43720 Federal Register / Vol. 82, No. 180 / Tuesday, September 19, 2017 / Proposed Rules 

TABLE 3 TO PARAGRAPH (i) OF THIS AD —COMPLIANCE TIME LOWER THRESHOLD

Airbus Service Bulletin 

(modification) Applicability Modification not before: 

A330–53–3222, R1 ......................... Groups 32A, 32E, 33A, 33C, 33D 

and 33E.

10,000 total flight cycles. 

Group 33B ..................................... 12,000 total flight cycles. 

A330–200F .................................... 8,900 total flight cycles and 26,600 total flight hours. 

A330–53–3224, R1 ......................... Group 33A ..................................... 10,000 total flight cycles and 6,600 total flight hours. 

A330–53–3225, R2 ......................... Group 33A ..................................... 3,900 total flight cycles and 10,200 total flight hours. 

A330–53–3237, R1 ......................... Groups 32A, 33A, 33B, 33C, and 

33D.

3,900 total flight cycles. 

A330–53–3238, R1 ......................... Groups 32A, 33A, 33B, 33C, and 

33D.

9,000 total flight cycles. 

(j) Additional Work for Certain Airplanes 

For airplanes that have been modified 

before the effective date of this AD, in 

accordance with Airbus Service Bulletin 

A330–53–3144, Revision 00, dated August 

23, 2005; Airbus Service Bulletin A330–53– 

3222, Revision 00, dated January 15, 2015; or 

Airbus Service Bulletin A330–53–3237, 

Revision 00, dated January 15, 2015, as 

applicable: Within 12 months after the 

effective date of this AD, accomplish the 

additional work specified in the 

Accomplishment Instructions of Airbus 

Service Bulletin A330–53–3144, Revision 01, 

dated July 25, 2006; A330–53–3222, R1; and 

A330–53–3237, R1; as applicable. 

(k) Credit for Previous Actions 

This paragraph provides credit for 

applicable actions required by paragraph (g) 

of this AD, if those actions were performed 

before the effective date of this AD using the 

applicable service information specified in 

paragraphs (k)(1) through (k)(19) of this AD. 

(1) Airbus Service Bulletin A330–53–3144, 

Revision 01, dated July 25, 2006. 

(2) Airbus Service Bulletin A330–53–3144, 

Revision 02, dated April 20, 2011. 

(3) Airbus Service Bulletin A330–53–3144, 

Revision 03, dated January 15, 2015. 

(4) Airbus Service Bulletin A330–53–3224, 

Revision 00, dated January 16, 2015. 

(5) Airbus Service Bulletin A330–53–3225, 

Revision 00, dated January 16, 2015. 

(6) Airbus Service Bulletin A330–53–3225, 

Revision 01, dated February 26, 2016. 

(7) Airbus Service Bulletin A330–53–3226, 

Revision 00, dated January 15, 2015. 

(8) Airbus Service Bulletin A330–53–3226, 

Revision 01, dated March 3, 2016. 

(9) Airbus Service Bulletin A330–53–3236, 

Revision 00, dated January 15, 2015. 

(10) Airbus Service Bulletin A330–53– 

3236, Revision 01, dated August 24, 2015. 

(11) Airbus Service Bulletin A330–53– 

3238, Revision 00, dated January 15, 2015. 

(12) Airbus Service Bulletin A330–53– 

3239, Revision 00, dated April 20, 2015. 

(13) Airbus Service Bulletin A330–53– 

3244, Revision 00, dated April 7, 2015. 

(14) Airbus Service Bulletin A330–53– 

3251, Revision 00, dated May 13, 2015. 

(15) Airbus Service Bulletin A330–53– 

3252, Revision 00, dated April 10, 2015. 

(16) Airbus Service Bulletin A330–53– 

3257, Revision 00, dated July 21, 2015. 

(17) Airbus Service Bulletin A330–53– 

3259, Revision 00, dated May 11, 2015. 

(18) Airbus Service Bulletin A330–53– 

3259, Revision 01, dated February 26, 2016. 

(19) Airbus Service Bulletin A330–53– 

3263, Revision 00, dated July 21, 2015. 

(l) Other FAA AD Provisions 

The following provisions also apply to this 

AD: 

(1) Alternative Methods of Compliance 

(AMOCs): The Manager, International 

Section, Transport Standards Branch, FAA, 

has the authority to approve AMOCs for this 

AD, if requested using the procedures found 

in 14 CFR 39.19. In accordance with 14 CFR 

39.19, send your request to your principal 

inspector or local Flight Standards District 

Office, as appropriate. If sending information 

directly to the International Section, send it 

to the attention of the person identified in 

paragraph (m)(2) of this AD. Information may 

be emailed to: 9-ANM-116-AMOCREQUESTS@faa.gov. Before using any 

approved AMOC, notify your appropriate 

principal inspector, or lacking a principal 

inspector, the manager of the local flight 

standards district office/certificate holding 

district office. 

