[Federal Register Volume 61, Number 248 (Tuesday, December 24, 1996)]
[Rules and Regulations]
[Pages 67715-67726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32248]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 8700]
RIN 1545-AS30
Mark to Market for Dealers in Securities
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
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SUMMARY: This document contains final regulations providing guidance to
enable taxpayers to comply with the mark-to-market requirements
applicable to dealers in securities. The Revenue Reconciliation Act of
1993 amended the applicable tax law. These regulations provide guidance
to dealers in securities.
DATES: These final regulations are effective December 24, 1996, except
paragraph (a) of Sec. 1.475(c)-1T is removed effective December 24,
1996, and the remainder of Sec. 1.475(c)-1T is removed effective
January 23, 1997.
For dates of applicability, see Sec. 1.475(e)-1.
FOR FURTHER INFORMATION CONTACT: Robert B. Williams at (202) 622-3960
or Jo Lynn Ricks at (202) 622-3920 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1496. Responses to this collection of information
are required for a taxpayer to obtain the benefit of an exemption from
marking to market under section 475 for those securities (see
Sec. 1.475(b)-2) and for a consolidated group of taxpayers to obtain
the benefit of treating inter-member transactions as customer
transactions for purposes of the definition of dealer in securities
(the intragroup-customer election, Sec. 1.475(c)-1(a)(3)(iii)).
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per recordkeeper regarding
Sec. 1.475(b)-2 varies from .25 to 3 hours, depending on individual
circumstances, with an estimated average of 1 hour. Section 1.475(b)-4
(formerly Sec. 1.475(b)-2T), which permitted a taxpayer to add or
remove certain identifications on or before January 31, 1994, does not
impose a recordkeeping burden into the future. The estimated burden per
respondent in making the intragroup- customer election in
Secs. 1.475(c)-1(a)(3)(iii) varies from .25 to 1 hour, depending on
individual circumstances, with an estimated average of .5 hour.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to this collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains final regulations under section 475
(relating to mark-to-market accounting for dealers in securities).
Section 475 was added by section 13223 of the Revenue Reconciliation
Act of 1993, Public Law 103-66, 107 Stat. 481, and is effective for all
taxable years ending on or after December 31, 1993.
On December 29, 1993, temporary regulations (TD 8505, 58 FR 68747)
(hereinafter sometimes referred to as the temporary regulations) and
cross-referenced proposed regulations (FI-72-93, 58 FR 68798)
(hereinafter sometimes referred to as the 1993 proposed regulations)
were published to furnish guidance on several issues, including the
scope of exemptions from the mark- to-market requirements, certain
transitional issues relating to the scope of exemptions, and the
meaning of the statutory terms security, dealer in securities, and held
for investment. Various comments were received regarding those
regulations, and a hearing was held on April 12, 1994.
Additional regulations were proposed on January 4, 1995 (60 FR 397)
(hereinafter sometimes referred to as the 1995 proposed regulations),
and on June 20, 1996 (61 FR 31474) (hereinafter sometimes referred to
as the 1996 proposed regulations). The 1995 and 1996 proposed
regulations supplemented, and in a few cases revised, the 1993 proposed
regulations. Hearings on the 1995 and 1996 proposed regulations were
held on May 3, 1995, and October 15, 1996, respectively.
The final regulations in this document generally adopt the 1993
proposed regulations, as revised by the 1995 and 1996 proposed
regulations, with certain changes reflecting comments that were
received. These final regulations also adopt additional portions of the
1995 proposed regulations. The sections that are not adopted at this
time remain proposed.
The provisions governing mark to market of debt instruments, which
were proposed in January 1995, attracted substantial comment. The IRS
and Treasury intend to finalize those regulations in a substantially
revised form in response to those taxpayer comments.
Explanation of Provisions
Acquisition by a Dealer of a Security With a Substituted Basis
The final regulations adopt without change the provisions in the
1995 proposed regulations that provide rules for situations where a
dealer in securities receives a security with a basis in its hands that
is determined, in whole or in part, either by reference to the basis of
the security in the hands of the transferor or by reference to other
property held at any time by the dealer. In these cases, section 475(a)
applies only to post-acquisition gain and loss with respect to the
security. That is, section 475(a) applies only to changes in value of
the security occurring after its acquisition. See section 475(b)(3).
The character of the mark-to-market gain or loss is determined as
provided under section 475(d)(3). The character of pre-acquisition gain
or loss (that is, the built-in gain or loss at the date the dealer
acquires the security) and the time for taking that gain or loss into
account are determined without regard to section 475. The fact that a
security has a substituted basis in the dealer's hands does not affect
the security's date of acquisition for purposes of
[[Page 67716]]
determining the timeliness of an identification under section 475(b).
Scope of Exemptions From Mark-to-Market Requirement
Section 475(b) exempts certain securities from mark-to-market
accounting under section 475(a). Among the exempted securities are
those held for investment and debt securities not held for sale.
Section 1.475(b)-1(a) of the regulations, like the temporary rule that
preceded it, provides that held for investment, as used in section
475(b)(1)(A), and not held for sale, as used in section 475(b)(1)(B),
have the same meaning. The regulations provide that both terms refer to
a security that is not held by a taxpayer primarily for sale to
customers in the ordinary course of the taxpayer's trade or business.
By providing that a security is held for investment (or not held for
sale) if it is not held primarily for sale to customers in the ordinary
course of a trade or business, the regulations adopt the concept of
held for investment in section 1236(a). Thus, under these regulations,
a dealer in securities may identify as held for investment a security
that it holds primarily for sale to non-customers (for example, a
trading security). The IRS and the Treasury believe that providing a
single standard for purposes of sections 475 and 1236 is consistent
with the purpose of section 475. These rules apply to taxable years
ending on or after December 31, 1993.
The final regulations require a taxpayer that identifies a security
as exempt from being marked to market to state (on its books and
records) whether the security is, on the one hand, exempt as held for
investment or not held for sale or, on the other hand, exempt because
it is a hedge of an item not subject to mark to market. This regulation
applies to identifications made on or after July 1, 1997.
The temporary and 1993 proposed regulations provide that stock in a
50-percent-controlled subsidiary, and interests in 50-percent-
controlled partnerships and trusts, are deemed properly identified as
held for investment and thus are excluded from mark-to-market
accounting. The 1996 proposed regulations reproposed this rule with two
changes. First, the IRS believed that the rationale for the rule
applies equally to equity interests in most related persons and not
just to persons controlled by the taxpayer. Second, after considering
various comments received, the IRS proposed that this rule prohibiting
marking a security to market should not apply if two requirements are
met: (1) The security is actively traded on a national securities
exchange or through an interdealer quotation system; and (2) the
taxpayer who marks owns less than 5 percent of all shares or interests
of the same class. Comments were requested as to whether it is
appropriate to allow any equity interests in related parties to be
marked to market, and, if so, whether the proposed limitations are the
most appropriate ones.
After considering the comments received in response, the IRS and
the Treasury have decided to adopt the provisions in the 1996 proposed
regulations with certain modifications. First, the general threshold
above which even actively traded stock in a related party may not be
marked to market has been increased from 5% to 15%. The 15% limit,
however, includes shares held both by the dealer and by certain related
parties. Second, shares that a dealer acquires from a related party
cannot be marked to market unless, after the time they were acquired,
both one full business day has passed and there has been significant
trading in the security involving persons who are not related to the
taxpayer.
Section 475(b)(3) applies when a security has been exempt from
marking to market and the exemption then ceases to apply. Thus, changes
in a security's value that occur while section 475(a) does not apply
are suspended. This rule has additional significance for certain
members of consolidated groups because Sec. 1.1502-13(f)(6) disallows
certain losses recognized by members of consolidated groups on common
parent stock if the loss is not taken into account pursuant to section
475(a).
The final regulations provide that, except as determined by the
Commissioner, notional principal contracts and derivative securities
described in section 475(c)(2) (D) or (E) that are held by a dealer in
those securities are not eligible to be exempted from mark-to-market
treatment as held for investment.
Under the temporary and 1993 proposed regulations, however, an
analogous barrier to exemption from mark-to-market treatment did not
apply if the taxpayer established unambiguously that the security was
acquired other than in the taxpayer's capacity as a dealer in such
securities. It was anticipated that this exception would apply only in
rare instances. Commenters suggested an easing of the standard for
establishing that a security was acquired other than in the taxpayer's
capacity as a dealer in such securities.
These suggestions are specifically rejected in the final
regulations set forth in Sec. 1.475(b)-1(c). Instead, as described
above, to avoid uncertainty and ambiguity, the rule barring exemption
from mark-to-market treatment for certain notional principal contracts
and derivative securities applies unless the Commissioner explicitly
determines otherwise. For securities acquired or entered into before
January 23, 1997, however, the final regulations continue the rule
found in the temporary regulations.
Commenters suggested that changes are needed to allow taxpayers
that are dealers in notional principal contracts and derivative
securities (described in section 475(c)(2) (D) or (E)) to identify as
exempt from mark-to-market treatment a notional principal contract or
derivative that is held as a hedge of a position that is not marked to
market.
