262 Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations

PART 301—PROCEDURE AND

ADMINISTRATION

Par. 4. The authority citation for part

301 continues to read in part as follows:

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

Par. 5. Section 301.6651–1 is

amended by revising paragraph (c)(3) to

read as follows:

§ 301.6651–1 Failure to file tax return or to

pay tax.

* * * * *

(c)(3) [Reserved] For further guidance

see § 301.6651–1T(c)(3).

* * * * *

Par. 6. Section 301.6651–1T is added

to read as follows:

§ 301.6651–1T Failure to file tax return or

to pay tax—taxable years ending on or after

December 31, 1995 (temporary).

(a) through (c)(2) [Reserved].

(c)(3) If, for a taxable year ending on

or after December 31, 1995, an

individual taxpayer satisfies the

requirements of § 1.6081–4T(a) of this

chapter (relating to an automatic

extension of time for filing an

individual income tax return),

reasonable cause shall be presumed, for

the period of the extension of time to

file, with respect to any underpayment

of tax if—

(i) The excess of the amount of tax

shown on the individual income tax

return over the amount of tax paid on

or before the regular due date of the

return (by virtue of taxes withheld by

the employer, estimated tax payments,

and any payment with an application

for extension of time to file pursuant to

§ 1.6081–4T of this chapter) is no greater

than 10 percent of the amount of tax

shown on the individual income tax

return; and

(ii) Any balance due shown on the

individual income tax return is remitted

with the return.

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 7. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

§ 602.101 [Amended]

Par. 8. In § 602.101, paragraph (c) is

amended by adding an entry in

numerical order to the table to read

‘‘1.6081–4T. . . .1545–1479’’.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: December 20, 1995.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 96–114 Filed 1–3–96; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Parts 1 and 602

[TD 8654]

RIN 1545–AS21

Information Reporting for Discharges

of Indebtedness

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations relating to the information

reporting requirements of applicable

financial entities for discharges of

indebtedness. The final regulations

reflect changes to the Internal Revenue

Code of 1986 (Code) made by section

13252 of the Omnibus Budget

Reconciliation Act of 1993 (the Act).

The final regulations affect certain

financial institutions and federal

executive agencies.

DATES: These regulations are effective

December 22, 1996.

For dates of applicability, see

§ 1.6050P–1(h).

FOR FURTHER INFORMATION CONTACT:

Sharon L. Hall (timing and amount of

discharge) at (202) 622–4930 or Michael

F. Schmit (other issues) at (202) 622–

4960, both of the Office of Assistant

Chief Counsel (Income Tax and

Accounting). Neither telephone number

is toll-free.

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 1545–1419. Responses

to this collection of information are

required for the IRS to monitor whether

discharged debtors are properly

complying with tax laws respecting

cancellations of indebtedness.

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 time estimates for the reporting

requirements contained in these final

regulations are reflected in the burden

estimates for Form 1099–C.

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

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 information are

confidential, as required by 26 U.S.C.

6103.

Background

Section 6050P was added to the Code

by section 13252 of the Act. Section

6050P requires certain financial entities

to report discharges of indebtedness of

$600 or more during any calendar year,

and requires reporting entities to make

a return at such time and in such form

as the Secretary may by regulations

prescribe.

On December 27, 1993, temporary

regulations (TD 8506) relating to the

reporting of discharge of indebtedness

under section 6050P were published in

the Federal Register (58 FR 68301). A

notice of proposed rulemaking (IA–63–

93) cross-referencing the temporary

regulations was published in the

Federal Register for the same day (58

FR 68337).

Written comments were received in

response to the notice of proposed

rulemaking. Fourteen speakers provided

testimony at a public hearing held on

March 30, 1994. In response to the

comments and testimony, the IRS and

Treasury issued Notice 94–73 (1994–2

C.B. 553), providing interim relief from

penalties for failure to comply with

certain of the reporting requirements of

the temporary regulations. The Notice

provided that, with respect to a

discharge of indebtedness occurring

before the later of January 1, 1995, or the

effective date of the final regulations

under section 6050P, no penalties

would be imposed for the failure to

report a discharge of indebtedness:

(a) Under title 11 of the United States

Code;

(b) Resulting from the expiration of

the statute of limitations for collection

of an indebtedness;

(c) For an amount other than principal

in the case of indebtedness arising in
Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations 263

connection with a lending transaction;

or

(d) For a person other than the

primary (or first-named) debtor in the

case of indebtedness incurred before

January 1, 1995, that involves multiple

debtors.

After consideration of all the

comments, the proposed regulations

under section 6050P are adopted, as

revised by this Treasury decision,

effective for discharges of indebtedness

occurring after December 21, 1996. The

temporary regulations and interim relief

from penalties provided in Notice 94–73

remain in effect through December 21,

1996, at which time the temporary

regulations are removed. However, no

penalties will be imposed for the failure

to report a discharge of indebtedness

occurring after December 21, 1996, and

before January 1, 1997, if the failure to

report would have qualified for penalty

relief under Notice 94–73 had the

discharge occurred prior to December

22, 1996. Additionally, the final

regulations provide that a financial

entity subject to section 6050P may, at

its discretion, apply any of the

provisions of the final regulations to any

discharge of indebtedness occurring on

or after January 1, 1996, and before

December 22, 1996. The comments and

revisions to the proposed regulations are

discussed below.

At the request of commentators, the

IRS and Treasury are considering the

issuance of guidance providing uniform

procedures for requesting extensions of

time within which to file information

returns with the IRS and related

statements to taxpayers. This guidance,

if issued, would apply to the

information reporting requirements set

forth in this Treasury decision.

Explanation of Revisions and Summary

of Comments

1. Identifiable Events

Comments were received relating to

the issue of when an indebtedness is

discharged for purposes of section

6050P. Under the temporary and

proposed regulations, indebtedness is

considered discharged, and reporting is

required, upon the occurrence of an

identifiable event indicating that the

indebtedness will never have to be

repaid by the debtor, taking into account

all of the facts and circumstances. The

temporary and proposed regulations list

three identifiable events, but make clear

that the three items do not represent an

exclusive list of events requiring

reporting.

Commentators objected to this facts

and circumstances test, and stated that

the final regulations should instead

provide an exclusive list of reporting

events. The comments indicated that

creditors do not have the resources to

weigh all the facts and circumstances in

order to determine whether a debt will

never have to be repaid by the debtor.

In response to these comments, the

final regulations provide that, for

purposes of section 6050P, indebtedness

is considered discharged, and reporting

is required, only upon the occurrence of

certain identifiable events. The

regulations contain an exclusive list of

eight identifiable events, and provide

that, in the absence of the occurrence of

one of these events, a Form 1099–C is

not required to be filed.

A. Discharges of Indebtedness in

Bankruptcy

Commentators objected to the

requirement in the temporary and

proposed regulations relating to the

reporting of a discharge of indebtedness

in bankruptcy. The commentators stated

that the obligation to report debts

discharged in bankruptcy was extremely

burdensome due to the large number of

information returns that these

bankruptcies would generate. These

commentators also stated that some

lenders do not receive information

regarding a debtor’s bankruptcy

discharge in the normal course of

business.

Commentators also objected to the

requirement to report debts discharged

in bankruptcy because income from a

discharge in bankruptcy is excludable

under section 108(a)(1)(A).

