Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Rules and Regulations 66085

($10,200 gain less $5,000 loss). Only the

$5,200 net gain is recharacterized as ordinary

income under section 1258(a) even though

the applicable imputed income amount is

$7,000. For federal tax purposes other than

section 1258(a), A has recognized a $10,200

gain on the disposition of the forward

contract ($5,200 of which is treated as

ordinary income) and realized a separate

$5,000 loss on the sale of the XYZ stock.

Example 2. Identified netting transaction

with built-in loss. (i) The facts are the same

as in Example 1, except that A had purchased

the XYZ stock for $104,000 on May 15, 1995.

The XYZ stock had a fair market value of

$100,000 on December 1, 1995, the date it

became part of a conversion transaction.

(ii) The results are the same as in Example

1, except that A has built-in loss (in addition

to the $5,000 loss that arose economically

during the period of the conversion

transaction), as defined in section

1258(d)(3)(B), of $4,000 on the XYZ stock.

That $4,000 built-in loss is not netted against

the $10,200 gain on the forward contract for

purposes of section 1258(a). Thus, the net

gain from the conversion transaction for

purposes of section 1258(a) is $5,200, the

same as in Example 1. The $4,000 built-in

loss is recognized and has a character

determined without regard to section 1258.

(e) Effective date and transition rule—

(1) In general. These regulations are

effective for conversion transactions that

are outstanding on or after December 21,

1995.

(2) Transition rule for identification

requirements. In the case of a

conversion transaction entered into

before February 20, 1996, paragraph

(b)(2) of this section is treated as

satisfied if the identification is made

before the close of business on February

20, 1996.

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 3. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

§ 602.101 [Amended]

Par. 4. In § 602.101, paragraph (c) is

amended by adding the entry ‘‘1.1258–

1 * * * .1545–1452’’ in numerical order

to the table.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: November 28, 1995.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 95–30900 Filed 12–20–95; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Parts 1, 25, 301, and 602

[TD 8633]

RIN 1545–AS37

Grantor Trust Reporting Requirements

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations relating to the method of

reporting for trusts that are treated as

owned by grantors or other persons

under the provisions of subpart E

(section 671 and following), part I,

subchapter J, chapter 1 of the Internal

Revenue Code. These regulations are

intended to reduce the current filing

burden on trustees, to provide necessary

information to grantors or other persons

treated as the owners of trusts, to reduce

any cases of duplicate filing, and to

provide more meaningful information to

the IRS. These regulations affect

grantors and trustees of trusts that are

treated as owned by grantors or other

persons, as well as persons who are

required to file information returns with

respect to payments to these trusts.

DATES: These regulations are effective

January 1, 1996. For dates of

applicability of these regulations, see

§ 1.671–4(h).

FOR FURTHER INFORMATION CONTACT:

Steven Schneider, (202) 622–3060 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information

contained in these final regulations has

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork

Reduction Act (44 U.S.C. 3507) under

control number 1545–1442. This

information is required by the IRS to

insure the proper reporting of income

and proceeds paid to a trust any portion

of which is treated as owned by the

grantor or another person.

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 control number.

The estimated annual burden per

respondent is 30 minutes.

Comments concerning the accuracy of

this burden estimate and suggestions for

reducing this burden should be sent to

the Internal Revenue Service, Attn: IRS

Reports Clearance Officer, T:FP,

Washington, DC 20224, and to the

Office of Management and Budget, Attn:

Desk Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503.

Books or records relating to this

collection of information must be

retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

On July 22, 1994, the IRS published

in the Federal Register a notice of

proposed rulemaking and notice of

public hearing (59 FR 37450) proposing

amendments to the Income Tax

Regulations (26 CFR part 1) under

section 671 of the Internal Revenue

Code (Code) and to the Procedure and

Administration Regulations (26 CFR

part 301) under sections 6012 and 6109

of the Code.

Written comments responding to the

notice were received. A public hearing

was held on September 21, 1994,

pursuant to the notice published in the

Federal Register on July 22, 1994. After

consideration of all written and oral

comments regarding the proposed

amendments, those amendments are

adopted as revised by this Treasury

decision.

Explanation of Provisions and

Significant Changes in the Final

Regulations

Subject to certain new limitations

under § 1.671–4(b)(6) and (7), discussed

below, § 1.671–4(b) of the final

regulations retains the optional

alternative methods of reporting

contained in the proposed regulations

published on July 22, 1994.

Several comments were submitted

requesting confirmation that the

alternative methods of reporting

described in the proposed regulations

are optional and not mandatory. Section

1.671–4(b) of the final regulations

clarifies that the trustee of a trust all of

which is treated as owned by one or

more grantors or other persons may, but

is not required to, report pursuant to

one of the alternative methods.

Certain commentators were unsure of

which persons are considered payors for

purposes of the alternative filing

methods. The final regulations define

the term payor as including any person

who is required by any provision of the

Code and the regulations thereunder to

make any type of information return

with respect to the trust for the taxable

year.

With respect to the alternative

methods of reporting, several

commentators were unsure of the items
66086 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Rules and Regulations

and the amounts of income that must be

reported on any Forms 1099 required to

be filed by the trustee. Section 1.671–

4(b)(5) of the final regulations clarifies

that the amounts that must be included

on any Forms 1099 required to be filed

by the trustee do not include any

amounts that are reportable by the payor

on an information return other than

Form 1099.