No change was made to the temporary regulations to reflect these
comments because none was necessary. Section 1.475(b)-1(c) limits
exemptions only under section 475(b)(1)(A) (concerning securities held
for investment). Section 1.475(b)-1(c) does not limit exemptions under
section 475(b)(1)(C) (concerning securities that are hedges of non-
mark-to-market positions). Although the flush language at the end of
section 475(b)(1) authorizes analogous regulatory limitations on
exemption under section 475(b)(1)(C), as of this time, no such
regulation has been issued or proposed. Accordingly, if a dealer in
notional principal contracts or derivatives enters into a notional
principal contract or derivative as a hedge of a position that is not
marked to market, the dealer may properly identify it under section
475(b)(1)(C) as exempt from mark-to-market treatment.
In response to comments, the final regulations expand the
securities that a taxpayer may identify under section 475(b)(1)(C) as
exempt from mark-to-market accounting. Under the final regulations, a
taxpayer can identify as exempt from mark-to-market treatment under
section 475(b)(1)(C) a security that hedges a position of another
member of the taxpayer's consolidated group and meets the following
three requirements: the security is a hedging transaction within the
meaning of Sec. 1.1221-2(b); the security is timely identified as a
hedging transaction under Sec. 1.1221-2(e) (including satisfaction of
the requirement that the hedged item be identified); and the security
hedges a position that is not marked to market under section 475(a).
Although identification of the hedged item is not required under
Sec. 1.1221-2 until some time after the day the hedging transaction is
entered into, the identification of the hedge under section 475(b)(2)
must still be made no later
[[Page 67717]]
than the close of the day on which the hedge is acquired, originated,
or entered into.
Permitting taxpayers to identify these securities as exempt from
mark-to-market accounting is consistent with the single-entity approach
of the consolidated group hedging regulations under Sec. 1.1221-
2(d)(1). As a result of the identification, the timing of the gain or
loss on the hedge is matched with the timing of the gain or loss on the
hedged item without forcing taxpayers to use back-to-back hedges and
the separate-entity election under Sec. 1.1221-2(d)(2). This rule is
effective for hedges entered into on or after January 23, 1997.
Exemptions--Transitional Issues
The final regulations adopt without substantive change a number of
transitional rules relating to various exemption and identification
issues. These transitional rules, now found in Sec. 1.475(b)-4, were
contained in Sec. 1.475(b)-2T of the temporary regulations. A more
complete description of these provisions may be found in the preamble
of TD 8505 at 58 FR 68747 (1994-1 C.B. 152).
Dealer in Securities--The Dealer-Customer Relationship
The final regulations retain the rules in the 1995 proposed
regulations concerning the dealer-customer relationship. Thus, the
final regulations provide that determination of whether a transaction
is with a customer is based on all of the facts and circumstances.
Further, under section 475(c)(1)(B), the term dealer in securities
includes a taxpayer that, in the ordinary course of its trade or
business, regularly holds itself out as being willing and able to enter
into either side of a transaction enumerated in section 475(c)(1)(B).
The final regulations retain the general rule in the 1996 proposed
regulations that transactions with related persons may be transactions
with customers for purposes of section 475. In response to comments,
however, in Sec. 1.475(c)-1(a)(3) the final regulations provide both a
special rule for members of a consolidated group and an election for
the rule not to apply. If the special rule applies, then, solely for
purposes of determining whether the taxpayer meets the definition of a
dealer in securities, a taxpayer's transactions with other members of
its consolidated group are not transactions with customers. Thus, a
member whose only customers are other members of its consolidated group
generally is not a dealer in securities. Treating intragroup
transactions as noncustomer transactions is consistent with the single-
entity approach of Secs. 1.1221-2(d)(1) and 1.1502-13. (The IRS expects
to provide additional guidance on whether there are any circumstances
in which the special rule applies for other purposes, such as whether a
security may be exempted from mark-to-market treatment because it is
not held for sale to customers.)
A consolidated group may elect not to apply the special rule. If a
group has made this intragroup customer election, a member of a group
may be a dealer in securities even if its only customer transactions
are with other members of its consolidated group. Once made, the
election continues for all subsequent taxable years and may be revoked
only with the consent of the Commissioner.
These final regulations significantly alter the proposed default
rule for intragroup transactions. Under the proposed regulations, a
taxpayer's intragroup transactions would have been customer
transactions for purposes of section 475. Because the final regulations
reverse this rule (making noncustomer status the default and requiring
an affirmative election to consider intragroup transactions in applying
the dealer definition), the rules for intragroup transactions are
effective for taxable years beginning on or after December 24, 1997.
(The general rule for related party transactions other than intragroup
transactions is effective for taxable years beginning on or after June
20, 1996.) The IRS will soon publish guidance to assist taxpayers who
may have to change their methods of accounting because their status as
a dealer changes as a result of the application of Sec. 1.475(c)-
1(a)(3).
For prior years, the Service generally will not challenge a
taxpayer's treatment of intragroup transactions as customer or
noncustomer transactions, provided the taxpayer had a reasonable basis
for its treatment of the transactions and consistently applied that
basis from year to year. In this regard, a taxpayer does not fail this
consistency requirement solely because it changed its treatment of its
intragroup transactions in order: (1) to avail itself of the separate-
entity election under the consolidated group hedging regulations, or
(2) to coincide with the expected effective date of either Notice 96-12
(1996-10 I.R.B. 29) or the related party rules in the 1996 proposed
regulations. (If a taxpayer wishes to change its treatment of prior
open years to be consistent with its status during the first year that
Sec. 1.475(c)-1(a)(3) applies, see Sec. 301.9100-1T(a).) Dealer in
securities--sellers of nonfinancial goods and services
In general, the final regulations exclude from dealer status any
taxpayer that would not be a dealer in securities but for its purchases
and sales of debt instruments that, at the time of purchase or sale,
are customer debt with respect to the taxpayer or another member of the
taxpayer's consolidated group. A debt instrument is customer debt at a
particular time with respect to a person if three conditions are met:
(1) The person's principal activity is selling nonfinancial goods or
providing nonfinancial services; (2) the debt instrument was issued by
a purchaser of the goods or services at the time of purchase of those
items in order to finance their purchase; and (3) at all times after
the debt instrument was issued, it has been owned by the person who
sold the goods or services or by a member of its consolidated group.
If, however, a taxpayer is a dealer in securities despite this
provision, customer debt remains a security in the taxpayer's hands and
must be marked to market unless exempted by another rule.
The temporary regulations contain a narrower provision--that a
seller of nonfinancial goods or services is not a dealer in securities
for purposes of section 475 solely by virtue of extending credit to its
nonfinancial customers (even if it sells the debt instruments so
acquired). In response to comments, the final regulations extend this
principle to accommodate consolidated groups that include both a seller
of nonfinancial goods or services and a captive finance subsidiary.
The rule in the final regulations exempting from dealer status most
captive finance subsidiaries of retailers and other sellers of
nonfinancial goods and services applies to all taxable years ending on
or after December 31, 1993, unless the taxpayer elects for the
exemption not to apply. If the election is made, it continues for all
subsequent taxable years and may be revoked only with the consent of
the Commissioner.
Under the final regulations, there are two additional circumstances
in which this exemption from dealer status does not apply. The first is
when, for purposes of the inventory accounting rules under section 471,
the taxpayer accounts for any security (as defined in section
475(c)(2)) as inventory. The second circumstance is when the taxpayer
is not itself the seller of nonfinancial goods and services and the
customer debt is accounted for by the taxpayer or by a member of its
consolidated group under a method that permits either the recognition
of unrealized gains or losses or deductions for additions to a reserve
for bad debts. This rule does not affect the seller of nonfinancial
goods and services itself
[[Page 67718]]
but is designed to prevent groups from having one captive finance
subsidiary that is treated as a nondealer and another member of the
group that is a dealer or a financial institution that accounts for
customer debt under a method that takes into account mark-to-market
gains or losses or reserve deductions.
Dealer in Securities--The Negligible Sales Exemption
Under the final regulations, in general, if a taxpayer purchases
securities from customers (including originating loans in the ordinary
course of the taxpayer's trade or business of originating loans) but
engages in no more than negligible sales of the securities so acquired,
the purchases do not cause the taxpayer to be a dealer in securities.
This negligible sales rule does not apply if the taxpayer so elects or
accounts for any security as inventory for purposes of section 471. A
taxpayer that would be a dealer in securities but for the negligible
sales rule elects to be a dealer simply by filing a federal income tax
return reflecting the application of section 475(a) in computing its
taxable income. The final regulations differ from the proposed
regulations by explicitly making the negligible sales rule elective.
In response to comments, the final regulations clarify the test for
determining negligible sales of debt instruments acquired from
customers. Under this rule, a taxpayer has engaged in no more than
negligible sales of the debt instruments (or portions of the debt
instruments) that it regularly purchases from customers in the ordinary
course of its business if, and only if, during the year, either (1) it
sells all or part of fewer than 60 debt instruments (regardless how
acquired), or (2) the total adjusted basis of the debt instruments or
portions of debt instruments (regardless how acquired) that it sells is
less than 5 percent of the total basis, immediately after acquisition,
of the debt instruments that it acquires during the year.
