72376 Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Rules and Regulations 

Mechanical Tubing 

7304313000, 7304316050, 7304390028, 

7304390032, 7304390040, 7304390044, 

7304390052, 7304390056, 7304390068, 

7304390072, 7304511000, 7304515060, 

7304591000, 7304596000, 7304598020, 

7304598025, 7304598035, 7304598040, 

7304598050, 7304598055, 7304598065, 

7304598070, 7304905000, 7304907000, 

7306301000, 7306305015, 7306305020, 

7306305035, 7306501000, 7306505030, 

7306505050, 7306505070, 7306605000, 

7306607060 

Pressure Tubing 

7304316010, 7304390002, 7304390004, 

7304390006, 7304390008, 7304515015, 

7304515045, 7304592030, 7304592040, 

7304592045, 7304592055, 7304592060, 

7304592070, 7304592080, 7306305010, 

7306505010 

Stainless Pipe & Tubing 

7304413005, 7304413015, 7304413045, 

7304416005,7304416015, 7304416045, 

7304490005, 7304490015, 7304490045, 

7304490060, 7306401010, 7306401015, 

7306401090, 7306405005, 7306405015, 

7306405040, 7306405042, 7306405044, 

7306405062, 7306405064, 7306405080, 

7306405085, 7306405090, 7306607030 

Pipe & Tubing Nonclassified 

7304515005, 7305901000, 7305905000, 

7306901000, 7306905000 

Structural Pipe & Tubing 

7304901000, 7304903000, 7305312000, 

7305314000, 7305316000, 7306303000, 

7306503000, 7306601000, 7306603000 

Pipe for Piling 

7305391000, 7305395000 

Wire Drawn 

7217101000, 7217102000, 7217103000, 

7217104030, 7217104090, 7217105030, 

7217105090, 7217106000, 7217107000, 

7217108010, 7217108020, 7217108025, 

7217108030, 7217108045, 7217108060, 

7217108075, 7217108090, 7217109000, 

7217201500, 7217203000, 7217204510, 

7217204520, 7217204530, 7217204540, 

7217204550, 7217204560, 7217204570, 

7217204580, 7217206000, 7217207500, 

7217301530, 7217301560, 7217303000, 

7217304504, 7217304510, 7217304511, 

7217304520, 7217304530, 7217304540, 

7217304541, 7217304550, 7217304560, 

7217304590, 7217306000, 7217307500, 

7217905030, 7217905060, 7217905090, 

7223001015, 7223001030, 7223001045, 

7223001060, 7223001075, 7223005000, 

7223009000, 7229200000, 7229200010, 

7229200015, 7229200090, 7229901000, 

7229905006, 7229905008, 7229905015, 

7229905016, 7229905030, 7229905031, 

7229905050, 7229905051, 7229909000 

Black Plate 

7209182510, 7209182520, 7209182550, 

7209182580 

Tin Plate 

7210110000, 7210120000, 7212100000 

Tin Free Steel 

7210500000 

Sheets Hot Rolled 

7208106000, 7208260030, 7208260060, 

7208270030, 7208270060, 7208380015, 

7208380030, 7208380090, 7208390015, 

7208390030, 7208390090, 7208406030, 

7208406060, 7208530000, 7208540000, 

7208900000, 7219130002, 7219130031, 

7219130051, 7219130071, 7219130081, 

7219140030, 7219140065, 7219140090, 

7219230030, 7219230060, 7219240030, 

7219240060, 7225307000, 7225407000 

Sheets Cold Rolled 

7209150000, 7209160030, 7209160060, 

7209160070, 7209160090, 7209160091, 

7209170030, 7209170060, 7209170070, 

7209170090, 7209170091, 7209181530, 

7209181560, 7209186000, 7209186020, 

7209186090, 7209250000, 7209260000, 

7209270000, 7209280000, 7209900000, 

7210703000, 7219320005, 7219320020, 

7219320025, 7219320035, 7219320036, 

7219320038, 7219320042, 7219320044, 

7219320045, 7219320060, 7219330005, 

7219330020, 7219330025, 7219330035, 

7219330036, 7219330038, 7219330042, 

7219330044, 7219330045, 7219330070, 

7219330080, 7219340005, 7219340020, 

7219340025, 7219340030, 7219340035, 

7219340050, 7219350005, 7219350015, 

7219350030, 7219350035, 7219350050, 

7219900010, 7219900020, 7219900025, 

7219900060, 7219900080, 7225507000, 

7225508010, 7225508015, 7225508085, 

7225990010, 7225990090 

Sheets & Strip Galv Hot Dipped 

7210410000, 7210490030, 7210490090, 

7210706060, 7212301030, 7212301090, 

7212303000, 7212305000, 7225920000, 

7226940000 

Sheets & Strip Galv Electrolytic 

7210300030, 7210300060, 7210706030, 

7212200000, 7225910000, 7226930000 

Sheets & Strip All Other Metallic CTD 

7210200000, 7210610000, 7210690000, 

7210706090, 7210906000, 7210909000, 

7212500000, 7212600000 