Additionally, while acknowledging that

section 108(b) generally requires the

reduction of tax attributes for amounts

of cancellation of indebtedness income

excluded under section 108(a), these

commentators indicated that the

majority of bankruptcies involve

consumer debt, the discharge of which

is unlikely to give rise to attribute

reduction. Thus, they contended that

the reporting of consumer debts

discharged in bankruptcy will not

further the purposes of section 6050P.

Finally, based on language in section

6050P, commentators contended that

the IRS and Treasury lacked authority to

require reporting in bankruptcy. Under

section 6050P(a), ‘‘any applicable

financial entity which discharges . . .

the indebtedness of any person’’ is

subject to the rules of section 6050P.

Commentators argued that creditors

should not be subject to the rules of

section 6050P for debts discharged in

bankruptcy because it is the bankruptcy

court, not the creditor, that discharges

the debt.

In promulgating the temporary

regulations, the IRS and Treasury fully

considered the issue of whether

bankruptcy discharges could be

excluded from the reporting

requirement. The legislative history to

section 6050P states that ‘‘information

returns are required regardless of

whether the debtor is subject to tax on

the discharged debt. For example,

Congress does not expect reporting

financial institutions and agencies to

determine whether the debtor qualifies

for an exclusion under section 108.’’

H.R. Conf. Rep. No. 213, 103d Cong., 1st

Sess. 1, 671 (1993). This language

indicates that Congress intended that

discharges resulting in excluded income

(such as bankruptcy discharges) be

reported.

Accordingly, the IRS and Treasury do

not believe that a requirement to report

debts discharged in bankruptcy is

outside the scope of section 6050P. In

enacting section 6050P, Congress

intended to increase debtor compliance

in reporting discharges of indebtedness.

With respect to the tax consequences to

the debtor, it generally makes no

difference whether the debt is

voluntarily discharged by the financial

entity, or discharged by a court order.

Further, the creditor is receiving an

amount that is less than the amount of

the outstanding indebtedness whether

the debt is voluntarily discharged or

ordered to be discharged by a court.

Thus, the language ‘‘any applicable

financial entity which discharges . . .

indebtedness’’ should not be narrowly

construed to exclude instances in which

a debt is ordered to be discharged or is

discharged by operation of law.

The IRS and Treasury believe that an

objective of the legislative history

quoted above is that information

reporting under section 6050P not

impose an undue burden on filers by

requiring determinations regarding

whether discharges result in income to

debtors. However, the legislative history

does not preclude an exception for

certain discharges in appropriate

circumstances. Accordingly, in response

to the above concerns of the

commentators, the final regulations

provide an exception from reporting in

the case of certain bankruptcy

discharges. Under the final regulations,

indebtedness discharged in bankruptcy

is required to be reported only if the

creditor knows that the debtor incurred

the indebtedness for business or

investment purposes. Therefore,

reporting is not required for consumer

debts discharged in bankruptcy or in

cases in which the creditor is not aware

of the purpose for the borrowing or that

purpose is not clear. Information

relating to whether a debt was incurred

for business or investment purposes will
264 Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations

be available to a creditor in some cases,

such as those in which loan documents

require the borrower to state the

purpose of the loan. This limited

reporting of debts discharged in

bankruptcy will exclude information

returns relating to consumer debt, while

retaining reporting for those discharges

most likely to involve the reduction of

tax attributes under section 108(b).

Pursuant to Notice 94–73, no penalties

will be imposed for the failure to report

any indebtedness discharged before

December 22, 1996, in bankruptcy.

Additionally, no penalties will be

imposed for the failure to report any

indebtedness discharged after December

21, 1996, and before January 1, 1997, in

bankruptcy, since the failure to report

would have qualified for penalty relief

under Notice 94–73 had the discharge

occurred prior to December 22, 1996.

B. Expiration of Statute of Limitations

for Collection

Under the temporary and proposed

regulations, an identifiable event

includes a cancellation or

extinguishment by operation of law that

renders a debt unenforceable, such as

the expiration of the statute of

limitations for collection of an

indebtedness.

Comments were received relating to

the requirement to report indebtedness

discharged as a result of the expiration

of the statute of limitations.

Commentators argued that expiration of

the statute of limitations should not be

an identifiable event because of the

recordkeeping and other administrative

burdens that are created by such a rule.

Commentators noted that the statute of

limitations for collection of debt varies

from state to state, and that debtors may

relocate and be subject to the rules of

multiple jurisdictions. Further, they

contended, an isolated payment by a

debtor will frequently restart the

running of the statute of limitations.

According to the commentators, making

lenders track the expiration of the

statute of limitations for reporting

purposes would require special

computer applications not needed for

any other creditor function, require legal

expertise in the collection department,

and be very costly.

As a legal matter, commentators

argued that the statute of limitations is

an affirmative defense, and affects only

judicial enforceability of the obligation.

Most commentators indicated that

collection activity routinely continues

after the expiration of the statute of

limitations. The temporary and

proposed regulations list collection

activity on the part of the creditor as a

factor to be considered in determining

whether debt has been discharged.

Thus, even under the temporary and

proposed regulations, expiration of the

statute of limitations would rarely mark

the date on which debt is considered

discharged, because collection activity

routinely continues after that date.

In response to these comments, the

final regulations provide that expiration

of the statute of limitations for

collection of an indebtedness is an

identifiable event for which a Form

1099–C is required to be filed only if,

and at such time as, a debtor’s

affirmative defense of the expiration of

the statute of limitations is upheld in a

final judgment or decision of a judicial

proceeding, and the period for

appealing the judgment or decision has

expired.

C. Other Discharges by Operation of

Law

As stated above, the temporary and

proposed regulations provide that an

identifiable event includes a

cancellation or extinguishment by

operation of law that renders a debt

unenforceable (such as the expiration of

the statute of limitations for collection

of the indebtedness). The temporary and

proposed regulations do not specify all

of the circumstances requiring reporting

under this identifiable event.

In order to further the goal of

providing an exclusive list of reporting

events, the final regulations specify

those discharges occurring by operation

of law that are required to be reported

under section 6050P. In addition to the

statute of limitations identifiable event

previously discussed, the events relating

to operation of law that must be

reported are (i) a cancellation or

extinguishment of an indebtedness that

renders a debt unenforceable in a

receivership, foreclosure, or similar

proceeding in a federal or State court, as

described in section 368(a)(3)(A)(ii); (ii)

a cancellation or extinguishment of an

indebtedness upon the expiration of a

statutory period for filing a claim or

commencing a deficiency judgment

proceeding; (iii) a cancellation or

extinguishment of an indebtedness that

renders a debt unenforceable pursuant

to a probate or similar proceeding; and

(iv) a cancellation or extinguishment of

an indebtedness pursuant to an election

of foreclosure remedies by a creditor

that statutorily extinguishes or bars the

creditor’s right to pursue collection of

the indebtedness. This final event

relating to an election of foreclosure

remedies will require reporting only

where a mortgage lender or holder is

barred by local law from pursuing a

deficiency judgment or note collection

proceeding following exercise of a

power of sale contained in a mortgage

or deed of trust.

A discharge of indebtedness occurring

by operation of law not enumerated

above is not required to be reported

under the final regulations.

