[Federal Register Volume 78, Number 172 (Thursday, September 5, 2013)]
[Rules and Regulations]
[Pages 54568-54569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-21540]


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DEPARTMENT OF TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9635]
RIN 1545-BK89


Debt That Is a Position in Personal Property That Is Part of a 
Straddle

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations 
relating to the application of the straddle rules to a debt instrument. 
The temporary regulations clarify that a taxpayer's obligation under a 
debt instrument can be a position in personal property that is part of 
a straddle. The temporary regulations primarily affect taxpayers that 
issue debt instruments that provide for one or more payments that 
reference the value of personal property or a position in personal 
property. The text of these temporary regulations also serves as the 
text of the proposed regulations (REG-111753-12) set forth in the 
Proposed Rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on September 5, 
2013.
    Applicability Dates: For date of applicability, see Sec.  
1.1092(d)-1T(e).

FOR FURTHER INFORMATION CONTACT: Mary Brewer, (202) 622-4695 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

1. Summary of Prior Notice of Proposed Rule Making

    This document contains amendments to 26 CFR part 1. On January 18, 
2001, a notice of proposed rulemaking (REG-105801-00; RIN 1545-AX92) 
(the 2001 NPRM) was published in the Federal Register (66 FR 4746). The 
2001 NPRM addresses the definition of personal property for purposes of 
section 263(g) of the Internal Revenue Code (Code), the types of 
expenses subject to capitalization, and the operation of the 
capitalization rules. Another portion of the 2001 NPRM (proposed 
regulation Sec.  1.1092(d)-1(d)) would clarify the circumstances under 
which an issuer's position under a debt instrument is treated as a 
position in personal property that is part of a straddle.
    No public hearing was requested or held. Written and electronic 
comments responding to the 2001 NPRM were received, and the only 
commenter that substantively addressed proposed Sec.  1.1092(d)-1(d) 
urged its adoption. This Treasury Decision adopts proposed Sec.  
1.1092(d)-1(d) (REG-105801-00) in the form proposed. As so adopted, 
this provision is designated as Sec.  1.1092(d)-1T(d). This Treasury 
Decision also adopts the 2001 NPRM's proposed amendment to the 
effective/applicability dates (proposed Sec.  1.1092(d)-1(e)). As so 
adopted, this effective/applicability date is designated as Sec.  
1.1092(d)-1T(e)(2). The amendments are discussed in section 2 of this 
preamble. The remainder of the 2001 NPRM remains proposed.

2. Overview of the Temporary Regulations

    The temporary regulations provide guidance under section 1092 
regarding when an issuer's obligation under a debt instrument may be a 
position in actively traded personal property and, therefore, may be 
part of a straddle.
Definition of Personal Property for Purposes of Section 1092
    Section 1092(d)(1) defines ``personal property'' to mean ``personal 
property of a type that is actively traded.'' A debt or obligation 
generally is not property of the debtor or obligor. Nevertheless, if a 
debt instrument provides for payments that are (or are reasonably 
expected to be) linked to the value of personal property as so defined, 
then the obligor on the instrument has a position in the personal 
property referenced by the debt instrument.
    Section 1092(d)(7) provides that if a debt instrument is 
denominated in a nonfunctional currency, the obligor's position under 
the debt obligation is a position in the nonfunctional currency. Some 
maintain that section 1092(d)(7) evidences an intent by Congress to 
limit the circumstances in which an obligor's interest in a debt 
instrument may be a position in a straddle, and that such treatment is 
proper only with respect to debt obligations denominated in 
nonfunctional currency. The IRS and the Treasury Department do not 
believe that section 1092(d)(7) describes the only circumstance in 
which an obligor's interest in a debt instrument may be treated as part 
of a straddle. The statute and the legislative history do not contain 
any indication that Congress intended to limit section 1092 in this 
manner; rather, the legislative history characterizes section 
1092(d)(7) as a clarification of prior law:

    The Senate amendment clarifies that an obligor's interest in a 
foreign currency denominated obligation is a ``position'' for 
purposes of the loss deferral rule. The rationale for this treatment 
is that a foreign currency borrowing is economically similar to a 
short position in the foreign currency.

