[Federal Register Volume 64, Number 214 (Friday, November 5, 1999)]
[Rules and Regulations]
[Pages 60342-60343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-28741]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8840]
RIN 1545-AX61


Reopenings of Treasury Securities; Original Issue Discount

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the 
Federal income tax treatment of reopenings of Treasury securities. The 
temporary regulations change the definition of a qualified reopening. 
The text of the temporary regulations also serves as the text of the 
proposed regulations set forth in the notice of proposed rulemaking on 
this subject in the Proposed Rules section of this issue of the Federal 
Register. The regulations in this document provide needed guidance to 
holders of reopened Treasury securities.

DATES: The regulations are effective November 5, 1999.

FOR FURTHER INFORMATION CONTACT: William E. Blanchard, (202) 622-3950 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Sections 163(e) and 1271 through 1275 of the Internal Revenue Code 
(Code) provide rules for the Federal income tax treatment of interest 
and original issue discount (OID). On February 2, 1994, final 
regulations relating to these sections of the Code (TD 8517, 1994-1 
C.B. 38) were published in the Federal Register (59 FR 4799). Section 
1.1275-2(d)(2) of the regulations provides rules for the treatment of 
certain reopenings of Treasury securities.
    On January 6, 1997, temporary regulations relating to the Federal 
income tax treatment of inflation-indexed debt instruments (TD 8709, 
1997-1 C.B. 167) were published in the Federal Register (62 FR 615). 
Section 1.1275-7T(g) of those temporary regulations provided rules for 
the treatment of certain reopenings of Treasury Inflation-Indexed 
Securities. On September 7, 1999, Sec. 1.1275-7T was redesignated as 
Sec. 1.1275-7 (TD 8838, 64 FR 48545).

Explanation of Provisions

    The Secretary of the Treasury is authorized to issue Treasury 
securities, including Treasury Inflation-Indexed Securities, and to 
prescribe terms and conditions for their issuance and sale. The 
Treasury Department sells securities throughout the year.
    In January 1992, the Treasury Department determined that it will be 
prepared to provide additional quantities of a security to the public 
when an acute, protracted shortage develops. These reopenings are 
necessary to preserve the integrity and efficient functioning of the 
market in Treasury securities. See Department of the Treasury, 
Securities and Exchange Commission, and Board of Governors of the 
Federal Reserve System, Joint Report on the Government Securities 
Market (January 1992).
    In order to ensure that the original and additional Treasury 
securities are fungible, Sec. 1.1275-2(d) provides that the additional 
Treasury securities issued in a reopening are part of the same issue as 
the original Treasury securities if (1) The additional Treasury 
securities have the same terms as the original Treasury securities, (2) 
The additional Treasury securities are issued not more than 12 months 
after the original Treasury securities were first issued to the public, 
and (3) The additional Treasury securities are issued in a reopening 
intended to alleviate an acute, protracted shortage of the original 
Treasury securities (a qualified reopening). As a result, any discount 
generated upon the issuance of the additional Treasury securities in 
the reopening is market discount rather than OID.
    Under Sec. 1.1275-7(g), a reopening of Treasury Inflation-Indexed 
Securities is a qualified reopening for purposes of Sec. 1.1275-2(d) 
even though the reopening is not intended to alleviate an acute, 
protracted shortage of the original Treasury securities.
    For debt management and liquidity concerns, the Treasury Department 
has decided that it needs the ability to reopen an issue of Treasury 
securities within one year. Therefore, the temporary regulations in 
this document (Sec. 1.1275-2T) revise the rules for when a reopening is 
a qualified reopening by eliminating the acute, protracted shortage 
requirement. As a result, the Treasury Department can reopen an issue 
of outstanding Treasury securities at any time within 12 months after 
the issue date of the securities for any reason and the securities will 
be fungible for Federal income tax purposes.
    The temporary regulations also revise the rules to determine the 
issue price and issue date of an issue of Treasury securities auctioned 
on or after November 2, 1998, to reflect changes in how Treasury 
securities are sold. On November 2, 1998, the Treasury Department 
switched from an average price auction to a single price auction for 
selling Treasury securities.
    In response to comments, the IRS is proposing rules for reopenings 
of debt instruments other than Treasury securities. See the Proposed 
Rules section of this issue of the Federal Register.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply 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 Code, these temporary 
regulations will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on their impact on small 
business.

