferred legal title to shares acquired under the option as described
in paragraph (b)(3) of this section.
(3) For purposes of this paragraph (e), the term corporation is
defined in section 7701(a) and includes, but is not limited to, the
corporation issuing the stock, a related corporation of the corporation,
any agent of the corporation, any party distributing shares of stock or
other payments in connection with the plan (for example, a brokerage
firm), and any party in control of the payment of remuneration for
employment to the employee.
(f) Effective/applicability date--(1) In general. This section is
effective on November 17, 2009. This section will apply as of January 1,
2007.
(2) Transition period. Taxpayers are not required to comply with the
return requirements of paragraphs (a) and (b) of this section for stock
transfers that occur during the 2007, 2008 and 2009 calendar years.
[T.D. 9470, 74 FR 59090, Nov. 17, 2009]
Sec. 1.6039-2 Statements to persons with respect to whom information
is reported.
(a) Requirement of statement with respect to incentive stock options
under section 6039(b). (1) Every corporation filing a return under Sec.
1.6039-1(a) shall furnish to each person whose name is set forth in such
return a written statement with respect to the transfer or transfers
made to such person during such year. This statement must include the
information described in Sec. 1.6039-1(a)(1).
(2) Each statement required by this paragraph (a) to be furnished to
any person must be furnished to such person on Form 3921, Exercise of an
Incentive Stock Option Under Section 422(b) (or its designated
successor) and be delivered at such time and in such manner as provided
in the instructions thereto.
(b) Requirement of statement with respect to stock purchased under
an employee stock purchase plan under section 6039(b). (1) Every
corporation filing a return under Sec. 1.6039-1(b) shall furnish to
each person whose name is set forth in such return a written statement
with respect to the transfer or transfers made by such person during
such year. This statement must include the information described in
Sec. 1.6039-1(b)(1).
(2) Each statement required by this paragraph (b) to be furnished to
any person must be furnished to such person on Form 3922, Transfer of
Stock Acquired Through an Employee Stock Purchase Plan Under Section
423(c) (or its designated successor) and be delivered at such time and
in such manner as provided in the instructions thereto.
(3) If the statement required by this paragraph is made by the
authorized transfer agent of the corporation, it is deemed to have been
made by the corporation. The term transfer agent, as used in this
section, means any designee authorized to keep the stock ownership
records of a corporation and to record a transfer of title of the stock
of such corporation on behalf of such corporation.
(c) Time for furnishing statements--(1) In general. Each statement
required by this section to be furnished to any person for a calendar
year must be furnished to such person on or before January 31 of the
year following the year for which the statement is required. 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).
(2) Extension of time. An extension of time to furnish statements
required by this section may be granted in accordance with the
guidelines and procedures set forth in the instructions to Form 3921 and
Form 3922.
(d) Penalty. For provisions relating to the penalty applicable to
the failure to furnish a statement under this section, see section 6722.
(e) Effective/applicability date--(1) In general. This section is
effective on November 17, 2009. This section will apply as of January 1,
2007.
(2) Reliance and transition period. Notwithstanding Sec. 1.6039-
1(f), corporations must furnish information statements to employees in
accordance with this section for stock transfers that are subject to
Sec. 1.6039-1(a) and (b), and
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occur during the 2007, 2008 and 2009 calendar years. For purposes of
furnishing information statements for stock transfers that occur during
the 2007 or 2008 calendar years, taxpayers may rely on Sec. 1.6039-1 of
the 2004 final regulations (69 FR 46401) or Sec. 1.6039-2 of the 2008
proposed regulations (REG-103146-08) (73 FR 40999). For purposes of
furnishing information statements for stock transfers that occur during
the 2009 calendar year, taxpayers may rely on Sec. 1.6039-1 of the 2004
final regulations (69 FR 46401), Sec. 1.6039-2 of the 2008 proposed
regulations (REG-103146-08) (73 FR 40999), or this section.
[T.D. 9470, 74 FR 59091, Nov. 17, 2009, as amended at 74 FR 67973, Dec.
22, 2009; T.D. 9504, 75 FR 64090, Oct. 18, 2010]
Sec. 1.6039I-1 Reporting of certain employer-owned life insurance
contracts.
(a) Requirement to report. Section 6039I requires every taxpayer
that is an applicable policyholder owning one or more employer-owned
life insurance contracts issued after August 17, 2006, to file a return
showing the following information for each year the contracts are
owned--
(1) The number of employees of the applicable policyholder at the
end of the year;
(2) The number of such employees insured under such contracts at the
end of the year;
(3) The total amount of insurance in force at the end of the year
under such contracts;
(4) The name, address, and taxpayer identification number of the
applicable policyholder and the type of business in which the
policyholder is engaged; and
(5) That the applicable policyholder has a valid consent for each
insured employee (or, if all such consents are not obtained, the number
of insured employees for whom such consent was not obtained).
(b) Time and manner of reporting. Applicable policyholders owning
one or more employer-owned life insurance contracts issued after August
17, 2006, must provide the information required under Sec. 6039I by
attaching Form 8925, ``Report of Employer-Owned Life Insurance
Contracts'', to the policyholder's income tax return by the due date of
that return, or by filing such other form at such time and in such
manner as the Commissioner may in the future prescribe.
(c) Effective/applicability date. These regulations are applicable
for tax years ending after November 6, 2008.
[T.D. 9431, 73 FR 65982, Nov. 6, 2008]
Sec. 1.6041-1 Return of information as to payments of $600 or more.
(a) General rule--(1) Information returns required--(i) Payments
required to be reported. Except as otherwise provided in Sec. Sec.
1.6041-3 and 1.6041-4, every person engaged in a trade or business shall
make an information return for each calendar year with respect to
payments it makes during the calendar year in the course of its trade or
business to another person of fixed or determinable income described in
paragraph (a)(1)(i) (A) or (B) of this section. For purposes of the
regulations under this section, the person described in this paragraph
(a)(1)(i) is a payor.
(A) Salaries, wages, commissions, fees, and other forms of
compensation for services rendered aggregating $600 or more.
(B) Interest (including original issue discount), rents, royalties,
annuities, pensions, and other gains, profits, and income aggregating
$600 or more.
(ii) Information returns required under other provisions of the
Internal Revenue Code. The payments described in paragraphs (a)(1)(i)(A)
and (B) of this section shall not include any payments of amounts with
respect to which an information return is required by, or may be
required under authority of, section 6042(a) (relating to dividends),
section 6043(a)(2) (relating to distributions in liquidation), section
6044(a) (relating to patronage dividends), section 6045 (relating to
brokers' transactions with customers and certain other transactions),
sections 6049(a)(1) and (2) (relating to interest), section 6050N(a)
(relating to royalties), or section 6050P(a) or (b) (relating to
cancellation of indebtedness). For information returns required under
section 6045(f) (relating to payments to attorneys), see special rules
in Sec. Sec. 1.6041-1(a)(1)(iii) and 1.6045-5(c)(4). For payment card
transactions (as described in
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Sec. 1.6050W-1(b)) and third party network transactions (as defined in
Sec. 1.6050W-1(c)) required to be reported on information returns
required under section 6050W (relating to payment card and third party
network transactions), see special rules in Sec. 1.6041-1(a)(1)(iv).
(iii) Information returns required under section 6045(f) on or after
January 1, 2007. For payments made on or after January 1, 2007 to which
section 6045(f) (relating to payments to attorneys) applies, the
following rules apply. Not withstanding the provisions of paragraph
(a)(1)(ii) of this section, payments to an attorney that are described
in paragraph (a)(1)(i) of this section but which otherwise would be
reportable under section 6045(f) are reported under section 6041 and
this section and not section 6045(f). This exception applies only if the
payments are reportable with respect to the same payee under both
sections. Thus, a person who, in the course of a trade or business, pays
$600 of taxable damages to a claimant by paying that amount to the
claimant's attorney is required to file an information return under
section 6041 with respect to the claimant, as well as another
information return under section 6045(f) with respect to the claimant's
attorney. For provisions relating to information reporting for payments
to attorneys, see Sec. 1.6045-5.
(iv) Information returns required under section 6050W for calendar
years beginning after December 31, 2010. For payments made by payment
card (as defined in Sec. 1.6050W-1(b)(3)) or through a third party
payment network (as defined in Sec. 1.6050W-1(c)(3)) after December 31,
2010, that are required to be reported on an information return under
section 6050W (relating to payment card and third party network
transactions), the following rule applies. Transactions that are
described in paragraph (a)(1)(ii) of this section that otherwise would
be subject to reporting under both sections 6041 and 6050W are reported
under section 6050W and not section 6041. For provisions relating to
information reporting for payment card and third party network
transactions, see Sec. 1.6050W-1. Solely for purposes of this
paragraph, the de minimis threshold for third party network transactions
in Sec. 1.6050W-1(c)(4) is disregarded in determining whether the
transaction is subject to reporting under section 6050W.
(v) Examples. The provisions of paragraph (a)(1)(iv) of this section
are illustrated by the following examples:
Example 1. Restaurant owner A, in the course of business, pays $600
of fixed or determinable income to B, a repairman, by credit card. B is
one of a network of unrelated persons that has agreed to accept A's
credit card as payment under an agreement that provides standards and
mechanisms for settling the transactions between a merchant acquiring
bank and the persons who accept the cards. Merchant acquiring bank Y is
responsible for making the payment to B. Under paragraph (a)(1)(iv) of
this section, A, as payor, is not required to file an information return
under section 6041 with respect to the transaction because Y, as the
payment settlement entity for the payment card transaction, is required
to file an information return under section 6050W.
Example 2. Restaurant owner A, in the course of business, pays $600
of fixed or determinable income to B, a repairman, through a third party
payment network. B is one of a substantial number of persons who have
established accounts with Y, a third party settlement organization that
provides standards and mechanisms for settling the transactions and
guarantees payments to those persons for goods or services purchased
through the network. Y is responsible for making the payment to B. Under
paragraph (a)(1)(iv) of this section, A, as payor, is not required to
file an information return under section 6041 with respect to the
transaction because the transaction is a third party network transaction
that is subject to reporting under section 6050W. Solely for purposes of
determining whether A is eligible for relief from reporting under
section 6041, the de minimis threshold for third party network
transactions in Sec. 1.6050W-1(c)(4) is disregarded.
(2) Prescribed form. The return required by subparagraph (1) of this
paragraph shall be made on Forms 1096 and 1099 except that (i) the
return with respect to distributions to beneficiaries of a trust or of
an estate shall be made on Form 1041, and (ii) the return with respect
to certain payments of compensation to an employee by his employer shall
be made on Forms W-3 and W-2 under the provisions of Sec. 1.6041-2
(relating to return of information as to payments to employees). Where
Form 1099 is required to be filed under this section, a separate Form
1099 shall be
[[Page 249]]
furnished for each person to whom payments described in subdivision (i),
(ii), or (iii) of subparagraph (1) of this paragraph are made. For time
and place for filing Forms 1096 and 1099, see Sec. 1.6041-6. For the
requirement to submit the information required by Form 1099 on magnetic
media for payments after December 31, 1983, see section 6011(e) and
Sec. 301.6011-2 of this chapter (Procedure and Administration
Regulations).
(b) Persons engaged in trade or business--(1) In general. The term
``all persons engaged in a trade or business'', as used in section
6041(a), includes not only those so engaged for gain or profit, but also
organizations the activities of which are not for the purpose of gain or
profit. Thus, the term includes the organizations referred to in section
401(a), 501(c), 501(d) and 521 and in paragraph (i) of this section. On
the other hand, section 6041(a) applies only to payments in the course
of trade or business; hence it does not apply to an amount paid by the
proprietor of a business to a physician for medical services rendered by
the physician to the proprietor's child.
(2) Special rule for REMICs. For purposes of chapter 1 subtitle F,
chapter 61A, part IIIB, the terms ``all persons engaged in a trade or
business'' and ``any service-recipient engaged in a trade or business''
includes a real estate mortgage investment conduit or REMIC (as defined
in section 860D).
(c) Fixed or determinable income. Income is fixed when it is to be
paid in amounts definitely predetermined. Income is determinable
whenever there is a basis of calculation by which the amount to be paid
may be ascertained. The income need not be paid annually or at regular
intervals. The fact that the payments may be increased or decreased in
accordance with the happening of an event does not for purposes of this
section make the payments any the less determinable. A payment made
jointly to two or more payees may be fixed and determinable income to
one payee even though the payment is not fixed and determinable income
to another payee. For example, property insurance proceeds paid jointly
to the owner of damaged property and to a contractor that repairs the
property may be fixed and determinable income to the contractor but not
fixed and determinable income to the owner, and should be reported to
the contractor. A salesman working by the month for a commission on
sales which is paid or credited monthly receives determinable income.
(d) Payments specifically included--(1) In general. Amounts paid in
respect of life insurance, endowment, or annuity contracts are required
to be reported in returns of information under this section--
(i) Unless the payment is made in respect of a life insurance or
endowment contract by reason of the death of the insured and is not
required to be reported by paragraph (b) of Sec. 1.6041-2,
(ii) Unless the payment is made by reason of the surrender prior to
maturity or lapse of a policy, other than a policy which was purchased
(a) by a trust described in section 401(a) which is exempt from tax
under section 501(a), (b) as part of a plan described in section 403(a),
or (c) by an employer described in section 403(b)(1)(A),
(iii) Unless the payment is interest as defined in Sec. 1.6049-2
and is made after December 31, 1962,
(iv) Unless the payment is a payment with respect to which a return
is required by Sec. 1.6047-1, relating to employee retirement plans
covering owner-employees,
(v) Unless the payment is payment with respect to which a return is
required by Sec. 1.6052-1, relating to payment of wages in the form of
group-term life insurance.
(2) Professional fees. Fees for professional services paid to
attorneys, physicians, and members of other professions are required to
be reported in returns of information if paid by persons engaged in a
trade or business and paid in the course of such trade or business.
(3) Prizes and awards. Amounts paid as prizes and awards that are
required to be included in gross income under section 74 and Sec. 1.74-
1 when paid in the course of a trade or business are required to be
reported in returns of information under this section.
(4) Disability payments. Amounts paid as disability payments under
section 105(d) are required to be reported in returns of information
under this section.
[[Page 250]]
(5) Notional principal contracts. Except as provided in paragraphs
(b)(5)(i) and (ii) of this section, amounts paid after December 31,
2000, with respect to notional principal contracts referred to in Sec.
1.863-7 or 1.988-2(e) to persons who are not described in Sec. 1.6049-
4(c)(1)(ii) are required to be reported in returns of information under
this section. The amount required to be reported under this paragraph
(d)(5) is limited to the amount of cash paid from the notional principal
contract as described in Sec. 1.446-3(d). A non-periodic payment is
reportable for the year in which an actual payment is made. Any amount
of interest determined under the provisions of Sec. 1.446-3(g)(4)
(dealing with interest in the case of a significant non-periodic
payment) is reportable under this paragraph (d)(5) and not under section
6049 (see Sec. 1.6049-5(b)(15)). See Sec. 1.6041-4(a)(4) for reporting
exceptions regarding payments to foreign persons. See, however, Sec.
1.1461-1(c)(1) for reporting amounts described under this paragraph
(d)(5) that are paid to foreign persons. The provisions of Sec. 1.6049-
5(d) shall apply for determining whether a payment with respect to a
notional principal contract is made to a foreign person. See Sec.
1.6049-4(a) for a definition of payor. For purposes of this paragraph
(d)(5), a payor includes a middleman defined in Sec. 1.6049-4(f)(4).
(i) An amount paid with respect to a notional principal contract is
not required to be reported if the amount is paid by a non-U.S. payor or
a non-U.S. middleman and is paid and received outside the United States
(as defined in Sec. 1.6049-4(f)(16)).
(ii) An amount paid with respect to a notional principal contract is
not required to be reported if the amount is paid by a payor that has no
actual knowledge that the payee is a U.S. person and is paid and
received outside the United States (as defined in Sec. 1.6049-
4(f)(16)), and the payor is--
(A) A U.S. payor or U.S. middleman that is not a U.S. person (such
as a controlled foreign corporation defined in section 957(a) or certain
foreign corporations or foreign partnerships engaged in a U.S. trade or
business); or
(B) A foreign branch of a U.S. bank. See Sec. 1.6049-5(c)(5) for a
definition of a U.S. payor, a U.S. middleman, a non-U.S. payor, and a
non-U.S. middleman.
(e) Payment made on behalf of another person--(1) In general. A
person that makes a payment in the course of its trade or business on
behalf of another person is the payor that must make a return of
information under this section with respect to that payment if the
payment is described in paragraph (a) of this section and, under all the
facts and circumstances, that person--
(i) Performs management or oversight functions in connection with
the payment (this would exclude, for example, a person who performs mere
administrative or ministerial functions such as writing checks at
another's direction); or
(ii) Has a significant economic interest in the payment (i.e., an
economic interest that would be compromised if the payment were not
made, such as by creation of a mechanic's lien on property to which the
payment relates, or a loss of collateral).
(2) Determination of payor obligated to report. If two or more
persons meet the requirements for making a return of information with
respect to a payment, as set forth in paragraph (e)(1) of this section,
the person obligated to report the payment is the person closest in the
chain to the payee, unless the parties agree in writing that one of the
other parties meeting the requirements set forth in paragraph (e)(1) of
this section will report the payment.
(3) Special rule for payment by employee to employer.
Notwithstanding the provisions of paragraph (e)(1) of this section, an
employee acting in the course of his employment who makes a payment to
his employer on behalf of another person is not required to make a
return of information with respect to that payment.
(4) Optional method to report. A person that makes a payment on
behalf of another person but is not required to make an information
return under paragraph (e)(1) of this section may elect to do so
pursuant to the procedures established by the Commissioner. See, e.g.,
Rev. Proc. 84-33 (1984-1 C.B. 502) (optional method for a paying agent
to report and deposit amounts
[[Page 251]]
withheld for payors under the statutory provisions of backup
withholding) (see Sec. 601.601(d)(2) of this chapter).
(5) Examples. The provisions of this paragraph (e) are illustrated
by the following examples:
Example 1. Bank B provides financing to C, a real estate developer,
for a construction project. B makes disbursements from the account for
labor, materials, services, and other expenses related to the
construction project. In connection with the payments, B performs the
following functions: approves payments to the general contractor or
subcontractors; ensures that loan proceeds are properly applied and that
all approved bills are properly paid to avoid mechanics' or
materialmen's liens; conducts site inspections to determine whether work
has been completed (but does not check the quality of the work). B is
performing management or oversight functions in connection with the
payments and is subject to the information reporting requirements of
section 6041 with respect to payments.
Example 2. Mortgage company D holds a mortgage on business property
owned by E. When the property is damaged by a storm, E's insurance
company issues a check payable to both D and E in settlement of E's
claim. Pursuant to the contract between D and E, D holds the insurance
proceeds in an escrow account and makes disbursements, according to E's
instructions, to contractors and subcontractors performing repairs on
the property. D is not performing management or oversight functions, but
D has a significant economic interest in the payments because the
purpose of the arrangement is to ensure that property on which D holds a
mortgage is repaired or replaced. D is subject to the information
reporting requirements of section 6041 with respect to the payments to
contractors.
Example 3. Settlement agent F provides real estate closing services
to real estate brokers and agents. F deposits money received from the
buyer or lender in an escrow account and makes payments from the account
to real estate agents or brokers, appraisers, land surveyors, building
inspectors, or similar service providers according to the provisions of
the real estate contract and written instructions from the lender. F may
also make disbursements pursuant to oral instructions of the seller or
purchaser at closing. F is not performing management or oversight
functions and does not have a significant economic interest in the
payments, and is not subject to the information reporting requirements
of section 6041. For the rules relating to F's obligation to report the
gross proceeds of the sale, see section 6045(e) and Sec. 1.6045-4.
Example 4. Assume the same facts as in Example 3. In addition, the
seller instructs F to hire a contractor to perform repairs on the
property. F selects the contractor, negotiates the cost, monitors the
progress of the project, and inspects the work to ensure it complies
with the contract. With respect to the payments to the contractor, F is
performing management or oversight functions and is subject to the
information reporting requirements of section 6041.
Example 5. G is a rental agent who manages certain rental property
on behalf of property owner H. G finds tenants, arranges leases,
collects rent, responds to tenant inquiries regarding maintenance, and
hires and makes payments to repairmen. G subtracts her commission and
any maintenance payments from rental payments and remits the remainder
to H. With respect to payments to repairmen, G is performing management
or oversight functions and is subject to the information reporting
requirements of section 6041. With respect to the payment of rent to H,
G is subject to the information reporting requirements of section 6041
regardless of whether she performs management or oversight functions or
has a significant economic interest in the payment. See Sec. 1.6041-
3(d) for rules relating to rental agents. See Sec. 1.6041-1(f) to
determine the amount that G should report to H as rent.
Example 6. Literary agent J receives a payment from publisher L of
fees earned by J's client, author K. J deposits the payment into a bank
account in J's name. From time to time and as directed by K, J makes
payments from these funds to attorneys, managers, and other third
parties for services rendered to K. After subtracting J's commission, J
pays K the net amount. J does not order or direct the provision of
services by the third parties to K, and J exercises no discretion in
making the payments to the third parties or to K. J is not performing
management or oversight functions and does not have a significant
economic interest in the payments and is not subject to the information
reporting requirements of section 6041 in connection with the payments
to K or to the third parties. For the rules relating to L's obligation
to report the payment of the fees to K, see paragraphs (a)(1)(i) and (f)
of this section. For the rules relating to K's obligation to report the
payment of the commission to J and the payments to the third parties for
services, see paragraphs (a)(1)(i) and (d)(2) of this section.
Example 7. Attorney P deposits into a client trust fund a settlement
payment from R, the defendant in a breach of contract action for lost
profits in which P represented plaintiff Q. P makes payments from the
client trust fund to service providers such as expert witnesses and
private investigators for expenses incurred in the litigation. P decides
[[Page 252]]
whom to hire, negotiates the amount of payment, and determines that the
services have been satisfactorily performed. In the event of a dispute
with a service provider, P withholds payment until the dispute is
settled. With respect to payments to the service providers, P is
performing management or oversight functions and is subject to the
information reporting requirements of section 6041.
Example 8. Assume the same facts as in Example 7. In addition,
assume that after paying the service providers and deducting his legal
fee, P pays Q the remaining funds that P had received from the
settlement with R. With respect to the payment to Q, P is not performing
management or oversight functions, does not have a significant economic
interest in the payment, and is not subject to the information reporting
requirements of section 6041. For the rules relating to R's obligation
to report the payment of the settlement proceeds to P, see section
6045(f) and the regulations thereunder. For the rules relating to R's
obligation to report the payment of the settlement proceeds to Q, see
paragraphs (a)(1)(i) and (f) of this section. For the rules relating to
Q's obligation to report the payment of attorney fees to P, see
paragraphs (a)(1)(i) and (d)(2) of this section.
Example 9. Medical insurer S operates as the administrator of a
health care program under a contract with a state. S makes payments of
government funds to health care providers who provide care to eligible
patients. S receives and reviews claims submitted by patients or health
care providers, determines if the claims meet all the requirements of
the program (e.g., that the care is authorized and that the patients are
eligible beneficiaries), and determines the amount of payment. S is
performing management or oversight functions and is subject to the
information reporting requirements of section 6041 with respect to the
payments.
Example 10. Race track employee T holds deposits made by horse owner
U in a special escrow account in U's name. U enters into a contract with
jockey V to ride U's horse in a race at the track. As directed by U, T
pays V the fee for riding U's horse from U's escrow account. T is not
performing management or oversight functions, does not have a
significant economic interest in the payment, and is not subject to the
information reporting requirements of section 6041. For the rules
relating to U's obligation to report the payment of the fee to V, see
paragraph (a)(1)(i) of this section.
Example 11. X is a certified public accountant employed by Firm Y,
and is not a partner. Client Z pays X directly for accounting services.
X remits the amount received to Y, as required by the terms of his
employment. X does not have any reporting obligation with respect to the
payment to Y. For the rules relating to Z's obligation to report the
payment to Y for services, see paragraphs (a)(1)(i) and (d)(2) of this
section.
Example 12. Bank contracts with Title Company with respect to the
disbursement of funds on a construction loan. Pursuant to their
arrangement, the contractor sends draw requests to Title Company, which
inspects the work, verifies the amount requested, and then sends the
draw request to Bank with supporting documents. Bank pays Title Company
the amount of the draw request, and Title Company insures Bank against
any loss if it cannot obtain the necessary lien waivers. Bank has a
significant economic interest in the payment as a mortgagee, and Title
Company exercises management or oversight over the payment. Since Title
Company is closest in the chain to the contractor, Title Company should
report the payment, unless the parties agree in writing that Bank will
report the payment.
(f) Amount to be reported when fees, expenses or commissions are
deducted--(1) In general. The amount to be reported as paid to a payee
is the amount includible in the gross income of the payee (which in many
cases will be the gross amount of the payment or payments before fees,
commissions, expenses, or other amounts owed by the payee to another
person have been deducted), whether the payment is made jointly or
separately to the payee and another person. The Commissioner may, by
guidance published in the Internal Revenue Bulletin, illustrate the
circumstances under which the gross amount or less than the gross amount
may be reported.
(2) Examples. The provisions of this paragraph (f) are illustrated
by the following examples:
Example 1. Attorney P represents client Q in a breach of contract
action for lost profits against defendant R. R settles the case for
$100,000 damages and $40,000 for attorney fees. Under applicable law,
the full $140,000 is includible in Q's gross taxable income. R issues a
check payable to P and Q in the amount of $140,000. R is required to
make an information return reporting a payment to Q in the amount of
$140,000. For the rules with respect to R's obligation to report the
payment to P, see section 6045(f) and the regulations thereunder.
Example 2. Assume the same facts as in Example 1, except that R
issues a check to Q for $100,000 and a separate check to P for $40,000.
R is required to make an information return reporting a payment to Q in
the amount of $140,000. For the rules with respect to R's obligation to
report the payment to P, see section 6045(f) and the regulations
thereunder.
[[Page 253]]
(g) Payment made in medium other than cash. If any payment required
to be reported on Form 1099 is made in property other than money, the
fair market value of the property at the time of payment is the amount
to be included on such form.
(h) When payment deemed made. For purposes of a return of
information, an amount is deemed to have been paid when it is credited
or set apart to a person without any substantial limitation or
restriction as to the time or manner of payment or condition upon which
payment is to be made, and is made available to him so that it may be
drawn at any time, and its receipt brought within his own control and
disposition.
(i) Payments made by the United States or a State. Information
returns on:
(1) Forms 1096 and 1099 and
(2) Forms W-3 and W-2 (when made under the provisions of Sec.
1.6041-2)
of payments made by the United States or a State, or political
subdivision thereof, or the District of Columbia, or any agency or
instrumentality of any one or more of the foregoing, shall be made by
the officer or employee of the United States, or of such State, or
political subdivision, or of the District of Columbia, or of such agency
or instrumentality, as the case may be, having control of such payments
or by the officer or employee appropriately designated to make such
returns.
(j) Effective/applicability date. This section applies to payments
made on or after January 6, 2017. (For payments made after June 30,
2014, and before January 6, 2017, see this section as in effect and
contained in 26 CFR part 1, as revised April 1, 2016. For payments made
after December 31, 2010, and before July 1, 2014, see this section as in
effect and contained in 26 CFR part 1, as revised April 1, 2013.)
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.6041-1, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6041-2 Return of information as to payments to employees.
(a)(1) In general. Wages, as defined in section 3401, paid to an
employee are required to be reported on Form W-2. See section 6011 and
the Employment Tax Regulations thereunder. All other payments of
compensation, including the cash value of payments made in any medium
other than cash, to an employee by his employer in the course of the
trade or business of the employer must also be reported on Form W-2 if
the total of such payments and the amount of the employee's wages (as
defined in section 3401), if any, required to be reported on Form W-2
aggregates $600 or more in a calendar year. For example, if a payment of
$700 was made to an employee and $400 thereof represents wages subject
to withholding under section 3402 and the remaining $300 represents
compensation not subject to withholding, such wages and compensation
must both be reported on Form W-2. A separate Form W-2 shall be
furnished for each employee for whom a return must be made. At the
election of the employer, components of amounts required to be reported
on Form W-2 pursuant to the provisions of this subparagraph may be
reported on more than one Form W-2.
(2) Transmittal form. The transmittal form for a return on Form W-2
made pursuant to the provisions of subparagraph (1) of this paragraph
shall be Form W-3. In a case where an employer must file a Form W-3
under this paragraph and also under Sec. 31.6011(a)-4 or Sec.
31.6011(a)-5 of this chapter (Employment Tax Regulations), the Form W-3
filed under such Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 shall also be
used as the transmittal form for a return on Form W-2 made pursuant to
the provisions of this paragraph.
(3) Time for filing--(i) General rule. In a case where an employer
must file Forms W-3 and W-2 under this paragraph and also under Sec.
31.6011(a)-4 or Sec. 31.6011(a)-5 of this chapter (Employment Tax
Regulations), the time for filing such forms under this paragraph shall
be the same as the time (including extensions thereof) for filing such
forms under Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5.
[[Page 254]]
(ii) Exception. In a case where an employer is not required to file
Forms W-3 and W-2 under Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 of this
chapter, returns on Forms W-3 and W-2 required under this paragraph (a)
for any calendar year shall be filed on or before January 31 of the
following year.
(iii) Cross reference. For extensions of time for filing returns,
see section 6081 and the regulations thereunder.
(4) Place for filing. The returns on Forms W-3 and W-2 required
under this paragraph shall be filed pursuant to the rules contained in
Sec. 31.6091-1 of this chapter (Employment Tax Regulations), relating
to the place for filing certain returns.
(5) Statement for employees. An employer required under this
paragraph (a) to file Form W-2 with respect to an employee is also
required under sections 6041(d) and 6051 to furnish a written statement
to the employee. This written statement must be furnished on Form W-2 in
accordance with section 6051 and the regulations.
(b) Distributions under employees' trust or plan. (1) Amounts which
are:
(i) Distributed or made available to a beneficiary, and to which
section 402 (relating to employees' trusts) or section 403 (relating to
employee annuity plans) applies, or
(ii) Described in section 72(m)(3)(B), shall be reported on Forms
1096 and 1099 to the extent such amounts are includible in the gross
income of such beneficiary if the amounts so includible aggregate $600
or more in any calendar year. In addition, every trust described in
section 501(c)(17) which makes one or more payments (including
separation and sick and accident benefits) totaling $600 or more in 1
year to an individual must file an annual information return on Form
1096, accompanied by a statement on Form 1099, for each such individual.
Payments made by an employer or a person other than the trustee of the
trust should not be considered in determining whether the $600 minimum
has been paid by the trustee. The provisions of this subparagraph shall
not be applicable to payments of supplemental unemployment compensation
benefits made after December 31, 1970, which are treated as if they were
wages for purposes of section 3401(a). Such amounts are required to be
reported on Forms W-3 and W-2. See paragraph (b)(14) of Sec.
31.3401(a)-1 of this chapter (Employment Tax Regulations).
(2) Any amount with respect to which a statement is required by
Sec. 1.6047-1, relating to employee retirement plans covering owner-
employees, shall not be included in amounts required to be reported
under section 6041.
(c) Payments to foreign persons. See Sec. 1.6041-4 for reporting
exemptions regarding payments to foreign persons. See Sec. 1.6049-5(d)
for determining whether a payment is made to a foreign person.
(d) Applicability date. This section applies to returns filed on or
after January 30, 2020. Section 1.6041-2T (as contained in 26 CFR part
1, revised April 2019) applies to returns filed before January 30, 2020.
[T.D. 7284, 38 FR 20827, Aug. 3, 1973, as amended by T.D. 7580, 43 FR
60159, Dec. 26, 1978; T.D. 8734, 62 FR 53472, Oct. 14, 1997; T.D. 8895,
65 FR 50406, Aug. 18, 2000; T.D. 9114, 69 FR 7570, Feb. 18, 2004; T.D.
9821, 82 FR 33445, July 20, 2017; T.D. 9892, 85 FR 5325, Jan. 30, 2020]
Sec. 1.6041-3 Payments for which no return of information is
required under section 6041.
Returns of information are not required under section 6041 and
Sec. Sec. 1.6041-1 and 1.6041-2 for payments described in paragraphs
(a) through (q) of this section. See Sec. 1.6041-4 for reporting
exemptions regarding payments to foreign persons.
(a) Payments of income required to be reported on Forms 1120-S, 941,
W-2, and W-3 (however, see Sec. 1.6041-2(a) with respect to Forms W-2
and W-3).
(b) Payments by a broker to his customer (but for reporting
requirements as to certain of such payments, see sections 6042, 6045,
and 6049 and the regulations thereunder in this part).
(c) Payments of bills for merchandise, telegrams, telephone,
freight, storage, and similar charges.
(d) Payments of rent made to rental agents (but the agent is
required to report payments of rent to the landlord in accordance with
Sec. 1.6041-1(a)(1)(i)(B) and (2)).
(e) Payments representing earned income for services rendered
without the
[[Page 255]]
United States made to a citizen of the United States, if it is
reasonable to believe that such amounts will be excluded from gross
income under the provisions of section 911 and the regulations
thereunder.
(f) Compensation and profits paid or distributed by a partnership to
the individual partners (but for reporting requirements, see Sec.
1.6031-1).
(g) Payments of commissions to general agents by fire insurance
companies or other companies insuring property, except when specifically
directed by the Commissioner to be filed.
(h)(1) In general. Payments made under reimbursement or other
expense allowance arrangements that meet the requirements of section
62(c) of the Code and Sec. 1.62-2, that do not exceed the amount of the
expenses substantiated (i.e., amounts which are treated as paid under an
accountable plan), and that are received by an employee on or after
January 1, 1989, with respect to expenses paid or incurred on or after
January 1, 1989.
(2) Transition rule. Payments made under reimbursement or other
expense allowance arrangements that are received by an employee on or
after January 1, 1989, but prior to July 1, 1990, to the extent that the
employee is required to account (within the meaning of the term
``account'' as set forth in Sec. 1.162-17(b)(4) or 1.274-5T(f)(4),
whichever is applicable) and does so account to the payor for such
expenses, provided the payor has made a reasonable, good faith effort to
comply with the requirements of section 62(c). In general, compliance
with the provisions of this section, as in effect for payments made
under reimbursement or other expense allowance arrangements that were
received by an employee before January 1, 1989, with respect to expenses
paid or incurred before January 1, 1989, will constitute such reasonable
good faith compliance. In no event, however, will reasonable good faith
compliance exist if a payor fails to report payments made under an
arrangement (other than a per diem or mileage allowance type
arrangement) under which an employee is not required to substantiate
expenses paid or incurred or is not required to return amounts in excess
of the substantiated expenses.
(i) Payments of interest on obligations of the United States, or a
State, Territory, or political subdivision thereof, or the District of
Columbia, or any agency or instrumentality of any one or more of the
foregoing (but for requirements for reporting certain such payments by
the United States or any agency or instrumentality thereof, see
Sec. Sec. 1.1461-1 to 1.1461-3, inclusive).
(j) Payments of interest on corporate bonds (but for reporting
requirements as to payments on certain corporate bonds, see Sec.
1.6049-5.
(k) Amounts paid as an allowance or reimbursement for traveling or
other bona fide ordinary and necessary expenses, including an allowance
for meals and lodging or a per diem allowance in lieu of subsistence, to
persons in the service of an international organization (without regard
to whether there is a requirement to account for such amounts) if-
(1) The organization is designated as an international organization
by the President of the United States in Executive Orders issued
pursuant to 22 U.S.C. 288, and
(2) The organization has immunity with respect to the invoilability
of its archives pursuant to an international agreement having full force
and effect in the United States.
(l) A payment to an informer as an award, fee, or reward for
information relating to criminal activity, but only if such payment is
made by the United States, a State, Territory, or political subdivision
thereof, or the District of Columbia, or any agency or instrumentality
of any one or more of the foregoing, or, with respect to payments made
after December 31, 1987, by an organization that is described in section
501(c)(3) and that makes such payments in furtherance of a charitable
purpose to lessen the burdens of government within the meaning of Sec.
1.501(c)(3)-1(d)(2).
(m) On and after September 9, 1968, payments by a person carrying on
the banking business of interest on a deposit evidenced by a negotiable
time certificate of deposit (but for reporting requirements as to
payments made after December 31, 1962, of interest on certain deposits,
see sec. 6049 and the regulations thereunder in this part).
[[Page 256]]
(n) Payments to individuals as scholarships or fellowship grants
within the meaning of section 117(b)(1), whether or not ``qualified
scholarships'' as described in section 117(b). This exception does not
apply to any amount of a scholarship or fellowship grant that represents
payment for services within the meaning of section 117(c). Instead,
these amounts are required to be reported as wages on Form W-2. See
Sec. 1.1461-1(c) for applicable reporting requirements for amounts paid
to foreign persons.
(o) Per diem of certain alien trainees described under section
1441(c)(6).
(p) Payments made to the following persons:
(1) A corporation described in Sec. 1.6049-4(c)(1)(ii)(A), except
with respect to payments made to a corporation after December 31, 1997
for attorneys' fees, and except a corporation engaged in providing
medical and health care services or engaged in the billing and
collecting of payments in respect to the providing of medical and health
care services. However, no reporting is required where payment is made
to a hospital or extended care facility described in section 501(c)(3)
which is exempt from taxation under section 501(a) or to a hospital or
extended care facility owned and operated by the United States, a State,
the District of Columbia, a possession of the United States, or a
political subdivision, agency or instrumentality of any of the
foregoing. For reporting requirements as to payments by cooperatives,
and to certain other payments, see sections 6042, 6044, and 6049 and the
regulations thereunder in this part.
(2) An organization exempt from taxation under section 501(a), as
described in Sec. 1.6049-4(c)(1)(ii)(B)(1), or an individual retirement
plan, as described in Sec. 1.6049-4(c)(1)(ii)(C).
(3) The United States, as described in Sec. 1.6049-4(c)(1)(ii)(D).
(4) A State, the District of Columbia, a possession of the United
States, or any political subdivision of any of the foregoing, as
described in Sec. 1.6049-4(c)(1)(ii)(E).
(5) A foreign government or political subdivision of a foreign
government, as described in Sec. 1.6049-4(c)(1)(ii)(F).
(6) An international organization, as described in Sec. 1.6049-
4(c)(1)(ii)(G).
(7) A foreign central bank of issue, as described in Sec. 1.6049-
4(c)(1)(ii)(H) and the Bank for International Settlements.
(8) Any wholly owned agency or instrumentality of any person
described in paragraph (p) (2), (3), (4), (5), (6), or (7) of this
section.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960]
Editorial Note: For Federal Register citations affecting Sec.
1.6041-3, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6041-4 Foreign-related items and other exceptions.
(a) Exempted foreign-related items.(1) Returns of information are
not required for payments that a payor can, prior to payment, reliably
associate with documentation upon which it may rely to treat 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), (3),
(4), or (5). Returns of information are also not required for a payment
that a payor or middleman can, prior to payment, reliably associate with
documentation upon which it may rely to treat as made to a foreign
intermediary or flow-through entity in accordance with Sec. 1.1441-1(b)
if it obtains from the intermediary or flow-through entity a withholding
statement described in Sec. 1.6049-5(b)(14) that allocates the payment
to a chapter 4 withholding rate pool (as defined in Sec. 1.6049-
4(f)(5)) or specific payees to which withholding applies under chapter
4. Payments excepted from reporting under this paragraph (a)(1) may be
reportable, for purposes of chapter 3 of the Internal Revenue Code
(Code), under Sec. 1.1461-1(b) and (c) and, for purposes of chapter 4
of the Code, under Sec. 1.1474-1(d)(2). The provisions in Sec. 1.6049-
5(c) regarding documentation of foreign status shall apply for purposes
of this paragraph (a)(1). The provisions in Sec. 1.6049-5(c)(5)
regarding the definitions of U.S. payor and non-U.S. payor shall also
apply for purposes of this paragraph (a)(1). See Sec. 1.1441-
1(b)(3)(iii)(B) and (C) for special payee
[[Page 257]]
rules regarding scholarships, grants, pensions, annuities, etc. The
provisions of Sec. 1.1441-1 shall apply by substituting the term
``payor'' for the term ``withholding agent'' and without regard to the
fact that the provisions apply only to amounts subject to withholding
under chapter 3 of the Code and the regulations under that chapter.
(2) Returns of information are not required for payments of amounts
from sources outside the United States (determined under the provisions
of part I, subchapter N, chapter 1 of the Code and the regulations under
those provisions) paid by a non-U.S. payor or non-U.S. middleman and
that are paid and received outside the United States. For a definition
of non-U.S. payor and non-U.S. middleman, see Sec. 1.6049-5(c)(5). For
circumstances in which an amount is considered to be paid and received
outside the United States, see Sec. 1.6049-4(f)(16).
(3) If a foreign intermediary, as described in Sec. 1.1441-
1(c)(13), or a U.S. branch that is not treated as a U.S. person receives
a payment from a payor, which payment the payor can reliably associate
with a valid withholding certificate described in Sec. 1.1441-
1(e)(3)(ii) or (iii), or Sec. 1.1441-1(e)(3)(v), respectively,
furnished by such intermediary or branch, then the intermediary or
branch is not required to report such payment when it, in turn, pays the
amount, unless, and to the extent, the intermediary or branch knows that
the payment is required to be reported under this section and was not so
reported. For example, if a U.S. branch described in Sec. 1.1441-
1(b)(2)(iv) fails to provide information regarding U.S. persons that are
not exempt from reporting under Sec. 1.6041-3(q) to the person from
whom the U.S. branch receives the payment, the U.S. branch must report
the payment on an information return. See, however, paragraph (a)(7) of
this section for when reporting under section 6041is coordinated with
reporting under chapter 4 of the Code or an applicable IGA (as defined
in Sec. 1.6049-4(f)(7)). The exception described in this paragraph
(a)(3) for amounts paid by a foreign intermediary shall not apply to a
qualified intermediary that assumes reporting responsibility under
chapter 61 of the Code with respect to amounts reportable under the
agreement described in Sec. 1.1441-1(e)(5)(iii).
(4) Returns of information are not required for amounts paid with
respect to notional principal contracts referred to in Sec. 1.863-7 or
1.988-2(e) which the payor may treat as effectively connected income of
a foreign payee under the provisions of Sec. 1.1441-4(a)(3) or if the
payee provides a representation in a master agreement that governs the
transactions in notional principal contracts between the parties (for
example, an International Swap and Derivatives Association (ISDA)
Agreement, including the Schedule thereto) or in the confirmation on the
particular notional principal contract transaction that the counterparty
is a foreign person. See, however, Sec. 1.1461-1(c)(2)(i) for
applicable reporting requirements.
(5) Returns of information are not required for the period that the
amounts paid represent assets blocked as described in Sec. 1.1441-
2(e)(3). The exemption in this paragraph (a)(5) shall terminate when
payment is deemed to occur in accordance with the provisions of Sec.
1.1441-2(e)(3).
(6) For rules concerning direct sellers, see Sec. 1.6041A-
1(d)(3)(i)(C).
(7) Returns of information are not required for payments with
respect to which a return is not required by applying the rules of Sec.
1.6049-4(c)(4) (by substituting the term ``a payment subject to
reporting under section 6041'' for the term ``an interest payment'').
(b) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt
from reporting under paragraph (a) of this section are presumed made to
U.S. payees who are not exempt recipients if, prior to payment, the
payor or middleman cannot reliably associate the payment either with a
Form W-9 furnished by one of the joint owners in the manner required in
Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5, or with documentation
described in paragraph (a)(1) of this section furnished by each joint
owner upon which the payor or middleman can rely to treat each joint
owner as a foreign payee or foreign beneficial owner. However, in the
case of a withholdable payment (as defined in
[[Page 258]]
Sec. 1.6049-4(f)(15)) made to joint payees, if any joint payee does not
appear to be an individual, the payment is presumed made to a foreign
payee that is a nonparticipating FFI (as defined in Sec. 1.1471-
1(b)(82)). See Sec. 1.1471-3(f)(7).
(c) Conversion into United States dollars of amounts paid in foreign
currency. For rules concerning foreign currency conversion, see Sec.
1.6049-4(d)(3)(i).
(d) Effective/applicability date. This section applies to payments
made on or after January 6, 2017. (For payments made after June 30,
2014, and before January 6, 2017, see this section as in effect and
contained in 26 CFR part 1, as revised April 1, 2016. For payments made
after December 31, 2002, and before July 1, 2014, see this section as in
effect and contained in 26 CFR part 1, as revised April 1, 2013.)
[T.D. 8734, 62 FR 53473, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72188, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999; T.D. 8881,
65 FR 32205, May 22, 2000; T.D. 9658, 79 FR 12793, Mar. 6, 2014; T.D.
9808, 82 FR 2106, Jan. 6, 2017]
Sec. 1.6041-5 Information as to actual owner.
When a person receiving a payment described in section 6041 is not
the actual owner of the income received, the name and address of the
actual owner shall be furnished upon demand of the person paying the
income, and in default of compliance with such demand the payee becomes
liable for the penalties provided. See section 7203.
Sec. 1.6041-6 Returns made on Forms 1096 and 1099 under section 6041;
contents and time and place for filing.
(a) In general. Except as provided in paragraph (b) of this section,
returns made under section 6041 on Forms 1096 and 1099 for any calendar
year shall be filed on or before February 28 (March 31 if filed
electronically) of the following year with any of the Internal Revenue
Service Centers, the addresses of which are listed in the instructions
for such forms. The name and address of the person making the payment
and the name and address of the recipient of the payment shall be stated
on Form 1099. If the present address of the recipient is not available,
the last known post office address must be given. See section 6109 and
the regulations in part 301 of this title under section 6109 for rules
requiring the inclusion of identifying numbers in Form 1099.
(b) Exception. Returns made on Form 1099 reporting nonemployee
compensation shall be filed on or before January 31 of the year
following the calendar year to which such returns relate.
(c) Applicability date. This section applies to returns filed on or
after January 30, 2020. Section 1.6041-6T (as contained in 26 CFR part
1, revised April 2019) applies to returns filed before January 30, 2020.
[T.D. 9892, 85 FR 5325, Jan. 30, 2020]
Sec. 1.6041-7 Magnetic media requirement.
(a) General. For rules relating to permission to submit the
information required by Form 1099 or W-2 on magnetic tape or other
media, see Sec. 1.9101-1. See also paragraph (b)(2) of Sec.
31.6011(a)-7 of this chapter (Employment Tax Regulations) for additional
rules relating to Form W-2. High-volume filers of information returns
must file their returns on magnetic media. See section 6011(e) and Sec.
301.6011-2 of this chapter (Procedure and Administration Regulations)
for the requirements for filing on magnetic media.
(b) Returns on magnetic tape by departments of health care carriers.
(1) For calendar years beginning on or after January 1, 1971, a health
care carrier, or an agent thereof, making payment of fees or other
compensation to providers of medical and health care services, may make
a separate return on magnetic tape for each separate department within a
specific line of such carrier's business, so long as all of such returns
taken together contain all of the information required by section 6041
with respect to each provider of medical and health care services to
whom such health care carrier makes payments aggregating $600 or more
during the calendar year. Examples of separate departments within a
specific line of such carrier's business (such as health and accident
insurance) include, but are not limited to, separate departments to
process claims of individual and group policyholders; and separate
departments established along geographic lines.
[[Page 259]]
(2) For purposes of this paragraph, the term ``health care carrier''
means any person making health care payments: (i) In exchange for the
payment of a premium, (ii) in accordance with an employee benefit
program, or (iii) in connection with a government-sponsored health care
program.
[T.D. 7106, 36 FR 6422, Apr. 3, 1971, as amended by T.D. 8734, 62 FR
53473, Oct. 14, 1997]
Sec. 1.6041-8 Cross-reference to penalties.
For provisions relating to the penalty provided for failure to file
timely a correct information return required under section 6041(a) or
(b), see Sec. 301.6721-1 of this chapter (Procedure and Administration
Regulations). For provisions relating to the penalty provided for
failure to furnish timely a correct payee statement required under
section 6041(d), see Sec. 301.6722-1 of this chapter. See Sec.
301.6724-1 of this chapter for the waiver of a penalty if the failure is
due to reasonable cause and is not due to willful neglect.
[T.D. 8734, 62 FR 53474, Oct. 14, 1997]
Sec. 1.6041-9 Coordination with reporting rules for widely held
fixed investment trusts under Sec. 1.671-5.
See Sec. 1.671-5 for the reporting rules for widely held fixed
investment trusts (WHFIT) (as defined under that section). For purposes
of section 6041, middlemen and trustees of WHFITs are deemed to have
management and oversight functions in connection with payments made by
the WHFIT.
[T.D. 9241, 71 FR 4024, Jan. 24, 2006]
Sec. 1.6041-10 Return of information as to payments of winnings from
bingo, keno, and slot machine play.
(a) In general. Every person engaged in a trade or business (as
defined in Sec. 1.6041-1(b)) and who, in the course of such trade or
business, makes a payment of reportable gambling winnings (defined in
paragraph (b)(1) of this section) must make an information return with
respect to such payment. Unless the provisions of paragraph (g) of this
section (regarding aggregate reporting) apply, a separate information
return is required with respect to each payment of reportable gambling
winnings.
(b) Definitions--(1) Reportable gambling winnings. (i) For purposes
of this section, the term reportable gambling winnings is defined as
follows:
(A) For bingo, the term ``reportable gambling winnings'' means
winnings of $1,200 or more from one bingo game, without reduction for
the amount wagered. All winnings received from all wagers made during
one bingo game are combined (for example, all winnings from all cards
played during one bingo game are combined).
(B) For keno, the term ``reportable gambling winnings'' means
winnings of $1,500 or more from one keno game reduced by the amount
wagered on the same keno game. All winnings received from all wagers
made during one keno game are combined (for example, all winnings from
all ``ways'' on a multi-way keno ticket are combined).
(C) For slot machine play, the term ``reportable gambling winnings''
means winnings of $1,200 or more from one slot machine play, without
reduction for the amount wagered.
(ii) Winnings and wagers from different types of games are not
combined to determine if the reporting threshold is satisfied. Bingo,
keno, and slot machine play are different types of games.
(iii) Winnings include the fair market value of a payment in any
medium other than cash.
(iv) The amount wagered in the case of a free play is zero.
(2) Information reporting period--(i) In general. For purposes of
paragraph (g) of this section, the ``information reporting period''
begins when a patron places the first wager on a particular type of game
at a gaming establishment, as defined in paragraph (b)(2)(iv) of this
section, and ends when the patron places his or her last wager on the
same type of game at the same gaming establishment before the end of the
``information reporting period.'' An information reporting period is a
24-hour period. A payor may select a calendar day (as defined in
paragraph (b)(2)(ii) of this section) or a gaming day (as defined in
paragraph (b)(2)(iii) of this section) as the information reporting
period for purposes of the aggregate reporting method in paragraph (g)
of this section. For purposes of this paragraph (b)(2), time is
determined by the time
[[Page 260]]
zone of the location where the patron places the wager. A payor must use
the same information reporting period (a calendar day or gaming day) to
report all ``reportable gambling winnings'' paid during the calendar
year. Once selected, a payor may not change its information reporting
period during a calendar year. Any changes to a payor's information
reporting period from one calendar year to another must be implemented
on January 1.
(ii) Calendar day. A calendar day is determined with reference to a
period beginning at 12 a.m. and ending no later than 11:59 p.m. of the
same calendar day.
(iii) Gaming day--(A) In general. A gaming day is a 24-hour period
other than a calendar day (as defined in paragraph (b)(2)(ii) of this
section) selected by the payor, subject to the special rules for
December 31 and January 1 in paragraphs (b)(2)(iii)(B) and (C) of this
section.
(B) Special rule for December 31. For purposes of paragraph
(b)(2)(iii) of this section, the gaming day that begins on December 31
of any calendar year ends at 11:59 p.m. on December 31, regardless of
the time on December 31 on which that gaming day began.
(C) Special rule for January 1. For purposes of paragraph
(b)(2)(iii) of this section, the gaming day of January 1 begins at 12:00
a.m. on January 1, regardless of the time and calendar day on which that
gaming day ends, and may extend beyond 24 hours.
(iv) Gaming establishment. For purposes of this section, a gaming
establishment is a business entity of a payor of reportable gambling
winnings with respect to bingo, keno, or slot machine play, and includes
all gaming establishments owned by such payor using the same employer
identification number (EIN) issued to such payor in accordance with
section 6109.
(v) Examples. The following examples illustrate the provisions of
paragraph (b)(2) of this section.
Example 1. Casino R uses the aggregate reporting method under
paragraph (g) of this section to report certain reportable gambling
winnings. For other regulatory purposes, Casino R uses a gaming day that
begins at 3 a.m. and ends at 2:59 a.m. the following calendar day.
Casino R chooses to use its gaming day as its information reporting
period for purposes of paragraph (b)(2) of this section during Year 1.
Accordingly, the information reporting period for purposes of paragraph
(g) of this section for each day during Year 1 begins at 3 a.m. and ends
at 2:59 a.m. the following day. The information reporting period for
December 31 of Year 1 begins at 3 a.m. on December 31 of Year 1 and ends
at 11:59 p.m. on December 31 of Year 1. The information reporting period
for January 1 of Year 2 begins at 12 a.m. on January 1 of Year 2 and
ends at 2:59 a.m. on January 2 of Year 2.
Example 2. The facts are the same as Example 1, except Casino R uses
a calendar day as its information reporting period for purposes of
paragraph (b)(2) of this section during Year 1. Accordingly, the
information reporting period for purpose of paragraph (g) of this
section for each day during Year 1 begins at 12 a.m. and ends at 11:59
p.m. on the same day.
Example 3. Casino R uses the aggregate reporting method under
paragraph (g) of this section to report certain reportable gambling
winnings. For other regulatory purposes, Casino R uses a gaming day that
begins at 9:00 p.m. and ends at 8:59 p.m. the following calendar day.
Casino R chooses to use its gaming day as its information reporting
period for purposes of paragraph (b)(2) of this section during Year 1.
Accordingly, the information reporting period for purposes of paragraph
(g) of this section for each day during Year 1 begins at 9:00 p.m. and
ends at 8:59 p.m. the following day. The information reporting period
for December 31 of Year 1 begins at 9:00 p.m. on December 30 and ends at
8:59 p.m. on December 31. A second information reporting period for
December 31 then begins at 9:00 p.m. on December 31 and ends at 11:59
p.m. on December 31. The information reporting period for January 1 of
Year 2 begins at 12:00 a.m. on January 1 and ends at 8:59 p.m. on
January 1 of Year 2.
Example 4. Casino R uses the aggregate reporting method under
paragraph (g) of this section to report certain reportable gambling
winnings. In Year 1, Casino R chooses to use a ``gaming day'' that
begins at 3 a.m. and ends at 2:59 a.m. the following day as its
information reporting period. During the course of Year 1, Casino R
decides that it would like to change its information reporting period to
instead begin at 5 a.m. and end at 4:59 a.m. the following day. Casino R
must wait until January 1 of Year 2 to implement such a change. On
January 1 of Year 2, Casino R's information reporting period will begin
at 12 a.m. and end at 4:59 a.m. on January 2. On December 31 of Year 2,
Casino R's information reporting period will begin at 5 a.m. and end at
11:59 p.m.
[[Page 261]]
(3) Slot machine. The term ``slot machine'' means a device that, by
application of the element of chance, may deliver, or entitle the person
playing or operating the device to receive cash, premiums, merchandise,
or tokens whether or not the device is operated by insertion of a coin,
token, or similar object.
(c) Prescribed form; time and place for filing the return. The
return described in paragraph (a) of this section is a Form W-2G,
``Certain Gambling Winnings.'' The Form W-2G must be filed with the
appropriate Internal Revenue Service location designated in the
instructions to the form on or before February 28 (March 31, if filed
electronically) of the year following the calendar year in which the
reportable gambling winnings were paid. See section 6011 and Sec.
1.6011-2 for requirements to file electronically.
(d) Information included on the return--(1) In general. Each return
required by paragraph (a) of this section must contain:
(i) The name, address, and taxpayer identification number of the
payor;
(ii) The name, address, and taxpayer identification number of the
payee;
(iii) A general description of the two types of identification (as
described in paragraph (e) of this section), one of which must have the
payee's photograph on it (except in the case of tribal member
identification cards in certain circumstances as described in paragraph
(d)(2) of this section) that the payor relied on to verify the payee's
name, address, and taxpayer identification number;
(iv) The date and amount of payment;
(v) The type of wagering transaction (bingo, keno, or slot machine
play);
(vi) In the case of a bingo or keno game, any number, color, or
other designation assigned to the game for which the payment is made;
(vii) In the case of slot machine play, the identification number of
the slot machine(s) (for example, location and asset number);
(viii) Any other information required by the forms, instructions,
revenue procedures, or other applicable guidance published in the
Internal Revenue Bulletin.
(2) Special rule for tribal member identification cards. A tribal
member identification card need not contain the payee's photograph to
meet the identification requirement described in paragraph (d)(1)(iii)
of this section if:
(i) The payee is a member of a federally recognized Indian tribe;
(ii) The payee presents the payor with a tribal member
identification card issued by a federally recognized Indian tribe
stating that the payee is a member of such tribe; and
(iii) The payor is a gaming establishment (as described in paragraph
(b)(2)(iv) of this section) owned or licensed (in accordance with 25
U.S.C. 2710) by the tribal government that issued the tribal member
identification card referred to in (d)(2)(ii).
(3) Special rule for optional aggregate reporting method. In the
case of aggregate reporting under paragraph (g) of this section, the
amount of the payment in paragraph (d)(1)(iv) of this section is the
aggregate amount of payments of reportable gambling winnings from the
same type of game (bingo, keno, or slot machine play) made to the same
payee during the same information reporting period (as defined in
paragraph (b)(2) of this section). Unless otherwise provided in forms,
instructions, or other guidance, in the case of aggregate reporting
under paragraph (g) of this section, the information required by
paragraphs (d)(1)(v) through (viii) of this section must be maintained
by the payor as described in paragraph (g)(3) of this section.
(e) Identification. The following items are treated as
identification for purposes of paragraph (d)(1)(iii) of this section--
(1) Government-issued identification (for example, a driver's
license, passport, social security card, military identification card,
tribal member identification card issued by a federally recognized
Indian tribe, or voter registration card) in the name of the payee; and
(2) A Form W-9, ``Request for Taxpayer Identification Number and
Certification,'' signed by the payee, that includes the payee's name,
address, taxpayer identification number, and other information required
by the form. A Form W-9 is not acceptable for
[[Page 262]]
this purpose if the payee has modified the form (other than pursuant to
instructions to the form) or if the payee has deleted the jurat or other
similar provisions by which the payee certifies or affirms the
correctness of the statements contained on the form.
(f) Furnishing a statement to the payee. Every payor required to
make a return under paragraph (a) of this section must also make and
furnish to each payee, with respect to each payment of reportable
gambling winnings, a written statement that contains the information
that is required to be included on the return under paragraph (d) of
this section. The payor must furnish the statement to the payee on or
before January 31st of the year following the calendar year in which
payment of the reportable gambling winnings is made. The statement will
be considered furnished to the payee if it is provided to the payee at
the time of payment or if it is mailed to the payee on or before January
31st of the year following the calendar year in which payment was made.
(g) Aggregate reporting of bingo, keno, and slot machine winnings--
(1) In general. In lieu of filing a separate information return for each
payment of reportable gambling winnings as required by paragraph (a) of
this section, a payor may use the aggregate reporting method (defined in
paragraph (g)(2) of this section) to report reportable gambling winnings
from bingo, keno, or slot machine play. A payor using the aggregate
reporting method to file information returns under paragraph (a) of this
section must also furnish statements to the payee under paragraph (f) of
this section using the aggregate reporting method.
(2) Aggregate reporting method defined. (i) The aggregate reporting
method is a method of reporting more than one payment of reportable
gambling winnings from the same type of game (bingo, keno, or slot
machine play) made to the same payee during the same information
reporting period (as defined in this paragraph (b)(2) of this section)
on one information return or statement.
(ii) A payor may use the aggregate reporting method for payments to
some payees and not others, at its own discretion. In addition, with
respect to a single payee, the payor may use the aggregate reporting
method to report winnings from one type of game, but not for winnings
from another type of game.
(iii) Failure to report some reportable gambling winnings from a
particular type of game during one information reporting period to a
particular payee under the aggregate reporting method (for whatever
reason, including because the winnings are not permitted to be reported
using the aggregate reporting method under paragraph (g)(4) of this
section) will not disqualify the payor from using the aggregate
reporting method to report other reportable gambling winnings from that
type of game during that information reporting period to that payee. The
payor may stop using the aggregate reporting method for a particular
payee or for all payees before the end of the payor's information
reporting period for any reason.
(3) Recordkeeping under the aggregate reporting method. A payor
using the aggregate reporting method must maintain a record of every
payment of reportable gambling winnings from the same type of game made
to the same payee during the information reporting period that will be
reported using the aggregate reporting method. Every individual that the
payor has determined is responsible for an entry in the record must
confirm the information in the entry by signing the record in a manner
that will enable the signature to be associated with the relevant entry.
Each payment of a reportable gambling winning made to the same payee and
reported under the aggregate reporting method must have its own entry in
the record, however, the information required by paragraphs (d)(1)(i)
through (iii) of this section is not required to be recorded more than
one time per information reporting period. A payor that uses the
aggregate reporting method must retain a copy of the record in its
files. The record (which may be electronic provided the requirements set
forth in forms, instructions, or guidance published in the Internal
Revenue Bulletin are met) must include the following information about
each payment:
[[Page 263]]
(i) The payee's signature confirming the information in the record;
(ii) The information required under paragraph (d) of this section;
(iii) The time of the win resulting in the reportable gambling
winnings;
(iv) The total amount of reportable gambling winnings with respect
to all payments to the payee during the information reporting period;
(v) The amount of reportable gambling winnings with respect to each
particular payment;
(vi) The method of payment to the payee (for example, cash, check,
voucher, credit, token, or chips); and
(vii) The name and unique identification number of the individual
who the payor has determined is responsible for ensuring that the entry
with respect to the reportable gambling winnings (including the general
description of two types of identification used to verify the payee's
name, address, and taxpayer identification number) is complete and
accurate and who is authorized to perform that function by the
applicable gaming regulatory control authority. Such individual may or
may not be the same individual who prepared the entry.
(4) When the aggregate reporting method may not be used. A payor
cannot use the aggregate reporting method if--
(i) The payment is to a foreign person, as described in section
1.6041-10(h);
(ii) The payor knows or has reason to know that the person making
the wager is not the person entitled to the winnings or is not the only
person entitled to the winnings (regardless of whether the person making
the wager furnishes a Form 5754, ``Statement by Person(s) Receiving
Gambling Winnings''); or
(iii) Backup withholding under section 3406(a) applies to the
payment.
(5) Examples. The following examples illustrate the provisions of
this section. For each example, assume that for purposes of the
aggregate reporting method in paragraph (g) of this section, Casino R's
``information reporting period'' for all calendar years is a gaming day
that begins at 3 a.m. and ends at 2:59 a.m. the following day (except
for January 1 and December 31) and that individuals C, D, and E are U.S.
persons.
Example 1. On Day 1, between 7 a.m. and 4 p.m., C places five wagers
at casino R on five different slot machines. The first two wagers result
in no win. The third wager results in a $1,500 win. The fourth wager
results in a $2,500 win. The fifth wager results in an $800 win:
(i) Under paragraph (b)(1)(i)(C) of this section, there are
reportable gambling winnings from the slot machine play of $4,000
($1,500 + $2,500). The $800 win is not a reportable gambling winning
from slot machine play because it does not equal or exceed the $1,200
threshold.
(ii) Because all of the amounts were won on the same type of game
(even though each of the winnings occurred on different machines) during
the same information reporting period, R is permitted to use the
aggregate reporting method under this paragraph (g). If R decides not to
use the aggregate reporting method, a separate Form W-2G would have to
be filed and furnished for the payment of reportable gambling winnings
of $1,500 and for the payment of reportable gambling winnings of $2,500.
However, if R decides to use the aggregate reporting method, R may
report total reportable gambling winnings from slot machine play of
$4,000 ($1,500 + $2,500) on one Form W-2G.
Example 2. Assume the same facts as Example 1, except that in
addition to the winnings described in Example 1, at 5 a.m. on Day 2, C
wins $3,250 from one slot machine play at casino R. Even though C played
the same type of game (slot machine play) on Day 1 and Day 2, under
paragraph (b)(2) of this section, the win at 5 a.m. on Day 2 is a win
during a separate information reporting period. Under paragraph
(g)(2)(i) of this section, the $3,250 of reportable gambling winnings on
Day 2 cannot be aggregated with the reportable gambling winnings of
$4,000 from Day 1 on a single Form W-2G. Accordingly, if R uses the
aggregate reporting method, R must file two Forms W-2G with respect to
C's reportable gambling winnings on Day 1 and Day 2. R must report
$4,000 of reportable gambling winnings from slot machine play paid to C
on Day 1 on the first Form W-2G, and $3,250 of reportable gambling
winnings from slot machine play paid to C on Day 2 on the second Form W-
2G.
Example 3. On December 31 of Year 1 at 4:00 p.m., C wins $10,000
from one slot machine play at casino R. At 12:30 a.m. on January 1 of
Year 2, C wins $4,000 from one slot machine play at casino R. Under
paragraphs (b)(2)(iii)(B) and (C) of this section, the win at 4 p.m. on
December 31 of Year 1 and the win at 12:30 a.m. on January 1 of Year 2
are wins during different information reporting periods. Under paragraph
(g)(2)(i) of this section, the $4,000 of reportable gambling winnings on
January 1 cannot be aggregated with the reportable gambling winnings of
$10,000 from December 31 on a single Form
[[Page 264]]
W-2G. Accordingly, if R uses the aggregate reporting method, R must file
two Forms W-2G with respect to C's reportable gambling winnings on Day 1
and Day 2. R must report $10,000 of reportable gambling winnings from
slot machine play paid to C on December 31 on the first Form W-2G and
$4,000 of reportable gambling winnings from slot machine play paid to C
on January 1 on the second Form W-2G.
Example 4. Assume the same facts as example 3, except that C also
wins $5,000 from one slot machine play at 3:30 p.m. on January 1 and
$7,000 from one slot machine play at 1:30 a.m. on January 2. Under the
special rule of paragraph (b)(2)(iii) of this section, the ``information
reporting period'' begins at 12:00 a.m. on January 1 and extends until
the start of the next information reporting period, in this case 2:59
a.m. on January 2. Under paragraph (b)(1)(C) of this section, Casino R
will pay C a total of $26,000 ($10,000 + $4,000 + $5,000 + $7,000) in
reportable gambling winnings; however, $10,000 must be reported in Year
1, and $16,000 must be reported in Year 2. Because all of the amounts
won in Year 2 were won on the same type of game and during the same
information reporting period, R is permitted to use the aggregate
reporting method under this paragraph (g). If R decides to use the
aggregate reporting method, R may report $10,000 of reportable gambling
winnings from slot machine play paid to C on December 31 on the first
Form W-2G and $16,000 of total reportable gambling winnings from slot
machine play paid to C on January 1 on the second Form W-2G.
Example 5. At 2 p.m. on Day 1, D won $2,000 (after reducing the
amount of the win by the amount wagered) playing one keno game at casino
R. D provides R with his driver's license. The driver's license has D's
photograph on it, as well as D's name and address. The driver's license
does not include D's social security number. D cannot remember his
social security number and has no other identification at the time with
his social security number on it. D does not provide R with his social
security number before R pays the winnings to D. Because D cannot
remember his social security number, D cannot complete and sign a Form
W-9. R deducts and withholds $560 (28 percent of $2,000) under the
backup withholding provisions of section 3406(a) and pays the remaining
$1,440 in winnings to D. D returns to casino R and at 6 p.m. on Day 1
wins $1,500 (after reducing the amount of the win by the amount wagered)
in one keno game. D provides R with his driver's license as well as D's
social security card. R generally uses the aggregate reporting method
and in all cases where it is used, R complies with the requirements of
this paragraph (g). At 8 p.m. and 10 p.m. on Day 1, D wins an additional
$1,800 and $1,700 (after reducing the amount of the win by the amount
wagered), respectively, from two different keno games. For each of these
two wins, an employee of R obtains the information from D required by
this paragraph (g):
(i) Under paragraph (b)(1)(i)(B) of this section, each of D's wins
from the four games of keno on Day 1 ($2,000, $1,500, $1,800, and
$1,700) are reportable gambling winnings. Because D's first win on Day 1
was at 2 p.m. and D's last win on Day 1 was at 10 p.m., all of D's
reportable gambling winnings from keno are won during the same
information reporting period. Because R satisfies the requirements of
paragraph (g)(2)(i), R may use the aggregate reporting method to report
D's reportable gambling winnings from keno. However, pursuant to
paragraph (g)(4)(iii) of this section, the $2,000 payment made to D at 2
p.m. cannot be reported under the aggregate reporting method because
that payment was subject to backup withholding. Accordingly, if R uses
the aggregate reporting method under this paragraph (g), R will have to
file two Forms W-2G with respect to D's reportable gambling winnings
from keno on Day 1. On the first Form W-2G, R will report $2,000 of
reportable gambling winnings and $560 of backup withholding with respect
to the 2 p.m. win from keno, and, on the second Form W-2G, R will report
$5,000 of reportable gambling winnings from keno (representing the three
payments of $1,500, $1,800, and $1,700 that D won between 6 p.m. and 10
p.m. on Day 1).
Example 6. In one information reporting period on Day 1, E won five
reportable gambling winnings from five different bingo games at a casino
R. R generally uses the aggregate reporting method and in all cases
where it is used, R complies with the requirements of this paragraph
(g). Although E signed the entry in the record R maintains for payment
of the first four reportable gambling winnings, E refuses to sign the
entry in the record for the fifth payment of reportable gambling
winnings. R may use the aggregate reporting method for the first four
payments of reportable gambling winnings to E. However, because the
entry in the record for the fifth payment of reportable gambling
winnings does not include E's signature, as required by paragraph
(g)(3)(i) of this section, that payment may not be reported under the
aggregate reporting method. Accordingly, if R uses the aggregate
reporting method under paragraph (g) of this section, R must prepare two
Forms W-2G as follows: On the first Form W-2G, R must report the first
four payments of reportable gambling winnings from bingo made to E on
Day 1. On the second Form W-2G, R must report the fifth payment of
reportable gambling winnings from bingo made to E on Day 1.
(h) Payments to foreign persons. See Sec. 1.6041-4 regarding
payments to foreign
[[Page 265]]
persons. See Sec. 1.6049-5(d) for determining whether the payee is a
foreign person.
(i) Effective/applicability date. Section 1.6041-10(b)(2),
concerning payor-selected ``information reporting periods,'' applies to
payments of reportable gambling winnings from bingo, keno, or slot
machine play made on or after January 1 of the year following the date
these regulations are published in the Federal Register. All other
sections contained herein apply to payments of reportable gambling
winnings from bingo, keno, or slot machine play made on or after
December 30, 2016.
(j) Cross-references for certain gambling winnings. For provisions
relating to backup withholding for winnings from bingo, keno, and slot
machine play and other reportable gambling winnings, see Sec.
31.3406(g)-2(d). For provisions relating to withholding and reporting
for gambling winnings from lotteries, sweepstakes, wagering pools, and
other wagering transactions, including a wagering transaction in a
parimutuel pool with respect to horse races, dog races, or jai alai, see
Sec. 31.3402(q)-1.
[T.D. 9807, 81 FR 96377, Dec. 30, 2016]
Sec. 1.6041A-1 Returns regarding payments of remuneration for
services and certain direct sales.
(a) through (c) [Reserved]
(d) Exceptions to return requirement. [Reserved]
(1) and (2) [Reserved]
(3) Foreign transactions--(i) In general. No return shall be
required under section 6041A with respect to payments described in this
paragraph (d)(3).
(A) Returns of information are not required for payments that a
payor can, prior to payment, associate with documentation upon which it
may rely to treat 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), (3), (4), or (5). However, such
payments may be reportable under Sec. 1.1461-1(b) and (c). For purposes
of this paragraph (d)(3)(i)(A), 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) shall apply. The provisions
of Sec. 1.1441-1 shall apply by substituting the term payor for the
term withholding agent.
(B) Returns of information are not required for payments of
remuneration for services from sources outside the United States
(determined under the provisions of part I, subchapter N, chapter 1 of
the Internal Revenue Code and the regulations under those provisions) if
payments are made outside the United States by a non-U.S. payor or non
U.S. middleman. For a definition of non U.S. payor or non-U.S.
middleman, see Sec. 1.6049-5(c)(5). For circumstances in which a
payment is considered to be made outside the United States, see Sec.
1.6049-5(e).
(C) Returns of information are not required under sections 6041 or
6041A for amounts paid outside of the United States (within the meaning
of Sec. 1.6049-5(e)) as remuneration for services as a direct seller
(within the meaning of section 3508) performed outside of the United
States or for sales described in section 6041A(b) made outside of the
United States of consumer products for resale outside of the United
States.
(ii) Payor. The term payor has the same meaning as described in
Sec. 1.6049-4(a)(2).
(iii) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt
from reporting under paragraph (d)(3)(i) of this section are presumed
made to U.S. payees who are not exempt recipients if, prior to payment,
the payor or middleman cannot reliably associate the payment either with
a Form W-9 furnished by one of the joint owners in the manner required
in Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (d)(3)(i)(A) of this section
furnished by each joint owner upon which it can rely to treat each joint
owner as a foreign payee or foreign beneficial owner.
(iv) Conversion into United States dollars of amounts paid in
foreign currency. For rules concerning foreign currency conversion, see
Sec. 1.6049-4(d)(3)(i).
(v) Effective date. The provisions of this paragraph (d)(3) apply to
payments made after December 31, 2000.
[[Page 266]]
(4) Information returns required under section 6050W for calendar
years beginning after December 31, 2010. (i) For payments made by
payment card (as defined in Sec. 1.6050W-1(b)(3)) or through a third
party payment network (as defined in Sec. 1.6050W-1(c)(3)) after
December 31, 2010, that are required to be reported on an information
return under section 6050W (relating to payment card and third party
network transactions), the following rule applies. Transactions that
otherwise would be reportable under both sections 6041A(a) and 6050W are
reported under section 6050W and not section 6041A(a). For provisions
relating to information reporting for payment card transactions and
third party network transactions, see Sec. 1.6050W-1. Solely for
purposes of this paragraph, the de minimis threshold for third party
network transactions in Sec. 1.6050W-1(c)(4) is disregarded in
determining whether the transaction is subject to reporting under
section 6050W.
(ii) Examples. The provisions of paragraph (d)(4) of this section
are illustrated by the following examples:
Example 1. Service-recipient A, in the course of its business, pays
remuneration of $600 to service provider B by credit card for services
performed by B. B is one of a network of unrelated persons that has
agreed to accept A's credit card as payment under an agreement that
provides standards and mechanisms for settling the transactions between
a merchant acquiring bank and the persons who accept the cards. Merchant
acquiring bank Y is responsible for making the payment to B. Under
paragraph (d)(4)(i) of this section, A is not required to file an
information return under section 6041A(a) with respect to the
transaction because Y, as the payment settlement entity for the payment
card transaction, is required to file an information return under
section 6050W.
Example 2. Service-recipient A, in the course of business, pays $600
of fixed or determinable income to B, a repairman, through a third party
payment network. B is one of a substantial number of persons who have
established accounts with Y, a third party settlement organization that
provides standards and mechanisms for settling the transactions and
guarantees payments to those persons for goods or services purchased
through the network. Y is responsible for making the payment to B. Under
paragraph (d)(4)(i) of this section, A is not required to file an
information return under section 6041A(a) with respect to the
transaction because the transaction is a third party network transaction
that is subject to reporting under section 6050W. Solely for purposes of
determining whether the transaction is subject to reporting under
section 6050W, the de minimis threshold for third party network
transactions in Sec. 1.6050W-1(c)(4) is disregarded.
(iii) Effective/applicability date. Paragraph (d)(4) of this section
applies to payments made by payment card or through a third party
payment network after December 31, 2010.
(e) [Reserved]
(f) Statements to be furnished to persons with respect to whom
information is required to be furnished--(1) [Reserved]
(2) Time for furnishing statement. [Reserved]
(3) Contents of statement. [Reserved]
(g) [Reserved]
(h) Cross-reference to penalties. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6041A(a) or (b), see Sec. 301.6721-1 of this
chapter (Procedure and Administration Regulations). For provisions
relating to the penalty provided for failure to furnish timely a correct
payee statement required under section 6041A(e), see Sec. 301.6722-1 of
this chapter. See Sec. 301.6724-1 of this chapter for the waiver of a
penalty if the failure is due to reasonable cause and is not due to
willful neglect.
[T.D. 8734, 62 FR 53474, Oct. 14, 1997, as amended by T.D. 8804, 63 FR
72188, Dec. 31, 1998; T.D. 8856, 64 FR 73412, Dec. 30, 1999; T.D. 8881,
65 FR 32205, May 22, 2000; T.D. 9496, 75 FR 49828, Aug. 16, 2010]
Sec. 1.6042-1 Return of information as to dividends paid in calendar
years before 1963.
(a) Requirement of return--(1) In general. Except as provided in
subparagraphs (2) and (3) of this paragraph, every domestic corporation,
or foreign corporation engaged in business within the United States or
having an office or place of business or a fiscal or paying agent in the
United States, making payments during any calendar year before 1963 of
$10 or more of dividends and distributions (other than distributions in
liquidation) to any shareholder who is an individual (citizen or
resident of the United States), a resident fiduciary, or a resident
partnership any
[[Page 267]]
member of which is a citizen or resident shall file for the calendar
year a return setting forth the amount of such payments for such
calendar year. A separate return on Form 1099, showing the name and
address of the payer and the shareholder, and the amount paid, shall be
prepared with respect to each shareholder. These returns shall be
accompanied by transmittal Form 1096.
(2) Federal land bank associations and certain other corporations. A
corporation described in section 501(c) (12), (15), or (16), or section
521(b)(1), or a Federal land bank association or a production credit
association, making a payment of a dividend, or a distribution, to any
shareholder in any calendar year before 1963 shall file an information
return with respect to such payments when they total $100 or more during
the calendar year.
(3) Savings and loan associations, etc. A savings and loan
association, a cooperative bank, a homestead association, a credit
union, or a building and loan association is required to file an
information return with respect to distributions made to a shareholder
during any calendar year before 1963 only if the amount thereof paid to
the shareholder during the calendar year, or such amount when aggregated
with other payments made to the shareholder during such year of
interest, rents, royalties, annuities, pensions, and other gains,
profits, and income, as described in paragraph (a)(2)(ii) of Sec.
1.6041-1, totals $600 or more. For this purpose, the term
``distributions to a shareholder'' includes periodical distributions of
earnings on running installment shares of stock paid or credited by a
building and loan association to its holders of that class of stock, and
the sum received upon withdrawal from a building and loan association in
excess of the amounts paid in on account of membership fees and stock
subscriptions, consisting of accumulated profits.
(b) Nontaxable or partly nontaxable distributions. In the case of a
distribution which is made from a depletion or depreciation reserve, or
which for any other reason is deemed by the corporation to be nontaxable
or partly nontaxable to its shareholders, the corporation shall fill in
the information on both sides of Form 1096.
(c) Information as to actual owner--(1) In general. When the person
receiving a payment with respect to which an information return is
required under authority of the Code is not the actual owner of the
income received, the name and address of the actual owner or payee shall
be furnished upon demand of the person paying the income, and in default
of a compliance with such demand the payee becomes liable for the
penalties provided. See section 7203. Dividends on stock are prima facie
the income of the record owner of the stock. If a record owner of stock
who is not the actual owner thereof receives dividends on such stock in
any calendar year before 1963, he shall file a Form 1087 disclosing the
name and address of the actual owner or payee, the name of the issuing
corporation, the number of shares of such stock, and the amount of
dividends received with respect to such stock during the calendar year.
(For the reporting by a nominee of dividends received by him on behalf
of another person in any calendar year after 1962, see Sec. 1.6042-2.)
Unless such a disclosure is made the record owner will be held liable
for any tax based upon such dividends. A separate Form 1087 shall be
filed by the record owner for each of the stockholdings of each actual
owner for whom he acts as nominee. However, where the record owner is a
banking institution, trust company, or brokerage firm, it may, provided
it maintains such records as will permit a prompt substantiation of each
payment of dividends made to the actual owner, file one Form 1087 for
each actual owner for whom it acts as nominee and report thereon the
total amount of the dividends paid to such actual owner (without
itemization as to the issuing company, class of stock, etc.).
(2) Exceptions. The filing of Form 1087 is not required if:
(i) The record owner is required to file a fiduciary return on Form
1041, or a withholding return on Form 1042, disclosing the name and
address of the actual owner or payee;
(ii) The actual owner or payee is a nonresident alien individual,
foreign partnership, or foreign corporation and the tax has been
withheld at the source
[[Page 268]]
before receipt of the dividends by the record owner;
(iii) The record owner is a banking institution, a trust company, or
a brokerage firm which prepares the individual income tax return of the
actual owner, provided the verification on the return with respect to
the preparation thereof is executed by such record owner;
(iv) The record owner is a nominee of a banking institution or trust
company exercising trust powers, and such banking institution or trust
company is required to file a fiduciary return on Form 1041 which
reflects the name and address of the actual owner or payee;
(v) The actual owner is an organization exempt from taxation under
section 501(a) and is exempt from the requirement of filing a return
under section 6033 and paragraph (g) of Sec. 1.6033-1; or
(vi) The record owner is a banking institution or trust company
exercising trust powers, or a nominee thereof, and the actual owner is
an organization exempt from taxation under section 501(a) for which such
banking institution or trust company files an annual return.
See Sec. 1.1441-1, relating to withholding of tax on nonresident alien
individuals, and Sec. 1.1442-1, relating to withholding of tax on
nonresident foreign corporations.
(d) Time and place for filing. Returns made under this section on
Forms 1096 and 1099 and Form 1087 for any calendar year shall be filed
on or before February 28 of the following year with any of the Internal
Revenue Service Centers, the addresses of which are listed in the
instructions for such forms.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6628, 27 FR
12795, Dec. 28, 1962]
Sec. 1.6042-2 Returns of information as to dividends paid.
(a) Requirement of reporting--(1) In general. An information return
on Form 1099 shall be made under section 6042(a) by--
(i) Every person who makes a payment of dividends (as defined in
Sec. 1.6042-3) to any other person during a calendar year. The
information return shall show the aggregate amount of the dividends, the
name, address, and taxpayer identifying number of the person to whom
paid, the amount of tax deducted and withheld under section 3406 from
the dividends, if any, and such other information as required by the
forms. An information return is generally not required if the amount of
dividends paid to the other person during the calendar year aggregates
less than $10 or if the payment is made to a person who is an exempt
recipient described in Sec. 1.6049-4(c)(1)(ii) unless the payor backup
withholds under section 3406 on such payment (because, for example, the
payee has failed to furnish a Form W-9), in which case the payor must
make a return under this section, unless the payor refunds the amount
withheld pursuant to Sec. 31.6413(a)-3 of this chapter. Further, a
return of information is not required under this section for--
(A) Payments with respect to which a return is not required by
applying the rules of Sec. 1.6049-4(c)(4) (by substituting the term
``dividend'' for the term ``interest''); or
(B) Payments made by a paying agent on behalf of a corporation
described in section 1297(a) with respect to a shareholder of the
corporation if--
(1) The paying agent obtains from the corporation a written
certification signed by a person authorized to sign on behalf of the
corporation, that states that the corporation is described in section
1297(a) for each calendar year during which the paying agent relies on
the provisions of paragraph (a)(1)(i)(B) of this section, and the paying
agent has no reason to know the written certification is unreliable or
incorrect;
(2) The paying agent identifies, prior to payment, the corporation
as a participating FFI (including a reporting Model 2 FFI) (as defined
in Sec. 1.6049-4(f)(10) or (14), respectively), or reporting Model 1
FFI (as defined in Sec. 1.6049-4(f)(13)), in accordance with the
requirements of Sec. 1.1471-3(d)(4) (substituting the terms ``paying
agent'' and ``corporation'' for the terms ``withholding agent'' and
``payee,'' respectively) and validates that status annually;
(3) The paying agent obtains a written certification representing
that the
[[Page 269]]
corporation shall report the payment as part of its reporting
obligations under chapter 4 of the Code or an applicable IGA (as defined
in Sec. 1.6049-4(f)(7)) with respect to its U.S. accounts and provided
the paying agent does not know that the corporation is not reporting the
payment as required. The paying agent may rely on the written
certification until there is a change in circumstances or the paying
agent knows or has reason to know that the statement is unreliable or
incorrect. A paying agent that knows that the corporation is not
reporting the payment as required under chapter 4 of the Code or an
applicable IGA (as defined in Sec. 1.6049-4(f)(7)) must report all
payments reportable under this section that it makes during the year in
which it obtains such knowledge; and
(4) The paying agent is not also acting in its capacity as a
custodian, nominee, or other agent of the payee with respect to the
payments.
(ii) Every person, except to the extent that he acts as a nominee
described in paragraph (a)(1)(iii) of this section, who receives
payments of dividends as a nominee on behalf of another person shall
make a return of information under this section for the calendar year of
the payment . The information return shall show the aggregate amount of
the dividends, the name, address, and taxpayer identification number of
the person on whose behalf the dividends are received, the amount of tax
deducted and withheld under section 3406 from the dividends, if any, and
such other information as required by the forms. An information return
is generally not required if the amount of the dividends received on
behalf of the other person during the calendar year aggregates less than
$10. However, a return of information is not required under this section
if--
(A) The record owner is, pursuant to section 6012(a) (3) or (4) and
Sec. 1.6012-3, required to file a fiduciary return on Form 1041 that is
filed for the estate or trust disclosing the name, address, and
identifying number of both the record owner and actual owner and
furnishes Form K-1 to each actual owner containing the information
required to be shown on the form, including amounts withheld under
section 3406;
(B) The record owner is a nominee of a banking institution or trust
company exercising trust powers, and such banking institution or trust
company is, pursuant to section 6012(a) (3) or (4) and Sec. 1.6012-3,
required to file a fiduciary return on Form 1041 that is filed for the
estate or trust disclosing the name, address, and identifying number of
both the record owner and the actual owner and furnishes Form K-1 to
each actual owner containing the information required to be shown on the
form, including amounts withheld under section 3406; or
(C) The record owner is a banking institution or trust company
exercising trust powers, or a nominee thereof, and the actual owner is
an organization exempt from taxation under section 501(a) for which such
banking institution or trust company files an annual return but only if
the name, address, and identifying number of the record owner are
included on or with the annual return filed for the tax exempt
organization).
(iii) Every person who is a nominee acting as a custodian of a unit
investment trust described in section 851(f)(1) and paragraph (d) of
Sec. 1.851-7 who, during a calendar year after 1968, receives payments
of dividends in such capacity, shall make an information return on Forms
1096 and 1099, for such calendar year showing the information required
by such forms and instructions thereto and the name, address, and
identifying number of the nominee identified as such. This subdivision
shall not apply if the regulated investment company agrees with the
nominee to satisfy the requirements of section 6042 and the regulations
thereunder with respect to each holder of an interest in the unit
investment trust whose shares are being held by the nominee as custodian
and within the time limit for furnishing statements prescribed by Sec.
1.6042-4, files with the Internal Revenue Service office where such
company's return is to be filed for the taxable year, a statement that
the holders of the unit investment trust with whom the agreement was
made have been directly notified by the regulated investment company.
Such statement shall include the name, sponsor, and custodian of each
unit investment
[[Page 270]]
trust whose holders have been directly notified. The nominee's
requirements under this subdivision shall be deemed met if the regulated
investment company transmits a copy of such statement to the nominee
within such period; provided, however, if the regulated investment
company fails or is unable to satisfy the requirements of section 6042
with respect to the holders of interest in the unit investment trust, it
shall so notify the Internal Revenue Service within 45 days following
the close of its taxable year. The custodian shall, upon notice by the
Internal Revenue Service that the regulated investment company has
failed to comply with the agreement, satisfy the requirements of this
subdivision within 30 days of such notice.
(2) Definitions. The term ``person'' when used in this section does
not include the United States, a State, the District of Columbia, a
foreign government, a political subdivision of a State or of a foreign
government, or an international organization. Therefore, dividends paid
by or to one of these entities need not be reported. For purposes of
this section, a person who receives a dividend shall be considered to
have received it as a nominee if he is not the actual owner of such
dividend and if he was required under Sec. 1.6109-1 to furnish his
identifying number to the payer of the dividend (or would have been so
required if the total of such dividends for the year had been $10 or
more), and such number was (or would have been) required to be included
on an information return filed by the payer with respect to the
dividend. However, a person shall not be considered to be a nominee as
to any portion of a dividend which is actually owned by another person
whose name is also shown on the information return filed by the payer or
nominee with respect to such dividend. Thus, in the case of stock
jointly owned by a husband and wife, the husband will not be considered
as receiving any portion of a dividend on that stock as a nominee for
his wife if his wife's name is included on the information return filed
by the payer with respect to the dividend.
(3) Determination of person to whom a dividend is paid or for whom
it is received. For purposes of applying the provisions of this section,
the person whose identifying number is required to be included by the
payer of a dividend on an information return with respect to such
dividend shall be considered the person to whom the dividend is paid. In
the case of a dividend received by a nominee on behalf of another
person, the person whose identifying number is required to be included
on an information return made by the nominee with respect to such
dividend shall be considered the person on whose behalf such dividend is
received by the nominee. Thus, in the case of a dividend made payable to
a person other than the record owner of the stock with respect to which
the dividend is paid, the record owner of the stock shall be considered
the person to whom the dividend is paid for purposes of applying the
reporting requirements in this section, since his identifying number is
required to be included on the information return filed under this
section by the payer of the dividend. Similarly, if a stockbroker
receives a dividend on stock held in street name for the joint account
of a husband and wife, the dividend is considered as received on behalf
of the husband since his identifying number should be shown on the
information return filed by the nominee under this section. Thus, if the
wife has a separate account with the same stockbroker, any dividends
received by the stockbroker for her separate account should not be
aggregated with the dividends received for the joint account for
purposes of information reporting. For regulations relating to the use
of identifying numbers, see Sec. 1.6109-1.
(4) Inclusion of other payments. The Form 1099 filed by any person
with respect to payments of dividends to another person during a
calendar year may, at the election of the maker, include other payments
made by him to such other person during such year which are required to
be reported on Form 1099. Similarly, the Form 1099 filed by a nominee
with respect to payments of dividends received by him on behalf of any
other person during a calendar year may include payments of interest
received by him on behalf of such person during such year which are
required to be reported on Form 1099.
[[Page 271]]
(b) When payment deemed made. For purposes of a return of
information, an amount is deemed to have been paid when it is credited
or set apart to a person without any substantial limitation or
restriction as to the time or manner of payment or condition upon which
payment is to be made, and is made available to him so that it may be
drawn at any time, and its receipt brought within his own control and
disposition.
(c) Time and place for filing. The returns required under this
section for any calendar year shall be filed after September 30 of such
year, but not before the payer's final payment for the year, and on or
before February 28 (March 31 if filed electronically) of the following
year with any of the Internal Revenue Service Centers, the addresses of
which are listed in the instructions for Form 1096. For extensions of
time for filing returns under this section, see Sec. 1.6081-1.
(d) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6042(a), see Sec. 301.6721-1 of this chapter
(Procedure and Administration Regulations). See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(e) Magnetic media requirement. For rules relating to permission to
submit the information required by Form 1087 or 1099 on magnetic tape or
other media, see Sec. 1.9101-1. For the requirement to submit the
information required by Form 1099 on magnetic media for payments after
December 31, 1983, see section 6011(e) and Sec. 301.6011-2 of this
chapter (Procedure and Administration Regulations).
(f) Effective/applicability date. This section applies to payments
made on or after January 6, 2017. (For payments made after June 30,
2014, and before January 6, 2017, see this section as in effect and
contained in 26 CFR part 1, as revised April 1, 2016. For payments made
after December 31, 2000, and before July 1, 2014, see this section as in
effect and contained in 26 CFR part 1, as revised April 1, 2013.)
[T.D. 6628, 27 FR 12796, Dec. 29, 1962, as amended by T.D. 6677, 28 FR
10147, Sept. 17, 1963; T.D. 6879, 31 FR 3493, Mar. 8, 1966; T.D. 6883,
31 FR 6589, May 3, 1966; T.D. 7000, 34 FR 996, Jan. 23, 1969; T.D. 7187,
37 FR 13258, July 6, 1972; T.D. 8734, 62 FR 53474, Oct. 14, 1997; T.D.
8804, 64 FR 11378, Mar. 9, 1999; T.D. 8895, 65 FR 50406, Aug. 18, 2000;
T.D. 9658, 79 FR 12794, Mar. 6, 2014; T.D. 9808, 82 FR 2106, Jan. 6,
2017]
Sec. 1.6042-3 Dividends subject to reporting.
(a) In general. Except as provided in paragraph (b) of this section,
the term dividend for purposes of this section and Sec. Sec. 1.6042-2
and 1.6042-4 means the amounts described in the following paragraphs (a)
(1) through (3) of this section--
(1) Any distribution made by a corporation to its shareholders which
is a dividend as defined in section 316; and
(2) Any payment made by a stockbroker to any person as a substitute
for a dividend. Such a payment includes any payment made in lieu of a
dividend to a person whose stock has been borrowed. See Sec. 1.6045-
2(h) for coordination of the reporting requirements under sections 6042
and 6045(d) with respect to such payments; and
(3) A distribution from a regulated investment company (irrespective
of the fact that any part of the distribution may not represent ordinary
income (i.e., may, for example, represent a capital gain dividend as
defined in section 852(b)(3)(C)).
(b) Exceptions--(1) In general. For purposes of Sec. Sec. 1.6042-2
and 1.6042-4, the amounts described in paragraphs (b)(1)(i) through
(vii) of this section are not dividends.
(i) Amounts paid by an insurance company to a policyholder, other
than a dividend upon its capital stock.
(ii) Payments (however denominated) by a mutual savings bank,
savings and loan association, or similar organization, in respect of
deposits, investment certificates, or withdrawable or repurchasable
shares. See, however, section 6049 and the regulations under that
section for provisions requiring reporting of these payments.
(iii) Distributions or payments that a payor can, prior to payment,
reliably
[[Page 272]]
associate with documentation upon which it may rely to treat 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), (3),
(4), or (5). Returns of information are also not required for payments
that a payor or middleman can, prior to payment, reliably associate with
documentation upon which it may rely to treat as made to a foreign
intermediary in accordance with Sec. 1.1441-1(b) if it obtains from the
intermediary entity a withholding statement (described in Sec. 1.6049-
5(b)(14)) that allocates the payment to a chapter 4 withholding rate
pool (as defined in Sec. 1.6049-4(f)(5)) or to specific payees to which
withholding under chapter 4 applies. Payments excepted from reporting
under this paragraph (b)(1)(iii) may be reportable, for purposes of
chapter 3 of the Internal Revenue Code (Code), under Sec. 1.1461-1(b)
and (c) or, for chapter 4 purposes, under Sec. 1.1474-1(d)(2). The
provisions in Sec. 1.6049-5(c) regarding documentation of foreign
status shall apply for purposes of this paragraph (b)(1)(iii). The
provisions in Sec. 1.6049-5(c) regarding the definitions of U.S. payor
and non-U.S. payor shall also apply for purposes of this paragraph
(b)(1)(iii). The provisions of Sec. 1.1441-1 shall apply by
substituting the term payor for the term withholding agent and without
regard to the fact that the provisions apply only to amounts subject to
withholding under chapter 3 of the Code.
(iv) Distributions or payments from sources outside the United
States (as determined under the provisions of part I, subchapter N,
chapter 1 of the Code and the regulations under those provisions) that
are paid by a non-U.S. payor or non-U.S. middleman and that are paid and
received outside the United States. For a definition of non-U.S. payor
and non-U.S. middleman, see Sec. 1.6049-5(c)(5). For circumstances in
which an amount is considered to be paid and received outside the United
States, see Sec. 1.6049-4(f)(16).
(v) Distributions or payments for the period that the amounts
represent assets blocked as described in Sec. 1.1441-2(e)(3). The
exemption in this paragraph (b)(1)(v) shall terminate when payment is
deemed to occur in accordance with the rules of Sec. 1.1441-2(e)(3).
(vi) If a foreign intermediary, as described in Sec. 1.1441-
1(c)(13), or a U.S. branch that is not treated as a U.S. person receives
a payment from a payor, which payment the payor can reliably associate
with a valid withholding certificate described in Sec. 1.1441-
1(e)(3)(ii) or (iii), or Sec. 1.1441-1(e)(3)(v), respectively,
furnished by such intermediary or branch, then the intermediary or
branch is not required to report such payment when it, in turn, pays the
amount, unless, and to the extent, the intermediary or branch knows that
the payment is required to be reported under this section and was not so
reported. For example, if a U.S. branch described in Sec. 1.1441-
1(b)(2)(iv) fails to provide information regarding U.S. persons that are
not exempt from reporting under Sec. 1.6049-4(c)(1)(ii) to the person
from whom the U.S. branch receives the payment, the amount paid by the
U.S. branch to such person is a dividend. See, however, Sec. 1.6042-
2(a)(1)(i)(A) for when reporting under section 6042 is coordinated with
reporting under chapter 4 of the Code or an applicable IGA (as defined
in Sec. 1.6049-4(f)(7)). The exception of this paragraph (b)(1)(vi) for
amounts paid by a foreign intermediary shall not apply to a qualified
intermediary that assumes reporting responsibility under chapter 61 of
the Code with respect to amounts reportable under the agreement
described in Sec. 1.1441-1(e)(5)(iii).
(vii) With respect to amounts paid or credited after December 31,
1982, any amount paid or credited to any person described in Sec.
1.6049-4(c)(1)(ii), unless a tax is withheld under section 3406 and is
not refunded by the payor in accordance with Sec. 31.6413(a)-3 of this
chapter (Employment Tax Regulations).
(2) Payor. The term payor has the same meaning as described in Sec.
1.6049-4(a)(2).
(3) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt
from reporting under this paragraph (b) are presumed made to U.S. payees
who are not exempt recipients if, prior to payment, the payor or
middleman cannot reliably associate the payment either with
[[Page 273]]
a Form W-9 furnished by one of the joint owners in the manner required
in Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (b)(1)(iii) of this section
furnished by each joint owner upon which it can rely to treat each joint
owner as a foreign payee or foreign beneficial owner. However in the
case of a withholdable payment (as defined in Sec. 1.6049-4(f)(15))
made to joint payees, if any such joint payee does not appear to be an
individual, the payment is presumed made to a foreign payee that is a
nonparticipating FFI (as defined in Sec. 1.1471-1(b)(82)). See Sec.
1.1471-3(f)(7). For purposes of applying this paragraph (b)(3), the
grace period described in Sec. 1.6049-5(d)(2)(ii) shall apply only if
each payee qualifies for such grace period.
(4) Conversion into United States dollars of amounts paid in foreign
currency. For rules concerning foreign currency conversion, see Sec.
1.6049-4(d)(3)(i).
(c) Special rule. If a person makes a payment which may be a
dividend, or if a nominee receives a payment which may be a dividend,
but such person or nominee is unable to determine the portion of the
payment which is a dividend (as defined in paragraphs (a) and (b) of
this section) at the time he files his return under Sec. 1.6042-2, he
shall, for purposes of such section, treat the entire amount of such
payment as a dividend.
(d) Effective/applicability date. This section applies on or after
January 6, 2017. (For payments made after June 30, 2014, and before
January 6, 2017, see this section as in effect and contained in 26 CFR
part 1, as revised April 1, 2016. For payments made after December 31,
2000, and before July 1, 2014, see this section as in effect and
contained in 26 CFR part 1, as revised April 1, 2013).
[T.D. 6628, 27 FR 12797, Dec. 28, 1962, as amended by T.D. 6908, 31 FR
16774, Dec. 31, 1966; T.D. 7987, 49 FR 42719, Oct. 24, 1984; T.D. 8029,
50 FR 23680, June 5, 1985; T.D. 8734, 62 FR 53475, Oct. 14, 1997; T.D.
8804, 63 FR 72186, Dec. 31, 1998; 64 FR 73411, Dec. 30, 1999; T.D. 8881,
65 FR 32205, May 22, 2000; T.D. 9658, 79 FR 12794, Mar. 6, 2014; T.D.
9808, 82 FR 2107, Jan. 6, 2017]
Sec. 1.6042-4 Statements to recipients of dividend payments.
(a) Requirement. A person required to make an information return
under section 6042(a)(1) and Sec. 1.6042-2 must furnish a statement to
each recipient whose identifying number is required to be shown on the
related information return for dividend payments.
(b) Form and content of the statement. The statement required by
paragraph (a) of this section must be either the official Form 1099
prescribed by the Internal Revenue Service for the respective calendar
year or an acceptable substitute statement that contains provisions that
are substantially similar to those of the official Form 1099 for the
respective calendar year. For further guidance on how to prepare an
acceptable substitute statement, see Rev. Proc. 2012-38, 2012-48 IRB
575, also published as Publication 1179, ``General Rules and
Specifications for Substitute Forms 1096, 1098, 1099, 5498, and Certain
Other Information Returns,'' or any successor guidance. An IRS truncated
taxpayer identifying number (TTIN) may be used as the identifying number
of the recipient. For provisions relating to the use of TTINs, see Sec.
301.6109-4 of this chapter (Procedure and Administration Regulations).
(c) Aggregation of payments. A payor may aggregate on one Form 1099
all payments made to a recipient with respect to each separate account
during a calendar year.
(d) Manner of providing statements to recipients--(1) In general.
The Form 1099, or acceptable substitute statement, must be provided to
the recipient either in person or by first-class mail to the recipient's
last known address in a statement mailing.
(2) Statement mailing requirement. The mailing required under
section 6042(c) of a Form 1099 to a payee-recipient must qualify as a
statement mailing. A statement mailing must contain the required Form
1099 or acceptable substitute statement (written statement) and must
comply with enclosure and envelope restrictions.
(i) Enclosure restrictions. To qualify as a statement mailing, the
mailing cannot contain any enclosures except those listed in this
paragraph (d)(2)(i).
[[Page 274]]
Moreover, no promotional or advertising material is permitted in the
mailing of the written statement. Even a de minimis amount of
promotional or advertising material violates the statement mailing
requirement. However, a logo on the envelope containing the written
statement and on nontax enclosures described in paragraph (d)(2)(i) (A)
through (D) of this section does not violate the written statement
requirement. The written statement required under section 6042(c) and
paragraph (a) of this section may be perforated to a check or to a
statement of the recipient-payee's specific account with the payor
described in paragraph (d)(2)(i) (A) or (C) of this section. The
enclosure to which the written statement is perforated must contain, in
a bold and conspicuous type, the legend: ``Important Tax Return Document
Attached.'' The enclosures permitted in a mailing are limited to--
(A) A check with respect to the account reported on the written
statement;
(B) A letter explaining why a check with respect to such account is
not enclosed with the written statement (for example, because a dividend
has not been declared payable);
(C) A statement of the taxpayer-recipient's specific account with
the payor if payments on such account are reflected on the written
statement;
(D) A letter limited to an explanation of the tax consequences of
the information set forth on the enclosed written statement;
(E) Payee statements related to other Forms 1099, Form 1098, and
Form 5498 (or the account balance on a Form 5498), Forms W-2 and W-2G;
and
(F) Any document concerning the solicitation of the Form W-9, as
described in Sec. 31.3406(h)-3(a) of this chapter, or of the Form W-8
as described in Sec. 1.1441-1(e)(1).
(ii) Envelope and delivery restrictions--(A) Envelope restrictions.
The outside of the envelope in which the written statement is mailed and
each nontax enclosure enclosed in the envelope must contain, in a bold
and conspicuous type, the legend: ``Important Tax Return Document
Enclosed.'' For purposes of this paragraph (d)(2)(ii), a nontax
enclosure is any item listed in paragraphs (d)(2)(i)(A) through (C) of
this section. However, a payor is not required to include the legend on
the outside of an envelope containing only the enclosures in paragraph
(d)(2)(i)(D) through (F) of this section.
(B) Delivery restrictions. The requirement to provide the written
statement in person or by first-class mail may be satisfied by sending
the written statement and any enclosures described in paragraph
(d)(2)(i) of this section by intra-office mail, provided that intra-
office mail is used by the payor in sending account activity, balance
information, and other correspondence to the payee. If a payor does not
personally deliver the written statement (i.e., the Form 1099 or its
acceptable substitute) to the recipient or mail it to the recipient in a
statement mailing as described in this paragraph (d), the payor is
considered to have failed to mail the statement required under section
6042(c) and will be subject to the penalty under section 6722.
(e) Time for furnishing statements--(1) In general. Each statement
required by section 6042(c) and this section to be furnished to any
person for a calendar year must be furnished to such person after
November 30 of the year and on or before January 31 (February 10 in the
case of a nominee filing under Sec. 1.6042-2(a)(1)(iii)) of the
following year, but no statement may be furnished before the final
dividend for the calendar year has been paid. However, the statement may
be furnished at any time after April 30 if it is furnished with the
final dividend for the calendar year. 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).
(2) Extensions of time. For good cause upon written application of
the person required to furnish statements under this section, the
Director, Martinsburg Computing Center, may grant an extension of time
not exceeding 30 days in which to furnish such statements. The
application must be addressed to the Director, Martinsburg Computing
Center, and must contain a full recital
[[Page 275]]
of the reasons for requesting the extension to aid the Director in
determining the period of the extension, if any, that will be granted.
Such a request in the form of a letter to the Director, Martinsburg
Computing Center, signed by the applicant will suffice as an
application. The application must be filed on or before the date
prescribed in paragraph (e)(1) of this section.
(3) Last day for furnishing statement. For provisions relating to
the time for performance of an act when the last day prescribed for
performance falls on Saturday, Sunday, or a legal holiday, see section
7503 and Sec. 301.7503-1 of this chapter (Regulations on Procedure and
Administration).
(f) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to furnish timely a correct payee statement
required under section 6042(c), see Sec. 301.6722-1 of this chapter
(Procedure and Administration Regulations). See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if the failure is due to reasonable
cause and is not due to willful neglect.
(g) Effective/applicability date. This section is effective for
payee statements due after December 31, 1995, without regard to
extensions. The amendments to paragraph (b) are effective for payee
statements due after December 31, 2014. For payee statements due before
January 1, 2015, Sec. 1.6042-4(b) (as contained in 26 CFR part 1,
revised April 2013) shall apply.
[T.D. 8637, 60 FR 66110, Dec. 21, 1995, as amended by T.D. 8734, 62 FR
53476, Oct. 14, 1997; T.D. 9504, 75 FR 64090, Oct. 18, 2010; T.D. 9675,
79 FR 41129, July 15, 2014]
Sec. 1.6042-5 Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5.
See Sec. 1.671-5 for the reporting rules for widely held fixed
investment trusts (as defined under that section).
[T.D. 9241, 71 FR 4025, Jan. 24, 2006]
Sec. 1.6043-1 Return regarding corporate dissolution or liquidation.
(a) Requirement of returns. Within 30 days after the adoption of any
resolution or plan for or in respect of the dissolution of a corporation
or the liquidation of the whole or any part of its capital stock, the
corporation shall file a return on Form 966, containing the information
required by paragraph (b) of this section and by such form. Such return
shall be filed with the district director for the district in which the
income tax return of the corporation is filed. Further, if after the
filing of a Form 966 there is an amendment of or supplement to the
resolution or plan, an additional Form 966, based on the resolution or
plan as amended or supplemented, must be filed within 30 days after the
adoption of such amendment or supplement. A return must be filed under
section 6043 and this section in respect of a liquidation whether or not
any part of the gain or loss to the shareholders upon the liquidation is
recognized under the provisions of section 1002.
(b) Contents of return--(1) In general. There shall be attached to
and made a part of the return required by section 6043 and paragraph (a)
of this section a certified copy of the resolution or plan, together
with any amendments thereof or supplements thereto, and such return
shall in addition contain the following information:
(i) The name and address of the corporation;
(ii) The place and date of incorporation;
(iii) The date of the adoption of the resolution or plan and the
dates of any amendments thereof or supplements thereto; and
(iv) The internal revenue district in which the last income tax
return of the corporation was filed and the taxable year covered
thereby.
(2) Returns in respect of amendments or supplements. If a return has
been filed pursuant to section 6043 and this section, any additional
return made necessary by an amendment of or a supplement to the
resolution or plan will be deemed sufficient if it gives the date the
prior return was filed and contains a duly certified copy of the
amendment or supplement and all other information required by this
section and by Form 966 which was not given in the prior return.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6949, 33 FR
5531, Apr. 9, 1968; T.D. 7926, 48 FR 55847, Dec. 16, 1983]
[[Page 276]]
Sec. 1.6043-2 Return of information respecting distributions
in liquidation.
(a) Unless the distribution is one in respect of which information
is required to be filed pursuant to Sec. 1.332-6(b), Sec. 1.368-3(a),
or Sec. 1.1081-11, every corporation making any distribution of $600 or
more during a calendar year to any shareholder in liquidation of the
whole or any part of its capital stock shall file a return of
information on Forms 1096 and 1099, giving all the information required
by such form and by the regulations in this part. A separate Form 1099
must be prepared for each shareholder to whom such distribution was
made, showing the name and address of such shareholder, the number and
class of shares owned by him in liquidation of which such distribution
was made, and the total amount distributed to him on each class of
stock. If the amount distributed to such shareholder on any class of
stock consisted in whole or in part of property other than money, the
return on such form shall in addition show the amount of money
distributed, if any, and shall list separately each class of property
other than money distributed, giving a description of the property in
each such class and a statement of its fair market value at the time of
the distribution. Such forms, accompanied by transmittal Form 1096
showing the number of Forms 1099 filed therewith, shall be filed on or
before February 28 (March 31 if filed electronically) of the year
following the calendar year in which such distribution was made with any
of the Internal Revenue Service Centers, the addresses of which are
listed in the instructions for Form 1096.
(b) If the distribution is in complete liquidation of a domestic
corporation pursuant to a plan of liquidation in accordance with which
all the capital stock of the corporation is cancelled or redeemed, and
the transfer of all property under the liquidation occurs within some
one calendar month pursuant to section 333, and any shareholder claims
the benefit of such section, the return on Form 1096 shall show:
(1) The amount of earnings and profits of the corporation
accumulated after February 28, 1913, determined as of the close of such
calendar month, without diminution by reason of distributions made
during such calendar month, but including in such computation all items
of income and expense accrued up to the date on which the transfer of
all the property under the liquidation is completed;
(2) The ratable share of such earnings and profits of each share of
stock canceled or redeemed in the liquidation;
(3) The date and circumstances of the acquisition by the corporation
of any or securities distributed to shareholders in the liquidation;
(4) If the liquidation is pursuant to section 333(g), a schedule
showing the amount of earnings and profits to which the corporation has
succeeded after December 31, 1963, pursuant to any corporate
reorganization or pursuant to a liquidation to which section 332
applies, except earnings and profits which on December 31, 1963,
constituted earnings and profits of a corporation referred to in section
333(g)(3), and except earnings and profits which were earned after such
date by a corporation referred to in section 333(g)(3); and
(5) If the liquidation occurs after December 31, 1966, and is
pursuant to section 333(g)(2), the amount of earnings and profits of the
corporation accumulated after February 28, 1913, and before January 1,
1967, and the ratable share of such earnings and profits of each share
of stock canceled or redeemed in the liquidation.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6949, 33 FR
5531, Apr. 9, 1968; T.D. 8734, 62 FR 53476, Oct. 14, 1997; T.D. 8804, 63
FR 72188, Dec. 31, 1998; T.D. 8895, 65 FR 50406, Aug. 18, 2000; T.D.
9264, 71 FR 30608, May 30, 2006; T.D. 9329, 72 FR 32807, June 14, 2007]
Sec. 1.6043-3 Return regarding liquidation, dissolution, termination,
or substantial contraction of organizations exempt from taxation under
section 501(a).
(a) In general--(1) Requirement to provide information. Except as
provided in paragraph (b) of this section, for taxable years beginning
after December 31, 1969, every organization which for any of its last 5
taxable years preceding any liquidation, dissolution, termination, or
substantial contraction of
[[Page 277]]
the organization was exempt from taxation under section 501(a) shall
provide the information will respect to such liquidation, dissolution,
termination, or substantial contraction required by the instructions
accompanying the organization's annual return of information. The
information required by this section shall be provided with, and at the
time prescribed for filing, the organization's annual return of
information for the period during which any liquidation, dissolution (or
the adopting of a resolution or plan for the dissolution or liquidation
in whole or part), termination or substantial contraction occurred with
respect to the organization. An organization which is no longer exempt
from taxation under section 501(a) shall use the annual return of
information it would have been required to file when the organization
was exempt.
(2) Transitional rule. In the case of an annual return of
information of an organization which was filed before September 11,
1978, if the organization had failed to provide the information with
such return in accordance with paragraph (a)(1) of this section, the
organization may comply with this section by providing the information
with the organization's first annual return of information filed after
such date.
(b) Exceptions. The following organizations are not required to
provide the information under paragraph (a) of this section:
(1) Churches, their integrated auxiliaries, or conventions or
associations of churches;
(2) Any organization which is not a private foundation (as defined
in section 509(a)) and the gross receipts of which in each taxable year
are normally not more than $5,000;
(3) Any organization which has terminated its private foundation
status under section 507(b)(1)(B) with respect to a liquidation,
dissolution, termination, or substantial contraction which is in
connection with the termination under section 507(b)(1)(B);
(4) Any organization described in section 401(a) if the employer who
established such organization files a return which provides the
information under paragraph (a) of this section;
(5) Any organization described in section 501(c)(1) and any
corporation described in section 501(c)(2) which holds title to property
for such 501(c)(1) organizations;
(6) Any organization described in section 501(c)(14)(A) subject to a
group exemption letter issued to a state regulatory body; and
(7) Any subordinate unit of a central organization (other than a
private foundation) which established its exempt status under the group
ruling procedure of regulations Sec. 601.201 (n)(7), if the central or
parent organization files an annual information return for the group in
accordance withSec. 1.6033-2(d); and
(8) Any organization no longer exempt from taxation under section
501(a) and that during the period of its exemption under such section
was not an organization described in section 501(c)(3), a corporation
described in section 501(c)(2) that held title to property for an
organization described in section 501(c)(3), or an organization
described in such other section as prescribed by publication, form, or
instructions.
(9) The Commissioner may relieve any organization or class or
organizations from filing the return required by section 6043(b) of this
section, where it is determined that such information is not necessary
for the efficient administration of the internal revenue laws.
(c) Penalties. For provisions relating to the penalty provided for
failure to furnish any information required by this section, see section
6652(d) and the regulations thereunder.
(d) Definitions. (1) For the definition of the term ``normally'' as
used in paragraph (b)(2) of this section, see Sec. 1.6033-2(g)(3).
(2) For the definition of the term ``integrated auxiliaries'' as
used in paragraph (b)(1) of this section, see Sec. 1.6033-2(h).
(3) For returns filed for taxable years beginning before January 1,
2008, for purposes of this section the definition of the term
``substantial contraction'' set forth in Sec. 1.6043-3(d)(1) (as
contained in 26 CFR part 1 revised April 1, 2008) may be used.
(e) Effective/applicability date--(1) Generally. The provisions of
this section shall apply with respect to returns
[[Page 278]]
filed for taxable years beginning after December 31, 1969.
(2) Paragraphs (b)(8) and (d) of this section shall apply for
taxable years beginning on or after January 1, 2008. For taxable years
beginning before January 1, 2008, Sec. Sec. 1.6043-3(b)(8) and 1.6043-
3(d) (as contained in 26 CFR part 1 revised April 1, 2008) shall apply.
[T.D. 7563, 43 FR 40221, Sept. 11, 1978, as amended by T.D. 9423, 73 FR
52555, Sept. 9, 2008; T.D. 9549, 76 FR 55771, Sept. 8, 2011]
Sec. 1.6043-4 Information returns relating to certain acquisitions
of control and changes in capital structure.
(a) Information returns for an acquisition of control or a
substantial change in capital structure--(1) General rule. If there is
an acquisition of control (as defined in paragraph (c) of this section)
or a substantial change in the capital structure (as defined in
paragraph (d) of this section) of a domestic corporation (reporting
corporation), the reporting corporation must file a completed Form 8806,
``Information Return for Acquisition of Control or Substantial Change in
Capital Structure,'' in accordance with the instructions to that form.
The Form 8806 will request information with respect to the following and
such other information specified in the instructions:
(i) Reporting corporation. The name, address, and taxpayer
identification number (TIN) of the reporting corporation.
(ii) Common parent, if any, of the reporting corporation. If the
reporting corporation was a subsidiary member of an affiliated group
filing a consolidated return immediately prior to the acquisition of
control or the substantial change in capital structure, the name,
address, and TIN of the common parent of that affiliated group.
(iii) Acquiring corporation. The name, address and TIN of any
corporation that acquired control of the reporting corporation within
the meaning of paragraph (c) of this section or combined with or
received assets from the reporting corporation pursuant to a substantial
change in capital structure within the meaning of paragraph (d) of this
section (acquiring corporation) and whether the acquiring corporation
was newly formed prior to its involvement in the transaction.
(iv) Information about acquisition of control or substantial change
in capital structure. (A) A description of the transaction or
transactions that gave rise to the acquisition of control or the
substantial change in capital structure of the corporation;
(B) The date or dates of the transaction or transactions that gave
rise to the acquisition of control or the substantial change in capital
structure; and
(C) A description of and a statement of the fair market value of any
stock and other property, if any, provided to the reporting
corporation's shareholders in exchange for their stock.
(2) Consent election. Form 8806 will provide the reporting
corporation with the ability to elect to permit the Internal Revenue
Service (IRS) to publish information that will inform brokers of the
transaction and enable brokers to satisfy their reporting obligations
under Sec. 1.6045-3. The information to be published, whether on the
IRS Web site or in an IRS publication, would be limited to the name and
address of the corporation, the date of the transaction, a description
of the shares affected by the transaction, and the amount of cash and
the fair market value of stock or other property provided to each class
of shareholders in exchange for a share.
(3) Time for making return. Form 8806 must be filed on or before the
45th day following the acquisition of control or substantial change in
capital structure of the corporation, or, if earlier, on or before
January 5th of the year following the calendar year in which the
acquisition of control or substantial change in capital structure
occurs.
(4) Exception where transaction is reported under section 6043(a).
No reporting is required under this paragraph (a) with respect to a
transaction for which information is required to be reported pursuant to
section 6043(a), provided the transaction is properly reported in
accordance with that section.
(5) Exception where shareholders are exempt recipients. No reporting
is required under this paragraph (a) if the reporting corporation
reasonably determines that all of its shareholders
[[Page 279]]
who receive cash, stock, or other property pursuant to the acquisition
of control or substantial change in capital structure are exempt
recipients under paragraph (b)(5) of this section.
(b) Information returns regarding shareholders--(1) General rule. A
corporation that is required to file Form 8806 pursuant to paragraph
(a)(1) of this section shall file a return of information on Forms 1096,
``Annual Summary and Transmittal of U.S. Information Returns,'' and
1099-CAP, ``Changes in Corporate Control and Capital Structure,'' with
respect to each shareholder of record in the corporation (before or
after the acquisition of control or the substantial change in capital
structure) who receives cash, stock, or other property pursuant to the
acquisition of control or the substantial change in capital structure
and who is not an exempt recipient as defined in paragraph (b)(5) of
this section. A corporation is not required to file a Form 1096 or 1099-
CAP with respect to a clearing organization if the corporation makes the
election described in paragraph (a)(2) of this section.
(2) Time for making information returns. Forms 1096 and 1099-CAP
must be filed on or before February 28 (March 31 if filed
electronically) of the year following the calendar year in which the
acquisition of control or the substantial change in capital structure
occurs.
(3) Contents of return. A separate Form 1099-CAP must be filed with
respect to amounts received by each shareholder (who is not an exempt
recipient as defined in paragraph (b)(5) of this section). The Form
1099-CAP will request information with respect to the following and such
other information as may be specified in the instructions:
(i) The name, address, telephone number and TIN of the reporting
corporation;
(ii) The name, address and TIN of the shareholder;
(iii) The number and class of shares in the reporting corporation
exchanged by the shareholder; and
(iv) The aggregate amount of cash and the fair market value of any
stock or other property provided to the shareholder in exchange for its
stock.
(4) Furnishing of forms to shareholders. The Form 1099-CAP filed
with respect to each shareholder must be furnished to such shareholder
on or before January 31 of the year following the calendar year in which
the shareholder receives cash, stock, or other property as part of the
acquisition of control or the substantial change in capital structure.
The Form 1099-CAP filed with respect to a clearing organization must be
furnished to the clearing organization on or before January 5th of the
year following the calendar year in which the acquisition of control or
substantial change in capital structure occurred. A Form 1099-CAP is not
required to be furnished to a clearing organization if the reporting
corporation makes the election described in paragraph (a)(2) of this
section. An IRS truncated taxpayer identifying number (TTIN) may be used
as the identifying number of the shareholder in lieu of the identifying
number appearing on the Form 1099-CAP filed with the Internal Revenue
Service. For provisions relating to the use of TTINs, see Sec.
301.6109-4 of this chapter (Procedure and Administration Regulations).
(5) Exempt recipients. A corporation is not required to file a Form
1099-CAP pursuant to this paragraph (b) with respect to any of the
following shareholders that is not a clearing organization:
(i) Any shareholder who receives stock in an exchange that is not
subject to gain recognition under section 367(a) and the regulations.
(ii) Any shareholder if the corporation reasonably determines that
the total amount of cash and the fair market value of stock and other
property received by the shareholder does not exceed $1,000.
(iii) Any shareholder described in paragraphs (b)(5)(iii)(A) through
(M) of this section if the corporation has actual knowledge that the
shareholder is described in one of paragraphs (b)(5)(iii)(A) through (M)
of this section or if the corporation has a properly completed exemption
certificate from the shareholder (as provided in Sec. 31.3406(h)-3 of
this chapter). The corporation also may treat a shareholder as described
in paragraphs (b)(5)(iii)(A) through (M) of this section based on the
applicable indicators described in Sec. 1.6049-4(c)(1)(ii).
[[Page 280]]
(A) A corporation, as described in Sec. 1.6049-4(c)(1)(ii)(A)
(except for corporations for which an election under section 1362(a) is
in effect).
(B) A tax-exempt organization, as described in Sec. 1.6049-
4(c)(1)(ii)(B)(1).
(C) An individual retirement plan, as described in Sec. 1.6049-
4(c)(1)(ii)(C).
(D) The United States, as described in Sec. 1.6049-4(c)(1)(ii)(D).
(E) A state, as described in Sec. 1.6049-4(c)(1)(ii)(E).
(F) A foreign government, as described in Sec. 1.6049-
4(c)(1)(ii)(F).
(G) An international organization, as described in Sec. 1.6049-
4(c)(1)(ii)(G).
(H) A foreign central bank of issue, as described in Sec. 1.6049-
4(c)(1)(ii)(H).
(I) A securities or commodities dealer, as described in Sec.
1.6049-4(c)(1)(ii)(I).
(J) A real estate investment trust, as described in Sec. 1.6049-
4(c)(1)(ii)(J).
(K) An entity registered under the Investment Company Act of 1940
(15 U.S.C. 80a-1), as described in Sec. 1.6049-4(c)(1)(ii)(K).
(L) A common trust fund, as described in Sec. 1.6049-
4(c)(1)(ii)(L).
(M) A financial institution such as a bank, mutual savings bank,
savings and loan association, building and loan association, cooperative
bank, homestead association, credit union, industrial loan association
or bank, or other similar organization.
(iv) Any shareholder that the corporation, prior to the transaction,
associates with documentation upon which the corporation may rely in
order to treat payments to the shareholder 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)(iv), 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) shall apply. The provisions
of Sec. 1.1441-1 shall apply by using the terms ``corporation'' and
``shareholder'' in place of the terms ``withholding agent'' and
``payee'' and without regard to the fact that the provisions apply only
to amounts subject to withholding under chapter 3 of the Internal
Revenue Code. The provisions of Sec. 1.6049-5(d) shall apply by using
the terms ``corporation'' and ``shareholder'' in place of the terms
``payor'' and ``payee''. Nothing in this paragraph (b)(5)(iv) shall be
construed to relieve a corporation of its withholding obligations under
section 1441.
(v) Any shareholder if, on January 31 of the year following the
calendar year in which the shareholder receives cash, stock, or other
property, the corporation did not know and did not have reason to know
that the shareholder received such cash, stock, or other property in a
transaction or series of related transactions that would result in an
acquisition of control or a substantial change in capital structure
within the meaning of this section.
(6) Coordination with other sections. In general, no reporting is
required under this paragraph (b) with respect to amounts that are
required to be reported under sections 6042 or 6045, unless the
corporation knows or has reason to know that such amounts are not
properly reported in accordance with those sections. A corporation must
satisfy the requirements under this paragraph (b) with respect to any
shareholder of record that is a clearing organization.
