[Federal Register Volume 67, Number 222 (Monday, November 18, 2002)]
[Rules and Regulations]
[Pages 69468-69473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-29199]



[[Page 69468]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9022]
RIN 1545-BB40


Information Reporting Relating to Taxable Stock Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations under section 
6043(c) requiring information reporting by a corporation if control of 
the corporation is acquired or if the corporation has a 
recapitalization or other substantial change in capital structure. This 
document also contains temporary regulations under section 6045 
concerning information reporting requirements for brokers with respect 
to transactions described in section 6043(c). The text of these 
temporary regulations also serves as the text of proposed regulations 
set forth in the Proposed Rules section of this issue of the Federal 
Register.

DATES: Effective Date: These regulations are effective November 18, 
2002.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.6043-4T(i) and 1.6045-3T(f).

FOR FURTHER INFORMATION CONTACT: Nancy Rose at (202) 622-4910 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of information contained in these 
regulations has been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget under 
control number 1545-1812. Responses to this collection of information 
are mandatory.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid OMB control number.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.
    Books or records relating to a 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 and Explanation of Provisions

    Section 6043(c) provides that if any person acquires control of a 
corporation, or if there is a recapitalization or other substantial 
change in capital structure of a corporation, the corporation, when 
required by the Secretary, shall make a return setting forth the 
identity of the parties to the transaction, the fees involved, the 
changes in the capital structure involved, and such other information 
as the Secretary may require with respect to such transaction.
    Proposed regulations under section 6043(c) were previously 
published in the Federal Register on July 5, 1990 (55 FR 27648) (the 
1990 proposed regulations). After considering issues raised in public 
comments and the reporting burdens placed on corporate taxpayers under 
the 1990 proposed regulations, the Internal Revenue Service decided to 
withdraw the 1990 proposed regulations on October 16, 1992 (57 FR 
47428). At that time, the IRS stated that the value of the information 
that would be collected under the 1990 proposed regulations did not 
justify the burden to the public in complying with the rules. The IRS 
further stated that it might promulgate regulations under section 
6043(c) if it became apparent that the information would be needed to 
administer the tax system properly.
    At this time, the IRS believes that information reporting under 
section 6043(c) for certain large corporate transactions is 
appropriate. The transactions covered by this reporting requirement are 
acquisitions of control and substantial changes in the capital 
structure of a corporation. The temporary regulations require a 
corporation to attach a form to its income tax return describing these 
transactions, and to file information returns with respect to certain 
shareholders in such transactions. Duplicate reporting is not intended; 
thus, the regulations provide that no reporting is required under this 
section where reporting is required under another section. The text of 
these temporary regulations also serves as the text of the proposed 
regulations set forth in the cross-referencing notice of proposed 
rulemaking published in the proposed rules section of this issue of the 
Federal Register. The preamble to that notice of proposed rulemaking 
invites public comments with respect to the potential for duplicate 
reporting under this section. That preamble also invites comments with 
respect to the burden of compliance with the reporting requirements.
    These temporary regulations require a domestic corporation involved 
in certain large taxable transactions to file form 8806 reporting and 
describing such transactions. The corporation must attach form 8806 to 
its timely filed income tax return. If form 8806 is not available at 
least 90 days prior to the due date (including extensions) of the 
corporation's income tax return for the year in which the acquisition 
of control or the substantial change in capital structure occurs or at 
least 90 days before such return is timely filed (whichever is sooner), 
the regulation allows a corporation to make the report by attaching an 
interim statement to its return containing certain required 
information.
    The temporary regulations define an acquisition of control of a 
corporation as a transaction or series of related transactions in which 
stock representing control of that corporation is distributed by a 
second corporation or in which stock representing control of that 
corporation is acquired (directly or indirectly) by a second 
corporation and the shareholders of the first corporation receive cash, 
stock or other property. For these purposes, control is determined in 
accordance with the first sentence of section 304(c)(1). With certain 
limitations, the constructive ownership rules of section 318(a) apply 
to determine ownership. Acquisitions of control within an affiliated 
group are excepted from this definition, as are acquisitions in which 
the fair market value of the stock acquired in the transaction or 
series of related transactions is less than $100,000,000.
    Under the temporary regulations, a corporation has a substantial 
change in its capital structure if the corporation in a transaction or 
series of related transactions (a) undergoes a recapitalization with 
respect to its stock, (b) redeems its stock, (c) merges, consolidates 
or otherwise combines with another entity or transfers substantially 
all of its assets to one or more entities, (d) transfers all or part of 
its assets to another corporation in a title 11 or similar case and, in 
pursuance of the plan, distributes stock or securities of that 
corporation, or (e)

