[Federal Register Volume 67, Number 119 (Thursday, June 20, 2002)]
[Proposed Rules]
[Pages 41892-41911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15352]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 301 and 602

[REG-106871-00 and REG-209813-96]
RIN 1545-BA83 and RIN 1545-AU15


Reporting for Widely Held Fixed Investment Trusts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Proposed rulemaking and withdrawal of previous notice of 
proposed rulemaking.

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SUMMARY: This document contains the withdrawal of proposed regulations 
(REG-209813-96), published on August 13, 1998 in the Federal Register 
(63 FR 43354). This document also contains new proposed regulations 
that define widely held fixed investment trusts, clarify the reporting 
obligations of the trustees of these trusts and the middlemen connected 
with these trusts, and provide for the communication of necessary tax 
information to beneficial owners of trust interests.

[[Page 41893]]


DATES: Written or electronic comments and requests for a public hearing 
must be received by September 18, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG-106871-00), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may also be hand delivered Monday through Friday 
between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG-106871-00), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC or sent electronically, via the IRS Internet site 
at: http://www.irs.gov/regs.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Faith Colson, (202) 622-3060 or Viva Hammer, (202) 622-0869; concerning 
submission of comments, Guy Traynor, (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information in this notice of proposed rulemaking 
has been previously 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 1545-1540.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to the 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 reproposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 671. These reproposed 
amendments are to be issued under the authority of section 7805.
    On August 13, 1998, the IRS and Treasury published in the Federal 
Register (63 FR 43354) a notice of proposed rulemaking (REG-209813-96, 
1998-2 C.B. 259) under sections 671, 6049 and 6109. A public hearing 
was held on November 5, 1998. No oral comments were made at the public 
hearing. Written comments were received.
    After consideration of the written comments received, the IRS and 
Treasury believe that it is appropriate to repropose these regulations. 
Accordingly, the provisions of the proposed regulations published in 
August of 1998, are withdrawn, and these reproposed regulations are now 
being issued.
    A fixed investment trust is an arrangement classified as a trust 
under Sec. 301.7701-4(c). Beneficial interests in these trusts are 
divided into unit interests. The IRS treats these trusts as grantor 
trusts under subpart E, part I, subchapter J, chapter 1 of the Internal 
Revenue Code (Code) and the owners of the beneficial interests, or 
units, as grantors. See Rev. Rul. 84-10 (1984-1 C.B. 155); Rev. Rul. 
61-175 (1961-2 C.B. 128). Interests in these trusts are often held in 
the street name of a middleman, who holds such interests on behalf of 
the beneficial owners. Thus, trustees ordinarily do not know the 
identity of the beneficial owners and are not in a position to 
communicate information directly to them. These reproposed regulations 
provide tax information reporting rules that specifically require the 
sharing of tax information among trustees, middlemen, and the 
beneficial owners of domestic fixed investment trusts in which any 
interest is held by a middleman.
    Although the reproposed regulations retain the scope and framework 
provided under the 1998 proposed regulations, the reproposed 
regulations allow more flexibility regarding the format and frequency 
in which trust information is communicated from trustees to middlemen. 
In addition, the reproposed regulations simplify the rules contained in 
the 1998 proposed regulations for the reporting of a sale or 
disposition of a trust asset.

Explanation of Provisions

I. Scope and General Framework of Reporting Rules

    These reproposed regulations apply to all widely held fixed 
investment trusts. In the 1998 proposed regulations, a widely held 
fixed investment trust (WHFIT) was defined as a fixed investment trust 
in which any interest is held by a middleman. The term middleman 
included but was not limited to, a custodian of a person's account, a 
nominee, and a broker holding an interest for a customer in street 
name. In the preamble to the 1998 proposed regulations, comments were 
requested on the application and scope of these definitions. No 
comments were received and those definitions are retained in these 
reproposed regulations except that the definition of a WHFIT is 
modified to clarify that a trust must be classified as a United States 
person under section 7701(a)(30)(E) to be a WHFIT.
    A notice of proposed rulemaking (REG-108553-00), published in the 
Federal Register (65 FR 60822) on October 12, 2000, specified safe 
harbors under which certain investment trusts would be classified as 
United States persons under section 7701(a)(30)(E). Commentators 
responding to those proposed regulations noted that certain fixed 
investment trusts would be outside those safe harbors and would 
accordingly be treated as foreign trusts. As a result of those trusts 
being treated as foreign trusts, United States investors in those 
trusts would be subject to the reporting rules under section 6048. The 
commentators suggested that United States investors in those trusts 
should not be subject to reporting under section 6048 and to the 
corresponding penalties in section 6677 for failure to comply with the 
section 6048 reporting requirements. Final regulations (TD 8962) under 
7701 were published in the Federal Register (66 FR 41778) on August 9, 
2001. The preamble to those final regulations states that because a 
guidance project concerning reporting requirements for all widely held 
fixed investment trusts was under consideration, those final 
regulations would not specifically address the section 6048 reporting 
issue raised by the commentators. The IRS and Treasury continue to 
study how to facilitate the application of the section 6048 rules to 
foreign fixed investment trusts and request practical suggestions on 
this issue, including how Forms 3520 and 3520A can be adapted for use 
with foreign fixed investment trusts.
    The information reporting framework in the 1998 proposed 
regulations was similar to that for regular interests in a real estate 
mortgage investment conduit (REMIC). See Sec. 1.6049-7. Under this 
framework, the responsibility for information reporting lies primarily 
with the person in the ownership chain who holds an interest for a 
beneficial owner and is, therefore, in the best position to communicate 
with, and provide trust tax information to, the beneficial owner. Thus, 
a brokerage firm that holds an interest in a WHFIT for an individual as 
a middleman is to report WHFIT tax information with respect to that 
individual to the IRS on Forms 1099 and furnish WHFIT tax information 
to the individual. Similarly, if an interest in a WHFIT is held 
directly by an individual and not through a middleman, the trustee is 
to report to the IRS and provide WHFIT tax information directly to the 
individual. One commentator suggested a different framework: one 
similar to the rules in

[[Page 41894]]

Sec. 1.6031(b)-1T and Sec. 1.6031(c)-1T regarding partnership interests 
held by nominees. Under Sec. 1.6031(b)-1T and Sec. 1.6031(c)-1T, 
nominees are required to provide information regarding the identity of 
a partner to the partnership. The partnership must then provide 
necessary tax information directly to the partner. Given that this 
suggestion was merely an alternative to that commentator's preferred 
solution of simplifying the reporting requirements provided by the 1998 
proposed regulations, and that no other commentators raised concerns 
about the framework, the reproposed regulations retain the REMIC 
framework.

II. Trustee's Requirement to Calculate and Provide WHFIT Information

A. General Rules
    Under the 1998 proposed regulations and the reproposed regulations, 
a trustee is no longer required to file a Form 1041, with an attached 
statement, for a WHFIT. See Sec. 1.671-4(a). Instead, a trustee must 
provide trust tax information to requesting persons (middlemen and 
others). In addition, if a beneficial owner that is not an exempt 
recipient, holds an interest in a WHFIT directly with the trust, and 
not through a middleman, the trustee must also file a Form 1099 with 
respect to that owner and furnish trust tax information to that owner.
    Consistent with the taxation of grantor trusts, the 1998 proposed 
regulations required trustees to provide trust tax information in a 
manner that was sufficient for requesting persons to determine the 
exact items of income, deduction, and credit of the WHFIT that were 
attributable to a unit interest holder. In addition, the 1998 proposed 
regulations required trustees to calculate and provide WHFIT 
information on a quarterly basis. In drafting the 1998 proposed 
regulations, the IRS and Treasury believed that quarterly reporting was 
necessary for requesting persons to have sufficient information to 
determine the trust items that were attributable to a unit interest 
holder who held a unit interest for less than an entire calendar year 
or a unit interest holder not using a calendar year as the holder's 
taxable year.
    Several commentators, in describing current tax reporting 
practices, indicated that trustees do not provide trust tax information 
in a manner that would enable a requesting person to determine the 
exact amounts of trust items that are attributable to a unit interest 
holder. With respect to the requirement of quarterly reporting in the 
1998 proposed regulations, several commentators responded that many 
trustees only provide tax reporting information on a calendar year 
basis. These commentators contended that quarterly reporting 
unnecessarily increased a trustee's reporting burden fourfold. These 
commentators argued that WHFIT tax information only needs to be 
calculated and provided on a calendar year basis for trustees and 
middlemen to fulfill Form 1099 reporting requirements. Other 
commentators responded that some WHFITs provide information on a 
monthly basis.
    In response to these comments, the reproposed regulations remove 
the quarterly reporting requirement contained in the 1998 proposed 
regulations. Under the reproposed regulations, trustees may choose 
either a calendar month, calendar quarter, or a full or half calendar 
year reporting period provided that the information supplied by the 
trustee under the chosen reporting period enables the WHFIT items 
attributable to a particular unit interest holder to be determined with 
reasonable accuracy, regardless of the holder's taxable year or the 
period of time that the unit interest holder held its interest.
    The reproposed regulations provide that once a reporting period has 
been chosen by a trustee, the trustee must use that reporting period 
throughout the trust's existence. It is expected that requesting 
persons (in particular, middlemen) will develop a method for processing 
information from a WHFIT that takes into account the reporting period 
chosen by the trustee. The consistency requirement was included in the 
reproposed regulations in response to concerns that requesting persons 
would be required to change their processing systems if the trustee 
changes the WHFIT's reporting period. The IRS and Treasury invite 
comments on the necessity of the consistency requirement and on whether 
an alternative approach would be more effective in facilitating the 
processing of information by requesting persons.
    Because requesting persons may be required to process WHFIT tax 
information provided by many different trustees, the reproposed 
regulations also require trustees to provide trust tax information in a 
manner that is consistent with industry practice. Thus, a requesting 
person using current industry practice must be able to process the 
WHFIT tax information provided by the trustee.
    The reproposed regulations require that the information provided by 
the trustee be presented in a manner such that a requesting person is 
able to separately state any WHFIT item that, if taken into account 
separately by a beneficial owner, could result in an income tax 
liability for the beneficial owner different from that which would 
result if the beneficial owner did not take the item into account 
separately. Examples of the types of information that are to be 
provided under this provision include: (i) Items of tax preference 
subject to the alternative minimum tax imposed by section 55; (ii) 
investment interest and investment income and expense necessary to 
compute limitations under section 163(d); (iii) income from oil and gas 
subject to depletion under sections 613 and 613A; (iv) most 
depreciation and depletion expenses; and (v) intangible drilling and 
development costs (see section 263(c)). This provision is not intended 
to require asset-by-asset reporting.
B. Method of Accounting
    A beneficial owner of a unit interest must report WHFIT items 
consistent with the owner's method of accounting. See, for example, 
Rev. Rul. 84-10. For administrative convenience and with the intent of 
being consistent with industry practice, under the 1998 proposed 
regulations, a WHFIT was to calculate and provide WHFIT tax information 
using the cash receipts and disbursements method of accounting. Several 
commentators confirmed that the majority of WHFITs currently use the 
cash receipts and disbursements method of accounting. Under the 
reproposed regulations, WHFIT tax information must be calculated and 
provided using the cash receipts and disbursements method of accounting 
except where another method is required by the Code or regulations with 
respect to a specific trust item. Accordingly, a WHFIT must provide 
information necessary for unit interest holders to comply with the 
rules of subtitle A, chapter 1, subchapter P, part V, subpart A, which 
require the inclusion of accrued amounts with respect to original issue 
discount (OID), and section 860B(b), which requires the inclusion of 
accrued amounts with respect to a REMIC regular interest.
    The reproposed regulations also provide that if a WHFIT is marketed 
to accrual method taxpayers and the WHFIT holds assets for which the 
timing of the recognition of income is materially affected by the use 
of the accrual method, trust tax information must be calculated and 
provided using the accrual method of accounting.

[[Page 41895]]