D. Collection Activity

Commentators indicated that the

temporary and proposed regulations

were unclear regarding the effect of

continuing collection activity on the

requirement to report under section

6050P. The temporary and proposed

regulations provide that collection

activity is one of the facts and

circumstances to be taken into account

in determining whether a discharge of

indebtedness has occurred. The

commentators argued that the final

regulations should clarify that reporting

is not required prior to termination of

collection efforts on the part of the

creditor.

In response to these comments, the

final regulations address the effect of

collection efforts on the requirement to

report under section 6050P. Under the

final regulations, an identifiable event

occurs and reporting is required upon a

decision by the creditor, or the

application of a defined policy of the

creditor, to discontinue collection

activity and discharge indebtedness. For

this purpose, a defined policy may be

either a written policy or a creditor’s

established business practice.

Additionally, under the final

regulations, there is a rebuttable

presumption that an identifiable event

has occurred during a calendar year if

a creditor has not received a payment on

an indebtedness at any time during a 36-

month testing period ending at the close

of the year. This presumption is

rebutted by the creditor if the creditor

(or a third-party collection agency on

behalf of the creditor) has engaged in

significant, bona fide collection activity

at any time during the 12-month period

ending at the close of the calendar year,

or if facts and circumstances existing as

of January 31 of the calendar year

following expiration of the 36-month

testing period indicate that the

indebtedness has not been discharged.

Under the final regulations, significant,

bona fide collection activity does not

include merely nominal or ministerial

collection action, such as an automated

mailing. Further, facts and

circumstances indicating that an

indebtedness has not been discharged

include the existence of a lien relating

to the indebtedness against the debtor

(to the extent of the value of the

security), or the sale or packaging for

sale of the indebtedness by the creditor.
Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations 265

E. Other Reportable Discharges

Under the temporary and proposed

regulations, an identifiable event

includes an agreement between the

applicable financial entity and the

debtor to discharge an indebtedness,

provided that the last event necessary to

effectuate the discharge has occurred.

The final regulations retain this

reporting requirement, restating that an

identifiable event includes a discharge

of indebtedness pursuant to an

agreement between an applicable

financial entity and a debtor to

discharge indebtedness at less than full

consideration. As under the temporary

regulations, this identifiable event will

not occur until the last event necessary

to effectuate the discharge has occurred.

The final regulations also provide that

a discharge of indebtedness occurring

before the date on which an identifiable

event occurs may, at the creditor’s

discretion, be reported under section

6050P.

2. Definition of Indebtedness

Commentators objected to the broad

definition of indebtedness provided in

the temporary and proposed regulations.

The temporary and proposed

regulations provide that, for purposes of

reporting the amount of indebtedness

discharged, an indebtedness is any

amount owed to the creditor including

principal, interest, penalties, fees,

administrative costs, and fines, to the

extent the amount constitutes an

indebtedness under section 61(a)(12).

Commentators argued that this

definition is overly broad and should be

amended to include principal only (or

the primary indebtedness in the case of

a non-lending transaction). In response

to these comments, the final regulations

provide certain exceptions relating to

the reporting of amounts other than

stated principal.

A. Reporting of Interest

Commentators offered two main

objections to the reporting of interest.

First, commentators stated that

reporting interest was burdensome

because interest is not tracked by

lenders once indebtedness is written off

or placed on nonaccrual status on the

lender’s books. Second, commentators

suggested that reporting of interest

would be of marginal benefit to the IRS

because in many cases discharged

interest may be excluded from gross

income under sections 108(e)(2) and

111.

In response to these comments, and in

an effort to reduce the information

reporting burden on affected filers, the

final regulations do not require the

reporting of amounts of discharged

interest (whether or not arising in

connection with a lending transaction),

despite the fact that some discharged

interest will give rise to gross income.

However, at the option of the applicable

financial entity, interest may be

included in the amount reported.

Additionally, as provided in Notice 94–

73, in the case of a discharge of

indebtedness before December 22, 1996,

no penalties will be imposed for failure

to report an amount other than principal

in the case of indebtedness arising in

connection with a lending transaction.

B. Penalties, Fees, Administrative Costs,

and Fines

Commentators also argued that, like

interest, penalties, fees, administrative

costs, and fines are not tracked by

lenders once an indebtedness is written

off on the books of the lender. Thus,

they contended, tracking these amounts

would require additional computer

programming and recordkeeping, and

would be very costly. With respect to

lending transactions, the IRS and

Treasury have concluded that the

benefits that would be derived from

requiring the reporting of penalties, fees,

administrative costs, and fines are

outweighed by the burden associated

with the requirement. Accordingly, the

final regulations provide that, in the

case of a lending transaction, only

discharged amounts of stated principal

are required to be reported. In the case

of non-lending transactions, the amount

owed, such as a fee, fine, or penalty, is

reportable if discharged.

3. Reporting for Multiple Debtors

Commentators recommended that the

multiple debtor rules of the temporary

and proposed regulations be amended

so that reporting is required only with

respect to the primary or first-named

debtor on the lender’s account. The

rationale for this approach is that, in

general, lenders track loans involving

multiple debtors only by the name of

the borrower of record, and thus, the

information required to be reported

under section 6050P (e.g., the name,

address, and taxpayer identification

number (TIN)) for debtors other than the

primary debtor is generally not available

to lenders. In addition, the

commentators pointed out that most

other information return regulations

require reporting only with respect to a

single taxpayer (e.g., § 1.6050H–1

requires reporting only with respect to

one designated interest payor even if

multiple debtors are liable on a

mortgage). Finally, these commentators

stated that the majority of multiple

debtor situations involve a husband and

wife who will likely file a joint return,

and therefore, requiring reporting for

each debtor is not necessary.

The IRS and Treasury believe,

however, that requiring reporting for

multiple debtors is consistent with

section 6050P(a)(1), which provides that

the reporting of a name, address, and

TIN is required for each person whose

indebtedness was discharged. Further,

while reporting with respect to only one

taxpayer is required under many

information reporting sections of the

Code, section 6050J, which is

comparable to section 6050P in that it

relates to the reporting of acquisitions

and abandonments of property securing

indebtedness, requires reporting for

each person who is a borrower with

respect to the secured indebtedness.

Moreover, in Notice 94–73, the IRS

addressed the concerns of commentators

by providing that no penalties would be

imposed for failure to report a discharge

of indebtedness for other than the

primary (or first-named) debtor in the

case of indebtedness incurred before

January 1, 1995, thus allowing creditors

time to begin collecting the necessary

information for all debtors in the case of

indebtedness incurred after December

31, 1994. The final regulations

incorporate this relief.

In order to reduce the information

reporting burden on applicable financial

entities, the final regulations contain

two exceptions relating to multiple

debtor reporting. In the case of

indebtedness of less than $10,000

incurred on or after January 1, 1995, that

involves multiple debtors, reporting is

required only for the primary (or firstnamed) debtor. Additionally, to avoid

duplication, the final regulations

provide a husband/wife exception to the

requirement for reporting in the case of

multiple debtors. Under this exception,

only one Form 1099–C must be

prepared if the creditor knows, or has

reason to know, that the co-obligors

were husband and wife living at the

same address when the indebtedness

was incurred, and does not know or

have reason to know that such

circumstances have changed at the time

of the discharge. These two exceptions

apply to discharges of indebtedness

after December 31, 1994.