For example, in the case of a trustee

who furnishes the name, TIN, and

address of the trust to all payors

pursuant to § 1.671–4(b)(2)(i)(B) of the

final regulations, the trustee does not

include items of income attributable to

an interest in a partnership on any

Forms 1099 filed by the trustee because

those items are reportable by the

partnership on Schedule K–1 of Form

1065 (reporting distributive shares to

members of a partnership). While the

statement furnished to the grantor or

other person treated as the owner of the

trust by the trustee will show all items

of income, deduction, and credit

attributable to the partnership interest,

those items will not be reported to the

IRS by the trustee on any type of form.

Several commentators were unsure of

the dates by which a trustee must file

any required Forms 1099 and must

furnish any required statements to

grantors or other persons treated as

owners of the trust. Section 1.671–4(c)

of the final regulations provides that the

due date for any Forms 1099 required to

be filed with the IRS by a trustee is the

due date otherwise in effect for filing

Forms 1099. Currently, the due date is

February 28 of the following year.

Section 1.671–4(d) of the final

regulations provides that the due date

for the statement required to be

furnished by a trustee to the grantor or

other person treated as an owner of the

trust is the date specified by section

6034A(a). Currently, the due date is

April 15 of the following year.

Comments were received requesting

clarification of the trustee’s obligation,

under the first of the alternative

reporting methods, to furnish the name

and TIN of the grantor to all payors. The

final regulations provide that: (1) A

trustee may not report under the first

alternative reporting method unless the

grantor or other person treated as the

owner of the trust provides to the

trustee a complete Form W–9 or other

acceptable substitute form; (2) a trustee

reporting under the first alternative

reporting method acts as the agent of the

grantor or other person treated as the

owner of the trust for purposes of

furnishing backup withholding

information to a payor; and (3) the payor

may rely on the name and TIN provided

to the payor by the trustee. If the Form

W–9 indicates that the grantor or other

person is subject to backup withholding,

then the trustee must notify all payors

of reportable interest and dividend

payments of the requirement to backup

withhold.

Comments were received requesting

clarification of the annuity and unitrust

payment dates under § 25.2702–3 of the

Gift Tax Regulations for trusts electing

one of the alternative methods of

reporting. The final regulations contain

conforming amendments to § 25.2702–

3(b)(1)(i) and § 25.2702–3(c)(1)(i).

One commentator noted the need for

more guidance concerning the reporting

requirements for widely held fixed

investment trusts. Because that

guidance is outside the scope of this

regulation, the final regulations do not

provide special rules for these trusts.

However IRS and Treasury anticipate

providing guidance for these trusts in a

separate project and would welcome

comments from interested taxpayers and

practitioners regarding such guidance.

Several of the comments received

with respect to the proposed regulations

emphasized the necessity of making the

trustee’s choice to report under one of

the alternative methods revocable. The

final regulations provide that a trustee

who has reported pursuant to one of the

alternative methods may report

pursuant to the general rule requiring

the trustee to file a Form 1041 for any

subsequent taxable years of the trust,

provided that certain conditions are

met.

The final regulations provide that the

trustee of a trust all of which is treated

as owned by one grantor or one other

person that is an exempt recipient for

information reporting purposes may not

report under an alternative method.

However, if the trust is treated as owned

by two or more grantors or other

persons, the trustee may report pursuant

to the alternative method for multiple

grantors if (1) at least one grantor or one

other person who is treated as an owner

of the trust is a person who is not an

exempt recipient for information

reporting purposes and (2) the trustee

reports without regard to whether any of

the grantors or other persons treated as

owners of the trust are exempt

recipients for information reporting

purposes.

The final regulations also provide that

the trustee of a trust all of which is

treated as owned by one grantor or other

person whose taxable year is a fiscal

year may not report under an alternative

method. However, the trustee of a trust

that is treated as owned by two or more

grantors or other persons may report

pursuant to the alternative method for

multiple grantors even though one or

more of the grantors or other persons

treated as an owner of the trust has a

taxable year that is the fiscal year.

In addition, the final regulations

provide that a trustee of a trust that is

a qualified subchapter S trust as defined

in section 1361(d)(3) may not report

under an alternative method.

The final regulations also provide that

the trustee of a trust may not report

under an alternative method if any

person who is treated as an owner of the

trust is not a United States person.

Effective Date and Transition Rule

The final regulations are effective for

taxable years beginning on or after

January 1, 1996, subject to a

requirement that certain trustees file a

final Form 1041 before adopting one of

the alternative methods of reporting.

The final regulations retain the

transition rule contained in the

proposed regulations providing that, for

taxable years beginning prior to January

1, 1996, the IRS will not challenge the

manner of reporting by trustees of

certain trusts.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

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) and the Regulatory

Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and,

therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the Code, the notice

of proposed rulemaking preceding these

regulations was submitted to the Small

Business Administration for comment

on its impact on small business.

Drafting Information

The principal author of these

regulations is Robert Rio, formerly of the

Office of Assistant Chief Counsel

(Passthroughs and Special Industries),

IRS. However, other personnel from the

IRS and Treasury Department

participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

26 CFR Part 25

Gift taxes, Reporting and

recordkeeping requirements.

26 CFR Part 301

Employment taxes, Estate taxes,

Excise taxes, Gift taxes, Income taxes,
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Rules and Regulations 66087

Penalties, Reporting and recordkeeping

requirements.