This special test replaces the examples in the temporary
regulations illustrating the negligible sales provision. Some
commenters noted that Sec. 1.475(c)-1T(b)(2) Example 1 of the temporary
regulations is ambiguous because it refers to a taxpayer that both
``retains almost all of the loans that it acquires'' and ``sells fewer
than 60 loans.'' The final regulations eliminate the ambiguity by
making no reference to how many loans are retained.
In response to comments, the final regulations contain two special
rules for applying the negligible sales test to members of a
consolidated group. Under the first rule, if a taxpayer is a member of
a consolidated group that has made the intragroup-customer election,
described above, it must apply the negligible sales test for debt
instruments by taking into account all of its sales of debt instruments
to other group members. On the other hand, if the taxpayer is a member
of a consolidated group that has not made the intragroup-customer
election, the negligible sales test is satisfied if either of two
criteria is met: first, if the taxpayer satisfies the negligible sales
test, taking into account all sales of debt instruments including sales
to other group members; or second, if the taxpayer's consolidated group
would satisfy the test if it were a single corporation and the members
of the group were divisions of that corporation. This group-wide
approach to the negligible sales test is consistent with the single-
entity approach of Secs. 1.1221-2(d)(1) and 1.1502-13.
Under a new rule in the final regulations, if a debt instrument is
qualitatively different from all of the debt instruments that the
taxpayer purchases from customers, a sale of that debt instrument does
not count as one of the 60 instruments sold, and that debt instrument
is not included in either the numerator or the denominator under the 5%
test. The regulations contain an example that illustrates this
principle.
The rules regarding the negligible sales exemption are generally
effective for taxable years ending on or after December 31, 1993. The
special rules for members of a consolidated group, however, are
effective for taxable years beginning on or after January 23, 1997.
Further, a taxpayer may rely on the rules set out in Sec. 1.475(c)-
1T(b) (as contained in 26 CFR part 1 revised April 1, 1996) for taxable
years beginning before January 23, 1997, provided the taxpayer applies
that paragraph reasonably and consistently.
Dealer in Securities--Issuance of Life Insurance Products
The final regulations adopt without change a provision in the 1995
proposed regulations to clarify that a life insurance company does not
become a dealer in securities solely by selling annuity, endowment, or
life insurance contracts to its customers.
Under the final regulations and the December 28, 1993, proposed
regulations, a contract that is treated for federal income tax purposes
as an annuity, endowment, or life insurance contract is deemed to have
been identified as held for investment, and is therefore not marked to
market by the policy holder. This rule was necessary because variable
life and annuity products fall within the literal language of section
475(c)(2)(E). Because many life insurance companies sell these
insurance contracts to their customers, some commenters on the 1993
proposal had asked whether these life insurance companies were dealers
in securities. There is no indication that Congress intended for a life
insurance company that was not otherwise a dealer in securities to be
characterized as a dealer merely because it sells life insurance
policies to its customers.
Several commenters requested that certain activities not cause
dealer status under section 475 because those activities, although
described by section 475, traditionally had not been considered dealer
activities. Those comments were generally rejected. Congress determined
that section 475 would bestow dealer status on taxpayers who had not
been thought of as dealers prior to the enactment of section 475. Thus,
the final regulations do not adopt proposals that making and selling
policy loans should not cause an insurance company to be a dealer in
securities and that sales of student loans or auto loans and sales of
loan participations should not be taken into account in determining
whether a taxpayer is a dealer in securities. Of course, if a lead bank
never owns a particular portion of a loan for tax purposes (because
some other participating lender always had the economic benefits and
burdens of that portion), then the lead bank cannot sell that portion
to that other participating lender. Thus, the lead bank is not a dealer
in securities by reason of these participations.
Definition of Security
Under the final regulations, certain items are not securities
within the meaning of section 475(c)(2). These items include both debt
issued by the taxpayer and any security (determined without regard to
this provision) if section 1032 bars recognition of gain or loss by the
taxpayer with respect to that security.
The final regulations adopt without change the provisions in the
1995 proposed regulations that exclude from the definition of security
all REMIC residual interests acquired on or after January 4, 1995. This
rule was adopted because applying section 475 to residual interests
would undermine the Congressional design for taxing REMIC income,
including the intended operation of sections 860C and 860E (relating to
excess inclusions).
Unlike the 1995 proposed regulations, the temporary regulations
excluded only some residual interests from the definition of security.
Specifically, the
[[Page 67719]]
temporary regulations excluded only negative value residual interests
(NVRIs) in a REMIC and other arrangements that are determined to have
substantially the same economic effect as NVRIs. Under the final
regulations, this exclusion continues to apply to NVRIs acquired before
January 4, 1995.
One commenter acknowledged the tension between mark-to-market
accounting and the excess inclusion rules, but proposed to address that
problem in another way. Under the commenter's proposal, a dealer would
be permitted to mark to market a residual interest, but any loss
resulting from the mark would be taken into account only to the extent
that the loss exceeded the amount of excess inclusion with respect to
that residual interest for the taxable year.
The IRS and Treasury believe that this comment does not address the
tension between mark-to-market accounting and section 860C. Apart from
the excess inclusion rules, the REMIC provisions contemplate income
inclusions (and corresponding basis increases) that are not necessarily
associated with increases in the value of the residual interest. Under
the commenter's proposal, a dealer could claim a loss by marking to
market a residual interest where the increased basis in the interest
resulted from an allocation of REMIC income that was unaccompanied by
an increase in value. Thus, the dealer could avoid its allocable share
of REMIC income and thereby frustrate the taxing regime contemplated
for residual interests.
Moreover, adopting this comment would require additional, complex
rules, and the burden of administering those rules would not be
justified by the potential benefit. For example, under the proposal, a
taxpayer would have one basis in a residual interest for purposes of
section 475 and a different basis in the residual interest for purposes
of section 860C(d). Also, adopting the proposal would require rules to
coordinate losses that are limited under section 475 with losses that
are limited under section 860C(e)(2).
Some commenters suggested that certain types of assets should not
be marked to market because they may be difficult to value. Under
section 475, however, ease of valuation is not relevant in determining
whether a security is required to be marked to market.
Character of Gain or Loss
The regulations adopt without change the proposed provision to
clarify that marking to market a security that is not held in
connection with a taxpayer's activities as a dealer in securities does
not affect the character of gain or loss from that security.
In addition, under a new provision in the final regulations that
responds to comments from taxpayers, if a dealer in certain notional
principal contracts or derivative securities (described in section
475(c)(2) (D) or (E)) marks those securities to market because it is
precluded from identifying them as exempt from mark-to-market treatment
on the grounds that they are held for investment, the dealer recognizes
ordinary gain or loss with respect to those securities.
Effective Dates
These final regulations generally apply to taxable years ending on
or after December 31, 1993, except as otherwise noted.
Miscellaneous
Some of the 1993 and 1995 proposed regulations are reordered.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations. The collection of information
required by Sec. 1.475(b)-2 was contained in a notice of proposed
rulemaking preceding these regulations that was issued prior to March
29, 1996. Moreover, it is hereby certified that the collection of
information required by Sec. 1.475(c)-1 of these regulations (regarding
the intragroup customer election) does not have a significant economic
impact on a substantial number of small entities. This certification is
based upon the fact that the election is generally attractive only to
an affiliated group of taxpayers that files a consolidated return
(generally large businesses), that has elected separate entity
treatment under Sec. 1.1221-2, and that has an in-house hedge center or
securities dealer which deals solely with other group members and which
uses mark-to-market accounting for book purposes. Thus, the election is
likely to be made only by, and the collection of information applies
only to, a very small number of large taxpayers. Therefore, a
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of proposed rulemaking preceding
these regulations was submitted to the Small Business Administration
for comment on its impact on small business.
Drafting Information: The principal authors of these regulations
are Robert B. Williams and Jo Lynn Ricks, Office of Assistant Chief
Counsel (Financial Institutions and Products), IRS. However, other
personnel from the IRS and Treasury Department participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
removing the entries for Secs. 1.475(b)-1T, 1.475(b)-2T, 1.475(c)-1T,
1.475(c)-2T, 1.475(d)-1T, and 1.475(e)-1T and adding entries in
numerical order to read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 1.475(a)-3 also issued under 26 U.S.C. 475(e).
Section 1.475(b)-1 also issued under 26 U.S.C. 475(b)(4) and 26
U.S.C. 475(e).
Section 1.475(b)-2 also issued under 26 U.S.C. 475(b)(2) and 26
U.S.C. 475(e).
Section 1.475(b)-4 also issued under 26 U.S.C. 475(b)(2), 26
U.S.C. 475(e), and 26 U.S.C. 6001.
Section 1.475(c)-1 also issued under 26 U.S.C. 475(e).
Section 1.475(c)-2 also issued under 26 U.S.C. 475(e) and 26
U.S.C. 860G(e).
Section 1.475(d)-1 also issued under 26 U.S.C. 475(e).
Section 1.475(e)-1 also issued under 26 U.S.C. 475(e). * * *
Sec. 1.475(b)-1T, 1.475(b)-2T, 1.475(c)-1T, 1.475(c)-2T, 1.475(d)-1T,
and 1.475(e)-1T [Removed]
Par. 2. Sections 1.475(b)-1T, 1.475(b)-2T, 1.475(c)-2T, 1.475(d)-
1T, and 1.475(e)-1T are removed.
