[Federal Register Volume 68, Number 249 (Tuesday, December 30, 2003)]
[Rules and Regulations]
[Pages 75119-75126]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31361]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9101]
RIN 1545-BC79


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 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 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 December 30, 
2003.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.6043-4T(i) and 1.6045-3T(g).

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

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The forms referenced in these regulations have been, or will be, 
reviewed and approved by the Office of Management and Budget in 
accordance with the requirements of the Paperwork Reduction Act of 1995 
(44 U.S.C. 3507(d)).
    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.
    Books and 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.

[[Page 75120]]

Background

    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.
    On November 18, 2002, the IRS published temporary regulations under 
section 6043(c) (TD 9022). The transactions covered by the reporting 
requirement were certain acquisitions of control and substantial 
changes in the capital structure of a corporation. These regulations 
required 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. On November 18, 
2002, the IRS also published temporary regulations under section 6045, 
which provided for information reporting with respect to these 
transactions by brokers (together with the section 6043(c) temporary 
regulations, the 2002 temporary regulations). The 2002 temporary 
regulations were applicable to acquisitions of control and substantial 
changes in capital structure occurring after December 31, 2001, if the 
reporting corporation or any shareholder was required to recognize gain 
(if any) as a result of the application of section 367(a) as a result 
of the transaction.
    The text of the 2002 temporary regulations also served as the text 
of proposed regulations set forth in a cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of the same 
issue of the Federal Register (2002 proposed regulations) (REG-143321-
02). The provisions of the proposed regulations were proposed to apply 
with respect to any acquisition of control or substantial change in 
capital structure occurring after the date on which final regulations 
would be published in the Federal Register. The preamble to the notice 
of proposed rulemaking invited public comments with respect to the 
potential for duplicate reporting and with respect to the burden of 
compliance with the reporting requirements.
    The IRS received a number of written public comments with respect 
to the information reporting requirements set forth in the 2002 
temporary and proposed regulations. In addition, the IRS met with 
representatives of the Information Reporting Program Advisory Committee 
(IRPAC) and other representatives of the securities industry to discuss 
their concerns and suggestions for revisions to the regulations.
    After considering the issues concerning affected taxpayers, the IRS 
has decided to revise the 2002 temporary regulations. The revised 
temporary regulations set forth information reporting rules that will 
help ensure that brokers and shareholders receive information regarding 
these corporate transactions, without unduly burdening brokers and 
other members of the securities industry.
    The text of the revised temporary regulations also serves as the 
text of new proposed regulations (reproposed 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 revised temporary and reproposed regulations, 
particularly with respect to the ability of brokers to obtain the 
information necessary for reporting under revised Sec.  1.6045-3T and 
proposed Sec.  1.6045-3.