[[Page 69469]]

changes its identity, form or place of organization. Transactions in 
which the amount of any cash plus the fair market value of any property 
(including stock) provided to shareholders of the corporation is less 
than $100,000,000 are excepted from this definition, as are 
transactions within an affiliated group.
    The temporary regulations also require a domestic corporation 
involved in the specified transactions to issue, with respect to each 
of its shareholders, a form 1099-CAP reporting the amount of any cash 
plus the fair market value of any property (including stock) provided 
to the shareholder in the transaction. Corporations are not required to 
report amounts distributed to certain exempt recipients or the fair 
market value of any stock provided to a shareholder if the corporation 
reasonably determines that the receipt of such stock would not cause 
the shareholder to recognize gain (if any). Further, transactions and 
distributions already reported under other sections are not subject to 
reporting under these regulations.
    Penalties under section 6652(l) may be imposed for failing to file 
required returns under section 6043(c) (including failure to file on 
magnetic media, as required under section 6011(e) and Sec.  1.6011-2). 
The penalty under section 6652(l) is $500 for each day the failure 
continues, but the total amount imposed with respect to a return cannot 
exceed $100,000. The temporary regulations provide that the information 
returns required under these regulations shall be treated as one return 
for purposes of the section 6652(l) penalty, so that the penalty shall 
not exceed $500 per day ($100,000 in total) with respect to any 
acquisition of control or change in capital structure. Further, as 
provided in section 6652(l), such penalty does not apply if the failure 
is due to reasonable cause. Until regulations are promulgated under 
section 6652(l) to set forth specific standards for determining 
reasonable cause, the IRS will use the reasonable cause standards set 
forth in Sec.  301.6724-1 of this chapter as a guideline for 
determining reasonable cause.
    Section 1.6045-3T requires a broker who, as the record holder of 
stock, receives a form 1099-CAP from a corporation pursuant to the 
reporting requirements of Sec.  1.6043-4T, to file a form 1099-CAP with 
respect to the actual owner and furnish such form 1099-CAP to the 
actual owner.
    The temporary regulations are effective only for acquisitions of 
control and substantial changes of capital structure that occur after 
December 31, 2001, and for which the reporting corporation or any 
shareholder is required to recognize gain (if any) as a result of the 
application of section 367(a). The cross-referencing proposed 
regulations published in proposed rules section of this issue of the 
Federal Register will apply to all acquisitions of control and 
substantial changes in capital structure occurring after the date that 
such regulations are published as final regulations (regardless of 
whether section 367(a) applies).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
refer to the Special Analyses section of the preamble to the cross-
referencing notice of proposed rulemaking published in the proposed 
rules section of this issue of the Federal Register. Pursuant to 
section 7805(f) of the Internal Revenue Code, these temporary 
regulations will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
businesses.

Drafting Information

    The principal author of these temporary regulations is Nancy L. 
Rose, Office of Associate Chief Counsel (Procedure and Administration). 
However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

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

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


    Par. 2. Section 1.6043-4T is added to read as follows:


Sec.  1.6043-4T  Information returns relating to certain acquisitions 
of control and changes in capital structure (temporary).