Par. 2a. Paragraph (a) of Sec. 1.475(c)-1T is removed effective
December 24, 1996, and the remainder of Sec. 1.475(c)-1T is removed
January 23, 1997.
Par. 3. Sections 1.475-0, 1.475(a)-3, 1.475(b)-1, 1.475(b)-(2),
1.475(b)-4, 1.475(c)-1, 1.475(c)-2, 1.475(d)-1, and 1.475(e)-1 are
added to read as follows:
Sec. 1.475-0 Table of contents.
This section lists the major captions in Secs. 1.475(a)-3,
1.475(b)-1, 1.475(b)-2, 1.475(b)-4, 1.475(c)-1, 1.475(c)-2, 1.475(d)-1,
and 1.475(e)-1.
[[Page 67720]]
Sec. 1.475(a)-1 [Reserved]
Sec. 1.475(a)-2 [Reserved]
Sec. 1.475(a)-3 Acquisition by a dealer of a security with a
substituted basis.
(a) Scope.
(b) Rules.
Sec. 1.475(b)-1 Scope of exemptions from mark-to-market
requirement.
(a) Securities held for investment or not held for sale.
(b) Securities deemed identified as held for investment.
(1) In general.
(2) Relationships.
(i) General rule.
(ii) Attribution.
(iii) Trusts treated as partnerships.
(3) Securities traded on certain established financial markets.
(4) Changes in status.
(i) Onset of prohibition against marking.
(ii) Termination of prohibition against marking.
(iii) Examples.
(c) Securities deemed not held for investment; dealers in
notional principal contracts and derivatives.
(d) Special rule for hedges of another member's risk.
(e) Transitional rules.
(1) Stock, partnership, and beneficial ownership interests in
certain controlled corporations, partnerships, and trusts before
January 23, 1997.
(i) In general.
(ii) Control defined.
(iii) Applicability.
(2) Dealers in notional principal contracts and derivatives
acquired before January 23, 1997.
(i) General rule.
(ii) Exception for securities not acquired in dealer capacity.
(iii) Applicability.
Sec. 1.475(b)-2 Exemptions--identification requirements.
(a) Identification of the basis for exemption.
(b) Time for identifying a security with a substituted basis.
(c) Integrated transactions under Sec. 1.1275-6.
(1) Definitions.
(2) Synthetic debt held by a taxpayer as a result of legging in.
(3) Securities held after legging out.
Sec. 1.475(b)-3 [Reserved]
Sec. 1.475(b)-4 Exemptions--transitional issues.
(a) Transitional identification.
(1) Certain securities previously identified under section 1236.
(2) Consistency requirement for other securities.
(b) Corrections on or before January 31, 1994.
(1) Purpose.
(2) To conform to Sec. 1.475(b)-1(a).
(i) Added identifications.
(ii) Limitations.
(3) To conform to Sec. 1.475(b)-1(c).
(c) Effect of corrections.
Sec. 1.475(c)-1 Definitions--dealer in securities.
(a) Dealer-customer relationship.
(1) [Reserved].
(2) Transactions described in section 475(c)(1)(B).
(i) In general.
(ii) Examples.
(3) Related parties.
(i) General rule.
(ii) Special rule for members of a consolidated group.
(iii) The intragroup-customer election.
(A) Effect of election.
(B) Making and revoking the election.
(iv) Examples.
(b) Sellers of nonfinancial goods and services.
(1) Purchases and sales of customer paper.
(2) Definition of customer paper.
(3) Exceptions.
(4) Election not to be governed by the exception for sellers of
nonfinancial goods or services.
(i) Method of making the election.
(A) Taxable years ending after December 24, 1996.
(B) Taxable years ending on or before December 24, 1996.
(ii) Continued applicability of an election.
(c) Taxpayers that purchase securities from customers but engage
in no more than negligible sales of the securities.
(1) Exemption from dealer status.
(i) General rule.
(ii) Election to be treated as a dealer.
(2) Negligible sales.
(3) Special rules for members of a consolidated group.
(i) Intragroup-customer election in effect.
(ii) Intragroup-customer election not in effect.
(4) Special rules.
(5) Example.
(d) Issuance of life insurance products.
Sec. 1.475(c)-2 Definitions--security.
(a) Items that are not securities.
(b) Synthetic debt that Sec. 1.1275-6(b) treats the taxpayer as
holding.
(c) Negative value REMIC residuals acquired before January 4,
1995.
(1) Description.
(2) Special rules applicable to negative value REMIC residuals
acquired before January 4, 1995.
Sec. 1.475(d)-1 Character of gain or loss.
(a) Securities never held in connection with the taxpayer's
activities as a dealer in securities.
(b) Ordinary treatment for notional principal contracts and
derivatives held by dealers in notional principal contracts and
derivatives.
Sec. 1.475(e)-1 Effective dates.
Sec. 1.475(a)-3 Acquisition by a dealer of a security with a
substituted basis.
(a) Scope. This section applies if--
(1) A dealer in securities acquires a security that is subject to
section 475(a) and the dealer's basis in the security is determined, in
whole or in part, by reference to the basis of that security in the
hands of the person from whom the security was acquired; or
(2) A dealer in securities acquires a security that is subject to
section 475(a) and the dealer's basis in the security is determined, in
whole or in part, by reference to other property held at any time by
the dealer.
(b) Rules. If this section applies to a security--
(1) Section 475(a) applies only to changes in value of the security
occurring after the acquisition; and
(2) Any built-in gain or loss with respect to the security (based
on the difference between the fair market value of the security on the
date the dealer acquired it and its basis to the dealer on that date)
is taken into account at the time, and has the character, provided by
the sections of the Internal Revenue Code that would apply to the
built-in gain or loss if section 475(a) did not apply to the security.
Sec. 1.475(b)-1 Scope of exemptions from mark-to-market requirement.
(a) Securities held for investment or not held for sale. Except as
otherwise provided by this section and subject to the identification
requirements of section 475(b)(2), a security is held for investment
(within the meaning of section 475(b)(1)(A)) or not held for sale
(within the meaning of section 475(b)(1)(B)) if it is not held by the
taxpayer primarily for sale to customers in the ordinary course of the
taxpayer's trade or business.
(b) Securities deemed identified as held for investment--(1) In
general. The following items held by a dealer in securities are per se
held for investment within the meaning of section 475(b)(1)(A) and are
deemed to be properly identified as such for purposes of section
475(b)(2)--
(i) Except as provided in paragraph (b)(3) of this section, stock
in a corporation, or a partnership or beneficial ownership interest in
a widely held or publicly traded partnership or trust, to which the
taxpayer has a relationship specified in paragraph (b)(2) of this
section; or
(ii) A contract that is treated for federal income tax purposes as
an annuity, endowment, or life insurance contract (see sections 72,
817, and 7702).
(2) Relationships--(i) General rule. The relationships specified in
this paragraph (b)(2) are--
(A) Those described in section 267(b) (2), (3), (10), (11), or
(12); or
(B) Those described in section 707(b)(1)(A) or (B).
(ii) Attribution. The relationships described in paragraph
(b)(2)(i) of this
[[Page 67721]]
section are determined taking into account sections 267(c) and
707(b)(3), as appropriate.
(iii) Trusts treated as partnerships. For purposes of this
paragraph (b)(2), the phrase partnership or trust is substituted for
the word partnership in sections 707(b) (1) and (3), and a reference to
beneficial ownership interest is added to each reference to capital
interest or profits interest in those sections.
(3) Securities traded on certain established financial markets.
Paragraph (b)(1)(i) of this section does not apply to a security if--
(i) The security is actively traded within the meaning of
Sec. 1.1092(d)-1(a) taking into account only established financial
markets identified in Sec. 1.1092(d)-1(b)(1) (i) or (ii) (describing
national securities exchanges and interdealer quotation systems);
(ii) Less than 15 percent of all of the outstanding shares or
interests in the same class are held by the taxpayer and all persons
having a relationship to the taxpayer that is specified in paragraph
(b)(2) of this section; and
(iii) If the security was acquired (e.g., on original issue) from a
person having a relationship to the taxpayer that is specified in
paragraph (b)(2) of this section, then, after the time the security was
acquired--
(A) At least one full business day has passed; and
(B) There has been significant trading involving persons not having
a relationship to the taxpayer that is specified in paragraph (b)(2) of
this section.
(4) Changes in status--(i) Onset of prohibition against marking--
(A) Once paragraph (b)(1) of this section begins to apply to the
security and for so long as it continues to apply, section 475(a) does
not apply to the security in the hands of the taxpayer.
(B) If a security has not been timely identified under section
475(b)(2) and, after the last day on which such an identification would
have been timely, paragraph (b)(1) of this section begins to apply to
the security, then the dealer must recognize gain or loss on the
security as if it were sold for its fair market value as of the close
of business of the last day before paragraph (b)(1) of this section
begins to apply to the security, and gain or loss is taken into account
at that time.