H.R. Rep. No. 99-841, pt. 2, at 670 (1986) (Conf. Rep.); 1986-3 (Vol. 
4) CB 670. Moreover, it is clear that an economic exposure associated 
with an obligation that is not a debt instrument (such as a written 
option or the obligation created by a short sale) may be a straddle 
position. Similarly, a debt instrument may be a position in personal 
property, and accordingly subject to the straddle rules, if the 
obligation is linked to personal property. Therefore, Sec.  1.1092(d)-
1T(d) of the temporary regulations expressly provides that an 
obligation under a debt instrument may be a position in personal 
property that is part of a straddle.
Dates of Applicability of the Regulations
    The temporary regulations adopt the effective/applicability date 
set forth in the 2001 NPRM by providing that

[[Page 54569]]

Sec.  1.1092(d)-1T(d) applies to straddles established on or after 
January 17, 2001 (the date on which the 2001 NPRM was filed with the 
Federal Register). No inference is intended with respect to straddles 
established prior to January 17, 2001. In appropriate cases, the IRS 
may take the position under section 1092(d)(2) that, even in the 
absence of a regulation, an obligation under a debt instrument was part 
of a straddle prior to the effective date of Sec.  1.1092(d)-1T(d) if 
the debt instrument functioned economically as an interest in actively 
traded personal property.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It also has 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-reference notice of proposed 
rulemaking published in the Proposed Rules section in this issue of the 
Federal Register. Pursuant to section 7805(f) of the Code, this 
regulation has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Drafting Information

    The principal author of these regulations is Mary Brewer, Office of 
Associate Chief Counsel (Financial Institutions and Products). However, 
other personnel from the IRS and the Treasury Department participated 
in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    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 an 
entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.1092(d)-1T also issued under 26 U.S.C. 1092(b)(1). * * 
*


0
Par. 2. Section 1.1092(d)-1 is amended by redesignating paragraph (d) 
as newly-designated paragraph (e) and revising newly-designated 
paragraph (e), and adding new paragraph (d) to read as follows:


Sec.  1.1092(d)-1  Definitions and special rules.

* * * * *
    (d) [Reserved]. For further guidance, see Sec.  1.1092(d)-1T(d).
    (e) Effective/applicability dates. (1) Paragraph (b)(1)(vii) of 
this section applies to positions entered into on or after October 14, 
1993. Paragraph (c) of this section applies to positions entered into 
on or after July 8, 1991.
    (2) [Reserved]. For further guidance, see Sec.  1.1092(d)-1T(e)(2).

0
Par. 3. Section 1.1092(d)-1T is added to read as follows:


Sec.  1.1092(d)-1T  Definitions and special rules (temporary).

    (a) through (c) [Reserved]. For further guidance, see Sec.  
1.1092(d)-1(a) through (c).
    (d) Debt instrument linked to the value of personal property. If a 
taxpayer is the obligor under a debt instrument one or more payments on 
which are linked to the value of personal property or a position with 
respect to personal property, then the taxpayer's obligation under the 
debt instrument is a position with respect to personal property and may 
be part of a straddle.
    (e) Effective/applicability dates--(1) [Reserved]. For further 
guidance, see Sec.  1.1092(d)-1(e)(1).
    (2) Notwithstanding paragraph (e)(1) of this section, paragraph (d) 
of this section applies to straddles established on or after January 
17, 2001.
    (f) Expiration date. The applicability of this section expires on 
September 2, 2016.

     Approved: August 26, 2013.
 Beth Tucker,
Deputy Commissioner for Operations Support.
Mark J. Mazur,
Assistant Secretary (Tax Policy).
[FR Doc. 2013-21540 Filed 9-4-13; 8:45 am]
BILLING CODE 4830-01-P