[Federal Register Volume 89, Number 134 (Friday, July 12, 2024)]
[Proposed Rules]
[Pages 57111-57120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14787]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-102161-23]
RIN 1545-BQ89


Identification of Basket Contract Transactions as Listed 
Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that would 
identify transactions that are the same as, or substantially similar 
to, certain basket contract transactions as listed transactions, a type 
of reportable transaction. Material advisors and certain participants 
in these listed transactions would be required to file disclosures with 
the IRS and would be subject to penalties for failure to disclose. The 
proposed regulations would affect participants in these transactions as 
well as material advisors. This document also provides notice of a 
public hearing on the proposed regulations.

DATES: 
    Comments: Written or electronic comments must be received by 
September 10, 2024.
    Public Hearing: A public hearing has been scheduled for September 
26, 2024, at 10:00 a.m. ET. Pursuant to Announcement 2023-16, 2023-20 
I.R.B. 854 (May 15, 2023), the public hearing is scheduled to be 
conducted in person, but the IRS will provide a telephonic option for 
individuals who wish to attend or testify at the hearing by telephone. 
Requests to speak and outlines of topics to be discussed at the public 
hearing must be received by September 10, 2024. If no outlines are 
received by September 10, 2024, the public hearing will be cancelled. 
Requests to attend the public hearing must be received by 5:00 p.m. ET 
on September 24, 2024. The hearing will be made accessible to people 
with disabilities. Requests for special assistance during the hearing 
must be received by 5:00 p.m. on September 23, 2024.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-102161-23) by following the 
online instructions for submitting comments. Once submitted to the 
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The 
Department of the Treasury (Treasury Department) and the IRS will 
publish for public availability any comments submitted to the IRS's 
public docket. Send paper submissions to: CC:PA:01:PR (REG-102161-23), 
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin 
Station, Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Danielle M. Heavey of the Office of Associate Chief Counsel (Financial 
Institutions & Products), (202) 317-5931 (not a toll-free number); 
concerning the submission of comments or the hearing, Publications and 
Regulations Section at (202) 317-6901 (not a toll-free number) or by 
email at [email protected] (preferred).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed additions to 26 CFR part 1 (Income 
Tax Regulations) under section 6011 of the Internal Revenue Code 
(Code). The proposed additions identify certain transactions as 
``listed transactions'' for purposes of section 6011.

I. Disclosure of Reportable Transactions by Participants and Penalties 
for Failure To Disclose

    Section 6011(a) generally provides that, when required by 
regulations prescribed by the Secretary of the Treasury or her delegate 
(Secretary), any person made liable for any tax imposed by this title, 
or with respect to the collection thereof, shall make a return or 
statement according to the forms and regulations prescribed by the 
Secretary. Every person required to make a return or statement shall 
include therein the information required by such forms or regulations.
    Section 1.6011-4(a) provides that every taxpayer that has 
participated in a reportable transaction within the meaning of Sec.  
1.6011-4(b) and who is required to file a tax return must file a 
disclosure statement within the time prescribed in Sec.  1.6011-4(e). 
Reportable transactions are identified in Sec.  1.6011-4 and include 
listed transactions, confidential transactions, transactions with 
contractual protection, loss transactions, and transactions of 
interest. See Sec.  1.6011-4(b)(2) through (6). Section 1.6011-4(b)(2) 
defines a listed transaction as a transaction that is the same as or 
substantially similar to one of the types of transactions that the IRS 
has determined to be a tax avoidance transaction and identified by

[[Page 57112]]

notice, regulation, or other form of published guidance as a listed 
transaction. Section 1.6011-4(b)(6) defines a ``transaction of 
interest'' as a transaction that is the same as or substantially 
similar to one of the types of transactions that the IRS has identified 
by notice, regulation, or other form of published guidance as a 
transaction of interest.
    Section 1.6011-4(c)(4) provides that a transaction is 
``substantially similar'' if it is expected to obtain the same or 
similar types of tax consequences and is either factually similar or 
based on the same or similar tax strategy. Receipt of an opinion 
regarding the tax consequences of the transaction is not relevant to 
the determination of whether the transaction is the same as or 
substantially similar to another transaction. Further, the term 
substantially similar must be broadly construed in favor of disclosure. 
For example, a transaction may be substantially similar to a listed 
transaction even though it may involve different entities or use 
different Code provisions.
    Section 1.6011-4(c)(3)(i)(A) provides that a taxpayer has 
participated in a listed transaction if the taxpayer's tax return 
reflects tax consequences or a tax strategy described in the published 
guidance that lists the transaction under Sec.  1.6011-4(b)(2). 
Published guidance may identify other types or classes of persons that 
will be treated as participants in a listed transaction. Published 
guidance may also identify types or classes of persons that will not be 
treated as participants in a listed transaction. Section 1.6011-
4(c)(3)(i)(E) provides that a taxpayer has participated in a 
transaction of interest if the taxpayer is one of the types or classes 
of persons identified as participants in the transaction in the 
published guidance describing the transaction of interest.
    Sections 1.6011-4(d) and (e) provide that the disclosure-
statement--Form 8886, Reportable Transaction Disclosure Statement (or 
successor form)--must be attached to the taxpayer's tax return for each 
taxable year for which a taxpayer participates in a reportable 
transaction. A copy of the disclosure statement must be sent to IRS's 
Office of Tax Shelter Analysis (OTSA) at the same time that any 
disclosure statement is first filed by the taxpayer pertaining to a 
particular reportable transaction.
    Section 1.6011-4(e)(2)(i) provides that if a transaction becomes a 
listed transaction or a transaction of interest after the filing of a 
taxpayer's tax return reflecting the taxpayer's participation in the 
transaction and before the end of the period of limitations for 
assessment for any taxable year in which the taxpayer participated in 
the transaction, then a disclosure statement must be filed with OTSA 
within 90 calendar days after the date on which the transaction becomes 
a listed transaction or transaction of interest. This requirement 
extends to an amended return and exists regardless of whether the 
taxpayer participated in the transaction in the year the transaction 
became a listed transaction or transaction of interest. The 
Commissioner of Internal Revenue may also determine the time for 
disclosure of listed transactions and transactions of interest in the 
published guidance identifying the transaction.
    Participants required to disclose these transactions under Sec.  
1.6011-4 who fail to do so are subject to penalties under section 
6707A. Section 6707A(b) provides that the amount of the penalty is 75 
percent of the decrease in tax shown on the return as a result of the 
reportable transaction (or which would have resulted from such 
transaction if such transaction were respected for Federal tax 
purposes), subject to minimum and maximum penalty amounts. The minimum 
penalty amount is $5,000 in the case of a natural person and $10,000 in 
any other case. For listed transactions, the maximum penalty amount is 
$100,000 in the case of a natural person and $200,000 in any other 
case. For other reportable transactions, including transactions of 
interest, the maximum penalty is $10,000 in the case of a natural 
person and $50,000 in any other case.
    Additional penalties may also apply. In general, section 6662A 
imposes a 20 percent accuracy-related penalty on any understatement (as 
defined in section 6662A(b)(1)) attributable to an adequately disclosed 
reportable transaction. If the taxpayer had a requirement to disclose 
participation in the reportable transaction but did not adequately 
disclose the transaction in accordance with the regulations under 
section 6011, the taxpayer is subject to an increased penalty rate 
equal to 30 percent of the understatement. See section 6662A(c). 
Section 6662A(b)(2) provides that section 6662A applies to any item 
which is attributable to any listed transaction and any reportable 
transaction (other than a listed transaction) if a significant purpose 
of such transaction is the avoidance or evasion of Federal income tax.
    Participants required to disclose listed transactions who fail to 
do so are also subject to an extended period of limitations under 
section 6501(c)(10). That section provides that the time for assessment 
of any tax with respect to the transaction does not expire before the 
date that is one year after the earlier of the date the participant 
discloses the transaction or the date a material advisor discloses the 
participation pursuant to a written request under section 
6112(b)(1)(A).