C. Information To Be Provided by All WHFITs
    The information to be provided by the trustee under the reproposed 
and 1998 proposed regulations is similar. The tax reporting information 
the trustee is to calculate and provide under the reproposed 
regulations includes:
1. All Items of Income, Deduction, and Credit
    Under both the reproposed and the 1998 proposed regulations, the 
trustee must provide information with respect to all items of income 
(including OID), deduction (including affected expenses (as defined in 
Sec. 1.67-2T(i)(1))), and credit of the WHFIT. In furnishing 
information regarding the items of income, the trustee must provide the 
gross amount of trust income generated by trust assets. Thus, if a 
WHFIT receives a payment net of an expense or expenses, the payment 
must be grossed up to reflect the deducted expense so that the WHFIT's 
income and expenses can be properly reported by unit interest holders. 
The trustee must also have, and make available, information regarding 
the WHFIT's expenses, including affected expenses.
2. Information To Enable Unit Interest Holders To Determine Gain or 
Loss on the Sale or Disposition of a WHFIT Asset
    The reproposed regulations simplify, but do not eliminate, 
reporting by the trustee with respect to the sale or disposition of a 
WHFIT asset.
    The reporting rules in the 1998 proposed regulations were designed 
to provide a unit interest holder with sufficient information to 
calculate the unit interest holder's approximate gain or loss on the 
sale or disposition of an asset by the WHFIT. To that end, trustees 
were required to provide information regarding the amount of the gross 
proceeds from the sale or disposition of a WHFIT asset, the date of 
sale or disposition of the asset, and the percentage of the asset that 
has been sold or disposed of. In addition, trustees were required to 
provide a schedule showing the portion (expressed as a percentage) of 
the total fair market value of all the assets held by the WHFIT that 
the asset sold or disposed of represented as of the last day of each 
quarter that the asset was held by the WHFIT. The 1998 proposed 
regulations also required that this information be provided on an 
asset-by-asset approach.
    Commentators stated that, for various reasons, it would be 
impossible, or, at the very least, extremely costly and burdensome for 
trustees to comply with the reporting rules contained in the 1998 
proposed regulations. These commentators urged the IRS and Treasury to 
adopt reporting rules that require trustees and middlemen to only 
provide information regarding the amount of gross proceeds that are 
distributed to a unit interest holder.
    These commentators noted that many trustees and middlemen currently 
only provide information regarding the amount of gross proceeds that 
are distributed. Commentators also noted, however, that as a result of 
this reporting, many beneficial owners treat the distribution of gross 
proceeds by the WHFIT as a return of the beneficial owner's investment. 
Therefore, any gain, loss, discount, or premium that should be 
recognized by a beneficial owner as a result of the sale or disposition 
of a trust asset is deferred until the beneficial owner either exhausts 
its basis in its unit interest or sells or redeems its unit interest. 
Commentators nevertheless contended that the resulting tax deferral did 
not justify the reporting obligations imposed by the 1998 proposed 
regulations. As support, commentators contended that to maintain their 
status as trusts under Sec. 301.7701-4(c), WHFITs sell or dispose of 
their assets only infrequently.
    In response to these comments, the reproposed regulations provide 
that the information to be reported with respect to an asset sale or 
disposition depends on whether the WHFIT's asset sales or dispositions 
for the calendar year exceed a de minimis amount. If trust sales 
proceeds for a given calendar year equal or are less than 5% of the 
fair market value of the assets of the trust as of January 1 of that 
year, a trust meets the de minimis test for the calendar year. The 
reproposed regulations define trust sales proceeds as the gross 
proceeds received by a WHFIT with respect to a sale or disposition of 
an asset by the WHFIT. If a trust meets the de minimis test, the 
trustee need only provide information that enables requesting persons 
to calculate the amount of trust sales proceeds that are attributable 
to a unit interest holder.
    If asset sales and dispositions exceed the de minimis amount, the 
trustee must provide, with respect to each sale or disposition: (i) The 
date of the sale; (ii) information regarding trust sale proceeds; (iii) 
information that will enable a unit interest holder to allocate with 
reasonable accuracy a portion of its basis in its unit interest to the 
sale or disposition; and (iv) information that will enable a unit 
interest holder to allocate with reasonable accuracy a portion of its 
market discount or premium, if any, to the sale or disposition.
    Commentators on the 1998 proposed regulations indicated that, in 
providing information regarding gross proceeds, trustees and middlemen 
only provide unit interest holders with information regarding the 
amount of gross proceeds that have been distributed to them, not the 
amount that is attributable to each unit interest holder. Under these 
reproposed regulations, trustees and middlemen, when providing gross 
proceeds information, must provide information regarding the amount of 
gross proceeds that are attributable to the holder.
3. Information With Respect to Redemptions and Sales of Unit Interests
    Specific guidelines for the reporting of the redemption of a unit 
interest from a WHFIT and for the reporting of a sale of a unit 
interest on a secondary market were not provided under the 1998 
proposed regulations. In response to the comments received with respect 
to the 1998 proposed regulations, the reproposed regulations now 
provide guidance on the reporting of these transactions.
4. Other Information
    The reproposed regulations require the trustee to provide any other 
information necessary for a unit interest holder that is a beneficial 
owner of a unit interest to report, with reasonable accuracy, the items 
of income, deduction, and credit attributable to the portion of the 
trust treated as owned by the unit interest holder under section 671. 
Several commentators objected to the inclusion of a similar requirement 
in the 1998 proposed regulations. The IRS and Treasury note that WHFITs 
are used to hold a wide variety of assets. This provision is intended 
to clarify that trustees must accommodate beneficial owners' needs for 
appropriate information with respect to the assets held by the WHFIT. 
This provision is also intended to clarify that the information 
provided by the trustee must accommodate the different tax attributes 
of the beneficial owners of the WHFIT. This provision, however, is not 
intended to require asset-by-asset reporting.
D. Additional Information To Be Provided by the Trustee of a Widely 
Held Mortgage Trust
    Commentators on the 1998 proposed regulations identified specific 
concerns regarding the tax information reporting obligations of the 
trustee of a WHFIT that primarily holds mortgages as its assets. The 
IRS and Treasury believe

[[Page 41896]]

that changes in the reproposed regulations that apply to all WHFITs 
address some of these concerns. In response to other concerns raised by 
the commentators, the reproposed regulations provide certain rules 
tailored specifically to widely held mortgage trusts (WHMTs). The 
reproposed regulations define a WHMT as a WHFIT, substantially all the 
assets of which, measured by value, are mortgages, amounts received on 
mortgages, and reasonably required reserve funds.
1. Receipt of Scheduled and Unscheduled Principal Payments
    Commentators requested clarification regarding the reporting of the 
trust's receipts of scheduled and unscheduled principal payments on the 
mortgages held by the WHMT. Under the reproposed regulations, trustees 
must calculate and provide information regarding these principal 
receipts, and, as with all information provided by the trustee, it must 
be done in a manner that enables a requesting person to determine with 
reasonable accuracy the principal receipts attributable to a unit 
interest holder. Scheduled and unscheduled principal receipts are 
aggregated with the WHMT's proceeds from sales and dispositions of 
mortgages and reported as trust sales proceeds to the IRS on Form 1099. 
Unless a trustee reports under the safe harbor for certain WHMTs, 
scheduled and unscheduled principal receipts and trust sales proceeds 
are reported separately to beneficial owners.
2. Sales and Dispositions of Mortgages
    Commentators requested that the IRS and Treasury clarify that 
certain transactions that regularly occur during the administration of 
a WHMT do not trigger the reporting rules for sales and dispositions 
provided under the 1998 proposed regulations. These transactions 
involve the sale of a mortgage by a WHMT to the guarantor, sponsor, or 
previous owner for an amount equal to its unpaid principal balance plus 
accrued but unpaid interest. Commentators maintained that the costs 
involved in reporting these transactions as sales or dispositions under 
the 1998 proposed regulations outweighed the benefit of reporting the 
required information to unit interest holders. The IRS and Treasury 
believe that the de minimis test in the reproposed regulations 
alleviates the reporting burden concerns expressed by the commentators 
responding to the 1998 proposed regulations. Therefore, in general, the 
reproposed regulations provide no special WHMT rules for reporting 
these transactions and, under the reproposed regulations, these 
transactions are reported the same as any other sale or disposition 
engaged in by a WHFIT.
    The reproposed regulations do, however, adjust the de minimis test 
for WHMTs. In response to concerns regarding provisions in the 1998 
proposed regulations that require a trustee of a WHMT to assign a fair 
market value to mortgages held by a WHMT, the reproposed regulations 
provide that the trustee is to use the aggregate outstanding principal 
balance of the WHMT's mortgages for purposes of applying the de minimis 
test. Scheduled and unscheduled principal receipts are not included in 
the amount of trust sales proceeds for purposes of determining whether 
a WHMT has met the de minimis test.
3. Reporting Information With Respect to Market Discount
    The 1998 proposed regulations required, with respect to a WHFIT 
that holds a pool of debt instruments subject to section 
1272(a)(6)(C)(iii), that trustees and middlemen provide information to 
enable beneficial owners to comply with market discount rules and where 
applicable, section 1272(a)(6) (as amended by section 1004 of the 
Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 766, 911) 
(1997)).
    Several commentators questioned the application of this reporting 
requirement in the 1998 proposed regulations. These commentators 
asserted that, in the absence of additional guidance under section 
1272(a)(6)(C)(iii), it was unclear which WHFITs held a pool of debt 
instruments subject to that section and accordingly were required to 
report market discount information and information consistent with 
section 1272(a)(6)(C)(iii) to comply with the 1998 proposed 
regulations. These commentators requested that this reporting 
requirement be deferred until substantive guidance is provided 
regarding the application of section 1272(a)(6)(C)(iii).
    In response to this comment, the IRS and Treasury note that, under 
section 1276(a)(3), beneficial owners of a unit interest are required 
to include in gross income, as ordinary income, the partial payment of 
a debt instrument to the extent that such payment does not exceed the 
accrued market discount on the debt instrument. The IRS and Treasury 
also note that unit interest holders in a WHMT consistently receive 
partial payments on the mortgages held by the WHMT and that, absent 
information being provided by the trustee, unit interest holders in a 
WHMT do not have the information necessary to calculate their accrued 
market discount under section 1276(a)(3) and, therefore, cannot 
properly report the tax consequences of their ownership of the unit 
interest. For this reason, the reproposed regulations require trustees 
and middlemen of all WHMTs to provide information to enable unit 
interest holders to calculate market discount by any reasonable manner 
that is consistent with section 1276(a)(3). Pending the issuance of 
guidance under section 1272(a)(6)(C)(iii), a trustee may, but is not 
required, by these reproposed regulations, to provide market discount 
and OID information that is calculated consistent with the application 
of section 1272(a)(6)(C)(iii). The reproposed regulations only provide 
reporting rules. Substantive rules regarding OID and market discount 
are provided in subtitle A, chapter 1, subchapter P, part V of the Code 
and the regulations thereunder.
    Commentators also contended that substantive guidance was lacking 
regarding the methodology to be used by unit interest holders in 
accruing market discount under section 1276(a)(3). The commentators 
contended that the requirement to provide market discount information 
should be deferred until guidance regarding methodology is issued.
    Section 1803(a)(13)(A) of the Tax Reform Act of 1986 (TRA 1986) 
Public Law 99-514 (100 Stat. 2085) amended section 1276 to include 
sections 1276(a)(3) and (b)(3). Section 1276(b)(3) provides that the 
computation of the accrual of market discount with respect to partial 
principal payments is to be provided by Treasury regulations. To date, 
no regulations have been issued under section 1276(b)(3). The IRS and 
Treasury note, however, that although no regulations have been issued 
under section 1276(b)(3), the conference report accompanying the 
amendment to section 1276 provides that until such time as the Treasury 
Department issues such regulations, the conferees intend that market 
discount be accrued as provided in the conference report. See H.R. Rep. 
No. 841, 99th Cong., 2nd Sess., at II-842 (1986). Accordingly, the IRS 
and Treasury believe that there is sufficient guidance regarding the 
methodology for accruing market discount under section 1276(a)(3) to 
impose as a current requirement that trustees provide market discount 
information that enables a unit interest holder to determine the 
portion of the holder's market discount that has accrued during the 
reporting period by any manner reasonably consistent with section 
1276(a)(3). In addition, the

[[Page 41897]]

reproposed regulations include a safe harbor for certain WHMTs for 
providing market discount information that is considered to be 
reasonably consistent with section 1276(a)(3). The safe harbor requires 
the use of the prepayment assumption used in pricing the original issue 
of unit interests.
4. Reporting Information With Respect to Amortizable Bond Premium
    The 1998 proposed regulations imposed no reporting requirements on 
trustees and middlemen with respect to amortizable bond premium. Some 
owners of unit interests that acquire their interests at a premium may 
have amortizable bond premium within the meaning of section 171. In 
response to comments received with respect to the 1998 proposed 
regulations, as well as in connection with other matters, the IRS and 
Treasury note that not all owners of unit interests may receive 
sufficient information to reasonably determine the amount of any 
amortizable bond premium on mortgages held by a WHMT. For this reason, 
the reproposed regulations include a general requirement that trustees 
and middlemen of all WHMTs provide information to enable unit interest 
holders to determine the amount of the unit interest holder's 
amortizable bond premium, if any, in any manner that is reasonably 
consistent with section 171. The IRS and Treasury are continuing to 
study and request comments on an appropriate safe harbor for reporting 
premium information for unit interest holders that buy their interests 
at a premium.
D. Safe Harbor Factors
    Several commentators reported that many trustees currently provide 
tax information to middlemen through the use of ``factors.'' These 
trustees assume that middlemen maintain a record of certain trust 
information with respect to the unit interest holders for whom the 
middlemen hold an interest. Trustees provide these middlemen with data, 
called factors, which are ratios. Trustees assume that middlemen will 
use these factors to extrapolate by multiplication necessary trust tax 
information with respect to their unit interest holders from the 
information that middlemen already have in their records. The factors 
provided by a trustee depend on the type of assets held by the WHFIT 
and the tax items to be determined. Some trustees provide factors on a 
calendar year basis and some provide factors on a monthly basis. As an 
example, the comments received with respect to the 1998 proposed 
regulations indicated that the trustees of many WHFITs assume that 
middlemen receive and maintain a record of the amount of cash 
distributed to (or credited to the account of) a unit interest holder 
from the WHFIT during the calendar year. These trustees provide 
middlemen with factors that when multiplied by the amount of cash from 
the WHFIT distributed by a middleman to (or credited to the account of) 
a unit interest holder during the calendar year, enable a middleman to 
determine the amount of trust income and the amount of trust expenses 
that are attributable to the unit interest holder for the calendar 
year.
    The reproposed regulations provide as safe harbors, examples of 
methods for calculating certain factors that the IRS and Treasury 
believe will enable requesting persons to determine, with reasonable 
accuracy, the trust items attributable to a unit interest holder. 
Section 1.671-5(g) of the reproposed regulations provides safe harbor 
methods for calculating factors that provide information with respect 
to sales and dispositions of trust assets, trust income, trust 
expenses, OID, and market discount for certain WHMTs. The reproposed 
regulations condition the application of the safe harbors on the WHMT 
meeting certain requirements. The IRS and Treasury request comments on 
how the safe harbors provided in proposed Sec. 1.671-5(g) can be 
modified and extended to WHMTs not meeting the requirements in the 
reproposed regulations.
    Section 1.671-5(f) of the reproposed regulations provides safe 
harbor methods for calculating certain factors that provide similar 
information for WHFITs other than WHMTs. The IRS and Treasury request 
comments regarding the applicability of the safe harbors in proposed 
Sec. 1.671-5(f) to WHFITs that hold assets other than stock and debt 
instruments and whether different safe harbors are needed for those 
WHFITs.
    The IRS and Treasury also request comments on how the safe harbors 
provided in Sec. 1.671-5(f) and (g) of the reproposed regulations can 
be modified to better conform to industry practice while providing the 
IRS and beneficial owners with necessary WHFIT tax information. In 
addition, the IRS and Treasury request comments from requesting persons 
on their ability to process WHFIT tax information that is provided to 
them in the form of factors.
E. Time and Manner for Providing WHFIT Information
1. Trustee May Identify a Trust Representative and Publish Trust 
Information on the Internet
    Under both the 1998 proposed regulations and the reproposed 
regulations, the trustee must identify the name, address, and telephone 
number of a representative or official of the WHFIT who will provide 
the trust information required to be provided by the trustee. In 
addition to the list of places described in the 1998 proposed 
regulations where the trustee may publish this information, the 
reproposed regulations also permit the trust representative to be 
identified in the trust's prospectus or on the trustee's Internet site. 
When providing this information under the reproposed regulations, the 
trustee must also identify the reporting period that the trustee will 
use to calculate and provide trust information. Further, the reproposed 
regulations permit the trust information described in Sec. 1.671-5(c) 
of the reproposed regulations to be furnished to requesting persons on 
the trustee's Internet site or on another Internet site designated by 
the trustee.
2. Extension of Time for Furnishing Trust Information for Certain 
WHFITs
    With respect to most WHFITs, the reproposed regulations retain the 
requirement of the 1998 proposed regulations that WHFIT information be 
provided on or before the later of the 30th day after the close of the 
reporting period for which the information is requested, or, the 14th 
day after the receipt of the request to provide information. Under the 
reproposed regulations, if substantially all of the assets of the WHFIT 
are unit interests in another WHFIT or regular interests in a REMIC, 
the reproposed regulations allow the trustee until on or before the 
later of the 44th day after the close of the reporting period for which 
the information is requested, or, the 28th day after the receipt of the 
request to provide trust information.