    (a) Information returns for an acquisition of control or a 
substantial change in capital structure--(1) General rule. If there is 
an acquisition of control (as defined in paragraph (c) of this section) 
or a substantial change in the capital structure (as defined in 
paragraph (d) of this section) of a domestic corporation (``reporting 
corporation''), the reporting corporation must file a completed form 
8806 (or any successor form) in accordance with the instructions to 
that form. Form 8806 will request the information required in 
paragraphs (a)(1)(i) through (v) of this section.
    (i) Reporting corporation. Provide the name, address, and taxpayer 
identification number (TIN) of the reporting corporation;
    (ii) Common parent, if any, of the reporting corporation. If the 
reporting corporation was a subsidiary member of an affiliated group 
filing a consolidated return immediately prior to the acquisition of 
control or the substantial change in capital structure, provide the 
name, address, and TIN of the common parent of that affiliated group;
    (iii) Acquiring corporation. Provide the name, address and TIN of 
any corporation that acquired control of the reporting corporation 
within the meaning of paragraph (c) of this section or combined with or 
received assets from the reporting corporation pursuant to a 
substantial change in capital structure within the meaning of paragraph 
(d) of this section (``acquiring corporation''). State whether the 
acquiring corporation is foreign (as defined in section 7701(a)(5)) or 
is a dual resident corporation (as defined in Sec.  1.1503-2(c)(2)). In 
either case, state whether the acquiring corporation was newly formed 
prior to its involvement in the transaction.
    (iv) Common parent, if any, of acquiring corporation. If the 
acquiring corporation named in paragraph (a)(1)(iii) of this section 
was a subsidiary member of an affiliated group filing a consolidated 
return immediately prior to the acquisition of control or the 
substantial change in capital structure, provide the name, address, and 
TIN of the common parent of that affiliated group.
    (v) Information about acquisition of control or substantial change 
in capital structure. Provide--
    (A) A description of the transaction or transactions that gave rise 
to the acquisition of control or the substantial change in capital 
structure of the corporation;

[[Page 69470]]