II. Disclosure of Reportable Transactions by Material Advisors and 
Penalties for Failure To Disclose

    Section 6111(a) provides that ``[e]ach material advisor with 
respect to any reportable transaction shall make a return . . . setting 
forth . . . (1) information identifying and describing the transaction, 
(2) information describing any potential tax benefits expected to 
result from the transaction, and (3) such other information as the 
Secretary may prescribe. Such return shall be filed not later than the 
date specified by the Secretary.''
    Section 301.6111-3(a) of the Procedure and Administration 
Regulations provides that each material advisor with respect to any 
reportable transaction, as defined in Sec.  1.6011-4(b), must file a 
return as described in Sec.  301.6111-3(d) by the date described in 
Sec.  301.6111-3(e).
    Section 301.6111-3(b)(1) provides that a person is a material 
advisor with respect to a transaction if the person provides any 
material aid, assistance, or advice with respect to organizing, 
managing, promoting, selling, implementing, insuring, or carrying out 
any reportable transaction, and directly or indirectly derives gross 
income in excess of the threshold amount as defined in Sec.  301.6111-
3(b)(3) for the material aid, assistance, or advice. Under Sec.  
301.6111-3(b)(2)(i) and (ii), a person provides material aid, 
assistance, or advice if the person provides a tax statement, which is 
any statement (including another person's statement), oral or written, 
that relates to a tax aspect of a transaction that causes the 
transaction to be a reportable transaction as defined in Sec.  1.6011-
4(b)(2) through (7).
    Material advisors must disclose transactions on Form 8918, Material 
Advisor Disclosure Statement (or successor form), as provided in Sec.  
301.6111-3(d) and (e). Section 301.6111-3(e) provides that the material 
advisor's disclosure statement for a reportable transaction must be 
filed with OTSA by the last day of the month that follows the end of 
the calendar quarter in which the advisor becomes a material advisor 
with respect to a reportable transaction or in which the circumstances 
necessitating an amended disclosure statement occur. The disclosure 
statement must be sent to

[[Page 57113]]

OTSA at the address provided in the instructions for Form 8918 (or 
successor form).
    Section 301.6111-3(d)(2) provides that the IRS will issue to a 
material advisor a reportable transaction number with respect to the 
disclosed reportable transaction. Receipt of a reportable transaction 
number does not indicate that the disclosure statement is complete, nor 
does it indicate that the transaction has been reviewed, examined, or 
approved by the IRS. Material advisors must provide the reportable 
transaction number to all taxpayers and material advisors for whom the 
material advisor acts as a material advisor as defined in Sec.  
301.6111-3(b). The reportable transaction number must be provided at 
the time the transaction is entered into, or, if the transaction is 
entered into prior to the material advisor receiving the reportable 
transaction number, within 60 calendar days from the date the 
reportable transaction number is mailed to the material advisor.
    Section 6707(a) provides that a material advisor who fails to file 
a timely disclosure, or files an incomplete or false disclosure 
statement, is subject to a penalty. Pursuant to section 6707(b)(2), for 
listed transactions, the penalty is the greater of (A) $200,000, or (B) 
50 percent of the gross income derived by such person with respect to 
aid, assistance, or advice which is provided with respect to the listed 
transaction before the date the return is filed under section 6111. 
Pursuant to section 6707(b)(1), the penalty for other reportable 
transactions, including transactions of interest, is $50,000.
    A material advisor may also be subject to a penalty under section 
6708 for failing to maintain a list under section 6112(a) and failing 
to make the list available upon written request to the Secretary in 
accordance with section 6112(b) within 20 business days after the date 
of such request. Section 6708(a) provides that the penalty is $10,000 
per day for each day of the failure after the 20th day. However, no 
penalty will be imposed with respect to the failure on any day if such 
failure is due to reasonable cause.
    Additionally, section 6112(a) provides that ``[e]ach material 
advisor . . . with respect to any reportable transaction . . . shall 
(whether or not required to file a return under section 6111 with 
respect to such transaction) maintain (in such manner as the Secretary 
may by regulations prescribe) a list (1) identifying each person with 
respect to whom such advisor acted as a material advisor with respect 
to such transaction and (2) containing such other information as the 
Secretary may by regulations require.'' Material advisors must furnish 
such lists to the IRS in accordance with Sec.  301.6112-1(e).