III. Rules for Providing Trust Information to the IRS and to Beneficial 
Owners

A. In General
    Under the 1998 proposed regulations and the reproposed regulations, 
a middleman is required to file Forms 1099 with the Internal Revenue 
Service and to furnish a tax information statement to the beneficial 
owner of a unit interest. If a beneficial owner holds an interest 
directly with a trustee, the trustee is required to file Forms 1099

[[Page 41898]]

with the Internal Revenue Service and to furnish the statement to the 
beneficial owner. A Form 1099 and a statement are not required for a 
beneficial owner that is an exempt recipient.
    The reproposed regulations provide rules for determining the 
information to be provided on the Forms 1099 required to be filed with 
the Internal Revenue Service with respect to a beneficial owner and for 
determining the information to be provided on the tax information 
statement required to be furnished to the owner. First, the information 
provided on the Forms 1099 and the tax information statement must be 
consistent with the information required to be provided by the trustee 
under Sec. 1.671-5(c) of the reproposed regulations. Second, the 
information provided must reflect with reasonable accuracy the trust 
items that are attributable to the beneficial owner. Third, the 
statement must separately state any trust item that if taken into 
account separately by the beneficial owner, could result in an income 
tax liability for that owner different from that which would result if 
the owner did not take the item into account separately.
    In addition, the reproposed regulations require that the 
information provided on the Forms 1099 and the tax information 
statement be determined as provided in Sec. 1.671-5(f) or (g), as 
appropriate, if the trustee has provided information in accordance with 
the safe harbors described in those paragraphs. One commentator 
requested that trustees and middlemen be permitted to provide factors 
to beneficial owners. Under this approach, a beneficial owner would 
have the burden of understanding and applying the factors to determine 
the amounts of income, deductions, and credits of the WHFIT that are 
attributable to the owner. The reproposed regulations provide that 
middlemen, and trustees, where appropriate, must provide the IRS and 
beneficial owners with the amounts of income, deduction, and credit of 
a WHFIT that are attributable to a beneficial owner. It is not 
permissible for middlemen and trustees to merely provide factors to a 
beneficial owner.
B. Reporting With Respect to Foreign Unit Interest Holders
    The 1998 proposed regulations did not address reporting with 
respect to unit interest holders that are not United States persons. In 
response to comments received with respect to the 1998 proposed 
regulations, the reproposed regulations clarify that payments made from 
a WHFIT to a unit interest holder that is not a United States person 
are to be withheld and reported in accordance with Subtitle A, Chapter 
3 of the Code and the regulations thereunder.

IV. Clarification of the Relationship Between These Reporting Rules and 
Other Reporting Rules

    The preamble to the 1998 proposed regulations noted that 
appropriate adjustments to other information reporting rules may be 
necessary to make them compatible with those proposed regulations. One 
such provision is Sec. 1.6049-5(a)(6), which was cited by one 
commentator as an example of a provision allowing the amount of 
interest to be reported to the IRS to be based on the interest paid as 
stated on the investor's certificate, rather than the interest on the 
notes or obligations underlying the certificate. To be consistent with 
the taxation of a grantor trust, the reproposed regulations revise 
Sec. 1.6049-5(a)(6) to clarify that the income to be reported with 
respect to WHFITs is the gross amount of income earned by trust assets.
    In addition, comments received with respect to the 1998 proposed 
regulations requested clarification of the relationship between the 
reporting rules in the proposed regulations and the reporting rules in 
subpart B, part III, subchapter A, chapter 61 of the Code (Information 
Returns Concerning Transactions with Other Persons) (subpart B). In 
response, the reproposed regulations provide that if reporting is 
required under the reproposed regulations and subpart B, the reproposed 
regulations will control. The reproposed regulations also provide that 
the rules of subpart B are incorporated into the reproposed regulations 
to the extent that those rules are not inconsistent with the reporting 
rules in the reproposed regulations.

Proposed Effective Date

    These regulations are proposed to be applicable beginning January 
1, 2004.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It is hereby 
certified that these regulations will not have a significant economic 
impact on a substantial number of small entities. This certification is 
based on the fact that the regulations generally clarify existing 
reporting obligations and are expected, for the most part, to have a 
minimal impact on industry practice. Thus, the regulations will not 
result in a significant economic impact on any entity subject to the 
regulations. Further, the reporting burdens in these regulations will 
fall primarily on large brokerage firms, large banks, and other large 
entities acting as trustees or middlemen, most of which are not small 
entities within the meaning of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6). Thus, a substantial number of small entities will not be 
affected. 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 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 electronic or written comments (a 
signed original and eight (8) copies) that are submitted timely (in the 
manner described in the ADDRESSES caption) to the IRS. The IRS and 
Treasury Department request comments on the clarity of the proposed 
rules and how they can be made easier to understand. All comments will 
be available for public inspection and copying. A public hearing will 
be scheduled if requested in writing by any person that timely submits 
written comments. If a public hearing is scheduled, notice of the date, 
time, and place for the public hearing will be published in the Federal 
Register.

Drafting Information

    The principal author of these regulations is Faith Colson, Office 
of Associate Chief Counsel (Passthroughs and Special Industries). 
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 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

[[Page 41899]]

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1, 301 and 602 are proposed to be amended 
as follows:

PART 1--INCOME TAXES

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

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

    2. Section 1.671-4 is amended by revising paragraph (a) to read as 
follows:


Sec. 1.671-4  Method of reporting.

    (a) Portion of trust treated as owned by the grantor or another 
person. Except as otherwise provided in paragraph (b) of this section 
and Sec. 1.671-5, items of income, deduction, and credit attributable 
to any portion of a trust which, under the provisions of subpart E 
(section 671 and following), part I, subchapter J, chapter 1 of the 
Internal Revenue Code, is treated as owned by the grantor or another 
person are not reported by the trust on Form 1041, ``U.S. Income Tax 
Return for Estates and Trusts,'' but are shown on a separate statement 
to be attached to that form. Section 1.671-5 provides special reporting 
rules for widely held fixed investment trusts. Section 301.7701-4(e)(2) 
of this chapter provides guidance on how the reporting rules in this 
paragraph (a) apply to an environmental remediation trust.
* * * * *
    3. Section 1.671-5 is added to read as follows:


Sec. 1.671-5  Reporting for widely held fixed investment trusts.

    (a) Table of contents. This table of contents lists the major 
paragraph headings for this section.

(a) Table of contents.
(b) Definitions.
(c) Trustee's obligation to furnish information.
(1) In general.
(i) Calculation and presentation.
(ii) Reporting period.
(iii) Accounting method.
(iv) Gross income requirement.
(2) Information to be provided for all trusts.
(i) Trust identification.
(ii) Items of income, deduction and credit.
(iii) Asset sales and dispositions.
(iv) Information on redemptions and sales of WHFIT unit interests.
(v) Other information.
(3) Additional information to be provided for a WHMT.
(i) Market discount information.
(ii) Premium information.
(iii) Principal payment information.
(4) Identifying the trust reporting period and the representative 
who will provide information.
(5) Time and manner of providing information.
(i) Time.
(ii) Manner.
(6) Requesting information from a WHFIT.
(i) Requesting persons.
(ii) Manner of requesting information.
(iii) Period of time during which requesting person may request 
WHFIT information.
(7) Trustee's requirement to retain records.
(d) Form 1099 requirement for trustees and middlemen.
(1) Obligation to file Form 1099 with the Internal Revenue Service.
(i) In general.
(ii) Forms 1099 not required for exempt recipients.
(iii) Reporting with respect to foreign persons.
(2) Information to be reported.
(i) Determining amounts to be provided on Forms 1099.
(ii) Information to be provided on Forms 1099.
(3) Time and manner of filing Forms 1099.
(e) Requirement of furnishing the statement to a unit interest 
holder.
(1) In general.
(i) General rule for determining information for statement.
(ii) Required use of safe harbor information.
(iii) Requirement to separately state relevant WHFIT items.
(2) Information required to be provided on written statement with 
respect to all WHFITs.
(i) WHFIT information.
(ii) Identification of the person furnishing the statement.
(iii) Items of income, deduction and credit.
(iv) Asset sales and dispositions.
(v) Information on the redemption or sale of a unit interest.
(vi) Other information.
(vii) Required statement.
(3) Additional information to be provided on written statement with 
respect to WHMTs.
(i) Information regarding market discount and premium.
(ii) Information regarding principal payments.
(4) Due date and other requirements with respect to statement 
required to be furnished to the unit interest holder.
(f) Safe harbors for providing information for WHFITs other than 
WHMTs.
(1) Safe harbors for trustee reporting of WHFIT information.
(i) In general.
(ii) Safe harbor for reporting WHFIT income and expenses.
(iii) Safe harbor for reporting OID.
(iv) Safe harbor for reporting information with respect to sales of 
WHFIT assets.
(v) Safe harbor for reporting redemptions and sales of unit 
interests on a secondary market.
(2) Use of information provided by trustees under safe harbors.
(i) Use of information provided in accordance with the safe harbor 
for reporting WHFIT income and expense.
(ii) Use of safe harbor for reporting OID.
(iii) Use of safe harbor for reporting information with respect to 
sales or dispositions.
(3) Example of use of safe harbors.
(i) Facts.
(ii) Trustee reporting.
(iii) Broker's use of information provided by Trustee.
(g) Safe Harbor for certain WHMTs.
(1) Safe harbors for trustee reporting of trust information.
(i) In general.
(ii) Requirements for use of safe harbors.
(iii) Safe harbor for reporting WHMT income, expenses, principal 
receipts, and sales and dispositions of mortgages.
(iv) Safe harbor for reporting OID information.
(v) Safe Harbor for reporting market discount information.
(vi) Safe harbor for reporting premium information.
(2) Use of information provided by a trustee under the safe harbor.
(i) Use of information provided in accordance with the safe harbor 
for reporting WHMT income, expenses, receipt of principal payments, 
and sales and dispositions of mortgages.
(ii) Use of OID factor to determine the OID attributable to a unit 
interest holder.
(iii) Requirement to provide market discount information.
(iv) Requirement to provide premium information.
(3) Example of safe harbor.
(i) Facts.
(ii) Trustee reporting.
(iii) Broker's use of the information provided by trustee.
(h) Requirement that middlemen furnish information to exempt 
recipients and noncalendar-year taxpayers.
(1) In general.
(2) Time and manner of providing information.
(3) Clearing organization.
(i) Reserved.
(j) Exempt recipients.
(1) Requirement that exempt recipient include accurate trust 
information in computing taxable income.
(2) Exempt recipients defined.
(i) Persons described in paragraph 1.6049-4(c)(1)(ii) of this 
chapter.
(ii) Middlemen.
(iii) Real estate mortgage investment conduit.
(iv) A WHFIT.
(v) Certain trusts and estates.
(k) Coordination with information reporting rules under subpart B, 
part III, subchapter A, chapter 61 of the Internal Revenue Code 
(Information Returns Concerning Transactions With Other Persons).
(l) Backup withholding requirements.
(m) Penalties for failure to comply.
(n) Effective date.

    (b) Definitions. Solely for purposes of this Sec. 1.671-5:
    (1) An asset includes any real or personal, tangible or intangible 
property held by the trust, including an interest in a contract.
    (2) An affected expense is an expense described in Sec. 1.67-
2T(i)(1).
    (3) The cash held for distribution is the amount of cash that would 
be payable to unit interest holders if the