(ii) Termination of prohibition against marking. If a taxpayer did
not timely identify a security under section 475(b)(2), and paragraph
(b)(1) of this section applies to the security on the last day on which
such an identification would have been timely but thereafter ceases to
apply--
(A) An identification of the security under section 475(b)(2) is
timely if made on or before the close of the day paragraph (b)(1) of
this section ceases to apply; and
(B) Unless the taxpayer timely identifies the security under
section 475(b)(2) (taking into account the additional time for
identification that is provided by paragraph (b)(4)(ii)(A) of this
section), section 475(a) applies to changes in value of the security
after the cessation in the same manner as under section 475(b)(3).
(iii) Examples. These examples illustrate this paragraph (b)(4):
Example 1. Onset of prohibition against marking--(A) Facts.
Corporation H owns 75 percent of the stock of corporation D, a
dealer in securities within the meaning of section 475(c)(1). On
December 1, 1995, D acquired less than half of the stock in
corporation X. D did not identify the stock for purposes of section
475(b)(2). On July 17, 1996, H acquired from other persons 70
percent of the stock of X. As a result, D and X became related
within the meaning of paragraph (b)(2)(i) of this section. The stock
of X is not described in paragraph (b)(3) of this section
(concerning some securities traded on certain established financial
markets).
(B) Holding. Under paragraph (b)(4)(i) of this section, D
recognizes gain or loss on its X stock as if the stock were sold for
its fair market value at the close of business on July 16, 1996, and
the gain or loss is taken into account at that time. As with any
application of section 475(a), proper adjustment is made in the
amount of any gain or loss subsequently realized. After July 16,
1996, section 475(a) does not apply to D's X stock while paragraph
(b)(1)(i) of this section (concerning the relationship between X and
D) continues to apply.
Example 2. Termination of prohibition against marking; retained
securities identified as held for investment--(A) Facts. On July 1,
1996, corporation H owned 60 percent of the stock of corporation Y
and all of the stock of corporation D, a dealer in securities within
the meaning of section 475(c)(1). Thus, D and Y are related within
the meaning of paragraph (b)(2)(i) of this section. Also on July 1,
1996, D acquired, as an investment, 10 percent of the stock of Y.
The stock of Y is not described in paragraph (b)(3) of this section
(concerning some securities traded on certain established financial
markets). When D acquired its shares of Y stock, it did not identify
them for purposes of section 475(b)(2). On December 24, 1996, D
identified its shares of Y stock as held for investment under
section 475(b)(2). On December 30, 1996, H sold all of its shares of
stock in Y to an unrelated party. As a result, D and Y ceased to be
related within the meaning of paragraph (b)(2)(i) of this section.
(B) Holding. Under paragraph (b)(4)(ii)(A) of this section,
identification of the Y shares is timely if done on or before the
close of December 30, 1996. Because D timely identified its Y shares
under section 475(b)(2), it continues after December 30, 1996, to
refrain from marking to market its Y stock.
Example 3. Termination of prohibition against marking; retained
securities not identified as held for investment-- (A) Facts. The
facts are the same as in Example 2 above, except that D did not
identify its stock in Y for purposes of section 475(b)(2) on or
before December 30, 1996. Thus, D did not timely identify these
securities under section 475(b)(2) (taking into account the
additional time for identification provided in paragraph
(b)(4)(ii)(A) of this section).
(B) Holding. Under paragraph (b)(4)(ii)(B) of this section,
section 475(a) applies to changes in value of D's Y stock after
December 30, 1996, in the same manner as under section 475(b)(3).
Thus, any appreciation or depreciation that occurred while the
securities were prohibited from being marked to market is suspended.
Further, section 475(a) applies only to those changes occurring
after December 30, 1996.
Example 4. Acquisition of actively traded stock from related
party--(A) Facts. Corporation P is the parent of a consolidated
group whose taxable year is the calendar year, and corporation M, a
member of that group, is a dealer in securities within the meaning
of section 475(c)(1). Corporation M regularly acts as a market maker
with respect to common and preferred stock of corporation P.
Corporation P has outstanding 2,000,000 shares of series X preferred
stock, which are traded on a national securities exchange. During
the business day on December 29, 1997, corporation P sold 100,000
shares of series X preferred stock to corporation M for $100 per
share. Subsequently, also on December 29, 1997, persons not related
to corporation M engaged in significant trading of the series X
preferred stock. At the close of business on December 30, 1997, the
fair market value of series X stock was $99 per share. At the close
of business on December 31, 1997, the fair market value of series X
stock was $98.50 per share. Corporation M sold the series X stock on
the exchange on January 2, 1998. At all relevant times, corporation
M and all persons related to M owned less than 15% of the
outstanding series X preferred stock.
(B) Holding. The 100,000 shares of series X preferred stock held
by corporation M are not subject to mark-to-market treatment under
section 475(a) on December 29, 1997, because at that time the stock
was held for less than one full business day and is therefore
treated as properly identified as held for investment. At the close
of business on December 30, 1997, that prohibition on marking ceases
to apply, and section 475(b)(3) begins to apply. The built-in loss
is suspended, and subsequent appreciation and depreciation are
subject to section 475(a). Accordingly, when corporation M marks the
series X stock to market at the close of business on December 31,
1997, under section 475(a) it recognizes and takes into account a
loss of $.50 per share. Under section 475(b)(3), when corporation M
sells the series X stock on January 2, 1998, it takes into account
the suspended loss, that is, the difference between the $100 per
share it paid
[[Page 67722]]
corporation P for that stock and the $99-per-share fair market value
when section 475(b)(1) ceased to be applied to the stock. No
deduction, however, is allowed for that loss. (See Sec. 1.1502-
13(f)(6), under which no deduction is allowed to a member of a
consolidated group for a loss with respect to a share of stock of
the parent of that consolidated group, if the member does not take
the gain or loss into account pursuant to section 475(a).)
(c) Securities deemed not held for investment; dealers in notional
principal contracts and derivatives--(1) Except as otherwise determined
by the Commissioner in a revenue ruling, revenue procedure, or letter
ruling, section 475(b)(1)(A) (exempting from mark-to-market accounting
certain securities that are held for investment) does not apply to a
security if--
(i) The security is described in section 475(c)(2) (D) or (E)
(describing certain notional principal contracts and derivative
securities); and
(ii) The taxpayer is a dealer in such securities.
(2) See Sec. 1.475(d)-1(b) for a rule concerning the character of
gain or loss on securities described in this paragraph (c).
(d) Special rule for hedges of another member's risk. A taxpayer
may identify under section 475(b)(1)(C) (exempting certain hedges from
mark-to-market accounting) a security that hedges a position of another
member of the taxpayer's consolidated group if the security meets the
following requirements--
(1) The security is a hedging transaction within the meaning of
Sec. 1.1221-2(b);
(2) The security is timely identified as a hedging transaction
under Sec. 1.1221-2(e) (including identification of the hedged item);
and
(3) The security hedges a position that is not marked to market
under section 475(a).
(e) Transitional rules--(1) Stock, partnership, and beneficial
ownership interests in certain controlled corporations, partnerships,
and trusts before January 23, 1997--
(i) In general. The following items held by a dealer in securities
are per se held for investment within the meaning of section
475(b)(1)(A) and are deemed to be properly identified as such for
purposes of section 475(b)(2)--
(A) Stock in a corporation that the taxpayer controls (within the
meaning of paragraph (e)(1)(ii) of this section); or
(B) A partnership or beneficial ownership interest in a widely held
or publicly traded partnership or trust that the taxpayer controls
(within the meaning of paragraph (e)(1)(ii) of this section).
(ii) Control defined. Control means the ownership, directly or
indirectly through persons described in section 267(b) (taking into
account section 267(c)), of--
(A) 50 percent or more of the total combined voting power of all
classes of stock entitled to vote; or
(B) 50 percent or more of the capital interest, the profits
interest, or the beneficial ownership interest in the widely held or
publicly traded partnership or trust.
(iii) Applicability. The rules of this paragraph (e)(1) apply only
before January 23, 1997.
(2) Dealers in notional principal contracts and derivatives
acquired before January 23, 1997--
(i) General rule. Section 475(b)(1)(A) (exempting certain
securities from mark-to-market accounting) does not apply to a security
if--
(A) The security is described in section 475(c)(2) (D) or (E)
(describing certain notional principal contracts and derivative
securities); and
(B) The taxpayer is a dealer in such securities.
(ii) Exception for securities not acquired in dealer capacity. This
paragraph (e)(2) does not apply if the taxpayer establishes
unambiguously that the security was not acquired in the taxpayer's
capacity as a dealer in such securities.
(iii) Applicability. The rules of paragraph (e)(2) apply only to
securities acquired before January 23, 1997.
Sec. 1.475(b)-2 Exemptions--identification requirements.
(a) Identification of the basis for exemption. An identification of
a security as exempt from mark to market does not satisfy section
475(b)(2) if it fails to state whether the security is described in--
(1) Either of the first two subparagraphs of section 475(b)(1)
(identifying a security as held for investment or not held for sale);
or
(2) The third subparagraph thereof (identifying a security as a
hedge).