(2) Contacting the Manufacturer: For any 

requirement in this AD to obtain corrective 

actions from a manufacturer, the action must 

be accomplished using a method approved 

by the Manager, International Section, 

Transport Standards Branch, FAA; or the 

European Aviation Safety Agency (EASA); or 

Airbus’s EASA Design Organization 

Approval (DOA). If approved by the DOA, 

the approval must include the DOAauthorized signature. 

(3) Required for Compliance (RC): Except 

as required by paragraph (i) of this AD: If any 

service information contains procedures or 

tests that are identified as RC, those 

procedures and tests must be done to comply 

with this AD; any procedures or tests that are 

not identified as RC are recommended. Those 

procedures and tests that are not identified 

as RC may be deviated from using accepted 

methods in accordance with the operator’s 

maintenance or inspection program without 

obtaining approval of an AMOC, provided 

the procedures and tests identified as RC can 

be done and the airplane can be put back in 

an airworthy condition. Any substitutions or 

changes to procedures or tests identified as 

RC require approval of an AMOC. 

(m) Related Information 

(1) Refer to Mandatory Continuing 

Airworthiness Information (MCAI) EASA AD 

2016–0207, dated October 19, 2016, for 

related information. This MCAI may be 

found in the AD docket on the Internet at 

http://www.regulations.gov by searching for 

and locating Docket No. FAA–2017–0812. 

(2) For more information about this AD, 

contact Vladimir Ulyanov, Aerospace 

Engineer, International Section, Transport 

Standards Branch, FAA, 1601 Lind Avenue 

SW., Renton, WA 98057–3356; telephone 

425–227–1138; fax 425–227–1149. 

(3) For service information identified in 

this AD, contact Airbus SAS, Airworthiness 

Office—EAL, 1 Rond Point Maurice Bellonte, 

31707 Blagnac Cedex, France; telephone +33 

5 61 93 36 96; fax +33 5 61 93 45 80; email 

airworthiness.A330–A340@airbus.com; 

Internet http://www.airbus.com. You may 

view this service information at the FAA, 

Transport Standards Branch, 1601 Lind 

Avenue SW., Renton, WA. For information 

on the availability of this material at the 

FAA, call 425–227–1221. 

Issued in Renton, Washington, on 

September 7, 2017. 

Jeffrey E. Duven, 

Director, System Oversight Division, Aircraft 

Certification Service. 

[FR Doc. 2017–19760 Filed 9–18–17; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1, 5f, and 46 

[REG–125374–16] 

RIN 1545–BN60 

Guidance on the Definition of 

Registered Form 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Partial withdrawal of notice of 

proposed rulemaking and notice of 

proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations that provide 

guidance on the definitions of 

registration-required obligation and 

registered form, including guidance on 


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the issuance of pass-through certificates 

and participation interests in registered 

form. This document also withdraws a 

portion of previously proposed 

regulations regarding the definition of a 

registration-required obligation. The 

proposed regulations generally are 

necessary to address changes in market 

practices as well as issues raised by the 

statutory repeal of the foreign-targeted 

bearer obligation exception to the 

registered form requirement. The 

proposed regulations will affect issuers 

and holders of obligations in registered 

form as well as issuers and holders of 

registration-required obligations that are 

not issued in registered form. 

DATES: Comments and requests for a 

public hearing must be received by 

December 18, 2017. 

ADDRESSES: Send submissions to 

CC:PA:LPD:PR (REG–125374–16), Room 

5203, Internal Revenue Service, P.O. 

Box 7604, Ben Franklin Station, 

Washington, DC 20044. Submissions 

may be hand-delivered Monday through 

Friday between the hours of 8 a.m. and 

4 p.m. to CC:PA:LPD:PR (REG–125374– 

16), Courier’s Desk, Internal Revenue 

Service, 1111 Constitution Avenue NW., 

Washington, DC 20224, or sent 

electronically via the Federal 

eRulemaking Portal at 

www.regulations.gov (IRS REG–125374– 

16). 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

Spence Hanemann at (202) 317–6980; 

concerning submissions of comments 

and requesting a hearing, Regina 

Johnson at (202) 317–6901 (not toll-free 

numbers). 

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act 

The collection of information 

contained in this notice of proposed 

rulemaking has been submitted to the 

Office of Management and Budget for 

review under control number 1545– 

0945 in accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

3507(d)). The collection of information 

in this proposed regulation is in 

§ 1.163–5(b), which permits issuers of 

registration-required obligations to 

satisfy the requirement for those 

obligations to be in registered form by 

maintaining a book entry system. 