[[Page 41900]]

amount of a distribution were required to be determined as of the date 
in question.
    (4) A distribution paid on redemption of a unit interest is the 
portion of a redemption price that represents the cash held for 
distribution with respect to the redeemed unit interest.
    (5) An exempt recipient is any person described in paragraph (j)(2) 
of this section.
    (6) The gross proceeds paid on redemption of a unit interest is the 
portion of the redemption price that represents payment for the assets 
held by the trust (other than cash held for distribution) with respect 
to the redeemed unit interest.
    (7) A middleman is any person who, at any time during the calendar 
year, holds an interest in an arrangement classified as a trust under 
Sec. 301.7701-4(c) of this chapter, on behalf of, or for the account 
of, another person, or who otherwise acts in a capacity as an 
intermediary for the account of another person. A middleman includes, 
but is not limited to--
    (i) A custodian of a person's account, such as a bank, financial 
institution, or brokerage firm acting as custodian of an account;
    (ii) A nominee, including the joint owner of an account or 
instrument except if the joint owners are husband and wife; and
    (iii) A broker (as defined in section 6045(c)(1) and Sec. 1.6045-
1(a)(1)) holding an interest for a customer in street name.
    (8) A mortgage is an obligation that is principally secured by an 
interest in real property within the meaning of Sec. 1.860G-2(a).
    (9) The redemption price is the total amount paid to a unit 
interest holder upon redemption of a unit interest.
    (10) A reporting period is the period chosen under paragraph 
(c)(1)(ii) of this section by the trustee for providing trust 
information to requesting persons.
    (11) A requesting person is a person specified in paragraph 
(c)(6)(i) of this section who is entitled under this Sec. 1.671-5 to 
request the trust information specified in paragraphs (c)(2) and (3) of 
this section.
    (12) The start-up date is the date on which substantially all of 
the assets and the contracts for the purchase of assets have been 
deposited with the trustee of the widely held fixed investment trust.
    (13) Trust sale proceeds are the gross proceeds (see Sec. 1.6045-
1(d)(5)) received by a trust with respect to the sale or disposition of 
an asset held by a trust.
    (14) A unit interest holder is any person who holds a direct or 
indirect interest, including a beneficial interest, in a widely held 
fixed investment trust at any time during the calendar year.
    (15) A widely held fixed investment trust (WHFIT) is an arrangement 
classified as a trust under Sec. 301.7701-4(c) of this chapter in which 
any interest in the trust is held by a middleman; provided the trust is 
a United States person under section 7701(a)(30)(E), and the unit 
interest holders of the trust are treated as owners under subpart E, 
part I, subchapter J, chapter 1 of the Internal Revenue Code.
    (16) A widely held mortgage trust (WHMT) is a WHFIT, substantially 
all the assets of which, measured by value, are mortgages, amounts 
received on mortgages, and reasonably required reserve funds. A WHFIT 
does not fail to meet this definition merely because it holds, during a 
brief initial funding period, both cash and short-term contracts for 
the purchase of mortgages.
    (c) Trustee's obligation to furnish information--(1) In general. 
Upon request, a trustee of a WHFIT must provide to any requesting 
person, for the reporting period requested, the information described 
in paragraph (c)(2) of this section and, in the case of a WHMT, the 
information described in paragraph (c)(3) of this section. The 
information provided by the trustee must be determined in accordance 
with the following rules.
    (i) Calculation and presentation. WHFIT information must be 
provided in any manner that--
    (A) Enables a requesting person to determine with reasonable 
accuracy the WHFIT items described in paragraphs (c)(2) and (3) of this 
section that are attributable to a unit interest holder for the taxable 
year of that unit interest holder;
    (B) Conforms, generally, with industry practice for the reporting 
of the WHFIT items described in paragraphs (c)(2) and (3) of this 
section for the type of asset or assets held by the WHFIT; and
    (C) Enables a requesting person to separately state any WHFIT item 
that, if taken into account separately by a beneficial owner of a unit 
interest, would result in an income tax liability different from that 
which would result if the owner did not take the item into account 
separately.
    (ii) Reporting period--(A) General rule. Provided a trustee uses 
the same reporting period throughout the trust's existence and the 
information provided by the trustee meets the requirements of paragraph 
(c)(1)(i) of this section, WHFIT information may be determined and 
provided on the basis of a calendar month, calendar quarter, or half or 
full calendar year.
    (B) Reporting period for original issue discount and market 
discount. Notwithstanding paragraph (c)(1)(ii)(A) of this section, a 
trustee must determine the information required to be provided with 
respect to original issue discount (OID), market discount, and premium 
using a semi-annual, or shorter, reporting period.
    (iii) Accounting method--(A) General rule. WHFIT information must 
be calculated and provided using the cash receipts and disbursements 
method of accounting except where another method is required by the 
Internal Revenue Code or regulations with respect to a specific trust 
item. Accordingly, a trustee must provide information necessary for 
unit interest holders to comply with the rules of subtitle A, chapter 
1, subchapter P, part V, subpart A which require the inclusion of 
accrued amounts with respect to OID, and section 860B(b) which requires 
the inclusion of accrued amounts with respect to a REMIC regular 
interest.
    (B) Exception for WHFITs marketed predominantly to taxpayers on the 
accrual method. If the trustee or the trust's sponsor has knowledge 
that a WHFIT is marketed primarily to accrual method unit interest 
holders and the WHFIT holds assets for which the timing of the 
recognition of income is materially affected by the use of the accrual 
method of accounting, the WHFIT must prepare and report trust 
information using the accrual method of accounting.
    (iv) Gross income requirement. The amount of trust income reported 
by the trustee must be the amount of gross income generated by the 
WHFIT's assets. Thus, in the case of a WHFIT that receives a payment 
net of an expense or expenses, the payment must be grossed up to 
reflect the deducted expense or expenses. See paragraph (c)(2)(iii) of 
this section regarding reporting with respect to sales and 
dispositions.
    (2) Information to be provided by all trusts. With respect to all 
WHFIT's--
    (i) Trust identification. The trustee must provide information 
identifying the WHFIT, including--
    (A) The name of the WHFIT;
    (B) The name and address of the trustee;
    (C) The employer identification number of the WHFIT; and
    (D) The Committee on Uniform Security Identification Procedure 
(CUSIP) number, account number, serial number, or other identifying 
number of the WHFIT.
    (ii) Items of income, deduction, and credit. The trustee must 
provide information detailing--

[[Page 41901]]

    (A) All items of gross income;
    (B) All items of deduction; and
    (C) All items of credit.
    (iii) Asset sales and dispositions--(A) The de minimis test. The 
information to be reported under this paragraph (c)(2)(iii) with 
respect to asset sales and dispositions depends on whether the WHFIT 
meets a de minimis test with respect to sales and dispositions for the 
calendar year.
    (1) De minimis test. A WHFIT meets the de minimis test if trust 
sales proceeds for the calendar year equal or are less than five 
percent of the aggregate fair market value of all assets held by the 
trust as of January 1st of that year, or the start-up date, if the 
trust was not in existence on January 1st.
    (2) Effect of clean-up call. If a WHFIT fails to meet the de 
minimis test in this paragraph (c)(2)(iii) solely as the result of a 
clean-up call (the redemption of all unit interests in termination of 
the WHFIT when the administrative costs of the trust outweigh the 
benefits of maintaining the trust), the WHFIT will be treated as having 
met the de minimis test in this paragraph (c)(2)(iii).
    (B) Information required to be provided for WHFITs meeting the de 
minimis test. If a WHFIT meets the de minimis test of this paragraph 
(c)(2)(iii) for a calendar year, the trustee must provide the date of 
each sale or disposition and information regarding the trust sale 
proceeds received by the trust with respect to the sale or disposition. 
The trustee must also provide requesting persons with a statement that 
the WHFIT met the de minimis test of this paragraph (c)(2)(iii) for the 
calendar year.
    (C) Additional information required to be provided for WHFITs not 
meeting the de minimis test. If a WHFIT does not meet the de minimis 
test of this paragraph (c)(2)(iii) for a calendar year, the trustee 
must provide with respect to each sale or disposition of WHFIT assets--
    (1) The date of each sale or disposition;
    (2) Information regarding the trust sale proceeds received by the 
WHFIT with respect to the sale or disposition;
    (3) Information that will enable a unit interest holder to allocate 
with reasonable accuracy a portion of the holder's basis in the unit 
interest to the sale or disposition; and
    (4) Information that will enable a unit interest holder to allocate 
with reasonable accuracy a portion of the unit interest holder's market 
discount or premium, if any, to the sale or disposition.
    (D) Application of this paragraph to a WHMT--In the case of a WHMT, 
the trust meets the de minimis test in this paragraph (c)(2)(iii) if 
trust sales proceeds for the calendar year equal or are less than five 
percent of the aggregate outstanding principal balance of all mortgages 
held by the WHMT as of January 1st of that year, or the start-up date, 
if the trust was not in existence on January 1st. For purposes of 
applying the de minimis test in this paragraph (c)(2)(iii), scheduled 
and unscheduled principal payments are not included in the amount of 
trust sales proceeds.
    (iv) Information on redemptions and sales of WHFIT unit interests--
(A) Redemptions. For each date on which the redemption price of a unit 
interest is determined, the trustee must provide information to enable 
a requesting person to determine--
    (1) The redemption price per unit interest on that date;
    (2) The gross proceeds paid on redemption of a unit interest on 
that date; and
    (3) The income that should be attributed to a unit interest for the 
portion of the reporting period that a redeeming unit interest holder 
held the unit interest.
    (B) Sale of a unit interest--If a secondary market for the unit 
interests of the WHFIT is established, the trustee must provide for 
each day of the reporting period, information to enable a requesting 
person to determine the undistributed WHFIT income, per unit interest, 
held by the WHFIT as of the date of sale.
    (v) Other information. The trustee must provide any other 
information necessary for a unit interest holder that is the beneficial 
owner of a unit interest to report, with reasonable accuracy, the items 
of income, deduction, and credit attributable to the portion of the 
trust treated as owned by the unit interest holder under section 671 
for the requested reporting period or any other reporting period.
    (3) Additional information to be provided for a WHMT. In addition 
to meeting the requirements of paragraph (c)(2) of this section, the 
trustee must provide--
    (i) Market discount information. Information that enables a unit 
interest holder to determine, in any manner that is reasonably 
consistent with section 1276(a)(3), the portion of the unit interest 
holder's market discount, if any, that has accrued during the reporting 
period.
    (ii) Premium information. Information that enables a unit interest 
holder to determine, in any manner that is reasonably consistent with 
section 171, the amount of the unit interest holder's amortizable bond 
premium, if any, for the reporting period.
    (iii) Principal payment information. Information regarding 
principal payments, both scheduled and unscheduled, received by the 
WHMT on mortgages held by the WHMT.
    (4) Identifying the trust reporting period and the representative 
who will provide information--The trustee must identify a 
representative of the WHFIT who will provide the information specified 
in this paragraph (c) and the reporting period which will be used by 
the trustee. The name, address, and telephone number of the 
representative and the reporting period must be--
    (i) Printed in a publication generally read by, and available to, 
requesting persons;
    (ii) Stated in the trust's prospectus; or
    (iii) Posted on the trustee's internet site.
    (5) Time and manner of providing information--(i) Time--(A) In 
general. Except as provided in paragraph (c)(5)(i)(B) of this section, 
a trustee must provide the information specified in this paragraph (c) 
to requesting persons on or before the later of--
    (1) The 30th day after the close of the reporting period or periods 
for which the information was requested; or
    (2) The day that is 14 days after the receipt of the request.
    (B) Trusts holding interests in REMICs or other WHFITs. If 
substantially all the assets of a WHFIT are unit interests in other 
WHFITs, REMIC regular interests, or both, a trustee must provide the 
information specified in this paragraph (c) on or before the later of--
    (1) The 44th day after the close of the reporting period or periods 
for which the information was requested; or
    (2) The day that is 28 days after the receipt of the request.
    (ii) Manner. The information specified in this paragraph (c) must 
be provided--
    (A) By written statement sent by first class mail to the address 
provided by the requesting person;
    (B) By causing it to be printed in a publication generally read by 
and available to requesting persons and by notifying the requesting 
person in writing of the publication in which it will appear, the date 
on which it will appear, and, if possible, the page on which it will 
appear;
    (C) By causing it to be posted on an internet site and by notifying 
requesting persons in writing of the internet site on which it will 
appear; or
    (D) By any other method agreed to by the trustee and requesting 
persons.
    (6) Requesting information from a WHFIT--(i) Requesting persons. 
The following persons that hold an interest

[[Page 41902]]

in a WHFIT may request the information specified in this paragraph (c) 
from that WHFIT--
    (A) Any middleman;
    (B) Any broker who holds a unit interest on its own behalf;
    (C) Any other exempt recipient who holds an interest directly and 
not through a middleman;
    (D) Any noncalendar-year unit interest holder who holds a WHFIT 
interest directly and not through a middleman; and
    (E) A representative or agent for a person specified in this 
paragraph (c)(6).
    (ii) Manner of requesting information. In requesting WHFIT 
information, a requesting person must specify the WHFIT and the 
reporting period or periods for which information is requested.
    (iii) Period of time during which a requesting person may request 
WHFIT information. During the WHFIT's existence and for three years 
following the date of the WHFIT's termination, a requesting person may 
request information for any of the WHFIT's reporting periods.
    (7) Trustee's requirement to retain records. During the existence 
of the WHFIT and for at least five years following the date of 
termination, the trustee must maintain in its records a copy of the 
information provided to requesting persons for each reporting period 
and such supplemental data as may be necessary to establish that the 
information provided to requesting persons is correct and meets the 
requirements of this paragraph (c).
    (d) Form 1099 requirement for trustees and middlemen--(1) 
Obligation to file Form 1099 with the Internal Revenue Service--(i) In 
general. Except as provided in paragraphs (d)(1)(ii) and (iii) of this 
section--
    (A) Every trustee must file with the Internal Revenue Service the 
appropriate Forms 1099, reporting the information specified in 
paragraph (d)(2) of this section with respect to any unit interest 
holder who holds an interest in the WHFIT directly and not through a 
middleman; and
    (B) Every middleman must file with the Internal Revenue Service the 
appropriate Forms 1099, reporting the information specified in 
paragraph (d)(2) of this section with respect to any unit interest 
holder on whose behalf or account the middleman holds an interest in 
the WHFIT or acts in a capacity of an intermediary.
    (ii) Forms 1099 not required for exempt recipients. A Form 1099 is 
not required with respect to a unit interest holder that is an exempt 
recipient. If the trustee or middleman backup withholds under section 
3406 on payments made to an exempt recipient (because, for example, the 
exempt recipient has failed to furnish a Form W-9 on request), then the 
trustee or middleman is required to file a Form 1099 under this 
paragraph, unless the trustee or middleman refunds the amount withheld 
in accordance with Sec. 31.6413(a)-3 of this chapter. Paragraph (j) of 
this section describes unit interest holders that may be treated as 
exempt recipients.
    (iii) Reporting with respect to foreign persons. Payments made by a 
WHFIT to a unit interest holder that is not a United States person must 
be reported as provided under subtitle A, chapter 3 of the Internal 
Revenue Code (sections 1441 through 1464) and the regulations 
thereunder and are not reported under this paragraph (d).
    (2) Information to be reported--(i) Determining amounts to be 
provided on Forms 1099--(A) In General. The information provided for a 
calendar year by a trustee or middleman to the Internal Revenue Service 
on the appropriate Forms 1099 must be consistent with the information 
provided by the trustee under paragraph (c) of this section and must 
reflect with reasonable accuracy the WHFIT items that are attributable 
to a unit interest holder.
    (B) Use of safe harbor information. If the trustee, in providing 
WHFIT information, uses the safe harbors in paragraph (f)(1) or (g)(1) 
of this section, then the trustee or middleman must calculate the 
information to be provided to the Internal Revenue Service on the Forms 
1099 in accordance with paragraph (f)(2) or (g)(2) of this section, as 
appropriate.
    (ii) Information to be provided on Form 1099. The trustee or 
middleman must include on the appropriate Forms 1099--
    (A) Taxpayer information. The name, address, and taxpayer 
identification number of the unit interest holder.
    (B) Information regarding the person filing the Form 1099. The 
name, address, taxpayer identification number, and telephone number of 
the person required to file the Form 1099.
    (C) Gross income. The amount of gross income (including OID) of the 
WHFIT attributable to the unit interest holder for the calendar year.
    (D) Trust sale proceeds. The trust sale proceeds that are 
attributable to the unit interest holder for the calendar year. With 
respect to a unit interest holder in a WHMT, the amount reported under 
this paragraph (d)(2)(ii)(D) includes the principal receipts that are 
attributable to that unit interest holder for the calendar year.
    (E) Gross proceeds paid on unit interest redemptions--(1) In 
general. The gross proceeds paid on redemption of a unit interest to 
the unit interest holder for the calendar year, if any.
    (2) In-kind redemption. If a unit interest holder redeems a unit 
interest solely for a pro-rata share of the assets of the WHFIT plus 
the undistributed cash income, the value of the assets received by the 
unit interest holder as a result of the redemption is not reported to 
the IRS as gross proceeds paid on redemption of a unit interest. The 
gross income attributable to the redeemed unit interest for the 
calendar year must be reported under paragraph (d)(2)(ii)(C) of this 
section.
    (F) Gross proceeds paid on the sale of a unit interest on a 
secondary market. The gross proceeds paid to a unit interest holder for 
the sale of a unit interest or interests on a secondary market 
established for the WHFIT for the calendar year, if any.
    (G) Other information. Any other information required by the Forms 
1099.
    (3) Time and manner of filing Forms 1099. The Forms 1099 required 
to be filed under this paragraph (d) must be filed on or before 
February 28th (March 31, if filed electronically) of the year following 
the year for which the Forms 1099 are being filed. The returns must be 
filed with the appropriate Internal Revenue Service Center, at the 
address listed in the instructions for the Forms 1099. For extensions 
of time for filing returns under this section, see Sec. 1.6081-1, the 
instructions for the Forms 1099, and applicable revenue procedures (see 
Sec. 601.601(d)(2) of this chapter). For magnetic media filing 
requirements, see Sec. 301.6011-2 of this chapter. Trust sale proceeds, 
gross proceeds paid on unit interest redemption, and gross proceeds 
paid on the sale of a unit interest are to be reported on the same type 
of Form 1099 as that required for reporting gross proceeds under 
section 6045.
    (e) Requirement of furnishing a statement to the unit interest 
holder--(1) In general. Every trustee or middleman required to file 
appropriate Forms 1099 under paragraph (d) of this section with respect 
to a unit interest holder must furnish to that unit interest holder 
(the person whose identifying number is required to be shown on the 
form) a written statement showing both the information described in 
paragraph (e)(2) of this section, and, in the case of a WHMT, the 
information described in paragraph (e)(3) of this section. The 
information provided must be in accordance with the following rules--
    (i) General rule for determining information for statement. The 
information provided on the written