(c) Acquisition of control of a corporation--(1) In general. For
purposes of this section, an acquisition of control of a corporation
(first corporation) occurs if, in a transaction or series of related
transactions--
(i) Before an acquisition of stock of the first corporation
(directly or indirectly) by a second corporation, the second corporation
does not have control of the first corporation;
(ii) After the acquisition, the second corporation has control of
the first corporation;
(iii) The fair market value of the stock acquired in the transaction
and in any related transactions as of the date or dates on which such
stock was acquired is $100 million or more;
(iv) The shareholders of the first corporation receive stock or
other property pursuant to the acquisition; and
(v) The first corporation or any shareholder of the first
corporation is required to recognize gain (if any) under section 367(a)
and the regulations, as a result of the transaction.
[[Page 281]]
(2) Control. For purposes of this section, control is determined in
accordance with the first sentence of section 304(c)(1). For these
purposes the rules of section 318 as modified by the rules of section
958(b) shall apply in determining the ownership of stock.
(d) Substantial change in capital structure of a corporation--(1) In
general. A corporation has a substantial change in capital structure if
it has a change in capital structure (as defined in paragraph (d)(2) of
this section) and the amount of any cash and the fair market value of
any property (including stock) provided to the shareholders of such
corporation pursuant to the change in capital structure, as of the date
or dates on which the cash or other property is provided, is $100
million or more.
(2) Change in capital structure. For purposes of this section, a
corporation has a change in capital structure if--
(i) The corporation in a transaction or series of transactions--
(A) Merges, consolidates or otherwise combines with another
corporation or transfers all or substantially all of its assets to one
or more corporations;
(B) Transfers all or part of its assets to another corporation in a
title 11 or similar case and, in pursuance of the plan, distributes
stock or securities of that corporation; or
(C) Changes its identity, form or place of organization; and
(ii) The corporation or any shareholder is required to recognize
gain (if any) under section 367(a) and the regulations, as a result of
the transaction.
(e) Reporting by successor entity. If a corporation (transferor)
transfers all or substantially all of its assets to another entity
(transferee) in a transaction that constitutes a substantial change in
the capital structure of transferor, transferor must satisfy the
reporting obligations in paragraph (a) and (b) of this section. If
transferor does not satisfy one or both of those reporting obligations,
then transferee must do so. If neither transferor nor transferee
satisfies the reporting obligations in paragraphs (a) and (b) of this
section, then transferor and transferee shall be jointly and severally
liable for any applicable penalties (see paragraph (g) of this section).
(f) Receipt of property. For purposes of this section, a shareholder
is treated as receiving property (or as having property provided to it)
pursuant to an acquisition of control or a substantial change in capital
structure if a liability of the shareholder is assumed in the
transaction and, as a result of the transaction, an amount is realized
by the shareholder from the sale or exchange of stock.
(g) Penalties for failure to file. For penalties for failure to file
as required under this section, see section 6652(l). The information
returns required to be filed under paragraphs (a) and (b) of this
section shall be treated as one return for purposes of section 6652(l)
and, accordingly, the penalty shall not exceed $500 for each day the
failure continues (up to a maximum of $100,000) with respect to any
acquisition of control or any substantial change in capital structure.
Failure to file as required under this section also includes the failure
to satisfy the requirement to file on magnetic media as required by
section 6011(e) and Sec. 1.6011-2. In addition, criminal penalties
under sections 7203, 7206 and 7207 may apply in appropriate cases.
(h) Examples. The following examples illustrate the application of
the rules of this section. For purposes of these examples, assume the
transaction is not reported under sections 6042, 6043(a), or 6045,
unless otherwise specified, and assume that the fair market value of the
consideration provided to the shareholders exceeds $100 million. The
examples are as follows:
Example 1. The shareholders of X, a domestic corporation and parent
of an affiliated group, exchange their X stock for stock in Y, a foreign
corporation, pursuant to sections 351 and 354. After the transaction, Y
owns all the outstanding X stock. Assume that, under section 367(a) and
the regulations, the X shareholders must recognize gain (if any) on the
exchange of their stock. Because the transaction results in an
acquisition of control of X, X must comply with the rules in paragraphs
(a) and (b) of this section. X must file Form 8806 reporting the
transaction. X must also file a Form 1099-CAP with respect to each
shareholder who is not an exempt recipient showing the fair market value
of the Y stock received by that shareholder, and X must furnish a copy
of the Form 1099-CAP to that shareholder. If X elects on the Form
[[Page 282]]
8806 to permit the IRS to publish information regarding the transaction,
X is not required to file or furnish Forms 1099-CAP with respect to
shareholders that are clearing organizations.
Example 2. The facts are the same as in Example 1, except X hires a
transfer agent to effectuate the exchange. The transfer agent is treated
as a broker under section 6045 and is required to report the fair market
value of the Y stock received by X's shareholders under Sec. 1.6045-3.
Under paragraph (b)(6) of this section, X is not required to file
information returns under paragraph (b) of this section with respect to
a shareholder of record, unless X knows or has reason to know that the
transfer agent does not satisfy its information reporting obligation
under Sec. 1.6045-3 with respect to that shareholder. Thus, if the
transfer agent satisfies its information reporting requirements under
Sec. 1.6045-3 with respect to shareholder I, an individual who receives
X stock, X is not required to file a Form 1099-CAP with respect to I.
Conversely, if the transfer agent does not have an information reporting
obligation under Sec. 1.6045-3 with respect to one of X's shareholders
of record (for example, a clearing organization that is an exempt
recipient under Sec. 1.6045-3(b)(2)), or if X knows or has reason to
know that the transfer agent has not satisfied its information reporting
requirement with respect to a shareholder, then X must provide a Form
1099-CAP to that shareholder.
(i) Effective/applicability date. This section applies to
transactions occurring after December 5, 2005. The amendments to
paragraph (b)(4) are effective for any Form 1099-CAP required to be
furnished after December 31, 2014. For any Form 1099-CAP required to be
furnished before January 1, 2015, Sec. 1.6043-4(b) (as contained in 26
CFR part 1, revised April 2013) shall apply.
[T.D. 9230, 70 FR 72378, Dec. 5, 2005, as amended by T.D. 9675, 79 FR
41129, July 15, 2014]
Sec. 1.6044-1 Returns of information as to patronage dividends with
respect to patronage occurring in taxable years beginning before 1963.
(a) Requirement--(1) In general. Except as provided in subparagraph
(2) of this paragraph, any corporation allocating to any patron in
respect of patronage occurring in any taxable year of the corporation
beginning before January 1, 1963, amounts aggregating $100 or more
during a calendar year as patronage dividends, rebates, or refunds
(whether in cash, merchandise, capital stock, revolving fund
certificates, retain certificates, letters of advice, or in some other
manner that discloses to each patron the amount of such dividend,
rebate, or refund) shall for each such calendar year file a return of
information with respect to such allocation on Forms 1096 and 1099. A
separate Form 1099 shall be prepared for each patron showing the name
and address of the patron to whom such allocation is made, and the
amount of the allocation. The allocation shall be reported for the
calendar year during which the allocation is made, regardless of whether
the allocation is deemed for the purpose of section 522 to be made at
the close of a preceding taxable year of the corporation.
(2) Exception. A return is not required under this section in the
case of any corporation (including any cooperative or nonprofit
corporation engaged in rural electrification) described in section
501(c) (12) or (15) which is exempt from tax under section 501(a), or in
the case of any corporation subject to a tax imposed by subchapter L,
chapter 1, of the Code.
(b) Time and place for filing. Returns made under this section on
Forms 1096 and 1099 for any calendar year shall be filed on or before
February 28 of the following year with any of the Internal Revenue
Service Centers, the addresses of which are listed in the instructions
for such forms.
(c) Definitions. The terms ``cooperative association'', ``patron'',
``patronage dividends, rebates, and refunds'', and ``allocation'' are
defined, for the purpose of this section, in paragraph (b) of Sec.
1.522-1.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6628, 27 FR
12798, Dec. 28, 1962]
Sec. 1.6044-2 Returns of information as to payments of patronage
dividends.
(a) Requirement of reporting--(1) In general. Except as provided in
Sec. 1.6044-4, every organization described in paragraph (b) of this
section which makes payments with respect to patronage occurring on or
after the first day of the first taxable year of the organization
beginning after December 31, 1962, of amounts described in Sec. 1.6044-
3 aggregating $10 or more to any person during any calendar year shall
make an
[[Page 283]]
information return on Forms 1096 and 1099 for the calendar year showing
the aggregate amount of such payments, the name and address of the
person to whom paid, the total of such payments for all persons, and
such other information as is required by the forms. The organization is
required to make an information return regardless of the amount of the
payment if the tax imposed by section 3406 is required to be withheld.
Thus, in the case of any amount subject to backup withholding under
section 3406 and not refunded by the payor before the due date of the
information return in accordance with the regulations under section
3406, an information return shall be made even if the payment is not
generally reportable because it is made to an exempt recipient described
in Sec. 1.6049-4(c)(1)(ii) or the amount paid during the calendar year
to the recipient aggregates less than $10.
(2) Definitions. The term ``person'' when used in this section does
not include the United States, a State, the District of Columbia, a
foreign government, a political subdivision of a State or of a foreign
government, or an international organization. Therefore, payment of
amounts described in Sec. 1.6044-3 to one of these entities need not be
reported.
(3) Determination of person to whom a patronage dividend is paid.
For purposes of applying the provisions of this section, the person
whose identifying number is required to be included by the cooperative
on an information return with respect to a patronage dividend shall be
considered the person to whom such dividend is paid. For regulations
relating to the use of identifying numbers, see Sec. 1.6109-1.
(4) Inclusion of other payments. The Form 1099 filed by an
organization with respect to payments of patronage dividends made to any
person during a calendar year may, at the election of the organization,
include other payments made by it to such person during such year which
are required to be reported on Form 1099.
(b) Organizations subject to reporting requirement. The
organizations subject to the reporting requirements of paragraph (a) of
this section are:
(1) Any organization exempt from tax under section 521 (relating to
exemption of farmers' cooperatives from tax), and
(2) Any corporation operating on a cooperative basis other than an
organization:
(i) Which is exempt from tax under chapter 1 (other than section
521), or
(ii) Which is subject to the provisions of part II of subchapter H
of chapter 1 (relating to mutual savings banks, etc.), or subchapter L
of chapter 1 (relating to insurance companies), or
(iii) Which is engaged in furnishing electric energy, or providing
telephone service, to persons in rural areas.
(c) When payment deemed made. For purposes of this section, money or
other property (except written notices of allocation) is deemed to have
been paid when it is credited or set apart to a person without any
substantial limitation or restriction as to the time or manner of
payment or condition upon which payment is to be made, and is made
available to him so that it may be drawn at any time, and its receipt
brought within his own control and disposition. A written notice of
allocation is considered to have been paid when it is issued by the
organization to the distributee. Similarly, a qualified check (as
defined in section 1388(d)(4)) is considered to have been paid when it
is issued to the distributee.
(d) Time and place for filing. The return required under this
section on Forms 1096 and 1099 for any calendar year shall be filed
after September 30 of such year, but not before the payer's final
payment for the year, and on or before February 28 (March 31 if filed
electronically) of the following year, with any of the Internal Revenue
Service Centers, the addresses of which are listed in the instructions
for such forms. For extensions of time for filing returns under this
section, see Sec. 1.6081-1.
(e) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6044(a), see Sec. 301.6721-1 of this chapter
(Procedure and Administration Regulations). See Sec. 301.6724-1 of this
chapter for the waiver of a penalty if
[[Page 284]]
the failure is due to reasonable cause and is not due to willful
neglect.
(f) Magnetic media requirement. For the requirement to submit the
information required by Form 1099 on magnetic media for payments after
December 31, 1983, see section 6011(e) and Sec. 301.6011-2 of this
chapter (Procedure and Administration Regulations). For rules relating
to permission to submit the information required by Form 1099 on
magnetic tape or other media, see Sec. 1.9101-1.
[T.D. 6628, 27 FR 12798, Dec. 28, 1962, as amended by T.D. 6677, 28 FR
10147, Sept. 17, 1963; T.D. 6879, 31 FR 3493, Mar. 8, 1966; T.D. 6883,
31 FR 6589, May 3, 1966; T.D. 8734, 62 FR 53476, Oct. 14, 1997; T.D.
8895, 65 FR 50407, Aug. 18, 2000]
Sec. 1.6044-3 Amounts subject to reporting.
(a) In general. Except as provided in paragraph (c) of this section,
the amounts subject to reporting under Sec. 1.6044-2 are:
(1) Payments by all organizations subject to such reporting
requirements of:
(i) Patronage dividends (as defined in section 1388(a)) paid in
money, qualified written notices of allocation (as defined in section
1388(c)), or other property (except nonqualified written notices of
allocation as defined in section 1388(d)); and
(ii) Amounts described in section 1382(b)(2) (relating to redemption
of nonqualified written notices of allocation previously paid as
patronage dividends) paid in money or property (except written notices
of allocation); and
(2) Payments by farmers' cooperatives exempt from tax under section
521 of:
(i) Amounts described in section 1382(c)(2)(A) (relating to
distributions with respect to earnings derived from sources other than
patronage) paid in money, qualified written notices of allocation, or
other property (except nonqualified written notices of allocation); and
(ii) Amounts described in section 1382(c)(2)(B) (relating to
redemption of nonqualified written notices of allocation previously paid
as distributions with respect to earnings derived from sources other
than patronage) paid in money or other property (except written notices
of allocation).
(b) Special rules. (1) If an organization makes a distribution
consisting in whole or in part of a written notice of allocation and a
qualified check and, at the time it files its return under Sec. 1.6044-
2, is unable to determine whether such written notice of allocation and
such check constitute nonqualified written notices of allocation, such
organization shall for purposes of such return treat such written notice
of allocation as a qualified written notice of allocation and such
qualified check as a payment in money.
(2) An amount described in paragraph (a) of this section is subject
to reporting even though the organization paying such amount is allowed
no deduction for it because it was not paid within the time prescribed
in section 1382. Thus, a patronage dividend of $25 paid by a marketing
cooperative must be reported even though it is paid after the end of the
payment period (see section 1382(d)) for the organization's taxable year
in which the patronage occurred.
(c) Exceptions. An amount described in paragraph (a) of this section
does not include--
(1) Any amount described in Sec. 1.6042-3(b); or
(2) With respect to amounts paid or credited after December 31,
1982, any amount paid or credited to any person described in Sec.
1.6049-4(c)(1)(ii).
(d) Determination of amount paid. For purposes of Sec. 1.6044-2 and
this section, in determining the amount of any payment subject to
reporting under paragraph (a) of this section:
(1) Property (other than a qualified written notice of allocation)
shall be taken into account at its fair market value, and
(2) A qualified written notice of allocation shall be taken into
account at its stated dollar amount.
[T.D. 6628, 27 FR 12798, Dec. 28, 1962, as amended by T.D. 8734, 62 FR
53476, Oct. 14, 1997]
Sec. 1.6044-4 Exemption for certain consumer cooperatives.
(a) In general--(1) Determination of exemption. Exemption from the
reporting requirements of Sec. 1.6044-2 shall, upon application
therefor, be granted by the
[[Page 285]]
district director to any cooperative which he determines is primarily
engaged in selling at retail goods or services of a type which is
generally for personal, living, or family use. A cooperative is not
exempt from the reporting requirements merely because it is an
organization of a type to which section 6044(c) and this section relate.
In order for the exemption from reporting to apply, it is necessary that
the cooperative file an application in accordance with this section and
obtain a determination of exemption.
(2) Basis for exemption. For a cooperative to qualify for the
exemption from reporting provided by section 6044(c) and this section 85
percent of its gross receipts for the preceding taxable year, or 85
percent of its aggregate gross receipts for the preceding three taxable
years, must have been derived from the sale at retail of goods or
services of a type which is generally for personal, living, or family
use. In determining whether an item is of a type that is generally for
personal, living, or family use, an item which may be purchased either
for such use or for business use and which when acquired for business
purposes is generally purchased at wholesale will, when sold by a
cooperative at retail, be treated as goods or services of a type
generally for personal, living, or family use.
(3) Period of exemption. A determination of exemption from reporting
shall apply beginning with the payments made during the calendar year in
which the determination is made and shall automatically cease to be
effective beginning with payments made after the close of the first
taxable year of the cooperative in which less than 70 percent of its
gross receipts is derived from the sale at retail of goods or services
of a type which is generally for personal, living, or family use.
(b) Application for exemption. Application for exemption from the
reporting requirements of section 6044 shall be made on Form 3491, and
shall be filed with the district director for the internal revenue
district in which the cooperative has its principal place of business.
[T.D. 6628, 27 FR 12799, Dec. 28, 1962]
Sec. 1.6044-5 Statements to recipients of patronage dividends.
(a) Requirement. A person required to make an information return
under section 6044(a)(1) and Sec. 1.6044-2 must furnish a statement to
each recipient whose identifying number is required to be shown on the
related information return for patronage dividends paid.
(b) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (a) of this section must be either
the official Form 1099 prescribed by the Internal Revenue Service for
the respective calendar year or an acceptable substitute statement. The
rules under Sec. 1.6042-4 (relating to statements with respect to
dividends) apply comparably in determining the form of an acceptable
substitute statement permitted by this section. Those rules also apply
for purposes of determining the manner of and time for providing the
Form 1099 or its acceptable substitute to a recipient under this
section. However, each Form 1099 or acceptable substitute statement
required by this section must be furnished on or before January 31 of
the following year, but no statement may be furnished before the final
payment has been made for the calendar year. 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). An IRS truncated taxpayer identifying number (TTIN)
may be used as the identifying number of the recipient in lieu of the
identifying number appearing on the corresponding information return
filed with the Internal Revenue Service. For provisions relating to the
use of TTINs, see Sec. 301.6109-4 of this chapter (Procedure and
Administration Regulations).
(c) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to furnish timely a correct payee statement
required under section 6044(e), see Sec. 301.6722-1 of this chapter
(Procedure and Administration Regulations). See Sec. 301.6724-1 of this
chapter
[[Page 286]]
for the waiver of a penalty if the failure is due to reasonable cause
and is not due to willful neglect.
(d) Effective/applicability date. This section is effective for
payee statements due after December 31, 1995, without regard to
extensions. The amendments to paragraph (b) are effective for payee
statements due after December 31, 2014. For payee statements due before
January 1, 2015, Sec. 1.6044-5(b) (as contained in 26 CFR part 1,
revised April 2013) shall apply.
[T.D. 8637, 60 FR 66111, Dec. 21, 1995, as amended by T.D. 8734, 62 FR
53476, Oct. 14, 1997; T.D. 9504, 75 FR 64090, Oct. 18, 2010; T.D. 9675,
79 FR 41129, July 15, 2014]
Sec. 1.6045-1 Returns of information of brokers and barter exchanges.
(a) Definitions. The following definitions apply for purposes of
this section and Sec. 1.6045-2:
(1) The term broker means any person (other than a person who is
required to report a transaction under section 6043), U.S. or foreign,
that, in the ordinary course of a trade or business during the calendar
year, stands ready to effect sales to be made by others. A broker
includes an obligor that regularly issues and retires its own debt
obligations or a corporation that regularly redeems its own stock.
However, with respect to a sale (including a redemption or retirement)
effected at an office outside the United States, a broker includes only
a person described as a U.S. payor or U.S. middleman in Sec. 1.6049-
5(c)(5). In addition, a broker does not include an international
organization described in Sec. 1.6049-4(c)(1)(ii)(G) that redeems or
retires an obligation of which it is the issuer.
(2) The term customer means, with respect to a sale effected by a
broker, the person (other than such broker) that makes the sale, if the
broker acts as:
(i) An agent for such person in the sale;
(ii) A principal in the sale; or
(iii) The participant in the sale responsible for paying to such
person or crediting to such person's account the gross proceeds on the
sale.
(3) The term security means:
(i) A share of stock in a corporation (foreign or domestic);
(ii) An interest in a trust;
(iii) An interest in a partnership;
(iv) A debt obligation;
(v) An interest in or right to purchase any of the foregoing in
connection with the issuance thereof from the issuer or an agent of the
issuer or from an underwriter that purchases any of the foregoing from
the issuer;
(vi) An interest in a security described in paragraph (a)(3)(i) or
(iv) of this section (but not including executory contracts that require
delivery of such type of security);
(vii) An option described in paragraph (m)(2) of this section; or
(viii) A securities futures contract.
(4) The term barter exchange means any person with members or
clients that contract either with each other or with such person to
trade or barter property or services either directly or through such
person. The term does not include arrangements that provide solely for
the informal exchange of similar services on a noncommercial basis.
(5) The term commodity means:
(i) Any type of personal property or an interest therein (other than
securities as defined in paragraph (a)(3)) the trading of regulated
futures contracts in which has been approved by the Commodity Futures
Trading Commission;
(ii) Lead, palm oil, rapeseed, tea, tin, or an interest in any of
the foregoing; or
(iii) Any other personal property or an interest therein that is of
a type the Secretary determines is to be treated as a ``commodity''
under this section, from and after the date specified in a notice of
such determination published in the Federal Register.
(6) The term regulated futures contract means a regulated futures
contract within the meaning of section 1256(b).
(7) The term forward contract means:
(i) An executory contract that requires delivery of a commodity in
exchange for cash and which contract is not a regulated futures
contract; or
(ii) An executory contract that requires delivery of personal
property or an interest therein in exchange for cash, or a cash
settlement contract, if such executory contract or cash settlement
contract is of a type the Secretary determines is to be treated as a
[[Page 287]]
``forward contract'' under this section, from and after the date
specified in a notice of such determination published in the Federal
Register.
(8) The term closing transaction means a lapse, expiration,
settlement, abandonment, or other termination of a position. For
purposes of the preceding sentence, a position includes a right or an
obligation under a forward contract, a regulated futures contract, a
securities futures contract, or an option.
(9) The term sale means any disposition of securities, commodities,
options, regulated futures contracts, securities futures contracts, or
forward contracts, and includes redemptions of stock, retirements of
debt instruments (including a partial retirement attributable to a
principal payment received on or after January 1, 2014), and enterings
into short sales, but only to the extent any of these actions are
conducted for cash. In the case of an option, a regulated futures
contract, a securities futures contract, or a forward contract, a sale
includes any closing transaction. When a closing transaction for a
contract described in section 1256(b)(1)(A) involves making or taking
delivery, there are two sales, one resulting in profit or loss on the
contract, and a separate sale on the delivery. When a closing
transaction for a contract described in section 988(c)(5) involves
making delivery, there are two sales, one resulting in profit or loss on
the contract, and a separate sale on the delivery. For purposes of the
preceding sentence, a broker may assume that any customer's functional
currency is the U.S. dollar. When a closing transaction in a forward
contract involves making or taking delivery, the broker may treat the
delivery as a sale without separating the profit or loss on the contract
from the profit or loss on the delivery, except that taking delivery for
United States dollars is not a sale. The term sale does not include
entering into a contract that requires delivery of personal property or
an interest therein, the initial grant or purchase of an option, or the
exercise of a purchased call option for physical delivery (except for a
contract described in section 988(c)(5)). For purposes of this section
only, a constructive sale under section 1259 and a mark to fair market
value under section 475 or 1296 are not sales.
(10) The term effect means, with respect to a sale, to act as:
(i) An agent for a party in the sale wherein the nature of the
agency is such that the agent ordinarily would know the gross proceeds
from the sale; or
(ii) A principal in such sale.
Acting as an agent or principal with respect to grants or purchases of
options, exercises of call options, or enterings into contracts that
require delivery of personal property or an interest therein is not of
itself effecting a sale. A broker that has on its books a forward
contract under which delivery is made effects such delivery.
(11) The term foreign currency means currency of a foreign country.
(12) The term cash means United States dollars or any convertible
foreign currency.
(13) The term person includes any governmental unit and any agency
or instrumentality thereof.
(14) The term specified security means:
(i) 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, either foreign or
domestic (provided that, solely for purposes of this paragraph
(a)(14)(i), a security classified as stock by the issuer is treated as
stock, and if the issuer has not classified the security, the security
is not treated as stock unless the broker knows that the security is
reasonably classified as stock under general Federal tax principles);
(ii) Any debt instrument described in paragraph (a)(17) of this
section, other than a debt instrument subject to section 1272(a)(6)
(certain interests in or mortgages held by a REMIC, certain other debt
instruments with payments subject to acceleration, and pools of debt
instruments the yield on which may be affected by prepayments) or a
short-term obligation described in section 1272(a)(2)(C);
(iii) Any option described in paragraph (m)(2) of this section; or
(iv) Any securities futures contract.
[[Page 288]]
(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 described in paragraph (a)(14)(i) of this
section 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 described in paragraphs (a)(14)(ii) and
(n)(2)(i) of this section (not including the debt instruments described
in paragraph (n)(2)(ii) of this section) acquired for cash in an account
on or after January 1, 2014.
(D) A specified security described in paragraphs (a)(14)(ii) and
(n)(3) of this section acquired for cash in an account on or after
January 1, 2016.
(E) An option described in paragraph (a)(14)(iii) of this section
granted or acquired for cash in an account on or after January 1, 2014.
(F) A securities futures contract described in paragraph (a)(14)(iv)
of this section entered into in an account on or after January 1, 2014.
(G) A specified security transferred to an account if the broker or
other custodian of the account receives a 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. Acquiring a security in an account includes
granting an option and entering into a short sale.
(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.
(17) For purposes of this section, the terms debt instrument, bond,
debt obligation, and obligation mean a debt instrument as defined in
Sec. 1.1275-1(d) and any instrument or position that is treated as a
debt instrument under a specific provision of the Internal Revenue Code
(for example, a regular interest in a REMIC as defined in section
860G(a)(1) and Sec. 1.860G-1). Solely for purposes of this section, a
security classified as debt by the issuer is treated as debt. If the
issuer has not classified the security, the security is not treated as
debt unless the broker knows that the security is reasonably classified
as debt under general Federal tax principles or that the instrument or
position is treated as a debt instrument under a
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specific provision of the Internal Revenue Code.
(18) For purposes of this section, the term securities futures
contract means a contract described in section 1234B(c) whose underlying
asset is described in paragraph (a)(14)(i) of this section and which is
entered into on or after January 1, 2014.
(b) Examples. The following examples illustrate the definitions in
paragraph (a):
Example 1. The following persons generally are brokers within the
meaning of paragraph (a)(1):
(i) A mutual fund, an underwriter of the mutual fund, or an agent
for the mutual fund, any of which stands ready to redeem or repurchase
shares in such mutual fund.
(ii) A professional custodian (such as a bank) that regularly
arranges sales for custodial accounts pursuant to instructions from the
owner of the property.
(iii) A depositary trust or other person who regularly acts as an
escrow agent in corporate acquisitions, if the nature of the activities
of the agent is such that the agent ordinarily would know the gross
proceeds from sales.
(iv) A stock transfer agent for a corporation, which agent records
transfers of stock in such corporation, if the nature of the activities
of the agent is such that the agent ordinarily would know the gross
proceeds from sales.
(v) A dividend reinvestment agent for a corporation that stands
ready to purchase or redeem shares.
Example 2. The following persons are not brokers within the meaning
of paragraph (1)(a) in the absence of additional facts that indicate the
person is a broker:
(i) A stock transfer agent for a corporation, which agent daily
records transfers of stock in such corporation, if the nature of the
activities of the agent is such that the agent ordinarily would not know
the gross proceeds from sales.
(ii) A person (such as a stock exchange) that merely provides
facilities in which others effect sales.
(iii) An escrow agent or nominee if such agency is not in the
ordinary course of a trade or business.
(iv) An escrow agent, otherwise a broker, which agent effects no
sales other than such transactions as are incidental to the purpose of
the escrow (such as sales to collect on collateral).
(v) A floor broker on a commodities exchange, which broker maintains
no records with respect to the terms of sales.
(vi) A corporation that issues and retires long-term debt on an
irregular basis.
(vii) A clearing organization.
Example 3. A, B, and C belong to a carpool in which they commute to
and from work. Every third day, each member of the carpool provides
transportation for the other two members. Because the carpool
arrangement provides solely for the informal exchange of similar
services on a noncommercial basis, the carpool is not a barter exchange
within the meaning of paragraph (a)(4).
Example 4. X is an organization whose members include retail
merchants, wholesale merchants, and persons in the trade or business of
performing services. X's members exchange property and services among
themselves using credits on the books of X as a medium of exchange. Each
exchange through X is reflected on the books of X by crediting the
account of the member providing property or services and debiting the
account of the member receiving such property or services. X also
provides information to its members concerning property and services
available for exchange through X. X charges its members a commission on
each transaction in which credits on its books are used as a medium of
exchange. X is a barter exchange within the meaning of paragraph (a)(4)
of this section.
Example 5. A warehouse receipt is an interest in personal property
for purposes of paragraph (a). Consequently, a warehouse receipt for a
quantity of lead is a commodity under paragraph (a)(5)(ii). Similarly an
executory contract that requires delivery of a warehouse receipt for a
quantity of lead is a forward contract under paragraph (a)(7)(ii).
Example 6. The only customers of a depository trust acting as an
escrow agent in corporate acquisitions which trust is a broker, are
shareholders to whom the trust makes payments or shareholders for whom
the trust is acting as an agent.
Example 7. The only customers of a stock transfer agent, which agent
is a broker are shareholders to whom the agent makes payments or
shareholders for whom the agent is acting as an agent,
Example 8. D, an individual not otherwise exempt from reporting, is
the holder of an obligation issued by P, a corporation. R, a broker,
acting as an agent for P, retires such obligation held by D. Such
obligor payments from R represent obligor payments by P. (See paragraph
(c)(3)(v)). D, the person to whom the gross proceeds are paid or
credited by R, is the customer of R.
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
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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) Reporting by brokers--(1) Requirement of reporting. Any broker
shall, except as otherwise provided, report in the manner prescribed in
this section.
(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) Exceptions--(i) Sales effected for exempt recipients--
(A) In general. No return of information is required with respect to
a sale effected for a customer that is an exempt recipient under
paragraph (c)(3)(i)(B) of this section.
(B) Exempt recipient defined. The term exempt recipient means--
(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);
(2) An organization exempt from taxation under section 501(a) or an
individual retirement plan;
(3) The United States or a State, the District of Columbia, a
possession of the United States, a political subdivision of any of the
foregoing, a wholly owned agency or instrumentality of any one or more
of the foregoing, or a pool or partnership composed exclusively of any
of the foregoing;
(4) A foreign government, a political subdivision thereof, an
international organization, or any wholly owned agency or
instrumentality of the foregoing;
(5) A foreign central bank of issue as defined in Sec. 1.895-
1(b)(1) (i.e., a bank that is by law or government sanction the
principal authority, other than the government itself, issuing
instruments intended to circulate as currency);
(6) A dealer in securities or commodities registered as such under
the laws of the United States or a State;
(7) A futures commission merchant registered as such with the
Commodity Futures Trading Commission;
(8) A real estate investment trust (as defined in section 856);
(9) An entity registered at all times during the taxable year under
the Investment Company Act of 1940 (15 U.S.C. 80a-1, et seq.);
(10) A common trust fund (as defined in section 584(a)); or
(11) A financial institution such as a bank, mutual savings bank,
savings and loan association, building and loan association, cooperative
bank, homestead association, credit union, industrial loan association
or bank, or other similar organization.
(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.
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(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.
(ii) Excepted sales. No return of information is required with
respect to a sale effected by a broker for a customer if the sale is an
excepted sale. For this purpose, a sale is an excepted sale if it is--
(A) So designated by the Internal Revenue Service in a revenue
ruling or revenue procedure (see Sec. 601.601(d)(2) of this chapter);
or
(B) A sale with respect to which a return is not required by
applying the rules of Sec. 1.6049-4(c)(4) (by substituting the term ``a
sale subject to reporting under section 6045'' for the term ``an
interest payment'').
(iii) Multiple brokers. If a broker is instructed to initiate a sale
by a person that is an exempt recipient described in paragraph
(c)(3)(i)(B)(6), (7), or (11) of this section, no return of information
is required with respect to the sale by that broker. In a redemption of
stock or retirement of securities, only the broker responsible for
paying the holder redeemed or retired, or crediting the gross proceeds
on the sale to that holder's account, is required to report the sale.
(iv) Cash on delivery transactions. In the case of a sale of
securities through a cash on delivery account, a delivery versus payment
account, or other similar account or transaction, only the broker that
receives the gross proceeds from the sale against delivery of the
securities sold is required to report the sale. If, however, the
broker's customer is another broker (second-party broker) that is an
exempt recipient, then only the second-party broker is required to
report the sale.
(v) Fiduciaries and partnerships. No return of information is
required with respect to a sale effected by a custodian or trustee in
its capacity as such or a redemption of a partnership interest by a
partnership, provided the sale is otherwise reported by the custodian or
trustee on a properly filed Form 1041, or the redemption is otherwise
reported by the partnership on a properly filed Form 1065, and all
Schedule K-1 reporting requirements are satisfied.
(vi) Money market funds--(A) In general. No return of information is
required with respect to a sale of shares in a regulated investment
company that is permitted to hold itself out to investors as a money
market fund under Rule 2a-7 under the Investment Company Act of 1940 (17
CFR 270.2a-7).
(B) Effective/applicability date. Paragraph (c)(3)(vi)(A) of this
section applies to sales of shares in calendar years beginning on or
after July 8, 2016. Taxpayers and brokers (as defined in Sec. 1.6045-
1(a)(1)), however, may rely on paragraph (c)(3)(vi)(A) of this section
for sales of shares in calendar years beginning before July 8, 2016.
(vii) Obligor payments on certain obligations. No return of
information is required with respect to payments representing obligor
payments on--
(A) Nontransferable obligations (including savings bonds, savings
accounts, checking accounts, and NOW accounts);
(B) Obligations as to which the entire gross proceeds are reported
by the broker on Form 1099 under provisions of the Internal Revenue Code
other than section 6045 (including stripped coupons issued prior to July
1, 1982); or
(C) Retirement of short-term obligations (i.e., obligations with a
fixed maturity date not exceeding 1 year from
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the date of issue) that have original issue discount, as defined in
section 1273(a)(1), with or without application of the de minimis rule.
The preceding sentence does not apply to a debt instrument issued on or
after January 1, 2014. For a short-term obligation issued on or after
January 1, 2014, see paragraph (c)(3)(xiii) of this section.
(D) Demand obligations that also are callable by the obligor and
that have no premium or discount. The preceding sentence does not apply
to a debt instrument issued on or after January 1, 2014.
(viii) Foreign currency. No return of information is required with
respect to a sale of foreign currency other than a sale pursuant to a
forward contract or regulated futures contract that requires delivery of
foreign currency.
(ix) Fractional share. No return of information is required with
respect to a sale of a fractional share of stock if the gross proceeds
on the sale of the fractional share are less than $20.
(x) Certain retirements. No return of information is required from
an issuer or its agent with respect to the retirement of book entry or
registered form obligations as to which the relevant books and records
indicate that no interim transfers have occurred. The preceding sentence
does not apply to a debt instrument issued on or after January 1, 2014.
(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 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)(7)) 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, units, or amounts 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
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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.
(xii) Cross reference. For an exception for certain sales of
agricultural commodities and certificates issued by the Commodity Credit
Corporation after January 1, 1993, see paragraph (c)(7) of this section.
(xiii) Short-term obligations issued on or after January 1, 2014. No
return of information is required under this section with respect to a
sale (including a retirement) of a short-term obligation, as described
in section 1272(a)(2)(C), that is issued on or after January 1, 2014.
(xiv) Certain redemptions. No return of information is required
under this section for payments made by a stock transfer agent (as
described in Sec. 1.6045-1(b)(iv)) with respect to a redemption of
stock of a corporation described in section 1297(a) with respect to a
shareholder in the corporation if--
(A) The stock transfer agent obtains from the corporation a written
certification signed by a person authorized to sign on behalf of the
corporation, that states that the corporation is described in section
1297(a) for each calendar year during which the stock transfer agent
relies on the provisions of paragraph (c)(3)(xiv) of this section, and
the stock transfer agent has no reason to know that the written
certification is unreliable or incorrect;
(B) The stock transfer agent identifies, prior to payment, the
corporation as a participating FFI (including a reporting Model 2 FFI)
(as defined in Sec. 1.6049-4(f)(10) or (f)(14), respectively), or
reporting Model 1 FFI (as defined in Sec. 1.6049-4(f)(13)), in
accordance with the requirements of Sec. 1.1471-3(d)(4) (substituting
the terms ``stock transfer agent'' and ``corporation'' for the terms
``withholding agent'' and ``payee,'' respectively) and validates that
status annually;
(C) The stock transfer agent obtains a written certification
representing that the corporation shall report the payment as part of
its account holder reporting obligations under chapter 4 of the Code or
an applicable IGA (as defined in Sec. 1.6049-4(f)(7)) and provided the
stock transfer agent does not know that the corporation is not reporting
the payment as required. The paying agent may rely on the written
certification until there is a change in circumstances or the paying
agent knows or has reason to know that the statement is unreliable or
incorrect. A stock transfer agent that knows that the corporation is not
reporting the payment as required under chapter 4 of the Code or an
applicable IGA must report all payments reportable under this section
that it makes during the year in which it obtains such knowledge; and
(D) The stock transfer agent is not also acting in its capacity as a
custodian, nominee, or other agent of the payee with respect to the
payment.
(4) Examples. The following examples illustrate the application of
the rules in paragraph (c)(3) of this section:
Example 1. P, an individual who is not an exempt recipient, places
an order with B, a person generally known in the investment community to
be a federally registered broker/dealer, to effect a sale of P's stock
in a publicly traded corporation. B, in turn, places an order to sell
the stock with C, a second broker, who will execute the sale. B
discloses to C the identity of the customer placing the order. C is not
required to make a return of information with respect to the sale
because C was instructed by B, an exempt recipient as defined in
paragraph (c)(3)(i)(B)(6) of this section, to initiate the sale. B is
required to make a return of information with respect to the sale
because P is B's customer and is not an exempt recipient.
Example 2. Assume the same facts as in Example 1 except that B has
an omnibus account with C so that B does not disclose to C whether the
transaction is for a customer of B or for B's own account. C is not
required to make a return of information with respect to the sale
because C was instructed by B, an exempt recipient as defined in
paragraph (c)(3)(i)(B)(6) of this section, to initiate the sale. B is
required to make a return of information with respect to the sale
because P is B's customer and is not an exempt recipient.
Example 3. D, an individual who is not an exempt recipient, enters
into a cash on delivery stock transaction by instructing K, a federally
registered broker/dealer, to sell stock owned by D, and to deliver the
proceeds to L, a custodian bank. Concurrently with the above
instructions, D instructs L to deliver D's stock to K (or K's designee)
against delivery of the proceeds from K. The records of both K and L
with respect to this transaction show an account in the name of
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D. Pursuant to paragraph (h)(1) of this section, D is considered the
customer of K and L. Under paragraph (c)(3)(iv) of this section, K is
not required to make a return of information with respect to the sale
because K will pay the gross proceeds to L against delivery of the
securities sold. L is required to make a return of information with
respect to the sale because D is L's customer and is not an exempt
recipient.
Example 4. Assume the same facts as in Example 3 except that E, a
federally registered investment advisor, instructs K to sell stock owned
by D and to deliver the proceeds to L. Concurrently with the above
instructions, E instructs L to deliver D's stock to K (or K's designee)
against delivery of the proceeds from K. The records of both K and L
with respect to the transaction show an account in the name of D.
Pursuant to paragraph (h)(1) of this section, D is considered the
customer of K and L. Under paragraph (c)(3)(iv) of this section, K is
not required to make a return of information with respect to the sale
because K will pay the gross proceeds to L against delivery of the
securities sold. L is required to make a return of information with
respect to the sale because D is L's customer and is not an exempt
recipient.
Example 5. Assume the same facts as in Example 4 except that the
records of both K and L with respect to the transaction show an account
in the name of E. Pursuant to paragraph (h)(1) of this section, E is
considered the customer of K and L. Under paragraph (c)(3)(iv) of this
section, K is not required to make a return of information with respect
to the sale because K will pay the gross proceeds to L against delivery
of the securities sold. L is required to make a return of information
with respect to the sale because E is L's customer and is not an exempt
recipient. E is required to make a return of information with respect to
the sale because D is E's customer and is not an exempt recipient.
Example 6. F, an individual who is not an exempt recipient, owns
bonds that are held by G, a federally registered broker/dealer, in an
account for F with G designated as nominee for F. Upon the retirement of
the bonds, the gross proceeds are automatically credited to the account
of F. G is required to make a return of information with respect to the
retirement because G is the broker responsible for making payments of
the gross proceeds to F.
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)(7).
(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.
(5) Form of reporting for regulated futures contracts--(i) In
general. A broker effecting closing transactions in regulated futures
contracts shall report information with respect to regulated futures
contracts solely in the manner prescribed in this paragraph (c)(5). In
the case of a sale that involves making
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delivery pursuant to a regulated futures contract, only the profit or
loss on the contract is reported as a transaction with respect to
regulated futures contracts under this paragraph (c)(5); such sales are,
however, subject to reporting under paragraph (d)(2). The information
required under this paragraph (c)(5) must be reported on a calendar year
basis, unless the broker is advised in writing by an account's owner
that the owner's taxable year is other than a calendar year and the
broker elects to report with respect to regulated futures contracts in
such account on the basis of the owner's taxable year. The following
information must be reported as required by Form 1099 with respect to
regulated futures contracts held in a customer's account:
(A) The name, address, and taxpayer identification number of the
customer.
(B) The net realized profit or loss from all regulated futures
contracts closed during the calendar year.
(C) The net unrealized profit or loss in all open regulated futures
contracts at the end of the preceding calendar year.
(D) The net unrealized profit or loss in all open regulated futures
contracts at the end of the calendar year.
(E) The aggregate profit or loss from regulated futures contracts
((b) + (d)-(c)).
(F) Any other information required by Form 1099. See 17 CFR 1.33.
For this purpose, the end of a year is the close of business of the last
business day of such year. In reporting under this paragraph (c)(5), the
broker shall make such adjustments for commissions that have actually
been paid and for option premiums as are consistent with the books of
the broker. No additional returns of information with respect to
regulated futures contracts so reported are required.
(ii) Determination of profit or loss from foreign currency
contracts. A broker effecting a closing transaction in foreign currency
contracts (as defined in section 1256(g)) shall report information with
respect to such contracts in the manner prescribed in paragraph
(c)(5)(i) of this section. If a foreign currency contract is closed by
making or taking delivery, the net realized profit or loss for purposes
of paragraph (c)(5)(i)(B) of this section is determined by comparing the
contract price to the spot price for the contract currency at the time
and place specified in the contract. If a foreign currency contract is
closed by entry into an offsetting contract, the net realized profit or
loss for purposes of paragraph (c)(5)(i)(B) of this section is
determined by comparing the contract price to the price of the
offsetting contract. The net unrealized profit or loss in a foreign
currency contract for purposes of paragraphs (c)(5)(i) (C) and (D) of
this section is determined by comparing the contract price to the
broker's price for similar contracts at the close of business of the
relevant year.
(iii) Examples. The following examples illustrate the application of
the rules in this paragraph (c)(5):
Example 1. On October 30, 1984, A, an individual who is a calendar
year taxpayer not otherwise exempt from reporting, buys one March 1985
put on Treasury Bond futures (i.e. A purchases an option to enter into a
short regulated futures contract of $100,000 face value U.S. Treasury
bonds). A pays $500 for the option. On December 19, 1984, A, through B,
exercises the option and enters into the futures contract. On February
15, 1985, A, through B, enters into a closing transaction with respect
to the futures contract. These are A's only transactions in the account.
Since B's books list A's regulated futures contract on December 31,
1984, B must report for A, for 1984, the unrealized profit or loss in
the contract as of December 31, 1984. For 1985, B will report the same
amount for A as the unrealized profit or loss at the beginning of 1985.
The return of information for 1985 will also include the gain or loss
from the contract in the net realized profit or loss from all regulated
futures contracts sales during 1985.
Example 2. The facts are the same as in Example (1) except that A
does not enter into the closing transaction, but instead, on March 20,
1985, B informs A that A will make delivery under the contract. On March
22, 1985, A does so; consequently, A becomes entitled to the gross
proceeds. B enters the closing transaction on its books on March 20,
1985. In addition to the returns of information required by paragraph
(c)(5), as described in Example (1), B must report the March 22, 1985
delivery as a separate transaction. B may use as the sale date for the
delivery either March 20, 1985, the date the transaction is entered on
the books of B, or March 22, 1985, the date A becomes entitled to the
gross proceeds. B may not deduct the
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$500 premium from the gross proceeds with respect to the March 22, 1985
delivery.
Example 3. The facts are the same as in Example (2) except that A
buys a call on Treasury bond futures and takes delivery. B will supply
the returns of information required by paragraph (c)(5), as described in
Example (1). B is not required to make a return of information with
respect to A's taking delivery.
Example 4. C, an individual who is a calendar year taxpayer not
otherwise exempt from reporting, has an account with D, a broker. C
trades both regulated futures contracts and forward contracts through
C's account with D. D must report C's regulated futures contracts on an
annual basis as required by paragraph (c)(5). With respect to C's
forward contracts, D may elect to use the calendar month, quarter, or
year as D's reporting period as provided in paragraph (c)(6).
(6) Reporting periods and filing groups--(i) Reporting period--(A)
In general. A broker may elect to use the calendar month, quarter, or
year as the broker's reporting period. A broker may separately elect a
reporting period for each filing group.
(B) Election. For each calendar year, a broker shall elect a
reporting period by filing Forms 1096 and 1099 in the manner elected. A
different reporting period may be subsequently elected by filing in the
manner subsequently elected, provided no duplication of reported
transactions results.
(ii) Filing group--(A) In general. A broker may elect to group
customers or customer accounts by office, branch, department or other
method of operational classification and separately file Forms 1096 and
1099 for each filing group.
(B) Election. For each calendar year, a broker shall elect filing
groups by filing Forms 1096 and 1099 in the manner elected. Different
filing groups may be subsequently elected by filing in the manner
subsequently elected, provided no duplication of reported transactions
results.
(iii) Example. The following example illustrates the rules of this
paragraph (c)(6):
Example. The A department of C, a broker, files a separate report
for each month of 1984, whereas the B department of C files one report
for all of 1984. C makes no other reports or returns of information
under section 6045 for 1984. C had thereby elected two filing groups for
1984, the A department and the B department. The A department has the
calendar month as its 1984 reporting period, whereas the B department
has the calendar year as its 1984 reporting period. The same result
would occur if A and B were offices or branches of C.
(7) Exception for certain sales of agricultural commodities and
commodity certificates--(i) Agricultural commodities. No return of
information is required under section 6045 for a spot or forward sale of
an agricultural commodity. This paragraph (c)(7)(i) does not except from
reporting sales of agricultural commodities pursuant to regulated
futures contracts, sales of derivative interests in agricultural
commodities, or sales described in paragraph (c)(7)(iii) of this
section.
(ii) Commodity Credit Corporation certificates. Except as otherwise
provided in a revenue ruling or revenue procedure, no return of
information is required under section 6045 with respect to a sale of a
commodity certificate issued by the Commodity Credit Corporation under 7
CFR 1470.4 (1990).
(iii) Sales involving designated warehouses. Paragraph (c)(7)(i) of
this section does not apply to any sale involving a warehouse receipt
for an agricultural commodity issued by a designated warehouse for an
agricultural commodity of the type for which the warehouse is a
designated warehouse.
(iv) Definitions. For purposes of this paragraph (c)(7):
(A) Agricultural commodity. An ``agricultural commodity'' includes,
but is not limited to, a commodity within the meaning of paragraph
(a)(5) of this section that is a grain, feed, livestock, meat, oil seed,
timber, or fiber.
(B) Spot sale. A spot sale is a sale that results in the
substantially contemporaneous delivery of a commodity.
(C) Forward sale. A forward sale is a sale pursuant to a forward
contract within the meaning of paragraph (a)(7) of this section.
(D) Designated warehouse. A designated warehouse is a warehouse,
depository, or other similar entity, designated by a commodity exchange
under 7 CFR 1.43 (1992), in which or out of which a particular type of
agricultural commodity is deliverable in satisfaction of a regulated
futures contract.
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(d) Information required--(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. In addition,
for a sale of a covered security on or after January 1, 2014, a broker
must report on Form 1099-B whether any gain or loss is ordinary. See
paragraph (m) of this section for additional rules related to options
and paragraph (n) of this section for additional rules related to debt
instruments.
(ii) Specific identification of securities. Except as provided in
Sec. 1.1012-1(e)(7)(ii), for a specified security described in
paragraph (a)(14)(i) of this section sold on or after January 1, 2011,
or for a specified security described in paragraph (a)(14)(ii) of this
section sold on or after January 1, 2014, a broker must report a sale of
less than the entire position in an account of a specified security that
was acquired on different dates or at different prices 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 securities in the account for which the broker does
not know the acquisition or purchase date followed by the earliest
securities purchased or acquired, whether covered securities or
noncovered securities.
(iii) Sales of noncovered securities. A broker is not required to
report adjusted basis and the character of any gain or loss 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 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
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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.
(3) Sales between interest payment dates. For each sale of a debt
instrument prior to maturity with respect to which a broker is required
to make a return of information under this section, a broker must show
separately on
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Form 1099 the amount of accrued and unpaid qualified stated interest as
of the sale date that must be reported by the customer as interest
income under Sec. 1.61-7(d). See Sec. 1.1273-1(c) for the definition
of qualified stated interest. Such interest information must be shown in
the manner and at the time required by Form 1099 and section 6049.
(4) Sale date. With respect to sales of property that are reportable
under this section, a broker must report a sale as occurring on the date
the sale is entered on the books of the broker.
(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
qualified stated 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 (other
than a closing transaction related to an option) that results in a loss,
gross proceeds are the amount debited from the customer's account. For
sales before January 1, 2014, 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 sales on or after January 1, 2014, a broker must reduce
gross proceeds by the amount of commissions and transfer taxes related
to the sale of the security. For securities sold pursuant to the
exercise of an option granted or acquired before January 1, 2014, 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. For securities sold pursuant to the exercise of an option
granted or acquired on or after January 1, 2014, or for the treatment of
an option granted or acquired on or after January 1, 2014, see paragraph
(m) of this section. 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 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 (beginning with the
date that the broker receives a transferred security) reported on an
issuer statement (as described in Sec. 1.6045B-1) furnished or deemed
furnished to the broker. Except as otherwise provided in paragraph (n)
of this section, a broker is not required to consider customer
elections. For rules related to the adjusted basis of a debt instrument,
see paragraph (n) of this section.
(ii) Initial basis--(A) Cost basis. For a security acquired for
cash, the initial basis generally 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, 2014. For rules related to options granted or acquired
on or after January 1, 2014, see paragraph (m) of this section. A broker
may, but is not
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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, 2014. A broker may not 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 on or after January 1, 2014.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) Basis of transferred securities--(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 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
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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) Certain adjustments not taken into account. A broker is not
required to apply section 1259 (regarding constructive sales), section
475 (regarding the mark-to-market method of accounting), section 1296
(regarding the mark-to-market method of accounting for marketable stock
in a passive foreign investment company), or section 1092 (regarding
straddles) 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.
(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, 2014, C grants R a nonstatutory option
under the plan to buy 100 shares of stock. The option becomes
substantially vested on April 2, 2015. On October 2, 2015, R exercises
the option and purchases 100 shares. On December 2, 2015, R sells the
100 shares. Under paragraph (d)(6)(ii)(A) of this section, C is required
to determine adjusted basis from the amount R pays under the terms of
the option. Under paragraph (d)(6)(ii)(A) of this section, C is not
permitted to adjust basis for any amount R must include as wage income
with respect to the October 2, 2015, stock purchase.
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(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
(beginning with the date that the broker receives a transferred
security) 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)
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(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
other than a payment of interest is made in a foreign currency, a broker
must determine the U.S. dollar amount of the payment by converting the
foreign currency into U.S. dollars on the date it receives, credits, or
makes the payment, as applicable, at the spot rate (as defined in Sec.
1.988-1(d)(1)) or pursuant to a reasonable spot rate convention. (For
interest payments, see paragraph (n)(4)(v) of this section concerning a
customer's spot rate election.) 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 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) Reporting of barter exchanges--(1) Requirement of reporting. A
barter exchange shall, except as otherwise provided, report in the
manner prescribed in this section.
(2) Exchanges required to be reported--(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
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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.
(ii) Exemption. A barter exchange through which there are fewer than
100 exchanges during the calendar year is not required to report for, or
make a return of information with respect to exchanges during, such
calendar year. The Commissioner may require multiple barter exchanges to
be combined for purposes of the proceeding sentence upon a determination
that a material purpose for the formation or continuation of one or more
of the barter exchanges to be combined was to receive one or more
exemptions pursuant to this subparagraph.
(f) Information required--(1) In general. A person that is a barter
exchange during a calendar year shall report on Form 1096 showing the
information required thereon for such year.
(2) Transactional reporting--(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.
(ii) Exception for corporate member or client. As to each corporate
member or client providing property or services in an exchange for which
a return of information is required under this section, the barter
exchange may report the name, address, and taxpayer identification
number of the corporate member or client, the aggregate amount received
by the corporate member or client during the reporting period for
property or services provided by such corporate member or client in
exchange for which a return of information is required, and such other
information as may be required by Form 1099, in the form, manner, and
number of copies required by Form 1099.
(iii) Definition. For purposes of paragraph (f)(2)(ii) of this
section, the term ``corporate member or client'' means a member or
client of a barter exchange which is a corporation as defined in section
7701(a)(3) (including an insurance company). The term corporation
includes a pool, syndicate, partnership, or unincorporated association
composed exclusively of corporations. A barter exchange may treat a
member or client as a corporation (and therefore as a corporate member
or client) if such member or client provides an exemption certificate as
described in Sec. 31.3406(h)-3(a) of this chapter or provided that--
(A) The name of the member or client contains the term ``insurance
company,'' ``indemnity company,'' ``reinsurance company,'' or
``assurance company'';
(B) The name of the member or client contains one of the following
unambiguous expressions of corporate status: Incorporated, Inc.,
Corporation, Corp., or P.C., but not Company or Co.; or
(C) The member or client is known to the barter exchange to be a
corporation through a corporate resolution or similar document on file
with the barter exchange clearly indicating corporate status.
(3) Exchange date. For purposes of this section an exchange is
considered to occur with respect to a member or client of a barter
exchange on the date cash, property, a credit, or scrip is actually or
constructively received by the member or client as a result of the
exchange. (See Sec. 1.451-2 for rules pertaining to constructive
receipt.)
(4) Amount received. The amount received by a member or client in an
exchange includes cash received, the fair market value of any property
or services received, and the fair market value of any credits to the
account of the member or client on the books of the barter exchange or
scrip issued to the member or client by the barter exchange, but does
not include any amount received by the member or client in a subsequent
exchange of credits
[[Page 305]]
or scrip. For purposes of this section, the fair market value of a
credit or scrip is the value assigned to such credit or scrip by the
issuing barter exchange for the purpose of exchanges unless the
Commissioner requires the use of a different value that the Commissioner
determines more accurately reflects fair market value.
(5) Meaning of terms. For purposes of this paragraph (f)--
(i) A credit is an amount on the books of the barter exchange that
is transferable from one member or client of the barter exchange to
another such member or client, or to the barter exchange in payment for
property or services;
(ii) Scrip is a token issued by the barter exchange that is
transferable from one member or client, of the barter exchange to
another such member or client, or to the barter exchange, in payment for
property or services; and
(iii) Property does not include a credit or scrip.
(6) Reporting period. A barter exchange shall use the calendar year
as the reporting period.
(g) Exempt foreign persons--(1) Brokers. No return of information is
required to be made by a broker with respect to a customer who is
considered to be an exempt foreign person under this paragraph (g)(1). A
broker may treat a customer as an exempt foreign person under the
circumstances described in paragraphs (g)(1)(i) through (iii) of this
section.
(i) With respect to a sale effected at an office of a broker either
inside or outside the United States, the broker may treat the customer
as an exempt foreign person if the broker can, prior to the payment,
reliably associate the payment with documentation upon which it can rely
in order to treat the customer as a foreign beneficial owner in
accordance with Sec. 1.1441-1(e)(1)(ii), 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 (g)(1)(i), the provisions in Sec. 1.6049-5(c) regarding rules
applicable to documentation of foreign status shall apply with respect
to a sale when the broker completes the acts necessary to effect the
sale at an office outside the United States, as described in paragraph
(g)(3)(iii)(A) of this section, and no office of the same broker within
the United States negotiated the sale with the customer or received
instructions with respect to the sale from the customer. The provisions
in Sec. 1.6049-5(c) regarding the definitions of U.S. payor, U.S.
middleman, non-U.S. payor, and non-U.S. middleman shall also apply for
purposes of this paragraph (g)(1)(i). The provisions of Sec. 1.1441-1
shall apply by substituting the terms ``broker'' and ``customer'' for
the terms ``withholding agent'' and ``payee,'' respectively, and without
regard for the fact that the provisions apply to amounts subject to
withholding under chapter 3 of the Code. The provisions of Sec. 1.6049-
5(d) shall apply by substituting the terms ``broker'' and ``customer''
for the terms ``payor'' and ``payee,'' respectively. For purposes of
this paragraph (g)(1)(i), a broker that is required to obtain, or
chooses to obtain, a beneficial owner withholding certificate described
in Sec. 1.1441-1(e)(2)(i) from an individual may rely on the
withholding certificate only to the extent the certificate includes a
certification that the beneficial owner has not been, and at the time
the certificate is furnished, reasonably expects not to be present in
the United States for a period aggregating 183 days or more during each
calendar year to which the certificate pertains. The certification is
not required if a broker receives documentary evidence under Sec.
1.6049-5(c)(1) or (4).
(ii) With respect to a redemption or retirement of stock or an
obligation (the interest or original issue discount on, which is
described in Sec. 1.6049-5(b) (6), (7), (10), or (11) or the dividends
on, which are described in Sec. 1.6042-3(b)(1)(iv)) that is effected at
an office of a broker outside the United States by the issuer (or its
paying or transfer agent), the broker may treat the customer as an
exempt foreign person if the broker is not also acting in its capacity
as a custodian, nominee, or other agent of the payee.
(iii) With respect to a sale effected by a broker at an office of
the broker either inside or outside the United
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States, the broker may treat the customer as an exempt foreign person
for the period that those proceeds are assets blocked, as described in
Sec. 1.1441-2(e)(3). For purposes of this paragraph (g)(1)(iii) and
section 3406, a sale is deemed to occur in accordance with paragraph
(d)(4) of this section. The exemption in this paragraph (g)(1)(iii)
shall terminate when payment of the proceeds is deemed to occur in
accordance with the provisions of Sec. 1.1441-2(e)(3).
(2) Barter exchange. No return of information is required by a
barter exchange with respect to a client or a member that the barter
exchange may treat as a foreign person pursuant to the procedures
described in paragraph (g)(1) of this section.
(3) Applicable rules--(i) Joint owners. Amounts paid to joint owners
for which a certificate or documentation is required as a condition for
being exempt from reporting under paragraph (g) (1)(i) or (2) of this
section are presumed made to U.S. payees who are not exempt recipients
if, prior to payment, the broker or barter exchange cannot reliably
associate the payment either with a Form W-9 furnished by one of the
joint owners in the manner required in Sec. Sec. 31.3406(d)-1 through
31.3406(d)-5 of this chapter, or with documentation described in
paragraph (g)(1)(i) of this section furnished by each joint owner upon
which it can rely to treat each joint owner as a foreign payee or
foreign beneficial owner. For purposes of applying this paragraph
(g)(3)(i), the grace period described in Sec. 1.6049-5(d)(2)(ii) shall
apply only if each payee qualifies for such grace period.
(ii) Special rules for determining who the customer is. For purposes
of this paragraph (g), the determination of who the customer is shall be
made on the basis of the provisions in Sec. 1.6049-5(d) by substituting
in that section the terms payor and payee with the terms broker and
customer.
(iii) Place of effecting sale--(A) Sale outside the United States.
For purposes of this paragraph (g), a sale is considered to be effected
by a broker at an office outside the United States if, in accordance
with instructions directly transmitted to such office from outside the
United States by the broker's customer, the office completes the acts
necessary to effect the sale outside the United States. The acts
necessary to effect the sale may be considered to have been completed
outside the United States without regard to whether--
(1) Pursuant to instructions from an office of the broker outside
the United States, an office of the same broker within the United States
undertakes one or more steps of the sale in the United States; or
(2) The gross proceeds of the sale are paid by a draft drawn on a
United States bank account or by a wire or other electronic transfer
from a United States account.
(B) Sale inside the United States. For purposes of this paragraph
(g), a sale that is considered to be effected by a broker at an office
outside the United States under paragraph (g)(3)(iii)(A) of this section
shall nevertheless be considered to be effected by a broker at an office
inside the United States if either--
(1) The customer has opened an account with a United States office
of that broker;
(2) The customer has transmitted instructions concerning this and
other sales to the foreign office of the broker from within the United
States by mail, telephone, electronic transmission or otherwise (unless
the transmissions from the United States have taken place in isolated
and infrequent circumstances);
(3) The gross proceeds of the sale are paid to the customer by a
transfer of funds into an account (other than an international account
as defined in Sec. 1.6049-5(e)(4)) maintained by the customer in the
United States or mailed to the customer at an address in the United
States;
(4) The confirmation of the sale is mailed to a customer at an
address in the United States; or
(5) An office of the same broker within the United States negotiates
the sale with the customer or receives instructions with respect to the
sale from the customer.
(iv) Special rules where the customer is a foreign intermediary or
certain U.S.
[[Page 307]]
branches. A foreign intermediary, as defined in Sec. 1.1441-1(c)(13),
is an exempt foreign person, except when the broker has actual knowledge
(within the meaning of Sec. 1.6049-5(c)(3)) that the person for whom
the intermediary acts is a U.S. person that is not exempt from reporting
under paragraph (c)(3) of this section or the broker is required to
presume under Sec. 1.6049-5(d)(3) that the payee is a U.S. person that
is not an exempt recipient. If a foreign intermediary, as described in
Sec. 1.1441-1(c)(13), or a U.S. branch that is not treated as a U.S.
person receives a payment from a payor or middleman, which payment the
payor or middleman can reliably associate with a valid withholding
certificate described in Sec. 1.1441-1(e)(3)(ii) or (iii) or Sec.
1.1441-1(e)(3)(v), respectively, furnished by such intermediary or
branch, then the intermediary or branch is not required to report such
payment when it, in turn, pays the amount, unless, and to the extent,
the intermediary or branch knows that the payment is required to be
reported under this section and was not so reported. For example, if a
U.S. branch described in Sec. 1.1441-1(b)(2)(iv) fails to provide
information regarding U.S. persons that are not exempt from reporting
under paragraph (c)(3) of this section to the person from whom the U.S.
branch receives the payment, the U.S. branch must report the payment on
an information return. See, however, paragraph (c)(3)(ii) of this
section for when reporting under section 6045 is coordinated with
reporting under chapter 4 of the Code or an applicable IGA (as defined
in Sec. 1.6049-4(f)(7)). The exception of this paragraph (g)(3)(iv) for
amounts paid by a foreign intermediary shall not apply to a qualified
intermediary that assumes reporting responsibility under chapter 61 of
the Code except as provided under the agreement described in Sec.
1.1441-1(e)(5)(iii).
(4) Examples. The application of the provisions of this paragraph
(g) may be illustrated by the following examples:
Example 1. FC is a foreign corporation that is not a U.S. payor or
U.S. middleman described in Sec. 1.6049-5(c)(5) that regularly issues
and retires its own debt obligations. A is an individual whose residence
address is inside the United States, who holds a bond issued by FC that
is in registered form (within the meaning of section 163(f) and the
regulations under that section). The bond is retired by FP, a foreign
corporation that is a broker within the meaning of paragraph (a)(1) of
this section and the designated paying agent of FC. FP mails the
proceeds to A at A's U.S. address. The sale would be considered to be
effected at an office outside the United States under paragraph
(g)(3)(iii)(A) of this section except that the proceeds of the sale are
mailed to a U.S. address. For that reason, the sale is considered to be
effected at an office of the broker inside the United States under
paragraph (g)(3)(iii)(B) of this section. Therefore, FC is a broker
under paragraph (a)(1) of this section with respect to this transaction
because, although it is not a U.S. payor or U.S. middleman, as described
in Sec. 1.6049-5(c)(5), it is deemed to effect the sale in the United
States. FP is a broker for the same reasons. However, under the multiple
broker exception under paragraph (c)(3)(iii) of this section, FP, rather
than FC, is required to report the payment because FP is responsible for
paying the holder the proceeds from the retired obligations. Under
paragraph (g)(1)(i) of this section, FP may not treat A as an exempt
foreign person and must make an information return under section 6045
with respect to the retirement of the FC bond, unless FP obtains the
certificate or documentation described in paragraph (g)(1)(i) of this
section.
Example 2. The facts are the same as in Example 1 except that FP
mails the proceeds to A at an address outside the United States. Under
paragraph (g)(3)(iii)(A) of this section, the sale is considered to be
effected at an office of the broker outside the United States.
Therefore, under paragraph (a)(1) of this section, neither FC nor FP is
a broker with respect to the retirement of the FC bond. Accordingly,
neither is required to make an information return under section 6045.
Example 3. The facts are the same as in Example 2 except that FP is
also the agent of A. The result is the same as in Example 2. Neither FP
nor FC are brokers under paragraph (a)(1) of this section with respect
to the sale since the sale is effected outside the United States and
neither of them are U.S. payors (within the meaning of Sec. 1.6049-
5(c)(5)).
Example 4. The facts are the same as in Example 1 except that the
registered bond held by A was issued by DC, a domestic corporation that
regularly issues and retires its own debt obligations. Also, FP mails
the proceeds to A at an address outside the United States. Interest on
the bond is not described in paragraph (g)(1)(ii) of this section. The
sale is considered to be effected at an office outside the United States
under paragraph (g)(3)(iii)(A) of this section. DC is a broker under
paragraph (a)(1)(i)(B) of this section. DC is not required to report the
payment under the multiple broker exception under
[[Page 308]]
paragraph (c)(3)(iii) of this section. FP is not required to make an
information return under section 6045 because FP is not a U.S. payor
described in Sec. 1.6049-5(c)(5) and the sale is effected outside the
United States. Accordingly, FP is not a broker under paragraph (a)(1) of
this section.
Example 5. The facts are the same as in Example 4 except that FP is
also the agent of A. DC is a broker under paragraph (a)(1) of this
section. DC is not required to report under the multiple broker
exception under paragraph (c)(3)(iii) of this section. FP is not
required to make an information return under section 6045 because FP is
not a U.S. payor described in Sec. 1.6049-5(c)(5) and the sale is
effected outside the United States and therefore FP is not a broker
under paragraph (a)(1) of this section.
Example 6. The facts are the same as in Example 4 except that the
bond is retired by DP, a broker within the meaning of paragraph (a)(1)
of this section and the designated paying agent of DC. DP is a U.S.
payor under Sec. 1.6049-5(c)(5). DC is not required to report under the
multiple broker exception under paragraph (c)(3)(iii) of this section.
DP is required to make an information return under section 6045 because
it is the person responsible for paying the proceeds from the retired
obligations unless DP obtains the certificate or documentary evidence
described in paragraph (g)(1)(i) of this section.
Example 7. Customer A owns U.S. corporate bonds issued in registered
form after July 18, 1984, and carrying a stated rate of interest. The
bonds are held through an account with foreign bank, X, and are held in
street name. X is a wholly-owned subsidiary of a U.S. company and is not
a qualified intermediary within the meaning of Sec. 1.1441-1(e)(5)(ii).
X has no documentation regarding A. A instructs X to sell the bonds. In
order to effect the sale, X acts through its agent in the United States,
Y. Y sells the bonds and remits the sales proceeds to X. X credits A's
account in the foreign country. X does not provide documentation to Y
and has no actual knowledge that A is a foreign person but it does
appear that A is an entity (rather than an individual).
(i) Y's obligations to withhold and report. Y treats X as the
customer, and not A, because Y cannot treat X as an intermediary because
it has received no documentation from X. Y is not required to report the
sales proceeds under the multiple broker exception under paragraph
(c)(3)(iii) of this section, because X is an exempt recipient. Further,
Y is not required to report the amount of accrued interest paid to X on
Form 1042-S under Sec. 1.1461-1(c)(2)(ii) because accrued interest is
not an amount subject to reporting under chapter 3 unless the
withholding agent knows that the obligation is being sold with a primary
purpose of avoiding tax.
(ii) X's obligations to withhold and report. Although X has
effected, within the meaning of paragraph (a)(1) of this section, the
sale of a security at an office outside the United States under
paragraph (g)(3)(iii) of this section, X is treated as a broker, under
paragraph (a)(1) of this section, because as a wholly-owned subsidiary
of a U.S. corporation, X is a controlled foreign corporation and
therefore is a U.S. payor. See Sec. 1.6049-5(c)(5). Under the
presumptions described in Sec. 1.6049-5(d)(2) (as applied to amounts
not subject to withholding under chapter 3), X must apply the
presumption rules of Sec. 1.1441-1(b)(3)(i) through (iii), with respect
to the sales proceeds, to treat A as a partnership that is a U.S. non-
exempt recipient because the presumption of foreign status for offshore
obligations under Sec. 1.1441-1(b)(3)(iii)(D) does not apply. See
paragraph (g)(1)(i) of this section. Therefore, unless X is an FFI (as
defined in Sec. 1.1471-1(b)(47)) that is excepted from reporting the
sales proceeds under paragraph (c)(3)(ii) of this section, the payment
of proceeds to A by X is reportable on a Form 1099 under paragraph
(c)(2) of this section. X has no obligation to backup withhold on the
payment based on the exemption under Sec. 31.3406(g)-1(e) of this
chapter, unless X has actual knowledge that A is a U.S. person that is
not an exempt recipient. X is also required to separately report the
accrued interest (see paragraph (d)(3) of this section) on Form 1099
under section 6049 because A is also presumed to be a U.S. person who is
not an exempt recipient with respect to the payment because accrued
interest is not an amount subject to withholding under chapter 3 and,
therefore, the presumption of foreign status for offshore obligations
under Sec. 1.1441-1(b)(3)(iii)(D) does not apply. See Sec. 1.6049-
5(d)(2)(i).
Example 8. The facts are the same as in Example 7, except that X is
a foreign corporation that is not a U.S. payor under Sec. 1.6049-5(c).
(i) Y's obligations to withhold and report. Y is not required to
report the sales proceeds under the multiple broker exception under
paragraph (c)(3)(iii) of this section, because X is the person
responsible for paying the proceeds from the sale to A.
(ii) X's obligations to withhold and report. Although A is presumed
to be a U.S. payee under the presumptions of Sec. 1.6049-5(d)(2), X is
not considered to be a broker under paragraph (a)(1) of this section
because it is a not a U.S. payor under Sec. 1.6049-5(c)(5). Therefore X
is not required to report the sale under paragraph (c)(2) of this
section.
(h) Identity of customer--(1) In general. For purposes of this
section, a broker or barter exchange shall treat the person who appears
on the books and
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records of the broker or barter exchange with respect to property or
services as the principals with respect thereto.
(2) Examples. The following examples illustrate the rule of this
paragraph (h):
Example 1. The records of A, a broker, show an account in the name
of ``B''. B is a nominee for C. All reporting with respect to such
account shall treat B as the customer.
Example 2. J, an individual, places an order with H, a broker, to
sell J's stock that is held by P, a broker/dealer, in an account for J
with P designated as nominee for J, and to credit the gross proceeds
from the sale to J's account with P. The account is in the name of P, so
that H's customer is P.
(i) [Reserved]
(j) Time and place for filing; cross-reference to penalty. Forms
1096 and 1099 required under this section shall be filed after the last
calendar day of the reporting period elected by the broker or barter
exchange and on or before February 28 of the following calendar year
with the appropriate Internal Revenue Service Center, the address of
which is listed in the instructions for Form 1096. See paragraph (l) of
this section for the requirement to file certain returns on magnetic
media. For provisions relating to the penalty provided for the failure
to file timely a correct information return under section 6045(a), see
Sec. 301.6721-1 of this chapter. See Sec. 301.6724-1 of this chapter
for the waiver of a penalty if the failure is due to reasonable cause
and is not due to willful neglect.
(k) Requirement and time for furnishing statement; cross-reference
to penalty--(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
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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 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.
(4) Cross-reference to penalty. For provisions for failure to
furnish timely a correct payee statement, see Sec. 301.6724-1 of this
chapter (Procedure and Administration Regulations). See Sec. 301.6724-1
of this chapter for the waiver of a penalty if the failure is due to
reasonable cause and is not due to willful neglect.
(l) Use of magnetic media. For information returns filed after
December 31, 1996, see Sec. 301.6011-2 of this chapter for rules
relating to filing information returns on magnetic media and for rules
relating to waivers granted for undue hardship. A broker or barter
exchange that fails to file a Form 1099 on magnetic media, when
required, may be subject to a penalty under section 6721 for each such
failure. See paragraph (j) of this section.
(m) Additional rules for option transactions--(1) In general. This
paragraph (m) provides rules for a broker to determine and report the
information required under this section for an option that is a covered
security under paragraph (a)(15)(i)(E) of this section.
(2) Scope--(i) In general. Paragraph (m) of this section applies to
the following types of options granted or acquired on or after January
1, 2014:
(A) An option on one or more specified securities (which includes an
index substantially all the components of which are specified
securities);
(B) An option on financial attributes of specified securities, such
as interest rates or dividend yields; or
(C) A warrant or a stock right.
(ii) Delayed effective date for certain options--(A) Notwithstanding
paragraph (m)(2)(i) of this section, if an option, stock right, or
warrant is issued as part of an investment unit described in Sec.
1.1273-2(h), paragraph (m) of this section applies to the option, stock
right, or warrant if it is acquired on or after January 1, 2016.
(B) Notwithstanding paragraph (m)(2)(i) of this section, if the
property referenced by an option (that is, the property underlying the
option) is a debt instrument that is issued by a non-U.S. person or that
provides for one or more payments denominated in,
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or determined by reference to, a currency other than the U.S. dollar,
paragraph (m) of this section applies to the option if it is granted or
acquired on or after January 1, 2016.
(iii) Compensatory option. Notwithstanding paragraphs (m)(2)(i) and
(m)(2)(ii) of this section, paragraph (m) of this section does not apply
to compensatory options.
(3) Option subject to section 1256. If an option described in
paragraph (m)(2) of this section is also described in section 1256(b), a
broker must apply the rules described in paragraph (c)(5) of this
section by treating the option as if it were a regulated futures
contract and must report the information required under paragraph (c)(5)
of this section. A broker is permitted, but not required, to report the
amounts for options and the amounts for regulated futures contracts
determined under paragraph (c)(5) of this section as a net amount for
each reportable item.
(4) Option not subject to section 1256. The following rules apply to
an option that is described in paragraph (m)(2) of this section but is
not also described in paragraph (m)(3) of this section:
(i) Physical settlement. For purposes of paragraph (d) of this
section, if a specified security (other than an option) is acquired or
disposed of pursuant to the exercise of an option, the broker must
adjust the basis of the acquired asset or the gross proceeds amount as
appropriate to account for any payment related to the option, including
the premium.
(ii) Cash settlement. For purposes of paragraph (d) of this section,
for an option that is settled for cash, a broker must reflect on Form
1099-B all payments made or received on the option. For a purchased
option, a broker must report as basis the premium paid plus any costs
(for example, commissions) related to the acquisition of the option and
must report as proceeds the gross proceeds from settlement minus any
costs related to the settlement of the option. For a written option, a
broker must report as proceeds the premium received decreased by any
amounts paid on the option and report $0 as the basis of the option.
(iii) Rules for warrants and stock rights acquired in a section 305
distribution. For a right (including a warrant) to acquire stock
received in the same account as the underlying security in a
distribution that is described in section 305(a), a broker is permitted,
but not required, to apply the rules described in sections 305 and 307
when reporting or accounting for the basis of the option and the
underlying equity. If a stock right or warrant is acquired from the
initial distributee, the buyer or transferee must treat it as an option
covered by either paragraph (m)(4)(i) or (m)(4)(ii) of this section.
(iv) Examples. The following examples illustrate the rules in this
paragraph (m)(4):
Example 1. (i) On January 15, 2014, C, an individual who is neither
a dealer nor a trader in securities, writes a 2-year exchange-traded
option on 100 shares of Company X through Broker D. C receives a premium
for the option of $100 and pays no commission. In C's hands, the option
produces capital gain or loss and Company X stock is a capital asset. On
December 16, 2014, C pays $110 to close out the option.
(ii) D is required to report information about the closing
transaction because the option is a covered security as described in
paragraph (a)(15)(i)(E) of this section and was part of a closing
transaction described in paragraph (a)(8) of this section. Under
paragraph (m)(4)(ii) of this section, D must report as gross proceeds on
C's Form 1099-B -$10 (the $100 received as option premium minus the $110
C paid to close out the option) and report $0 in the basis box on the
Form 1099-B. Under section 1234(b)(1) and paragraph (d)(2) of this
section, D must also report the loss on the closing transaction as a
short-term capital loss.
Example 2. (i) On January 15, 2014, E, an individual who is neither
a dealer nor a trader in securities, buys a 2-year exchange-traded
option on 100 shares of Company X through Broker F. E pays a premium of
$100 for the option and pays no commission. In E's hands, both the
option and Company X stock are capital assets. On December 16, 2014, E
receives $110 to close out the option.
(ii) F is required to report information about the closing
transaction because the option is a covered security as described in
paragraph (a)(15)(i)(E) of this section and was part of a closing
transaction described in paragraph (a)(8) of this section. Because the
option is on the shares of a single company, it is an equity option
described in section 1256(g)(6) and is not described in section
1256(b)(1)(C). Therefore, the rules of paragraph (m)(3) of this section
do not apply, and F must report under paragraph (m)(4) of this section.
Under paragraph (m)(4)(ii) of this
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section, F must report $110 as gross proceeds on the Form 1099-B for the
gross proceeds E received and $100 in the basis box on the Form 1099-B
to reflect the $100 option premium paid. Under section 1234(b)(1) and
paragraph (d)(2) of this section, F must also report the gain on the
closing transaction as a short-term capital gain.
(5) Multiple options documented in a single contract. If more than
one option described in paragraph (m)(2) of this section is documented
in a single contract, a broker must separately report the required
information for each option as that option is sold.
(6) Determination of index status. Penalties will not be asserted
under sections 6721 and 6722 if a broker in good faith determines that
an index is, or is not, a narrow-based index described in section
1256(g)(6) and reports in a manner consistent with this determination.
(n) Reporting for debt instrument transactions--(1) In general. For
purposes of this section, this paragraph (n) provides rules for a broker
to determine and report information for a debt instrument that is a
covered security under paragraph (a)(15)(i)(C) or (D) of this section.
Neither a debt instrument subject to section 1272(a)(6) nor a short-term
obligation described in section 1272(a)(2)(C) is subject to this
paragraph (n) because neither is a specified security under paragraph
(a)(14)(ii) of this section (a requirement for a debt instrument to be a
covered security).
(2) Debt instruments subject to January 1, 2014, reporting--(i) In
general. For purposes of paragraph (a)(15)(i)(C) of this section, except
as provided in paragraph (n)(2)(ii) of this section, a debt instrument
is described in this paragraph (n)(2)(i) if the debt instrument is one
of the following:
(A) A debt instrument that provides for a single fixed payment
schedule for which a yield and maturity can be determined for the
instrument under Sec. 1.1272-1(b);
(B) A debt instrument that provides for alternate payment schedules
for which a yield and maturity can be determined for the instrument
under Sec. 1.1272-1(c); or
(C) A debt instrument for which the yield of the debt instrument can
be determined under Sec. 1.1272-1(d).
(ii) Exceptions. A debt instrument is not described in paragraph
(n)(2)(i) of this section if the debt instrument is one of the
following:
(A) A debt instrument that provides for more than one rate of stated
interest (including a debt instrument that provides for stepped interest
rates);
(B) A convertible debt instrument described in Sec. 1.1272-1(e);
(C) A stripped bond or stripped coupon subject to section 1286;
(D) A debt instrument that requires payment of either interest or
principal in a currency other than the U.S. dollar;
(E) A debt instrument that, at one or more times in the future,
entitles a holder to a tax credit;
(F) A debt instrument that provides for a payment-in-kind (PIK)
feature (that is, under the terms of the debt instrument, a holder may
receive one or more additional debt instruments of the issuer);
(G) A debt instrument issued by a non-U.S. issuer;
(H) A debt instrument for which the terms of the instrument are not
reasonably available to the broker within 90 days of the date the debt
instrument was acquired by the customer;
(I) A debt instrument that is issued as part of an investment unit
described in Sec. 1.1273-2(h); or
(J) A debt instrument evidenced by a physical certificate unless
such certificate is held (whether directly or through a nominee, agent,
or subsidiary) by a securities depository or by a clearing organization
described in Sec. 1.1471-1(b)(18).
(iii) Remote or incidental. For purposes of paragraphs (n)(2)(i) and
(n)(2)(ii) of this section, a remote or incidental contingency (as
determined under Sec. 1.1275-2(h)) is ignored.
(iv) Penalty rate. For purposes of paragraph (n)(2)(ii)(A) of this
section, a debt instrument does not provide for more than one rate of
stated interest merely because the instrument provides for a penalty
interest rate or an adjustment to the stated interest rate in the event
of a default or similar event.
(3) Debt instruments subject to January 1, 2016, reporting. For
purposes of paragraph (a)(15)(i)(D) of this section, a
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debt instrument is described in this paragraph (n)(3) if it is described
in paragraph (n)(2)(ii) of this section or it otherwise is not described
in paragraph (n)(2)(i) of this section. For example, this paragraph
(n)(3) applies to variable rate debt instruments, inflation-indexed debt
instruments, and contingent payment debt instruments because these
instruments are not described in paragraph (n)(2)(i) of this section.
(4) Holder elections. For purposes of this section, a broker is
required to take into account an election described in this paragraph
(n)(4), and the broker must take the election into account in accordance
with the rules in paragraph (n)(5) of this section. A broker, however,
may not take into account any other election. See paragraph (n)(11) of
this section for the treatment of an election described in paragraph
(n)(4)(iii) of this section (election to accrue market discount based on
a constant yield) and an election described in paragraph (n)(4)(iv) of
this section (election to treat all interest as OID).
(i) Election to amortize bond premium. An election under section 171
and Sec. 1.171-4 to amortize bond premium on a taxable debt instrument
(this election applies to all taxable debt instruments held by a
taxpayer during the taxable year the election is effective and
thereafter; this election may be revoked with the consent of the
Commissioner).
(ii) Election to currently include accrued market discount. An
election under section 1278(b) to include market discount in income as
it accrues (this election applies to all debt instruments acquired by a
taxpayer during the taxable year the election is effective and
thereafter; this election may be revoked with the consent of the
Commissioner).
(iii) Election to accrue market discount based on a constant yield.
An election under section 1276(b)(2) to compute accruals of market
discount using a constant yield method (this election is generally made
on an instrument-by-instrument basis and must be made for the earliest
taxable year for which the taxpayer is required to determine accrued
market discount on the debt instrument; this election may not be
revoked).
(iv) Election to treat all interest as OID. An election under Sec.
1.1272-3 to treat all interest on a taxable debt instrument (adjusted
for any acquisition premium or premium) as original issue discount (this
election is generally made on an instrument-by-instrument basis and must
be made for the taxable year the debt instrument is acquired by the
taxpayer; this election may be revoked with the consent of the
Commissioner). However, see paragraph (n)(11)(i)(A) of this section for
a debt instrument acquired on or after January 1, 2014.
(v) Election to translate interest income and expense at the spot
rate. An election under Sec. 1.988-2(b)(2)(iii)(B) to translate
interest income and expense at the spot rate on the last day of the
interest accrual period or, in the case of a partial accrual period, the
last day of the taxable year (this election applies to all taxable debt
instruments held by a taxpayer during the taxable year the election is
effective and thereafter; this election may be revoked with the consent
of the Commissioner).
(5) Broker assumptions and customer notice to brokers--(i) Broker
assumptions if the customer does not notify the broker. Except as
provided in paragraph (n)(5)(ii)(A) of this section, a broker must
report the information required under paragraph (d) of this section by
assuming that a customer has made the election to amortize bond premium
described in paragraph (n)(4)(i) of this section. In addition, except as
provided in paragraph (n)(5)(ii)(B) of this section, a broker must
report the information required under paragraph (d) of this section by
assuming that a customer has not made an election described in paragraph
(n)(4)(ii), (n)(4)(iii), (n)(4)(iv), or (n)(4)(v) of this section.
However, see paragraph (n)(11) of this section for the treatment of an
election described in paragraph (n)(4)(iii) of this section (election to
accrue market discount based on a constant yield) and an election
described in paragraph (n)(4)(iv) of this section (election to treat all
interest as OID).
(ii) Effect of customer notification of an election or revocation--
(A) Election to amortize bond premium. If a customer notifies a broker
in writing that the customer does not want the broker to
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take into account the election to amortize bond premium, the broker must
report the information required under paragraph (d) of this section
without taking into account the election to amortize bond premium. The
customer must provide this notification to the broker by the end of the
calendar year for which the customer does not want to amortize bond
premium. If for a subsequent calendar year, the customer wants the
broker to take into account the election to amortize bond premium, the
customer must notify the broker in writing by the end of the calendar
year that the customer wants to amortize bond premium. If the customer
provides such notification, the broker must report the information
required under paragraph (d) of this section as if the customer made the
election to amortize bond premium for that year.
(B) Other debt elections. If a customer notifies a broker in writing
that the customer has made or will make an election described in
paragraph (n)(4)(ii), (iii), (iv), or (v) of this section, the broker
must report the information required under paragraph (d) of this section
by taking into account the election. A customer must notify the broker
in writing of the election by the end of the calendar year in which a
debt instrument subject to the election is acquired in, or transferred
into, an account with the broker or, if later, by the end of the
calendar year for which the election is effective. If a customer has
revoked or will revoke an election described in paragraph (n)(4)(ii),
(n)(4)(iv), or (n)(4)(v) of this section for a calendar year, the
customer must notify the broker of the revocation in writing by the end
of the calendar year for which the revocation is effective. If the
customer provides such notification, the broker must report the
information required under paragraph (d) of this section by taking into
account the revocation.
(iii) Electronic notification. For purposes of paragraph (n)(5)(ii)
of this section, the written notification to the broker includes a
writing in electronic format.
(6) Reporting of accrued market discount. In addition to the
information required to be reported under paragraph (d) of this section,
if a debt instrument is subject to the market discount rules in sections
1276 through 1278, a broker also must report the information described
in paragraph (n)(6)(i) or (n)(6)(ii) of this section, whichever is
applicable. Such information must be shown in the manner and at the time
required by Form 1099 and section 6045.
(i) Sale. A broker must report the amount of market discount that
has accrued on a debt instrument as of the date of the instrument's
sale, as defined in paragraph (a)(9) of this section. See paragraphs
(n)(5) and (n)(11)(i)(B) of this section to determine whether the amount
reported should take into account a customer election under section
1276(b)(2). See paragraph (n)(8) of this section to determine the
accrual period to be used to compute the accruals of market discount.
This paragraph (n)(6)(i) does not apply if the customer notifies the
broker under the rules in paragraph (n)(5) of this section that the
customer elects under section 1278(b) to include market discount in
income as it accrues.
(ii) Current inclusion election. If a customer notifies a broker
under the rules in paragraph (n)(5) of this section that the customer
elects under section 1278(b) to include market discount in income as it
accrues, the broker is required to report to the customer the amount of
market discount that accrued on a debt instrument during a taxable year
while held by the customer in the account. The broker also must adjust
basis in accordance with section 1278(b)(4). If a customer notifies a
broker under the rules in paragraph (n)(5) of this section that the
customer is revoking its election under section 1278(b), the broker will
not report the market discount accrued during the taxable year of the
revocation and thereafter and will cease to adjust basis in accordance
with section 1278(b)(4). See paragraph (n)(8) of this section to
determine the accrual period to be used to compute the accruals of
market discount. See paragraphs (n)(5) and (n)(11)(i)(B) of this section
to determine whether the amount reported should take into account a
customer election under section 1276(b)(2).
[[Page 315]]
(7) Adjusted basis. For purposes of this section, a broker must use
the rules in paragraph (n) of this section to determine the adjusted
basis of a debt instrument.
(i) Original issue discount. If a debt instrument is subject to the
original issue discount rules in sections 1271 through 1275, section
1286, or section 1288, a broker must increase a customer's basis in the
debt instrument by the amount of original issue discount that accrued on
the debt instrument while held by the customer in the account. See
paragraph (n)(8) of this section to determine the accrual period to be
used to compute the accruals of original issue discount.
(ii) Amortizable bond premium--(A) Taxable bond. A broker is
required to adjust the customer's basis for any taxable bond acquired at
a premium and held in the account in accordance with Sec. 1.1016-5(b).
If a customer, however, informs a broker under the rules in paragraph
(n)(5)(ii)(A) of this section that the customer does not want to
amortize bond premium, the broker must not adjust the customer's basis
for any premium.
(B) Tax-exempt bonds. A broker is required to adjust the customer's
basis for any tax-exempt obligation acquired at a premium and held in
the account in accordance with Sec. 1.1016-5(b).
(iii) Acquisition premium. If a debt instrument is acquired at an
acquisition premium (as determined under Sec. 1.1272-2(b)(3)), a broker
must decrease the customer's basis in the debt instrument by the amount
of acquisition premium that is taken into account each year to reduce
the amount of the original issue discount that is otherwise includible
in the customer's income for that year. See Sec. 1.1272-2(b)(4) to
determine the amount of the acquisition premium taken into account each
year. However, if a broker took into account a customer election under
Sec. 1.1272-3 in 2014, the broker must decrease the customer's basis in
the debt instrument by the amount of acquisition premium that is taken
into account each year to reduce the amount of the original issue
discount that is otherwise includible in the customer's income for that
year in accordance with Sec. Sec. 1.1272-2(b)(5) and 1.1272-3.
(iv) Market discount. See paragraph (n)(6) of this section for rules
to determine the adjusted basis of a debt instrument with market
discount.
(v) Principal and certain other payments. A broker must decrease the
customer's basis in a debt instrument by the amount of any payment made
to the customer during the period the debt instrument is held in the
account, other than a payment of qualified stated interest as defined in
Sec. 1.1273-1(c).
(8) Accrual period. For purposes of this section, a broker generally
must use the same accrual period that is used to report any original
issue discount or stated interest to a customer under section 6049 for a
debt instrument. In any other situation, a broker must use a semi-annual
accrual period or, if a debt instrument provides for scheduled payments
of principal or interest at regular intervals of less than six months
over the entire term of the debt instrument, a broker must use an
accrual period equal in length to this shorter interval. For example, if
a debt instrument provides for monthly payments of interest over the
entire term of the debt instrument, the broker must use a monthly
accrual period. The rules in Sec. 1.1272-1(b)(4)(iii) apply for
purposes of an initial short accrual period. In computing the length of
an accrual period, any reasonable counting convention may be used (for
example, 30 days per month/360 days per year, or actual days per month/
365 days per year).
(9) Premium on convertible bond. If a customer acquires a
convertible bond (as defined in Sec. 1.171-1(e)(1)(iii)(C)) at a
premium (as determined under Sec. 1.171-1(d)), then, solely for
purposes of this section and Sec. 1.6049-9, a broker must assume that
the premium is attributable to the conversion feature. Based on this
assumption, no portion of the premium is amortizable for purposes of
this section and Sec. 1.6049-9.
(10) Effect of broker assumptions on customer. The rules in this
paragraph (n) only apply for purposes of a broker's reporting obligation
under section 6045. A customer is not bound by the assumptions that the
broker uses to satisfy the broker's reporting obligations under section
6045. In addition, a notification to the broker under
[[Page 316]]
paragraph (n)(5) of this section does not constitute an effective
election or revocation under the applicable rules for the election.
(11) Additional rules for certain holder elections--(i) In general.
For purposes of this section, the rules in this paragraph (n)(11) apply
notwithstanding any other rule in paragraph (n) of this section.
(A) Election to treat all interest as OID. A broker must report the
information required under paragraph (d) of this section without taking
into account any election described in paragraph (n)(4)(iv) of this
section (the election to treat all interest as OID in Sec. 1.1272-3).
As a result, for example, a broker must determine the amount of any
acquisition premium taken into account each year for purposes of this
section in accordance with Sec. 1.1272-2(b)(4). This paragraph
(n)(11)(i)(A) applies to a debt instrument acquired on or after January
1, 2015. A broker, however, may rely on this paragraph (n)(11)(i)(A) for
a debt instrument acquired on or after January 1, 2014, and before
January 1, 2015.
(B) Election to accrue market discount based on a constant yield. A
broker must report the information required under paragraph (d) of this
section by assuming that a customer has made the election described in
paragraph (n)(4)(iii) of this section (the election to accrue market
discount based on a constant yield). However, if a customer notifies a
broker in writing that the customer does not want the broker to take
into account this election, the broker must report the information
required under paragraph (d) of this section without taking into account
this election. The customer must provide this notification to the broker
by the end of the calendar year in which the customer acquired the debt
instrument in an account with the broker. This paragraph (n)(11)(i)(B)
applies to a debt instrument acquired on or after January 1, 2015. A
broker, however, may rely on this paragraph (n)(11)(i)(B) to report
accrued market discount for a debt instrument that is a covered security
acquired on or after January 1, 2014, and before January 1, 2015, if the
customer had not informed the broker that the customer had made a
section 1278(b) election and there were no principal payments on the
debt instrument during this period.
(ii) [Reserved].
(12) Certain debt instruments treated as noncovered securities--(i)
In general. Notwithstanding paragraph (a)(15) of this section, a debt
instrument is treated as a noncovered security for purposes of this
section if the terms of the debt instrument are not reasonably available
to the broker within 90 days of the date the debt instrument was
acquired by the customer and the debt instrument is either--
(A) A debt instrument issued by a non-U.S. issuer; or
(B) A tax-exempt obligation issued before January 1, 2014.
(ii) Effective/applicability date. Paragraph (n)(12)(i) of this
section applies to a debt instrument described in paragraph
(n)(12)(i)(A) or (B) of this section that is acquired on or after
February 18, 2016. However, a broker may rely on paragraph (n)(12)(i) of
this section for a debt instrument described in paragraph (n)(12)(i)(A)
or (B) of this section acquired before February 18, 2016.
(o) Additional reporting by stock transfer agents. [Reserved]
(p) Electronic filing. Notwithstanding the time prescribed for
filing in paragraph (j) of this section, Forms 1096 and 1099 required
under this section for reporting periods ending during a calendar year
shall, if filed electronically, be filed after the last calendar day of
the reporting period elected by the broker or barter exchange and on or
before March 31 of the following calendar year.
(q) Effective/applicability date. Except as otherwise provided in
paragraphs (m)(2)(ii), and (n)(12)(ii) of this section, this section
applies on or after January 6, 2017. (For rules that apply after June
30, 2014, and before January 6, 2017, see this section as in effect and
contained in 26 CFR part 1, as revised April 1, 2016.)
[T.D. 7873, 48 FR 10304, Mar. 11, 1983]
Editorial Note: For Federal Register citations affecting Sec.
1.6045-1, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
[[Page 317]]
Sec. 1.6045-2 Furnishing statement required with respect to certain
substitute payments.
(a) Requirement of furnishing statements--(1) In general. Any broker
(as defined in paragraph (a)(4)(ii) of this section) that transfers
securities (as defined in Sec. 1.6045-1(a)(3)) of a customer (as
defined in paragraph (a)(4)(iii) of this section) for use in a short
sale and receives on behalf of the customer a substitute payment (as
defined in paragraph (a)(4)(i)) shall, except as otherwise provided,
furnish a statement to the customer identifying such payment as being a
substitute payment.
(2) Special rule for transfers for broker's own use. Any broker that
borrows securities of a customer for use in a short sale entered into
for the broker's own account shall be deemed to have transferred the
stock to itself and received on behalf of the customer any substitute
payment made with respect to the transferred securities, and shall be
required to furnish a statement with respect to such payments in
accordance with paragraph (a)(1) of this section.
(3) Special rule for furnishing statements to individual customers
with respect to payments in lieu of dividends--(i) In general. Except as
otherwise provided in paragraph (a)(3)(ii) of this section, for taxable
years beginning before January 1, 2003, a broker that receives a
substitute payment in lieu of a dividend on behalf of a customer who is
an individual (``individual customer'') need not furnish a statement to
the customer.
(ii) Reporting for certain dividends. Any broker that receives on
behalf of an individual customer a substitute payment in lieu of--
(A) An exempt-interest dividend (as defined in paragraph (a)(4)(vii)
of this section);
(B) A capital gain dividend (as defined in paragraph (a)(4)(vi) of
this section);
(C) A distribution treated as a return of capital under section
301(c)(2) or (c)(3); or
(D) An FTC dividend (as defined in paragraph (a)(4)(viii) of this
section) shall furnish a statement to the individual customer
identifying the payment as being a substitute payment as prescribed by
this section, provided that the broker has reason to know not later than
the record date of the dividend payment that the payment is a substitute
payment in lieu of an exempt-interest dividend, a capital gain dividend,
a distribution treated as a return of capital, or an FTC dividend.
(4) Meaning of terms. The following definitions apply for purposes
of this section.
(i) The term substitute payment means a payment in lieu of--
(A) Tax-exempt interest, to the extent that interest has accrued on
the obligation for the period during which the short sale is open;
(B) A dividend, the ex-dividend date for which occurs during the
period after the transfer of stock for use in a short sale, and prior to
the closing of the short sale; or
(C) Any other item specified in a rule-related notice published in
the Federal Register (provided that such items shall be subject to the
rules of this section only subsequent to the time of such publication).
For purposes of this section original issue discount accruing on an
obligation (the interest upon which is exempt from tax under section
103) for the period during which the short sale is open shall be deemed
a payment in lieu of tax-exempt interest.
(ii) The term broker means both a person described in Sec. 1.6045-
1(a)(1) and a person that, in the ordinary course of a trade or business
during the calendar year, loans securities owned by others.
(iii) The term customer means, with respect to a transfer of
securities for use in a short sale, the person that is the record owner
of the securities so transferred.
(iv) The term dividend means a dividend (as defined in section 316)
or a distribution that is treated as a return of capital under section
301(c)(2) or (c)(3).
(v) The term tax-exempt interest means interest to which the
exception in section 6049 (b)(2)(B) applies.
(vi) The term capital gain dividend means a capital gain dividend as
defined in section 852(b)(3)(C) or section 857(b)(3)(C).
(vii) The term exempt-interest dividend means an exempt-interest
dividend as defined in section 852(b)(5)(A).
[[Page 318]]
(viii) The term FTC dividend means a dividend with respect to which
the recipient is entitled to claim a foreign tax credit under section
901 (but not by virtue of taxes deemed paid under section 902 or 960).
(5) Examples. The following examples illustrate the definition of a
substitute payment in lieu of tax-exempt interest found in paragraph
(a)(4)(i)(A) of this section.
Example 1. On September 1, 1984, L, a broker, borrows 200 State Q
Bonds (the interest upon which is exempt from tax under section 103)
held in street name for customer R and transfers the bonds to W for use
in a short sale. The bonds each have a face value of $100 and bear 12%
stated annual interest paid semiannually on January 1 and July 1 of each
year. The bonds were not issued with original issue discount. On
November 1, 1984, W closes the short sale and returns State Q Bonds to
L. On January 1, 1985, L receives a $1200 interest payment (6% x $100 x
200 bonds = $1200) from State Q with respect to R's bonds. Four hundred
dollars (2 months the bonds were on loan/6 months in the interest period
=\1/3\ x $1200 = $400) of the interest payment represents accrued
interest on the obligations for the period during which the short sale
was open and is a substitute payment in lieu of tax-exempt interest
within the meaning of paragraph (a)(4)(i)(A) of this section. L must
furnish a statement under paragraph (a) of this section to R for
calendar year 1985 with respect to the $400 substitute payment.
Example 2. Assume the same facts as in Example (1), except that W
closes the short sale on February 1, 1985. On January 1, 1985, L
receives a $1200 payment from W with respect to R's bonds. Eight hundred
dollars (4 months the bonds were on loan prior to January 1, 1985/6
months in the interest period =\2/3\ x $1200 = $800) of the payment
represents accrued interest on the obligation for the period during
which the short sale was open and is a substitute payment in lieu of
tax-exempt interest. On July 1, 1985, L receives a $1200 payment from
State Q. Two hundred dollars (1 month the bonds were on loan after
December 31, 1984/6 months in the interest period =\1/6\ x $1200 = $200)
of the payment represents accrued interest on the obligation for the
period during which the short sale was open and is a substitute payment
in lieu of the tax-exempt interest. Because both payments are received
by L in 1985, L must furnish a statement under paragraph (a) of this
section to R for that year with respect to both payments.
(b) Exceptions--(1) Minimal payments. No statement is required to be
furnished under section 6045(d) or this section to any customer if the
aggregate amount of the substitute payments received by a broker on
behalf of the customer during a calendar year for which a statement must
be furnished is less than $10.
(2) Exempt recipients--(i) In general. A statement shall not be
required to be furnished with respect to substitute payments made to a
broker on behalf of--
(A) An organization exempt from taxation under section 501(a);
(B) An individual retirement plan;
(C) The United States, a possession of the United States, or an
instrumentality or a political subdivision or a wholly-owned agency of
the foregoing;
(D) A State, the District of Columbia, or a political subdivision or
a wholly-owned agency or instrumentality of either of the foregoing;
(E) A foreign government or a political subdivision thereof;
(F) An international organization; or
(G) A foreign central bank of issue, as defined in Sec. 1.6049-
4(c)(1)(ii)(H), or the Bank for International Settlements.
(ii) Determination of whether a person is described in paragraph
(b)(2)(i) of this section. The determination of whether a person is
described in paragraph (b)(2)(i) of this section shall be made in the
manner provided in Sec. 1.6045-1(c)(3)(i)(B).
(3) Exempt foreign persons. A statement shall not be required to be
furnished with respect to substitute payments made to a broker on behalf
of a person that is an exempt foreign person as described in Sec.
1.6045-1(g)
(c) Form of statement. A broker shall furnish the statement required
by paragraph (a) of this section on Form 1099. The statement must show
the aggregate dollar amount of all substitute payments received by the
broker on behalf of a customer (for which the broker is required to
furnish a statement) during a calendar year, and such other information
as may be required by Form 1099. A statement shall be considered to be
furnished to a customer if it is mailed to the customer at the last
address of the customer known to the broker. An IRS truncated taxpayer
identifying number (TTIN) may be used as the identifying number of the
customer in lieu of the identifying
[[Page 319]]
number appearing on the information return filed with the Internal
Revenue Service. For provisions relating to the use of TTINs, see Sec.
301.6109-4 of this chapter (Procedure and Administration Regulations).
(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.
(e) When substitute payment deemed received. A Broker is deemed to
have received a substitute payment on behalf of a customer when the
amount is paid or deemed paid to the broker (or as it accrues in the
case of original issue discount deemed a payment in lieu of tax-exempt
interest).
(f) Identification of customer and recordkeeping with respect to
substitute payments--(1) Payments in lieu of tax-exempt interest and
exempt-interest dividends. A broker that receives substitute payments in
lieu of tax-exempt interest, exempt-interest dividends, or other items
(to the extent specified in a rule-related notice published pursuant to
paragraph (a)(4)(i)(C) of this section) on behalf of a customer and is
required to furnish a statement under paragraph (a) of this section must
determine the identity of the customer whose security was transferred
and on whose behalf the broker received such substitute payments by
specific identification of the record owner of the security so
transferred. A broker must keep adequate records of the determination so
made.
(2) Payments in lieu of dividends other than exempt-interest
dividends--(i) Requirements and methods. A broker that receives
substitute payments in lieu of dividends, other than exempt-interest
dividends, on behalf of a customer and is required to furnish a
statement under paragraph (a) of this section must make a determination
of the identity of the customer whose stock was transferred and on whose
behalf such broker receives substitute payments. Such determination must
be made as of the record date with respect to the dividend distribution,
and must be made in a consistent manner by the broker in accordance with
any of the following methods:
(A) Specific identification of the record owner of the transferred
stock;
(B) The method of allocation and selection specified in paragraph
(f)(2)(ii) of this section; or
(C) Any other method, with the prior approval of the Commissioner.
A broker must keep adequate records of the determination so made.
(ii) Method of allocation and selection--(A) Allocation to borrowed
shares and individual and nonindividual pools. With respect to each
substitute payment in lieu of a dividend received by a broker, the
broker must allocate the transferred shares (i.e., the shares giving
rise to the substitute payment) among all shares of stock of the same
class and issue as the transferred shares which were (1) borrowed by the
broker, and (2) which the broker holds (or has transferred in a
transaction described in paragraph (a)(1) of this section) and is
authorized by its customers to transfer (including shares of stock of
the same class and issue held for the broker's own account) (``loanable
shares''). The broker may first allocate the transferred shares to any
borrowed shares. Then to the extent that the number of transferred
shares exceeds the number of borrowed shares (or if
[[Page 320]]
the broker does not allocate to the borrowed shares first), the broker
must allocate the transferred shares between two pools, one consisting
of the loanable shares of all individual customers (the ``individual
pool'') and the other consisting of the loanable shares of all
nonindividual customers (the ``nonindividual pool''). The transferred
shares must be allocated to the individual pool in the same proportion
that the number of loanable shares held by individual customers bears to
the total number of loanable shares available to the broker. Similarly,
the transferred shares must be allocated to the nonindividual pool in
the same proportion that the number of loanable shares held by
nonindividual customers bears to the total number of loanable shares
available to the broker.
(B) Selection of deemed transferred shares within the nonindividual
pool. The broker must select which shares within the nonindividual pool
are deemed transferred for use in a short sale (the ``deemed transferred
shares''). Selection of deemed transferred shares may be made either by
purely random lottery or on a first-in-first-out (``FIFO'') basis.
(C) Selection of deemed transferred shares within the individual
pool. The broker must select which shares within the individual pool are
deemed transferred shares (in the manner described in the preceding
paragraph) only with respect to substitute payments as to which a
statement is required to be furnished under paragraph (a)(2)(ii) of this
section.
(3) Examples. The following examples illustrate the identification
of customer rules of paragraph (f)(2):
Example 1. A, a broker, holds X corporation common stock (of which
there is only a single class) in street name for five customers: C, a
corporation; D, a partnership; E, a corporation; F, an individual; and
G, a corporation. C owns 100 shares of X stock, D owns 50 shares of X
stock, E owns 100 shares of X stock, F owns 50 shares of X stock, and G
owns 100 shares of X stock. A is authorized to loan all of the X stock
of C, D, E, and F. G, however, has not authorized A to loan its X
stocks. A does not hold any X stock in its trading account nor has A
borrowed any X stock from another broker. A transfers 150 shares of X
stock to H for use in a short sale on July 1, 1985. A dividend of $2 per
share is declared with respect to X stock on August 1, 1985, payable to
the owners of record as of August 15, 1985 (the ``record'' date). A
receives $2 per transferred share as a payment in lieu of a dividend
with respect to X stock or a total of $300 on September 15, 1985. H
closes the short sale and returns X stock to A on January 2, 1986. A's
records specifically identify the owner of each loanable share of stock
held in street name. From A's records it is determined that the shares
transferred to H consisted of 100 shares owned by C, 25 shares owned by
D, and 25 shares owned by F. The substitute payment in lieu of dividends
with respect to X stock is therefore attributed to C, D and F based on
the actual number of their shares that were transferred to H.
Accordingly, C receives $200 (100 shares x $2 per share), and D and F
each receive $50 (25 shares each x $2 per share). A must furnish
statements identifying the payments as being in lieu of dividends to
both C and D, unless they are exempt recipients as defined in paragraph
(b)(2) of this section or exempt foreign persons as defined in paragraph
(b)(3) of this section. Assuming that A had no reason to know on the
record date of the payment that the dividend paid by X is of a type
described in paragraphs (a)(3)(ii)(A) through (D) of this section, A
need not furnish F with a statement under section 6045(d) because F is
an individual. (However, A may be required to furnish F with a statement
in accordance with section 6042 and the regulations thereunder. See
paragraph (h) of this section.) By recording the ownership of each share
transferred to H, A has complied with the identification requirement of
paragraph (f)(2) of this section.
Example 2. Assume the same facts as in example (1), except that A's
records do not specifically identify the record owner of each share of
stock. Rather, all shares of X stock held in street name are pooled
together. When A receives the $2 per share payment in lieu of a
dividend, A determines the identity of the customers to which the
payment relates by the method of allocation and selection prescribed in
paragraph (f)(2)(ii) of this section. First, the transferred shares are
allocated proportionately between the individual pool and the
nonindividual pool. One-sixth of the transferred shares or 25 shares are
allocated to the individual pool (50 loanable shares owned by
individuals/300 total loanable shares-\1/6\; \1/6\ x 150 transferred
shares = 25 shares). Assuming A has no reason to know by the record date
of the payment that the payment is in lieu of a dividend of a type
described in paragraphs (a)(3)(ii)(A) through (D) of this section, no
selection of deemed transferred shares within the individual customer
pool is required. (However, A may be required to furnish F with a
statement under section 6042 and the regulations thereunder. See
paragraph (h) of this section.) Five-sixths of the transferred shares or
125 shares are allocated to the nonindividual pool (250
[[Page 321]]
loanable shares owned by nonindividuals/300 total loanable shares =\5/
6\; \5/6\ x 150 transferred shares = 125 shares). A must select which
125 shares within the nonindividual pool are deemed to have been
transferred. Using a purely random lottery, A selects 100 shares
identified as being owned by C, and 25 shares identified as being owned
by D. Accordingly, A is deemed to have transferred 100 shares and 25
shares owned by C and D respectively, and received substitute payments
in lieu of dividends of $200 (100 shares x $2 per share) and $50 (25
shares x $2 per share) on behalf of C and D respectively. A must furnish
statements to both C and D identifying such payments as being in lieu of
dividends unless they are exempt recipients as defined in paragraph
(b)(2) of this section or exempt foreign persons as defined in paragraph
(b)(3) of this section. A has complied with the identification
requirement of paragraph (f)(2) of this section.
(g) Reporting by brokers--(1) Requirement of reporting. Any broker
required to furnish a statement under paragraph (a) of this section
shall report on Form 1096 showing such information as may be required by
Form 1096, in the form, manner, and number of copies required by Form
1096. With respect to each customer for which a broker is required to
furnish a statement, the broker shall make a return of information on
Form 1099, in the form, manner and number of copies required by Form
1099.
(2) Use of magnetic media. For information returns filed after
December 31, 1996, see Sec. 301.6011-2 of this chapter for rules
relating to filing information returns on magnetic media and for rules
relating to waivers granted for undue hardship. A broker or barter
exchange that fails to file a Form 1099 on magnetic media, when
required, may be subject to a penalty under section 6721 for each such
failure. See paragraph (g)(4) of this section.
(3) Time and place of filing. The returns required under this
paragraph (g) for any calendar year shall be filed after September 30 of
such year, but not before the final substitute payment for the year is
received by the broker, and on or before February 28 (March 31 if filed
electronically) of the following year with any of the Internal Revenue
Service Centers, the addresses of which are listed in the instructions
for Form 1096.
(4) Cross-reference to penalties. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6045(d) and Sec. 1.6045-2(g)(1), including a
failure to file on magnetic media, see Sec. 301.6721-1 of this chapter.
For provisions relating to the penalty provided for failure to furnish
timely a correct payee statement required under section 6045(d) and
Sec. 1.6045-2(a), see Sec. 301.6722-1 of this chapter. See Sec.
301.6724-1 of this chapter for the waiver of a penalty if the failure is
due to reasonable cause and is not due to willful neglect.
(h) Coordination with section 6042. In cases in which reporting is
required by both sections 6042 and 6045(d) with respect to the same
substitute payment in lieu of a dividend, the provisions of section
6045(d) control, and no report or statement under section 6042 need be
made. If reporting is not required under section 6045(d) with respect to
a substitute payment in lieu of a dividend, a report under section 6042
must be made if required in accordance with the rules of section 6042
and the regulations thereunder. Thus, if a broker receives a substitute
payment in lieu of a dividend on behalf of an individual customer and
the broker does not have reason to know by the record date of the
payment that the payment is in lieu of a dividend of a type described in
paragraphs (a)(3)(ii)(A) through (D) of this section, the broker must
report with respect to the substitute payment if required in accordance
with section 6042 and the regulations thereunder.
(i) Effective/applicability date. These regulations apply to
substitute payments received by a broker after December 31, 1984. The
amendments to paragraph (c) apply to payee statements due after December
31, 2014. For payee statements due before January 1, 2015, Sec. 1.6045-
2(c) (as contained in 26 CFR part 1, revised April 2013) shall apply.
With regard to paragraph (g)(2) of this section, see section 6011(e) of
the Internal Revenue Code for information returns required to be filed
after December 31, 1989, and before January 1, 1997; and see paragraph
(g)(2) of this
[[Page 322]]
section for information returns required to be filed after December 31,
1996.
[T.D. 8029, 50 FR 23677, June 5, 1985, as amended by T.D. 8683, 61 FR
53060, Oct. 10, 1996; T.D. 8734, 62 FR 53480, Oct. 14, 1997; T.D. 8770,
63 FR 35519, June 30, 1998; T.D. 8895, 65 FR 50407, Aug. 18, 2000; T.D.
9010, 67 FR 48758, July 26, 2002; T.D. 9103, 68 FR 74848, Dec. 29, 2003;
T.D. 9504, 75 FR 64097, Oct. 18, 2010; T.D. 9675, 79 FR 41129, July 15,
2014]
Sec. 1.6045-3 Information reporting for an acquisition of control
or a substantial change in capital structure.
(a) In general. Any broker (as defined in Sec. 1.6045-1(a)(1)) that
holds shares on behalf of a customer in a corporation that the broker
knows or has reason to know based on readily available information
(including, for example, information from a clearing organization or
from information published by the Internal Revenue Service (IRS)) has
engaged in a transaction described in Sec. 1.6043-4(c) (acquisition of
control) or Sec. 1.6043-4(d) (substantial change in capital structure)
shall file a return of information with respect to the customer, unless
the customer is an exempt recipient as defined in paragraph (b) of this
section.
(b) Exempt recipients. A broker is not required to file a return of
information under this section with respect to the following customers:
(1) Any customer who receives only cash in exchange for its stock in
the corporation, which must be reported by the broker pursuant to Sec.
1.6045-1.
(2) Any customer who is an exempt recipient as defined in Sec.
1.6043-4(b)(5) or Sec. 1.6045-1(c)(3)(i).
(c) Form, manner and time for making information returns. The return
required by paragraph (a) of this section must be on Forms 1096,
``Annual Summary and Transmittal of U.S. Information Returns,'' and
1099-B, ``Proceeds from Broker and Barter Exchange Transactions,'' or on
an acceptable substitute statement. Such forms must be filed on or
before February 28 (March 31 if filed electronically) of the year
following the calendar year in which the acquisition of control or the
substantial change in capital structure occurs.
(d) Contents of return. A separate Form 1099-B must be prepared for
each customer. The Form 1099-B will request information with respect to
the following and such other information as may be specified in the
instructions:
(1) The name, address and taxpayer identification number (TIN) of
the customer;
(2) The name of the corporation which engaged in the transaction
described in Sec. 1.6043-4(c) or (d);
(3) The number and class of shares in the corporation exchanged by
the customer; and
(4) The aggregate amount of cash and the fair market value of any
stock or other property provided to the customer in exchange for its
stock.
(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. An IRS truncated taxpayer identifying
number (TTIN) may be used as the identifying number of the customer. For
provisions relating to the use of TTINs, see Sec. 301.6109-4 of this
chapter (Procedure and Administration Regulations).
(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.
(f) Single Form 1099. If a broker is required to file a Form 1099-B
with respect to a customer under Sec. Sec. 1.6045-3 and 1.6045-1(c)
with respect to the same transaction, the broker may satisfy the
requirements of both sections by filing and furnishing one Form 1099-B
that contains all the relevant information,
[[Page 323]]
as provided in the instructions to Form 1099-B.
(g) Effective/applicability date. This section applies with respect
to any acquisition of control and any substantial change in capital
structure occurring after December 5, 2005. The amendments to paragraph
(e)(1) apply to payee statements due after December 31, 2014. For payee
statements due before January 1, 2015, Sec. 1.6045-3(e)(1) (as
contained in 26 CFR part 1, revised April 2013) shall apply.
[T.D. 9230, 70 FR 72380, Dec. 5, 2005, as amended by T.D. 9504, 75 FR
64097, Oct. 18, 2010; T.D. 9675, 79 FR 41130, July 15, 2014]
Sec. 1.6045-4 Information reporting on real estate transactions
with dates of closing on or after January 1, 1991.
(a) Requirement of reporting. Except as otherwise provided in
paragraphs (c) and (d) of this section, a real estate reporting person
(``reporting person'') must make an information return with respect to a
real estate transaction and, under paragraph (m) of this section, must
furnish a statement to the transferor. A reporting person may also
report with respect to transactions otherwise excepted in paragraphs (c)
and (d) of this section. However, if the reporting person so elects, the
return must be filed and the statement furnished in accordance with the
provisions of this section. For the definition of a real estate
transaction for purposes of these reporting requirements, see paragraph
(b) of this section. For rules for determining the reporting person with
respect to a real estate transaction, see paragraph (e) of this section.
(b) Definition of real estate transaction--(1) In general. A
transaction is a ``real estate transaction'' under this section if the
transaction consists in whole or in part of the sale or exchange of
``reportable real estate'' (as defined in paragraph (b)(2) of this
section) for money, indebtedness, property other than money, or
services. The term ``sale or exchange'' shall include any transaction
properly treated as a sale or exchange for Federal income tax purposes,
whether or not the transaction is currently taxable. Thus, for example,
a sale or exchange of a principal residence is a real estate transaction
under this section even though the transferor is entitled to defer
recognition under section 1034 (relating to rollover of gain on sale of
principal residence), or the transferor is entitled to the special one-
time exclusion of gain from the sale of a principal residence provided
by section 121 to certain persons who have attained age 55.
(2)(i) Definition of reportable real estate. Except as otherwise
provided in paragraph (c)(2) of this section, the term ``reportable real
estate'' means any present or future ownership interest in--
(A) Land (whether improved or unimproved), including air space;
(B) Any inherently permanent structure, including any residential,
commercial or industrial building;
(C) Any condominium unit, including appurtenant fixtures and common
elements (including land); or
(D) Any stock in a cooperative housing corporation (as defined in
section 216).
(E) Any non-contingent interest in standing timber.
(ii) For purposes of this section, the term ``ownership interest''
includes fee simple interests, life estates, reversions, remainders, and
perpetual easements. In addition, the term ``ownership interest''
includes any previously created rights to possession or use for all or a
portion of any particular year (i.e., a leasehold, easement, or
``timeshare''), with a remaining term of at least 30 years, including
any period for which such rights may be renewed at the option of the
holder of the rights, as determined on the date of closing (as defined
in paragraph (h)(2)(ii) of this section). Thus, for example, a pre-
existing leasehold on a building with an original term of 99 years is an
ownership interest in real estate for purposes of this section if it has
a remaining term of 35 years as of the date of closing, but not if it
has a remaining term of only 10 years as of the date of closing.
However, the term ``ownership interest'' does not include an option to
acquire otherwise reportable real estate. Further, the term ``ownership
interest'' includes any contractual interest in a sale or exchange
[[Page 324]]
of standing timber for a lump-sum payment that is fixed and not
contingent.
(c) Exception for certain exempt transactions--(1) Certain
transfers. No return of information is required with respect to--
(i) A transaction that is not a sale or exchange (such as a gift
(including a transaction treated as a gift under section 1041) or
bequest, or a financing or refinancing that is not related to the
acquisition of reportable real estate), even if the transaction involves
reportable real estate, as defined in paragraph (b)(2) of this section;
(ii) A transfer in full or partial satisfaction of any indebtedness
secured by the property so transferred including a foreclosure, a
transfer in lieu of foreclosure or an abandonment; or
(iii) A transaction (a ``de minimis transfer'') in which it can be
determined with certainty that the total consideration (in money,
services and property), received or to be received in connection with
the transaction is less than $600 in value (determined without regard to
any allocation of gross proceeds among multiple transferors under
paragraph (i)(5) of this section) as of the date of the closing (as
defined in paragraph (h)(2)(ii) of this section), even if the
transaction involves reportable real estate. Thus, for example, if a
contract for sale of reportable real estate recites total consideration
of ``$1.00 plus other valuable consideration,'' the transfer is not a de
minimis transfer unless the reporting person can determine that the
``other valuable consideration'' received or to be received is less than
$599 in value as measured on the date of closing.
(2) Certain property. Notwithstanding the provisions of paragraph
(b)(2) of this section, no return of information is required with
respect to a sale or exchange of an interest in any of the following
property--provided the sale or exchange of such property is not related
to the sale or exchange of reportable real estate--
(i) An interest in surface or subsurface natural resources (for
example, water, ores, and other natural deposits) or crops, whether or
not such natural resources or crops are severed from the land. For
purposes of this section, the terms ``natural resources'' and ``crops''
do not include standing timber.
(ii) A burial plot or vault; or
(iii) A manufactured structure used as a dwelling that is
manufactured and assembled at a location different from that where it is
used, but only if such structure is not affixed, at the date of closing
(as defined in paragraph (h)(2)(ii) of this section), to a foundation.
Thus, a transfer of an unaffixed mobile home that is unrelated to the
sale or exchange of reportable real estate is excepted from the
reporting requirements of this section.
(d) Exception for certain exempt transferors--(1) General rule. No
return of information is required with respect to a transferor that is a
corporation under section 7701(a)(3) or section 7704(a) or is considered
under paragraph (d)(2) of this section to be--
(i) A corporation;
(ii) A governmental unit; or
(iii) An exempt volume transferor.
In the case of a real estate transaction with respect to which there is
one or more exempt transferor(s) and one or more non-exempt
transferor(s), the reporting person is required to report with respect
to any non-exempt transferor. The special rule for allocation of gross
proceeds, as provided in paragraph (i)(5) of this section, applies to
such a transaction.
(2) Treatment as exempt transferor. Absent actual knowledge to the
contrary, a reporting person may treat a transferor as--
(i) A corporation if--
(A) The name of the transferor contains an unambiguous expression of
corporate status, such as Incorporated, Inc., Corporation, Corp., or
P.C. (but not Company or Co.);
(B) The name of the transferor contains the term ``insurance
company,'' ``reinsurance company,'' or ``assurance company''; or
(C) The transfer or loan documents clearly indicate the corporate
status of the transferor;
(ii) A governmental unit if the transferor is--
(A) The United States or a state, the District of Columbia, a
possession of the United States, a political subdivision of any of the
foregoing, or any
[[Page 325]]
wholly owned agency or instrumentality of any one or more of the
foregoing; or
(B) A foreign government, a political subdivision thereof, an
international organization, as defined in section 7701(a)(18), or any
wholly-owned agency or instrumentality of the foregoing; or
(iii) An exempt volume transferor if, and only if, the reporting
person receives a certification of exempt status under paragraph (d)(3)
of this section.
(3) Certification of exempt status--(i) In general. A certification
of exempt status must contain--
(A) The name, address, and taxpayer identification number of the
transferor (the address must be that of the permanent residence (in the
case of an individual), that of the principal office (in the case of a
corporation or partnership), or that of the permanent residence or
principal office of any fiduciary (in the case of a trust or estate));
(B) Sufficient information to identify any otherwise reportable real
estate not reported by virtue of the exempt status of the transferor;
and
(C) A declaration that the transferor has sold or exchanged during
either of the prior two calendar years, or previously sold or exchanged
during the current calendar year, or, as of the date of closing (as
defined in paragraph (h)(2)(ii) of this section), reasonably expects to
sell or exchange during the current calendar year at least 25 separate
items of reportable real estate (as defined in paragraph (b)(2) of this
section) to at least 25 separate transferees, and that each such item,
at the date of closing of the sale of such item was or will be held
primarily for sale or resale to customers in the ordinary course of a
trade or business. For example, the declaration may be worded as
follows:
________________________________________________________________________
[Insert name of transferor]
[check one or more]:
(1) __ has sold or exchanged during either of the prior two calendar
years,
(2) __ previously sold or exchanged during the current calendar
year,
(3) __ on the date of closing expects to sell or exchange during the
current calendar year,
at least 25 separate items of reportable real estate to at least 25
separate transferees and each such item, at the date of closing of such
item was or will be held primarily for sale or resale to customers in
the ordinary course of a trade or business.
(ii) Additional requirements. A certification of exempt status must
be--
(A) Signed under penalties of perjury by the transferor or any
person who is authorized to sign a declaration under penalties of
perjury in behalf of the transferor as described in section 6061 and the
regulations thereunder;
(B) Received by the reporting person no later than the time of
closing; and
(C) Retained by the reporting person for four years following the
close of the calendar year in which the date of closing (as determined
under paragraph (h)(2)(ii) of this section) occurs.