Summary of Comments

    The commentators noted certain gaps in the transmission of 
information under the 2002 temporary and proposed regulations between 
corporations subject to reporting and brokers. Information reporting by 
brokers depends upon the effective dissemination of information from 
the corporation to the reporting community, and broker reporting is 
difficult to effectuate if there are gaps in the process of 
transmitting this information.
    As provided in the 2002 temporary regulations, a reporting 
corporation would file Forms 1099-CAP, ``Changes in Corporate Control 
and Capital Structure'', with respect to its shareholders of record, 
including brokers, under Sec.  1.6043-4T(b). Brokers who received Forms 
1099-CAP would then file Forms 1099-CAP with respect to their customers 
pursuant to Sec.  1.6045-3T. The commentators pointed out that a large 
majority of U.S. publicly issued securities are actually held on behalf 
of brokerage firms through clearing organizations. Pursuant to the 2002 
temporary regulations, clearing organizations would receive Forms 1099-
CAP from the reporting corporation; however, because clearing 
organizations are not treated as brokers, they in turn would not be 
required under Sec.  1.6045-3T to file Forms 1099-CAP with respect to 
their broker-members. Consequently, brokers (who otherwise had the 
requirement to file a Form 1099-CAP upon receiving one) would not 
receive Form 1099-CAP if they held their shares through a clearing 
organization. In addition, brokers may not be aware of the requirement 
to report with respect to a particular corporate transaction, or may 
have difficulty obtaining the information necessary for reporting. 
Thus, under the 2002 temporary regulations, the actual shareholders of 
the reporting corporation, the broker's customers, may not receive 
information returns to assist them in preparing their income tax 
returns.
    To address this issue, commentators suggested an alternative 
procedure to ensure that brokers receive the required information for 
reporting and to bridge any potential gaps in the chain of reporting. 
Commentators recommended that the IRS act as a central repository of 
information necessary for brokers and issue a publication containing 
information needed for brokers to satisfy their reporting obligations. 
Brokers and commercial tax services that publish current developments 
could access this information, and brokers could use this information 
in preparing Forms 1099-CAP with respect to their customers. An 
alternative suggested by commentators was to require the reporting 
corporation to post essential information for reporting, from its Form 
8806, ``Information Return for Acquisition of Control or Substantial 
Change in Capital Structure'', to an IRS Web site.
    Based on the comments, the revised temporary regulations provide in 
Sec.  1.6043-4T(a)(1)(vi) that reporting corporations may elect on Form 
8806 to consent to the publication by the IRS of information necessary 
for brokers to file information returns with respect to their 
customers. To provide every corporation with the ability to make this 
election, the revised temporary regulations require reporting 
corporations to file Form 8806 even though the corporation may also 
report the transaction under sections 351, 355, or 368. In order to 
enable the IRS to publish the information timely, the revised temporary 
regulations require reporting corporations to file Form 8806 within 45 
days after the transaction, and in no event later than January 5 of the 
year following the calendar year in which the transaction occurs.
    The role of clearing organizations was also the subject of 
comments. Commentators suggested that the regulations use existing 
processes for distributing information to minimize the cost of and the 
time required for

[[Page 75121]]

implementing reporting by the industry. Those existing processes 
include the dissemination of information by clearing organizations. 
Under current practices, important information regarding corporate 
transactions (including tax information) is disseminated by clearing 
organizations to their members. The new temporary regulations try to 
take advantage of this existing information flow by continuing to 
require corporations to provide a Form 1099-CAP to clearing 
organizations that are listed as shareholders of record at the time of 
an acquisition of control or substantial change in capital structure. 
It is anticipated that clearing organizations will disseminate 
information obtained from the Form 1099-CAP to their members and that 
broker-members will use that information (and information obtained from 
other sources) to satisfy their own reporting obligations under revised 
Sec.  1.6045-3T. Under the revised temporary regulations, a broker is 
required to report information if the broker knows or has reason to 
know, based on readily available information, that there was an 
acquisition of control or substantial change in capital structure with 
respect to shares held by the broker on behalf of a customer. If a 
clearing organization disseminates information identifying an 
acquisition of control or a substantial change in capital structure to 
a broker-member, the broker-member has readily available information 
about the transaction and must satisfy its Sec.  1.6045-3T reporting 
obligations with respect to the transaction.
    The revised temporary regulations provide that a reporting 
corporation is not required to file Forms 1099-CAP with respect to its 
shareholders which are clearing organizations, or to furnish Forms 
1099-CAP to such clearing organizations, if the corporation makes the 
election to permit the IRS to publish information regarding the 
transaction. The IRS' publication of such information pursuant to the 
corporation's consent will provide readily available information for 
brokers, who must satisfy their reporting obligations with respect to 
the transaction.
    Commentators also requested that brokers be permitted to use Form 
1099-B, ``Proceeds from Broker and Barter Exchange Transactions,'' for 
reporting under Sec.  1.6045-3T, rather than overhaul their systems to 
report on Form 1099-CAP. The commentators point out that this would 
also avoid any confusion stemming from the issuance of both types of 
forms to the same taxpayer in the same transaction. The revised 
temporary regulations provide that Form 1099-B should be used by 
brokers for reporting under Sec.  1.6045-3T. With respect to 
transactions occurring in 2003, brokers may use either Form 1099-B or 
1099-CAP.