[[Page 41903]]

statement furnished to the unit interest holder for the calendar year 
by the trustee or middleman must be consistent with the information 
provided by the trustee under paragraph (c) of this section and the 
information provided on the Forms 1099 filed with the IRS under 
paragraph (d) of this section. The information provided must reflect 
with reasonable accuracy the WHFIT items that are attributable to the 
unit interest holder.
    (ii) Required use of safe harbor information. If the trustee, in 
providing WHFIT information, has used the safe harbors in paragraph 
(f)(1) or (g)(1) of this section, the trustee or middleman must 
calculate the information to be provided on the written statement 
furnished to the unit interest holder in accordance with paragraph 
(f)(2) or (g)(2) of this section, as appropriate.
    (iii) Requirement to separately state relevant WHFIT items. The 
trustee or middleman must separately state any items that if taken into 
account separately by that unit interest holder would result in an 
income tax liability different from that which would result if the item 
was not taken into account separately.
    (2) Information required to be provided on written statement with 
respect to all WHFITs. For the calendar year, the written statement 
furnished to the unit interest holder must meet the following 
requirements--
    (i) WHFIT information. The written statement must identify the 
WHFIT. The written statement must include the information required to 
be provided by the trustee under paragraph (c)(2)(i)(A) of this 
section, regarding the name of the WHFIT, and paragraph (c)(2)(i)(D) of 
this section, regarding the identifying number of the WHFIT.
    (ii) Identification of the person furnishing the statement. The 
written statement must provide the name, address, and taxpayer 
identification number of the person required to furnish the statement.
    (iii) Items of income, deduction, and credit. The written statement 
must detail all items of income (including OID), deduction, and credit 
that are attributable to the unit interest holder.
    (iv) Asset sales and dispositions--(A) Information to be reported 
with respect to a WHFIT meeting the de minimis test. If the WHFIT has 
met the de minimis test of paragraph (c)(2)(iii) of this section, the 
written statement need only provide information detailing the trust 
sale proceeds that are attributable to the unit interest holder.
    (B) Information to be reported with respect to trust not meeting 
the de minimis test. If the trust has not met the de minimis test of 
paragraph (c)(2)(iii) of this section, the written statement must 
provide with respect to each sale or disposition of a WHFIT asset--
    (1) The date of sale or disposition;
    (2) Information regarding the trust sale proceeds that are 
attributable to the unit interest holder;
    (3) Information that will enable the unit interest holder to 
allocate with reasonable accuracy a portion of the holder's basis in 
the holder's unit interest to the sale or disposition; and
    (4) Information that will enable a unit interest holder to allocate 
with reasonable accuracy a portion of the unit interest holder's market 
discount or amortizable bond premium, if any, to the sale or 
disposition.
    (v) Information on the redemption or sale of a unit interest--The 
written statement must provide the unit interest holder with 
information regarding the gross proceeds paid on redemption for each 
unit interest redeemed during the calendar year and the gross proceeds 
paid on the sale of a unit interest for each unit interest sold during 
the calendar year.
    (vi) Other information. The written statement must include any 
other information necessary the unit interest holder to report, with 
reasonable accuracy, the items of income, deduction, and credit 
attributable to the portion of the trust treated as owned by the unit 
interest holder under section 671 for the current calendar year, or any 
other year.
    (vii) Required statement. The written statement must inform the 
unit interest holder that the items of income, deduction, and credit, 
and any other information shown on the statement, must be taken into 
account in computing the taxable income and credits of the unit 
interest holder on the income tax return of the unit interest holder.
    (3) Additional information to be provided on written statement with 
respect to WHMTs. For the calendar year, in addition to meeting the 
requirements of paragraph (e)(2) of this section, the written statement 
furnished to the unit interest holder of a WHMT must also meet the 
following requirements--
    (i) Information regarding market discount and premium. The written 
statement must include the information regarding market discount and 
premium that is required to be provided by the trustee under paragraphs 
(c)(3)(i) and (ii) of this section.
    (ii) Information regarding principal payments. The written 
statement must include information regarding the principal payments, 
scheduled and unscheduled, received by the WHMT that are attributable 
to the unit interest holder.
    (4) Due date and other requirements with respect to the statement 
required to be furnished to the unit interest holder. The statement 
required to be furnished to the unit interest holder under this 
paragraph (e) for a calendar year must be furnished to the holder 
before March 16 of the year following the year for which the statement 
is being furnished. The person sending the statement must maintain in 
its records a copy of the statement furnished to the unit interest 
holder and supplemental data as may be required to establish the 
correctness of the statement for a period of 5 years from the due date 
for furnishing such statement.
    (f) Safe harbors for providing information for WHFITs other than 
WHMTs--(1) Safe harbors for trustee reporting of WHFIT information--(i) 
In general. Except in the case of a WHMT, a trustee of a WHFIT that 
reports an item under a safe harbor in this paragraph (f)(1), is deemed 
to provide and calculate that WHFIT item in accordance with the rules 
of paragraph (c)(1)(i) of this section. Any item reported under a safe 
harbor in this paragraph (f)(1) must include a statement giving notice 
to that effect when providing information to a requesting person.
    (ii) Safe harbor for reporting WHFIT income and expenses. A trustee 
satisfies this safe harbor for providing income and expense information 
by first determining the total amount of WHFIT distributions (both 
actual and deemed) for the calendar year and then expressing each 
income or expense item as a fraction of the total amount of WHFIT 
distributions. These fractions (hereafter called factors) must be 
accurate to at least four decimal places.
    (A) Step one: Determine the total amount of WHFIT distributions for 
the calendar year. The trustee determines the total amount of WHFIT 
distributions (actual and deemed) for the calendar year. If the 
calculation of total amount of WHFIT distributions under this paragraph 
(f)(1)(ii)(A) results in a zero or a negative number, the trustee may 
not determine income and expense information under the safe harbor in 
this paragraph. The total amount of WHFIT distributions equals the 
amount of WHFIT funds paid out to the unit interest holders (including 
amounts paid as of the result of redemptions) for the calendar year--
    (1) Increased by--
    (i) All amounts that would have been distributed during the 
calendar year but

[[Page 41904]]

were instead reinvested pursuant to a reinvestment plan; and
    (ii) All cash held for distribution to unit interest holders as of 
December 31 of the year for which the trustee is reporting; and
    (2) Decreased by--
    (i) All cash distributed during the current year that was included 
in a year-end cash allocation factor (see paragraph (f)(1)(ii)(C)(1) of 
this section) of a prior year; and
    (ii) All gross proceeds paid on redemption of a unit interest for 
the calendar year.
    (3) For the purpose of calculating the the amount of WHFIT funds 
paid out to unit interest holders and the for the purpose of 
calculating all gross proceeds paid on redemption of a unit interest 
for the calendar year, pro-rata in-kind redemptions made during the 
calendar year are disregarded.
    (B) Step two: Determine factors that express the ratios of WHFIT 
income and expenses to the total amount of WHFIT distributions. The 
trustee determines factors that express the ratios of WHFIT income and 
expenses to the total amount of WHFIT distributions as follows--
    (1) Income factors. For each type of income earned by a WHFIT for 
the calendar year, the trustee determines the ratio of--
    (i) The gross amount of that type of income; divided by
    (ii) The total amount of WHFIT distributions for the calendar year.
    (2) Expense factors. For each type of expense paid by a WHFIT 
during the calendar year, the trustee determines the ratio of--
    (i) The gross amount of that type of expense; divided by
    (ii) The total amount of WHFIT distributions for the calendar year.
    (C) Step three: Determine adjustments for reconciling the total 
amount of WHFIT distributions (determined under step one) with amounts 
actually paid to unit interest holders. Paragraph (f)(1)(ii)(B) of this 
section (step two) requires an item of income or expense to be 
expressed as a ratio of that item to the total amount of WHFIT 
distributions (as determined under step one). A unit interest holder's 
share of the total amount of WHFIT distributions may differ from the 
amount actually paid to that unit interest holder. A trustee, 
therefore, must provide information that will be used to compute a unit 
interest holder's share of the total amount of WHFIT distributions 
based on the amount actually paid to the unit interest holder. A 
trustee satisfies this requirement by providing a current year-end cash 
allocation factor and a prior year cash allocation factor.
    (1) The current year-end cash allocation factor is--
    (i) The amount of cash held for distribution to unit interest 
holders by the WHFIT as of December 31 of the year for which the 
trustee is reporting; divided by
    (ii) The number of unit interests outstanding as of December 31.
    (2) The prior year cash allocation factor is--
    (i) The amount of the distribution during the current calendar year 
that was included in determining a year-end cash allocation factor for 
a prior year; divided by
    (ii) The number of unit interests outstanding on the date of the 
distribution.
    (D) Requirement that trustee furnish additional information to 
requesting persons. In the case where the safe harbor factors provided 
by the trustee under this paragraph (f)(1)(ii) cannot be used to 
determine with reasonable accuracy the income and expense attributable 
to a unit interest holder, upon request of the person responsible for 
filing the Form 1099 under paragraph (d) of this section, the trustee 
must provide to the person additional information to enable the income 
and expense attributable to the unit interest holder to be determined 
with reasonable accuracy. See paragraph (f)(2)(i)(A)(3)(ii) of this 
section.
    (iii) Safe harbor for reporting OID. With respect to information 
regarding OID, the trustee may satisfy paragraph (c)(1)(i) of this 
section by providing, for each reporting period, any day of which is in 
that calendar year, the aggregate daily accrual of OID per $1,000 of 
original principal amount.
    (iv) Safe harbor for reporting information with respect to sales of 
WHFIT assets--(A) Safe harbor for a WHFIT meeting the de minimis test. 
If a WHFIT meets the de minimis test of paragraph (c)(2)(iii) of this 
section regarding sales and dispositions of WHFIT assets, the trustee 
satisfies this safe harbor for WHFITs meeting the de minimis test by 
providing a list of dates (from earliest to latest) on which WHFIT 
assets were sold or disposed of during the calendar year and by 
including for each date identified, the total amount of trust sale 
proceeds per unit interest received by the WHFIT for all sales or 
dispositions of WHFIT assets on that date.
    (B) Safe harbor for WHFIT not meeting the de minimis test-- If a 
WHFIT does not meet the de minimis test under paragraph (c)(2)(iii) of 
this section regarding sales and dispositions of trust assets, the 
trustee satisfies this safe harbor for WHFITs not meeting the de 
minimis test by providing--
    (1) A list of dates (from earliest to latest) on which sales or 
dispositions of WHFIT assets occurred during the calendar year and by 
providing for each date identified--
    (i) The trust sales proceeds received by the trust, per unit 
interest, with respect to the sales and dispositions, on that date;
    (ii) The portion of all assets (expressed as a percentage) held by 
the WHFIT that the assets sold or disposed of on that date represented.
    (2) Determination of the portion of all assets held by the WHFIT 
that the assets sold or disposed of represented--
    (i) If a WHFIT terminates within twenty four months of the start-up 
date of the WHFIT, the portion of the total fair market value of all 
assets held by the WHFIT that the assets sold or disposed of 
represented shall be based on the fair market value of the WHFIT's 
assets as of the start-up date; or
    (ii) If a WHFIT terminates more than twenty four months after the 
start-up date of the WHFIT, the portion of the total fair market value 
of all assets held by the WHFIT that the assets sold or disposed of 
represented shall be based on the fair market value of the WHFIT's 
assets as of the date of the sale or disposition.
    (v) Safe harbor for reporting redemptions and sales of unit 
interests on a secondary market--(A) Redemptions. For each date on 
which the redemption price of a unit interest is determined, the 
trustee must provide--
    (1) The gross proceeds paid on redemption on a unit interest on 
that date; and
    (2) The distribution paid on redemption of a unit interest on that 
date.
    (B) Sale of a unit interest on a secondary market. For each day of 
the calendar year, the trustee must provide the amount of a 
distribution a unit interest holder would be entitled to with respect 
to a unit interest had the amount of a distribution been determined on 
that date.
    (2) Use of information provided by trustees under safe harbors. If 
a trustee reports a WHFIT item in accordance with a safe harbor 
described in paragraph (f)(1) of this section, then the information 
provided with respect to that item on the Forms 1099 required under 
paragraph (d) of this section and on the statement required to be 
furnished under paragraph (e) of this section must be determined as 
provided in this paragraph (f)(2).