(iii) Reporting person may accept or disregard certification. A
reporting person may solicit or merely accept a certification of exempt
status. Moreover, notwithstanding a transferor's furnishing of such
certification, a reporting person may disregard the certification and,
instead, report with respect to the transaction. See paragraph (a) of
this section for the requirement that such elective reporting must be in
compliance with the provisions of this section.
(e) Person required to report--(1) In general. Although there may be
other persons involved in a real estate transaction, only the reporting
person is required to report with respect to any real estate
transaction. Except as provided in a designation agreement under
paragraph (e)(5) of this section, the reporting person with respect to a
real estate transaction is--
(i) The person responsible for closing the transaction, as defined
in paragraph (e)(3) of this section; or
(ii) If there is no person responsible for closing the transaction,
the person determined to be the reporting person under paragraph (e)(4)
of this section.
A person may be the reporting person with respect to a transaction
whether or not such person performs or is licensed to perform real
estate brokerage services for a commission or fee.
(2) Employees, agents, and partners. For purposes of this paragraph
(e), if an employee, agent, or partner (other than an employee, agent,
or partner of the transferor or the transferee) acting
[[Page 326]]
within the scope of such person's employment, agency, or partnership
participates in a real estate transaction--
(i) Such participation shall be attributed to such person's
employer, principal, or partnership; and
(ii) Only the employer, principal, or partnership (and not such
person) may be the reporting person with respect to such transaction as
a result of such participation.
However, the participation of a person described in paragraph
(e)(3)(i) of this section (i.e., a person listed on the Uniform
Settlement Statement as the settlement agent) acting as an agent of
another is not attributed to the principal.
(3) Person responsible for closing the transaction--(i) Uniform
Settlement Statement used. If a Uniform Settlement Statement prescribed
under the Real Estate Settlement Procedures Act of 1974 (RESPA), 12
U.S.C. 2601 et seq. (a ``Uniform Settlement Statement''), is used with
respect to the real estate transaction and a person is listed as
settlement agent on the statement, such person is the person responsible
for closing the transaction. For purposes of this section, a Uniform
Settlement Statement shall include any amendments or variations thereto,
or substitutions therefore that may hereafter be prescribed under RESPA,
provided that any such amended, varied, or substituted form requires
disclosure of the parties to the transaction, the application of the
proceeds of the transaction, and the identity of the settlement agent or
other person responsible for preparing the form.
(ii) Other closing statement used. If a Uniform Settlement Statement
is not used, or if a Uniform Settlement Statement is used, but no person
is listed as settlement agent, the person responsible for closing the
transaction is the person who prepares a closing statement presented to
the transferor and transferee at, or in connection with, the closing of
the real estate transaction. For purposes of this section, a closing
statement is any closing statement, settlement statement (including a
Uniform Settlement Statement), or other written document that identifies
the transferor and transferee, reasonably identifies the transferred
real estate, and describes the manner in which the proceeds payable to
the transferor are to be (or were) disbursed at, or in connection with,
the closing.
(iii) No closing statement used or multiple closing statements used.
If no closing statement is used or multiple closing statements are used,
the person responsible for closing the transaction is the first-listed
of the persons that participate in the transaction as--
(A) The attorney for the transferee who is present at the occasion
of the delivery of either the transferee's note or a significant portion
of the cash proceeds to the transferor, or who prepares or reviews the
preparation of the document(s) transferring legal or equitable ownership
of the real estate;
(B) The attorney for the transferor who is present at the occasion
of the delivery of either the transferee's note or a significant portion
of the cash proceeds to the transferor, or who prepares or reviews the
preparation of the document(s) transferring legal or equitable ownership
of the real estate; or
(C) The disbursing title or escrow company that is most significant
in terms of gross proceeds disbursed.
If more than one attorney would be the person responsible for closing
the transaction under the preceding sentence, the person among such
attorneys who is considered responsible for closing the transaction
under this paragraph (e)(3)(iii) is the person whose involvement in the
transaction is most significant.
(4) Determination of the real estate reporting person in the absence
of a person responsible for closing the transaction. If no person is
responsible for closing the transaction (within the meaning of paragraph
(e)(3) of this section), the reporting person with respect to the real
estate transaction is the person first-listed below of the persons that
participate in the transaction as--
(i) The mortgage lender (as defined in paragraph (e)(6)(i) of this
section);
(ii) The transferor's broker (as defined in paragraph (e)(6)(ii) of
this section);
(iii) The transferee's broker (as defined in paragraph (e)(6)(iii)
of this section); or
(iv) The transferee (as defined in paragraph (e)(6)(iv) of this
section).
[[Page 327]]
(5) Designation agreement--(i) In general. If a written designation
agreement executed at or prior to the time of closing designates one of
the persons described in paragraph (e)(5)(ii) of this section as the
reporting person with respect to the transaction and the designated
person is a party to the agreement, the designated person is the
reporting person with respect to the transaction. It is not necessary
that all parties to the transaction (or that more than one party) be
parties to the agreement.
(ii) Persons eligible. A person may be designated as the reporting
person under this paragraph (e)(5) only if the person is--
(A) The person responsible for closing the transaction (as defined
in paragraph (e)(3) of this section);
(B) A person described in paragraph (e)(3)(iii) (A), (B) or (C) of
this section (whether or not such person is responsible for closing the
transaction); or
(C) The mortgage lender (as defined in paragraph (e)(6)(i) of this
section).
(iii) Form of designation agreement. A designation agreement may be
in any form that is consistent with the requirements of this paragraph
(e)(5), and may be included on a closing statement with respect to the
transaction. The designation agreement must, however, include the name
and address of the transferor and transferee and the address and any
additional information necessary to identify the real estate
transferred. The agreement must identify, by name and address, the
person designated as the reporting person with respect to the
transaction, and all other parties (if any) to the agreement. All
parties to the agreement must date and sign the agreement and must
retain the agreement for four years following the close of the calendar
year in which the date of closing (as determined under paragraph
(h)(2)(ii) of this section) occurs. Upon request by the Internal Revenue
Service, or any person involved in the transaction who did not
participate in the designation agreement, the agreement must be made
available for inspection.
(6) Meaning of terms--(i) Mortgage lender. For purposes of this
paragraph (e), the term ``mortgage lender'' means the person who lends
new funds in connection with the transaction, but only if the repayment
of such funds is secured in whole or in part by the real estate
transferred. If new funds are advanced by more than one person, the
mortgage lender is the person who advances the largest amount of new
funds. If two or more persons advance equal amounts of new funds and no
other person advances a greater amount of new funds, the mortgage lender
among the persons advancing such equal amounts is the person with the
security interest that is most senior in terms of priority. For purposes
of this paragraph (e)(6)(i), any amounts advanced by the transferor are
not treated as new funds.
(ii) Transferor's broker. For purposes of this paragraph (e), the
term ``transferor's broker'' means only the broker that contracts with
the transferor and is compensated in connection with the transaction.
(iii) Transferee's broker. For purposes of this paragraph (e), the
term ``transferee's broker'' means only the broker that participates to
a significant extent in the preparation of the transferee's offer to
acquire the real estate or that presents such offer to the transferor.
If more than one person is so described, the transferee's broker is the
person whose participation in the preparation of the transferee's offer
to acquire the real estate is most significant or, in the event there is
no such person, the person whose participation in the presentation of
the offer is most significant.
(iv) Transferee. For purposes of this paragraph (e), the term
``transferee'' means the person who acquires the greatest interest in
the real estate. If there is no such person, the transferee is the
person listed first on the document(s) transferring legal or equitable
ownership of the real estate.
(f) Multiple transferors--(1) General rule. In the case of multiple
transferors, each of which transfers an interest in the same reportable
real estate, the reporting person shall make a separate information
return with respect to each transferor. Paragraph (i)(5) of this section
provides rules for the determination of gross proceeds to be reported in
the case of multiple transferors.
[[Page 328]]
(2) Rules for spouses. Transferors who are husband and wife at the
time of closing and hold the reportable real estate as tenants in
common, joint tenants, tenants by the entirety, or community property
are treated as a single transferor for purposes of paragraphs (f)(1),
(h)(1)(i), (i)(5) and (l)(1)(i) of this section, unless the reporting
person receives, at or prior to the time of closing, an uncontested
allocation of gross proceeds between them. In the case of a husband and
wife treated as a single transferor, the reporting person may treat
either as the transferor for purposes of paragraphs (h)(1)(i) and (l)(1)
of this section, relating to reporting and soliciting taxpayer
identification numbers.
(g) Prescribed form. Except as otherwise provided in paragraph (k)
of this section, the information return required by paragraph (a) of
this section shall be made on Form 1099.
(h) Information required--(1) In general. The following information
must be set forth on the Form 1099 required by this section:
(i) The name, address, and taxpayer identification number (TIN) of
the transferor (see also paragraph (f)(2) of this section);
(ii) A general description of the real estate transferred (in
accordance with paragraph (h)(2)(i) of this section);
(iii) The date of closing (as defined in paragraph (h)(2)(ii) of
this section);
(iv) To the extent required by the Form 1099 and its instructions,
the entire gross proceeds with respect to the transaction (as determined
under the rules of paragraph (i) of this section), and, in the case of
multiple transferors, the gross proceeds allocated to the transferor (as
determined under paragraph (i)(5) of this section);
(v) To the extent required by the Form 1099 and its instructions, an
indication that the transferor--
(A) Received (or will, or may, receive) property (other than cash
and consideration treated as cash in computing gross proceeds) or
services as part of the consideration for the transaction,
(B) May receive property (other than cash) or services in
satisfaction of an obligation having a stated principal amount, or
(C) May receive, in connection with a contingent payment
transaction, an amount of gross proceeds that cannot be determined with
certainty using the method described in paragraph (i)(3)(iii) of this
section and is therefore not included in gross proceeds under paragraphs
(i)(3)(i) and (i)(3)(iii) of this section;
(vi) The real estate reporting person's name, address, and TIN;
(vii) [Reserved]; and
(viii) Any other information required by the Form 1099 or its
instructions.
(2) Meaning of terms--(i) General description of the real estate
transferred. A general description of the real estate transferred
includes the complete address of the property. If the address would not
sufficiently identify the property, a general description of the real
estate also includes a legal description (e.g., section, lot, and block)
of the property.
(ii) Date of closing. In the case of a real estate transaction with
respect to which a Uniform Settlement Statement is used, the date of
closing shall be the date (if any) properly described as the
``Settlement Date'' on such statement. In all other cases, the date of
closing shall be the earlier of the date on which title is transferred
or the date on which the economic burdens and benefits of ownership of
the real estate shift from the transferor to the transferee.
(i) Gross proceeds--(1) In general. Except as otherwise provided in
this paragraph (i), the term ``gross proceeds'' means the total cash
received or to be received by or on behalf of the transferor in
connection with the real estate transaction. For purposes of this
paragraph (i), the following amounts are treated as cash received or to
be received by or on behalf of the transferor in connection with the
real estate transaction:
(i) The stated principal amount of any obligation to pay cash to or
for the benefit of the transferor in the future (including any
obligation having a stated principal amount that may be satisfied by the
delivery of property (other than cash) or services);
(ii) The amount of any liability of the transferor assumed by the
transferee as part of the consideration for
[[Page 329]]
the transfer or of any liability to which the real estate acquired is
subject (whether or not the transferor is personally liable for the
debt); and
(iii) In the case of a contingent payment transaction, as defined in
paragraph (i)(3)(ii) of this section, the maximum determinable proceeds,
as defined in paragraph (i)(3)(iii) of this section.
Gross proceeds does not include the value of any property (other than
cash and consideration treated as cash) or services received by, or on
behalf of, the transferor in connection with the real estate
transaction. See paragraph (h)(1)(v) of this section for the information
that must be included on the Form 1099 required by this section in cases
in which the transferor receives (or will, or may, receive) property
(other than cash and consideration treated as cash) or services as part
of the consideration for the transfer.
(2) Treatment of sales commissions and similar expenses. In
computing gross proceeds, the total cash received or to be received by
or on behalf of the transferor shall not be reduced by expenses borne by
the transferor (such as sales commissions, expenses of advertising the
real estate, expenses of preparing the deed, and the cost of legal
services in connection with the transfer).
(3) Special rules for contingent payments--(i) In general. If a real
estate transaction is a contingent payment transaction, gross proceeds
consist of the maximum determinable proceeds, if any.
(ii) Contingent payment transaction. For purposes of this section,
the term ``contingent payment transaction'' means a real estate
transaction with respect to which the receipt, by or on behalf of the
transferor, of cash or consideration treated as cash under paragraph
(i)(1)(i) of this section is subject to a contingency.
(iii) Maximum determinable proceeds. For purposes of this section,
the term ``maximum determinable proceeds'' means the gross proceeds
determined by assuming that all of the contingencies contemplated by the
documents available at closing are met or otherwise resolved in a manner
that will maximize the gross proceeds. If the maximum amount of gross
proceeds cannot be determined with certainty using this method, the
maximum determinable proceeds are the greatest amount that can be
determined with certainty using this method. See paragraph (h)(1)(v)(C)
of this section for the information that must be included on the Form
1099 required by this section in cases in which the maximum amount of
gross proceeds cannot, by using the method described in this paragraph
(i)(3)(iii), be determined with certainty.
(4) Uniform Settlement Statement used. If a Uniform Settlement
Statement is used with respect to a real estate transaction involving a
transfer of reportable real estate solely for cash and consideration
treated as cash in computing gross proceeds, the gross proceeds
generally will be the same amount as the contract sales price properly
shown on that statement.
(5) Special rules for multiple transferors--(i) General rules. In
the case of multiple transferors (within the meaning of paragraph (f) of
this section) each of which transfers an interest in the same reportable
real estate, the reporting person must request the transferors to
provide an allocation of the gross proceeds among the transferors. The
request must be made at or before the time of closing. Neither the
request nor the response is required to be in writing. The reporting
person must make a reasonable effort to contact all transferors of whom
the reporting person has actual knowledge. The reporting person may,
however, rely on the unchallenged response of any transferor and need
not make additional efforts to contact other transferors after at least
one complete allocation (whether or not contained in a single response)
is received. Except as otherwise provided in this paragraph (i)(5), the
reporting person shall report the gross proceeds in accordance with any
allocation received at or before the time of closing. The reporting
person may (but is not required to) report the gross proceeds in
accordance with any allocation received after the time of closing and
before the date (determined without regard to extensions) the Forms 1099
are required to be filed. The reporting person may not report the
[[Page 330]]
gross proceeds in accordance with any allocation received on or after
the date (determined without regard to extensions) the Forms 1099 are
required to be filed. If no gross proceeds are allocated to a transferor
because no allocation or an incomplete allocation is received by the
reporting person, the reporting person shall report the entire
unallocated gross proceeds (if any) on the return of information made
with respect to such transferor. If the reporting person receives
conflicting allocations from the transferors, the reporting person shall
report the entire gross proceeds on each return of information made with
respect to the transaction.
(ii) Rules for spouses. The reporting person need not request an
allocation of gross proceeds if the only transferors are husband and
wife at the time of closing. If there are other transferors, the
reporting person need only make a reasonable effort to contact either
the husband or wife in connection with the request for an allocation.
See paragraph (f)(2) of this section for rules that treat a husband and
wife as multiple transferors if an uncontested allocation of gross
proceeds is received by the reporting person at or prior to the time of
closing.
(6) Multiple asset transactions. In the case of a real estate
transaction reportable under this section that involves the transfer of
reportable real estate and other assets, the amount attributable to both
the real estate and other assets is treated as the gross proceeds with
respect to that real estate transaction. No allocation of gross proceeds
is made among the assets.
(j) Time and place for filing. A reporting person shall file the
information returns required by this section with respect to a real
estate transaction after December 31 of the calendar year that includes
the date of closing (as determined under paragraph (h)(2)(ii) of this
section) and on or before February 28 (March 31 if filed electronically)
of the following calendar year. The returns shall be filed with the
appropriate Internal Revenue Service Center at the address listed in the
Instructions to Form 1099.
(k) Use of magnetic media and substitute forms--(1) Magnetic media--
(i) General rule. A reporting person that is required to make a return
of information under this section shall, except as otherwise provided in
paragraph (k)(1) (ii) or (iii) of this section, submit the information
required by this section on magnetic media (within the meaning of 26 CFR
301.6011-2). Returns on magnetic media shall be made in accordance with
26 CFR 301.6011-2) and applicable revenue procedures.
(ii) Exception for low-volume filers. For rules allowing a reporting
person to make the information returns required by this section on the
prescribed paper Form 1099 if the reporting person is required by this
section to file fewer than 250 returns during the calendar year, see
section 6011(e) and guidance issued by the Internal Revenue Service
thereunder.
(iii) Undue hardship. The Commissioner may authorize a reporting
person to file information returns on the prescribed paper Form 1099
instead of on magnetic media if undue hardship is shown either on Form
8508, Request for Waiver From Filing Information Returns on Magnetic
Media, or on a written statement requesting a waiver for undue hardship
filed with the Martinsburg Computing Center, Martinsburg, West Virginia
in accordance with applicable revenue procedures.
(2) Substitute forms. A reporting person that is described in
paragraph (k)(1)(ii) of this section or that receives permission to file
returns on the prescribed paper Form 1099 under paragraph (k)(1)(iii) of
this section may prepare and use a form that contains provisions
identical with those of Form 1099 if the reporting person complies with
all applicable revenue procedures relating to substitute Form 1099,
including any requirement relating to the use of machine-readable paper
forms.
(l) Requesting taxpayer identification numbers (TINS)--(1)
Solicitation--(i) General requirements. A reporting person who is
required to make an information return with respect to a real estate
transaction under this section must solicit a TIN from the transferor at
or before the time of closing. The solicitation may be made in person or
in a mailing that includes other items. Any person whose TIN is
solicited under this paragraph (l) must furnish
[[Page 331]]
such TIN to the reporting person and certify that the TIN is correct.
See paragraph (f)(2) of this section for rules that treat a husband and
wife as a single transferor (and provide for the TIN solicitation of
either) in the absence of an allocation of gross proceeds under
paragraph (i)(5) of this section.
(ii) Content of solicitation. The solicitation shall be made by
providing to the person from whom the TIN is solicited a written
statement that the person is required by law to furnish a correct TIN to
the reporting person, and that the person may be subject to civil or
criminal penalties for failing to furnish a correct TIN. For example,
the solicitation may be worded as follows:
You are required by law to provide [insert name of reporting person]
with your correct taxpayer identification number. If you do not provide
[insert name of reporting person] with your correct taxpayer
identification number, you may be subject to civil or criminal penalties
imposed by law.
The solicitation shall contain space for the name, address, and TIN of
the person from whom the TIN is solicited and for the person to certify
under penalties of perjury that the TIN furnished is that person's
correct TIN. The wording of the certification must be substantially
similar to the following: ``Under penalties of perjury, I certify that
the number shown on this statement is my correct taxpayer identification
number.'' The requirements of this paragraph (l)(1)(ii) may be met by
providing to the transferor a copy of Form W-9. In the case of a real
estate transaction for which a Uniform Settlement Statement is used, the
requirements of this paragraph (l)(1)(ii) may be met by providing to the
transferor a copy of such statement that is modified to conform to the
requirements of this paragraph (l)(1)(ii).
(iii) Retention requirement. The solicitation shall be retained by
the reporting person for four years following the close of the calendar
year that includes the date of closing (as determined under paragraph
(h)(2)(ii) of this section). Such solicitation must be made available
for inspection upon request by the Internal Revenue Service.
(2) No TIN provided. A reporting person that does not receive the
transferor's TIN will not be subject to any penalty cross-referenced in
paragraph (n) of this section by reason of failure to report such TIN if
the reporting person has complied with the requirements of paragraph
(l)(1) of this section in good faith (determined with proper regard for
a course of conduct and the overall results achieved for the year).
(m) Furnishing statements to transferors--(1)(i) Requirement of
furnishing statements. A reporting person who is required to make a
return of information under paragraph (a) of this section shall furnish
to the transferor whose TIN is required to be shown on the return a
written statement of the information required to be shown on such
return. The written statement must bear either the legend shown on the
recipient copy of Form 1099 or the following: ``This is important tax
information and is being furnished to the Internal Revenue Service. If
you are required to file a return, a negligence penalty or other
sanction may be imposed on you if this item is required to be reported
and the IRS determines that it has not been reported.''
(ii) This requirement may be satisfied by furnishing to the
transferor a copy of a completed Form 1099 (or substitute Form 1099 that
complies with current revenue procedures). An IRS truncated taxpayer
identifying number (TTIN) may be used as the identifying number of the
transferor in lieu of the identifying number appearing on the
information return filed with the Internal Revenue Service. For
provisions relating to the use of TTINs, see Sec. 301.6109-4 of this
chapter (Procedure and Administration Regulations).
(iii) In the case of a real estate transaction for which a Uniform
Settlement Statement is used, this requirement also may be satisfied by
furnishing to the transferor a copy of a completed statement that is
modified to comply with the requirements of this paragraph (m), and by
designating on the Uniform Settlement Statement the items of information
(such as gross proceeds or allocated gross proceeds) required to be set
forth on the Form 1099. For purposes of this paragraph (m), a statement
shall be considered furnished to a transferor if it is given to the
transferor in person, either at the closing or thereafter, or is mailed
[[Page 332]]
to the transferor at the transferor's last known address.
(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.
(n) Cross-reference to penalties. See the following sections
regarding penalties for failure to comply with the requirements of
section 6045(e) and this section:
(1) Section 6721 for failure to file a correct information return;
(2) Section 6722 for failure to furnish a correct statement to the
transferor;
(3) Section 6723 for failure to comply with other information
reporting requirements (including the requirement to furnish a TIN);
(4) Section 6724 for definitions and rules relating to waiver and
payment; and
(5) Section 7203 for willful failure to supply information
(including a taxpayer identification number).
(o) No separate charge. A reporting person may not separately charge
any person involved in a real estate transaction for complying with any
requirements of this section.
(p) Backup withholding requirements. [Reserved]
(q) Federally-subsidized indebtedness. [Reserved]
(r) Examples. The following examples illustrate the application of
this section:
Example 1. Sale or exchange. (i) On June 1, 1991, A, an individual,
buys a house from B, an individual, for $200,000. The entire $200,000 is
financed by B under an ``installment land contract,'' whereby A takes
possession and assumes all significant economic benefits and burdens of
ownership of the house, and B retains legal title to the property until
A fully performs under the contract. On June 1, 1994, A refinances his
purchase of the house with Z, a financial institution. The balance owed
to B is repaid and B relinquishes title to the house. A retains
possession and the benefits and burdens of ownership of the house.
(ii) For federal income tax purposes, the transaction occurring on
June 1, 1991 is considered a sale of the house by B, notwithstanding his
retention of legal title to the property. B's sale is subject to
information reporting under this section. However, the transaction
occurring on June 1, 1994 is not a sale or exchange for federal income
tax purposes, and notwithstanding the change in legal title upon the
deeding over of the property, that transaction is not subject to
information reporting under this section.
Example 2. Sale or exchange. On August 10, 1991, C, an individual,
accepts an offer from Y, a corporation that acts on behalf of T (C's
employer) to facilitate moves of T's transferred employees from one part
of the country to another. Under the offer, C transfers his residence to
Y for $250,000 by executing a deed to the property in blank and giving Y
a power of attorney to dispose of the residence. C also immediately
vacates the residence, whereupon Y begins paying all costs associated
with the residence and is entitled to all income from the residence,
including sales proceeds. On October 1, 1991, Y sells the residence to D
and inserts C's name in the deed previously executed by C. Thus, neither
Y nor T ever become record owners of the residence. C's transfer of the
residence to Y on August 10, 1991 is a sale of reportable real estate
and is subject to information reporting under this section; however, the
sale on October 1, 1991 is not required to be reported because Y (the
transferor in that sale) is a corporation. See paragraph (d) of this
section.
Example 3. Definition of ownership interest. E, an individual, owns
a perpetual timeshare interest in a residential unit of real property at
an oceanfront resort. For consideration, on November 15, 1991, E sells
her rights in the property for the period January 1, 1992 through
December 31, 1992 to F. The transfer of E's property interest is not the
transfer of an ownership interest, as defined in paragraph (b)(2) of
this section and therefore is not reportable real estate under paragraph
[[Page 333]]
(b)(2) of this section. Accordingly, the transfer is not a real estate
transaction under section (b)(1) of this section, and no return of
information is required with respect to E's property transfer.
Example 4. Gross proceeds (exchange). (i) G, an individual, agrees
to transfer Blackacre, which has a fair market value of $100,000, plus
$10,000 cash to H, an individual, in exchange for Whiteacre, which as a
fair market value of $120,000 and is encumbered by a $10,000 liability
(which is assumed by G). No other liabilities are involved in the
transaction. P is the reporting person with respect to both sides of the
transaction.
(ii) With respect to the transfer of Blackacre by G to H, P must
report gross proceeds of $-0- (even though the exchange agreement may
recite total exchange value of $120,000). See paragraph (i)(1) of this
section. In addition, (to the extent required by the Form 1099 and its
instructions) P must indicate that G will receive property as part of
the consideration for the transaction. See paragraph (h)(v)(A) of this
section.
(iii) With respect to the transfer of Whiteacre by H to G, P must
report gross proceeds of $20,000 (the amount received by H consisting of
cash ($10,000) and consideration treated as cash ($10,000) under
paragraph (i) of this section). No other amount is reported under
paragraph (i)(1) of this section even though the exchange agreement may
recite total exchange value of $120,000. In addition, (to the extent
required by the Form 1099 and its instructions) P must indicate that H
will receive property as part of the consideration for the transaction.
See paragraph (h)(v)(A) of this section.
Example 5. Gross proceeds (deferred exchange). [Reserved]
Example 6. Gross proceeds (contingencies). K, an individual, sells
an unencumbered apartment building to L for $500,000, payable at
closing, plus an amount equal to 2% of gross rents from the apartment
building for each of the next 5 years, the contingent payments to be
made annually with adequate stated interest. The agreement provides that
the maximum amount K may receive (including the downpayment but
excluding the interest) is $600,000. Under paragraph (i)(3)(ii) of this
section the real estate transaction is a ``contingent payment
transaction.'' Under paragraph (i)(3)(iii) of this section, the maximum
amount of gross proceeds determined by assuming all contingencies are
satisfied is $600,000. Thus, $600,000 is the ``maximum determinable
proceeds'' and is the amount reported.
Example 7. Gross proceeds (contingencies). The facts are the same as
in example (6), except that the agreement does not provide for adequate
stated interest. The result is the same as in example (6).
Example 8. Gross proceeds (contingencies). The facts are same as in
example (6), except that no maximum amount is stated in the agreement
(or any other document available at closing). Under paragraph
(i)(3)(iii) of this section, assuming all contingencies are satisfied,
the maximum amount of gross proceeds cannot be determined with
certainty. The greatest amount that can be determined with certainty at
the time of the closing, assuming all contingencies are satisfied, is
$500,000, the cash downpayment. Therefore, $500,000 is the ``maximum
determinable proceeds'' under paragraph (i)(3)(iii) of this section and
is the amount reported. In addition, (to the extent required by the Form
1099 and its instructions) the reporting person must indicate that the
gross proceeds cannot be determined with certainty. See paragraph
(h)(1)(iv)(C) of this section.
Example 9. Gross proceeds (contingencies). The facts are the same as
in example (8), except that the agreement provides that the minimum
amount K will receive (including the downpayment) is $570,000. Thus,
under paragraph (i)(3)(iii) of this section, assuming all contingencies
are satisfied, the maximum amount of gross proceeds cannot be determined
with certainty. The greatest amount that can be determined with
certainty at the time of the closing, assuming all contingencies are
satisfied, is $570,000, the minimum amount stated in the agreement.
Therefore, $570,000 is the ``maximum determinable proceeds'' under
paragraph (i)(3)(iii) of this section and is the amount reported. In
addition, (to the extent required by the Form 1099 and its instructions)
the reporting person must indicate that the gross proceeds cannot be
determined with certainty. See paragraph (h)(1)(iv)(C) of this section.
(s) Effective/applicability date. This section applies for real
estate transactions with dates of closing (as determined under paragraph
(h)(2)(ii) of this section) that occur on or after January 1, 1991. The
amendments to paragraphs (b)(2)(i)(E), (b)(2)(ii) and (c)(2)(i) of this
section shall apply to sales or exchanges of standing timber for lump-
sum payments completed after May 28, 2009. The amendments to paragraph
(m)(1) apply to payee statements due after December 31, 2014. For payee
statements due before January 1, 2015, Sec. 1.6045-4(m)(1) (as
contained in 26 CFR part 1, revised April 2013) shall apply.
[T.D. 8323, 55 FR 51284, Dec. 13, 1990; 56 FR 559, Jan. 7, 1991; 56 FR
3419, Jan. 30, 1991; T.D. 8895, 65 FR 50407, Aug. 18, 2000; T.D. 9450,
74 FR 25430, May 28, 2009; T.D. 9504, 75 FR 64097, Oct. 18, 2010; T.D.
9675, 79 FR 41130, July 15, 2014]
[[Page 334]]
Sec. 1.6045-5 Information reporting on payments to attorneys.
(a) Requirement of reporting--(1) In general. Except as provided in
paragraph (c) of this section, every payor engaged in a trade or
business who, in the course of that trade or business, makes payments
aggregating $600 or more during a calendar year to an attorney in
connection with legal services (whether or not the services are
performed for the payor) must file an information return for such
payments. The information return must be filed on the form and in the
manner required by the Commissioner. For the time and place for filing
the form, see Sec. 1.6041-6. For definitions of the terms under this
section, see paragraph (d) of this section. The requirements of this
paragraph (a)(1) apply whether or not--
(i) A portion of a payment is kept by the attorney as compensation
for legal services rendered; or
(ii) Other information returns are required with respect to some or
all of a payment under other provisions of the Internal Revenue Code and
the regulations thereunder.
(2) Information required. The information return required under
paragraph (a)(1) of this section must include the following information:
(i) The name, address, and taxpayer identifying number (TIN) (as
defined in section 7701(a)) of the payor;
(ii) The name, address, and TIN of the payee attorney;
(iii) The amount of the payment or payments (as defined in paragraph
(d)(5) of this section); and
(iv) Any other information required by the Commissioner in forms,
instructions or publications.
(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. An IRS truncated
taxpayer identifying number (TTIN) may be used as the identifying number
of the attorney in lieu of the identifying number appearing on the
information return filed with the Internal Revenue Service. For
provisions relating to the use of TTINs, see Sec. 301.6109-4 of this
chapter (Procedure and Administration Regulations). 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.
(b) Special rules--(1) Joint or multiple payees--(i) Check delivered
to one payee attorney. If more than one attorney is listed as a payee on
a check, an information return must be filed under paragraph (a)(1) of
this section with respect to the payee attorney to whom the check is
delivered.
(ii) Check delivered to payee nonattorney. If an attorney is listed
as a payee on a check but the check is delivered to a nonattorney who is
a payee on the check, an information return must be filed under
paragraph (a)(1) of this section with respect to the payee attorney
listed on the check. If more than one attorney is listed as a payee on a
check but the check is delivered to a nonattorney who is a payee on the
check, the information return must be filed with respect to the first-
listed payee attorney on the check.
(iii) Check delivered to nonpayee. If two or more attorneys are
listed as payees on a check, but the check is delivered to a person who
is not a payee on the check, an information return must be filed under
paragraph (a)(1) of
[[Page 335]]
this section with respect to the first-listed payee attorney on the
check.
(2) Attorney required to report payments made to other attorneys. If
an information return is required to be filed with respect to a payee
attorney under paragraph (b)(1) of this section, the attorney with
respect to whom the information return is required to be filed (tier-one
attorney) must file an information return under this section for any
payment that the tier-one attorney makes to other payee attorneys with
respect to that check, regardless of whether the tier-one attorney is a
payor under paragraph (d)(3) of this section.
(c) Exceptions. Notwithstanding paragraphs (a) and (b) of this
section, a return of information is not required under section 6045(f)
with respect to the following payments:
(1) Payments of wages or other compensation paid to an attorney by
the attorney's employer.
(2) Payments of compensation or profits paid or distributed to its
partners by a partnership engaged in providing legal services.
(3) Payments of dividends or corporate earnings and profits paid to
its shareholders by a corporation engaged in providing legal services.
(4) Payments made by a person to the extent that the person is
required to report with respect to the same payee the payments or
portions thereof under section 6041(a) and Sec. 1.6041-1(a) (or would
be required to so report the payments or portions thereof but for the
dollar amount limitation contained in section 6041(a) and Sec. 1.6041-
1(a)).
(5) Payments made to a nonresident alien individual, foreign
partnership, or foreign corporation that is not engaged in trade or
business within the United States, and does not perform any labor or
personal services in the United States, in the taxable year to which the
payment relates. For how a payor determines whether a payment is subject
to this exception, see Sec. 1.6041-4(a)(1).
(6) Payments made to an attorney in the attorney's capacity as the
person responsible for closing a transaction within the meaning of Sec.
1.6045-4(e)(3) for the sale or exchange or financing of any present or
future ownership interest in real estate described in Sec. 1.6045-
4(b)(2)(i) through (iv).
(7) Payments made to an attorney in the attorney's capacity as a
trustee in bankruptcy under title 11, United States Code.
(d) Definitions. The following definitions apply for purposes of
this section:
(1) Attorney means a person engaged in the practice of law, whether
as a sole proprietorship, partnership, corporation, or joint venture.
(2) Legal services means all services related to, or in support of,
the practice of law performed by, or under the supervision of, an
attorney.
(3) Payor means a person who makes a payment if that person is an
obligor on the payment, or the obligor's insurer or guarantor. For
example, a payor includes--
(i) A person who pays a settlement amount to an attorney of a client
who has asserted a tort, contract, violation of law, or workers'
compensation claim against that person; and
(ii) The person's insurer if the insurer pays the settlement amount
to the attorney.
(4) Payments to an attorney include payments by check or other
method such as cash, wire or electronic transfer. Payment by check to an
attorney means a check on which the attorney is named as a sole, joint,
or alternative payee. The attorney is the payee on a check written to
the attorney's client trust fund. However, the attorney is not a payee
when the attorney's name is included on the payee line as ``in care
of,'' such as a check written to ``client c/o attorney,'' or if the
attorney's name is included on the check in any other manner that does
not give the attorney the right to negotiate the check.
(5) Amount of the payment means the amount tendered (e.g., the
amount of a check) plus the amount required to be withheld from the
payment under section 3406(a)(1), because a condition for withholding
exists with respect to the attorney for whom an information return is
required to be filed under paragraph (a)(1) of this section.
(e) Attorney to furnish TIN. A payor that is required to file an
information return under this section must solicit a TIN from the
attorney at or before the
[[Page 336]]
time the payor makes a payment to the attorney. The attorney must
furnish the correct TIN to the payor, but is not required to certify the
TIN. A payment for which a return of information is required under this
section is subject to backup withholding under section 3406 and the
regulations thereunder.
(f) Examples. The following examples illustrate the provisions of
this section. The examples assume that P is not a payor with respect to
A, the attorney, under section 6041. See section 6041 and the
regulations thereunder for rules regarding whether P is required under
section 6041 to file information returns with respect to C. The examples
are as follows:
Example 1. One check--joint payees--taxable to claimant. Employee C,
who sues employer P for back wages, is represented by attorney A. P
settles the suit for $300,000. The $300,000 represents taxable wages to
C under existing legal principles. P writes a settlement check payable
jointly to C and A in the amount of $200,000, net of income and FICA tax
withholding with respect to C. P delivers the check to A. A retains
$100,000 of the payment as compensation for legal services and disburses
the remaining $100,000 to C. P must file an information return with
respect to A for $200,000 under paragraph (a)(1) of this section. P also
must file an information return with respect to C under sections 6041
and 6051, in the amount of $300,000. See Sec. Sec. 1.6041-1(f) and
1.6041-2.
Example 2. One check--joint payees--excludable to claimant. C, who
sues corporation P for damages on account of personal physical injuries,
is represented by attorney A. P settles the suit for a $300,000 damage
payment that is excludable from C's gross income under section
104(a)(2). P writes a $300,000 settlement check payable jointly to C and
A and delivers the check to A. A retains $120,000 of the payment as
compensation for legal services and remits the remaining $180,000 to C.
P must file an information return with respect to A for $300,000 under
paragraph (a)(1) of this section. P does not file an information return
with respect to tax-free damages paid to C.
Example 3. Separate checks--taxable to claimant. C, an individual
plaintiff in a suit for lost profits against corporation P, is
represented by attorney A. P settles the suit for $300,000, all of which
will be includible in C's gross income. A requests P to write two
checks, one payable to A in the amount of $100,000 as compensation for
legal services and the other payable to C in the amount of $200,000. P
writes the checks in accordance with A's instructions and delivers both
checks to A. P must file an information return with respect to A for
$100,000 under paragraph (a)(1) of this section. Pursuant to Sec.
1.6041-1(a) and (f), P must file an information return with respect to C
for the $300,000.
Example 4. Check made payable to claimant, but delivered to nonpayee
attorney. Corporation P is a defendant in a suit for damages in which C,
the plaintiff, has been represented by attorney A throughout the
proceeding. P settles the suit for $300,000. Pursuant to a request by A,
P writes the $300,000 settlement check payable solely to C and delivers
it to A at A's office. P is not required to file an information return
under paragraph (a)(1) of this section with respect to A, because there
is no payment to an attorney within the meaning of paragraph (d)(4) of
this section.
Example 5. Multiple attorneys listed as payees. Corporation P, a
defendant, settles a lost profits suit brought by C for $300,000 by
issuing a check naming C's attorneys, Y, A, and Z, as payees in that
order. Y, A, and Z do not belong to the same law firm. P delivers the
payment to A's office. A deposits the check proceeds into a trust
account and makes payments by separate checks to Y of $30,000 and to Z
of $15,000, as compensation for legal services, pursuant to
authorization from C to pay these amounts. A also makes a payment by
check of $155,000 to C. A retains $100,000 as compensation for legal
services. P must file an information return for $300,000 with respect to
A under paragraphs (a)(1) and (b)(1)(i) of this section. A, in turn,
must file information returns with respect to Y of $30,000 and to Z of
$15,000 under paragraphs (a)(1) and (b)(2) of this section because A is
not required to file information returns under section 6041 with respect
to A's payments to Y and Z because A's role in making the payments to Y
and Z is merely ministerial. See Sec. 1.6041-1(e)(1), (e)(2) and (e)(5)
Example 7 for information reporting requirements with respect to A's
payments to Y and Z. As described in Example 3, P must also file an
information return with respect to C, pursuant to Sec. 1.6041-1(a) and
(f).
Example 6. Amount of the payment--attorney does not provide TIN. (i)
Corporation P, a defendant, settles a suit brought by C for $300,000 of
damages. P will pay the damages by a joint check to C and his attorney,
A. A failed to furnish P with A's TIN. P is required to deduct and
withhold 28 percent tax from the $300,000 under section 3406(a)(1)(A)
and paragraph (e) of this section. P writes the check to C and A as
joint payees, in the amount of $216,000. P also must file an information
return with respect to A under paragraph (a)(1) of this section in the
amount of $300,000, as prescribed in paragraph (d)(5) of this section.
If the damages are reportable under section 6041 because they are not
excludable from gross income under existing legal principles, and are
not subject to any exception under section 6041, P must also file
[[Page 337]]
an information return with respect to C pursuant to Sec. 1.6041-1(a)
and (f) in the amount of $300,000.
(ii) Rather than paying by joint check to C and A, P will pay the
damages by a joint check to C and F, A's law firm. F failed to furnish
its TIN to P. P is required to deduct and withhold 28 percent tax from
the $300,000 under section 3406(a)(1)(A) and paragraph (e) of this
section. P writes the check to C and F as joint payees, in the amount of
$216,000. P also must file an information return with respect to F under
paragraph (a)(1) of this section in the amount of $300,000, as
prescribed in paragraph (d)(5) of this section. If the damages are
reportable under section 6041 because they are not excludable from gross
income under existing legal principles, and are not subject to any
exception under section 6041, P must also file an information return
with respect to C pursuant to Sec. 1.6041-1(a) and (f) in the amount of
$300,000.
Example 7. Home mortgage lending transaction. (i) Individual P
agrees to purchase a house that P will use solely as a residence. P
obtains a loan from lender L to finance a portion of the cost of
acquiring the house. L disburses loan proceeds of $300,000 to attorney
A, who is the settlement agent, by a check naming A as the sole payee.
A, in turn, writes checks from the loan proceeds and from other funds
provided by P to the persons involved in the purchase of the house,
including a check for $800 to attorney B, whom P hired to provide P with
legal services relating to the closing.
(ii) P, not L, is the payor of the payment to A under paragraph
(d)(3) of this section. P, however, is not required to file an
information return with respect to A under paragraph (a)(1) of this
section because the payment was not made in the course of P's trade or
business. Even if P made the payment in the course of P's trade or
business, P would not be required to file an information return under
section 6045(f) with respect to A because P is excepted under paragraph
(c)(6) of this section.
(iii) A is not required to file an information return under
paragraph (a)(1) of this section with respect to the payment to B
because A is not the payor as that term is defined under paragraph
(d)(3) of this section. A is not required to file an information return
under paragraph (b)(2) with respect to the payment to B because A was
listed as sole payee on the check it received from P. See section 6041
and Sec. 1.6041-1(e) for whether A or L must file information returns
under that section. See section 6045(e) and Sec. 1.6045-4 for whether A
is required to file an information return under that section.
Example 8. Business mortgage lending transaction. The facts are the
same as in Example 7 except that P buys real property that P will use in
a trade or business. P, not L, is the payor of the payment to A under
paragraph (d)(3) of this section. P, however, is not required to file an
information return under section 6045(f) with respect to A because P is
excepted under paragraph (c)(6) of this section. A is not required to
file an information return under paragraphs (a) or (b)(2) of this
section with respect to the payment to B. See section 6041 and Sec.
1.6041-1(e) to determine whether P or L must file an information return
under that section with respect to the payment to A, and whether P or A
must file a return with respect to the payment to B. See section 6045(e)
for rules regarding whether A is required to file information returns
under that section.
Example 9. Qualified settlement fund. Corporation P agrees to settle
for $300,000 a class action lawsuit brought by attorney A on behalf of a
claimant class. Pursuant to the settlement agreement and a preliminary
order of approval by a court, A establishes a bank account in the name
of Q Settlement Fund, which is a qualified settlement fund (QSF) under
Sec. 1.468B-1. A is also designated by the court as the administrator
of the QSF. Corporation P transfers $300,000 by wire in Year 1 to A, who
deposits the funds into the Q Settlement Fund. In Year 2, the court
approves an award of attorney's fees of $105,000 for A. In Year 2, Q
Settlement Fund delivers $105,000 to A. P is required to file an
information return under paragraph (a) of this section with respect to A
for Year 1 for the $300,000 payment it made to A. The Q Settlement Fund
is required to file an information return under section 6041(a) and
Sec. 1.468B-2(l)(2) with respect to A for Year 2 for the $105,000
payment it made to A.
(g) Cross reference to penalties. See the following sections
regarding penalties for failure to comply with the requirements of
section 6045(f) and this section:
(1) Section 6721 for failure to file a correct information return.
(2) Section 6722 for failure to furnish a correct payee statement.
(3) Section 6723 for failure to comply with other information
reporting requirements (including the requirement to furnish a TIN).
(4) Section 7203 for willful failure to supply information
(including a TIN).
(h) Effective/applicability date. The rules in this section apply to
payments made on or after January 1, 2007. The amendments to paragraph
(a)(3)(i) apply to payee statements due after December 31, 2014. For
payee statements due before January 1, 2015, Sec. 1.6045-5(a)(3)(i) (as
contained in 26
[[Page 338]]
CFR part 1, revised April 2013) shall apply.
[T.D. 9270, 71 FR 39551, July 13, 2006, as amended at 71 FR 47080, Aug.
16, 2006; T.D. 9504, 75 FR 64097, Oct. 18, 2010; T.D. 9675, 79 FR 41130,
July 15, 2014]
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 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
[[Page 339]]
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
[[Page 340]]
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 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. For all specified
securities, 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, units, or amounts, and classification of the security (such as
stock or debt).
(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. Sec.
1.6045-1(d), 1.6045-1(m), and 1.6045-1(n), 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.
(2) Examples. The following examples illustrate the rules of
paragraph (b)(1) of this section:
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
[[Page 341]]
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.
(3) Additional information required for a transfer of a debt
instrument. In addition to the information required in paragraph (b)(1)
of this section, for a transfer of a debt instrument that is a covered
security, the following additional information is required:
(i) A description of the payment terms used by the broker to compute
any basis adjustments under Sec. 1.6045-1(n);
(ii) The issue price of the debt instrument;
(iii) The issue date of the debt instrument (if different from the
original acquisition date of the debt instrument);
(iv) The adjusted issue price of the debt instrument as of the
transfer date;
(v) The customer's initial basis in the debt instrument;
(vi) Any market discount that has accrued as of the transfer date
(as determined under Sec. 1.6045-1(n));
(vii) Any bond premium that has been amortized as of the transfer
date (as determined under Sec. 1.6045-1(n));
(viii) Any acquisition premium that has been amortized as of the
transfer date (as determined under Sec. 1.6045-1(n));
(ix) Whether the transferring broker has computed any of the
information described in this paragraph (b)(3) by taking into account
one or more elections described in Sec. 1.6045-1(n), and, if so, which
election or elections were taken into account by the transferring
broker; and
(x) For a transfer that occurs on or after January 1, 2016, the last
date on or before the transfer date that the transferor made an
adjustment for a particular item (for example, the last date on or
before the transfer date that bond premium was amortized). A broker,
however, may rely on this paragraph (b)(3)(x) for a transfer of a
covered security that occurs on or after June 30, 2015, and before
January 1, 2016.
(4) Additional information required for option transfers. In
addition to the information required in paragraph (b)(1) of this
section, for a transfer of an option that is a covered security, the
following additional information is required:
[[Page 342]]
(i) The date of grant or acquisition of the option;
(ii) The amount of premium paid or received;
(iii) Any other information required to fully describe the option,
which may include a security identifier used by option exchanges, or
details about the underlying asset, quantity covered, exercise type,
strike price, and maturity date; and
(iv) For a transfer of an option described in Sec. 1.6045-1(m)(3)
(section 1256 option) that occurs on or after January 1, 2016, the
original basis of the option and the fair market value of the option as
of the end of the prior calendar year.
(5) 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 paragraphs (b)(1), (b)(3),
and (b)(4) 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 paragraphs (b)(1), (b)(3), and (b)(4) of this
section. As another example, a transferor and a receiving broker may
agree to use a security identifier for an exchange-traded option if that
information would be sufficient to inform the receiving broker of the
terms for that option.
(6) Transfers of noncovered securities. The information described in
paragraphs (b)(1)(vii), (b)(3), (b)(4), (b)(8), and (b)(9) of this
section is not required for a transfer of a noncovered security if the
transfer statement identifies the security as a 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 (b)(1)(v) of this section to identify each security. For
purposes of this paragraph (b)(6), a transferor must treat a security
for which a broker makes a single-account election described in Sec.
1.1012-1(e)(11)(i) as a covered security.
(7) 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).
(8) 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 securities to satisfy a cash legacy. If a security
is transferred from a decedent or a decedent's estate
[[Page 343]]
to satisfy a cash legacy, paragraphs (b)(1), (b)(3), and (b)(4) of this
section apply and paragraph (b)(8)(i) of this section does not apply.
(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.
(9) 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)(9)(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)(9):
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)(9)(i) of this section, S must provide a transfer statement to T that
identifies the securities as gifted securities and indicates X's
adjusted basis and original acquisition date. 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)(9)(ii) of this section, T must
provide a transfer statement to U that identifies the securities as
gifted securities and indicates X's adjusted basis and original
acquisition date of the stock. 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.
(10) 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 securities in the account for which the
transferor does not know the acquisition or purchase date followed by
the earliest securities purchased or acquired, whether covered
securities or noncovered securities.
(11) 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
[[Page 344]]
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
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.
(12) Failure to receive a complete transfer statement--(i) In
general. 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.
(ii) Transition rules for transfers of debt instruments, options,
and securities futures contracts. If an option described in Sec.
1.6045-1(a)(14)(iii), a securities futures contract described in Sec.
1.6045-1(a)(14)(iv), or a debt instrument described in Sec. 1.6045-
1(a)(15)(i)(C) is transferred in 2014 and no transfer statement is
received, the receiving broker is not required to request a transfer
statement from the transferor and may treat the security as a noncovered
security. If a debt instrument described in Sec. 1.6045-1(a)(15)(i)(D)
is transferred in 2016 and no transfer statement is received, the
receiving broker is not required to request a transfer statement from
the transferor and may treat the security as 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:
(1) A transfer on or after January 1, 2011, of stock other than
stock in a regulated investment company within the meaning of Sec.
1.1012-1(e)(5);
(2) A transfer on or after January 1, 2012, of stock in a regulated
investment company;
[[Page 345]]
(3) A transfer on or after January 1, 2015, of an option described
in Sec. 1.6045-1(a)(14)(iii), a securities futures contract described
in Sec. 1.6045-1(a)(14)(iv), or a debt instrument described in Sec.
1.6045-1(a)(15)(i)(C); and
(4) A transfer on or after January 1, 2017, of a debt instrument
described in Sec. 1.6045-1(a)(15)(i)(D).
[T.D. 9504, 75 FR 64097, Oct. 18, 2010, as amended by T.D. 9616, 78 FR
23132, Apr. 18, 2013; T.D. 9713, 80 FR 13238, Mar. 13, 2015; T.D. 9750,
81 FR 8154, Feb. 18, 2016; 81 FR 24702, Apr. 27, 2016]
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. An issuer may electronically sign a return that is
publicly reported in accordance
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with this paragraph (a)(3). The electronic signature must identify the
individual who attests to the declaration in the jurat.
(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 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
[[Page 347]]
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
[[Page 348]]
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) Rule for options--(1) In general. For an option granted or
acquired on or after January 1, 2014, if the original contract is
replaced by a different number of option contracts, the following rules
apply:
(i) If the option is an exchange-traded option, any clearinghouse or
clearing facility that serves as a counterparty is treated as the issuer
of the option for purposes of section 6045B.
(ii) If the option is not an exchange-traded option, the option
writer is treated as the issuer of the option for purposes of section
6045B.
(2) Examples. The following examples illustrate the rules of
paragraph (h)(1) of this section:
Example 1. On January 15, 2014, F, an individual, purchases a one-
year exchange-traded call option on 100 shares of Company X stock, with
a strike price of $110. The call option is cleared through Clearinghouse
G. Company X executes a 2-for-1 stock split as of April 1, 2014. Due to
the stock split, the terms of F's option are altered, resulting in two
option contracts, each on 100 shares of Company X stock with a strike
price of $55. All other terms remain the same. Under paragraph (h)(1)(i)
of this section, Clearinghouse G is required to prepare an issuer report
for F.
Example 2. On January 31, 2014, J, an individual, purchases from K a
non-exchange traded 7-month call option on 100 shares of Company X
stock, with a strike price of $110. Company X executes a 2-for-1 stock
split as of April 1, 2014. Due to the stock split, the terms of J's
option are altered, resulting in one option contract on 200 shares of
Company X stock with a strike price of $55. All other terms of the
option remain the same. Under paragraph (h)(1) of this section, because
the number of option contracts did not change, K is not required to
prepare an issuer report for J.
(i) [Reserved]
(j) Effective/applicability dates. This section applies to--
(1) Organizational actions occurring on or after January 1, 2011,
that affect the basis of specified securities within the meaning of
Sec. 1.6045-1(a)(14)(i) other than stock in a regulated investment
company within the meaning of Sec. 1.1012-1(e)(5);
(2) Organizational actions occurring on or after January 1, 2012,
that affect the basis of stock in a regulated investment company;
(3) Organizational actions occurring on or after January 1, 2014,
that affect the basis of debt instruments described in Sec. 1.6045-
1(n)(2)(i) (not including the debt instruments described in Sec.
1.6045-1(n)(2)(ii));
(4) Organizational actions occurring on or after January 1, 2016,
that affect the basis of debt instruments described in Sec. 1.6045-
1(n)(3);
(5) Organizational actions occurring on or after January 1, 2014,
that affect the basis of options described in Sec. 1.6045-
1(a)(14)(iii); and
(6) Organizational actions occurring on or after January 1, 2014,
that affect the basis of securities futures contracts described in Sec.
1.6045-1(a)(14)(iv).
[T.D. 9504, 75 FR 64101, Oct. 18, 2010, as amended by T.D. 9616, 78 FR
23133, Apr. 18, 2013]
Sec. 1.6046-1 Returns as to organization or reorganization of foreign
corporations and as to acquisitions of their stock.
(a) Officers or directors--(1) When liability arises on January 1,
1963. Each U.S. citizen or resident who is on January 1, 1963, an
officer or director of a foreign corporation shall make a return on Form
5471 (or subsequent form) showing the name, address, and identifying
number of each U.S. person who, on January 1, 1963, owns 5 percent or
more in value of the outstanding stock of such foreign corporation.
(2) When liability arises after January 1, 1963--(i) Requirement of
return. Each United States citizen or resident who is at any time after
January 1, 1963, an officer or director of a foreign corporation shall
make a return on Form 5471 setting forth the information described in
paragraph (a)(2)(ii) of this section with respect to each United States
person who, during the time such citizen or resident is such an officer
or director--
(a) Acquires (whether in one or more transactions) outstanding stock
of such corporation which equals, or which when added to any such stock
then owned by him equals, 10 percent or more of the total combined
voting
[[Page 349]]
power of all classes of stock of the foreign corporation entitled to
vote or the total value of the stock of the foreign corporation;
(b) Acquires (whether in one or more transactions) an additional 10
percent or more of the total combined voting power of all classes of
stock of the foreign corporation entitled to vote or the total value of
the stock of the foreign corporation; or
(c) Is not described in paragraph (a)(2)(i)(a) or (b) of this
section, and who, at any time after January 1, 1987, is treated as a
United States shareholder under section 953(c) with respect to such
foreign corporation.
(ii) Information required to be shown on return. The return required
under subdivision (i) of this subparagraph shall contain the following
information:
(a) Name, address, and identifying number of each shareholder with
respect to whom the return is filed;
(b) A statement showing that the shareholder is either described in
subdivision (i)(a) or (i)(b) of this subparagraph; and
(c) The date on which the shareholder became a person described in
subdivision (i)(a) or (i)(b) of this subparagraph.
(3) Application of rules. The provisions of this paragraph may be
illustrated by the following examples:
Example 1. A, a United States citizen, is, on January 1, 1963, a
director of M, a foreign corporation. X, on January 1, 1963, is a United
States person owning 5 percent in value of the outstanding stock of M
Corporation. A must file a return under the provisions of subparagraph
(1) of this paragraph.
Example 2. (i) Facts. A, a United States citizen, is, on January 1,
2014, a director of M Corporation, a foreign corporation. X, on January
1, 2014, is a United States person owning 4% of the outstanding stock of
M Corporation. On July 1, 2014, X acquires 4% of the outstanding stock
of M Corporation and on September 1, 2014, he acquires an additional 4%
of such stock.
(ii) Results. The July 1, 2014, transaction does not give rise to
liability for A to file a return; however, A must file a return as a
result of the September 1, 2014, transaction because X's holdings now
exceed 10%.
Example 3. (i) Facts. The facts are the same as in Example 2 and, on
September 15, 2014, X acquires an additional 8% in value of the
outstanding stock of M Corporation. (X's total holdings are now 20%.) On
November 1, 2014, X acquires an additional 4% of the outstanding stock
of M Corporation.
(ii) Results. The September 15, 2014, transaction does not give rise
to liability to file a return since X has not acquired 10% in value of
the outstanding stock of M Corporation since A last became liable to
file a return. However, A must file a return as a result of the November
1, 2014, transaction because X has now acquired an additional 10% of the
outstanding stock of M Corporation.
Example 4. (i) Facts. The facts are the same as in Examples 2 and 3
and, in addition, B, a United States citizen, becomes an officer of M
Corporation on September 10, 2014.
(ii) Results. B is not required to file a return either as a result
of the facts set forth in Example 2 or as a result of the September 15,
2014, transaction described in Example 3. However, B is required to file
a return as a result of the November 1, 2014, transaction described in
Example 3 because X has acquired an additional 10% in value of the
outstanding stock of M Corporation while B is an officer or director.
(b) Returns required of U.S. persons when liability to file arises
on January 1, 1963. Each U.S. person who, on January 1, 1963, owns 5
percent or more in value of the outstanding stock of a foreign
corporation, shall make a return on Form 959 with respect to such
foreign corporation setting forth the following information:
(1) The name, address, and identifying number of the shareholder (or
shareholders) filing the return, and the internal revenue district in
which such shareholder filed his most recent United States income tax
return;
(2) The name, business address, and employer identification number,
if any, of the foreign corporation, the name of the country under the
laws of which it is incorporated, and the name of the country in which
is located its principal place of business;
(3) The date of organization and, if any, of each reorganization of
the foreign corporation if such reorganization occurred on or after
January 1, 1960, while the shareholder owned 5 percent or more in value
of the outstanding stock of such corporation;
(4) The name and address of the foreign corporation's statutory or
resident agent in the country of incorporation;
(5) The name, address, and identifying number of any branch office
or agent of the foreign corporation located in the United States;
[[Page 350]]
(6) If the foreign corporation has filed a United States income tax
return, or participated in the filing of a consolidated return, for any
of its last three calendar or fiscal years immediately preceding January
1, 1963, state each year for which a return was filed (including, in the
case of a consolidated return, the name of the corporation filing such
return), the type of form used, the internal revenue office to which it
was sent, and the amount of tax, if any, paid;
(7) The name and address of the person (or persons) having custody
of the books of account and records of the foreign corporation, and the
location of such books and records if different from such address;
(8) The names, addresses, and identifying numbers of all United
States persons who are principal officers (for example, president, vice
president, secretary, treasurer, and comptroller) or members of the
board of directors of the foreign corporation as of January 1, 1963;
(9) A complete description of the principal business activities in
which the foreign corporation is actually engaged and, if the foreign
corporation is a member of a group constituting a chain of ownership
with respect to each unit of which the shareholder owns 5 percent or
more in value of the outstanding stock, a chart showing the foreign
corporation's position in the chain of ownership and the percentages of
ownership;
(10) The following information prepared in accordance with generally
accepted accounting principles and in such detail as is customary for
the corporation's accounting records:
(i) The corporation's profit and loss statement for the most recent
complete annual accounting period; and
(ii) The corporation's balance sheet as of the end of the most
recent complete annual accounting period;
(11) A statement showing as of January 1, 1963, the amount and type
of any indebtedness of the foreign corporation:
(i) To any United States person owning 5 percent or more in value of
its stock, or
(ii) To any other foreign corporation owning 5 percent or more in
value of the outstanding stock of the foreign corporation with respect
to which the return is filed provided that the shareholder filing the
return owns 5 percent or more in value of the outstanding stock of such
other foreign corporation,
together with the name, address, and identifying number, if any, of each
such shareholder or entity;
(12) A statement, as of January 1, 1963, showing the name, address,
and identifying number, if any, of each person who is, on January 1,
1963, a subscriber to the stock of the foreign corporation, and the
number of shares subscribed to by each;
(13) A statement showing the number of shares of each class of stock
of the foreign corporation owned by each shareholder filing the return
and:
(i) If such stock was acquired after December 31, 1953, the dates of
acquisition, the amounts paid or value given therefor, the method of
acquisition, i.e., by original issue, purchase on open market, direct
purchase, gift, inheritance, etc., and from whom acquired; or
(ii) If such stock was acquired before Janaury 1, 1954, a statement
that such stock was acquired before such date, and the value at which
such stock is carried on the books of such shareholder;
(14) A statement showing as of January 1, 1963, the name, address,
and identifying number of each United States person who owns 5 percent
or more in value of the outstanding stock of the foreign corporation,
the classes of stock held, the number of shares of each class held,
including the name, address, and identifying number, if any, of each
actual owner if such person is different from the shareholder of record
and a statement of the nature and amount of the interests of each such
actual owner; and
(15) The total number of shares of each class of outstanding stock
of the foreign corporation (or other data indicating the shareholder's
percentage of ownership).
(c) Returns required of United States persons when liability to file
arises after January 1, 1963--(1) United States persons required to
file. A return on Form 5471, containing the information required by
paragraph (c)(4) of this section, shall be
[[Page 351]]
made by each United States person when at any time after January 1,
1963:
(i) Such person acquires (whether in one or more transactions)
outstanding stock of such foreign corporation which equals, or which
when added to any such stock then owned by him equals, 10 percent or
more of the total combined voting power of all classes of stock of the
foreign corporation entitled to vote or the total value of the stock of
the foreign corporation;
(ii) Such person, having already acquired the interest referred to
in paragraph (b) of this section or in paragraph (c)(1)(i) of this
section--
(a) Acquires (whether in one or more transactions) an additional 10
percent or more of the total combined voting power of all classes of
stock of the foreign corporation entitled to vote or the total value of
the stock of the foreign corporation;
(b) Owns 10 percent or more of the total combined voting power of
all classes of stock of the foreign corporation entitled to vote or the
total value of the stock of the foreign corporation when such foreign
corporation is reorganized (as defined in paragraph (f)); or
(c) Disposes of sufficient stock in such foreign corporation to
reduce his interest to less than 10 percent of the total combined voting
power of all classes of stock of the foreign corporation entitled to
vote or the total value of the stock of the foreign corporation; or
(iii) Such person is, at any time after January 1, 1987, treated as
a United States shareholder under section 953(c) with respect to a
foreign corporation.
(2) Examples. The provisions of paragraph (c)(1) of this section may
be illustrated by the following examples:
Example 1. (i) Facts. On January 15, 2014, A, a United States
person, acquires 10% of the outstanding stock of M, a foreign
corporation.
(ii) Results. A must file a return under the provisions of paragraph
(c)(1) of this section.
Example 2. (i) Facts. On January 1, 2014, B, a United States person,
owns 4% of the outstanding stock of M, a foreign corporation. On
February 1, 2015, B acquires an additional 6% of the outstanding stock
of M Corporation.
(ii) Results. B is not required to file a return for 2014 under the
provisions of this section because he does not own 10% or more of the
outstanding stock of M Corporation. B must file a return for 2015 under
the provisions of paragraph (c)(1) of this section.
Example 3. (i) Facts. On January 1, 2014, C, a United States person,
owns 12% of the outstanding stock of M Corporation, a foreign
corporation. On February 1, 2014, C acquires an additional 4% of the
outstanding stock of M Corporation in a transaction not involving a
reorganization.
(ii) Results. C is not required to file a return under the
provisions of paragraph (c)(1) of this section with respect to the
acquisition of the additional 4% of M Corporation.
Example 4. (i) Facts. The facts are the same as in Example 3 except
that, in addition, on April 1, 2014, C acquires 4% of the outstanding
stock of M Corporation in a transaction not involving a reorganization.
(C's total holdings are now 20%.) On May 1, 2014, C acquires 2% of the
outstanding stock of M Corporation.
(ii) Results. C is not required to file a return under the
provisions of paragraph (c)(1) of this section as a result of the April
1, 2014, acquisition because he has not acquired 10% or more of the
outstanding stock of M Corporation since he last became liable to file a
return. C must file a return under the provisions of paragraph (c)(1) of
this section as a result of the May 1, 2014, acquisition because C
acquired 10% of the outstanding stock of M Corporation during 2014.
Example 5. (i) Facts. On June 1, 2014, D, a United States person,
owns 24% of the outstanding stock of M Corporation, a foreign
corporation. Also, on June 1, 2014, M Corporation is reorganized and, as
a result of such reorganization, D owns only 12% of the outstanding
stock of such foreign corporation.
(ii) Results. D must file a return under the provisions of paragraph
(c)(1) of this section.
Example 6. (i) Facts. The facts are the same as in Example 5 except
that, in addition, on November 1, 2015, D donates 4% of the outstanding
stock of M Corporation to a charity.
(ii) Results. Since D has disposed of sufficient stock to reduce his
interest in M Corporation to less than 10% of the outstanding stock of
such corporation, D must file a return under the provisions of paragraph
(c)(1) of this section.
(3) Shareholders who become United States persons. A return on Form
5471, containing the information required by paragraph (c)(4) of this
section, shall be made by each person who at any time after January 1,
1963, becomes a United States person while owning 10 percent or more of
the total combined voting power of all classes of stock of the foreign
corporation entitled to vote or the total value of the stock of the
foreign corporation.
[[Page 352]]
(4) Information required to be shown on return--(i) In general. The
return on Form 5471, required to be filed by persons described in
paragraph (c)(1) or (3) of this section, shall set forth the same
information as is required by the provisions of paragraph (b) of this
section except that where such provisions require information with
respect to January 1, 1963, such information shall be furnished with
respect to the date on which liability arises to file the return
required under this paragraph.
(ii) Additional information. In addition to the information required
under paragraph (c)(4)(i) of this section, the following information
shall also be furnished in the return required under this paragraph:
(a) The date on or after January 1, 1963, if any, on which such
shareholder (or shareholders) last filed a return under this section
with respect to the corporation;
(b) If a return is filed by reason of becoming a United States
person, the date the shareholder became a United States person;
(c) If a return is filed by reason of the disposition of stock, the
date and method of such disposition and the person to whom such
disposition was made; and
(d) If a return is filed by reason of the organization or
reorganization of the foreign corporation on or after January 1, 1963,
the following information with respect to such organization or
reorganization:
(1) A statement showing a detailed list of the classes and kinds of
assets transferred to the foreign corporation including a description of
the assets (such as a list of patents, copyrights, stock, securities,
etc.), the fair market value of each asset transferred (and, if such
asset is transferred by a United States person, its adjusted basis), the
date of transfer, the name, address, and identifying number, if any, of
the owner immediately prior to the transfer, and the consideration paid
by the foreign corporation for such transfer;
(2) A statement showing the assets transferred and the notes or
securities issued by the foreign corporation, the name, address, and
identifying number, if any, of each person to whom such transfer or
issue was made, and the consideration paid to the foreign corporation
for such transfer or issue; and
(3) An analysis of the changes in the corporation's surplus accounts
occurring on or after January 1, 1963.
(iii) Exclusion of information previously furnished. In any case
where any identical item of information required to be filed under this
paragraph by a shareholder with respect to a foreign corporation has
previously been furnished by such shareholder in any return made in
accordance with the provisions of this section, such shareholder may
satisfy the requirements of this paragraph by filing Form 5471,
identifying such item of information, the date furnished, and stating
that it is unchanged.
(d) Associations, etc. Returns are required to be filed in
accordance with the provisions of this section with respect to any
foreign association, foreign joint-stock company, or foreign insurance
company, etc., which would be considered to be a corporation under Sec.
301.7701-2 of this chapter (Regulations on Procedure and
Administration). Persons who would qualify by the nature of their
functions and ownership in such associations, etc., as officers,
directors, or shareholders thereof will be treated as such for purposes
of this section without regard to their designations under local law.
(e) Special provisions--(1) Return jointly made. Any two or more
persons required under paragraph (a) of this section to make a return
with respect to one or more shareholders of the same corporation, or
under paragraph (b) or (c) of this section to make a return with respect
to the same corporation, may in lieu of making several returns, jointly
make one return.
(2) Separate return for each corporation. When returns are required
with respect to more than one foreign corporation, a separate return
must be made for each corporation.
(3) Use of power of attorney by officers or directors--(i) In
general. Any two or more persons required under paragraph (a) of this
section to make a return with respect to one or more shareholders of the
same corporation may, by means of one or more duly executed powers of
attorney, constitute one of their number as attorney in fact for
[[Page 353]]
the purpose of making such returns or for the purpose of making a joint
return under subparagraph (1) of this paragraph.
(ii) Nature of power of attorney. The power of attorney referred to
in subdivision (i) of this subparagraph shall be limited to the making
of returns required under paragraph (a) of this section and shall be
limited to a single calendar year with respect to which such returns are
required.
(iii) Manner of execution of power of attorney. The use of technical
language in the preparation of the power of attorney referred to in
subdivision (i) of this subparagraph is not necessary. Such power of
attorney shall be signed by the individual United States citizen or
resident required to file a return or returns under paragraph (a) of
this section. Such power of attorney must be acknowledged before a
notary public or, in lieu thereof, witnessed by two disinterested
persons. The notarial seal must be affixed unless such seal is not
required under the laws of the state or country wherein such power of
attorney is executed.
(iv) Manner of execution of return under authority of power of
attorney. A return made under authority of one or more powers of
attorney referred to in subdivision (i) of this subparagraph shall be
signed by the attorney in fact for each principal for which such
attorney in fact is acting. A copy of such one or more powers of
attorney shall be kept at a convenient and safe location accessible to
internal revenue officers, and shall at all times be available for
inspection by such officers.
(v) Effect on penalties. The fact that a return is made under
authority of a power of attorney referred to in subdivision (i) of this
subparagraph shall not affect the principal's liability for penalties
provided for failure to file a return required under paragraph (a) of
this section or for filing a false or fraudulent return.
(4) Persons excepted from filing returns--(i) Return required of
officer or director under paragraph (a)(1). Notwithstanding paragraph
(a)(1) of this section, any U.S. citizen or resident required to make a
return under such paragraph with respect to shareholders of a foreign
corporation, need not make such return if, on January 1, 1963, three or
fewer U.S. persons own 95 percent or more in value of the outstanding
stock of such foreign corporation and file a return or returns with
respect to such corporation under paragraph (b) of this section.
(ii) Return required of officer or director under paragraph (a)(2).
Notwithstanding paragraph (a)(2) of this section, any U.S. citizen or
resident required to make a return under such paragraph with respect to
a person acquiring stock of a foreign corporation in an acquisition
described in subdivision (i)(a) or (b) of such paragraph need not make
such return, if:
(a) As a result of such acquisition of stock of such foreign
corporation, a U.S. person files a return as a shareholder under
paragraph (c)(1) of this section, and
(b) Immediately after such acquisition of stock, three or fewer U.S.
persons own 95 percent or more in value of the outstanding stock of such
foreign corporation.
(iii) Return required by reason of attribution rules.
Notwithstanding paragraph (b) or (c) of this section, any person
required to make a return under such paragraph with respect to a foreign
corporation need not make such return, if:
(a) Such person does not directly own an interest in the foreign
corporation,
(b) Such person is required to furnish the information solely by
reason of attribution of stock ownership from a U.S. person under
paragraph (i) of this section, and
(c) The person from whom the stock ownership is attributed furnishes
all of the information required under paragraph (b) or (c) of this
section of the person to whom such stock ownership is attributed.
(iv) Return required of officer or director with respect to person
described in subdivision (iii). Notwithstanding paragraph (a) of this
section, any U.S citizen or resident required to make a return under
such paragraph with respect to a person exempted under subdivision (iii)
of this subparagraph from making a return need not make a return with
respect to such person.
[[Page 354]]
(5) Persons excepted from furnishing items of information. Any
person required to furnish any item of information under paragraph (b)
or (c) of this section with respect to a foreign corporation may, if
such item of information is furnished by another person having an equal
or greater stock interest (measured in terms of either the total
combined voting power of all classes of stock of the foreign corporation
entitled to vote or the total value of the stock of the foreign
corporation) in such foreign corporation, satisfy such requirement by
filing a statement with his return on Form 5471 indicating that such
requirement has been satisfied and identifying the return in which such
item of information was included. This paragraph (e)(5) does not apply
to persons excepted from filing a return by reason of the provisions of
paragraph (e)(4) of this section.
(f) Meaning of terms. For purposes of this section:
(1) Acquisition. Stock in a foreign corporation shall be considered
acquired when a person has an unqualified right to receive such stock
even though such stock is not actually issued. For example, when under
the law of a foreign country, all the necessary steps for incorporation
are completed but stock in the corporation will not be issued within 30
days, every United States citizen or resident who is an officer or a
director of such corporation, provided a United States person has an
interest of 10 percent or more in such corporation, and every such
United States person shall, within 90 days of the date of incorporation,
file the returns required under section 6046 and this section. In the
case of a reorganization, new stock may be acquired, depending on the
type of reorganization, whether or not any stock certificates are
surrendered or exchanged or the designation of such stock is altered.
(2) Reorganization. With respect to a foreign corporation, the term
``reorganization'' shall mean not only a transaction described in
section 368(a)(1) and the regulations thereunder but also any other
transaction or series of transactions which has the same effect.
(3) U.S. person--(i) In general. For purposes of section 6046 and
this section, the term United States person has the meaning assigned to
it by section 7701(a)(30), except as provided in paragraphs (f)(3)(ii)
and (iii) of this section.
(ii) Special rule for individuals residing in certain possessions.
(A) With respect to an individual who is a bona fide resident of Puerto
Rico, the term United States person has the meaning assigned to it by
Sec. 1.957-3 except that the rules of Sec. 1.937-2(g)(1) will apply.
(B) With respect to individuals who are bona fide residents of any
section 931 possession, as defined in Sec. 1.931-1(c)(1), the term
United States person has the meaning assigned to it by Sec. 1.957-3.
(iii) Special rule for certain nonresident aliens. An individual for
whom an election under section 6013(g) or (h) is in effect will, subject
to the exceptions contained in paragraph (f)(3)(ii) of this section, be
considered a United States person for purposes of section 6046 and this
section.
(4) [Reserved]
(5) Accounting period and taxable year. In the case of a specified
foreign corporation (as defined in section 898), the taxable year of
such corporation shall be treated as its annual accounting period.
(g) Method of reporting. All amounts furnished in returns prescribed
under this section shall be expressed in United States currency with a
statement of the exchange rates used. All statements required to be
submitted on or with returns under this section shall be rendered in the
English language. For taxable years ending after December 31, 1994, with
respect to returns filed after December 31, 1995, all amounts furnished
under paragraph (c) of this section shall be expressed in United States
dollars computed and translated in conformity with United States
generally accepted accounting principles. Amounts furnished under
paragraph (c)(3)(i) of this section shall also be furnished in the
foreign corporation's functional currency as required on the form.
Information described in paragraphs (b)(10) and (c)(3) of this section
shall be submitted in such form or manner as the form shall prescribe.
If an individual who is a United States person required to make a return
with respect to a foreign corporation under section 6046 is entitled
[[Page 355]]
under a treaty to be treated as a nonresident of the United States, and
if the individual claims this treaty benefit, and if there are no other
United States persons that are required to furnish information under
section 6046 with respect to the foreign corporation, then the
individual may satisfy the requirements of paragraphs (b)(10), (11) and
(12), (c)(3)(ii)(d), and (g) of this section by filing the audited
foreign financial statements of the foreign corporation with the
individual's return required under section 6046.
(h) Actual ownership of stock. If any shareholder, referred to in
this section, is not the actual owner of the stock of the foreign
corporation, the information required under this section shall be
furnished in the name of and by such actual owner. For example, in the
case of stock held by a nominee, the information required under this
section shall be furnished by the actual owner of such stock.
(i) Constructive ownership of stock--(1) In general. Stock owned
directly or indirectly by or for a foreign corporation or a foreign
partnership shall be considered as being owned proportionately by its
shareholders or partners. Thus, any United States person who is a member
of a nonresident foreign partnership which becomes a shareholder in a
foreign corporation shall be considered to be a shareholder in such
foreign corporation to the extent of his proportionate share in such
partnership.
(2) Members of family. An individual shall be considered as owning
the stock owned directly or indirectly by or for his brothers and
sisters (whether by the whole or half blood), his spouse, his ancestors,
and his lineal descendants. However, when stock is treated as owned by
an individual under the rule provided in this subparagraph, it shall not
be treated as owned by him for the purpose of again applying such rule
in order to make another the constructive owner of such stock. The
provisions of this subparagraph may be illustrated by the following
example:
Example. H, W, and HF are United States citizens. W, wife of H, owns
20 percent of the value of the outstanding stock of X, a foreign
corporation. X Corporation owns 90 percent of the value of the
outstanding stock of Y Corporation, a foreign corporation. Y Corporation
becomes the owner of 50 percent of the value of the outstanding stock of
each of two newly organized foreign corporations, M and N. In applying
the ``members of family'' rule, H is considered to own 20 percent of the
value of the outstanding stock of X Corporation, and 18 percent of the
value of the outstanding stock of Y Corporation, and 9 percent of M
Corporation and N Corporation. However, HF, the father of H, is not
considered to own stock of X, Y, M, or N since his son, H, is not
treated as the owner of such stock for purposes of again applying the
``members of family'' rule.
(j) Time and place for filing return--(1) Time for filing. Any
return required by section 6046 and this section shall be filed on or
before the 90th day after the date on which a United States citizen,
resident, or person becomes liable to file such return under any
provision of section 6046(a) and of paragraph (a), (b), or (c) of this
section. With respect to returns filed after September 3, 1982, such
return shall be filed on or before such later date (if any) as may be
authorized by the return form. The Director of the Internal Revenue
Service Center where the return is required to be filed is authorized to
grant reasonable extensions of time for filing returns under section
6046 and this section in accordance with the applicable provisions of
section 6081(a) and Sec. 1.6081-1.
(2) Place for filing. Returns required by section 6046 and this
section shall be filed with the Internal Revenue Service Center
designated in the instructions of the applicable form.
(k) Penalties. (1) For criminal penalties for failure to file a
return and filing a false or fraudulent return, see sections 7203, 7206,
and 7207.
(2) For civil penalty for failure to file return, or failure to show
information required on a return, under this section, see section 6679.
(l)(1) Effective/applicability date. Paragraph (f)(3) of this
section applies to taxable years ending after April 9, 2008.
(2) Paragraph (c)(1)(iii) of this section applies to taxable years
ending on or after December 31, 2013.
(3) Paragraph (e)(5) of this section applies to returns filed on or
after December 31, 2013. See paragraph (e)(5) of Sec. 1.6046-1, as
contained in 26 CFR part 1
[[Page 356]]
revised as of April 1, 2012, for returns filed before December 31, 2013.
(Approved by the Office of Management and Budget under control number
1545-0794)
[T.D. 6623, 27 FR 11882, Dec. 1, 1962, as amended by T.D. 6997, 34 FR
932, Jan. 22, 1969; T.D. 7322, 39 FR 30932, Aug. 27, 1974; T.D. 7925, 48
FR 55454, Dec. 13, 1983; T.D. 8573, 59 FR 64302, Dec. 14, 1994; T.D.
8733, 62 FR 53385, Oct. 14, 1997; T.D. 9194, 70 FR 18946, Apr. 11, 2005;
T.D. 9391, 73 FR 19376, Apr. 9, 2008; T.D. 9650, 78 FR 79611, Dec. 31,
2013; 79 FR 26837, May 12, 2014; T.D. 9806, 81 FR 95470, Dec. 28, 2016]
Sec. 1.6046A-1 Return requirement for United States persons who
acquire or dispose of an interest in a foreign partnership, or
whose proportional interest in a foreign partnership changes
substantially
.
(a) Return requirement--(1) General rule. If a United States person
has a reportable event (as defined in paragraph (b)(1) of this section)
during the person's tax year, then, except as provided in paragraph (f)
of this section, the United States person is required to complete and
file Form 8865, ``Return of U.S. Persons With Respect to Certain Foreign
Partnerships,'' containing the information described in paragraph (c) of
this section.
(2) Separate return for each partnership. If a United States person
has a reportable event with respect to an interest in more than one
foreign partnership, the United States person must file a separate Form
8865 for each foreign partnership.
(b) Definitions--(1) Reportable event. There are three categories of
reportable events under section 6046A: acquisitions, dispositions, and
changes in proportional interests.
(i) Acquisitions. A United States person that acquires a foreign
partnership interest has a reportable event if--
(A) The person did not own a ten-percent or greater direct interest
in the partnership and as a result of the acquisition the person owns a
ten-percent or greater direct interest in the partnership. For purposes
of this paragraph (b)(1)(i)(A), an acquisition includes an increase in a
person's direct proportional interest; or
(B) Subject to paragraph (b)(2) of this section, compared to the
person's direct interest when the person last had a reportable event,
after the acquisition the person's direct interest has increased by at
least a ten-percent interest.
(ii) Dispositions. A United States person that disposes of a foreign
partnership interest has a reportable event if--
(A) The person owned a ten-percent or greater direct interest in the
partnership before the disposition and as a result of the disposition
the person owns less than a ten-percent direct interest. For purposes of
this paragraph (b)(1)(ii)(A), a disposition includes a decrease in a
person's direct proportional interest; or
(B) Subject to paragraph (b)(2) of this section, compared to the
person's direct interest when the person last had a reportable event,
after the disposition the person's direct interest has decreased by at
least a ten-percent interest.
(iii) Changes in proportional interests not otherwise reportable as
acquisitions or dispositions under paragraph (b)(1)(i)(A) or
(b)(1)(ii)(A) of this section. A United States person has a reportable
event if, subject to paragraph (b)(2) of this section, compared to the
person's direct proportional interest the last time the person had a
reportable event, the person's direct proportional interest has
increased or decreased by at least the equivalent of a ten-percent
interest.
(2) Special rule for foreign partnership interests owned on December
31, 1999. If a United States person owned a ten-percent or greater
direct interest in a foreign partnership on December 31, 1999, then to
determine whether the person has a reportable event under paragraph
(b)(1)(i)(B), (b)(1)(ii)(B), or (b)(1)(iii) of this section, the
comparison should be made to the person's direct interest on December
31, 1999. Once the person has a reportable event after December 31,
1999, future comparisons should be made by reference to the last
reportable event.
(3) Change in a proportional interest. A partner's proportional
interest in a foreign partnership may change for a number of reasons,
for example, the change may be caused by changes in other partners'
interests resulting from a partner withdrawing from the partnership. A
proportional change may also occur by operation of the partnership
agreement, for example, if the
[[Page 357]]
partnership agreement provides that a partner's interest in profits will
change on a set date or when the partnership has earned a specified
amount of profits and one of those events occurs.
(4) Ten-percent interest. Under section 6046A(d) and this section, a
ten-percent interest in a foreign partnership, as described in section
6038(e)(3)(C) and the regulations thereunder, means an interest equal to
ten percent of the capital interest in such partnership, an interest
equal to ten percent of the profits interest in such partnership, or an
interest to which ten percent of the deductions or losses of such
partnership are allocated.
(5) United States person. United States person means a person
described in section 7701(a)(30).
(6) Foreign partnership. Foreign partnership means any partnership
that is a foreign partnership under sections 7701(a)(2) and (5).
(7) Examples. The rules of paragraph (a) of this section and this
paragraph (b) are illustrated by the following examples:
Example 1. Acquisition of an indirect interest. FP, a foreign
partnership, has two partners, FC1 and FC2, both foreign corporations.
FC1 owns a 40% interest in FP, and FC2 owns a 60% interest in FP. No
United States person owns an interest in FP, either directly, or
constructively under section 6038(e)(3)(C) and section 267(c). On
January 1, 2001, US, a United States person and calendar year taxpayer,
acquires by purchase 100% of FC2's stock. US has acquired an indirect
interest of 60% in FP. See sections 6038(e)(3)(C) and 267(c)(1).
However, US is not required to report the January 1, 2001 indirect
acquisition under section 6046A. US did not own a 10% or greater direct
interest in FP before the acquisition, and US does not own a 10% or
greater direct interest as a result of the acquisition. (US must,
however, comply with the reporting requirements under section 6038
(controlled foreign corporation and controlled foreign partnership
reporting) with respect to FC2 and FP.)
Example 2. Acquisition of direct interests. (i) Assume the same
facts as Example 1. In addition, on June 1, 2001, US purchases a 5%
direct interest in FP from FC1. US did not own a 10% or greater direct
interest in FP before the acquisition. After the acquisition, US does
not own a direct interest of 10% or more. US owns a 10% or greater total
interest (direct and indirect), but only a 5% direct interest.
Therefore, US is not required to report the June 1, 2001, acquisition
under section 6046A.
(ii) On September 1, 2001, US purchases a 7% direct interest in FP
from FC1. The September 1, 2001 acquisition constitutes a reportable
event under paragraph (b)(1)(i)(A) of this section. Before the September
1 acquisition, US did not own a 10% or greater direct interest in FP.
After the September 1 acquisition, US owns a 12% direct interest, and
therefore, as a result of the September 1 acquisition, US now owns a 10%
or greater direct interest in FP. Consequently, US must report its
September 1 acquisition under section 6046A on Form 8865 filed with US's
2001 income tax return.
(iii) On December 1, 2001, US acquires an additional 4% direct
interest in FP from FC1, so that US's total direct interest has
increased from 12% to 16%. This acquisition does not constitute a
reportable event. Compared to US's direct interest when US last had a
reportable event (12% on September 1, 2001), after acquiring the 4%
interest US's direct interest has not increased by at least a 10% direct
interest (i.e., its direct interest increased by only 4%). Therefore, US
does not have to report the December 1, 2001, acquisition under section
6046A. On April 1, 2002, FC2 distributes a 6% direct interest in FP to
US. US now owns a 22% direct interest in FP. Compared to US's direct
interest when US last had a reportable event (12% on September 1, 2001),
after the April 1 acquisition US's direct interest has increased by at
least a 10% interest (12% to 22%). US must report the April 1, 2002
acquisition on a Form 8865 attached to US's 2002 income tax return.
Example 3. Change in proportional interest resulting from withdrawal
of a partner. Assume the same facts as Example 3. In addition, on
January 5, 2003, FC2 withdraws entirely from FP. As a result, the direct
interests of US and FC1 in FP each increase by at least the equivalent
of 10% interests. Compared to US's direct interest the last time US had
a reportable event (22% on April 1, 2002), US's direct interest has
increased by at least the equivalent of a ten percent interest.
Therefore, US has had a reportable event pursuant to paragraph
(b)(1)(iii) of this section, and US must report the change in its
interest resulting from FC2's withdrawal from the partnership on US's
Form 8865 filed with US's 2003 tax year income tax return.
Example 4. Change in proportional interest constituting an
acquisition. FP is a foreign partnership that has no United States
persons as direct or constructive partners. US is a United States person
and a calendar year taxpayer. On January 1, 2001, US purchases an 8%
direct interest in FP. US is not required to report this acquisition. US
did not own a 10% or greater direct interest in FP, and US does not own
a 10% or greater direct interest as a result of the acquisition. On
March 1, 2001, FC, a foreign partner of FP, withdraws from FP, and as
result, US's direct interest in FP increases by a 7% interest.
[[Page 358]]
The increase in US's direct interest is considered an acquisition of an
interest under paragraph (b)(1)(i)(A) of this section. US did not own a
10% or greater direct interest in FP before FC withdrew, and as a result
of the increase in US's direct interest because of FC's withdrawal from
FP, US now owns a 10% or greater direct interest in FP. Therefore, US
must report under section 6046A the increase in US's direct interest
resulting from the withdrawal of FC from FP on Form 8865 filed with US's
tax return for US's 2001 tax year.
(c) Content of return. The Form 8865 that must be filed under
paragraph (a)(1) of this section must contain the following information
in such form and manner and to the extent that Form 8865 and its
instructions prescribe--
(1) The name, address, and taxpayer identification number of the
United States person required to file the return;
(2) Information about other persons (foreign or domestic) whose
interests in the foreign partnership the person reporting under section
6046A is considered to own under section 6038(e)(3)(C) and section
267(c);
(3) Information about all foreign entities that were disregarded as
entities separate from their owners under Sec. Sec. 301.7701-2 and
301.7701-3 of this chapter that were owned by the foreign partnership
during the partnership's tax year ending with or within the tax year of
the person filing Form 8865 pursuant to section 6046A;
(4) For each reportable event, the date of the event, the type of
event (acquisition, disposition, or change in proportional interest),
and the United States person's direct percentage interest in the foreign
partnership immediately before and immediately after the event;
(5) The fair market value of the interest acquired or disposed of;
(6) Information about partnerships (foreign and domestic) in which
the foreign partnership owned a direct interest, or a constructive
interest of ten percent or more under sections 267(c)(1) and (5) and the
regulations thereunder, during the partnership's tax year ending with or
within the tax year of the person filing Form 8865 pursuant to section
6046A; and
(7) Any other information required to be submitted by Form 8865 and
its instructions.
(d) Time and manner for filing returns. The Form 8865 must be filed
with the timely filed (including extensions) income tax return of the
United States person for the tax year in which the reportable event
occurs. If the United States person is not required to file an income
tax return for its tax year in which the reportable event occurs, but is
required to file an information return for that year (for example, Form
1065, ``U.S. Partnership Return of Income,'' or Form 990, ``Return of
Organization Exempt from Income Tax''), the United States person should
attach the Form 8865 to its information return filed for that tax year.
(e) Duplicate returns. If required by the instructions to Form 8865,
a duplicate Form 8865 (including attachments and schedules) must also be
filed.
(f) Persons excepted from filing return--(1) Section 6038B overlap.
If a United States person acquires an interest in a foreign partnership
as a result of a section 721 contribution required to be reported under
section 6038B, and the person properly reports the contribution under
section 6038B, then the United States person is not required to report
the acquisition of the partnership interest under section 6046A(a)
should it constitute a reportable event under paragraph (b)(1) of this
section. The acquisition will still constitute a reportable event for
purposes of making future comparisons pursuant to paragraphs
(b)(1)(i)(B), (b)(1)(ii)(B) and (b)(1)(iii) of this section. A person
that fails to properly report the section 721 contribution under section
6038B and the regulations thereunder and that fails to properly report
the acquisition of the partnership interest under section 6046A may be
subject to the penalties applicable to a failure to comply with the
requirements of section 6038B, as well as the penalties applicable for a
failure to comply with the requirements of section 6046A. See paragraph
(h) of this section for more information about the penalties for failure
to comply with the requirements of section 6046A.
(2) Trusts relating to state and local government employee
retirement plans. The return requirement of section 6046A does not apply
to trusts relating
[[Page 359]]
to state and local government employee retirement plans, unless the
instructions to Form 8865 provide otherwise.
(3) Reporting under this section not required of partnerships
excluded from the application of subchapter K. The reporting
requirements of this section will not apply to any United States person
in respect of an eligible partnership as described in Sec. 1.761-2(a)
in which that United States person is a partner, if such partnership has
validly elected to be excluded from all of the provisions of subchapter
K of chapter 1 of the Internal Revenue Code in the manner specified in
Sec. 1.761-2(b)(2)(i), or is deemed to have elected to be excluded from
all of the provisions of subchapter K of chapter 1 of the Internal
Revenue Code in accordance with the provisions of Sec. 1.761-
2(b)(2)(ii).
(4) Exclusion for satellite organizations. The return requirement of
section 6046A does not apply to the International Telecommunications
Satellite Organization (or a successor organization) or the
International Maritime Satellite Organization (or a successor
organization).
(g) Method of reporting. Except as otherwise provided on Form 8865,
or the accompanying instructions, any amounts required to be reported
under section 6046A and this section must be expressed in United States
dollars, with a statement of the exchange rates used. All statements
required on or with Form 8865 pursuant to this section must be in
English.
(h) Penalties for violating section 6046A. For penalties for
violating section 6046A, see sections 6679 and 7203.
(i) Statute of limitations. For exceptions to the limitations on
assessment in the event of a failure to provide information under
section 6046A, see section 6501(c)(8).
(j) Effective date. This section applies to reportable events
occurring after December 31, 1999. No reporting under section 6046A is
required for reportable events occurring on or before December 31, 1999.
[T.D. 8851, 64 FR 72556, Dec. 28, 1999]
Sec. 1.6046-2 Returns as to foreign corporations which are created
or organized, or reorganized, on or after September 15, 1960,
and before January 1, 1963.
(a) Requirement of returns. In the case of any foreign corporation
which is created or organized, or reorganized, on or after September 15,
1960, and before January 1, 1963:
(1) Each United States citizen or resident who was an officer or
director of such corporation at any time within 60 days after such
creation or organization, or reorganization, and
(2) Each United States shareholder of such corporation by or for
whom, at any time within 60 days after such creation or organization, or
reorganization, 5 percent or more in value of such corporation's then
outstanding stock was owned directly or indirectly (including, in the
case of an individual stock owned by members of his family),
shall file a return on Form 959 (Rev. Oct. 1960), United States
Information Return With Respect to the Creation or Organization, or
Reorganization, of a Foreign Corporation.
(b) Information required to be shown on return. The return required
by section 6046, prior to its amendment by section 20(b) of the Revenue
Act of 1962, and this section shall set forth the following information:
(1) The name and address of the person (or persons) filing the
return, and an indication that he is a United States shareholder,
officer, or director;
(2) The name and business address of the foreign corporation;
(3) The name of the country under the laws of which the foreign
corporation was created or organized, or reorganized;
(4) The name and address of the foreign corporation's statutory or
resident agent in the country of incorporation;
(5) The date of the foreign corporation's creation or organization,
or reorganization;
(6) A statement of the manner in which the creation or organization,
or reorganization, of the foreign corporation was effected;
(7) A complete statement of the reasons for, and the purposes sought
to be
[[Page 360]]
accomplished by, the creation or organization, or reorganization, of the
foreign corporation;
(8) A statement showing the classes and kinds of assets transferred
to the foreign corporation in connection with its creation or
organization, or reorganization, including a list completely describing
each asset or group of assets, its value, date of transfer, and the name
and address of person (or persons) owning such asset or group
immediately prior to the transfer;
(9) A statement showing the assets transferred and the securities
issued by the foreign corporation in its creation or organization or
reorganization, as well as the name and address of each person to whom
such a transfer or issuance was made;
(10) A statement specifying the amount and type of any indebtedness
due from the foreign corporation to each of its shareholders and the
name of each such shareholder;
(11) The names and addresses of the shareholders of the foreign
corporation at the time of its creation or organization or
reorganization, and the classes of stock and number of shares held by
each;
(12) The names and addresses of subscribers to the stock of the
foreign corporation, and the number of shares subscribed to by each; and
(13) The name and address of the person (or persons) having custody
of the books of account and records of the foreign corporation, and the
location of such books and records if different from such address.
(c) Time and place for filing return. The return required by section
6046, prior to its amendment by section 20(b) of the Revenue Act of
1962, and this section shall be filed with the Internal Revenue Service
Center designated in the instructions of the applicable form. Such
return shall be filed on or before the 90th day after the date such
foreign corporation is created or organized, or reorganized.
[T.D. 6623, 27 FR 11882, Dec. 1, 1962, as amended by T.D. 7322, 39 FR
30932, Aug. 27, 1974]
Sec. 1.6046-3 Returns as to formation or reorganization of foreign
corporations prior to September 15, 1960.
(a) Requirement of returns. Every attorney, accountant, fiduciary,
bank, trust company, financial institution, or other person, who, on or
before September 14, 1960, aids, assists, counsels, or advises in, or
with respect to, the formation, organization, or reorganization of any
foreign corporation shall file an information return on Form 959 (as in
use prior to the October 1960 revision). The return must be filed in
every such case regardless of:
(1) The nature of the counsel or advice given, whether for or
against the formation, organization, or reorganization of the foreign
corporation, or the nature of the aid or assistance rendered, and
(2) The action taken upon the advice or counsel, that is, whether
the foreign corporation is actually formed, organized or reorganized.
(b) Special provisions--(1) Employers. In the case of aid,
assistance, counsel, or advice in, or with respect to, the formation,
organization, or reorganization of a foreign corporation given by a
person in whole or in part through the medium of employees (including,
in the case of a corporation, the officers thereof), the return made by
the employer must set forth in detail the information required by this
section including that which, as an incident to such employment, is
within the possession or knowledge or under the control of such
employees.
(2) Employees. The obligation of an employee (including, in the case
of a corporation, the officers thereof) to file a return with respect to
any aid, assistance, counsel, or advice in or with respect to the
formation, organization, or reorganization of a foreign corporation,
given as an incident to his employment, will be satisfied if a return as
prescribed by this section is duly filed by the employer. Clerks,
stenographers, and other employees rendering aid or assistance solely of
a clerical or mechanical character in or with respect to the formation,
organization, or reorganization of a foreign corporation are not
required to file returns by reason of such services.
[[Page 361]]
(3) Partners. In the case of aid, assistance, counsel, or advice in,
or with respect to, the formation, organization, or reorganization of a
foreign corporation given by one or more members of a partnership in the
course of its business, the obligation of each such individual member to
file a return will be satisfied if a return as prescribed by this
section is duly filed by the partnership executed by all the members of
the firm who gave any such aid, assistance, counsel, or advice. If,
however, the partnership has been dissolved at the time the return is
due, individual returns must be filed by each member of the former
partnership who gave any such aid, assistance, counsel, or advice.
(4) Return jointly made. If two or more persons aid, assist,
counsel, or advise in, or with respect to, the formation, organization,
or reorganization of a particular foreign corporation, any two or more
of such persons may, in lieu of filing several returns, jointly execute
and file one return.
(5) Separate return for each corporation. If a person aids, assists,
counsels, or advises in, or with respect to, the formation,
organization, or reorganization of more than one foreign corporation, a
separate return must be filed with respect to each foreign corporation.
(c) Information required to be shown on return. The return required
by section 6046, prior to its amendment by section 7(a) of the Act of
September 14, 1960, and this section shall set forth the following
information to the extent the information is within the possession or
knowledge, or under the control, of the person filing the return:
(1) The name and address of the person (or persons) to whom, and the
person (or persons) for whom, or on whose behalf, the aid, assistance,
counsel, or advice was given;
(2) The name and address of the foreign corporation and the country
under the laws of which it was formed, organized, or reorganized;
(3) The month and year when the foreign corporation was formed,
organized, or reorganized;
(4) A statement of the manner in which the formation, organization,
or reorganization of the foreign corporation was effected;
(5) A complete statement of the reasons for, and the purposes sought
to be accomplished by, the formation, organization, or reorganization of
the foreign corporation;
(6) A statement showing the classes and kinds of assets transferred
to the foreign corporation in connection with its formation,
organization, or reorganization, including a detailed list of any stock
or securities included in such assets, and a statement showing the names
and addresses of the persons who were the owners of such assets
immediately prior to the transfer;
(7) The names and addresses of the shareholders of the foreign
corporation at the time of the completion of its formation,
organization, or reorganization, showing the classes of stock and number
of shares held by each and, in the case of Forms 959 filed after
December 31, 1958, the names and addresses of the subscribers to the
stock of the foreign corporation and the number of shares subscribed to
by each;
(8) The name and address of the person (or persons) having custody
of the books of account and records of the foreign corporation; and
(9) Such other information as is required by the return form.
(d) Privileged communications. An attorney-at-law is not required to
file a return with respect to any advice given or information obtained
through the relationship of attorney and client.
(e) Time and place for filing return--(1) Time for filing. Returns
required by section 6046, prior to its amendment by section 7(a) of the
Act of September 14, 1960, and this section shall be filed within 30
days after the first performance of any of the functions referred to in
paragraph (a) of this section. If in a particular case, the aid,
assistance, counsel, or advice given by any person extends over a period
of more than one day, such person, to avoid multiple filing of returns,
shall file a return within 30 days after either of the following events:
(i) The formation, organization, or reorganization of the foreign
corporation, or
(ii) The termination of his aid, assistance, counsel, or advice in,
or with respect to, the formation, organization,
[[Page 362]]
or reorganization of the foreign corporation.
(2) Place for filing. Returns required by section 6046 of the
Internal Revenue Code of 1954 and this section shall be filed with the
Internal Revenue Service Center designated in the instructions of the
applicable form.
(f) Penalties. For criminal penalties for failure to file a return
and filing a false or fraudulent return, see sections 7203, 7206, and
7207.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6623, 27 FR
11882, Dec. 1, 1962; T.D. 7322, 39 FR 30932, Aug. 27, 1974]
Sec. 1.6047-1 Information to be furnished with regard to employee
retirement plan covering an owner-employee.
(a) Trustees and insurance companies--(1) Requirement of return. (i)
Every trustee of a trust described in section 401(a) and exempt from tax
under section 501(a) which makes payments of amounts described in
subparagraph (2) of this paragraph aggregating $10 or more during any
calendar year to an individual (or his beneficiary) who was covered,
within the meaning of paragraph (a)(2) of Sec. 1.401-10, as an owner-
employee under the plan of which such trust is a part shall make a
return on Forms 1096 and 1099 for such year showing the name and address
of the person to whom paid, the aggregate amount of such payments,
specifically identified as an amount to which this paragraph applies,
and such other information as is required by the forms. A separate Form
1099 shall be filed with respect to each payee. The term ``owner-
employee'' means an owner-employee as defined in section 401(c)(3) and
paragraph (d) of Sec. 1.401-10. Any custodial account which satisfies
the requirements of section 401(f) shall be treated as a qualified trust
and the custodian of such a custodial account must comply with the
requirements of this section as if he were the trustee.
(ii) Every issuer of a contract which is treated as an annuity
contract under sections 401 through 404 purchased by a trust described
in section 401(a) and exempt from tax under section 501(a) or under a
plan described in section 403(a) which makes payments of amounts
described in subparagraph (2) of this paragraph aggregating $10 or more
during any calendar year to an individual (or his beneficiary) who was
covered, within the meaning of paragraph (a)(2) of Sec. 1.401-10, as an
owner-employee under the plan of which such trust is a part or under
which such contract was purchased shall make a return on Forms 1096 and
1099 for such year showing the name and address of the person to whom
paid, the aggregate amount of such payments, specifically identified as
an amount to which this paragraph applies, and such other information as
is required by the form. A separate Form 1099 shall be filed with
respect to each payee.
(2) Amounts subject to this section. The amounts subject to
reporting under subparagraph (1) of this paragraph include all amounts
distributed or made available to which section 402(a) (relating to
employees' trusts) or section 403(a) (relating to employee annuity
plans) applies, whether or not such amounts are includible in gross
income and whether or not attributable to contributions made while the
individual to whom they relate was an owner-employee. However, amounts
subject to reporting do not include any amounts distributed or made
available by the trustee of any trust or the issuer of any contract
under any plan with respect to which he has not received the
notification provided in either subparagraph (3) of this paragraph or
paragraph (b) of this section. Amounts distributed or made available
under the plan include, for example, amounts received by the individual
as loans on contracts purchased under the plan, and payments made to the
individual by reason of the surrender of contracts purchased under the
plan, whether or not prior to their maturity.
(3) Notification by trustee. The trustee of any trust described in
section 401(a) and exempt from tax under section 501(a) who receives
notification from any owner-employee that contributions have been made
to the trust on behalf of that owner-employee as an owner-employee shall
notify in writing the issuer of any contract which is treated as an
annuity contract under sections 401 through 404 purchased by the trust
for the benefit of that owner-employee that such contributions have been
made to such trust. Such notification
[[Page 363]]
shall be delivered to such issuer at the time such contract is purchased
or within 90 days after the notification required by paragraph (b) of
this section is received by the trustee, whichever is later. Only one
such notification must be made with respect to any contract.
(4) Record keeping. Any trustee, insurance company, or other person,
which is referred to in subparagraph (1) of this paragraph and which is
notified under section 6047(b) that contributions to the trust or under
the plan have been made on behalf of an owner-employee shall maintain a
record of such notification until all funds of the trust or under the
plan on behalf of the owner-employee have been distributed.
(5) Inclusion of other payments. The Form 1099 filed under this
section by any person with respect to payments to another person during
a calendar year may, at the election of the maker, include other
payments made by him to such other person during such year which are
required to be reported on Form 1099.
(6) Time and place for filing. The return required under this
section for any calendar year shall be filed after the close of that
year and on or before February 28 (March 31 if filed electronically) of
the following year with any of the Internal Revenue Service Centers, the
addresses of which are listed in the instructions for Form 1096. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(b) Notification by owner-employee. Any owner-employee on behalf of
whom contributions are made to a trust described in section 401(a) and
exempt under section 501(a) or under a plan described in section 403(a)
shall notify in writing:
(1) The trustee of such a trust, or
(2) The issuer of any contract which is treated as an annuity
contract under sections 401 through 404 under such plan,
that such contributions have been made to such trust or plan. Such
notification shall be delivered to such trustee or such issuer during
the first calendar year in which such contributions are made or on or
before February 28 of the year following such year. Only one such
notification must be made with respect to any contract or any trust.
(c) Penalties. For civil penalty for failure to file a return
required by this section, and for criminal penalty for furnishing
fraudulent information under this section, see Sec. Sec. 301.6652-3 and
301.7207-1 respectively.
(d) Permission to submit information required by Form 1099 on
magnetic tape. For rules relating to permission to submit the
information required by Form 1099 on magnetic tape or other media, see
Sec. 1.9101-1.
[T.D. 6677, 28 FR 10147, Sept. 17, 1963, as amended by T.D. 6883, 31 FR
6589, May 3, 1966; T.D. 7551, 43 FR 29292, July 7, 1978; T.D. 8895, 65
FR 50407, Aug. 18, 2000]
Sec. 1.6047-2 Information relating to qualifying longevity annuity
contracts.
(a) Requirement and form of report--(1) In general. Any person
issuing any contract that is intended to be a qualifying longevity
annuity contract (QLAC), defined in A-17 of Sec. 1.401(a)(9)-6, shall
make the report required by this section. This requirement applies only
to contracts purchased or held under any plan, annuity, or account
described in section 401(a), 403(a), 403(b), or 408 (other than a Roth
IRA) or eligible governmental plan under section 457(b).
(2) Annual report. The issuer shall make annual calendar-year
reports on the applicable form prescribed by the Commissioner for this
purpose concerning the status of the contract. The report shall identify
that the contract is intended to be a QLAC and shall contain the
following information--
(i) The name, address, and identifying number of the issuer of the
contract, along with information on how to contact the issuer for more
information about the contract;
(ii) The name, address, and identifying number of the individual in
whose name the contract has been purchased;
(iii) If the contract was purchased under a plan, the name of the
plan, the plan number, and the Employer Identification Number (EIN) of
the plan sponsor;
(iv) If payments have not yet commenced, the annuity starting date
on
[[Page 364]]
which the annuity is scheduled to commence, the amount of the periodic
annuity payable on that date, and whether that date may be accelerated;
(v) For the calendar year, the amount of each premium paid for the
contract and the date of the premium payment;
(vi) The total amount of all premiums paid for the contract through
the end of the calendar year;
(vii) The fair market value of the QLAC as of the close of the
calendar year; and
(viii) Such other information as the Commissioner may require.
(b) Manner and time for filing--(1) Timing. The report required by
paragraph (a)(2) of this section shall be filed in accordance with the
forms and instructions prescribed by the Commissioner. Such a report
must be filed for each calendar year beginning with the year in which
premiums for a contract are first paid and ending with the earlier of
the year in which the individual in whose name the contract has been
purchased attains age 85 (as adjusted pursuant to A-17(d)(2)(ii) of
Sec. 1.401(a)(9)-6) or dies.
(2) Surviving spouse. If the individual dies and the sole
beneficiary under the contract is the individual's spouse (in which case
the spouse's annuity would not be required to commence until the
individual would have commenced benefits under the contract had the
individual survived), the report must continue to be filed for each
calendar year until the calendar year in which the distributions to the
spouse commence or in which the spouse dies, if earlier.
(c) Issuer statements. Each issuer required to file the annual
report required by paragraph (a)(2) of this section shall furnish to the
individual in whose name the contract has been purchased a statement
containing the information required to be included in the report, except
that such statement shall be furnished to a surviving spouse to the
extent that the report is required to be filed under paragraph (b)(2) of
this section. A copy of the required form may be used to satisfy the
statement requirement of this paragraph (c). If a copy of the required
form is not used to satisfy the statement requirement of this paragraph
(c), the statement shall contain the following language: ``This
information is being furnished to the Internal Revenue Service.'' The
statement required by this paragraph (c) shall be furnished on or before
January 31 following the calendar year for which the report required by
paragraph (a)(2) of this section is required.
(d) Penalty for failure to file report. Section 6652(e) prescribes a
penalty for failure to file the report required by paragraph (a)(2) of
this section.
(e) Effective/applicability date. This section applies to contracts
purchased on or after July 2, 2014.
[T.D. 9673, 79 FR 37643, July 2, 2014]
Sec. 1.6049-1 Returns of information as to interest paid in calendar
years before 1983 and original issue discount includible in gross
income for calendar years before 1983.
(a) Requirement of reporting--(1) In general. (i) Every person who
makes payments of interest (as defined in Sec. 1.6049-2) aggregating
$10 or more to any other person during a calendar year before 1983 shall
make an information return on Forms 1096 and 1099 for such calendar year
showing the aggregate amount of such payments, the name and address of
the person to whom paid, the total of such payments for all persons, and
such other information as is required by the forms. In the case of
interest paid during calendar years beginning with 1963 and continuing
until such time as the Commissioner determines that it is feasible to
aggregate payments on two or more accounts, insurance contracts, or
investment certificates and this subdivision is amended accordingly to
provide for reporting on an aggregate basis, the requirement of this
subdivision for the filing of Form 1099 will be met if a person making
payments of interest to another person on two or more such accounts,
insurance contracts, or investment certificates, files a separate Form
1099 with respect to each such account, contract, or certificate on
which $10 or more of interest is paid to such other person during the
calendar year. In the case of evidences of indebtedness described in
section 6049(b)(1)(A), separate Forms 1099 may be filed as provided in
the preceding sentence with
[[Page 365]]
respect to holdings in different issues. Thus, if a bank pays to a
person interest totaling $15 on one account and $20 on a second account,
it may file separate Forms 1099 with respect to the payments of $15 and
$20. If the interest on the second account totaled $5 instead of $20, no
return would be required with respect to the $5.
(ii)(a) Every person which is a corporation that has outstanding any
bond, debenture, note, or certificate or other evidence of indebtedness
(referred to in this section and Sec. 1.6049-2 as an obligation) in
``registered form'' (as defined in paragraph (d) of Sec. 1.6049-2)
issued after May 27, 1969 (other than an obligation issued by a
corporation pursuant to a written commitment which was binding on May
27, 1969, and at all times thereafter) and on or before December 31,
1982, as to which there is during any calendar year before 1983 an
amount of original issue discount (as defined in Sec. 1.6049-2)
aggregating $10 or more includible as interest in the gross income for
such calendar year of any holder (determined, if semiannual record date
reporting is being used under (b)(1) of this subdivision, by treating
each holder as holding the obligation on every day it was outstanding
during the calendar year), shall make an information return on Forms
1096 and 1099-OID for such calendar year showing the following:
(1) The name and address of each record holder for whom such
aggregate amount of original issue discount is $10 or more and, for
calendar years subsequent to 1972, the account, serial, or other
identifying number of each obligation for which a return is being made.
(2) The aggregate amount of original issue discount includible by
each such holder for the period during the calendar year for which the
return is made (or, if the aggregation rules of (b)(2) of this
subdivision are being used, that he held the obligations). If however,
the semiannual record date reporting rules are being used under (b)(1)
of this subdivision, such aggregate amount shall be determined by
treating each such record date holder as if he held each such obligation
on every day it was outstanding during the calendar year. For purposes
of this section, an obligation shall be considered to be outstanding
from the date of original issue (as defined in paragraph (b)(3) of Sec.
1.1232-3). In the case of a time deposit open account arrangement to
which paragraph (e)(5) of Sec. 1.1232-3A applies, for example, the
amount to be shown under this subdivision (2) on the Forms 1096 and
1099-OID is the sum (computed under such paragraph (e)(5)) of the
amounts separately computed for each deposit made pursuant to the
arrangement.
(3) The issue price of the obligation (as defined in paragraph
(b)(2) of Sec. 1.1232-3).
(4) The stated redemption price of the obligation at maturity (as
defined in paragraph (b)(1)(iii) of Sec. 1.1232-3).
(5) The ratable monthly portion of original issue discount with
respect to the obligation as defined in section 1232(a)(3)(A)
(determined without regard to a reduction for a purchase allowance or
whether the holder purchased at a premium).
(6) The name and address of the person filing the form.
(7) Such other information as is required by the form. And,
(8) The sum, for all such holders of the aggregate amounts of such
original issue discount includible for such calendar year for each such
holder.
(b) With respect to any obligation (other than an obligation to
which paragraph (e) or (f) of Sec. 1.1232-3A applies (relating
respectively to deposits in banks and similar financial institutions and
to face-amount certificates)), the issuing corporation (or an agent
acting on its behalf):
(1) Shall be permitted (until this subdivision (1) is amended) to
prepare a Form 1099-OID only for each person who is a holder of record
of the obligation on the semiannual record date (if any) used by the
corporation (or agent) for the payment of stated interest or, if there
is no such date, the semiannual record dates shall be considered to be
June 30, and December 31.
(2) Shall be permitted to aggregate all original issue discount with
respect to 2 or more obligations of the same issue for which the amounts
specified in (a)(2), (a)(3), (a)(4), and (a)(5) of this subdivision are
proportional and, therefore, may file one Form 1099-OID
[[Page 366]]
for all such obligations being aggregated, except that for calendar year
1971 this aggregation rule shall apply only where such specified amounts
are identical. For an illustration of proportional aggregation, see
example (4) in (d) of this subdivision.
(c) In any case in which any one holder of a particular obligation
for the calendar year held such obligation on more than one record date,
only one Form 1099-OID shall be filed for that year with respect to that
holder and that obligation. This provision applies only in the case in
which any corporation prepares Forms 1099-OID in accordance with the
record date reporting rule of (b)(1) of this subdivision.
(d) The requirements of (a)(3), (a)(4), and (a)(5) of this
subdivision shall not apply to a time deposit open account arrangement
to which paragraph (e)(5) of Sec. 1.1232-3A applies, or to a face-
amount certificate to which paragraph (f) of Sec. 1.1232-3A applies.
(e) The provisions of this subdivision (ii) may be illustrated by
the following examples:
Example 1. On January 1, 1971, a corporation issued a 10-year bond
in registered form which pays stated interest to the holder of record on
June 30 and December 31. The bond has an issue price (as defined in
paragraph (b)(2) of Sec. 1.1232-3) of $7,600, a stated redemption price
(as defined in paragraph (b)(1) of Sec. 1.1232-3) at maturity of
$10,000, and a ratable monthly portion of original issue discount (as
defined in section 1232(a)(3)(A)) of $20. The corporation's books
indicate that A was the holder of record on June 30, 1971, and B was the
holder on December 31, 1971. Under (b)(1) of this subdivision, the
corporation is permitted to file separate Forms 1099-OID for both A and
B showing, on each form, all items required by (a) of this subdivision,
including the total original issue discount of $240 for the entire
calendar year (which includes original issue discount for all holders),
the issue price of $7,600, the stated redemption price at maturity of
$10,000, and the ratable monthly portion of original issue discount of
$20.
Example 2. Assume the facts stated in Example (1), except that A is
recorded on the books of the corporation as holding the bond on June 30
and December 31, 1971. The corporation shall complete and file only one
Form 1099-OID for A.
Example 3. Assume the facts stated in Example (1), except that the
books of the corporation show that A held 2 of the bonds at all times in
1971. The amounts of the items listed in (a)(2), (a)(3), (a)(4), and
(a)(5) of this subdivision are identical for the 2 bonds. Under (b)(2)
of this subdivision, the corporation is permitted to treat the 2 bonds
as one for purposes of completing and filing a Form 1099-OID for 1971
and aggregate the amounts being reported.
Example 4. On January 1, 1972, a corporation issued to C 3 bonds in
registered form of the same issue with stated redemption prices of
$1,000, $5,000, and $10,000. The aggregate amounts of original issue
discount for each year, the issue prices, the stated redemption prices,
and the monthly portions of original issue discount are the same for
each $1,000 of stated redemption price. Thus, all relevant amounts for
any one bond are proportional to such amounts for any other bond.
Therefore, so long as C holds the bonds the corporation shall be
permitted to aggregate on one Form 1099-OID all original issue discount
with respect to such obligations in accordance with (b)(2) of this
subdivision.
Example 5. On June 1, 1971, a corporation issues a 10-year bond to
D, for which the ratable monthly portion of original issue discount is
$10. For 1971, the corporation uses the record date reporting system
permitted by (b)(1) of this subdivision. The corporation's books show
that E held the bond on June 30, 1971, and that F held the bond on
December 31, 1971, the dates on which the corporation pays stated
interest on the bond. The corporation shall file a Form 1099-OID for
both E and F showing on each form the aggregate amount of original issue
discount includible for 1971 or $70 since E and F are each treated as if
each held the bond every day it was outstanding and it was outstanding 7
months in 1971. As to D, the corporation is not required to file a Form
1099-OID since D did not hold the bond on either of the 2 record dates.
(iii) Every person who during a calendar year before 1983 receives
payments of interest as a nominee on behalf of another person
aggregating $10 or more shall make an information return on Forms 1096
and 1087 for such calendar year showing the aggregate amount of such
interest, the name and address of the person on whose behalf received,
the total of such interest received on behalf of all persons, and such
other information as is required by the forms.
(iv) Except with respect to an obligation to which paragraph (e) or
(f) of Sec. 1.1232-3A applies (relating respectively to deposits in
banks and similar financial institutions and to face-amount
certificates), every person who is a nominee on behalf of the actual
owner of an obligation as to which
[[Page 367]]
there is original issue discount aggregating $10 or more includible in
the gross income of such owner during a calendar year before 1983,
regardless of whether he receives a Form 1099-OID with respect to such
discount, shall make an information return on Forms 1096 and 1087-OID
for such calendar year showing in the manner prescribed on such forms
the same information for the actual owner as is required or permitted in
subdivision (ii) of this subparagraph for the record holder.
(v) Notwithstanding the provisions of subdivisions (iii) and (iv) of
this subparagraph, the filing of Form 1087 or Form 1087-OID is not
required if:
(a) The record owner is required to file a fiduciary return on Form
1041 disclosing the name, address, and identifying number of the actual
owner;
(b) The record owner is a nominee of a banking institution or trust
company exercising trust powers, and such banking institution or trust
company is required to file a fiduciary return on Form 1041 disclosing
the name, address, and identifying number of the actual owner; or
(c) The record owner is a banking institution or trust company
exercising trust powers, or a nominee thereof, and the actual owner is
an organization exempt from taxation under section 501(a) for which such
banking institution or trust company files an annual return,
but only if the name, address, and identifying number of the record
owner are included on or with the Form 1041 fiduciary return filed for
the estate or trust or the annual return filed for the tax exempt
organization.
(vi) Every person carrying on the banking business who makes
payments of interest to another person (whether or not aggregating $10
or more) during a calendar year with respect to a certificate of deposit
issued in bearer form (other than such a certificate issued in an amount
of $100,000 or more) shall make an information return on Forms 1096 and
1099-BCD for such calendar year. The preceding sentence applies whether
such payments are made during the term of the certificate or at its
redemption. The information return required by this subdivision for the
calendar year shall show the following:
(a) The name, address, and taxpayer identification number of the
person to whom the interest is paid;
(b) The aggregate amount of interest paid to such person during the
calendar year with respect to the certificate of deposit;
(c) The name, address, and taxpayer identification number of the
person to whom the certificate was originally issued;
(d) The portion of the interest with respect to the certificate
reported under (b) that is attibutable to the current calendar year; and
(e) Such other information as is required by the form.
The application of this subdivision (vi) may be illustrated by the
following examples:
Example 1. On June 1, 1978, X Bank issues a $1,000 bearer
certificate of deposit to A. The certificate of deposit is not
redeemable until May 31, 1979, and no interest is to be paid on the
instrument until its redemption. On September 1, 1978. A transfers the
bearer certificate to B and on May 31, 1979, B presents the certificate
to X for payment and receives the $1,000 principal amount plus all the
accrued interest. Under paragraph (a)(1)(vi) of this section, X is not
required to make an information return for 1978 with respect to the
bearer certificate of deposit because no interest is actually paid to a
holder of the certificate during 1978. X is required to file an
information return for 1979 with respect to the certificate, identifying
B as the payee of the entire amount of the interest and A as the
original purchaser of the certificate. (For rules relating to statements
to be made to recipients of interest payments, see Sec. 1.6049-3.)
Example 2. On July 1, 1978, Y Bank issues a $5,000 bearer
certificate of deposit to C. The certificate of deposit is not
redeemable until June 30, 1981, and no interest is to be paid on the
instrument until its redemption. C holds the certificate for the entire
term and on June 30, 1981, presents it to Y for payment and receives the
$5,000 principal amount plus the accrued interest. Under paragraph
(a)(1)(vi) of this section, Y is not required to file an information
return for calendar years 1978, 1979, or 1980 with respect to this
bearer certificate of deposit because no interest is acutally paid to C
during those calendar years. Y is required to file an information return
for 1981 with respect to the certificate identifying C as the payee of
the entire amount of the interest and as the original purchaser.
(Although Y is not required to file an information return for interest
paid on the certificate until its redemption in 1981, C
[[Page 368]]
must report as income on his tax returns for 1978, 1979, 1980, and 1981
the ratable portion of such interest includible in income under section
1232.)
(2) Definitions. (i) The term ``person'' when used in this section
does not include the United States, a State, the District of Columbia, a
foreign government, a political subdivision of a State or of a foreign
government, or an international organization. Therefore, interest paid
by or to one of these entities need not be reported. Similarly, original
issue discount in respect of an obligation issued by or to one of these
entities need not be reported.
(ii) For purposes of this section, a person who receives interest
shall be considered to have received it as a nominee if he is not the
actual owner of such interest and if he was required under Sec. 1.6109-
1 to furnish his identifying number to the payer of the interest (or
would have been so required if the total of such interest for the year
had been $10 or more), and such number was (or would have been) required
to be included on an information return filed by the payer with respect
to the interest. However, a person shall not be considered to be a
nominee as to any portion of an interest payment which is actually owned
by another person whose name is also shown on the information return
filed by the payer or nominee with respect to such interest payment.
Thus, in the case of a savings account jointly owned by a husband and
wife, the husband will not be considered as receiving any portion of the
interest on that account as a nominee for his wife if his wife's name is
included on the information return filed by the payer with respect to
the interest.
(iii) For purposes of this section, in the case of a person who
receives a Form 1099-OID, the determination of who is considered a
nominee shall be made in a manner consistent with the principles of
subdivision (ii) of this subparagraph.
(iv) For purposes of this section and Sec. 1.6049-3, the term
``Form 1099-OID'' means the appropriate Form 1099 for original issue
discount prescribed for the calendar year.
(3) Determination of person to whom interest is paid or for whom it
is received. For purposes of applying the provisions of this section,
the person whose identifying number is required to be included by the
payer of interest on an information return with respect to such interest
shall be considered the person to whom the interest is paid. In the case
of interest received by a nominee on behalf of another person, the
person whose identifying number is required to be included on an
information return made by the nominee with respect to such interest
shall be considered the person on whose behalf such interest is received
by the nominee. Thus, in the case of interest made payable to a person
other than the record owner of the obligation with respect to which the
interest is paid, the record owner of the obligation shall be considered
the person to whom the interest is paid for purposes of applying the
reporting requirements of this section, since his identifying number is
required to be included on the information return filed under such
section by the payer of the interest. Similarly, if a stockbroker
receives interest on a bond held in street name for the joint account of
a husband and wife, the interest is considered as received on behalf of
the husband since his identifying number should be shown on the
information return filed by the nominee under this section. Thus, if the
wife has a separate account with the same stockbroker, any interest
received by the stockbroker for her separate account should not be
aggregated with the interest received for the joint account for purposes
of information reporting. For regulations relating to the use of
identifying numbers, see Sec. 1.6109-1.
(4) Determination of person by whom original issue discount is
includible or for whom a Form 1099-OID showing original issue discount
is received. For purposes of applying the provisions of this section,
the determination of the person by whom original issue discount is
includible or for whom a Form 1099-OID is received shall be made in a
manner consistent with the principles of subparagraph (3) of this
paragraph.
(5) Inclusion of other payments. The Form 1099 filed by any person
with respect to payments of interest to another person during a calendar
year
[[Page 369]]
prior to 1972 may, at the election of the maker, include payments other
than interest made by him to such other person during such year which
are required to be reported on Form 1099. Similarly, the Form 1087 filed
by a nominee with respect to payments of interest received by him on
behalf of any other person during a calendar year prior to 1972 may
include payments of dividends received by him on behalf of such person
during such year which are required to be reported on Form 1087.
However, except as provided in subparagraph (1)(ii)(b) of this
paragraph, a separate Form 1087-OID or 1099-OID shall be filed for each
obligation in respect of which original issue discount is required to be
reported for any calendar year before 1983. In addition, any person
required to report payments on both Forms 1087, 1087-OID, 1099, and
1099-OID, for any calendar year may use one Form 1096 to summarize and
transmit such forms.
(b) When payment deemed made. For purposes of section 6049, interest
is deemed to have been paid when it is credited or set apart to a person
without any substantial limitation or restriction as to the time or
manner of payment or condition upon which payment is to be made, and is
made available to him so that it may be drawn at any time, and its
receipt brought within his own control and disposition.
(c) Time and place for filing--(1) Payment of interest. The returns
required under this section for any calendar year for the payment of
interest shall be filed after September 30 of such year, but not before
the payer's final payment for the year, and on or before February 28 of
the following year with any of the Internal Revenue Service Centers, the
addresses of which are listed in the instructions for Form 1096. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(2) Original issue discount. (i) The returns required under this
section for any calendar year for original issue discount shall be filed
after December 31 of such year and on or before February 28 of the
following year with any of the Internal Revenue Service Centers, the
addresses of which are listed in the instructions for Form 1096. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(ii) The time for filing returns for the calendar year 1971 required
under this section for original issue discount in respect of obligations
to which paragraph (e) of Sec. 1.1232-3A applies (relating to deposits
in banks and other similar financial institutions) is extended to April
15, 1972.