III. Basket Contract Transactions and Notices 2015-73 and 2015-74

    The Treasury Department and the IRS are aware of a type of 
structured financial transaction in which a taxpayer attempts to defer 
income recognition and to convert short-term capital gain and ordinary 
income to long-term capital gain using a contract denominated as an 
option, notional principal contract, forward contract, or other 
derivative contract (basket contract). On July 8, 2015, the Treasury 
Department and the IRS released Notice 2015-47, 2015-30 I.R.B. 76, 
which identified certain basket contracts described in that notice as 
listed transactions. In addition, on July 8, 2015, the Treasury 
Department and the IRS released Notice 2015-48, 2015-30 I.R.B. 77, 
which identified certain basket contracts described in that notice as 
transactions of interest. Although Notice 2015-47 and Notice 2015-48 
did not request comments, some industry comments were submitted 
expressing concern that difficulty in identifying transactions 
described in Notice 2015-47 and Notice 2015-48 may cause taxpayers to 
file disclosures for transactions that were not intended to be treated 
as listed transactions or transactions of interest.
    Responding to these concerns, on October 21, 2015, the Treasury 
Department and the IRS released Notice 2015-73, 2015-46 I.R.B. 660, 
which revoked Notice 2015-47 and provided additional details on the 
types of basket contracts that were identified as listed transactions. 
Similarly, on October 21, 2015, the Treasury Department and the IRS 
released Notice 2015-74, 2015-46 I.R.B. 663, which revoked Notice 2015-
48 and provided additional details on the types of basket contracts 
that were identified as transactions of interest. Also in response to 
commenter concerns, Notice 2015-73 and Notice 2015-74 more specifically 
describe the tax benefits that identify the transaction as a listed 
transaction or transaction of interest, respectively.
    The background section of Notice 2015-73 provides the following 
description of one type of structured financial transaction that the 
Treasury Department and the IRS were concerned about when the Notice 
was issued: a taxpayer (T) enters into a contract denominated as an 
option with a counterparty (C) to receive a return based on the 
performance of a notional basket of referenced actively traded personal 
property (reference basket). T, or a designee named by T, will either 
determine the assets that comprise the reference basket or design or 
select a trading algorithm that determines the assets. While the basket 
contract remains open, T \1\ has the right to change the assets in the 
reference basket, request that C change the assets in the reference 
basket, change the trading algorithm, or request that C change the 
trading algorithm (collectively, discretion). The terms of the basket 
contract may permit C to reject certain changes requested by T to the 
assets in the reference basket or the trading algorithm. C, however, 
generally accepts all or nearly all of the changes requested by T.
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    \1\ When used in this sentence and subsequently with respect to 
changing or requesting changes to the assets in the reference basket 
or the trading algorithm, references to ``T'' include T's designee.
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    When the basket contract is entered into, T typically makes an 
upfront cash payment to C of between 10 and 40 percent of the value of 
the assets in the reference basket. To manage its risk under the basket 
contract, C typically acquires substantially all of the assets in the 
reference basket at the inception of the contract and acquires and 
disposes of assets during the term of the contract either when T 
changes the assets in the reference basket or the trading algorithm 
provides for such changes. C generally supplies the additional cash 
required to purchase the assets in the reference basket. The assets in 
the reference basket would typically generate ordinary income if held 
directly by T, and short-term gains and losses if purchases and sales 
of the assets were carried out directly by T.
    The basket contract has a stated term of more than one year but 
contains provisions that in effect allow either party to terminate the 
contract at any time during the stated contract term with proper 
notice. The amount that T receives upon settlement of the basket 
contract is based on the performance of the assets in the reference 
basket. A common payout formula on the basket contract entitles T to a 
return equal to the upfront payment, plus net basket gain or minus net 
basket loss. The net basket gain or net basket loss includes net 
changes in the values of the assets in the reference basket, together 
with interest, dividend, and other periodic income on the assets, 
reduced by C's fee for its role in the transaction. The basket contract 
typically includes a provision automatically terminating the contract 
if the amount of the net basket loss reaches the amount of the upfront 
payment, giving T a cash settlement

[[Page 57114]]

amount of zero. The basket contract also may permit or require T to 
provide additional collateral or otherwise reduce risk in the reference 
basket if a specified level of risk is reached.
    The basket contract typically contains other safeguards to minimize 
the economic risk to C. For example, C may terminate the basket 
contract if T violates investment guidelines that are part of the 
contract. C typically holds the rights associated with legal title to 
the assets and positions in the reference basket, including voting 
rights and the right to comingle, lend, pledge, transfer, or otherwise 
use the assets in the basket without notice to T.
    Notice 2015-73 identifies a transaction as being the same as, or 
substantially similar to, the described basket contract transaction 
only if: (1) T enters into a transaction with C that is denominated as 
an option contract; (2) T receives a return based on the performance of 
the reference basket; (3) substantially all of the assets in the 
reference basket primarily consist of actively traded personal property 
as defined under Sec.  1.1092(d)-1(a); (4) the contract is not fully 
settled at intervals of one year or less; (5) T or T's designee has 
exercised discretion to change (either directly or through a request to 
C) the assets in the reference basket or the trading algorithm; and (6) 
T's tax return for a taxable year ending on or after January 1, 2011 
reflects a tax benefit consisting of a deferral of income into a later 
taxable year or a conversion of ordinary income or short-term capital 
gain or loss into long-term capital gain or loss.
    The basket contracts identified as transactions of interest in 
Notice 2015-74 closely resemble the basket contracts identified as 
listed transactions in Notice 2015-73. The primary factual differences 
between the basket contracts identified in Notice 2015-73 and the 
basket contracts identified in Notice 2015-74 are: (1) the form of the 
derivative contract; (2) the type of assets in the reference basket; 
and (3) the term of the contract. Regarding the form of the derivative 
contract, Notice 2015-73 identifies only contracts denominated as 
options, while Notice 2015-74 identifies contracts more generally, 
including those denominated as options, notional principal contracts, 
forwards, or other derivative contracts. Regarding the type of assets 
in the reference basket, the transactions identified in Notice 2015-73 
are transactions in which substantially all of the assets in the 
reference basket primarily consist of actively traded personal property 
as defined under Sec.  1.1092(d)-1(a), while, with respect to the 
contracts identified in Notice 2015-74, the assets that comprise the 
reference basket can include (i) interests in entities that trade 
securities, commodities, foreign currency, or similar property (hedge 
fund interests), (ii) securities, (iii) commodities, (iv) foreign 
currency, or (v) similar property (or positions in such property). 
Regarding the term of the contract, Notice 2015-73 identifies contracts 
with a term of more than one year, while Notice 2015-74 identifies 
contracts with a term of more than one year and contracts that overlap 
two taxable years.
    In the basket contracts identified in Notice 2015-73 and Notice 
2015-74, T takes the position that T's short-term trading gains and 
interest, dividend, and other ordinary income from the performance of 
the reference basket are deferred until the basket contract terminates 
and, if the basket contract is held for more than one year, that the 
entire gain is treated as long-term capital gain. The Treasury 
Department and the IRS are concerned that taxpayers may be using basket 
contracts to inappropriately defer income recognition or convert 
ordinary income or short-term capital gain into long-term capital gain. 
The Treasury Department and the IRS are also concerned that taxpayers 
may be mischaracterizing the transaction as an option or certain other 
derivatives in an effort to avoid application of section 1260 (with 
respect to constructive ownership transactions), section 1291 (with 
respect to passive foreign investment companies), or both.