(b) Time for identifying a security with a substituted basis. For
purposes of determining the timeliness of an identification under
section 475(b)(2), the date that a dealer acquires a security is not
affected by whether the dealer's basis in the security is determined,
in whole or in part, either by reference to the basis of the security
in the hands of the person from whom the security was acquired or by
reference to other property held at any time by the dealer. See
Sec. 1.475(a)-3 for rules governing how the dealer accounts for such a
security if this identification is not made.
(c) Integrated transactions under Sec. 1.1275-6--(1) Definitions.
The following terms are used in this paragraph (c) with the meanings
that are given to them by Sec. 1.1275-6: integrated transaction,
legging into, legging out, qualifying debt instrument, Sec. 1.1275-6
hedge, and synthetic debt instrument.
(2) Synthetic debt held by a taxpayer as a result of legging in. If
a taxpayer is treated as the holder of a synthetic debt instrument as
the result of legging into an integrated transaction, then, for
purposes of the timeliness of an identification under section
475(b)(2), the synthetic debt instrument is treated as having the same
acquisition date as the qualifying debt instrument. A pre-leg-in
identification of the qualifying debt instrument under section
475(b)(2) applies to the integrated transaction as well.
(3) Securities held after legging out. If a taxpayer legs out of an
integrated transaction, then, for purposes of the timeliness of an
identification under section 475(b)(2), the qualifying debt instrument,
or the Sec. 1.1275-6 hedge, that remains in the taxpayer's hands is
generally treated as having been acquired, originated, or entered into,
as the case may be, immediately after the leg-out. If any loss or
deduction determined under Sec. 1.1275-6(d)(2)(ii)(B) is disallowed by
Sec. 1.1275-6(d)(2)(ii)(D) (which disallows deductions when a taxpayer
legs out of an integrated transaction within 30 days of legging in),
then, for purposes of this section and section 475(b)(2), the
qualifying debt instrument that remains in the taxpayer's hands is
treated as having been acquired on the same date that the synthetic
debt instrument was treated as having been acquired.
Sec. 1.475(b)-4 Exemptions--transitional issues.
(a) Transitional identification--(1) Certain securities previously
identified under section 1236. If, as of the close of the last taxable
year ending before December 31, 1993, a security was identified under
section 1236 as a security held for investment, the security is treated
as being identified as held for investment for purposes of section
475(b).
(2) Consistency requirement for other securities. In the case of a
security (including a security described in section 475(c)(2)(F)) that
is not described in paragraph (a)(1) of this section and that was held
by the taxpayer as of the close of the last taxable year ending before
December 31, 1993, the security is treated as having been properly
identified under section 475(b)(2) or 475(c)(2)(F)(iii) if the
[[Page 67723]]
information contained in the dealer's books and records as of the close
of that year supports the identification. If there is any ambiguity in
those records, the taxpayer must, no later than January 31, 1994, place
in its records a statement resolving this ambiguity and indicating
unambiguously which securities are to be treated as properly
identified. Any information that supports treating a security as having
been properly identified under section 475(b)(2) or (c)(2)(F)(iii) must
be applied consistently from one security to another.
(b) Corrections on or before January 31, 1994--(1) Purpose. This
paragraph (b) allows a taxpayer to add or remove certain
identifications covered by Sec. 1.475(b)-1.
(2) To conform to Sec. 1.475(b)-1(a)--(i) Added identifications. To
the extent permitted by paragraph (b)(2)(ii) of this section, a
taxpayer may identify as being described in section 475(b)(1) (A) or
(B)--
(A) A security that was held for immediate sale but was not held
primarily for sale to customers in the ordinary course of the
taxpayer's trade or business (for example, a trading security); or
(B) An evidence of indebtedness that was not held for sale to
customers in the ordinary course of the taxpayer's trade or business
and that the taxpayer intended to hold for less than one year.
(ii) Limitations. An identification described in paragraph
(b)(2)(i) of this section is permitted only if--
(A) Prior to December 28, 1993, the taxpayer did not identify as
being described in section 475(b)(1) (A) or (B) any of the securities
described in paragraph (b)(2)(i) of this section;
(B) The taxpayer identifies every security described in paragraph
(b)(2)(i) of this section for which a timely identification of the
security under section 475(b)(2) cannot be made after the date on which
the taxpayer makes these added identifications; and
(C) The identification is made on or before January 31, 1994.
(3) To conform to Sec. 1.475(b)-1(c). On or before January 31,
1994, a taxpayer described in Sec. 1.475(b)-1(e)(2)(i)(B) may remove an
identification under section 475(b)(1)(A) of a security described in
Sec. 1.475(b)-1(e)(2)(i)(A).
(c) Effect of corrections. An identification added under paragraph
(a)(2) or (b)(2) of this section is timely for purposes of section
475(b)(2) or (c)(2)(F)(iii). An identification removed under paragraph
(a)(2) or (b)(3) of this section does not subject the taxpayer to the
provisions of section 475(d)(2).
Sec. 1.475(c)-1 Definitions--dealer in securities.
(a) Dealer-customer relationship. Whether a taxpayer is transacting
business with customers is determined on the basis of all of the facts
and circumstances.
(1) [Reserved].
(2) Transactions described in section 475(c)(1)(B)--(i) In general.
For purposes of section 475(c)(1)(B), the term dealer in securities
includes, but is not limited to, a taxpayer that, in the ordinary
course of the taxpayer's trade or business, regularly holds itself out
as being willing and able to enter into either side of a transaction
enumerated in section 475(c)(1)(B).
(ii) Examples. The following examples illustrate the rules of this
paragraph (a)(2). In the following examples, B is a bank and is not a
member of a consolidated group:
Example 1. B regularly offers to enter into interest rate swaps
with other persons in the ordinary course of its trade or business.
B is willing to enter into interest rate swaps under which it either
pays a fixed interest rate and receives a floating rate or pays a
floating rate and receives a fixed rate. B is a dealer in securities
under section 475(c)(1)(B), and the counterparties are its
customers.
Example 2. B, in the ordinary course of its trade or business,
regularly holds itself out as being willing and able to enter into
either side of positions in a foreign currency with other banks in
the interbank market. B's activities in the foreign currency make it
a dealer in securities under section 475(c)(1)(B), and the other
banks in the interbank market are its customers.
Example 3. B engages in frequent transactions in a foreign
currency in the interbank market. Unlike the facts in Example 2,
however, B does not regularly hold itself out as being willing and
able to enter into either side of positions in the foreign currency,
and all of B's transactions are driven by its internal need to
adjust its position in the currency. No other circumstances are
present to suggest that B is a dealer in securities for purposes of
section 475(c)(1)(B). B's activity in the foreign currency does not
qualify it as a dealer in securities for purposes of section
475(c)(1)(B), and its transactions in the interbank market are not
transactions with customers.
(3) Related parties--(i) General rule. Except as provided in
paragraph (a)(3)(ii) of this section (concerning transactions between
members of a consolidated group, as defined in Sec. 1.1502-1(h)), a
taxpayer's transactions with related persons may be transactions with
customers for purposes of section 475. For example, if a taxpayer, in
the ordinary course of the taxpayer's trade or business, regularly
holds itself out to its foreign subsidiaries or other related persons
as being willing and able to enter into either side of transactions
enumerated in section 475(c)(1)(B), the taxpayer is a dealer in
securities within the meaning of section 475(c)(1), even if it engages
in no other transactions with customers.
(ii) Special rule for members of a consolidated group. Solely for
purposes of paragraph (c)(1) of section 475 (concerning the definition
of dealer in securities) and except as provided in paragraph
(a)(3)(iii) of this section, a taxpayer's transactions with other
members of its consolidated group are not with customers. Accordingly,
notwithstanding paragraph (a)(2) of this section, the fact that a
taxpayer regularly holds itself out to other members of its
consolidated group as being willing and able to enter into either side
of a transaction enumerated in section 475(c)(1)(B) does not cause the
taxpayer to be a dealer in securities within the meaning of section
475(c)(1)(B).
(iii) The intragroup-customer election--(A) Effect of election. If
a consolidated group makes the intragroup-customer election, paragraph
(a)(3)(ii) of this section (special rule for members of a consolidated
group) does not apply to the members of the group. Thus, a member of a
group that has made this election may be a dealer in securities within
the meaning of section 475(c)(1) even if its only customer transactions
are with other members of its consolidated group.
(B) Making and revoking the election. Unless the Commissioner
otherwise prescribes, the intragroup-customer election is made by
filing a statement that says, ``[Insert name and employer
identification number of common parent] hereby makes the Intragroup-
Customer Election (as described in Sec. 1.475(c)-1(a)(3)(iii) of the
income tax regulations) for the taxable year ending [describe the last
day of the year] and for subsequent taxable years.'' The statement must
be signed by the common parent and attached to the timely filed federal
income tax return for the consolidated group for that taxable year. The
election applies for that year and continues in effect for subsequent
years until revoked. The election may be revoked only with the consent
of the Commissioner.
(iv) Examples. The following examples illustrate this paragraph
(a)(3):
General Facts. HC, a hedging center, provides interest rate
hedges to all of the members of its affiliated group (as defined in
section 1504(a)(1)). Because of the efficiencies created by having a
centralized risk manager, group policy prohibits members other than
HC from entering into derivative interest rate positions with
outside parties. HC regularly holds itself out as being
[[Page 67724]]
willing and able to, and in fact does, enter into either side of
interest rate swaps with its fellow members. HC periodically
computes its aggregate position and hedges the net risk with an
unrelated party. HC does not otherwise enter into interest rate
positions with persons that are not members of the affiliated group.