The final regulations retain the rule of

the temporary and proposed regulations

relating to the amount to be reported

with respect to each joint and several

debtor.

4. Multiple Creditors/Lending Pools/

REMICs

Commentators indicated that further

guidance should be provided in the

final regulations regarding section
266 Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations

6050P reporting obligations in the case

of participation loans, lending pools,

and other multiple-creditor situations.

In response to these comments, the final

regulations provide a general rule that,

in the case of an indebtedness owned

(or treated as owned for federal income

tax purposes) by more than one creditor,

each creditor that is an applicable

financial entity must comply with the

reporting requirements of this section

with respect to any discharge of

indebtedness of $600 or more allocable

to such creditor. A creditor will be

considered to have complied with the

requirements of this section if a lead

bank or other designee of the creditor

complies on its behalf.

Comments were received advocating

an exception from reporting for

discharges of certain widely-owned

securitized indebtedness. The

commentators reasoned that the owners

of widely-held securitized indebtedness

will generally have no knowledge

regarding when a discharge occurs, or

the amount of discharged debt allocable

to each owner. Further, commentators

suggested that it is likely that a

significant portion of such securitized

indebtedness may be owned by persons

that are not applicable financial entities

and, therefore, are not subject to section

6050P.

The IRS and Treasury believe,

however, that it would be inconsistent

with the purpose of section 6050P to

provide a general exception from

reporting for such securitized

indebtedness. Section 6050P is intended

to increase the likelihood that a debtor

will comply with the tax laws relating

to discharge of indebtedness by

requiring the reporting of that event to

the IRS. The fact that indebtedness has

been securitized and sold to numerous

owners generally does not affect the tax

consequences to the debtor upon a

discharge of that indebtedness. Thus,

the IRS and Treasury do not believe that

a discharge of indebtedness should be

excepted from section 6050P reporting

simply because that indebtedness was

part of a securitization arrangement.

Commentators also argued that the

discharge of an indebtedness held by a

real estate mortgage investment conduit

(REMIC) should not be required to be

reported under section 6050P. Because

a REMIC is not an applicable financial

entity, commentators contended that

section 6050P should not apply upon a

discharge of indebtedness held by a

REMIC.

However, section 860F(e) provides

that, for purposes of subtitle F of the

Code (Procedure and Administration,

including section 6050P), a REMIC is

treated as a partnership and holders of

residual interests in the REMIC are

treated as partners. Under the final

regulations, indebtedness owned by a

partnership is treated as owned by the

partners. Thus, arguably a discharge of

REMIC indebtedness should be treated

similar to partnership indebtedness and

thus should be reported to the extent the

residual owners of the REMIC are

applicable financial entities.

Because the IRS and Treasury believe

that further study of these issues is

warranted, the final regulations reserve

on the application of section 6050P to

discharges of indebtedness held (1) in a

pass-through securitized indebtedness

arrangement, or (2) by a REMIC. For this

purpose, a pass-through securitized

indebtedness arrangement is any

arrangement whereby one or more debt

obligations are pooled and held for

twenty or more persons whose interests

in the debt obligations are undivided coownership interests that are freely

transferrable. Co-ownership interests

that are actively traded personal

property (as defined in § 1.1092(d)–1)

are presumed to be freely transferrable

and held by twenty or more persons.

Pending issuance of further guidance,

no penalties will be imposed for failure

to report a discharge of indebtedness

held under these circumstances. This

relief from penalties does not extend to

arrangements formed for a principal

purpose of avoiding the reporting

requirements of this section. The IRS

and Treasury welcome comments

regarding compliance with section

6050P in the case of pass-through

securitized indebtedness arrangements

and REMICs.

5. Coordination of Form 1099–A and

Form 1099–C

The legislative history to section

6050P indicates that Congress intended

that the IRS and Treasury coordinate

reporting under section 6050P with the

reporting required under section 6050J.

Section 6050J requires information

relating to foreclosures and

abandonments of secured property to be

reported on Form 1099–A.

The final regulations provide that if,

in the same calendar year, a discharge

of indebtedness reportable under

section 6050P occurs in connection with

a foreclosure or abandonment of secured

property reportable under section 6050J,

it is not necessary to file both a Form

1099–A and a Form 1099–C for the same

debtor. Under the final regulations, the

filing requirements of section 6050J will

be satisfied with respect to a debtor if,

in lieu of filing a Form 1099–A, a Form

1099–C is filed in accordance with the

instructions for the filing of that form.

This coordinated filing provision

applies to discharges of indebtedness

after December 31, 1994.

6. Direct or Indirect Subsidiary

Commentators requested that the final

regulations include a definition of a

direct or indirect subsidiary for

purposes of section 6050P. Section

6050P(c)(1)(C) provides that the

definition of applicable financial entity

includes a direct or indirect subsidiary

of an entity described in section

6050P(c)(1)(A). In response to these

comments, the final regulations provide

that, for purposes of section

6050P(c)(1)(C), the term direct or

indirect subsidiary means a corporation

in a chain of corporations beginning

with the entity described in section

6050P(c)(1)(A), if at least 50 percent of

the total combined voting power of all

classes of stock entitled to vote, or at

least 50 percent of the total value of all

classes of stock, of such corporation is

directly owned by the entity described

in section 6050P(c)(1)(A), or by one or

more other corporations in the chain.

7. Other Exceptions From Reporting

The IRS and Treasury received

numerous comments advocating that the

final regulations include exceptions

from reporting with respect to certain

discharges of indebtedness.

A. Reporting for Non-U.S. Debtors

Comments were received relating to

the inclusion in final regulations of an

exception for reporting discharges of

indebtedness of certain foreign debtors.

These comments noted that, in some

cases, discharges of indebtedness that

involve such debtors will not result in

income that is taxable in the United

States.

On the other hand, there clearly are

cases in which a foreign person may be

subject to U.S. tax with respect to a

discharge of indebtedness. Because

there is no clear guidance on which

financial institutions may rely for

purposes of determining whether a

foreign person would be subject to U.S.

tax with respect to cancellation of

indebtedness income, it is not

appropriate to provide a general

exception for foreign persons. However,

the IRS and Treasury are continuing to

study the issue of whether reporting is

necessary in the case of foreign debtors

whose debt is discharged by foreign

branches of U.S. financial institutions.

Accordingly, pending the issuance of

further guidance, no penalties will be

imposed if an applicable financial entity

fails to report a discharge of

indebtedness of a foreign debtor by a

foreign branch of the entity.
Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations 267

B. Reporting Where Debt Is Acquired by

Related Persons

Comments were received requesting

that the final regulations clarify whether

reporting is required in circumstances

in which there is a deemed discharge of

indebtedness pursuant to the

regulations under section 108(e)(4).

Section 108(e)(4) and implementing

regulations (see § 1.108–2) provide that

the acquisition of outstanding

indebtedness by a person related to the

debtor from a person who is not related

to the debtor is treated as if the debtor

had acquired the indebtedness and may

result in a realization by the debtor of

income from discharge of indebtedness.