Explanation of Provisions

A. Basket Contract Listed Transactions

1. In General
    Since the release of Notice 2015-74, examinations of taxpayers and 
promoters and information received through disclosures filed in 
response to Notice 2015-74 have clarified the Treasury Department's and 
the IRS's understanding of basket contracts identified in Notice 2015-
74. The information received indicates that basket contracts identified 
in Notice 2015-74 have been used to inappropriately defer income 
recognition or inappropriately convert ordinary income or short-term 
capital gain into long-term capital gain. In other words, the Treasury 
Department and the IRS believe that there is now sufficient information 
to conclude that one or both of the abuses about which the Treasury 
Department and the IRS are concerned exists in the transactions 
identified in both Notice 2015-73 and Notice 2015-74. Therefore, the 
Treasury Department and the IRS are proposing in these proposed 
regulations to identify both the transactions in Notice 2015-73 and the 
transactions in Notice 2015-74 as listed transactions. Consistent with 
this determination, the definition of a basket contract listed 
transaction in these proposed regulations would include the 
transactions in Notice 2015-74.
    The IRS may assert one or more arguments to challenge the parties' 
tax characterization of a basket contract, including: (1) that C, in 
substance, holds the assets in the reference basket as an agent of T 
and that T is the beneficial owner of the assets for tax purposes; (2) 
that the basket contract is not an option or other derivative contract 
for tax purposes; (3) that changes to the assets in the reference 
basket during the year materially modify the basket contract and result 
in taxable dispositions of the contract under section 1001 of the Code 
throughout the term of the contract; (4) that T actually owns separate 
contractual rights with respect to each asset in the reference basket 
such that each change to assets in the basket results in a taxable 
disposition of a contractual right under section 1001 with respect to 
the asset affected by the change; (5) that T is mischaracterizing the 
transaction as an option or certain other derivatives in an effort to 
avoid application of section 1260 (with respect to constructive 
ownership transactions), section 1291 (with respect to passive foreign 
investment companies), or both; (6) that a change from accounting for 
basket contracts as derivative contracts with respect to the referenced 
assets to accounting for the contracts in a manner consistent with T's 
beneficial ownership of the referenced assets results in one or more 
accounting method changes within the meaning of section 446; and (7) 
any accounting method change generally will be implemented with a 
section 481(a) adjustment that takes on the character of the item to 
which the adjustment relates. The IRS may also assert other arguments 
supporting the conclusion that T is the beneficial owner of the assets 
in the reference basket for tax purposes. Furthermore, the IRS may 
challenge, including by asserting judicial doctrines, claimed tax 
positions under sections 871, 881, and 882 or other provisions of the 
Code, and may assert failures to comply with reporting obligations 
associated with investments in passive foreign investment companies and 
withholding and reporting obligations under chapters 3 and 4 of the 
Code.

[[Page 57115]]

2. Definition of Basket Contract Listed Transaction
    Proposed Sec.  1.6011-16(a) would provide that a transaction that 
is the same as, or substantially similar to, a transaction described in 
proposed Sec.  1.6011-16(c) is a listed transaction for purposes of 
Sec.  1.6011-4(b)(2), except as provided in proposed Sec.  1.6011-
16(d).
    Proposed Sec.  1.6011-16(b) would provide definitions of terms used 
to describe basket contract listed transactions, including counterparty 
(or C), taxpayer (or T), designee, discretion, tax benefit, and 
reference basket.
    The term designee, with respect to a T having discretion or having 
exercised discretion, is defined in proposed Sec.  1.6011-16(b)(3) as 
any person who is: T's agent under principles of agency law; 
compensated by T for suggesting, requesting, or determining changes in 
the assets in the reference basket or the trading algorithm; or 
selected by T to suggest, request, or determine changes in the assets 
in the reference basket or the trading algorithm. A person would not, 
however, be treated as compensated or selected by T as a result of: the 
person's position as an investment advisor, officer, or employee of an 
entity, such as a mutual fund, when the entity's publicly offered 
securities are included in the reference basket; or the person's use 
of, the person's payment of a licensing fee for the right to use, or 
the person's authority to suggest, request, or determine changes in the 
assets included in a widely used and publicly quoted index that is 
based on objective financial information or an index that tracks a 
broad market or a market segment.
    With respect to the term discretion, proposed Sec.  1.6011-16(b)(4) 
would provide that discretion includes T's right to change, either 
directly or through a request to C, the assets in the reference basket 
or the trading algorithm, even if the terms of the transaction permit C 
to reject certain changes requested by T to the assets in the reference 
basket or the trading algorithm. T would not be treated as having 
discretion to change (either directly or through a request to C) the 
assets in the reference basket or the trading algorithm if changes in 
the assets in the reference basket or the trading algorithm were made 
according to objective instructions, operations, or calculations that 
were disclosed at the inception of the transaction (the rules) and T 
does not have the right to alter or amend the rules during the term of 
the transaction or to deviate from the assets in the reference basket 
or the trading algorithm selected in accordance with the rules. For 
these purposes, T would not be treated as having the right to alter or 
amend the rules solely because T has the authority: to exercise routine 
judgment in the administration of the rules, which would not include 
deviations or alterations to the rules that are designed to improve the 
financial performance of the reference basket; to correct errors in the 
implementation of the rules or calculations made pursuant to the rules; 
or to make an adjustment to respond to an unanticipated event outside 
of T's control, such as a stock split, merger, listing or delisting, 
nationalization, or insolvency of a component of a basket, a disruption 
in the financial markets for specific assets or in a particular 
jurisdiction, regulatory compliance requirement, force majeure, or any 
other unanticipated event of similar magnitude and significance.
    The term tax benefit would be defined in proposed Sec.  1.6011-
16(b)(5) as a deferral of income into a later taxable year or a 
conversion of ordinary income or short-term capital gain or loss into 
long-term capital gain or loss.
    The term reference basket would be defined in proposed Sec.  
1.6011-16(b)(6) as a notional basket of assets that may include: 
actively traded personal property as defined under Sec.  1.1092(d)-
1(a); interests in entities that trade securities, commodities, foreign 
currency, digital assets as defined in section 6045(g)(3)(D), or 
similar property; securities; commodities; foreign currency; digital 
assets as defined in section 6045(g)(3)(D); or similar property (or 
positions in such property).
    The types of assets included in the definition of reference basket 
in these proposed regulations would be expanded from the types set 
forth in Notice 2015-73 and Notice 2015-74. Specifically, since the 
publication of Notice 2015-73 and Notice 2015-74, digital assets have 
grown in popularity as an investment or trading asset. Taxpayers can 
trade digital assets directly and also trade digital assets through 
derivatives, including futures and option contracts, on digital assets. 
The Treasury Department and the IRS believe that derivatives on digital 
assets raise the same issues as derivatives on other types of assets. 
As a result, the types of assets in the definition of reference basket 
in these proposed regulations include digital assets. No inference is 
intended as to whether a digital asset should or should not be properly 
classified for Federal income tax purposes as a security, commodity, 
option, securities futures contract, regulated futures contract, or 
forward contract. Similarly, the potential characterization of digital 
assets as securities, commodities, or derivatives for purposes of any 
other legal regime, such as the Federal securities laws and the 
Commodity Exchange Act, is outside the scope of these proposed 
regulations.
    A transaction would be described in proposed Sec.  1.6011-16(c) if 
it meets the five elements described in proposed Sec.  1.6011-16(c)(1) 
through (5). These five elements are as follows:
    (i) T enters into a contract with C, including a contract 
denominated as an option, notional principal contract (as defined in 
Sec.  1.446-3(c)(1)(i)), forward contract, or other derivative contract 
to receive a return based on the performance of a reference basket;
    (ii) The contract has a stated term of more than one year, or 
overlaps two of T's taxable years;
    (iii) T or T's designee has exercised discretion to change (either 
directly or through a request to C) the assets in the reference basket 
or the trading algorithm;
    (iv) T's tax return for a taxable year ending on or after January 
1, 2011, reflects a tax benefit described in proposed Sec.  1.6011-
16(b)(5) with respect to the transaction; and
    (v) The transaction is not described in proposed Sec.  1.6011-
16(d).
3. Exceptions
    Proposed Sec.  1.6011-16(d) would provide that a transaction is not 
the same as, or substantially similar to, the transaction described in 
proposed Sec.  1.6011-16(c) if any of the three exceptions described in 
proposed Sec.  1.6011-16(d)(1) through (3) applies. Certain exceptions 
would apply only to C. Proposed Sec.  1.6011-16(d) would provide that 
these three exceptions are as follows:
    (i) The contract is traded on a national securities exchange that 
is regulated by the Securities and Exchange Commission or a domestic 
board of trade regulated by the Commodity Futures Trading Commission, 
or a foreign exchange or board of trade that is subject to regulation 
by a comparable regulator.
    (ii) The contract is treated as a contingent payment debt 
instrument under Sec.  1.1275-4 (including a short-term contingent 
payment debt instrument) or a variable rate debt instrument under Sec.  
1.1275-5.
    (iii) With respect to C, if:
    (A) T represents to C in writing under penalties of perjury that 
none of T's tax returns for taxable years ending on or after January 1, 
2011, has reflected or will reflect a tax benefit of the transaction 
that is described in proposed Sec.  1.6011-16(b)(5); or