26 CFR Part 602

Reporting and recordkeeping

requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1, 25, 301,

and 602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as

follows:

Authority: 26 U.S.C. 7805. * * *

Par. 2. Section 1.671–4 is revised to

read as follows:

§ 1.671–4 Method of reporting.

(a) Portion of trust treated as owned

by the grantor or another person. Except

as otherwise provided in paragraph (b)

of this section, items of income,

deduction, and credit attributable to any

portion of a trust which, under the

provisions of subpart E (section 671 and

following), part I, subchapter J, chapter

1 of the Internal Revenue Code, is

treated as owned by the grantor or

another person are not reported by the

trust on Form 1041, but are shown on

a separate statement to be attached to

that form.

(b) A trust all of which is treated as

owned by one or more grantors or other

persons—(1) In general. In the case of a

trust all of which is treated as owned by

one or more grantors or other persons,

and which is not described in paragraph

(b)(6) or (7) of this section, the trustee

may, but is not required to, report by

one of the methods described in this

paragraph (b) rather than by the method

described in paragraph (a) of this

section. A trustee may not report,

however, pursuant to paragraph

(b)(2)(i)(A) of this section unless the

grantor or other person treated as the

owner of the trust provides to the

trustee a complete Form W–9 or

acceptable substitute Form W–9 signed

under penalties of perjury. See section

3406 and the regulations thereunder for

the information to include on, and the

manner of executing, the Form W–9,

depending upon the type of reportable

payments made.

(2) A trust all of which is treated as

owned by one grantor or by one other

person—(i) In general. In the case of a

trust all of which is treated as owned by

one grantor or one other person, the

trustee reporting under this paragraph

(b) must either—

(A) Furnish the name and taxpayer

identification number (TIN) of the

grantor or other person treated as the

owner of the trust, and the address of

the trust, to all payors during the taxable

year, and comply with the additional

requirements described in paragraph

(b)(2)(ii) of this section; or

(B) Furnish the name, TIN, and

address of the trust to all payors during

the taxable year, and comply with the

additional requirements described in

paragraph (b)(2)(iii) of this section.

(ii) Additional obligations of the

trustee when name and TIN of the

grantor or other person treated as the

owner of the trust and the address of the

trust are furnished to payors. (A) Unless

the grantor or other person treated as the

owner of the trust is the trustee or a cotrustee of the trust, the trustee must

furnish the grantor or other person

treated as the owner of the trust with a

statement that—

(1) Shows all items of income,

deduction, and credit of the trust for the

taxable year;

(2) Identifies the payor of each item of

income;

(3) Provides the grantor or other

person treated as the owner of the trust

with the information necessary to take

the items into account in computing the

grantor’s or other person’s taxable

income; and

(4) Informs the grantor or other person

treated as the owner of the trust that the

items of income, deduction and credit

and other information shown on the

statement must be included in

computing the taxable income and

credits of the grantor or other person on

the income tax return of the grantor or

other person.

(B) The trustee is not required to file

any type of return with the Internal

Revenue Service.

(iii) Additional obligations of the

trustee when name, TIN, and address of

the trust are furnished to payors—(A)

Obligation to file Forms 1099. The

trustee must file with the Internal

Revenue Service the appropriate Forms

1099, reporting the income or gross

proceeds paid to the trust during the

taxable year, and showing the trust as

the payor and the grantor or other

person treated as the owner of the trust

as the payee. The trustee has the same

obligations for filing the appropriate

Forms 1099 as would a payor making

reportable payments, except that the

trustee must report each type of income

in the aggregate, and each item of gross

proceeds separately. See paragraph

(b)(5) of this section regarding the

amounts required to be included on any

Forms 1099 filed by the trustee.

(B) Obligation to furnish statement.

(1) Unless the grantor or other person

treated as the owner of the trust is the

trustee or a co-trustee of the trust, the

trustee must also furnish to the grantor

or other person treated as the owner of

the trust a statement that—

(i) Shows all items of income,

deduction, and credit of the trust for the

taxable year;

(ii) Provides the grantor or other

person treated as the owner of the trust

with the information necessary to take

the items into account in computing the

grantor’s or other person’s taxable

income; and

(iii) Informs the grantor or other

person treated as the owner of the trust

that the items of income, deduction and

credit and other information shown on

the statement must be included in

computing the taxable income and

credits of the grantor or other person on

the income tax return of the grantor or

other person.

(2) By furnishing the statement, the

trustee satisfies the obligation to furnish

statements to recipients with respect to

the Forms 1099 filed by the trustee.

(iv) Examples. The following

examples illustrate the provisions of

this paragraph (b)(2):

Example 1. G, a United States citizen,

creates an irrevocable trust which provides

that the ordinary income is to be payable to

him for life and that on his death the corpus

shall be distributed to B, an unrelated person.

Except for the right to receive income, G

retains no right or power which would cause

him to be treated as an owner under sections

671 through 679. Under the applicable local

law, capital gains must be added to corpus.

Since G has a right to receive income, he is

treated as an owner of a portion of the trust

under section 677. The tax consequences of

any items of capital gain of the trust are

governed by the provisions of subparts A, B,

C, and D (section 641 and following), part I,

subchapter J, chapter 1 of the Internal

Revenue Code. Because not all of the trust is

treated as owned by the grantor or another

person, the trustee may not report by the

methods described in paragraph (b)(2) of this

section.