Commentators indicated that applicable

financial entities often will be unaware

that the conditions of section 108(e)(4)

have been satisfied and that the debtor’s

indebtedness is considered to have been

discharged. In response to these

comments, the final regulations provide

that no reporting is required under

section 6050P in the case of a discharge

of indebtedness under section 108(e)(4)

unless the disposition of the

indebtedness by the creditor was made

with a view to avoiding the reporting

requirements of this section.

C. Reporting for Guarantors of

Indebtedness

Commentators also requested

guidance on whether, and under what

circumstances, a Form 1099–C must be

filed for a guarantor of an indebtedness

when the underlying indebtedness is

discharged. The final regulations

provide that, in the case of guaranteed

debt, a guarantor is not treated as a

debtor for purposes of reporting under

section 6050P. Thus, reporting for

guarantors is not required.

D. Reporting for Non-lending

Transactions

A number of comments were received

advocating an exception in the final

regulations for discharges of

indebtedness where the indebtedness is

incurred in a non-lending transaction.

Advocates of this exception argued that

the primary reason applicable financial

entities, and not all trade or businesses,

were made subject to section 6050P is

that financial entities have extensive

involvement in lending transactions

where the majority of discharges of

indebtedness will occur. Commentators

argued that when an applicable

financial entity is a creditor as a result

of a non-lending transaction, it should

be treated in the same manner as a nonapplicable financial entity with respect

to that indebtedness, and not be subject

to section 6050P if a discharge occurs.

Neither the language of section 6050P

nor its legislative history provides any

indication that Congress intended for

discharges of non-lending indebtedness

to be excluded from reporting.

Moreover, it makes no difference in

determining whether a debtor has

income under section 61(a)(12) that the

indebtedness was incurred in a nonlending transaction. Accordingly, the

final regulations do not adopt this

suggestion.

E. Reporting of Disputed Liabilities

The temporary and proposed

regulations do not address the reporting

requirements under section 6050P in the

case of the settlement of a disputed

liability. The preamble to the temporary

regulations solicited public comment

relating to this issue. Several

commentators urged that the final

regulations include an exception from

reporting for settlements of bona fide

disputed liabilities.

The determination regarding whether

the settlement of a disputed liability

results in discharge of indebtedness

income under section 61(a)(12) is

inherently factual. Thus, it continues to

be the position of the IRS and Treasury

that this issue should be addressed on

a case-by-case basis, rather than by these

final regulations. Therefore, the final

regulations do not provide an exception

from reporting for disputed liabilities.

Instead, resolution of the question of

whether there may have been a

discharge of indebtedness reportable

under this section remains the

obligation of the applicable financial

entity. The IRS and Treasury recognize

that a creditor and debtor may take

inconsistent positions on this issue. The

IRS does not intend to impose penalties

for good faith failures to report

settlements that constitute discharges of

indebtedness.

8. Miscellaneous Comments

Comments were also received relating

to whether applicable financial entities

have any information reporting

obligations in instances where payments

are received on previously discharged

debts. In response to those inquiries, the

final regulations clarify that no

additional reporting or Form 1099–C

correction is required if a creditor

receives a payment of all or a portion of

a discharged debt that has been reported

to the IRS for a prior calendar year.

Comments were received respecting

the TIN solicitation requirements of the

temporary and proposed regulations. In

response to those comments, the final

regulations provide that a reasonable

effort (rather than all reasonable efforts)

must be made to obtain the correct

name/TIN combination of the person

whose indebtedness is discharged.

The IRS and Treasury received a

number of other comments in addition

to those summarized above. Some of the

suggestions contained in the comments

have been adopted in the final

regulations. Other suggested changes

were not adopted primarily because

those suggestions were inconsistent

with the purpose of the statute and its

legislative history.

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 also has

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 Internal Revenue

Code, the notice of proposed rulemaking

preceding these regulations was

submitted to the Chief Counsel for

Advocacy of the Small Business

Administration for comment on its

impact on small business.

Drafting Information

The principal authors of these

regulations are Sharon L. Hall and

Michael F. Schmit, Office of the

Assistant Chief Counsel (Income Tax

and Accounting), 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 602

Reporting and recordkeeping

requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and 602

are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by removing the

entry for § 1.6050P–1T and adding an

entry in numerical order to read as

follows:

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

Section 1.6050P–1 also issued under 26

U.S.C. 6050P. * * *
268 Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations

Par. 2. Sections 1.6050P–0 and

1.6050P–1 are added to read as follows:

§ 1.6050P–0 Table of contents.

This section lists the major captions

that appear in § 1.6050P–1.

§ 1.6050P–1 Information reporting for

discharges of indebtedness by certain

financial entities

(a) Reporting requirement.

(1) In general.

(2) No aggregation.

(3) Amounts not includible in income.

(4) Time and place for reporting.

(i) In general.

(ii) Indebtedness discharged in bankruptcy.

(b) Date of discharge.

(1) In general.

(2) Identifiable events.

(i) In general.

(ii) Statute of limitations.

(iii) Decision to discontinue collection

activity; creditor’s defined policy.

(iv) Expiration of non-payment testing

period.

(3) Permitted reporting.

(c) Indebtedness.

(d) Exceptions from reporting requirement.

(1) Certain bankruptcy discharges.

(i) In general.

(ii) Business or investment debt.

(2) Interest.

(3) Non-principal amounts in lending

transactions.

(4) Indebtedness of foreign persons held by

foreign branches of U.S. financial

institutions.

(i) Reporting requirements.

(ii) Definition.

(5) Acquisition of indebtedness by related

party.

(6) Releases.

(7) Guarantors and sureties.

(e) Additional rules.

(1) Multiple debtors.

(i) In general.

(ii) Amount to be reported.

(2) Multiple creditors.

(i) In general.

(ii) Partnerships.

(iii) Pass-through securitized indebtedness

arrangement.

(A) Reporting requirements.

(B) Definition.

(iv) REMICs.

(3) Coordination with reporting under section

6050J.

(4) Direct or indirect subsidiary.

(5) Use of magnetic media.

(6) TIN solicitation requirement.

(i) In general.

(ii) Manner of soliciting TIN.

(7) Recordkeeping requirements.

(8) No multiple reporting.

(f) Requirement to furnish statement.

(1) In general.

(2) Furnishing copy of Form 1099–C.

(3) Time and place for furnishing statement.

(g) Penalties.

(h) Effective dates.

(1) In general.

(2) Earlier application.

§ 1.6050P–1 Information reporting for

discharges of indebtedness by certain

financial entities.

(a) Reporting requirement—(1) In

general. Except as provided in

paragraph (d) of this section, any

applicable financial entity (as defined in

section 6050P(c)(1)) that discharges an

indebtedness of any person (within the

meaning of section 7701(a)(1)) of at least

$600 during a calendar year must file an

information return on Form 1099–C

with the Internal Revenue Service.

Solely for purposes of the reporting

requirements of section 6050P and this

section, a discharge of indebtedness is

deemed to have occurred, except as

provided in paragraph (b)(3) of this

section, if and only if there has occurred

an identifiable event described in

paragraph (b)(2) of this section, whether

or not an actual discharge of

indebtedness has occurred on or before

the date on which the identifiable event

has occurred. The return must include

the following information—

(i) The name, address, and taxpayer

identification number (TIN), as defined

in section 7701(a)(41), of each person

for which there was an identifiable

event during the calendar year;

(ii) The date on which the identifiable

event occurred, as described in

paragraph (b) of this section;

(iii) The amount of indebtedness

discharged, as described in paragraph

(c) of this section;

(iv) An indication whether the

identifiable event was a discharge of

indebtedness in a bankruptcy, if known;

and

(v) Any other information required by

Form 1099–C or its instructions, or

current revenue procedures.