[[Page 41905]]

    (i) Use of information provided in accordance with the safe harbor 
for reporting WHFIT income and expense. If a trustee determines WHFIT 
income and expenses under paragraph (f)(1)(ii) of this section, then 
the trustee or middleman must determine the amount of each type of 
income and expense attributable to a unit interest holder as follows--
    (A) Step one: Determine the total amount of WHFIT distributions 
attributable to the unit interest holder. To determine the total amount 
of WHFIT distributions attributable to a unit interest holder, the 
amount paid to the unit interest holder during the calendar year 
(including amounts paid as the result of redemptions) is--
    (1) Increased by--
    (i) All amounts that would have been distributed during the 
calendar year to the unit interest holder but were reinvested pursuant 
to a reinvestment plan (unless another person (for example, the 
custodian of the reinvestment plan) is responsible for reporting these 
amounts under paragraph (d) of this section);
    (ii) An amount equal to the current year-end cash allocation factor 
(provided by the trustee in accordance with paragraph (f)(1)(ii)(C)(1) 
of this section) multiplied by the number of unit interests held by the 
unit interest holder as of December 31; and
    (iii) The amount of a distribution the unit interest holder would 
be entitled to had the amount of a distribution been determined on the 
date the unit interest holder sold a unit interest or interests on a 
secondary market established for the WHFIT. See paragraph (f)(1)(v)(B) 
of this section.
    (2) Decreased by--
    (i) An amount equal to the prior year cash allocation factor 
(provided by the trustee in accordance with paragraph (f)(1)(ii)(C)(2) 
of this section) multiplied by the number of unit interests held by the 
unit interest holder on the date of the distribution;
    (ii) An amount equal to all gross proceeds paid on redemption of a 
unit interest to the unit interest holder for the calendar year; and
    (iii) The amount of any distribution received by a unit interest 
holder during the calendar year with respect to a unit interest 
acquired on the secondary market established for the WHFIT that is 
attributable to another unit interest holder under paragraph 
(f)(2)(i)(A)(1)(iii) of this section.
    (3) Rules applicable to this paragraph (f)(2)(i)--(i) Treatment of 
in-kind distributions under this paragraph (f)(2)(i). The value of the 
assets distributed to a unit interest holder as a result of a pro-rata 
in-kind redemption are not included in the amount paid to the unit 
interest holder or the gross proceeds paid on redemption of a unit 
interest for purposes of this paragraph (f)(2)(i).
    (ii) The total amount of distributions attributable to a unit 
interest holder calculated under this paragraph (f)(2)(i)(A) equals 
zero or less. If the total amount of distributions attributable to a 
unit interest holder, calculated under this paragraph (f)(2)(i)(A), 
equals zero or less, the middleman or trustee may not report the income 
and expense attributable to the unit interest holder under this 
paragraph (f)(2)(i). The middleman or trustee must request additional 
information from the trustee of the WHFIT to enable the trustee and 
middleman to determine with reasonable accuracy the items of income and 
expense that are attributable to the unit interest holder.
    (B) Step two: Apply the factors provided by the trustee to 
determine the items of income and expense that are attributable to the 
unit interest holder. The amount of each type of income (other than 
OID) and each type of expense attributable to a unit interest holder is 
determined as follows--
    (1) Application of income factors. For each income factor provided 
by the trustee for the calendar year, the trustee or middleman 
multiplies--
    (i) The income factor; by
    (ii) The total amount of WHFIT distributions attributable to the 
unit interest holder for the calendar year (as determined in paragraph 
(f)(2)(i)(A) of this section).
    (2) Application of expense factors. For each expense factor 
provided by the trustee for the calendar year, the trustee or middleman 
multiplies--
    (i) The expense factor; by
    (ii) The total amount of WHFIT distributions attributable to the 
unit interest holder for the calendar year (as determined in paragraph 
(f)(2)(i)(A) of this section).
    (ii) Use of safe harbor for reporting OID. With respect to each 
reporting period any day of which is in the calendar year, the amount 
of OID that is allocable to each unit interest held by a unit interest 
holder is determined by multiplying--
    (A) The product of the OID factor and the original principal 
balance of the unit interest divided by 1,000; by
    (B) The number of days during the OID reporting period in that 
calendar year that the unit interest holder held the unit interest.
    (iii) Use of safe harbor for reporting information with respect to 
sales or dispositions--(A) In general--(1) Information reported on Form 
1099. A trustee or middleman preparing a Form 1099 need provide only 
the amount of trust sales proceeds (as determined under paragraph 
(f)(2)(iii)(B) of this section) that are attributable to a unit 
interest holder for the calendar year. See paragraph (d)(2)(ii)(D) of 
this section.
    (2) Information provided on statement furnished to unit interest 
holder--(i) Information for WHFITs meeting the de minimis test. If a 
WHFIT meets the de minimis test of paragraph (c)(2)(iii) of this 
section, the written statement required to be furnished to the unit 
interest holder under paragraph (e) of this section need provide to the 
unit interest holder only the amount of trust sale proceeds (as 
determined under paragraph (f)(2)(iii)(B) of this section) that are 
attributable to the unit interest holder for the calendar year.
    (ii) Information for WHFITs not meeting the de minimis test. If a 
WHFIT does not meet the de minimis test in paragraph (c)(2)(iii) of 
this section, the written statement required to be furnished to the 
unit interest holder under paragraph (e) of this section must include a 
list of dates (in order, from earliest to latest) on which sales or 
dispositions of trust assets occurred during the calendar year and by 
providing for each date identified--
    (A) The trust sales proceeds received by the trust with respect to 
the sales or dispositions of trust assets on that date that are 
attributable to the unit interest holder; and
    (B) The information provided by the trustee under paragraph 
(f)(1)(iv)(B)(2) of this section regarding the portion of all assets 
(expressed as a percentage) held by the WHFIT that the assets sold or 
disposed of on that date represented.
    (B) Determining the trust sales proceeds that are attributable to 
the unit interest holder for the calendar year. To determine the trust 
sale proceeds attributable to a unit interest holder for the calendar 
year, the aggregate trust sale proceeds, per unit interest, received by 
the WHFIT on each date on which trust assets were sold or disposed of 
is multiplied by the number of unit interests held by the unit interest 
holder on that date and aggregated for the year.
    (3) Example of use of safe harbors. The following example 
illustrates the use of the safe harbor factors in this paragraph (f) to 
calculate and provide WHFIT information:

    Example-- (i) Facts--(A) In general--(1) Trust is a WHFIT that 
holds common stock in ten different corporations and has 100 unit 
interests outstanding. The agreement governing Trust requires Trust 
to distribute the cash held by Trust reduced by accrued but unpaid 
expenses on April 15, July 15,

[[Page 41906]]

and October 15 of the 2004 calendar year. The agreement also 
provides that the unit interests will be redeemed by Trust for an 
amount equal to the value of the unit interest, as of the close of 
business, on the day that the unit interest is tendered for 
redemption. There is no reinvestment plan and there is no secondary 
market for sales of trust interests.
    (2) Broker holds ten unit interests in Trust in street name for 
each of J and S. J and S are individual, cash basis taxpayers.
    (3) As of December 31, 2003, Trust holds $12x for distribution 
to unit interest holders on the next distribution date and has no 
accrued but unpaid expenses. Trustee includes the $12x in 
determining the year-end cash allocation factor for December 31, 
2003.
    (B) Trust events occurring during the 2004 calendar year--(1) 
During 2004, Trust receives $588x in dividend income and $12x in 
interest income from investment of WHFIT funds pending distribution 
to unit interest holders, and pays $45x in expenses, all of which 
are affected expenses.
    (2) Trust makes all three of its required distributions. On 
April 15, Trust distributes $135x which includes the $12x included 
in determining the year-end cash allocation factor for December 31 
of the prior year. On July 15, Trust distributes $135x. On October 
15, Trust distributes $123x.
    (3) On December 10, J tenders one of J's unit interests to 
Trustee for redemption. Trustee determines that the redemption price 
of a unit interest on December 10 is $116x, of which, $115x 
represents the gross proceeds paid on redemption of a unit interest 
and $1x represents a distribution paid on redemption of a unit 
interest.
    (4) On December 12, Trustee sells shares of common stock for 
$115x. The $115x represents less than five percent of the aggregate 
fair market value of the common stock held by Trust as of January 1. 
On December 17, Trustee pays $116x to Broker on J's behalf for the 
redemption of the unit interest. J is the only unit interest holder 
to redeem a unit interest during the calendar year.
    (5) As of December 31, Trust holds cash of $173x and has 
incurred $15x in expenses that Trust has not paid.
    (C) Broker's actions during the 2004 calendar year. During 2004, 
Broker credits the accounts of both J and S with their respective 
shares of the distributions made by Trust. Specifically, Broker 
credits each account with $13.50 x  for the April 15 distribution, 
$13.50 x  for the July 15 distribution and $12.30 x  for the October 
15 distribution. In addition, Broker credits J's account with 
$116 x  for J's redemption of the unit interest. Consequently, as of 
December 31, Broker has credited $155.30 x  to J's account and 
$39.30 x  to S's account.
    (ii) Trustee reporting--(A) Trustee is within the safe harbors 
of this paragraph (f)(1) if Trustee provides the following 
information to requesting persons--

Factor for dividend income................................        1.0889
Factor for interest income................................         .0222
Factor for affected expenses..............................         .0833
Current year-end cash allocation factor...................        1.5960
Prior year cash allocation factor.........................         .1200
Gross proceeds paid on redemption of a unit interest as of      115
 12/10/04.................................................
Distribution paid on redemption of a unit interest as of          1
 12/10/04.................................................
Trust sales proceeds per unit interest for 12/12/04.......        1.1616
 

    (B) Trustee determines this information as follows--
    (1) Step one: Trustee determines the total amount of WHFIT 
distributions for the calendar year. The total amount of WHFIT 
distributions (actual and deemed) for the calendar year for purposes 
of determining the safe harbor factors is $540x. This amount 
consists of the amounts paid on each scheduled distribution date 
during the calendar year ($135x, $135x, and $123x), and the total 
amount paid to J as a result of J's redemption of a unit interest 
($116x) ($135x + $135x + $123x + $116x = $509x)--
    (i) Increased by all cash held for distribution to unit interest 
holders as of December 31, 2004 ($158x), which is the cash held as 
of December 31, 2004 ($173x) reduced by the accrued but unpaid 
expenses as of December 31, 2004 ($15x), and
    (ii) Decreased by --
    (A) All amounts distributed during the calendar year but 
included in the year-end cash allocation factor from a prior year 
($12x); and
    (B) All gross proceeds paid on redemption of a unit interest for 
the calendar year ($115x).
    (2) Step two: Trustee determines factors that express the ratio 
of WHFIT income (other than OID) and expenses to the total amount of 
WHFIT distributions. Trustee determines the factors for each type of 
income earned by Trust and each type of expense as follows--
    (i) Factor for dividend income. The factor for dividend income 
is 1.0889 which represents the ratio of--
    (A) The gross amount of dividends ($588x); divided by
    (B) The total amount of WHFIT distributions for the calendar 
year ($540x).
    (ii) Factor for interest income. The factor for interest income 
is .0222, which represents the ratio of--
    (A) The gross amount of other income ($12x); divided by
    (B) The total amount of WHFIT distributions for the calendar 
year ($540x).
    (iii) Expense Factor. The factor for affected expenses is .0833 
which represents the ratio of--
    (A) The gross amount of affected expenses paid by Trust for the 
calendar year ($45x); divided by
    (B) The total amount of WHFIT distributions for the calendar 
year ($540).
    (3) Step three: Trustee determines adjustments for reconciling 
the total amount of WHFIT distributions with amounts paid to unit 
interest holders. To enable requesting persons to determine the 
total amount of WHFIT distributions that are attributable to a unit 
interest holder based on amounts actually paid to the unit interest 
holder, the trustee must provide both a current year-end cash 
allocation factor and a prior year cash allocation factor.
    (i) Current year-end cash allocation factor. The adjustment 
factor for cash held by Trust at year end is 1.5960 which 
represents--
    (A) The cash held for distribution as of December 31, 2004 
($158x) (the amount of cash held by Trust on December 31, 2004 
($173x) reduced by accrued but unpaid expenses ($15x)); divided by
    (B) The number of unit interests outstanding at year-end, (99).
    (ii) Prior Year Cash Allocation Factor. The adjustment factor 
for distributions of year-end cash from the prior year is .1200 
which represents--
    (A) The amount of the distribution during the current calendar 
year that was included in a year-end cash allocation factor for a 
prior year ($12x); divided by
    (B) The number of units outstanding at the time of the 
distribution, (100).
    (4) Trust sales proceeds information. To satisfy the safe 
harbor, Trustee provides a list of dates on which trust assets were 
sold during the calendar year, and the amount of trust sales 
proceeds received as the result of the sale or disposition, per unit 
interest. In this case, only one sale took place during the calendar 
year, on December 12, 2004, and the amount of trust sale proceeds 
received per unit interest on that date is $1.1616 ($115x/99).
    (iii) Broker's use of information provided by Trustee--(A) 
Broker uses the information furnished by Trustee under the safe 
harbors to determine that the following items are attributable to J 
and S--