Example 2. (i)(A) On January 2, 1996, G, a

United States citizen, creates a trust all of

which is treated as owned by G. The trustee

of the trust is T. During the 1996 taxable year

the trust has the following items of income

and gross proceeds:

Interest....................................................$2,500

Dividends .................................................3,205

Proceeds from sale of B stock..................2,000

(B) The trust has no items of deduction or

credit.

(ii)(A) The payors of the interest paid to the

trust are X ($2,000), Y ($300), and Z ($200).

The payors of the dividends paid to the trust

are A ($3,200), and D ($5). The payor of the

gross proceeds paid to the trust is D, a

brokerage firm, which held the B stock as the

nominee for the trust. The B stock was

purchased by T for $1,500 on January 3,

1996, and sold by T on November 29, 1996.

T chooses to report pursuant to paragraph
66088 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Rules and Regulations

(b)(2)(i)(B) of this section, and therefore

furnishes the name, TIN, and address of the

trust to X, Y, Z, A, and D. X, Y, and Z each

furnish T with a Form 1099–INT showing the

trust as the payee. A furnishes T with a Form

1099–DIV showing the trust as the payee. D

does not furnish T with a Form 1099–DIV

because D paid a dividend of less than $10

to T. D furnishes T with a Form 1099–B

showing the trust as the payee.

(B) On or before February 28, 1997, T files

a Form 1099–INT with the Internal Revenue

Service on which T reports interest

attributable to G, as the owner of the trust,

of $2,500; a Form 1099–DIV on which T

reports dividends attributable to G, as the

owner of the trust, of $3,205; and a Form

1099–B on which T reports gross proceeds

from the sale of B stock attributable to G, as

the owner of the trust, of $2,000. On or before

April 15, 1997, T furnishes a statement to G

which lists the following items of income

and information necessary for G to take the

items into account in computing G’s taxable

income:

Interest....................................................$2,500

Dividends .................................................3,205

Gain from sale of B stock............................500

Information regarding sale of B stock:

Proceeds .................................................$2,000

Basis .........................................................1,500

Date acquired .......................................1/03/96

Date sold.............................................11/29/96

(C) T informs G that any items of income,

deduction and credit and other information

shown on the statement must be included in

computing the taxable income and credits of

the grantor or other person on the income tax

return of the grantor or other person.

(D) T has complied with T’s obligations

under this section.

(iii)(A) Same facts as paragraphs (i) and (ii)

of this Example 2, except that G contributed

the B stock to the trust on January 2, 1996.

On or before April 15, 1997, T furnishes a

statement to G which lists the following

items of income and information necessary

for G to take the items into account in

computing G’s taxable income:

Interest $2,500

Dividends 3,205

Information regarding sale of B stock:

Proceeds .................................................$2,000

Date sold.............................................11/29/96

(B) T informs G that any items of income,

deduction and credit and other information

shown on the statement must be included in

computing the taxable income and credits of

the grantor or other person on the income tax

return of the grantor or other person.

(C) T has complied with T’s obligations

under this section.

Example 3. On January 2, 1996, G, a United

States citizen, creates a trust all of which is

treated as owned by G. The trustee of the

trust is T. The only asset of the trust is an

interest in C, a common trust fund under

section 584(a). T chooses to report pursuant

to paragraph (b)(2)(i)(B) of this section and

therefore furnishes the name, TIN, and

address of the trust to C. C files a Form 1065

and a Schedule K–1 (Partner’s Share of

Income, Credits, Deductions, etc.) showing

the name, TIN, and address of the trust with

the Internal Revenue Service and furnishes a

copy to T. Because the trust did not receive

any amounts described in paragraph (b)(5) of

this section, T does not file any type of return

with the Internal Revenue Service. On or

before April 15, 1997, T furnishes G with a

statement that shows all items of income,

deduction, and credit of the trust for the 1996

taxable year. In addition, T informs G that

any items of income, deduction and credit

and other information shown on the

statement must be included in computing the

taxable income and credits of the grantor or

other person on the income tax return of the

grantor or other person. T has complied with

T’s obligations under this section.

(3) A trust all of which is treated as

owned by two or more grantors or other

persons—(i) In general. In the case of a

trust all of which is treated as owned by

two or more grantors or other persons,

the trustee must furnish the name, TIN,

and address of the trust to all payors for

the taxable year, and comply with the

additional requirements described in

paragraph (b)(3)(ii) of this section.

(ii) Additional obligations of trustee—

(A) Obligation to file Forms 1099. The

trustee must file with the Internal

Revenue Service the appropriate Forms

1099, reporting the items of income paid

to the trust by all payors during the

taxable year attributable to the portion

of the trust treated as owned by each

grantor or other person, and showing

the trust as the payor and each grantor

or other person treated as an owner of

the trust as the payee. The trustee has

the same obligations for filing the

appropriate Forms 1099 as would a

payor making reportable payments,

except that the trustee must report each

type of income in the aggregate, and

each item of gross proceeds separately.

See paragraph (b)(5) of this section

regarding the amounts required to be

included on any Forms 1099 filed by the

trustee.

(B) Obligation to furnish statement.