(d) Penalty. For penalty for failure to file the statements required
by this section, see Sec. 301.6652-1 of this chapter (Regulations on
Procedure and Administration).
(e) Permission to submit information required by Form 1087 or 1099
on magnetic tape. For rules relating to permission to submit the
information required by Form 1087 or 1099 on magnetic tape or other
media, see Sec. 1.9101-1.
(Secs. 6049 (a), (b), and (d) and 7805 of the Internal Revenue Code of
1954 (96 Stat. 592, 594; 26 U.S.C. 6049 (a), (b), and (d); 68A Stat.
917, 26 U.S.C. 7805), and in sec. 309 of the Tax Equity and Fiscal
Responsibility Act of 1982 (96 Stat. 591)
[T.D. 6628, 27 FR 12800, Dec. 28, 1962, as amended by T.D. 6879, 31 FR
3494, Mar. 8, 1966; T.D. 6883, 31 FR 6589, May 8, 1966; T.D. 7000, 34 FR
996, Jan. 23, 1969, T.D. 7154, 36 FR 25009, Dec. 28, 1971; 37 FR 527,
Jan. 13, 1972; T.D. 7311, 39 FR 11881, Apr. 1, 1974; T.D. 7584, 44 FR
1103, Jan. 4, 1979; T.D. 7881, 48 FR 12968, Mar. 28, 1983]
Sec. 1.6049-2 Interest and original issue discount subject to
reporting in calendar years before 1983.
(a) Interest in general. Except as provided in paragraph (b) of this
section, the term ``interest'' when used in this section and Sec. Sec.
1.6049-1 and 1.6049-3 means:
(1) Interest on evidences of indebtedness issued by a corporation in
``registered form'' (as defined in paragraph (d) of this section). The
phrase ``evidences of indebtedness'' includes bond, debentures, notes,
certificates and other similar instruments regardless of how
denominated.
(2) Interest on deposits (except deposits evidenced by negotiable
time certificates of deposit issued in an amount of $100,000 or more)
paid (or credited) by persons carrying on the banking business. In the
case of a certificate of deposit issued in bearer form, the term
``interest'', as used in the preceding
[[Page 370]]
sentence and in paragraph (a)(1)(vi) of Sec. 1.6049-1, has the same
meaning as in Sec. 1.61-7 (regardless of whether taxable to the payee
in the year the information return is made).
(3) Amounts, whether or not designated as interest, paid (or
credited) by mutual savings banks, savings and loan associations,
building and loan associations, cooperative banks, homestead
associations, credit unions, or similar organizations in respect of
deposits, face amount certificates, investment certificates, or
withdrawable or repurchasable shares. Thus, even though amounts paid or
credited by such organizations with respect to deposits are designated
as ``dividends'', such amounts are included in the definition of
interest for purposes of section 6049.
(4) Interest on amounts held by insurance companies under agreements
to pay interest thereon. This includes interest paid by insurance
companies with respect to policy ``dividend'' accumulations (see
sections 61 and 451 and the regulations thereunder for rules as to when
such interest is considered paid), and interest paid with respect to the
proceeds of insurance policies left with the insurer. The so-called
``interest element'' in the case of annuity or installment payments
under life insurance or endowment contracts does not constitute interest
for purposes of this section.
(5) Interest on deposits with stockbrokers, bondbrokers, and other
persons engaged in the business of dealing in securities.
(b) Exceptions. The term ``interest'' when used in section 6049 does
not include:
(1) Interest on obligations described in section 103(a) (1) or (3),
relating to certain governmental obligations.
(2) Any payment by:
(i) A foreign corporation,
(ii) A nonresident alien individual, or
(iii) A partnership composed in whole or in part of nonresident
aliens,
if such corporation, individual, or partnership is not engaged in trade
or business within the United States and does not have an office or
place of business or a fiscal or paying agent in the United States.
(3) Any interest which is subject to withholding under section 1441
or 1442 (relating to withholding of tax on nonresident aliens and
foreign corporations, respectively) by the person making the payment, or
which would be so subject to withholding but for the provisions of a
treaty, or for the fact that under section 861(a)(1) it is not from
sources within the United States, or for the fact that withholding is
not required by reason of paragraph (a) or (f) of Sec. 1.1441-4.
(4) In the case of a nominee, any interest which he receives and
with respect to which he is required to withhold under section 1441 or
1442, or would be so required to withhold but for the provisions of a
treaty, or for the fact that under section 861(a)(1) it is not from
sources within the United States, or for the fact that withholding is
not required by reason of paragraph (a) or (f) of Sec. 1.1441-4.
(5) Any amount on which the person making the payment is required to
deduct and withhold a tax under section 1451 (relating to tax-free
covenant bonds), or would be so required but for section 1451(d)
(relating to benefit of personal exemptions).
(6) Any amount which is subject to reporting as original issue
discount.
(c) Original issue discount--(1) In general. The term ``original
issue discount'' when used in this section and Sec. Sec. 1.6049-1 and
1.6049-3 means original issue discount subject to the ratable inclusion
rules of paragraph (a) of Sec. 1.1232-3A, determined without regard to
any reduction by reason of a purchase allowance under paragraph
(a)(2)(ii) of Sec. 1.1232-3A or a purchase at a premium as defined in
paragraph (d)(2) of Sec. 1.1232-3.
(2) Coordination with interest reporting. In the case of an
obligation issued after May 27, 1969 (other than an obligation issued
pursuant to a written commitment which was binding on May 27, 1969, and
at all times thereafter) and on or before December 31, 1982, original
issue discount which is not subject to the reporting requirements of
paragrah (a)(1)(ii) of Sec. 1.6049-1 is interest within the meaning of
pargraph (a) of this section. Original issue discount which is subject
to the reporting requirements of paragraph (a)(1)(ii) of Sec. 1.6049-1
is not
[[Page 371]]
interest within the meaning of paragraph (a) of this section.
(3) Exceptions. Reporting of original issue discount is not required
in respect of an obligation which paragraph (b)(2) of this section
except from interest reporting.
(d) Definition of ``in registered form.'' For purposes of Sec.
1.6049-1 and this section, an evidence of indebtedness is in registered
form if it is registered as to both principal and interest (or, for
purposes of reporting with respect to original issue discount, if it is
registered as to principal) and if its transfer must be effected by the
surrender of the old instrument and either the reissuance by the
corporation of the old instrument to the new holder or the issuance by
the corporation of a new instrument to the new holder.
(Secs. 6049 (a), (b), and (d) and 7805 of the Internal Revenue Code of
1954 (96 Stat. 592, 594; 26 U.S.C. 6049 (a), (b), and (d); 68A Stat.
917, 26 U.S.C. 7805), and in sec. 309 of the Tax Equity and Fiscal
Responsibility Act of 1982 (96 Stat. 591)
[T.D. 6628, 27 FR 12801, Dec. 28, 1962, as amended by T.D. 6908, 31 FR
16774, Dec. 31, 1966; T.D. 6966, 33 FR 11262, Aug. 8, 1968; T.D. 7154,
36 FR 25011, Dec. 28, 1971; T.D. 7584, 44 FR 1104, Jan. 4, 1979; T.D.
7881, 48 FR 12968, Mar. 28, 1983]
Sec. 1.6049-3 Statements to recipients of interest payments
and holders of obligations to which there is attributed original
issue discount in calendar years before 1983.
(a) Requirement. Every person filing (1) a Form 1099 or 1087 under
section 6049(a)(1) and Sec. 1.6049-1 with respect to payments of
interest or (2) a Form 1099-OID or 1087-OID with respect to original
issue discount includible in gross income, shall furnish to the person
whose identifying number is (or should be) shown on the form a written
statement showing the information required by paragraph (b) of this
section. With respect to interest, no statement is required to be
furnished under section 6049(c) and this section to any person if the
aggregate of the payments to (or received on behalf of) such person
shown on the form would be less than $10. With respect to original issue
discount, no statement is required to be furnished under section 6049(c)
and this section to any person if the aggregate amount of original issue
discount on the statement to such person with respect to the obligation
would be less than $10. References in this section to Form 1099 shall be
construed to include Form 1099-BCD, except that in applying paragraph
(b)(2) of this section no information relating to the person to whom the
certificate of deposit was originally issued shall be disclosed to
another person to whom the payment of interest is made.
(b) Form of statement--(1) In general. The written statement
required to be furnished to a person under paragraph (a) of this section
shall show:
(i) With respect to payments of interest (as defined in Sec.
1.6049-2) aggregating $10 or more to any person during a calendar year
before 1983:
(a) The aggregate amount of payments shown on the Form 1099 or 1087
as having been made to (or received on behalf of) such person and a
legend stating that such amount is being reported to the Internal
Revenue Service, and
(b) The name and address of the person filing the form, and
(ii) With respect to original issue discount (as defined in Sec.
1.6049-2) which would aggregate $10 or more on the statement to the
holder during a calendar year after 1970 and prior to calendar year
1983:
(a) The aggregate amount or original issue discount includible by
(or on behalf of) such person with respect to the obligation, as shown
on Form 1099-OID or Form 1087-OID for such calendar year (determined by
applying the rules of paragraph (a)(1)(ii) of Sec. 1.6049-1 for
purposes of completing either form),
(b) All other items shown on such Form 1099-OID or Form 1087-OID for
such calendar year (so determined), and
(c) A legend stating that such amount and such items are being
reported to the Internal Revenue Service.
(2) Special rule. The requirements of this section for the
furnishing of a statement to any person, including the legend
requirement of this paragraph, may be met by the furnishing to such
person of a copy of the Form 1099, 1099-OID, 1087, or 1087-OID filed
pursuant to Sec. 1.6049-1, or a reasonable facsimile
[[Page 372]]
thereof, in respect of such person. However, in the case of Form 1087-
OID or 1099-OID, a copy of the instructions must also be sent to such
person. A statement shall be considered to be furnished to a person
within the meaning of this section if it is mailed to such person at his
last known address.
(c) Time for furnishing statements--(1) In general--(i) Payment of
interest. Each statement required by this section to be furnished to any
person for a calendar year for the payment of interest shall be
furnished to such person after November 30 of the year and on or before
January 31 of the following year, but no statement may be furnished
before the final interest payment for the calendar year has been paid.
However, the statement may be furnished at any time after April 30 if it
is furnished with the final interest payment for the calendar year.
(ii) Original issue discount. (a) Except as otherwise provided in
this subdivision (ii), each statement required by this section to be
furnished to any person for a calendar year for original issue discount
shall be furnished to such person after December 31 of the year and on
or before January 31 of the following year.
(b) The time for furnishing each statement required by this section
to be furnished to any person for the calendar year 1971 for original
issue discount in respect of obligations to which paragraph (e) of Sec.
1.1232-3A applies (relating to deposits in banks and other similar
financial institutions) is extended to March 15, 1972.
(c) The time for furnishing each statement required by this section
to be furnished by a nominee to any person for the calendar year 1971
for original issue discount is extended to February 28, 1972.
(2) Extensions of time. For good cause shown upon written
application of the person required to furnish statements under this
section, the district director may grant an extension of time not
exceeding 30 days in which to furnish such statements. The application
shall be addressed to the district director with whom the income tax
returns of the applicant are filed and shall contain a full recital of
the reasons for requesting the extension to aid the district director in
determining the period of the extension, if any, which will be granted.
Such a request in the form of a letter to the district director signed
by the applicant will suffice as an application. The application shall
be filed on or before the date prescribed in subparagraph (1) of this
paragraph for furnishing the statements required by this section.
(3) Last day for furnishing statement. For provisions relating to
the time for performance of an act when the last day prescribed for
performance falls on Saturday, Sunday, or a legal holiday, see Sec.
301.7503-1 of this chapter (Regulations on Procedure and
Administration).
(d) Penalty. For provisions relating to the penalty provided for
failure to furnish a statement under this section see Sec. 301.6678-1
of this chapter (Regulations on Procedure and Administration).
(Secs. 6049 (a), (b), and (d) and 7805 of the Internal Revenue Code of
1954 (96 Stat. 592, 594; 26 U.S.C. 6049 (a), (b), and (d); 68A Stat.
917, 26 U.S.C. 7805), and in sec. 309 of the Tax Equity and Fiscal
Responsibility Act of 1982 (96 Stat. 591)
[T.D. 6628, 27 FR 12801, Dec. 28, 1962, as amended by T.D. 7154, 36 FR
25011, Dec. 28, 1971; 37 FR 527, Jan. 13, 1972; T.D. 7584, 44 FR 1104,
Jan. 4, 1979; T.D. 7624, 44 FR 31012, May 30, 1979; T.D. 7881, 48 FR
12968, Mar. 28, 1983]
Sec. 1.6049-4 Return of information as to interest paid and original
issue discount includible in gross income after December 31, 1982.
(a) Requirement of reporting--(1) In general. Except as provided in
paragraph (c) of this section, an information return shall be made by a
payor, as defined in paragraph (a)(2) of this section, of amounts of
interest and original issue discount paid after December 31, 1982. Such
return shall contain the information described in paragraph (b) of this
section.
(2) Payor. For payments made after December 31, 2002, a payor is a
person described in paragraph (a)(2)(i) or (ii) of this section.
(i) Every person who makes a payment of the type and of the amount
subject to reporting under this section (or under an applicable section
under this chapter) to any other person during a calendar year.
[[Page 373]]
(ii) Every person who collects on behalf of another person payments
of the type and of the amount subject to reporting under this section
(or under an applicable section under this chapter), or who otherwise
acts as a middleman (as defined in paragraph (f)(4) of this section)
with respect to such payment.
(b) Information to be reported--(1) Interest payments. Except as
provided in paragraphs (b)(3) and (5) of this section, in the case of
interest other than original issue discount treated as interest under
Sec. 1.6049-5(f), an information return on Form 1099 shall be made for
the calendar year showing the aggregate amount of the payments, the
name, address, and taxpayer identification number of the person to whom
paid, the amount of tax deducted and withheld under section 3406 from
the payments, if any, and such other information as required by the
forms. An information return is generally not required if the amount of
interest paid to a person aggregates less than $10 or if the payment is
made to a person who is an exempt recipient described in paragraph
(c)(1)(ii) of this section, unless the payor backup withholds under
section 3406 on such payment (because, for example, the payee (i.e.,
exempt recipient) has failed to furnish a Form W-9 on request), in which
case the payor must make a return under this section, unless the payor
refunds the amount withheld pursuant to Sec. 31.6413(a)-3 (Employment
Tax Regulations). For reporting interest paid to certain nonresident
alien individuals, see Sec. 1.6049-8.
(2) Original issue discount. Except as provided in paragraph (b)(3)
and (b)(5) of this section, in the case of original issue discount, an
information return on Forms 1096 and 1099 shall be made for each
calendar year of any holder of an obligation as to which there is
original issue discount includible in gross income aggregating $10 or
more. For calendar years before 1992, semiannual record date reporting
under Sec. 1.6049-1(a)(1)(ii)(b)(1) may be used, and if it is used, the
original issue discount includible in gross income is determined by
treating each holder as holding the obligation on every day it was
outstanding during the calendar year. An information return shall be
made, however, in any case in which an amount of tax is required to be
deducted and withheld under section 3406. In such case, the amount
required to be reported is the amount subject to withholding even if the
amount of original issue discount includible in gross income is less
than $10. With respect to an obligation described in Sec. 1.1232-3A (e)
or (f) (relating respectively to deposits in banks and similar financial
institutions and to face-amount certificates), Sec. 1.6049-
1(a)(1)(ii)(d) and the last sentence of Sec. 1.6049-1(a)(1)(ii)(a)(2)
shall apply. The information return shall show:
(i) The name, address, and taxpayer identification number of each
record holder for whom an amount of original issue discount is
includible in gross income;
(ii) The account, serial, or other identifying number of each
obligation with respect to which a return is being made;
(iii) The aggregate amount of original issue discount includible in
the gross income of each holder for the period during the calendar year
for which the return is made (or, if the aggregation rules of Sec.
1.6049-1(a)(1)(ii)(b)(2) are being used, the aggregate amount or
original issue discount for the period such holder held the
obligations). For calendar years before 1992, semiannual record date
reporting under Sec. 1.6049-1(a)(1)(ii)(b)(1) may be used, and if it is
used, the original issue discount includible in gross income is
determined by treating each holder as holding the obligation on every
day it was outstanding during the calendar year. For purposes of this
section, an obligation shall be considered to be outstanding from the
date of original issue (as defined in Sec. 1.1232-3(b)(3));
(iv) The amount of tax withheld under section 3406, if any;
(v) The name and address of the person filing the return: and
(vi) Such other information as is required by the forms.
Section 1.6049-1(a)(1)(ii)(b)(2) and, for calendar years before
1992, Sec. 1.6049-1(a)(1)(ii)(b)(1), and (c), apply for purposes of
this paragraph.
(3) Returns made by middleman--(i) In general. Except as provided in
paragraph (b)(5) of this section, every person acting as a middleman (as
defined
[[Page 374]]
in paragraph (f)(4) of this section) shall make an information return
for the calendar year. In the case of interest payments (other than
original issue discount and other than interest described in Sec.
1.6049-8), the information return shall be made on Form 1099 and shall
show the aggregate amount of the interest, the name, address, and
taxpayer identification number of the person on whose behalf received,
the amount of tax withheld under section 3406, if any, and such other
information as required by the forms. In the case of original issue
discount, the information return shall show the information required to
be shown for the person on whose behalf received, as described in
paragraph (b)(2) of this section. See Sec. 1.6049-5(f) to determine
whether a middleman is required to make an information return with
respect to original issue discount. A middleman shall make an
information return regardless of whether the middleman receives a Form
1099. A middleman shall not be required to make an information return if
the payment of interest aggregates less than $10 or if the payment is
made to an exempt recipient described in paragraph (c)(1)(ii) of this
section, unless the payor backup withholds under section 3406 on such
payment (because, for example, the payee has failed to furnish a Form W-
9 on request), in which case the payor must make a return under this
section, unless the payor refunds the amount withheld pursuant to Sec.
31.6413(a)-3 of this chapter (Employment Tax Regulations).
(ii) Forwarding of interest coupons and original issue discount
obligations. In the case of a middleman who, from within the United
States, forwards an interest coupon or discount obligation on behalf of
a payee for presentation, collection or payment outside the United
States, the middleman shall make an information return on Form 1099 for
the calendar year showing, in the case of an interest coupon, the
information required under paragraph (b)(3)(i) of this section and, in
the case of a discount obligation, information required under paragraph
(b)(2) of this section. For purposes of this paragraph (b)(3)(ii), a
middleman is considered to forward an interest coupon or discount
obligation on behalf of a payee for presentation, collection or payment
outside the United States if the middleman forwards the coupon or
obligations outside the United States on or after the date when the
payee is entitled to be paid or at an earlier date that is within 90
days of such date or if the middleman has actual knowledge that the
coupon or obligation is being forwarded outside the United States for
presentation, collection, or payment outside the United States. However,
the transfer, although subject to information reporting under this
section, is not subject to backup withholding under section 3406.
(iii) Example. The following example illustrates the provisions of
paragraph (b)(3)(ii) of this section:
Example. Individual F, who is entitled to payment on an interest
coupon, instructs an office of Bank M in the United States to forward
the coupon to Bank N for collection by Bank N outside the United States.
Bank M in the United States forwards the interest coupon to Bank N
outside the United States. Bank M is required to make an information
return for the calendar year under paragraph (b)(3)(ii) of this section
showing the aggregate amount of the interest coupon forwarded, the name,
address of the permanent residence, and the taxpayer identification
number, if any, of Individual F and such other information as the form
requires.
(4) Returns made with respect to payments on certificates of deposit
issued in bearer form. Except as provided in paragraph (b)(5) of this
section, every person carrying on the banking business who makes
payments of interest to another person (whether or not aggregating $10
or more) during a calendar year with respect to a certificate of deposit
issued in bearer form shall make an information return on Forms 1096 and
1099. The information return shall show the information required in
Sec. 1.6049-1(a)(1)(vi) (a) through (e) inclusive and a statement as to
the amount of tax withheld under section 3406, if any.
(5) Interest payments to certain nonresident alien individuals--(i)
General rule. In the case of interest aggregating $10 or more paid to a
nonresident alien individual (as defined in section 7701(b)(1)(B)) that
is reportable under Sec. 1.6049-8(a), the payor shall make an
information return on Form 1042-S,
[[Page 375]]
``Foreign Person's U.S. Source Income Subject to Withholding,'' for the
calendar year in which the interest is paid. The payor or middleman
shall prepare and file Form 1042-S at the time and in the manner
prescribed by section 1461 and the regulations under that section and by
the form and its accompanying instructions. See Sec. Sec. 1.1461-1(b)
(rules regarding the preparation of a Form 1042) and 1.6049-6(e)(4)
(rules for furnishing a copy of the Form 1042-S to the recipient). To
determine whether an information return is required for original issue
discount, see Sec. Sec. 1.6049-5(f) and 1.6049-8(a).
(ii) Effective/applicability date. Paragraph (b)(5)(i) of this
section shall be applicable for payments made on or after January 1,
2013. (For interest paid to a Canadian nonresident alien individual on
or before December 31, 2012, see paragraph (b)(5) of this section as in
effect and contained in 26 CFR part 1 revised April 1, 2000.)
(c) Information returns not required--(1) Payment to exempt
recipient--(i) In general. No information return is required with
respect to any payment made to an exempt recipient described in
paragraph (c)(1)(ii) of this section, except to the extent otherwise
provided in Sec. 1.6049-5(d)(3) (ii) and (iii). However, if the payor
backup withholds under section 3406 on such payment (because, for
example, the payee has failed to furnish a Form W-9 on request), then
the payor is required to make a return under this section, unless the
payor refunds the amount withheld in accordance with Sec. 31.6413(a)-3
of this chapter (Employment Tax Regulations).
(ii) Exempt recipient defined. The term exempt recipient means any
person described in paragraphs (c)(1)(ii)(A) through (Q) of this
section. An exempt recipient is generally exempt from information
reporting without filing a certificate claiming exempt status unless the
provisions of this paragraph (c)(1)(ii) require a payee to file a
certificate.
A payor may, in any case, require a payee that is a U.S. person not
otherwise required to file a certificate under this paragraph (c)(1)(ii)
to file a certificate in order to qualify as an exempt recipient. See
Sec. 31.3406(h)-3(a)(1)(iii) and (c)(2) of this chapter for the
certificate that a payee that is a U.S. person must provide when a payor
requires the certificate to treat the payee as an exempt recipient under
this paragraph (c)(1)(ii). A payor may treat a payee as an exempt
recipient based upon a properly completed form as described in Sec.
31.3406(h)-3(e)(2) of this chapter, its actual knowledge that the payee
is a person described in this paragraph (c)(1)(ii), or the indicators
described in this paragraph (c)(1)(ii).
(A) Corporation. A corporation, as defined in section 7701(a)(3),
whether domestic or foreign, is an exempt recipient. In addition, for
purposes of this paragraph (c)(1), the term corporation includes a
partnership all of whose members are corporations described in this
paragraph (c)(1), but only if the partnership files with the payor a
certificate stating that each member of the partnership meets one of the
requirements of paragraph (c)(1)(ii)(A) (1) through (4) of this section.
Absent actual knowledge otherwise, a payor may treat a payee as a
corporation (and, therefore, as an exempt recipient) if one of the
requirements of paragraph (c)(1)(ii)(A) (1), (2), (3), or (4), of this
section are met before a payment is made.
(1) The name of the payee contains an unambiguous expression of
corporate status that is Incorporated, Inc., Corporation, Corp., P.C.,
(but not Company or Co.) or contains the term insurance company,
indemnity company, reinsurance company, or assurance company, or its
name indicates that it is an entity listed as a per se corporation under
Sec. 301.7701-2(b)(8)(i) of this chapter.
(2) The payor has on file a corporate resolution or similar document
clearly indicating corporate status. For this purpose, a similar
document includes a copy of Form 8832, filed by the entity to elect
classification as an association under Sec. 301.7701-3(b) of this
chapter.
(3) The payor receives a Form W-9 which includes an EIN and a
statement from the payee that it is a domestic corporation.
(4) The payor 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.
[[Page 376]]
(B) Tax exempt organization--(1) In general. Any organization that
is exempt from taxation under section 501(a) is an exempt recipient. A
custodial account under section 403(b)(7) shall be considered an exempt
recipient under this paragraph. A payor may treat an organization as an
exempt recipient under this paragraph (c)(1)(ii)(B) without requiring a
certificate if the organization's name is listed in the compilation by
the Commissioner of organizations for which a deduction for charitable
contributions is allowed, if the name of the organization contains an
unambiguous indication that it is a tax-exempt organization, or if the
organization is known to the payor to be a tax-exempt organization.
(2) Examples. The application of the provisions of this paragraph
(c)(1)(ii)(B) may be illustrated by the following examples:
Example 1. The following persons maintain accounts at M Bank: N
College, O University, and P Church. M may treat N, O, and P as exempt
recipients even though such persons have not filed an exemption
certificate with M because the names of the organizations contain an
unambiguous indication that they are tax exempt organizations.
Example 2. Q is listed in the current edition of Internal Revenue
Service Publication 78 as an organization for which deductions are
permitted for charitable contributions under section 170(c). Such
listing has not been revoked by an announcement published in the
Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter). A
payor may treat Q as an exempt recipient even though Q has not filed an
exemption certificate with the payor.
Example 3. Employer R maintains a section 403(b)(7) custodial
account with Regulated Investment Company S on behalf of R's employees.
S may treat the account as an exempt recipient even though R or its
employees have not filed an exemption certificate with S.
(C) Individual retirement plan. An individual retirement plan as
defined in section 7701(a)(37) is an exempt recipient. A payor may treat
any such plan of which it is the trustee or custodian as an exempt
recipient under this paragraph (c)(1) without requiring a certificate.
(D) United States. The United States Government and any wholly-owned
agency or instrumentality thereof are exempt recipients. A payor may
treat a person as an exempt recipient under this paragraph (c)(1)
without requiring a certificate if the name of such person reasonably
indicates it is described in this paragraph (c)(1).
(E) State. A State, the District of Columbia, a possession of the
United States, a political subdivision of any of the foregoing, wholly-
owned agency or instrumentality of any one or more of the foregoing, and
a pool or partnership composed exclusively of any of the foregoing are
exempt recipients. A payor may treat a person as an exempt recipient
under this paragraph (c)(1) without requiring a certificate if the name
of such person reasonably indicates it is described in this paragraph
(c)(1) or if such person is known generally in the community to be a
State, the District of Columbia, a possession of the United States or a
political subdivision or a wholly-owned agency or instrumentality of any
one or more of the foregoing (for example, an account held in the name
of ``Town of S'' or ``County of T'' may be treated as held by an exempt
recipient under this paragraph (c)(1)(ii)(E)).
(F) Foreign government. A foreign government, a political
subdivision of a foreign government, and any wholly-owned agency or
instrumentality of either of the foregoing are exempt recipients. A
payor may treat a foreign government or a political subdivision thereof
as an exempt recipient under this paragraph (c)(1) without requiring a
certificate provided that its name reasonably indicates that it is a
foreign government or provided that it is known to the payor to be a
foreign government or a political subdivision thereof (for example, an
account held in the name of the ``Government of V'' may be treated as
held by a foreign government).
(G) International organization. An international organization and
any wholly-owned agency or instrumentality thereof are exempt
recipients. The term international organization shall have the meaning
ascribed to it in section 7701(a)(18). A payor may treat a payee as an
international organization without requiring a certificate if the payee
is designated as an international organization by executive
[[Page 377]]
order (pursuant to 22 U.S.C. 288 through 288(f)).
(H) Foreign central bank of issue. A foreign central bank of issue
is an exempt recipient. A foreign central bank of issue is a bank which
is by law or government sanction the principal authority, other than the
government itself, issuing instruments intended to circulate as
currency. See Sec. 1.895-1(b)(1). A payor may treat a person as a
foreign central bank of issue (and, therefore, as an exempt recipient)
without requiring a certificate provided that such person is known
generally in the financial community as a foreign central bank of issue
or if its name reasonably indicates that it is a foreign central bank of
issue.
(I) Securities or commodities dealer. A dealer in securities,
commodities, or notional principal contracts, that is registered as such
under the laws of the United States or a State or under the laws of a
foreign country is an exempt recipient. A payor may treat a dealer as an
exempt recipient under this paragraph (c)(1) without requiring a
certificate if the person is known generally in the investment community
to be a dealer meeting the requirements set forth in this paragraph
(c)(1) (for example, a registered broker-dealer or a person listed as a
member firm in the most recent publication of members of the National
Association of Securities Dealers, Inc.).
(J) Real estate investment trust. A real estate investment trust, as
defined in section 856 and Sec. 1.856-1, is an exempt recipient. A
payor may treat a person as a real estate investment trust (and,
therefore, as an exempt recipient) without requiring a certificate if
the person is known generally in the investment community as a real
estate investment trust.
(K) Entity registered under the Investment Company Act of 1940. An
entity registered at all times during the taxable year under the
Investment Company Act of 1940, as amended (15 U.S.C. 80a-1), (or during
such portion of the taxable year that it is in existence), is an exempt
recipient. An entity that is created during the taxable year will be
treated as meeting the registration requirement of the preceding
sentence provided that such entity is so registered at all times during
the taxable year for which such entity is in existence. A payor may
treat such an entity as an exempt recipient under this paragraph (c)(1)
without requiring a certificate if the entity is known generally in the
investment community to meet the requirements of the preceding sentence.
(L) Common trust fund. A common trust fund, as defined in section
584(a), is an exempt recipient. A payor may treat the fund as an exempt
recipient without requiring a certificate provided that its name
reasonably indicates that it is a common trust fund or provided that it
is known to the payor to be a common trust fund.
(M) Financial institution. A financial institution such as a bank,
mutual savings bank, savings and loan association, building and loan
association, cooperative bank, homestead association, credit union,
industrial loan association or bank, or other similar organization,
whether organized in the United States or under the laws of a foreign
country is an exempt recipient. A financial institution also includes a
clearing organization defined in Sec. 1.163-5(c)(2)(i)(D)(8) and the
Bank for International Settlements. A payor may treat any person
described in the preceding sentence as an exempt recipient without
requiring a certificate if the person's name (including a foreign name,
such as ``Banco'' or ``Banque'') reasonably indicates the payee is a
financial institution described in the preceding sentence. In the case
of a foreign person, a payor may also treat a person on such list as the
Internal Revenue Service may publish or approve (such as in the Thomson
Bank Directory or a list approved by the Federal Reserve Board).
(N) Trust. A trust which is exempt from tax under section 664(c)
(i.e., a charitable remainder annuity trust or a charitable remainder
unitrust) or is described in section 4947(a)(1) (relating to certain
charitable trusts) is an exempt recipient. A payor which is a trustee of
the trust may treat the trust as an exempt recipient without requiring a
certificate.
(O) Nominees or custodians. A nominee or custodian.
[[Page 378]]
(P) Brokers. A broker as defined in section 6045(c) and Sec.
1.6045-1(a)(1).
(Q) Swap dealers. A dealer in notional principal contracts as
defined in Sec. 1.446-3(c)(4)(iii).
(iii) Exempt recipient no longer exempt. Any person who ceases to be
an exempt recipient shall, no later than 10 days after such cessation,
notify the payor in writing when it ceases to be an exempt recipient
unless it reasonably appears that the person formerly qualifying as an
exempt recipient will not thereafter receive a reportable payment from
the payor. If a payor treats a person as an exempt recipient by
requiring the exempt recipient to file a certificate claiming exempt
status, that person shall revoke the certificate as provided in the
preceding sentence. If the exempt recipient terminates its relationship
with the payor prior to the time that the notice of change in status is
otherwise required, the exempt recipient is not required to notify the
payor. If, however, the person who formerly qualified as an exempt
recipient later reinstates the relationship with the payor, the person
must, prior to receiving a reportable payment from such relationship,
notify the payor that it no longer qualifies as an exempt recipient in
case the payor relies upon the previous treatment.
(2) Payments by certain middlemen. An information return shall not
be required if:
(i) The record owner is required to file a fiduciary return on Form
1041 disclosing the name, address, and taxpayer identification number of
the actual owner, and furnishes Form K-1 to each actual owner containing
the information required to be shown on the form, including amounts
withheld under section 3406;
(ii) The record owner is a nominee of a banking institution or trust
company exercising trust powers, and such banking institution or trust
company is required to file a fiduciary return on Form 1041 disclosing
the name, address, and identifying number of the actual owner, and
furnishes Form K-1 to each actual owner containing the information
required to be shown on the form, including amounts withheld under
section 3406;
(iii) The record owner is a banking institution or trust company
exercising trust powers, or a nominee thereof, and the actual owner is
an organization exempt from taxation under section 501(a) for which such
banking institution or trust company files an annual return, but only if
the name, address, and taxpayer identification number of the record
owner is included on or with the Form 1041 fiduciary return filed for
the estate or trust or the annual return filed for the tax exempt
organization.
(3) Coordination with reporting rules for widely held fixed
investment trusts under Sec. 1.671-5 of this chapter. See Sec. 1.671-5
for the reporting rules for widely held fixed investment trusts (as
defined under that section).
(4) Coordination of reporting with chapter 4 reporting or an
applicable IGA--(i) U.S. accounts reported by FFIs that are non-U.S.
payors. An information return shall not be required with respect to an
interest payment made by a participating FFI (including a reporting
Model 2 FFI), or registered deemed-compliant FFI (including a reporting
Model 1 FFI), that is a non-U.S. payor (as defined in Sec. 1.6049-
5(c)(5)) to an account holder of an account maintained by the FFI, when
the payment is not subject to withholding under chapter 4 or to backup
withholding under section 3406, and the conditions of paragraphs
(c)(4)(i)(A), (B), or (C) of this section, as applicable, are met. See
paragraph (c)(4)(iii) of this section for circumstances in which an FFI
may allocate a payment described in this paragraph (c)(4)(i) to a
chapter 4 withholding rate pool of U.S. payees.
(A) The FFI is a participating FFI (including a reporting Model 2
FFI) reporting the account holder of the U.S. account (as defined in
Sec. 1.1471-1(b)(133)) pursuant to either Sec. 1.1471-4(d)(3) or (5)
for the year in which the payment is made (including reporting of the
account holder's TIN).
(B) The FFI is a registered deemed-compliant FFI (other than a
reporting Model 1 FFI) reporting the account holder of the U.S. account
pursuant to the conditions of its applicable deemed-compliant status
under Sec. 1.1471-
[[Page 379]]
5(f)(1) for the year in which the payment is made (including reporting
of the account holder's TIN).
(C) The FFI is a reporting Model 1 FFI reporting the account holder
of the reportable U.S. account pursuant to an applicable Model 1 IGA for
the year in which the payment is made (including reporting of the
account holder's TIN).
(ii) Other accounts reported by FFIs under chapter 4. An information
return shall not be required under this section with respect to a
payment that is not subject to withholding under chapter 3 (as defined
in Sec. 1.1441-2(a)) or backup withholding under Sec. 31.3406(g)-1(e)
and that is made to a recalcitrant account holder of a participating FFI
or registered deemed-compliant FFI (or non-consenting U.S. account of a
reporting Model 2 FFI), provided that the FFI reports such account
holder in accordance with the classes of account holders described in
Sec. 1.1471-4(d)(6) for the year in which the payment is made. See
paragraph (c)(4)(iii) of this section for circumstances in which an FFI
may allocate a payment described in this paragraph (c)(4)(ii) to a
chapter 4 withholding rate pool of U.S. payees. In the case of a payment
made by an FFI that is a reporting Model 1 FFI, an information return
shall not be required with respect to a payment that is not subject to
withholding under chapter 3 or backup withholding under Sec.
31.3406(g)-1(e) and that is made to an account holder of the FFI if the
account--
(A) Has U.S. indicia for which appropriate documentation sufficient
to treat the account as held by other than a specified U.S. person has
not been provided pursuant to the due diligence requirements described
in an applicable Model 1 IGA, and
(B) Is therefore treated as a U.S. reportable account that the FFI
is required to report pursuant to the applicable Model 1 IGA.
(iii) Coordination of reporting exceptions with reporting of chapter
4 withholding rate pools. For purposes of paragraphs (c)(4)(i) and (ii)
of this section, a participating FFI (including a reporting Model 2 FFI)
or registered deemed-compliant FFI (including a reporting Model 1 FFI)
receiving a payment from another payor may provide a withholding
statement to the payor allocating the payment to a chapter 4 withholding
rate of pool of U.S. payees only if the payment is excepted from
reporting under paragraph (c)(4)(i) of this section or if the payment is
both excepted from reporting under paragraph (c)(4)(ii) of this section
and not subject to withholding under chapter 4. See Sec. 1.6049-
5(b)(14) (providing an exception from reporting under section 6049 to a
payor that has been furnished a withholding statement from an
participating FFI (including a reporting Model 2 FFI) or registered
deemed-compliant FFI (including a reporting Model 1 FFI) and that
allocates the payment to a chapter 4 withholding rate pool). Thus, for
example, a U.S. payor that is a participating FFI may not allocate a
payment to a chapter 4 withholding rate pool of U.S. payees on a
withholding statement described in Sec. 1.6049-5(b)(14) when the
payment is made to a U.S. account maintained by the FFI, regardless of
whether the FFI reports the account in accordance with Sec. 1.1471-
4(d)(3) because the U.S. payor is not excepted from reporting under this
section pursuant to paragraph (c)(4)(i) of this section.
(iv) Example. The application of the provisions of paragraphs
(c)(4)(ii) and (iii) of this section may be illustrated by the following
example:
Example. USP is a payor that makes an interest payment that is not a
withholdable payment (as defined in paragraph (f)(15) of this section)
to RM2, a U.S. payor and reporting Model 2 FFI. The payment is paid and
received outside of the United States and is not an amount subject to
withholding under chapter 3. RM2 receives the payment as an intermediary
with respect to a preexisting account held by A. RM2 has account
information with respect to A which includes U.S. indicia as described
in Sec. 1.1441-7(b)(5) or (8). A does not provide consent for RM2 to
report A's account. Under the presumption rules described in Sec.
1.6049-5(d)(2)(i), RM2 is required to treat A as a U.S. non-exempt
recipient. Despite this presumption rule, and because backup withholding
does not apply under Sec. 31.3406(g)-1(e), no information return shall
be required with respect to the payment under paragraph (c)(4)(ii) of
this section if A is reported by RM2 consistent with Sec. 1.1471-
4(d)(6) as a non-consenting account holder. Additionally, RM2 may
include A in the chapter 4 withholding rate pool of U.S. payees on the
withholding statement provided to USP consistent with the requirements
of paragraph (c)(4)(iii) of this section.
[[Page 380]]
(d) Special rules--(1) Aggregation of payments. For purposes of
paragraph (b) of this section, until such time as the Commissioner
determines that it is feasible to require aggregation of payments on two
or more accounts, insurance contracts, or investment certificates, and,
until this section is amended accordingly to provide for reporting on an
aggregate basis, the requirement for filing Form 1099 under this section
will be met if a person making payments of interest subject to reporting
files a separate Form 1099 with respect to each account, insurance
contract, or investment certificate. In the case of obligations
described in section 6049(b)(1)(A), separate Forms 1099 may be filed as
provided in the preceding sentence with respect to holdings in different
issues.
(2) Treatment of original issue discount. The amount of original
issue discount subject to reporting under section 6049 shall be the
amount of original issue discount includible in the gross income of any
holder that is treated as paid under Sec. 1.6049-5(f).
(3) Conversion into United States dollars of amounts paid in foreign
currency--(i) Conversion rules. When a payment is made in foreign
currency, the U.S. dollar amount of the payment shall be determined by
converting such foreign currency into U.S. dollars on the date of
payment at the spot rate (as defined in Sec. 1.988-1(d)(1)) or pursuant
to a reasonable spot rate convention. For example, a withholding agent
may use a month-end spot rate or a monthly average spot rate. A spot
rate convention must be used consistently with respect to all non-dollar
amounts withheld and from year to year. Such convention cannot be
changed without the consent of the Commissioner or the Commissioner's
delegate.
(ii) Special rule for Sec. 1.988-5(a) transactions where the payor
on both components of a qualified hedging transaction is the same
person--(A) In general. Interest or original issue discount on a
qualified debt instrument that is part of a qualified hedging
transaction under Sec. 1.988-5(a) shall be computed for section 6049
reporting purposes under the rules described in Sec. 1.988-5(a)(9)(ii)
if--
(1) The payor on the qualified debt instrument and the counterparty
to the Sec. 1.988-5(a) hedge are the same person; and
(2) The payee complies with the requirements of Sec. 1.988-5(a) and
so notifies its payor prior to the date required for filing Form 1099 as
required by this section.
(B) Effective date. The provisions of this paragraph (d)(3)(ii)
apply to transactions entered into after December 31, 2000.
(4) Determination of person to whom interest or original issue
discount is paid or for whom it is received. Section 1.6049-1(a)(3) and
(4) shall apply with respect to payments of interest and original issue
discount after December 31, 1982.
(5) Payments by governmental units. In the case of payments made by
any governmental unit or any agency or instrumentality thereof, the
officer or employee having control of the payment of interest or
original issue discount (or the person appropriately designated for
purposes of this section) shall make the returns and statements required
under section 6049.
(6) When payment deemed made--(i) In general. Except as provided in
paragraph (d)(6)(ii) of this section, for purposes of section 6049,
interest is deemed to have been paid when it is credited or set apart to
a person without any substantial limitation or restriction as to the
time or manner of payment or condition upon which payment is to be made,
and is made available to him so that it may be drawn at any time, and
its receipt brought within his own control and disposition.
(ii) Instruments paid on presentment or demand. In the case of a
payment made on an obligation described in paragraph (e)(2) of this
section (relating to transactional reporting), interest is deemed to
have been paid at the time the obligation is presented for payment. For
example, interest represented by a coupon detached from a bond is
considered paid for purposes of section 6049 when the coupon is
presented for payment.
(7) Magnetic media requirement. For rules relating to permission to
submit the information required by Form 1099 on magnetic tape or other
media, see Sec. 1.9101-1. For the requirement to submit the information
required by Form 1099 on magnetic media for payments after December 31,
1983, see section
[[Page 381]]
6011(e) and Sec. 301.6011-2 of this chapter (Regulations on Procedure
and Administration).
(8) Obligations that are not exempt from taxation. When an issuer of
an obligation that is not exempt from taxation receives an envelope or
``shell'', signed by the payee, stating that interest on the obligation
is exempt from taxation under section 103(a) (as described in Sec.
1.6049-5(b)(2), the issuer shall make an information return under
section 6049. The information return shall show the name, address, and
taxpayer identification number of the person who signed the statement
claiming that interest on the obligation is exempt from taxation, the
amount of interest paid, and such other information as is required by
the form. An information return is required regardless of the amount of
interest. The issuer shall also furnish a written statement to such
person showing the information required by Sec. 1.6049-6(b).
(9) Savings bonds--(i) In general. A person who makes payment on a
United States savings bond when the bond is presented for payment shall
report the difference between the amount to be paid and the amount paid
for the bond. The amount subject to reporting shall not be reduced to
take into account:
(A) Amounts previously included in the income of a holder as a
result of an election under section 454 to include annually the increase
in the redemption price of the bond; or
(B) Amounts accrued prior to transfer of the bond where the bond has
been reissued in the name of the person presenting the bond for payment.
With respect to a savings bond that is reissued in another person's
name, the amount subject to reporting when the bond is reissued is the
amount of interest that has accrued. With respect to a savings bond that
is exchanged in a tax-deferred transaction (as described in section
1037), the amount subject to reporting is the amount of cash paid to the
holder at the time of the transaction.
(ii) Examples. The application of the provisions of paragraph
(d)(9)(i) of this section may be illustrated by the following examples:
Example 1. On June 10, 1943, A purchases a $50 Series E savings
bond. The amount paid for the savings bond is $37.50. A elects under
section 454 to include the increase in the redemption price of the bond
annually in income. A presents the bond to Bank M to be cashed on July
1, 1983. The amount to be paid on the bond on that date is $204.96. Bank
M is required to make an information return under section 6049 showing
that it paid $167.46 (the difference between $204.96 and $37.50) of
interest, without regard to A's election to include annually the
increase in the redemption price of the bond.
Example 2. On December 1, 1970, B purchases a $500 Series E savings
bond. The amount paid for the bond is $375. On August 1, 1984, the bond
is reissued by the Bureau of Public Debt by deleting B's name and
inserting the name of B's child. At the time of reissue, the redemption
value of the bond is $1,015.80. The accrued interest is $640.80 (the
difference between $1,015.80 and $375). The reissue is a taxable
transaction, and B must include in income the accrued interest at the
time of reissue. The Bureau of Public Debt is required to make an
information return under section 6049 showing that it paid $640.80 of
interest to B.
Example 3. Assume the same facts as in example (2) except that B
exchanges the bond for a Series HH savings bond in the amount of $1,000
issued in B's name. The exchange is tax-deferred under section 1037. The
Bureau of Public Debt stamps a legend on the bond stating that interest
of $625 has been deferred. The amount of $15.80 is paid to B. The Bureau
of the Public Debt must make an informatiion return showing that it paid
$15.80 of interest to B.
Example 4. Assume the same facts as in example (3) except that the
exchange is not a tax-deferred exchange. The Bureau of the Public Debt
must make an information return showing that it paid $640.80 of interest
to B.
(e) Transactional reporting--(1) In general. An information return
required to be made under paragraph (b) of this section may be made on a
transaction-by-transaction basis, rather than on an annual aggregation
basis, if payment described in paragraph (e)(2) of this section is made
by a person described in paragraph (e)(3) of this section.
(2) Payments subject to transactional reporting. An information
return may be made on a transactional basis if payment is made on:
(i) A United States savings bond,
(ii) An interest coupon (but see Sec. 1.6049-5(b) which provides
that no information return is required to be
[[Page 382]]
made with respect to an interest coupon that is exempt from taxation),
(iii) A discount obligation having a maturity at issue of 1 year or
less, including commercial paper and short-term government obligations
defined in section 1232(a)(3), and
(iv) Any obligation similar to those described in subdivisions (i)
through (iii).
The information return with respect to payments on the types of
obligations described in this paragraph shall be made on Form 1099-INT.
A payor may include all interest paid in one transaction on one
information return, irrespective of whether obligations of different
issuers are paid as part of the transaction.
(3) Persons subject to transactional reporting. A person may make a
return on a transactional basis if the person is:
(i) A middleman (as defined in paragraph (f)(4) of this section) who
is required to make an information return under paragraph (b)(3) of this
section with respect to any payment described in paragraph (e)(2) of
this section, or
(ii) A Federal agency making payments on a United States savings
bond.
(4) Transaction defined. For purposes of this paragraph (e), a
transaction means a payment at one time on one or more obligations. For
example, if an individual who is exempt from withholding under section
3406 presents at one time five Series EE bonds on each of which $3 of
interest has accrued, $15 of interest will be paid as part of the
transaction. Accordingly, an information return is required under Sec.
1.6049-4 (a)(2)(iii) because the interest paid in the transaction
exceeds $10. If only three of the savings bonds were presented, however,
no return would be required even if the remaining two bonds were
redeemed the following day. See paragraph (a)(2)(i) of this section for
the requirement that an information return be made if any amount of tax
is withheld under section 3406.
(5) Information required. The information return for any transaction
under paragraph (e) of this section shall show the following:
(i) The name, address, and taxpayer identification number of the
person to whom the interest is paid;
(ii) The name and address of the person filing the form;
(iii) The amount of interest paid;
(iv) The amount of tax withheld under section 3406, if any; and
(v) Such other information as is required by the form.
(f) Definitions. For purposes of section 6049, this section, and
Sec. Sec. 1.6049-5 and 1.6049-6:
(1) Person. The term person includes any governmental unit,
international organization, and any agency or instrumentality thereof.
Therefore, interest paid by one of these entities must be reported
unless one of the exceptions under section 6049 applies.
(2) Natural person. The term natural person means any individual,
but shall not include a partnership (whether of not composed entirely of
individuals), a trust, or an estate.
(3) Obligation. The term obligation includes bonds, debentures,
notes, certificates, and other evidences of indebtedness regardless of
how denominated. For the definition of the term offshore obligation, see
paragraph (f)(9) of this section.
(4) Middleman--(i) In general. The term middleman means any person.
including a financial institution as described in paragraph
(c)(1)(ii)(M) of this section, a broker as defined in section 6045(c),
or a nominee, who makes payment of interest for, or collects interest on
behalf of, another person, or otherwise acts in a capacity as
intermediary between a payor and a payee. For example, a person (other
than an issuer of an obligation) who makes payment on an interest coupon
of the obligation to another person is a middleman, irrespective of
whether such person purchases the coupon for his own account, accepts
the coupon as agent for the payee, or otherwise deals with the coupon.
The term ``middleman'' also includes a trustee, including a corporate
trustee of a trust where the trust is the payee. See Sec. 1.6049-
4(c)(2) providing that the trustee does not have to make an information
return on Form 1099 to a beneficiary if the trustee is required to file
Form 1041 and furnishes Form K-1 to the beneficiary showing the
information required to be shown on the form, including amounts withheld
under section 3406. A person
[[Page 383]]
shall be considered to be a middleman as to any portion of an interest
payment made to such person which portion is actually owned by another
person, whether or not the other person's name is also shown on the
information return filed with respect to such interest payment, except
that a husband or wife will not be considered as acting in the capacity
of a middleman with respect to his or her spouse. A person who, from
within the United States, forwards an interest coupon or discount
obligation on behalf of a payee for presentation, collection or payment
outside the United States is also a middleman for purposes of this
section (but the transfer, although subject to information reporting
under this section, does not make the payment subject to backup
withholding under section 3406).
(ii) Example. The application of the provisions of paragraph (f)(4)
of this section may be illustrated by the following example:
Example. In January 1984, Broker B, a U.S. payor, purchases on
behalf of its customer, Individual A, an obligation issued by
partnership in a public offering on that date. Broker B holds the
obligation for A throughout 1984. Broker B is required to make an
information return showing the amount of original issue discount treated
as paid to A under Sec. 1.6049-5(f).
(5) Chapter 4 withholding rate pool. The term chapter 4 withholding
rate pool has the meaning set forth in Sec. 1.1471-1(b)(20). However,
for determining the U.S. payees included in a chapter 4 withholding rate
pool for purposes of section 6049, see paragraph (c)(4)(iii) of this
section.
(6) Foreign financial institution (or FFI). The term foreign
financial institution or FFI means an entity described in Sec. 1.1471-
1(b)(47),
(7) Intergovernmental agreement (or IGA). The term intergovernmental
agreement or IGA has the meaning set forth in Sec. 1.1471-1(b)(67)
(i.e., either a Model 1 IGA described in Sec. 1.1471-1(b)(78) or a
Model 2 IGA described in Sec. 1.1471-1(b)(79)).
(8) Non-consenting U.S. accounts. The term non-consenting U.S.
accounts has the meaning set forth in an applicable Model 2 IGA.
(9) Offshore obligation. The term offshore obligation means an
offshore obligation defined in Sec. 1.6049-5(c)(1). For the definition
of the term obligation, see paragraph (f)(3) of this section.
(10) Participating FFI. The term participating FFI means an FFI that
is described in Sec. 1.1471-1(b)(91).
(11) Recalcitrant account holder. The term recalcitrant account
holder has the same meaning set forth in Sec. 1.1471-1(b)(110).
(12) Registered deemed-compliant FFI. The term registered deemed-
compliant FFI means an FFI that is described in Sec. 1.1471-1(b)(111).
(13) Reporting Model 1 FFI. The term reporting Model 1 FFI means an
FFI that is described in Sec. 1.1471-1(b)(114).
(14) Reporting Model 2 FFI. The term reporting Model 2 FFI means a
participating FFI that is described in Sec. 1.1471-1(b)(91).
(15) Withholdable payment. The term withholdable payment means a
payment described in Sec. 1.1471-1(b)(145).
(16) Paid and received outside the United States--(i) In general.
Except as otherwise provided in paragraphs (f)(16)(ii) and (iii) of this
section, the term paid and received outside the United States means an
amount that is paid by a payor or middleman outside the United States as
described in Sec. 1.6049-5(e).
(ii) Transfers to the United States. Without regard to the location
of the account from which the amount is drawn, an amount that is
described in paragraph (f)(16)(ii)(A) or (B) of this section and paid by
transfer to an account maintained by the payee in the United States or
by mail to a United States address (including an amount paid with
respect to a bond or a discount obligation described in Sec. 1.6049-
5(e)(4)) is not considered to be paid and received outside the United
States.
(A) An amount is described in this paragraph (f)(16)(ii)(A) if it is
paid by an issuer or the paying agent of the issuer with respect to an
obligation that is--
(1) Issued by a U.S. payor, as defined in Sec. 1.6049-5(c)(5);
(2) Registered under the Securities Act of 1933 (15 U.S.C. 77a); or
[[Page 384]]
(3) Listed on an exchange that is registered as a national
securities exchange in the United States or included in an interdealer
quotation system in the United States.
(B) An amount is described in this paragraph (f)(16)(ii)(B) if it is
paid by a U.S. middleman (as defined in Sec. 1.6049-5(c)(5)) that, as a
custodian, nominee, or other agent of a payee, collects the amount for
or on behalf of the payee.
(iii) Deposits or accounts with banks and other financial
institutions. In the case of an amount paid by a bank or other financial
institution with respect to a deposit or an account that is considered
paid at a branch or office outside the United States as described in
Sec. 1.6049-5(e)(2), the amount is not considered paid and received
outside the United States if the institution has knowledge that the
customer has transmitted instructions to an agent, branch, or office of
the institution from inside the United States by mail, telephone,
electronic transmission, or otherwise concerning the deposit or account
(unless the transmission from the United States has taken place in
isolated and infrequent circumstances).
(iv) Examples. The application of the provisions of paragraph
(f)(16) of this section may be illustrated by the following examples:
Example 1. FC is a foreign corporation that is not a U.S. payor or
U.S. middleman, as defined in Sec. 1.6049-5(c)(5). A holds FC coupon
bonds that are not in registered form under section 163(f) and the
regulations . FB, a foreign branch of DC, a domestic corporation, is the
designated paying agent with respect to the bonds issued by FC. A does
not have an account with FB. A presents a coupon to FB at its office
outside the United States with instructions to transfer funds to a bank
account maintained by A in the United States. FB transfers the funds in
accordance with A's instructions. Even though the amount is credited to
an account in the United States, the interest on the FC bonds is paid
and received outside the United States under paragraph (f)(16)(ii) of
this section and Sec. 1.6049-5(e)(3) because the coupon is presented
for payment outside the United States; because FC is a foreign person
that is not a U.S. payor or U.S. middleman, as defined in Sec. 1.6049-
5(d)(1); because FB is not acting as A's agent; and because the
obligation is not registered under the Securities Act of 1933 (15 U.S.C.
77a), listed on a securities exchange that is registered as a national
securities exchange in the United States, or included in an interdealer
quotation system.
Example 2. FC is a foreign corporation that is not a U.S. payor or
U.S. middleman, as defined in Sec. 1.6049-5(d)(1). B, a United States
citizen, holds a bond issued by FC in registered form under section
163(f) and the regulations thereunder and registered under the
Securities Act of 1933 (15 U.S.C. 77a). The bond is not a foreign-
targeted registered obligation as defined in Sec. 1.871-14(e)(2). DB, a
United States branch of a foreign corporation engaged in the commercial
banking business, is the registrar of the bonds issued by FC. DB
supplies FC with a list of the holders of the FC bonds. Interest on the
FC bonds is paid to B and other bondholders by checks prepared by FC at
its principal office outside the United States, and B's check is mailed
from there to his designated address in the United States. The bond is
described in paragraph (f)(16)(ii)(A)(2) of this section. The interest
on the FC bonds paid to B by FC is not paid and received outside the
United States under paragraph (f)(16) of this section.
Example 3. The facts are the same as in Example 2 except that the
checks are prepared and mailed in the United States by DC, a U.S.
corporation engaged in the commercial banking business that is the
designated paying agent with respect to the bonds issued by FC, and B's
check is mailed to his designated address outside the United States. For
purposes of section 6049, the interest on the FC bonds paid by DC is not
paid and received outside the United States under paragraph (f)(16)(i)
of this section.
(g) Time and place for filling a return for the payment of
interest--(1) Annual return. Except as provided in paragraph (g)(2) of
this section, the returns required under this section for any calendar
year for the payment of interest shall be filed after September 30 of
such year, but not before the payor's final payment to the payee for the
year, and on or before February 28 (March 31 if filed electronically) of
the following year. Such returns shall be filed with the appropriate
Internal Revenue Service Center, the address of which is listed in the
instructions for Form 1096. For extensions of time for filing returns
under this section, see Sec. 1.6081-1.
(2) Transactional return. In the case of a return under paragraph
(e) of this section, relating to returns on a transactional basis, such
return shall be filed at any time but in no event later than February 28
(March 31 if filed electronically) of the year following the calendar
year in which the interest
[[Page 385]]
was paid. The return shall be filed with the appropriate Internal
Revenue Service Center, the address of which is listed in the
instructions for Form 1096. For extensions of time for filing returns
under this section, see Sec. 1.6081-1.
(3) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6049(a) and Sec. 1.6049-4(a)(1), see Sec.
301.6721-1 of this chapter (Procedure and Administration Regulations).
See Sec. 301.6724-1 of this chapter for the waiver of a penalty if the
failure is due to reasonable cause and is not due to willful neglect.
(h) Effective/applicability dates. Except as otherwise provided in
paragraphs (b)(5)(ii) and (d)(3)(ii)(B) of this section, this section
applies to payments made on or after January 6, 2017. (For payments made
after June 30, 2014, and before January 6, 2017, see this section as in
effect and contained in 26 CFR part 1, as revised April 1, 2016.)
[T.D. 7881, 48 FR 12968, Mar. 28, 1983]
Editorial Note: For Federal Register citations affecting Sec.
1.6049-4, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6049-5 Interest and original issue discount subject to
reporting after December 31, 1982.
(a) Interest subject to reporting requirement. For purposes of
Sec. Sec. 1.6049-4, 1.6049-6 and this section, except as provided in
paragraph (b) of this section, the term ``interest'' means:
(1) Interest on an obligation:
(i) In registered form (as defined in Sec. 5f.103-1(c)), or
(ii) Of a type offered to the public. Principles consistent with
Sec. 5f.163-1 shall be applied to determine whether an obligation is of
a type offered to the public.
(2) Interest on deposits with persons carrying on the banking
business. Such term shall include deposits evidenced by time
certificates of deposit issued in any amount whether negotiable or non-
negotiable. The term ``interest'' includes payments to a mortgage escrow
account and amounts paid with respect to repurchase agreements and
banker's acceptances. Property which the payee receives from the payor
as interest (or in lieu of a cash payment of interest) shall be interest
for purposes of section 6049. The amount subject to reporting is the
fair market value of such property.
(3) Amounts, whether or not designated as interest, paid or credited
by mutual savings banks, savings and loan associations, building and
loan associations, cooperative banks, homestead associations, credit
unions, industrial loan associations or banks, or similar organizations,
in respect of deposits, face amount certificates, investment
certificates, or withdrawable or repurchasable shares. Thus, even though
amounts paid or credited by such organizations with respect to deposits
are designated as ``dividends'', such amounts are included in the
definition of interest for purposes of section 6049. The term
``interest'' includes payments to a mortgage escrow account and amounts
paid with respect to repurchase agreements. Property which the payee
receives from the payor as interest (or in lieu of a cash payment of
interest) is ``interest'' for purposes of section 6049. The fair market
value of such property is the amount subject ot reporting.
(4) Interest on amounts held by insurance companies under an
agreement to pay interest thereon. Any increment in value of ``advance
premiums'', ``prepaid premiums'', or ``premium deposit funds'' which is
applied to the payment of premiums due on insurance policies, or made
available for withdrawal by the policyholder, shall be considered
interest subject to reporting. Interest that an insurance company pays
pursuant to an agreement with the policyholder to a beneficiary because
he payment due has been delayed is interest subject to reporting.
Interest subject to reporting also includes interest paid by insurance
companies with respect to policy ``dividend'' accumulations (see
sections 61 and 451 and the regulations thereunder for rules as to when
such interest is considered paid), and interest paid with respect to the
proceeds of insurance policies left with the insurer. The so-called
``interest element'' in the
[[Page 386]]
case of annuity or installment payments under life insurance or
endowment contracts does not constitute interest for purposes of section
6049.
(5) Interest on deposits with brokers as defined in section 6045(c)
and the regulations thereunder. Any payment made in lieu of interest to
a person whose obligation has been borrowed in connection with a short
sale or other similar transaction is subject to reporting under section
6049. See Sec. 1.6045-2T for reporting requirements with respect to
payments in lieu of tax-exempt interest. See Sec. 1.6045-2 for
reporting requirements with respect to payments in lieu of tax-exempt
interest.
(6) Interest paid on amounts held by investment companies as defined
in section 3 of the Investment Company Act (15 U.S.C. section 80-a) and
on amounts paid on pooled funds or trusts. The interest to be reported
with respect to a widely held fixed investment trust, as defined in
Sec. 1.671-5(b)(22), shall be the interest earned on the assets held by
the trust. See Sec. 1.671-5 for the reporting rules for widely held
fixed investment trusts (as defined under that section).
(b) Interest excluded from reporting requirement. The term interest
or original issue discount (OID) does not include--
(1) Interest on any obligation issued by a natural person as defined
in Sec. 1.6049-4(f)(2), irrespective of whether such interest is
collected on behalf of the holder of the obligation by a middleman.
(2) Interest on any obligation if such interest is exempt from
taxation under section 103(a), relating to certain governmental
obligations, or interest which is exempt from taxation under any other
provision of law without regard to the identity of the holder. The
holder of a tax exempt obligation that is not in registered form must
provide written certification to the payor (other than the issuer of the
obligation) that the obligation is exempt from taxation. A statement
that interest coupons are tax exempt on the envelope or shell commonly
used by financial institutions to process such coupons, signed by the
payee, will be sufficient for this purpose if the envelope is properly
completed (i.e., shows the name, address, and taxpayer identification
number of the payee). A payor may rely on such written certification in
treating such interest as tax exempt for purposes of section 6049. See
Sec. 1.6049-4(d)(8) with respect to the requirement that the issuer of
a taxable obligation shall make an information return if such issuer
receives an envelope which improperly claims that the interest coupons
contained therein are tax exempt.
(3) Interest on amounts held in escrow to guarantee performance on a
contract or to provide security. However, interest on amounts held in
escrow with a person described in paragraph (a)(2) or (3) of this
section is interest subject to reporting under section 6049.
(4) Interest that a governmental unit pays with respect to tax
refunds.
(5) Interest on deposits for security, such as deposits posted with
a public utility company. However, interest on deposits posted for
security with a person described in paragraph (a)(2) or (3) of this
section is interest subject to reporting under section 6049.
(6) Amounts from sources outside the United States (determined under
the provisions of part I, subchapter N, chapter 1 of the Internal
Revenue Code (Code) and the regulations under those provisions) paid by
a non-U.S. payor or a non-U.S. middleman (as defined in paragraph (c)(5)
of this section) and paid and received outside the United States. See
Sec. 1.6049-4(f)(16) for circumstances in which a payment is considered
to be paid and received outside the United States.
(7) Portfolio interest, as defined in Sec. 1.871-14(b)(1), paid
with respect to obligations in bearer form described in section
871(h)(2)(A), as in effect prior to the amendment by section 502 of the
Hiring Incentives to Restore Employment Act of 2010 (HIRE Act), Public
Law 111-147, or section 881(c)(2)(A), as in effect prior to the
amendment by section 502 of the HIRE Act, that were issued prior to
March 19, 2012, or with respect to a foreign-targeted registered
obligation described in Sec. 1.871-14(e)(2) that was issued prior to
January 1, 2016, and for which the documentation requirements described
in Sec. 1.871-14(e)(3) and (4) have been satisfied (other than by a
U.S. middleman (as
[[Page 387]]
defined in paragraph (c)(5) of this section) that, as a custodian or
nominee of the payee, collects the amount for, or on behalf of, the
payee, regardless of whether the middleman is also acting as agent of
the payor).
(8) Portfolio interest described in Sec. 1.871-14(c)(1)(ii), paid
with respect to obligations in registered form described in section
871(h)(2) or 881(c)(2) that is not described in paragraph (b)(7) of this
section.
(9) Any amount paid by an international organization described in
Sec. 1.6049-4(c)(1)(ii)(G) (or its paying, transfer, or other agent
that is not also a payee's agent) with respect to an obligation of which
the international organization is the issuer.
(10)(i) Amounts paid and received outside the United States under
Sec. 1.6049-4(f)(16) (other than by a U.S. middleman (as defined in
paragraph (c)(5) of this section) that are paid by a custodian or
nominee or other agent of the payee, of amounts that that it receives
for, or on behalf of, the payee, regardless of whether the middleman is
also acting as agent of the payor) with respect to an obligation that:
Has a face amount or principal amount of not less than $500,000 (as
determined based on the spot rate on the date of issuance if in foreign
currency); has a maturity (at issue) of 183 days or less; satisfies the
requirements of sections 163(f)(2)(B)(i) and (ii)(I), as in effect prior
to the amendment by section 502 of the HIRE Act, and the regulations
thereunder (as if the obligation would otherwise be a registration-
required obligation within the meaning of section 163(f)(2)(A))
(however, an original issue discount obligation with a maturity of 183
days or less from the date of issuance is not required to satisfy the
certification requirement of Sec. 1.163-5(c)(2)(i)(D)(3)) and is issued
in accordance with the procedures of Sec. 1.163-5(c)(2)(i)(D); and has
on its face the following statement (or a similar statement having the
same effect):
By accepting this obligation, the holder represents and warrants
that it is not a United States person (other than an exempt recipient
described in section 6049(b)(4) of the Internal Revenue Code and
regulations thereunder) and that it is not acting for or on behalf of a
United States person (other than an exempt recipient described in
section 6049(b)(4) of the Internal Revenue Code and the regulations
thereunder).
(ii) If the obligation is in registered form, it must be registered
in the name of an exempt recipient described in Sec. 1.6049-
4(c)(1)(ii). For purposes of this paragraph (b)(10), a middleman may
treat an obligation as described in section 163(f)(2)(B)(i) and
(f)(2)(B)(ii)(I), as in effect prior to the amendment by section 502 of
the HIRE Act, and the regulations under that section if the obligation,
or coupons detached therefrom, whichever is presented for payment,
contains the statement described in this paragraph (b)(10). The
exemption from reporting described in this paragraph (b)(10) shall not
apply if the payor has actual knowledge that the payee is a U.S. person
who is not an exempt recipient.
(11) Amounts paid with respect to an account or deposit with a U.S.
or foreign branch of a domestic or foreign corporation or partnership
that is paid with respect to an obligation described in either paragraph
(b)(11)(i) or (ii) of this section, if the branch is engaged in the
commercial banking business; and the interest or OID is paid and
received outside the United States as defined in Sec. 1.6049-4(f)(16)
(other than by a U.S. middleman (as defined in paragraph (c)(5) of this
section) that acts as a custodian, nominee, or other agent of the payee,
and collects the amount for, or on behalf of, the payee, regardless of
whether the middleman is also acting as agent of the payor). The
exemption from reporting described in this paragraph (b)(11) shall not
apply if the payor has actual knowledge that the payee is a U.S. person
who is not an exempt recipient.
(i) An obligation is described in this paragraph (b)(11)(i) if it is
not in registered form (within the meaning of section 163(f) and the
regulations under that section), is described in section 163(f)(2)(B),
as in effect prior to the amendment by section 502 of the HIRE Act, and
issued in accordance with the procedures of Sec. 1.163-5(c)(2)(i)(C) or
(D), and, in the case of a U.S. branch, is part of a larger single
public offering of securities. For purposes of this paragraph
(b)(11)(i), a middleman may treat an obligation as described in section
163(f)(2)(B), as in effect prior to the
[[Page 388]]
amendment by section 502 of the HIRE Act, if the obligation, and any
detachable coupons, contains the statement described in section
163(f)(2)(B)(ii)(II), as in effect prior to the amendment by section 502
of the HIRE Act, and the regulations under that section.
(ii)(A) An obligation is described in this paragraph (b)(11)(ii) if
it produces income described in section 871(i)(2)(A); has a face amount
or principal amount of not less than $500,000 (as determined based on
the spot rate on the date of issuance if in foreign currency); satisfies
the requirements of sections 163(f)(2)(B)(i) and (ii)(I), as in effect
prior to the amendment by section 502 of the HIRE Act, and the
regulations thereunder (as if the obligation would otherwise be a
registration-required obligation within the meaning of section
163(f)(2)(A)) and is issued in accordance with the procedures of Sec.
1.163-5(c)(2)(i)(C) or (D) (however, an original issue discount
obligation with a maturity of 183 days or less from the date of issuance
is not required to satisfy the certification requirement of Sec. 1.163-
5(c)(2)(i)(D)(3)). For purposes of this paragraph (b)(11)(ii), a
middleman may treat an obligation as described in sections
163(f)(2)(B)(i) and (ii), as in effect prior to the amendment by section
502 of the HIRE Act, and the regulations under that section if the
obligation, or any detachable coupon, contains the statement described
in paragraph (b)(11)(ii)(B) of this section.
(B) The obligation must have on its face, and on any detachable
coupons, the following statement (or a similar statement having the same
effect):
By accepting this obligation, the holder represents and warrants
that it is not a United States person (other than an exempt recipient
described in section 6049(b)(4) and regulations under that section) and
that it is not acting for or on behalf of a United States person (other
than an exempt recipient described in section 6049(b)(4) and the
regulations under that section).
(C) If the obligation is in registered form, it must be registered
in the name of an exempt recipient described in Sec. 1.6049-
4(c)(1)(ii).
(12) Payments that a payor can, prior to payment, reliably associate
with documentation upon which it may rely to treat the payment 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 paragraph
(d)(1) of this section or presumed to be made to a foreign payee under
paragraph (d)(2) or (3) of this section. However, such payments may be
reportable under Sec. 1.1461-1(b) and (c) or under Sec. 1.1474-1(d)(2)
(for a chapter 4 reportable amount (as described in Sec. 1.1471-
1(b)(18)). The provisions of Sec. 1.1441-1 shall apply by substituting
the term ``payor'' for the term ``withholding agent'' and without regard
to the fact that the provisions apply only to amounts subject to
withholding under chapter 3 of the Code. In the event of a conflict
between the provisions of Sec. 1.1441-1 and paragraph (d) of this
section in determining the foreign status of the payee, the provisions
of Sec. 1.1441-1 shall govern for payments of amounts subject to
withholding under chapter 3 of the Code and the provisions of paragraph
(d) of this section shall govern in other cases. This paragraph (b)(12)
does not apply to interest paid on or after January 1, 2013, to a
nonresident alien individual to the extent provided in Sec. 1.6049-8.
(13) Amounts for the period that the debt obligation with respect to
which the interest arises represents an asset blocked as described in
Sec. 1.1441-2(e)(3). Payment of such amounts, including interest that
is past due and OID on obligations that mature on or before the date
that the assets are no longer blocked, is deemed to occur in accordance
with the rules of Sec. 1.1441-2(e)(3).
(14) Payments that a payor or middleman can, prior to payment,
reliably associate with documentation upon which it may rely to treat as
made to a foreign intermediary or flow-through entity in accordance with
Sec. 1.1441-1(b) if it obtains from the foreign intermediary or flow-
through entity a withholding statement under Sec. 1.1471-
3(c)(3)(iii)(B)(2) (describing an FFI withholding statement), Sec.
1.1471-3(c)(3)(iii)(B)(3) (describing a chapter 4 withholding
statement), Sec. 1.1441-1(e)(3)(iv) (describing a withholding statement
provided by a non-qualified intermediary), Sec. 1.1441-1(e)(5)(v)
(describing a withholding statement provided by a qualified
intermediary), or
[[Page 389]]
under Sec. 1.1441-5 (describing a withholding statement provided by a
foreign partnership, foreign simple trust, or foreign grantor trust),
that allocates the payment (or portion of a payment) to a chapter 4
withholding rate pool or specific payees to which withholding applies
under chapter 4. The provisions of each of the foregoing sections shall
apply by substituting the term ``payor'' for the term ``withholding
agent.'' A payor or middleman may rely on a withholding statement
provided by a foreign intermediary or flow-through entity that
identifies a chapter 4 withholding rate pool of U.S. payees (as
described in Sec. 1.6049-4(c)(4)) or, with respect to a withholdable
payment, a chapter 4 withholding rate pool of recalcitrant account
holders (as described in Sec. 1.1471-4(d)(6)) provided that the payor
or middleman identifies the foreign intermediary or flow-through entity
that maintains the accounts (as described in Sec. 1.1471-5(b)(5))
included in the chapter 4 withholding rate pool as a participating FFI
(including a reporting Model 2 FFI) or registered deemed-compliant FFI
(including a reporting Model 1 FFI) by applying the rules in Sec.
1.1471-3(d)(4) or in Sec. 1.1471-3(e)(4)(vi)(B), as applicable, for
identifying the payee of a payment (by substituting the term ``payor''
for the term ``withholding agent''). See, however, Sec. 1.1441-
1(e)(5)(v)(C)(2)(i) for when a qualified intermediary may provide a
single pool of recalcitrant account holders (without the need to
subdivide into the pools described in Sec. 1.1471-4(d)(6)).
Additionally, when a foreign intermediary or flow-through entity
provides to a payor or middleman a withholding statement that allocates
the payment (or portion of a payment) to a chapter 4 withholding rate
pool of U.S. payees, the payor or middleman may also rely on the
withholding statement if the payor or middleman identifies the
intermediary or flow-through entity as a qualified intermediary (as
defined in Sec. 1.1441-1(c)(15) by applying the rules described in
Sec. 1.1441-1(b)(2)(vii)) that provides the certification described in
Sec. 1.1441-1(e)(3)(ii)(D) with respect to U.S. payees that hold
accounts with a foreign intermediary or flow-through entity other than
the qualified intermediary providing the certification.
(15) If a foreign intermediary, as described in Sec. 1.1441-
1(c)(13), or a U.S. branch that is not treated as a U.S. person receives
a payment from a payor, which payment the payor can reliably associate
with a valid withholding certificate described in Sec. 1.1441-
1(e)(3)(ii) or (iii), or Sec. 1.1441-1(e)(3)(v), respectively,
furnished by such intermediary or branch, then the intermediary or
branch is not required to report such payment when it, in turn, pays the
amount, unless, and to the extent, the intermediary or branch knows that
the payment is required to be reported under this section and was not so
reported. For example, if a U.S. branch described in Sec. 1.1441-
1(b)(2)(iv) fails to provide information regarding U.S. persons that are
not exempt from reporting under Sec. 1.6049-4(c)(1)(ii) to the person
from whom the U.S. branch receives the payment, the amount paid by the
U.S. branch to such person is interest or original issue discount. See,
however, Sec. 1.6049-4(c)(4) for when reporting under section 6049 is
coordinated with reporting under chapter 4 or an applicable IGA (as
defined in Sec. 1.6049-4(f)(7)). The exception for payments described
in this paragraph (b)(15) shall not apply to a qualified intermediary
that assumes reporting responsibility under chapter 61 of the Code for
the payment under the agreement described in Sec. 1.1441-1(e)(5)(iii).
(16) Amounts of interest as determined under the provisions of Sec.
1.446-3(g)(4) (dealing with interest in the case of a significant non-
periodic payment with respect to a notional principal contract). Such
amounts are governed by the provisions of section 6041. See Sec.
1.6041-1(d)(5).
(c) Applicable rules--(1) Documentary evidence for offshore
obligations and certain other obligations--(i) A payor may rely on
documentary evidence described in Sec. 1.1471-3(c)(5)(i) instead of a
beneficial owner withholding certificate described in Sec. 1.1441-
1(e)(2)(i) in the case of an amount paid outside the United States (as
described in paragraph (e) of this section) with respect to an offshore
obligation, or, in the case of broker proceeds described in Sec.
1.6045-1(c)(2), to the extent provided in
[[Page 390]]
Sec. 1.6045-1(g)(1)(i). For purposes of this section, the term offshore
obligation means--
(A) An account maintained at an office or branch of a bank or other
financial institution located outside the United States; or
(B) An obligation as defined in Sec. 1.6049-4(f)(3) (other than an
account described in paragraph (c)(1)(i)(A) of this section), contract,
or other instrument with respect to which the payor is either engaged in
business as a broker or dealer in securities or a financial institution
(as defined in Sec. 1.1471-5(e)) that engages in significant activities
at an office or branch located outside the United States. For purposes
of the preceding sentence, an office or branch of such payor shall be
considered to engage in significant activities with respect to an
obligation when it participates materially and actively in negotiating
the obligation under the principles described in Sec. 1.864-
4(c)(5)(iii) (substituting the term ``obligation'' for the term ``stock
or security'').
(ii) A payor may rely on documentary evidence if the payor has
established procedures to obtain, review, and maintain documentary
evidence sufficient to establish the identity of the payee and the
status of that person as a foreign person; and the payor obtains,
reviews, and maintains such documentary evidence in accordance with
those procedures. A payor maintains the documents reviewed for purposes
of this paragraph (c)(1) by retaining an original, certified copy, or
photocopy (including a microfiche, electronic scan, or similar means of
electronic storage) of the documents reviewed for as long as it may be
relevant to the determination of the payor's obligation to report under
Sec. 1.6049-4 and this section and noting in its records the date on
which the document was received and reviewed. Documentary evidence
furnished for a payment of an amount subject to withholding under
chapter 3 of the Code or that is a chapter 4 reportable amount under
Sec. 1.1474-1(d)(2) must contain all of the information that is
necessary to complete a Form 1042-S for that payment. See Sec. Sec.
1.1471-3(c) and 1.1471-4(c) for additional documentation requirements to
identify a payee or account holder for chapter 4 purposes that may apply
in addition to the requirements under paragraph (c) of this section.
(iii) Even if an account or obligation (as defined in Sec. 1.6049-
4(f)(3)) is not maintained outside the United States (maintained in the
United States), a payor may rely on documentary evidence associated with
a withholding certificate described in Sec. 1.1441-1(e)(3)(iii) with
respect to the persons for whom an entity acting as an intermediary
collects the payment. A payor may also rely on documentary evidence
associated with a flow-through withholding certificate for payments
treated as made to foreign partners of a nonwithholding foreign
partnership, as defined in Sec. 1.1441-1(c)(28), the foreign
beneficiaries of a foreign simple trust, as defined in Sec. 1.1441-
1(c)(24), or foreign owners of a foreign grantor trust, as defined in
Sec. 1.1441-1(c)(26), even though the partnership or trust account is
an obligation maintained in the United States.
(iv) For accounts opened on or after July 1, 2014, and before
January 1, 2015, and for obligations entered into on or after July 1,
2014, and before January 1, 2015, a payor may continue to apply the
rules of Sec. 1.6049-5(c)(1) and (c)(4) as in effect and contained in
26 CFR part 1 revised April 1, 2013, rather than this paragraph (c)(1)
and paragraph (c)(4) of this section. A payor that applies the rules of
Sec. 1.6049-5(c)(1) and (c)(4) as in effect and contained in 26 CFR
part 1 revised April 1, 2013, to an account or obligation must also
apply Sec. 1.1441-6(c)(2) (to the extent applicable) and Sec. 1.6049-
5(e) both as in effect and contained in 26 CFR part 1 revised April,
2013, with respect to the account or obligation.
(2) Other applicable rules. The provisions of Sec. 1.1441-
1(e)(4)(i) through (xii) (regarding who may sign a certificate, validity
period of certificates and documentary evidence, retention of
certificates, reliance rules, etc.) shall apply (by substituting the
term ``payor'' for the term ``withholding agent'' and disregarding the
fact that the provisions under Sec. 1.1441-1(e)(4) only apply to
amounts subject to withholding under chapter 3 of the Code) to
withholding certificates and documentary evidence
[[Page 391]]
furnished for purposes of this section. See Sec. 1.1441-1(b)(2)(vii)
for provisions dealing with reliable association of a payment with
documentation.
(3) Standards of knowledge. A payor may not rely on a withholding
certificate or documentary evidence described in paragraph (c)(1) or (4)
of this section if it has actual knowledge or reason to know that any
information or certification stated in the certificate or documentary
evidence is unreliable. A payor has reason to know that information or
certifications are unreliable only if the payor would have reason to
know under the provisions of Sec. 1.1441-7(b)(2) and (3) that the
information and certifications provided on the certificate or in the
documentary evidence are unreliable or, in the case of a Form W-9 (or an
acceptable substitute), it cannot reasonably rely on the documentation
as set forth in Sec. 31.3406(h)-3(e) of this chapter (see the
information and certification described in Sec. 31.3406(h)-3(e)(2)(i)
through (iv) of this chapter that are required in order for a payor
reasonably to rely on a Form W-9). The provisions of Sec. 1.1441-
7(b)(2) and (3) shall apply for purposes of this paragraph (c)(3)
irrespective of the type of income to which Sec. 1.1441-7(b)(2) is
otherwise limited. The exemptions from reporting described in paragraphs
(b)(10) and (11) of this section shall not apply if the payor has actual
knowledge that the payee is a U.S. person who is not an exempt
recipient.
(4) Special documentation rules for certain payments. This paragraph
(c)(4) modifies the provisions of paragraph (c)(1) of this section for
payments of amounts that are not subject to withholding under chapter 3
of the Code, other than amounts described in paragraph (d)(3)(iii) of
this section (dealing with U.S. short-term OID and U.S. source deposit
interest described in section 871(i)(2)(A) or 881(d)(3)). Amounts are
not subject to withholding under chapter 3 of the Code if they are not
included in the definition of amounts subject to withholding under Sec.
1.1441-2(a) (e.g., deposit interest with foreign branches of U.S. banks,
foreign source income, or broker proceeds). A payor may rely upon
documentation in lieu of documentary evidence (as described in paragraph
(c)(1) of this section) or a written statement (as defined in Sec.
1.1471-1(b)(150)) or another statement to the extent permitted in
paragraphs (c)(4)(i) through (iii) of this section, until the payor
knows or has reason to know of a change in circumstance that makes the
documentation unreliable or incorrect (as defined in Sec. 1.1441-1(e))
when the payor does not have customer information for the payee that
includes any of the U.S. indicia described in Sec. 1.1471-
3(c)(6)(ii)(C)(1). Further, a payor may maintain such documentation or
documentary evidence as required in paragraph (c)(4)(iv) of this
section.
(i) Statement in lieu of documentary evidence with respect to
accounts. If under the local laws, regulations, or practices of a
country in which an account is maintained, it is not customary to obtain
documentary evidence described in paragraph (c)(1) of this section with
respect to the type of account, the payor may, instead of obtaining a
beneficial owner withholding certificate described in Sec. 1.1441-
1(e)(2)(i) or documentary evidence described in paragraph (c)(1) of this
section, establish a payee's foreign status based on the statement
described in this paragraph (c)(4)(i) (or such substitute statement as
the Internal Revenue Service may prescribe) made on an account opening
form. However, see, also Sec. 1.1471-4(c) or an applicable IGA for
additional documentation requirements that may apply to a participating
FFI (including a reporting Model 2 FFI) for determining the status of
its account holders for chapter 4 purposes. The statement referred to in
this paragraph (c)(4)(i) must appear near the signature line and must
state, ``By opening this account and signing below, the account owner
represents and warrants that he/she/it is not a U.S. person for purposes
of U.S. Federal income tax and that he/she/it is not acting for, or on
behalf of, a U.S. person. A false statement or misrepresentation of tax
status by a U.S. person could lead to penalties under U.S. law. If your
tax status changes and you become a U.S. citizen or a resident, you must
notify us within 30 days.'' Additionally, a payor may, instead of
obtaining a beneficial owner withholding certificate described in Sec.
1.1441-1(e)(2)(i) or Sec. 1.1471-3(c)(3)(ii) or
[[Page 392]]
documentary evidence described in paragraph (c)(1) of this section,
establish a payee's foreign status based on a written statement
described in paragraph Sec. 1.1471-1(b)(150) to the extent a payor uses
such written statement to establish a payee's chapter 4 status and is
permitted to use the written statement under Sec. 1.1471-3(d) (by
substituting the term ``payor'' for the term ``withholding agent'')
without any other documentary evidence.
(ii) Documentation under IGA. A payor that is a reporting Model 1
FFI or reporting Model 2 FFI may rely upon documentation or information
establishing a payee's status that is permitted under an applicable IGA
for determining whether the account of the payee is other than a U.S.
account and regardless of whether such documentation or certification is
described in paragraph (c)(1) of this section or Sec. 1.1441-1(e)(2).
(iii) Maintenance of documentation and written statement. A payor
maintains documentation if it either maintains the documentary evidence
as described in paragraph (c)(1) of this section or retains a record of
the documentary evidence reviewed if the payor is not required to retain
copies of the documentation pursuant to the payor's AML due diligence
(as defined in Sec. 1.1471-1(b)(4)). A payor retains a record of
documentary evidence reviewed by noting in its records the type of
documentation reviewed, the date the document was reviewed, the
document's identification number (if any), and whether such
documentation contained any U.S. indicia described in Sec. 1.1441-
7(b)(8). Any statement described in paragraph (c)(4)(i) of this section,
must be retained in accordance with Sec. 1.1471-3(c)(6)(iii).
(5) U.S. payor, U.S. middleman, non-U.S. payor, and non-U.S.
middleman. The terms payor and middleman have the meanings ascribed to
them under Sec. 1.6049-4(a). A non-U.S. payor or non-U.S. middleman
means a payor or middleman other than a U.S. payor or U.S. middleman.
The term U.S. payor or U.S. middleman means--
(i) Definition. (A) A person described in section 7701(a)(30)
(including a foreign branch or office of such person);
(B) The government of the United States or the government of any
State or political subdivision thereof (or any agency or instrumentality
of any of the foregoing);
(C) A controlled foreign corporation within the meaning of section
957(a);
(D) A foreign partnership, if at any time during its tax year, one
or more of its partners are U.S. persons (as defined in Sec. 1.1441-
1(c)(2)) who, in the aggregate hold more than 50 percent of the income
or capital interest in the partnership or if, at any time during its tax
year, it is engaged in the conduct of a trade or business in the United
States;
(E) A foreign person 50 percent or more of the gross income of
which, from all sources for the three-year period ending with the close
of its taxable year preceding the collection or payment (or such part of
such period as the person has been in existence), was effectively
connected with the conduct of trade or business within the United
States; or
(F) A U.S. branch or territory financial institution described in
Sec. 1.1441-1(b)(2)(iv) that is treated as a U.S. person.
(ii) Reporting by U.S. payors in U.S. possessions. U.S. payors are
not required to report on Form 1099 income that is from sources within a
possession of the United States and that is exempt from taxation under
section 931, 932, or 933, each of which sections exempts certain income
from sources within a possession of the United States paid to a bona
fide resident of that possession. For purposes of this paragraph
(c)(5)(ii), a U.S. payor may treat the beneficial owner as a bona fide
resident of the possession of the United States from which the income is
sourced if, prior to payment of the income, the U.S. payor can reliably
associate the payment with valid documentation that supports the claim
of residence in the possession of the United States from which the
income is sourced. This paragraph (c)(5)(ii) shall not apply if the U.S.
payor has actual knowledge or reason to know that the documentation is
unreliable or incorrect or that the income does not satisfy the
requirements for exemption under section 931, 932, or 933.
[[Page 393]]
For the rules determining whether income is from sources within a
possession of the United States, see section 937(b) and the regulations
thereunder.
(6) Examples. The following examples illustrate the provisions of
paragraphs (b) and (c) of this section:
Example 1. FC is a foreign corporation that is not engaged in a
trade or business in the United States during the current calendar year.
D, an individual who is a resident and citizen of the United States,
holds a registered obligation issued by FC in a public offering.
Interest is paid on the obligation within the United States by DC, a
U.S. corporation that is the designated paying agent of FC. D does not
have an account with DC. Although interest paid on the obligation issued
by FC is foreign source, the interest paid by DC to D is considered to
be interest under paragraph (b)(6) of this section for purposes of
information reporting under section 6049 because it is not paid and
received outside the United States within the meaning of Sec. 1.6049-
4(f)(16).
Example 2. The facts are the same as in Example 1 except that D is a
nonresident alien individual who has furnished DC with a Form W-8 in
accordance with the provisions of Sec. 1.1441-1(e)(1)(ii). By reason of
paragraph (b)(12) of this section, the payment of interest by DC to D is
not considered to be a payment of interest for purposes of information
reporting under section 6049. Therefore, DC is not required to make an
information return under section 6049.
Example 3. The facts are the same as in Example 2 except that the
obligation of FC is held in a custodial account for D by FB, a foreign
branch of a U.S. financial institution. By reason of paragraph (c)(5) of
this section, FB is considered to be a U.S. middleman. Therefore, FB is
required to make an information return unless FB may treat D as a
beneficial owner that is a foreign person in accordance with the
provisions of Sec. 1.1441-1(e)(1)(ii).
Example 4. The facts are the same as in Example 3 except that the FC
obligation is held for D by NC, in a custodial account at NC's foreign
branch. NC is a foreign corporation that is a non-U.S. middleman
described in paragraph (c)(5) of this section. The payment by NC to D is
paid and received outside of the United States under Sec. 1.6049-
4(f)(16) and therefore is not considered to be a payment of interest for
purposes of section 6049 pursuant to paragraph (b)(6) of this section.
Therefore, NC is not required to make an information return under
section 6049 with respect to the payment.
(d) Determination of status as U.S. or foreign payee and applicable
presumptions in the absence of documentation--(1) Identifying the payee.
The provisions of Sec. Sec. 1.1441-1(b)(2), 1.1441-5(c)(1) and (e)(2)
and (3) shall apply (by substituting the term ``payor'' for the term
``withholding agent'') to identify the payee (other than a payee
included in a chapter 4 withholding rate pool described in paragraph
(b)(14) of this section) for purposes of this section (and other
sections of the regulations under this chapter to which this paragraph
(d)(1) applies), except to the extent provided in this paragraph (d)(1)
in the case of a payment of an amount that is not subject to withholding
under chapter 3 of the Code and that is not a withholdable payment (as
defined in Sec. 1.6049-4(f)(15)). Amounts are not subject to
withholding under chapter 3 of the Code if they are not included in the
definition of amounts subject to withholding under Sec. 1.1441-2(a)
(e.g., deposit interest with foreign branches of U.S. banks, foreign
source income, or broker proceeds). The exceptions to the application of
Sec. 1.1441-1(b)(2) to amounts that are not subject to withholding
under chapter 3 of the Code and that are not withholdable payments are
as follows:
(i) The provisions of Sec. 1.1441-1(b)(2)(ii), dealing with
payments to a U.S. agent or intermediary of a foreign person, shall not
apply. Thus, a payment to a U.S. agent or intermediary of a foreign
person is treated as a payment to a U.S. payee.
(ii) Payments to U.S. branches or territory financial institution
described in Sec. 1.1441-1(b)(2)(iv) shall be treated as payments to a
foreign payee, irrespective of the fact that the U.S. branch or
territory financial institution is otherwise treated as a U.S. person
for payments of amounts subject to withholding under chapter 3 and
withholdable payments, and irrespective of the fact that the branch or
territory financial institution is treated as a U.S. payor for purposes
of paragraph (c)(5) of this section.
(2) Presumptions of U.S. or foreign status in the absence of
documentation--(i) In general. Except as otherwise provided in this
paragraph (d)(2)(i), for purposes of this section (and other sections of
regulations under this chapter 61 to which this paragraph (d)(2)
applies), the provisions of Sec. 1.1441-1(b)(3)(i) through (ix) and
Sec. 1.1441-5(d)
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and (e)(6) shall apply (by substituting the term ``payor'' for the term
``withholding agent'') to determine the classification (e.g.,
individual, corporation, partnership, trust), status (i.e., a U.S. or a
foreign person), and other relevant characteristics (e.g., beneficial
owner or intermediary) of a payee if a payment cannot be reliably
associated with valid documentation under Sec. 1.1441-1(b)(2)(vii)
irrespective of whether the payments are subject to withholding under
chapter 3 of the Code or are withholdable payments. The provisions of
Sec. 1.1441-1(b)(3)(iii)(D) and (vii)(B) (referencing presumption rules
for payments with respect to offshore obligations) shall not apply to a
payment of an amount not subject to withholding under chapter 3, unless
it is an amount that is a withholdable payment made to a payee that is
an entity. Thus, in the case of a withholdable payment made to an
entity, the presumption rules of Sec. 1.1441-1(b)(3)(iii)(D) and
(vii)(B) shall apply regardless of whether the payment is an amount
subject to withholding under chapter 3. Additionally, in the case of an
amount paid outside the United States with respect to an offshore
obligation described in Sec. 1.1441-1(b)(3)(iii)(D) or (vii)(B) of an
amount not subject to withholding under chapter 3 and that is treated as
made to a payee that is an individual, the presumption rules of Sec.
1.1441-1(b)(3)(iii) shall not apply, and the payee shall be presumed a
U.S. person only when the payee has any of the indicia of U.S. status
that are described in Sec. 1.1441-7(b)(5) or (8). In a case in which a
withholding agent makes a withholdable payment that cannot reliably be
associated with documentation, see Sec. 1.1471-3(f)(4) and (5) for
determining the status of the payee for chapter 4 purposes when the
payment is treated as made to a foreign entity (by substituting the term
``payor'' for the term ``withholding agent''). The rules of Sec.
1.1441-1(b)(2)(vii) shall apply for purposes of determining when a
payment can reliably be associated with documentation, by substituting
the term ``payor'' for the term ``withholding agent.'' For this purpose,
the information, documentary evidence, statement, or other documentation
described in paragraph (c)(4) of this section can be treated as
documentation with which a payment can be associated.
(ii) Grace period in the case of indicia of a foreign payee. When
the conditions of this paragraph (d)(2)(ii) are satisfied, the 30-day
grace period provisions under section 3406(e) shall not apply and the
provisions of this paragraph (d)(2)(ii) shall apply instead. A payor
that, at any time during the grace period described in this paragraph
(d)(2)(ii), credits an account with payments described in Sec. 1.1441-
6(c)(2) (or credits an account with broker proceeds from securities
described in Sec. 1.1441-6(c)(2)), that are reportable under section
6042, 6045, 6049, or 6050N may, instead of treating the account as owned
by a U.S. person and applying backup withholding under section 3406, if
applicable, choose to treat the account as owned by a foreign person
(and apply the grace period described in Sec. 1.1441-1(b)(3)(iv)) if,
at the beginning of the grace period, the address that the payor has in
its records for the account holder is in a foreign country, the payor
has been furnished the information contained in a withholding
certificate described in Sec. 1.1441-1(e)(2), or the payor holds a
withholding certificate that is no longer reliable other than because
the validity period as described in Sec. 1.1441-1(e)(4)(ii)(A) has
expired. In the case of a newly opened account, the grace period begins
on the date that the payor first credits the account. In the case of an
existing account for which the payor holds a Form W-8 or documentary
evidence of foreign status, the payor may apply the provisions of the
grace period described in Sec. 1.1441-1(b)(3)(iv), beginning on the
date that the payor first credits the account after the existing
documentation held with regard to the account can no longer be relied
upon (other than because the validity period described in Sec. 1.1441-
1(e)(4)(ii)(A) has expired). A new account shall be treated as an
existing account for purposes of this paragraph (d)(2)(ii) if the
account holder already holds an account at the branch location at which
the new account is opened, or if the account is treated as a
consolidated obligation as defined in Sec. 1.1471-(1)(b)(23) for
purpose of chapter 4 to the extent the account
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does not receive any amounts subject to withholding under chapter 3. A
new account shall also be treated as an existing account for purposes of
this paragraph (d)(2)(ii) if an account is held at another branch
location if the institution maintains an account information system
described in Sec. 1.1441-1(e)(4)(ix). The grace period terminates on
the earlier of the close of the 90th day from the date on which the
grace period begins or the date that valid documentation is provided.
The grace period also terminates when the remaining balance in the
account (due to withdrawals or otherwise) is equal to or less than 28
percent (or other statutory tax rate that is applicable to backup
withholding) of the total amounts credited since the beginning of the
grace period that would be subject to backup withholding if the
provisions of this paragraph (d)(2)(ii) did not apply. At the end of the
grace period, the payor shall treat the amounts credited to the account,
or paid with respect to an account, during the grace period as paid to a
U.S. or foreign payee depending upon whether documentation has been
furnished and the nature of any such documentation furnished upon which
the payor may rely to treat the account as owned by a U.S. or foreign
payee. If the documentation has not been received on or before the date
of expiration of the grace period, the payor may also apply the
presumptions described in this paragraph (d) to amounts credited to the
account after the date on which the grace period expires (until such
time as the payor can reliably associate the documentation with amounts
credited). See Sec. 31.6413(a)-3(a)(1)(iv) of this chapter for treating
backup withheld amounts under section 3406 as erroneously withheld when
the documentation establishing foreign status is furnished prior to the
end of the calendar year in which backup withholding occurs. If the
provisions of this paragraph (d)(2)(ii) apply, the provisions of Sec.
31.3406(d)-3 of this chapter shall not apply. For purposes of this
paragraph (d)(2)(ii), an account holder's reinvestment of gross proceeds
of a sale into other instruments constitutes a withdrawal and a non-
qualified electronic transmission of information on a withholding
certificate is a transmission that is not in accordance with the
provisions of Sec. 1.1441-1(e)(4)(iv). See Sec. 1.1092(d)-1 for a
definition of the term actively traded for purposes of this paragraph
(d)(2)(ii).
(iii) Joint owners. Amounts paid to accounts held jointly for which
a certificate or documentation is required as a condition for being
exempt from reporting under paragraph (b) of this section are presumed
made to U.S. payees who are not exempt recipients if, prior to payment,
the payor cannot reliably associate the payment either with a Form W-9
furnished by one of the joint owners in the manner required in
Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (b)(12) of this section furnished
by each joint owner upon which it can rely to treat each joint owner as
a foreign payee or foreign beneficial owner. In the case of an amount
that is a withholdable payment made to a joint account, however, see
Sec. 1.1471-3(f)(7) for when the payment is treated as made to a
foreign payee that is a nonparticipating FFI (as defined in Sec.
1.1471-1(b)(82)). For purposes of applying this paragraph (d)(2)(iii),
the grace period described in paragraph (d)(2)(ii) of this section shall
apply only if each payee qualifies for such grace period.
(3) Payments to foreign intermediaries or flow-through entities--(i)
Payments of amounts subject to withholding under chapter 3 of the Code
or withholdable payments. In the case of payments of amounts that the
payor may treat as made to a foreign intermediary or flow-through entity
in accordance with Sec. Sec. 1.1441-1(b)(3)(ii)(C) and (b)(3)(v)(A) and
1.1441-5(c) or (e) and that are subject to withholding under Sec.
1.1441-2(a), the provisions of Sec. Sec. 1.1441-1(b)(2)(v) and 1.1441-
5(c)(1), (e)(2), and (3) shall apply (by substituting the term ``payor''
for the term ``withholding agent'') to identify the payee. If a payment
of an amount subject to withholding cannot be reliably associated with
valid documentation from a payee in accordance with Sec. 1.1441-
1(b)(2)(vii), the presumption rules of Sec. Sec. 1.1441-1(b)(3)(v) and
1.1441-5(d) and (e)(6) shall apply to determine the payee's status for
purposes of this section (and other sections of
[[Page 396]]
regulations under this chapter to which this paragraph (d)(3) applies).
In the case of an amount that is a withholdable payment, see Sec.
1.1471-3(c)(3) for rules to identify the payee and see Sec. 1.1471-
3(f)(5) for the presumption rule that shall apply to amounts treated as
made to a foreign intermediary or flow-through entity (by substituting
the term ``payor'' for the term ``withholding agent''). For example,
where a withholdable payment is made to an intermediary under Sec.
1.1471-3 that is treated as a nonparticipating FFI under Sec. 1.1471-
3(f)(5), the nonparticipating FFI shall be treated as the payee under
Sec. 1.1471-3(c)(3) and for purposes of this paragraph (d)(3)(i),
therefore, no information return shall be required under this section.
(ii) Payments of amounts not subject to withholding under chapter 3
of the Code and that are not withholdable payments. Except as provided
in paragraph (d)(3)(iii) of this section, amounts that are not subject
to withholding under chapter 3 of the Code and that are not withholdable
payments that the payor may treat as paid to a foreign intermediary or
flow-through entity shall be treated as made to an exempt recipient
described in Sec. 1.6049-4(c) except to the extent that the payor has
actual knowledge that any person for whom the intermediary or flow-
through entity is collecting the payment is a U.S. person who is not an
exempt recipient. In the case of such actual knowledge, the payor shall
treat the payment that it knows is allocable to such U.S. person as a
payment to a U.S. payee who is not an exempt recipient and has actual
knowledge of the amount allocable to such a person.
(iii) Special rule for payments of certain short-term original issue
discount--(A) General rule. A payment of U.S. source bank deposit
interest not subject to chapter 4 withholding or U.S. source interest or
original issue discount on the redemption of an obligation with a
maturity from the date of issue of 183 days or less (short-term OID)
described in section 871(g)(1)(B) or 881(e) that the payor may treat as
paid to a foreign intermediary or flow-through entity in accordance with
the provisions of Sec. 1.1441-1(b)(3)(ii)(C), (b)(3)(v)(A), Sec.
1.1441-5(d) or (e) (by substituting the term ``payor'' for the term
``withholding agent''), shall be treated as paid to an undocumented U.S.
payee that is not an exempt recipient under paragraph Sec. 1.6049-4(c)
unless the payor has documentation from the payees of the payment and
the payment is allocated to foreign payees, as a group, and to each U.S.
non-exempt recipient payee. See Sec. 1.1441-1(e)(3)(iv)(C)(2). However,
a payor may rely on a withholding statement provided by an intermediary
described in Sec. 1.1441-1(e)(3)(iv) (or similar withholding statement
for a flow-through entity) that identifies a chapter 4 withholding rate
pool of U.S. payees (as described in Sec. 1.6049-4(c)(4)(iii)) only if
it identifies the foreign intermediary or flow-through entity as a
participating FFI (including a reporting Model 2 FFI) or registered
deemed-compliant FFI (including a reporting Model 1 FFI) under Sec.
1.1471-3(d)(4) (by substituting the term ``payor'' for the term
``withholding agent''). See also Sec. 1.6049-4(c)(4)(iii) for when an
FFI may provide a chapter 4 withholding rate pool of U.S. payees on a
withholding statement.
(B) Payee may be an intermediary. If a payment is made to a person
described in Sec. 1.6049-4(c)(1)(ii) that has not provided an
intermediary withholding certificate under Sec. 1.1441-1(e)(3)(i) but
the payor knows or has reason to know that the payee may be an
intermediary, the payor must apply the rules of paragraph (d)(3)(iii)(A)
of this section. A payor has reason to know that such a person may be an
intermediary if that person has provided documentation as an
intermediary for another account with the same payor.
(iv) Short-term deposits and repurchase transactions. The provisions
of paragraph (d)(3)(ii) of this section and not paragraph (d)(3)(iii) of
this section shall apply to deposits with banks and other financial
institutions that remain on deposit for a period of two weeks or less,
to amounts of original issue discount arising from a sale and repurchase
transaction that is completed within a period of two weeks or less, or
to amounts described in paragraphs (b)(7), (10) and (11) of this section
(relating to certain obligations issued in bearer form).
[[Page 397]]
(4) Examples. The rules of paragraphs (d)(1) through (3) of this
section are illustrated by the examples in this paragraph (d)(4). Unless
otherwise specified in an example, the following facts apply: all FFIs,
such as a nonqualified intermediary that is an FFI, are treated as
participating FFIs; all payees have been identified with chapter 4
statuses that do not require withholding under chapter 4; and none of
the payments are withholdable payments.
Example 1. (i) Facts. USP is a U.S. payor as defined in paragraph
(c)(5) of this section. USP pays interest from sources within the United
States that is a withholdable payment to an account maintained in the
United States by X. The interest is not deposit interest described in
sections 871(i)(2)(A) or 881(d). USP does not have a Form W-9, or
withholding certificate from X as defined in Sec. 1.1441-1(c)(16).
Moreover, USP cannot treat X as an exempt recipient, as defined in Sec.
1.6049-4(c)(1)(ii), without documentation and there is no indication
that X is an individual, trust, or estate.
(ii) Analysis. The U.S. source interest is an amount subject to
withholding as defined in Sec. 1.1441-2(a). Under paragraph (d)(1) of
this section, USP must apply the provisions of Sec. Sec. 1.1441-1(b)(2)
and 1.1441-5(c) and (e) to determine the payee of the interest. Under
Sec. 1.1441-1(b)(2)(i), X, the person to whom the payment is made, is
considered to be the payee, unless X is determined to be a flow-through
entity, in which case the rules of Sec. 1.1441-5 apply to determine the
payee. Under paragraph (d)(2)(i) of this section, the rules of Sec.
1.1441-1(b)(3)(ii) apply to determine the classification of a payee as
an individual, trust, estate, corporation, or partnership. Under Sec.
1.1441-1(b)(3)(ii)(B), X is presumed to be a partnership, since X does
not appear to be an individual, trust or estate, and X cannot be
presumed to be an exempt recipient in the absence of documentation.
Paragraph (d)(2)(i) of this section requires USP to apply the provisions
of Sec. Sec. 1.1441-1(b)(3)(iii) and 1.1441-5(d) to determine whether X
is presumed to be a U.S. or foreign partnership. Under Sec. Sec.
1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is presumed to be a U.S.
partnership in absence of any indicia of foreign partnership status. The
presumption of U.S. status applies even though the payment is a
withholdable payment (see paragraph (d)(2) of this section and Sec.
1.1471-3(f)(2) cross referencing the presumption rules of Sec. 1.1441-
1(b)(3)). The U.S. source interest paid to X is reportable under section
6049 on Form 1099 and the interest is subject to backup withholding
under section 3406 because X has not provided its TIN on a valid Form W-
9. No withholding or reporting applies to the payment under chapter 3 or
4 of the Code.
Example 2. (i) Facts. The facts are the same as in Example 1, except
that the interest paid by USP is from sources outside the United States.
(ii) Analysis. Interest from sources outside the United States is
not an amount subject to withholding, as defined in Sec. 1.1441-2(a) or
a withholdable payment. Under paragraph (d)(1) of this section, USP must
apply the provisions of Sec. Sec. 1.1441-1(b)(2) and 1.1441-5(c) and
(e) to determine the payee. Under Sec. 1.1441-1(b)(2)(i), X, the person
to whom the payment is made, is considered to be the payee, unless X is
determined to be a flow-through entity, in which case the rules of Sec.
1.1441-5(c) or (e) apply to determine the payee. Under paragraph
(d)(2)(i) of this section, the rules of Sec. 1.1441-1(b)(3)(ii) apply
to determine the classification of a payee as an individual, trust,
estate, corporation, or partnership. These rules apply irrespective of
whether the payment is an amount subject to withholding. Under Sec.
1.1441-1(b)(3)(ii)(B), X is presumed to be a partnership, since X does
not appear to be an individual, trust or estate, and X cannot be
presumed to be an exempt recipient in the absence of documentation.
Paragraph (d)(2)(i) of this section requires USP to apply the provisions
of Sec. Sec. 1.1441-1(b)(3)(iii) and 1.1441-5(d) to determine whether,
X is presumed to be a U.S. or foreign partnership. Under Sec. Sec.
1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is presumed to be a U.S.
partnership in absence of any indicia of foreign partnership status. The
foreign source interest is a payment subject to reporting on Form 1099
under Sec. 1.6049-5(a). Further, because X is a non-exempt recipient
that has failed to provide its TIN on a valid Form W-9, the foreign
source interest is subject to backup withholding under section 3406.
Example 3. (i) Facts. USP is a U.S. payor as defined in paragraph
(c)(5) of this section. USP makes a payment of U.S. source interest
outside the United States to an offshore account of X. See paragraphs
(c)(1) for a definition of offshore account and (e) for a payment
outside the United States. USP does not have a withholding certificate
from X as defined in Sec. 1.1441-1(c)(16) nor does it have documentary
evidence as described in Sec. 1.1441-1(e)(1)(ii)(A)(2) and Sec.
1.6049-5(c)(1).
(ii) Analysis. The interest is an amount subject to withholding as
defined in Sec. 1.1441-2(a). Under paragraph (d)(1) of this section,
USP must apply the provisions of Sec. 1.1441-1(b)(2) and Sec. 1.1441-
5(c) and (e) to determine the payee. Under Sec. 1.1441-1(b)(2)(i), X,
the person to whom the payment is made, is considered to be the payee,
unless X is determined to be a flow-through entity, in which case the
rules of Sec. 1.1441-5(c) or (e) apply to determine the payee. Under
paragraph (d)(2)(i) of this section, the rules of Sec. 1.1441-
1(b)(3)(ii) apply to determine the classification of a
[[Page 398]]
payee as an individual, trust, estate, corporation, or partnership.
Under Sec. 1.1441-1(b)(3)(ii)(B), X is presumed to be a partnership,
since X does not appear to be an individual, trust or estate, and X
cannot be presumed to be an exempt recipient in the absence of
documentation. Paragraph (d)(2)(i) of this section requires USP to apply
the provisions of Sec. Sec. 1.1441-1(b)(3)(iii) and 1.1441-5(d) to
determine whether, X is presumed to be a U.S. or foreign partnership.
Under Sec. Sec. 1.1441-1(b)(3)(iii)(D) and 1.1441-5(d)(2), X is
presumed to be a foreign partnership. Therefore, under paragraph (d)(1)
of this section and Sec. 1.1441-5(c)(1)(i)(E), the payees of the
interest are presumed to be the partners of X. Under Sec. 1.1441-
5(d)(3), the partners are presumed to be undocumented foreign persons.
Therefore, USP must withhold 30% of the interest payment under Sec.
1.1441-1(b)(1) and report the payment on Form 1042-S in accordance with
Sec. 1.1461-1(c).
Example 4. (i) Facts. The facts are the same as in Example 3, except
that the interest is paid by F, a non-U.S. payor.
(ii) Analysis. The analysis and result are the same as in Example 3.
F is a withholding agent under Sec. 1.1441-7 and its status as a non-
U.S. payor under paragraph (c)(5) of this section is irrelevant.
Example 5. (i) Facts. USP is a U.S. payor as defined in paragraph
(c)(5) of this section that is not an FFI. USP makes a payment outside
the United States of interest from sources outside the United States
with respect to an offshore obligation held by X. USP does not have a
withholding certificate from X as defined in Sec. 1.1441-1(c)(16) nor
does it have documentary evidence as described in Sec. Sec. 1.1471-
3(c)(5)(i) and 1.6049-5(c)(1). USP does not have actual knowledge of an
employer identification number for X. X does not appear to be an
individual, trust, or estate and cannot be treated as an exempt
recipient, as defined in Sec. 1.6049-4(c)(1)(ii) in the absence of
documentation.
(ii) Analysis. The interest is not an amount subject to withholding
as defined in Sec. 1.1441-2(a) and is not a withholdable payment. Under
paragraph (d)(1) of this section, USP must apply the rules of Sec. Sec.
1.1441-1(b)(2) and 1.1441-5(c) and (e) to determine the payee of the
interest. Under Sec. 1.1441-1(b)(2)(i), X, the person to whom the
payment is made, is considered to be the payee, unless X is determined
to be a flow-through entity, in which case the rules of Sec. 1.1441-
5(c) or (e) apply to determine the payee. Under paragraph (d)(2)(i) of
this section, Sec. 1.1441-1(b)(3)(ii) applies to determine X's
classification as an individual, trust, estate, corporation or
partnership. Under Sec. 1.1441-1(b)(3)(ii)(B), X is treated as a
partnership, since it does not appear to be an individual, trust, or
estate and cannot be treated as an exempt recipient without
documentation. Paragraph (d)(2)(i) of this section requires USP to apply
the provisions of Sec. Sec. 1.1441-1(b)(3)(iii) and 1.1441-5(d) to
determine whether, X is presumed to be a U.S. or foreign partnership.
Paragraph (d)(2)(i) of this section also states that the presumptions of
foreign status for payments made with respect to offshore obligations
contained in Sec. Sec. 1.1441-1(b)(3)(iii)(D) and 1.1441-5(d)(2) do not
apply to amounts that are not subject to withholding and that are not
withholdable payments described in paragraph (d)(2)(i). Therefore, under
Sec. Sec. 1.1441-1(b)(3)(iii) and 1.1441-5(d)(2), X is presumed to be a
U.S. partnership because it does not have actual knowledge that X's
employer identification number begins with the digits ``98.'' Therefore,
USP must treat X as a U.S. person that is not an exempt recipient and
report the payment on Form 1099 under section 6049. Under Sec.
31.3406(g)-1(e) of this chapter, however, USP is not required to backup
withhold on the payment unless it has actual knowledge that X is a U.S.
person that is not an exempt recipient.
Example 6. (i) Facts. The facts are the same as in Example 5, except
that the interest is paid by F, a non-U.S. payor, as defined under
paragraph (c)(5) of this section.
(ii) Analysis. The analysis is the same as under Example 5. However,
F is a non-U.S. payor paying foreign source interest outside the United
States, and there is no indication that the amount is received in the
United States under Sec. 1.6049-4(f)(16). Thus, paragraph (b)(6) of
this section exempts the payment from reporting under section 6049.
Example 7. (i) Facts. USP, a U.S. payor as defined in paragraph
(c)(5) of this section that is not an FFI, makes a payment of U.S.
source interest that is a withholdable payment to NQI, a nonqualified
intermediary as defined in Sec. 1.1441-1(c)(14), that is a certified
deemed-compliant FFI under Sec. 1.1471-5(f)(2). The interest is paid
inside the United States to an account of a bank or other financial
institution maintained in the United States. NQI has provided USP with a
nonqualified intermediary withholding certificate, as described in Sec.
1.1441-1(e)(3)(iii) that includes its chapter 4 status, but has not
attached any documentation from the persons on whose behalf it acts or a
withholding statement as described in Sec. 1.1441-1(e)(3)(iv).
(ii) Analysis. U.S. source interest is an amount subject to
withholding under Sec. 1.1441-2(a). USP may treat the payment as made
to a foreign intermediary under Sec. 1.1441-1(b)(3)(v)(A) because USP
has received a nonqualified intermediary withholding certificate from
NQI and may except NQI from withholding under chapter 4 of the Code
given NQI's status for chapter 4 purposes as a deemed-compliant FFI.
Under paragraph (d)(3)(i) of this section, USP must then apply Sec.
1.1471-3(c)(3) to treat the persons on whose behalf NQI is acting as the
payees. Paragraph (d)(3)(i) of this section also requires USP to apply
the presumption rules of
[[Page 399]]
Sec. 1.1441-1(b)(3)(v) if it cannot reliably associate the payment with
valid documentation from a payee. See Sec. 1.1441-1(b)(2)(vii). As the
payment is a withholdable payment, the interest is treated as paid to a
nonparticipating FFI under Sec. 1.1471-3(f)(4). Therefore, the payment
is not subject to reporting on Form 1099 under paragraph (b)(12) of this
section. See Sec. 1.1471-2(a) for the withholding requirement with
respect to the payment and Sec. 1.1474-1(d)(2) for the requirement to
report the payment on Form 1042-S.
Example 8. (i) Facts. The facts are the same as in Example 7, except
that the interest is paid outside the United States, as defined in
paragraph (e) of this section to an offshore account, as defined in
paragraph (c)(1) of this section and is not a withholdable payment.
(ii) Analysis. Under Sec. 1.1441-1(b)(3)(v)(B), the interest is
treated as paid to an unknown foreign payee because it cannot be
reliably associated with documentation under Sec. 1.1441-1(b)(2)(vii).
Therefore, the payment is not subject to reporting on Form 1099 under
paragraph (b)(12) of this section because the payment is presumed made
to a foreign person. The payment is subject to withholding, however,
under Sec. 1.1441-1(b) at a rate of 30% and is subject to reporting on
Form 1042-S under Sec. 1.1461-1(c).
Example 9. (i) Facts. The facts are the same as in Example 8, except
that the interest is paid by F, a non-U.S. payor, as defined in
paragraph (c)(5) of this section.
(ii) Analysis. The analysis and results are the same as in Example
8.
Example 10. (i) Facts. USP, a U.S. payor as defined in paragraph
(c)(5) of this section, makes a payment of foreign source interest
(other than deposit interest) to NQI, a foreign corporation and a
nonqualified intermediary as defined in Sec. 1.1441-1(c)(14). NQI has
provided USP with a nonqualified intermediary withholding certificate,
as described in Sec. 1.1441-1(e)(3)(iii), but has not attached any
documentation from the persons on whose behalf it acts or a withholding
statement as described in Sec. 1.1441-1(e)(3)(iv).
(ii) Analysis. Foreign source interest is not an amount subject to
withholding under chapter 3 of the Code and is not a withholdable
payment. See Sec. Sec. 1.1441-2(a) and 1.1473-1(a). Under paragraph
(d)(3)(ii) of this section, amounts that are not subject to withholding
under chapter 3 of the Code and that are not withholdable payments
described in paragraph (d)(2)(i) of this section that a payor may treat
as paid to a foreign intermediary are treated as made to an exempt
recipient described in Sec. 1.6049-4(c) absent actual knowledge that
the payee is a U.S. person who is not an exempt recipient. Therefore,
the foreign source interest is not subject to reporting on Form 1099.
Example 11. (i) Facts. USP is a U.S. payor as defined in paragraph
(c)(5) of this section that is a bank. USP pays U.S. source original
issue discount from the redemption of an obligation described in section
871(g)(1)(B) to NQI, a foreign corporation that is a nonqualified
intermediary as defined in Sec. 1.1441-1(c)(14). The redemption
proceeds are not paid outside of the United States as they are paid with
respect to an account NQI has with a branch of a bank in the United
States. See Sec. 1.6049-5(e)(2). NQI provides a nonqualified
intermediary withholding certificate as described in Sec. 1.1441-
1(e)(3)(iii) that includes a certification of its status as a registered
deemed-compliant FFI but does not attach any payee documentation or a
withholding statement described in Sec. 1.1441-1(e)(3)(iv).
(ii) Analysis. Under paragraph (d)(3)(ii)(A) of this section, USP
must treat the payment as made to an undocumented U.S. payee that is not
an exempt recipient and report the payment on Form 1099. Further,
because the payment is made inside the United States, the exception to
backup withholding with respect to offshore obligations contained in
Sec. 31.3406(g)-1(e) of this chapter does not apply, and the payment is
subject to backup withholding.
Example 12. (i) Facts. P, a payor, makes a payment to NQI of U.S.
source interest on debt obligations issued prior to July 18, 1984, that
mature 30 years from their issuance dates. Therefore, the interest does
not qualify as portfolio interest under section 871(h) or 881(d).
Additionally, the interest is not a withholdable payment under Sec.
1.1471-2(b) as the interest is a payment with respect to a grandfathered
obligation for purposes of chapter 4 of the Code. NQI, a U.S. payor, is
a nonqualified foreign intermediary, as defined in Sec. 1.1441-
1(c)(14), and has furnished P a valid nonqualified intermediary
withholding certificate described in Sec. 1.1441-1(e)(3)(iii) to which
it has attached a valid Form W-9 for A, and two valid beneficial owner
Forms W-8, one for B and one for C. A is not an exempt recipient under
Sec. 1.6049-4(c). NQI furnishes a withholding statement, described in
Sec. 1.1441-1(e)(3)(iv), in which it allocates 20% of the U.S. source
interest to A, but does not allocate the remaining 80% of the interest
between B and C. B's withholding certificate indicates that B is a
foreign pension fund, exempt from U.S. tax under the U.S. income tax
treaty with Country T. C's withholding certificate indicates that C is a
foreign corporation not entitled to a reduced rate of withholding.
(ii) Analysis. As the interest is not a withholdable payment under
paragraph (d)(3)(i) of this section, P applies the rules of Sec.
1.1441-1(b)(2)(v) to determine the payees of the interest even though
NQI has not certified its status for purposes of chapter 4 of the Code.
Under that section, the payees are the persons on whose behalf NQI
acts--A, B and C. Because P can reliably associate 20% of the payment
with valid documentation
[[Page 400]]
provided by A, P must treat 20% of the interest as paid to A, a U.S.
person not exempt from reporting, and report the payment on Form 1099. P
cannot reliably associate the remaining 80% of the payment with valid
documentation under Sec. 1.1441-1(b)(2)(vii) and, therefore, under
paragraph (d)(3)(i) of this section must apply the presumption rules of
Sec. 1.1441-1(b)(3)(v). Under that section, the interest is presumed
paid to an unknown foreign payee. Under paragraph (b)(12) of this
section, P is not required to report the interest presumed paid to a
foreign person on Form 1099. Under Sec. 1.1441-1(b), 80% of the
interest is subject to 30% withholding, however, and the interest is
reportable on Form 1042-S under Sec. 1.1461-1(c).
Example 13. (i) Facts. The facts are the same as in Example 12,
except that P can reliably associate 30% of the payment of interest to
B, but cannot reliably associate the remaining 70 percent with A or C.
(ii) Analysis. Under paragraph (d)(3)(i) of this section, P applies
the rules of Sec. 1.1441-1(b)(2)(v) to determine the payees of the
interest. Under that section, the payees are the persons on whose behalf
NQI acts--A, B and C. Because P can reliably associate 30% of the
payment with B, a foreign pensions fund exempt from withholding under an
income tax treaty, P may treat that payment as paid to B and not subject
to reporting on Form 1099 under paragraph (b)(12) of this section. P
cannot reliably associate the remaining 70% of the payment with valid
documentation under Sec. 1.1441-1(b)(2)(vii) and, therefore, under
paragraph (d)(3)(i) of this section must apply the presumption rules of
Sec. 1.1441-1(b)(3)(v). Under that section, the interest is presumed
paid to an unknown foreign payee. Under paragraph (b)(12) of this
section, P is not required to report the interest presumed paid to a
foreign person on Form 1099. Under Sec. 1.1441-1(b), 80% of the
interest is subject to 30% withholding, however, and the interest is
reportable on Form 1042-S under Sec. 1.1461-1(c).
Example 14. (i) Facts. The facts are the same as in Example 12,
except that P also makes a payment of foreign source interest to NQI.
(ii) Analysis. Under paragraph (d)(3)(ii), P may treat the foreign
source interest as paid to an exempt recipient as defined in Sec.
1.6049-4(c) and not subject to reporting on Form 1099 even though some
or all of the foreign source interest may in fact be owned by A, the
U.S. person that is not exempt from reporting.
Example 15. (i) Facts. The facts are the same as in Example 12,
except that NQI is a non-U.S. payor.
(ii) Analysis. The analysis is the same as under Example 12 with
respect to B and C. However, because NQI is a non-U.S. payor, it may
under Sec. 1.6049-4(c)(4)(iii) allocate the portion of the payment to A
to a chapter 4 withholding rate pool of U.S. payees on a withholding
statement provided to P in lieu of furnishing the Form W-9 to P when NQI
reports the payments in accordance with Sec. 1.6049-4(c)(4)(i). In such
a case, provided that P obtains a certification form confirming NQI's
status as a participating FFI, P is excepted from reporting the payment
under paragraph (b)(14) of this section because P can reliably associate
the payment with the documentation provided by NQI.
(e) Determination of whether amounts are considered paid outside the
United States--(1) In general. For purposes of section 6049 and this
section, an amount is considered to be paid by a payor or middleman
outside the United States if the payor or middleman completes the acts
necessary to effect payment outside the United States. See paragraphs
(e)(2) through (5) of this section for further clarification of where
amounts are considered paid. A payment shall not be considered to be
made within the United States for purposes of section 6049 merely by
reason of the fact that it is made on a draft drawn on a United States
bank account or by a wire or other electronic transfer from a United
States account.
(2) Amounts paid with respect to deposits or accounts with banks and
other financial institutions. Notwithstanding paragraph (e)(1) of this
section, an amount paid by a bank or other financial institution with
respect to a deposit or with respect to an account with the institution
is considered paid at the branch or office at which the amount is
credited unless the amount is collected by the financial institution as
the agent of the payee. However, an amount will not be considered to be
paid at the branch or office where the amount is considered to be
credited unless the branch or office is a permanent place of business
that is regularly maintained, occupied, and used to carry on a banking
or similar financial business; the business is conducted by at least one
employee of the branch or office who is regularly in attendance at such
place of business during normal business hours; and the branch or office
receives deposits and engages in one or more of the other activities
described in Sec. 1.864-4(c)(5)(i).
(3) Coupon bonds and discount obligations in bearer form.
Notwithstanding paragraph (e)(1) of this section, an
[[Page 401]]
amount paid with respect to a bond with coupons attached (including a
certificate of deposit with detachable interest coupons) or a discount
obligation that is not in registered form (within the meaning of section
163(f) and the regulations thereunder) is considered to be paid where
the coupon or the discount obligation is presented to the payor or its
paying agent for payment.