[[Page 57116]]

    (B) C has established that T is a nonresident alien that is not 
engaged in a U.S. trade or business or a foreign corporation that is 
not engaged in a U.S. trade or business by obtaining a valid 
withholding certificate (W-8BEN, Certificate of Foreign Status of 
Beneficial Owner for United States Tax Withholding and Reporting 
(Individuals), or W-8BEN-E, Certificate of Status of Beneficial Owner 
for United States Tax Withholding and Reporting (Entities) (or 
successor forms)) upon which it may rely under the requirements of 
Sec.  1.1441-1 from T as the beneficial owner of the payments made or 
to be made under the basket contract, or in the case of payments made 
outside of the U.S. on offshore obligations, by obtaining documentary 
evidence described in Sec.  1.1441-1(c)(17) upon which it is permitted 
to rely.
4. Participants
    Proposed Sec.  1.6011-16(e) would provide the rules for determining 
who is a participant in a listed transaction identified in proposed 
Sec.  1.6011-16(a). The rules provided in proposed Sec.  1.6011-16(e) 
generally are consistent with Notice 2015-73 and Notice 2015-74, which 
included rules regarding the treatment of a general partner of a 
partnership or a managing member of a limited liability company as a 
participant. However, because an entity may be treated as a partnership 
for Federal tax purposes but not have one or more general partners or 
managing members, proposed Sec.  1.6011-16(e) would provide that in 
such a case each partner is a participant for purposes of Sec.  1.6011-
4(c)(3)(i)(A).

B. Effect of Becoming a Listed Transaction Under These Regulations

    If these proposed regulations are finalized as proposed, taxpayers 
that participate in the basket contract transactions that would be 
identified as listed transactions by these proposed regulations, and 
persons who act as material advisors with respect to these 
transactions, would be required to disclose these transactions in 
accordance with the final regulations and the regulations issued under 
sections 6011 and 6111. Material advisors also would have list 
maintenance requirements under the final regulations and the 
regulations issued under section 6112. Participants required to 
disclose these transactions under Sec.  1.6011-4 who fail to do so 
would be subject to penalties under section 6707A. Participants 
required to disclose listed transactions under Sec.  1.6011-4 who fail 
to do so would also be subject to an extended period of limitations 
under section 6501(c)(10). Material advisors required to disclose these 
transactions under section 6111 who fail to do so would be subject to 
the penalty under section 6707. Material advisors required to maintain 
lists of investors under section 6112 who fail to do so (or who fail to 
provide such lists when requested by the IRS) would be subject to the 
penalty under section 6708(a). In addition, the IRS might impose other 
penalties on persons involved in these transactions or substantially 
similar transactions, including accuracy-related penalties under 
section 6662 or section 6662A, the section 6694 penalty for 
understatements of a taxpayer's liability by a tax return preparer, the 
section 6700 penalty for promoting abusive tax shelters, and the 
section 6701 penalty for aiding and abetting understatement of a tax 
liability.
    Taxpayers who have filed a tax return (including an amended return 
(or Administrative Adjustment Request (AAR) for certain partnerships)) 
reflecting their participation in these transactions prior to [date of 
publication of final regulations in the Federal Register] would be 
required to disclose the transactions as provided in Sec.  1.6011-4(d) 
and (e) provided that the period of limitations for assessment of tax, 
including any applicable extensions, for any taxable year in which the 
taxpayer participated in the transaction has not ended on or before 
[date of publication of final regulations in the Federal Register].
    Taxpayers who have filed a tax return reflecting their 
participation in a basket contract transaction identified as a listed 
transaction in Notice 2015-73 and in the final regulations before [date 
of publication of final regulations in the Federal Register] and who 
have not disclosed the transaction pursuant to Notice 2015-73 would be 
required by the final regulations and Sec.  1.6011-4(e)(2)(i) to file a 
disclosure within 90 calendar days after [date of publication of final 
regulations in the Federal Register] if the period of limitations for 
assessment for any taxable year in which the taxpayer participated in 
the transaction remains open.
    A participant in a transaction that is a basket contract listed 
transaction that has previously filed a disclosure statement with OTSA 
pursuant to Notice 2015-73 regarding the transaction would be treated 
as having disclosed the transaction pursuant to the final regulations 
for taxable years for which the taxpayer filed returns before [date of 
publication of final regulations in the Federal Register]. However, if 
a taxpayer described in the preceding sentence participates in the 
basket contract listed transaction in a taxable year for which the 
taxpayer files a return on or after [date of publication of final 
regulations in the Federal Register], the taxpayer would be required to 
file a disclosure statement with OTSA at the same time the taxpayer 
files its return for the first such taxable year.
    A participant in a transaction that is a basket contract listed 
transaction under the proposed regulations and that is identified as a 
transaction of interest under Notice 2015-74 would be required to file 
a disclosure statement with OTSA when required to do so under the rules 
provided in Sec.  1.6011-4(e)(2)(i) for disclosure of listed 
transactions, notwithstanding that the participant has previously 
disclosed the transaction to OTSA pursuant to Notice 2015-74.
    In addition, material advisors would have disclosure requirements 
with regard to transactions occurring in prior years. However, 
notwithstanding Sec.  301.6111-3(b)(4)(i) and (ii), material advisors 
would be required to disclose only if they have made a tax statement on 
or after the date that is 6 years before [date of publication of final 
regulations in the Federal Register].
    A material advisor with respect to a transaction that is a basket 
contract listed transaction would be required to file a disclosure 
statement with OTSA when required to do so under Sec.  301.6111-3(e), 
regardless of whether the material advisor has previously disclosed the 
transaction to OTSA pursuant to Notice 2015-73 or Notice 2015-74.