With respect to J:
  Dividend Income...........................................     $58.21x
  Interest Income...........................................       1.19x
  Affected Expenses.........................................       4.45x
  Trust sale proceeds.......................................      10.45x
  Gross proceeds paid on redemption of a unit interest......     115.00x
With respect to S:
  Dividend Income...........................................     $58.87x
  Interest Income...........................................       1.20x
  Affected Expenses.........................................       4.50x
  Trust sale proceeds.......................................      11.62x
 

    (B) Broker determines this information as follows--
    (1) Step one: Broker determines the total amount of WHFIT 
distributions attributable to J and S. The total amount of WHFIT 
distributions attributable to J is $53.46x and the total amount of 
WHFIT distributions attributable to S is $54.06. These amounts

[[Page 41907]]

represent the total amount paid to J ($155.30x) and S ($39.30x)--
    (i) Increased by an amount equal to the current year-end cash 
allocation factor (1.5960) multiplied by the number of unit 
interests held by J (9) and S (10) as of December 31, 2004, that is 
for J, $14.36x; and for S, $15.96x;
    (ii) Decreased by--
    (A) An amount equal to the prior year cash allocation factor 
(.1200) multiplied by the number of unit interests held by J (10) 
and S (10) at the time of the distribution, that is for J and S, 
$1.20x, each;
    (B) An amount equal to all gross proceeds paid on redemption of 
a unit interest to the unit interest holder for the calendar year, 
or that is, for J ($115x).
    (2) Step two: Broker applies the factors provided by Trustee to 
determine the Trust's income and expenses that are attributable to J 
and S. The amounts of each type of income (other than OID) and 
expense that are attributable to J and S are determined by 
multiplying the factor for that type of income or expense by the 
total amount of WHFIT distributions attributable to J and S as 
follows--
    (i) Application of factor for dividends. The amount of dividend 
income attributable to J is $58.21x and the amount of dividend 
income attributable to S is $58.87x. Broker determines these amounts 
by multiplying the total amount of WHFIT distributions attributable 
to J and to S ($53.46x and $54.06x, respectively) by the factor for 
dividends (1.0889).
    (ii) Application of factor for interest income. The amount of 
interest income attributable to J is $1.19x and the amount of 
interest income attributable to S is $1.20x. Broker determines these 
amounts by multiplying the total amount of WHFIT distributions 
attributable to J and to S ($53.46x and $54.06x, respectively) by 
the factor for interest (.0222).
    (iii) Application of factor for affected expenses. The amount of 
affected expenses attributable to J is $4.45x and the amount of 
affected expenses attributable to S is $4.50x. Broker determines 
these amounts by multiplying the total amount of WHFIT distributions 
attributable to J and to S ($53.46x and $54.06x, respectively) by 
the factor for affected expenses (.0833).
    (3) Broker determines the amount of trust sale proceeds 
attributable to J and S. The amount of trust sale proceeds 
attributable to J is $10.45x and the amount of trust sale proceeds 
attributable to S is $11.61x. Broker determines these amounts by 
multiplying the number of unit interests held by J (9) and by S (10) 
on the date of sale, December 12, 2004, by the trust sale proceeds 
per unit interest on that date (1.1616). J also recognizes gain or 
loss on J's redemption of a unit interest on December 10, 2004 based 
on the amount of gross proceeds paid on redemption of a unit 
interest ($115x) and J's basis in the redeemed unit interest.

    (g) Safe Harbor for certain WHMTs--(1) Safe harbors for trustee 
reporting of trust information--(i) In general. A trustee of a WHMT 
that meets the requirements of paragraph (g)(1)(ii) of this section and 
that reports a WHMT item or items under the safe harbor established for 
it in this paragraph (g)(1) is deemed to provide and calculate the WHMT 
item or items in accordance with the rules of paragraph (c)(1)(i) of 
this section. Any item reported under a safe harbor in this paragraph 
(g)(1) must include a statement giving notice to that effect when 
providing information to a requesting person.
    (ii) Requirements for use of safe harbors. To use the safe harbors 
provided under this paragraph (g)(1), a WHMT must meet the following 
requirements--
    (A) The WHMT must meet the de minimis sales and dispositions test 
under paragraph (c)(2)(iii) of this section;
    (B) All sales and dispositions made by the WHMT during the calendar 
year must be for an amount equal to the unpaid principal balance plus 
the accrued but unpaid interest of the mortgage at the time of the sale 
or disposition;
    (C) The trust must make monthly distributions of income and 
principal to unit interest holders;
    (D) All unit interests in the WHMT must represent the right to 
receive pro-rata shares of both the income and the principal payments 
received by the WHMT on the mortgages it holds;
    (E) The WHMT must report under this paragraph (g)(1)(ii) for the 
entire calendar year; and
    (F) The assets of the WHMT are limited to--
    (1) Mortgages with uniform characteristics;
    (2) Amounts received on mortgages and held for distribution to unit 
interest holders; and
    (3) Reasonably required reserve funds.
    (G) The aggregate outstanding principal balance as defined in 
paragraph (g)(1)(iii)(D) of this section as of the WHMT's start-up date 
must equal the aggregate of the original face amounts of all issued 
unit interests.
    (iii) Safe harbor for reporting WHMT income, expenses, principal 
receipts, and sales and dispositions of mortgages. A trustee satisfies 
this safe harbor for providing information with respect to income, 
expense, principal receipts, and sales and dispositions by complying 
with each step of the safe harbor provided in this paragraph 
(g)(1)(iii).
    (A) Step one: Trustee determines monthly pool factors that provide 
information regarding the WHMT's receipt of principal payments and the 
WHMT's receipt of proceeds from sales and dispositions of mortgages. 
The trustee must, for each month of the calendar year and for January 
of the following calendar year, calculate and provide the ratio 
(expressed as a decimal carried to at least eight places and called a 
pool factor) of--
    (1) The amount that represents the aggregate outstanding principal 
balance of the WHMT as of the first business day of the month; divided 
by
    (2) The amount that represents the aggregate outstanding principal 
balance of the WHMT as of the start-up day.
    (B) Step two: Trustee determines monthly expense factors that 
provide information regarding WHMT expenses. For each month of the 
calendar year and for each type of expense paid by the WHMT during that 
month, the trustee calculates and provides the ratio (expressed as a 
decimal carried to at least eight places and called an expense factor) 
of--
    (1) The gross amount, for the month, of each type of expense; 
divided by
    (2) The amount that represents the aggregate outstanding principal 
balance of the WHMT as of the start-up day, divided by 1,000.
    (C) Step three: Trustee determines monthly income factors that 
provide information regarding the trust's gross monthly income. For 
each month of the calendar year and for each type of gross income 
earned by the WHMT during that month, the trustee calculates and 
provides the ratio (expressed as a decimal carried to at least eight 
places and called an income factor) of--
    (1) The gross amount, for the month, of each type of income; 
divided by
    (2) The amount that represents the aggregate outstanding principal 
balance of the WHMT as of the start-up date, divided by 1,000.
    (D) Definition of aggregate outstanding principal balance. For 
purposes of this paragraph (g)(1)(iii), the amount of the aggregate 
outstanding principal balance of a WHMT is the aggregate of--
    (1) The outstanding principal balance of all mortgages held by the 
WHMT;
    (2) The amounts received on mortgages and held for distribution by 
the WHMT; and
    (3) The amount of the reserve fund.
    (iv) Safe harbor for reporting OID information--(A) Safe harbor for 
reporting OID prior to the issuance of final regulations under section 
1272(a)(6)(C)(iii). With respect to information regarding OID, the 
trustee, prior to the issuance of final regulations under section 
1272(a)(6)(C)(iii), may satisfy paragraph (c)(1)(i) of this section by 
providing, for each reporting period during the calendar year, the 
aggregate daily accrual of OID per $1,000 of aggregate outstanding 
principal balance as of the start-up day. In calculating the

[[Page 41908]]

aggregate daily accrual of OID per unit interest, the trustee must use 
a method that utilizes the prepayment assumption used in pricing the 
original issue of unit interests.
    (B) Safe harbor for reporting OID after the issuance of final 
regulations under section 1272(a)(6)(C)(iii). [Reserved]
    (v) Safe Harbor for reporting market discount information--(A) Safe 
harbor for reporting market discount information prior to the issuance 
of final regulations under sections 1272(a)(6)(C)(iii) and 1276(b)(3). 
With respect to information regarding market discount, the trustee, 
prior to the issuance of final regulations under sections 
1272(a)(6)(C)(iii) and 1276(b)(3), may satisfy the requirements of 
paragraph (c)(1)(i) of this section by providing--
    (1) In the case of a WHMT holding mortgages issued with OID, the 
ratio (expressed as a decimal carried to at least eight places) of--
    (i) The OID accrued during the reporting period calculated in 
accordance with paragraph (g)(1)(iv) of this section; divided by
    (ii) The total remaining OID as of the beginning of the reporting 
period as determined under paragraph (g)(1)(v)(A)(3) of this section; 
or
    (2) In the case of a WHMT holding mortgages not issued with OID, 
the ratio (expressed as a decimal carried to at least eight places) 
of--
    (i) The amount of stated interest paid to the WHMT during the 
reporting period; divided by
    (ii) The total amount of stated interest remaining to be paid to 
the WHMT as of the beginning of the reporting period as determined 
under paragraph (g)(1)(v)(A)(3) of this section.
    (3) Computing the total amount of stated interest remaining to be 
paid and the total remaining OID at the beginning of a period. To 
compute the total amount of stated interest remaining to be paid to the 
WHMT as of the beginning of the reporting period and the total 
remaining OID as of the beginning of the reporting period, the trustee 
must use a method that utilizes the prepayment assumption used in 
pricing the original issue of unit interests.
    (B) Safe harbor for reporting market discount information following 
the issuance of final regulations under sections 1272(a)(6)(C)(iii) and 
1276(b)(3). [Reserved]
    (vi) Safe harbor for reporting premium information. [Reserved]
    (2) Use of information provided by a trustee under the safe harbor. 
If a trustee reports an item in accordance with a safe harbor described 
in paragraph (g)(1) of this section, then the information provided, 
with respect to that WHMT item, on the Forms 1099 required to be filed 
with the IRS under paragraph (d) of this section and on the statement 
required to be furnished to the unit interest holder under paragraph 
(e) of this section must be determined as provided in this paragraph 
(g)(2).
    (i) Use of information provided in accordance with the safe harbor 
for reporting WHMT income, expenses, receipt of principal payments, and 
sales and dispositions of mortgages. The amount of each type of income 
and expense, principal payments, and proceeds from sales and 
dispositions of mortgages that are attributable to a unit interest 
holder for each month of the calendar year is computed as follows:
    (A) Step one: Determine the monthly amount of principal receipts 
and the amount of proceeds from the sales and dispositions of mortgages 
that are attributable to each unit interest--(1) Use of factor. For 
each month of the calendar year that a unit interest was held on the 
record date, the amount of principal receipts and the amount of 
proceeds from sales and dispositions of mortgages that are attributable 
to each unit interest is determined by multiplying--
    (i) The original face amount of the unit interest; by
    (ii) The difference between the pool factor for the current month 
and the pool factor for the following month.
    (2) Reporting of principal receipts and proceeds from sales and 
dispositions of mortgages. The aggregate of the amount of principal 
receipts and proceeds from sales and dispositions of mortgages that are 
attributable to each unit interest for the calendar year are reported 
to the IRS on Form 1099 as trust sales proceeds.
    (B) Step two: Apply the expense factors provided by the trustee to 
determine the amount of each type of expense that is attributable to 
each unit interest. For each month of the calendar year that a unit 
interest was held on the record date, the amount of each type of 
expense that is attributable to each unit interest is determined by 
multiplying--
    (1) The original face amount of the unit interest divided by 1000; 
by
    (2) The expense factor for that month and that type of expense.
    (C) Step three: Apply the income factors provided by the trustee to 
determine the amount of each type of income that is attributable to 
each unit interest. For each month of the calendar year that a unit 
interest was held on the record date, the amount of each type of income 
that is attributable to each unit interest is determined by 
multiplying--
    (1) The original face amount of the unit interest divided by 1000; 
by
    (2) The income factor for that month and that type of income.
    (D) Definitions for this paragraph (g)(2)(i). For purposes of this 
paragraph (g)(2)(i)--
    (1) The record date is the date used by the WHMT to determine the 
owner of the unit interest for the purpose of distributing the payment 
for the month.
    (2) The original face amount of the unit interest is the original 
principal amount of a unit interest on its issue date.
    (ii) Use of OID factor to determine the OID attributable to a unit 
interest holder. With respect to each OID reporting period, the amount 
of OID that is attributable to each unit interest held by a unit 
interest holder is determined by multiplying--
    (A) The product of the OID factor by the original face amount of 
the unit interest divided by 1,000; by
    (B) The number of days during the OID reporting period that the 
unit interest holder held the unit interest.
    (iii) Requirement to provide market discount information. The 
market discount information provided by the trustee in accordance with 
paragraph (g)(1)(v) of this section must be provided to the unit 
interest holder in, or with, the written statement required to be 
furnished to the unit interest holder under paragraph (e) of this 
section.
    (iv) Requirement to provide premium information. [Reserved]
    (3) Example of safe harbor. The following example illustrates the 
use of the safe harbor factors in paragraphs (g)(1) and (2) of this 
section to calculate and provide trust information:

    Example.  (i) Facts--(A) In general. X is a WHMT. As of January 
1, 2004, X's assets consist of 100 15-year mortgages, each having an 
unpaid principal balance of $125,000 and a fixed, annual interest 
rate of 7.25 percent. X's unit interest holders are entitled to 
monthly, pro-rata distributions of the principal payments received 
by X. X's unit interest holders are also entitled to monthly, pro-
rata distributions of the interest earned on the mortgages held by 
X, reduced by expenses. Unit interests are issued in increments of 
$5,000 with a $25,000 minimum. Broker holds a unit interest in X, 
with an original face amount of $25,000, in street name, for J 
during the entire 2004 calendar year.
    (B) Trust events during the 2004 calendar year. During the 2004 
calendar year, X collects all interest and principal payments when 
due and makes all monthly distributions when due. One mortgage is 
repurchased from X in July for $122,249, the mortgage's unpaid 
principal balance interest at the time. During November, another 
mortgage is prepaid in full. X earns $80 interest income each month 
from the

[[Page 41909]]

temporary investment of X's funds pending distribution to the unit 
interest holders. All of X's expenses are affected expenses. The 
aggregate outstanding principal balance of X, X's interest income, 
and X's expenses, for each month of the 2004 calendar year are as 
follows:

