[Federal Register Volume 70, Number 232 (Monday, December 5, 2005)]
[Rules and Regulations]
[Pages 72376-72381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-23470]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9230]
RIN 1545-BF18


Information Reporting Relating to Taxable Stock Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations requiring information 
reporting by a corporation if control of the corporation is acquired, 
or the corporation has a substantial change in capital structure, and 
the corporation or any shareholder is required to recognize gain (if 
any) under section 367(a) and the regulations. This document also 
contains final regulations concerning information reporting 
requirements for brokers with respect to transactions described in 
section 6043(c).

DATES: Effective Date: These regulations are effective December 5, 
2005.
    Applicability Dates: For dates of applicability, see Sec. Sec.  
1.6043-4(i) and 1.6045-3(g).

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

SUPPLEMENTARY INFORMATION:

Background

Sections 6043(c) and 6045

    Section 6043(c) of the Internal Revenue Code (Code) provides that, 
when required by the Secretary, 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 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.
    Section 6045 of the Code provides that, when required by the 
Secretary, every broker shall make a return showing the name and 
address of each customer, with such details regarding

[[Page 72377]]

gross proceeds and such other information as the Secretary may require 
by forms or regulations.

The Temporary and Proposed Regulations

    On November 18, 2002, the IRS published in the Federal Register a 
notice of proposed rulemaking, REG-143321-02, (67 FR 69496) and 
temporary regulations, TD 9022, (67 FR 69468). These temporary and 
proposed regulations (the 2002 temporary and proposed regulations) 
generally required information reporting under section 6043(c) for 
certain large corporate transactions involving acquisitions of control 
and substantial changes in the capital structure of a corporation. Two 
types of reporting were required: Form 8806, ``Statement of Acquisition 
of Control or Change in Capital Structure,'' to report and describe the 
transaction, to be attached to the corporation's return, and Form 1099-
CAP, ``Changes in Corporate Control and Capital Structure,'' to be 
filed with respect to shareholders unless they were exempt recipients. 
Brokers who received Forms 1099-CAP as the record holder of stock in a 
reporting corporation were required to file Form 1099-CAP with respect 
to the actual owners of the shares, unless such owners were exempt 
recipients.
    The 2002 temporary regulations were effective only for acquisitions 
of control and substantive changes in capital structure occurring after 
December 31, 2001, if the reporting corporation or any shareholder were 
required to recognize gain (if any) as a result of the application of 
section 367(a).
    On December 30, 2003, in response to comments on the 2002 temporary 
and proposed regulations, the 2002 proposed regulations were withdrawn, 
REG-143321-02 (68 FR 75182), and a new notice of proposed rulemaking 
was published, REG-156232-03 (68 FR 75182), and the 2002 temporary 
regulations were revised in 2003 (the 2003 temporary regulations), TD 
9101, (68 FR 75119). The 2003 temporary regulations retained the basic 
reporting requirements set forth in the 2002 temporary regulations, 
requiring a domestic corporation involved in an acquisition of control 
or substantial change in capital structure to file Form 8806 reporting 
and describing the transactions. The 2003 temporary regulations, 
however, changed the time and manner of filing, making the Form 8806 a 
stand-alone form required to be filed within 45 days following the 
transaction.
    The 2003 temporary regulations also revised the 2002 temporary 
regulations by providing that a reporting corporation was not required 
to file Forms 1099-CAP with respect to its shareholders that are 
clearing organizations, or to furnish Forms 1099-CAP to such clearing 
organizations, if the corporation made an election to permit the IRS to 
publish information regarding the transaction.
    The 2003 temporary regulations expanded the list of exempt 
recipients to include brokers. The 2003 temporary regulations also 
required brokers to file an information return reporting the required 
information with respect to their customers who are not exempt 
recipients if they know or have reason to know, based on readily 
available information, that a transaction described in Sec.  1.6043-
4T(c) or (d) has occurred. The 2003 temporary regulations required Form 
1099-B, ``Proceeds from Broker and Barter Exchange Transactions,'' to 
be used for such reporting. The Form 1099-B was revised in 2004 to 
include new boxes for the information required under the temporary 
regulations.
    The 2003 temporary regulations were effective only for acquisitions 
of control and substantial changes in 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) and the regulations.

Notice 2005-7

    On December 31, 2004, the IRS issued Notice 2005-7, 2005-3 I.R.B. 
340, (see Sec.  601.601(d)(2) of this chapter) in response to enactment 
of section 6043A of the Code, Returns Relating to Taxable Mergers and 
Acquisitions. Section 6043A was added by Section 805 of the American 
Jobs Creation Act of 2004, Public Law 108-357, (118 Stat. 1418), and 
provides for information reporting by an acquiring corporation in any 
taxable acquisition, according to forms or regulations prescribed by 
the Secretary. Notice 2005-7 stated that taxpayers required to report 
under Temp. Treas. Reg. Sec. Sec.  1.6043-4T and 1.6045-3T must 
continue to report pursuant to those regulations. The notice observed 
that section 6043A supplements the information reporting provisions of 
sections 6043(c) and 6045, and it requested comments on the 
coordination of section 6043A with the requirements of the 2003 
temporary and proposed regulations.