(1) The trustee must also furnish to each

grantor or other person treated as an

owner of the trust a statement that—

(i) Shows all items of income,

deduction, and credit of the trust for the

taxable year attributable to the portion

of the trust treated as owned by the

grantor or other person;

(ii) Provides the grantor or other

person treated as an owner of the trust

with the information necessary to take

the items into account in computing the

grantor’s or other person’s taxable

income; and

(iii) Informs the grantor or other

person treated as the owner of the trust

that the items of income, deduction and

credit and other information shown on

the statement must be included in

computing the taxable income and

credits of the grantor or other person on

the income tax return of the grantor or

other person.

(2) Except for the requirements

pursuant to section 3406 and the

regulations thereunder, by furnishing

the statement, the trustee satisfies the

obligation to furnish statements to

recipients with respect to the Forms

1099 filed by the trustee.

(4) Persons treated as payors—(i) In

general. For purposes of this section, the

term payor means any person who is

required by any provision of the Internal

Revenue Code and the regulations

thereunder to make any type of

information return (including Form

1099 or Schedule K–1) with respect to

the trust for the taxable year, including

persons who make payments to the trust

or who collect (or otherwise act as

middlemen with respect to) payments

on behalf of the trust.

(ii) Application to brokers and

customers. For purposes of this section,

a broker, within the meaning of section

6045, is considered a payor. A customer,

within the meaning of section 6045, is

considered a payee.

(5) Amounts required to be included

on Forms 1099 filed by the trustee—(i)

In general. The amounts that must be

included on any Forms 1099 required to

be filed by the trustee pursuant to this

section do not include any amounts that

are reportable by the payor on an

information return other than Form

1099. For example, in the case of a trust

which owns an interest in a partnership,

the trust’s distributive share of the

income and gain of the partnership is

not includible on any Forms 1099 filed

by the trustee pursuant to this section

because the distributive share is

reportable by the partnership on

Schedule K–1.

(ii) Example. The following example

illustrates the provisions of this

paragraph (b)(5):

Example. (i)(A) On January 2, 1996, G, a

United States citizen, creates a trust all of

which is treated as owned by G. The trustee

of the trust is T. The assets of the trust during

the 1996 taxable year are shares of stock in

X, an S corporation, a limited partnership

interest in P, shares of stock in M, and shares

of stock in N. T chooses to report pursuant

to paragraph (b)(2)(i)(B) of this section and

therefore furnishes the name, TIN, and

address of the trust to X, P, M, and N. M

furnishes T with a Form 1099–DIV showing

the trust as the payee. N does not furnish T

with a Form 1099–DIV because N paid a

dividend of less than $10 to T. X and P

furnish T with Schedule K–1 (Shareholder’s

Share of Income, Credits, Deductions, etc.)

and Schedule K–1 (Partner’s Share of

Income, Credits, Deductions, etc.),

respectively, showing the trust’s name, TIN,

and address.

(B) For the 1996 taxable year the trust has

the following items of income and deduction:
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Rules and Regulations 66089

Dividends paid by M . . . . . . . . . .

. . . . $12

Dividends paid by N . . . . . . . . . . .

. . . 6

Administrative expense . . . . . . . . .

. . . $20

Items reported by X on Schedule K–1

attributable to trust’s shares of stock in X:

Interest . . . . . . . . . . . . . . . . . . $20

Dividends . . . . . . . . . . . . . . . . . 35

Items reported by P on Schedule K–1

attributable to trust’s limited partnership

interest in P:

Ordinary income . . . . . . . . . . . . .

$300

(ii)(A) On or before February 28, 1997, T

files with the Internal Revenue Service a

Form 1099–DIV on which T reports

dividends attributable to G as the owner of

the trust in the amount of $18. T does not

file any other returns.

(B) T has complied with T’s obligation

under paragraph (b)(2)(iii)(A) of this section

to file the appropriate Forms 1099.

(6) Trusts that cannot report under

this paragraph (b). The following trusts

cannot use the methods of reporting

described in this paragraph (b)—

(i) A common trust fund as defined in

section 584(a);

(ii) A trust that has its situs or any of

its assets located outside the United

States;

(iii) A trust that is a qualified

subchapter S trust as defined in section

1361(d)(3);

(iv) A trust all of which is treated as

owned by one grantor or one other

person whose taxable year is a fiscal

year;

(v) A trust all of which is treated as

owned by one grantor or one other

person who is not a United States

person; or

(vi) A trust all of which is treated as

owned by two or more grantors or other

persons, one of whom is not a United

States person.

(7) Grantors or other persons who are

treated as owners of the trust and are

exempt recipients for information

reporting purposes—(i) Trust treated as

owned by one grantor or one other

person. The trustee of a trust all of

which is treated as owned by one

grantor or one other person may not

report pursuant to this paragraph (b) if

the grantor or other person is an exempt

recipient for information reporting

purposes.

(ii) Trust treated as owned by two or

more grantors or other persons. The

trustee of a trust, all of which is treated

as owned by two or more grantors or

other persons, may not report pursuant

to this paragraph (b) if one or more

grantors or other persons treated as

owners are exempt recipients for

information reporting purposes unless—

(A) At least one grantor or one other

person who is treated as an owner of the

trust is a person who is not an exempt

recipient for information reporting

purposes; and

(B) The trustee reports without regard

to whether any of the grantors or other

persons treated as owners of the trust

are exempt recipients for information

reporting purposes.

(8) Husband and wife who make a

single return jointly. A trust all of which

is treated as owned by a husband and

wife who make a single return jointly of

income taxes for the taxable year under

section 6013 is considered to be owned

by one grantor for purposes of this

paragraph (b).