    (B) The date or dates of the transaction or transactions that gave 
rise to the acquisition of control or the substantial change in capital 
structure;
    (C) A description of and a statement of the fair market value of 
any stock provided to the reporting corporation's shareholders in 
exchange for their stock if the reporting corporation reasonably 
determines that the shareholders are not required to recognize gain (if 
any) from the receipt of such stock for U.S. Federal income tax 
purposes; and
    (D) A statement of the aggregate amount of cash plus the fair 
market value of any property (including stock if the reporting 
corporation reasonably determines that its shareholders would be 
required to recognize gain (if any) on the receipt of such stock, but 
excluding stock described in paragraph (a)(1)(v)(C) of this section) 
provided to the reporting corporation's shareholders in exchange for 
their stock.
    (2) Time for making return. Form 8806 (or an interim statement, as 
set forth in paragraph (a)(3) of this section) must be attached to the 
reporting corporation's timely filed income tax return (taking 
extensions into account) for the year in which the acquisition of 
control or substantial change in capital structure occurs.
    (3) Interim statement. If form 8806 has not been made available at 
least 90 days before the due date (including extensions) of the 
reporting corporation's income tax return for the year in which the 
acquisition of control or substantial change in capital structure 
occurs or at least 90 days before such return is timely filed 
(whichever is sooner), the reporting corporation shall attach a 
statement to its return containing the information described in 
paragraphs (a)(1)(i) through (v) of this section.
    (4) Coordination with other sections. (i) No reporting is required 
under paragraph (a) of this section with respect to a transaction for 
which information is required to be filed pursuant to Sec. Sec.  1.351-
3(b), 1.355-5(a), or 1.368-3(a), provided the transaction is properly 
reported in accordance with those sections.
    (ii) No reporting is required under paragraph (a) of this section 
with respect to a transaction for which information is required to be 
reported pursuant to section 6043(a), provided the transaction is 
properly reported in accordance with that section.
    (5) Exception where shareholders are exempt recipients. No 
reporting is required under paragraph (a) of this section if the 
reporting corporation reasonably determines that all of its 
shareholders who receive cash, stock or other property pursuant to the 
acquisition of control or substantial change in capital structure are 
exempt recipients under paragraph (b)(6) of this section.
    (b) Information returns regarding shareholders--(1) General rule. A 
corporation that is required to file form 8806 pursuant to paragraph 
(a)(1) of this section (or an interim statement under paragraph (a)(3) 
of this section) shall file a return of information on forms 1096 and 
1099-CAP with respect to each shareholder of record in the corporation 
(before or after the acquisition of control or the substantial change 
in capital structure) who receives cash, stock, or other property 
pursuant to the acquisition of control or the substantial change in 
capital structure.
    (2) Additional requirement for information returns. A corporation 
that would have been required to file form 8806 pursuant to paragraph 
(a) of this section (or an interim statement under paragraph (a)(3) of 
this section) but for the application of paragraph (a)(4)(i) of this 
section (relating to information provided under Sec. Sec.  1.351-3(b), 
1.355-5(a), or 1.368-3(a)) shall file a return of information on forms 