Explanation of Provisions

    The revised temporary regulations require a domestic corporation 
involved in certain large taxable transactions to file Form 8806 
reporting and describing such transactions. The revised temporary 
regulations require the filing of Form 8806 within 45 days following an 
acquisition of control or substantial change in capital structure, as 
defined in Sec. Sec.  1.6043-4T(c) and (d), or, if earlier, by January 
5th of the year following the calendar year in which such event 
occurred.
    The revised temporary regulations do not change the definition of 
acquisition of control or substantial change in capital structure as 
set forth in the 2002 temporary regulations. An acquisition of control 
of a corporation is defined 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.
    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) 
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 revised temporary regulations require a domestic corporation 
involved in the specified transactions to issue, with respect to each 
of its shareholders of record, a Form 1099-CAP reporting the amount of 
any cash plus the fair market value of any property (including certain 
stock) exchanged in the transaction. Corporations are not required to 
report 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). 
Corporations also are not required to report amounts distributed to 
certain exempt recipients. The list of exempt recipients has been 
expanded to include brokers.
    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 revised 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 as a guideline for determining reasonable 
cause.
    The 2002 temporary regulations under section 6045 required a broker 
who, as the record holder of stock, received 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. Under the revised temporary 
regulations, brokers should not receive Forms 1099-CAP from a 
corporation and are not required to issue Forms 1099-CAP. Instead, 
revised Sec.  1.6045-3T requires a broker that knows or has reason to 
know, based on readily available information, that a transaction 
described in Sec.  1.6043-4T(c) or (d) has occurred to file an 
information return reporting the required information with respect to 
its

[[Page 75122]]

customers who are not exempt recipients. In order to allow brokers to 
use their existing information reporting systems, the new temporary 
regulations require Form 1099-B, Proceeds from Broker and Barter 
Exchange Transactions, to be used for such reporting. It is anticipated 
that brokers will obtain the information regarding the corporate 
transactions from the IRS website or an IRS publication, from 
information provided by clearing organizations, as well as from other 
sources regularly consulted within the industry.
    The revised temporary regulations are effective only for 
acquisitions of control and substantial changes of capital structure 
that occur after December 31, 2002, 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).

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
1. The authority citation for part 1 continues to read in part as 
follows:

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

0
2. Section 1.6043-4T is revised 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, ``Information Return for Acquisition of Control or Substantial 
Change in Capital Structure'', in accordance with the instructions to 
that form. Form 8806 will request the information required in 
paragraphs (a)(1)(i) through (vi) of this section and any other 
information specified in the instructions.
    (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;
    (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 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 each share of their stock.
    (2) Consent election. Form 8806 will provide the reporting 
corporation with the ability to elect to permit the IRS to publish 
information that will inform brokers of the transaction and enable 
brokers to satisfy their reporting obligations under Sec.  1.6045-3T. 
The information to be published, on the IRS website and/or in an IRS 
publication, would be limited to the name and address of the 
corporation, the date of the transaction, a description of the shares 
affected by the transaction, and the amount of cash and the fair market 
value of any property (excluding stock described in paragraph 
(a)(1)(v)(C) of this section) provided to each class of shareholders in 
exchange for a share.
    (3) Time for making return--(i) In general. Form 8806 must be filed 
on or before the 45th day following the acquisition of control or 
substantial change in capital structure of the corporation, or, if 
earlier, on or before January 5th of the year following the calendar 
year in which the acquisition of control or substantial change in 
capital structure occurs.
    (ii) Transition rule. If an acquisition of control or a substantial 
change in capital

[[Page 75123]]

