[Federal Register Volume 64, Number 96 (Wednesday, May 19, 1999)]
[Proposed Rules]
[Pages 27221-27223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12525]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-100905-97]
RIN 1545-AU96


Real Estate Mortgage Investment Conduits; Reporting Requirements 
and Other Administrative Matters

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document proposes to eliminate the regulatory requirement 
that certain information be set forth on the face of a collateralized 
debt obligation (CDO) or regular interest in a Real Estate Mortgage 
Investment

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Conduit (REMIC). Implementing the proposal should reduce the burden 
imposed on issuers of CDOs and regular interests without impairing the 
flow of tax information to either the holders of those instruments or 
the IRS. This document also provides notice of a public hearing on 
these proposed regulations.

DATES: Written and electronic comments must be received by July 19, 
1999. Outlines of topics to be discussed at the public hearing 
scheduled for September 13, 1999, at 10 a.m. must be received by August 
23, 1999.

ADDRESSES: Send submissions to CC:DOM:CORP:R (REG-100905-97), Room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
100905-97), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit 
comments electronically via the internet by selecting the ``Tax Regs'' 
option on the IRS Home Page or by submitting comments directly to the 
IRS Internet site at
http://www.irs.ustreas.gov/tax__regs/reglist.html. The public hearing 
will be held in room 2615, Internal Revenue Building, 1111 Constitution 
Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Kenneth Christman, (202) 622-3950; concerning submissions of comments, 
the hearing, and/or to be placed on the building access list to attend 
the hearing, Guy Traynor, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    Final regulations (TD 8366) imposing reporting requirements with 
regard to CDOs and REMIC regular interests were published in the 
Federal Register for September 30, 1991 (56 FR 49512, as corrected by 
56 FR 51175). Among other things, those regulations compel the issuer 
of a CDO or REMIC regular interest to set forth certain information on 
the face of the instrument (legending). Several commentators have asked 
the IRS to reassess the need for this rule.

Explanation of Provisions

    Section 1272(a)(6) of the Internal Revenue Code provides a special 
rule for calculating the accrual of original issue discount (OID) on 
REMIC regular interests and CDOs. Special rules are needed because the 
timing of payments on these instruments is often uncertain. Although 
CDOs and REMIC regular interests are issued with fixed maturity dates, 
they may be accelerated to the extent that obligations collateralizing 
them prepay.
    Because the holder of a CDO or REMIC regular interest would not 
necessarily have the information needed to calculate OID under section 
1272(a)(6), Congress added section 6049(d)(7) to require enhanced 
reporting for such instruments. In addition, Congress gave the IRS and 
Treasury specific authority to issue regulations carrying out that 
purpose. 2 H.R. Conf. Rep. 99th Cong. 2d Sess. II-237 (1986), 1986-3 
(Vol. 4) C.B. 237.
    The regulations issued under section 6049(d)(7) are comprehensive. 
Sections 1.6049-7(a) through 1.6049-7(f) establish a chain of reporting 
obligations that ensures essential tax information will flow to holders 
of CDOs and REMIC regular interests. The information made available 
includes the amount of a holder's OID accrued during the calendar year. 
Importantly, this information is updated annually.
    In addition to the ongoing information reporting provided under 
Secs. 1.6049-7(a) through 1.6049-7(f), section 1.6049-7(g) provides for 
certain information to be legended on the face of a CDO or REMIC 
certificate when first issued. The information includes the total 
amount of OID on the instrument, the issue date, the rate at which 
interest is payable (if any) as of the issue date, and the yield to 
maturity.
    Legending appears to provide little practical benefit. Most CDOs 
and REMIC regular interests are held through book-entry systems, which 
means the legended information is rarely (if ever) reported to the 
holders. Even if the information were reported, it would be of little 
use. Holders who are entitled to have OID determined for them do not 
need the information. Holders who need or want to determine OID 
themselves cannot make the necessary section 1272(a)(6) calculations 
without acquiring additional information. Furthermore, legended 
information is available through other sources. It can be obtained from 
vendors of financial information or requested under other section 6049 
regulations. For these reasons, the IRS and Treasury propose to rescind 
Sec. 1.6049-7(g).
    Comments are invited on these proposed regulations. In particular, 
any taxpayers that rely on legended information are asked to specify 
the items relied on and suggest other ways to provide those items (such 
as including them among the items that must be reported under 
Secs. 1.6049-7(a) through 1.6049-7(f)).

Proposed Effective Date

    The rescission of Sec. 1.6049-7(g) is proposed to be effective on 
the date the regulations are published in the Federal Register as final 
regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 12866. Therefore, 
a regulatory assessment is not required. It has also been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) does not apply to these regulations, and, because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this 
notice of proposed rulemaking will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) and electronic comments that are submitted timely 
to the IRS. The IRS and Treasury Department specifically request 
comments on the clarity of the proposed regulations and how they may be 
made easier to understand. All comments will be available for public 
inspection and copying.
    A public hearing has been scheduled for September 13, 1999, 
beginning at 10 a.m. in room 2615, Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington DC. Due to building security 
procedures, visitors must enter at the 10th Street entrance, located 
between Constitution and Pennsylvania Avenues, NW. In addition, all 
visitors must present photo identification to enter the building. 
Because of access restrictions, visitors will not be admitted beyond 
the immediate entrance area more than 15 minutes before the hearing 
starts. For further information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons who wish to present oral comments at the hearing must 
submit written or electronic comments and an

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outline of the topics to be discussed and the time to be devoted to 
each topic (a signed original and eight (8) copies) by August 23, 1999.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of these regulations is Kenneth Christman, 
Office of Assistant Chief Counsel (Financial Institutions and 
Products). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


Sec. 1.6049-7  [Amended]

    Par. 2. In Sec. 1.6049-7, paragraph (g) is removed.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 99-12525 Filed 5-18-99; 8:45 am]
BILLING CODE 4830-01-P