1096 and 1099-CAP with respect to each shareholder of record in the 
corporation (before or after the acquisition of control or the 
substantial change in capital structure) who receives cash, stock, or 
other property pursuant to the acquisition of control or the 
substantial change in capital structure.
    (3) Time for making information returns. Forms 1096 and 1099-CAP 
must be filed on or before February 28 (March 31 if filed 
electronically) of the year following the calendar year in which the 
acquisition of control or the substantial change in capital structure 
occurs.
    (4) Contents of return. A separate form 1099-CAP must be filed with 
respect to amounts received by each shareholder (who is not an exempt 
recipient as defined in paragraph (b)(6) of this section) showing--
    (i) The name, address, telephone number and TIN of the reporting 
corporation;
    (ii) The name, address and TIN of the shareholder;
    (iii) The number and class of shares in the reporting corporation 
exchanged by the shareholder;
    (iv) The amount of cash and the fair market value of any stock 
(other than stock described in paragraph (a)(1)(v)(C)) of this section 
or other property provided to the shareholder in exchange for its 
stock; and
    (v) Such other information as may be required by the instructions 
to form 1099-CAP.
    (5) Furnishing of forms to shareholders. The form 1099-CAP filed 
with respect to each shareholder must be furnished to such shareholder 
on or before January 31 of the year following the calendar year in 
which the shareholder receives cash, stock, or other property as part 
of the acquisition of control or the substantial change in capital 
structure.
    (6) Exempt recipients. A corporation is not required to file a form 
1099-CAP pursuant to this paragraph (b) of this section with respect to 
the following shareholders:
    (i) Any shareholder who receives solely stock described in 
paragraph (a)(1)(v)(C) of this section in exchange for its stock in the 
corporation.
    (ii) Any shareholder who is required to recognize gain (if any) as 
a result of the receipt of cash, stock, or other property if the 
corporation reasonably determines that the amount of such cash plus the 
fair market value of such stock and other property does not exceed 
$1,000. Stock described in paragraph (a)(1)(v)(C) of this section is 
not taken into account for purposes of this paragraph (b)(6)(ii).
    (iii) Any shareholder described in paragraphs (b)(6)(iii)(A) 
through (K) of this section if the corporation has actual knowledge 
that the shareholder is described in one of paragraphs (b)(6)(iii)(A) 
through (K) of this section or if the corporation has a properly 
completed exemption certificate from the shareholder (as provided in 
Sec.  31.3406(h)-3 of this chapter). The corporation also may treat a 
shareholder as described in paragraphs (b)(6)(iii) (A) through (J) of 
this section based on the applicable indicators described in Sec.  
1.6049-4(c)(1)(ii).
    (A) A tax-exempt organization, as described in Sec.  1.6049-
4(c)(1)(ii)(B)(1).
    (B) An individual retirement plan, as described in Sec.  1.6049-
4(c)(1)(ii)(C).
    (C) The United States, as described in Sec.  1.6049-4(c)(1)(ii)(D).
    (D) A state, as described in Sec.  1.6049-4(c)(1)(ii)(E).
    (E) A foreign government, as described in Sec.  1.6049-
4(c)(1)(ii)(F).
    (F) An international organization, as described in Sec.  1.6049-
4(c)(1)(ii)(G).
    (G) A foreign central bank of issue, as described in Sec.  1.6049-
4(c)(1)(ii)(H).
    (H) A real estate investment trust, as described in Sec.  1.6049-
4(c)(1)(ii)(J).
    (I) An entity registered under the Investment Company Act of 1940, 
as described in Sec.  1.6049-4(c)(1)(ii)(K).
    (J) A common trust fund, as described in Sec.  1.6049-
4(c)(1)(ii)(L).