HC attempts to operate at cost, and the terms of its swaps do not
factor in any risk of default by the affiliate. Thus, HC's
affiliates receive somewhat more favorable terms then they would
receive from an unrelated swaps dealer (a fact that may subject HC
and its fellow members to reallocation of income under section 482).
No other circumstances are present to suggest that HC is a dealer in
securities for purposes of section 475(c)(1)(B).
Example 1. General rule for related persons. In addition to the
General Facts stated above, assume that HC's affiliated group has
not elected under section 1501 to file a consolidated return. Under
paragraph (a)(3)(i) of this section, HC's transactions with its
affiliates can be transactions with customers for purposes of
section 475(c)(1). Thus, under paragraph (a)(2)(i) of this section,
HC is a dealer in securities within the meaning of section
475(c)(1)(B), and the members of the group with which it does
business are its customers.
Example 2. Special rule for members of a consolidated group. In
addition to the General Facts stated above, assume that HC's
affiliated group has elected to file consolidated returns and has
not made the intragroup-customer election. Under paragraph
(a)(3)(ii) of this section, HC's interest rate swap transactions
with the members of its consolidated group are not transactions with
customers for purposes of determining whether HC is a dealer in
securities within the meaning of section 475(c)(1). Further, the
fact that HC regularly holds itself out to members of its
consolidated group as being willing and able to enter into either
side of a transaction enumerated in section 475(c)(1)(B) does not
cause HC to be a dealer in securities within the meaning of section
475(c)(1)(B). Because no other circumstances are present to suggest
that HC is a dealer in securities for purposes of section
475(c)(1)(B), HC is not a dealer in securities.
Example 3. Intragroup-customer election. In addition to the
General Facts stated above, assume that HC's affiliated group has
elected to file a consolidated return but has also made the
intragroup-customer election under paragraph (a)(3)(iii) of this
section. Thus, the analysis and result are the same as in Example 1.
(b) Sellers of nonfinancial goods and services--(1) Purchases and
sales of customer paper. Except as provided in paragraph (b)(3) of this
section, if a taxpayer would not be a dealer in securities within the
meaning of section 475(c)(1) but for its purchases and sales of debt
instruments that, at the time of purchase or sale, are customer paper
with respect to either the taxpayer or a corporation that is a member
of the same consolidated group (as defined in Sec. 1.1502-1(h)) as the
taxpayer, then for purposes of section 475 the taxpayer is not a dealer
in securities.
(2) Definition of customer paper. A debt instrument is customer
paper with respect to a person at a point in time if--
(i) The person's principal activity is selling nonfinancial goods
or providing nonfinancial services;
(ii) The debt instrument was issued by a purchaser of the goods or
services at the time of the purchase of those goods or services in
order to finance the purchase; and
(iii) At all times since the debt instrument was issued, it has
been held either by the person selling those goods or services or by a
corporation that is a member of the same consolidated group as that
person.
(3) Exceptions. Paragraph (b)(1) of this section does not apply
if--
(i) For purposes of section 471, the taxpayer accounts for any
security (as defined in section 475(c)(2)) as inventory;
(ii) The taxpayer is subject to an election under paragraph (b)(4)
of this section; or
(iii) The taxpayer is not described in paragraph (b)(2)(i) of this
section and one or more debt instruments that are customer paper with
respect to a corporation that is a member of the same consolidated
group as the taxpayer are accounted for by the taxpayer, or by a
corporation that is a member of the same consolidated group as the
taxpayer, in a manner that allows recognition of unrealized gains or
losses or deductions for additions to a reserve for bad debts.
(4) Election not to be governed by the exception for sellers of
nonfinancial goods or services--(i) Method of making the election.
Unless the Commissioner otherwise prescribes, an election under this
paragraph (b)(4) must be made in the manner, and at the time,
prescribed in this paragraph (b)(4)(i). The taxpayer must file with the
Internal Revenue Service a statement that says, ``[Insert name and
taxpayer identification number of the taxpayer] hereby elects not to be
governed by Sec. 1.475(c)-1(b)(1) of the income tax regulations for the
taxable year ending [describe the last day of the year] and for
subsequent taxable years.''
(A) Taxable years ending after December 24, 1996. If the first
taxable year subject to an election under this paragraph (b)(4) ends
after December 24, 1996, the statement must be attached to a timely
filed federal income tax return for that taxable year.
(B) Taxable years ending on or before December 24, 1996. If the
first taxable year subject to an election under this paragraph (b)(4)
ends on or before December 24, 1996 and the election changes the
taxpayer's taxable income for any taxable year the federal income tax
return for which was filed before February 24, 1997, the statement must
be attached to an amended return for the earliest such year that is so
affected, and that amended return (and an amended return for any other
such year that is so affected) must be filed not later than June 23,
1997. If the first taxable year subject to an election under this
paragraph (b)(4) ends on or before December 24, 1996 but the taxpayer
is not described in the preceding sentence, the statement must be
attached to the first federal income tax return that is for a taxable
year subject to the election and that is filed on or after February 24,
1997.
(ii) Continued applicability of an election. An election under this
paragraph (b)(4) continues in effect for subsequent taxable years until
revoked. The election may be revoked only with the consent of the
Commissioner.
(c) Taxpayers that purchase securities from customers but engage in
no more than negligible sales of the securities--(1) Exemption from
dealer status--(i) General rule. A taxpayer that regularly purchases
securities from customers in the ordinary course of a trade or business
(including regularly making loans to customers in the ordinary course
of a trade or business of making loans) but engages in no more than
negligible sales of the securities so acquired is not a dealer in
securities within the meaning of section 475(c)(1) unless the taxpayer
elects to be so treated or, for purposes of section 471, the taxpayer
accounts for any security (as defined in section 475(c)(2)) as
inventory.
(ii) Election to be treated as a dealer. A taxpayer described in
paragraph (c)(1)(i) of this section elects to be treated as a dealer in
securities by filing a federal income tax return reflecting the
application of section 475(a) in computing its taxable income.
(2) Negligible sales. Solely for purposes of paragraph (c)(1) of
this section, a taxpayer engages in negligible sales of debt
instruments that it regularly purchases from customers in the ordinary
course of its business if, and only if, during the taxable year,
either--
(i) The taxpayer sells all or part of fewer than 60 debt
instruments, regardless how acquired; or
(ii) The total adjusted basis of the debt instruments (or parts of
debt instruments), regardless how acquired, that the taxpayer sells is
less than 5 percent of the total basis, immediately
[[Page 67725]]
after acquisition, of the debt instruments that it acquires in that
year.
(3) Special rules for members of a consolidated group--(i)
Intragroup-customer election in effect. If a taxpayer is a member of a
consolidated group that has made the intragroup-customer election
(described in paragraph (a)(3)(iii) of this section), the negligible
sales test in paragraph (c)(2) of this section takes into account all
of the taxpayer's sales of debt instruments to other group members.
(ii) Intragroup-customer election not in effect. If a taxpayer is a
member of a consolidated group that has not made the intragroup-
customer election (described in paragraph (a)(3)(iii) of this section),
the taxpayer satisfies the negligible sales test in paragraph (c)(2) of
this section if either--
(A) The test is satisfied by the taxpayer, taking into account
sales of debt instruments to other group members (as in paragraph
(c)(3)(i) of this section); or
(B) The test is satisfied by the group, treating the members of the
group as if they were divisions of a single corporation.
(4) Special rules. Whether sales of securities are negligible is
determined without regard to--
(i) Sales of securities that are necessitated by exceptional
circumstances and that are not undertaken as recurring business
activities;
(ii) Sales of debt instruments that decline in quality while in the
taxpayer's hands and that are sold pursuant to an established policy of
the taxpayer to dispose of debt instruments below a certain quality; or
(iii) Acquisitions and sales of debt instruments that are
qualitatively different from all debt instruments that the taxpayer
purchases from customers in the ordinary course of its business.
(5) Example. The following example illustrates paragraph
(c)(4)(iii) of this section:
Example. I, an insurance company, regularly makes policy loans
to its customers but does not sell them. I, however, actively trades
Treasury securities. No other circumstances are present to suggest
that I is a dealer in securities for purposes of section 475(c)(1).
Since the Treasuries are qualitatively different from the policy
loans that I originates, under paragraph (c)(4)(iii) of this
section, I disregards the purchases and sales of Treasuries in
applying the negligible sales test in paragraph (c)(2) of this
section.
(d) Issuance of life insurance products. A life insurance company
that is not otherwise a dealer in securities within the meaning of
section 475(c)(1) does not become a dealer in securities solely because
it regularly issues life insurance products to its customers in the
ordinary course of a trade or business. For purposes of the preceding
sentence, the term life insurance product means a contract that is
treated for federal income tax purposes as an annuity, endowment, or
life insurance contract. See sections 72, 817, and 7702.
Sec. 1.475(c)-2 Definitions--security.