(2) No aggregation. For purposes of

reporting under this section, multiple

discharges of indebtedness of less than

$600 are not required to be aggregated

unless such separate discharges are

pursuant to a plan to evade the

reporting requirements of this section.

(3) Amounts not includible in income.

Except as otherwise provided in this

section, discharged indebtedness must

be reported regardless of whether the

debtor is subject to tax on the

discharged debt under sections 61 and

108 or otherwise by applicable law.

(4) Time and place for reporting—(i)

In general. Except as provided in

paragraph (a)(4)(ii) of this section,

returns required by this section must be

filed with the Internal Revenue Service

office designated in the instructions for

Form 1099–C on or before February 28

of the year following the calendar year

in which the identifiable event occurs.

(ii) Indebtedness discharged in

bankruptcy. Indebtedness discharged in

bankruptcy that is required to be

reported under this section must be

reported for the later of the calendar

year in which the amount of discharged

indebtedness first becomes

ascertainable, or the calendar year in

which the identifiable event occurs.

(b) Date of discharge—(1) In general.

Solely for purposes of this section,

except as provided in paragraph (b)(3) of

this section, indebtedness is discharged

on the date of the occurrence of an

identifiable event specified in paragraph

(b)(2) of this section.

(2) Identifiable events—(i) In general.

An identifiable event is—

(A) A discharge of indebtedness under

title 11 of the United States Code

(bankruptcy);

(B) A cancellation or extinguishment

of an indebtedness that renders a debt

unenforceable in a receivership,

foreclosure, or similar proceeding in a

federal or State court, as described in

section 368(a)(3)(A)(ii) (other than a

discharge described in paragraph

(b)(2)(i)(A) of this section);

(C) A cancellation or extinguishment

of an indebtedness upon the expiration

of the statute of limitations for

collection of an indebtedness, subject to

the limitations described in paragraph

(b)(2)(ii) of this section, or upon the

expiration of a statutory period for filing

a claim or commencing a deficiency

judgment proceeding;

(D) A cancellation or extinguishment

of an indebtedness pursuant to an

election of foreclosure remedies by a

creditor that statutorily extinguishes or

bars the creditor’s right to pursue

collection of the indebtedness;

(E) A cancellation or extinguishment

of an indebtedness that renders a debt

unenforceable pursuant to a probate or

similar proceeding;

(F) A discharge of indebtedness

pursuant to an agreement between an

applicable financial entity and a debtor

to discharge indebtedness at less than

full consideration;

(G) A discharge of indebtedness

pursuant to a decision by the creditor,

or the application of a defined policy of

the creditor, to discontinue collection

activity and discharge debt; or

(H) The expiration of the nonpayment testing period, as described in

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

(ii) Statute of limitations. In the case

of an expiration of the statute of

limitations for collection of an

indebtedness, an identifiable event

occurs under paragraph (b)(2)(i)(C) of

this section only if, and at such time as,

a debtor’s affirmative statute of

limitations defense is upheld in a final

judgment or decision of a judicial

proceeding, and the period for
Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations 269

appealing the judgment or decision has

expired.

(iii) Decision to discontinue collection

activity; creditor’s defined policy. For

purposes of the identifiable event

described in paragraph (b)(2)(i)(G) of

this section, a creditor’s defined policy

includes both a written policy of the

creditor and the creditor’s established

business practice. Thus, for example, a

creditor’s established practice to

discontinue collection activity and

abandon debts upon expiration of a

particular non-payment period is

considered a defined policy for

purposes of paragraph (b)(2)(i)(G) of this

section.

(iv) Expiration of non-payment testing

period. There is a rebuttable

presumption that an identifiable event

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

section has occurred during a calendar

year if a creditor has not received a

payment on an indebtedness at any time

during a testing period (as defined in

this paragraph (b)(2)(iv)) ending at the

close of the year. The testing period is

a 36-month period increased by the

number of calendar months during all or

part of which the creditor was

precluded from engaging in collection

activity by a stay in bankruptcy or

similar bar under state or local law. The

presumption that an identifiable event

has occurred may be rebutted by the

creditor if the creditor (or a third-party

collection agency on behalf of the

creditor) has engaged in significant,

bona fide collection activity at any time

during the 12-month period ending at

the close of the calendar year, or if facts

and circumstances existing as of January

31 of the calendar year following

expiration of the 36-month period

indicate that the indebtedness has not

been discharged. For purposes of this

paragraph (b)(2)(iv)—

(A) Significant, bona fide collection

activity does not include merely

nominal or ministerial collection action,

such as an automated mailing;

(B) Facts and circumstances

indicating that an indebtedness has not

been discharged include the existence of

a lien relating to the indebtedness

against the debtor (to the extent of the

value of the security), or the sale or

packaging for sale of the indebtedness

by the creditor; and

(C) In no event will an identifiable

event described in paragraph (b)(2)(i)(H)

of this section occur prior to December

31, 1997.

(3) Permitted reporting. If a discharge

of indebtedness occurs before the date

on which an identifiable event occurs,

the discharge may, at the creditor’s

discretion, be reported under this

section.

(c) Indebtedness. For purposes of this

section, indebtedness means any

amount owed to an applicable financial

entity, including stated principal, fees,

stated interest, penalties, administrative

costs and fines. The amount of

indebtedness discharged may represent

all, or only a part, of the total amount

owed to the applicable financial entity.

(d) Exceptions from reporting

requirement—(1) Certain bankruptcy

discharges—(i) In general. Reporting is

required under this section in the case

of a discharge of indebtedness in

bankruptcy only if the creditor knows

from information included in the

reporting entity’s books and records

pertaining to the indebtedness that the

debt was incurred for business or

investment purposes as defined in

paragraph (d)(1)(ii) of this section.

(ii) Business or investment debt.

Indebtedness is considered incurred for

business purposes if it is incurred in

connection with the conduct of any

trade or business other than the trade or

business of performing services as an

employee. Indebtedness is considered

incurred for investment purposes if it is

incurred to purchase property held for

investment, as defined in section

163(d)(5).

(2) Interest. The discharge of an

amount of indebtedness that is interest

is not required to be reported under this

section.

(3) Non-principal amounts in lending

transactions. In the case of a lending

transaction, the discharge of an amount

other than stated principal is not

required to be reported under this

section. For this purpose, a lending

transaction is any transaction in which

a lender loans money to, or makes

advances on behalf of, a borrower

(including revolving credits and lines of

credit).

(4) Indebtedness of foreign debtors

held by foreign branches of U.S.

financial institutions—(i) Reporting

requirements. [Reserved]

(ii) Definition. An indebtedness held

by a foreign branch of a U.S. financial

institution is described in this

paragraph (d)(4) only if—

(A) The financial institution is

engaged through a branch or office in

the active conduct of a banking or

similar business outside the United

States;

(B) The branch or office is a

permanent place of business that is

regularly maintained, occupied, and

used to carry on a banking or similar

financial business;

(C) The business is conducted by at

least one employee of the branch or

office who is regularly in attendance at

such place of business during normal

working hours;

(D) The indebtedness is extended

outside of the United States by the

branch or office in connection with that

trade or business; and

(E) The financial institution does not

know or have reason to know that the

debtor is a United States person.