[[Page 69471]]

    (K) A corporation, as defined in section 7701(a)(3) (except for 
corporations for which an election under section 1362(a) is in effect), 
if the reporting corporation reasonably determines that such 
corporation is not a broker (as defined in Sec.  1.6045-1(a)(1)) or a 
record holder for the actual owner of the stock.
    (iv) Any shareholder that the corporation, prior to the 
transaction, associates with documentation upon which the corporation 
may rely in order to treat payments to the shareholder as made to a 
foreign beneficial owner in accordance with Sec.  1.1441-1(e)(1)(ii) or 
as made to a foreign payee in accordance with Sec.  1.6049-5(d)(1) or 
presumed to be made to a foreign payee under Sec.  1.6049-5(d)(2) or 
(3). For purposes of this paragraph (b)(6)(iv), the provisions in Sec.  
1.6049-5(c) (regarding rules applicable to documentation of foreign 
status and definition of U.S. payor and non-U.S. payor) shall apply. 
The provisions of Sec.  1.1441-1 shall apply by substituting the terms 
``corporation'' and ``shareholder'' for the terms ``withholding agent'' 
and ``payee'' and without regard to the fact that the provisions apply 
only to amounts subject to withholding under chapter 3 of the Internal 
Revenue Code. The provisions of Sec.  1.6049-5(d) shall apply by 
substituting the terms ``corporation'' and ``shareholder'' for the 
terms ``payor'' and ``payee''. Nothing in this paragraph (b)(6)(iv) 
shall be construed to relieve a corporation of its withholding 
obligations under section 1441.
    (v) Any shareholder if, on January 31 of the year following the 
calendar year in which the shareholder receives cash, stock, or other 
property, the corporation did not know and did not have reason to know 
that the shareholder received such cash, stock, or other property in a 
transaction or series of related transactions that would result in an 
acquisition of control or a substantial change in capital structure.
    (7) Coordination with other sections. No reporting is required 
under paragraph (b) of this section with respect to amounts that are 
required to be reported under section 6042 or section 6045, unless the 
corporation knows or has reason to know that such amounts are not 
properly reported in accordance with those sections.
    (c) Acquisition of control of a corporation--(1) In general. For 
purposes of this section, an acquisition of control of a corporation 
(``first corporation'') occurs if, in a transaction or series of 
related transactions, either--
    (i) Stock representing control of the first corporation is 
distributed by a second corporation to shareholders of the second 
corporation and the fair market value of such stock on the date of 
distribution is $100,000,000 or more; or
    (ii) (A) Before an acquisition of stock of the first corporation 
(directly or indirectly) by a second corporation, the second 
corporation does not have control of the first corporation;
    (B) After the acquisition, the second corporation has control of 
the first corporation;
    (C) The fair market value of the stock acquired in the transaction 
and in any related transactions as of the date or dates on which such 
stock was acquired is $100,000,000 or more; and
    (D) The shareholders of the first corporation (determined without 
applying the constructive ownership rule of section 318(a)) receive 
cash, stock, or other property pursuant to the acquisition.
    (2) Control. For purposes of this section, control is determined in 
accordance with the first sentence of section 304(c)(1).
    (3) Constructive ownership. (i) Except as otherwise provided in 
this section, the constructive ownership rules of section 318(a) 
(except for section 318(a)(4), providing for constructive ownership 
through an option to acquire stock), modified as provided in section 
304(c)(3)(B), shall apply for determining whether there has been an 
acquisition of control.
    (ii) The determination of whether there has been an acquisition of 
control shall be made without regard to whether the person or persons 
from whom control was acquired retain indirect control of the first 
corporation under section 318(a).
    (iii) For purposes of paragraph (c)(1)(ii) of this section, section 
318(a) shall not apply to cause a second corporation to be treated as 
owning, before an acquisition of stock in a first corporation (directly 
or indirectly) by the second corporation, any stock that is acquired in 
the first corporation. For example, if the shareholders of a domestic 
corporation form a new holding company and then transfer their shares 
in the domestic corporation to the new holding company, the new holding 
company shall not be treated as having control of the domestic 
corporation before the acquisition. The new holding company acquires 
control of the domestic corporation as a result of the transfer. 
Similarly, if the shareholders of a domestic parent corporation 
transfer their shares in the parent corporation to a subsidiary of the 
parent in exchange for shares in the subsidiary, the subsidiary shall 
not be treated as having control of the parent before the transaction. 
The subsidiary acquires control of the parent as a result of the 
transfer.
    (4) Corporation includes group. For purposes of this paragraph (c), 
if two or more corporations act pursuant to a plan or arrangement with 
respect to acquisitions of stock, such corporations will be treated as 
one corporation for purposes of this section. Whether two or more 
corporations act pursuant to a plan or arrangement depends on the facts 
and circumstances.
    (5) Section 338 election. For purposes of this paragraph (c), an 
acquisition of stock of a corporation with respect to which an election 
under section 338 is made is treated as an acquisition of stock (and 
not as an acquisition of the assets of such corporation).
    (d) Substantial change in capital structure of a corporation--(1) 
In general. A corporation has a substantial change in capital structure 
if it has a change in capital structure (as defined in paragraph (d)(2) 
of this section) and the amount of any cash and the fair market value 
of any property (including stock) provided to the shareholders of such 
corporation pursuant to the change in capital structure, as of the date 
or dates on which the cash or other property is provided, is 
$100,000,000 or more.
    (2) Change in capital structure. For purposes of this section, a 
corporation has a change in capital structure if the corporation in a 
transaction or series of transactions--
    (i) Undergoes a recapitalization with respect to its stock;
    (ii) Redeems its stock (including deemed redemptions);
    (iii) Merges, consolidates or otherwise combines with another 
corporation or transfers all or substantially all of its assets to one 
or more corporations;
    (iv) Transfers all or part of its assets to another corporation in 
a title 11 or similar case and, in pursuance of the plan, distributes 
stock or securities of that corporation; or
    (v) Changes its identity, form or place of organization.
    (e) Reporting by successor entity. If a corporation 
(``transferor'') transfers all or substantially all of its assets to 
another entity (``transferee'') in a transaction that constitutes a 
substantial change in the capital structure of transferor, transferor 
must satisfy the reporting obligations in paragraph (a) or (b) of this 
section. If transferor does not satisfy the reporting obligations in 
paragraph (a) or (b) of this section, then transferee must satisfy 
those reporting obligations. If neither transferor nor transferee 
satisfies the reporting obligations in paragraphs (a) and (b) of