Drafting Information

    The principal author of the regulations is William E. Blanchard, 
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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
a new entry in numerical order to read in part as follows:

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

    Section 1.1275-2T also issued under 26 U.S.C. 1275(d). * * *

[[Page 60343]]

    Par. 2. Section 1.1271-0 is amended by:
    1. Revising the entry for Sec. 1.1275-2(d) in paragraph (b).
    2. Adding an entry for Sec. 1.1275-2T in numerical order in 
paragraph (b).
    3. Revising the entry for Sec. 1.1275-7(g) in paragraph (b).
    The revisions and additions read as follows:


Sec. 1.1271-0  Original issue discount; effective date; table of 
contents.

* * * * *
    (b) * * *
* * * * *


Sec. 1.1275-2  Special rules relating to debt instruments.

* * * * *
    (d) [Reserved]
* * * * *


Sec. 1.1275-2T  Special rules relating to debt instruments (temporary).

    (a) through (c) [Reserved]
    (d) Special rules for Treasury securities.
    (1) Issue price and issue date.
    (2) Reopenings of Treasury securities.
* * * * *


Sec. 1.1275-7  Inflation-indexed debt instruments.

* * * * *
    (g) [Reserved]
* * * * *
    Par. 3. Section 1.1275-2 is amended by revising paragraph (d) to 
read as follows:


Sec. 1.1275-2  Special rules relating to debt instruments.

* * * * *
    (d) [Reserved] For further guidance, see Sec. 1.1275-2T(d).
* * * * *
    Par. 4. Section 1.1275-2T is added to read as follows:


Sec. 1.1275-2T  Special rules relating to debt instruments (temporary).

    (a) through (c) [Reserved] For further guidance, see Sec. 1.1275-
2(a) through (c).
    (d) Special rules for Treasury securities--(1) Issue price and 
issue date--(i) In general. The issue price of an issue of Treasury 
securities is the price of the securities sold at auction. In addition, 
the issue date of the issue is the first settlement date of a 
substantial amount of the securities.
    (ii) Treasury securities auctioned before November 2, 1998. For an 
issue of Treasury securities auctioned before November 2, 1998, the 
issue price of the issue is the average price of the securities sold. 
In addition, the issue date of the issue is the first settlement date 
on which a substantial amount of the securities in the issue is sold.
    (2) Reopenings of Treasury securities--(i) Treatment of additional 
Treasury securities. Additional Treasury securities issued in a 
qualified reopening are part of the same issue as the original Treasury 
securities and have the same issue price and issue date as the original 
Treasury securities. This paragraph (d)(2) applies to qualified 
reopenings that occur on or after March 25, 1992.
    (ii) Definitions--(A) Additional Treasury securities. Additional 
Treasury securities are Treasury securities with terms that are in all 
respects identical to the terms of the original Treasury securities.
    (B) Original Treasury securities. Original Treasury securities are 
securities comprising any issue of outstanding Treasury securities.
    (C) Qualified reopening. A qualified reopening is a reopening that 
occurs not more than one year after the original Treasury securities 
were first issued to the public. For reopenings of Treasury securities 
(other than Treasury Inflation-Indexed Securities) that occur prior to 
November 5, 1999, a qualified reopening is a reopening of Treasury 
securities that satisfies the preceding sentence and that was intended 
to alleviate an acute, protracted shortage of the original Treasury 
securities.


Sec. 1.1275-7  [Amended]

    Par. 5. Section 1.1275-7 is amended by removing and reserving 
paragraph (g).

    Approved: October 29, 1999.
David A. Mader,
Acting Deputy Commissioner of Internal Revenue.
Jonathan Talisman,
Acting Assistant Secretary of the Treasury.
[FR Doc. 99-28741 Filed 11-3-99; 8:45 am]
BILLING CODE 4830-01-U