(a) Items that are not securities. The following items are not
securities within the meaning of section 475(c)(2) with respect to a
taxpayer and, therefore, are not subject to section 475--
(1) A security (determined without regard to this paragraph (a)) if
section 1032 prevents the taxpayer from recognizing gain or loss with
respect to that security;
(2) A debt instrument issued by the taxpayer (including a synthetic
debt instrument, within the meaning of Sec. 1.1275-6(b)(4), that
Sec. 1.1275-6(b) treats the taxpayer as having issued); or
(3) A REMIC residual interest, or an interest or arrangement that
is determined by the Commissioner to have substantially the same
economic effect, if the residual interest or the interest or
arrangement is acquired on or after January 4, 1995.
(b) Synthetic debt that Sec. 1.1275-6(b) treats the taxpayer as
holding. If Sec. 1.1275-6 treats a taxpayer as the holder of a
synthetic debt instrument (within the meaning of Sec. 1.1275-6(b)(4)),
the synthetic debt instrument is a security held by the taxpayer within
the meaning of section 475(c)(2)(C).
(c) Negative value REMIC residuals acquired before January 4, 1995.
A REMIC residual interest that is described in paragraph (c)(1) of this
section or an interest or arrangement that is determined by the
Commissioner to have substantially the same economic effect is not a
security within the meaning of section 475(c)(2).
(1) Description. A residual interest in a REMIC is described in
this paragraph (c)(1) if, on the date the taxpayer acquires the
residual interest, the present value of the anticipated tax liabilities
associated with holding the interest exceeds the sum of--
(i) The present value of the expected future distributions on the
interest; and
(ii) The present value of the anticipated tax savings associated
with holding the interest as the REMIC generates losses.
(2) Special rules applicable to negative value REMIC residuals
acquired before January 4, 1995. Solely for purposes of this paragraph
(c)--
(i) If a transferee taxpayer acquires a residual interest with a
basis determined by reference to the transferor's basis, then the
transferee is deemed to acquire the interest on the date the transferor
acquired it (or is deemed to acquire it under this paragraph
(c)(2)(i)).
(ii) Anticipated tax liabilities, expected future distributions,
and anticipated tax savings are determined under the rules in
Sec. 1.860E-2(a)(3) and without regard to the operation of section 475.
(iii) Present values are determined under the rules in Sec. 1.860E-
2(a)(4).
Sec. 1.475(d)-1 Character of gain or loss.
(a) Securities never held in connection with the taxpayer's
activities as a dealer in securities. If a security is never held in
connection with the taxpayer's activities as a dealer in securities,
section 475(d)(3)(A) does not affect the character of gain or loss from
the security, even if the taxpayer fails to identify the security under
section 475(b)(2).
(b) Ordinary treatment for notional principal contracts and
derivatives held by dealers in notional principal contracts and
derivatives. Section 475(d)(3)(B)(ii) (concerning the character of gain
or loss with respect to a security held by a person other than in
connection with its activities as a dealer in securities) does not
apply to a security if Sec. 1.475(b)-1(c) and the absence of a
determination by the Commissioner prevent section 475(b)(1)(A) from
applying to the security.
Sec. 1.475(e)-1 Effective dates.
(a) and (b) [Reserved].
(c) Section 1.475(a)-3 (concerning acquisition by a dealer of a
security with a substituted basis) applies to securities acquired,
originated, or entered into on or after January 4, 1995.
(d) Except as provided elsewhere in this paragraph (d),
Sec. 1.475(b)-1 (concerning the scope of exemptions from the mark-to-
market requirement) applies to taxable years ending on or after
December 31, 1993.
(1) Section 1.475(b)-1(b) applies as follows:
(i) Section 1.475(b)-1(b)(1)(i) (concerning equity interests issued
by a related person) applies beginning June 19, 1996. If, on June 18,
1996, a security is subject to mark-to-market accounting and, on June
19, 1996, Sec. 1.475(b)-1(b)(1) begins to apply to the security solely
because of the effective dates in this paragraph (d) (rather than
because of a change in facts), then the rules of Sec. 1.475(b)-
1(b)(4)(i)(A) (concerning the prohibition against marking) apply, but
Sec. 1.475(b)-1(b)(4)(i)(B) (imposing a
[[Page 67726]]
mark-to-market on the day before the onset of the prohibition) does not
apply.
(ii) Section 1.475(b)-1(b)(2) (concerning relevant relationships
for purposes of determining whether equity interests in related persons
are prohibited from being marked to market) applies beginning June 19,
1996.
(iii) Section 1.475(b)-1(b)(3) (concerning certain actively traded
securities) applies beginning June 19, 1996, to securities held on or
after that date, except for securities described in Sec. 1.475(b)-
1(e)(1)(i) (concerning equity interests issued by controlled entities).
If a security is described in Sec. 1.475(b)-1(e)(1)(i), Sec. 1.475(b)-
1(b)(3) applies only on or after January 23, 1997 if the security is
held on or after that date. If Sec. 1.475(b)-1(b)(1) ceases to apply to
a security by virtue of the operation of this paragraph (d)(1)(iii),
the rules of Sec. 1.475(b)-1(b)(4)(ii) apply to the cessation.
(iv) Except to the extent provided in paragraph (d)(1) of this
section, Sec. 1.475(b)-1(b)(4) (concerning changes in status) applies
beginning June 19, 1996.
(2) Section 1.475(b)-1(c) (concerning securities deemed not held
for investment by dealers in notional principal contracts and
derivatives) applies to securities acquired on or after January 23,
1997.
(3) Section 1.475(b)-1(d) (concerning the special rule for hedges
of another member's risk) is effective for securities acquired,
originated, or entered into on or after January 23, 1997.
(e) Section 1.475(b)-2 (concerning identification of securities
that are exempt from mark-to-market treatment) applies as follows:
(1) Section 1.475(b)-2(a) (concerning the general rules for
identification of basis for exemption from mark to market treatment)
applies to identifications made on or after July 1, 1997.
(2) Section 1.475(b)-2(b) (concerning time for identifying a
security with a substituted basis) applies to securities acquired,
originated, or entered into on or after January 4, 1995.
(3) Section 1.475(b)-2(c) (concerning identification in the context
of integrated transactions under Sec. 1.1275-6) applies on and after
August 13, 1996 (the effective date of Sec. 1.1275-6).
(f) [Reserved].
(g) Section 1.475(b)-4 (concerning transitional issues relating to
exemptions) applies to taxable years ending on or after December 31,
1993.
(h) Section 1.475(c)-1 applies as follows:
(1) Except as otherwise provided in this paragraph (h)(1),
Sec. 1.475(c)-1(a) (concerning the dealer-customer relationship)
applies to taxable years beginning on or after January 1, 1995.
(i) [Reserved].
(ii) Section 1.475(c)-1(a)(2)(ii) (illustrating rules concerning
the dealer-customer relationship) applies to taxable years beginning on
or after June 20, 1996.
(iii) (A) Section 1.475(c)-1(a)(3) applies to taxable years
beginning on or after June 20, 1996, except for transactions between
members of the same consolidated group.
(B) For transactions between members of the same consolidated
group, paragraph Sec. 1.475(c)-1(a)(3) applies to taxable years
beginning on or after December 24, 1996.
(2) Section 1.475(c)-1(b) (concerning sellers of nonfinancial goods
and services) applies to taxable years ending on or after December 31,
1993.
(3) Except as otherwise provided in this paragraph (h)(3), section
1.475(c)-1(c) (concerning taxpayers that purchase securities but engage
in no more than negligible sales of the securities) applies to taxable
years ending on or after December 31, 1993.
(i) Section 1.475(c)-1(c)(3) (special rules for members of a
consolidated group) is effective for taxable years beginning on or
after December 24, 1996.
(ii) A taxpayer may rely on the rules set out in Sec. 1.475(c)-
1T(b) (as contained in 26 CFR part 1 revised April 1, 1996) for taxable
years beginning before January 23, 1997, provided the taxpayer applies
that paragraph reasonably and consistently.
(4) Section 1.475(c)-1(d) (concerning the issuance of life
insurance products) applies to taxable years beginning on or after
January 1, 1995.
(i) Section 1.475(c)-2 (concerning the definition of security)
applies to taxable years ending on or after December 31, 1993. By its
terms, however, Sec. 1.475(c)-2(a)(3) applies only to residual
interests or to interests or arrangements that are acquired on or after
January 4, 1995; and the integrated transactions that are referred to
in Secs. 1.475(c)-2(a)(2) and 1.475(c)-2(b) exist only after August 13,
1996 (the effective date of Sec. 1.1275-6).
(j) Section 1.475(d)-1 (concerning the character of gain or loss)
applies to taxable years ending on or after December 31, 1993.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 5. In Sec. 602.101 paragraph (c) is amended by:
1. Removing the following entry from the table:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.475(b)-2T................................................ 1545-1422
* * * * *
------------------------------------------------------------------------
2. Adding an entry in numerical order to the table to read as
follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.475(b)-4................................................. 1545-1496
* * * * *
------------------------------------------------------------------------
Approved: December 6, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-32248 Filed 12-23-96; 8:45 am]
BILLING CODE 4830-01-P