[[Page 69472]]

this section, then transferor and transferee shall be jointly and 
severally liable for any applicable penalties (see paragraph (g) of 
this section).
    (f) Receipt of property. For purposes of this section, a 
shareholder is treated as receiving property (or as having property 
provided to it) pursuant to an acquisition of control or a substantial 
change in capital structure if a liability of the shareholder is 
assumed in the transaction and, as a result of the transaction, an 
amount is realized by the shareholder from the sale or exchange of 
stock.
    (g) Penalties for failure to file. For penalties for failure to 
file as required under this section, see section 6652(l). The 
information returns required to be filed under paragraphs (a) and (b) 
of this section shall be treated as one return for purposes of section 
6652(l) and, accordingly, the penalty shall not exceed $500 for each 
day the failure continues (up to a maximum of $100,000) with respect to 
any acquisition of control or any substantial change in capital 
structure. Failure to file as required under this section also includes 
the requirement to file on magnetic media as required by section 
6011(e) and Sec.  1.6011-2. In addition, criminal penalties under 
sections 7203, 7206 and 7207 may apply in appropriate cases.
    (h) Examples. The following examples illustrate the application of 
the rules of this section. For purposes of these examples, assume the 
transaction is not reported under Sec. Sec.  1.351-3(b), 1.355-5(a), 
1.368-3(a), and sections 6042, 6043(a) or 6045, unless otherwise 
specified, and assume that the fair market value of the consideration 
provided to the shareholders exceeds $100,000,000.

    Example 1. The shareholders of X, a domestic corporation and 
parent of an affiliated group, exchange their X stock for stock in 
Y, a newly-formed foreign holding corporation. After the 
transaction, Y owns all the outstanding X stock. The X shareholders 
must recognize gain (if any) on the exchange of their stock as a 
result of the application of section 367(a). Because the transaction 
results in an acquisition of control of X, X must comply with the 
rules in paragraphs (a) and (b) of this section. If a statement is 
filed in accordance with Sec.  1.351-3(b) with respect to the 
transaction, X is not required to attach form 8806 (or an interim 
statement) to its return. Regardless of whether a statement is filed 
in accordance with Sec.  1.351-3(b), X must file a form 1099-CAP 
with respect to each shareholder who is not an exempt recipient 
showing the fair market value of the Y stock received by that 
shareholder, and X must furnish a copy of the form 1099-CAP to that 
shareholder.
    Example 2. C, a domestic corporation, and parent of an 
affiliated group merges into D, an unrelated domestic corporation. 
Pursuant to the transaction, the C shareholders exchange their C 
stock for D stock or for a combination of short term notes and D 
stock. The transaction does not satisfy the requirements of section 
368, and the C shareholders must recognize gain (if any) on the 
exchange. Because the transaction results in a substantial change in 
the capital structure of C, C (or D as the successor to C) must 
comply with the rules in paragraphs (a) and (b) of this section. C 
must attach form 8806 (or an interim statement) to its final income 
tax return. C (or D as the successor to C) also must file a form 
1099-CAP with respect to each shareholder who is not an exempt 
recipient showing the fair market value of the short term notes (if 
any) and the fair market value of the D stock provided to that 
shareholder, and C (or D) must furnish a copy of the form 1099-CAP 
to that shareholder.
    Example 3. (i) The facts are the same as in example (2), except 
that C reasonably determines that--
    (A) The transaction satisfies the requirements of section 368;
    (B) The C shareholders who exchange their C stock solely for D 
stock will not be required to recognize gain (if any) on the 
exchange; and
    (C) The C shareholders who exchange their C stock for a 
combination of short term notes and D stock will be required to 
recognize gain (if any) on the exchange solely with respect to the 
receipt of the short term notes.
    (ii) If a statement is filed in accordance with Sec.  1.368-3(a) 
with respect to the transaction, C is not required to attach form 
8806 (or an interim statement) to its return under paragraph (a) of 
this section. Regardless of whether a statement is filed in 
accordance with Sec.  1.368-3(a), C (or D as the successor to C) 
must comply with the rules in paragraph (b) of this section. With 
respect to each shareholder who receives a combination of short term 
notes and D stock, and who is not an exempt recipient, C or D must 
file a form 1099-CAP showing the fair market value of the short term 
notes provided to the shareholder, and C (or D) must furnish a copy 
of the form 1099-CAP to that shareholder. The form 1099-CAP should 
not show the fair market value of the D stock provided to the 
shareholder. C and D are not required to file and furnish forms 
1099-CAP with respect to shareholders who receive only D stock in 
exchange for their C stock.
    Example 4. The facts are the same as in example 3, except the C 
shareholders receive cash instead of short term notes. The C 
shareholders exchange their shares through a transfer agent. Under 
section 6045, the transfer agent is required to report the amount of 
cash paid to the C shareholders in the transaction. C and D are not 
required to file information returns under paragraph (b) of this 
section, unless C or D knows or has reason to know that the transfer 
agent did not file the required information returns under section 
6045.