(4) Foreign-targeted registered obligations. Notwithstanding
paragraph (e)(1) of this section, where the payor is the issuer or the
issuer's agent, an amount is considered paid outside the United States
with respect to a foreign-targeted registered obligation issued before
January 1, 2016, as described in Sec. 1.871-14(e)(2), if either the
amount is paid by transfer to an account maintained by the registered
owner outside the United States, or by mail to an address of the
registered owner outside the United States, or by credit to an
international account. For purposes of this paragraph (e)(4), the term
international account means the book-entry account of a financial
institution (within the meaning of section 871(h)(4)(B)) or of an
international financial organization with the Federal Reserve Bank of
New York for which the Federal Reserve Bank of New York maintains
records that specifically identify an international financial
organization or a financial institution (within the meaning of section
871(h)(4)(B)) as either a non-United States person or a foreign branch
of a United States person as registered owner. An international
financial organization is a central bank or monetary authority of a
foreign government or a public international organization of which the
United States is a member to the extent that such central bank,
authority, or organization holds obligations solely for its own account
and is exempt from tax under section 892 or 895.
(5) Examples. The application of the provisions of this paragraph
(e) is illustrated by the following examples:
Example 1. FC is a foreign corporation that is not a U.S. payor or
U.S. middleman, as defined in paragraph (c)(5) of this section. A holds
FC coupon bonds that are not in registered form under section 163(f) and
the regulations thereunder. FB, a foreign branch of DC, is the
designated paying agent with respect to the bonds issued by FC. A does
not have an account with FB. A presents a coupon from a FC bond for
payment to FB at its office outside the United States. FB pays A with a
check drawn against a bank account maintained in the United States. For
purposes of section 6049, the place of payment of interest on the FC
bond by FB to A is considered to be outside the United States under
paragraph (e)(3) of this section.
Example 2. Individual C deposits funds in an account with FB, a
foreign country X branch of DB, a U.S. corporation engaged in the
commercial banking business. FB maintains an office and employees in
foreign country X, accepts deposits, and conducts one or more of the
other activities listed in Sec. 1.864-4(c)(5)(i). The terms of C's
deposit provide that it will be payable with accrued interest. Under
paragraph (e)(2) of this section, FB is considered to pay the interest
on C's deposit outside the United States.
Example 3. DC, a U.S. corporation engaged in the commercial banking
business, maintains FB, a branch in foreign country X. FB has an office
and employees in foreign country X, accepts deposits, and engages in one
or more of the other activities listed in Sec. 1.864-4(c)(5)(i). D, a
United States citizen, purchases a certificate of deposit issued in 1980
by FB. The certificate of deposit has a maturity of 20 years and has
detachable interest coupons payable at six-month intervals. D presents
some of the coupons at the U.S. office of DC and receives payment in
cash. Because the coupon is presented to DC for payment within the
United States, DC is considered to have made the payment within the
United States under paragraph (e)(3) of this section.
Example 4. FB is recognized by both foreign country X and by the
Federal Reserve Bank as a foreign country X branch of DC, a U.S.
corporation engaged in the commercial banking business. A local foreign
country X bank serves as FB's resident agent in Country X. FB maintains
no physical office or employees in foreign country X. All the records,
accounts, and transactions of FB are handled at the United States office
of DC. E deposits funds in an amount maintained with FB. Interest earned
on the deposit is periodically credited to E's account with FB by
employees of DC. For purposes of section 6049, the place of payment of
the interest on E's deposit with FB is considered to be within the
United States by reason of paragraphs (e)(1) and (e)(2) of this section.
Example 5. DC is a U.S. corporation. A holds bonds that were issued
by DC in registered form under section 163(f), as in effect prior to the
amendment by section 502 of the HIRE Act of 2010, and the regulations
thereunder and that are foreign-targeted registered obligations as
defined in Sec. 1.871-
[[Page 402]]
14(e)(2). DB, a commercial banking business, is the registrar of bonds
issued by DC. Interest on the DC bonds is paid to A and other
bondholders by check prepared by DB at its principal office inside the
United States and mailed from there to A's address outside the United
States. The check is drawn on a United States account maintained by DC
with DB within the United States. The place of payment to A by DB of the
interest on the DC bonds is considered to be outside the United States
under paragraph (e)(4) of this section.
(f) Original issue discount treated as payment of interest. In
determining whether an obligation is one which was issued at a discount
and the amount of discount which is includible in income of the holder,
a payor (other than the issuer of the obligation) may rely on the
Internal Revenue Service's publication of publicly traded original issue
discount obligations. In the case of an obligation as to which there is
during any calendar year an amount of original issue discount includible
in the gross income of any holder (as determined under sections 1232 and
1232A and the regulations thereunder), the issuer of the obligation or a
middleman (as defined in Sec. 1.6049-4(f)(4)) shall be treated as
having paid to such holder during such calendar year an amount of
interest equal to the amount of original issue discount so includible
without regard to any reduction by reason of a purchase allowance under
sections 1232(a)(2)(C)(ii), 1232A (a)(6) or (b)(4) or a purchase at a
premium under 1232A(c)(4)(A) or paragraph (d)(2) of Sec. 1.1232-3.
Thus, the determination of the amount of original issue discount
includible in the gross income of any holder with respect to any
obligation shall be determined as if any holder of the obligation were
the original holder. However, see Sec. 1.6049-9 for the reporting of
premium for a debt instrument acquired on or after January 1, 2014. In
the case of (1) an obligation to which section 1232A does not apply (for
example, a short-term government obligation as defined in section
1232(a)(3)) and (2) an obligation issued on or before December 31, 1982,
in bearer form, the amount of original issue discount includible in
gross income shall be treated as if paid in the calendar year in which
the date of maturity occurs or in which the date of redemption occurs if
redemption occurs before maturity. The amount subject to reporting on an
obligation issued in bearer form with a maturity at the date of issue of
more than 1 year (a long term obligation) is the amount of original
issue discount includible in the gross income of the holder during the
calendar year of maturity or redemption if redemption occurs before
maturity. The amount of original issue discount subject to reporting on
a long term obligation shall not be reduced to reflect any purchase
allowance. Discount on short term government obligations as defined in
section 1232(a)(3), such as Treasury bills, and discount on other
obligations with a maturity at the date of issue of not more than 1 year
(a short term obligation), including commercial paper, when paid at
maturity or redemption if redemption occurs before maturity, shall
constitute a payment of interest for purposes of section 6049. In
general, the amount subject to reporting on short term obligations is
the difference between the stated redemption price at maturity and the
original issue price. The procedure set forth in section 3455(b)(2)(B)
and Sec. 31.3455(b)-1(b)(3) for establishing the price at which a
holder purchased an obligation subsequent to the date of original issue
shall apply for purposes of section 6049. Original issue discount on an
obligation (including an obligation with a maturity of not more than six
months from the date of original issue) held by a nonresident alien
individual or foreign corporation is interest described in paragraph
(b)(1)(vi)(A) or (B) of this section and, therefore is not interest
subject to reporting under section 6049 unless it is described in Sec.
1.6049-8(a) (relating to deposit interest paid on or after January 1,
2013, to certain nonresident alien individuals).
(g) Effective/applicability date. This section applies to payments
made on or after January 6, 2017. (For payments made after June 30,
2014, and before January 6, 2017, see this section as in effect and
contained in 26 CFR part 1, as revised April 1, 2016. For payments made
after December 31, 2000, and before July 1, 2014, see this section as in
effect and contained in 26 CFR part 1, as revised April 1, 2013.)
[T.D. 7881, 48 FR 12972, Mar. 28, 1983]
[[Page 403]]
Editorial Note 1.: For Federal Register citations affecting Sec.
1.6049-5, see the List of CFR Sections Affected, which appears in the
Finding Aids section of the printed volume and at www.govinfo.gov.
Sec. 1.6049(d)-5T Reporting by brokers of interest and original
issue discount on and after January 1, 1986 (temporary).
For purposes of Sec. 1.6049-5 (c), relating to original issue
discount treated as interest subject to reporting, on and after January
1, 1986, a payor who is a broker or middleman holding as a nominee--
(a) A bank certificate of deposit (without regard to whether the
broker or middleman sold the certificate of deposit to the owner), or
(b) Any other original issue discount debt instrument that is
specified by the Commissioner,
must determine whether that obligation is one that was issued at a
discount and the amount of discount that is includible in the income of
the owner. However, before January 1, 1987, reporting is required only
with respect to certificates of deposit (or any such other obligations)
held by a broker or middleman as a nominee on or after June 1, 1986,
that were sold by the broker or middleman (whether for the broker's
account or as an agent of the issuer) to the owner. The preceding two
sentences do not apply to certificates of deposit (or any such other
obligations) held on or after January 1, 1986, but disposed of before
June 1, 1986; reporting requirements with respect to such certificates
of deposit (or any other such obligations) shall be determined under the
provisions of Sec. 1.6049-5 (c) as in effect immediately prior to
publication of this Sec. 1.6049-5T.
[T.D. 8109, 51 FR 45106, Dec. 17, 1986. Redesignated by T.D. 9658, 79 FR
12800, Mar. 6, 2014]
Sec. 1.6049-6 Statements to recipients of interest payments and
holders of obligations for attributed original issue discount.
(a) Requirement of furnishing statement to recipient. Every person
filing a Form 1099 under section 6049(a) and Sec. 1.6049-4(e) shall
furnish to the person whose identifying number is required to be shown
on the form a written statement showing the information required by
paragraph (b) of this section. With respect to interest other than
interest reported on a transactional basis under Sec. 1.6049-4(e), no
statement is required to be furnished under section 6049(c) and this
section if the aggregate of the payments for the calendar year is less
than $10, unless such payment is subject to the tax imposed under
section 3406. In the case of any payment that is subject to withholding
under section 3406, a statement shall be furnished irrespective of the
amount of the payment. With respect to payments which are reported on a
transactional basis, no statement is required to be furnished under
section 6049(c) and this section to a person if the payment of interest
to (or received on behalf of) such person for the transaction is less
than $10 unless the payment is subject to withholding under section
3406. Again, in the case of any payment that is subject to withholding
under section 3406, a statement shall be furnished irrespective of the
amount of the payment.
(b) Form of statement. The written statement required to be
furnished to a person under paragraph (a) of this section shall show the
following information:
(1) With respect to payments of interest (other than original issue
discount) to any person during a calendar year, the statement shall
show:
(i) The aggregate amount of payments shown on Form 1099 as having
been made to (or received on behalf of) such person;
(ii) The amount of tax withheld under section 3406, if any;
(iii) The name and address of the person filing the form; and
(iv) A legend stating that such amount is being reported to the
Internal Revenue Service.
(2) With respect to original issue discount includible in the gross
income of a holder of an obligation during a calendar year, the
statement shall show:
(i) The aggregate amount of original issue discount includible in
the gross income by (or on behalf of) such person for the calendar year
with respect to the obligation (determined by applying the rules of
paragraph (b)(2) of Sec. 1.6049-4);
(ii) The amount of tax withheld under section 3406, if any;
[[Page 404]]
(iii) The account, serial, or other identifying number of each
obligation with respect to which a return is being made;
(iv) All other items shown on Form 1099 for such calendar year; and
(v) A legend stating that such amount and such items are being
reported to the Internal Revenue Service.
(3) With respect to both statements to persons receiving payments of
interest and persons holding obligations, the statement shall include
the name, address, and taxpayer identifying number of such person. An
IRS truncated taxpayer identifying number (TTIN) may be used as the
identifying number for the person. For provisions relating to the use of
TTINs, see Sec. 301.6109-4 of this chapter (Procedure and
Administration Regulations).
(c) Time for furnishing statements. Each statement required by this
section to be furnished to any person for a calendar year with respect
to a payment of interest (other than interest where a middleman or a
Federal agency makes a return on a transactional basis (as described in
paragraph (e) of Sec. 1.6049-4)) shall be furnished to such person
after April 30 of the year of payment and on or before January 31 of the
following year, but no statement may be furnished before the final
interest payment for the calendar year. If a middleman or a Federal
agency makes a return on a transactional basis, the statement shall be
furnished at, or any time subsequent to, the time of payment, but in no
event later than January 31 of the year following the calendar year of
payment. 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).
(d) Special rule. The requirements of this section for the
furnishing of a statement to any person, including the legend
requirement of paragraph (b)(1)(iv) and (2)(v) of this section, may be
met by the furnishing to such person a copy of the Form 1099 filed
pursuant to Sec. 1.6049-4, or an acceptable substitute, in respect of
such person. However, in the case of Form 1099 with respect to original
issue discount on obligations subject to section 1232A, a copy of the
instructions must also be sent to such person. A statement shall be
considered to be furnished to a person within the meaning of this
section if it is mailed to such person at his last known address.
(e) Statements to recipients--(1) Requirement. A person required to
make an information return under section 6049(a) and Sec. 1.6049-4 must
furnish a statement to each recipient whose identifying number is
required to be shown on the related information return for interest or
original issue discount paid or accrued.
(2) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (e)(1) of this section must be
either the official Form 1099 prescribed by the Internal Revenue Service
for the respective calendar year or an acceptable substitute statement.
The rules under Sec. 1.6042-4 (relating to statements with respect to
dividends) apply comparably in determining the form of an acceptable
substitute statement permitted by this paragraph (e). Those rules also
apply for purposes of determining the manner of and time for providing
the Form 1099 or its acceptable substitute to a recipient under
paragraph (e)(1) of this section. However, with respect to original
issue discount, the Form 1099 or acceptable substitute statement
required by paragraph (e)(1) of this section must show the aggregate
amount of original issue discount includible in the gross income by the
recipient for the calendar year with respect to the obligation
(determined by applying the rules of Sec. 1.6049-4(b)(2)), and the
amount, serial number, or other identifying number of each obligation
with respect to which a return is being made. With respect to interest
or original issue discount, the Form 1099 or acceptable substitute
statement required by paragraph (e)(1) of this section must be furnished
to the recipient on or before January 31 of the year following the
calendar year for which the return under section 6049(a)(1) was required
to be made. However, for a statement required to be furnished after
December
[[Page 405]]
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).
(3) Cross-reference to penalty. For provisions relating to the
penalty provided for failure to furnish timely a correct payee statement
required under section 6049(c) and Sec. 1.6049-6(a), see Sec.
301.6722-1 of this chapter (Procedure and Administration Regulations).
See Sec. 301.6724-1 of this chapter for the waiver of a penalty if the
failure is due to reasonable cause and is not due to willful neglect.
(4) Special rule for amounts described in Sec. 1.6049-8(a). In the
case of amounts described in Sec. 1.6049-8(a) (relating to payments of
deposit interest to certain nonresident alien individuals) paid on or
after January 1, 2013, any person who makes a Form 1042-S, ``Foreign
Person's U.S. Source Income Subject to Withholding,'' under section
6049(a) and Sec. 1.6049-4(b)(5) shall furnish a statement to the
recipient either in person or by first class mail to the recipient's
last known address. The statement shall include a copy of the Form 1042-
S required to be prepared pursuant to Sec. 1.6049-4(b)(5) and a
statement to the effect that the information on the form is being
furnished to the United States Internal Revenue Service. A person
required by this paragraph (e)(4) to furnish a recipient copy of Form
1042-S may furnish such copy electronically by complying with the
requirements provided in Sec. 1.6050W-2(a)(2) through (5) applicable to
statements required under section 6050W (substituting the phrase ``Form
1042-S'' for the phrases ``statement required under section 6050W'' or
``statements required by section 6050W(f)'' each place they appear).
(5) Effective/applicability date. Paragraph (b)(3) applies to payee
statements due after December 31, 2014. Paragraph (e)(4) of this section
applies to payee statements reporting payments of deposit interest to
nonresident alien individuals paid on or after January 2, 2020, but it
may be applied to payments made on or after January 1, 2016. For payee
statements reporting payments of deposit interest to nonresident alien
individuals paid on or after January 1, 2013 and before January 2, 2020,
see paragraph (e)(4) of this section as in effect and contained in 26
CFR part 1 revised April 1, 2019. For the substantially similar
statement mailing requirements that apply with respect to forms required
to be filed after October 22, 1986, and before January 1, 1996, see Rev.
Proc. 84-70 (1984-2 C.B. 716) (or successor revenue procedures). See
Sec. 601.601(d)(2) of this chapter. (For interest paid to a Canadian
nonresident alien individual on or before December 31, 2012, see
paragraph (e)(4) of this section as in effect and contained in 26 CFR
part 1 revised April 1, 2000.)
[T.D. 7881, 48 FR 12976, Mar. 28, 1983, as amended by T.D. 8637, 60 FR
66111, Dec. 21, 1995; 61 FR 11307, Mar. 20, 1996; T.D. 8664, 61 FR
17574, Apr. 22, 1996; T.D. 8664, 61 FR 40993, Aug. 7, 1996; T.D. 8734,
62 FR 53491, Oct. 14, 1997; T.D. 9504, 75 FR 64103, Oct. 18, 2010; T.D.
9584, 77 FR 23394, Apr. 19, 2012; T.D. 9675, 79 FR 41130, July 15, 2014;
T.D. 9890, 85 FR 206, Jan. 2, 2020]
Sec. 1.6049-7 Returns of information with respect to REMIC regular
interests and collateralized debt obligations.
(a) Definition of interest--(1) In general. For purposes of section
6049(a), for taxable years beginning after December 31, 1986, the term
interest includes:
(i) Interest actually paid with respect to a collateralized debt
obligation (as defined in paragraph (d)(2) of this section),
(ii) Interest accrued with respect to a REMIC regular interest (as
defined in section 860G(a)(1)), or
(iii) Original issue discount accrued with respect to a REMIC
regular interest or a collateralized debt obligation.
(2) Interest deemed paid. For purposes of this section and in
determining who must make an information return under section 6049(a),
interest as defined in paragraphs (a)(1) (ii) and (iii) of this section
is deemed paid when includible in gross income under section 860B (b) or
section 1272.
(b) Information required to be reported to the Internal Revenue
Service--(1) Requirement of filing Form 8811 by REMICs and other
issuers--(i) In general. Except in the case of a REMIC all of whose
regular interests are owned by one other REMIC, every REMIC and every
[[Page 406]]
issuer of a collateralized debt obligation (as defined in paragraph
(d)(2) of this section) must make an information return on Form 8811,
Information Return for Real Estate Mortgage Investment Conduits (REMICs)
and Issuers of Collateralized Debt Obligations. Form 8811 must be filed
in the time and manner prescribed in paragraph (b)(1)(iii) of this
section. The submission of Form 8811 to the Internal Revenue Service
does not satisfy the election requirement specified in Sec. 1.860D-
1T(d) and does not require election of REMIC status.
(ii) Information required to be reported. The following information
must be reported to the Internal Revenue Service on Form 8811--
(A) The name, address, and employer identification number of the
REMIC or the issuer of a collateralized debt obligation (as defined in
paragraph (d)(2) of this section);
(B) The name, title, and either the address or the address and
telephone number of the official or representative of the REMIC or the
issuer of a collateralized debt obligation who will provide to any
person specified in paragraph (e)(4) of this section the interest and
original issue discount information specified in paragraph (e)(2) of
this section;
(C) The startup day (as defined in section 860G(a)(9)) of the REMIC
or the issue date (as defined in section 1275(a)(2)) of the
collateralized debt obligation;
(D) The Committee on Uniform Security Identification Procedure
(CUSIP) number, aocount number, serial number, or other identifying
number or information, of each class of REMIC regular interest or
collateralized debt obligation;
(E) The name, title, address, and telephone number of the official
or representative of the REMIC or the issuer of a collateralized debt
obligation whom the Internal Revenue Service may contact, and
(F) Any other information required by Form 8811.
(iii) Time and manner of filing of information return--
(A) Manner of filing. Form 8811 must be filed with the Internal
Revenue Service at the address specified on the form. The information
specified in paragraph (b(1)(ii) of this section must be provided on
Form 8811 regardless of whether other information returns are filed by
use of electronic media.
(B) Time for filing. Form 8811 must be filed by each REMIC or issuer
of a collateralized debt obligation on or before the later of July 31,
1989, or the 30th day after--
(1) the startup day (as defined in section 860G(a)(9)) in the case
of a REMIC, or
(2) the issue date (as defined in section 1275(a)(2)) in the case of
a collateralized debt obligation.
Further, each REMIC or issuer of a collateralized debt obligation must
file a new Form 8811 on or before the 30th day after any change in the
information previously provided on Form 8811.
(2) Requirement of reporting by REMICs, issuers, and nominees--(i)
In general. Every person described in paragraph (b)(2)(ii) of this
section who pays to another person $10 or more of interest (as defined
in paragraph (a) of this section) during any calendar year must file an
information return on Form 1099, unless the interest is paid to a person
specified in paragraph (c) of this section.
(ii) Person required to make reports. The persons required to make
an information return under section 6049(a) and this section are--
(A) REMICs or issuers of collateralized debt obligations (as defined
in paragraph (d)(2) of this section), and
(B) Any broker who holds as a nominee or middleman who holds as a
nominee any REMIC regular interest or any collateralized debt
obligation.
(iii) Information to be reported--(A) REMIC regular interests and
collateralized debt obligations not issued with original issue discount.
An information return on Form 1099 must be made for each holder of a
REMIC regular interest or collateralized debt obligation not issued with
original issue discount, but only if the holder has been paid interest
(as defined in paragraph (a) of this section) of $10 or more for the
calendar year. The information return must show--
[[Page 407]]
(1) The name, address, and taxpayer identification number of the
record holder,
(2) The CUSIP number, account number, serial number, or other
identifying number or information, of each REMIC regular interest or
collateralized debt obligation, with respect to which a return is being
made,
(3) The aggregate amount of interest paid or deemed paid to the
record holder for the period during the calendar year for which the
return is made,
(4) The name, address, and taxpayer identification number of the
person required to file this return, and
(5) Any other information required by the form.
(B) REMIC regular interests and collateralized debt obligations
issued with original issue discount. An information return on Form 1099
must be made for each holder of a REMIC regular interest or a
collateralized debt obligation issued with original issue discount, but
only if the holder has been paid interest (as defined in paragraph (a)
of this section) of $10 or more for the calendar year. The information
return must show--
(1) The name, address, and taxpayer identification number of the
record holder,
(2) The CUSIP number, account number, serial number, or other
identifying number or information, of each REMIC regular interest or
collateralized debt obligation, with respect to which a return is being
made,
(3) The aggregate amount of original issue discount deemed paid to
the record holder for the period during the calendar year for which the
return is made,
(4) The aggregate amount of interest, other than original issue
discount, paid or deemed paid to the record holder for the period during
the calendar year for which the return is made,
(5) The name, address, and taxpayer identification number of the
person required to file this return, and
(6) Any other information required by the form.
(C) Cross-reference. See Sec. 1.67-3T(f)(3)(ii) for additional
information required to be included on an information return on Form
1099 with respect to certain holders of regular interests in REMICs
described in Sec. 1.67-3T(a)(2)(ii).
(iv) Time and place for filing a return with respect to amounts
includible as interest. The returns required under this paragraph (b)(2)
for any calendar year must be filed after September 30 of that year, but
not before the payor's final payment to the payee for the year, and on
or before February 28 (March 31 if filed electronically) of the
following year. These returns must be filed with the appropriate
Internal Revenue Service Center, the address of which is listed in the
instructions for Form 1099. For extensions of time for filing returns
under this section, see Sec. 1.6081-1. For magnetic media filing
requirements, see Sec. 301.6011-2 of this chapter.
(c) Information returns not required. An information return is not
required under section 6049(a) and this section with respect to payments
of interest on a REMIC regular interest or collateralized debt
obligation, if the holder of the REMIC regular interest or the
collateralized debt obligation is--
(1) An organization exempt from taxation under section 501(a) or an
individual retirement plan;
(2) The United States or a State, the District of Columbia, a
possession of the United States, or a political subdivision or a wholly-
owned agency or instrumentality of any one or more of the foregoing;
(3) A foreign government, a political subdivision thereof, or an
international organization;
(4) A foreign central bank of issue (as defined in Sec. 1.895-
1(b)(1)) or the Bank for International Settlements;
(5) A trust described in section 4947(a)(1) (relating to certain
charitable trusts);
(6) For calendar quarters and calendar years after 1988, a broker
(as defined in section 6045(c) and Sec. 1.6045-1(a)(1));
(7) For calendar quarters and calendar years after 1988, a person
who holds the REMIC regular interest or collateralized debt obligation
as a middleman (as defined in Sec. 1.6049-4(f)(4));
(8) For calendar quarters and calendar years after 1988, a
corporation
[[Page 408]]
(as defined in section 7701(a)(3)), whether domestic or foreign;
(9) For calendar quarters and calendar years after 1988, a dealer in
securities or commodities required to register as such under the laws of
the United States or a State;
(10) For calendar quarters and calendar years after 1988, a real
estate investment trust (as defined in section 856);
(11) For calendar quarters and calendar years after 1988, an entity
registered at all times during the taxable year under the Investment
Company Act of 1940;
(12) For calendar quarters and calendar years after 1988, a common
trust fund (as defined in section 584 (a));
(13) For calendar quarters and calendar years after 1988, a
financial institution such as a mutual savings bank, savings and loan
association, building and loan association, cooperative bank, homestead
association, credit union, industrial loan association or bank, or other
similar organization;
(14) For calendar quarters and calendar years after 1988, any trust
which is exempt from tax under section 664(c) (i.e., a charitable
remainder annuity trust or a charitable remainder unitrust); and
(15) For calendar quarters and calendar years after 1988, a REMIC.
(d) Special provisions and definitions--(1) Incorporation of
referenced rules. The special rules of Sec. 1.6049-4(d) are
incorporated in this section, as applicable, except that Sec. 1.6049-
4(d)(2) does not apply to any REMIC regular interest or any other debt
instrument to which section 1272(a)(6) applies. Further, Sec. 1.6049-
5(c) does not apply to any REMIC regular interest or any other debt
instrument to which section 1272(a)(6) applies.
(2) Collateralized debt obligation. For purposes of this section,
the term ``collateralized debt obligation'' means any debt instrument
(except a tax-exempt obligation) described in section 1272(a)(6)(C)(ii)
that is issued after December 31, 1986.
(e) Requirement of furnishing information to certain nominees,
corporations, and other specified persons--(1) In general. For calendar
quarters and calendar years after 1988, each REMIC or issuer of a
collateralized debt obligation (as defined in paragraph (d)(2) of this
section) must provide the information specified in paragraph (e)(2) of
this section in the time and manner prescribed in paragraph (e)(3) of
this section to any persons specified in paragraph (e)(4) of this
section who request the information.
(2) Information required to be reported. For each class of REMIC
regular interest or collateralized debt obligation and for each calendar
quarter specified by the person requesting the information, the REMIC or
issuer of a collateralized debt obligation must provide the following
information--
(i) The name, address and Employer Identification Number of the
REMIC or issuer of a collateralized debt obligation;
(ii) The CUSIP number, account number, serial number, or other
identifying number or information, of each specified class of REMIC
regular interest or collateralized debt obligation and, for calendar
quarters and calendar years after 1991, whether the information being
reported is with respect to a REMIC regular interest or a collateralized
debt obligation;
(iii) Interest paid on a collateralized debt obligation in the
specified class for each calendar quarter, and the aggregate amount for
the calendar year if the request is made for the last quarter of the
calendar year;
(iv) Interest accrued on a REMIC regular interest in the specified
class for each accrual period any day of which is in the specified
calendar quarter, and the aggregate amount for the calendar year if the
request is made for the last quarter of the calendar year;
(v) Original issue discount accrued on a collateralized debt
obligation or REMIC regular interest in the specified class for each
accrual period any day of which is in that calendar quarter, and the
aggregate amount for the calendar year if the request is made for the
last quarter of the calendar year;
(vi) The daily portion of original issue discount per $1,000 of
original principal amount (or for calendar quarters prior to 1992, per
other specified unit) as determined under section 1272(a)(6) and the
regulations thereunder for each accrual period any day
[[Page 409]]
of which is in the specified calendar quarter;
(vii) The length of the accrual period;
(viii) The adjusted issue price (as defined in section
1275(a)(4)(B)(ii)) of the REMIC regular interest or the collateralized
debt obligation at the beginning of each accrual period any day of which
is in the specified calendar quarter;
(ix) The information required by paragraph (f)(3) of this section;
(x) Information required to compute the accrual of market discount
including, for calendar years after 1989, the information required by
paragraphs (f)(2)(i)(G) or (f)(2)(ii)(K) of this section; and
(xi) For calendar quarters and calendar years after 1991, if the
REMIC is a single class REMIC (as described in Sec. 1.67-3T
(a)(2)(ii)(B)), the information described in Sec. 1.67-3T (f)(1) and
(f)(3)(ii) (A) and (B).
(3) Time and manner for providing information--(i) Manner of
providing information. The information specified in paragraph (e)(2) of
this section may be provided as follows--
(A) By telephone;
(B) By written statement sent by first class mail to the address
provided by the requesting party;
(C) By causing it to be printed in a publication generally read by
and available to persons specified in paragraph (e)(4) and by notifying
the requesting persons in writing or by telephone of the publication in
which it will appear, the date of its appearance, and, if possible, the
page upon which it appears; or
(D) By any other method agreed to by the parties. If the information
is published, then the publication should also specify the date and, if
possible, the page on which corrections, if any, will be printed.
(ii) Time for furnishing the information. Each REMIC or issuer of a
collateralized debt obligation must furnish the information specified in
paragraph (e)(2) of this section on or before the later of--
(A) The 30th day after the close of the calendar quarter for which
the information was requested, or
(B) The day that is two weeks after the receipt of the request.
(4) Persons entitled to request information. The following persons
may request the information specified in paragraph (e)(2) of this
section with respect to a specified class of REMIC regular interests or
collateralized debt obligations from a REMIC or issuer of a
collateralized debt obligation in the manner prescribed in paragraph
(e)(5) of this section--
(i) Any broker who holds on its own behalf or as a nominee any REMIC
regular interest or collateralized debt obligation in the specified
class,
(ii) Any middleman who is required to make an information return
under section 6049 (a) and paragraph (b)(2) of this section and who
holds as a nominee any REMIC regular interest or collateralized debt
obligation in the specified class,
(iii) Any corporation or non-calendar year taxpayer who holds a
REMIC regular interest or collateralized debt obligation in the
specified class directly, rather than through a nominee,
(iv) Any other person specified in paragraphs (c)(9) through (15) of
this section who holds a REMIC regular interest or collateralized debt
obligation in the specified class directly, rather than through a
nominee, or
(v) A representative or agent for a person specified in paragraphs
(e)(4)(i), (ii), (iii) or (iv) of this section.
(5) Manner of requesting information from the REMIC. A requesting
person specified in paragraph (e)(4) of this section should obtain
Internal Revenue Service Publication 938, Real Estate Mortgage
Investment Conduit (REMIC) and Collateralized Debt Obligation Reporting
Information (or other guidance published by the Internal Revenue
Service). This publication contains a directory of REMICs and issuers of
collateralized debt obligations. The requesting person can locate the
REMIC or issuer from whom information is needed and request the
information from the official or representative of the REMIC or issuer
in the manner specified in the publication. The publication will specify
either an address or an address and telephone number. If the publication
provides only an address, the request must be made in
[[Page 410]]
writing and mailed to the specified address. Further, the request must
specify the calendar quarters (e.g., all calendar quarters in 1989) and
the classes of REMIC regular interests or collateralized debt
obligations for which information is needed.
(f) Requirement of furnishing statement to recipient--(1) In
general. Every person filing a Form 1099 under section 6049 (a) and this
section must furnish to the holder (the person whose identifying number
is required to be shown on the form) a written statement showing the
information required by paragraph (f)(2) of this section. The written
statement provided by a REMIC must also contain the information
specified in paragraph (f)(3) of this section.
(2) Form of statement--(i) REMIC regular interests and
collateralized debt obligations not issued with original issue discount.
For a REMIC regular interest or collateralized debt obligation issued
without original issue discount, the written statement must specify for
the calendar year the following information--
(A) The aggregate amount shown on Form 1099 to be included in income
by that person for the calendar year;
(B) The name, address, and taxpayer identification number of the
person required to furnish this statement;
(C) The name, address, and taxpayer identification number of the
person who must include the amount of interest in gross income;
(D) A legend, including a statement that the amount is being
reported to the Internal Revenue Service, that conforms to the legend on
Form 1099, Copy B, For Recipient;
(E) The CUSIP number, account number, serial number, or other
identifying number or information, of each REMIC regular interest or
collateralized debt obligation, with respect to which a return is being
made;
(F) All other items shown on Form 1099 for the calendar year; and
(G) Information necessary to compute accrual of market discount. For
calendar years after 1989, this requirement is satisfied by furnishing
to the holder for each accrual period during the year a fraction
computed in the manner described in either paragraph (f)(2)(i)(G)(1) or
(f)(2)(i)(G)(2) of this section. For calendar years after December 31,
1991, the REMIC or the issuer of the collateralized debt obligation must
be consistent in the method used to compute this fraction.
(1) The numerator of the fraction equals the interest, other than
original issue discount, allocable to the accrual period. The
denominator of the fraction equals the interest, other than original
issue discount, allocable to the accrual period plus the remaining
interest, other than original issue discount, as of the end of that
accrual period. The interest allocable to each accrual period and the
remaining interest are calculated by taking into account events which
have occurred before the close of the accrual period and the prepayment
assumption, if any, determined as of the startup day (as defined in
section 860G(a)(9)) of the REMIC or the issue date (as defined in
section 1275(a)(2)) of the collateralized debt obligaition that would be
made in computing original issue discount if the debt instrument had
been issued with original issue discount.
(2) If the REMIC regular interest or the collateralized debt
obligation has de minimis original issue discount (as defined in section
1273(a)(3) and any regulations thereunder), then, at the option of the
REMIC or the issuer of the collateralized debt obligation, the fraction
may be computed in the manner specified in paragraph (f)(2)(ii)(K) of
this section taking into account the de minimis original issue discount.
(ii) REMIC regular interests and collateralized debt obligations
issued with original issue discount. For a REMIC regular interest or
collateralized debt obligation issued with original issue discount, the
written statement must specify for the calendar year the following
information--
(A) The aggregate amount of original issue discount includible in
the gross income of the holder for the calendar year with respect to the
REMIC regular interest or the collateralized debt obligation;
(B) The aggregate amount of interest, other than original issue
discount, includible in the gross income of the holder for the calendar
year with respect to the REMIC regular interest or the collateralized
debt obligation;
[[Page 411]]
(C) The name, address, and taxpayer identification number of the
person required to file this form;
(D) The name, address, and taxpayer identification number of the
person who must include the amount of interest specified in paragraphs
(f)(2)(ii) (A) and (B) of this section in gross income;
(E) For calendar years after 1987, the daily portion of original
issue discount per $l,000 of original principal amount (or for calendar
years prior to 1992, per other specified unit) as determined under
section 1272(a)(6) and the regulations thereunder for each accrual
period any day of which is in that calendar year;
(F) For calendar years after 1987, the length of the accrual period;
(G) All other items shown on Form 1099 for the calendar year;
(H) A legend, including a statement that the information required
under paragraphs (f)(2)(ii) (A), (B), (C), (D) and (G) of this section
is being reported to the Internal Revenue Service, that conforms to the
legend on Form 1099, Copy B, For Recipient;
(I) For calendar years after 1987, the adjusted issue price (as
defined in section 1275(a)(4)(B)(ii)) of the REMIC regular interest or
the collateralized debt obligation at the beginning of each accrual
period with respect to which interest income is required to be reported
on Form 1099 for the calendar year;
(J) The CUSIP number, account number, serial number, or other
identifying number or information, of each class of REMIC regular
interest or collateralized debt obligation, with respect to which a
return is being made; and
(K) Information necessary to compute accrual of market discount. For
calendar years after 1989, this information includes:
(1) For each accrual period in the calendar year, a fraction, the
numerator of which equals the original issue discount allocable to that
accrual period, and the denominator of which equals the original issue
discount allocable to that accrual period plus the remaining original
issue discount as of the end of that accrual period, and
(2) [Reserved]
The original issue discount allocable to each accrual period and the
remaining original issue discount are calculated by taking into account
events which have occurred before the close of the accrual period and
the prepayment assumption determined as of the startup day (as defined
in section 860G (a)(9)) of the REMIC or the issue date (as defined in
section 1275 (a)(2)) of the collateralized debt obligation.
(3) Information with respect to REMIC assets--(i) 95 percent asset
test. For calendar years after 1988, the written statement provided by a
REMIC must also contain the following information for each calendar
quarter--
(A) The percentage of REMIC assets that are qualifying real property
loans under section 593,
(B) The percentage of REMIC assets that are assets described in
section 7701 (a)(19), and
(C) The percentage of REMIC assets that are real estate assets
defined in section 856 (c)(6)(B), computed by reference to the average
adjusted basis (as defined in section 1011) of the REMIC assets during
the calendar quarter (as described in Sec. 1.860F-4 (e)(1)(iii)). If
for any calendar quarter the percentage of REMIC assets represented by a
category is at least 95 percent, then the statement need only specify
that the percentage for that category, for that calendar quarter, was at
least 95 percent.
(ii) Additional information required if the 95 percent test not met.
If, for any calendar quarter after 1988, less than 95 percent of the
assets of the REMIC are real estate assets defined in section 856
(c)(6)(B), then, for that calendar quarter, the REMIC's written
statement must also provide to any real estate investment trust (REIT)
that holds a regular interest the following information--
(A) The percentage of REMIC assets described in section 856
(c)(5)(A), computed by reference to the average adjusted basis of the
REMIC assets during the calendar quarter (as described in Sec. 1.860F-4
(e)(1)(iii)),
(B) The percentage of REMIC gross income (other than gross income
from prohibited transactions defined in section 860F (a)(2)) described
in section 856 (c)(3)(A) through (E), computed as of the close of the
calendar quarter, and
[[Page 412]]
(C) The percentage of REMIC gross income (other than gross income
from prohibited transactions defined in section 860F (a)(2)) described
in section 856 (c)(3)(F), computed as of the close of the calendar
quarter. For purposes of this paragraph (f)(3)(ii)(C), the term
``foreclosure property'' contained in section 856 (c)(3)(F) shall have
the meaning specified in section 860G (a)(8).
In determining whether a REIT satisfies the limitations of section
856 (c)(2), all REMIC gross income is deemed to be derived from a source
specified in section 856 (c)(2).
(iii) Calendar years 1988 and 1989. For calendar years 1988 and
1989, the percentage of assets required in paragraphs (f)(3)(i) and (ii)
of this section may be computed by reference to the average fair market
value of the assets of the REMIC during the calendar quarter (as
described in Sec. 1.860F-4 (e)(1)(iii)), instead of by reference to the
average adjusted basis of the assets of the REMIC during the calendar
quarter.
(4) Cross-reference. See Sec. 1.67-3T (f)(2)(ii) for additional
information that may be separately stated on the statement required by
this paragraph (f) with respect to certain holders of regular interests
in REMICs described in Sec. 1.67-3T (a)(2)(ii).
(5) Time for furnishing statements--(i) For calendar quarters and
calendar years after 1988. For calendar quarters and calendar years
after 1988, each statement required under this paragraph (f) to be
furnished to any person for a calendar year with respect to amounts
includible as interest must be furnished to that person after April 30
of that year and on or before March 15 of the following year, but not
before the final interest payment (if any) for the calendar year.
(ii) For calendar quarters and calendar years prior to 1989--(A) In
general. For calendar quarters and calendar years prior to 1989, each
statement required under this paragraph (f) to be furnished to any
person for a calendar year with respect to amounts includible as
interest must be furnished to that person after April 30 of that year
and on or before January 31 of the following year, but not before the
final interest payment (if any) for the calendar year.
(B) Nominee reporting. For calendar quarters and calendar years
prior to 1989, each statement required under this paragraph (f) to be
furnished by a nominee must be furnished to the actual owner of a REMIC
regular interest or a collateralized debt obligation to which section
1272 (a)(6) applies on or before the later of--
(1) The 30th day after the nominee receives such information, or
(2) January 31 of the year following the calendar year to which the
statement relates.
(6) Special rules--(i) Copy of Form 1099 permissible. The
requirements of this paragraph (f) for the furnishing of a statement to
any person, including the legend requirement of paragraphs (f)(2)(i)(D)
and (f)(2)(ii)(H) of this section, may be met by furnishing to that
person--
(A) A copy of the Form 1099 filed pursuant to paragraph (b)(2) of
this section in respect of that person, plus a separate statement
(mailed with the Form 1099) that contains the information described in
paragraphs (f)(2)(i)(E) and (G), (f)(2)(ii)(E), (F), (I), and (K),
(f)(3), and (f)(4) of this section, if applicable, or
(B) A substitute form that contains all the information required
under this paragraph (f) and that complies with any current revenue
procedure concerning the reproduction of paper substitutes of Forms 1099
and the furnishing of substitute statements to forms recipients. The
inclusion on the substitute form of the information specified in this
paragraph (f) that is not required by the official Forms 1099 will not
cause the substitute form to fail to meet any requirements that limit
the information that may be provided with a substitute form.
(ii) Statement furnished by mail. A statement mailed to the last
known address of any person shall be considered to be furnished to that
person within the meaning of this section.
(7) Requirement that nominees furnish information to corporations
and certain other specified persons--(i) In general. For calendar
quarters and calendar years after 1988, every broker or middleman must
provide in writing or by
[[Page 413]]
telephone the information specified in paragraph (e)(2) of this section
to--
(A) A corporation,
(B) A non-calendar year taxpayer, or
(C) Any other person specified in paragraphs (c)(9) through (15) of
this section
who requests the information and for whom the broker or middleman holds
as a nominee a REMIC regular interest or a collateralized debt
obligation. A corporation, non-calendar year taxpayer, or any other
person specified in paragraphs (c)(9) through (15) of this section may
request the information in writing or by telephone for any REMIC regular
interest or collateralized debt obligation for calendar quarters any day
of which the person held the interest or obligation.
(ii) Time for furnishing information. The statement required in
paragraph (f)(7)(i) of this section must be furnished on or before the
later of--
(A) The 45th day after receipt of the request,
(B) The 45th day after the close of the calendar quarter for which
the information was requested, or
(C) If the request is made for the last calendar quarter in a year,
March 15 of the year following the calendar quarter for which the
information was requested.
[T.D. 8366, 56 FR 49518, Sept. 30, 1991; 57 FR 5054, Feb. 12, 1992, as
amended by T.D. 8431, 57 FR 40322, Sept. 3, 1992; 57 FR 46243, Oct. 7,
1992; T.D. 8734, 62 FR 53491, Oct. 14, 1997; T.D. 8888, 65 FR 37702,
June 16, 2000; T.D. 8895, 65 FR 50407, Aug. 18, 2000]
Sec. 1.6049-8 Interest and original issue discount paid to certain
nonresident aliens.
(a) Interest subject to reporting requirement. For purposes of
Sec. Sec. 1.6049-4, 1.6049-6, and this section, and except as provided
in paragraph (b) of this section, the term interest means interest
described in section 871(i)(2)(A) that relates to a deposit maintained
at an office within the United States, and that is paid to a nonresident
alien individual who is a resident of a country that is identified, in
an applicable revenue procedure (see Sec. 601.601(d)(2) of this
chapter) as of December 31 prior to the calendar year in which the
interest is paid, as a country with which the United States has in
effect an income tax or other convention or bilateral agreement relating
to the exchange of tax information within the meaning of section
6103(k)(4), under which the competent authority is the Secretary of the
Treasury or his delegate and the United States agrees to provide, as
well as receive, information. Notwithstanding the foregoing, for
purposes of Sec. Sec. 1.6049-4, 1.6049-6, and this section, for any
year for which the information return under Sec. 1.6049-4(b)(5) is
required, a payor may elect to treat interest as including all interest
described in section 871(i)(2)(A) that relates to a deposit maintained
at an office within the United States and that is paid to any
nonresident alien individual. A payor shall make this election by
reporting all such interest. For purposes of the regulations under
section 6049 (Sec. Sec. 1.6049-1 through 1.6049-8), a nonresident alien
individual is a person described in section 7701(b)(1)(B). A payor or
middleman may rely upon the permanent residence address provided on a
valid Form W-8BEN, ``Beneficial Owners Certificate of Foreign Status for
U.S. Tax Withholding'', to determine the country in which a nonresident
alien individual is resident unless such payor or middleman knows or has
reason to know that such documentation of the country of residence is
unreliable or incorrect. Amounts described in this paragraph (a) are not
subject to backup withholding under section 3406 if the payor may treat
the payee as a foreign beneficial owner or foreign payee under the rules
of Sec. 1.6049-5(b)(12). See Sec. 31.3406(g)-1(d) of this chapter.
However, if the payor or middleman does not have either a valid Form W-
8BEN or valid Form W-9, ``Request for Taxpayer Identification Number and
Certification'', the payor or middleman must report the payment as made
to a U.S. non-exempt recipient if it must so treat the payee under the
presumption rules of Sec. 1.6049-5(d)(2) and Sec. 1.1441-1(b)(3)(iii),
and the payor must also backup withhold under section 3406. (For
interest paid to a Canadian nonresident alien individual on or before
December 31, 2012, see paragraph (a) of this section as in effect and
contained in 26 CFR part 1 revised April 1, 2000).
[[Page 414]]
(b) Interest excluded from reporting requirement. The term interest
does not include an amount that is paid by the issuer or its agent
outside the United States with respect to an obligation that is
described in paragraph (b) (1) or (2) of this section.
(1)(i) The obligation is not in registered form (within the meaning
of section 163(f) and the regulations thereunder); is part of a larger
single public offering of securities; and is described in section
163(f)(2)(B).
(ii) Unless it has actual knowledge to the contrary, a middleman may
treat an obligation as if it is described in section 163(f)(2)(B) if the
obligation or coupon therefrom, whichever is presented for payment,
contains the statement described in section 163(f)(2)(B)(ii)(II) and the
regulations thereunder.
(2)(i) The obligation has a face or principal amount of not less
than $500,000, and satisfies the requirements described in paragraphs
(b)(2)(i) (A), (B), and (C) of this section.
(A) The obligation satisfies the requirements of sections
163(f)(2)(B) (i) and (ii)(I) and the regulations thereunder (as if it
were a registration-required obligation within the meaning of section
163(f)(2)(A)) and is issued in accordance with the procedures of Sec.
1.163-5(c)(2)(i)(D)).
(B) If the obligation is in registered form, it is registered in the
name of an exempt recipient described in Sec. 1.6049-4(c)(1)(ii).
(C) The obligation has on its face and on any detachable coupons the
following statement (or a similar statement having the same effect):
``By accepting this obligation or coupon, the holder represents and
warrants that it is not a United States person (other than an exempt
recipient described in the regulations under section 6049(b)(4) of the
Internal Revenue Code and the regulations thereunder) and that it is not
acting for or on behalf of a United States person (other than an exempt
recipient described in the regulations under section 6049(b)(4) of the
Internal Revenue Code and the regulations thereunder).''
(ii) Unless the middleman has actual knowledge to the contrary, it
may treat an obligation as satisfying the requirements of sections
163(f)(2)(B) (i) and (ii)(I) and the regulations thereunder if the
obligation or a coupon therefrom, whichever is presented for payment,
contains the statement in paragraph (b)(2)(i)(C) of this section.
[T.D. 8664, 61 FR 17574, Apr. 22, 1996, as amended by T.D. 8734, 62 FR
53491, Oct. 14, 1997; T.D. 9584, 77 FR 23395, Apr. 19, 2012]
Sec. 1.6049-9 Premium subject to reporting for a debt instrument
acquired on or after January 1, 2014.
(a) General rule. Notwithstanding Sec. 1.6049-5(f), for a debt
instrument acquired on or after January 1, 2014, if a broker (as defined
in Sec. 1.6045-1(a)(1)) is required to file a statement for the debt
instrument under Sec. 1.6049-6, the broker generally must report any
bond premium (as defined in Sec. 1.171-1(d)) or acquisition premium (as
defined in Sec. 1.1272-2(b)(3)) for the calendar year. This section,
however, only applies to a debt instrument that is a covered security as
defined in Sec. 1.6045-1(a)(15).
(b) Reporting of bond premium amortization. Unless a broker has been
notified in writing in accordance with Sec. 1.6045-1(n)(5) that a
customer does not want to amortize bond premium under section 171, the
broker must report the amount of any amortizable bond premium allocable
to a stated interest payment made to the customer during the calendar
year. See Sec. Sec. 1.171-2 and 1.171-3 to determine the amount of
amortizable bond premium allocable to a stated interest payment. Instead
of reporting a gross amount for both stated interest and amortizable
bond premium, a broker may report a net amount of stated interest that
reflects the offset of the stated interest payment by the amount of
amortizable bond premium allocable to the payment. In this case, the
broker must not report the amortizable bond premium as a separate item.
This paragraph (b) also applies to amortizable bond premium on a tax-
exempt obligation, which is required to be amortized under section 171.
(c) Reporting of acquisition premium amortization. A broker must
report the amount of any acquisition premium amortization that reduces
the amount of original issue discount includible in
[[Page 415]]
income by the customer during a calendar year. For a debt instrument
acquired on or after January 1, 2015, a broker must use the rules in
Sec. 1.1272-2(b)(4) to determine the amount of acquisition premium
amortization. However, for a debt instrument acquired on or after
January 1, 2014, and before January 1, 2015, if a customer timely
notifies the broker in accordance with Sec. 1.6045-1(n)(5), a broker
may use the rules in Sec. 1.1272-3 to determine the amount of
acquisition premium amortization. Instead of reporting a gross amount
for both original issue discount and acquisition premium amortization, a
broker may report a net amount of original issue discount that reflects
the offset of the original issue discount includible in income by the
customer for the calendar year by the amount of acquisition premium
allocable to the original issue discount. In this case, the broker must
not report the acquisition premium amortization as a separate item. See
Sec. 1.6049-10 for the reporting of acquisition premium on a tax-exempt
obligation.
[T.D. 9713, 80 FR 13239, Mar. 13, 2015; T.D. 9750, 81 FR 24702, Apr. 27,
2016]
Sec. 1.6049-10 Reporting of original issue discount on a tax-exempt
obligation.
(a) In general. For purposes of section 6049, a payor (as defined in
Sec. 1.6049-4(a)(2)) of original issue discount (OID) on a tax-exempt
obligation (as defined in section 1288(b)(2)) is required to report the
daily portions of OID on the obligation as if the daily portions of OID
that accrued during a calendar year were paid to the holder (or holders)
of the obligation in the calendar year. The amount of the daily portions
of OID that accrues during a calendar year is determined as if section
1272 and Sec. 1.1272-1 applied to a tax-exempt obligation.
Notwithstanding any other rule in section 6049 and the regulations
thereunder, a payor must determine whether a tax-exempt obligation was
issued with OID and the amount of OID that accrues for each relevant
period. As prescribed by section 1288(b)(1), OID on a tax-exempt
obligation is determined without regard to the de minimis rules in
section 1273(a)(3) and Sec. 1.1273-1(d).
(b) Acquisition premium. A payor is required to report acquisition
premium amortization on a tax-exempt obligation in accordance with the
rules in Sec. 1.6049-9(c) as if section 1272 applied to a tax-exempt
obligation. See paragraph (a) of this section to determine the amount of
OID allocable to an accrual period.
(c) Effective/applicability date. This section applies to a tax-
exempt obligation that is a covered security (within the meaning of
Sec. 1.6045-1(a)(15) and (n)(12)) acquired on or after January 1, 2017.
For a taxable year beginning after December 31, 2016, a broker, however,
may rely on this section to report OID and acquisition premium for a
tax-exempt obligation that is a covered security acquired before January
1, 2017.
[T.D. 9750, 81 FR 8154, Feb. 18, 2016]
Sec. 1.6050A-1 Reporting requirements of certain fishing boat
operators.
(a) Requirement of reporting. The operator of a boat on which one or
more individuals during a calendar year performed services described in
Sec. 31.3121(b)(20)-1(a) shall make an information return on Form 1099-
MISC for that calendar year. The return shall include the following
information:
(1) The name and taxpayer identification number of each individual
performing the services;
(2) The percentage of each individual's share of the catch of fish
or other forms of aquatic life (hereinafter ``fish'');
(3) The percentage of the operator's share of the catch of fish;
(4) If the individual receives all or part of his share of the catch
in kind, the type and weight of the share and, if it can be ascertained,
the fair market value of his share;
(5) If the individual receives a share of the proceeds of the catch,
the dollar amount received; and
(6) Any other information that is required by the form.
For purposes of this section, the term, ``boat operator'' means an
employer (as defined in Sec. 31.3121(d)-2) of an employee whose
services are excepted from employment by section 3121(b)(20) and Sec.
31.3121(b)(20)-1. The boat operator may make separate returns on Form
1099-
[[Page 416]]
MISC for each crew member for each voyage, or he may aggregate the
information required by this paragraph for an individual for all or any
part of a return period in which the type of catch (if required) and the
percentage due the crew member remain the same.
(b) Time and place for filing. Returns required to be made under
this section on Form 1099-MISC shall be filed with the Internal Revenue
Service Center, designated in the instructions for Form 1099-MISC, on or
before February 28 (March 31 if filed electronically) of the year
following the calendar year in which the relevant services were
performed.
(c) Requirement of and time for furnishing statement--(1)
requirement of furnishing statement. Every person filing a Form 1099-
MISC under this section shall furnish to the individual whose
identifying number is (or should be) shown on the form a written
statement showing the information required by paragraph (a) of this
section. The requirement of the preceding sentence may be met by
furnishing to the individual copy B of Form 1099-MISC or a reasonable
facsimile of Form 1099-MISC that was filed pursuant to this section. An
IRS truncated taxpayer identifying number (TTIN) may be used as the
identifying number for the individual in lieu of the identifying number
appearing on the information return filed with the Internal Revenue
Service. For provisions relating to the use of TTINs, see Sec.
301.6109-4 of this chapter (Procedure and Administration Regulations).
(2) Time for furnishing statement. Each statement required by this
paragraph to be furnished to any individual for a calendar year shall be
furnished on or before January 31 of the year following the calendar
year for which the return was made.
(d) Cross-reference to penalties. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6050A(a) and Sec. 1.6050A-1(a), see Sec.
301.6721-1 of this chapter (Procedure and Administration Regulations).
For provisions relating to the penalty provided for failure to furnish
timely a correct payee statement required under section 6050A(b) and
Sec. 1.6050A-1(c), see Sec. 301.6722-1 of this chapter. See Sec.
301.6724-1 of this chapter for the waiver of a penalty if the failure is
due to reasonable cause and is not due to willful neglect.
(e) Effective/applicability date. The rules in this section apply to
information returns and payee statements due after December 31, 2014.
For rules applicable for information returns and payee statements due
before January 1, 2015, Sec. 1.6050A-1(c)(1) (as contained in 26 CFR
part 1, revised April 2013) shall apply.
[T.D. 7716, 45 FR 57123, Aug. 27, 1980, as amended by T.D. 8734, 62 FR
53492, Oct. 14, 1997; T.D. 8895, 65 FR 50407, Aug. 18, 2000; T.D. 9675,
79 FR 41130, July 15, 2014]
Sec. 1.6050B-1 Information returns by person making unemployment
compensation payments.
For taxable years beginning after December 31, 1978, every person
who makes payments of unemployment compensation (as defined in section
85 (c)) aggregating $10 or more to any individual during any calendar
year shall file a Form 1099UC in accordance with the instructions to
such form.
[T.D. 7705, 45 FR 46070, July 9, 1980]
Sec. 1.6050D-1 Information returns relating to energy grants
and financing.
(a) Requirement of reporting. Every person who administers a
Federal, State, or local program a principal purpose of which is to
provide subsidized energy financing (as defined in section 23(c)(10)(C)
and the regulations thereunder) or grants for projects designed to
conserve or produce energy shall make an information return for each
calendar year beginning after December 31, 1983. However, the preceding
sentence shall not apply if none of the financing and grants provided
under such program during the calendar year relate either to
expenditures described in section 23(c)(1) or (2), relating to the
residential energy credit, made by a taxpayer before January 1, 1986,
with respect to a dwelling unit or to section 38 property (as defined in
section 48 and the regulations thereunder). That return shall be made on
Form 6497 or, in the case of taxable gants, on Form 1099-G. (The latter
form is prescribed
[[Page 417]]
pursuant to section 6041 as well as section 6050D.) The return shall
include the following information:
(1) The name, address, and taxpayer identification number of each
taxpayer receiving financing or a grant made under such program during
the calendar year with respect to either section 38 property or in the
case of financing or a grant for energy conservation expenditures or
renewable energy source expenditures made by the taxpayer before January
1, 1986, a dwelling unit that is located in the United States;
(2) The aggregate amount of financing and grants received by the
taxpayer under the program during the calendar year,
(3) In the case of returns for financing or nontaxable grants, the
name of the program under which the financing or grants are made; and
(4) Any other information that is required by the form.
For purposes of this section, the term ``person'' means the officer or
employee having control of the program, or the person appropriately
designated for purposes of section 6050D and this section.
(b) Time and place for filing. Returns required to be made under
this section shall be filed with the Internal Revenue Service Center
designated in the instructions for Form 6497 or 1099-G on or before the
last day of February (March 31 if filed electronically) of the year
following the calendar year for which the return is made.
(Secs. 6050D and 7805, Internal Revenue Code of 1954 (94 Stat. 259, 26
U.S.C. 6050D; 68A Stat. 917, 26 U.S.C. 7805))
[T.D. 8018, 50 FR 12532, Mar. 29, 1985, as amended by T.D. 8146, 52 FR
26673, July 16, 1987; T.D. 8895, 65 FR 50407, Aug. 18, 2000]
Sec. 1.6050E-1 Reporting of State and local income tax refunds.
(a) Applicability. Section 6050E and this section apply to any
refund officer who, with respect to an individual, makes payments of
refunds of State or local income taxes or allows credits or offsets with
respect to such taxes aggregating $10 or more for such individual in any
calendar year.
(b) Definitions. For purposes of this section--
(1) The term refund officer means the officer or employee of a State
or local taxing jurisdiction having control of payments of refunds or
the allowance of credits or offsets, or the person approporiately
designated for purposes of this section.
(2) The term State shall include the District of Columbia but shall
not include the Commonwealth of Puerto Rico or any possession of the
United States.
(3) The term individual shall not include an estate or trust.
(4) The term credit or offset means an overpayment of tax which, in
lieu of being refunded to the taxpayer, is:
(i) Applied against an existing liability of the taxpayer,
(ii) Available for application against a future liability of the
taxpayer, or
(iii) Otherwise used or available for use for the taxpayer's
benefit.
(c) Requirement of reporting. Every refund officer described in
paragraph (a) of this section shall make an information return in
accordance with this section for each calendar year. An information
return must be made even if the refund officer is not required to
furnish a statement to the applicable taxpayer under paragraph (k)(2) of
this section.
(d) Prescribed Form. Except as otherwise provided in paragraph (i)
of this section, the information return required by paragraph (c) of
this section shall be made on Forms 1096 and 1099.
(e) Refunds involving different taxable years. In the case of
refunds paid or credits or offsets allowed during a calendar year with
respect to two or more taxable years of an individual, a separate Form
1099 shall be filed with respect to each taxable year of the individual.
Thus, if during calendar year 1983 a refund officer pays to an
individual a refund of $15 with respect to that individual's taxable
year ending in 1982 and $20 with respect to that individual's taxable
year ending in 1981, a separate Form 1099 shall be filed for each of the
two payments. If, instead, the refund with respect to the individual's
taxable year ending in 1982 were $5 instead of $15, no return would be
required for the payment of $5.
[[Page 418]]
(f) Information required. The information required to be reported on
Forms 1096 and 1099 includes the aggregate amount of refunds, credits,
and offsets made or allowed during the calendar year with respect to the
taxable year of the individual covered by the return; the name, address
and taxpayer identification number of the individual with respect to
whom such payment, credit, or offset was made or allowed; the taxable
year covered by the return; and such other information as may be
required by the forms. In addition, the nature of the tax is required to
be indicated on the Form 1099 in any case where the refund, credit or
offset is made or allowed with respect to a payment attributable to an
income tax that applies exclusively to income from a trade or business
and is not a tax of general application.
(g) When credit or offset deemed allowed. For purposes of a return
of information under this section, a credit or offset is deemed to be
allowed when the liability to pay or credit such amount is admitted by
the State or local taxing jurisdiction. Thus, if an amount with respect
to a taxpayer's 1982 taxable year is credited in 1983 to reduce the
liability of the taxpayer to make estimated tax payments in 1983, it is
reportable as a credit allowed in 1983. It is not reportable in the
taxable year that gives rise to the refund, credit or offset.
(h) Time and place for filing. The returns required under this
section for any calendar year shall be filed after September 30 of that
calendar year, but not before the refund officer's final payment (or
allowance of credit or offset) for the year, and on or before February
28 (March 31 if filed electronically) of the following year. Returns
shall be filed with the appropriate Internal Revenue Service Center, the
addresses of which are listed in the instructions for Forms 1099. For
extensions of time for filing returns under this section, see Sec.
1.6081-1.
(i) Use of magnetic media and substitute forms--(1) Magnetic media.
A refund officer may be required to file the Forms 1099 required by this
section on magnetic media or machine-readable paper forms. See section
6011(e) and applicable regulations and revenue procedures thereunder. If
a refund officer is not required to file the Forms 1099 required by this
section on magnetic media, the refund officer may request permission
under applicable regulations and revenue procedures to submit the
information required by this section on magnetic media.
(2) Substitute forms. A refund officer may prepare and use a form
which contains provisions identical with those of Form 1096 if the
refund officer complies with all revenue procedures relating to
substitute Form 1096 in effect at that time. In addition, if a refund
officer is not required to file the Forms 1099 required by this section
on magnetic media or machine-readable paper forms, the refund officer
may prepare and use a form which contains provisions identical with
those of Form 1099 if the refund officer complies with all revenue
procedures relating to substitute Form 1099 in effect at that time.
(j) Voluntary information exchange agreements. The requirements of
reporting information to the Internal Revenue Service under this section
may be satisfied for any calendar year by submission of the information
required under paragraph (f) of this section in accordance with the
terms of a voluntary information exchange agreement between the State
and the United States in effect during such year.
(k) Requirement of furnishing statements to recipients--(1) In
general. Except as provided in paragraph (k)(2) of this section, every
refund officer required to make a return of information under this
section shall furnish to the individual whose identifying number is
required to be shown on the return a written statement showing the
aggregate amount shown on the information return of refunds, credits and
offsets made or allowed to such individual with respect to each taxable
year of the individual, the name of the State or local taxing
jurisdiction paying such refund or allowing such credits or offsets, the
taxable year giving rise to the refund, credit or offset and a legend
stating that such amount is being reported to the Internal Revenue
Service. The requirement of this paragraph may be met by furnishing to
the individual
[[Page 419]]
a copy of the Form 1099 filed with respect to that individual provided
that the form bears a legend stating that such amount is being reported
to the Internal Revenue Service. For purposes of this paragraph, a
statement shall be considered to be furnished to an individual if it is
mailed to the individual at the individual's last known address. An IRS
truncated taxpayer identifying number (TTIN) may be used as the
identifying number of the individual in lieu of the identifying number
appearing on the information return filed with the Internal Revenue
Service. For provisions relating to the use of TTINs, see Sec.
301.6109-4 of this chapter (Procedure and Administration Regulations).
(2) Exception for nonitemizers. A refund officer need not furnish a
statement to an individual under paragraph (k)(1) of this section if the
refund officer verifies that the individual did not claim itemized
deductions for Federal income tax purposes for the taxable year giving
rise to the refund, credit, or offset. This exception shall not apply,
however, if the refund, credit, or offset is made or allowed with
respect to a payment attributable to an income tax that applies
exclusively to income from a trade or business and is not a tax of
general application. For purposes of this paragraph (k)(2), verification
shall be made solely from--
(i) The State or local income tax return, or
(ii) Information obtained through a voluntary information exchange
agreement with the United States for the applicable taxable year.
(3) Verification from the State or local income tax return. A refund
officer shall verify from the State or local income tax return that an
individual did not claim itemized deductions for Federal income tax
purposes for the applicable taxable year only if--
(i)(A) An individual who itemized deductions for Federal income tax
purposes either must attach a copy of Schedule A of the individual's
Federal income tax return to the State or local income tax return or
must transcribe information from Schedule A of the individual's Federal
income tax return on the State or local income tax return;
(B) The information contained on or transcribed from the Schedule A
is required for the purpose of computing liability for the State or
local income tax; and
(C) The omission of a copy of the Schedule A, or of the information
required to be transcribed from the Schedule A, is consistent with the
taxpayer's computation of tax on the State or local income tax return;
or
(ii) Individuals are required to transcribe information from their
Federal income tax return (other than from Schedule A) on the State or
local income tax return for the purpose of computing liability for the
State or local income tax and the information can be used to determine
conclusively whether the taxpayer itemized deductions for Federal income
tax purposes.
(4) Example. The provisions of paragraph (k)(3)(ii) of this section
may be illustrated by the following example:
Example. State X asks for transcription of the following information
on its 1983 income tax return from the taxpayer's 1983 Federal income
tax return: Adjusted gross income; taxable income; and number of
exemptions claimed. The amount of adjusted gross income and the number
of exemptions claimed on the Federal income tax return are taken into
account in computing the liability for income tax under the laws of
State X. The amount of taxable income transcribed from the Federal
return, however, does not enter into the computation of liability for
income tax under the laws of State X. Thus, this amount may not be taken
into account by the refund officer of State X for purposes of verifying
whether a taxpayer itemized deductions for Federal income tax purposes.
Since the refund officer of State X will not be able to determine
conclusively from the amount of adjusted gross income and the number of
exemptions transcribed from the Federal return whether a taxpayer
itemized deductions for Federal income tax purposes, the transcribed
information does not meet the requirements of paragraph (k)(3)(ii) of
this section.
(l) Time for furnishing statements--(1) General rule. The statement
required under paragraph (k) of this section shall be furnished after
December 31 of the year in which the refund is paid or credit or offset
is allowed, and on or before January 31 of the following year.
(2) Extensions of time. For good cause shown upon written
application of the
[[Page 420]]
refund officer, the service center director may grant an extension of
time not exceeding 30 days in which to furnish statements under this
paragraph. The application shall be addressed to the Service Center with
which the Forms 1099 required under this section are required to be
filed and shall contain a concise statement of the reasons for
requesting the extension to aid the service center director in
determining the period of the extension, if any, which will be granted.
The application shall state at the top of the first page that it is made
under this section and shall be signed by the refund officer. In
general, the application shall be filed after September 30 of the year
in which the refund is paid or credit or offset is allowed, and before
January 15 of the following year.
(m) Effective/applicability date. This section applies to payments
of refunds and credits and offsets allowed after December 31, 1982. The
amendments to paragraph (k)(1) apply to payee statements due after
December 31, 2014. For payee statements due before January 1, 2015,
Sec. 1.6050E-5(k)(1) (as contained in 26 CFR part 1, revised April
2013) shall apply.
[T.D. 8052, 50 FR 37349, Sept. 13, 1985, as amended by T.D. 8895, 65 FR
50408, Aug. 18, 2000; T.D. 9675, 79 FR 41131, July 15, 2014]
Sec. 1.6050H-0 Table of contents.
This section lists the major captions that appear in Sec. Sec.
1.6050H-1 and 1.6050H-2.
Sec. 1.6050H-1 Information reporting of mortgage interest received in a
trade or business from an individual.
(a) Information reporting requirement.
(1) Overview.
(2) Reporting requirement.
(3) Optional reporting.
(b) Qualified mortgage.
(1) In general.
(2) Mortgage.
(i) In general.
(ii) Transitional rule for certain obligations existing on December
31, 1984.
(iii) Transitional rule for certain obligations existing on December
31, 1987.
(3) Payor of record.
(4) Lender of record.
(c) Interest recipient.
(1) Trade or business requirement.
(2) Interest received or collected on behalf of another person.
(i) General rule.
(ii) Exception.
(3) Interest received in the form of points.
(i) In general.
(ii) If designation agreement is in effect.
(4) Governmental unit.
(5) Examples.
(d) Additional rules.
(1) Reporting by foreign person.
(2) Reporting with respect to nonresident alien individual.
(i) In general.
(ii) Nonresident alien individual status.
(3) Reporting by cooperative housing corporations.
(e) Amount of interest received on mortgage for calendar year.
(1) In general.
(2) Calendar year.
(i) In general.
(ii) De minimis rule.
(iii) Applicability to points.
(3) Certain interest not received on mortgage.
(i) Interest received from seller on payor of record's mortgage.
(ii) Interest received from governmental unit.
(4) Interest calculated under Rule of 78s method of accounting.
(f) Points treated as interest.
(1) General rule.
(2) Limitations.
(3) Special rule.
(i) Amounts paid directly by payor of record.
(ii) Examples.
(4) Construction loans.
(i) In general.
(ii) Limitation on refinancing of construction loans.
(5) Amounts paid to mortgage brokers.
(6) Effect on deduction of points.
(g) Effective date.
(1) In general.
(2) Points.
Sec. 1.6050H-2 Time, form, and manner of reporting interest received on
qualified mortgage.
(a) Requirement to file return.
(1) Form of return.
(2) Information included on return.
(3) Reimbursements of interest on a qualified mortgage.
(4) Time and place for filing return.
(5) Use of magnetic media.
(b) Requirement to furnish statement.
(1) In general.
(2) Information included on statement.
(3) Statement furnished pursuant to Federal mortgage program.
(4) Copy of Form 1098 to payor of record.
(5) Furnishing statement with other information reports.
(6) Time and place for furnishing statement.
[[Page 421]]
(c) Notice requirement for use of Rule of 78s method of accounting.
(1) In general.
(2) Time and manner.
(d) Reporting under designation agreement.
(1) In general.
(2) Qualified person.
(3) Designation agreement.
(4) Penalties.
(e) Penalty provisions.
(1) Returns and statements the due date for which (determined
without regard for extensions) is after December 31, 1987, and before
December 31, 1989.
(i) Failure to file return or to furnish statement.
(ii) Failure to furnish TIN.
(iii) Failure to include correct information.
(2) Returns and statements the due date for which (determined
without regard for extensions) is after December 31, 1989.
(i) Failure to file return or to furnish statement.
(ii) Failure to furnish TIN.
(iii) Failure to include correct information.
(f) Requirement to request and to obtain TIN.
(1) In general.
(2) Manner of requesting TIN.
(g) Effective date.
(1) In general.
(2) Points.
[T.D. 8571, 59 FR 63250, Dec. 8, 1994]
Sec. 1.6050H-1 Information reporting of mortgage interest received
in a trade or business from an individual.
(a) Information reporting requirement--(1) Overview. The information
reporting requirements of section 6050H, this section, and Sec.
1.6050H-2 apply to an interest recipient who receives at least $600 of
interest on a qualified mortgage for a calendar year or who makes a
reimbursement of interest described in Sec. 1.6050H-2(a)(2)(iv).
Paragraph (b) of this section defines qualified mortgage. Paragraph (c)
of this section defines interest recipient. Paragraph (d) of this
section contains additional rules relating to the reporting requirement
for foreign persons, cooperative housing corporations, and nonresident
alien individuals. Paragraph (e) of this section contains rules for
determining the amount of interest received on a mortgage for a calendar
year. Paragraph (f) of this section provides rules for determining when
prepaid interest in the form of points is taken into account as interest
for purposes of section 6050H, this section, and Sec. 1.6050H-2.
(2) Reporting requirement. Except as otherwise provided in this
section and Sec. 1.6050H-2, an interest recipient that either receives
at least $600 of interest on a qualified mortgage for a calendar year or
makes reimbursements of interest described in Sec. 1.6050H-2(a)(2)(iv)
must, with respect to that interest--
(i) File an information return with the Internal Revenue Service;
and
(ii) Furnish a statement to the payor of record on the mortgage.
(3) Optional reporting. An interest recipient may, but is not
required to, report its receipt of less than $600 of interest on a
qualified mortgage for a calendar year. Similarly, an interest recipient
also may report reimbursements of interest on a qualified mortgage even
if the reimbursements are not required to be reported by Sec. 1.6050H-
2(a)(2)(iv). An interest recipient that chooses, but is not required, to
file a return as provided in this section and Sec. 1.6050H-2(a) or to
furnish a statement as provided in this section and Sec. 1.6050H-2(b)
is subject to the requirements of this section and Sec. 1.6050H-2.
(b) Qualified mortgage--(1) In general. A mortgage is a qualified
mortgage if the payor of record on the mortgage is an individual,
including an individual acting in a capacity as a sole proprietor of a
business. A mortgage is not a qualified mortgage if the payor of record
on the mortgage is not an individual (such as a trust, estate,
partnership, association, company, or corporation), even though an
individual is a co-borrower on the mortgage and all the trustees,
beneficiaries, partners, members, or shareholders of the payor of record
are individuals.
(2) Mortgage--(i) In general. Except as otherwise provided in
paragraphs (b)(2)(ii) and (b)(2)(iii) of this section, an obligation is
a mortgage if real property (regardless of where located) secures all or
part of the obligation. An interest recipient must determine whether
real property secures an obligation at the time the obligation is
created or, if security is added or removed at a later time, at that
later time. Real property includes a manufactured home as defined in
section
[[Page 422]]
25(e)(10). An obligation includes a line of credit or a credit card
obligation. For purposes of this section and Sec. 1.6050H-2, a borrower
incurs a line of credit or credit card obligation when the borrower
first has the right to borrow against the line of credit or credit card,
whether the borrower actually borrows an amount at that time. An
obligation will not fail to be treated as a mortgage solely because,
under an applicable State or local homestead law or other debtor
protection law in effect on August 16, 1986, the security interest is
ineffective or the enforceability of the security interest is
restricted.
(ii) Transitional rule for certain obligations existing on December
31, 1984--(A) In general. An obligation that existed on December 31,
1984, is not a mortgage if, at the time the payor of record incurred the
obligation, the interest recipient reasonably classified the obligation
as other than a mortgage, real property loan, real estate loan, or other
similar type of obligation. A reasonable classification of an obligation
must be consistent with industry practices and determined according to
the purpose of the obligation, the property securing the obligation, and
any other reasonable factor. For purposes of this paragraph
(b)(2)(ii)(A), an obligation was not reasonably classified as other than
a mortgage, real property loan, real estate loan, or other similar type
of obligation if, at the time the payor of record incurred the
obligation, more than one-half of the obligations in the particular
class in which the obligation was classified were secured primarily by
real property.
(B) Examples. The following examples illustrate the rules of
paragraph (b)(2)(ii)(A) of this section:
Example 1. B offers an unsecured line of credit and a line of credit
secured by real property. B separately markets the two credit lines, and
they are governed by different terms and conditions. For accounting
purposes, B classifies the two types of loans as a single class. For
purposes of paragraph (b)(2)(ii)(A) of this section, the two types of
loans are different classes of obligations.
Example 2. B operates a program to make loans to small businesses.
Depending on the amount of the loan and the credit history of the
borrower, B may or may not require security for the loan. If B requires
security, it may consist of real or personal property. For accounting
purposes, B classifies all of the loans within this program as a single
class. For purposes of paragraph (b)(2)(ii)(A) of this section, all of
the loans within this program may be classified as belonging to a single
class.
(iii) Transitional rule for certain obligations existing on December
31, 1987. An obligation that was incurred after December 31, 1984, and
that existed on December 31, 1987, is not a mortgage if the obligation
is not primarily secured by real property.
(3) Payor of record. A payor of record on a mortgage is the person
carried on the books and records of the interest recipient as the
principal borrower on the mortgage. If the books and records of the
interest recipient do not indicate which borrower is the principal
borrower, the interest recipient must designate a borrower as the
principal borrower.
(4) Lender of record. The lender of record is the person who, at the
time the loan is made, is named as the lender on the loan documents and
whose right to receive payment from the payor of record is secured by
the payor of record's principal residence. An intention by the lender of
record to sell or otherwise transfer the loan to a third party
subsequent to the close of the transaction will not affect the
determination of who is the lender of record.
(c) Interest recipient--(1) Trade or business requirement. Except as
provided in paragraph (c)(4) of this section, an interest recipient is a
person that is engaged in a trade or business (whether or not the trade
or business of lending money) and that, in the course of the trade or
business, either receives interest on a mortgage or makes a
reimbursement of interest on a qualified mortgage described in Sec.
1.6050H-2(a)(3). For purposes of this paragraph (c)(1), if a person
holds a mortgage which was originated or acquired in the course of a
trade or business, the interest on the mortgage is considered to be
received in the course of that trade or business. For example, if real
estate developer A lends money to individual B to enable B to purchase a
house in a subdivision owned and developed by A, and B gives a mortgage
to A for the loan, A is an interest recipient for interest received
[[Page 423]]
on the mortgage. Alternatively, if C, a person engaged in the trade or
business of being a physician, lends money to individual D to enable D
to purchase C's home, and D gives a mortgage to C for the loan, C is not
an interest recipient for interest received on the mortgage, because C
will not receive the interest in the course of the trade or business of
being a physician.
(2) Interest received or collected on behalf of another person--(i)
General rule. Except as otherwise provided in paragraph (c)(2)(ii) or
(3) of this section, a person that, in the course of its trade or
business, receives or collects interest on a mortgage on behalf of
another person (e.g., the lender of record) is the interest recipient
(the initial recipient) for the mortgage. In this case, the reporting
requirement of paragraph (a) of this section does not apply to the
transfer of interest from the initial recipient to the person for which
the initial recipient receives or collects the interest. For example, if
financial institution A collects interest on behalf of financial
institution B, A is the initial recipient for the mortgage and is
subject to the reporting requirements of section 6050H, and B is not
required to report the interest received on the mortgage from A.
(ii) Exception--(A) Scope of exception. Paragraph (c)(2)(i) of this
section does not apply for any period for which--
(1) An initial recipient does not possess the information needed to
comply with the reporting requirement of paragraph (a) of this section;
and
(2) The person for which the interest is received or collected would
receive the interest in the course of its trade or business if the
interest were paid directly to that person. For purposes of this
paragraph (c)(2)(ii)(A)(2), if interest is received or collected on
behalf of a person other than an individual, that person is presumed to
receive interest in a trade or business.
(B) Application of exception. If the exception provided by this
paragraph (c)(2)(ii) applies, the person for which the interest is
received or collected is the interest recipient with respect to interest
received or collected on the mortgage during the period described in
this paragraph (c)(2)(ii).
(3) Interest received in the form of points. For purposes of this
section and Sec. 1.6050H-2, in the case of prepaid interest received in
the form of points (as defined in paragraph (f) of this section):
(i) In general. Except as provided in paragraph (c)(3)(ii) of this
section, only the lender of record or a qualified person (as defined in
Sec. 1.6050H-2(d)(2)) is treated as receiving the points. The lender of
record or qualified person is treated as receiving all points paid
directly by the payor of record in connection with the purchase of the
principal residence.
(ii) If designation agreement is in effect. If a designation
agreement is executed pursuant to Sec. 1.6050H-2(d) with respect to
points, only the designated party under the agreement is treated as
receiving points with respect to any mortgage to which the agreement
applies. The designated party is treated as receiving all points with
respect to any mortgage to which the agreement applies.
(4) Governmental unit. A governmental unit or an agency or
instrumentality of a governmental unit that receives interest on a
mortgage is an interest recipient without regard to the requirement of
paragraph (c)(1) of this section that the interest be received in the
course of a trade or business. A governmental unit or an agency or
instrumentality of a governmental unit that is an interest recipient
must designate an officer or employee to satisfy the reporting
requirements of paragraph (a) of this section.
(5) Examples. The following examples illustrate the rules of
paragraph (c) of this section:
Example 1. Financial institution F collects mortgage interest on
behalf of financial institution G and deposits the amount collected into
G's account held with F. F possesses the information needed to comply
with the reporting requirement of paragraph (a) of this section. F is
the interest recipient for the mortgage. G is not required to report.
Example 2. The facts are the same as in example (1), except that F
does not possess the information needed to comply with the reporting
requirement. G, the person for which F collects the interest, is the
interest recipient for the mortgage. F is not required to report.
Example 3. S, an individual, sells real property to another
individual, P, and takes back
[[Page 424]]
a mortgage from P to finance the sale. S does not receive the interest
in the course of a trade or business. B, a bank, collects P's payments
of principal and interest on behalf of S and deposits that amount into
an account held at the bank in S's name. B does not possess the
information needed to comply with the reporting requirement of paragraph
(a) of this section. B is the interest recipient for P's mortgage
without regard to paragraph (c)(2)(ii) of this section, because S would
not receive the interest in the course of a trade or business. S is not
required to report.
Example 4. X collects mortgage interest on behalf of Y, who would
receive the interest in the course of a trade or business. X possesses
the information needed to comply with the reporting requirement of
paragraph (a) of this section. On July 1, 1988, Z assumes X's interest
collection responsibilities. Z does not possess the information needed
to comply with the reporting requirement of paragraph (a) of this
section. X is the interest recipient for interest received from January
1, 1988, through June 30, 1988. Because Z does not possess the requisite
information and Y would receive the interest in the course of a trade or
business, Y is the interest recipient for interest received from July 1,
1988, through December 31, 1988.
Example 5. On December 1, Borrower obtains from Lender funds with
which to purchase an existing structure to be used as Borrower's
principal residence. In connection with the mortgage, Lender charges
Borrower $300 as points. Borrower pays this amount to Lender at closing
using unborrowed funds. In addition, Lender receives from Borrower with
respect to the mortgage $300 as interest (as determined under paragraph
(e) of this section) other than points. Because Lender has received at
least $600 in interest, including points, with respect to Borrower's
mortgage during the calendar year, Lender must report the payments in
accordance with paragraph (a) of this section and Sec. 1.6050H-2. Under
those sections, Lender must separately state on the information return
and the statement to Borrower the $300 received as interest (other than
points) and the $300 received as points.
(d) Additional rules--(1) Reporting by foreign person. An interest
recipient that is not a United States person (as defined in section
7701(a)(30)) must report interest received on a qualified mortgage only
if it receives the interest--
(i) At a location in the United States, or
(ii) At a location outside the United States if the interest
recipient is--
(A) A controlled foreign corporation (within the meaning of section
957(a)), or
(B) A person, 50 percent or more of the gross income of which, from
all sources for the three-year period ending with the close of the
taxable year preceding the receipt of interest (or for such part of the
period as the person was in existence), was effectively connected with
the conduct of a trade or business within the United States.
(2) Reporting with respect to nonresident alien individual--(i) In
general. The reporting requirement of paragraph (a) of this section does
not apply if--
(A) The payor of record is a nonresident alien individual, and
(B) Real property located in the United States does not secure the
mortgage.
(ii) Nonresident alien individual status. For purposes of paragraph
(d)(2)(i)(A) of this section, an interest recipient must apply the
following documentary evidence rules to determine whether a payor of
record is a nonresident alien individual:
(A) If interest is paid outside the United States, the interest
recipient must satisfy the documentary evidence standard provided in
Sec. 1.6049-5(c) with respect to the payor of record; and
(B) If interest is paid within the United States, the interest
recipient must secure from the payor of record a Form W-8 or a
substantially similar statement signed by the payor under penalty of
perjury as described in Sec. 1.1441-1(e)(1).
For purposes of this paragraph (d)(2)(ii), the place of payment is the
place where the payor of record completes the acts necessary to effect
payment. An amount paid by transfer to an account maintained by an
interest recipient in the United States or by mail to a United States
address is considered to be paid within the United States.
(3) Reporting by cooperative housing corporations. For purposes of
this section and Sec. 1.6050H-2, an amount received by a cooperative
housing corporation from an individual tenant-stockholder that
represents the tenant-stockholder's proportionate share of interest
described in section 216(a)(2) is
[[Page 425]]
interest received on a qualified mortgage in the course of the
cooperative housing corporation's trade or business. A cooperative
housing corporation is an interest recipient with respect to each
tenant-stockholder's proportionate share of interest and must report
$600 or more of interest received from an individual tenant-stockholder.
The terms ``cooperative housing corporation,'' ``tenant-stockholder,''
and ``tenant-stockholder's proportionate share'' are defined in section
216 and the regulations thereunder.
(e) Amount of interest received on mortgage for calendar year--(1)
In general. For purposes of this section and Sec. 1.6050H-2, interest
includes mortgage prepayment penalties and late charges other than late
charges for a specific mortgage service. Interest also includes prepaid
interest in the form of points (as defined in paragraph (f) of this
section). Whether an interest recipient receives $600 or more of
interest on a mortgage for a calendar year is determined on a mortgage-
by-mortgage basis. An interest recipient need not aggregate interest
received on all of the mortgages of a payor of record held by the
interest recipient to determine whether the $600 threshold is met.
Therefore, an interest recipient need not report interest of less than
$600 received on a mortgage, even though it receives a total of $600 or
more of interest on all of the mortgages of the payor of record for a
calendar year.
(2) Calendar year--(i) In general. Except as otherwise provided in
paragraph (e)(2)(ii) or (iii) of this section, the calendar year for
which interest is received is the later of the calendar year in which
the interest is received or the calendar year in which the interest
properly accrues.
(ii) De minimis rule. An interest recipient may treat interest
received during the current calendar year which properly accrues by
January 15 of the subsequent calendar year as interest received for the
current calendar year. For example, if an interest recipient receives a
monthly interest payment on December 31, 1988, which includes interest
accruing for the period December 5, 1988, to January 5, 1989, the
interest recipient may treat the entire interest payment as received for
1988. If a portion of an interest payment received in a current calendar
year accrues after January 15 of the subsequent calendar year, an
interest recipient must report as interest received for the current
calendar year only the portion that properly accrues by the end of the
current calendar year. For example, if an interest recipient receives a
monthly payment that includes interest accruing for the period December
20, 1988, through January 20, 1989, the interest recipient may not
report as interest received for 1988 any interest accruing after
December 31, 1988. The interest recipient must report the interest
accruing after December 31, 1988, as received for calendar year 1989.
(iii) Applicability to points. Paragraphs (e)(2)(i) and (ii) of this
section do not apply to prepaid interest in the form of points (as
defined in paragraph (f) of this section). Points (as defined in
paragraph (f) of this section) must be reported in the calendar year in
which they are received.
(3) Certain interest not received on mortgage--(i) Interest received
from seller on payor of record's mortgage. Interest received from a
seller or a person related to a seller within the meaning of section
267(b) or section 707(b)(1) on a payor of record's mortgage is not
interest received on a mortgage. For example, interest is not received
on a mortgage if a real estate developer deposits an amount in escrow
with an interest recipient and advises it to draw on the account to pay
interest on a payor of record's mortgage (e.g., a buy-down mortgage).
Similarly, interest is not received on a mortgage if an interest
recipient receives a lump sum from a real estatge developer for interest
on a payor of record's mortgage.
(ii) Interest received from governmental unit. Interest received
from a governmental unit or an agency or instrumentality of a
governmental unit is not interest received on a mortgage. For example,
interest is not received on a mortgage if received as a housing
assistance payment from the Department of Housing and Urban Development
on a mortgage insured under section 235 of the National Housing Act (12
U.S.C. 1701-1715z (1982 & Supp. 1983)).
[[Page 426]]
Except as otherwise provided in paragraph (e) (1) and (2) of this
section, interest received on a mortgage is only the excess of interest
received on the mortgage over interest received from a governmental unit
or an agency or instrumentality of a governmental unit.
(4) Interest calculated under Rule of 78s method of accounting. An
interest recipient permitted by Revenue Procedure 83-40, 1983-1, C.B.
774 (or other revenue procedure) to use the Rule of 78s method of
accounting to calculate interest earned on a transaction may report as
interest received on a mortgage interest earned on the transaction as
calculated under the Rule of 78s method of accounting only if the
interest recipient satisfies the notice requirement of Sec. 1.6050H-
2(c).
(f) Points treated as interest--(1) General rule. Subject to the
limitations of paragraph (f)(2) of this section, an amount is deemed to
be points paid in respect of indebtedness incurred in connection with
the purchase of the payor of record's principal residence (points) for
purposes of this section and Sec. 1.6050H-2 to the extent that the
amount--
(i) Is clearly designated on the Uniform Settlement Statement
prescribed under the Real Estate Settlement Procedures Act of 1974, 12
U.S.C. 2601 et seq., (e.g., the Form HUD-1) as points incurred in
connection with the indebtedness, for example as loan origination fees
(including amounts so designated on Veterans Affairs (VA) and Federal
Housing Administration (FHA) loans), loan discount, discount points, or
points;
(ii) Is computed as a percentage of the stated principal amount of
the indebtedness incurred by the payor of record;
(iii) Conforms to an established practice of charging points in the
area in which the loan is issued and does not exceed the amount
generally charged in the area;
(iv) Is paid in connection with the acquisition by the payor of
record of a residence that is the principal residence of the payor of
record and that secures the loan. For this purpose, the lender of record
may rely on a signed written statement of the payor of record that
states whether the proceeds of the loan are for the purchase of the
mortgagor's principal residence; and
(v) Is paid directly by the payor of record.
(2) Limitations. An amount is not points for purposes of this
section to the extent that the amount is--
(i) Paid in connection with indebtedness incurred for the
improvement of a principal residence;
(ii) Paid in connection with indebtedness incurred to purchase or
improve a residence that is not the payor of record's principal
residence, such as a second home, vacation property, investment
property, or trade or business property;
(iii) Paid in connection with a home equity loan or a line of
credit, even though the loan is secured by the payor of record's
principal residence;
(iv) Paid in connection with a refinancing loan (except as provided
by paragraph (f)(4) of this section), including a loan incurred to
refinance indebtedness owed by the borrower under the terms of a land
contract, a contract for deed, or similar forms of seller financing;
(v) Paid in lieu of amounts that ordinarily are stated separately on
the Form HUD-1, such as appraisal fees, inspection fees, title fees,
attorney fees, and property taxes; or
(vi) Paid in connection with the acquisition of a principal
residence, to the extent that the amount is allocable to indebtedness in
excess of the aggregate amount that may be treated as acquisition
indebtedness under section 163(h)(3)(B)(ii).
(3) Special rule--(i) Amounts paid directly by payor of record. For
purposes of this section, an amount is considered paid directly by the
payor of record if it is--
(A) Provided by the payor of record from funds that have not been
borrowed from the lender of record for this purpose as part of the
overall transaction. The amount provided may include amounts designated
as down payments, escrow deposits, earnest money applied at the closing,
and other funds actually paid over by the payor of record at or before
the time of closing; or
(B) Paid as points (within the meaning of this paragraph (f)) on
behalf of
[[Page 427]]
the payor of record by the seller. For this purpose, an amount paid as
points to an interest recipient by the seller on behalf of the payor of
record is treated as paid to the payor of record and then paid directly
by the payor of record to the interest recipient.
(ii) Examples. The provisions of this paragraph (f) are illustrated
by the following examples:
Example 1. Financed payment of points. Buyer purchases a principal
residence for $100,000. There is a total of $7,000 in closing costs
(exclusive of down payment) charged in connection with the sale. Of this
amount, $3,000 is charged as points (within the meaning of paragraph (f)
of this section). At closing, Buyer makes a down payment of $20,000 and
provides unborrowed funds in the amount of $4,000 for the payment of
various closing costs other than points. Buyer finances payment of the
points by increasing the principal amount of the loan by $3,000. Seller
makes no payments on Buyer's behalf. Because Buyer has provided at
closing funds that have not been borrowed from the lender of record for
this purpose in an amount at least equal to the amount charged as points
in the transaction, the lender of record (or a qualified person) must
report $3,000 as points in accordance with this section and Sec.
1.6050H-2.
Example 2. Seller-paid points. Buyer purchases a principal residence
for $100,000. There is a total of $7,000 in closing costs (exclusive of
down payment) charged in connection with the sale. Of this amount,
$3,000 is charged as points (within the meaning of this paragraph (f)).
Seller agrees to pay all closing costs on behalf of Buyer, including the
amount charged as points. Accordingly, the amount paid by Seller as
points is treated as paid directly by Buyer, and the lender of record
(or a qualified person) must report the $3,000 as points in accordance
with this section and Sec. 1.6050H-2.
(4) Construction loans--(i) In general. An amount paid in connection
with indebtedness incurred to construct a residence, or to refinance
indebtedness incurred to construct a residence, is deemed to be points
for purposes of this section to the extent the amount--
(A) Is clearly designated on the loan documents as points incurred
in connection with the indebtedness, for example, as loan origination
fees, loan discount, discount points, or points;
(B) Is computed as a percentage of the stated principal amount of
the indebtedness incurred by the payor of record;
(C) Conforms to an established practice of charging points in the
area in which the loan is issued and does not exceed the amount
generally charged in the area;
(D) Is paid in connection with indebtedness incurred by the payor of
record to construct (or to refinance construction of) a residence that
is to be used, when completed, as the principal residence of the payor
of record;
(E) Is paid directly by the payor of record; and
(F) Is not allocable to indebtedness in excess of the aggregate
amount that may be treated as acquisition indebtedness under section
163(h)(3)(B)(ii).
(ii) Limitation on refinancing of construction loans. Amounts paid
in connection with refinancing indebtedness incurred to construct a
residence are not treated as points to the extent they are allocable to
indebtedness that exceeds the indebtedness incurred to construct the
residence.
(5) Amounts paid to mortgage brokers. Amounts received directly or
indirectly by a mortgage broker are treated as points under this
paragraph (f) to the same extent the amounts would be so treated if they
were paid to and retained by the lender of record, and must be reported
by the lender of record in accordance with this section and Sec.
1.6050H-2.
(6) Effect on deduction of points. This section and Sec. 1.6050H-2
address only the information reporting requirements of section 6050H and
do not affect a payor of record's deduction for any amount in accordance
with applicable provisions of the Internal Revenue Code.
(g) Effective date--(1) In general. Except as provided in paragraph
(g)(2) of this section, this section is effective for mortgage interest
received after December 31, 1987.
(2) Points. The reporting requirements of this section do not apply
to prepaid interest received in the form of points before January 1,
1995. In addition, the inclusion of points in the determination of
interest under paragraph (e)(1) of this section applies only
[[Page 428]]
to transactions occurring after December 31, 1994.
[T.D. 8191, 53 FR 12002, Apr. 12, 1988, as amended by T.D. 8571, 59 FR
63251, Dec. 8, 1994; T.D. 8734, 62 FR 53492, Oct. 14, 1997; T.D. 9849,
84 FR 9237, Mar. 14, 2019]
Sec. 1.6050H-2 Time, form, and manner of reporting interest received
on qualified mortgage.
(a) Requirement to file return--(1) Form of return. An interest
recipient must file a return required by Sec. 1.6050H-1(a) on Form 1098
(with Form 1096 as the transmittal form). An interest recipient may use
forms containing provisions substantially similar to those in Forms 1098
and 1096 if it complies with applicable revenue procedures relating to
substitute Forms 1098 and 1096. An interest recipient must file a
separate return for each qualified mortgage for which it receives $600
or more of interest for a calendar year.
(2) Information included on return. An interest recipient must
include on Form 1098:
(i) The name, address, and taxpayer identification number (TIN) (as
defined in section 7701(a)(41)) of the payor of record;
(ii) The name, address, and TIN of the interest recipient;
(iii) The amount of interest (other than points) required to be
reported with respect to the qualified mortgage for the calendar year;
(iv) With respect to reimbursements of interest on a qualified
mortgage (as discussed in paragraph (a)(3) of this section) made to the
payor of record in the calendar year--
(A) Reimbursements aggregating $600 or more; and
(B) Reimbursements aggregating less than $600, but only if $600 or
more of interest on the qualified mortgage is received in the calendar
year from the payor of record;
(v) The amount of points paid directly by the payor of record
(within the meaning of Sec. 1.6050H-1(f)(3)) required to be reported
with respect to the qualified mortgage for the calendar year; and
(vi) Any other information required by Form 1098 or its
instructions.
Section 1.6050H-1(e) contains rules to determine the amount of interest
received on a mortgage for a calendar year.
(3) Reimbursements of interest on a qualified mortgage. For purposes
of paragraph (a)(2)(iv) of this section, a reimbursement of interest on
a qualified mortgage is a reimbursement of an amount received in a prior
year that was required to be reported for that prior year under
paragraph (a)(2)(iii) of this section by any interest recipient. Only
the interest recipient that makes the reimbursement is required to
report the reimbursement under this section. Form 1098 and the statement
furnished to the payor of record under paragraph (b) of this section
must not include any amount that constitutes interest on the
reimbursement paid to the payor of record. Rules relating to the
requirement to report interest on a reimbursement are, in the case of a
person carrying on the banking business (or a middleman, as defined in
Sec. 1.6049-4(f)(4), of a person carrying on the banking business),
provided in section 6049 and the regulations thereunder, and, for other
persons, provided in section 6041 and the regulations thereunder.
Reimbursements of interest on a qualified mortgage (as described in this
section) made in 1993 and subsequent calendar years must be reported on
Form 1098 and statements furnished to payors of record. Reimbursements
made prior to 1993 are not required to be reported.
(4) Time and place for filing return. An interest recipient must
file a return required by this paragraph (a) on or before February 28
(March 31 if filed electronically) of the year following the calendar
year for which it receives the mortgage interest. If no interest is
required to be reported for the calendar year, but a reimbursement of
interest on a qualified mortgage is required to be reported for the
calendar year, then a return required by this paragraph (a) must be
filed on or before February 28 (March 31 if filed electronically) of the
year following the calendar year in which the reimbursement was made. An
interest recipient must file the return required by paragraph (a) of
this section with the IRS office designated in the instructions for Form
1098.
(5) Use of magnetic media. An interest recipient must file the
return required
[[Page 429]]
by paragraph (a) of this section on magnetic media only if required by
section 6011(e) and the regulations thereunder. An interest recipient
not required by section 6011(e) to file returns on magnetic media may
request permission to do so. Section 301.6011-2 contains rules relating
to the use of magnetic media. A failure to file on magnetic media when
required constitutes a failure to file an information return under
section 6721.
(b) Requirement to furnish statement--(1) In general. An interest
recipient that must file a return under paragraph (a) of this section
must furnish a statement to the payor of record.
(2) Information included on statement. An interest recipient must
include on the statement that it must furnish to a payor of record:
(i) The information required under paragraph (a)(2) of this section;
(ii) A legend that--
(A) Identifies the statement as important tax information that is
being furnished to the IRS; and
(B) Notifies the payor of record that if the payor of record is
required to file a return, a negligence penalty or other sanction may be
imposed on the payor of record if the IRS determines that an
underpayment of tax results because the payor of record overstated a
deduction for this mortgage interest (if any) or understated income from
this mortgage interest reimbursement (if any) on the payor of record's
return;
(iii) A legend stating that the payor of record may be unable to
deduct the full amount of mortgage interest reported on the statement;
that limitations based on the cost and value of the property securing
the mortgage may apply; and that the payor of record may only deduct
mortgage interest to the extent it was incurred, actually paid by the
payor of record, and not reimbursed by another person; and
(iv) With respect to any information required to be reported under
paragraph (a)(2)(iv) of this section, an instruction providing that the
amount of the reimbursement is not to be deducted and that the amount
must be included in the gross income of the payor of record if the
reimbursed interest was deducted by the payor of record in a prior year
so as to reduce income tax.
(3) Statement furnished pursuant to Federal mortgage program. An
interest recipient that furnishes a statement to a payor of record under
a Federal mortgage program will satisfy the requirement of paragraph
(b)(1) of this section if the statement contains all the information and
legends required by paragraph (b)(2) of this section and is furnished by
the time and at the place required by paragraph (b)(6) of this section.
(4) Copy of Form 1098 to payor of record. An interest recipient will
satisfy the requirement of paragraph (b)(1) of this section by
furnishing to a payor of record a copy of Form 1098 (or a substitute
statement that complies with applicable revenue procedures) containing
all the information filed with the Internal Revenue Service and all the
legends required by paragraph (b)(2) of this section by the time and at
the place required by paragraph (b)(6) of this section.
(5) Furnishing statement with other information reports. An interest
recipient may transmit the statement required by paragraph (b)(1) of
this section to the payor of record with other information, including
other information returns, as permitted by applicable revenue
procedures.
(6) Time and place for furnishing statement. An interest recipient
must furnish a statement required by paragraph (b)(1) of this section to
a payor of record on or before January 31 of the year following the
calendar year for which it receives the mortgage interest. If no
mortgage interest is required to be reported for the calendar year, but
a reimbursement of interest on a qualified mortgage is required to be
reported for the calendar year, then the statement required by paragraph
(b)(1) of this section must be furnished on or before January 31 of the
year following the calendar year in which the reimbursement was made.
The interest recipient will be considered to have furnished the
statement to the payor of record if it mails the statement to the payor
of record's last known address.
(c) Notice requirement for use of Rule of 78s method of accounting--
(1) In general. An interest recipient seeking to report
[[Page 430]]
interest received on a mortgage under the Rule of 78s method of
accounting as permitted under Sec. 1.6050H-1(e)(4) must notify the
payor of record that the Rule of 78s method of accounting was used to
calculate interest received on the mortgage and that the payor of record
may not deduct as interest the amount calculated under the Rule of 78s
method of accounting unless the payor of record properly uses that
method to determine interest deductions. The notice must state that the
payor of record may use the Rule of 78s method of accounting to
determine interest paid for Federal income tax purposes only for a self-
amortizing consumer loan requiring level payments at regular intervals
(at least annually) over no longer than a five-year period, with no
balloon payment at the end of the loan term, and only when the loan
agreement provides for use of the Rule of 78s method of accounting to
determine interest earned. See Rev. Proc. 83-40, 1983-1 C.B. 774; Rev.
Rul. 83-84, 1983-1 C.B. 97.
(2) Time and manner. An interest recipient must provide notice
required by paragraph (c)(1) of this section to a payor of record on or
with the statement required by paragraph (b) of this section. An
interest recipient may provide notice on a separate paper or on the
statement required by paragraph (b) of this section.
(d) Reporting under designation agreement--(1) In general. An
interest recipient that receives or collects interest (including points)
on a mortgage may designate a qualified person to satisfy the reporting
requirements of paragraphs (a), (b), and (c) of this section. If a
designated qualified person reports as permitted under this paragraph
(d), it will satisfy the requirement of paragraph (a)(2)(ii) of this
section by including on Form 1098 (and Form 1096) the name, address, and
TIN of the designated qualified person.
(2) Qualified person. A qualified person is either--
(i) A trade or business with respect to which the interest recipient
is under common control within the meaning of Sec. 1.414(c)-2; or
(ii) A person who is named as the designee by the lender of record
or by a qualified person (under paragraph (d)(2) of this section) in a
designation agreement entered into in accordance with paragraph (d)(3)
of this section, and who either was involved in the original loan
transaction or is a subsequent purchaser of the loan.
(3) Designation agreement. An interest recipient that designates a
qualified person to satisfy the reporting requirements described in
paragraphs (a), (b), and (c) of this section must make that designation
in a written designation agreement. The designation agreement must
identify the mortgage(s) and calendar years for which the designated
qualified person must report, and must be signed by both the designator
and designee. A designee may report an amount as having been paid
directly by the payor of record (for purposes of paragraph (a)(2)(v) of
this section) only if the designation agreement contains the
designator's representation that it did not lend such amount to the
payor of record as part of the overall transaction. The designator must
retain a copy of the designation agreement for four years following the
close of the calendar year in which the loan is made. The designation
agreement need not be filed with the Internal Revenue Service.
(4) Penalties. A designated qualified person is subject to any
applicable penalties provided in part II of subchapter B of chapter 68
of the Internal Revenue Code as if it were an interest recipient. A
designator is relieved from liability for applicable penalties by
designating a qualified person under the provisions of paragraph (d)(3)
of this section. Paragraph (e) of this section describes applicable
penalties.
(e) Penalty provisions--(1) Returns and statements the due date for
which (determined without regard for extensions) is after December 31,
1987, and before December 31, 1989. For purposes of this paragraph
(e)(1) only, all references to sections of the Internal Revenue Code
refer to sections of the Internal Revenue Code of 1986, as amended on or
before December 31, 1987.
(i) Failure to file return or to furnish statement. The section 6721
penalty applies to an interest recipient that fails to file a return
required by paragraph (a) of this section with respect to a
[[Page 431]]
payor of record. The section 6722 penalty applies to an interest
recipient that fails to furnish a statement required by paragraph (b) of
this section to a payor of record.
(ii) Failure to furnish TIN. The section 6676 penalty may apply to
an interest recipient that fails to furnish the TIN of a payor of record
on a return required by paragraph (a) of this section. The section 6676
penalty may apply to an interest recipient that fails to request and to
obtain the TIN of a payor of record under paragraph (f) of this section.
(iii) Failure to include correct information. The section 6723
penalty may apply to an interest recipient that fails to include correct
information on a return required by paragraph (a) of this section or on
a statement required by paragraph (b) of this section to be furnished to
a payor of record.
(2) Returns and statements the due date for which (determined
without regard for extensions) is after December 31, 1989--(i) Failure
to file return or to furnish statement. The section 6721 penalty applies
to an interest recipient that fails to file a return required by
paragraph (a) of this section with respect to a payor of record. The
section 6722 penalty applies to an interest recipient that fails to
furnish a statement required by paragraph (b) of this section to a payor
of record.
(ii) Failure to furnish TIN. The section 6721 penalty may apply to
an interest recipient that fails to furnish the TIN of a payor of record
on a return required by paragraph (a) of this section. The section 6721
penalty may apply to an interest recipient that fails to request and to
obtain the TIN of a payor of record under paragraph (f) of this section.
(iii) Failure to include correct information. The section 6721
penalty may apply to an interest recipient that fails to include correct
information on a return required by paragraph (a) of this section. The
section 6722 penalty may apply to an interest recipient that fails to
include correct information on a statement required by paragraph (b) of
this section to be furnished to a payor record.
(f) Requirement to request and to obtain TIN--(1) In general. For
obligations incurred after December 31, 1987, an interest recipient must
make all reasonable efforts to obtain the TIN of a payor of record when
the payor of record incurs the obligation. For example, an interest
recipient may require a borrower to furnish a TIN during the mortgage
approval or application process. If an interest recipient does not
maintain the TIN of a payor of record on a mortgage, whenever incurred,
it must request the TIN at least annually and must process responses
properly and promptly.
(2) Manner of requesting TIN. An interest recipient need not
separately mail a request for a TIN. An interest recipient may include a
request in its regular mailing of payment coupon booklets or annual
statements. If an interest recipient makes no mailing to a payor of
record during the year in which the payor of record incurs the
obligation, it must request the TIN in a separate mailing. No particular
form is required to request a TIN. Nevertheless, an interest recipient
must make the request on a separate paper and must clearly notify a
payor of record that the Internal Revenue Service requires the payor of
record to furnish a TIN in order to verify any mortgage interest
deduction. An interest recipient must notify a payor of record that
failure to furnish a TIN subjects the payor of record to a $50 penalty
imposed by the Internal Revenue Service. A request for a TIN made on
Form W-9 satisfies the requirement of this paragraph (f)(2).
(g) Effective date--(1) In general. Except as provided in paragraph
(g)(2) of this section, this section is effective for mortgage interest
received after December 31, 1987.
(2) Points. The reporting requirement of this section does not apply
to prepaid interest in the form of points received before January 1,
1995.
[T.D. 8191, 53 FR 12005, Apr. 12, 1988, as amended by T.D. 8507, 58 FR
68753, Dec. 29, 1993; T.D. 8571, 59 FR 63253, Dec. 8, 1994; T.D. 8895,
65 FR 50408, Aug. 18, 2000; T.D. 9849, 84 FR 9237, Mar. 14, 2019]
Sec. 1.6050H-3 Information reporting of mortgage insurance premiums.
(a) Information reporting requirements. Any person who, in the
course of a
[[Page 432]]
trade or business, receives premiums, including prepaid premiums, for
mortgage insurance (as described in paragraph (b) of this section) from
any individual aggregating $600 or more for any calendar year, must make
an information return setting forth the total amount received from that
individual during the calendar year.
(b) Scope. Paragraph (a) of this section applies to mortgage
insurance provided by the Federal Housing Administration, Department of
Veterans Affairs, or the Rural Housing Service (or their successor
organizations), or to private mortgage insurance (as defined by section
2 of the Homeowners Protection Act of 1998 (12 U.S.C. 4901) as in effect
on December 20, 2006). The rule stated in paragraph (a) of this section
applies to the receipt of all payments of mortgage insurance premiums,
by cash or financing, without regard to source.
(c) Aggregation. Whether a person receives $600 or more of mortgage
insurance premiums is determined on a mortgage-by-mortgage basis. A
recipient need not aggregate mortgage insurance premiums received on all
of the mortgages of an individual to determine whether the $600
threshold is met. Therefore, a recipient need not report mortgage
insurance premiums of less than $600 received on a mortgage, even though
it receives a total of $600 or more of mortgage insurance premiums on
all of the mortgages for an individual for a calendar year.
(d) Time, form, and manner of reporting. Mortgage insurance premiums
required to be reported under paragraph (a) of this section must be
reported on the Form 1098 or successor form that is filed pursuant to
Sec. 1.6050H-2(a) with respect to the mortgage of the individual who
paid the mortgage insurance premiums. For the requirements for
furnishing statements with respect to Forms 1098 filed with the Internal
Revenue Service, see Sec. 1.6050H-2(b).
(e) Cross reference. For rules concerning the allocation of certain
prepaid qualified mortgage insurance premiums, see Sec. 1.163-11 of
this chapter.
(f) Limitation on the reporting of mortgage insurance premiums. This
section applies to mortgage insurance premiums described in paragraph
(b) of this section that are paid or accrued on or after January 1,
2013, and during periods to which section 163(h)(3)(E) applies. This
section does not apply to any amounts of mortgage insurance premiums
that are allocable to any periods to which section 163(h)(3)(E) does not
apply.
(g) Effective/applicability date. This section applies to mortgage
insurance premiums received on or after January 1, 2013. For regulations
applicable before May 5, 2012, see Sec. 1.6050H-3T as contained in 26
CFR part 1 (revised as of April 1, 2012).
[T.D. 9642, 78 FR 70858, Nov. 27, 2013]
Sec. 1.6050I-0 Table of contents.
This section lists the major captions that appear in Sec. Sec.
1.6050I-1 and 1.6050I-2.
Sec. 1.6050I-1 Returns relating to cash in excess of $10,000 received
in a trade or business.
(a) Reporting requirement.
(1) Reportable transaction.
(i) In general.
(ii) Certain financial transactions.
(2) Cash received for the account of another.
(3) Cash received by agents.
(i) General rule.
(ii) Exception.
(iii) Example.
(b) Multiple payments.
(1) Initial payment in excess of $10,000.
(2) Initial payment of $10,000 or less.
(3) Subsequent payments.
(4) Example.
(c) Meaning of terms.
(1) Cash.
(i) Amounts received prior to February 3, 1992.
(ii) Amounts received on or after February 3, 1992.
(iii) Designated reporting transaction.
(iv) Exception for certain loans.
(v) Exception for certain installment sales.
(vi) Exception for certain down payment plans.
(vii) Examples.
(2) Consumer durable.
(3) Collectible.
(4) Travel or entertainment activity.
(5) Retail sale.
(6) Trade or business.
(7) Transaction.
(8) Recipient.
(d) Exceptions to the reporting requirements of section 6050I.
(1) Receipt of cash by certain financial institutions.
(2) Receipt of cash by certain casinos having gross annual gaming
revenue in excess of $1,000,000.
[[Page 433]]
(i) In general.
(ii) Casinos exempt under 31 CFR 103.45(c).
(iii) Reporting of cash received in a nongaming business.
(iv) Example.
(3) Receipt of cash not in the course of the recipient's trade or
business.
(4) Receipt is made with respect to a foreign cash transaction.
(i) In general.
(ii) Example.
(e) Time, manner, and form of reporting.
(1) Time of reporting.
(2) Form of reporting.
(3) Manner of reporting.
(i) Where to file.
(ii) Verification.
(iii) Retention of returns.
(f) Requirement of furnishing statements.
(1) In general.
(2) Form of statement.
(3) When statement is to be furnished.
(g) Cross-reference to penalty provisions.
(1) Failure to file correct information return.
(2) Failure to furnish correct statement.
(3) Criminal penalties.
Sec. 1.6050I-2 Returns relating to cash in excess of $10,000 received
as bail by court clerks.
(a) Reporting requirement.
(b) Meaning of terms.
(c) Time, form, and manner of reporting.
(1) Time of reporting.
(i) In general.
(ii) Multiple payments.
(2) Form of reporting.
(3) Manner of reporting.
(i) Where to file.
(ii) Verification of identity.
(d) Requirement to furnish statements.
(1) Information to Federal prosecutors.
(i) In general.
(ii) Form of statement.
(2) Information to payors of bail.
(i) In general.
(ii) Form of statement.
(iii) Aggregate amount.
(e) Cross-reference to penalty provisions.
(f) Effective date.
[T.D. 8652, 61 FR 7, Jan. 2, 1996, as amended by T.D. 8974, 66 FR 67687,
Dec. 31, 2001]
Sec. 1.6050I-1 Returns relating to cash in excess of $10,000 received
in a trade or business.
(a) Reporting requirement--(1) Reportable transaction--(i) In
general. Any person (as defined in section 7701(a)(1)) who, in the
course of a trade or business in which such person is engaged, receives
cash in excess of $10,000 in 1 transaction (or 2 or more related
transactions) shall, except as otherwise provided, make a return of
information with respect to the receipt of cash.
(ii) Certain financial transactions. Section 6050I of title 26 of
the United States Code requires persons to report information about
financial transactions to the Internal Revenue Service, and section 5331
of title 31 of the United States Code requires persons to report similar
information about certain transactions to the Financial Crimes
Enforcement Network. This information shall be reported on the same form
as prescribed by the Secretary.
(2) Cash received for the account of another. Cash in excess of
$10,000 received by a person for the account of another must be reported
under this section. Thus, for example, a person who collects delinquent
accounts receivable for an automobile dealer must report with respect to
the receipt of cash in excess of $10,000 from the collection of a
particular account even though the proceeds of the collection are
credited to the account of the automobile dealer (i.e., where the rights
to the proceeds from the account are retained by the automobile dealer
and the collection is made on a fee-for-service basis).
(3) Cash received by agents--(i) General rule. Except as provided in
paragraph (a)(3)(ii) of this section, a person who in the course of a
trade or business acts as an agent (or in some other similar capacity)
and receives cash in excess of $10,000 from a principal, must report the
receipt of cash under this section.
(ii) Exception. An agent who receives cash from a principal and uses
all of the cash within 15 days in a cash transaction (the ``second cash
transaction'') which is reportable under section 6050I or 5312 of title
31 of the United States Code and the regulations thereunder (31 CFR Part
103), and who discloses the name, address, and taxpayer identification
number of the principal to the recipient in the second cash transaction
need not report the initial receipt of cash under this section. An agent
will be deemed to have met the disclosure requirements of this paragraph
(a)(3)(ii) if the agent discloses only the name of the principal and the
agent knows that the recipient has the principal's address and taxpayer
identification number.
[[Page 434]]
(iii) Example. The following example illustrates the application of
the rules in paragraphs (a)(3) (i) and (ii) of this section:
Example. B, the principal, gives D, an attorney, $75,000 in cash to
purchase real property on behalf of B. Within 15 days D purchases real
property for cash from E, a real estate developer, and discloses to E,
B's name, address, and taxpayer identification number. Because the
transaction qualifies for the exception provided in paragraph (a)(3)(ii)
of this section, D need not report with respect to the initial receipt
of cash under this section. The exception does not apply, however, if D
pays E by means other than cash, or effects the purchase more than 15
days following receipt of the cash from B, or fails to disclose B's
name, address, and taxpayer identification number (assuming D does not
know that E already has B's address and taxpayer identification number),
or purchases the property from a person whose sale of the property is
not in the course of that person's trade or business. In any such case,
D is required to report the receipt of cash from B under this section.
(b) Multiple payments. The receipt of multiple cash deposits or cash
installment payments (or other similar payments or prepayments) on or
after January 1, 1990, relating to a single transaction (or two or more
related transactions), is reported as set forth in paragraphs (b)(1)
through (b)(3) of this section.
(1) Initial payment in excess of $10,000. If the initial payment
exceeds $10,000, the recipient must report the initial payment within 15
days of its receipt.
(2) Initial payment of $10,000 or less. If the initial payment does
not exceed $10,000, the recipient must aggregate the initial payment and
subsequent payments made within one year of the initial payment until
the aggregate amount exceeds $10,000, and report with respect to the
aggregate amount within 15 days after receiving the payment that causes
the aggregate amount to exceed $10,000.
(3) Subsequent payments. In addition to any other required report, a
report must be made each time that previously unreportable payments made
within a 12-month period with respect to a single transaction (or two or
more related transactions), individually or in the aggregate, exceed
$10,000. The report must be made within 15 days after receiving the
payment in excess of $10,000 or the payment that causes the aggregate
amount received in the 12- month period to exceed $10,000. (If more than
one report would otherwise be required for multiple cash payments within
a 15-day period that relate to a single transaction (or two or more
related transactions), the recipient may make a single combined report
with respect to the payments. The combined report must be made no later
than the date by which the first of the separate reports would otherwise
be required to be made.) A report with respect to payments of $10,000 or
less that are reportable under this paragraph (b)(3) and are received
after December 31, 1989, but before July 10, 1990, is due July 24, 1990.
(4) Example. The following example illustrates the application of
the rules in paragraphs (b)(1) through (b)(3) of this section:
Example. On January 10, 1991, M receives an initial cash payment of
$11,000 with respect to a transaction. M receives subsequent cash
payments with respect to the same transaction of $4,000 on February 15,
1991, $6,000 on March 20, 1991, and $12,000 on May 15, 1991. M must make
a report with respect to the payment received on January 10, 1991, by
January 25, 1991. M must also make a report with respect to the payments
totalling $22,000 received from February 15, 1991, through May 15, 1991.
This report must be made by May 30, 1991, that is, within 15 days of the
date that the subsequent payments, all of which were received within a
12-month period, exceeded $10,000.
(c) Meaning of terms. The following definitions apply for purposes
of this section--
(1) Cash--(i) Amounts received prior to February 3, 1992. For
amounts received prior to February 3, 1992, the term cash means the coin
and currency of the United States or of any other country, which
circulate in and are customarily used and accepted as money in the
country in which issued.
(ii) Amounts received on or after February 3, 1992. For amounts
received on or after February 3, 1992, the term cash means--
(A) The coin and currency of the United States or of any other
country, which circulate in and are customarily used and accepted as
money in the country in which issued; and
(B) A cashier's check (by whatever name called, including
``treasurer's
[[Page 435]]
check'' and ``bank check''), bank draft, traveler's check, or money
order having a face amount of not more than $10,000--
(1) Received in a designated reporting transaction as defined in
paragraph (c)(1)(iii) of this section (except as provided in paragraphs
(c)(1)(iv), (v), and (vi) of this section), or
(2) Received in any transaction in which the recipient knows that
such instrument is being used in an attempt to avoid the reporting of
the transaction under section 6050I and this section.
(iii) Designated reporting transaction. A designated reporting
transaction is a retail sale (or the receipt of funds by a broker or
other intermediary in connection with a retail sale) of--
(A) A consumer durable,
(B) A collectible, or
(C) A travel or entertainment activity.
(iv) Exception for certain loans. A cashier's check, bank draft,
traveler's check, or money order received in a designated reporting
transaction is not treated as cash pursuant to paragraph
(c)(l)(ii)(B)(1) of this section if the instrument constitutes the
proceeds of a loan from a bank (as that term is defined in 31 CFR part
103). The recipient may rely on a copy of the loan document, a written
statement from the bank, or similar documentation (such as a written
lien instruction from the issuer of the instrument) to substantiate that
the instrument constitutes loan proceeds.
(v) Exception for certain installment sales. A cashier's check, bank
draft, traveler's check, or money order received in a designated
reporting transaction is not treated as cash pursuant to paragraph
(c)(1)(ii)(B)(1) of this section if the instrument is received in
payment on a promissory note or an installment sales contract (including
a lease that is considered to be a sale for Federal income tax
purposes). However, the preceding sentence applies only if--
(A) Promissory notes or installment sales contracts with the same or
substantially similar terms are used in the ordinary course of the
recipient's trade or business in connection with sales to ultimate
consumers; and
(B) The total amount of payments with respect to the sale that are
received on or before the 60th day after the date of the sale does not
exceed 50 percent of the purchase price of the sale.
(vi) Exception for certain down payment plans. A cashier's check,
bank draft, traveler's check, or money order received in a designated
reporting transaction is not treated as cash pursuant to paragraph
(c)(1)(ii)(B)(1) of this section is the instrument is received pursuant
to a payment plan requiring one or more down payments and the payment of
the balance of the purchase price by a date no later than the date of
the sale (in the case of an item of travel or entertainment, a date no
later than the earliest date that any item of travel or entertainment
pertaining to the same trip or event is furnished). However, the
preceding sentence applies only if--
(A) The recipient uses payment plans with the same or substantially
similar terms in the ordinary course of its trade or business in
connection with sales to ultimate consumers; and
(B) The instrument is received more than 60 days prior to the date
of the sale (in the case of an item of travel or entertainment, the date
on which the final payment is due).
(vii) Examples. The following examples illustrate the definition of
``cash'' set forth in paragraphs (c)(l)(ii) through (vi) of this
section.
Example 1. D, an individual, purchases gold coins from M, a coin
dealer, for $13,200. D tenders to M in payment United States currency in
the amount of $6,200 and a cashier's check in the face amount of $7,000
which D had purchased. Because the sale is a designated reporting
transaction, the cashier's check is treated as cash for purposes of
section 6050I and this section. Therefore, because M has received more
than $10,000 in cash with respect to the transaction, M must make the
report required by section 6050I and this section.
Example 2. E, an individual, purchases an automobile from Q, an
automobile dealer, for $11,500. E tenders to Q in payment United States
currency in the amount of $2,000 and a cashier's check payable to E and
Q in the amount of $9,500. The cashier's check constitutes the proceeds
of a loan from the bank issuing the check. The origin of the proceeds is
evident from provisions inserted by the bank on the check that instruct
the dealer
[[Page 436]]
to cause a lien to be placed on the vehicle as security for the loan.
The sale of the automobile is a designated reporting transaction.
However, under paragraph (c)(1)(iv) of this section, because E has
furnished Q documentary information establishing that the cashier's
check constitutes the proceeds of a loan from the bank issuing the
check, the cashier's check is not treated as cash pursuant to paragraph
(c)(1)(ii)(B)(1) of this section.
Example 3. F, an individual, purchases an item of jewelry from S, a
retail jeweler, for $12,000. F gives S traveler's checks totalling
$2,400 and pays the balance with a personal check payable to S in the
amount of $9,600. Because the sale is a designated reporting
transaction, the traveler's checks are treated as cash for purposes of
section 6050I and this section. However, because the personal check is
not treated as cash for purposes of section 6050I and this section, S
has not received more than $10,000 in cash in the transaction and no
report is required to be filed under section 6050I and this section.
Example 4. G, an individual, purchases a boat from T, a boat dealer,
for $16,500. G pays T with a cashier's check payable to T in the amount
of $16,500. The cashier's check is not treated as cash because the face
amount of the check is more than $10,000. Thus, no report is required to
be made by T under section 6050I and this section.
Example 5. H, an individual, arranges with W, a travel agent, for
the chartering of a passenger aircraft to transport a group of
individuals to a sports event in another city. H also arranges with W
for hotel accommodations for the group and for admission tickets to the
sports event. In payment, H tenders to W money orders which H had
previously purchased. The total amount of the money orders, none of
which individually exceeds $10,000 in face amount, exceeds $10,000.
Because the transaction is a designated reporting transaction, the money
orders are treated as cash for purposes of section 6050I and this
section. Therefore, because W has received more than $10,000 in cash
with respect to the transaction, W must make the report required by
section 6050I and this section.
(2) Consumer durable. The term consumer durable means an item of
tangible personal property of a type that is suitable under ordinary
usage for personal consumption or use, that can reasonably be expected
to be useful for at least 1 year under ordinary usage, and that has a
sales price of more than $10,000. Thus, for example, a $20,000
automobile is a consumer durable (whether or not it is sold for business
use), but a $20,000 dump truck or a $20,000 factory machine is not.
(3) Collectible. The term collectible means an item described in
paragraphs (A) through (D) of section 408(m)(2) (determined without
regard to section 408(m)(3)).
(4) Travel or entertainment activity. The term travel or
entertainment activity means an item of travel or entertainment (within
the meaning of Sec. 1.274-2(b)(1)) pertaining to a single trip or event
where the aggregate sales price of the item and all other items
pertaining to the same trip or event that are sold in the same
transaction (or related transactions) exceeds $10,000.
(5) Retail sale. The term retail sale means any sale (whether for
resale or for any other purpose) made in the course of a trade or
business if that trade or business principally consists of making sales
to ultimate consumers.
(6) Trade or business. The term trade or business has the same
meaning as under section 162 of the Internal Revenue Code of 1954.
(7) Transaction--(i) The term transaction means the underlying event
precipitating the payer's transfer of cash to the recipient.
Transactions include (but are not limited to) a sale of goods or
services; a sale of real property; a sale of intangible property; a
rental of real or personal property; an exchange of cash for other cash;
the establishment or maintenance of or contribution to a custodial,
trust, or escrow arrangement; a payment of a preexisting debt; a
conversion of cash to a negotiable instrument; a reimbursement for
expenses paid; or the making or repayment of a loan. A transaction may
not be divided into multiple transactions in order to avoid reporting
under this section.