(5) Acquisition of indebtedness by

related party. No reporting is required

under this section in the case of a

deemed discharge of indebtedness

under section 108(e)(4) (relating to the

acquisition of an indebtedness by a

person related to the debtor), unless the

disposition of the indebtedness by the

creditor was made with a view to

avoiding the reporting requirements of

this section.

(6) Releases. The release of a coobligor is not required to be reported

under this section if the remaining

debtors remain liable for the full amount

of any unpaid indebtedness.

(7) Guarantors and sureties. Solely for

purposes of the reporting requirements

of this section, a guarantor is not a

debtor. Thus, in the case of guaranteed

indebtedness, reporting under this

section is not required with respect to

a guarantor, whether or not there has

been a default and demand for payment

made upon the guarantor.

(e) Additional rules—(1) Multiple

debtors—(i) In general. In the case of

indebtedness of $10,000 or more

incurred on or after January 1, 1995, that

involves more than one debtor, a

reporting entity is subject to the

requirements of paragraph (a) of this

section for each debtor discharged from

such indebtedness. In the case of

indebtedness incurred prior to January

1, 1995, and indebtedness of less than

$10,000 incurred on or after January 1,

1995, involving multiple debtors,

reporting under this section is required

only with respect to the primary (or

first-named) debtor. Additionally, only

one return of information is required

under this section if the reporting entity

knows, or has reason to know, that coobligors were husband and wife living

at the same address when an

indebtedness was incurred, and does

not know or have reason to know that

such circumstances have changed at the

date of a discharge of the indebtedness.

This paragraph (e)(1) applies to

discharges of indebtedness after

December 31, 1994.

(ii) Amount to be reported. In the case

of multiple debtors jointly and severally

liable on an indebtedness, the amount of

discharged indebtedness required to be

reported under this section with respect

to each debtor is the total amount of

indebtedness discharged. For this
270 Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations

purpose, multiple debtors are presumed

to be jointly and severally liable on an

indebtedness in the absence of clear and

convincing evidence to the contrary.

(2) Multiple creditors—(i) In general.

Except as otherwise provided in this

paragraph (e)(2), if indebtedness is

owned (or treated as owned for federal

income tax purposes) by more than one

creditor, each creditor that is an

applicable financial entity must comply

with the reporting requirements of this

section with respect to any discharge of

indebtedness of $600 or more allocable

to such creditor. A creditor will be

considered to have complied with the

requirements of this section if a lead

bank, fund administrator, or other

designee of the creditor complies on its

behalf in any reasonable manner, such

as by filing a single return reporting the

aggregate amount of indebtedness

discharged, or by filing a return with

respect to the portion of the discharged

indebtedness allocable to the creditor.

For purposes of this paragraph (e)(2)(i),

any reasonable method may be used to

determine the portion of discharged

indebtedness allocable to each creditor.

(ii) Partnerships. For purposes of

paragraph (e)(2)(i) of this section,

indebtedness owned by a partnership is

treated as owned by the partners.

(iii) Pass-through securitized

indebtedness arrangement—(A)

Reporting requirements. [Reserved]

(B) Definition. For purposes of this

paragraph (e)(2)(iii), a pass-through

securitized indebtedness arrangement is

any arrangement whereby one or more

debt obligations are pooled and held for

twenty or more persons whose interests

in the debt obligations are undivided coownership interests that are freely

transferrable. Co-ownership interests

that are actively traded personal

property (as defined in § 1.1092(d)–1)

are presumed to be freely transferrable

and held by twenty or more persons.

(iv) REMICs. [Reserved]

(3) Coordination with reporting under

section 6050J. If, in the same calendar

year, a discharge of indebtedness

reportable under section 6050P occurs

in connection with a transaction also

reportable under section 6050J (relating

to foreclosures and abandonments of

secured property), an applicable

financial entity need not file both a

Form 1099–A and a Form 1099–C with

respect to the same debtor. The filing

requirements of section 6050J will be

satisfied with respect to a borrower if,

in lieu of filing Form 1099–A, a Form

1099–C is filed in accordance with the

instructions for the filing of that form.

This paragraph (e)(3) applies to

discharges of indebtedness after

December 31, 1994.

(4) Direct or indirect subsidiary. For

purposes of section 6050P(c)(1)(C), the

term direct or indirect subsidiary means

a corporation in a chain of corporations

beginning with an entity described in

section 6050P(c)(1)(A), if at least 50

percent of the total combined voting

power of all classes of stock entitled to

vote, or at least 50 percent of the total

value of all classes of stock, of such

corporation is directly owned by the

entity described in section

6050P(c)(1)(A), or by one or more other

corporations in the chain.

(5) Use of magnetic media. Any return

required under this section must be

filed on magnetic media to the extent

required by section 6011(e) and the

regulations thereunder. A failure to file

on magnetic media when required

constitutes a failure to file an

information return under section 6721.

Any person not required by section

6011(e) to file returns on magnetic

media may request permission to do so

under applicable regulations and

revenue procedures.

(6) TIN solicitation requirement—(i)

In general. For purposes of reporting

under this section, a reasonable effort

must be made to obtain the correct

name/taxpayer identification number

(TIN) combination of a person whose

indebtedness is discharged. A TIN

obtained at the time an indebtedness is

incurred satisfies the requirement of this

section, unless the entity required to file

knows that such TIN is incorrect. If the

TIN is not obtained prior to the

occurrence of an identifiable event, it

must be requested of the debtor for

purposes of satisfying the requirement

of this paragraph (e)(6).

(ii) Manner of soliciting TIN.

Solicitations made in the manner

described in § 301.6724–1(e)(1)(i) and

(2) of this chapter will be deemed to

have satisfied the reasonable effort

requirement set forth in paragraph

(e)(6)(i) of this section. A TIN

solicitation made after the occurrence of

an identifiable event must clearly notify

the debtor that the Internal Revenue

Service requires the debtor to furnish its

TIN, and that failure to furnish such TIN

may subject the debtor to a $50 penalty

imposed by the Internal Revenue

Service. A TIN provided under this

section is not required to be certified

under penalties of perjury.

(7) Recordkeeping requirements. Any

applicable financial entity required to

file a return with the Internal Revenue

Service under this section must also

retain a copy of the return, or have the

ability to reconstruct the data required

to be included on the return under

paragraph (a)(1) of this section, for at

least four years from the date such

return is required to be filed under

paragraph (a)(4) of this section.

(8) No multiple reporting. If

discharged indebtedness is reported

under this section, no further reporting

under this section is required for the

amount so reported, notwithstanding

that a subsequent identifiable event

occurs with respect to the same amount.

Further, no additional reporting or Form

1099–C correction is required if a

creditor receives a payment of all or a

portion of a discharged indebtedness

reported under this section for a prior

calendar year.