Proposed Applicability Dates

    Proposed Sec.  1.6011-16 would identify transactions that are the 
same as, or substantially similar to, the basket contract transactions 
described in proposed Sec.  1.6011-16(c) as listed transactions 
effective as of [date of publication of final regulations in the 
Federal Register].

Effect on Other Documents

    This document obsoletes Notice 2015-74, 2015-46 I.R.B. 663, as of 
July 12, 2024. These proposed regulations do not obsolete, revoke, or 
modify Notice 2015-73, 2015-46 I.R.B. 660.

Special Analyses

I. Regulatory Planning and Review

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject

[[Page 57117]]

to the requirements of section 6 of Executive Order 12866, as amended. 
Therefore, a regulatory impact assessment is not required.

II. Paperwork Reduction Act

    The collection of information contained in these proposed 
regulations is reflected in the collection of information for Forms 
8886 and 8918 that have been reviewed and approved by OMB in accordance 
with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under control 
numbers 1545-1800 and 1545-0865.
    To the extent there is a change in burden as a result of these 
regulations, the change in burden will be reflected in the updated 
burden estimates for the Forms 8886 and 8918. The requirement to 
maintain records to substantiate information on Forms 8886 and 8918 is 
already contained in the burden associated with the control numbers for 
the forms and is unchanged.
    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.

III. Regulatory Flexibility Act

    The Secretary of the Treasury hereby certifies that the proposed 
regulations will not have a significant economic impact on a 
substantial number of small entities pursuant to the Regulatory 
Flexibility Act (5 U.S.C. chapter 6).
    The basis for these proposed regulations relates to the 
transactions described in Notice 2015-73 and Notice 2015-74. The 
following charts set forth the gross receipts of respondents to Notice 
2015-73 and Notice 2015-74, based on data for the tax year 2021. The 
number of small entities affected in all cases is expected to be less 
than 50.

------------------------------------------------------------------------
                                                        Firms    Filings
                       Receipts                          (%)       (%)
------------------------------------------------------------------------
                   Notice 2015-73 Respondents by Size
------------------------------------------------------------------------
Under 25M............................................       60        10
Over 25M.............................................       40        90
------------------------------------------------------------------------
                   Notice 2015-74 Respondents by Size
------------------------------------------------------------------------
Under 25M............................................       75        33
Over 25M.............................................       25        67
------------------------------------------------------------------------

    These charts show that the majority of respondents reported gross 
receipts under $25 million. The proposed regulations will not have a 
significant economic impact on these entities because the proposed 
regulations implement sections 6111 and 6112 and Sec.  1.6011-4 by 
specifying the manner in which and the time at which an identified 
basket contract transaction must be reported. Accordingly, because the 
proposed regulations are limited in scope to time and manner of 
information reporting and definitional information, the economic impact 
of the proposal is expected to be minimal.
    Further, the Treasury Department and the IRS expect that the 
reporting burden is low; the information sought is necessary for 
regular annual return preparation and ordinary recordkeeping. The 
estimated burden for any taxpayer required to file Form 8886 is 
approximately 10 hours, 16 minutes for recordkeeping; 4 hours, 50 
minutes for learning about the law or the form; and 6 hours, 25 minutes 
for preparing, copying, assembling, and sending the form to the IRS. 
The IRS's Research, Applied Analytics, and Statistics division 
estimates that the appropriate wage rate for this set of taxpayers is 
$59.45 (2021 dollars) per hour for Notice 2015-73 and $55.67 (2021 
dollars) per hour for Notice 2015-74. Thus, it is estimated that a 
respondent will incur costs of approximately $1,873.67 per filing for 
Notice 2015-73 and $1,754.53 per filing for Notice 2015-74. Disclosures 
received to date by the Treasury Department and the IRS in response to 
the reporting requirements of Notice 2015-73 and Notice 2015-74 
indicate that this small amount will not pose any significant economic 
impact for those taxpayers who would be required to disclose if the 
proposed regulations were finalized as proposed.
    For the reasons stated, a regulatory flexibility analysis under the 
Regulatory Flexibility Act is not required. The Treasury Department and 
the IRS invite comments on the impact of the proposed regulations on 
small entities. Pursuant to section 7805(f) of the Code, this notice of 
proposed rulemaking has been submitted to the Chief Counsel for the 
Office of Advocacy of the Small Business Administration for comment on 
its impact on small business.

IV. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditures in any one year by a 
State, local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million (updated annually for inflation). This proposed 
rule does not include any Federal mandate that may result in 
expenditures by State, local, or Tribal governments or by the private 
sector in excess of that threshold.

V. Executive Order 13132: Federalism

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. This proposed rule does not have 
federalism implications and does not impose substantial direct 
compliance costs on State and local governments or preempt State law 
within the meaning of the Executive order.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to any comments 
regarding the notice of proposed rulemaking that are submitted timely 
to the IRS as prescribed in the preamble under the ADDRESSES section.
    The Treasury Department and the IRS request comments on all aspects 
of the proposed regulations. The Treasury Department and the IRS are 
aware that there have been developments in the financial markets since 
Notice 2015-73 and Notice 2015-74 were issued, and that taxpayers may 
have questions about how certain definitions or terms in the notices 
apply to transactions of a kind that did not exist at that time. 
Accordingly, the Treasury Department and the IRS are soliciting 
comments in order to better understand these more recent transactions 
and to determine whether any responsive changes should be made to the 
proposed regulations. Any comment should explain how any proposal 
contained in the comment would be consistent with the objective of 
these proposed regulations to require disclosure of transactions 
involving the abuse described in these proposed regulations to enable 
the Treasury Department and the IRS to learn about abusive 
transactions.
    The Treasury Department and the IRS specifically request comments 
on the following:
    1. Are there types of transactions to which the proposed 
regulations may apply that did not exist when Notice 2015-73 and Notice 
2015-74 were issued?
    2. Specific examples of indices that should qualify as a ``widely 
used and publicly quoted index that is based on objective financial 
information'' (see proposed Sec.  1.6011-16(b)(3)(ii)(B)).
    3. Specific examples of indices that should be treated as one that 
``tracks a broad market or a market segment'' (see proposed Sec.  
1.6011-16(b)(3)(ii)(B)).