Summary of Comments

    No comments were received in response to publication of the 2003 
temporary and proposed regulations. The Treasury Department and the 
IRS, however, received comments in response to Notice 2005-7. The 
subject matter of several of those comments related to issues addressed 
in the 2003 temporary and proposed regulations. A commentator 
recommended changes to the reporting obligations under the 2003 
proposed regulations in four areas. First, the commentator recommended 
that reporting corporations furnish to the IRS or to clearing 
organizations, and the IRS publish, information in addition to that set 
forth in Sec.  1.6043-4T(a)(1)(v) and (a)(2) of the temporary 
regulations, including (i) a breakdown of the amount of cash, the fair 
market value of taxable stock or other property, and the number of 
shares of nontaxable stock received with respect to each share 
exchanged, and (ii) CUSIP numbers for both the shares exchanged and 
those received. Second, the commentator recommended that the 
regulations clearly state that brokers may separately report cash and 
other property on separate Forms 1099-B. Third, the commentator 
recommended that the IRS eliminate the requirement for brokers to 
report the address of corporations and that the IRS build into the 
final regulations flexibility concerning the content of Form 1099-B. 
Finally, the commentator recommended that the Form 1099-B revert back 
to the 2003 version for 2005 and future years and that the regulations 
be modified in any way necessary to permit this result.
    In comments to Notice 2005-7, another commentator also recommended 
changes in the Form 1099-B, suggesting that the corporation's name and 
address become optional data elements.

Explanation of Final Regulations

    With the revisions explained below, the final regulations adopt the 
2003 temporary regulations. The final regulations limit the information 
reporting to transactions in which the reporting corporation or any 
shareholder is required to recognize gain (if any) under section 
367(a). The final regulations make certain clarifying changes to the 
rules of the temporary regulations and one modification in response to 
comments.
    In the final regulations, the definition of acquisition of control 
of a corporation in Sec.  1.6043-4T(c)(1)(i) has been revised to omit 
transactions where stock representing control of a corporation is 
distributed by a second corporation to shareholders of the second 
corporation because such transactions would not result in a recognition 
of gain under section 367(a) and the regulations. The rules regarding 
constructive ownership in Sec.  1.6043-4T(c)(3), two or more

[[Page 72378]]

corporations acting pursuant to a plan or arrangement in Sec.  1.6043-
4T(c)(4), and section 338 elections in Sec.  1.6043-4T(c)(5) have been 
deleted since those special rules are unnecessary regarding 
transactions that may result in recognition of gain under section 
367(a) and the regulations. The definition of change in capital 
structure in Sec.  1.6043-4T(d)(2) has been modified to remove the 
inclusion of recapitalizations and redemptions since those transactions 
would not result in a recognition of gain under section 367(a) and the 
regulations. Finally, Examples 2 and 3 in Sec.  1.6043-4T(h) have been 
omitted because those examples addressed circumstances beyond section 
367(a) and the regulations.
    The Treasury Department and the IRS continue to consider the 
comments received with respect to broker reporting under Sec.  1.6045-
3T, particularly with respect to appropriate changes to Form 1099-B and 
that form's interaction with other reporting obligations. Accordingly, 
to maintain flexibility in the design of Form 1099-B, the final 
regulations do not include the explicit requirement that Form 1099-B 
include the corporation's address.
    The proposed regulations under sections 6043(c) and 6045 issued on 
December 30, 2003 (and corrected on February 13, 2004) remain 
outstanding with respect to the transactions not covered by the final 
regulations. The Treasury Department and the IRS continue to consider 
the proper implementation of the additional information reporting 
provided in section 6043A and the coordination of reporting 
requirements under sections 6043(c), 6043A, and 6045 to transactions 
not covered by the final regulations.
    The final regulations are effective for acquisitions of control and 
substantial changes in capital structure that occur after December 5, 
2005 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) and the regulations.

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, and because the 
regulation does not impose a collection of information requirement 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, the proposed regulations preceding these regulations were 
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 regulations is Michael Hara, Office 
of Associate Chief Counsel (Procedure and Administration), 
Administrative Provisions and Judicial Practice Division.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

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

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding the 
following entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.6043-4 also issued under 26 U.S.C. 6043(c).
* * * * *
    Section 1.6045-3 also issued under 26 U.S.C. 6045.
* * * * *


0
Par. 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.

    (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. The Form 8806 will request information with respect to the 
following and such other information specified in the instructions:
    (i) Reporting corporation. 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, the name, 
address, and TIN of the common parent of that affiliated group.
    (iii) Acquiring corporation. 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) and whether the acquiring 
corporation was newly formed prior to its involvement in the 
transaction.
    (iv) Information about acquisition of control or substantial change 
in capital structure.
    (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; and
    (C) A description of and a statement of the fair market value of 
any stock and other property, if any, provided to the reporting 
corporation's shareholders in exchange for their stock.
    (2) Consent election. Form 8806 will provide the reporting 
corporation with the ability to elect to permit the Internal Revenue 
Service (IRS) to publish information that will inform brokers of the 
transaction and enable brokers to satisfy their reporting obligations 
under Sec.  1.6045-3. The information to be published, whether on the 
IRS Web site 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 stock or other property provided to each class 
of shareholders in exchange for a share.
    (3) Time for making return. 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.
    (4) Exception where transaction is reported under section 6043(a). 
No

