[Federal Register Volume 68, Number 249 (Tuesday, December 30, 2003)]
[Proposed Rules]
[Pages 75182-75184]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31362]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-143321-02; REG-156232-03]
RIN 1545-BB60; RIN 1545-BC80


Information Reporting Relating to Taxable Stock Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of previous proposed rules; notice of proposed 
rulemaking by cross-reference to temporary regulations and notice of 
public hearing.

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SUMMARY: This document withdraws proposed regulations published in the 
Federal Register on November 18, 2002 (REG-143321-02). In the Rules and 
Regulations section of this issue of the Federal Register, the IRS is 
issuing temporary regulations relating to information reporting 
relating to taxable stock transactions. This document contains proposed 
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 proposed regulations 
under section 6045 concerning information reporting requirements for 
brokers with respect to transactions described in section 6043(c). The 
text of the temporary regulations serves as the text of these proposed 
regulations. This document also provides notice of a public hearing on 
these proposed regulations.

DATES: Written or electronic comments must be received by March 29, 
2004. Outlines of topics to be discussed at the public hearing 
scheduled for March 31, 2004, at 10 a.m., must be received by March 10, 
2004.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-156232-03), room 
5203, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
156232-03), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit 
electronic comments directly to the IRS Internet site at www.irs.gov/regs. The public hearing will be held in the IRS Auditorium, Internal 
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Nancy L. Rose (202) 622-4910; concerning submissions of comments, the 
hearing, and/or to be placed on the building access list to attend the 
hearing, Robin Jones at (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The forms referenced in these regulations have been, or will be, 
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.

Background

    This document withdraws the Notice of Proposed Rulemaking (REG-
143321-02) that was published in the Federal Register on November 18, 
2002 (67 FR 65496). Temporary regulations in the Rules and Regulations 
section of this issue of the Federal Register amend the Income Tax 
Regulations (26 CFR Part 1) relating to sections 6043 and 6045. The 
temporary regulations set forth information reporting requirements 
relating to acquisitions of control and substantial changes in capital 
structure. The text of those regulations also serves as the text of 
these proposed regulations. The preamble to the temporary regulations 
explains the amendments and these proposed regulations.
    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 effective for 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 be 
effective 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

[[Page 75183]]

temporary regulations also serves as the text of these proposed 
regulations (reproposed regulations).

Summary of Comments and Explanation of Provisions

    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 and proposed 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) and proposed Sec.  
1.6043-4(b). Brokers who received Forms 1099-CAP would then file Forms 
1099-CAP with respect to their customers pursuant to Sec.  1.6045-3T 
and proposed Sec.  1.6045-3. 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 and proposed 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 and reproposed Sec.  1.6045-3 to 
file Forms 1099-CAP with respect to their broker-members. Consequently, 
brokers (who 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 and proposed 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, revised Sec.  1.6043-4T(a)(1)(vi) and 
reproposed Sec.  1.6043-4(a)(1)(vi) provide 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 utilize existing 
processes for distributing information to minimize the cost of and the 
time required for 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 revised temporary and 
reproposed 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 section Sec.  1.6045-3T and reproposed 
Sec.  1.6045-3. Under the revised 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 reporting obligations under Sec.  1.6045-3T and reproposed 
Sec.  1.6045-3 with respect to the transaction.
    The revised temporary and reproposed 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 utilize 
Form 1099-B for reporting under Sec.  1.6045-3T and reproposed Sec.  
1.6045-3, 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 and 
reproposed regulations provide that Form 1099-B should be used by 
brokers for reporting under Sec.  1.6045-3T and reproposed Sec.  
1.6045-3. With respect to transactions occurring in 2003, brokers may 
use either Form 1099-B or 1099-CAP.

Proposed Effective Date

    The provisions of these regulations are proposed to be applicable 
for any acquisition of control and change in capital structure 
occurring after the date on which these regulations are published in 
the Federal Register as final regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It has also 
been determined that section

[[Page 75184]]

553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations, and because the regulations do not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Internal Revenue Code, this notice of proposed 
rulemaking will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
businesses.

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 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 has been scheduled for March 31, 2004, beginning at 10 a.m. in 
the IRS Auditorium, Internal Revenue Building, 1111 Constitution 
Avenue, NW., Washington, DC. Because of access restrictions, visitors 
will not be admitted beyond the immediate entrance area more than 30 
minutes before the hearing starts. For information about having your 
name placed on the building access list to attend the hearing, see the 
FOR FURTHER INFORMATION CONTACT portion of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments must submit electronic or written 
comments and an outline of the topics to be discussed and the time to 
be devoted to each topic (a signed original and eight (8) copies) by 
March 10, 2004. A period of 10 minutes will be allotted to each person 
for making comments. An agenda showing the scheduling of the speakers 
will be prepared after the deadline for reviewing outlines has passed. 
Copies of the agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of this notice of proposed rulemaking 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.

Withdrawal of a Previous Notice of Proposed Rulemaking

    Accordingly, under the authority of 26 U.S.C. 7805, the notice of 
proposed rulemaking published in the Federal Register on November 18, 
2002 (REG-143321-02) is withdrawn.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is 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 1.6043-4 is added to read as follows:


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

    [The text of proposed Sec.  1.6043-4 is the same as the text of 
Sec.  1.6043-4T published elsewhere in this issue of the Federal 
Register]
    3. Section 1.6045-3 is added to read as follows:


Sec.  1.6045-3  Information reporting for acquisitions of control or 
substantial changes in capital structure.

    [The text of proposed Sec.  1.6045-3 is the same as the text of 
Sec.  1.6045-3T published elsewhere in this issue of the Federal 
Register]

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 03-31362 Filed 12-29-03; 8:45 am]
BILLING CODE 4830-01-P