(c) Due date for Forms 1099 required

to be filed by trustee. The due date for

any Forms 1099 required to be filed

with the Internal Revenue Service by a

trustee pursuant to this section is the

due date otherwise in effect for filing

Forms 1099.

(d) Due date and other requirements

with respect to statement required to be

furnished by trustee. The due date for

the statement required to be furnished

by a trustee to the grantor or other

person treated as an owner of the trust

pursuant to this section is the date

specified by section 6034A(a). The

trustee must maintain in its records a

copy of the statement furnished to the

grantor or other person treated as an

owner of the trust for a period of three

years from the due date for furnishing

such statement specified in this

paragraph (d).

(e) Backup withholding

requirements—(1) Trustee reporting

under paragraph (b)(2)(i)(A) of this

section. In order for the trustee to be

able to report pursuant to paragraph

(b)(2)(i)(A) of this section and to furnish

to all payors the name and TIN of the

grantor or other person treated as the

owner of the trust, the grantor or other

person must provide a complete Form

W–9 to the trustee in the manner

provided in paragraph (b)(1) of this

section, and the trustee must give the

name and TIN shown on that Form W–

9 to all payors. In addition, if the Form

W–9 indicates that the grantor or other

person is subject to backup withholding,

the trustee must notify all payors of

reportable interest and dividend

payments of the requirement to backup

withhold. If the Form W–9 indicates

that the grantor or other person is not

subject to backup withholding, the

trustee does not have to notify the

payors that backup withholding is not

required. The trustee should not give

the Form W–9, or a copy thereof, to a

payor because the Form W–9 contains

the address of the grantor or other

person and paragraph (b)(2)(i)(A) of this

section requires the trustee to furnish

the address of the trust to all payors and

not the address of the grantor or other

person. The trustee acts as the agent of

the grantor or other person for purposes

of furnishing to the payors the

information required by this paragraph

(e)(1). Thus, a payor may rely on the

name and TIN provided to the payor by

the trustee, and, if given, on the trustee’s

statement that the grantor is subject to

backup withholding.

(2) Other backup withholding

requirements. Whether a trustee is

treated as a payor for purposes of

backup withholding is determined

pursuant to section 3406 and the

regulations thereunder.

(f) Penalties for failure to file a correct

Form 1099 or furnish a correct

statement. A trustee who fails to file a

correct Form 1099 or to furnish a correct

statement to a grantor or other person

treated as an owner of the trust as

required by paragraph (b) of this section

is subject to the penalties provided by

sections 6721 and 6722 and the

regulations thereunder.

(g) Changing reporting methods—(1)

Changing from reporting by filing Form

1041 to a method described in

paragraph (b) of this section. If the

trustee has filed a Form 1041 for any

taxable year ending before January 1,

1996 (and has not filed a final Form

1041 pursuant to § 1.671–4(b)(3) (as

contained in the 26 CFR part 1 edition

revised as of April 1, 1995)), or files a

Form 1041 for any taxable year

thereafter, the trustee must file a final

Form 1041 for the taxable year which

ends after January 1, 1995, and which

immediately precedes the first taxable

year for which the trustee reports

pursuant to paragraph (b) of this section,

on the front of which form the trustee

must write: ‘‘Pursuant to § 1.671–4(g),

this is the final Form 1041 for this

grantor trust.’’.

(2) Changing from reporting by a

method described in paragraph (b) of

this section to the filing of a Form 1041.

The trustee of a trust who reported

pursuant to paragraph (b) of this section

for a taxable year may report pursuant

to paragraph (a) of this section for

subsequent taxable years. If the trustee

reported pursuant to paragraph

(b)(2)(i)(A) of this section, and therefore

furnished the name and TIN of the

grantor to all payors, the trustee must

furnish the name, TIN, and address of

the trust to all payors for such

subsequent taxable years. If the trustee

reported pursuant to paragraph

(b)(2)(i)(B) or (b)(3)(i) of this section,

and therefore furnished the name and

TIN of the trust to all payors, the trustee
66090 Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Rules and Regulations

must indicate on each Form 1096

(Annual Summary and Transmittal of

U.S. Information Returns) that it files (or

appropriately on magnetic media) for

the final taxable year for which the

trustee so reports that it is the final

return of the trust.

(3) Changing between methods

described in paragraph (b) of this

section—(i) Changing from furnishing

the TIN of the grantor to furnishing the

TIN of the trust. The trustee of a trust

who reported pursuant to paragraph

(b)(2)(i)(A) of this section for a taxable

year, and therefore furnished the name

and TIN of the grantor to all payors, may

report pursuant to paragraph (b)(2)(i)(B)

of this section, and furnish the name

and TIN of the trust to all payors, for

subsequent taxable years.

(ii) Changing from furnishing the TIN

of the trust to furnishing the TIN of the

grantor. The trustee of a trust who

reported pursuant to paragraph

(b)(2)(i)(B) of this section for a taxable

year, and therefore furnished the name

and TIN of the trust to all payors, may

report pursuant to paragraph (b)(2)(i)(A)

of this section, and furnish the name

and TIN of the grantor to all payors, for

subsequent taxable years. The trustee,

however, must indicate on each Form

1096 (Annual Summary and Transmittal

of U.S. Information Returns) that it files

(or appropriately on magnetic media) for

the final taxable year for which the

trustee reports pursuant to paragraph

(b)(2)(i)(B) of this section that it is the

final return of the trust.