Sections 163(f) and 149(a) require that 

certain obligations be in registered form 

and expressly permit issuers to satisfy 

that requirement through a book entry 

system. Accordingly, the proposed 

regulations permit issuers to satisfy the 

registration requirement through a book 

entry system and detail certain 

arrangements that qualify as book entry 

systems. The collection of information 

in proposed § 1.163–5(b) is an increase 

in the total annual burden under control 

number 1545–0945. The respondents 

are businesses and other for-profit 

organizations, non-profit organizations, 

and state, local and tribal governments. 

Estimated total annual recordkeeping 

burden: 95,105 hours. 

Estimated average annual burden 

hours per respondent: 0.5 hours. 

Estimated number of respondents: 

190,210. 

Estimated annual frequency of 

responses: 190,210. 

Comments on the collection of 

information should be sent 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, with copies to the Internal 

Revenue Service, Attn: IRS Reports 

Clearance Officer, SE:CAR:MP:T:T:SP, 

Washington, DC 20224. Comments on 

the collection of information should be 

received by November 20, 2017. 

Comments are specifically requested 

concerning: 

Whether the proposed collection of 

information is necessary for the proper 

performance of the Internal Revenue 

Service, including whether the 

information will have practical utility; 

The accuracy of the estimated burden 

associated with the proposed collection 

of information; 

How the quality, utility, and clarity of 

the information to be collected may be 

enhanced; 

How the burden of complying with 

the proposed collection of information 

may be minimized, including through 

the application of automated collection 

techniques or other forms of information 

technology; and 

Estimates of capital or start-up costs 

and costs of operation, maintenance, 

and purchase of service to provide 

information. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a valid control 

number assigned by the Office of 

Management and Budget. 

Books or records relating to a 

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 section 

26 U.S.C. 6103. 

Background 

This document contains proposed 

amendments to 26 CFR parts 1, 5f, and 

46 under sections 103, 149, 163, 165, 

860D, 871, 881, 1287, 4701, 6045, and 

6049 of the Internal Revenue Code 

(Code). 

1. In General 

The classification of an obligation as 

in bearer or registered form has 

significant tax implications because a 

number of Code provisions impose 

sanctions on issuers and holders of 

registration-required obligations that are 

not issued in registered form. An 

obligation not issued in registered form 

is a bearer form obligation. Most of the 

Code provisions that pertain to 

registration-required obligations were 

enacted as part of the Tax Equity and 

Fiscal Responsibility Act of 1982 

(TEFRA), Public Law 97–248, 96 Stat. 

324, § 310. Among these provisions, 

section 163(f) denies an issuer an 

interest deduction for interest on a 

registration-required obligation that is 

not in registered form. Section 4701 

imposes an excise tax on the issuer of 

a registration-required obligation that is 

not in registered form. The excise tax is 

equal to 1 percent of the principal 

amount of the obligation multiplied by 

the number of calendar years (or 

portions thereof) between the issue date 

of the obligation and the date of 

maturity. Section 149(a) provides that 

interest on a registration-required bond 

is not exempt from tax under section 

103(a) unless the bond is in registered 

form. In addition, section 871(h) and 

section 881(c) exempt from federal 

income tax portfolio interest from 

sources within the U.S. received by a 

nonresident alien or foreign corporation 

(portfolio interest exception) only if the 

obligation with respect to which the 

interest was paid is in registered form. 

Similar restrictions are found in 

sections 165(j) (generally denying the 

holder a deduction for a loss sustained 

on a registration-required obligation not 

in registered form), 312(m) (generally 

providing that the issuer’s earnings and 

profits cannot be decreased by interest 

paid on a registration-required 

obligation not in registered form), and 

1287 (generally treating the holder’s 

gain on sale of a registration-required 

obligation not in registered form as 

ordinary income). 

Historically, the Code provisions 

referenced in the preceding paragraph 

generally did not apply to obligations 

that complied with the foreign-targeting 

rules of prior section 163(f)(2)(B) and 

§ 1.163–5(c) (foreign-targeted bearer 

obligations). Under the foreign-targeting 

rules, an issuer could issue foreigntargeted bearer obligations without 

penalty provided the obligations were 

issued under arrangements reasonably 

designed to ensure that the obligations 


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1For purposes of sections 165(j), 312(m), 

871(h)(7), 881(c)(7), 1287, and 4701, the term 

registered form has the same meaning as when used 

in section 163(f). 