(ii) The term related transactions means any transaction conducted
between a payer (or its agent) and a recipient of cash in a 24-hour
period. Additionally, transactions conducted between a payer (or its
agent) and a cash recipient during a period of more than 24 hours are
related if the recipient knows or has reason to know that each
transaction is one of a series of connected transactions.
(iii) The following examples illustrate the definition of paragraphs
(c)(7) (i) and (ii).
[[Page 437]]
Example 1. A person has a tacit agreement with a gold dealer to
purchase $36,000 in gold bullion. The $36,000 purchase represents a
single transaction under paragraph (c)(7)(i) of this section and the
reporting requirements of this section cannot be avoided by recasting
the single sales transaction into 4 separate $9,000 sales transactions.
Example 2. An attorney agrees to represent a client in a criminal
case with the attorney's fee to be determined on an hourly basis. In the
first month in which the attorney represents the client, the bill for
the attorney's services comes to $8,000 which the client pays in cash.
In the second month in which the attorney represents the client, the
bill for the attorney's services comes to $4,000, which the client again
pays in cash. The aggregate amount of cash paid ($12,000) relates to a
single transaction as defined in paragraph (c)(7)(i) of this section,
the sale of legal services relating to the criminal case, and the
receipt of cash must be reported under this section.
Example 3. A person intends to contribute a total of $45,000 to a
trust fund, and the trustee of the fund knows or has reason to know of
that intention. The $45,000 contribution is a single transaction under
paragraph (c)(7)(i) of this section and the reporting requirement of
this section cannot be avoided by the grantor's making five separate
$9,000 cash contributions to a single fund or by making five $9,000 cash
contributions to five separate funds administered by a common trustee.
Example 4. K, an individual, attends a one day auction and purchases
for cash two items, at a cost of $9,240 and $1,732.50 respectively (tax
and buyer's premium included). Because the transactions are related
transactions as defined in paragraph (c)(7)(ii) of this section, the
auction house is required to report the aggregate amount of cash
received from the related sales ($10,972.50), even though the auction
house accounts separately on its books for each item sold and presents
the purchaser with separate bills for each item purchased.
Example 5. F, a coin dealer, sells for cash $9,000 worth of gold
coins to an individual on three successive days. Under paragraph
(c)(7)(ii) of this section the three $9,000 transactions are related
transactions aggregating $27,000 if F knows, or has reason to know, that
each transaction is one of a series of connected transactions.
(8) Recipient. (i) The term recipient means the person receiving the
cash. Except as provided in paragraph (c)(8)(ii) of this section, each
store, division, branch, department, headquarters, or office
(``branch'') (regardless of physical location) comprising a portion of a
person's trade or business shall for purposes of this section be deemed
a separate recipient.
(ii) A branch that receives cash payments will not be deemed a
separate recipient if the branch (or a central unit linking such branch
with other branches) would in the ordinary course of business have
reason to know the identity of payers making cash payments to other
branches of such person.
(iii) Examples. The following examples illustrate the application of
the rules in paragraphs (c)(8)(i) and (ii) of this section:
Example 1. N, an individual, purchases regulated futures contracts
at a cost of $7,500 and $5,000, respectively, through two different
branches of Commodities Broker X on the same day. N pays for each
purchase with cash. Each branch of Commodities Broker X transmits the
sales information regarding each of N's purchases to a central unit of
Commodities Broker X (which settles the transactions against N's
account). Under paragraph (c)(8)(ii) of this section the separate
branches of Commodities Broker X are not deemed to be separate
recipients; therefore. Commodities Broker X must report with respect to
the two related regulated futures contracts sales in accordance with
this section.
Example 2. P, a corporation, owns and operates a racetrack. P's
racetrack contains 100 betting windows at which pari-mutuel wagers may
be made. R, an individual, places cash wagers of $3,000 each at five
separate betting windows. Assuming that in the ordinary course of
business each betting window (or a central unit linking windows) does
not have reason to know the identity of persons making wagers at other
betting windows, each betting window would be deemed to be a separate
cash recipient under paragraph (c)(8)(i) of this section. As no
individual recipient received cash in excess of $10,000, no report need
be made by P under this section.
(d) Exceptions to the reporting requirements of section 6050I--(1)
Receipt of cash by certain financial institutions. A financial
institution as defined in subparagraphs (A), (B), (C), (D), (E), (F),
(G), (J), (K), (R), and (S) of section 5312 (a)(2) of title 31, United
States Code is not required to report the receipt of cash exceeding
$10,000 under section 6050I.
(2) Receipt of cash by certain casinos having gross annual gaming
revenue in excess of $1,000,000--(i) In general. If a casino receives
cash in excess of $10,000 and is required to report the receipt of
[[Page 438]]
such cash directly to the Treasury Department under 31 CFR 103.22(a)(2)
and 103.25 and is subject to the recordkeeping requirements of 31 CFR
103.36, then the casino is not required to make a return with respect to
the receipt of such cash under section 6050I and these regulations.
(ii) Casinos exempt under 31 CFR 103.45(c). Under the authority of
section 6050I(c)(1)(A), the Secretary may exempt from the reporting
requirements of section 6050I casinos with gross annual gaming revenue
in excess of $1,000,000 that are exempt under 31 CFR 103.45(c) from
reporting certain cash transactions to the Treasury Department under 31
CFR 103.22(a)(2) and 103.25. The determination whether a casino which is
granted an exemption under 31 CFR 103.45(c) will be required to report
under section 6050I will be made on a case by case basis, concurrently
with the granting of such an exemption.
(iii) Reporting of cash received in a nongaming business. Nongaming
businesses (such as shops, restaurants, entertainment, and hotels) at
casino hotels and resorts are separate trades or businesses in which the
receipt of cash in excess of $10,000 is reportable under section 6050I
and these regulations. Thus, a casino exempt under paragraph (d)(2) (i)
or (ii) of this section must report with respect to cash in excess of
$10,000 received in its nongaming businesses.
(iv) Example. The following example illustrates the application of
the rules in paragraphs (d)(2) (i) and (iii) of this section:
Example. A and B are casinos having gross annual gaming revenue in
excess of $1,000,000. C is a casino with gross annual gaming revenue of
less than $1,000,000. Casino A receives $15,000 in cash from a customer
with respect to a gaming transaction which the casino reports to the
Treasury Department under 31 CFR 103.22(a)(2) and 103.25. Casino B
receives $15,000 in cash from a customer in payment for accommodations
provided to that customer at Casino B's hotel. Casino C receives $15,000
in cash from a customer with respect to a gaming transaction. Casino A
is not required to report the transaction under section 6050I or these
regulations because the exception for certain casinos provided in
paragraph (d)(2)(i) (``the casino exception'') applies. Casino B is
required to report under section 6050I and these regulations because the
casino exception does not apply to the receipt of cash from a nongaming
activity. Casino C is required to report under section 6050I and these
regulations because the casino exception does not apply to casinos
having gross annual gaming revenue of $1,000,000 or less which do not
have to report to the Treasury Department under 31 CFR 103.22(a)(2) and
103.25.
(3) Receipt of cash not in the course of the recipient's trade or
business. The receipt of cash in excess of $10,000 by a person other
than in the course of the person's trade or business is not reportable
under section 6050I. Thus, for example, F, an individual in the trade or
business of selling real estate, sells a motorboat for $12,000, the
purchase price of which is paid in cash. F did not use the motorboat in
any trade or business in which F was engaged. F is not required to
report under section 6050I or these regulations because the exception
provided in this paragraph (d)(3) applies.
(4) Receipt is made with respect to a foreign cash transaction--(i)
In general. Generally, there is no requirement to report with respect to
a cash transaction if the entire transaction occurs outside the United
States (the fifty states and the District of Columbia). An entire
transaction consists of both the transaction as defined in paragraph
(c)(7)(i) of this section and the receipt of cash by the recipient. If,
however, any part of an entire transaction occurs in the Commonwealth of
Puerto Rico or a possession or territory of the United States and the
recipient of cash in that transaction is subject to the general
jurisdiction of the Internal Revenue Service under title 26 of the
United States Code, the recipient is required to report the transaction
under this section.
(ii) Example. The following example illustrates the application of
the rules in paragraph (d)(4)(i) of this section:
Example. W, an individual engaged in the trade or business of
selling aircraft, reaches an agreement to sell an airplane to a U.S.
citizen living in Mexico. The agreement, no portion of which is
formulated in the United States, calls for a purchase price of $125,000
and requires delivery of and payment for the airplane to be made in
Mexico. Upon delivery of the airplane in Mexico, W receives $125,000 in
cash. W is not required to report under section 6050I or these
regulations because the exception provided in paragraph (d)(4)(i) of
[[Page 439]]
this section (``foreign transaction exception'') applies. If, however,
any part of the agreement to sell had been formulated in the United
States, the foreign transaction exception would not apply and W would be
required to report the receipt of cash under section 6050I and these
regulations.
(e) Time, manner, and form of reporting--(1) Time of reporting. The
reports required by this section must be filed with the Internal Revenue
Service by the 15th day after the date the cash is received. However, in
the case of multiple payments relating to a single transaction (or two
or more related transactions), see paragraph (b) of this section.
(2) Form of reporting. A report required by paragraph (a) of this
section must be made on Form 8300. A return of information made in
compliance with this paragraph must contain the name, address, and
taxpayer identification number of the person from whom the cash was
received; the name, address, and taxpayer identification number of the
person on whose behalf the transaction was conducted (if the recipient
knows or has reason to know that the person from whom the cash was
received conducted the transaction as an agent for another person); the
amount of cash received; the date and nature of the transaction; and any
other information required by Form 8300. Form 8300 can be obtained from
any Internal Revenue Service Forms Distribution Center.
(3) Manner of reporting--(i) Where to file. A person making a return
of information under this section must file Form 8300 by mailing it to
the address shown in the instructions to the form.
(ii) Verification. A person making a return of information under
this section must verify the identity of the person from whom the
reportable cash is received. Verification of the identity of a person
who purports to be an alien must be made by examination of such person's
passport, alien identification card, or other official document
evidencing nationality or residence. Verification of the identity of any
other person may be made by examination of a document normally
acceptable as a means of identification when cashing or accepting checks
(for example, a driver's license or a credit card). In addition, a
return will be considered incomplete if the person required to make a
return knows (or has reason to know) that an agent is conducting the
transaction for a principal, and the return does not identify both the
principal and the agent.
(iii) Retention of returns. A person required to make an information
return under this section must keep a copy of each return filed for five
years from the date of filing.
(f) Requirement of furnishing statements--(1) In general. Any person
required to make an information return under this section must furnish a
single, annual, written statement to each person whose name is set forth
in a return (``identified person'') filed with the Internal Revenue
Service.
(2) Form of statement. The statement required by the preceding
paragraph need not follow any particular format, but it must contain the
following information:
(i) The name and address of the person making the return;
(ii) The aggregate amount of reportable cash received by the person
who made the information return required by this section during the
calendar year in all cash transactions relating to the identified
person; and
(iii) A legend stating that the information contained in the
statement is being reported to the Internal Revenue Service.
(3) When statement is to be furnished. Statements required under
this paragraph (f) must be furnished to an identified person on or
before January 31 of the year following the calendar year in which the
cash is received. A statement shall be considered to be furnished to an
identified person if it is mailed to the identified person at the
identified person's last known address.
(g) Cross-reference to penalty provisions--(1) Failure to file
correct information return. See section 6721 for civil penalties
relating to the failure to file a correct return under section 6050I(a)
and paragraph (a) of this section.
(2) Failure to furnish correct statement. See section 6722 for civil
penalties relating to the failure to furnish a correct statement to
identified persons under section 6050I(e) and paragraph (f) of this
section.
[[Page 440]]
(3) Criminal penalties. Any person who willfully fails to make a
return or makes a false return under section 6050I and this section may
be subject to criminal prosecution.
[T.D. 8098, 51 FR 31611, Sept. 4, 1986; 51 FR 33033, Sept. 18, 1986, as
amended by T.D. 8373, 56 FR 57976, 57977, Nov. 15, 1991; 58 FR 16496,
Mar. 29, 1993; T.D. 8479, 58 FR 33764, June 21, 1993; T.D. 8974, 66 FR
67687, Dec. 31, 2001]
Sec. 1.6050I-2 Returns relating to cash in excess of $10,000 received
as bail by court clerks.
(a) Reporting requirement. Any clerk of a Federal or State court who
receives more than $10,000 in cash as bail for any individual charged
with a specified criminal offense must make a return of information with
respect to that cash receipt. For purposes of this section, a clerk is
the clerk's office or the office, department, division, branch, or unit
of the court that is authorized to receive bail. If someone other than a
clerk receives bail on behalf of a clerk, the clerk is treated as
receiving the bail for purposes of this paragraph (a).
(b) Meaning of terms. The following definitions apply for purposes
of this section--
Cash means--
(1) The coin and currency of the United States, or of any other
country, that circulate in and are customarily used and accepted as
money in the country in which issued; and
(2) A cashier's check (by whatever name called, including
treasurer's check and bank check), bank draft, traveler's check, or
money order having a face amount of not more than $10,000.
Specified criminal offense means--
(1) A Federal criminal offense involving a controlled substance (as
defined in section 802 of title 21 of the United States Code), provided
the offense is described in Part D of Subchapter I or Subchapter II of
title 21 of the United States Code;
(2) Racketeering (as defined in section 1951, 1952, or 1955 of title
18 of the United States Code);
(3) Money laundering (as defined in section 1956 or 1957 of title 18
of the United States Code); and
(4) Any State criminal offense substantially similar to an offense
described in this paragraph (b).
(c) Time, form, and manner of reporting--(1) Time of reporting--(i)
In general. The information return required by this section must be
filed with the Internal Revenue Service by the 15th day after the date
the cash bail is received.
(ii) Multiple payments. If multiple payments are made to satisfy
bail reportable under this section and the initial payment does not
exceed $10,000, the initial payment and subsequent payments must be
aggregated and the information return required by this section must be
filed with the Internal Revenue Service by the 15th day after receipt of
the payment that causes the aggregate amount to exceed $10,000. However,
if payments are made to satisfy separate bail requirements, no
aggregation is required. Thus, if in Month 1 a clerk receives $6,000 in
bail for an individual charged with a specified criminal offense and
later, in Month 2, receives $7,000 in bail for that same individual
charged with another specified criminal offense, no aggregation is
required.
(2) Form of reporting. The return of information required by
paragraph (a) of this section must be made on Form 8300 and must contain
the following information--
(i) The name, address, and taxpayer identification number (TIN) of
the individual charged with the specified criminal offense;
(ii) The name, address, and TIN of each person posting the bail
(payor of bail), other than a person posting bail who is licensed as a
bail bondsman in the jurisdiction in which the bail is received;
(iii) The amount of cash received;
(iv) The date the cash was received; and
(v) Any other information required by Form 8300 or its instructions.
(3) Manner of reporting--(i) Where to file. Returns required by this
section must be filed with the Internal Revenue Service office
designated in the instructions for Form 8300. A copy of the information
return required to be filed under this section must be retained for five
years from the date of filing.
[[Page 441]]
(ii) Verification of identity. A clerk required to make an
information return under this section must, in accordance with Sec.
1.6050I-1(e)(3)(ii), verify the identity of each payor of bail listed in
the return.
(d) Requirement to furnish statements--(1) Information to Federal
prosecutors--(i) In general. A clerk required to make an information
return under this section must furnish a written statement to the United
States Attorney for the jurisdiction in which the individual charged
with the specified crime resides and the United States Attorney for the
jurisdiction in which the specified criminal offense occurred
(applicable United States Attorney(s)). The written statement must be
filed with the applicable United States Attorney(s) by the 15th day
after the date the cash bail is received.
(ii) Form of statement. The written statement must include the
information required by paragraph (c)(2) of this section. The
requirement of this paragraph (d)(1)(ii) will be satisfied if the clerk
provides to the applicable United States Attorney(s) a copy of the Form
8300 that is filed with the Internal Revenue Service pursuant to this
section.
(2) Information to payors of bail--(i) In general. A clerk required
to make an information return under this section must furnish a written
statement to each payor of bail whose name is set forth in a return
required by this section. A statement required under this paragraph
(d)(2) must be furnished to a payor of bail on or before January 31 of
the year following the calendar year in which the cash is received. A
statement will be considered furnished to a payor of bail if it is
mailed to the payor's last known address.
(ii) Form of statement. The statement required by this paragraph
(d)(2) need not follow any particular format, but must contain the
following information--
(A) The name and address of the clerk's office making the return;
(B) The aggregate amount of reportable cash received during the
calendar year by the clerk who made the information return required by
this section in all cash transactions relating to the payor of bail; and
(C) A legend stating that the information contained in the statement
has been reported to the Internal Revenue Service and the applicable
United States Attorney(s).
(iii) Aggregate amount. The requirement of furnishing the aggregate
amount in paragraph (d)(2)(ii)(B) of this section will be satisfied if
the clerk provides to the payor of bail either a single written
statement listing the aggregate amount, or a copy of each Form 8300
relating to that payor of bail.
(e) Cross-reference to penalty provisions. See sections 6721 through
6724 for penalties relating to the failure to comply with the provisions
of this section.
(f) Effective date. This section applies to cash received by court
clerks on or after February 13, 1995.
[T.D. 8652, 61 FR 7, Jan. 2, 1996]
Sec. 1.6050J-1T Questions and answers concerning information returns
relating to foreclosures and abandonments of security (temporary).
The following questions and answers relate to the requirement of
reporting foreclosures and abandonments of security under section 6050J
of the Internal Revenue Code Act of 1954, as added by section 148 of the
Tax Reform Act of 1984 (98 Stat. 687).
Requirement of Reporting
In General
Q-1: What does section 6050J provide with respect to the reporting
of acquisitions and abandonments of property that secures indebtedness?
A-1: Section 6050J provides that an information return must be made
by any person who, in connection with a trade or business conducted by
the person (except as provided in A-13), lends money and, in full or
partial satisfaction of the debt, acquires an interest in any property
that is security for the debt, or has reason to know that the property
has been abandoned. For purposes of these questions and answers, a
person who lends money in connection with a trade or business is
referred to as a ``lender''.
Trade or Business Requirement
Q-2: Must a person be in the trade or business of lending money in
order to be subject to the reporting requirement of this section?
A-2: No. A person does not have to be in the trade or business of
lending money to be
[[Page 442]]
subject to this reporting requirement. Thus, if L sells automobiles and
lends money to B to enable B to purchase an automobile from L for use in
B's trade or business, and that automobile is security for the loan, L
would be subject to this reporting requirement. Similarly, if P promotes
interests in an oil well, and lends money to I to enable I to invest in
the oil well which is security for the loan, P would be subject to this
reporting requirement.
Q-3: How does the reporting requirement apply in the case of pools,
fixed investment trusts, or other similar arrangements through which
undivided beneficial interests or participations in indebtedness are
offered?
A-3: In these cases, the owners of the undivided beneficial
interests or participations are not subject to this reporting
requirement. Instead, the trustee, record owner, or person acting in a
similar capacity is treated as the lender for purposes of this reporting
requirement and is the party required to report. For purposes of both
section 6050J and the applicable penalty provisions, only one return and
one statement must be filed with respect to each loan or other evidence
of indebtedness. For situations when more than one return or statement
must be filed, see A-29, A-31, and A-41. The trustee, record owner, or
person acting in a similar capacity, rather than the owners of
beneficial interests or participations, is subject to the applicable
penalty provisions (see A-43).
Q-4: How does the reporting requirement apply in the case of
corporate, tax-exempt, or other bond issues?
A-4: In these cases, the owners or holders of a bond issue are not
required to report. Instead, the trustee or person acting in a similar
capacity is treated as the lender for purposes of this reporting
requirement and is the party required to report. For purposes of both
section 6050J and the applicable penalty provisions, only one return and
one statement must be filed with respect to a bond issue. For situations
when more than one return or statement must be filed, see A-29, A-31,
and A-41. The trustee or person acting in a similar capacity, rather
than the owners or holders of a bond issue, is subject to the applicable
penalty provisions (see A-43).
Property Subject to Reporting
Q-5: Does the reporting requirement apply to all types of property
securing indebtedness?
A-5: No. The reporting requirement does not apply to any loan made
to an individual and secured by an interest in tangible personal
property which is neither held for investment nor used in a trade or
business. For rules governing when the reporting requirment applies to
tangible personal property of a type ordinarily used for personal
purposes, see A-8.
Q-6: Does the reporting requirement apply when property securing
indebtedness is held both for personal use and for use in a trade or
business?
A-6: Yes. The reporting requirement applies when property securing
indebtedness is held both for personal use and for use in a trade or
business. Similarly, the reporting requirement applies when the borrower
holds such property both for personal use and for investment purposes.
Q-7: Does the reporting requirement apply to indebtedness secured by
a personal residence?
A-7: Yes. A lender is subject to the reporting requirement if the
property that is security for the loan is real property, including a
personal residence, whether or not held for investment or used in a
trade or business.
Q-8: In the case of a loan made to an individual and secured by
personal property of a type that is ordinarily used for personal
purposes, how does a lender know whether such property is used in a
trade or business or held for investment purposes?
A-8: In the case of a loan made to an individual and secured by
personal property of a type that is ordinarily used for personal
purposes, such as an automobile, computer, or boat, the lender is
subject to the reporting requirement if the lender knows that the
property will be used in a trade or business or held for investment
purposes. For this purpose, a lender knows information if the
information is included on the books and records of the lender or its
agents pertaining to the loan, or is known by the lender or agent's
officers, partners, principals or employees, but only if such
information was acquired in the course of their ordinary business
activities on behalf of the lender. For example, if a borrower indicates
on the loan agreement or disclosure statement that the borrower intends
to use the property securing the loan in the borrower's trade or
business, the lender is subject to this reporting requirement.
Similarly, if the borrower notifies the lender that the borrower intends
to convert the property from personal use to use in a trade or business,
the lender is subject to the reporting requirement.
Q-9: If a lender maintains a system under which the lender
classifies loans according to the use of property that secures the loan
(such as use in a trade or business or personal use), may the lender
rely on this system in determining whether the reporting requirement
applies?
A-9: Yes. A lender may rely on the classification system to
determine whether the reporting requirement applies, provided that the
classification system is designed and reasonably maintained to ensure
accuracy in identifying the use of property.
[[Page 443]]
Acquisition of an Interest
Q-10: For purposes of the reporting requirement, when is a lender
treated as acquiring an interest in property that is security for
indebtedness?
A-10: In general, an interest in property is acquired on the earlier
of the date title is transferred to the lender or the date possession
and the burdens and benefits of ownership are transferred to the lender.
If State or other applicable law provides for an objection period within
which the borrower and other appropriate parties may object to the
lender's proposal to retain the property in satisfaction of the
indebtedness, a lender is treated as acquiring an interest in the
property on the date this objection period expires. If the lender
purchases the property at a sale held to satisfy the indebtedness, such
as at a foreclosure or execution sale, the lender is treated as
acquiring an interest in the property on the later of the date of the
sale or the date the borrower's right of redemption, if any, expires.
See 4A-15 for rules governing reporting when a party other than the
lender acquires property securing indebtedness at a foreclosure,
execution or similar sale.
Q-11: If a lender takes possession of property that is security for
a loan for a limited purpose, such as completing construction on or
improvement to the property, is the lender treated as having acquired an
interest in the property at that point?
A-11: No. The lender in these circumstances is not treated as
acquiring an interest in the property. However, the lender must report
if he later acquires an interest in the property in full or partial
satisfaction of the indebtedness (see A-10 or A-15).
Indirect Acquisition
Q-12: If a lender acquires an interest in a partnership, trust, or
other entity in full or partial satisfaction of a loan that is secured
by the assets or property owned by the partnership, trust, or other
entity, is the lender treated as acquiring an interest in the property
securing the loan?
A-12: Yes. A lender in this case acquires an interest in the
underlying assets or property and the reporting requirements of this
section apply to the acquisition of that interest in a partnership,
trust, or other entity.
Treatment of Governmental Units
Q-13: How does the reporting requirement apply to a governmental
unit?
A-13: A governmental unit (or any agency or instrumentality thereof)
which lends money secured by property is subject to the reporting
requirement without regard to the requirement that the money be lent in
connection with a trade or business. A governmental unit (or any agency
or instrumentality thereof) subject to the reporting requirement must
designate an officer or employee to make the return. The officer or
employee appropriately designated must make the return in the form and
manner prescribed by this section.
Notification of Sale Under Section 7425(b)
Q-14: Does a return filed as required under this section constitute
a notification of sale under section 7425(b)?
A-14: No. A return filed under this section is not considered a
notification of sale under section 7425(b).
Sale to Third Party
Q-15: If a party other than the lender purchases property securing a
loan at a foreclosure, execution, or similar sale, must the lender
report under this section?
A-15: Yes. The lender must report if a party other than the lender
purchases property securing the lender's loan at a foreclosure,
execution, or similar sale. If the proceeds of that sale are applied to
satisfy all or any portion of the lender's loan, the lender must treat
the property as having been abandoned. The lender will be treated as
having reason to know that the property has been abandoned as of the
date of the sale (see A-19). If no proceeds of such a sale are made
available to satisfy any portion of the lender's loan but the lender's
security interest foreclosed upon is terminated, reduced, or otherwise
impaired by reason of the sale, the lender will be treated as having
reason to know that the property has been abandoned as of the date of
the sale (see A-19).
Treatment of Foreign Borrowers
Q-16: How does the reporting requirement apply in the case of
foreign borrowers where the property securing the loan is located
outside the United States?
A-16: No reporting is required where both of the following
requirements are met: (a) The property securing the loan is located
outside the United States, and (b) at any time before the lender is
required to report, the borrower furnishes the lender with a statement,
signed upon penalty of perjury, that he is an exempt foreign person
(unless an employee or other agent of the lender who is responsible for
receiving or reviewing these statements has actual knowledge that the
statement is incorrect). For purposes of this section, the borrower is
an exempt foreign person if he:
(1) Is not a citizen of the United States, a resident of the United
States, a person treated as a resident of the United States by reason of
an election under section 6013 (g) or (h) or a United States corporation
or other United States entity;
(2) Is not subject to the provisions of section 877; and
[[Page 444]]
(3) At the time the statement is furnished, is not, or reasonably
expects not to be, engaged in a trade or business in the United States
during the current year in connection with the loan or property securing
the loan.
If, after providing the statement, the borrower ceases to be an exempt
foreign person, he must so notify the lender in writing within 30 days
of this change in status. If the lender is so notified, this exemption
from the reporting requirement no longer applies.
Abandonments
Q-17: For purposes of this reporting requirement, when has an
abandonment occurred?
A-17: An abandonment has occurred when the objective facts and
circumstances indicate that the borrower intended to and has permanently
discarded the property from use.
Q-18: Does the fact that a lender knows or has reason to know of an
abandonment of property securing a loan mean that the borrower is
entitled to an abandonment loss?
A-18: No. The definition of an abandonment of property securing a
loan in A-17 applies only for purposes of this reporting requirement and
is not intended to apply for other purposes, such as determining whether
a borrower would be entitled to an abandonment loss.
Q-19: Under what circumstances will a lender be considered to have
reason to know that property which is security for a loan has been
abandoned?
A-19: Whether a lender has reason to know that property which is
security for a loan has been abandoned is to be determined with
reference to all the facts and circumstances concerning the status of
the property. When the lender in the ordinary course of business becomes
aware or should become aware of circumstances indicating that the
property has been abandoned, the lender will be deemed to know all the
information that would have been discovered through a reasonable
inquiry. For example, if a borrower has failed (without adequate
explanation) to make payments on the loan for a substantial period, the
lender must make a reasonable inquiry to determine whether there has
been an abandonment. If a reasonable inquiry would reveal objective
facts and circumstances indicating that the borrower intended to and has
permanently discarded the property from use, then the lender has reason
to know that the property has been abandoned. If a lender knows or has
reason to know that the property has been abandoned and reasonably
expects to commence foreclosure, execution sale, or similar proceedings,
see A-20.
Q-20: If a lender has reason to know that property that is security
for a loan has been abandoned and reasonably expects to commence within
three months foreclosure, execution sale, or similar proceedings, is
reporting of the abandonment required?
A-20: In these circumstances, the lender need not report as of the
date he knows or has reason to know that the property has been
abandoned. Instead, the lender must report as of the date he acquires an
interest in the property or a third party purchases the property at a
foreclosure, execution or similar sale (see A-10 and A-15). In any other
case, the lender must report as of the date the lender knows or has
reason to know that the property has been abandoned (see A-18).
Q-21: If a lender has reason to know that property that is security
for a loan has been abandoned and reasonably expects to commence within
three months foreclosure, execution sale or similar proceedings but in
fact does not commence such proceedings within the three month period,
must the lender report?
A-21: Yes. In these circumstances, the lender's obligation to report
the abandonment arises at the close of the three month period. For
example, if on December 31, 1985, a lender first has reason to know that
property securing his loan has been abandoned and reasonably expects to
commence foreclosure proceedings within three months, the lender is not
required to report as of December 31, 1985 (see A-20). However, if the
lender does not in fact commence foreclosure proceedings by March 31,
1986, the lender's obligation to report arises on this date. The lender
must provide information on the abandonment under A-27 as of the date
the lender first had reason to know of the abandonment (December 31,
1985). The lender must file the return required under this section with
the Internal Revenue Service on or before February 28, 1987, and furnish
a statement to the borrower on or before January 31, 1987 (see A-33 and
A-40).
Subsequent Holder of a Loan
Q-22: To whom does the reporting requirement apply when a person
lends money secured by property and subsequently transfers his interest
in the indebtedness to another person?
A-22: The subsequent holder of a loan is treated as the lender for
purposes of this reporting requirement and is the party required to
report with respect to events occurring after the date he acquires the
loan. This rule applies to all subsequent holders of a secured loan,
including governmental units or any agencies or instrumentalities
thereof. For example, if the Federal National Mortgage Association
purchases real property loans from a lender, it would be subject to the
reporting requirement.
[[Page 445]]
Multiple Lenders
Q-23: If more than one person lends money secured by the same
property, and one lender forecloses upon or otherwise acquires an
interest in the property, must the other lenders report under this
section?
A-23: Yes. In these circumstances, other lenders must report if they
know or have reason to know that the property securing their loans is
foreclosed upon or otherwise acquired by another lender and the sale or
other acquisition terminates, reduces, or otherwise impairs their
security interests in the property (see A-15). For example, if there is
a first and second mortgage on a building, and the second mortgagee
knows or has reason to know that the first mortgagee has foreclosed upon
the building, the second mortgagee is subject to the reporting
requirement even if no part of the indebtedness owed to him is satisfied
by the proceeds of the foreclosure sale. For a description of the
reporting requirement applicable to the first mortgagee, see A-10 and A-
15.
Q-24: If more than one person lends money secured by property, and
one lender knows or has reason to know that the property has been
abandoned, must each lender report under this section?
A-24: No. Each lender is required to report only when he knows or
has reason to know that property has been abandoned (see A-19).
Form and Manner of Return
Form of Return
Q-25: What form shall be used to make a return required by section
6050J?
A-25: Except as provided in A-35, the return must be made on Forms
1096 and 1099. The person required to make the return, however, may
prepare and use a form which contains provisions substantially similar
with those of Forms 1096 and 1099 if the person complies with any
revenue procedures relating to substitute Forms 1096 and 1099 in effect
at that time.
Information Included on Return
Q-26: What information must be included on a return required by
reason of an acquisition of an interest in property that is security for
a loan?
A-26: The following information must be included on the return:
(a) The name and address of the borrower with respect to the secured
indebtedness;
(b) The borrower's TIN, as defined in Section 7701(a);
(c) A general description of the property in which an interest is
acquired;
(d) Whether the borrower is personally liable for repayment of the
indebtedness;
(e) The date on which the person acquired an interest in the
property (see A-10 or A-15);
(f) The amount of the indebtedness outstanding at the time the
interest in property is acquired;
(g) If the borrower is personally liable for repayment of the
indebtedness, the fair market value of the property at the time the
interest is acquired;
(h) The amount of the indebtedness satisfied by the acquisition; and
(i) Any other information as may be required by Forms 1096 and 1099.
Q-27: What information must be included on a return required because
a person knows or has reason to know that property which is security for
a loan has been abandoned?
A-27: The following information must be included on the return:
(a) The information required in A-26 (a), (b), and (d);
(b) A general description of the property abandoned;
(c) The date on which the person first knows or has reason to know
that the property has been abandoned;
(d) The amount of the indebtedness outstanding as of the date on
which the person first knows or has reason to know that the property has
been abandoned;
(e) If the borrower is personally liable for repayment of the
indebtedness, the fair market value of the property at the time of
abandonment; and
(f) Any other information as may be required by Forms 1096 and 1099.
Partnership Borrower
Q-28: If a borrower is a partnership, must the TIN of each partner
be reported?
A-28: No. If a borrower is a partnership, only the TIN of the
partnership must be reported.
Multiple Borrowers
Q-29: If there is more than one borrower on a single secured loan,
must a person required to report under this section make a return with
respect to each borrower on the loan?
A-29: Yes. Generally, a separate return must be made with respect to
each borrower on a secured loan. However, only one report is required if
the lender knows that the borrowers hold property as tenants by the
entirety or that the property is held as community property.
General Description of Property
Q-30: What type of information constitutes a general description of
the property?
A-30: A general description of the property consists of information
that sufficiently identifies the property. In the case of real property,
a general description consists of the property's address unless this
information is not available or would not sufficiently identify the
property, in which case a legal description (i.e., section, lot, block)
[[Page 446]]
must be provided instead. A general description of personal property
consists of the type, make and model (where applicable) of the property.
For example, an automobile would be described as ``Car--1983 Pontiac
Firebird.'' However, in the case of a single loan secured by more than
one piece of personal property, a general description consists of the
type or category of the pieces acquired or abandoned. For example, if
the security for a single loan is six desks and seven typewriters, a
general description of the property would be ``Office Equipment.''
Multiple Acquisitions and Abandonments
Q-31: Must each acquisition and abandonment that occurs in a taxable
year be reported on a separate return?
A-31: Generally, each acquisition and abandonment required to be
reported by a person for a taxable year must be reported on a separate
return. However, in the case of a single loan secured by more than one
piece of property, separate returns will not be required when a person
acquires an interest in, or knows or has reason to know of the
abandonment of, more than one piece of property that is security for the
single loan in a taxable year. Instead, the person shall make one return
for all of the acquisitions and one return for all of the abandonments
of property that are security for the loan for a taxable year.
Fair Market Value
Q-32: In the case of a foreclosure, execution, or similar sale, what
is the fair market value of the property for purposes of the reporting
requirement?
A-32: In general, in the absence of clear and convincing evidence to
the contrary, the proceeds of the foreclosure, execution, or similar
sale will be considered the fair market value of the property for
purposes of this reporting requirement.
Time for Filing
Q-33: When must a person file the return or returns required by
section 6050J with the Internal Revenue Service?
A-33: The return or returns must be filed on or before February 28
(March 31 if filed electronically) of the year following the calendar
year in which the acquisition of an interest in the property occurs or
in which the lender knows or has reason to know of the abandonment of
the property.
Place for Filing
Q-34: Where must the return or returns be filed?
A-34: The return or returns must be filed with the appropriate
Internal Revenue Service Center, the addresses of which are listed in
the instructions for the Form 1099 series.
Use of Magnetic Media
Q-35: What rules apply with respect to the use of magnetic media?
A-35: Any return required under section 6050J must be filed on
magnetic media to the extent required by section 6011(e). Any person not
required by section 6011(e) to file returns under section 6050J on
magnetic media may request permission to do so. See Sec. 1.9101 for
rules relating to permission to submit information on magnetic tape or
other media. If a person required to file returns on magnetic media
fails to do so, the penalty under section 6652 (failure to file an
information return) applies.
Requirement of Furnishing Statements to Borrowers
In General
Q-36: What statements must be furnished to borrowers?
A-36: Any person required to make an information return under
section 6050J must furnish a statement to each borrower whose name is
required to be set forth in a return filed with the Internal Revenue
Service. For the date when the statement must be furnished, see A-40.
Q-37: Is the statement considered to be furnished to the borrower if
it is mailed to the borrower at the borrower's last known address?
A-37: Yes.
Information Included on Statement
Q-38: What information must be included on the statement?
A-38: The statement must include the following information:
(a) Except in the case where the return is made on behalf of a
governmental unit (or any agency or instrumentality thereof), the name
and address of the person required to make the information return;
(b) In the case where the return is made on behalf of a governmental
unit or any agency or instrumentality thereof, the name and address of
such unit, agency or instrumentality;
(c) The information required under A-26 or A-27, whichever is
applicable; and
(d) A legend stating that the information is being reported to the
Internal Revenue Service.
Copy of Form 1099 to Borrowers
Q-39: May the requirement of furnishing a statement be met by
furnishing a copy of the Form 1099 filed with respect to that borrower?
A-39: Yes. The requirement of furnishing a statement may be met by
furnishing to the borrower a copy of the Form 1099 containing the same
information filed with the Service
[[Page 447]]
with respect to that borrower, or a reasonable facsimile thereof,
provided that the form or the reasonable facsimile bears a legend
stating that the information is being reported to the Internal Revenue
Service.
Time of Furnishing Statement
Q-40: When is a statement required to be furnished to the borrower?
A-40: A statement is required to be furnished to the borrower on or
before January 31 of the year following the calendar year in which the
acquisition or abandonment of property occurs.
Multiple Borrowers
Q-41: If a person required to report under this section must make an
information return with respect to more than one borrower on a single
loan, of an interest in the property occurs or in which the lender knows
or has reason to know of the abandonment of the property.
A-41: Yes. A separate statement must be furnished to each borrower
with respect to which a separate return is required under section 6050J.
Extensions of Time
Q-42: Are there any circumstances under which an extension of time
may be granted with respect to the requirement of furnishing statements
to borrowers?
A-42: Yes. Upon written application of the person required to
report, the service center director may, for good cause shown, grant
that person an additional period (not to exceed 30 days) in which to
furnish statements under section 6050J with respect to any calendar
year. The application for an extension must be addressed to the director
of the service center with which the returns must be filed. The
application must contain a concise statement of the reasons for
requesting the extension in order to aid the service center director in
determining the period of extension, if any, to be granted. The
application must state at the top of the first page that it is made
under section 1.6050J-1T and must be signed by the person required to
report under section 6050J. In general, the application should be filed
not earlier than September 30 of the year in which the acquisition of an
interest in the property occurs or in which the lender knows or has
reason to know of the abandonment of the property, and not later than
January 15 of the following year.
Penalties
Q-43: Are there penalties for failing to comply with the
requirements of section 6050J and the regulations thereunder?
A-43: Yes. The penalty for failing to make any information return
with respect to any borrower under section 6050J is provided in section
6652. The penalty for failing to furnish a statement to any borrower is
provided in section 6678.
Effective Date
Q-44: When is section 6050J effective?
A-44: Section 6050J is effective for acquisitions and abandonments
of property after December 31, 1984.
(Approved by the Office of Management and Budget under control number
1545-0877)
(Secs. 6050J and 7805 of the Internal Revenue Code of 1954 (98 Stat.
687, 68A Stat. 917, 26 U.S.C. 6050J, 7805 respectively)
[T.D. 7971, 49 FR 34460, Aug. 31, 1984, as amended by T.D. 8895, 65 FR
50408, Aug. 18, 2000]
Sec. 1.6050K-1 Returns relating to sales or exchanges of certain
partnership interests.
(a) Partnership return required--(1) In general. Except as otherwise
provided in this paragraph (a), a partnership shall make a separate
return on Form 8308 with respect to each section 751(a) exchange (as
defined in paragraph (a)(4)(i) of this section) of an interest in such
partnership which occurs after December 31, 1984. A partnership that is
in doubt as to whether partnership property constitutes section 751
property to any extent or as to whether a transfer of a partnership
interest constitutes a section 751(a) exchange may file Form 8308 in
order to avoid the risk of incurring a penalty under section 6721. The
penalty under section 6721 will generally apply, however, to
partnerships that do not file Form 8308 where in fact a section 751(a)
exchange occurred, except as provided in paragraphs (a)(2) and (e) of
this section.
(2) Return required under section 6045. No return shall be required
under section 6050K(a) and paragraph (a)(1) of this section with respect
to the sale or exchange of a partnership interest if a return is
required to be filed under section 6045 with respect to such sale or
exchange.
(3) Single or composite documents. The Commissioner may authorize
the use, at the option of the partnership, of a single document which
includes all of the partnership's returns for a calendar year in the
case of partnerships required under paragraph (a)(1) of this section to
make 25 or more returns on
[[Page 448]]
Form 8308 for any calendar year. In addition, the Commissioner may
authorize the use for this purpose, also at the option of such a
partnership, of a composite document. These authorizations shall be
subject to such conditions, limitations, and special rules governing the
preparation, execution, filing, and correction thereof as the
Commissioner may deem appropriate. Such composite document shall consist
of a form prescribed by the Commissioner and an attachment or
attachments of magnetic tape or other approved media. To the extent that
the use of a single or composite document has been authorized by the
Commissioner, references in this section to Form 8303 shall be deemed to
refer also to returns included in a single or composite document under
this paragraph (a)(3). Any single or composite document so authorized
shall include the information required to be provided on Form 8308 under
paragraph (b) of this section with respect to each section 751(a)
exchange.
(4) Definitions. For purposes of section 6050K of the Code and this
section--
(i) Section 751(a) exchange. The term section 751(a) exchange means
any sale or exchange of a partnership interest (or portion thereof) in
which any portion of any money or other property received by a
transferor partner in exchange for all or a part of his or her interest
in the partnership is attributable to section 751 property. The term
does not include a distribution which is treated as a sale or exchange
between the distributee and the partnership under section 751(b) of the
Code.
(ii) Section 751 property. The term section 751 property means
unrealized receivables, as defined in section 751(c) of the Code, and
inventory items which have appreciated substantially in value
(``substantially appreciated inventory items''), as defined in section
751(d) of the Code.
(iii) Transferor and transferee. The term transferor means the
beneficial owner of a partnership interest immediately before the
transfer of that interest. The term ``transferee'' means the beneficial
owner of a partnership interest immediately after the transfer of that
interest. However, if a partnership does not know the identity of the
beneficial owner of an interest in the partnership, the record holder of
such interest shall be treated as the transferor or transferee (as the
case may be) for purposes of paragraphs (b) and (c) of this section.
(b) Contents of return. The return on Form 8308 shall include the
following information:
(1) The names, addresses, and taxpayer identification numbers of the
transferee and transferor in the exchange and of the partnership filing
the return;
(2) The date of the exchange; and
(3) Such other information as may be required by Form 8308 or its
instructions.
(c) Statement to be furnished to transferor and transferee. Every
partnership required to file a return under paragraph (a) of this
section must furnish to each person whose name is required to be set
forth in such return a written statement on or before January 31 of the
calendar year following the calendar year in which the section 751(a)
exchange occurred to which the return under paragraph (a) relates (or,
if later, 30 days after the partnership is notified of the exchange as
defined in paragraph (e) of this section). The partnership shall use a
copy of the completed Form 8308 as a statement unless the Form 8308
contains information with respect to more than one section 751(a)
exchange (see paragraph (a)(3) of this section). If the partnership does
not use a copy of Form 8308 as a statement, the statement shall include
the information required to be shown on Form 8308 with respect to the
section 751(a) exchange to which the person to whom the statement is
furnished is a party. In addition, it shall state that--
(1) The information shown on the statement has been supplied to the
Internal Revenue Service,
(2) A transferor of a partnership interest in a sale or exchange
described in section 751(a) of the Internal Revenue Code is required to
treat a portion of any gain or loss resulting from the sale or exchange
as ordinary income or loss, and
(3) The transferor in a section 751(a) sale or exchange is required
under
[[Page 449]]
paragraph (a)(3) of Sec. 1.751-1 to attach a statement relating to the
sale or exchange to his or her income tax return for the taxable year in
which the sale or exchange occurred.
(d) Requirement that transferor notify partnership--(1) In general.
The transferor of any partnership interest in a section 751(a) exchange
shall notify the partnership of such exchange in writing within 30 days
of the exchange (or, if earlier, January 15 of the calendar year
following the calendar year in which the exchange occurred). The written
notification from the transferor shall include the following
information:
(i) The names and addresses of the transferor and transferee in the
section 751(a) exchange;
(ii) The taxpayer identification numbers of the transferor and, if
known, of the transferee; and
(iii) The date of the exchange.
Any transferor who notified a partnership under section 6050K(c)(1)
prior to January 22, 1986 by a notification that does not meet the
requirements of this paragraph (d) shall furnish such partnership with
the written notification described in this paragraph (d) on or before
February 21, 1986.
(2) Return required under section 6045. No transferor shall be
required to notify a partnership of the sale or exchange of a
partnership interest under section 6050K(c)(1) or paragraph (d)(1) of
this section if a return is required to be filed under section 6045 with
respect to such sale or exchange.
(e) Partnership not required to make a return or furnish statements
under this section until it has notice of the exchange. A partnership
shall not be required to make a return or furnish statements under
section 6050K and this section with respect to any section 751(a)
exchange until it has been notified of the exchange. For purposes of
section 6050K(c)(2) and this section, a partnership is notified of a
section 751(a) exchange when either:
(1) The partnership receives the written notification from the
transferor required under paragraph (d) of this section; or
(2) The partnership has knowledge that there has been a transfer of
a partnership interest or any portion thereof, and, at the time of the
transfer, the partnership had any section 751 property. However, no
return or statements are required under section 6050K if the transfer
was not a section 751(a) exchange (e.g., a transfer which in its
entirety constitutes a gift for federal income tax purposes). For
purposes of this paragraph (e)(2), the partnership may rely on a written
statement from the transferor that the transfer was not a section 751(a)
exchange in the absence of knowledge to the contrary. For rules
applicable where the partnership is in doubt as to whether partnership
property constitutes section 751 property to any extent or as to whether
a transfer of a partnership interest constitutes a section 751(a)
exchange, see paragraph (a)(1) of this section.
(f) Partnership return is to be attached to Form 1065--(1) In
general. Any partnership return on Form 8308 required under this section
shall be filed as an attachment to the partnership's Form 1065 for its
taxable year in which the calendar year in which the section 751(a)
exchange occurred ends and shall be filed at the time (determined with
regard to any extension of time for filing) and place prescribed for
filing of the partnership's Form 1065 for that taxable year (see
paragraph (e) of Sec. 1.6031-1 for the time and place for filing Form
1065).
(2) Notification after Form 1065 is filed. If a partnership is
notified of an exchange (as defined in paragraph (e) of this section)
after the partnership has filed Form 1065 for the taxable year with
respect to which the exchange should have been reported, Form 8308 shall
be filed with the service center or other Internal Revenue office with
which the partnership's Form 1065 was filed, on or before the thirtieth
day after the partnership is notified of the exchange.
(g) Penalties. For penalties for failure of:
(1) Transferors to furnish the notification required by paragraph
(d) of this section see section 6722 (b);
(2) Partnerships to furnish any statement required under paragraph
(c) of this section see section 6722 (a); and
[[Page 450]]
(3) Partnerships to file the return on Form 8308 as required by
paragraph (a) of this section see section 6721.
[T.D. 8119, 52 FR 41, Jan. 2, 1987]
Sec. 1.6050L-1 Information return by donees relating to certain
dispositions of donated property.
(a) Information returns--(1) Disposition of charitable deduction
property. If a donee of any charitable deduction property (as defined in
paragraph (e) of this section), sells, exchanges, consumes, or otherwise
disposes of (with or without consideration) such property (or any
portion thereof) within 2 years after the date of the donor's
contribution of such property, the donee shall make an information
return on the form prescribed by the Internal Revenue Service. For
special rules with respect to successor donees, see paragraph (c) of
this section.
(2) Disposition of items appraised for $500 or less--(i) In general.
Paragraph (a)(1) of this section shall not apply with respect to an item
of charitable deduction property disposed of by sale if the Form 8283
appraisal summary (as described in Sec. 1.170A-13(c)(4) for
contributions made on or before July 30, 2018 and Sec. 1.170A-16(d)(3)
for contributions made after July 30, 2018), or a successor form, signed
by the donee with respect to the item contains, at the time of the
donee's signature, a statement signed by the donor that the appraised
value of the item does not exceed $500. In the case of a Form 8283
appraisal summary that describes more than one item, this exception
shall apply only with respect to an item clearly identified as having an
appraised value of $500 or less. For purposes of this paragraph
(a)(2)(i), items that form a set (such as, for example, a collection of
books written by the same author, components of a stereo system, or a
group of place settings of a pattern of silverware) are considered one
item. In addition, all nonpublicly traded stock is considered one item
as are all nonpublicly traded securities other than nonpublicly traded
stock.
(ii) Transitional rule. Paragraph (a)(2)(i) of this section is
satisfied with respect to an appraisal summary submitted to the donee on
or before January 31, 1986, if such donee obtained the required
statement from the donor on or before March 31, 1986, on either an
amended appraisal summary or an attachment to the original appraisal
summary.
(3) Consumption for distribution of exempt purpose. Paragraph (a)(1)
of this section shall not apply with respect to an item of charitable
deduction property consumed or distributed by a donee without
consideration if the consumption or distribution is in furtherance of a
purpose or function constituting a basis for such donee's exemption
under section 501 of the Code. For example, no reporting is required
with respect to medical supplies consumed or distributed by a tax-exempt
relief organization in aiding disaster victims.
(b) Information required to be provided on return. The information
return required by paragraph (a)(1) of this section shall include the
following:
(1) The name, address, and employer identification number of the
donee making the information return;
(2) A description of the property (or portion disposed of) in
sufficient detail to identify the charitable deduction property received
by such donee;
(3) The name and taxpayer identification number of the donor (social
security number if the donor is an individual or employer identification
number if the donor is a corporation or partnership);
(4) The date of the contribution to such donee;
(5) Any amount received by such donee with respect to the
disposition;
(6) The date of the disposition by such donee; and
(7) Such other information as may be specified by the form or its
instructions.
(c) Successor donees--(1) In general. Section 6050L and this section
shall apply to successor donees that receive charitable deduction
property (as defined in paragraph (e) of this section) that was
transferred by the original donee after July 5, 1988, (whether the
successor donee received the property from the original donee or another
successor donee). For definitions of the terms ``donor,'' ``donee,''
``original donee,'' and ``successor donee,'' see Sec. 1.170A-
13(c)(7)(iv)-(vii).
[[Page 451]]
(2) Information required to be provided on return. With respect to
charitable deduction property that is transferred to one or more
successor donees to which this section applies, the information return
required by paragraph (a)(1) of this section shall include, in addition
to the information described in paragraph (b) of this section, the
following:
(i) The name, address, and employer identification number of the
immediately succeeding successor donee (if any) and the immediately
preceding successor donee (if any);
(ii) The name, address, and employer identification number of the
original donee if different from the information required by paragraph
(b)(1) of this section;
(iii) The date of contribution to the original donee; and
(iv) Such other information as may be specified by the form or its
instructions.
(3) Information to be provided to transferor. Every successor donee
to which this section applies that receives any charitable deduction
property within the 2-year period described in paragraph (a)(1) of this
section shall provide its name, address, and employer identification
number to that preceding donee on or before the 15th day after the later
of--
(i) The date of transfer to such successor donee, or
(ii) The date such successor donee receives a copy of the appraisal
summary from the preceding donee.
(4) Donees that transfer property to successor donees. In addition
to complying with the requirements of paragraph (a)(1) of this section,
every donee that transfers any charitable deduction property to a
successor donee to which this section applies within the 2-year period
described in paragraph (a)(1) of this section--
(i) Shall provide its name, address, and employer identification
number and a copy of the Form 8283 appraisal summary (as described in
Sec. 1.170A-13(c)(4) for contributions made on or before July 30, 2018
and Sec. 1.170A-16(d)(3) for contributions made after July 30, 2018)
relating to the transferred property to the successor donee on or before
the 15th day after the latest of--
(A) The date of such transfer, or
(B) The date the original donee signs the appraisal summary, or
(C) In a case in which the transferring donee is a successor donee,
the date such donee receives a copy of the appraisal summary from such
donee's transferor, and
(ii) Shall provide a copy of its information return required by
paragraph (a)(1) this section to the successor donee on or before the
15th day after the transferring donee files the information return
pursuant to paragraph (e)(2) of this section.
(5) Donee. In the case of charitable deduction property that is
transferred to a successor donee to which this section applies, the term
donee as used in paragraph (a)(2) and (e) of this section means only the
original donee.
(d) Special rules--(1) Statement to be furnished to donors. Every
donee making a return under section 6050L and this section with respect
to the disposition of charitable deduction property shall furnish a copy
of the return to the donor of the property.
(2) Retention of Form 8283 appraisal summary. Every donee shall
retain the Form 8283 appraisal summary (as described in Sec. 1.170A-
13(c)(4) for contributions made on or before July 30, 2018 and Sec.
1.170A-16(d)(3) for contributions made after July 30, 2018) in the
donee's records for so long as it may be relevant in the administration
of any internal revenue law.
(e) Charitable deduction property. For purposes of this section, the
term charitable deduction property means any property (other than money
and publicly traded securities to which Sec. 1.170A-13(c)(7)(xi)(B)
does not apply) contributed after December 31, 1984, with respect to
which the donee signs (or is presented with for signature in cases
described in Sec. 1.170A-13(c)(4)(iv)(C)(2)) a Form 8283 appraisal
summary (as described in Sec. 1.170A-13(c)(4) for contributions made on
or before July 30, 2018 and Sec. 1.170A-16(d)(3) for contributions made
after July 30, 2018). For purposes of this section, if such donee signs
(or is presented with for signature in cases described in Sec. 1.170A-
13(c)(4)(iv)(C)(2)) the appraisal summary after the date of contribution
of the property, the property is deemed
[[Page 452]]
to be charitable deduction property from the date of contribution.
(f) Place and time for filing information returns--(1) Place for
filing. The donee information return required by section 6050L and this
section shall be filed with the Internal Revenue Service center listed
on the return form or its instructions.
(2) Time for filing--(i) In general. Except as provided in paragraph
(f)(2)(ii) of this section, the donee information return shall be filed
on or before the 125th day after a donee sells, exchanges, consumes or
otherwise disposes of the charitable deduction property. A donee
information return filed pursuant to this paragraph (f)(2)(i) does not
have to include the information required by paragraphs (b) (3), (4),
(5), or (6), or (c)(2)(i)-(iii) of this section if such information is
not available to the donee by the due date of the return.
(ii) Exception. Notwithstanding paragraph (f)(2)(i) of this section,
in the case of a donee who, on the date of receipt of the transferred
property, had no reason to believe that the substantiation requirements
of Sec. 1.170A-13(c) or Sec. 1.170A-16(d) apply with respect to the
property, the donee information return is not required to be filed until
the 60th day after the date on which such donee has reason to believe
that the substantiation requirements of Sec. 1.170A-13(c) or Sec.
1.170A-16(d) apply with respect to the property. A donee information
return filed pursuant to this paragraph (f)(2)(ii) does not have to
include the information required by paragraph (b) (3), (4), (5), or (6),
or (c)(2)(i)-(iii) of this section if such information is not available
to the donee by the due date of the return.
(g) Penalties. For penalties for failure to compy with the
requirements of this section, see sections 6676, 6721, and 6723.
(h) Effective/applicability dates. The first two sentences of
paragraph (a)(2)(i), paragraphs (c)(4)(i) and (d)(2), and the first
sentences of paragraphs (e) and (f)(2)(ii) apply to contributions made
after July 30, 2018.
[T.D. 8199, 53 FR 16085, May 5, 1988; T.D. 8199, 53 FR 18372, May 23,
1988; T.D. 9836, 83 FR 36427, July 30, 2018]
Sec. 1.6050L-2 Information returns by donees relating to qualified
intellectual property contributions.
(a) In general. Each donee organization described in section 170(c),
except a private foundation (as defined in section 509(a)), other than a
private foundation described in section 170(b)(1)(F), that receives or
accrues net income during a taxable year from any qualified intellectual
property contribution (as defined in section 170(m)(8)) must make an
annual information return on the form prescribed by the IRS. The
information return is required for any taxable year of the donee that
includes any portion of the 10-year period beginning on the date of the
contribution, but not for taxable years beginning after the expiration
of the legal life of the qualified intellectual property.
(b) Information required to be provided on return. The information
return required by section 6050L and paragraph (a) of this section shall
include the following--
(1) The name, address, taxable year, and employer identification
number of the donee making the information return;
(2) The name, address, and taxpayer identification number of the
donor;
(3) A description of the qualified intellectual property in
sufficient detail to identify the qualified intellectual property
received by such donee;
(4) The date of the contribution to the donee;
(5) The amount of net income of the donee for the taxable year that
is properly allocable to the qualified intellectual property (determined
without regard to paragraph (10)(B) of section 170(m) and with the
modifications described in paragraphs (5) and (6) of such section); and
(6) Such other information as may be specified by the form or its
instructions.
(c) Special rule--statement to be furnished to donors. Every donee
making an information return under section 6050L and this section with
respect to a qualified intellectual property contribution shall furnish
a copy of the information return to the donor of the property. The
information return required by section 6050L and this section shall be
furnished to the donor on or
[[Page 453]]
before the date the donee is required to file the return with the IRS.
(d) Place and time for filing information return--(1) Place for
filing. The information return required by section 6050L and this
section shall be filed with the IRS location listed on the prescribed
form or in its instructions.
(2) Time for filing. A donee is required to file the return required
by section 6050L and this section on or before the last day of the first
full month following the close of the donee's taxable year to which net
income from the qualified intellectual property is properly allocable.
(e) Penalties. For penalties for failure to comply with the
requirements of this section, see sections 6721 through 6724.
(f) Effective/applicability date. The rules of this section apply to
qualified intellectual property contributions made after June 3, 2004.
[T.D. 9392, 73 FR 18709, Apr. 7, 2008]
Sec. 1.6050M-1 Information returns relating to persons receiving
contracts from certain Federal executive agencies.
(a) General rule. Except as otherwise provided in paragraph (c) of
this section, the head of every Federal executive agency or his or her
delegate shall make an information return to the Internal Revenue
Service reporting the following information with respect to each
contract entered into by that Federal executive agency--
(1) Name and address of the contractor;
(2) Contractor's TIN and, if the contractor is a member of an
affiliated group of corporations that files its Federal income tax
returns on a consolidated basis, the name and TIN of the common parent
of the affiliated group;
(3) The date of the contract action;
(4) The expected date of completion of the contract as determined
under any reasonable method, such as the expected contract delivery date
under the contract schedule;
(5) The total amount obligated under the contract action; and
(6) Any other information required by Forms 8596 and 8596A and their
instructions, or by any other administrative guidance issued by the
Internal Revenue Service (such as a revenue procedure).
See paragraph (e) of this section relating to the manner in which to
report increases in amounts obligated under existing contracts. See
paragraph (d)(5) of this section for special rules for agencies that
submit contract information to the Federal Procurement Data Center. For
provisions concerning the requesting and furnishing of identifying
numbers, see section 6109 and the regulations thereunder.
(b) Definitions. The following definitions apply for purposes of
this section--
(1) Federal executive agency. The term ``Federal executive agency''
means--
(i) Any executive agency (as defined in 5 U.S.C. 105) other than the
General Accounting Office;
(ii) Any military department (as defined in 5 U.S.C. 102); and
(iii) The United States Postal Service and the Postal Rate
Commission.
(2) Contract--(i) General rule. The term ``contract'' means an
obligation of a Federal executive agency to make payment of money (or
other property) to a person in return for the sale of property, the
rendering of services, or other consideration. The term ``contract''
includes, for example, such an obligation arising from a written
agreement executed by the agency and the contractor, an award or notice
of award, a job order or task letter issued under a basic ordering
agreement, a letter contract, an order that becomes effective only upon
written acceptance or performance, or an action described in paragraph
(e) of this section.
(ii) Exceptions. For purposes of this section, the term ``contract''
does not include--
(A) A license granted by a Federal executive agency;
(B) An obligation of a contractor (other than a Federal executive
agency) to a subcontractor;
(C) A debt instrument of the United States Government or a Federal
agency, such as a Treasury note, Treasury bond, Treasury bill, savings
bond, or similar instrument; or
(D) An obligation of a Federal executive agency to lend money, lease
property to a lessee, or sell property.
[[Page 454]]
(iii) Special rule for certain contracts of the Small Business
Administration. Any subcontract entered into by the Small Business
Administration (SBA) under a prime contract between the SBA and a
procuring Federal executive agency pursuant to section 8(a) of the Small
Business Act (15 U.S.C. 637(a)) shall not be treated as a contract of
the SBA but shall be treated as a contract of the procuring agency for
purposes of this section.
(iv) Certain schedule contracts. For purposes of this section, any
of the following contracts entered into on behalf of one or more Federal
executive agencies is not a ``contract'' to be reported by the General
Services Administration or the Department of Veteran's Affairs at the
time of execution:
(A) A Federal Supply Schedule Contract entered into by the General
Services Administration,
(B) An Automated Data Processing Schedule Contract entered into by
the General Services Administration, or
(C) A schedule contract entered into by the Department of Veteran's
Affairs.
Instead, an order placed by a Federal executive agency, including the
General Services Administration or the Department of Veteran's Affairs,
under such a schedule contract is a ``contract'' for purposes of this
section.
(v) Blanket purchase agreements. For purposes of this section, the
term contract does not include a blanket purchase agreement between one
or more Federal executive agencies and one or more contractors. Instead,
an order placed by a Federal executive agency under the terms of a
blanket purchase agreement is a ``contract'' for purposes of this
section.
(vi) Contracts entered into using non-appropriated funds. [Reserved]
(3) Contractor. The term contractor means any person who enters into
a contract with a Federal executive agency.
(4) Person and TIN. The terms person and TIN are defined in sections
7701(a) (1) and (41), respectively.
(c) Exceptions to information reporting requirement--(1) General
exceptions. The following do not need to be reported pursuant to this
section:
(i) Any contract or contract action for which the amount obligated
is $25,000 or less;
(ii) Any contract with a contractor who, in making the agreement, is
acting in his or her capacity as an employee of a Federal executive
agency (e.g., any contract of employment under which the employee is
paid wages subject to the withholding provisions contained in chapter 24
of subtitle C);
(iii) Any contract between a Federal executive agency and another
Federal governmental unit (or any agency or instrumentality thereof);
(iv) Any contract with a foreign government (or any agency or
instrumentality thereof);
(v) Any contract with a state or local governmental unit (or any
agency or instrumentality thereof);
(vi) Any contract with a person who is not required to have a TIN
(see, for example, Sec. 301.6109-1(g));
(vii) Any contract the terms of which provide that all amounts
payable under the contract by any Federal executive agency will be paid
on or before the 120th day following the date of the contract action,
and for which it is reasonable to except that all amounts will be so
paid.
(viii) Any contract under which all money (or other property) that
will be received by the contractor after the 120th day after the date of
the contract action will come from persons other than a Federal
executive agency or an agent of such an agency (e.g., a contract under
which the contractor will collect amounts owed to a Federal executive
agency by the agency's debtor and will remit to the agency the money
collected less an amount that serves as the contractor's consideration
under the contract).
(ix) Any contract for which the Commissioner determines that the
information described in paragraph (a) of this section will not
facilitate the collection of Federal tax liabilities because of the
manner, method, or timing of payment by the agency under that contract.
(2) Special rule for certain classified or confidential contracts.
Contracts described in section 6050M(e)(3), relating to certain
classified or confidential
[[Page 455]]
contracts, are to be reported only in accordance with section
6050M(e)(2).
(d) Filing requirements--(1) Frequency and time for filing. The
information returns required by this section with respect to contracts
of a Federal executive agency entered into on or after January 1, 1989,
must be filed on a quarterly basis for the calendar quarters ending on
the last day of March, June, September, and December. Except as provided
in paragraph (d)(5) of this section, the returns for contracts entered
into during a calendar quarter must be filed on or before the last day
of the month following that quarter. Notwithstanding the preceding
sentence, returns filed before May 7, 1990, will be considered timely
filed.
(2) Form of reporting--(i) General rule concerning magnetic media.
The information returns required by this section with respect to
contracts of a Federal executive agency for each calendar quarter shall
be made in one submission (or in multiple submissions if permitted by
paragraph (d)(4) of this section). Except as provided in paragraph
(d)(2)(ii) of this section, the required returns shall be made on
magnetic media (within the meaning of Sec. 301.6011-2(a)(1)) in
accordance with any applicable revenue procedure or other guidance
promulgated by the Internal Revenue Service for the filing of such
returns under section 6050M.
(ii) Magnetic media exception for low-volume filers. Any Federal
executive agency that on any October 1 has a reasonable expectation of
entering into, during the one year period beginning on that date, fewer
than 250 contracts that are subject to the reporting requirements under
this section may make the information returns required by this section
for each quarter of that one year period on the prescribed paper Form
8596 in accordance with the instructions accompanying such form.
(3) Place of filing--(i) Returns on magnetic media. Information
returns made under this section on magnetic media shall be filed with
the Internal Revenue Service at the Martinsburg Computing Center,
Martinsburg, West Virginia 25401-1359, in accordance with any applicable
revenue procedure or other guidance promulgated by the Internal Revenue
Service relating to the filing of returns under section 6050M.
(ii) Form 8596. Information returns made on Form 8596 shall be filed
with the Ifternal Revenue Service at the location specified in the
instructions for that form.
(4) Special rule concerning multiple returns. To the extent
permitted in any revenue procedure or other guidance relating to the
filing of information returns under this section, a Federal executive
agency which files information returns under this section on magnetic
media may make more than one magnetic media submission for any quarter,
if each submission for that quarter contains all of the information
required by paragraph (a) of this section with respect to contracts
entered into by one or more departments, branches, bureaus, agencies, or
other readily identifiable operating functions (such as a geographic
region) of the Federal executive agency.
(5) Special rules for agencies reporting to the Federal Procurement
Data Center--(i) Election to have the Director of the Federal
Procurement Data Center make returns on behalf of agency. If, in
complying with the requirements of the Federal Procurement Data System
(FPDS) (as established under the authority of the Office of Federal
Procurement Policy Act, as amended, 41 U.S.C. 401 et seq.), a Federal
executive agency is required to submit to the Federal Procurement Data
Center (FPDC) all the information with respect to one or more contracts
required to be reported by paragraph (a) of this section, that Federal
executive agency may, in lieu of making returns directly to the Internal
Revenue Service with respect to those contracts, elect to have the
Director of the FPDC (or his or her delegate) make the required returns
with respect to all of those contracts on its behalf. In order to make
this election for such contracts entered into during a calendar quarter,
the head of a Federal executive agency (or his or her delegate) shall
attach to its submission to the FPDC for that quarter a signed statement
to the effect that:
(A) The Director of the FPDC (or his or her delegate) is authorized,
in accordance with an election made under
[[Page 456]]
26 CFR 1.6050M-1(d)(5) to make, on the agency's behalf, the required
returns for such contracts for that quarter, and
(B) Under the penalties of perjury, such official has examined the
information to be submitted by the agency to the FPDC for making those
returns and certifies that information to be, to the best of such
official's knowledge and belief, a compilation of agency records
maintained in the normal course of business for the purpose of providing
the information necessary for making true, correct, and complete returns
as required by section 6050M.
If the election is made, the Director of the FPDC (or his or her
delegate) shall, on the electing agency's behalf, make the returns
required by paragraph (a) of this section with respect to the contracts
to which the election applies.
(ii) Time, manner, and place of filing. The Director of the FPDC (or
his or her delegate) must--
(A) Make the required returns for a quarter on or before the earlier
of;
(1) 45 days following the date that the contract information is
required to be submitted to the FPDC, or
(2) 90 days following the end of the calendar quarter for which the
election is made, except that, if that calendar quarter ends September
30, 105 days following the end of that quarter, and
(B) Comply with paragraph (d)(2)(i) and (3)(i) of this section,
relating to form and place of filing.
Notwithstanding the preceding sentence, returns made before May 7, 1990,
will be considered timely filed.
(iii) Contracts reported directly to the Internal Revenue Service.
Even if the election is made, all information with respect to any
particular contract required to be reported under paragraph (a) of this
section must be reported directly to the Internal Revenue Service by the
electing agency if the FPDS does not require that information to be
submitted to the FPDC. An electing agency shall not, however, make
direct returns to the Internal Revenue Service of contract information
that is subject to the election.
(6) Certification of return--(i) Returns made directly with the
Internal Revenue Service. Each return made under this section by a
Federal executive agency directly with the Internal Revenue Service on
magnetic media or on Forms 8596 and 8596-A shall be signed by the head
of the Federal executive agency (or his or her delegate) under the
penalties of perjury, certifying that such official has examined the
return, that it is prepared pursuant to the requirements of section
6050M and that, to the best of such official's knowledge and belief, it
is compiled from agency records maintained in the normal course of
business for the purpose of making a true, correct, and complete return
as required by section 6050M.
(ii) Returns made by Director of FPDC on agency's behalf. Each
return made under this section by the Director of the FPDC on behalf of
a Federal executive agency shall be signed by the Director of the FPDC
(or his or her delegate) under the penalties of perjury, certifying that
such official has examined the return, that it is prepared pursuant to
the requirements of section 6050M and that, to the best of such
official's knowledge and belief, it is compiled from information
submitted by the Federal executive agency to the FPDC pursuant to Sec.
1.6050M-1(d)(5)(i) for the purpose of making a true, correct, and
complete return as required by section 6050M.
(e) Special rules relating to increases in amount obligated. If,
through the exercise of an option contained in a basic or initial
contract or under any other rule of contract law, express or implied,
the amount of money or other property obligated under the contract is
increased by more than $25,000 in one contract action, then that action
shall be treated as the entering into of a new contract with respect to
which the information required by paragraph (a) of this section is to be
reported to the Internal Revenue Service for the calendar quarter in
which the increase occurs.
(f) Effective date--(1) Contracts required to be reported. Except as
otherwise provided in this paragraph (f), this section applies to each
Federal executive agency with respect to its contracts entered into on
or after January 1, 1989 (including any increase in amount obligated on
or after January
[[Page 457]]
1, 1989, that is treated as a new contract under paragraph (e) of this
section).
(2) Contracts not required to be reported. A Federal executive
agency is not required to report--
(i) Any basic or initial contract entered into before January 1,
1989,
(ii) Any increase contract action occurring before January 1, 1989,
that is treated as a new contract under paragraph (e) of this section,
or
(iii) Any increase contract action that is treated as a new contract
under paragraph (e) of this section if the basic or initial contract to
which that contract action relates was entered into before January 1,
1989, and--
(A) The increase occurs before April 1, 1990, or
(B) The amount of the increase does not exceed $50,000.
(3) Illustration--(i) If Federal executive agency enters into an
initial contract on December 1, 1988, and the amount of money obligated
under the contract is increased by $55,000 on April 15, 1990, then (A)
there is no reporting requirement with respect to the contract when
entered into on December 1, 1988, and (B) the April 15, 1990, increase,
which is treated as a new contract under paragraph (e) of this section,
is subject to the reporting requirements of this section because it is
considered to be a new contract entered into on April 15, 1990.
(ii) If the $55,000 increase had occurred before April 1, 1990,
there would have been no reporting requirement with respect to that
increase.
[T.D. 8275, 54 FR 50369, Dec. 6, 1989; 55 FR 13522, Apr. 11, 1990]
Sec. 1.6050N-1 Statements to recipients of royalties paid after
December 31, 1986.
(a) Requirement. A person required to make an information return
under section 6050N(a) must furnish a statement to each recipient whose
name is required to be shown on the related information return for
royalties paid.
(b) Form, manner, and time for providing statements to recipients.
The statement required by paragraph (a) of this section must be either
the official Form 1099 prescribed by the Internal Revenue Service for
the respective calendar year or an acceptable substitute statement. The
rules under Sec. 1.6042-4 (relating to statements with respect to
dividends) apply comparably in determining the form of the acceptable
substitute statement permitted by this section. Those rules also apply
for purposes of determining the manner of and time for providing the
Form 1099 or its acceptable substitute statement to a recipient under
this section. An IRS truncated taxpayer identifying number (TTIN) may be
used as the identifying number of the recipient. For provisions relating
to the use of TTINs, see Sec. 301.6109-4 of this chapter (Procedure and
Administration Regulations).
(c) Exempted foreign-related items--(1) In general. No return shall
be required under paragraph (a) of this section for payments of the
items described in paragraphs (c)(1)(i) through (iv) of this section.
(i) Returns of information are not required for payments of
royalties that a payor can, prior to payment, associate with
documentation upon which it may rely to treat 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), (3), (4), or
(5). However, such payments may be reportable under Sec. 1.1461-1(b)
and (c).
For purposes of this paragraph (c)(1)(i), 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) shall apply. See
Sec. 1.1441-1(b)(3)(iii)(B) and (C) for special payee rules regarding
scholarships, grants, pensions, annuities, etc. The provisions of Sec.
1.1441-1 shall apply by substituting the term payor for the term
withholding agent and without regard to the fact that the provisions
apply only to amounts subject to withholding under chapter 3 of the
Internal Revenue Code.
(ii) Returns of information are not required for payments of
royalties from sources outside the United States paid by a non-U.S.
payor or non-U.S. middleman and that are paid and received
[[Page 458]]
outside the United States. For a definition of non-U.S. payor or non-
U.S. middleman, see Sec. 1.6049-5(c)(5). For circumstances in which a
payment is considered to be paid and received outside the United States,
see Sec. 1.6049-4(f)(16).
(iii) Returns of information are not required for payments made by a
foreign intermediary described in Sec. 1.1441-1(e)(3)(i) that it has
received in its capacity as an intermediary and that are associated with
a valid withholding certificate described in Sec. 1.1441-1(e)(3)(ii) or
(iii) and payments made by a U.S. branch of a foreign bank or of a
foreign insurance company described in Sec. 1.1441-1(b)(2)(iv) that are
associated with a valid withholding certificate described in Sec.
1.1441-1(e)(3)(v), which certificate the intermediary or branch has
furnished to the payor or middleman from whom it has received the
payment, unless, and to the extent, the intermediary or branch knows
that the payments are required to be reported and were not so reported.
(2) Definitions--(i) Payor. For purposes of this section, the term
payor shall have the meaning ascribed to it under Sec. 1.6049-4(a).
(ii) Joint owners. Amounts paid to joint owners for which a
certificate or documentation is required as a condition for being exempt
from reporting under this paragraph (c) of this section are presumed
made to U.S. payees who are not exempt recipients if, prior to payment,
the payor cannot reliably associate the payment either with a Form W-9
furnished by one of the joint owners in the manner required in
Sec. Sec. 31.3406(d)-1 through 31.3406(d)-5 of this chapter, or with
documentation described in paragraph (c)(1)(i) of this section furnished
by each joint owner upon which it can rely to treat each joint owner as
a foreign payee or foreign beneficial owner. For purposes of applying
this paragraph (c)(2)(ii), the grace period described in Sec. 1.6049-
5(d)(2)(ii) shall apply only if each payee qualifies for such grace
period.
(d) Cross-reference to penalties. For provisions relating to the
penalty provided for failure to file timely a correct information return
required under section 6050N(a), see Sec. 301.6721-1 of this chapter
(Procedure and Administration Regulations). For provisions relating to
the penalty provided for failure to furnish timely a correct payee
statement required under section 6050N(b) and Sec. 1.6050N-1(a), see
Sec. 301.6722-1 of this chapter. See Sec. 301.6724-1 of this chapter
for the waiver of a penalty if the failure is due to reasonable cause
and is not due to willful neglect.
(e) Effective/applicability date. This section applies to payee
statements due after December 31, 2014, without regard to extensions.
For payee statements due before January 1, 2015, Sec. 1.6050N-1 (as
contained in 26 CFR part 1, revised April 2013) shall apply.
[T.D. 8637, 60 FR 66111, Dec. 21, 1995, as amended by T.D. 8734, 62 FR
53492, Oct. 14, 1997; T.D. 8804, 63 FR 72188, Dec. 31, 1998; T.D. 8856,
64 FR 73412, Dec. 30, 1999; T.D. 9675, 79 FR 41131, July 15, 2014; T.D.
9808, 82 FR 2120, Jan. 6, 2017]
Sec. 1.6050N-2 Coordination with reporting rules for widely held
fixed investment trusts under Sec. 1.671-5.
See Sec. 1.671-5 for the reporting rules for widely held fixed
investment trusts (as defined under that section).
[T.D. 9241, 71 FR 4025, Jan. 24, 2006]
Sec. 1.6050P-0 Table of contents.
This section lists the major captions that appear in Sec. Sec.
1.6050P-1 and 1.6050P-2.
Sec. 1.6050P-1 Information reporting for discharges of indebtedness by
certain entities.
(a) Reporting requirement.
(1) In general.
(2) No aggregation.
(3) Amounts not includible in income.
(4) Time and place for reporting.
(i) In general.
(ii) Indebtedness discharged in bankruptcy.
(b) Date of discharge.
(1) In general.
(2) Identifiable events.
(i) In general.
(ii) Statute of limitations.
(iii) Decision to discontinue collection activity; creditor's
defined policy.
(iv) Expiration of non-payment testing period.
(v) Special rule for certain entities required to file in a year
prior to 2008.
(3) Permitted reporting.
(c) Indebtedness.
(d) Exceptions from reporting requirement.
(1) Certain bankruptcy discharges.
(i) In general.
(ii) Business or investment debt.
(2) Interest.
[[Page 459]]
(3) Non-principal amounts in lending transactions.
(4) Indebtedness of foreign persons held by foreign branches of U.S.
financial institutions.
(i) Reporting requirements.
(ii) Definition.
(5) Acquisition of indebtedness by related party.
(6) Releases.
(7) Guarantors and sureties.
(e) Additional rules.
(1) Multiple debtors.
(i) In general.
(ii) Amount to be reported.
(2) Multiple creditors.
(i) In general.
(ii) Partnerships.
(iii) Pass-through securitized indebtedness arrangement.
(A) Reporting requirements.
(B) Definition.
(iv) REMICs.
(v) No double reporting.
(3) Coordination with reporting under section 6050J.
(4) Direct or indirect subsidiary.
(5) Entity formed or availed of to hold indebtedness.
(6) Use of magnetic media.
(7) TIN solicitation requirement.
(i) In general.
(ii) Manner of soliciting TIN.
(8) Recordkeeping requirements.
(9) No multiple reporting.
(f) Requirement to furnish statement.
(1) In general.
(2) Furnishing copy of Form 1099-C.
(3) Time and place for furnishing statement.
(g) Penalties.
(h) Effective/applicability date.
Sec. 1.6050P-2 Organization a significant trade or business of which is
the lending of money.
(a) In general.
(b) Safe harbors.
(1) Organizations not subject to section 6050P in the previous
calendar year.
(2) Organizations that were subject to section 6050P in the previous
calendar year.
(3) No test year.
(c) Seller financing.
(d) Gross income from lending of money.
(e) Acquisition of an indebtedness from a person other than the
debtor included in lending money.
(f) Test year.
(g) Predecessor organization.
(h) Examples.
(i) Effective date.
[T.D. 8654, 61 FR 268, Jan. 4, 1996, as amended by T.D. 9160, 69 FR
62185, Oct. 25, 2004; T.D. 9430, 73 FR 66540, Nov. 10, 2008; T.D. 9461,
74 FR 47728, Sept. 17, 2009]
Sec. 1.6050P-1 Information reporting for discharges of indebtedness
by certain entities.
(a) Reporting requirement--(1) In general. Except as provided in
paragraph (d) of this section, any applicable entity (as defined in
section 6050P(c)(1)) that discharges an indebtedness of any person
(within the meaning of section 7701(a)(1)) of at least $600 during a
calendar year must file an information return on Form 1099-C with the
Internal Revenue Service. Solely for purposes of the reporting
requirements of section 6050P and this section, a discharge of
indebtedness is deemed to have occurred, except as provided in paragraph
(b)(3) of this section, if and only if there has occurred an
identifiable event described in paragraph (b)(2) of this section,
whether or not an actual discharge of indebtedness has occurred on or
before the date on which the identifiable event has occurred. The return
must include the following information--
(i) The name, address, and taxpayer identification number (TIN), as
defined in section 7701(a)(41), of each person for which there was an
identifiable event during the calendar year;
(ii) The date on which the identifiable event occurred, as described
in paragraph (b) of this section;
(iii) The amount of indebtedness discharged, as described in
paragraph (c) of this section;
(iv) An indication whether the identifiable event was a discharge of
indebtedness in a bankruptcy, if known; and
(v) Any other information required by Form 1099-C or its
instructions, or current revenue procedures.
(2) No aggregation. For purposes of reporting under this section,
multiple discharges of indebtedness of less than $600 are not required
to be aggregated unless such separate discharges are pursuant to a plan
to evade the reporting requirements of this section.
(3) Amounts not includible in income. Except as otherwise provided
in this section, discharged indebtedness must be reported regardless of
whether the debtor is subject to tax on the discharged debt under
sections 61 and 108 or otherwise by applicable law.
[[Page 460]]
(4) Time and place for reporting-- (i) In general. Except as
provided in paragraph (a)(4)(ii) of this section, returns required by
this section must be filed with the Internal Revenue Service office
designated in the instructions for Form 1099-C on or before February 28
(March 31 if filed electronically) of the year following the calendar
year in which the identifiable event occurs.
(ii) Indebtedness discharged in bankruptcy. Indebtedness discharged
in bankruptcy that is required to be reported under this section must be
reported for the later of the calendar year in which the amount of
discharged indebtedness first becomes ascertainable, or the calendar
year in which the identifiable event occurs.
(b) Date of discharge--(1) In general. Solely for purposes of this
section, except as provided in paragraph (b)(3) of this section,
indebtedness is discharged on the date of the occurrence of an
identifiable event specified in paragraph (b)(2) of this section.
(2) Identifiable events--(i) In general. An identifiable event is--
(A) A discharge of indebtedness under title 11 of the United States
Code (bankruptcy);
(B) A cancellation or extinguishment of an indebtedness that renders
a debt unenforceable in a receivership, foreclosure, or similar
proceeding in a federal or State court, as described in section
368(a)(3)(A)(ii) (other than a discharge described in paragraph
(b)(2)(i)(A) of this section);
(C) A cancellation or extinguishment of an indebtedness upon the
expiration of the statute of limitations for collection of an
indebtedness, subject to the limitations described in paragraph
(b)(2)(ii) of this section, or upon the expiration of a statutory period
for filing a claim or commencing a deficiency judgment proceeding;
(D) A cancellation or extinguishment of an indebtedness pursuant to
an election of foreclosure remedies by a creditor that statutorily
extinguishes or bars the creditor's right to pursue collection of the
indebtedness;
(E) A cancellation or extinguishment of an indebtedness that renders
a debt unenforceable pursuant to a probate or similar proceeding;
(F) A discharge of indebtedness pursuant to an agreement between an
applicable entity and a debtor to discharge indebtedness at less than
full consideration; or
(G) A discharge of indebtedness pursuant to a decision by the
creditor, or the application of a defined policy of the creditor, to
discontinue collection activity and discharge debt. or
(ii) Statute of limitations. In the case of an expiration of the
statute of limitations for collection of an indebtedness, an
identifiable event occurs under paragraph (b)(2)(i)(C) of this section
only if, and at such time as, a debtor's affirmative statute of
limitations defense is upheld in a final judgment or decision of a
judicial proceeding, and the period for appealing the judgment or
decision has expired.
(iii) Decision to discontinue collection activity; creditor's
defined policy. For purposes of the identifiable event described in
paragraph (b)(2)(i)(G) of this section, a creditor's defined policy
includes both a written policy of the creditor and the creditor's
established business practice. Thus, for example, a creditor's
established practice to discontinue collection activity and abandon
debts upon expiration of a particular non-payment period is considered a
defined policy for purposes of paragraph (b)(2)(i)(G) of this section.
(3) Permitted reporting. If a discharge of indebtedness occurs
before the date on which an identifiable event occurs, the discharge
may, at the creditor's discretion, be reported under this section.
(c) Indebtedness. For purposes of this section and Sec. 1.6050P-2,
indebtedness means any amount owed to an applicable entity, including
stated principal, fees, stated interest, penalties, administrative costs
and fines. The amount of indebtedness discharged may represent all, or
only a part, of the total amount owed to the applicable entity.
(d) Exceptions from reporting requirement--(1) Certain bankruptcy
discharges--(i) In general. Reporting is required under this section in
the case of a discharge of indebtedness in bankruptcy only if the
creditor knows from information included in the reporting entity's books
and records pertaining to the indebtedness that the debt was
[[Page 461]]
incurred for business or investment purposes as defined in paragraph
(d)(1)(ii) of this section.
(ii) Business or investment debt. Indebtedness is considered
incurred for business purposes if it is incurred in connection with the
conduct of any trade or business other than the trade or business of
performing services as an employee. Indebtedness is considered incurred
for investment purposes if it is incurred to purchase property held for
investment, as defined in section 163(d)(5).
(2) Interest. The discharge of an amount of indebtedness that is
interest is not required to be reported under this section.
(3) Non-principal amounts in lending transactions. In the case of a
lending transaction, the discharge of an amount other than stated
principal is not required to be reported under this section. For this
purpose, a lending transaction is any transaction in which a lender
loans money to, or makes advances on behalf of, a borrower (including
revolving credits and lines of credit).
(4) Indebtedness of foreign debtors held by foreign branches of U.S.
financial institutions--(i) Reporting requirements. [Reserved]
(ii) Definition. An indebtedness held by a foreign branch of a U.S.
financial institution is described in this paragraph (d)(4) only if--
(A) The financial institution is engaged through a branch or office
in the active conduct of a banking or similar business outside the
United States;
(B) The branch or office is a permanent place of business that is
regularly maintained, occupied, and used to carry on a banking or
similar financial business;
(C) The business is conducted by at least one employee of the branch
or office who is regularly in attendance at such place of business
during normal working hours;
(D) The indebtedness is extended outside of the United States by the
branch or office in connection with that trade or business; and
(E) The financial institution does not know or have reason to know
that the debtor is a United States person.
(5) Acquisition of indebtedness by related party. No reporting is
required under this section in the case of a deemed discharge of
indebtedness under section 108(e)(4) (relating to the acquisition of an
indebtedness by a person related to the debtor), unless the disposition
of the indebtedness by the creditor was made with a view to avoiding the
reporting requirements of this section.
(6) Releases. The release of a co-obligor is not required to be
reported under this section if the remaining debtors remain liable for
the full amount of any unpaid indebtedness.
(7) Guarantors and sureties. Solely for purposes of the reporting
requirements of this section, a guarantor is not a debtor. Thus, in the
case of guaranteed indebtedness, reporting under this section is not
required with respect to a guarantor, whether or not there has been a
default and demand for payment made upon the guarantor.
(e) Additional rules--(1) Multiple debtors--(i) In general. In the
case of indebtedness of $10,000 or more incurred on or after January 1,
1995, that involves more than one debtor, a reporting entity is subject
to the requirements of paragraph (a) of this section for each debtor
discharged from such indebtedness. In the case of indebtedness incurred
prior to January 1, 1995, and indebtedness of less than $10,000 incurred
on or after January 1, 1995, involving multiple debtors, reporting under
this section is required only with respect to the primary (or first-
named) debtor. Additionally, only one return of information is required
under this section if the reporting entity knows, or has reason to know,
that co-obligors were husband and wife living at the same address when
an indebtedness was incurred, and does not know or have reason to know
that such circumstances have changed at the date of a discharge of the
indebtedness. This paragraph (e)(1) applies to discharges of
indebtedness after December 31, 1994.
(ii) Amount to be reported. In the case of multiple debtors jointly
and severally liable on an indebtedness, the amount of discharged
indebtedness required to be reported under this section with respect to
each debtor is the total amount of indebtedness discharged.
[[Page 462]]
For this purpose, multiple debtors are presumed to be jointly and
severally liable on an indebtedness in the absence of clear and
convincing evidence to the contrary.
(2) Multiple creditors--(i) In general. Except as otherwise provided
in this paragraph (e)(2), if indebtedness is owned (or treated as owned
for federal income tax purposes) by more than one creditor, each
creditor that is an applicable entity must comply with the reporting
requirements of this section with respect to any discharge of
indebtedness of $600 or more allocable to such creditor. A creditor will
be considered to have complied with the requirements of this section if
a lead bank, fund administrator, or other designee of the creditor
complies on its behalf in any reasonable manner, such as by filing a
single return reporting the aggregate amount of indebtedness discharged,
or by filing a return with respect to the portion of the discharged
indebtedness allocable to the creditor. For purposes of this paragraph
(e)(2)(i), any reasonable method may be used to determine the portion of
discharged indebtedness allocable to each creditor.
(ii) Partnerships. For purposes of paragraph (e)(2)(i) of this
section, indebtedness owned by a partnership is treated as owned by the
partners.
(iii) Pass-through securitized indebtedness arrangement--(A)
Reporting requirements. [Reserved]
(B) Definition. For purposes of this paragraph (e)(2)(iii), a pass-
through securitized indebtedness arrangement is any arrangement whereby
one or more debt obligations are pooled and held for twenty or more
persons whose interests in the debt obligations are undivided co-
ownership interests that are freely transferrable. Co-ownership
interests that are actively traded personal property (as defined in
Sec. 1.1092(d)-1) are presumed to be freely transferrable and held by
twenty or more persons.
(iv) REMICs. [Reserved]
(v) No double reporting. If multiple creditors are considered to
hold interests in an indebtedness for purposes of this paragraph (e)(2)
by virtue of holding ownership interests in an entity, and the entity is
required to report a discharge of that indebtedness under paragraph
(e)(5) of this section, then the multiple creditors are not required to
report the discharge of indebtedness.
(3) Coordination with reporting under section 6050J. If, in the same
calendar year, a discharge of indebtedness reportable under section
6050P occurs in connection with a transaction also reportable under
section 6050J (relating to foreclosures and abandonments of secured
property), an applicable entity need not file both a Form 1099-A and a
Form 1099-C with respect to the same debtor. The filing requirements of
section 6050J will be satisfied with respect to a borrower if, in lieu
of filing Form 1099-A, a Form 1099-C is filed in accordance with the
instructions for the filing of that form. This paragraph (e)(3) applies
to discharges of indebtedness after December 31, 1994.
(4) Direct or indirect subsidiary. For purposes of section
6050P(c)(2)(C), the term direct or indirect subsidiary means a
corporation in a chain of corporations beginning with an entity
described in section 6050P(c)(2)(A), if at least 50 percent of the total
combined voting power of all classes of stock entitled to vote, or at
least 50 percent of the total value of all classes of stock, of such
corporation is directly owned by the entity described in section
6050P(c)(2)(A), or by one or more other corporations in the chain.
(5) Entity formed or availed of to hold indebtedness.
Notwithstanding Sec. 1.6050P-2(b)(3), if an entity (the transferee
entity) is formed or availed of by an applicable entity (within the
meaning of section 6050P(c)(1)) for the principal purpose of holding
indebtedness acquired (including originated) by the applicable entity,
then, for purposes of section 6050P(c)(2)(D), the transferee entity has
a significant trade or business of lending money.
(6) Use of magnetic media. Any return required under this section
must be filed on magnetic media to the extent required by section
6011(e) and the regulations thereunder. A failure to file on magnetic
media when required constitutes a failure to file an information return
under section 6721. Any person not required by section 6011(e) to file
[[Page 463]]
returns on magnetic media may request permission to do so under
applicable regulations and revenue procedures.
(7) TIN solicitation requirement--(i) In general. For purposes of
reporting under this section, a reasonable effort must be made to obtain
the correct name/taxpayer identification number (TIN) combination of a
person whose indebtedness is discharged. A TIN obtained at the time an
indebtedness is incurred satisfies the requirement of this section,
unless the entity required to file knows that such TIN is incorrect. If
the TIN is not obtained prior to the occurrence of an identifiable
event, it must be requested of the debtor for purposes of satisfying the
requirement of this paragraph (e)(7).
(ii) Manner of soliciting TIN. Solicitations made in the manner
described in Sec. 301.6724-1(e)(1)(i) and (2) of this chapter will be
deemed to have satisfied the reasonable effort requirement set forth in
paragraph (e)(7)(i) of this section. A TIN solicitation made after the
occurrence of an identifiable event must clearly notify the debtor that
the Internal Revenue Service requires the debtor to furnish its TIN, and
that failure to furnish such TIN may subject the debtor to a $50 penalty
imposed by the Internal Revenue Service. A TIN provided under this
section is not required to be certified under penalties of perjury.
(8) Recordkeeping requirements. Any applicable entity required to
file a return with the Internal Revenue Service under this section must
also retain a copy of the return, or have the ability to reconstruct the
data required to be included on the return under paragraph (a)(1) of
this section, for at least four years from the date such return is
required to be filed under paragraph (a)(4) of this section.
(9) No multiple reporting. If discharged indebtedness is reported
under this section, no further reporting under this section is required
for the amount so reported, notwithstanding that a subsequent
identifiable event occurs with respect to the same amount. Further, no
additional reporting or Form 1099-C correction is required if a creditor
receives a payment of all or a portion of a discharged indebtedness
reported under this section for a prior calendar year.
(f) Requirement to furnish statement--(1) In general. Any applicable
entity required to file a return under this section must furnish to each
person whose name is shown on such return a written statement that
includes the following information--
(i) The information required by paragraph (a)(1) of this section. An
IRS truncated taxpayer identifying number (TTIN) may be used as the TIN
of the person for whom there was an identifiable event in lieu of the
identifying number appearing on the information return filed with the
Internal Revenue Service. For provisions relating to the use of TTINs,
see Sec. 301.6109-4 of this chapter (Procedure and Administration
Regulations);
(ii) The name, address, and TIN of the applicable entity required to
file a return under paragraph (a) of this section;
(iii) A legend identifying the statement as important tax
information that is being furnished to the Internal Revenue Service; and
(iv) Any other information required by Form 1099-C or its
instructions, or current revenue procedures.
(2) Furnishing copy of Form 1099-C. The requirement to provide a
statement to the debtor will be satisfied if the applicable entity
furnishes copy B of the Form 1099-C or a substitute statement that
complies with the requirements of the current revenue procedure for
substitute Forms 1099.
(3) Time and place for furnishing statement. The statement required
by this paragraph (f) must be furnished to the debtor on or before
January 31 of the year following the calendar year in which the
identifiable event occurs. The statement will be considered furnished to
the debtor if it is mailed to the debtor's last known address.
(g) Penalties. For penalties for failure to comply with the
requirements of this section, see sections 6721 through 6724.
(h) Applicability dates. This section applies to information returns
required to be filed, and payee statements required to be furnished,
after December 31, 2016. Section 1.6050P-1 (as contained
[[Page 464]]
in 26 CFR part 1, revised April 2016) applies to information returns
required to be filed, and payee statements required to be furnished, on
or before December 31, 2016.
[T.D. 8654, 61 FR 268, Jan. 4, 1996, as amended by T.D. 8895, 65 FR
50408, Aug. 18, 2000; T.D. 9160, 69 FR 62186, Oct. 25, 2004; T.D. 9430,
73 FR 66540, Nov. 10, 2008; T.D. 9461, 74 FR 47728, Sept. 17, 2009; T.D.
9675, 79 FR 41131, July 15, 2014; T.D. 9793, 81 FR 78911, Nov. 10, 2016]
Sec. 1.6050P-2 Organization a significant trade or business of which
is the lending of money.
(a) In general. For purposes of section 6050P(c)(2)(D), the lending
of money is a significant trade or business of an organization in a
calendar year if the organization lends money on a regular and
continuing basis during the calendar year.
(b) Safe harbors--(1) Organizations not subject to section 6050P in
the previous calendar year. For an organization that was not required to
report under section 6050P in the previous calendar year, the lending of
money is not treated as a significant trade or business for the calendar
year in which the lending occurs if gross income from lending money (as
described in paragraph (d) of this section) in the organization's most
recent test year (as defined in paragraph (f) of this section) is both
less than $5 million and less than 15 percent of the organization's
gross income for that test year.
(2) Organizations that were subject to section 6050P in the previous
calendar year. For an organization that was required to report under
section 6050P for the previous calendar year, the lending of money is
not treated as a significant trade or business for the calendar year in
which the lending occurs if gross income from lending money (as
described in paragraph (d) of this section) in each of the
organization's three most recent test years is both less than $3 million
and less than 10 percent of the organization's gross income for that
test year.
(3) No test year. The lending of money is not treated as a
significant trade or business for an organization for the calendar year
in which the lending occurs if the organization does not have a test
year for that calendar year.
(c) Seller financing. If the principal trade or business of an
organization is selling nonfinancial goods or providing nonfinancial
services and if the organization extends credit to the purchasers of
those goods or services to finance the purchases, then, for purposes of
section 6050P(c)(2)(D), these extensions of credit are not a significant
trade or business of lending money.
(d) Gross income from lending of money. For purposes of this
section, gross income from lending of money includes--
(1) Income from interest, including qualified stated interest,
original issue discount, and market discount;
(2) Gains arising from the sale or other disposition of
indebtedness;
(3) Penalties with respect to indebtedness (whether or not the
penalty is interest for Federal tax purposes); and
(4) Fees with respect to indebtedness, including merchant discount
or interchange (whether or not the fee is interest for Federal tax
purposes).
(e) Acquisition of an indebtedness from a person other than the
debtor included in lending money. For purposes of this section, lending
money includes acquiring an indebtedness not only from the debtor at
origination but also from a prior holder of the indebtedness. Gross
income arising from indebtedness is gross income from the lending of
money without regard to who originated the indebtedness. If an
organization acquires an indebtedness, the organization is required to
report any cancellation of the indebtedness if the organization is
engaged in a significant trade or business of lending money.
(f) Test year. For any calendar year, a test year is a taxable year
of the organization that ends before July 1 of the previous calendar
year.
(g) Predecessor organization. If an organization acquires
substantially all of the property that was used in a trade or business
of some other organization (the predecessor) (including when two or more
corporations are parties to a merger agreement under which the surviving
corporation becomes the owner of the assets and assumes the liabilities
of the absorbed corporation(s)) or was used in a separate unit of the
predecessor, then whether the organization at issue qualifies for one of
the safe harbors in paragraph (b) of this section
[[Page 465]]
is determined by also taking into account the test years, reporting
obligations, and gross income of the predecessor.
(h) Examples. The rules of this section are illustrated by the
following examples:
Example 1. (i) Facts. Finance Company A, a calendar year taxpayer,
was formed in Year 1 as a non-bank subsidiary of Manufacturing Company
and has no predecessor. A lends money to purchasers of Manufacturing
Company's products on a regular and continuing basis to finance the
purchase of those products. A's gross income from stated interest in
Year 1 is $4.7 million. In Year 1, A's gross income from fees and
penalties with respect to the indebtedness is $0.5 million, and A has no
other gross income from lending money within the meaning of paragraph
(d) of this section.
(ii) Results. Section 6050P does not require A to report discharges
of indebtedness occurring in Years 1 or 2, because A has no test year
for those years. Notwithstanding that A lends money in those years on a
regular and continuing basis, under paragraph (b)(3) of this section, A
does not have a significant trade or business of lending money in those
years for purposes of section 6050P(c)(2)(D). However, for Year 3, A's
test year is Year 1. A's gross income from lending in Year 1 is not less
than $5 million for purposes of the applicable safe harbor of paragraph
(b)(1) of this section. Because A lends money on a regular and
continuing basis and does not meet the applicable safe harbor, section
6050P requires A to report discharges of indebtedness occurring in Year
3.
Example 2. (i) Facts. The facts are the same as in Example 1, except
that A is a division of Manufacturing Company, rather than a separate
subsidiary. Manufacturing Company's principal activity is the
manufacture and sale of non-financial products, and, other than
financing the purchase of those products, Manufacturing Company does not
extend credit or otherwise lend money.
(ii) Results. Under paragraph (c) of this section, that financing
activity is not a significant trade or business of lending money for
purposes of section 6050P(c)(2)(D), and section 6050P does not require
Manufacturing Company to report discharges of indebtedness.
Example 3. (i) Facts. Company B, a calendar year taxpayer, is formed
in Year 1. B has no predecessor and a part of its activities consists of
the lending of money. B packages and sells part of the indebtedness it
originates and holds the remainder. B is engaged in these activities on
a regular and continuing basis. For Year 1, the sum of B's gross income
from sales of the indebtedness, plus other income described in paragraph
(d) of this section, is only $4.8 million, but it is 16% of B's gross
income in Year 1.
(ii) Results. Because B lends money on a regular and continuing
basis and does not meet the applicable safe harbor of paragraph (b)(1)
of this section, section 6050P requires B to report discharges of
indebtedness occurring in Year 3. B is not required to report discharges
of indebtedness in Years 1 and 2 because B has no test year for Years 1
and 2.
Example 4. (i) Facts. The facts are the same as in Example 3. In
addition, in each of Years 2, 3, and 4, the sum of B's gross income from
sales of the indebtedness, plus other income described in paragraph (d)
of this section, is less than both $3 million and 10% of B's gross
income.
(ii) Results. (A) Because B was required to report under section
6050P for Year 3, the applicable safe harbor for Year 4 is paragraph
(b)(2) of this section, which is satisfied only if B's gross income from
lending activities for each of the three most recent test years is less
than both $3 million and 10% of B's gross income. For Year 4, even
though B has only two test years, B's gross income in one of those test
years, Year 1, causes B to fail to meet this safe harbor. Accordingly, B
is required to report discharges of indebtedness under section 6050P in
Year 4. For Year 5, B's three most recent test years are Years 1, 2, and
3. However, B's gross income from lending activities in Year 1 is not
less than $3 million and 10% of B's gross income. Accordingly, section
6050P requires B to report discharges of indebtedness in Year 5.
(B) For Year 6, B satisfies the applicable safe harbor requirements
of paragraph (b)(2) of this section for each of the three most recent
test years (Years 2, 3, and 4). Therefore, section 6050P does not
require B to report discharges of indebtedness in Year 6. Because B is
not required to report for Year 6, the applicable safe harbor for Year 7
is the one contained in paragraph (b)(1) of this section, and thus the
only relevant test year is Year 5.
Example 5. (i) Facts. (A) Company C, a calendar year taxpayer, was
formed in Year 1 and, on a regular and continuing basis, enters into the
following transactions with its clients, all of whom are unrelated
parties to C. C does not have any other income.
(B) C's clients sell goods to customers, frequently accepting as
payment accounts receivable that are due in 30 to 90 days. Under a
contract with each client, C investigates the creditworthiness of the
client's customers with respect to the prospective sales, and, for each
customer, C determines whether, and to what extent, C is willing to
assume the risk of loss on accounts receivable to be issued by the
customer. C's decision whether to assume risk of loss may be based on an
evaluation of the credit quality of particular customers or on the
aggregate credit quality of all of the client's prospective customers.
If C is unwilling to assume the risk,
[[Page 466]]
the client either may refuse to extend any credit to the customer or may
accept the account receivable and bear the risk of loss.
(C) Pursuant to some contracts between C's clients and C, C's
clients assign legal title to the accounts receivable to C when the
accounts receivable are issued by the customers. For these accounts
receivable, C agrees to undertake collections and to remit the amounts
collected to the client, less a fee of 0.70 percent of the face value of
the accounts receivable. Pursuant to other contracts between C's clients
and C, C's clients retain legal title to the accounts receivable and
retain the initial collection responsibility. For these accounts
receivable, C's fee is reduced to 0.35 percent. Both groups of accounts
receivable include accounts receivable for which C has assumed the risk
of loss and accounts receivable for which C has not assumed the risk of
loss.
(D) Based on all the facts and circumstances, C acquires ownership
for Federal tax purposes of some, but not all, of the accounts
receivable that it has agreed to collect and of some, but not all, of
the accounts receivable for which the client has retained collection
responsibility.
(E) In Year 1, C's total fee income with respect to accounts
receivable of which it acquired tax ownership was $2 million. C's fee
income in Year 1 from accounts receivable of which it did not acquire
tax ownership was $700,000. C does not have any other income for Year 1.
(F) In Year 3, there were discharges of $950,000, representing
$100,000 of customer defaults on those accounts receivable of which C
was the owner for Federal tax purposes at the time of the identifiable
event marking the discharge and $850,000 of customer defaults on the
accounts receivable of which the clients, and not C, were the owner.
Whenever C determined the uncollectibility of an account receivable for
which it had not assumed the risk of loss, C reassigned title to the
account receivable to the appropriate client. Each defaulting customer
defaulted on an account receivable with an outstanding balance of at
least $600.
(ii) Results. (A) For Year 3, C's test year is Year 1. Under
paragraph (e) of this section, C's $2 million fee income from the
accounts receivable of which it acquired tax ownership is ``gross income
from lending money'' for purposes of paragraph (b) of this section,
because C was the owner of the accounts for Federal tax purposes. Under
paragraph (e) of this section, C's $700,000 fee income from the accounts
receivable of which it did not acquire tax ownership is not ``gross
income from lending money'' for purposes of paragraph (b) of this
section, because C was not the owner of the accounts receivable for
Federal tax purposes. In Year 1, therefore, C's gross income from
lending money is less than $5 million but is not less than 15% of C's
gross income. Because C lends money on a regular and continuing basis
and does not meet the applicable safe harbor, section 6050P requires C
to report discharges of indebtedness occurring in Year 3.
(B) In Year 3, section 6050P requires C to report the $100,000 of
discharges of the accounts receivable of which C was the owner for
Federal tax purposes at the time of the identifiable event marking the
discharge. Unless an exception to reporting under paragraph (b) or (c)
of this section applies, section 6050P requires C's clients to report
the $850,000 of discharges of the accounts receivable of which C did not
become the owner.
(i) Effective date. This section applies to discharges of
indebtedness occurring on or after January 1, 2005.
[T.D. 9160, 69 FR 62186, Oct. 25, 2004]
Sec. 1.6050S-0 Table of contents.
This section lists captions contained in Sec. Sec. 1.6050S-1,
1.6050S-2T, 1.6050S-3, and 1.6050S-4T.
Sec. 1.6050S-1 Information reporting for qualified tuition and related
expenses.
(a) Information reporting requirement.
(1) In general.
(2) Exceptions.
(i) No reporting by institutions or insurers for nonresident alien
individuals.
(ii) No reporting by institutions for noncredit courses.
(A) In general.
(B) Academic credit defined.
(C) Example.
(iii) No reporting by institutions for individuals whose qualified
tuition and related expenses are waived or are paid with scholarships.
(iv) No reporting by institutions for individuals whose qualified
tuition and related expenses are covered by a formal billing
arrangement.
(A) In general.
(B) Formal billing arrangement defined.
(b) Requirement to file return.
(1) In general.
(2) Information reporting requirements for institutions that elect
to report payments received for qualified tuition and related expenses.
(i) In general.
(ii) Information included on return.
(iii) Reportable amount of payments received for qualified tuition
and related expenses during calendar year determined.
(iv) Separate reporting of reimbursements or refunds of payments of
qualified tuition and related expenses that were reported for a prior
calendar year.
(v) Payments received for qualified tuition and related expenses
determined.
[[Page 467]]
(vi) Reimbursements or refunds of payments for qualified tuition and
related expenses determined.
(vii) Examples.
(3) Information reporting requirements for institutions that elect
to report amounts billed for qualified tuition and related expenses.
(i) In general.
(ii) Information included on return.
(iii) Reportable amounts billed for qualified tuition and related
expenses during calendar year determined.
(iv) Separate reporting of reductions made to amounts billed for
qualified tuition and related expenses that were reported for a prior
calendar year.
(v) Examples.
(4) Requirements for insurers.
(i) In general.
(ii) Information included on return.
(5) Time and place for filing return.
(i) In general.
(ii) Return for nonresident alien individual.
(iii) Extensions of time.
(6) Use of magnetic media.
(c) Requirement to furnish statement.
(1) In general.
(2) Time and manner for furnishing statement.
(i) In general.
(ii) Statement to nonresident alien individual.
(iii) Extensions of time.
(3) Copy of Form 1098-T.
(d) Special rules.
(1) Enrollment determined.
(2) Payments of qualified tuition and related expenses received or
collected by one or more persons.
(i) In general.
(ii) Exception.
(3) Governmental units.
(e) Penalty provisions.
(1) Failure to file correct returns.
(2) Failure to furnish correct information statements.
(3) Waiver of penalties for failures to include a correct TIN.
(i) In general.
(ii) Acting in a responsible manner.
(iii) Manner of soliciting TIN.
(4) Failure to furnish TIN.
(f) Effective date.
Sec. 1.6050S-2T Electronic furnishing of information statements for
qualified tuition and related expenses.
(a) Electronic furnishing of statements.
(1) In general.
(2) Consent.
(i) In general.
(ii) Change in hardware or software requirements.
(iii) Example.
(3) Required disclosures.
(i) In general.
(ii) Paper statement.
(iii) Scope and duration of consent.
(iv) Post-consent request for a paper statement.
(v) Withdrawal of consent.
(vi) Notice of termination.
(vii) Updating information.
(viii) Hardware and software requirements.
(4) Format.
(5) Posting.
(6) Notice.
(i) In general.
(ii) Undeliverable electronic address.
(iii) Corrected statements.
(7) Retention.
(b) Effective date.
Sec. 1.6050S-3 Information reporting for payments of interest on
qualified education loans.
(a) Information reporting requirement in general.
(b) Definitions.
(1) Interest.
(2) Payor.
(c) Requirement to file return.
(1) Form of return.
(2) Information included on return.
(3) Time and place for filing return.
(i) In general.
(ii) Extensions of time.
(4) Use of magnetic media.
(d) Requirement to furnish statement.
(1) In general.
(2) Time and manner for furnishing statement.
(i) In general.
(ii) Extensions of time.
(3) Copy of Form 1098-E.
(e) Special rules.
(1) Transitional rule for reporting of loan origination fees and
capitalized interest.
(2) Qualified education loan certification.
(3) Payments of interest received or collected by one or more
persons.
(i) In general.
(ii) Exception.
(4) Reporting by foreign persons.
(5) Governmental units.
(f) Penalty provisions.
(1) Failure to file correct returns.
(2) Failure to furnish correct information statements.
(3) Waiver of penalties for failures to include a correct TIN.
(i) In general.
(ii) Acting in a responsible manner.
(iii) Manner of soliciting TIN.
(4) Failure to furnish TIN.
(g) Effective date.
Sec. 1.6050S-4T Electronic furnishing of information statements for
payments of interest on qualified education loans.
(a) Electronic furnishing of statements.
(1) In general.
[[Page 468]]
(2) Consent.
(i) In general.
(ii) Change in hardware or software requirements.
(iii) Example.
(3) Required disclosures.
(i) In general.
(ii) Paper statement.
(iii) Scope and duration of consent.
(iv) Post-consent request for a paper statement.
(v) Withdrawal of consent.
(vi) Notice of termination.
(vii) Updating information.
(viii) Hardware and software requirements.
(4) Format.
(5) Posting.
(6) Notice.
(i) In general.
(ii) Undeliverable electronic address.
(iii) Corrected statements.
(7) Retention.
(b) Effective date.
[T.D. 8992, 67 FR 20904, Apr. 29, 2002, as amended by T.D. 9029, 67 FR
77681, Dec. 19, 2002]
Sec. 1.6050S-1 Information reporting for qualified tuition and
related expenses.
(a) Information reporting requirement--(1) In general. Except as
provided in paragraph (a)(2) of this section, any eligible educational
institution (as defined in section 25A(f)(2) and the regulations
thereunder) (an institution) that enrolls (as determined under paragraph
(d)(1) of this section) any individual for any academic period (as
defined in the regulations under section 25A), and any person that is
engaged in a trade or business of making payments under an insurance
arrangement as reimbursements or refunds (or other similar amounts) of
qualified tuition and related expenses (as defined in section 25A(f)(1)
and the regulations thereunder) (an insurer) must--
(i) File an information return, as described in paragraph (b) of
this section, with the Internal Revenue Service (IRS) with respect to
each individual described in paragraph (b) of this section; and
(ii) Furnish a statement, as described in paragraph (c) of this
section, to each individual described in paragraph (c) of this section.
(2) Exceptions--(i) No reporting by institution or insurer for
nonresident alien individuals. The information reporting requirements of
this section do not apply with respect to any individual who is a
nonresident alien (as defined in section 7701(b) and Sec. 301.7701(b)-3
of this chapter) during the calendar year, unless the individual
requests the institution or insurer to report. If a nonresident alien
individual requests an institution or insurer to report, the institution
or insurer must comply with the requirements of this section for the
calendar year with respect to which the request is made.
(ii) No reporting by institutions for noncredit courses--(A) In
general. The information reporting requirements of this section do not
apply with respect to any course for which no academic credit is offered
by the institution.
(B) Academic credit defined. Academic credit means credit offered by
an institution for the completion of course work leading toward a post-
secondary degree, certificate, or other recognized post-secondary
educational credential.
(C) Example. The following example illustrates the rules of this
paragraph (a)(2)(ii):
Example. Student A, a medical doctor, takes a course at University
X's medical school. Student A takes the course to fulfill State Y's
licensing requirement that medical doctors attend continuing medical
education courses each year. Student A is not enrolled in a degree
program at University X and takes the medical course through University
X's continuing professional education division. University X does not
offer credit toward a post-secondary degree on an academic transcript
for the completion of the course but gives Student A a certificate of
attendance upon completion. Under this paragraph (a)(2)(ii), University
X is not subject to the information reporting requirements of section
6050S and this section for the medical education course taken by Student
A.
(iii) No reporting by institutions for individuals whose qualified
tuition and related expenses are waived or are paid with scholarships.
The information reporting requirements of this section do not apply with
respect to any individual whose qualified tuition and related expenses
are waived in their entirety or are paid entirely with scholarships.
(iv) No reporting by institutions for individuals whose qualified
tuition and related expenses are covered by a formal billing
arrangement--(A) In general. The information reporting requirements of
[[Page 469]]
this section do not apply with respect to any individual whose qualified
tuition and related expenses are covered by a formal billing arrangement
as defined in paragraph (a)(2)(iv)(B) of this section.
(B) Formal billing arrangement defined. A formal billing arrangement
means--
(1) An arrangement in which the institution bills only an employer
for education furnished by the institution to an individual who is the
employer's employee and does not maintain a separate financial account
for that individual;
(2) An arrangement in which the institution bills only a
governmental entity for education furnished by the institution to an
individual and does not maintain a separate financial account for that
individual; or
(3) Any other similar arrangement in which the institution bills
only an institutional third party for education furnished to an
individual and does not maintain a separate financial account for that
individual, but only if designated as a formal billing arrangement by
the Commissioner in published guidance of general applicability or in
guidance directed to participants in specific arrangements.
(b) Requirement to file return--(1) In general. Institutions may
elect to report either the information described in paragraph (b)(2) of
this section, or the information described in paragraph (b)(3) of this
section. Once an institution elects to report under either paragraph
(b)(2) or (3) of this section, the institution must use the same
reporting method for all calendar years in which it is required to file
returns, unless permission is granted to change reporting methods.
Paragraph (b)(2) of this section requires institutions to report, among
other information, the amount of payments received during the calendar
year for qualified tuition and related expenses. Institutions must
report separately adjustments made during the calendar year that relate
to payments received for qualified tuition and related expenses that
were reported for a prior calendar year. For purposes of paragraph
(b)(2) of this section, an adjustment made to payments received means a
reimbursement or refund. Paragraph (b)(3) requires institutions to
report, among other information, the amounts billed during the calendar
year for qualified tuition and related expenses. Institutions must
report separately adjustments made during the calendar year that relate
to amounts billed for qualified tuition and related expenses that were
reported for a prior calendar year. For purposes of paragraph (b)(3) of
this section, an adjustment made to amounts billed means a reduction in
charges. Insurers must report the information described in paragraph
(b)(4) of this section.
(2) Information reporting requirements for institutions that elect
to report payments received for qualified tuition and related expenses--
(i) In general. Except as provided in paragraph (a)(2) of this section,
an institution reporting payments received for qualified tuition and
related expenses must file an information return with the IRS on Form
1098-T, ``Tuition Statement,'' with respect to each individual enrolled
(as determined in paragraph (d)(1) of this section) for an academic
period beginning during the calendar year or during a prior calendar
year and for whom a transaction described in paragraphs (b)(2)(ii)(C),
(E), (F) or (G) of this section is made during the calendar year. An
institution may use a substitute Form 1098-T if the substitute form
complies with applicable revenue procedures relating to substitute forms
(see Sec. 601.601(d)(2) of this chapter).
(ii) Information included on return. An institution reporting
payments received for qualified tuition and related expenses must
include on Form 1098-T--
(A) The name, address, and taxpayer identification number (TIN)(as
defined in section 7701(a)(41)) of the institution;
(B) The name, address, and TIN of the individual who is, or has
been, enrolled by the institution;
(C) The amount of payments of qualified tuition and related expenses
that the institution received from any source with respect to the
individual during the calendar year;
(D) An indication by the institution whether any payments received
for qualified tuition and related expenses reported for the calendar
year relate to an academic period that begins during
[[Page 470]]
the first three months of the next calendar year;
(E) The amount of any scholarships or grants for the payment of the
individual's costs of attendance that the institution administered and
processed during the calendar year;
(F) The amount of any reimbursements or refunds of qualified tuition
and related expenses made during the calendar year with respect to the
individual that relate to payments of qualified tuition and related
expenses that were reported by the institution for a prior calendar
year;
(G) The amount of any reductions to the amount of scholarships or
grants for the payment of the individual's costs of attendance that were
reported by the institution with respect to the individual for a prior
calendar year;
(H) A statement or other indication showing whether the individual
was enrolled for at least half of the normal full-time work load for the
course of study the individual is pursuing for at least one academic
period that begins during the calendar year (see section 25A and the
regulations thereunder);
(I) A statement or other indication showing whether the individual
was enrolled in a program leading to a graduate-level degree, graduate-
level certificate, or other recognized graduate-level educational
credential; and
(J) Any other information required by Form 1098-T and its
instructions.
(iii) Reportable amount of payments received for qualified tuition
and related expenses during calendar year determined. The amount of
payments received for qualified tuition and related expenses with
respect to an individual during the calendar year that is reportable on
Form 1098-T is determined by netting the amount of payments received (as
defined in paragraph (b)(2)(v) of this section) for qualified tuition
and related expenses during the calendar year against any reimbursements
or refunds (as defined in paragraph (b)(2)(vi) of this section) made
during the calendar year that relate to payments received for qualified
tuition and related expenses during the same calendar year.
(iv) Separate reporting of reimbursements or refunds of payments of
qualified tuition and related expenses that were reported for a prior
calendar year. An institution must separately report on Form 1098-T any
reimbursements or refunds (as defined in paragraph (b)(2)(vi) of this
section) made during the current calendar year that relate to payments
of qualified tuition and related expenses that were reported by the
institution for a prior calendar year. Such reimbursements or refunds
shall not be netted against the payments received for qualified tuition
and related expenses during the current calendar year.
(v) Payments received for qualified tuition and related expenses
determined. For purposes of determining the amount of payments received
for qualified tuition and related expenses during a calendar year,
payments received with respect to an individual during the calendar year
from any source (except for any scholarship or grant that, by its terms,
must be applied to expenses other than qualified tuition and related
expenses, such as room and board) are treated as payments of qualified
tuition and related expenses up to the total amount billed by the
institution for such expenses. For purposes of this section, a payment
includes any positive account balance (such as any reimbursement or
refund credited to an individual's account) that an institution applies
toward current charges.
(vi) Reimbursements or refunds of payments for qualified tuition and
related expenses determined. For purposes of determining the amount of
reimbursements or refunds made of payments received for qualified
tuition and related expenses, any reimbursement or refund made with
respect to an individual during a calendar year (except for any refund
of a scholarship or grant that, by its terms, was required to be applied
to expenses other than qualified tuition and related expenses, such as
room and board) is treated as a reimbursement or refund of payments for
qualified tuition and related expenses up to the amount of any reduction
in charges for such expenses. For purposes of this section, a
reimbursement or refund includes amounts that an institution credits to
an individual's account, as well as amounts disbursed to, or on behalf
of, the individual.
[[Page 471]]
(vii) Examples. The following examples illustrate the rules in this
paragraph (b)(2):
Example 1. (i) In early August 2003, University X bills enrolled
Student A $10,000 for qualified tuition and related expenses and $6,000
for room and board for the 2003 Fall semester. In late August 2003,
Student A pays $11,000 to University X. In early September 2003, Student
A drops to half-time enrollment for the 2003 Fall semester. In late
September 2003, University X credits $5,000 to Student A's account,
reflecting a $5,000 reduction in charges for qualified tuition and
related expenses. In late September 2003, University X applies the
$5,000 positive account balance toward current charges.
(ii) Under paragraph (b)(2)(v) of this section, the $11,000 payment
is treated as a payment of qualified tuition and related expenses up to
the $10,000 billed for qualified tuition and related expenses. Under
paragraph (b)(2)(vi) of this section, the $5,000 credited to the
student's account is treated as a reimbursement or refund of payments
for qualified tuition and related expenses, because the current year
charges for qualified tuition and related expenses were reduced by
$5,000. Under paragraph (b)(2)(iii) of this section, University X is
required to net the $10,000 payment received for qualified tuition and
related expenses during 2003 against the $5,000 reimbursement or refund
of payments received for qualified tuition and related expenses during
2003. Therefore, Institution X is required to report $5,000 of payments
received for qualified tuition and related expenses during 2003.
Example 2. (i) The facts are the same as in Example 1, except that
Student A pays the full $16,000 in late August 2003. In late September
2003, University X reduces the tuition charges by $5,000 and issues a
$5,000 refund to Student A.
(ii) Under paragraph (b)(2)(v) of this section, the $16,000 payment
is treated as a payment of qualified tuition and related expenses up to
the $10,000 billed for qualified tuition and related expenses. Under
paragraph (b)(2)(vi) of this section, the $5,000 refund is treated as
reimbursement or refund of payments for qualified tuition and related
expenses, because the current year charges for qualified tuition and
related expenses were reduced by $5,000. Under paragraph (b)(2)(iii) of
this section, University X is required to net the $10,000 payment
received for qualified tuition and related expenses during 2003 against
the $5,000 reimbursement or refund of payments received for qualified
tuition and related expenses during 2003. Therefore, Institution X is
required to report $5,000 of payments received for qualified tuition and
related expenses during 2003.
Example 3. (i) The facts are the same as in Example 1, except that
Student A is enrolled full-time, and, in early September 2003, Student A
decides to live at home with her parents. In late September 2003,
University X adjusts Student A's account to eliminate room and board
charges and issues a $1,000 refund to Student A.
(ii) Under paragraph (b)(2)(v) of this section, the $11,000 payment
is treated as a payment of qualified tuition and related expenses up to
the $10,000 billed for qualified tuition and related expenses. Under
paragraph (b)(2)(vi) of this section, the $1,000 refund is not treated
as reimbursement or refund of payments for qualified tuition and related
expenses, because there is no reduction in charges for qualified tuition
and related expenses. Therefore, under paragraph (b)(2)(iii) of this
section, University X is required to report $10,000 of payments received
for qualified tuition and related expenses during 2003.
Example 4. (i) In early December 2003, College Y bills enrolled
Student B $10,000 for qualified tuition and related expenses and $6,000
for room and board for the 2004 Spring semester. In late December 2003,
Student B pays $16,000. In mid-January 2004, after the 2004 Spring
semester classes begin, Student B drops to half-time enrollment. In mid-
January 2004, College Y credits Student B's account with $5,000,
reflecting a $5,000 reduction in charges for qualified tuition and
related expenses, but does not issue a refund to Student B. In early
August 2004, College Y bills Student B $10,000 for qualified tuition and
related expenses and $6,000 for room and board for the 2004 Fall
semester. In early September 2004, College Y applies the $5,000 positive
account balance toward Student B's $16,000 bill for the 2004 Fall
semester. In late September 2004, Student B pays $6,000 towards the
charges.
(ii) In the reporting for calendar year 2003, under paragraph
(b)(2)(v) of this section, the $16,000 payment in December 2003 is
treated as a payment of qualified tuition and related expenses up to the
$10,000 billed for qualified tuition and related expenses. Under
paragraph (b)(2)(iii) of this section, College Y is required to report
$10,000 of payments received for qualified tuition and related expenses
during 2003. In addition, College Y is required to indicate that the
payments reported for 2003 relate to an academic period that begins
during the first three months of the next calendar year.
(iii) In the reporting for calendar year 2004, under paragraph
(b)(2)(vi) of this section, the $5,000 credited to Student B's account
is treated as a reimbursement or refund of qualified tuition and related
expenses, because the charges for qualified tuition and related expenses
were reduced by $5,000. Under paragraph (b)(2)(iv) of this section, the
$5,000 reimbursement or refund of qualified
[[Page 472]]
tuition and related expenses must be separately reported on Form 1098-T
because it relates to payments of qualified tuition and related expenses
reported by College Y for 2003. Under paragraph (b)(2)(v) of this
section, the $5,000 positive account balance that is applied toward
charges for the 2004 Fall semester is treated as a payment. Therefore,
College Y received total payments of $11,000 during 2004 (the $5,000
credit plus the $6,000 payment). Under paragraph (b)(2)(v) of this
section, the $11,000 of total payments are treated as a payment of
qualified tuition and related expenses up to the $10,000 billed for such
expenses. Therefore, for 2004, College Y is required to report $10,000
of payments received for qualified tuition and related expenses during
2004 and a $5,000 refund of payments of qualified tuition and related
expenses reported for 2003.