(4) Example. The following example

illustrates the provisions of paragraph

(g) of this section:

Example. (i) On January 3, 1994, G, a

United States citizen, creates a trust all of

which is treated as owned by G. The trustee

of the trust is T. On or before April 17, 1995,

T files with the Internal Revenue Service a

Form 1041 with an attached statement for the

1994 taxable year showing the items of

income, deduction, and credit of the trust.

On or before April 15, 1996, T files with the

Internal Revenue Service a Form 1041 with

an attached statement for the 1995 taxable

year showing the items of income, deduction,

and credit of the trust. On the Form 1041, T

states that ‘‘pursuant to § 1.671–4(g), this is

the final Form 1041 for this grantor trust.’’ T

may report pursuant to paragraph (b) of this

section for the 1996 taxable year.

(ii) T reports pursuant to paragraph

(b)(2)(i)(B) of this section, and therefore

furnishes the name, TIN, and address of the

trust to all payors, for the 1996 and 1997

taxable years. T chooses to report pursuant to

paragraph (a) of this section for the 1998

taxable year. On each Form 1096 (Annual

Summary and Transmittal of U.S.

Information Returns) which T files for the

1997 taxable year (or appropriately on

magnetic media), T indicates that it is the

trust’s final return. On or before April 15,

1999, T files with the Internal Revenue

Service a Form 1041 with an attached

statement showing the items of income,

deduction, and credit of the trust. On the

Form 1041, T uses the same TIN which T

used on the Forms 1041 and Forms 1099 it

filed for previous taxable years. T has

complied with T’s obligations under

paragraph (g)(2) of this section.

(h) Effective date and transition rule—

(1) Effective date. The trustee of a trust

any portion of which is treated as

owned by one or more grantors or other

persons must report pursuant to this

section for taxable years beginning on or

after January 1, 1996.

(2) Transition rule. For taxable years

beginning prior to January 1, 1996, the

Internal Revenue Service will not

challenge the manner of reporting of—

(i) A trustee of a trust all of which is

treated as owned by one or more

grantors or other persons who did not

report in accordance with § 1.671–4(a)

(as contained in the 26 CFR part 1

edition revised as of April 1, 1995) as in

effect for taxable years beginning prior

to January 1, 1996, but did report in a

manner substantially similar to one of

the reporting methods described in

paragraph (b) of this section; or

(ii) A trustee of two or more trusts all

of which are treated as owned by one or

more grantors or other persons who

filed a single Form 1041 for all of the

trusts, rather than a separate Form 1041

for each trust, provided that the items of

income, deduction, and credit of each

trust were shown on a statement

attached to the single Form 1041.

(i) Cross-reference. For rules relating

to employer identification numbers, and

to the obligation of a payor of income

or proceeds to the trust to furnish to the

payee a statement to recipient, see

§ 301.6109–1(a)(2) of this chapter.

Par. 3. Section 1.6012–3 is amended

by revising paragraph (a)(9) to read as

follows:

§ 1.6012–3 Returns by fiduciaries.

(a) * * *

(9) A trust any portion of which is

treated as owned by the grantor or

another person pursuant to sections 671

through 678. In the case of a trust any

portion of which is treated as owned by

the grantor or another person under the

provisions of subpart E (section 671 and

following) part I, subchapter J, chapter

1 of the Internal Revenue Code see

§ 1.671–4.

* * * * *

PART 25—GIFT TAX; GIFTS MADE

AFTER DECEMBER 31, 1954

Par. 4. The authority citation for part

25 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 5. Section 25.2702–3 is amended

by adding a sentence to the end of

paragraphs (b)(1)(i) and (c)(1)(i),

respectively, to read as follows:

§ 25.2702–3 Qualified interests.

* * * * *

(b) * * *

(1) * * * (i) * * * If the trustee

reports for the taxable year pursuant to

§ 1.671–4(b) of this chapter, the annuity

payment must be made no later than the

date by which the trustee would have

been required to file the Federal income

tax return of the trust for the taxable

year (without regard to extensions) had

the trustee reported pursuant to § 1.671–

4(a) of this chapter.

* * * * *

(c) * * *

(1) * * * (i) * * * If the trustee

reports for the taxable year pursuant to

§ 1.671–4(b) of this chapter, the unitrust

payment must be made no later than the

date by which the trustee would have

been required to file the Federal income

tax return of the trust for the taxable

year (without regard to extensions) had

the trustee reported pursuant to § 1.671–

4(a) of this chapter.

* * * * *

PART 301—PROCEDURE AND

ADMINISTRATION

Par. 6. The authority citation for part

301 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * *

Par. 7. Section 301.6109–1 is

amended by revising paragraph (a)(2) to

read as follows:

§ 301.6109–1 Identifying numbers.

(a) * * *

(2) A trust all of which is treated as

owned by the grantor or another person

pursuant to sections 671 through 678—

(i) Obtaining a taxpayer identification

number. If a trust does not have a

taxpayer identification number and the

trustee furnishes the name and taxpayer

identification number of the grantor or

other person treated as the owner of the

trust and the address of the trust to all

payors pursuant to § 1.671–4(b)(2)(i)(A)

of this chapter, the trustee need not

obtain a taxpayer identification number

for the trust until either the first taxable

year of the trust in which all of the trust

is no longer owned by the grantor or

another person, or until the first taxable

year of the trust for which the trustee no

longer reports pursuant to § 1.671–

4(b)(2)(i)(A) of this chapter. If the trustee

has not already obtained a taxpayer

identification number for the trust, the

trustee must obtain a taxpayer

identification number for the trust as

provided in paragraph (d)(2) of this
Federal Register / Vol. 60, No. 245 / Thursday, December 21, 1995 / Rules and Regulations 66091

section in order to report pursuant to

§ 1.671–4(a), (b)(2)(i)(B), or (b)(3)(i) of

this chapter.