[[Page 57118]]

    4. Specific examples of ``objective instructions, operations or 
calculations'' (see proposed Sec.  1.6011-16(b)(4)(ii)(A)).
    5. Specific examples of the exercise of ``routine judgment in the 
administration of the rules'' (see proposed Sec.  1.6011-
16(b)(4)(iii)(A)).
    6. Are there changes that could be made to clarify how to apply the 
terms described in requests 2 through 5, above, to specific types of 
transactions?
    7. Are there alternative rules that should apply to determine which 
persons treated as partners in an arrangement or entity that is treated 
as a partnership for Federal income tax purposes but that does not have 
one or more general partners or managing members should be treated as 
participants in a transaction carried out by the partnership?
    All comments will be made available at https://www.regulations.gov. 
Once submitted to the Federal eRulemaking Portal, comments cannot be 
edited or withdrawn.
    A public hearing has been scheduled for September 26, 2024, 
beginning at 10:00 a.m. ET in the Auditorium at the Internal Revenue 
Building, 1111 Constitution Avenue NW, Washington, DC. Due to building 
security procedures, visitors must enter at the Constitution Avenue 
entrance. In addition, all visitors must present photo identification 
to enter the building. Because of access restrictions, visitors will 
not be admitted beyond the immediate entrance area more than 30 minutes 
before the hearing starts. Participants may alternatively attend the 
public hearing by telephone.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit an outline of 
the topics to be discussed and the time to be devoted to each topic by 
September 10, 2024. A period of 10 minutes will be allotted for each 
person making comments. An agenda showing the scheduling of the 
speakers will be prepared after the deadline for receiving outlines has 
passed. Copies of the agenda will be available free of charge at the 
hearing. If no outline of the topics to be discussed at the hearing is 
received by September 10, 2024, the public hearing will be cancelled. 
If the public hearing is cancelled, a notice of cancellation of the 
public hearing will be published in the Federal Register.
    Individuals who want to testify in person at the public hearing 
must send an email to [email protected] to have your name added to 
the building access list. The subject line of the email must contain 
the regulation number REG-102161-23 and the language TESTIFY In Person. 
For example, the subject line may say: Request to TESTIFY In Person at 
Hearing for REG-102161-23.
    Individuals who want to testify by telephone at the public hearing 
must send an email to [email protected] to receive the telephone 
number and access code for the hearing. The subject line of the email 
must contain the regulation number REG-102161-23 and the language 
TESTIFY Telephonically. For example, the subject line may say: Request 
to TESTIFY Telephonically at Hearing for REG-102161-23.
    Individuals who want to attend the public hearing in person without 
testifying must also send an email to [email protected] to have 
your name added to the building access list. The subject line of the 
email must contain the regulation number REG-102161-23 and the language 
ATTEND In Person. For example, the subject line may say: Request to 
ATTEND Hearing In Person for REG-102161-23. Requests to attend the 
public hearing must be received by 5:00 p.m. ET on September 24, 2024.
    Individuals who want to attend the public hearing by telephone 
without testifying must also send an email to [email protected] to 
receive the telephone number and access code for the hearing. The 
subject line of the email must contain the regulation number REG-
102161-23 and the language ATTEND Hearing Telephonically. For example, 
the subject line may say: Request to ATTEND Hearing Telephonically for 
REG-102161-23. Requests to attend the public hearing must be received 
by 5:00 p.m. EST on September 24, 2024.
    Hearings will be made accessible to people with disabilities. To 
request special assistance during a hearing please contact the 
Publications and Regulations Branch of the Office of Associate Chief 
Counsel (Procedure and Administration) by sending an email to 
[email protected] (preferred) or by telephone at (202) 317-6901 
(not a toll-free number) by at least September 23, 2024.

Statement of Availability of IRS Documents

    The notices cited in this document are published in the Internal 
Revenue Bulletin (or Cumulative Bulletin) and are available from the 
Superintendent of Documents, U.S. Government Publishing Office, 
Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.

Drafting Information

    The principal author of these proposed regulations is Danielle M. 
Heavey, Office of Associate Chief Counsel (Financial Institutions & 
Products). However, other personnel from the Treasury Department and 
the IRS participated in the development of these regulations.

List of Subjects in 26 CFR Part 1

    Income Taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS propose to amend 
26 CFR part 1 as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry for Sec.  1.6011-16 in numerical order to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.6011-16 also issued under 26 U.S.C. 6001 and 26 U.S.C. 
6011.
* * * * *
0
Par. 2. Section 1.6011-16 is added to read as follows:


Sec.  1.6011-16   Basket contract listed transaction.

    (a) Identification as listed transaction. Transactions that are the 
same as, or substantially similar to, transactions described in 
paragraph (c) of this section are identified as listed transactions for 
purposes of Sec.  1.6011-4(b)(2).
    (b) Definitions. The following definitions apply for purposes of 
this section:
    (1) Counterparty. The term counterparty or C means a person who 
enters into a contract described in paragraph (c) of this section with 
the taxpayer.
    (2) Taxpayer. The term taxpayer or T means--
    (i) A taxpayer as defined in Sec.  1.6011-4(c)(1) that enters into 
a contract described in paragraph (c) of this section with the 
counterparty; and
    (ii) With respect to any reference to T having discretion, or 
having exercised discretion, T's designee.
    (3) Designee--(i) In general. Except as provided in paragraph 
(b)(3)(ii) of this section, the term designee, with respect to a T 
having discretion or having exercised discretion, means any person who 
is--
    (A) T's agent under principles of agency law;

[[Page 57119]]