(3) Information reporting requirements for institutions that elect
to report amounts billed for qualified tuition and related expenses--(i)
In general. Except as provided in paragraph (a)(2) of this section, an
institution reporting amounts billed for qualified tuition and related
expenses must file an information return on Form 1098-T with respect to
each individual enrolled (as determined in paragraph (d)(1) of this
section) for an academic period beginning during the calendar year or
during a prior calendar year and for whom a transaction described in
paragraphs (b)(3)(ii)(C), (E), (F) or (G) of this section is made during
the calendar year. An institution may use a substitute Form 1098-T if
the substitute form complies with applicable revenue procedures relating
to substitute forms (see Sec. 601.601(d)(2) of this chapter).
(ii) Information included on return. An institution reporting
amounts billed for qualified tuition and related expenses must include
on Form 1098-T--
(A) The name, address, and taxpayer identification number (TIN)(as
defined in section 7701(a)(41)) of the institution;
(B) The name, address, and TIN of the individual who is, or has
been, enrolled by the institution;
(C) The amount billed for qualified tuition and related expenses
with respect to the individual during the calendar year;
(D) An indication by the institution whether any amounts billed for
qualified tuition and related expenses reported for the calendar year
relate to an academic period that begins during the first three months
of the next calendar year;
(E) The amount of any scholarships or grants for the payment of the
individual's costs of attendance that the institution administered and
processed during the calendar year;
(F) The amount of any reductions in charges made during the calendar
year with respect to the individual that relate to amounts billed for
qualified tuition and related expenses that were reported by the
institution for a prior calendar year;
(G) The amount of any reductions to the amount of scholarships or
grants for the payment of the individual's costs of attendance that were
reported by the institution with respect to the individual for a prior
calendar year;
(H) A statement or other indication showing whether the individual
was enrolled for at least half of the normal full-time work load for the
course of study the individual is pursuing for at least one academic
period that begins during the calendar year (see section 25A and the
regulations thereunder);
(I) A statement or other indication showing whether the individual
was enrolled in a program leading to a graduate-level degree, graduate-
level certificate, or other recognized graduate-level educational
credential; and
(J) Any other information required by Form 1098-T and its
instructions.
(iii) Reportable amounts billed for qualified tuition and related
expenses during calendar year determined. The amount billed for
qualified tuition and related expenses with respect to an individual
during the calendar year that is reportable on Form 1098-T is determined
by netting the amounts billed for qualified tuition and related expenses
during the calendar year against any reductions in charges for qualified
tuition and related expenses made during the calendar year that relate
to amounts billed for qualified tuition and related expenses during the
same calendar year.
(iv) Separate reporting of reductions made to amounts billed for
qualified tuition and related expenses that were reported for a prior
calendar year. An institution must separately report on Form 1098-T any
reductions in charges made during the current calendar year
[[Page 473]]
that relate to amounts billed for qualified tuition and related expenses
that were reported by the institution for a prior calendar year. Such
reductions shall not be netted against amounts billed for qualified
tuition and related expenses during the current calendar year.
(v) Examples. The following examples illustrate the rules in this
paragraph (b)(3):
Example 1. (i) In early August 2003, University X bills enrolled
Student A $10,000 for qualified tuition and related expenses and $6,000
for room and board for the 2003 Fall semester. In late August 2003,
Student A pays $11,000 to University X. In early September 2003, Student
A drops to half-time enrollment for the 2003 Fall semester. In late
September 2003, University X adjusts Student A's account and reduces the
charges for qualified tuition and related expenses by $5,000 to reflect
half-time enrollment. In late September 2003, University X applies the
$5,000 account balance toward current charges.
(ii) Under paragraph (b)(3)(iii) of this section, University X is
required to net the $10,000 amount of qualified tuition and related
expenses billed during 2003 against the $5,000 reduction in charges for
qualified tuition and related expenses during 2003. Therefore,
Institution X is required to report $5,000 in amounts billed for
qualified tuition and related expenses during 2003.
Example 2. (i) The facts are the same as in Example 1, except that,
in addition, in early December 2003, College X bills Student A $10,000
for qualified tuition and related expenses and $6,000 for room and board
for the 2004 Spring semester. In early January 2004, Student A pays
$16,000. In mid-January 2004, after the 2004 Spring semester classes
begin, Student A drops to half-time enrollment. In mid-January 2004,
College X credits $5,000 to Student A's account, reflecting a $5,000
reduction in charges for qualified tuition and related expenses, but
does not issue a refund check to Student A. In early August 2004,
College X bills Student A $10,000 for qualified tuition and related
expenses and $6,000 for room and board for the 2004 Fall semester. In
early September 2004, College X applies the $5,000 positive account
balance toward Student A's $16,000 bill for the 2004 Fall semester. In
late September 2004, Student A pays $6,000 toward the charges.
(ii) In the reporting for calendar year 2003, under paragraph
(b)(3)(iii) of this section, College X is required to report $15,000
amounts billed for qualified tuition and related expenses during 2003
($5,000 for the 2003 Fall semester and $10,000 for the 2004 Spring
semester). In addition, College X is required to indicate that some of
the amounts billed for qualified tuition and related expenses reported
for 2003 relate to an academic period that begins during the first three
months of the next calendar year.
(iii) In the reporting for calendar year 2004, under paragraph
(b)(3)(iv) of this section, the $5,000 reduction in charges for
qualified tuition and related expenses must be separately reported on
Form 1098-T because it relates to amounts billed for qualified tuition
and related expenses that were reported by College X for 2003. Under
paragraph (b)(3)(iii) of this section, College X is required to report
$10,000 in amounts billed for qualified tuition and related expenses
during 2004.
(4) Requirements for insurers--(i) In general. Except as otherwise
provided in this section, an insurer must file an information return for
each individual with respect to whom reimbursements or refunds of
qualified tuition and related expenses are made during the calendar year
on Form 1098-T. An insurer may use a substitute Form 1098-T if the
substitute form complies with applicable revenue procedures relating to
substitute forms (see Sec. 601.601(d)(2) of this chapter).
(ii) Information included on return. An insurer must include on Form
1098-T--
(A) The name, address, and taxpayer identification number (TIN) (as
defined in section 7701(a)(41)) of the insurer;
(B) The name, address, and TIN of the individual with respect to
whom reimbursements or refunds of qualified tuition and related expenses
were made;
(C) The aggregate amount of reimbursements or refunds of qualified
tuition and related expenses that the insurer made with respect to the
individual during the calendar year; and
(D) Any other information required by Form 1098-T and its
instructions.
(5) Time and place for filing return--(i) In general. Except as
provided in paragraphs (b)(5)(ii) and (iii) of this section, Form 1098-T
must be filed on or before February 28 (March 31 if filed
electronically) of the year following the calendar year in which
payments were received, or amounts were billed, for qualified tuition or
related expenses, or reimbursements, refunds, or reductions of such
amounts were made. An institution or insurer must file Form 1098-T with
the IRS according to the instructions to Form 1098-T.
[[Page 474]]
(ii) Return for nonresident alien individual. In general, an
institution or insurer is not required to file a return on behalf of a
nonresident alien individual. However, if a nonresident alien individual
requests an institution or insurer to report, the institution or insurer
must file a return described in paragraph (b) of this section with the
IRS on or before the date prescribed in paragraph (b)(5)(i) of this
section, or on or before the thirtieth day after the request, whichever
is later.
(iii) Extensions of time. The IRS may grant an institution or
insurer an extension of time to file returns required in this section
upon a showing of good cause. See General Instructions for Forms 1099
series, 1098 series, 5498 series, and W-2G, ``Certain Gambling
Winnings,'' and applicable revenue procedures for rules relating to
extensions of time to file (see Sec. 601.601(d)(2) of this chapter).
(6) Use of magnetic media. See section 6011(e) and Sec. 301.6011-2
of this chapter for rules relating to the requirement to file Forms
1098-T on magnetic media.
(c) Requirement to furnish statement--(1) In general. An institution
or insurer must furnish a statement to each individual for whom it is
required to file a Form 1098-T. The statement must include--
(i) The information required under paragraph (b) of this section. An
IRS truncated taxpayer identifying number (TTIN) may be used as the TIN
of the individual in lieu of the identifying number appearing on the
information return filed with the Internal Revenue Service. For
provisions relating to the use of TTINs, see Sec. 301.6109-4 of this
chapter (Procedure and Administration Regulations);
(ii) A legend that identifies the statement as important tax
information that is being furnished to the IRS;
(iii) Instructions that--
(A) State that the statement reports either total payments received
by the institution for qualified tuition and related expenses during the
calendar year, or total amounts billed by the institution for qualified
tuition and related expenses during the calendar year, or the total
reimbursements or refunds made by the insurer;
(B) State that, under section 25A and the regulations thereunder,
the taxpayer may claim an education tax credit only with respect to
qualified tuition and related expenses actually paid during the calendar
year; and that the taxpayer may not be able to claim an education tax
credit with respect to the entire amount of payments received, or
amounts billed, for qualified tuition and related expenses reported for
the calendar year;
(C) State that the amount of any scholarships or grants reported for
the calendar year and other similar amounts not reported (because they
are not administered and processed by the institution) may reduce the
amount of any allowable education tax credit for the taxable year;
(D) State that the amount of any reimbursements or refunds of
payments received, or reductions in charges, for qualified tuition and
related expenses, or any reductions to the amount of scholarships or
grants, reported by the institution with respect to the individual for a
prior calendar year may affect the amount of any allowable education tax
credit for the prior calendar year (and may result in an increase in tax
liability for the year of the refund);
(E) State that the amount of any reimbursements or refunds of
qualified tuition and related expenses reported by an insurer may reduce
the amount of an allowable education tax credit for a taxable year (and
may result in an increase in tax liability for the year of the refund);
(F) State that the taxpayer should refer to relevant IRS forms and
publications, and should not refer to the institution or the insurer,
for explanations relating to the eligibility requirements for, and
calculation of, any allowable education tax credit; and
(G) Include the name, address, and phone number of the information
contact of the institution or insurer that filed the Form 1098-T.
(2) Time and manner for furnishing statement--(i) In general. Except
as provided in paragraphs (c)(2)(ii) and (iii) of this section, an
institution or insurer must furnish the statement described in paragraph
(c)(1) of this section to each individual for whom it is required to
file a return, on or before January 31
[[Page 475]]
of the year following the calendar year in which payments were received,
or amounts were billed, for qualified tuition and related expenses, or
reimbursements, refunds, or reductions of such amounts were made. If
mailed, the statement must be sent to the individual's permanent
address, or the individual's temporary address if the institution or
insurer does not know the individual's permanent address. If furnished
electronically, the statement must be furnished in accordance with the
applicable regulations.
(ii) Statement to nonresident alien individual. If an information
return is filed for a nonresident alien individual, the institution or
insurer must furnish a statement described in paragraph (c)(1) of this
section to the individual in the manner prescribed in paragraph
(c)(2)(i) of this section. The statement must be furnished on or before
the later of the date prescribed in paragraph (c)(2)(i) of this section
or the thirtieth day after the nonresident alien's request to report.
(iii) Extensions of time. The IRS may grant an institution or
insurer an extension of time to furnish the statements required in this
section upon a showing of good cause. See General Instructions for Forms
1099 series, 1098 series, 5498 series, and W-2G, ``Certain Gambling
Winnings,'' and applicable revenue procedures for rules relating to
extensions of time to furnish statements (see Sec. 601.601(d)(2) of
this chapter).
(3) Copy of Form 1098-T. An institution or insurer may satisfy the
requirement of this paragraph (c) by furnishing either a copy of Form
1098-T and its instructions or another document that contains all of the
information filed with the IRS and the information required by paragraph
(c)(1) of this section if the document complies with applicable revenue
procedures relating to substitute statements (see Sec. 601.601(d)(2) of
this chapter).
(d) Special rules--(1) Enrollment determined. An institution may
determine its enrollment for each academic period under its own rules
and policies for determining enrollment or as of any of the following
dates--
(i) 30 days after the first day of the academic period;
(ii) A date during the academic period on which enrollment data must
be collected for purposes of the Integrated Post Secondary Education
Data System administered by the Department of Education; or
(iii) A date during the academic period on which the institution
must report enrollment data to the State, the institution's governing
body, or some other external governing body.
(2) Payments of qualified tuition and related expenses received or
collected by one or more persons--(i) In general. Except as otherwise
provided in paragraph (d)(2)(ii) of this section, if a person collects
or receives payments of qualified tuition and related expenses on behalf
of another person (e.g., an institution), the person collecting or
receiving payments must satisfy the requirements of paragraphs (b) and
(c) of this section. In this case, those requirements do not apply to
the transfer of the payments to the institution.
(ii) Exception. If the person collecting or receiving payments of
qualified tuition and related expenses on behalf of another person
(e.g., an institution) does not possess the information needed to comply
with the requirements of paragraphs (b) and (c) of this section, the
other person must satisfy those requirements.
(3) Governmental units. An institution or insurer that is a
governmental unit, or an agency or instrumentality of a governmental
unit, is subject to the requirements of paragraphs (b) and (c) of this
section and an appropriately designated officer or employee of the
governmental entity must satisfy those requirements.
(e) Penalty provisions--(1) Failure to file correct returns. The
section 6721 penalty may apply to an institution or insurer that fails
to file information returns required by section 6050S and this section
on or before the required filing date; that fails to include all of the
required information on the return; or that includes incorrect
information on the return. See section 6721, and the regulations
thereunder, for rules relating to penalties for failure to file correct
returns. See section 6724, and the regulations thereunder, for rules
relating to waivers of penalties for certain failures due to reasonable
cause.
[[Page 476]]
(2) Failure to furnish correct information statements. The section
6722 penalty may apply to an institution or insurer that fails to
furnish statements required by section 6050S and this section on or
before the prescribed date; that fails to include all the required
information on the statement; or that includes incorrect information on
the statement. See section 6722, and the regulations thereunder, for
rules relating to penalties for failure to furnish correct statements.
See section 6724, and the regulations thereunder, for rules relating to
waivers of penalties for certain failures due to reasonable cause.
(3) Waiver of penalties for failures to include a correct TIN--(i)
In general. In the case of a failure to include a correct TIN on Form
1098-T or a related information statement, penalties may be waived if
the failure is due to reasonable cause. Reasonable cause may be
established if the failure arose from events beyond the institution's or
insurer's control, such as a failure of the individual to furnish a
correct TIN. However, the institution or insurer must establish that it
acted in a responsible manner both before and after the failure.
(ii) Acting in a responsible manner. An institution or insurer must
request the TIN of each individual for whom it is required to file a
return if it does not already have a record of the individual's correct
TIN. If the institution or insurer does not have a record of the
individual's correct TIN, then it must solicit the TIN in the manner
described in paragraph (e)(3)(iii) of this section on or before December
31 of each year during which it receives payments, or bills amounts, for
qualified tuition and related expenses or makes reimbursements, refunds,
or reductions of such amounts with respect to the individual. If an
individual refuses to provide his or her TIN upon request, the
institution or insurer must file the return and furnish the statement
required by this section without the individual's TIN, but with all
other required information. The specific solicitation requirements of
paragraph (e)(3)(iii) of this section apply in lieu of the solicitation
requirements of Sec. 301.6724-1(e) and (f) of this chapter for the
purpose of determining whether an institution or insurer acted in a
responsible manner in attempting to obtain a correct TIN. An institution
or insurer that complies with the requirements of this paragraph (e)(3)
will be considered to have acted in a responsible manner within the
meaning of Sec. 301.6724-1(d) of this chapter with respect to any
failure to include the correct TIN of an individual on a return or
statement required by section 6050S and this section.
(iii) Manner of soliciting TIN. An institution or insurer must
request the individual's TIN in writing and must clearly notify the
individual that the law requires the individual to furnish a TIN so that
it may be included on an information return filed by the institution or
insurer. A request for a TIN made on Form W-9S, ``Request for Student's
or Borrower's Taxpayer Identification Number and Certification,''
satisfies the requirements of this paragraph (e)(3)(iii). An institution
or insurer may establish a system for individuals to submit Forms W-9S
electronically as described in applicable forms and instructions. An
institution or insurer may also develop a separate form to request the
individual's TIN or incorporate the request into other forms customarily
used by the institution or insurer, such as admission or enrollment
forms or financial aid applications.
(4) Failure to furnish TIN. The section 6723 penalty may apply to
any individual who is required (but fails) to furnish his or her TIN to
an institution or insurer. See section 6723, and the regulations
thereunder, for rules relating to the penalty for failure to furnish a
TIN.
(f) Effective/applicability date. The rules in this section apply to
information returns required to be filed, and information statements
required to be furnished, after December 31, 2003. Paragraph (c)(1)(i)
applies to payee statements due after December 31, 2014. For payee
statements due before January 1, 2015, Sec. 1.6050S-1 (as contained in
26 CFR part 1, revised April 2013) shall apply.
[T.D. 9029, 67 FR 77682, Dec. 19, 2002; 68 FR 6350, Feb. 7, 2003; T.D.
9675, 79 FR 41131, July 15, 2014]
[[Page 477]]
Sec. 1.6050S-2 Information reporting for payments and reimbursements
or refunds of qualified tuition and related expenses.
(a) Electronic furnishing of statements--(1) In general. A person
required by section 6050S(d) to furnish a written statement regarding
payments and reimbursements or refunds of qualified tuition and related
expenses (furnisher) to the individual to whom it is required to be
furnished (recipient) may furnish the statement in an electronic format
in lieu of a paper format. A furnisher who meets the requirements of
paragraphs (a)(2) through (6) of this section is treated as furnishing
the required statement.
(2) Consent--(i) In general. The recipient must have affirmatively
consented to receive the statement in an electronic format. The consent
may be made electronically in any manner that reasonably demonstrates
that the recipient can access the statement in the electronic format in
which it will be furnished to the recipient. Alternatively, the consent
may be made in a paper document if it is confirmed electronically.
(ii) Withdrawal of consent. The consent requirement of this
paragraph (a)(2) is not satisfied if the recipient withdraws the consent
and the withdrawal takes effect before the statement is furnished. The
furnisher may provide that a withdrawal of consent takes effect either
on the date it is received by the furnisher or on a subsequent date. The
furnisher may also provide that a request for a paper statement will be
treated as a withdrawal of consent.
(iii) Change in hardware or software requirements. If a change in
the hardware or software required to access the statement creates a
material risk that the recipient will not be able to access the
statement, the furnisher must, prior to changing the hardware or
software, provide the recipient with a notice. The notice must describe
the revised hardware and software required to access the statement and
inform the recipient that a new consent to receive the statement in the
revised electronic format must be provided to the furnisher. After
implementing the revised hardware and software, the furnisher must
obtain from the recipient, in the manner described in paragraph
(a)(2)(i) of this section, a new consent or confirmation of consent to
receive the statement electronically.
(iv) Examples. The following examples illustrate the rules of this
paragraph (a)(2):
Example 1. Furnisher F sends Recipient R a letter stating that R may
consent to receive statements required by section 6050S(d)
electronically on a Web site instead of in a paper format. The letter
contains instructions explaining how to consent to receive the
statements electronically by accessing the Web site, downloading the
consent document, completing the consent document and e-mailing the
completed consent back to F. The consent document posted on the Web site
uses the same electronic format that F will use for the electronically
furnished statements. R reads the instructions and submits the consent
in the manner provided in the instructions. R has consented to receive
the statements electronically in the manner described in paragraph
(a)(2)(i) of this section.
Example 2. Furnisher F sends Recipient R an e-mail stating that R
may consent to receive statements required by section 6050S(d)
electronically instead of in a paper format. The e-mail contains an
attachment instructing R how to consent to receive the statements
electronically. The e-mail attachment uses the same electronic format
that F will use for the electronically furnished statements. R opens the
attachment, reads the instructions, and submits the consent in the
manner provided in the instructions. R has consented to receive the
statements electronically in the manner described in paragraph (a)(2)(i)
of this section.
Example 3. Furnisher F posts a notice on its Web site stating that
Recipient R may receive statements required by section 6050S(d)
electronically instead of in a paper format. The Web site contains
instructions on how R may access a secure Web page and consent to
receive the statements electronically. By accessing the secure Web page
and giving consent, R has consented to receive the statements
electronically in the manner described in paragraph (a)(2)(i) of this
section.
(3) Required disclosures--(i) In general. Prior to, or at the time
of, a recipient's consent, the furnisher must provide to the recipient a
clear and conspicuous disclosure statement containing each of the
disclosures described in paragraphs (a)(3)(ii) through (viii) of this
section.
(ii) Paper statement. The recipient must be informed that the
statement
[[Page 478]]
will be furnished on paper if the recipient does not consent to receive
it electronically.
(iii) Scope and duration of consent. The recipient must be informed
of the scope and duration of the consent. For example, the recipient
must be informed whether the consent applies to statements furnished
every year after the consent is given until it is withdrawn in the
manner described in paragraph (a)(3)(v)(A) of this section or only to
the statement required to be furnished on or before the January 31
immediately following the date on which the consent is given.
(iv) Post-consent request for a paper statement. The recipient must
be informed of any procedure for obtaining a paper copy of the
recipient's statement after giving the consent described in paragraph
(a)(2)(i) of this section and whether a request for a paper statement
will be treated as a withdrawal of consent.
(v) Withdrawal of consent. The recipient must be informed that--
(A) The recipient may withdraw a consent by writing (electronically
or on paper) to the person or department whose name, mailing address,
telephone number, and e-mail address is provided in the disclosure
statement;
(B) The furnisher will confirm the withdrawal and the date on which
it takes effect in writing (either electronically or on paper); and
(C) A withdrawal of consent does not apply to a statement that was
furnished electronically in the manner described in this paragraph (a)
before the date on which the withdrawal of consent takes effect.
(vi) Notice of termination. The recipient must be informed of the
conditions under which a furnisher will cease furnishing statements
electronically to the recipient.
(vii) Updating information. The recipient must be informed of the
procedures for updating the information needed by the furnisher to
contact the recipient. The furnisher must inform the recipient of any
change in the furnisher's contact information.
(viii) Hardware and software requirements. The recipient must be
provided with a description of the hardware and software required to
access, print, and retain the statement, and the date when the statement
will no longer be available on the Web site.
(4) Format. The electronic version of the statement must contain all
required information and comply with applicable revenue procedures
relating to substitute statements to recipients.
(5) Notice--(i) In general. If the statement is furnished on a Web
site, the furnisher must notify the recipient that the statement is
posted on a Web site. The notice may be delivered by mail, electronic
mail, or in person. The notice must provide instructions on how to
access and print the statement. The notice must include the following
statement in capital letters, ``IMPORTANT TAX RETURN DOCUMENT
AVAILABLE.'' If the notice is provided by electronic mail, the foregoing
statement must be on the subject line of the electronic mail.
(ii) Undeliverable electronic address. If an electronic notice
described in paragraph (a)(5)(i) of this section is returned as
undeliverable, and the correct electronic address cannot be obtained
from the furnisher's records or from the recipient, then the furnisher
must furnish the notice by mail or in person within 30 days after the
electronic notice is returned.
(iii) Corrected statements. If the furnisher has corrected a
recipient's statement that was furnished electronically, the furnisher
must furnish the corrected statement to the recipient electronically. If
the recipient's statement was furnished through a Web site posting and
the furnisher has corrected the statement, the furnisher must notify the
recipient that it has posted the corrected statement on the Web site
within 30 days of such posting in the manner described in paragraph
(a)(5)(i) of this section. The corrected statement or the notice must be
furnished by mail or in person if--
(A) An electronic notice of the Web site posting of an original
statement was returned as undeliverable; and
(B) The recipient has not provided a new e-mail address.
(6) Access period. Statements furnished on a Web site must be
retained on the Web site through October 15 of the year following the
calendar year to which the statements relate (or the
[[Page 479]]
first business day after such October 15, if October 15 falls on a
Saturday, Sunday, or legal holiday). The furnisher must maintain access
to corrected statements that are posted on the Web site through October
15 of the year following the calendar year to which the statements
relate (or the first business day after such October 15, if October 15
falls on a Saturday, Sunday, or legal holiday) or the date 90 days after
the corrected statements are posted, whichever is later.
(b) Paper statements after withdrawal of consent. If a recipient
withdraws consent to receive a statement electronically and the
withdrawal takes effect before the statement is furnished
electronically, a paper statement must be furnished. A paper statement
furnished after the statement due date under this paragraph (b) will be
considered timely if furnished within 30 days after the date the
withdrawal of consent is received by the furnisher.
(c) Effective date. This section applies to statements required to
be furnished after February 13, 2004. Paragraph (a)(6) of this section
also applies to statements required to be furnished after December 31,
2004.
[T.D. 9114, 69 FR 7570, Feb. 18, 2004]
Sec. 1.6050S-3 Information reporting for payments of interest
on qualified education loans.
(a) Information reporting requirement in general. Except as
otherwise provided in this section, any person engaged in a trade or
business that, in the course of that trade or business, receives from
any payor (as defined in paragraph (b)(2) of this section) interest
payments that aggregate $600 or more for any calendar year on one or
more qualified education loans (as defined in section 221(e)(1) and the
regulations thereunder) (a payee) must--
(1) File an information return, as described in paragraph (c) of
this section, with the Internal Revenue Service with respect to the
payor; and
(2) Furnish a statement, as described in paragraph (d) of this
section, to the payor.
(b) Definitions. The following definitions apply for purposes of
this section:
(1) Interest. Interest includes stated interest, loan origination
fees (other than fees for services), and capitalized interest as
described in the regulations under section 221. See paragraph (e)(1) of
this section for a special transitional rule relating to reporting of
loan origination fees and capitalized interest.
(2) Payor. Payor means the individual who is carried on the books
and records of the payee as the borrower on a qualified education loan.
If there are multiple borrowers, the principal borrower on the payee's
books and records is treated as the payor for purposes of section 6050S
and this section.
(c) Requirement to file return--(1) Form of return. A payee must
file an information return for the payor on Form 1098-E, ``Student Loan
Interest Statement.'' A payee may use a substitute for Form 1098-E if
the substitute form complies with the applicable revenue procedures
relating to substitute forms.
(2) Information included on return. A payee must include on Form
1098-E--
(i) The name, address, and taxpayer identification number (TIN) (as
defined in section 7701(a)(41)) of the payee;
(ii) The name, address, and TIN of the payor;
(iii) The aggregate amount of interest payments received during the
calendar year from the payor; and
(iv) Any other information required by Form 1098-E and its
instructions.
(3) Time and place for filing return--(i) In general. Except as
provided in paragraph (c)(3)(ii) of this section, the Form 1098-E must
be filed on or before February 28 (March 31 if filed electronically) of
the year following the calendar year in which interest payments were
received. A payee must file Form 1098-E with the Internal Revenue
Service according to the instructions to Form 1098-E.
(ii) Extensions of time. The Internal Revenue Service may grant a
payee an extension of time to file returns required in this section upon
a showing of good cause. See the instructions to Form 1098-E and
applicable revenue procedures for rules relating to extensions of time
to file.
(4) Use of magnetic media. See section 6011(e) and Sec. 301.6011-2
of this chapter for rules relating to the requirement to file Forms
1098-E on magnetic media.
(d) Requirement to furnish statement--(1) In general. A payee must
furnish a
[[Page 480]]
statement to each payor for whom it is required to file a Form 1098-E.
The statement must include--
(i) The information required under paragraph (c)(2) of this section.
An IRS truncated taxpayer identifying number (TTIN) may be used as the
TIN of the payor in lieu of the identifying number appearing on the
information return filed with the Internal Revenue Service. For
provisions relating to the use of TTINs, see Sec. 301.6109-4 of this
chapter (Procedure and Administration Regulations).
(ii) A legend that identifies the statement as important tax
information that is being furnished to the Internal Revenue Service;
(iii) Instructions that--
(A) State that, under section 221 and the regulations thereunder,
the payor may not be able to deduct the full amount of interest reported
on the statement;
(B) In the case of qualified education loans made before September
1, 2004, for which the payee does not report payments of interest other
than stated interest, state that the payor may be able to deduct
additional amounts (such as certain loan origination fees and
capitalized interest) not reported on the statement;
(C) State that the payor should refer to relevant Internal Revenue
Service forms and publications, and should not refer to the payee, for
explanations relating to the eligibility requirements for, and
calculation of, any allowable deduction for interest paid on a qualified
education loan; and
(D) Include the name, address, and phone number of the office or
department of the payee that is the information contact for the payee
that filed the Form 1098-E.
(2) Time and manner for furnishing statement--(i) In general. Except
as provided in paragraph (d)(2)(ii) of this section, a payee must
furnish the statement described in paragraph (d)(1) of this section to
the payor on or before January 31 of the year following the calendar
year in which payments of interest on a qualified education loan were
received. If mailed, the statement must be sent to the payor's last
known address. If furnished electronically, the statement must be
furnished in accordance with the applicable regulations.
(ii) Extensions of time. The Internal Revenue Service may grant a
payee an extension of time to furnish statements required in this
section upon a showing of good cause. See the instructions to Form 1098-
E and applicable revenue procedures for rules relating to extensions of
time to furnish statements.
(3) Copy of Form 1098-E. A payee may satisfy the requirement of this
paragraph (d) by furnishing either a copy of Form 1098-E and its
instructions or another document that contains all the information filed
with the Internal Revenue Service and the information required by
paragraph (d)(1) of this section if the document complies with
applicable revenue procedures relating to substitute statements.
(e) Special rules--(1) Transitional rule for reporting of loan
origination fees and capitalized interest--(i) Loans made before
September 1, 2004. For qualified education loans made before September
1, 2004, a payee is not required to report payments of loan origination
fees or capitalized interest or to take such payments into account in
determining the $600 amount for purposes of paragraph (a)(1) of this
section.
(ii) Loans made on or after September 1, 2004. For qualified
education loans made on or after September 1, 2004, a payee is required
to report payments of interest as described in Sec. 1.221-1(f). Under
Sec. 1.221-1(f), interest includes loan origination fees that represent
charges for the use or forbearance of money and capitalized interest.
Under this paragraph (e)(1)(ii), a payee shall take such payments of
interest into account in determining the $600 amount for purposes of
paragraph (a)(1) of this section. For purposes of this section and
section 6050S, interest (including capitalized interest and loan
origination fees) is treated as received, and is reportable, in the year
the interest is treated as paid under the allocation rules in Sec.
1.221-1(f)(3). See Sec. 1.221-1(f) for rules relating to capitalized
interest, and Sec. 1.221-1(f)(2)(ii) for rules relating to loan
origination fees, on qualified education loans.
[[Page 481]]
(2) Qualified education loan certification. If a loan is not
subsidized, guaranteed, financed, or is not otherwise treated as a
student loan under a program of the Federal, state, or local government
or an eligible educational institution, a payee must request a
certification from the payor that the loan will be used solely to pay
for qualified higher education expenses. A payee may use Form W-9S,
``Request for Student's or Borrower's Social Security Number and
Certification,'' to obtain the certification. A payee may establish an
electronic system for payors to submit Forms W-9S electronically as
described in applicable forms and instructions. A payee may also develop
a separate form to obtain the payor certification or may incorporate the
certification into other forms customarily used by the payee, such as
loan applications, provided the certification is clearly set forth. If
the certification is not received, the loan is not a qualified education
loan for purposes of section 6050S and this section.
(3) Payments of interest received or collected by one or more
persons--(i) In general. Except as otherwise provided in paragraph
(e)(3)(ii) of this section, if a person collects or receives payments of
interest on a qualified education loan on behalf of another person
(e.g., a lender), the person collecting or receiving the interest must
satisfy the information reporting requirements of this section. In this
case, the reporting requirements do not apply to the transfer of
interest to the other person.
(ii) Exception. If the person collecting or receiving payments of
interest on a qualified education loan on behalf of another person
(e.g., a lender) does not possess the information needed to comply with
the information reporting requirements of this section, the other person
must satisfy the information reporting requirements of this section.
(4) Reporting by foreign persons. A payee that is not a United
States person (as defined in section 7701(a)(30)) must report payments
of interest it receives on a qualified education loan only if it
receives the payment--
(i) At a location in the United States; or
(ii) At a location outside the United States if the payee is--
(A) A controlled foreign corporation (within the meaning of section
957(a)); or
(B) A person 50 percent or more of the gross income of which, from
all sources for the three-year period ending with the close of the
taxable year preceding the taxable year in which interest payments were
received (or for such part of the period as the person was in
existence), was effectively connected with the conduct of a trade or
business within the United States.
(5) Governmental units. A governmental unit, or an agency or
instrumentality of a governmental unit, that receives from any payor
interest payments that aggregate $600 or more for any calendar year on
one or more qualified education loans is a payee, without regard to the
requirement of paragraph (a) of this section that the interest be
received in the course of a trade or business.
(f) Penalty provisions--(1) Failure to file correct returns. The
section 6721 penalty may apply to a payee that fails to file information
returns required by section 6050S and this section on or before the
required filing date; that fails to include all of the required
information on the return; or that includes incorrect information on the
return. See section 6721, and the regulations thereunder, for rules
relating to penalties for failure to file correct returns. See section
6724, and the regulations thereunder, for rules relating to waivers of
penalties for certain failures due to reasonable cause.
(2) Failure to furnish correct information statements. The section
6722 penalty may apply to a payee that fails to furnish statements
required by section 6050S and this section on or before the prescribed
date; that fails to include all the required information on the
statement; or that includes incorrect information on the statement. See
section 6722, and the regulations thereunder, for rules relating to
penalties for failure to furnish correct statements. See section 6724,
and the regulations thereunder, for rules relating to waivers of
penalties for certain failures due to reasonable cause.
(3) Waiver of penalties for failures to include a correct TIN--(i)
In general. In the case of a failure to include a correct
[[Page 482]]
TIN on Form 1098-E or a related information statement, penalties may be
waived if the failure is due to reasonable cause. Reasonable cause may
be established if the failure arose from events beyond the payee's
control, such as a failure of the payor to furnish a correct TIN.
However, the payee must establish that it acted in a responsible manner
both before and after the failure.
(ii) Acting in a responsible manner. A payee must request the TIN of
each payor if it does not already have a record of the payor's correct
TIN. If the payee does not have a record of the payor's correct TIN,
then it must solicit the TIN in the manner described in paragraph
(f)(3)(iii) of this section on or before December 31 of each year during
which it receives payments of interest. If a payor refuses to provide
his or her TIN upon request, the payee must file the return and furnish
the statement required by this section without the payor's TIN, but with
all other required information. The specific solicitation requirements
of paragraph (f)(3)(iii) of this section apply in lieu of the
solicitation requirements of Sec. 301.6724-1(e) and (f) of this chapter
for the purpose of determining whether a payee acted in a responsible
manner in attempting to obtain a correct TIN. A payee that complies with
the requirements of this paragraph (f)(3) will be considered to have
acted in a responsible manner within the meaning of Sec. 301.6724-1(d)
of this chapter with respect to any failure to include the correct TIN
of a payor on a return or statement required by section 6050S and this
section.
(iii) Manner of soliciting TIN. A payee must request the payor's TIN
in writing and must clearly notify the payor that the law requires the
payor to furnish a TIN so that it may be included on an information
return filed by the payee. A request for a TIN made on Form W-9S,
``Request for Student's or Borrower's Social Security Number and
Certification,'' satisfies the requirements of this paragraph
(f)(3)(iii). A payee may establish a system for payors to submit Forms
W-9S electronically as described in applicable forms and instructions. A
payee may also develop a separate form to request the payor's TIN or
incorporate the request into other forms customarily used by the payee,
such as loan applications.
(4) Failure to furnish TIN. The section 6723 penalty may apply to
any payor who is required (but fails) to furnish his or her TIN to a
payee. See section 6723, and the regulations thereunder, for rules
relating to the penalty for failure to furnish a TIN.
(g) Effective/applicability date. The rules of this section apply to
information returns required to be filed, and payee statements required
to be furnished after December 31, 2014. For information returns
required to be filed, and payee statements required to be furnished
before January 1, 2015, Sec. 1.6050S-3 (as contained in 26 CFR part 1,
revised April 2013) shall apply.
[T.D. 8992, 67 FR 20904, Apr. 29, 2002, as amended by T.D. 9125, 69 FR
25499, May 7, 2004; T.D. 9675, 79 FR 41131, July 15, 2014]
Sec. 1.6050S-4 Information reporting for payments of interest
on qualified education loans.
(a) Electronic furnishing of statements--(1) In general. A person
required by section 6050S(d) to furnish a written statement regarding
payments of interest on qualified education loans (furnisher) to the
individual to whom it is required to be furnished (recipient) may
furnish the statement in an electronic format in lieu of a paper format.
A furnisher who meets the requirements of paragraphs (a)(2) through (6)
of this section is treated as furnishing the required statement.
(2) Consent--(i) In general. The recipient must have affirmatively
consented to receive the statement in an electronic format. The consent
may be made electronically in any manner that reasonably demonstrates
that the recipient can access the statement in the electronic format in
which it will be furnished to the recipient. Alternatively, the consent
may be made in a paper document if it is confirmed electronically.
(ii) Withdrawal of consent. The consent requirement of this
paragraph (a)(2) is not satisfied if the recipient withdraws the consent
and the withdrawal takes effect before the statement is furnished. The
furnisher may
[[Page 483]]
provide that a withdrawal of consent takes effect either on the date it
is received by the furnisher or on a subsequent date. The furnisher may
also provide that a request for a paper statement will be treated as a
withdrawal of consent.
(iii) Change in hardware or software requirements. If a change in
the hardware or software required to access the statement creates a
material risk that the recipient will not be able to access the
statement, the furnisher must, prior to changing the hardware or
software, provide the recipient with a notice. The notice must describe
the revised hardware and software required to access the statement and
inform the recipient that a new consent to receive the statement in the
revised electronic format must be provided to the furnisher. After
implementing the revised hardware and software, the furnisher must
obtain from the recipient, in the manner described in paragraph
(a)(2)(i) of this section, a new consent or confirmation of consent to
receive the statement electronically.
(iv) Examples. The following examples illustrate the rules of this
paragraph (a)(2):
Example 1. Furnisher F sends Recipient R a letter stating that R may
consent to receive statements required by section 6050S(d)
electronically on a Web site instead of in a paper format. The letter
contains instructions explaining how to consent to receive the
statements electronically by accessing the Web site, downloading the
consent document, completing the consent document and e-mailing the
completed consent back to F. The consent document posted on the Web site
uses the same electronic format that F will use for the electronically
furnished statements. R reads the instructions and submits the consent
in the manner provided in the instructions. R has consented to receive
the statements electronically in the manner described in paragraph
(a)(2)(i) of this section.
Example 2. Furnisher F sends Recipient R an e-mail stating that R
may consent to receive statements required by section 6050S(d)
electronically instead of in a paper format. The e-mail contains an
attachment instructing R how to consent to receive the statements
electronically. The e-mail attachment uses the same electronic format
that F will use for the electronically furnished statements. R opens the
attachment, reads the instructions, and submits the consent in the
manner provided in the instructions. R has consented to receive the
statements electronically in the manner described in paragraph (a)(2)(i)
of this section.
Example 3. Furnisher F posts a notice on its Web site stating that
Recipient R may receive statements required by section 6050S(d)
electronically instead of in a paper format. The Web site contains
instructions on how R may access a secure Web page and consent to
receive the statements electronically. By accessing the secure Web page
and giving consent, R has consented to receive the statements
electronically in the manner described in paragraph (a)(2)(i) of this
section.
(3) Required disclosures--(i) In general. Prior to, or at the time
of, a recipient's consent, the furnisher must provide to the recipient a
clear and conspicuous disclosure statement containing each of the
disclosures described in paragraphs (a)(3)(ii) through (viii) of this
section.
(ii) Paper statement. The recipient must be informed that the
statement will be furnished on paper if the recipient does not consent
to receive it electronically.
(iii) Scope and duration of consent. The recipient must be informed
of the scope and duration of the consent. For example, the recipient
must be informed whether the consent applies to statements furnished
every year after the consent is given until it is withdrawn in the
manner described in paragraph (a)(3)(v)(A) of this section or only to
the statement required to be furnished on or before the January 31
immediately following the date on which the consent is given.
(iv) Post-consent request for a paper statement. The recipient must
be informed of any procedure for obtaining a paper copy of the
recipient's statement after giving the consent described in paragraph
(a)(2)(i) of this section and whether a request for a paper statement
will be treated as a withdrawal of consent.
(v) Withdrawal of consent. The recipient must be informed that--
(A) The recipient may withdraw a consent by writing (electronically
or on paper) to the person or department whose name, mailing address,
telephone number, and e-mail address is provided in the disclosure
statement;
(B) The furnisher will confirm the withdrawal and the date on which
it
[[Page 484]]
takes effect in writing (either electronically or on paper); and
(C) A withdrawal of consent does not apply to a statement that was
furnished electronically in the manner described in this paragraph (a)
before the date on which the withdrawal of consent takes effect.
(vi) Notice of termination. The recipient must be informed of the
conditions under which a furnisher will cease furnishing statements
electronically to the recipient.
(vii) Updating information. The recipient must be informed of the
procedures for updating the information needed by the furnisher to
contact the recipient. The furnisher must inform the recipient of any
change in the furnisher's contact information.
(viii) Hardware and software requirements. The recipient must be
provided with a description of the hardware and software required to
access, print, and retain the statement, and the date when the statement
will no longer be available on the Web site.
(4) Format. The electronic version of the statement must contain all
required information and comply with applicable revenue procedures
relating to substitute statements to recipients.
(5) Notice--(i) In general. If the statement is furnished on a Web
site, the furnisher must notify the recipient that the statement is
posted on a Web site. The notice may be delivered by mail, electronic
mail, or in person. The notice must provide instructions on how to
access and print the statement. The notice must include the following
statement in capital letters, ``IMPORTANT TAX RETURN DOCUMENT
AVAILABLE.'' If the notice is provided by electronic mail, the foregoing
statement must be on the subject line of the electronic mail.
(ii) Undeliverable electronic address. If an electronic notice
described in paragraph (a)(5)(i) of this section is returned as
undeliverable, and the correct electronic address cannot be obtained
from the furnisher's records or from the recipient, then the furnisher
must furnish the notice by mail or in person within 30 days after the
electronic notice is returned.
(iii) Corrected statements. If the furnisher has corrected a
recipient's statement that was furnished electronically, the furnisher
must furnish the corrected statement to the recipient electronically. If
the recipient's statement was furnished though a Web site posting and
the furnisher has corrected the statement, the furnisher must notify the
recipient that it has posted the corrected statement on the Web site
within 30 days of such posting in the manner described in paragraph
(a)(5)(i) of this section. The corrected statement or the notice must be
furnished by mail or in person if--
(A) An electronic notice of the Web site posting of an original
statement or the corrected statement was returned as undeliverable; and
(B) The recipient has not provided a new e-mail address.
(6) Access period. Statements furnished on a Web site must be
retained on the Web site through October 15 of the year following the
calendar year to which the statements relate (or the first business day
after such October 15, if October 15 falls on a Saturday, Sunday, or
legal holiday). The furnisher must maintain access to corrected
statements that are posted on the Web site through October 15 of the
year following the calendar year to which the statements relate (or the
first business day after such October 15, if October 15 falls on a
Saturday, Sunday, or legal holiday) or the date 90 days after the
corrected statements are posted, whichever is later.
(b) Effective date. This section applies to statements required to
be furnished after February 13, 2004. Paragraph (a)(6) of this section
also applies to statements required to be furnished after December 31,
2003.
[T.D. 9114, 69 FR 7570, Feb. 18, 2004]
Sec. 1.6050W-1 Information reporting for payments made in settlement
of payment card and third party network transactions.
(a) In general--(1) General rule. Every payment settlement entity,
as defined in paragraph (a)(4) of this section, must file an information
return for each calendar year with respect to payments made in
settlement of reportable payment transactions, as defined in paragraph
(a)(3) of this section, setting forth the following information:
[[Page 485]]
(i) The name, address, and taxpayer identification number (TIN) of
each participating payee, as defined in paragraph (a)(5) of this
section, to whom one or more payments in settlement of reportable
payment transactions are made.
(ii) With respect to each participating payee, the gross amount, as
defined in paragraph (a)(6) of this section, of--
(A) The aggregate reportable payment transactions for the calendar
year; and
(B) The aggregate reportable payment transactions for each month of
the calendar year.
(iii) Any other information required by the form, instructions or
current revenue procedures.
(2) Payments in settlement of reportable payment transactions. A
payment settlement entity, as defined in paragraph (a)(4) of this
section (or an electronic payment facilitator, as defined in paragraph
(d)(2) of this section), makes a payment in settlement of a reportable
payment transaction if the payment settlement entity (or electronic
payment facilitator) submits the instruction to transfer funds to the
account of the participating payee for purposes of settling the
reportable payment transaction.
(3) Reportable payment transaction. The term reportable payment
transaction means any payment card transaction (as defined in paragraph
(b)(1) of this section) and any third party network transaction (as
defined in paragraph (c)(1) of this section).
(4) Payment settlement entity--(i) Definition. The term payment
settlement entity means a domestic or foreign entity that is--
(A) In the case of a payment card transaction, a merchant acquiring
entity (as defined in paragraph (b)(2) of this section); and
(B) In the case of a third party network transaction, a third party
settlement organization (as defined in paragraph (c)(2) of this
section).
(ii) Multiple payment settlement entities. If two or more persons
qualify as payment settlement entities (as defined in paragraph
(a)(4)(i) of this section) with respect to a reportable payment
transaction, then only the payment settlement entity that in fact makes
payment in settlement of the reportable payment transaction must file
the information return required by paragraph (a)(1) of this section.
(5) Participating payee--(i) Definition. In general, the term
participating payee means any person, including any governmental unit
(and any agency or instrumentality thereof), who:
(A) In the case of a payment card transaction, accepts a payment
card (as defined in paragraph (b)(3) of this section) as payment; and
(B) In the case of a third party network transaction, accepts
payment from a third party settlement organization (as defined in
paragraph (c)(2) of this section) in settlement of such transaction.
(ii) Foreign payees--(A) In general. For payments pursuant to
contractual obligations entered into after December 31, 2010, a payment
settlement entity that is a person described as a U.S. payor or U.S.
middleman in Sec. 1.6049-5(c)(5) is not required to make a return of
information for payments to a participating payee with a foreign address
as long as, prior to payment, the payment settlement entity has in its
files documentation upon which the payment settlement entity may rely to
treat the payment as made to a foreign person in accordance with Sec.
1.1441-1(e)(1)(ii). For purposes of this paragraph (a)(5)(ii), the
provisions of Sec. 1.1441-1 shall apply by substituting the term payor
for the term withholding agent and without regard to the limitation to
amounts subject to withholding under chapter 3 of the Internal Revenue
Code and the regulations under that chapter. Such a payment settlement
entity need not make a return of information for payments made outside
the United States (within the meaning of Sec. 1.6049-5(e)) to an
offshore account (as defined in Sec. 1.6049-5(c)(1)) to a participating
payee with only a foreign address if the name of the participating payee
indicates that it is an entity listed as a per se corporation under
Sec. 301.7701-2(b)(8)(i) and the payment settlement entity does not
know or have reason to know that the participating payee is a United
States person. A payment settlement entity may apply the grace period
rules of Sec. 1.6049-5(d)(2)(ii) of the
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regulations for payments to a participating payee with only a foreign
address, without regard to whether the amounts paid are described in
Sec. 1.1441-6(c)(2) or are reportable under section 6042, 6045, 6049,
or 6050N. For payments pursuant to contractual obligations entered into
before January 1, 2011, a payment settlement entity that is a person
described as a U.S. payor or U.S. middleman in Sec. 1.6049-5(c)(5) is
not required to make a return of information for payments to a
participating payee with a foreign address as long as the payment
settlement entity neither knows nor has reason to know that the
participating payee is a United States person. For this purpose, a
renewal of such a contractual obligation will not result in a new
contractual obligation unless there is a material modification to the
contractual obligation.
(B) Non-U.S. payor or middleman. A payment settlement entity that is
not a person described as a U.S. payor or U.S middleman in Sec. 1.6049-
5(c)(5) is not required to make a return of information for a payment to
a participating payee that does not have a United States address as long
as the payment settlement entity neither knows nor has reason to know
that the participating payee is a United States person. If the
participating payee has any United States address, the payment
settlement entity may treat the participating payee as a foreign person
only if the payment settlement entity has in its files documentation
upon which the payment settlement entity may rely to treat the payment
as made to a foreign person in accordance with Sec. 1.1441-1(e)(1)(ii).
(C) Foreign address; United States address. For purposes of this
section, foreign address means any address that is not within the United
States, as defined in section 7701(a)(9) of the Internal Revenue Code
(the States and the District of Columbia). United States address means
any address that is within the United States.
(6) Gross amount. For purposes of this section, gross amount means
the total dollar amount of aggregate reportable payment transactions for
each participating payee without regard to any adjustments for credits,
cash equivalents, discount amounts, fees, refunded amounts or any other
amounts. The dollar amount of each transaction is determined on the date
of the transaction.
(b) Payment card transactions--(1) Definition. The term payment card
transaction means any transaction in which a payment card, or any
account number or other indicia associated with a payment card, is
accepted as payment.
(2) Merchant acquiring entity. The term merchant acquiring entity
means the bank or other organization that has the contractual obligation
to make payment to participating payees (as defined in paragraph
(a)(5)(i)(A) of this section) in settlement of payment card
transactions.
(3) Payment card--(i) The term payment card means any card,
including any stored-value card as defined in paragraph (b)(4) of this
section, issued pursuant to an agreement or arrangement that provides
for--
(A) One or more issuers of such cards;
(B) A network of persons unrelated to each other, and to the issuer,
who agree to accept such cards as payment; and
(C) Standards and mechanisms for settling the transactions between
the merchant acquiring entities and the persons who agree to accept the
cards as payment.
(ii) Persons who agree to accept such cards as payment as described
in this paragraph (b)(3) are participating payees within the meaning of
paragraph (a)(5)(i)(A) of this section.
(4) Stored-value cards. The term stored-value card means any card
with a prepaid value, including any gift card.
(5) Transactions for which no return of information is required
under section 6050W--(i) Withdrawals and cash advances. The use of a
``payment card'' as defined in paragraph (b)(3) of this section by a
cardholder to withdraw funds at an automated teller machine, or to
obtain a cash advance or loan against the cardholder's account, is not a
payment card transaction under paragraph (b)(1) of this section because
the card is not being accepted as payment by a merchant or other payee.
(ii) Convenience checks. The acceptance of a check issued in
connection with a payment card account by a merchant or other payee is
not a payment
[[Page 487]]
card transaction under paragraph (b)(1) of this section because the
check is accepted and processed through the banking system in the same
manner as a traditional check, not as a payment card.
(iii) Payee related to issuer. No return of information is required
under this section for any transaction in which a payment card within
the meaning of paragraph (b)(3) is accepted as payment by a merchant or
other payee who is related to the issuer of the payment card.
(c) Third party network transactions--(1) Definition. The term third
party network transaction means any transaction that is settled through
a third party payment network.
(2) Third party settlement organization. The term third party
settlement organization means the central organization that has the
contractual obligation to make payments to participating payees (as
defined in paragraph (a)(5)(i)(B) of this section) of third party
network transactions. A central organization is a third party settlement
organization if it provides a third party payment network (as defined in
paragraph (c)(3)(i) of this section) that enables purchasers to transfer
funds to providers of goods and services.
(3) Third party payment network. (i) The term third party payment
network means any agreement or arrangement that--
(A) Involves the establishment of accounts with a central
organization by a substantial number of providers of goods or services
who are unrelated to the organization and who have agreed to settle
transactions for the provision of the goods or services to purchasers
according to the terms of the agreement or arrangement;
(B) Provides standards and mechanisms for settling the transactions;
and
(C) Guarantees payment to the persons providing goods or services in
settlement of transactions with purchasers pursuant to the agreement or
arrangement.
(ii) A third party payment network does not include any agreement or
arrangement that provides for the issuance of payment cards.
(iii) Persons who are providers of goods and services as described
in this paragraph (c)(3) are participating payees within the meaning of
paragraph (a)(5)(i)(B) of this section.
(4) Exception for de minimis payments. A third party settlement
organization is required to report any information under paragraph
(a)(1) of this section with respect to third party network transactions
of any participating payee only if--
(i) The amount that would otherwise be reported under paragraph
(a)(1)(ii) of this section with respect to such transactions exceeds
$20,000; and
(ii) The aggregate number of such transactions exceeds 200.
(d) Special rules--(1) Aggregated payees. If a person receives
payments from a payment settlement entity (as defined in paragraph
(a)(4) of this section) on behalf of one or more participating payees
and distributes such payments to one or more participating payees (as
defined in paragraph (a)(5) of this section), the person is treated as:
(i) The participating payee with respect to the payment settlement
entity; and
(ii) The payment settlement entity with respect to the participating
payees to whom the person distributes payments.
(2) Electronic payment facilitator. If a payment settlement entity
(as defined in paragraph (a)(4) of this section) contracts with an
electronic payment facilitator or other third party to make payments in
settlement of reportable payment transactions on behalf of the payment
settlement entity, the facilitator must file the annual information
return under this section in lieu of the payment settlement entity. The
facilitator need not have any agreement or arrangement with the
participating payee. Also, the payment need not come from the
facilitator's account. The facilitator need only submit instructions to
transfer funds to the account of the participating payee in settlement
of the reportable payment transaction. The facilitator is liable for any
applicable penalties for failure to comply with the information
reporting requirements of section 6050W.
[[Page 488]]
(3) Designations. The party with the obligation to file the annual
information return under this section may designate by written agreement
any other person to satisfy the requirements of this section. Thus,
notwithstanding the rule in paragraph (d)(2) of this section imposing
the obligation to file the annual information return on the electronic
payment facilitator in lieu of the payment settlement entity, the
payment settlement entity may file the information return by designation
if the parties agree in writing. However, a designation does not relieve
the party with the reporting obligation from liability for any reporting
failures. The party with the obligation to file the annual information
return under this section remains liable for any applicable penalties
under sections 6721 and 6722 if the requirements of this section are not
satisfied.
(4) Conversion into United States dollars of amounts paid in foreign
currency. When a payment is made or received in a foreign currency, the
U.S. dollar amount shall be determined by converting such foreign
currency into U.S. dollars on the date of the transaction at the spot
rate (as defined in Sec. 1.988-1(d)(1)) or pursuant to a reasonable
spot rate convention. For example, a payor may use a month-end spot rate
or a monthly average spot rate. A spot rate convention must be used
consistently with respect to all non-dollar amounts reported and from
year to year. Such convention cannot be changed without the consent of
the Commissioner or his or her delegate.
(5) Unrelated persons. For purposes of this section, unrelated means
any person who is not related to another person within the meaning of
section 267(b) (providing a list of relationships), including the
application of section 267(c) and (e)(3) (providing rules relating to
constructive ownership), and section 707(b)(1) (relationships with
partnerships).
(e) Examples. The following examples illustrate the provisions of
this section:
Example 1. Merchant acquiring entity. Customer A purchases goods
from merchant B using a credit card issued by Bank X. B is one of a
network of unrelated persons that has agreed to accept credit cards
issued by X as payment under an agreement that provides standards and
mechanisms for settling the transaction between a merchant acquiring
bank and the persons who accept the cards. Bank Z is the merchant
acquiring bank with the contractual obligation to make payment to B for
goods provided to A in this transaction. As defined in paragraph (b)(2)
of this section, Z is the merchant acquiring entity that must file the
annual information return required under paragraph (a)(1) of this
section to report the payment made to settle the transaction for the
sale of goods from B to A.
Example 2. Third party settlement organization. (i) Merchant B is
one of a substantial number of persons selling goods or services over
the Internet that have an account with X, an Internet payment service
provider. None of these persons, including B, are related to X, and all
have agreed to settle transactions for the sale of goods or services to
customers according to the terms of their contracts with X. X has
guaranteed payment to all of these persons, including B, for the sale of
goods or services to customers. Customer A purchases goods from B. A
pays X for the goods purchased from B. X, in turn, makes payment to B in
settlement of the transaction for the sale of goods from B to A.
(ii) X's arrangement constitutes a third party payment network as
defined in paragraph (c)(3) of this section because a substantial number
of persons that are unrelated to X, including B, have established
accounts with X, and X is contractually obligated to settle transactions
for the provision of goods or services by these persons to purchasers.
Thus, under paragraph (c)(2) of this section, X is a third party
settlement organization and the transaction discussed in this Example is
a third party network transaction under paragraph (c)(1) of this
section. Therefore, X must file the annual information return required
under paragraph (a)(1) of this section to report the payment made to B
in settlement of the transaction with A provided that X's aggregate
payments to B from third party network transactions exceed $20,000 and
the aggregate number of X's transactions with B exceeds 200 (as provided
in paragraph (c)(4) of this section).
Example 3. Automated clearinghouse network. A operates an automated
clearinghouse (``ACH'') network that merely processes electronic
payments (such as wire transfers, electronic checks, and direct deposit
payments) between buyers and sellers. There are no contractual
agreements between A and the sellers for the purpose of permitting the
sellers to use the ACH network. Thus, A is not a third party settlement
organization under paragraph (c)(2) of this section, the ACH network is
not a third party payment
[[Page 489]]
network under paragraph (c)(3) of this section, and the electronic
payment transactions are not third party network transactions under
paragraph (c)(1) of this section. A is not required to file the annual
information return required under paragraph (a)(1) of this section.
Example 4. ACH processor. B provides a variety of ACH payment
processing services to a large number of merchants, such as converting
checks received in payment of bills into ACH transactions. B groups
payment transactions into an ACH file and transmits the ACH file into
the ACH network on behalf of merchants in order to initiate payment to
merchants through the ACH network. B makes payments to the merchants
after the ACH network verifies that the customers' accounts have
sufficient funds. Because the ACH network is not a third party payment
network under paragraph (c)(3) of this section, B cannot be a third
party settlement organization with respect to the ACH network.
Similarly, because the ACH itself is not a third party settlement
organization under paragraph (c)(2) of this section, B cannot be an
electronic payment facilitator because B is not acting on behalf of a
payment settlement entity. However, B may itself be operating third
party payment network under paragraph (c)(3) of this section if B has a
separate agreement or arrangement that: involves the establishment of
accounts with B by a substantial number of unrelated merchants who
provide goods or services and have agreed to settle transactions for the
provision of the goods or services pursuant to the agreement or
arrangement; provides for standards and mechanisms for settling the
transactions; and guarantees persons providing goods or services
pursuant to such agreement or arrangement that these persons will be
paid for providing such goods or services.
Example 5. Gross amount. On Day 1, Customer A uses a payment card to
purchase $100 worth of goods from merchant B. Bank X, the merchant
acquiring entity for B, is the party with the contractual obligation to
make payment to B in settlement of the transaction. On Day 2, X, after
deducting fees of $2, makes payment of $98 to settle the transaction for
the sale of goods from B to A. Under paragraph (a)(6) of this section, X
must report the amount of $100, the amount of the transaction on Day 1,
without any reduction for fees or any other amount, as the gross amount
of this reportable payment transaction on the annual information return
filed under paragraph (a)(1) of this section.
Example 6. Gift card. (i) Customer A purchases a gift card from
Merchant X that may be used only at X and its related network of stores.
A purchases the gift card using cash. A gives the gift card to B. B uses
the gift card to purchase goods at one of X's stores. The purchase of
the gift card by A using cash is not a payment card transaction
described in paragraph (b)(1) of this section and, thus, is not required
to be reported in a return of information required under paragraph
(a)(1) of this section. Under paragraph (b)(3) of this section, the gift
card is not a payment card because the gift card is only accepted as
payment by persons who are related to the issuer of the gift card and to
each other. Therefore, the use of the gift card by B is not required to
be reported in a return of information required under paragraph (a)(1)
of this section.
(ii) The facts are the same as in paragraph (i), except that B adds
value to the gift card using a credit card. The use of the credit card
to add value to the gift card is a reportable payment transaction (as
defined in paragraph (a)(3) of this section) and must be reported in a
return of information under this section by the bank or other
organization that has the contractual obligation to make payment to X in
settlement of the transaction.
Example 7. Private label card. Bank B issues a card imprinted with
Retailer C's logo to cardholder A. The ``C-card'' is accepted as payment
only at C or at stores related (within the meaning of section 267(b),
(c) and (e)(3) and, section 707(b)(1)) to C. A uses the card at C to
purchase electronics equipment. Under paragraph (b)(3) of this section,
the C-card is not a payment card because the card is accepted as payment
only within a network of persons who are related to each other.
Therefore, the use of the card by A at C is not required to be reported
in a return of information required under paragraph (a)(1) of this
section.
Example 8. Quasi-private label card. Bank B issues a card to
cardholder A. The card, known as an ``E-card,'' is issued by B pursuant
to an agreement that provides that the E-card is accepted as payment
only within a limited network of merchants that carry electronics
equipment. The agreement provides for standards and mechanisms for
settling the transactions between the merchants and the merchant
acquiring entities. The merchants accepting the E-card as payment are
not related (within the meaning of section 267(b), (c) and (e)(3) and
section 707(b)(1)) to each other or to B. A uses the card to purchase
electronics equipment at F Store, one of the stores within the network
of merchants accepting the E-card. Under paragraph (b)(3) of this
section, the E-card is a payment card because the card is issued
pursuant to an agreement that provides for a network of persons
unrelated to each other, and to the issuer, who agree to accept the card
as payment. Therefore, the use of the E-card by A to purchase
electronics equipment at F Store must be reported in a return of
information required under paragraph (a)(1) of this section.
[[Page 490]]
Example 9. Campus card. (i) University Y issues Student A a card
that may be used on campus at various university-owned merchants and at
various local merchants unrelated to Y. A uses the card in the
university-owned cafeteria to purchase lunch. Under paragraph
(b)(5)(iii) of this section, no return of information is required
because the card is being accepted as payment by a person who is related
to the issuer of the card.
(ii) The facts are the same as in paragraph (i), except that A uses
the campus card to purchase lunch at a local restaurant, unrelated to Y,
that has agreed to accept the campus card as payment. Under paragraph
(b)(3) of this section, the campus card is a payment card in this
transaction because the card is accepted as payment by a person that is
unrelated to this issuer of the card pursuant to an agreement.
Therefore, the use of the card by A in the local restaurant for the
purchase of lunch must be reported in a return of information required
under paragraph (a)(1) of this section by the bank or other organization
that has the contractual obligation to make payment to the restaurant in
settlement of the transaction.
Example 10. Mall card. Customer B purchases a card that is issued by
shopping mall A. Pursuant to an agreement or arrangement, the card is
accepted as payment by various merchants located within the mall, who
are unrelated to the issuer of the card and to each other. B uses the
card in the mall to purchase goods from merchant C. Under paragraph
(b)(3) of this section, the mall card is a payment card because the card
is accepted as payment by a network of persons who are unrelated to the
issuer of the card and to the other merchants who have agreed to accept
the card as payment. Therefore, the use of the mall card by B to
purchase goods from merchant C is required to be reported in a return of
information required under paragraph (a)(1) of this section.
Example 11. Electronic benefit transactions card. Government Agency
A issues benefits electronically to recipients by loading these benefits
onto a payment card. Pursuant to an agreement, a network of merchants
unrelated to A, and to each other, has agreed to accept the benefits
card as payment. A issues a card to B, who uses the card to purchase
goods from Merchant C. The card issued by A is a payment card (as
defined in paragraph (b)(3) of this section) because the card is
accepted as payment by a network of persons that are unrelated to the
issuer of the card, and to each other.
The use of the card by B to purchase goods from C must be reported
in a return of information required under paragraph (a)(1) of this
section.
Example 12. Prepaid telephone card. A purchases a prepaid telephone
card from Company X that may be used to make telephone calls using
various long-distance providers unrelated to X that have agreed to
accept the card as payment. A places a telephone call using the prepaid
card as payment for the telephone call. Under paragraph (b)(3) of this
section, the prepaid telephone card is a payment card because the card
is accepted as payment by a person that is unrelated to the issuer of
the card pursuant to an agreement. Therefore, the use of the prepaid
card to make payment for the telephone call must be reported in a return
of information required under paragraph (a)(1) of this section by the
bank or other organization that has the contractual obligation to make
payment to the long distance provider in settlement of the transaction.
Example 13. Transit card. City Z accepts a transit card as payment
for use of its mass transit system. The transit card is issued by B, an
organization unrelated to Z. A network of persons, including Z, who are
unrelated to each other and to B, have agreed to accept the transit card
issued by B as payment for transit and for other goods and services.
Transit rider X purchases a transit card and uses the card to pay for
travel on Z's mass transit system. Under paragraph (b)(3) of this
section, the transit card is a payment card because the card is accepted
as payment by a person who is one of a network of persons that are
unrelated to the issuer of the card, and to each other, and that have
agreed to accept the card as payment. Therefore, the use of the transit
card by X to pay for transit on Z's mass transit system is a payment
card transaction described in paragraph (b)(1) of this section that must
be reported in a return of information required under paragraph (a)(1)
of this section by the bank or other organization that has the
contractual obligation to make payment to Z. Z is the participating
payee, described in paragraph (a)(5)(i)(A) of this section, of the
payment card transaction.
Example 14. Cash advance. Bank A issues Cardholder B a credit card
that is a payment card under paragraph (b)(3) of this section. B uses
the card at a local bank to obtain a cash advance. Under paragraph
(b)(5)(i) of this section, B's use of the payment card to obtain a cash
advance is not a payment card transaction (as defined in paragraph
(b)(1) of this section) because the card is not being accepted as
payment by a merchant.
Example 15. Withdrawals from automated teller machines. Bank A
issues Cardholder B a credit card that is a payment card under paragraph
(b)(3) of this section. B uses the card at an automated teller machine
to obtain cash. Under paragraph (b)(5)(i) of this section, B's use of
the payment card to obtain cash is not a payment card transaction (as
defined in paragraph (b)(1) of this section) because the card is not
being accepted as payment by a merchant.
Example 16. Convenience checks. Bank A issues Cardholder B a credit
card that is a
[[Page 491]]
payment card under paragraph (b)(3) of this section. A sends B paper
checks imprinted with the account number associated with the credit
card. B uses one of the checks to purchase goods from Merchant S. The
check is accepted by S and processed through the bank system in the same
manner as a traditional check. Under paragraph (b)(5)(ii) of this
section, B's use of the convenience check to purchase goods is not a
payment card transaction (as defined in paragraph (b)(1) of this
section) because the check is accepted and processed as a traditional
check, not as a payment card.
Example 17. Healthcare network. Health carrier A operates healthcare
network Y. A collects premiums from covered persons pursuant to a plan
agreement between A and the covered persons for the cost of membership
in Y. Separately, A pays healthcare providers pursuant to provider
agreements to compensate these providers for services rendered to
covered persons who are members of Y. A is not a third party settlement
organization under paragraph (c)(2) of this section because A does not
operate a third party payment network that enables purchasers to
transfer funds to providers of goods and services. Therefore, A is not
required to file the annual information return required under paragraph
(a)(1) of this section.
Example 18. Third party accounts payable. X is a ``shared-service''
organization that performs accounts payable services for numerous
purchasers that are unrelated to X. A substantial number of providers of
goods and services have established accounts with X and have agreed to
accept payment from X in settlement of their transactions with
purchasers. The provider agreement with X includes standards and
mechanisms for settling the transactions and guarantees payment to the
providers, and the arrangement enables purchasers to transfer funds to
providers. Under paragraph (c)(3) of this section, X's accounts payable
services constitute a third party payment network, of which X is the
third party settlement organization (as defined in paragraph (c)(2) of
this section). For each payee, X must file the annual information return
required under paragraph (a)(1) of this section to report payments made
by X in settlement of accounts payable to that payee if X's aggregate
payments to that payee exceed $20,000 and the aggregate number of
transactions with that payee exceeds 200 (as provided in paragraph
(c)(4) of this section).
Example 19. Toll collection network. State A charges a toll to
vehicles that travel its state highways. The tolling agency for A
contracted with organization X to perform its toll collection. X
provides an electronic toll collection system that allows the toll
facility to record the passage of a vehicle with a transponder affixed
to the vehicle. The customer account associated with the transponder is
automatically debited for the amount of the toll. The customer funds a
balance in the account, which is then depleted as the toll transactions
occur. X periodically bills the customer to replenish the account. X
then makes payment to A to settle the toll transactions that are
recorded by the transponder. X also contracts with a substantial number
of other entities unrelated to X that have established accounts with X
and have agreed to accept payment using the electronic toll collection
system provided by X. X guarantees payment to the entities for all toll
transactions that are recorded by the transponders, and the arrangement
enables customers to transfer funds to State A and other entities that
charge tolls. Under paragraph (c)(3) of this section, X's electronic
toll collection system constitutes a third party payment network, of
which X is the third party settlement organization (as defined in
paragraph (c)(2) of this section). For each payee, including A, X must
file the annual information return required under paragraph (a)(1) of
this section to report payments made by X in settlement of toll
transactions if X's aggregate payments to that payee exceed $20,000 and
the aggregate number of transactions with that payee exceeds 200 (as
provided in paragraph (c)(4) of this section).
Example 20. Hotel kiosk. Under a ``hotel kiosk'' arrangement, Hotel
B permits its customers to charge, to their room account, transactions
for goods and services at a substantial number of sellers unrelated to B
that operate on B's premises, or on the premises of hotels related to B,
and that have established accounts in B's hotel kiosk system. Customers
settle their room account with B when they check out, and B in turn
settles the hotel kiosk transactions with the unrelated sellers. B
guarantees payment to the sellers for these transactions and the
arrangement enables customers to transfer funds to the sellers by means
of one payment made to the hotel. Under paragraph (c)(3) of this
section, B's hotel kiosk system constitutes a third party payment
network, of which B is the third party settlement organization (as
defined in paragraph (c)(2) of this section). For each payee, B must
file the annual information return required under paragraph (a)(1) of
this section to report payments made by B in settlement of the hotel
kiosk transactions if B's aggregate payments to that payee exceed
$20,000 and the aggregate number of transactions with that payee exceeds
200 (as provided in paragraph (c)(4) of this section).
Example 21. Aggregated payee. Corporation A, acting on behalf of A's
independently-owned franchise stores, receives payment from Bank X for
credit card sales effectuated at these franchise stores. X, the payment
settlement entity (as defined in paragraph (a)(4)(i) of this section),
is required under
[[Page 492]]
paragraph (d)(1)(i) of this section to report the gross amount of the
reportable payment transactions distributed to A (notwithstanding the
fact that A does not accept payment cards and would not otherwise be
treated as a participating payee). In turn, under paragraph (d)(1)(ii)
of this section, A is required to report the gross amount of the
reportable payment transactions allocable to each franchise store. X has
no reporting obligation under this section with respect to payments made
by A to its franchise stores.
Example 22. Electronic payment facilitator. (i) Bank A is a merchant
acquiring entity (as defined in paragraph (b)(2) of this section) with
the contractual obligation to make payments to participating merchants
to settle certain credit card transactions. A enters into a contract
with Processor X. Pursuant to this contract, X prepares and submits
instructions to move funds from A's account to the accounts of
participating merchants to settle credit card transactions. X is making
payment on A's behalf in settlement of payment card transactions
pursuant to a contract between X and A. Therefore, under paragraph
(d)(2) of this section, X is an electronic payment facilitator and must
file the information return required under paragraph (a)(1) of this
section with respect to credit card transactions settled by X. A has no
reporting obligation with respect to payments made by X on A's behalf.
(ii) The facts are the same as in paragraph (i) except that A and X
state in their contract that A will file the information return required
under paragraph (a)(1) of this section. A may file the information
return pursuant to this designation. However, X is liable for any
applicable penalties under sections 6721 and 6722 if the reporting
requirements of this section are not satisfied.
(iii) The facts are the same as in paragraph (i) except that X
merely prepares the instructions to move the funds to the accounts of
participating merchants, and the instructions are actually submitted by
A. A, not X, is making payment in settlement of payment card
transactions. Therefore, A retains the obligation to file the
information return required under paragraph (a)(1) of this section with
respect to credit card transactions settled by A.
(f) Prescribed form. The return required by paragraph (a)(1) of this
section must be made according to the forms and instructions published
by the Internal Revenue Service.
(g) Time and place for filing. Returns made under this section for
any calendar year must be filed on or before February 28th (March 31st
if filing electronically) of the following year at the Internal Revenue
Service Center location designated in the instructions to the relevant
form.
(h) Time and place for furnishing statement--(1) In general. Every
payment settlement entity required to file a return under this section
must also furnish to each participating payee a written statement with
the same information (as described in paragraph (h)(2) of this section).
The statement must be furnished to the payee on or before January 31st
of the year following the calendar year in which the reportable payment
is made. If the return of information is not made on magnetic media,
this requirement may be satisfied by furnishing to such person a copy of
all Forms 1099-K, ``Merchant card and third-party payments,'' or any
successor form with respect to such person filed with the Internal
Revenue Service Center. The statement will be considered furnished to
the payee if it is mailed to the payee's last known address. The payment
settlement entity may furnish the statement electronically in accordance
with the rules provided in Sec. 1.6050W-2.
(2) Information to be shown on statement furnished to payee. Each
written statement furnished under paragraph (h)(1) of this section must
include the following information--
(i) The name, address, and phone number (or email address if the
statement is furnished electronically) of the information contact of the
payment settlement entity.
(ii) With respect to the participating payee, the gross amount of--
(A) The aggregate reportable payment transactions for the calendar
year; and
(B) The aggregate reportable payment transactions for each month of
the calendar year.
(iii) Any other information required by the form, instructions, or
current revenue procedures.
(i) Cross-reference to penalties. For provisions relating to the
penalty for failure to file timely a correct information return required
under section 6050W, see section 6721 and the associated regulations.
For provisions relating to the penalty for failure to furnish
[[Page 493]]
timely a correct payee statement required under section 6050W(f), see
section 6722 and the associated regulations. See section 6724 and the
associated regulations for the waiver of a penalty if failure is due to
reasonable cause and is not due to willful neglect.
(j) Effective/applicability date. The rules in this section apply to
returns for calendar years beginning after December 31, 2010.
[T.D. 9496, 75 FR 49828, Aug. 16, 2010]
Sec. 1.6050W-2 Electronic furnishing of information statements for
payments made in settlement of payment card and third party network
transactions.
(a) Electronic furnishing of statements--(1) In general. A person
required by section 6050W to furnish a written statement (furnisher)
regarding payments made in settlement of payment card and third party
network transactions to the person to whom it is required to be
furnished (recipient) may furnish the statement in an electronic format
in lieu of a paper format. A furnisher who meets the requirements of
paragraphs (a)(2) through (a)(5) of this section is treated as
furnishing the required statement.
(2) Consent--(i) In general. The recipient must have affirmatively
consented to receive the statement required under section 6050W in an
electronic format or, in the alternative, have previously consented to
receive other federal tax statements in an electronic format from the
furnisher. The consent may be made electronically in any manner that
reasonably demonstrates that the recipient can access the statement in
the electronic format in which it will be furnished to the recipient.
Alternatively, the consent may be made in a paper document if it is
confirmed electronically. Consents must be kept at all times available
for inspection by the Internal Revenue Service. Recipients currently
receiving electronic communications from the furnisher may elect to
receive the statement required under section 6050W in a paper document
in lieu of an electronic format. The election to receive a paper
document may be made by notifying the furnisher electronically or in a
paper document.
(ii) Withdrawal of consent. The consent requirement of paragraph
(a)(2)(i) of this section is not satisfied if the recipient withdraws
the consent to receive electronic statements and the withdrawal takes
effect before the statement is furnished. The furnisher may provide that
a withdrawal of consent takes effect either on the date it is received
by the furnisher or on a subsequent date. The furnisher may also provide
that a request for a paper statement will be treated as a withdrawal of
consent.
(iii) Change in hardware or software requirements. If a change in
the hardware or software required to access the statement creates a
material risk that the recipient will not be able to access the
statement, the furnisher must, prior to changing the hardware or
software, provide notice to the recipient. The notice must describe the
revised hardware and software required to access the statement and
inform the recipient that a new consent to receive the statement in the
revised electronic format must be provided to the furnisher. After
implementing the revised hardware and software, the furnisher must
obtain from the recipient, in the manner described in paragraph
(a)(2)(i) of this section, a new consent or confirmation of consent to
receive the statement electronically.
(iv) Examples. The following examples illustrate the rules of this
paragraph (a)(2):
Example 1. Recipient R has consented to receive the statements
required under section 6041 in electronic format from Furnisher F. F has
retained R's consent and keeps it available for inspection by the IRS. F
may furnish to R the statement required under section 6050W in
electronic format without securing an affirmative consent from R with
respect to the statements required under section 6050W.
Example 2. Recipient R has not consented to receive any electronic
federal income tax statements from Furnisher F. F may not furnish to R
the statements required under section 6050W unless F first secures from
R a consent to receive those statements in electronic format in
accordance with the requirements of paragraphs (a)(2) through (a)(5) of
this section.
Example 3. Furnisher F sends Recipient R a letter stating that R may
consent to receive statements required by section 6050W(f)
electronically on a website instead of in a paper
[[Page 494]]
format. The letter contains instructions explaining how to consent to
receive the statements electronically by accessing the website,
downloading the consent document, completing the consent document, and
e-mailing the completed consent back to F. The consent document posted
on the website uses the same electronic format that F uses to furnish
statements electronically. R reads the instructions and submits the
consent in the manner provided in the instructions. R has consented to
receive the statements electronically in the manner described in
paragraph (a)(2)(i) of this section.
Example 4. Furnisher F sends Recipient R an e-mail stating that R
may consent to receive statements required by section 6050W(f)
electronically instead of in a paper format. The e-mail contains an
attachment instructing R how to consent to receive the statements
electronically. The e-mail attachment uses the same electronic format
that F uses to furnish statements electronically. R opens the
attachment, reads the instructions, and submits the consent in the
manner provided in the instructions. R has consented to receive the
statements electronically in the manner described in paragraph (a)(2)(i)
of this section.
Example 5. Furnisher F posts a notice on its website stating that
Recipient R may receive statements required by section 6050W(f)
electronically instead of in a paper format. The website contains
instructions on how R may access a secure web page and consent to
receive the statements electronically. By accessing the secure web page
and giving consent, R has consented to receive the statements
electronically in the manner described in paragraph (a)(2)(i) of this
section.
(3) Required disclosures--(i) In general. Prior to, or at the time
of, a recipient's consent, the furnisher must provide to the recipient a
clear and conspicuous disclosure statement containing each of the
disclosures described in paragraphs (a)(3)(ii) through (a)(3)(viii) of
this section.
(ii) Paper statement. The recipient must be informed that the
statement will be furnished on paper if the recipient does not consent
to receive it electronically.
(iii) Scope and duration of consent. The recipient must be informed
of the scope and duration of the consent. For example, the recipient
must be informed whether the consent applies to statements furnished
every year after the consent is given until it is withdrawn in the
manner described in paragraph (a)(3)(v)(A) of this section or only to
the statement required to be furnished on or before the January 31st
immediately following the date on which the consent is given.
(iv) Post-consent request for a paper statement. The recipient must
be informed of any procedure for obtaining a paper copy of the
recipient's statement after giving the consent described in paragraph
(a)(2)(i) of this section and whether a request for a paper statement
will be treated as a withdrawal of consent.
(v) Withdrawal of consent. The recipient must be informed that--
(A) The recipient may withdraw a consent by writing (electronically
or on paper) to the person or department whose name, mailing address,
telephone number, and e-mail address is provided in the disclosure
statement;
(B) The furnisher will confirm the withdrawal and the date on which
it takes effect in writing (either electronically or on paper); and
(C) A withdrawal of consent does not apply to a statement that was
furnished electronically in the manner described in this paragraph (a)
before the date on which the withdrawal of consent takes effect.
(vi) Notice of termination. The recipient must be informed of the
conditions under which a furnisher will cease furnishing statements
electronically to the recipient.
(vii) Updating information. The recipient must be informed of the
procedures for updating the information needed by the furnisher to
contact the recipient. The furnisher must inform the recipient of any
change in the furnisher's contact information.
(viii) Hardware and software requirements. The recipient must be
provided with a description of the hardware and software required to
access, print, and retain the statement, and the date when the statement
will no longer be available on the Web site.
(4) Format. The electronic version of the statement must contain all
required information and comply with applicable revenue procedures
relating to substitute statements to recipients.
(5) Notice--(i) In general. If the statement is furnished on a
website, the furnisher must notify the recipient that the statement is
posted on a website. The notice may be delivered by mail,
[[Page 495]]
electronic mail, or in person. The notice must provide instructions on
how to access and print the statement. The notice must include the
following statement in capital letters, ``IMPORTANT TAX RETURN DOCUMENT
AVAILABLE.'' If the notice is provided by electronic mail, the foregoing
statement must be on the subject line of the electronic mail.
(ii) Undeliverable electronic address. If an electronic notice
described in paragraph (a)(5)(i) of this section is returned as
undeliverable, and the correct electronic address cannot be obtained
from the furnisher's records or from the recipient, then the furnisher
must furnish the notice by mail or in person within 30 days after the
electronic notice is returned.
(b) Effective/applicability date. The rules in this section apply to
returns for calendar years beginning after December 31, 2010.
[T.D. 9496, 75 FR 49833, Aug. 16, 2010]
Sec. 1.6050Y-1 Information reporting for reportable policy sales,
transfers of life insurance contracts to foreign persons, and
reportable death benefits.
(a) Definitions. The following definitions apply for purposes of
this section and Sec. Sec. 1.6050Y-2 through 1.6050Y-4:
(1) Acquirer. The term acquirer means any person that acquires an
interest in a life insurance contract (through a direct acquisition or
indirect acquisition of the interest) in a reportable policy sale.
(2) Buyer. The term buyer means, with respect to any interest in a
life insurance contract that has been transferred in a reportable policy
sale, the person that was the most recent acquirer of that interest in a
reportable policy sale as of the date reportable death benefits are paid
under the contract.
(3) Direct acquisition of an interest in a life insurance contract.
The term direct acquisition of an interest in a life insurance contract
has the meaning given to it in Sec. 1.101-1(e)(3)(i).
(4) Foreign person. The term foreign person means a person that is
not a United States person, as defined in section 7701(a)(30).
(5) Indirect acquisition of an interest in a life insurance
contract. The term indirect acquisition of an interest in a life
insurance contract has the meaning given to it in Sec. 1.101-
1(e)(3)(ii).
(6) Interest in a life insurance contract. The term interest in a
life insurance contract has the meaning given to it in Sec. 1.101-
1(e)(1).
(7) Investment in the contract--(i) Definition of investment in the
contract. With respect to the original policyholder of a life insurance
contract, the term investment in the contract on any date means that
person's investment in the contract under section 72(e)(6) on that date.
With respect to any other person, the term investment in the contract on
any date means the estimate of investment in the contract on that date.
(ii) Definition of estimate of investment in the contract. The term
estimate of investment in the contract with respect to any person, other
than the original policyholder, means, on any date, the aggregate amount
of premiums paid for the contract by that person before that date, less
the aggregate amount received under the contract by that person before
that date to the extent such information is known to or can reasonably
be estimated by the issuer or payor.
(8) Issuer--(i) In general. Except as provided in paragraph
(a)(8)(ii) or (iii) of this section, the term issuer generally means, on
any date, with respect to any interest in a life insurance contract, any
person that bears any part of the risk with respect to the contract on
that date and any person responsible on that date for administering the
contract, including collecting premiums and paying death benefits. For
instance, if a reinsurer reinsures on an indemnity basis all or a
portion of the risks that the original issuer (and continuing contract
administrator) of the contract might otherwise have incurred with
respect to the contract, both the reinsurer and the original issuer of
the contract are issuers of the contract for purposes of this paragraph
(a)(8)(i). Any designee of an issuer of a contract is also considered an
issuer of the contract for purposes of this paragraph (a)(8)(i).
(ii) 6050Y(a) issuer. For purposes of information reporting under
section
[[Page 496]]
6050Y(a) and Sec. 1.6050Y-2, the 6050Y(a) issuer is the issuer that is
responsible for administering the life insurance contract, including
collecting premiums and paying death benefits under the contract, on the
date of the reportable policy sale. In the case of the issuance of a
life insurance contract to a policyholder in an exchange pursuant to
section 1035, the 6050Y(a) issuer is the issuer that issues the new
contract.
(iii) 6050Y(b) issuer. For purposes of information reporting under
section 6050Y(b) and Sec. 1.6050Y-3, a 6050Y(b) issuer is:
(A) Any person that receives an RPSS with respect to a life
insurance contract or interest therein (or, in the case of a designee,
receives notice that the issuer for whom it serves as designee received
an RPSS), and is or was, on or before the date of receipt of the RPSS,
an issuer with respect to the contract; or
(B) Any person that receives notice of a transfer to a foreign
person of a life insurance contract, provided that the person is or was,
on the date of transfer or on the date of receipt of the notice, an
issuer with respect to the contract, and provided that the information
is not received from the issuer responsible for administering the
contract (or its designee), unless:
(1) That person (or, in the case of a designee, the issuer for whom
it serves as designee) is not responsible for administering the
contract, including collecting premiums and paying death benefits under
the contract, on the date the notice of a transfer to a foreign person
is received; and
(2) That person, or its designee, provides the issuer that is
responsible on that date for administering the contract, including
collecting premiums and paying death benefits under the contract, with
such notice and with any available information necessary to accomplish
reporting under section 6050Y(b) and Sec. 1.6050Y-3.
(iv) Designee. A person is treated as the designee of an issuer for
purposes of this paragraph (a)(8) only if so designated in writing,
including electronically. The designation must be signed and
acknowledged, in writing or electronically, by the person named as
designee, or that person's representative, and by the issuer making the
designation, or its representative.
(9) Life insurance contract. The term life insurance contract has
the meaning given to it in section 7702(a). A life insurance contract
may also be referred to as a life insurance policy.
(10) Notice of a transfer to a foreign person. The term notice of a
transfer to a foreign person means any notice of a transfer of title to,
possession of, or legal ownership of a life insurance contract received
by a 6050Y(b) issuer that includes foreign indicia, including
information provided for nontax purposes such as a change of address
notice for purposes of sending statements or for other purposes, and
information relating to loans, premiums, or death benefits with respect
to the contract, unless the 6050Y(b) issuer knows that no transfer of
the contract has occurred or knows that the transferee is a United
States person. For this purpose, a 6050Y(b) issuer may rely on a Form W-
9, Request for Taxpayer Identification Number and Certification, or a
valid substitute form that meets the requirements of Sec. 1.1441-
1(d)(2) (substituting ``6050Y(b) issuer'' for ``withholding agent''),
that indicates the transferee is a United States person. For instance, a
change of address notice that changes the address to a foreign address
or other updates to the information relating to the payment of premiums
that includes foreign banking or other foreign financial institution
information is notice of a transfer to a foreign person unless the
6050Y(b) issuer knows that no transfer has occurred or the transferee is
a United States person.
(11) Payor. The term payor means any person making a payment of
reportable death benefits.
(12) Reportable death benefits. The term reportable death benefits
means amounts paid by reason of the death of the insured under a life
insurance contract that are attributable to an interest in the contract
that was transferred in a reportable policy sale.
(13) Reportable death benefits payment recipient. The term
reportable death benefits payment recipient means any person that
receives reportable death benefits as a beneficiary under a life
insurance contract or as the holder of an interest in a life insurance
contract.
[[Page 497]]
(14) Reportable policy sale. The term reportable policy sale has the
meaning given to it in Sec. 1.101-1(c).
(15) Reportable policy sale payment. The term reportable policy sale
payment generally means the total amount of cash and the fair market
value of any other consideration reducible to a money value transferred,
or to be transferred, in a reportable policy sale, including any amount
of a reportable policy sale payment recipient's debt assumed by the
acquirer in a reportable policy sale. In the case of an indirect
acquisition of an interest in a life insurance contract that is a
reportable policy sale, the reportable policy sale payment is the total
amount of cash and the fair market value of any other consideration
reducible to a money value transferred, or to be transferred, for the
ownership interest in the entity, including the amount of any debt
assumed by the acquirer, that is appropriately allocable to the interest
in the life insurance contract held by the entity.
(16) Reportable policy sale payment recipient--(i) Except as
provided in paragraph (a)(16)(ii) of this section, the term reportable
policy sale payment recipient means any person that receives a
reportable policy sale payment in a reportable policy sale. A broker or
other intermediary that retains a portion of the cash or other
consideration transferred in a reportable policy sale is also a
reportable policy sale payment recipient.
(ii) A person other than the seller is not a reportable policy sale
payment recipient with respect to a reportable policy sale if that
person receives aggregate payments of less than $600 with respect to
that reportable policy sale.
(17) Reportable policy sale statement. The term reportable policy
sale statement (RPSS) means a statement furnished by an acquirer to an
issuer under section 6050Y(a)(2) and Sec. 1.6050Y-2(d)(2)(i).
(18) Seller. The term seller means any person that--
(i) Holds an interest in a life insurance contract and transfers
that interest, or any part of that interest, to an acquirer in a
reportable policy sale; or
(ii) Owns a life insurance contract and transfers title to,
possession of, or legal ownership of that contract to a foreign person.
(19) Transfer of an interest in a life insurance contract. The term
transfer of an interest in a life insurance contract has the meaning
given to it in Sec. 1.101-1(e)(2).
(20) United States person. The term United States person has the
meaning given to it in section 7701(a)(30).
(b) Applicability date. This section and Sec. Sec. 1.6050Y-2
through 1.6050Y-3 apply to reportable policy sales made after December
31, 2018. This section and Sec. 1.6050Y-4 apply to reportable death
benefits paid after December 31, 2018. This section and Sec. 1.6050Y-3
apply to any notice of a transfer to a foreign person received after
December 31, 2018. However, for reportable policy sales and payments of
reportable death benefits occurring after December 31, 2018, and on or
before December 31, 2019, and any notice of a transfer to a foreign
person received after December 31, 2018, and on or before December 31,
2019, transition relief is provided as follows:
(1) Statements required to be furnished to issuers under section
6050Y(a)(2) and Sec. 1.6050Y-2(d)(2)(i) must be furnished by the later
of the applicable deadline set forth in Sec. 1.6050Y-2(d)(2)(ii) or
December 30, 2019.
(2) Statements required to be furnished to reportable policy sale
payment recipients under section 6050Y(a)(2) and Sec. 1.6050Y-
2(d)(1)(i) must be furnished by the later of the applicable deadline set
forth in Sec. 1.6050Y-2(d)(1)(ii) or February 28, 2020.
(3) Statements required to be furnished to sellers under section
6050Y(b)(2) and Sec. 1.6050Y-3(d)(1) must be furnished by the later of
the applicable deadline set forth in Sec. 1.6050Y-3(d)(2) or February
28, 2020.
(4) Statements required to be furnished to reportable death benefits
payment recipients under section 6050Y(c)(2) and Sec. 1.6050Y-4(c)(1)
must be furnished by the later of the applicable deadline set forth in
Sec. 1.6050Y-4(c)(2) or February 28, 2020.
(5) Returns required to be filed under section 6050Y(a)(1) and Sec.
1.6050Y-2(a), section 6050Y(b)(1) and Sec. 1.6050Y-3(a), and section
6050Y(c)(1) and Sec. 1.6050Y-4 must be filed by the later of the
applicable deadline set forth in Sec. 1.6050Y-
[[Page 498]]
2(c), Sec. 1.6050Y-3(c), and Sec. 1.6050Y-4(b) or February 28, 2020.
[T.D. 9879, 84 FR 58484, Oct. 31, 2019, as amended by T.D. 9879, 84 FR
68043, Dec. 13, 2019]
Sec. 1.6050Y-2 Information reporting by acquirers for reportable
policy sale payments.
(a) Requirement of reporting. Except as provided in paragraph (f) of
this section, every person that is an acquirer in a reportable policy
sale during any calendar year must file a separate information return
with the Internal Revenue Service (IRS) in the form and manner as
required by the IRS for each reportable policy sale payment recipient,
including any seller that is a reportable policy sale payment recipient.
Each return must include the following information with respect to the
seller or other reportable policy sale payment recipient to which the
return relates:
(1) The name, address, and taxpayer identification number (TIN) of
the acquirer;
(2) The name, address, and TIN of the seller or other reportable
policy sale payment recipient to which the return relates;
(3) The date of the reportable policy sale;
(4) The name of the 6050Y(a) issuer of the life insurance contract
acquired and the policy number of the life insurance contract;
(5) The aggregate amount of reportable policy sale payments made, or
to be made, to the seller or other reportable policy sale payment
recipient to which the return relates with respect to the reportable
policy sale; and
(6) Any other information that is required by the form or its
instructions.
(b) Unified reporting. The information reporting requirement of
paragraph (a) of this section applies to each acquirer in a series of
prearranged transfers of an interest in a life insurance contract, as
well as each acquirer in a simultaneous transfer of different interests
in a single life insurance contract. In either case, an acquirer's
reporting obligation is deemed satisfied if the information required by
paragraph (a) of this section with respect to that acquirer is timely
reported on behalf of that acquirer in a manner that is consistent with
forms, instructions, and other IRS guidance by one or more other
acquirers or by a third party information reporting contractor.
(c) Time and place for filing. Returns required to be made under
paragraph (a) of this section must be filed with the Internal Revenue
Service Center designated on the prescribed form or in its instructions
on or before February 28 (March 31 if filed electronically) of the year
following the calendar year in which the reportable policy sale
occurred. However, see Sec. 1.6050Y-1(b)(5) for transition rules.
(d) Requirement of and time for furnishing statements--(1)
Statements to reportable policy sale payment recipients--(i) Requirement
of furnishing statement. Every person required to file an information
return under paragraph (a) of this section with respect to a reportable
policy sale payment recipient must furnish in the form and manner
prescribed by the IRS to the reportable policy sale payment recipient
whose name is set forth in that return a written statement showing the
information required by paragraph (a) of this section with respect to
the reportable policy sale payment recipient and the name, address, and
phone number of the information contact of the person furnishing the
written statement. The contact information of the person furnishing the
written statement must provide direct access to a person that can answer
questions about the statement. The statement is not required to include
information with respect to any other reportable policy sale payment
recipient in the reportable policy sale or information about reportable
policy sale payments to any other reportable policy sale payment
recipient.
(ii) Time for furnishing statement. Each statement required by
paragraph (d)(1)(i) of this section to be furnished to any reportable
policy sale payment recipient must be furnished on or before February 15
of the year following the calendar year in which the reportable policy
sale occurred. However, see Sec. 1.6050Y-1(b)(2) for transition rules.
(2) Statements to 6050Y(a) issuers--(i) Requirement of furnishing
RPSS--(A) In general. Except as provided in paragraph (d)(2)(i)(B) of
this section, every
[[Page 499]]
person required to file a return under paragraph (a) of this section
must furnish in the form and manner prescribed by the IRS to the
6050Y(a) issuer whose name is required to be set forth in the return an
RPSS with respect to each reportable policy sale payment recipient that
is also a seller. Each RPSS must show the information required by
paragraph (a) of this section with respect to the seller named therein,
except that the RPSS is not required to set forth the amount of any
reportable policy sale payment. Each RPSS must also show the name,
address, and phone number of the information contact of the person
furnishing the RPSS. This contact information must provide direct access
to a person that can answer questions about the RPSS.
(B) Exception from reporting. An RPSS is not required to be
furnished to the 6050Y(a) issuer by an acquirer acquiring an interest in
a life insurance contract in an indirect acquisition.
(ii) Time for furnishing RPSS. Except as provided in this paragraph
(d)(2)(ii), each RPSS required by paragraph (d)(2)(i) of this section to
be furnished to a 6050Y(a) issuer must be furnished by the later of 20
calendar days after the reportable policy sale, or 5 calendar days after
the end of the applicable state law rescission period. However, if the
later date is after January 15 of the year following the calendar year
in which the reportable policy sale occurred, the RPSS must be furnished
by January 15 of the year following the calendar year in which the
reportable policy sale occurred. However, see Sec. 1.6050Y-1(b)(1) for
transition rules.
(3) Unified reporting. The information reporting requirements of
paragraphs (d)(1)(i) and (d)(2)(i) of this section apply to each
acquirer in a series of prearranged transfers of an interest in a life
insurance contract, as well as each acquirer in a simultaneous transfer
of different interests in a single life insurance contract, as described
in paragraph (b) of this section. In either case, an acquirer's
obligation to furnish statements is deemed satisfied if the information
required by paragraphs (d)(1)(i) and (d)(2)(i) of this section with
respect to that acquirer is timely reported on behalf of that acquirer
consistent with forms, instructions, and other IRS guidance by one or
more other acquirers or by a third party information reporting
contractor.
(e) Notice of rescission of a reportable policy sale. Any person
that has filed a return required by section 6050Y(a)(1) and this section
with respect to a reportable policy sale must file a corrected return
within 15 calendar days of the receipt of notice of the rescission of
the reportable policy sale. Any person that has furnished a written
statement under section 6050Y(a)(2) and this section with respect to the
reportable policy sale must furnish the recipient of that statement with
a corrected statement within 15 calendar days of the receipt of notice
of the rescission of the reportable policy sale.
(f) Exceptions to requirement to file--(1) An acquirer that is a
foreign person is not required to file an information return under
paragraph (a) of this section with respect to a reportable policy sale
unless--
(i) The life insurance contract (or interest therein) transferred in
the sale is on the life of an insured who is a United States person at
the time of the sale; or
(ii) The sale is subject to the laws of one or more States of the
United States that pertain to acquisitions or sales of life insurance
contracts (or interests therein).
(2) An acquirer is not required to file an information return under
paragraph (a) of this section with respect to a reportable policy sale
payment to a reportable policy sale payment recipient other than the
seller if the reportable policy sale payment is reported by the acquirer
under section 6041 or 6041A.
(3) An acquirer is not required to file an information return under
paragraph (a) of this section with respect to the issuance of a life
insurance contract in an exchange pursuant to section 1035. However, the
acquirer is required to furnish the 6050Y(a) issuer with the statement
required under paragraph (d)(2) of this section as if the acquirer were
required to file an information return under paragraph (a) of this
section.
(g) Cross-reference to penalty provisions--(1) Failure to file
correct information return. For provisions relating to the penalty
provided for failure to file
[[Page 500]]
timely a correct information return required under section 6050Y(a)(1)
and this section, see section 6721 and Sec. 301.6721-1 of this chapter.
See section 6724(a) and Sec. 301.6724-1 of this chapter for the waiver
of a penalty if the failure is due to reasonable cause and is not due to
willful neglect.
(2) Failure to furnish correct statement. For provisions relating to
the penalty provided for failure to furnish timely a correct statement
to identified persons under section 6050Y(a)(2) and this section, see
section 6722 and Sec. 301.6722-1 of this chapter. See section 6724(a)
and Sec. 301.6724-1 of this chapter for the waiver of a penalty if the
failure is due to reasonable cause and is not due to willful neglect.
[T.D. 9879, 84 FR 58486, Oct. 31, 2019]
Sec. 1.6050Y-3 Information reporting by 6050Y(b) issuers for
reportable policy sales and transfers of life insurance contracts
to foreign persons.
(a) Requirement of reporting. Except as provided in paragraph (f) of
this section, each 6050Y(b) issuer that receives an RPSS or any notice
of a transfer to a foreign person must file an information return with
the Internal Revenue Service (IRS) with respect to each seller in the
form and manner prescribed by the IRS. The return must include the
following information with respect to the seller:
(1) The name, address, and taxpayer identification number (TIN) of
the seller;
(2) The investment in the contract with respect to the seller;
(3) The amount the seller would have received if the seller had
surrendered the life insurance contract on the date of the reportable
policy sale or the transfer of the contract to a foreign person, or if
the date of the transfer to a foreign person is not known to the
6050Y(b) issuer, the date the 6050Y(b) issuer received notice of the
transfer; and
(4) Any other information that is required by the form or its
instructions.
(b) Unified reporting. Each 6050Y(b) issuer subject to the
information reporting requirement of paragraph (a) of this section must
satisfy that requirement, but a 6050Y(b) issuer's reporting obligation
is deemed satisfied if the information required by paragraph (a) of this
section with respect to that 6050Y(b) issuer is timely reported on
behalf of that 6050Y(b) issuer in a manner that is consistent with
forms, instructions, and other IRS guidance by one or more other
6050Y(b) issuers or by a third party information reporting contractor.
(c) Time and place for filing. Except as provided in this paragraph
(c), returns required to be made under paragraph (a) of this section
must be filed with the Internal Revenue Service Center designated on the
prescribed form or in its instructions on or before February 28 (March
31 if filed electronically) of the year following the calendar year in
which the reportable policy sale or the transfer to a foreign person
occurred. If the 6050Y(b) issuer does not receive notice of a transfer
to a foreign person until after January 31 of the calendar year
following the year in which the transfer occurred, returns required to
be made under paragraph (a) of this section must be filed by the later
of February 28 (March 31 if filed electronically) of the calendar year
following the year in which the transfer occurred or thirty days after
the date notice is received. However, see Sec. 1.6050Y-1(b)(5) for
transition rules.
(d) Requirement of and time for furnishing statements--(1)
Requirement of furnishing statement. Every 6050Y(b) issuer filing a
return required by paragraph (a) of this section must furnish to each
seller that is a reportable policy sale payment recipient or makes a
transfer to a foreign person and whose name is required to be set forth
in the return a written statement showing the information required by
paragraph (a) of this section with respect to that seller and the name,
address, and phone number of the information contact of the person
filing the return. This contact information must provide direct access
to a person that can answer questions about the statement.
(2) Time for furnishing statement. Except as provided in this
paragraph (d)(2), each statement required by paragraph (d)(1) of this
section to be furnished to any seller must be furnished on or before
February 15 of the year following the calendar year in which the
reportable policy sale or transfer to
[[Page 501]]
a foreign person occurred. If a 6050Y(b) issuer does not receive notice
of a transfer to a foreign person until after January 31 of the calendar
year following the year in which the transfer occurred, each statement
required to be made under paragraph (d) of this section must be
furnished by the date thirty days after the date notice is received.
However, see Sec. 1.6050Y-1(b)(3) for transition rules.
(3) Unified reporting. Each 6050Y(b) issuer subject to the
information reporting requirement of paragraph (d)(1) of this section
must satisfy that requirement, but a 6050Y(b) issuer's reporting
obligation is deemed satisfied if the information required by paragraph
(d)(1) of this section with respect to that 6050Y(b) issuer is timely
reported on behalf of that 6050Y(b) issuer consistent with forms,
instructions, and other IRS guidance by one or more other 6050Y(b)
issuers or by a third party information reporting contractor.
(e) Notice of rescission of a reportable policy sale or transfer of
an insurance contract to a foreign person. Any 6050Y(b) issuer that has
filed a return required by section 6050Y(b)(1) and this section with
respect to a reportable policy sale or transfer of an insurance contract
to a foreign person must file a corrected return within 15 calendar days
of the receipt of notice of the rescission of the reportable policy sale
or transfer of the insurance contract to a foreign person. Any 6050Y(b)
issuer that has furnished a written statement under section 6050Y(b)(2)
and this section with respect to the reportable policy sale or transfer
of the insurance contract to a foreign person must furnish the recipient
of that statement with a corrected statement within 15 calendar days of
the receipt of notice of the rescission of the reportable policy sale or
transfer of the insurance contract to a foreign person.
(f) Exceptions to requirement to file. A 6050Y(b) issuer is not
required to file an information return under paragraph (a) of this
section if paragraph (f)(1), (2), or (3) of this section applies.
(1) Except as provided in this paragraph (f)(1), the 6050Y(b) issuer
obtains documentation upon which it may rely to treat a seller of a life
insurance contract or interest therein as a foreign beneficial owner in
accordance with Sec. 1.1441-1(e)(1)(ii), applying in such case the
provisions of Sec. 1.1441-1 by substituting the term ``6050Y(b)
issuer'' for the term ``withholding agent'' and without regard to the
fact that that these provisions apply only to amounts subject to
withholding under chapter 3 of subtitle A of the Internal Revenue Code.
A 6050Y(b) issuer may also obtain from a seller that is a partnership or
trust, in addition to documentation establishing the entity's foreign
status, a written certification from the entity that no beneficial owner
of any portion of the proceeds of the sale is a United States person. In
such a case, the issuer may rely upon the written certification to treat
the partnership or trust as a foreign beneficial owner for purposes of
this paragraph (f)(1) provided that the seller does not have actual
knowledge that a United States person is the beneficial owner of all or
a portion of the proceeds of the sale. See Sec. 1.1441-1(c)(6)(ii) for
the definition of beneficial owner that applies for purposes of this
paragraph (f)(1). Additionally, for certifying its status as a foreign
beneficial owner (as applicable) for purposes of this paragraph (f)(1),
a seller that is required to report any of the income from the sale as
effectively connected with the conduct of a trade or business in the
United States under section 864(b) is required to provide to the
6050Y(b) issuer a Form W-8ECI, Certificate of Foreign Person's Claim
that Income is Effectively Connected with the Conduct of a Trade or
Business in the United States. If a 6050Y(b) issuer obtains a Form W-
8ECI from a seller with respect to the sale or has reason to know that
income from the sale is effectively connected with the conduct of a
trade or business in the United States under section 864(b), the
exception to reporting described in this paragraph (f)(1) does not
apply.
(2) The 6050Y(b) issuer receives notice of a transfer to a foreign
person, but does not receive an RPSS with respect to the transfer,
provided that, at the time the notice is received--
(i) The 6050Y(b) issuer is not a United States person;
[[Page 502]]
(ii) The life insurance contract (or interest therein) transferred
is not on the life of a United States person; and
(iii) The 6050Y(b) issuer has not classified the seller as a United
States person in its books and records.
(3) The RPSS received by the 6050Y(b) issuer is with respect to the
6050Y(b) issuer's issuance of a life insurance contract to a
policyholder in an exchange pursuant to section 1035.
(g) Cross-reference to penalty provisions--(1) Failure to file
correct information return. For provisions relating to the penalty
provided for failure to file timely a correct information return
required under section 6050Y(b)(1) and this section, see section 6721
and Sec. 301.6721-1 of this chapter. See section 6724(a) and Sec.
301.6724-1 of this chapter for the waiver of a penalty if the failure is
due to reasonable cause and is not due to willful neglect.
(2) Failure to furnish correct statement. For provisions relating to
the penalty provided for failure to furnish timely a correct statement
to identified persons under section 6050Y(b)(2) and this section, see
section 6722 and Sec. 301.6722-1 of this chapter. See section 6724(a)
and Sec. 301.6724-1 of this chapter for the waiver of a penalty if the
failure is due to reasonable cause and is not due to willful neglect.
[T.D. 9879, 84 FR 58487, Oct. 31, 2019]
Sec. 1.6050Y-4 Information reporting by payors for reportable death
benefits.
(a) Requirement of reporting. Except as provided in paragraph (e) of
this section, every person that is a payor of reportable death benefits
during any calendar year must file a separate information return for
such calendar year with the Internal Revenue Service (IRS) for each
reportable death benefits payment recipient in the form and manner
prescribed by the IRS. The return must include the following information
with respect to the reportable death benefits payment recipient to which
the return relates:
(1) The name, address, and taxpayer identification number (TIN) of
the payor;
(2) The name, address, and TIN of the reportable death benefits
payment recipient;
(3) The date of the payment;
(4) The gross amount of reportable death benefits paid to the
reportable death benefits payment recipient during the taxable year;
(5) The payor's estimate of investment in the contract with respect
to the buyer, limited to the payor's estimate of the buyer's investment
in the contract with respect to the interest for which the reportable
death benefits payment recipient was paid; and
(6) Any other information that is required by the form or its
instructions.
(b) Time and place for filing. Returns required to be made under
this section must be filed with the Internal Revenue Service Center
designated in the instructions for the form on or before February 28
(March 31 if filed electronically) of the year following the calendar
year in which the payment of reportable death benefits was made.
However, see Sec. 1.6050Y-1(b)(5) for transition rules.
(c) Requirement of and time for furnishing statements--(1)
Requirement of furnishing statement. Every person required to file an
information return under paragraph (a) of this section must furnish to
each reportable death benefits payment recipient whose name is required
to be set forth in that return a written statement showing the
information required by paragraph (a) of this section with respect to
that reportable death benefits payment recipient and the name, address,
and phone number of the information contact of the payor. This contact
information must provide direct access to a person that can answer
questions about the statement.
(2) Time for furnishing statement. Each statement required by
paragraph (c)(1) of this section to be furnished to any reportable death
benefits payment recipient must be furnished on or before January 31 of
the year following the calendar year in which the payment of reportable
death benefits was made. However, see Sec. 1.6050Y-1(b)(4) for
transition rules.
(d) Notice of rescission of a reportable policy sale. Any person
that has filed a return required by section 6050Y(c) and this section
with respect to a payment of reportable death benefits must file a
corrected return within 15 calendar
[[Page 503]]
days of recovering any portion of the reportable death benefits payment
from the reportable death benefits payment recipient as a result of the
rescission of the reportable policy sale. Any person that has furnished
a written statement under section 6050Y(c)(2) and this section with
respect to a payment of reportable death benefits must furnish the
recipient of that statement with a corrected statement within 15
calendar days of recovering any portion of the reportable death benefits
payment from the reportable death benefits payment recipient as a result
of the rescission of the reportable policy sale.
(e) Exceptions to requirement to file. A payor is not required to
file an information return under paragraph (a) of this section with
respect to a payment of reportable death benefits if paragraph (e)(1),
(2), or (3) of this section applies.
(1) Except as provided in this paragraph (e)(1), the payor obtains
documentation in accordance with Sec. 1.1441-1(e)(1)(ii) upon which it
may rely to treat the reportable death benefits payment recipient as a
foreign beneficial owner of the reportable death benefits, applying in
such case the provisions of Sec. 1.1441-1 by substituting the term
``payor'' for the term ``withholding agent'' and without regard to the
fact that the provisions apply only to amounts subject to withholding
under chapter 3 of subtitle A of the Internal Revenue Code. A payor may
also obtain from a partnership or trust that is a reportable death
benefits recipient, in addition to documentation establishing the
entity's foreign status, a written certification from the entity that no
beneficial owner of any portion of the reportable death benefits payment
is a United States person. In such a case, a payor may rely upon the
written certification to treat the partnership or trust as a foreign
beneficial owner for purposes of this paragraph (e)(1) provided that the
payor does not have actual knowledge that a United States person is the
beneficial owner of all or a portion of the reportable death benefits
payment. See Sec. 1.1441-1(c)(6)(ii) for the definition of beneficial
owner that applies for purposes of this paragraph (e)(1). Other due
diligence or reporting requirements may, however, apply to a payor that
relies on the exception set forth in this paragraph (e)(1). See Sec.
1.1441-5(c) and (e) (determination of payees of foreign partnerships and
certain foreign trusts for amounts subject to withholding under Sec.
1.1441-2(a)) and Sec. 1.1461-1(b) and (c) (amounts subject to reporting
for chapter 3 purposes).
(2) The buyer obtained the life insurance contract (or interest
therein) under which reportable death benefits are paid in a reportable
policy sale to which the exception to reporting described in Sec.
1.6050Y-3(f)(2) applies.
(3) The payor never received, and has no knowledge of any issuer
having received, an RPSS with respect to the interest in a life
insurance contract with respect to which the reportable death benefits
are paid.
(f) Cross-reference to penalty provisions--(1) Failure to file
correct information return. For provisions relating to the penalty
provided for failure to file timely a correct information return
required under section 6050Y(c)(1) and this section, see section 6721
and Sec. 301.6721-1 of this chapter. See section 6724(a) and Sec.
301.6724-1 of this chapter for the waiver of a penalty if the failure is
due to reasonable cause and is not due to willful neglect.
(2) Failure to furnish correct statement. For provisions relating to
the penalty provided for failure to furnish timely a correct statement
to identified persons under section 6050Y(c)(2) and this section, see
section 6722 and Sec. 301.6722-1 of this chapter. See section 6724(a)
and Sec. 301.6724-1 of this chapter for the waiver of a penalty if the
failure is due to reasonable cause and is not due to willful neglect.
[T.D. 9879, 84 FR 58488, Oct. 31, 2019]
Sec. 1.6052-1 Information returns regarding payment of wages in the
form of group-term life insurance.
(a) Requirement of reporting--(1) In general. Every employer, who
during any calendar year provides any one of his employees remuneration
for services in the form of group-term life insurance on the life of
such employee any part of the cost of which is to be included in such
employee's gross income as provided in section 79(a), shall make a
separate return on Form W-2
[[Page 504]]
with respect to each such employee for such year which includes the
following information:
(i) Name, address, and identifying number of the employer;
(ii) Name, address, and social security number of the employee; and
(iii) Total amount includible in the employee's gross income by
reason of the provisions of section 79(a), computed as if each employee
reported his income on the basis of a calendar year (determined as if
the employer making such return is the only employer paying the employee
remuneration in the form of group-term life insurance on his life which
is includible in his gross income under section 79(a)).
Returns on Form W-2 required to be filed pursuant to the provisions of
this section shall be transmitted by Form W-3. In a case where, with
respect to the same employee, an employer must make a return on Form W-2
under this section and also under Sec. 31.6011(a)-4 or Sec.
31.6011(a)-5 of this chapter (Employment Tax Regulations), or under
Sec. 1.6041-2 (relating to return of information as to payments to
employees), such employer may make such returns on the same Form W-2 or
on separate Forms W-2. In a case where an employer must file a Form W-3
under this section and also under Sec. 31.6011(a)-4 or Sec.
31.6011(a)-5 of this chapter (Employment Tax Regulations), the Form W-3
filed under such Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 shall also be
used as the transmittal form for a return on Form W-2 made pursuant to
the provisions of this section.
(2) Definitions. Terms used in subparagraph (a)(1) of this section
and in section 79 and the regulations thereunder have the meaning
ascribed to them in section 79 and the regulations thereunder.
(b) Time and place for filing--(1) Time for filing--(i) General
rule. In a case where an employer must file Forms W-3 and W-2 under this
section and also under Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 of this
chapter (Employment Tax Regulations), the time for filing such forms
under this section shall be the same as the time (including extensions
thereof) for filing such forms under Sec. 31.6011(a)-4 or Sec.
31.6011(a)-5.
(ii) Exception. In a case where an employer is not required to file
Forms W-3 and W-2 under Sec. 31.6011(a)-4 or Sec. 31.6011(a)-5 of this
chapter, returns on Forms W-3 and W-2 required under paragraph (a) of
this section for any calendar year shall be filed on or before February
28 (March 31 if filed electronically) of the following year.
(iii) Cross reference. For extensions of time for filing returns,
see section 6081 and the regulations thereunder.
(2) Place for filing. The returns on Forms W-3 and W-2 required
under paragraph (a) of this section shall be filed pursuant to the rules
contained in Sec. 31.6091-1 of this chapter (Employment Tax
Regulations), relating to the place for filing certain returns.
(c) Special rule for calendar years before 1972. For calendar years
before 1972, the provisions of this section will be deemed to have been
complied with if the returns for such years were filed in accordance
with the provisions of this section in effect prior to August 3, 1973,
or with the instructions applicable to the appropriate forms.
(d) Last day for filing return. For provisions relating to the time
for performance of an act when the last day prescribed for performance
falls on Saturday, Sunday, or a legal holiday, see Sec. 301.7503-1 of
this chapter (Regulations on Procedure and Administration).
(e) Penalty. For provisions relating to the penalty provided for
failure to file the information returns required by this section, see
section 6652 and the regulations thereunder.
[T.D. 6888, 31 FR 9205, July 6, 1966, as amended by T.D. 7284, 38 FR
20828, Aug. 3, 1973; T.D. 7580, 43 FR 60160, Dec. 26, 1978; T.D. 7623,
44 FR 28800, May 17, 1979; T.D. 8895, 65 FR 50408, Aug. 18, 2000]
Sec. 1.6052-2 Statements to be furnished employees with respect to
wages paid in the form of group-term life insurance.
(a) Requirement. Every employer filing a return under section
6052(a) and Sec. 1.6052-1, with respect to group-term life insurance on
the life of an employee, shall furnish to the employee whose name is set
forth in such return the tax return copy and the employee's copy of Form
W-2. Each copy of Form
[[Page 505]]
W-2 must show the information required to be shown on the Form W-2 filed
under Sec. 1.6052-1. An employer may truncate an employee's social
security number to appear in the form of an IRS truncated taxpayer
identification number (TTIN) on copies of Forms W-2 furnished to the
employee. For provisions relating to the use of TTINs, see Sec.
301.6109-4 of this chapter (Procedure and Administration Regulations).
The rules in Sec. 31.6051-1 of this chapter (Employment Taxes and
Collection of Income Tax at Source Regulations) shall apply with respect
to the means and time (including extensions thereof) for furnishing the
employee's copy of Form W-2 required by this section to the employee and
making corrections to such form.
(b) Definitions. Terms used in this section and in section 79 and
the regulations thereunder have the meaning ascribed to them in section
79 and the regulations thereunder.
(c) Penalty. For provisions relating to the penalty provided for
failure to furnish a statement under this section, see section 6722 and
the regulations in part 301 under section 6722.
(d) Applicability date. This section is applicable for statements
required to be furnished under section 6052 after December 31, 2020.
[T.D. 6888, 31 FR 9205, July 6, 1966, as amended by T.D. 7284, 38 FR
20828, Aug. 3, 1973; T.D. 7580, 43 FR 60160, Dec. 26, 1978; T.D. 7623,
44 FR 28800, May 17, 1979; T.D. 9861, 84 FR 31719, July 3, 2019]
Sec. 1.6055-1 Information reporting for minimum essential coverage.
(a) Information reporting requirement. Every person that provides
minimum essential coverage to an individual during a calendar year must
file an information return and transmittal and furnish statements to
responsible individuals on forms prescribed by the Internal Revenue
Service.
(b) Definitions--(1) In general. The definitions in this paragraph
(b) apply for purposes of this section.
(2) Affordable Care Act. The term Affordable Care Act refers to the
Patient Protection and Affordable Care Act, Public Law 111-148 (124
Stat. 119 (2010)), and the Health Care and Education Reconciliation Act
of 2010, Public Law 111-152 (124 Stat. 1029 (2010)), and amendments to
those acts.
(3) ERISA. The term ERISA means the Employee Retirement Income
Security Act of 1974, as amended (29 U.S.C. 1001 et seq.).
(4) Exchange. Exchange has the same meaning as in 45 CFR 155.20.
(5) Government employer. The term government employer means an
employer that is a governmental unit or an agency or instrumentality of
a governmental unit.
(6) Governmental unit. The term governmental unit refers to the
government of the United States, any State or political subdivision of a
State, or any Indian tribal government (as defined in section
7701(a)(40)) or subdivision of an Indian tribal government (as defined
in section 7871(d)).
(7) Agency or instrumentality of a governmental unit. [Reserved]
(8) Minimum essential coverage. Minimum essential coverage is
defined in section 5000A(f) and regulations issued under that section.
(9) Qualified health plan. The term qualified health plan has the
same meaning as in section 1301(a) of the Affordable Care Act (42 U.S.C.
18021(a)).
(10) Reporting entity. A reporting entity is any person that must
report, under section 6055 and this section, minimum essential coverage
provided to an individual.
(11) Responsible individual. The term responsible individual
includes a primary insured, employee, former employee, uniformed
services sponsor, parent, or other related person named on an
application who enrolls one or more individuals, including him or
herself, in minimum essential coverage.
(12) Taxpayer identification number. The term taxpayer
identification number (TIN) has the same meaning as in section
7701(a)(41).
(c) Persons required to report--(1) In general. The following
persons must file the information return and transmittal form required
under paragraph (a) of this section to report minimum essential
coverage--
(i) Health insurance issuers, or carriers (as used in 5 U.S.C.
8901), for all insured coverage, except as provided in paragraph
(c)(3)(ii) of this section;
[[Page 506]]
(ii) Plan sponsors of self-insured group health plan coverage;
(iii) The executive department or agency of a governmental unit that
provides coverage under a government-sponsored program (within the
meaning of section 5000A(f)(1)(A)); and
(iv) Any other person that provides minimum essential coverage to an
individual.
(2) Plan sponsors of self-insured group health plan coverage--(i) In
general. For purposes of this section, a plan sponsor of self-insured
group health plan coverage is--
(A) The employer for a self-insured group health plan or arrangement
established or maintained by a single employer (determined without
application of section 414(b), (c), (m) or (o) in the case of an
employer described in paragraph (f)(2)(i) of this section), including
each participating employer with respect to a self-insured group health
plan or arrangement established or maintained by more than one employer
(and not including a multiemployer plan as defined in section 3(37) of
ERISA or a Multiple Employer Welfare Arrangement as defined in section
3(40) of ERISA);
(B) The association, committee, joint board of trustees, or other
similar group of representatives of the parties who establish or
maintain the plan for a self-insured group health plan or arrangement
that is a multiemployer plan (as defined in section 3(37) of ERISA).
(C) The employee organization for a self-insured group health plan
or arrangement maintained solely by an employee organization;
(D) Each participating employer for a self-insured group health plan
or arrangement maintained by a Multiple Employer Welfare Arrangement (as
defined in section 3(40) of ERISA) with respect to the participating
employer's own employees; and
(E) For a self-insured group health plan or arrangement for which a
plan sponsor is not otherwise identified in paragraphs (c)(2)(i)(A)
through (c)(2)(i)(D) of this section, the person designated by plan
terms as the plan sponsor or plan administrator or, if no person is
designated as the administrator and a plan sponsor cannot be identified,
each entity that maintains the plan or arrangement.
(ii) Government employers. Unless otherwise provided by statute or
regulation, a government employer that maintains a self-insured group
health plan or arrangement may enter into a written agreement with
another governmental unit, or an agency or instrumentality of a
governmental unit, that designates the other governmental unit, agency,
or instrumentality as the person required to file the returns and to
furnish the statements required by this section for some or all of the
individuals receiving minimum essential coverage under that plan or
arrangement. The designated governmental unit, agency, or
instrumentality must be part of or related to the same governmental unit
as the government employer (for example, a political subdivision of a
State may designate the State or another political subdivision of the
state) and agree to the designation. The government employer must make
or revoke the designation before the earlier of the deadline for filing
the returns or furnishing the statements required by this section and
must retain a copy of the designation in its books and records. If the
requirements of this paragraph (c)(2)(ii) are met, the designated
governmental unit, agency, or instrumentality is the sponsor under
paragraph (c)(2)(i) of this section. If no entity is designated, the
government employer that maintains the self-insured group health plan or
arrangement is the sponsor under paragraph (c)(2)(i) of this section.
(3) Special rules for government-sponsored programs--(i) Medicaid
and Children's Health Insurance Program (CHIP) coverage. The State
agency that administers the Medicaid program under title XIX of the
Social Security Act (42 U.S.C. 1396 and following sections) or the CHIP
program under title XXI of the Social Security Act (42 U.S.C. 1396 and
following sections) must file the returns and furnish the statements
required by this section for those programs.
(ii) Government-sponsored coverage provided through health insurance
issuers. An executive department or agency of a governmental unit that
provides coverage under a government-
[[Page 507]]
sponsored program through a health insurance issuer (such as Medicaid,
CHIP, or Medicare, including Medicare Advantage) must file the returns
and furnish the statements required by this section.
(iii) Nonappropriated Fund Health Benefits Program. The Secretary of
Defense may designate the Department of Defense components (as used in
DoD Directive 5100.01, Functions of the Department of Defense and Its
Major Components (December 21, 2010)) that must file the returns and
furnish the statements required by this section for the Nonappropriated
Fund Health Benefits Program.
(4) Other arrangements recognized as minimum essential coverage. The
Commissioner may designate in published guidance, see Sec. 601.601(d)
of this chapter, the reporting entity for arrangements the Secretary of
Health and Human Services, in coordination with the Secretary of the
Treasury, recognizes under section 5000A(f)(1)(E) as minimum essential
coverage.
(d) Reporting not required--(1) Qualified health plans. A health
insurance issuer is not required to file a return or furnish a report
under this section for coverage in a qualified health plan in the
individual market enrolled in through an Exchange.
(2) Additional health benefits. No reporting is required under
paragraph (a) of this section for minimum essential coverage that
provides benefits in addition or as a supplement to a health plan or
arrangement that constitutes minimum essential coverage if--
(i) The primary and supplemental coverages have the same plan
sponsor; or
(ii) The coverage supplements government-sponsored coverage (as
defined in section 5000A(f)(1)(A) and the regulations under that
section) such as Medicare.
(3) Individuals not enrolled in coverage. No reporting is required
under this section for coverage offered to individuals who do not
enroll.
(e) Information required to be reported to the Internal Revenue
Service--(1) In general. All information returns required by this
section must report the following information for the calendar year of
coverage--
(i) The name, address, and employer identification number (EIN) of
the reporting entity required to file the return;
(ii) The name, address, and TIN, or date of birth if a TIN is not
available, of the responsible individual, except that reporting entities
may but are not required to report the TIN of a responsible individual
not enrolled in the coverage;
(iii) The name and TIN, or date of birth if a TIN is not available,
of each individual who is covered under the policy or program;
(iv) For each covered individual, the months for which, for at least
one day, the individual was enrolled in coverage and entitled to receive
benefits; and
(v) Any other information specified in forms, instructions, or
published guidance, see Sec. Sec. 601.601(d) and 601.602 of this
chapter.