----------------------------------------------------------------------------------------------------------------
                                                                     Principal
                              Month                                   balance         Income         Expenses
----------------------------------------------------------------------------------------------------------------
January.........................................................      12,500,000          75,601           5,288
February........................................................      12,461,413          75,368           5,273
March...........................................................      12,422,593          75,133           5,256
April...........................................................      12,383,538          74,897           5,240
May.............................................................      12,344,247          74,660           5,244
June............................................................      12,304,719          74,421           5,207
July............................................................      12,264,953          74,181           5,191
August..........................................................      12,102,696          73,200           5,122
September.......................................................      12,062,850          72,960           5,106
October.........................................................      12,022,763          72,717           5,089
November........................................................      11,982,433          72,474           5,073
December........................................................      11,821,235          71,500           5,006
January.........................................................      11,780,829  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    (ii) Trustee reporting--(A) Trustee, X's fiduciary, comes within 
the safe harbors of paragraph (g)(1)(iii) of this section by providing 
the following information to requesting persons:

----------------------------------------------------------------------------------------------------------------
                                                                                                      Expense
                              Month                                Pool  factor   Income  factor      factor
----------------------------------------------------------------------------------------------------------------
January.........................................................      1.00000000      6.04808000       .42304000
February........................................................       .99691304      6.02944000       .42184000
March...........................................................       .99380744      6.01064000       .42048000
April...........................................................       .99068304      5.99176000       .41920000
May.............................................................       .98753976      5.97280000       .41952000
June............................................................       .98437752      5.95368000       .41656000
July............................................................       .98119624      5.93448000       .41528000
August..........................................................       .96821568      5.85600000       .40976000
September.......................................................       .96502800      5.83680000       .40848000
October.........................................................       .96182104      5.81736000       .40712000
November........................................................       .95859464      5.79792000       .40584000
December........................................................       .94569880      5.72000000       .40048000
January.........................................................       .94246632  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    (B) Trustee determines this information as follows:
    (1) Step one: Trustee determines monthly pool factors that provide 
information regarding X's receipt of principal payments and X's receipt 
of proceeds from sales and dispositions of mortgages. Trustee 
calculates and provides X's pool factor for each month of the 2004 
calendar year. For the month of January the pool factor is 1.0, which 
represents the ratio of--
    (i) The amount that represents the aggregate outstanding principal 
balance of X (12,500,000) as of the first business day of January; 
divided by
    (ii) The amount that represents the aggregate outstanding principal 
balance of X (12,500,000) as of the start-up day.
    (2) Step two: Trustee determines monthly expense factors that 
provide information regarding X's expenses. Trustee calculates and 
provides the expense factors for each month of the 2004 calendar year. 
During 2004, X has only affected expenses, and therefore, will only 
have one expense factor for each month. The expense factor for the 
month of January is .42304000 which represents the ratio of--
    (i) The gross amount of expenses paid during January by X (5,288); 
divided by
    (ii) The amount that represents the aggregate outstanding principal 
balance of X as of the start-up date (12,500,000) divided by 1,000 
(12,500).
    (3) Step three: Trustee determines monthly income factors that 
provide information regarding X's gross monthly income. Trustee 
calculates and provides the income factors for each month of the 2004 
calendar year. During 2004, X has only interest income, and therefore, 
will only have one income factor for each month. The income factor for 
the month of January is 6.04808000 which represents the ratio of--
    (i) The gross amount of interest income earned by X during January 
($75,601); divided by
    (ii) The amount that represents that aggregate outstanding 
principal balance of X as of the start-up date (12,500,000), divided by 
1,000 (12,500).
    (iii) Broker's use of the information provided by Trustee--(A) 
Broker uses the information provided by Trustee under the safe harbor 
to determine that the following trust items are attributable to J:

----------------------------------------------------------------------------------------------------------------
                                                                                                       Gross
                              Month                                 Trust sale       Affected        interest
                                                                     proceeds        expenses         income
----------------------------------------------------------------------------------------------------------------
January.........................................................          $77.17          $10.58         $151.20
February........................................................           77.64           10.55          150.74
March...........................................................           78.11           10.51          150.27
April...........................................................           78.58           10.48          149.79
May.............................................................           79.06           10.49          149.32

[[Page 41910]]

 
June............................................................           79.53           10.41          148.84
July............................................................          324.51           10.38          148.36
August..........................................................           79.69           10.24          146.40
September.......................................................           80.17           10.21          145.92
October.........................................................           80.66           10.18          145.43
November........................................................          322.40           10.15          144.95
December........................................................           80.81           10.01          143.00
                                                                 -----------------------------------------------
    Total.......................................................         1438.33          124.19         1774.22
----------------------------------------------------------------------------------------------------------------

    (B) Broker determines this information as follows:
    (1) Step one: Broker determines the amount of principal receipts 
and the amount of proceeds from sales and dispositions of mortgages 
that are attributable to J for the 2004 calendar year. Broker 
determines the amount of principal receipts and the amount of proceeds 
from the sales and dispositions of mortgages that are attributable to J 
for each month of the 2004 calendar year. For the month of January, 
Broker determines that the amount of principal receipts and the amount 
of proceeds from the sales and dispositions of mortgages that are 
attributable to J is $77.17. Broker determines this by multiplying the 
original face amount of J's unit interest ($25,000) by .00308696, the 
difference between the pool factor for January (1.00000000), the 
current month, and the pool factor for February (.99691304) the 
following month. Broker reports the aggregate of the monthly amounts of 
principal receipts and amounts of proceeds from sales and dispositions 
that are attributable to J for the 2004 calendar year as trust sales 
proceeds on the Form 1099 filed with the IRS.
    (2) Step two: Broker applies the expense factors provided by 
Trustee to determine the amount of expenses that are attributable to J 
for the 2004 calendar year. Broker determines the amount of X's 
expenses that are attributable to J for each month of the 2004 calendar 
year. For the month of January, Broker determines that the amount of 
expenses attributable to J is $10.58. Broker determines this by 
multiplying the original face amount of J's unit interest (25,000) 
divided by 1,000 (25) by the expense factor for January (.42304000). 
Broker determines the expenses that are attributable to J for the 2004 
calendar year by aggregating the monthly amounts.
    (3) Step three: Broker applies the income factors provided by 
Trustee to determine the amount of gross interest income attributable 
to J for the 2004 calendar year. Broker determines the amount of gross 
interest income that is attributable to J for each month of the 2004 
calendar year. For the month of January, Broker determines that the 
amount of gross interest income attributable to J is $151.20. Broker 
determines this by multiplying the original face amount of J's unit 
interest (25,000) divided by 1,000 (25), by the income factor for 
January (6.04808000). Broker determines the amount of the gross 
interest income that is attributable to J for the 2004 calendar year by 
aggregating the monthly amounts.

    (h) Requirement that middlemen furnish information to exempt 
recipients and noncalendar-year taxpayers--(1) In general. A middleman 
that holds a unit interest on behalf of, or for the account of, any 
exempt recipient listed in paragraph (j)(2) of this section and any 
noncalendar-year unit interest holder must provide to such exempt 
recipient or noncalendar-year unit interest holder, upon request, the 
information provided by the trustee to the middleman under paragraph 
(c) of this section.
    (2) Time and manner of providing information. The middleman must 
provide the requested information in writing to any such requester on 
or before the later of the 44th day after the close of the reporting 
period for which the information was requested, or the day that is 28 
days after the receipt of the request. A middleman must provide 
information with respect to a WHFIT holding an interest in another 
WHFIT or a WHFIT holding an interest in a REMIC on or before the later 
of the 58th day after the close of the reporting period for which the 
information was requested, or the day that is 42 days after the receipt 
of the request.
    (3) Clearing organization. A clearing organization described in 
Sec. 1.163-5(c)(2)(i)(D)(8) is not required to furnish information to 
exempt recipients or non-calendar-year taxpayers under this paragraph.
    (i) [Reserved]
    (j) Exempt recipients--(1) Requirement that exempt recipient 
include accurate trust information in computing taxable income. Under 
this Sec. 1.671-5, trustees and middlemen are not required to file 
Forms 1099 with respect to a unit interest holder that is an exempt 
recipient or furnish statements to a unit interest holder that is an 
exempt recipient. An exempt recipient that is a beneficial owner must, 
however, obtain trust information and must include the items of income, 
deduction, and credit of the trust in computing its taxable income and 
credits on its income tax return.
    (2) Exempt recipients defined. For purposes of this section, an 
exempt recipient includes--
    (i) Persons described in Sec. 1.6049-4(c)(1)(ii). Any person 
described in Sec. 1.6049-4(c)(1)(ii) is an exempt recipient.
    (ii) Middlemen. Middlemen, as defined in paragraph (b)(7) of this 
section, are exempt recipients.
    (iii) Real estate mortgage investment conduit. A real estate 
mortgage investment conduit, as defined in section 860D(a), is an 
exempt recipient.
    (iv) A WHFIT. A WHFIT, as defined in paragraph (b)(15) of this 
section, is an exempt recipient.
    (v) Certain trusts and estates. A trust or an estate for which the 
trustee or middleman of the WHFIT is also required to file a Form 1041, 
``U.S. Income Tax Return for Estates and Trusts,'' in its capacity as a 
fiduciary of that trust or estate is an exempt recipient.
    (k) Coordination with information reporting rules under subpart B, 
part III, subchapter A, chapter 61 of the Internal Revenue Code 
(Information Returns Concerning Transactions With Other Persons). In 
general, in cases where reporting is required for a WHFIT under both 
this Sec. 1.671-5 and under subpart B, part III, subchapter A, chapter 
61 of the Internal Revenue Code (Sections 6041 through 6050S) 
(Information Reporting Sections), the reporting rules for WHFITs under 
this Sec. 1.671-5 control. The provisions of the Information Reporting 
Sections and the regulations thereunder are incorporated into this 
Sec. 1.671-5 as applicable, except that

[[Page 41911]]

those rules do not apply to the extent that they are inconsistent with 
the provisions of this Sec. 1.671-5.
    (l) Backup withholding requirements. Every trustee and middleman 
required to file a Form 1099 under this section Sec. 1.671-5 is a payor 
within the meaning of Sec. 31.3406(a)-2 of this chapter, and must 
backup withhold as required under section 3406 and any regulations 
thereunder.
    (m) Penalties for failure to comply. Every trustee and middleman 
who fails to comply with the reporting obligations imposed by this 
Sec. 1.671-5 is subject to penalties under sections 6721, 6722, and any 
other applicable penalty provisions.
    (n) Effective date. These regulations are applicable beginning 
January 1, 2004.
    4. Section 1.6041-9 is added to read as follows:


Sec. 1.6041-9  Coordination with reporting rules for widely held fixed 
investment trusts under Sec. 1.671-5.

    See Sec. 1.671-5 for the reporting rules for widely held fixed 
investment trusts as defined under that section. For purposes of 
section 6041, middlemen and trustees of widely held fixed investment 
trust are deemed to have management and oversight functions in 
connection with payments made by the widely held fixed investment 
trust.
    5. Section 1.6042-5 is added to read as follows:


Sec. 1.6042-5  Coordination with reporting rules for widely held fixed 
investment trusts under Sec. 1.671-5.

    See Sec. 1.671-5 for the reporting rules for widely held fixed 
investment trusts as defined under that section.
    6. Section 1.6045-1 is amended by adding paragraph (d)(7) to read 
as follows:


Sec. 1.6045-1  Returns of information of brokers and barter exchanges.

* * * * *
    (d) * * *
    (7) Coordination with reporting rules for widely held fixed 
investment trusts under Sec. 1.671-5. See Sec. 1.671-5 for the 
reporting rules for widely held fixed investment trusts as defined 
under that section.
* * * * *
    7. Section 1.6049-4 is amended by adding paragraph (c)(3) to read 
as follows:


Sec. 1.6049-4  Return of information as to interest paid and original 
issue discount includible in gross income after December 31, 1982.

* * * * *
    (c) * * *
    (3) Coordination with reporting rules for widely held fixed 
investment trusts under Sec. 1.671-5. See Sec. 1.671-5 for the 
reporting rules for widely held fixed investment trusts as defined 
under that section.
* * * * *
    8. In Sec. 1.6049-5, paragraph (a)(6) is revised to read as 
follows:


Sec. 1.6049-5  Interest and original issue discount subject to 
reporting after December 31, 1982.

    (a) * * *
    (6) Interest paid on amounts held by investment companies as 
defined in section 3 of the Investment Company Act (15 U.S.C. section 
80-a) and on amounts paid on pooled funds or trusts. The interest to be 
reported with respect to a widely held fixed investment trust, as 
defined in Sec. 1.671-5(b)(15), shall be the interest earned on the 
assets held by the trust. See Sec. 1.671-5 for the reporting rules for 
widely held fixed investment trusts as defined under that section.
* * * * *
    9. Section 1.6050N-2 is added to read as follows:


Sec. 1.6050N-2  Coordination with reporting rules for widely held fixed 
investment trusts under Sec. 1.671-5.

    See Sec. 1.671-5 for the reporting rules for widely held fixed 
investment trusts as defined under that section.

PART 301--PROCEDURE AND ADMINISTRATION

    10. The authority citation for part 301 continues to read in part 
as follows:

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

    11. Section 301.6109-1 is amended by revising the last sentence of 
paragraph (a)(2)(i) to read as follows:


Sec. 301.6109-1  Identifying numbers.

    (a) * * *
    (2) * * *
    (i) * * * If the trustee has not already obtained a taxpayer 
identification number for the trust, the trustee must obtain a taxpayer 
identification number for the trust as provided in paragraph (d)(2) of 
this section in order to report pursuant to Sec. 1.671-4(a), 
(b)(2)(i)(B), (b)(3)(i), or 1.671-5 of this chapter.
* * * * *

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    12. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    13. In Sec. 602.101, paragraph (b) is amended by adding an entry 
``1.671-5'' in numerical order to the table to read as follows:


Sec. 602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                             Current OMB
    CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                          *    *    *    *    *
1.671-5...................................................     1545-1540
 
                          *    *    *    *    *
------------------------------------------------------------------------


Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 02-15352 Filed 6-19-02; 8:45 am]
BILLING CODE 4830-01-P