(ii) Obligations of persons who make

payments to certain trusts. Any payor

that is required to file an information

return with respect to payments of

income or proceeds to a trust must show

the name and taxpayer identification

number that the trustee has furnished to

the payor on the return. Regardless of

whether the trustee furnishes to the

payor the name and taxpayer

identification number of the grantor or

other person treated as an owner of the

trust, or the name and taxpayer

identification number of the trust, the

payor must furnish a statement to

recipients to the trustee of the trust,

rather than to the grantor or other

person treated as the owner of the trust.

Under these circumstances, the payor

satisfies the obligation to show the name

and taxpayer identification number of

the payee on the information return and

to furnish a statement to recipients to

the person whose taxpayer

identification number is required to be

shown on the form.

(iii) Persons treated as payors. For

purposes of this paragraph (a)(2), the

term payor means a person described in

§ 1.671–4(b)(4) of this chapter.

* * * * *

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 8. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 9. In § 602.101, paragraph (c) is

amended in the table by revising the

entry for 1.671–4 to read ‘‘1.671–4

. . . . 1545–1442’’.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: December 5, 1995:

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 95–30682 Filed 12–20–95; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Parts 1, 301 and 602

[TD 8641]

RIN 1545–AN71

Treatment of Acquisition of Certain

Financial Institutions; Certain Tax

Consequences of Federal Financial

Assistance to Financial Institutions

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations relating to Federal financial

assistance, as defined in section 597(c)

of the Internal Revenue Code, that is

received by a financially troubled bank

or thrift institution, and to acquisitions

of financially troubled bank or thrift

institutions in which Federal financial

assistance is provided. This document

also contains final regulations under

section 7507. These regulations provide

guidance concerning the proper tax

treatment of various transactions

involving the receipt of Federal

financial assistance.

DATES: These regulations are effective

December 21, 1995.

For dates of applicability, see the

‘‘§ 1.597–7 Effective date’’ section under

the SUPPLEMENTARY INFORMATION portion

of the preamble and the effective date

provisions (§ 1.597–7) of this document.

FOR FURTHER INFORMATION CONTACT:

Steven M. Flanagan at 202–622–7790,

Vicki J. Hyche at 202–622–7530,

William D. Alexander at 202–622–7710,

or Steven R. Glickstein at 202–622–4439

(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information

contained in these final regulations have

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork

Reduction Act (44 U.S.C. 3507) under

control number 1545–1300. Responses

to these collections of information are

required to track deferred income and

its subsequent recapture, elect to

disaffiliate earlier than would otherwise

be permitted, elect to apply the

provisions of the regulation

retroactively, and report uncollected

income tax.

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 control number.

The estimated annual burden per

respondent/recordkeeper varies from 1

hour to 11 hours, depending on

individual circumstances, with an

estimated average of 4.4 hours.

Comments concerning the accuracy of

this burden estimate and suggestions for

reducing this burden should be sent to

the Internal Revenue Service, Attn: IRS

Reports Clearance Officer T:FP,

Washington, DC 20224, and to the

Office of Management and Budget, Attn:

Desk Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503.

Books or records relating to these

collections of information must be

retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

This document contains final

regulations under section 597, as

amended by section 1401 of the

Financial Institutions Reform, Recovery,

and Enforcement Act of 1989 (Public

Law 101–73) (FIRREA). The regulations

provide guidance for banks and

domestic building and loan associations

(Institutions) and their affiliates in

connection with receipt of Federal

financial assistance (FFA), as defined in

section 597(c).

Section 597(a) delegates to the

Secretary of the Treasury authority to

prescribe regulations concerning ‘‘any

transaction in which Federal financial

assistance is provided.’’ These

regulations are issued under the

authority of section 597(a).

This document also amends the

regulations under section 7507 to reflect

the treatment of FFA under FIRREA.

The IRS published proposed

regulations under sections 597 and 7507

on April 22, 1992 (57 FR 14794, FI–46–

89, 1992–1 C.B. 1037).

Public Comments and the Final

Regulations

The IRS received comments on the

proposed regulations, and a public

hearing was held on July 17, 1992. After

consideration of the comments and the

statements made at the hearing, the

proposed regulations are adopted as

revised by this Treasury decision. The

principal comments and revisions are

discussed below.

Section 1.597–2 Taxation of FFA

Section 1.597–2 contains rules

concerning accounting for FFA as

income. The final regulations retain the

proposed rule that, generally, FFA is

income to the failed Institution when it

is received or accrued in accordance

with the Institution’s method of

accounting. Section 1.597–2(c) contains

rules permitting certain Institutions to

defer the inclusion of FFA.

Deferral formula without Continuing

Equity. Under the proposed regulations,

unresolved Institutions without

Continuing Equity were permitted to

defer inclusion of FFA in excess of

amounts determined under a formula.

The proposed formula required current

inclusion equal to the sum of liabilities

less aggregate adjusted basis at the