(2) Information relating to employer-provided coverage. In addition
to the information described in paragraph (e)(1) of this section,
information returns reporting minimum essential coverage provided to an
individual that is coverage provided by a health insurance issuer
through a group health plan must report--
(i) The name, address, and EIN of the employer sponsoring the plan;
(ii) Whether the coverage is a qualified health plan enrolled in
through the Small Business Health Options Program (SHOP) and the SHOP's
unique identifier; and
(iii) Other information specified in forms, instructions, or
published guidance, see Sec. Sec. 601.601(d) and 601.602 of this
chapter.
(f) Time and manner for filing return--(1) In general. A reporting
entity must file the return and transmittal form required under
paragraph (a) of this section on or before February 28 (March 31 if
filed electronically) of the year following the calendar year in which
it provided minimum essential coverage to an individual. A reporting
entity must file the return and transmittal form as specified in forms
or instructions. For extensions of time for filing returns under this
section see Sec. Sec. 1.6081-1 and 1.6081-8. See Sec. 301.6011-2 of
this chapter for rules relating to electronic filing.
[[Page 508]]
(2) Form of return--(i) Applicable large employer members. A
reporting entity that is reporting under section 6055 as an applicable
large employer member (as defined in Sec. 54.4980H-1(a)(5) of this
chapter) makes the return required under this paragraph (f) on Form
1094-C and Form 1095-C or other form designated by the Internal Revenue
Service.
(ii) Reporting entities not reporting as applicable large employer
members. Entities reporting as health insurance issuers or carriers,
sponsors of self-insured group health plans that are not reporting as
applicable large employer members, sponsors of multiemployer plans, and
providers of government-sponsored coverage, will report under section
6055 on Form 1094-B and Form 1095-B or other form designated by the
Internal Revenue Service.
(iii) Substitute forms. Reporting entities may make the return
required under this paragraph (f) on a substitute form. A substitute
form must comply with revenue procedures or other published guidance
(see Sec. 601.601(d)(2) of this chapter) that apply to substitute
forms.
(g) Statements to be furnished to responsible individuals--(1) In
general. Every person required to file a return under this section must
furnish to the responsible individual identified on the return a written
statement. For purposes of the penalty under section 6722, furnishing a
statement to the responsible individual is treated as furnishing a
statement to the payee. The statement must show--
(i) The phone number for a person designated as the reporting
entity's contact person and policy number, if any; and
(ii) Information described in paragraph (e) of this section required
to be shown on the section 6055 return for the responsible individual
and each covered individual listed on the return.
(2) Statements for individuals other than the responsible
individual. A reporting entity is not required to provide a statement
described in paragraph (g)(1) of this section to an individual who is
not the responsible individual.
(3) Form of the statement. A statement required under this paragraph
(g) may be made either by furnishing to the responsible individual a
copy of the return filed with the Internal Revenue Service or on a
substitute statement. A substitute statement must include the
information required to be shown on the return filed with the Internal
Revenue Service and must comply with requirements in published guidance
(see Sec. 601.601(d)(2) of this chapter) relating to substitute
statements. An Internal Revenue Service truncated taxpayer
identification number may be used as the identification number for an
individual in lieu of the identification number appearing on the
corresponding information return filed with the Internal Revenue
Service.
(4) Time and manner for furnishing statements--(i) Time for
furnishing--(A) In general. A reporting entity must furnish the
statements required under this paragraph (g) on or before January 31 of
the year following the calendar year in which minimum essential coverage
is provided.
(B) Extensions of time--(1) In general. For good cause upon written
application of the person required to furnish statements under this
section, the Internal Revenue Service may grant an extension of time not
exceeding 30 days in which to furnish these statements. The application
must be addressed to the Internal Revenue Service, and must contain a
full recital of the reasons for requesting the extension to aid the
Internal Revenue Service in determining the period of the extension, if
any, that will be granted. A request in the form of a letter to the
Internal Revenue Service, signed by the applicant, suffices as an
application. The application must be filed on or before the date
prescribed in paragraph (g)(4)(i)(A) of this section.
(2) Automatic extension of time. The Commissioner may, in
appropriate cases, prescribe additional guidance or procedures,
published in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of
this chapter), for automatic extensions of time to furnish to one or
more individuals the statement required under section 6055.
[[Page 509]]
(ii) Manner of furnishing. If mailed, the statement must be sent to
the responsible individual's last known permanent address or, if no
permanent address is known, to the individual's temporary address. For
purposes of this paragraph (g)(4), a reporting entity's first class
mailing to the last known permanent address, or if no permanent address
is known, the temporary address, discharges the requirement to furnish
the statement. A reporting entity may furnish the statement
electronically if the requirements of Sec. 1.6055-2 are satisfied.
(h) Penalties--(1) In general. For provisions relating to the
penalty for failure to file timely a correct information return required
under section 6055, see section 6721 and the regulations under that
section. For provisions relating to the penalty for failure to furnish
timely a correct statement to responsible individuals required under
section 6055, see section 6722 and the regulations under that section.
See section 6724 and the regulations under that section for rules
relating to the waiver of penalties if a failure to file timely or
accurately is due to reasonable cause and is not due to willful neglect.
(2) Application of section 6721 and 6722 penalties to section 6055
reporting. For purposes of section 6055 reporting, if the information
reported on a return (including a transmittal) or a statement required
by this section is incomplete or incorrect as a result of a change in
circumstances (such as a retroactive change in coverage), a failure to
timely file or furnish a corrected document is a failure to file or
furnish a correct return or statement under sections 6721 and 6722.
(i) [Reserved]
(j) Effective/applicability date. This section applies for calendar
years beginning after December 31, 2014. Reporting entities will not be
subject to penalties under section 6721 or 6722 for failure to comply
with the section 6055 reporting requirements for coverage in 2014 (for
information returns filed and statements furnished in 2015).
[T.D. 9660, 79 FR 13227, Mar. 10, 2014; 79 FR 24331, Apr. 30, 2014]
Sec. 1.6055-2 Electronic furnishing of statements.
(a) Electronic furnishing of statements--(1) In general. A person
required by section 6055 to furnish a statement (furnisher) to a
responsible individual (a recipient) may furnish the statement in an
electronic format in lieu of a paper format. A furnisher who meets the
requirements of paragraphs (a)(2) through (a)(6) of this section is
treated as furnishing the statement in a timely manner.
(2) Consent--(i) In general. The recipient must have affirmatively
consented to receive the statement in an electronic format. The consent
may be made electronically in any manner that reasonably demonstrates
that the recipient can access the statement in the electronic format in
which it will be furnished. Alternatively, the consent may be made in a
paper document that is confirmed electronically.
(ii) Withdrawal of consent. The consent requirement of this
paragraph (a)(2) is not satisfied if the recipient withdraws the consent
and the withdrawal takes effect before the statement is furnished. The
furnisher may provide that a withdrawal of consent takes effect either
on the date the furnisher receives it or on another date no more than 60
days later. The furnisher also may provide that a recipient's request
for a paper statement will be treated as a withdrawal of the recipient's
consent.
(iii) Change in hardware or software requirements. If a change in
the hardware or software required to access the statement creates a
material risk that the recipient will not be able to access a statement,
a furnisher must, prior to changing the hardware or software, notify the
recipient. The notice must describe the revised hardware and software
required to access the statement and inform the recipient that a new
consent to receive the statement in the revised electronic format must
be provided to the furnisher. After implementing the revised hardware or
software, the furnisher must obtain from the recipient, in the manner
described in paragraph (a)(2)(ii) of this section, a new consent or
confirmation of consent to receive the statement electronically.
[[Page 510]]
(iv) Examples. The following examples illustrate the rules of this
paragraph (a)(2):
Example 1. Furnisher F sends Recipient R a letter stating that R may
consent to receive the statement required under section 6055
electronically on a Web site instead of in a paper format. The letter
contains instructions explaining how to consent to receive the statement
electronically by accessing the Web site, downloading and completing the
consent document, and emailing the completed consent back to F. The
consent document posted on the Web site uses the same electronic format
that F will use for the electronically furnished statement. R reads the
instructions and submits the consent in the manner provided in the
instructions. R has consented to receive the statement required under
section 6055 electronically in the manner described in paragraph
(a)(2)(i) of this section.
Example 2. Furnisher F sends Recipient R an email stating that R may
consent to receive the statement required under section 6055
electronically instead of in a paper format. The email contains an
attachment instructing R how to consent to receive the statement
electronically. The email attachment uses the same electronic format
that F will use for the electronically furnished statement. R opens the
attachment, reads the instructions, and submits the consent in the
manner provided in the instructions. R has consented to receive the
statement required under section 6055 electronically in the manner
described in paragraph (a)(2)(i) of this section.
Example 3. Furnisher F posts a notice on its Web site stating that
Recipient R may receive the statement required under section 6055
electronically instead of in a paper format. The Web site contains
instructions on how R may access a secure Web page and consent to
receive the statement electronically. The consent via the secure Web
page uses the same electronic format that F will use for electronically
furnishing the statement. R accesses the secure Web page and follows the
instructions for giving consent. R has consented to receive the
statement required under section 6055 electronically in the manner
described in paragraph (a)(2)(i) of this section.
(3) Required disclosures--(i) In general. Prior to, or at the time
of, a recipient's consent, a furnisher must provide to the recipient a
clear and conspicuous disclosure statement containing each of the
disclosures described in this paragraph (a)(3).
(ii) Paper statement. The furnisher must inform the recipient that
the statement will be furnished on paper if the recipient does not
consent to receive it electronically.
(iii) Scope and duration of consent. The furnisher must inform the
recipient of the scope and duration of the consent. For example, the
recipient must be informed whether the consent applies to each statement
required to be furnished after the consent is given until it is
withdrawn or only to the first statement required to be furnished
following the date of the consent.
(iv) Post-consent request for a paper statement. The furnisher must
inform the recipient of any procedure for obtaining a paper copy of the
recipient's statement after giving the consent described in paragraph
(a)(2)(i) of this section and whether a request for a paper statement
will be treated as a withdrawal of consent.
(v) Withdrawal of consent. The furnisher must inform the recipient
that--
(A) The recipient may withdraw a consent by writing (electronically
or on paper) to the person or department whose name, mailing address,
telephone number, and email address is provided in the disclosure
statement;
(B) The furnisher will confirm the withdrawal and the date on which
it takes effect in writing (either electronically or on paper); and
(C) A withdrawal of consent does not apply to a statement that was
furnished electronically in the manner described in this paragraph (a)
before the date on which the withdrawal of consent takes effect.
(vi) Notice of termination. The furnisher must inform the recipient
of the conditions under which the furnisher will cease furnishing
statements electronically to the recipient (for example, termination of
the recipient's employment with a furnisher who is the recipient's
employer).
(vii) Updating information. The furnisher must inform the recipient
of the procedures for updating the information needed to contact the
recipient. The furnisher must inform the recipient of any change in the
furnisher's contact information.
(viii) Hardware and software requirements. The furnisher must
provide the recipient with a description of the hardware and software
required to access, print, and retain the statement,
[[Page 511]]
and the date when the statement will no longer be available on the Web
site. The furnisher must advise the recipient that the statement may be
required to be printed and attached to a Federal, State, or local income
tax return.
(4) Format. The electronic version of the statement must contain all
required information and comply with applicable published guidance (see
Sec. 601.601(d) of this chapter) relating to substitute statements to
recipients.
(5) Notice--(i) In general. If a statement is furnished on a Web
site, the furnisher must notify the recipient. The notice may be
delivered by mail, electronic mail, or in person. The notice must
provide instructions on how to access and print the statement and
include the following statement in capital letters, ``IMPORTANT TAX
RETURN DOCUMENT AVAILABLE.'' If the notice is provided by electronic
mail, this statement must be on the subject line of the electronic mail.
(ii) Undeliverable electronic address. If an electronic notice
described in paragraph (a)(5)(i) of this section is returned as
undeliverable, and the furnisher cannot obtain the correct electronic
address from the furnisher's records or from the recipient, the
furnisher must furnish the notice by mail or in person within 30 days
after the electronic notice is returned.
(iii) Corrected statement. If the furnisher has corrected a
recipient's statement and the original statement was furnished
electronically, the furnisher must furnish a corrected statement to the
recipient electronically. If the original statement was furnished
through a Web site posting, the furnisher must notify the recipient that
it has posted the corrected statement on the Web site in the manner
described in paragraph (a)(5)(i) of this section within 30 days of the
posting. The corrected statement or the notice must be furnished by mail
or in person if--
(A) An electronic notice of the Web site posting of an original
statement or the corrected statement was returned as undeliverable; and
(B) The recipient has not provided a new email address.
(6) Access period. Statements furnished on a Web site must be
retained on the Web site through October 15 of the year following the
calendar year to which the statements relate (or the first business day
after October 15, if October 15 falls on a Saturday, Sunday, or legal
holiday). The furnisher must maintain access to corrected statements
that are posted on the Web site through October 15 of the year following
the calendar year to which the statements relate (or the first business
day after such October 15, if October 15 falls on a Saturday, Sunday, or
legal holiday) or the date 90 days after the corrected forms are posted,
whichever is later.
(7) Paper statements after withdrawal of consent. A furnisher must
furnish a paper statement if a recipient withdraws consent to receive a
statement electronically and the withdrawal takes effect before the
statement is furnished. A paper statement furnished after the statement
due date under this paragraph (a)(7) is timely if furnished within 30
days after the date the furnisher receives the withdrawal of consent.
(b) Effective/applicability date. This section applies for calendar
years beginning after December 31, 2014. Reporting entities will not be
subject to penalties under section 6722 with respect to the reporting
requirements for 2014 (for statements furnished in 2015).
[T.D. 9660, 79 FR 13227, Mar. 10, 2014]
Sec. 1.6060-1 Reporting requirements for tax return preparers.
(a) In general. (1) Each person who employs one or more signing tax
return preparers to prepare any return of tax or claim for refund of
tax, other than for the person, at any time during a return period shall
satisfy the requirements of section 6060 of the Internal Revenue Code
by--
(i) Retaining a record of the name, taxpayer identification number,
and principal place of work during the return period of each tax return
preparer employed by the person at any time during that period; and
(ii) Making that record available for inspection upon request by the
Commissioner.
(2) The record described in this paragraph (a) must be retained and
kept available for inspection for the 3-year
[[Page 512]]
period following the close of the return period to which that record
relates.
(3) The person may choose any form of documentation to be used under
this section as a record of the signing tax return preparers employed
during a return period. The record, however, must disclose on its face
which individuals were employed as tax return preparers during that
period.
(4) For the definition of the term ``signing tax return preparer'',
see Sec. 301.7701-15(b)(1) of this chapter. For the definition of the
term ``return period'', see paragraph (b) of this section.
(5)(i) For purposes of this section, any individual who, in acting
as a signing tax return preparer, is not employed by another tax return
preparer shall be treated as his or her own employer. Thus, a sole
proprietor shall retain and make available a record with respect to
himself (or herself) as provided in this section.
(ii) A partnership shall, for purposes of this section, be treated
as the employer of the partners of the partnership and shall retain and
make available a record with respect to the partners and others employed
by the partnership as provided in this section.
(b) Return period defined. For purposes of this section, the term
return period means the 12-month period beginning on July 1 of each
year.
(c) Penalty. For the civil penalty for failure to retain and make
available a record of the tax return preparers employed during a return
period as required under this section, or for failure to include an item
in the record required to be retained and made available under this
section, see Sec. 1.6695-1(e).
(d) Effective/applicability date. This section is applicable to
returns and claims for refund filed after December 31, 2008.
[T.D. 7640, 44 FR 49451, Aug. 23, 1979, as amended by T.D. 9436, 73 FR
78437, Dec. 22, 2008]
signing and verifying of returns and other documents
Sec. 1.6061-1 Signing of returns and other documents by individuals.
(a) Requirement. Each individual (including a fiduciary) shall sign
the income tax return required to be made by him, except that the return
may be signed for the taxpayer by an agent who is duly authorized in
accordance with paragraph (a)(5) or (b) of Sec. 1.6012-1 to make such
return. Other returns, statements, or documents required under the
provisions of subtitle A or F of the Code or of the regulations
thereunder to be made by any person with respect to any tax imposed by
subtitle A of the Code shall be signed in accordance with any
regulations contained in this chapter, or any instructions, issued with
respect to such returns, statements, or other documents.
(b) Cross references. For provisions relating to the signing of
returns, statements, or other documents required to be made by
corporations and partnerships with respect to any tax imposed by
subtitle A of the Code, see Sec. Sec. 1.6062-1 and 1.6063-1,
respectively. For provisions relating to the making of returns by
agents, see paragraphs (a)(5) and (b) of Sec. 1.6012-1; and to the
making of returns for minors and persons under a disability, see
paragraph (a)(4) of Sec. 1.6012-1 and paragraph (b) of Sec. 1.6012-3.
[T.D. 7332, 39 FR 44232, Dec. 23, 1974]
Sec. 1.6062-1 Signing of returns, statements, and other documents
made by corporations.
(a) Returns--(1) In general. Returns required to be made by
corporations under the provisions of subtitle A or F of the Code, or the
regulations thereunder, with respect to any tax imposed by subtitle A of
the Code, shall be signed for the corporation by the president, vice-
president, treasurer, assistant treasurer, chief accounting officer, or
any other officer duly authorized to sign such returns. It is not
necessary that the corporate seal be affixed to the return. Spaces
provided on return forms for affixing the corporate seal are for the
convenience of corporations required by charter, or by law of the
jurisdiction in which they are incorporated, to affix their corporate
seals in the execution of instruments.
(2) By fiduciaries. A return with respect to income required to be
made for a corporation by a fiduciary, pursuant to the provisions of
section 6012(b)(3), shall be signed by such fiduciary. See paragraph
(b)(4) of Sec. 1.6012-3.
[[Page 513]]
(3) By agents. A return with respect to income required to be made
by an agent for a foreign corporation shall be signed by such agent. See
paragraph (g) of Sec. 1.6012-2.
(b) Statements and other documents. Statements and other documents
required to be made by or for corporations under the provisions of
subtitle A or F of the Code, or the regulations thereunder, with respect
to any tax imposed by subtitle A, shall be signed in accordance with the
regulations contained in this chapter, or the forms and instructions,
issued with respect to such statements or other documents.
(c) Evidence of authority to sign. An individual's signature on a
return, statement, or other document made by or for a corporation shall
be prima facie evidence that such individual is authorized to sign such
return, statement, or other document.
(d) Related provisions. For the rules realating to the verification
of returns, see Sec. 1.6065-1.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7293, 38 FR
32804, Nov. 28, 1973]
Sec. 1.6063-1 Signing of returns, statements, and other documents
made by partnerships.
(a) In general. Returns, statements, and other documents required to
be made by partnerships under the provisions of subtitle A or F of the
Code, or the regulations thereunder, with respect to any tax imposed by
subtitle A of the Code shall be signed by any one of the partners.
However, with respect to the signing of powers of attorney, see
paragraph (a)(2) of Sec. 601.504 of this chapter (Statement of
Procedural Rules).
(b) Evidence of authority to sign. A partner's signature on a
return, statement, or other document made by or for a partnership of
which he is a member shall be prima facie evidence that such partner is
authorized to sign such return, statement, or other document.
(c) Certain partnership elections--(1) In general. For rules
regarding the authority of a partner to sign a partnership return filed
solely for the purpose of making certain partnership level elections,
see Sec. 1.6031(a)-1(b)(5)(ii).
(2) Effective date. Paragraph (c) of this section applies to taxable
years of a partnership beginning after December 31, 1999.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 8841, 64 FR
61502, Nov. 12, 1999]
Sec. 1.6065-1 Verification of returns.
(a) Persons signing returns. If a return, declaration, statement, or
other document made under the provisions of subtitle A or F of the Code,
or the regulation thereunder, with respect to any tax imposed by
subtitle A of the Code is required by the regulations contained in this
chapter, or the form and instructions, issued with respect to such
return, declaration, statement, or other document, to contain or be
verified by a written declaration that it is made under the penalties of
perjury, such return, declaration, statement, or other document shall be
so verified by the person signing it.
(b) Persons preparing returns--(1) In general. Except as provided in
subparagraph (2) of this paragraph, if a return, declaration, statement,
or other document is prepared for a taxpayer by another person for
compensation or as an incident to the performance of other services for
which such person receives compensation, and the return, declaration,
statement, or other document requires that it shall contain or be
verified by a written declaration that it is prepared under the
penalties of perjury, the preparer must so verify the return,
declaration, statement, or other document. A person who renders mere
mechanical assistance in the preparation of a return, declaration,
statement, or other document as, for example, a stenographer or typist,
is not considered as preparing the return, declaration, statement, or
other document.
(2) Exception. The verification required by subparagraph (1) of this
paragraph is not required on returns, declarations, statements, or other
documents which are prepared:
(i) For an employee either by his employer or by an employee
designated for such purpose by the employer, or
[[Page 514]]
(ii) For an employer as a usual incident of the employment of one
regularly or continuously employed by such employer.
[T.D. 6364, 24 FR 1196, Feb. 17, 1959]
time for filing returns and other documents
Sec. 1.6071-1 Time for filing returns and other documents.
(a) In general. Whenever a return, statement, or other document is
required to be made under the provisions of subtitle A or F of the Code,
or the regulations thereunder, with respect to any tax imposed by
subtitle A of the Code, and the time for filing such return, statement,
or other document is not provided for by the Code, it shall be filed at
the time prescribed by the regulations contained in this chapter with
respect to such return, statement, or other document.
(b) Return for a short period. In the case of a return with respect
to tax under subtitle A of the Code for a short period (as defined in
section 443), the district director or director of the Internal Revenue
Service Center may, upon a showing by the taxpayer of unusual
circumstances, prescribe a time for filing the return for such period
later than the time when such return would otherwise be due. However,
the district director or director of the Internal Revenue Service Center
may not extend the time when the return for a DISC (as defined in
section 992(a)(1)) must be filed, as specified in section 6072(b).
(c) Time for filing certain information returns. (1) For provisions
relating to the time for filing returns of partnership income, see
paragraph (e)(2) of Sec. 1.6031-1.
(2) For provisions relating to the time for filing information
returns by banks with respect to common trust funds, see Sec. 1.6032-1.
(3) For provisions relating to the time for filing information
returns by certain organizations exempt from taxation under section
501(a), see paragraph (e) of Sec. 1.6033-1.
(4) For provisions relating to the time for filing returns by trusts
claiming charitable deductions under section 642(c), see paragraph (c)
of Sec. 1.6034-1.
(5) [Reserved{time}
(6) For provisions relating to the time for filing information
returns with respect to certain stock option transactions, see paragraph
(c) of Sec. 1.6039-1.
(7) For provisions relating to the time for filing information
returns by persons making certain payments, see Sec. 1.6041-2(a)(3) and
Sec. 1.6041-6.
(8) For provisions relating to the time for filing information
returns regarding payments of dividends, see Sec. 1.6042-2(c).
(9) For provisions relating to the time for filing information
returns by corporations with respect to contemplated dissolution or
liquidations, see paragraph (a) of Sec. 1.6043-1.
(10) For provisions relating to the time for filing information
returns by corporations with respect to distributions in liquidation,
see paragraph (a) of Sec. 1.6043-2.
(11) For provisions relating to the time for filing information
returns with respect to payments of patronage dividends, see Sec.
1.6044-2(d).
(12) For provisions relating to the time for filing information
returns with respect to formation or reorganization of foreign
corporations, see Sec. 1.6046-1.
(13) For provisions relating to the time for filing information
returns regarding certain payments of interest, see Sec. 1.6049-4(g).
(14) For provisions relating to the time for filing information
returns with respect to payment of wages in the form of group-term life
insurance, see paragraph (b) of Sec. 1.6052-1.
(15) For provisions relating to the time for filing an annual
information return on Form 1042-S, ``Foreign Person's U.S. Source Income
subject to Withholding,'' or Form 8805, ``Foreign Partner's Information
Statement of Section 1446 Withholding Tax,'' for any tax withheld under
chapter 3 of the Internal Revenue Code (relating to withholding of tax
on nonresident aliens and foreign corporations and tax-free covenant
bonds), see Sec. 1.1461-1(c) and Sec. 1.1446-3(d).
(16) For provisions relating to the time for filing the annual
information
[[Page 515]]
return on Form 1042S of the tax withheld under chapter 3 of the Code
(relating to withholding of tax on nonresident aliens and foreign
corporations and tax-free covenant bonds), see paragraph (c) of Sec.
1.1461-2.
(d) Effective/Applicability date. The references to Form 8805 and
Sec. 1.1446-3(d) in paragraph (c)(15) of this section shall apply to
partnership taxable years beginning after April 29, 2008.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6887, 31 FR
8814, June 24, 1966; T.D. 6908, 31 FR 16775, Dec. 31, 1966; T.D. 7284,
38 FR 20829, Aug. 3, 1973; T.D. 7533, 43 FR 6604, Feb. 15, 1978; T.D.
8734, 62 FR 53492, Oct. 14, 1997; T.D. 9394, 73 FR 23085, Apr. 29, 2008;
T.D. 9849, 84 FR 9237, Mar. 14, 2019]
Sec. 1.6072-1 Time for filing returns of individuals, estates,
and trusts.
(a) In general--(1) Returns of income for individuals, estates and
trusts. Except as provided in paragraphs (b) and (c) of this section,
returns of income required under sections 6012, 6013, 6014, and 6017 of
individuals, estates, domestic trusts, and foreign trusts having an
office or place of business in the United States (including unrelated
business tax returns of such trusts referred to in section 511(b)(2))
shall be filed on or before the fifteenth day of the fourth month
following the close of the taxable year.
(2) Return of trust, or portion of a trust, treated as owned by a
decedent--(i) In general. In the case of a return of a trust, or portion
of a trust, that was treated as owned by a decedent under subpart E
(section 671 and following), part I, subchapter J, chapter 1 of the
Internal Revenue Code as of the date of the decedent's death that is
filed in accordance with Sec. 1.671-4(a) for the fractional part of the
year ending with the date of the decedent's death, the due date of such
return shall be the fifteenth day of the fourth month following the
close of the 12-month period which began with the first day of the
decedent's taxable year.
(ii) Effective date. This paragraph (a)(2) applies to taxable years
ending on or after December 24, 2002.
(b) Decedents. In the case of a final return of a decedent for a
fractional part of a year, the due date of such return shall be the
fifteenth day of the fourth month following the close of the 12-month
period which began with the first day of such fractional part of the
year.
(c) Nonresident alien individuals and foreign trusts. The income tax
return of a nonresident alien individual (other than one treated as a
resident under section 6013 (g) or (h)) and of a foreign trust which
does not have an office or place of business in the United States
(including unrelated business tax returns of such trusts referred to in
section 511(b)(2)0 shall be filed on or before the fifteenth day of the
sixth month following the close of the taxable year. However, a
nonresident alien individual who for the taxable year has wages subject
to withholding under chapter 24 of the Code shall file his income tax
return on or before the fifteenth day of the fourth month following the
close of the taxable year.
(d) Last day for filing return. For provisions relating to the time
for filing a return where the last day for filing falls on Saturday,
Sunday, or a legal holiday, see section 7503 and Sec. 301.7503-1 of
this chapter (Regulations on Procedure and Administration).
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 7426, 41 FR
33263, Aug. 9, 1976; T.D. 7670, 45 FR 6931, Jan. 31, 1980; T.D. 9032, 67
FR 78382, Dec. 24, 2002]
Sec. 1.6072-2 Time for filing returns of corporations.
(a) Domestic and certain foreign corporations--(1) In general--(i) C
corporations. Except as provided in paragraph (a)(2) of this section,
the income tax return required under section 6012 of a domestic C
corporation (as defined in section 1361(a)(2)) or of a foreign C
corporation having an office or place of business in the United States
shall be filed on or before the fifteenth day of the fourth month
following the close of the taxable year.
(ii) S corporations. The income tax return required under sections
6012 and 6037 of an S corporation (as defined in section 1361(a)(1))
shall be filed on or before the fifteenth day of the third month
following the close of the taxable year.
(2) Exception. For taxable years beginning before January 1, 2026,
the income tax return of a C corporation described in paragraph
(a)(1)(i) of this
[[Page 516]]
section that has a taxable year that ends on June 30 shall be filed on
or before the fifteenth day of the third month following the close of
the taxable year. For purposes of this paragraph (a)(2), the return for
a short period (within the meaning of section 443) that ends on any day
in June shall be treated as the return for a taxable year that ends on
June 30.
(b) Foreign corporations not having an office or place of business
in the United States. The income tax return of a foreign corporation
which does not have an office or place of business in the United States
shall be filed on or before the fifteenth day of the sixth month
following the close of the taxable year.
(c) Exempt organizations. For taxable years beginning after November
10, 1978, the income tax return required under section 6012 and Sec.
1.6012-2(e) of an organization exempt from taxation under section 501(a)
(other than an employee's trust under section 401(a)) shall be filed on
or before the fifteenth day of the fifth month following the close of
the organization's taxable year.
(d) Cooperative organizations. The income tax return of the
following cooperative organizations shall be filed on or before the
fifteenth day of the ninth month following the close of the taxable
year:
(1) Section 521 associations. A farmers', fruit growers', or like
association, organized and operated in compliance with the requirements
of section 521 and Sec. 1.521-1; and
(2) Section 1381 corporations. For a taxable year beginning after
December 31, 1962, a corporation described in section 1381(a)(2), which
is under a valid enforceable written obligation to pay patronage
dividends (as defined in section 1388(a) and Sec. 1.1388-1(a)) in an
amount equal to at least 50 percent of its net earnings from business
done with or for its patrons, or which paid patronage dividends in such
an amount out of the net earnings from business done with or for patrons
during the most recent taxable year for which it had such net earnings.
Net earnings for purposes of this paragraph (d)(2) shall not be reduced
by any taxes imposed by subtitle A of the Internal Revenue Code and
shall not be reduced by dividends paid on capital stock or other
proprietary interest.
(e) DISC's and former DISC's. The return required under section
6011(c)(2) of a corporation which is a DISC (as defined in section
992(a) shall be filed on or before the 15th day of the 9th month
following the close of the taxable year. For the rule that a DISC may
not have an extension of time in which to file such return, see
Sec. Sec. 1.6071-1(b), 1.6081-1(a), and 1.6081-3(e). The return
required under Sec. 1.6011-2(b)(1) by a former DISC shall be filed at
the time it is required to file its income tax return.
(f) Cross references. For provisions relating to the time for filing
a return where the last day for filing falls on Saturday, Sunday, or a
legal holiday, see section 7503 and Sec. 301.7503-1 of this chapter
(Regulations on Procedure and Administration). For provisions relating
to the fixing of a later time for filing in the case of a return for a
short period, see paragraph (b) of Sec. 1.6071-1. For provisions
relating to time for filing consolidated returns and separate returns
for short periods not included in consolidated returns, see Sec. Sec.
1.1502-75 and 1.1502-76.
(g) Applicability date. This section applies to returns filed on or
after January 30, 2020. Section 1.6072-2T (as contained in 26 CFR part
1, revised April 2019) applies to returns before January 30, 2020.
[T.D. 6500, 25 FR 12133, Nov. 26, 1960, as amended by T.D. 6643, 28 FR
3163, Apr. 2, 1963; T.D. 7244, 37 FR 28897, Dec. 30, 1972; T.D. 7533, 43
FR 6604, Feb. 15, 1978; T.D. 7896, 48 FR 23818, May 27, 1983; T.D. 9821,
82 FR 33445, July 20, 2017; T.D. 9892, 85 FR 5326, Jan. 30, 2020]
Sec. 1.6072-3 Income tax due dates postponed in case of China
Trade Act corporations.
(a) With respect to a taxable year beginning after December 31,
1948, and ending before October 1, 1956, the income tax return of any
corporation organized under the China Trade Act of 1922 (15 U.S.C. ch.
4), as amended, shall not become due until December 31, 1956, provided
that during any such taxable year conditions in China have been
generally so unsettled as to militate against the normal commercial
operations and corporate activities of
[[Page 517]]
such corporation. However, the postponement of the due date shall not
apply to an income tax return for any such taxable year if:
(1) The books of account and business records are available so as to
permit the filing of a proper return, and the corporation has otherwise
been in a position to carry on its commercial operations and corporate
activities and to make a proper distribution of its earnings or profits,
if any, so as to permit the certification required by section 941(b); or
(2) All the commercial operations and corporate activities of such
corporation have been carried on in Hong Kong, Macao, or Taiwan
(Formosa).
(b) Notwithstanding the provisions of paragraph (a) (1) or (2) of
this section, the postponed due date referred to in this section will
apply if a corporation satisfies the Commissioner that special
circumstances exist, related to the unsettled conditions in China, which
warrant such postponement.
(c) The postponed due date provided for in this section is expressly
subject to the power of the Commissioner to extend, as in other cases,
the time for filing the income tax return. See section 6081 and the
regulations thereunder.
Sec. 1.6072-4 Time for filing other returns of income.
(a) Reports for recovery of excessive profits on Government
contracts. For the time for filing annual reports by persons completing
Government contracts, see 26 CFR (1939) 17.16 (Treasury Decision 4906,
approved June 23, 1939), and 26 CFR (1939) 16.15 (Treasury Decision
4909, approved June 28, 1939), as made applicable to section 1471 of the
Internal Revenue Code of 1954 by Treasury Decision 6091, approved August
16, 1954 (19 FR 5167, C.B. 1954-2, 47).
(b) [Reserved]
[T.D. 6908, 31 FR 16775, Dec. 31, 1966, as amended by T.D. 9849, 84 FR
9237, Mar. 14, 2019]
Sec. 1.6073-1 Time and place for filing declarations of estimated
income tax by individuals.
(a) Individuals other than farmers or fishermen. Declarations of
estimated tax for the calendar year shall be made on or before April
15th of such calendar year by every individual whose anticipated income
for the year meets the requirements of section 6015(a). If, however, the
requirements necessitating the filing of the declaration are first met,
in the case of an individual on the calendar year basis, after April
1st, but before June 2d of the calendar year, the declaration must be
filed on or before June 15th; if such requirements are first met after
June 1st and before September 2d, the declaration must be filed on or
before September 15th; and if such requirements are first met after
September 1st, the declaration must be filed on or before January 15th
of the succeeding calendar year. In the case of an individual on the
fiscal year basis, see Sec. 1.6073-2. A special rule applies to
nonresident aliens who do not have wages subject to withholding under
Chapter 24 of the code and are not treated as residents under section
6013 (g) or (h) of the code. For taxable years beginning after December
31, 1976, these aliens are not required to file a declaration of
estimated tax before June 15th.
(b) Farmers or fishermen--(1) In general. In the case of an
individual on a calendar year basis:
(i) If at least two-thirds of the individual's total estimated gross
income from all sources for the calendar year is from farming or fishing
(including oyster farming), or
(ii) If at least two-thirds of the individual's total gross income
from all sources shown on the return for the preceding taxable year was
from farming or fishing (including oyster farming) (with respect to
declarations of estimated tax for taxable years beginning after November
10, 1978),
He may file a declaration of estimated tax on or before the 15th day of
January of the succeeding calendar year in lieu of the time prescribed
in paragraph (a) of this section. For the filing of a return in lieu of
a declaration, see paragraph (a) of Sec. 1.6015-1.
(2) Farmers. The estimated gross income from farming is the
estimated income resulting from oyster farming, the cultivation of the
soil, the raising or harvesting of any agricultural or horticultural
commodities, and the raising of livestock, bees, or poultry. In
[[Page 518]]
other words, the requisite gross income must be derived from the
operations of a stock, dairy, poultry, fruit, or truck farm, or
plantation, ranch, nursery, range, orchard, or oyster bed. If an
individual receives for the use of his land income in the form of a
share of the crops produced thereon such income is from farming. As to
determination of income of farmers, see sections 61 and 162 and the
regulations thereunder.
(3) Fishermen. The estimated gross income from fishing is the
estimated income resulting from the catching, taking, harvesting,
cultivating or farming of any kind of fish, shellfish (for example,
clams and mussels), crustacea (for example, lobsters, crabs, and
shrimps), sponges, seaweeds, or other aquatic forms of animal and
vegetable life. The estimated gross income from fishing includes the
income expected to be received by an officer or member of the crew of a
vessel while the vessel is engaged in any such activity, whether or not
the officer or member of the crew is himself so engaged, and, in the
case of an individual who is engaged in any such activity in the employ
of any person, the income expected to be received by such individual
from such employment. In addition, income expected to be received for
services performed as an ordinary incident to any such activity is
estimated gross income from fishing. Similarly, for example, the
estimated gross income from fishing includes income expected to be
received from the shore services of an officer or member of the crew of
a vessel engaged in any such activity, if such services are an ordinary
incident to any such activity. Services performed as an ordinary
incident to such activities include, for example, services performed in
such cleaning, icing, and packing of fish as are necessary for the
immediate preservation of the catch.
(c) Nonresident aliens. Notwithstanding the provisions of paragraph
(a) of this section, for taxable years beginning after December 31,
1976, in the case of a nonresident alien described in section 6072(c)
(relating to returns of nonresident aliens whose wages are not subject
to withholding) whose estimated gross income for the calendar year meets
the requirements of section 6015(a), a declaration of estimated tax for
the calendar year need not be made before June 15th of such calendar
year.
(d) Place for filing declaration. Except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried documents), the
declaration of estimated tax shall be filed at the place prescribed by
the instructions applicable to such declaration. For example, if the
instructions applicable to a declaration provide that the declaration of
a taxpayer located in North Carolina be filed with the Director,
Internal Revenue Service Center, Chamblee, Ga., such declaration shall
be filed with the service center.
(e) Amendment of declaration. An amended declaration of estimated
tax may be filed during any interval between installment dates
prescribed for the taxable year. However, no amended declaration may be
filed until after the installment date on or before which the original
declaration was filed and only one amended declaration may be filed
during each interval between installment dates. Except as provided in
paragraph (b) of Sec. 301.6091-1 (relating to hand-carried documents),
an amended declaration shall be filed with the internal revenue officer
with whom the original declaration was filed.
[T.D. 6678, 28 FR 10516, Oct. 1, 1963, as amended by T.D. 6950, 33 FR
5355, Apr. 4, 1968; T.D. 7670, 45 FR 6931, Jan. 31, 1980; T.D. 7719, 45
FR 60902, Sept. 15, 1980]
Sec. 1.6073-2 Fiscal years.
(a) Individuals other than farmers or fishermen. In the case of an
individual on the fiscal year basis, the declaration must be filed on or
before the 15th day of the 4th month of the taxable year. If, however,
the requirements of section 6015(a) are first met after the 1st day of
the 4th month and before the 2d day of the 6th month, the declaration
must be filed on or before the 15th day of the 6th month of the taxable
year. If such requirements are first met after the 1st day of the 6th
month, and before the 2d day of the 9th month, the declaration must be
filed on or before the 15th day of the 9th month of the taxable year. If
such requirements are first met after the 1st day of the 9th month, the
declaration must be filed on or before the 15th day of the 1st month of
the succeeding fiscal year.
[[Page 519]]
Thus, if an individual taxpayer has a fiscal year ending on June 30,
1956, his declaration must be filed on or before October 15, 1955, if
the requirements of section 6015(a) are met on or before October 1,
1955. If, however, such requirements are not met until after October 1,
1955, and before December 2, 1955, the declaration need not be filed
until December 15, 1955.
(b) Farmers or fishermen. In the case of an individual on a fiscal
year basis:
(1) If at least two-thirds of the individual's total estimated gross
income from all sources for the fiscal year is from farming or fishing
(including oyster farming), or
(2) If at least two-thirds of the individual's total gross income
from all sources shown on the return for the preceding taxable year was
from farming or fishing (including oyster farming) (with respect to
declarations of estimated tax for taxable years beginning after November
10, 1978),
he may file a declaration on or before the 15th day of the month
immediately following the close of his taxable year, in lieu of the time
prescribed in paragraph (a) of this section.
(c) Nonresident aliens. Notwithstanding the provisions of paragraph
(a) of this section, in the case of a nonresident alien described in
section 6072(c) (relating to returns of nonresident aliens whose wages
are not subject to withholding) whose anticipated income for the fiscal
year meets the requirements of section 6015(a), Sec. 1.6015(a)-1, and
Sec. 1.6015(i)-1, the declaration of estimated tax for the fiscal year
need not be filed before the 15th day of the 6th month of such fiscal
year.
[T.D. 6678, 28 FR 10516, Oct. 1, 1963, as amended by T.D. 7719, 45 FR
60903, Sept. 15, 1980]
Sec. 1.6073-3 Short taxable years.
(a) Individuals other than farmers or fishermen. In the case of
short taxable years the declaration shall be filed on or before the 15th
day of the 4th month of such taxable year if the requirements of section
6015(a) are met on or before the 1st day of the 4th month of such year.
If such requirements are first met after the 1st day of the 4th month
but before the 2d day of the 6th month, the declaration must be filed on
or before the 15th day of the 6th month. If such requirements are first
met after the 1st day of the 6th month but before the 2d day of the 9th
month, the declaration must be filed on or before the 15th day of the
9th month. If, however, the period for which the declaration is filed is
one of 4 months, or one of 6 months and the requirements of section
6015(a) are not met until after the 1st day of the 4th month, or one of
9 months and such requirements are not met until after the 1st day of
the 6th month, the declaration may be filed on or before the 15th day of
the succeeding taxable year.
(b) Farmers or fishermen. In the case of an individual:
(1) Whose current taxable year is a short taxable year and whose
estimated gross income from farming or fishing (including oyster
farming) is at least two-thirds of his total estimated gross income from
all sources for such current taxable year, or
(2) Whose taxable year preceding the current taxable year was a
short taxable year and whose gross income from farming or fishing
(including oyster farming) was at least two-thirds of the total gross
income from all sources shown on the return for such preceding short
taxable year (with respect to declarations of estimated tax for taxable
years beginning after November 10, 1978),
he may file a declaration of estimated tax on or before the 15th day of
the month immediately following the close of the current taxable year,
in lieu of the time prescribed in paragraph (a) of this section.
(c) Nonresident aliens. Notwithstanding the provisions of paragraph
(a) of this section, in the case of a short taxable year, a nonresident
alien described in section 6072(c) (relating to returns of nonresident
aliens whose wages are not subject to withholding) whose anticipated
income for the short taxable year meets the requirements of section
6015(a). Sections 1.6015(a)-1, 1.6015(g)-1, and 1.6015(i)-1 on or before
the 1st day of the 6th month following the beginning of such year need
not file a declaration of estimated tax before
[[Page 520]]
the 15th day of the 6th month following the beginning of such year.
[T.D. 6678, 28 FR 10516, Oct. 1, 1963, as amended by T.D. 7719, 45 FR
60903, Sept. 15, 1980]
Sec. 1.6073-4 Extension of time for filing declarations by
individuals.
(a) In general. District directors and directors of service centers
are authorized to grant a reasonable extension of time for filing a
declaration or an amended declaration. Except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried documents), an
application for an extension of time for filing such a declaration shall
be addressed to the internal revenue officer with whom the taxpayer is
required to file his declaration, and must contain a full recital of the
causes for the delay. Except in the case of taxpayers who are abroad, no
extension for filing declarations may be granted for more than 6 months.
(b) Citizens outside of the United States. In the case of a United
States citizen outside the United States and Puerto Rico on the 15th day
of the 4th month of his taxable year, an extension of time for filing
his declaration of estimated tax otherwise due on or before the 15th day
of the 4th month of the taxable year is granted to and including the
15th day of the 6th month of the taxable year. For purposes of applying
this paragraph to taxable years beginning prior to January 1, 1964,
Alaska shall be considered outside the United States.
(c) Residents outside the United States. In the case of a U.S.
resident living or traveling outside the United States and Puerto Rico
on the 15th day of the 4th month of a taxable year beginning after
December 31, 1978, an extension of time for filing the declaration of
estimated tax otherwise due on or before the 15th day of the 4th month
of the taxable year is granted to and including the 15th day of the 6th
month of the taxable year.
(d) Addition to tax applicable. An extension of time for filing the
declaration of estimated tax automatically extends the time for paying
the estimated tax (without interest) for the same period. However, such
extension does not relieve the taxpayer from the addition to the tax
imposed by section 6654, and the period of the underpayment will be
determined under section 6654(c) without regard to such extension.
[T.D. 6500, 25 FR 12008, Nov. 26, 1960, as amended by T.D. 6638, 28 FR
1765, Feb. 26, 1963; T.D. 6950, 33 FR 5355, Apr. 4, 1968; T.D. 7736, 45
FR 76143, Nov. 18, 1980]
Sec. 1.6074-1 Time and place for filing declarations of estimated
income tax by corporations.
(a) Taxable years beginning on or before December 31, 1963. For
taxable years ending on or after December 31, 1955, and beginning on or
before December 31, 1963, declarations of estimated tax for the taxable
year shall be filed on or before the 15th day of the 9th month of such
year by every corporation whose then anticipated income tax liability
under section 11 or 1201(a), or subchapter L, chapter 1 of the Code, for
the year meets the requirements of section 6016(a). If, however, the
requirements necessitating the filing of a declaration are first met
after the last day of the 8th month and before the first day of the 12th
month of the taxable year the declaration shall be filed on or before
the 15th day of the 12th month of the taxable year. If, however, the
requirements of section 6016(a) are not met before the first day of the
12th month of the taxable year, no declaration need be filed for such
year.
(b) Taxable years beginning after December 31, 1963. A declaration
of estimated tax for a taxable year beginning after December 31, 1963,
required of a corporation by section 6016 shall be filed as follows:
------------------------------------------------------------------------
If the requirements of section 6016 are The declaration shall be
first met-- filed on or before--
------------------------------------------------------------------------
before the 1st day of the 4th month of the the 15th day of the 4th
taxable year. month of the taxable year
after the last day of the 3d month and the 15th day of the 67th
before the 1st day of the 6th month of month of the taxable year
the taxable year.
after the last day of the 5th month and the 15th day of the 9th
before the 1st day of the 9th month of month of the taxable year
the taxable year.
after the last day of the 8th month and the 15th day of the 12th
before the 1st day of the 12th month of month of the taxable year
the taxable year.
------------------------------------------------------------------------
(c) Place for filing declaration. Except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried
[[Page 521]]
documents), the declaration of estimated tax shall be filed at the place
prescribed by the instructions applicable to such declaration. For
example, if the instructions applicable to a declaration provide that
the declaration of a corporation located in North Carolina be filed with
the Director, Internal Revenue Service Center, Chamblee, Ga., such
declaration shall be filed with the service center.
(d) Amendment of declaration--(1) Taxable years beginning on or
before December 31, 1963. A declaration of estimated tax for a taxable
year beginning on or before December 31, 1963, which is filed by a
corporation prior to the 15th day of the 12th month of the taxable year
may be amended in the manner prescribed in Sec. 1.6016-3, at any time
on or before such 15th day. An amended declaration shall be filed with
the internal revenue officer with whom the original declaration was
filed.
(2) Taxable years beginning after December 31, 1963. In any case
where a declaration of estimated tax for a taxable year beginning after
December 31, 1963, has been filed, an amended declaration of estimated
tax may be filed during any interval between installment dates
prescribed for the taxable year. However, no amended declaration may be
filed until after the installment date on or before which the original
declaration was filed and only one amended declaration may be filed
during each interval between installment dates. See Sec. 1.6016-3 for
the manner of making an amended declaration. Except as provided in
paragraph (b) of Sec. 301.6091-1 (relating to hand-carried documents),
an amended declaration shall be filed with the internal revenue officer
with whom the original declaration was filed.
[T.D. 6768, 29 FR 14922, Nov. 4, 1964, as amended by T.D. 6950, 33 FR
5355, Apr. 4, 1968]
Sec. 1.6074-2 Time for filing declarations by corporations in case
of a short taxable year.
(a) Taxable years beginning on or before December 31, 1963--(1) In
general. In the case of a short taxable year of 9 months or more
beginning on or before December 31, 1963, where the requirements of
section 6016(a) are met before the 1st day of the 9th month of the short
taxable year, the declaration shall be filed on or before the 15th day
of the 9th month of such short year. In the case of a short taxable year
of more than 9 months, where the requirements of section 6016(a) are
first met after the last day of the 8th month, but before the 1st day of
the last month of the short taxable year, the declaration shall be filed
on or before the 15th day of the last month of such short year. See
Sec. 1.6016-4, relating to the requirement of a declaration in the case
of a short taxable year, and paragraph (a) of Sec. 1.6154-2, relating
to the time for payment of the estimated tax in case of a short taxable
year.
(2) Example. The application of the provisions of this paragraph may
be illustrated by the following example:
Example. A corporation which changes from a calendar year basis to a
fiscal year basis beginning November 1, 1960, will have a short taxable
year beginning January 1, 1960, and ending October 31, 1960. If the
requirements of section 6016(a) are met before September 1, 1960 (the
1st day of the 9th month), the corporation is required to file its
declaration on or before September 15, 1960 (the 15th day of the 9th
month). However, if the requirements of section 6016(a) are first met
after August 31, 1960 (the last day of the 8th month), but before
October 1, 1960 (the 1st day of the last month of the short year), the
corporation is required to file its declaration on or before October 15,
1960 (the 15th day of the last month of the short year).
(b) Taxable years beginning after December 31, 1963--(1) In general.
In the case of a short taxable year of 4 or more months which begins
after December 31, 1963, the declaration shall be filed on or before the
applicable date specified in paragraph (b) of Sec. 1.6074-1, except
that in the case of a short taxable year ending after November 30, 1964,
the declaration shall be filed on or before the 15th day of the last
month of the short taxable year if the requirements of section 6016(a)
are first met before the first day of such last month and the date
specified in such paragraph (b) as applicable is not within the short
taxable year. See Sec. 1.6016-4, relating to the requirement of a
declaration in the case of a short taxable year, and paragraph (b) of
Sec. 1.6154-2, relating to the time for payment of the estimated tax in
case of a short taxable year.
[[Page 522]]
(2) Examples. The application of the provisions of this paragraph
may be illustrated by the following examples:
Example 1. A corporation filing on a calendar year basis which
changes to a fiscal year beginning September 1, 1965, will have a short
taxable year beginning January 1, 1965, and ending August 31, 1965. If
the requirements of section 6016(a) are met before April 1, 1965 (the
1st day of the 4th month), the declaration of estimated tax must be
filed on or before April 15, 1965 (the 15th day of the 4th month).
Example 2. If, in the first example, the corporation first meets the
requirements of section 6016(a) during July 1965, then the requirements
of section 6016(a) were met before the first day of the last month of
the short taxable year, and a declaration of estimated tax is required
to be filed on or before August 15, 1965, for the short taxable year.
However, if the corporation does not meet the requirements of section
6016(a) until August 1, 1965, then the requirements of section 6016(a)
were not met before the first day of the last month of the short taxable
year, and no declaration of estimated tax is required to be filed for
the short taxable year.
(c) Amendment of declaration--(1) Taxable years beginning on or
before December 31, 1963. Where a declaration of estimated tax for a
short taxable year of more than 9 months beginning on or before December
31, 1963, is filed before the 15th day of the last month of the short
taxable year, an amended declaration may be filed any time on or before
such 15th day.
(2) Taxable years beginning after December 31, 1963. Where a
declaration of estimated tax for a short taxable year beginning after
December 31, 1963, has been filed, an amended declaration may be filed
during any interval between installment dates. However, no amended
declaration for a short taxable year may be filed until after the
installment date on or before which the original declaration was filed
and only one amended declaration may be filed during each interval
between installment dates. For purposes of this subparagraph the term
``installment date'' includes the 15th day of the last month of a short
taxable year if such 15th day does not fall on a prescribed installment
date.
[T.D. 6768, 29 FR 14923, Nov. 4, 1964]
Sec. 1.6074-3 Extension of time for filing declarations by
corporations.
(a) In general. District directors and directors of service centers
are authorized to grant a reasonable extension of time for filing a
declaration or an amended declaration. Except as provided in paragraph
(b) of Sec. 301.6091-1 (relating to hand-carried documents), an
application by a corporation for an extension of time for filing such a
declaration shall be addressed to the internal revenue officer with whom
the corporation is required to file its declaration and must contain a
full recital of the causes for the delay.
(b) Addition to tax applicable. An extension of time granted to a
corporation for filing a declaration of estimated tax automatically
extends the time for paying the estimated tax (without interest) for the
same period. However, such extension does not relieve the corporation
from the addition to the tax imposed by section 6655, and the period of
the underpayment will be determined under section 6655(c) without regard
to such extension.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6950, 33 FR
5355, Apr. 4, 1968]
Extension of Time for Filing Returns
Sec. 1.6081-1 Extension of time for filing returns.
(a) In general. The Commissioner is authorized to grant a reasonable
extension of time for filing any return, declaration, statement, or
other document that relates to any tax imposed by subtitle A of the
Internal Revenue Code (Code) and that is required under the provisions
of subtitle A or F of the Code. However, other than in the case of
taxpayers who are abroad or as specified in section 6081(b), such
extensions of time shall not be granted for more than six months, and
the extension of time for filing the return of a DISC (as defined in
section 992(a)), as specified in section 6072(b), shall not be granted.
Except in the case of an extension of time pursuant to Sec. 1.6081-5,
an extension of time for filing an income tax return shall not operate
to extend the time for the payment of the tax unless
[[Page 523]]
specified to the contrary in the extension. For rules relating to
extensions of time for paying tax, see Sec. 1.6161-1.
(b) Application for extension of time--(1) In general. Under other
sections in this chapter, certain taxpayers may request an automatic
extension of time to file certain returns. Except in undue hardship
cases, no extension of time to file a return will be allowed under this
section until an automatic extension of time to file the return has been
allowed under the applicable section. No extension of time to file a
return will be granted under this section for a period of time greater
than that provided for by automatic extension. A taxpayer desiring an
extension of the time for filing a return, statement, or other document
shall submit an application for extension on or before the due date of
such return, statement, or other document. If a form exists for the
application for an extension, the taxpayer should use the form; however,
taxpayers may apply for an extension in a letter that includes the
information required by this paragraph. Except as provided in Sec.
301.6091-1(b) of this chapter (relating to hand-carried documents), the
taxpayer should make the application for extension to the Internal
Revenue Service office where such return, statement, or other document
is required to be filed. Except for requests for automatic extensions of
time to file certain returns provided for elsewhere in this chapter, the
application must be in writing, signed by the taxpayer or his duly
authorized agent, and must clearly set forth--
(i) The particular tax return, information return, statement, or
other document, including the taxable year or period thereof, for which
the taxpayer requests an extension; and
(ii) An explanation of the reasons for requesting the extension to
aid the internal revenue officer in determining whether to grant the
request.
(2) Taxpayer unable to sign. In any case in which a taxpayer is
unable, by reason of illness, absence, or other good cause, to sign a
request for an extension, any person standing in close personal or
business relationship to the taxpayer may sign the request on his
behalf, and shall be considered as a duly authorized agent for this
purpose, provided the request sets forth the reasons for a signature
other than the taxpayer's and the relationship existing between the
taxpayer and the signer.
(c) Applicability date. This section applies to requests for
extension of time to file returns on or after January 30, 2020. Section
1.6081-1T (as contained in 26 CFR part 1, revised April 2019) applies to
requests for extension of time to file returns before January 30, 2020.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6581, 26 FR
11678, Dec. 6, 1961; T.D. 6950, 33 FR 5355, Apr. 4, 1968; T.D. 7260, 38
FR 4258, Feb. 12, 1973; T.D. 7533, 43 FR 6604, Feb. 15, 1978; T.D. 7651,
44 FR 61597, Oct. 26, 1979; T.D. 8241, 54 FR 7762, Feb. 23, 1989; T.D.
9163, 69 FR 70548, Dec. 7, 2004; T.D. 9407, 73 FR 37365, July 1, 2008;
T.D. 9821, 82 FR 33446, July 20, 2017; T.D. 9892, 85 FR 5326, Jan. 30,
2020]
Sec. 1.6081-2 Automatic extension of time to file certain returns
filed by partnerships.
(a) In general. A partnership required to file Form 1065, ``U.S.
Partnership Return of Income,'' or Form 8804, ``Annual Return for
Partnership Withholding Tax,'' for any taxable year will be allowed an
automatic six-month extension of time to file the return after the date
prescribed for filing the return if the partnership files an application
under this section in accordance with paragraph (b) of this section. No
additional extension will be allowed pursuant to Sec. 1.6081-1(b)
beyond the automatic six-month extension provided by this section. In
the case of a partnership described in Sec. 1.6081-5(a)(1), the
automatic extension of time to file allowed under this section runs
concurrently with an extension of time to file granted pursuant to Sec.
1.6081-5.
(b) Requirements. To satisfy this paragraph (b), the partnership
must--
(1) Submit a complete application on Form 7004, ``Application for
Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner;
(2) File the application on or before the later of--
(i) The date prescribed for filing the return of the partnership; or
(ii) The expiration of any extension of time to file granted under
Sec. 1.6081-5(a); and
[[Page 524]]
(3) File the application with the Internal Revenue Service office
designated in the application's instructions.
(c) Payment of section 7519 amount. An automatic extension of time
for filing a partnership return of income granted under paragraph (a) of
this section does not extend the time for payment of any amount due
under section 7519, relating to required payments for entities electing
not to have a required taxable year.
(d) Section 444 election. An automatic extension of time for filing
a partnership return of income will run concurrently with any extension
of time for filing a return allowed because of section 444, relating to
the election of a taxable year other than a required taxable year.
(e) Effect of extension on partner. An automatic extension of time
for filing a partnership return of income under this section does not
extend the time for filing a partner's income tax return or the time for
the payment of any tax due on a partner's income tax return.
(f) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the
partnership a notice of termination at least 10 days prior to the
termination date designated in such notice. The Commissioner must mail
the notice of termination to the address shown on the Form 7004 or to
the partnership's last known address. For further guidance regarding the
definition of last known address, see Sec. 301.6212-2 of this chapter.
(g) Penalties. See section 6698 for failure to file a partnership
return.
(h) Applicability date. This section applies to applications for an
automatic extension of time to file the partnership returns listed in
paragraph (a) of this section on or after January 30, 2020. Section
1.6081-2T (as contained in 26 CFR part 1, revised April 2019) applies to
applications for an automatic extension of time to file before January
30, 2020.
[T.D. 9531, 76 FR 36998, June 24, 2011; T.D. 9821, 82 FR 33446, July 20,
2017; T.D. 9892, 85 FR 5326, Jan. 30, 2020]
Sec. 1.6081-3 Automatic extension of time for filing corporation
income tax returns.
(a) In general. Except as provided in paragraphs (e) and (f) of this
section, a corporation or an affiliated group of corporations filing a
consolidated return will be allowed an automatic 6-month extension of
time to file its income tax return after the date prescribed for filing
the return if the following requirements are met.
(1) An application must be submitted on Form 7004, ``Application for
Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner.
(2) The application must be filed on or before the date prescribed
for the filing of the return of the corporation (or the consolidated
return of the affiliated group of corporations) with the Internal
Revenue Service office designated in the application's instructions.
(3) The corporation (or affiliated group of corporations filing a
consolidated return) must remit the amount of the properly estimated
unpaid tax liability on or before the date prescribed for payment.
(4) The application must include a statement listing the name and
address of each member of the affiliated group if the affiliated group
will file a consolidated return. Upon the timely filing of Form 7004,
the 6-month extension of time to file shall be considered as granted to
the affiliated group for the filing of its consolidated return or for
the filing of each member's separate return.
(b) No extension of time for the payment of tax. Any automatic
extension of time for filing a corporation income tax return granted
under paragraph (a) of this section shall not operate to extend the time
for payment of any tax due on such return.
(c) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing a notice of
termination to the corporation (parent corporation in the case of an
affiliated group of corporations filing a consolidated return). The
notice shall be mailed at least 10 days
[[Page 525]]
prior to the termination date designated in such notice. The notice of
termination shall be sufficient for all purposes when mailed to the
corporation at the address shown on Form 7004 or to the corporation's
last known address. For further guidance regarding the definition of
last known address, see Sec. 301.6212-2 of this chapter.
(d) No extension for DISCs. Paragraphs (a) through (c) of this
section shall not apply to returns filed by a DISC pursuant to section
6011(c)(2).
(e) Exception. In the case of any return for a taxable year of a C
corporation that ends on June 30 and begins before January 1, 2026, the
first sentence of paragraph (a) of this section shall be applied by
substituting ``7-month'' for ``6-month.'' For purposes of this paragraph
(e), the return for a short period (within the meaning of section 443)
that ends on any day in June shall be treated as the return for a
taxable year that ends on June 30.
(f) Cross reference. For provisions relating to extensions of time
to file Form 1120-POL, ``U.S. Income Tax Return for Certain Political
Organizations,'' see Sec. 1.6081-9.
(g) Applicability date. This section applies to requests for
extension of time to file corporation income tax returns on or after
January 30, 2020. Section 1.6081-3T (as contained in 26 CFR part 1,
revised April 2019) applies to applications for an automatic extension
of time to file before January 30, 2020.
[T.D. 9163, 69 FR 70548, Dec. 7, 2004, as amended by T.D. 9229, 70 FR
67359, Nov. 7, 2005; T.D. 9407, 73 FR 37366, July 1, 2008; T.D. 9821, 82
FR 33446, July 20, 2017; T.D. 9892, 85 FR 5326, Jan. 30, 2020]
Sec. 1.6081-4 Automatic extension of time for filing individual
income tax return.
(a) In general. An individual who is required to file an individual
income tax return will be allowed an automatic 6-month extension of time
to file the return after the date prescribed for filing the return if
the individual files an application under this section in accordance
with paragraph (b) of this section. In the case of an individual
described in Sec. 1.6081-5(a)(5) or (6), the automatic 6-month
extension will run concurrently with the extension of time to file
granted pursuant to Sec. 1.6081-5.
(b) Requirements. To satisfy this paragraph (b), an individual
must--
(1) Submit a complete application on Form 4868, ``Application for
Automatic Extension of Time To File U.S. Individual Income Tax Return,''
or in any other manner prescribed by the Commissioner;
(2) File the application on or before the later of--
(i) The date prescribed for filing the return; or
(ii) The expiration of any extension of time to file granted
pursuant to Sec. 1.6081-5;
(3) File the application with the Internal Revenue Service office
designated in the application's instructions; and
(4) Show the full amount properly estimated as tax for the taxable
year.
(c) No extension of time for the payment of tax. An automatic
extension of time for filing a return granted under paragraph (a) of
this section will not extend the time for payment of any tax due on such
return.
(d) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the
individual a notice of termination at least 10 days prior to the
termination date designated in such notice. The Commissioner must mail
the notice of termination to the address shown on the Form 4868 or to
the individual's last known address. For further guidance regarding the
definition of last known address, see Sec. 301.6212-2 of this chapter.
(e) Penalties. See section 6651 for failure to file an individual
income tax return or failure to pay the amount shown as tax on the
return. In particular, see Sec. 301.6651-1(c)(3) of this chapter
(relating to a presumption of reasonable cause in certain circumstances
involving an automatic extension of time for filing an individual income
tax return).
(f) Effective/applicability dates. This section is applicable for
applications for an automatic extension of time to file an individual
income tax return filed after July 1, 2008.
[T.D. 9407, 73 FR 37366, July 1, 2008]
[[Page 526]]
Sec. 1.6081-5 Extensions of time in the case of certain partnerships,
corporations and U.S. citizens and residents.
(a) An extension of time for filing returns of income and for paying
any tax shown on the return is hereby granted to and including the
fifteenth day of the sixth month following the close of the taxable year
in the case of--
(1) Partnerships, which are required under section 6072(b) to file
returns on the fifteenth day of the third month following the close of
the taxable year of the partnership, that keep their records and books
of account outside the United States and Puerto Rico;
(2) Domestic corporations which transact their business and keep
their records and books of account outside the United States and Puerto
Rico;
(3) Foreign corporations which maintain an office or place of
business within the United States;
(4) Domestic corporations whose principal income is from sources
within the possessions of the United States;
(5) United States citizens or residents whose tax homes and abodes,
in a real and substantial sense, are outside the United States and
Puerto Rico; and
(6) United States citizens and residents in military or naval
service on duty, including non-permanent or short term duty, outside the
United States and Puerto Rico.
(b) In order to qualify for the extension under this section--
(1) A statement must be attached to the return showing that the
person for whom the return is made is a person described in paragraph
(a) of this section; or
(2) If a person described in paragraph (a) of this section requests
additional time to file, the person must request the extension on or
before the fifteenth day of the sixth month following the close of the
taxable year and check the appropriate box on Form 4868, ``Application
for Automatic Extension of Time To File a U.S. Individual Income Tax
Return,'' or Form 7004, ``Application for Automatic Extension of Time to
File Certain Business Income Tax, Information, and Other Returns,''
whichever is applicable, or in any other manner prescribed by the
Commissioner.
(c) For purposes of paragraph (a)(5) of this section, whether a
person is a United States resident will be determined in accordance with
section 7701(b) of the Code. The term ``tax home,'' as used in paragraph
(a)(5), will have the same meaning which it has for purposes of section
162(a)(2) (relating to travel expenses away from home). If a person does
not have a regular or principal place of business, that person's tax
home will be considered to be his regular place of abode in a real and
substantial sense.
(d) In order to qualify for the extension under paragraph (a)(6),
the assigned tour of duty outside the United States and Puerto Rico must
be for a period that includes the entire due date of the return.
(e) A person otherwise qualifying for the extension under paragraph
(a)(5) or paragraph (a)(6) shall not be disqualified because he is
physically present in the United States or Puerto Rico at any time,
including the due date of the return.
(f) This section applies to returns filed on or after January 30,
2020. Section 1.6081-5T (as contained in 26 CFR part 1, revised April
2019) applies to applications for an automatic extension of time to file
returns before January 30, 2020.
[T.D. 8312, 55 FR 37227, Sept. 10, 1990; 55 FR 41310, Oct. 10, 1990, as
amended by T.D. 9163, 69 FR 70550, Dec. 7, 2004; T.D. 9229, 70 FR 67359,
Nov. 7, 2005; T.D. 9407, 73 FR 37366, July 1, 2008; T.D. 9821, 82 FR
33447, July 20, 2017; T.D. 9892, 85 FR 5326, Jan. 30, 2020]
Sec. 1.6081-6 Automatic extension of time to file estate or trust
income tax return.
(a) In general. (1) Except as provided in paragraph (a)(2) of this
section, any estate, including but not limited to an estate defined in
section 2031, or trust required to file an income tax return on Form
1041, ``U.S. Income Tax Return for Estates and Trusts,'' will be allowed
an automatic five and one-half month extension of time to file the
return after the date prescribed for filing the return if the estate or
trust files an application under this section in accordance with
paragraph (b) of this section. No additional extension will be allowed
pursuant to Sec. 1.6081-1(b) beyond
[[Page 527]]
the automatic five and one-half month extension provided by this
section.
(2) A bankruptcy estate that is created when an individual debtor
files a petition under either chapter 7 or chapter 11 of title 11 of the
U.S. Code that is required to file an income tax return on Form 1041,
``U.S. Income Tax Return for Estates and Trusts,'' and an estate or
trust required to file an income tax return on Form 1041-N, ``U.S.
Income Tax Return for Electing Alaska Native Settlement,'' or Form 1041-
QFT, ``U.S. Income Tax Return for Qualified Funeral Trusts'' for any
taxable year will be allowed an automatic 6-month extension of time to
file the return after the date prescribed for filing the return if the
estate files an application under this section in accordance with
paragraph (b) of this section.
(b) Requirements. To satisfy this paragraph (b), an estate or trust
must--
(1) Submit a complete application on Form 7004, ``Application for
Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner;
(2) File the application on or before the date prescribed for filing
the return with the Internal Revenue Service office designated in the
application's instructions; and
(3) Show the amount properly estimated as tax for the estate or
trust for the taxable year.
(c) No extension of time for the payment of tax. An automatic
extension of time for filing a return granted under paragraph (a) of
this section will not extend the time for payment of any tax due on such
return.
(d) Effect of extension on beneficiary. An automatic extension of
time to file an estate or trust income tax return under this section
will not extend the time for filing the income tax return of a
beneficiary of the estate or trust or the time for the payment of any
tax due on the beneficiary's income tax return.
(e) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the estate or
trust a notice of termination at least 10 days prior to the termination
date designated in such notice. The Commissioner must mail the notice of
termination to the address shown on the Form 7004 or to the estate or
trust's last known address. For further guidance regarding the
definition of last known address, see Sec. 301.6212-2 of this chapter.
(f) Penalties. See section 6651 for failure to file an estate or
trust income tax return or failure to pay the amount shown as tax on the
return.
(g) Applicability date. This section applies to applications for an
automatic extension of time to file an estate or trust income tax return
on or after January 30, 2020. Section 1.6081-6T (as contained in 26 CFR
part 1, revised April 2019) applies to applications for an automatic
extension of time to file a return before January 30, 2020.
[T.D. 9531, 76 FR 36999, June 24, 2011, as amended by T.D. 9821, 82 FR
33447, July 20, 2017; T.D. 9892, 5326, Jan. 30, 2020]
Sec. 1.6081-7 Automatic extension of time to file Real Estate
Mortgage Investment Conduit (REMIC) income tax return.
(a) In general. A Real Estate Mortgage Investment Conduit (REMIC)
required to file an income tax return on Form 1066, ``U.S. Real Estate
Mortgage Investment Conduit Income Tax Return,'' or Form 8831, ``Excise
Tax on Excess Inclusions of REMIC Residual Interests,'' for any taxable
year will be allowed an automatic 6-month extension of time to file the
return after the date prescribed for filing the return if the REMIC
files an application under this section in accordance with paragraph (b)
of this section.
(b) Requirements. To satisfy this paragraph (b), a REMIC must--
(1) Submit a complete application on Form 7004, ``Application for
Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner;
(2) File the application on or before the date prescribed for filing
the return with the Internal Revenue Service office designated in the
application's instructions; and
(3) Show the full amount properly estimated as tax for the REMIC for
the taxable year.
(c) No extension of time for the payment of tax. An automatic
extension of time
[[Page 528]]
for filing a return granted under paragraph (a) of this section will not
extend the time for payment of any tax due on such return.
(d) Effect of extension on residual or regular interest holders. An
automatic extension of time to file a REMIC income tax return under this
section will not extend the time for filing the income tax return of a
residual or regular interest holder of the REMIC or the time for the
payment of any tax due on the residual or regular interest holder's
income tax return. An automatic extension will also not extend the time
for payment of any excise tax on excess inclusions of REMIC residual
interests.
(e) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the REMIC a
notice of termination at least 10 days prior to the termination date
designated in such notice. The Commissioner must mail the notice of
termination to the address shown on the Form 7004 or to the REMIC's last
known address. For further guidance regarding the definition of last
known address, see Sec. 301.6212-2 of this chapter.
(f) Penalties. See sections 6698 and 6651 for failure to file a
REMIC income tax return or failure to pay an amount shown as tax on the
return.
(g) Effective/applicability dates. This section applies to
applications for an automatic extension of time to file REMIC income and
excise tax returns listed in paragraph (a) of this section filed after
July 1, 2008.
[T.D. 9407, 73 FR 37367, July 1, 2008]
Sec. 1.6081-8 Extension of time to file certain information returns.
(a) Certain information returns eligible for an automatic extension
of time to file--(1) Automatic extension of time to file. A person
required to file an information return (the filer) on the forms or form
series listed in Table 1 will be allowed one automatic 30-day extension
of time to file the information return beyond the due date for filing,
if the filer or the person transmitting the information return for the
filer (the transmitter) files an application in accordance with
paragraph (c)(1) of this section.
Table 1 to Paragraph (a)(1)
------------------------------------------------------------------------
Form or form series Name of form
------------------------------------------------------------------------
Form W-2G......................... ``Certain Gambling Winnings''.
Form 1042-S....................... ``Foreign Person's U.S. Source
Income Subject to Withholding''.
Form 1094-C....................... ``Transmittal of Employer-Provided
Health Insurance Offer and Coverage
Information Returns''.
Form 1095-B....................... ``Health Coverage''.
Form 1095-C....................... ``Employer-Provided Health Insurance
Offer and Coverage''.
Form 3921......................... ``Exercise of an Incentive Stock
Option Under Section 422(b)''.
Form 3922......................... ``Transfer of Stock Acquired Through
an Employee Stock Purchase Plan
Under Section 423(c)''.
Form 8027......................... ``Employer's Annual Information
Return of Tip Income and Allocated
Tips''.
Form 1097 series..................
Form 1098 series..................
Form 1099 series (except forms
reporting nonemployee
compensation).
Form 5498 series..................
------------------------------------------------------------------------
(2) Non-automatic extension of time to file. One additional 30-day
extension of time to file an information return on a form listed in
paragraph (a)(1) of this section may be allowed if the filer or
transmitter submits a request for the additional extension of time to
file before the expiration of the automatic 30-day extension of time to
file. No extension of time to file will be granted under this paragraph
(a)(2) unless the filer or transmitter has first obtained an automatic
extension of time to file under paragraph (a)(1) of this section. To
request the additional 30-day extension of time to file, the filer or
transmitter must satisfy the requirements of paragraph (c)(2) of this
section. No additional extension of time to file will be allowed for an
information return
[[Page 529]]
on a form listed in paragraph (a)(1) of this section under Sec. 1.6081-
1 beyond the extensions of time to file provided by paragraph (a)(1) of
this section and this paragraph (a)(2).
(b) The Form W-2 series (except Form W-2G) or forms reporting
nonemployee compensation. Except as provided in paragraph (f) of this
section, the filer or transmitter of an information return on the Form
W-2 series (except Form W-2G) or a form reporting nonemployee
compensation may only request one non-automatic 30-day extension of time
to file the information return beyond the due date for filing it. To
make such a request, the filer or transmitter must submit an application
for an extension of time to file in accordance with paragraph (c)(2) of
this section. No additional extension of time to file will be allowed
for an information return on a form listed in this paragraph (b) under
Sec. 1.6081-1 beyond the 30-day extension of time to file provided by
this paragraph (b).
(c) Requirements--(1) Automatic extension of time to file. To
satisfy this paragraph (c)(1), an application must--
(i) Be submitted on Form 8809, ``Request for Extension of Time to
File Information Returns,'' or in any other manner as may be prescribed
by the Commissioner; and
(ii) Be filed with the Internal Revenue Service office designated in
the application's instructions on or before the due date for filing the
information return.
(2) Non-automatic extension of time to file. To satisfy this
paragraph (c)(2), a filer or transmitter must--
(i) Submit a complete application on Form 8809, or in any other
manner prescribed by the Commissioner, indicating that at least one of
the criteria set forth in the forms, instructions, or other guidance for
granting an extension applies;
(ii) File the application with the Internal Revenue Service in
accordance with forms, instructions, or other appropriate guidance on or
before the due date for filing the information return (for purposes of
paragraph (a)(2) of this section, determined with regard to the
extension of time to file under paragraph (a)(1) of this section); and
(iii) Sign the application under penalties of perjury.
(d) Penalties. See sections 6652, 6693, and 6721 through 6724 of the
Code for failure to comply with information reporting requirements on
information returns described in this section.
(e) No effect on time to furnish statements. An extension of time to
file an information return under this section does not extend the time
for furnishing a statement to the person with respect to whom the
information is required to be reported.
(f) Form W-2 filed on expedited basis. This section does not apply
to an information return on a form in the W-2 series if the procedures
authorized in Rev. Proc. 96-57 (1996-2 CB 389) (or a successor revenue
procedure) allow an automatic extension of time to file the information
return. See Sec. 601.601(d)(2)(ii)(b) of this chapter.
(g) Applicability date. This section applies to requests for
extensions of time to file information returns required to be filed
after December 31, 2018. Section 1.6081-8T (as contained in 26 CFR part
1, revised April 1, 2018) applies to extensions of time to file
information returns required to be filed before January 1, 2019.
[T.D. 9838, 83 FR 38028, Aug. 3, 2018]
Sec. 1.6081-9 Automatic extension of time to file exempt or political
organization returns.
(a) In general. An entity required to file a return on a form in the
Form 990 series (Form 990, ``Return of Organization Exempt From Income
Tax,'' Form 990-BL, ``Information and Initial Excise Tax Return for
Black Lung Benefit Trusts and Certain Related Persons,'' Form 990-EZ,
``Short Form Return of Organization Exempt From Income Tax,'' Form 990-
PF, ``Return of Private Foundation,'' and Form 990-T, ``Exempt
Organization Business Tax Return''), Form 1041-A, ``U.S. Information
Return-Trust Accumulation of Charitable Amounts,'' Form 1120-POL, ``U.S.
Income Tax Return for Certain Political Organizations,'' Form 4720,
``Return of Certain Excise Taxes Under Chapters 41 and 42 of the
Internal Revenue Code,'' Form 5227, ``Split-Interest Trust Information
Return,'' Form 6069,
[[Page 530]]
``Return of Excise Tax on Excess Contributions to Black Lung Benefit
Trust Under Section 4953 and Computation of Section 192 Deduction,'' and
Form 8870, ``Information Return for Transfers Associated With Certain
Personal Benefit Contracts,'' will be allowed an automatic six-month
extension of time to file the return after the date prescribed for
filing if the entity files an application in accordance with paragraph
(b) of this section.
(b) Requirements. To satisfy this paragraph (b), an application for
an automatic extension under this section must--
(1) Be submitted on Form 7004, ``Application for Automatic Extension
of Time to File Certain Business Income Tax, Information, and Other
Returns'' (in the case of an extension of time to file Form 1120-POL),
Form 8868, ``Application for Automatic Extension of Time to File an
Exempt Organization Return'' (in the case of an extension of time to
file any other return listed in paragraph (a) of this section), or in
any other manner as may be prescribed by the Commissioner;
(2) Be filed with the Internal Revenue Service office designated in
the application's instructions on or before the date prescribed for
filing the return;
(3) Show the full amount properly estimated as tentative tax for the
entity for the taxable year; and
(4) Be accompanied by the full remittance of the amount properly
estimated as tentative tax which is unpaid as of the date prescribed for
the filing of the return.
(c) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the entity a
notice of termination. The notice must be mailed at least 10 days prior
to the termination date designated in such notice. The notice of
termination must be mailed to the address shown on the application for
extension or to the entity's last known address. For further guidance
regarding the definition of last known address, see Sec. 301.6212-2 of
this chapter.
(d) Penalties. See sections 6651 and 6652(c) for failure to file a
return or failure to pay the amount shown as tax on the return.
(e) Coordination with Sec. 1.6081-1. No extension of time will be
granted under Sec. 1.6081-1 for filing a return listed in paragraph (a)
of this section until an automatic extension has been allowed pursuant
to this section.
(f) Applicability date. This section applies to requests for
extensions of time to file returns listed in paragraph (a) of this
section on or after January 30, 2020. Sections 1.6081-3T and 1.6081-9T
(as contained in 26 CFR part 1, revised April 2019) apply to requests
for extensions before January 30, 2020.
[T.D. 9163, 69 FR 70549, Dec. 7, 2004, as amended by T.D. 9821, 82 FR
33447, July 20, 2017; T.D. 9892, 85 FR 5327, Jan. 30, 2020]
Sec. 1.6081-10 Automatic extension of time to file withholding tax
return for U.S. source income of foreign persons.
(a) In general. A withholding agent or intermediary required to file
a return on Form 1042, ``Annual Withholding Tax Return for U.S. Source
Income of Foreign Persons,'' for any taxable year will be allowed an
automatic 6-month extension of time to file the return after the date
prescribed for filing the return if the withholding agent or
intermediary files an application under this section in accordance with
paragraph (b) of this section.
(b) Requirements. To satisfy this paragraph (b), a withholding agent
or intermediary must--
(1) Submit a complete application on Form 7004, ``Application for
Automatic Extension of Time to File Certain Business Income Tax,
Information, and Other Returns,'' or in any other manner prescribed by
the Commissioner;
(2) File the application on or before the date prescribed for filing
the return with the Internal Revenue Service office designated in the
application's instructions; and
(3) Remit the amount of the properly estimated unpaid tax liability
on or before the date prescribed for payment.
(c) No extension of time for the payment of tax. An automatic
extension of time for filing a return granted under paragraph (a) of
this section will not extend the time for payment of any tax due on such
return.
(d) Termination of automatic extension. The Commissioner may
terminate an
[[Page 531]]
automatic extension at any time by mailing to the withholding agent or
intermediary a notice of termination at least 10 days prior to the
termination date designated in such notice. The Commissioner must mail
the notice of termination to the address shown on the Form 7004 or to
the withholding agent or intermediary's last known address. For further
guidance regarding the definition of last known address, see Sec.
301.6212-2 of this chapter.
(e) Penalties. See section 6651 for failure to file a return or
failure to pay an amount shown as tax on the return.
(f) Effective/applicability dates. This section is applicable for
applications for an automatic extension of time to file the withholding
tax return for U.S. source income of foreign persons return filed after
July 1, 2008.
[T.D. 9407, 73 FR 37367, July 1, 2008]
Sec. 1.6081-11 Automatic extension of time for filing certain
employee plan returns.
(a) In general. An administrator or sponsor of an employee benefit
plan required to file a return under the provisions of chapter 61 or the
regulations under that chapter on Form 5500 (series), ``Annual Return/
Report of Employee Benefit Plan,'' will be allowed an automatic
extension of time to file the return until the 15th day of the third
month following the date prescribed for filing the return if the
administrator or sponsor files an application under this section in
accordance with paragraph (b) of this section.
(b) Requirements. To satisfy this paragraph (b), an administrator or
sponsor must--
(1) Submit a complete application on Form 5558, ``Application for
Extension of Time To File Certain Employee Plan Returns,'' or in any
other manner as may be prescribed by the Commissioner; and
(2) File the application with the Internal Revenue Service office
designated in the application's instructions on or before the date
prescribed for filing the information return.
(c) Termination of automatic extension. The Commissioner may
terminate an automatic extension at any time by mailing to the
administrator or sponsor a notice of termination at least 10 days prior
to the termination date designated in such notice. The Commissioner must
mail the notice of termination to the address shown on the Form 5558 or
to the administrator or sponsor's last known address. For further
guidance regarding the definition of last known address, see Sec.
301.6212-2 of this chapter.
(d) Penalties. See sections 6652, 6692, and the Employee Retirement
Income Security Act of 1974 for penalties for failure to file a timely
and complete Form 5500.
(e) Effective/applicability dates. This section is applicable for
applications for an automatic extension of time to file Forms 5500 for
plan years ending after July 1, 2008.
[T.D. 9407, 73 FR 37368, July 1, 2008]
Place for Filing Returns or Other Documents
Sec. 1.6091-1 Place for filing returns or other documents.
(a) In general. Except as provided in Sec. 1.6091-4, whenever a
return, statement, or other document is required to be made under the
provisions of subtitle A or F of the Code, or the regulations
thereunder, with respect to any tax imposed by subtitle A of the Code,
and the place for filing such return, statement, or other document is
not provided for by the Code, it shall be filed at the place prescribed
by the regulations contained in this chapter.
(b) Place for filing certain information returns. (1) For the place
for filing returns of partnership income, see paragraph (e)(1) of Sec.
1.6031(a)-1.
(2) For the place for filing information returns by banks with
respect to common trust funds, see Sec. 1.6032-1.
(3) For the place for filing information returns by certain
organizations exempt from taxation under section 501(a), see paragraph
(e) of Sec. 1.6033-1.
(4) For the place for filing information returns by trusts claiming
charitable deductions under section 642(c), see paragraph (c) of Sec.
1.6034-1.
(5) [Reserved]
(6) For the place for filing information returns relating to certain
stock option transactions, see paragraph (c) of Sec. 1.6039-1.
[[Page 532]]
(7) For the place for filing returns of information reporting
certain payments, see paragraph (a)(5) of Sec. 1.6041-2 and Sec.
1.6041-6.
(8) For the place for filing returns of information regarding
payments of dividends, see paragraph (c) of Sec. 1.6042-2 (relating to
returns for calendar years after 1962).
(9) For the place for filing information returns by corporations
relating to contemplated dissolution or liquidation, see paragraph (a)
of Sec. 1.6043-1.
(10) For the place for filing information returns by corporations
relating to distributions in liquidation, see paragraph (a) of Sec.
1.6043-2.
(11) For the place for filing returns of information regarding
payments of patronage dividends, see paragraph (d) of Sec. 1.6044-2.
(12) For the place for filing information returns relating to
formation or reorganization of foreign corporations, see paragraph
(j)(2) of Sec. 1.6046-1.
(13) For the place for filing information returns regarding certain
payments of interest, see paragraph (c) of Sec. 1.6049-1.
(14) For the place for filing information returns with respect to
payment of wages in the form of group-term life insurance, see paragraph
(b) of Sec. 1.6052-1.
(15) For the place for filing information returns on Forms 1042-S
with respect to certain amounts paid to foreign persons, see
instructions to the form.
(16) For the place for filing information returns on Form 5074 with
respect to the allocation of individual income tax to Guam, see
paragraph (b)(3) of Sec. 1.935-1 and paragraph (d) of Sec. 301.7654-1
of this chapter (Regulations on Procedure and Administration).
(17) For the place for filing information returns on Form 8805,
``Foreign Partner's Information Statement of Section 1446 Withholding
Tax,'' with respect to certain amounts paid on behalf of foreign
partners, see the instructions to the form.
(c) Effective/Applicability date. Paragraph (b)(17) of this section
shall apply to partnership taxable years beginning after April 29, 2008.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6887, 31 FR
8814, June 24, 1966; T.D. 6922, 32 FR 8713, June 17, 1967; T.D. 7284, 38
FR 20829, Aug. 3, 1973; T.D. 7385, 40 FR 50264, Oct. 29, 1975; T.D.
8734, 62 FR 53493, Oct. 14, 1997; T.D. 9156, 69 FR 55744, Sept. 16,
2004; T.D. 9394, 73 FR 23085, Apr. 29, 2008; T.D. 9849, 84 FR 9237, Mar.
14, 2019]
Sec. 1.6091-2 Place for filing income tax returns.
Except as provided in Sec. 1.6091-3 (relating to certain
international income tax returns) and Sec. 1.6091-4 (relating to
exceptional cases):
(a) Individuals, estates, and trusts. (1) Except as provided in
paragraph (c) of this section, income tax returns of individuals,
estates, and trusts shall be filed with any person assigned the
responsibility to receive returns at the local Internal Revenue Service
office that serves the legal residence or principal place of business of
the person required to make the return.
(2) An individual employed on a salary or commission basis who is
not also engaged in conducting a commercial or professional enterprise
for profit on his own account does not have a ``principal place of
business'' within the meaning of this section.
(b) Corporations. Except as provided in paragraph (c) of this
section, income tax returns of corporations shall be filed with any
person assigned the responsibility to receive returns in the local
Internal Revenue Service office that serves the principal place of
business or principal office or agency of the corporation.
(c) Returns filed with service centers. Notwithstanding paragraphs
(a) and (b) of this section, whenever instructions applicable to income
tax returns provide that the returns be filed with a service center, the
returns must be so filed in accordance with the instructions.
(d) Hand-carried returns. Notwithstanding paragraphs (1) and (2) of
section 6091(b) and paragraph (c) of this section:
(1) Persons other than corporations. Returns of persons other than
corporations which are filed by hand carrying shall be filed with any
person assigned
[[Page 533]]
the responsibility to receive hand-carried returns in the local Internal
Revenue Service office as provided in paragraph (a) of this section.
(2) Corporations. Returns of corporations which are filed by hand
carrying shall be filed with any person assigned the responsibility to
receive hand-carried returns in the local Internal Revenue Service
office as provided in paragraph (b) of this section.
See Sec. 301.6091-1 of this chapter (Regulations on Procedure and
Administration) for provisions relating to the definition of hand
carried.
(e) Amended returns. In the case of amended returns filed after
April 14, 1968, except as provided in paragraph (d) of this section:
(1) Persons other than corporations. Amended returns of persons
other than corporations shall be filed with the service center serving
the legal residence or principal place of business of the person
required to make the return.
(2) Corporations. Amended returns of corporations shall be filed
with the service center serving the principal place of business or
principal office or agency of the corporation.
(f) Returns of persons subject to a termination assessment.
Notwithstanding paragraph (c) of this section:
(1) Persons other than corporations. Returns of persons other than
corporations with respect to whom an assessment was made under section
6851(a) with respect to the taxable year shall be filed with any person
assigned the responsibility to receive returns in the local Internal
Revenue Service office as provided in paragraph (a) of this section.
(2) Corporations. Returns of corporations with respect to whom an
assessment was made under section 6851(a) with respect to the taxable
year shall be filed with any person assigned the responsibility to
receive returns in the local Internal Revenue Service office as provided
in paragraph (b) of this section.
(g) Returns of persons subject to a termination assessment.
Notwithstanding paragraph (c) of this section, income tax returns of
persons with respect to whom an income tax assessment was made under
section 6852(a) with respect to the taxable year must be filed with any
person assigned the responsibility to receive returns in the local
Internal Revenue Service office as provided in paragraphs (a) and (b) of
this section.
[T.D. 6950, 33 FR 5356, Apr. 4, 1968, as amended by T.D. 7012, 34 FR
7690, May 15, 1969; T.D. 7495, 42 FR 33726, July 1, 1977; T.D. 7575, 43
FR 58816, Dec. 18, 1978; T.D. 8628, 60 FR 62210, Dec. 5, 1995; T.D.
9156, 69 FR 55744, Sept. 16, 2004; 69 FR 60222, Oct. 7, 2004]
Sec. 1.6091-3 Filing certain international income tax returns.
The following income tax returns shall be filed as directed in the
applicable forms and instructions:
(a) Income tax returns on which all, or a portion, of the tax is to
be paid in foreign currency. See Sec. Sec. 301.6316-1 to 301.6316-6
inclusive, and Sec. Sec. 301.6316-8 and 301.6316-9 of this chapter
(Regulations on Procedure and Administration).
(b) Income tax returns on an individual citizen of the United States
whose principal place of abode for the period with respect to which the
return is filed is outside the United States. A taxpayer's principal
place of abode will be considered to be outside the United States if his
legal residence is outside the United States or if his return bears a
foreign address.
(c) Income tax returns of an individual citizen of a possession of
the United States (whether or not a citizen of the United States) who
has no legal residence or principal place of business in any internal
revenue district in the United States.
(d) Except in the case of any departing alien return under section
6851 and Sec. 1.6851-2, the income tax return of any nonresident alien
(other than one treated as a resident under section 6013 (g) or (h)).
(e) The income tax return of an estate or trust the fiduciary of
which is outside the United States and has no legal residence or
principal place of business in any internal revenue district in the
United States.
(f) Income tax returns of foreign corporations.
(g) The return by a withholding agent of the income tax required to
be withheld at source under chapter 3 of
[[Page 534]]
the Code on nonresident aliens and foreign corporations and tax-free
covenant bonds, as provided in Sec. 1.1461-2.
(h) Income tax returns of persons who claim the benefits of section
911 (relating to earned income from sources without the United States).
(i) Income tax returns of corporations which claim the benefits of
section 922 (relating to special deduction for Western Hemisphere trade
corporations) except in the case of consolidated returns filed pursuant
to the regulations under section 1502.
(j) Income tax returns of persons who claim the benefits of section
931 (relating to income from sources within possessions of the United
States).
(k) Income tax returns of persons who claim the benefits of section
933 (relating to income from sources within Puerto Rico).
(l) Income tax returns of corporations which claim the benefits of
section 941 (relating to the special deduction for China Trade Act
corporations).
[T.D. 6950, 33 FR 5357, Apr. 4, 1968, as amended by T.D. 7012, 34 FR
7690, May 15, 1969; T.D. 7670, 45 FR 6931, Jan. 31, 1980; T.D. 9156, 69
FR 55744, Sept. 16, 2004]
Sec. 1.6091-4 Exceptional cases.
(a) Permission to file in office other than required office. (1) The
Commissioner may permit the filing of any income tax return required to
be made under the provisions of subtitle A or F of the Code, or the
regulations in this part, in any Internal Revenue Service office,
notwithstanding the provisions of paragraphs (1) and (2) of section
6091(b) and Sec. Sec. 1.6091-1 to 1.6091-3, inclusive.
(2) In cases where the Commissioner authorizes (for all purposes
except venue) an internal revenue service center to receive returns,
such returns pursuant to instructions issued with respect thereto, may
be sent directly to that service center and are thereby filed there for
all purposes except as a factor in determining venue. However, after
initial processing all such returns shall be forwarded by the service
center to the office with which such returns are, without regard to this
subparagraph, required to be filed. For the sole purpose of determining
venue, such returns are filed only with such office.
(3) Notwithstanding the provisions of other sections of this chapter
or any rule issued under this chapter:
(i) In cases where, in accordance with subparagraph (2) of this
paragraph, a return is filed with a service center, the authority of the
members of the office with whom such return would, without regard to
such subparagraph, be required to be filed shall remain the same as if
the return had been so filed;
(ii) Unless a return or other document is a proper attachment to, or
is, a return which the service center is expressly authorized to
receive, such return or other document shall be filed as if all returns
sent directly to the service centers, in accordance with subparagraph
(2) of this paragraph, were filed in the office where such returns are,
without regard to such subparagraph, required to be filed; and
(iii) Unless the performance of an act is directly related to the
sending of a return directly to the service center, such act shall be
performed as if all returns sent directly to the service centers, in
accordance with subparagraph (2) of this paragraph, were filed in the
office where such returns are, without regard to such subparagraph,
required to be filed.
(4) The application of paragraphs (a)(2) and (3) of this section may
be illustrated by the following example:
Example. The Commissioner has authorized the Internal Revenue
Service Center, Philadelphia, Pennsylvania (for all purposes except
venue), to receive Form 1120. Except for that authorization, A, a
corporation with its principal place of business in Greensboro, North
Carolina, is required to file its Form 1120 for Year X with the Internal
Revenue Service Center, Atlanta, Georgia. In addition, A may file an
election to defer development expenditures paid or incurred in Year X.
Under Sec. 1.616-2(e)(2) and applicable published guidance (in this
case Notice 2003-19 (2003-1 C.B. 703)) that statement of election must
be filed with the service center that serves A's principal place of
business where A filed its income tax return. A may make that election
on its income tax return or by filing it separately. Under paragraph
(a)(2) of this section, A may send its Form 1120 to either the Internal
Revenue Service Center,
[[Page 535]]
Philadelphia, Pennsylvania, or to the Internal Revenue Service Center,
Atlanta, Georgia. If A files its statement of election separately from
its income tax return for Year X, then the statement of election is not
a proper attachment to A's income tax return and A should send the
statement of election to the Internal Revenue Service Center, Atlanta,
Georgia (with which A must, without regard to paragraph (a)(2) of this
section, file its income tax return), no later than the time prescribed
for filing Form 1120 for Year X (including extensions).
(b) Returns of officers and employees of the Internal Revenue
Service. The Commissioner may require any officer or employee of the
Internal Revenue Service to file his income tax return in any Internal
Revenue Service office selected by the Commissioner.
(c) Residents of Guam. Income tax returns of an individual citizen
of the United States who is a resident of Guam shall be filed with Guam,
as provided in paragraph (b)(1) of Sec. 1.935-1.
[T.D. 6500, 25 FR 12108, Nov. 26, 1960, as amended by T.D. 6793, 30 FR
704, Jan. 22, 1965; T.D. 7385, 40 FR 50264, Oct. 29, 1975; T.D. 9156, 69
FR 55744, Sept. 16, 2004]
Miscellaneous Provisions
Sec. 1.6102-1 Computations on returns or other documents.
For provisions with respect to the rounding off to whole-dollar
amounts of money items on returns and accompanying schedules, see Sec.
301.6102-1 of this chapter (Regulations on Procedure and
Administration).
[T.D. 6500, 25 FR 12137, Nov. 26, 1960]
Sec. 1.6107-1 Tax return preparer must furnish copy of return or
claim for refund to taxpayer and must retain a copy or record.
(a) Furnishing copy to taxpayer--(1) A person who is a signing tax
return preparer of any return of tax or claim for refund of tax under
the Internal Revenue Code shall furnish a completed copy of the return
or claim for refund to the taxpayer (or nontaxable entity) not later
than the time the return or claim for refund is presented for the
signature of the taxpayer (or nontaxable entity). The signing tax return
preparer may, at its option, request a receipt or other evidence from
the taxpayer (or nontaxable entity) sufficient to show satisfaction of
the requirement of this paragraph (a).
(2) The tax return preparer must provide a complete copy of the
return or claim for refund filed with the IRS to the taxpayer in any
media, including electronic media, that is acceptable to both the
taxpayer and the tax return preparer. In the case of an electronically
filed return, a complete copy of a taxpayer's return or claim for refund
consists of the electronic portion of the return or claim for refund,
including all schedules, forms, pdf attachments, and jurats, that was
filed with the IRS. The copy provided to the taxpayer must include all
information submitted to the IRS to enable the taxpayer to determine
what schedules, forms, electronic files, and other supporting materials
have been filed with the return. The copy, however, need not contain the
identification number of the paid tax return preparer. The electronic
portion of the return or claim for refund may be contained on a replica
of an official form or on an unofficial form. On an unofficial form,
however, data entries must reference the line numbers or descriptions on
an official form.
(3) For electronically filed Forms 1040EZ, ``Income Tax Return for
Single Filers and Joint Filers With No Dependents,'' and Form 1040A,
``U.S. Individual Income Tax Return,'' filed for the 2009, 2010 and 2011
taxable years, the information may be provided on a replica of a Form
1040, ``U.S. Individual Income Tax Return'', that provides all of the
information. For other electronically filed returns, the information may
be provided on a replica of an official form that provides all of the
information.
(b) Copy or record to be retained. (1) A person who is a signing tax
return preparer of any return or claim for refund shall--
(i)(A) Retain a completed copy of the return or claim for refund; or
(B) Retain a record, by list, card file, or otherwise of the name,
taxpayer identification number, and taxable year of the taxpayer (or
nontaxable entity) for whom the return or claim for refund was prepared,
and the type of return or claim for refund prepared;
[[Page 536]]
(ii) Retain a record, by retention of a copy of the return or claim
for refund, maintenance of a list, card file, or otherwise, for each
return or claim for refund presented to the taxpayer (or nontaxable
entity), of the name of the individual tax return preparer required to
sign the return or claim for refund pursuant to Sec. 1.6695-1(b); and
(iii) Make the copy or record of returns and claims for refund and
record of the individuals required to sign available for inspection upon
request by the Commissioner.
(2) The material described in this paragraph (b) shall be retained
and kept available for inspection for the 3-year period following the
close of the return period during which the return or claim for refund
was presented for signature to the taxpayer (or nontaxable entity). In
the case of a return that becomes due (with extensions, if any) during a
return period following the return period during which the return was
presented for signature, the material shall be retained and kept
available for inspection for the 3-year period following the close of
the later return period in which the return became due. For the
definition of ``return period,'' see section 6060(c). If the person
subject to the record retention requirement of this paragraph (b) is a
corporation or a partnership that is dissolved before completion of the
3-year period, then all persons who are responsible for the winding up
of the affairs of the corporation or partnership under state law shall
be subject, on behalf of the corporation or partnership, to these record
retention requirements until completion of the 3-year period. If state
law does not specify any person or persons as responsible for winding
up, then, collectively, the directors or general partners shall be
subject, on behalf of the corporation or partnership, to the record
retention requirements of this paragraph (b). For purposes of the
penalty imposed by section 6695(d), such designated persons shall be
deemed to be the tax return preparer and will be jointly and severally
liable for each failure.
(c) Tax return preparer. For the definition of ``signing tax return
preparer,'' see Sec. 301.7701-15(b)(1) of this chapter. For purposes of
applying this section, a corporation, partnership or other organization
that employs a signing tax return preparer to prepare for compensation
(or in which a signing tax return preparer is compensated as a partner
or member to prepare) a return of tax or claim for refund shall be
treated as the sole signing tax return preparer.
(d) Penalties. (1) For the civil penalty for failure to furnish a
copy of the return or claim for refund to the taxpayers (or nontaxable
entity) as required under paragraph (a) of this section, see section
6695(a) and Sec. 1.6695-1(a).
(2) For the civil penalty for failure to retain a copy of the return
or claim for refund, or to retain a record as required under paragraph
(b) of this section, see section 6695(d) and Sec. 1.6695-1(d).
(e) Effective/applicability date. This section is applicable to
returns and claims for refund filed after December 31, 2008.
[T.D. 9436, 73 FR 78438, Dec. 22, 2008, as amended at 74 FR 5104, Jan.
29, 2009]
Sec. 1.6107-2 Form and manner of furnishing copy of return and
retaining copy or record.
(a) In general. The Commissioner may prescribe the form and manner
of satisfying the requirements imposed by section 6107(a) and (b) and
Sec. 1.6107-1(a) and (b) in forms, instructions, or other appropriate
guidance (see Sec. 601.601(d)(2) of this chapter).
(b) Effective date. To the extent this section relates to section
6107(a) and Sec. 1.6107-1(a), it applies to income tax returns and
claims for refund presented to a taxpayer for signature after December
31, 2002. To the extent this section relates to section 6107(b) and
Sec. 1.6107-1(b), it applies after December 31, 2002, to returns and
claims for refund for which the 3-year period described in section
6107(b) expires after December 31, 2002.
[T.D. 9119, 69 FR 15249, Mar. 25, 2004]
Sec. 1.6109-1 Identifying numbers.
(a) Information to be furnished after April 15, 1974. For provisions
concerning the requesting and furnishing of identifying numbers with
respect to returns, statements, and other documents
[[Page 537]]
which must be filed after April 15, 1974, see Sec. 301.6109-1 of this
chapter (Regulations on Procedure and Administration).
(b) Information to be furnished before April 15, 1974. For
provisions concerning the requesting and furnishing of identifying
numbers with respect to returns, statements, and other documents which
must be filed before April 16, 1974, see 26 CFR Sec. 1.6109-1 (revised
as of April 1, 1973).
[T.D. 7306, 39 FR 9946, Mar. 15, 1974; 39 FR 11080, Mar. 25, 1974]
Sec. 1.6109-2 Tax return preparers furnishing identifying numbers
for returns or claims for refund and related requirements.
(a) Furnishing identifying number. (1) Each filed return of tax or
claim for refund of tax under the Internal Revenue Code prepared by one
or more tax return preparers must include the identifying number of the
tax return preparer required by Sec. 1.6695-1(b) to sign the return or
claim for refund. In addition, if there is an employment arrangement or
association between the individual tax return preparer and another
person (except to the extent the return prepared is for the person), the
identifying number of the other person must also appear on the filed
return or claim for refund. For the definition of the term ``tax return
preparer,'' see section 7701(a)(36) and Sec. 301.7701-15 of this
chapter.
(2)(i) For tax returns or claims for refund filed on or before
December 31, 2010, the identifying number of an individual tax return
preparer is that individual's social security number or such alternative
number as may be prescribed by the Internal Revenue Service in forms,
instructions, or other appropriate guidance.
(ii) For tax returns or claims for refund filed after December 31,
2010, the identifying number of a tax return preparer is the
individual's preparer tax identification number or such other number
prescribed by the Internal Revenue Service in forms, instructions, or
other appropriate guidance.
(3) The identifying number of a person (whether an individual or
entity) who employs or associates with an individual tax return preparer
described in paragraph (a)(2) of this section to prepare the return or
claim for refund (other than a return prepared for the person) is the
person's employer identification number.
(b) and (c) [Reserved]. For further guidance, see Sec. 1.6109-2A(b)
and (c).
(d) Beginning after December 31, 2010, all tax return preparers must
have a preparer tax identification number or other prescribed
identifying number that was applied for and received at the time and in
the manner, including the payment of a user fee, as may be prescribed by
the Internal Revenue Service in forms, instructions, or other
appropriate guidance. Except as provided in paragraph (h) of this
section, beginning after December 31, 2010, to obtain a preparer tax
identification number or other prescribed identifying number, a tax
return preparer must be an attorney, certified public accountant,
enrolled agent, or registered tax return preparer authorized to practice
before the Internal Revenue Service under 31 U.S.C. 330 and the
regulations thereunder.
(e) The Internal Revenue Service may designate an expiration date
for any preparer tax identification number or other prescribed
identifying number and may further prescribe the time and manner for
renewing a preparer tax identification number or other prescribed
identifying number, including the payment of a user fee, as set forth in
forms, instructions, or other appropriate guidance. The Internal Revenue
Service may provide that any identifying number issued by the Internal
Revenue Service prior to the effective date of this regulation will
expire on December 31, 2010, unless properly renewed as set forth in
forms, instructions, or other appropriate guidance, including these
regulations.
(f) As may be prescribed in forms, instructions, or other
appropriate guidance, the IRS may conduct a Federal tax compliance check
on a tax return preparer who applies for or renews a preparer tax
identification number or other prescribed identifying number.
(g) Only for purposes of paragraphs (d), (e), and (f) of this
section, the term tax return preparer means any individual who is
compensated for preparing, or assisting in the preparation
[[Page 538]]
of, all or substantially all of a tax return or claim for refund of tax.
Factors to consider in determining whether an individual is a tax return
preparer under this paragraph (g) include, but are not limited to, the
complexity of the work performed by the individual relative to the
overall complexity of the tax return or claim for refund of tax; the
amount of the items of income, deductions, or losses attributable to the
work performed by the individual relative to the total amount of income,
deductions, or losses required to be correctly reported on the tax
return or claim for refund of tax; and the amount of tax or credit
attributable to the work performed by the individual relative to the
total tax liability required to be correctly reported on the tax return
or claim for refund of tax. The preparation of a form, statement, or
schedule, such as Schedule EIC (Form 1040), ``Earned Income Credit,''
may constitute the preparation of all or substantially all of a tax
return or claim for refund based on the application of the foregoing
factors. A tax return preparer does not include an individual who is not
otherwise a tax return preparer as that term is defined in Sec.
301.7701-15(b)(2), or who is an individual described in Sec. 301.7701-
15(f). The provisions of this paragraph (g) are illustrated by the
following examples:
Example 1. Employee A, an individual employed by Tax Return Preparer
B, assists Tax Return Preparer B in answering telephone calls, making
copies, inputting client tax information gathered by B into the data
fields of tax preparation software on a computer, and using the computer
to file electronic returns of tax prepared by B. Although Employee A
must exercise judgment regarding which data fields in the tax
preparation software to use, A does not exercise any discretion or
independent judgment as to the clients' underlying tax positions.
Employee A, therefore, merely provides clerical assistance or incidental
services and is not a tax return preparer required to apply for a PTIN
or other identifying number as the Internal Revenue Service may
prescribe in forms, instructions, or other appropriate guidance.
Example 2. The facts are the same as in Example 1, except that
Employee A also interviews B's clients and obtains from them information
needed for the preparation of tax returns. Employee A determines the
amount and character of entries on the returns and whether the
information provided is sufficient for purposes of preparing the
returns. For at least some of B's clients, A obtains information and
makes determinations that constitute all or substantially all of the tax
return. Employee A is a tax return preparer required to apply for a PTIN
or other identifying number as the Internal Revenue Service may
prescribe in forms, instructions, or other appropriate guidance.
Employee A is a tax return preparer even if Employee A relies on tax
preparation software to prepare the return.
Example 3. C is an employee of a firm that prepares tax returns and
claims for refund of tax for compensation. C is responsible for
preparing a Form 1040, ``U.S. Individual Income Tax Return,'' for a
client. C obtains the information necessary for the preparation of the
tax return during a meeting with the client, and makes determinations
with respect to the proper application of the tax laws to the
information in order to determine the client's tax liability. C
completes the tax return and sends the completed return to employee D,
who reviews the return for accuracy before signing it. Both C and D are
tax return preparers required to apply for a PTIN or other identifying
number as the Internal Revenue Service may prescribe in forms,
instructions, or other appropriate guidance.
Example 4. E is an employee at a firm which prepares tax returns and
claims for refund of tax for compensation. The firm is engaged by a
corporation to prepare its Federal income tax return on Form 1120,
``U.S. Corporation Income Tax Return.'' Among the documentation that the
corporation provides to E in connection with the preparation of the tax
return is documentation relating to the corporation's potential
eligibility to claim a recently enacted tax credit for the taxable year.
In preparing the return, and specifically for purposes of the new tax
credit, E (with the corporation's consent) obtains advice from F, a
subject matter expert on this and similar credits. F advises E as to the
corporation's entitlement to the credit and provides his calculation of
the amount of the credit. Based on this advice from F, E prepares the
corporation's Form 1120 claiming the tax credit in the amount
recommended by F. The additional credit is one of many tax credits and
deductions claimed on the tax return, and determining the credit amount
does not constitute preparation of all or substantially all of the
corporation's tax return under this paragraph (g). F will not be
considered to have prepared all or substantially all of the
corporation's tax return, and F is not a tax return preparer required to
apply for a PTIN or other identifying number as the Internal Revenue
Service may prescribe in forms, instructions, or other appropriate
guidance. The analysis is the same whether or not the tax credit is a
[[Page 539]]
substantial portion of the return under Sec. 301.7701-15 of this
chapter (as opposed to substantially all of the return), and whether or
not F is in the same firm with E. E is a tax return preparer required to
apply for a PTIN or other identifying number as the Internal Revenue
Service may prescribe in forms, instructions, or other appropriate
guidance.
(h) The Internal Revenue Service, through forms, instructions, or
other appropriate guidance, may prescribe exceptions to the requirements
of this section, including the requirement that an individual be
authorized to practice before the Internal Revenue Service before
receiving a preparer tax identification number or other prescribed
identifying number, as necessary in the interest of effective tax
administration. The Internal Revenue Service, through other appropriate
guidance, may also specify specific returns, schedules, and other forms
that qualify as tax returns or claims for refund for purposes of these
regulations.
(i) Effective/applicability date. Paragraph (a)(1) of this section
is applicable to tax returns and claims for refund filed after December
31, 2008. Paragraph (a)(2)(i) of this section is applicable to tax
returns and claims for refund filed on or before December 31, 2010.
Paragraph (a)(2)(ii) of this section is applicable to tax returns and
claims for refund filed after December 31, 2010. Paragraph (d) of this
section is applicable to tax return preparers after December 31, 2010.
Paragraphs (e) through (h) of this section are effective after September
30, 2010.
[T.D. 9014, 67 FR 52863, Aug. 14, 2002, as amended by T.D. 9436, 73 FR
78439, Dec. 22, 2008; T.D. 9501, 75 FR 60315, Sept. 30, 2010]
Sec. 1.6115-1 Disclosure requirements for quid pro quo contributions.
(a) Good faith estimate defined--(1) In general. A good faith
estimate of the value of goods or services provided by an organization
described in section 170(c) in consideration for a taxpayer's payment to
that organization is an estimate of the fair market value, within the
meaning of Sec. 1.170A-1(c)(2), of the goods or services. The
organization may use any reasonable methodology in making a good faith
estimate, provided it applies the methodology in good faith. If the
organization fails to apply the methodology in good faith, the
organization will be treated as not having met the requirements of
section 6115. See section 6714 for the penalties that apply for failure
to meet the requirements of section 6115.
(2) Good faith estimate for goods or services that are not
commercially available. A good faith estimate of the value of goods or
services that are not generally available in a commercial transaction
may be determined by reference to the fair market value of similar or
comparable goods or services. Goods or services may be similar or
comparable even though they do not have the unique qualities of the
goods or services that are being valued.
(3) Examples. The following examples illustrate the rules of this
paragraph (a).
Example 1. Facility not available on a commercial basis. Museum M,
an organization described in section 170(c), is located in Community N.
In return for a payment of $50,000 or more, M allows a donor to hold a
private event in a room located in M. Private events other than those
held by such donors are not permitted to be held in M. In Community N,
there are four hotels, O, P, Q, and R, that have ballrooms with the same
capacity as the room in M. Of these hotels, only O and P have ballrooms
that offer amenities and atmosphere that are similar to the amenities
and atmosphere of the room in M (although O and P lack the unique
collection of art that is displayed in the room in M). Because the
capacity, amenities, and atmosphere of ballrooms in O and P are
comparable to the capacity, amenities, and atmosphere of the room in M,
a good faith estimate of the benefits received from M may be determined
by reference to the cost of renting either the ballroom in O or the
ballroom in P. The cost of renting the ballroom in O is $2500 and,
therefore, a good faith estimate of the fair market value of the right
to host a private event in the room at M is $2500. In this example, the
ballrooms in O and P are considered similar and comparable facilities to
the room in M for valuation purposes, notwithstanding the fact that the
room in M displays a unique collection of art.
Example 2. Services available on a commercial basis. Charity S is an
organization described in section 170(c). S offers to provide a one-hour
tennis lesson with Tennis Professional T in return for the first payment
of $500 or more that it receives. T provides one-hour tennis lessons on
a commercial basis for $100. Taxpayer pays $500 to S and in return
receives the tennis lesson with T. A good faith
[[Page 540]]
estimate of the fair market value of the lesson provided in exchange for
Taxpayer's payment is $100.
Example 3. Celebrity presence. Charity U is an organization
described in section 170(c). In return for the first payment of $1000 or
more that it receives, U will provide a dinner for two followed by an
evening tour of Museum V conducted by Artist W, whose most recent works
are on display at V. W does not provide tours of V on a commercial
basis. Typically, tours of V are free to the public. Taxpayer pays $1000
to U and in return receives a dinner valued at $100 and an evening tour
of V conducted by W. Because tours of V are typically free to the
public, a good faith estimate of the value of the evening tour conducted
by W is $0. In this example, the fact that Taxpayer's tour of V is
conducted by W rather than V's regular tour guides does not render the
tours dissimilar or incomparable for valuation purposes.
(b) Certain goods or services disregarded. For purposes of section
6115, an organization described in section 170(c) may disregard goods or
services described in Sec. 1.170A-13(f)(8)(i).
(c) Value of the right to purchase tickets to college or university
athletic events. For purposes of section 6115, the right to purchase
tickets for seating at an athletic event in exchange for a payment
described in section 170(l) is treated as having a value equal to twenty
percent of such payment.
(d) Goods or services provided to employees or partners of donors--
(1) Certain goods or services disregarded. For purposes of section 6115,
goods or services provided by an organization described in section
170(c) to employees of a donor or to partners of a partnership that is a
donor in return for a payment to the donee organization may be
disregarded to the extent that the goods or services provided to each
employee or partner are the same as those described in Sec. 1.170A-
13(f)(8)(i).
(2) Description permitted in lieu of good faith estimate for other
goods or services. The written disclosure statement required by section
6115 may include a description of goods or services, in lieu of a good
faith estimate of their value, if the donor is--
(i) An employer and, in return for the donor's quid pro quo
contribution, an organization described in section 170(c) provides the
donor's employees with goods or services other than those described in
paragraph (d)(1) of this section; or
(ii) A partnership and, in return for its quid pro quo contribution,
the organization provides partners in the partnership with goods or
services other than those described in paragraph (d)(1) of this section.
(e) Effective date. This section applies to contributions made on or
after December 16, 1996. However, taxpayers may rely on the rules of
this section for contributions made on or after January 1, 1994.
[T.D. 8690, 61 FR 65954, Dec. 16, 1996]
Regulations Applicable to Returns or Claims for Refund Filed Prior to
January 1, 2000
Sec. 1.6109-2A Furnishing identifying number of income tax return
preparer.
(a) Furnishing identifying number. For returns or claims for refund
filed prior to January 1, 2000, each return of tax under subtitle A of
the Internal Revenue Code or claim for refund of tax under subtitle A of
the Internal Revenue Code prepared by one or more income tax return
preparers must bear the identifying number of the preparer required by
Sec. 1.6695-1(b) to sign the return or claim for refund. In addition,
it there is a partnership or employment arrangement between two or more
preparers, the identifying number of the partnership or the person who
employs (or engages) one or more other persons to prepare for
compensation the return or claim for refund shall also appear on the
return or claim for refund. If the preparer is:
(1) An individual (not described in subparagraph (2) of this
paragraph (a) who is a citizen or resident of the United States such
preparer's social security account number shall be affixed; and
(2) A person (whether an individual, corporation, or partnership)
who employs (or engages) one or more persons to prepare the return or
claim for refund (other than for the person), or who is not a citizen or
resident of the United States and also is not employed or engaged by
another preparer, such preparer's employer identification number shall
be affixed.
[[Page 541]]
For the definition of the term ``income tax return preparer'' (or
``preparer'') see section 7701(a)(36) and Sec. 301.7701-15.
(b) Furnishing address. (1) Each return or claim for refund which is
prepared by one or more income tax return preparers shall bear the
street address, city, State, and postal ZIP code of that preparer's
place of business where the preparation of the return or claim for
refund was completed. However, if this place of business is not
maintained on a year-round basis, the return or claim for refund shall
bear the street address, city, State, and postal ZIP code of such
preparer's principal office or business location which is maintained on
a yearround basis, or it none, that preparer's residence.
(2) For purposes of satisfying the requirement of the first sentence
of paragraph (b)(1) of this section, and income tax return preparer,
may, on returns and claims for refund, disclose only the postal ZIP code
of the described place of business as a satisfactory address, but only
if the preparer first by written notice advises each affected Internal
Revenue Service Center that he intends to follow this practice.
(c) Penalty. For the civil penalty for failure to furnish an
identifying number as required under paragraph (a) of this section, see
section 6695(c) and Sec. 1.6695-1(c).
(d) Effective date. Paragraph (a) of this section and this paragraph
(d) apply to returns or claims for refund filed prior to January 1,
2000. For returns or claims for refund filed after December 31, 1999,
see Sec. 1.6109-2(a).
[T.D. 7519, 42 FR 59967, Nov. 23, 1977, as amended by T.D. 8835, 64 FR
43911, Aug. 12, 1999. Redesignated and amended by T.D. 9014, 67 FR
52863, Aug. 14, 2002]
Time and Place for Paying Tax
Place and Due Date for Payment of Tax
Sec. 1.6151-1 Time and place for paying tax shown on returns.
(a) In general. Except as provided in section 6152 and paragraph (b)
of this section, the tax shown on any income tax return shall, without
assessment or notice and demand, be paid to the internal revenue officer
with whom the return is filed at the time fixed for filing the return
(determined without regard to any extension of time for filing the
return). For provisions relating to the time for filing income tax
returns, see section 6072 and Sec. Sec. 1.6072-1 to 1.6072-4,
inclusive. For provisions relating to the place for filing income tax
returns, see section 6091 and Sec. Sec. 1.6091-1 to 1.6091-4,
inclusive.
(b)(1) Returns on which tax is not shown. If a taxpayer files a
return and in accordance with section 6014 and the regulations
thereunder, elects not to show the tax on the return, the amount of tax
determined to be due shall be paid within 30 days after the date of
mailing to the taxpayer a notice stating the amount payable and making
demand upon the taxpayer therefor. However, if the notice is mailed to
the taxpayer more than 30 days before the due date of the return,
payment of the tax shall not be required prior to such due date.
(2) Where tax is shown on the return. In any case in which a
taxpayer files a return on Form 1040A pursuant to paragraph (a)(7) of
Sec. 1.6012-1 and shows the amount of tax on the return, the unpaid
balance of the tax shall, without assessment or notice and demand, be
paid not later than the date fixed for filing the return.
(c) Date fixed for payment of tax. In any case in which a tax
imposed by subtitle A of the Code is required to be paid on or before a
certain date, or within a certain period, any reference in subtitle A or
F of the Code to the date fixed for payment of such tax shall be deemed
a reference to the last day fixed for such payment (determined without
regard to any extension of time for paying the tax).
(d) Use of Government depositaries. (1) For provisions relating to
the use of authorized financial institutions in depositing income and
estimated income taxes of certain corporations, see Sec. 1.6302-1.
(2) For provisions relating to the use of such financial
institutions for the deposit of taxes required to be withheld under
chapter 3 of the Code on nonresident aliens and foreign corporations and
tax-free covenant bonds, see Sec. 1.6302-2. With respect to section
1446, the previous sentence shall apply only
[[Page 542]]
to a publicly traded partnership described in Sec. 1.1446-4.
(e) Effective/Applicability date. Paragraph (d)(2) of this section
shall apply to publicly traded partnerships described in Sec. 1.1446-4
for partnership taxable years beginning after April 29, 2008.
(Approved by the Office of Management and Budget under control number
1545-0257)
[T.D. 6500, 25 FR 12137, Nov. 26, 1960, as amended by T.D. 6922, 32 FR
8713, June 17, 1967; T.D. 6950, 33 FR 5357, Apr. 4, 1968; T.D. 7102, 36
FR 5498, Mar. 24, 1971; T.D. 7953, 49 FR 19644, May 9, 1984; T.D. 8952,
66 FR 33831, June 26, 2001; T.D. 9394, 73 FR 23085, Apr. 29, 2008; T.D.
9394, 74 FR 14932, Apr. 2, 2009]
Sec. 1.6153-1 Payment of estimated tax by individuals.
(a) In general. (1) The time for payment of the estimated tax by
individuals for calendar years shall be as follows:
------------------------------------------------------------------------
Dates of payment of
Date of filing declaration estimated tax
------------------------------------------------------------------------
(i) On or before April 15................. In 4 equal installments--one
at time of filing
declaration, one on or
before June 15, one on or
before September 15, and
one on or before January 15
of the succeeding taxable
year
(ii) After April 15 and before June 16 if In 3 equal installments--one
not required to be filed on or before at time of filing
April 15. declaration, one on or
before September 15, and
one on or before January 15
of the succeeding taxable
year
(iii) After June 15 and before September In 2 equal installments--one
16 if not required to be filed on or at time of filing
before June 15. declaration, and the other
on or before January 15 of
the succeeding taxable year
(iv) After September 15 if not required to In full at time of filing
be filed on or before September 15. declaration
------------------------------------------------------------------------
(2) If, for example, due to the nature and amount of his gross
income for 1955, the taxpayer is not required to file his declaration as
of April 15, but is required to file the declaration on or before June
15, 1955, the case comes within the scope of subparagraph (1)(ii) of
this paragraph and the estimated tax is payable in 3 equal installments,
the 1st on the date of filing, the 2d on or before September 15, 1955,
and the 3d installment on or before January 15, 1956.
(3) If a declaration is filed after the time prescribed in section
6073(a) (including any extension of time granted for filing the
declaration), there shall be paid at such time all installments of the
estimated tax which would have been payable on or before such date of
filing if the declaration had been timely filed in accordance with the
provisions of section 6073(a). The remaining installments shall be paid
at the times and in the amounts in which they would have been payable if
the declaration had been timely filed. Thus, for example, B, a single
man who makes his return on the calendar year basis, was employed from
the beginning of 1955 and for several years prior thereto at an annual
salary of $6,000, thus meeting the requirements of section 6015(a). B
filed his declaration for 1955 on September 16, 1955. In such case, B
should have filed a declaration on or before April 15, 1955, and at the
time of filing his declaration he was delinquent in the payment of three
installments of his estimated tax for the taxable year 1955. Hence, upon
his filing the declaration on September 16, 1955, three-fourths of the
estimated tax shown thereon must be paid.
(4) In the case of a decedent, payments of estimated tax are not
required subsequent to the date of death. See, however, paragraph (c) of
Sec. 1.6015(b)-1, relating to the making of an amended declaration by a
surviving spouse if a joint declaration was made before the death of the
decedent.
(5) The payment of any installment of the estimated tax shall be
considered payment on account of the tax for such taxable year. Hence,
upon the return for such taxable year, the aggregate amount of the
payments of estimated tax should be entered as payments to be applied
against the tax shown on such return.
(b) Farmers or fishermen. Special provisions are made with respect
to the filing of the declaration and the payment of the tax by an
individual whose estimated gross income from farming or, with respect to
taxable years beginning after December 31, 1962, from fishing is at
least two-thirds of his total gross income from all sources for the
taxable year. As to what constitutes income from farming or fishing
within the meaning of this paragraph, see paragraph (b) of Sec. 1.6073-
1. The declaration of such an individual may be filed
[[Page 543]]
on or before January 15 of the succeeding taxable year in lieu of the
time prescribed for individuals generally. Where such an individual
makes a declaration of estimated tax after September 15 of the taxable
year, the estimated tax shall be paid in full at the time of the filing
of the declaration.
(c) Amendment of declaration. If any amendment of a declaration is
filed, the remaining installments, if any, shall be ratably increased or
decreased, as the case may be, to reflect the increase or decrease in
the estimated tax by reason of the amendment. If any amendment is made
after September 15 of the taxable year, any increase in the estimated
tax by reason thereof shall be paid at the time of making the amendment.
(d) Installments paid in advance. At the election of the taxpayer
any installment of the estimated tax may be paid prior to the date
prescribed for its payment.
[T.D. 6500, 25 FR 12139, Nov. 26, 1960, as amended by T.D. 6678, 28 FR
10517, Oct. 1, 1963]
Sec. 1.6153-2 Fiscal years.
In the case of an individual on the fiscal year basis, the dates
prescribed for payment of the estimated tax shall be the 15th day of the
4th month, the 15th day of the 6th month, and the 15th day of the 9th
month of the taxable year and the 15th day of the 1st month of the
succeeding taxable year. For example, if an individual having a fiscal
year ending on June 30, 1956, first meets the requirements of section
6015(a) on January 15, 1956, and the declaration is filed on or before
March 15, 1956, the estimated tax shall be paid in 2 equal installments,
one at the time of filing of such declaration and the other on or before
July 15, 1956.
[T.D. 6500, 25 FR 12139, Nov. 26, 1960]