structure of a corporation occurs after December 31, 2002, and before 
December 29, 2003, Form 8806 must be filed on or before January 5, 
2004.
    (4) Exception where transaction is reported under section 6043(a). 
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)(5) 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 shall file a return of information on Forms 
1096, ``Annual Summary and Transmittal of U.S. Information Returns'', 
and 1099-CAP, ``Changes in Corporate Control and Capital Structure'', 
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 and who is not an exempt recipient as defined in paragraph 
(b)(5) of this section. A corporation is not required to file a Form 
1096 or 1099-CAP with respect to a clearing organization if the 
corporation makes the election described in paragraph (a)(2) of this 
section.
    (2) 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.
    (3) 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)(5) 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 aggregate 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.
    (4) 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. The Form 1099-CAP filed with respect to a clearing 
organization must be furnished to the clearing organization on or 
before January 5th of the year following the calendar year in which the 
acquisition of control or substantial change in capital structure 
occurred. A Form 1099-CAP is not required to be furnished to a clearing 
organization if the reporting corporation makes the election described 
in paragraph (a)(2) of this section.
    (5) Exempt recipients. A corporation is not required to file a Form 
1099-CAP pursuant to this paragraph (b) of this section with respect to 
any of the following shareholders that is not a clearing organization:
    (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)(5)(ii).
    (iii) Any shareholder described in paragraphs (b)(5)(iii)(A) 
through (M) of this section if the corporation has actual knowledge 
that the shareholder is described in one of paragraphs (b)(5)(iii)(A) 
through (M) 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)(5)(iii)(A) through (M) of 
this section based on the applicable indicators described in Sec.  
1.6049-4(c)(1)(ii).
    (A) A corporation, as described in Sec.  1.6049-4(c)(1)(ii)(A) 
(except for corporations for which an election under section 1362(a) is 
in effect).
    (B) A tax-exempt organization, as described in Sec.  1.6049-
4(c)(1)(ii)(B)(1).
    (C) An individual retirement plan, as described in Sec.  1.6049-
4(c)(1)(ii)(C).
    (D) The United States, as described in Sec.  1.6049-4(c)(1)(ii)(D).
    (E) A state, as described in Sec.  1.6049-4(c)(1)(ii)(E).
    (F) A foreign government, as described in Sec.  1.6049-
4(c)(1)(ii)(F).
    (G) An international organization, as described in Sec.  1.6049-
4(c)(1)(ii)(G).
    (H) A foreign central bank of issue, as described in Sec.  1.6049-
4(c)(1)(ii)(H).
    (I) A securities or commodities dealer, as described in Sec.  
1.6049-4(c)(1)(ii)(I).
    (J) A real estate investment trust, as described in Sec.  1.6049-
4(c)(1)(ii)(J).
    (K) An entity registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1), as described in Sec.  1.6049-4(c)(1)(ii)(K).
    (L) A common trust fund, as described in Sec.  1.6049-
4(c)(1)(ii)(L).
    (M) A financial institution such as a bank, mutual savings bank, 
savings and loan association, building and loan association, 
cooperative bank, homestead association, credit union, industrial loan 
association or bank, or other similar organization.
    (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)(5)(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 using the terms 
corporation and shareholder in place of 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 using the 
terms corporation and shareholder in place of the terms payor and 
payee. Nothing in this paragraph (b)(5)(iv) shall be construed to 
relieve a corporation of its withholding obligations under section 
1441.

[[Page 75124]]

    (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.
    (6) Coordination with other sections. In general, 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. A 
corporation must satisfy the requirements under paragraph (b) of this 
section with respect to any shareholder of record that is a clearing 
organization.
    (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 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,

[[Page 75125]]

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 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. 
The examples are as follows:

    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. X must file Form 
8806 reporting the transaction. X must also 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. If X elects on the Form 8806 to permit the IRS to 
publish information regarding the transaction, X is not required to 
file or furnish Forms 1099-CAP with respect to shareholders that are 
clearing organizations.
    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 file Form 8806. 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 and 
the fair market value of the D stock provided to that shareholder. 
In addition, 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) C is required to file Form 8806 under paragraph (a) of this 
section. C (or D as the successor to C) must also 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 C 
hires a transfer agent to effectuate the exchange. The transfer 
agent is treated as a broker under section 6045 and is required to 
report the fair market value of the short term notes provided to C's 
shareholders under Sec.  1.6045-3T. Under paragraph (b)(6) of this 
section, C and D are not required to file information returns under 
paragraph (b) of this section with respect to a shareholder of 
record, unless C or D knows or has reason to know that the transfer 
agent does not satisfy its information reporting obligation under 
Sec.  1.6045-3T with respect to that shareholder. Thus, if the 
transfer agent satisfies its information reporting requirements 
under Sec.  1.6045-3T with respect to shareholder I, an individual 
who receives both D stock and short term notes, C and D are not 
required to file a Form 1099-CAP with respect to I. Conversely, if 
the transfer agent does not have an information reporting obligation 
under Sec.  1.6045-3T with respect to one of C's shareholder's of 
record (for example, a clearing organization that is an exempt 
recipient under Sec.  1.6045-3T(b)(ii)), or if C or D knows or has 
reason to know that the transfer agent has not satisfied its 
information reporting requirement with respect to a shareholder, 
then C (or D) must provide a Form 1099-CAP to that shareholder.