    (B) Compensated by T for suggesting, requesting, or determining 
changes in the assets in the reference basket or the trading algorithm; 
or
    (C) Selected by T to suggest, request, or determine changes in the 
assets in the reference basket or the trading algorithm.
    (ii) Exceptions. A person will not be treated as compensated by T 
under paragraph (b)(3)(i)(B) of this section, or selected by T under 
paragraph (b)(3)(i)(C) of this section, as a result of:
    (A) The person's position as an investment advisor, officer, or 
employee of an entity, such as a mutual fund, when the entity's 
publicly offered securities are included in the reference basket; or
    (B) The person's use of, the person's payment of a licensing fee 
for the right to use, or the person's authority to suggest, request, or 
determine changes in the assets included in a widely used and publicly 
quoted index that is based on objective financial information or an 
index that tracks a broad market or a market segment.
    (4) Discretion--(i) In general. Except as provided in paragraphs 
(b)(4)(ii) and (iii) of this section, the term discretion includes T's 
right to change, either directly or through a request to C, the assets 
in the reference basket or the trading algorithm, even if the terms of 
the transaction permit C to reject certain changes requested by T to 
the assets in the reference basket or the trading algorithm.
    (ii) Changes made according to rules that T cannot amend or alter. 
T will not be treated as having discretion to change (either directly 
or through a request to C) the assets in the reference basket or the 
trading algorithm if--
    (A) Changes in the assets in the reference basket or the trading 
algorithm are made according to objective instructions, operations, or 
calculations that are disclosed at the inception of the transaction 
(rules); and
    (B) T does not have the right to alter or amend the rules during 
the term of the transaction or to deviate from the assets in the 
reference basket or the trading algorithm selected in accordance with 
the rules.
    (iii) Exception for certain rights. T will not be treated as having 
the right to alter or amend the rules for purposes of paragraph 
(b)(4)(ii)(B) of this section solely because T has the authority to--
    (A) Exercise routine judgment in the administration of the rules, 
which does not include deviations or alterations to the rules that are 
designed to improve the financial performance of the reference basket;
    (B) Correct errors in the implementation of the rules or 
calculations made pursuant to the rules; or
    (C) Make an adjustment to respond to an unanticipated event outside 
of T's control, such as a stock split, merger, listing or delisting, 
nationalization, or insolvency of a component of a basket, a disruption 
in the financial markets for specific assets or in a particular 
jurisdiction, a regulatory compliance requirement, force majeure, or 
any other unanticipated event of similar magnitude and significance.
    (5) Tax benefit. The term tax benefit means a deferral of income 
into a later taxable year or a conversion of ordinary income or short-
term capital gain or loss into long-term capital gain or loss.
    (6) Reference basket. The term reference basket means a notional 
basket of assets that may include:
    (i) Actively traded personal property as defined under Sec.  
1.1092(d)-1(a);
    (ii) Interests in entities that trade securities, commodities, 
foreign currency, digital assets as defined in section 6045(g)(3)(D) of 
the Internal Revenue Code, or similar property;
    (iii) Securities;
    (iv) Commodities;
    (v) Foreign currency;
    (vi) Digital assets as defined in section 6045(g)(3)(D); or
    (vii) Similar property (or positions in such property).
    (c) Transaction description. A transaction is described in this 
paragraph (c) if--
    (1) T enters into a contract with C, including a contract 
denominated as an option contract, notional principal contract (as 
defined in Sec.  1.446-3(c)(1)(i)), forward contract, or other 
derivative contract, to receive a return based on the performance of a 
reference basket;
    (2) The contract has a stated term of more than one year, or 
overlaps two or more of T's taxable years;
    (3) T has exercised discretion to change (either directly or 
through a request to C) the assets in the reference basket or the 
trading algorithm;
    (4) T's tax return for a taxable year ending on or after January 1, 
2011, reflects a tax benefit with respect to the transaction; and
    (5) The transaction is not described in paragraph (d) of this 
section.
    (d) Exceptions. A transaction is not the same as, or substantially 
similar to, the transaction described in paragraph (c) of this section 
if it is described in any of paragraphs (d)(1) through (3) of this 
section.
    (1) The contract is traded on a national securities exchange that 
is regulated by the Securities and Exchange Commission or a domestic 
board of trade regulated by the Commodity Futures Trading Commission, 
or a foreign exchange or board of trade that is subject to regulation 
by a comparable regulator.
    (2) The contract is treated as a contingent payment debt instrument 
under Sec.  1.1275-4 (including a short-term contingent payment debt 
instrument) or a variable rate debt instrument under Sec.  1.1275-5.
    (3) With respect to C, a transaction is not the same as, or 
substantially similar to, the transaction described in paragraph (c) of 
this section if--
    (i) T represents to C in writing under penalties of perjury that 
none of T's tax returns for taxable years ending on or after January 1, 
2011, has reflected or will reflect a tax benefit with respect to the 
transaction; or
    (ii) C has established that T is a nonresident alien that is not 
engaged in a U.S. trade or business or a foreign corporation that is 
not engaged in a U.S. trade or business by obtaining a valid 
withholding certificate (W-8BEN, Certificate of Foreign Status of 
Beneficial Owner for United States Tax Withholding and Reporting 
(Individuals), or W-8BEN-E, Certificate of Status of Beneficial Owner 
for United States Tax Withholding and Reporting (Entities) (or 
successor forms)) upon which it may rely under the requirements of 
Sec.  1.1441-1 from T as the beneficial owner of the payments made or 
to be made under the basket contract, or in the case of payments made 
outside of the U.S. on offshore obligations, by obtaining documentary 
evidence described in Sec.  1.1441-1(c)(17) upon which it is permitted 
to rely.
    (e) Special participation rules. For purposes of Sec.  1.6011-
4(c)(3)(i)(A), for each year in which a transaction identified in 
paragraph (a) of this section is open, only the following parties are 
treated as participating in the listed transaction identified in this 
section:
    (1) The taxpayer;
    (2) If the taxpayer is treated as a partnership for Federal tax 
purposes and has one or more general partners or managing members, each 
general partner or managing member of the taxpayer;
    (3) If the taxpayer is treated as a partnership for Federal tax 
purposes and does not have a general partner or managing member, each 
partner in the partnership;
    (4) The counterparty to the contract.
    (f) Applicability date--(1) In general. This section identifies 
transactions that are the same as, or substantially similar

[[Page 57120]]

to, the transactions described in paragraph (c) of this section as 
listed transactions for purposes of Sec.  1.6011-4(b)(2) effective on 
[date of publication of final regulations in the Federal Register].
    (2) Obligations of participants with respect to prior periods. 
Taxpayers who have filed a tax return (including an amended return) 
reflecting their participation in transactions described in paragraph 
(a) of this section prior to [date of publication of final regulations 
in the Federal Register], must disclose the transactions as required by 
Sec.  1.6011-4(d) and (e) provided that the period of limitations for 
assessment of tax (as determined under section 6501 of the Code, 
including section 6501(c)) for any taxable year in which the taxpayer 
participated has not ended on or before [date of publication of final 
regulations in the Federal Register]. However, taxpayers who have filed 
a disclosure statement regarding their participation in the transaction 
with the Office of Tax Shelter Analysis pursuant to Notice 2015-73, 
2015-46 I.R.B. 660, will be treated as having made the disclosure with 
respect to the transaction pursuant to the final regulations for the 
taxable years for which the taxpayer filed returns before [date of 
publication of final regulations in the Federal Register]. If a 
taxpayer described in the preceding sentence participates in the basket 
contract listed transaction in a taxable year for which the taxpayer 
files a return on or after [date of publication of final regulations in 
the Federal Register], the taxpayer must file a disclosure statement 
with the Office of Tax Shelter Analysis at the same time the taxpayer 
files its return for the first such taxable year.
    (3) Obligations of material advisors with respect to prior periods. 
Material advisors defined in Sec.  301.6111-3(b) of this chapter who 
have previously made a tax statement with respect to a transaction 
described in paragraph (a) of this section have disclosure and list 
maintenance obligations as described in Sec. Sec.  301.6111-3 and 
301.6112-1 of this chapter, respectively. Notwithstanding Sec.  
301.6111-3(b)(4)(i) and (iii) of this chapter, material advisors are 
required to disclose only if they have made a tax statement on or after 
the date that is six years before [date of publication of final 
regulations in the Federal Register].

Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-14787 Filed 7-11-24; 8:45 am]
BILLING CODE 4830-01-P