[[Page 72379]]

reporting is required under this paragraph (a) 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 this paragraph (a) 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). The Form 
1099-CAP will request information with respect to the following and 
such other information as may be specified in the instructions:
    (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; and
    (iv) The aggregate amount of cash and the fair market value of any 
stock or other property provided to the shareholder in exchange for its 
stock.
    (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) with respect to any of the 
following shareholders that is not a clearing organization:
    (i) Any shareholder who receives stock in an exchange that is not 
subject to gain recognition under section 367(a) and the regulations.
    (ii) Any shareholder if the corporation reasonably determines that 
the total amount of cash and the fair market value of stock and other 
property received by the shareholder does not exceed $1,000.
    (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.
    (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 
within the meaning of this section.
    (6) Coordination with other sections. In general, no reporting is 
required

[[Page 72380]]

under this paragraph (b) with respect to amounts that are required to 
be reported under sections 6042 or 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 this paragraph (b) 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--
    (i) 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;
    (ii) After the acquisition, the second corporation has control of 
the first corporation;
    (iii) 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 million or more;
    (iv) The shareholders of the first corporation receive stock or 
other property pursuant to the acquisition; and
    (v) The first corporation or any shareholder of the first 
corporation is required to recognize gain (if any) under section 367(a) 
and the regulations, as a result of the transaction.
    (2) Control. For purposes of this section, control is determined in 
accordance with the first sentence of section 304(c)(1). For these 
purposes the rules of section 318 as modified by the rules of section 
958(b) shall apply in determining the ownership of stock.
    (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 
million or more.
    (2) Change in capital structure. For purposes of this section, a 
corporation has a change in capital structure if--
    (i) The corporation in a transaction or series of transactions--
    (A) Merges, consolidates or otherwise combines with another 
corporation or transfers all or substantially all of its assets to one 
or more corporations;
    (B) 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
    (C) Changes its identity, form or place of organization; and
    (ii) The corporation or any shareholder is required to recognize 
gain (if any) under section 367(a) and the regulations, as a result of 
the transaction.
    (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) and (b) of this section. If 
transferor does not satisfy one or both of those reporting obligations, 
then transferee must do so. 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 failure to satisfy 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 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 million. 
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 foreign corporation, pursuant to sections 351 and 354. After 
the transaction, Y owns all the outstanding X stock. Assume that, 
under section 367(a) and the regulations, the X shareholders must 
recognize gain (if any) on the exchange of their stock. 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. The facts are the same as in Example 1, except X 
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 Y stock received by X's 
shareholders under Sec.  1.6045-3. Under paragraph (b)(6) of this 
section, X is not required to file information returns under 
paragraph (b) of this section with respect to a shareholder of 
record, unless X knows or has reason to know that the transfer agent 
does not satisfy its information reporting obligation under Sec.  
1.6045-3 with respect to that shareholder. Thus, if the transfer 
agent satisfies its information reporting requirements under Sec.  
1.6045-3 with respect to shareholder I, an individual who receives X 
stock, X is 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.  1.6045-3 with respect to one of X's 
shareholders of record (for example, a clearing organization that is 
an exempt recipient under Sec.  1.6045-3(b)(2)), or if X knows or 
has reason to know that the transfer agent has not satisfied its 
information reporting requirement with respect to a shareholder, 
then X must provide a Form 1099-CAP to that shareholder.

    (i) Effective date. This section applies to transactions occurring 
after December 5, 2005.


Sec.  1.6043-4T  [Removed]

0
Par. 3. Section 1.6043-4T is removed.

0
Par. 4. Section 1.6045-3 is added to read as follows:


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

    (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,

[[Page 72381]]

information from a clearing organization or from information published 
by the Internal Revenue Service (IRS)) has engaged in a transaction 
described in Sec.  1.6043-4(c) (acquisition of control) or Sec.  
1.6043-4(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.
    (2) Any customer who is an exempt recipient as defined in Sec.  
1.6043-4(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. The Form 1099-B will request information with respect to 
the following and such other information as may be specified in the 
instructions:
    (1) The name, address and taxpayer identification number (TIN) of 
the customer;
    (2) The name of the corporation which engaged in the transaction 
described in Sec.  1.6043-4(c) or (d);
    (3) The number and class of shares in the corporation exchanged by 
the customer; and
    (4) The aggregate amount of cash and the fair market value of any 
stock or other property provided to the customer in exchange for its 
stock.
    (e) Furnishing of forms to customers. The Form 1099-B prepared for 
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 Sec. Sec.  1.6045-3 and 1.6045-1(c) 
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. This section applies with respect to any 
acquisition of control and any substantial change in capital structure 
occurring after December 5, 2005.


Sec.  1.6045-3T  [Removed]

0
Par. 5. Section 1.6045-3T is removed.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: November 22, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 05-23470 Filed 12-2-05; 8:45 am]
BILLING CODE 4830-01-P