Sheets & Strip—Electrical 

7225110000, 7225190000, 7226111000, 

7226119030, 7226119060, 7226191000, 

7226199000 

Strip—Hot Rolled 

7211191500, 7211192000, 7211193000, 

7211194500, 7211196000, 7211197530, 

7211197560, 7211197590, 7220121000, 

7220125000, 7226917000, 7226918000 

Strip—Cold Rolled 

7211231500, 7211232000, 7211233000, 

7211234500, 7211236030, 7211236060, 

7211236075, 7211236085, 7211292030, 

7211292090, 7211294500, 7211296030, 

7211296080, 7211900000, 7212401000, 

7212405000, 7220201010, 7220201015, 

7220201060, 7220201080, 7220206005, 

7220206010,7220206015, 7220206060, 

7220206080, 7220207005, 7220207010, 

7220207015, 7220207060, 7220207080, 

7220208000, 7220209030, 7220209060, 

7220900010, 7220900015, 7220900060, 

7220900080, 7226925000, 7226927005, 

7226927050, 7226928005, 7226928050, 

7226990000 

[FR Doc. 05–23627 Filed 12–2–05; 8:45 am] 

BILLING CODE 3510–DS–P 

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. 

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 §§ 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 

Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Rules and Regulations 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 § 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 

§ 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. §§ 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 § 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 § 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 § 1.6043–4T(c)(3), two or more 

72378 Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Rules and Regulations 

corporations acting pursuant to a plan 

or arrangement in § 1.6043–4T(c)(4), and 

section 338 elections in § 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 § 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 § 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 § 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 

■ Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ 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. 

* * * * * 

■ Par. 2. Section 1.6043–4 is added to 

read as follows: 

§ 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 

§ 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 

Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Rules and Regulations 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 

§ 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 

§ 1.6049–4(c)(1)(ii). 

(A) A corporation, as described in 

§ 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 § 1.6049–4(c)(1)(ii)(B)(1). 

(C) An individual retirement plan, as 

described in § 1.6049–4(c)(1)(ii)(C). 

(D) The United States, as described in 

§ 1.6049–4(c)(1)(ii)(D). 

(E) A state, as described in § 1.6049–

4(c)(1)(ii)(E). 

(F) A foreign government, as 

described in § 1.6049–4(c)(1)(ii)(F). 

(G) An international organization, as 

described in § 1.6049–4(c)(1)(ii)(G). 

(H) A foreign central bank of issue, as 

described in § 1.6049–4(c)(1)(ii)(H). 

(I) A securities or commodities dealer, 

as described in § 1.6049–4(c)(1)(ii)(I). 

(J) A real estate investment trust, as 

described in § 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 § 1.6049–

4(c)(1)(ii)(K). 

(L) A common trust fund, as described 

in § 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 § 1.1441–1(e)(1)(ii) or 

as made to a foreign payee in 

accordance with § 1.6049–5(d)(1) or 

presumed to be made to a foreign payee 

under § 1.6049–5(d)(2) or (3). For 

purposes of this paragraph (b)(5)(iv), the 

provisions in § 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 § 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 § 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 

72380 Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Rules and Regulations 

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 

§ 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 

§ 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 

§ 1.6045–3 with respect to that shareholder. 