    (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. However, paragraphs (a) 
through (h) of this section apply to acquisitions of control and 
substantial changes in capital structure occurring after December 31, 
2002, 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. For transactions prior to 
January 1, 2003, see Sec.  1.6043-4T as published in 26 CFR part 1 
(revised as of April 1, 2003). This section expires on November 14, 
2005.

0
3. Section 1.6045-3T is revised 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)) 
that holds shares on behalf of a customer in a corporation that the 
broker knows or has reason to know based on readily available 
information (including, for example, information from a clearing 
organization or from information published by the Internal Revenue 
Service (see Sec.  601.601(d)(2) of this chapter)) has engaged in a 
transaction described in Sec.  1.6043-4T(c) (acquisition of control) or 
Sec.  1.6043-4T(d) (substantial change in capital structure), shall 
file a return of information with respect to the customer, unless the 
customer is an exempt recipient as defined in paragraph (b) of this 
section.
    (b) Exempt recipients. A broker is not required to file a return of 
information under this section with respect to the following customers:
    (1) Any customer who receives only cash in exchange for its stock 
in the corporation, which must be reported by the broker pursuant to 
Sec.  1.6045-1(a).
    (2) Any customer who is an exempt recipient as defined in Sec.  
1.6043-4T(b)(5) or Sec.  1.6045-1(c)(3)(i).
    (c) Form, manner and time for making information returns. The 
return required by paragraph (a) of this section must be on Forms 1096, 
``Annual Summary and Transmittal of U.S. Information Returns'', and 
1099-B, ``Proceeds from Broker and Barter Exchange Transactions,'' 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.
    (d) Contents of return. A separate Form 1099-B must be prepared for 
each customer showing--
    (1) The name, address and taxpayer identification number (TIN) of 
the customer;
    (2) The name and address of the corporation which engaged in the 
transaction described in Sec.  1.6043-4T(c) or (d);
    (3) The number and class of shares in the corporation exchanged by 
the customer;
    (4) The aggregate amount of cash and the fair market value of any 
stock (other than stock described in 1.6043-4T(a)(1)(v)(C)) or other 
property provided to the customer in exchange for its stock; and
    (5) Such other information as may be required by Form 1099-B.
    (e) Furnishing of forms to actual owners. The Form 1099-B prepared 
for

[[Page 75126]]

each customer must be furnished to the customer on or before January 31 
of the year following the calendar year in which the customer receives 
stock, cash or other property.
    (f) Single Form 1099. If a broker is required to file a Form 1099-B 
with respect to a customer under both this Sec.  1.6045-3T and Sec.  
1.6045-1(b) with respect to the same transaction, the broker may 
satisfy the requirements of both sections by filing and furnishing one 
Form 1099-B that contains all the relevant information, as provided in 
the instructions to Form 1099-B.
    (g) Effective date. (1) This section applies with respect 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. However, 
paragraphs (a) through (f) of this section apply to acquisitions of 
control and substantial changes in capital structure occurring after 
December 31, 2002, 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. For transactions prior 
to that date, see Sec.  1.6045-3T as published in 26 CFR Part 1 
(revised as of April 1, 2003). This section expires on November 14, 
2005.
    (2) For any acquisition of control or any substantial change in 
capital structure occurring during the 2003 calendar year, a broker may 
elect to satisfy the requirements of this section by using Form 1099-
CAP in lieu of Form 1099-B.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: December 12, 2003.
Gregory Jenner,
Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 03-31361 Filed 12-29-03; 8:45 am]
BILLING CODE 4830-01-P