    (i) Effective date. This section applies to any acquisition of 
control and any substantial change in capital structure occurring after 
December 31, 2001, if the reporting corporation or any shareholder is 
required to recognize gain (if any) as a result of the application of 
section 367(a) as a result of the transaction. If a reporting 
corporation described in the preceding sentence files its income tax 
return for the year in which the acquisition of control or the 
substantial change in capital structure occurs on or before January 13, 
2003, such reporting corporation (or successor entity) shall file an 
interim statement (as described in paragraph (a)(3) of this section) on 
or before January 31, 2003. The applicability of this section expires 
on November 14, 2005.

    Par. 3. Section 1.6045-3T is added to read as follows:


Sec.  1.6045-3T  Information reporting for an acquisition of control or 
a substantial change in capital structure (temporary).

    (a) In general. Any broker (as defined in Sec.  1.6045-1(a)(1)) who 
receives a form 1099-CAP from a corporation pursuant to Sec.  1.6043-4T 
as the record holder of stock in such corporation but who is not the 
actual owner thereof shall file a return of information with respect to 
the actual owner unless the actual owner is an exempt recipient as 
defined in Sec.  1.6045-1(c)(3)(i).
    (b) Form, manner and time for making information returns. The 
return required by paragraph (a) of this section must be on forms 1096 
and 1099-CAP, or on an acceptable substitute statement. Such forms must 
be filed on or before February 28 (March 31 if filed electronically) of 
the year following the calendar year in which the acquisition of 
control or the substantial change in capital structure occurs.
    (c) Contents of return. A separate form 1099-CAP must be prepared 
for each owner showing--
    (1) The name, address and taxpayer identification number of the 
actual owner;
    (2) The number and class of shares in the corporation exchanged by 
the actual owner;
    (3) The amount of cash and the fair market value of stock or other 
property provided to the actual owner in exchange for its stock, that 
would have been reported by the corporation under Sec.  1.6043-4T if 
the corporation had provided the form 1099-CAP directly to the actual 
owner (rather than to the broker as nominee); and
    (4) Such other information as may be required by form 1099-CAP.
    (d) Furnishing of forms to actual owners. The form 1099-CAP 
prepared for each actual owner must be furnished to the actual owner on 
or before February 28 of the year following the

[[Page 69473]]

calendar year in which the actual owner receives stock, cash or other 
property.
    (e) Single Form 1099. If a broker is required to file a form 1099 
with respect to an owner under both this Sec.  1.6045-3T and Sec.  
1.6045-1(b), the broker may satisfy the requirements of both sections 
by filing and furnishing one form 1099 that contains all the relevant 
information, as provided in the instructions to form 1099-CAP.
    (f) Effective date. This section applies with respect to any form 
1099-CAP received by a broker after November 13, 2002. The 
applicability of this section expires on November 14, 2005.

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

    Par. 4. The authority citation for part 602 continues to read in 
part as follows:

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

    Par. 5. In Sec.  602.101, paragraph (b) is amended by adding the 
following entries 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.
------------------------------------------------------------------------
 
                                * * * * *
1.6043-4T...............................................       1545-1812
 
                                * * * * *
1.6045-3T...............................................       1545-1812
 
                                * * * * *
------------------------------------------------------------------------


Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: November 8, 2002.
Pamela F. Olson,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 02-29199 Filed 11-13-02; 4:24 pm]
BILLING CODE 4830-01-P