Thus, if the transfer agent satisfies its 

information reporting requirements under 

§ 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 § 1.6045–3 with respect to 

one of X’s shareholders of record (for 

example, a clearing organization that is an 

exempt recipient under § 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. 

§ 1.6043–4T [Removed] 

■ Par. 3. Section 1.6043–4T is removed. 

■ Par. 4. Section 1.6045–3 is added to 

read as follows: 

§ 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 § 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, 

Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Rules and Regulations 72381 

information from a clearing organization 

or from information published by the 

Internal Revenue Service (IRS)) has 

engaged in a transaction described in 

§ 1.6043–4(c) (acquisition of control) or 

§ 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 § 1.6045–1. 

(2) Any customer who is an exempt 

recipient as defined in § 1.6043–4(b)(5) 

or § 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 § 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 §§ 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. 

§ 1.6045–3T [Removed] 

■ 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 

DEPARTMENT OF THE INTERIOR 

Minerals Management Service 

30 CFR Part 204 

RIN 1010–AC30 

States’ Decisions on Participating in 

Accounting and Auditing Relief for 

Federal Oil and Gas Marginal 

Properties 

AGENCY: Minerals Management Service, 

Interior. 

ACTION: Notice of states’ decisions to 

participate or not participate in 

accounting and auditing relief for 

Federal oil and gas marginal properties 

located in their state for calendar year 

2006. 

SUMMARY: The Minerals Management 

Service (MMS) published final 

regulations on September 13, 2004 (69 

FR 55076), to provide accounting and 

auditing relief for marginal Federal oil 

and gas properties. The rule requires 

MMS to publish in the Federal Register 

the decisions of the states concerned to 

allow or not to allow one or both forms 

of relief in their state. As required in the 

rule, MMS provided each state receiving 

a portion of the Federal royalties with 

a list of qualifying marginal Federal oil 

and gas properties located in the state so 

that each affected state could decide 

whether to participate in one or both 

relief options. This Notice provides the 

decisions by the respective states 

concerned to allow one or both types of 

relief. 

DATES: Effective Date: January 1, 2006. 

FOR FURTHER INFORMATION CONTACT: 

Mary Williams, Manager, Federal 

Onshore Oil and Gas Compliance and 

Asset Management, telephone (303) 

231–3403, FAX (303) 231–3744, e-mail 

to mary.williams@mms.gov, or mail to 

P.O. Box 25165, MS 392B2, Denver 

Federal Center, Denver, Colorado 

80225–0165. 

SUPPLEMENTARY INFORMATION: The rule 

implemented certain provisions of 

Section 7 of the Federal Oil and Gas 

Royalty Simplification and Fairness Act 

of 1996 and provides two options for 

relief: (1) Notification-based relief for 

annual reporting, and (2) other 

requested relief, as proposed by 

industry and approved by MMS and the 

state concerned. The rule requires that 

MMS publish by December 1 of each 

year a list of the states and the decisions 

of each state regarding marginal 

property relief. 

To qualify for the first option of relief 

(notification-based relief) for calendar 

year 2006, properties must have 

produced less than 1,000 barrels-of-oilequivalent (BOE) per year for the base 

period (July 1, 2004–June 30, 2005). 

Annual reporting relief will begin on 

January 1, 2006, with the annual report 

and payment due February 28, 2007 

(unless an estimated payment is on file, 

which will move the due date to March 

31, 2007). To qualify for the second 

option of relief (other requested relief), 

properties must have produced less than 

15 BOE per well per day for the base 

period. 

The following table shows the states 

that have marginal properties, where a 

portion of the royalties are shared 

between the state and MMS, and the 

states’ decisions whether to allow one or 

both forms of relief. 

State Notification-based relief (less than 

1,000 BOE per year) 

Request-based relief (less than 15 

BOE per well per day) 

Alabama .................................................................................................. No .................................................. No. 

Arkansas .................................................................................................. Yes ................................................. Yes. 

California ................................................................................................. No .................................................. No. 

Colorado .................................................................................................. Yes ................................................. Yes. 

Kansas ..................................................................................................... Yes ................................................. No.