(f) Requirement to furnish statement—

(1) In general. Any applicable financial

entity required to file a return under this

section must furnish to each person

whose name is shown on such return a

written statement that includes the

following information—

(i) The information required by

paragraph (a)(1) of this section;

(ii) The name, address, and TIN of the

applicable financial entity required to

file a return under paragraph (a) of this

section;

(iii) A legend identifying the

statement as important tax information

that is being furnished to the Internal

Revenue Service; and

(iv) Any other information required

by Form 1099–C or its instructions, or

current revenue procedures.

(2) Furnishing copy of Form 1099–C.

The requirement to provide a statement

to the debtor will be satisfied if the

applicable financial entity furnishes

copy B of the Form 1099–C or a

substitute statement that complies with

the requirements of the current revenue

procedure for substitute Forms 1099.

(3) Time and place for furnishing

statement. The statement required by

this paragraph (f) must be furnished to

the debtor on or before January 31 of the

year following the calendar year in

which the identifiable event occurs. The

statement will be considered furnished

to the debtor if it is mailed to the

debtor’s last known address.

(g) Penalties. For penalties for failure

to comply with the requirements of this

section, see sections 6721 through 6724.

(h) Effective dates—(1) In general. The

rules in this section apply to discharges

of indebtedness after December 21,

1996, except paragraphs (e)(1) and (e)(3)

of this section, which apply to

discharges of indebtedness after

December 31, 1994.

(2) Earlier application.

Notwithstanding the provisions of

paragraph (h)(1) of this section, an

applicable financial entity may, at its

discretion, apply any of the provisions

of this section to any discharge of

indebtedness occurring on or after
Federal Register / Vol. 61, No. 3 / Thursday, January 4, 1996 / Rules and Regulations 271

January 1, 1996, and before December

22, 1996.

§§ 1.6050P–0T and 1.6050P–1T [Removed]

Par. 3. Sections 1.6050P–0T and

1.6050P–1T are removed.

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 4. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

§ 602.101 [Amended]

Par. 5. In § 602.101, paragraph (c) is

amended by removing the entry for

1.6050P–1T and adding an entry in

numerical order in the table to read

‘‘1.6050P–1..........1545–1419’’.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: December 12, 1995.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 96–131 Filed 1–3–96; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF DEFENSE

Office of the Secretary

32 CFR Part 69

[DoD Instruction 1342.jj]

School Boards for Department of

Defense Domestic Dependent

Elementary and Secondary Schools

AGENCY: Office of the Secretary, DoD.

ACTION: Interim final rule.

SUMMARY: This interim final rule

provides guidance to the Department of

Defense (DoD) Domestic Dependent

Elementary and Secondary Schools

(DDESS) implementing the National

Defense Authorization Act in Fiscal

Year 1995, which provides for elected

School Boards in DoD DDESS. Pursuant

to this legislation, school boards in DoD

DDESS may participate in the

development and oversight of fiscal,

personnel, and educational policies,

procedures, and programs for these

schools. This interim final rule provides

guidance outlining the responsibilities,

operating procedures, composition,

electorate and election procedures for

the DoD DDESS school boards.

DATES: This part is effective January 4,

1996. Written comments on this interim

final rule must be received by March 4,

1996.

ADDRESSES: Forward comments to the

Office of the Director, DoD Domestic

Dependent Elementary and Secondary

Schools, 4040 North Fairfax Drive,

Arlington, VA 22203–1635.

FOR FURTHER INFORMATION CONTACT:

Dr. Hector O. Nevarez at (703) 696–

4373/4354.

SUPPLEMENTARY INFORMATION: Because of

the importance of providing guidance

for elected school boards, this interim

final rule is being issued. The public’s

comments are welcomed and will be

carefully considered in the issuance of

a final rule. The Office of Management

and Budget has determined that this is

a significant regulatory action. However,

since this rule is not ‘‘economically

significant’’ as defined in Executive

Order 12866, the extensive analysis

report is not required, and the rule

complies with the requirements of the

Executive Order. It has been determined

that this rule is not subject to Public

Law 96–354, ‘‘Regulatory Flexibility

Act’’ (5 U.S.C. 601) because it would

not, if promulgated, have a significant

economic impact on a substantial

number of small entities. The primary

effect of this rule will be a reduction in

administrative costs and other burdens

resulting from the simplification and

clarification of policies. It has been

determined that Public Law 109–13,

‘‘Paperwork Reduction Act of 1995,’’ (44

U.S.C. Chapter 35) does not apply

because the rule does not impose any

reporting or recordkeeping requirements

on persons or entities outside the

Federal Government.

List of Subjects in 32 CFR Part 69

Elementary and secondary education,

Government employees, Military

personnel.

Accordingly, Title 32, Chapter I,

Subchapter C is amended to add Part 69

to read as follows:

PART 69—SCHOOL BOARDS FOR THE

DEPARTMENT OF DEFENSE

DOMESTIC DEPENDENT

ELEMENTARY AND SECONDARY

SCHOOLS

Sec.

69.1 Purpose.

69.2 Applicability and scope.

69.3 Definitions.

69.4 Policy.

69.5 Responsibilities.

69.6 Procedures.

Authority: 10 U.S.C. 2164.

§ 69.1 Purpose.

This part prescribes policies and

procedures for the establishment and

operation of elected School Boards for

schools operated by the Department of

Defense (DoD) under 10 U.S.C. 2164 and

32 CFR part 345.

§ 69.2 Applicability and scope.

This part applies to:

(a) The Office of the Secretary of

Defense (OSD), the Military

Departments, the Coast Guard when

operating as a service of the Department

of the Navy or by agreement between

DoD and the Department of

Transportation, the Chairman of the

Joint Chiefs of Staff, the Unified and

Specified Combatant Commands, the

Inspector General of the Department of

Defense, the Uniformed Services

University of the Health Sciences, the

Defense Agencies, and the DoD Field

Activities.

(b) The schools (pre-kindergarten

through grade 12) operated by the DoD

under 10 U.S.C. 2164 and 32 CFR part

345 within the Continental United

States, Alaska, Hawaii, Puerto Rico,

Wake Island, Guam, American Samoa,

the Northern Mariana Islands, and the

Virgin Islands, known as DoD DDESS

Arrangements.

(c) This part does not apply to elected

school boards established under State or

local law for DoD DDESS special

arrangements.

§ 69.3 Definitions.

(a) Arrangements. Actions taken by

the Secretary of Defense to provide a

free public education to dependent

children under 10 U.S.C. 2164 through

DoD DDESS arrangements or DoD

DDESS special arrangements:

(1) DDESS arrangement. A school

operated by the Department of Defense

under 10 U.S.C. 2164 and 32 CFR 345

to provide a free public education for

eligible children.

(2) DDESS special arrangement. An

agreement, under 10 U.S.C. 2164,

between the Secretary of Defense, or

designee, and a local public education

agency whereby a school or a school

system operated by the local public

education agency provides educational

services to eligible dependent children

of U.S. military personnel and federally

employed civilian personnel.

Arrangements result in partial or total

Federal funding to the local public

education agency for the educational

services provided.

(b) Parent. The biological father or

mother of a child when parental rights

have not been legally terminated; a

person who, by order of a court of

competent jurisdiction, has been

declared the father or mother of a child

by adoption; the legal guardian of a

child; or a person in whose household

a child resides, provided that such

person stands in loco parentis to that

child and contributes at least one-half of

the child’s support.