2Section 5f.103–1 was originally published under 

section 103(j) of the Internal Revenue Code of 1954, 

which was enacted as part of TEFRA and provided 

that obligations must be in registered form to be taxexempt. Section 103(j) was recodified as section 

149(a) by section 1301 of the Tax Reform Act of 

1986, Public Law 99–514, 100 Stat. 2085. 

were sold only to non-U.S. persons. The 

portfolio interest exception also applied 

to interest paid on foreign-targeted 

bearer obligations issued under such 

reasonably designed arrangements. 

The Hiring Incentives to Restore 

Employment Act (the HIRE Act), Public 

Law 111–147, 124 Stat. 71, section 502, 

repealed section 163(f)(2)(B) and 

generally eliminated the special 

treatment of foreign-targeted bearer 

obligations. Foreign-targeted bearer 

obligations issued after March 18, 2012, 

are subject to the sanctions on bearer 

form obligations under sections 149(a), 

163(f), 165(j), 312(m), and 1287. The 

HIRE Act also revoked the portfolio 

interest exception for foreign-targeted 

bearer obligations, thus requiring that 

obligations issued after March 18, 2012, 

be in registered form to qualify for that 

exception. The HIRE Act did not, 

however, repeal the foreign-targeted 

bearer obligation exception to the excise 

tax under section 4701. See section 

4701(b)(1)(B)(i). 

2. Registration-Required Obligations 

A. In General 

Under section 163(f)(2)(A), as 

amended by the HIRE Act, the term 

registration-required obligation means 

any obligation other than an obligation 

that: (1) Is issued by a natural person; 

(2) is not of a type offered to the public; 

or (3) has a maturity at issue of not more 

than 1 year. For purposes of sections 

165(j), 312(m), and 1287, registrationrequired obligation has the same 

meaning as when used in section 163(f). 

See also section 149(a) (providing a 

similar definition except for the 

exclusion for instruments issued by a 

natural person). For purposes of section 

4701, that term also has the same 

meaning as when used in section 163(f), 

except that tax-exempt bonds and 

foreign-targeted bearer obligations are 

excluded. 

Section 5f.163–1(b)(2) provides that 

the determination as to whether an 

obligation is of a type offered to the 

public is based on whether similar 

obligations are in fact publicly offered 

or traded. On January 21, 1993, the 

Department of the Treasury (Treasury) 

and the IRS published in the Federal 

Register (58 FR 5316) a notice of 

proposed rulemaking (INTL–0115–90) 

containing proposed regulations that 

elaborated upon the meaning of ‘‘of a 

type offered to the public’’ for purposes 

of section 163(f)(2)(A) (the 1993 

proposed regulations). See Prop. Treas. 

Reg. § 5f.163–1(b)(2). The preamble to 

the 1993 proposed regulations cited the 

report of the Senate Finance Committee 

on TEFRA for the conclusion that an 

obligation that represents a ‘‘readily 

negotiable substitute for cash’’ should 

be a registration-required obligation. 58 

FR 5316 (citing S. Rep. No. 97–494, at 

242 (1982)). Treasury and the IRS 

reasoned in the preamble to the 1993 

proposed regulations that, because the 

standards for determining if an 

obligation is ‘‘readily tradable in an 

established securities market’’ under 

section 453(f)(4)(B) and § 15a.453– 

1(e)(4) address an analogous concern 

with negotiability, similar standards 

should apply for determining whether 

an obligation is ‘‘of a type offered to the 

public’’ under section 163(f)(2)(A). 

B. Pass-Through Certificates 

Section 1.163–5T provides rules to 

address whether pass-through 

certificates are registration-required 

obligations. In their most common form, 

pass-through certificates are issued by 

an investment entity (typically a trust) 

that holds a pool of obligations, such as 

mortgage loans. Each pass-through 

certificate represents an interest in the 

investment entity. 

To accommodate these securitization 

transactions, § 1.163–5T(d)(1) generally 

provides that a pass-through certificate 

evidencing an interest in a pool of 

mortgage loans that is treated as a trust 

of which the grantor is the owner is 

considered to be a registration-required 

obligation if, standing alone, the passthrough certificate meets the definition 

of a registration-required obligation. 

Section 1.163–5T(d)(1) also applies to 

‘‘similar evidence of interest in a similar 

pooled fund or pooled trust treated as a 

grantor trust,’’ although commenters 

have noted the ambiguity of the 

reference. Similarly, § 1.871–14(d)(1) 

provides that interest received on a 

pass-through certificate qualifies for the 

portfolio interest exception if, standing 

alone, the pass-through certificate is in 

registered form. 

Commenters have asked that Treasury 

and the IRS describe the types of 

arrangements that qualify as passthrough certificates. Specifically, 

commenters have requested that 

Treasury and the IRS amend the 

definition of a pass-through certificate 

to clarify that the issuer of a passthrough certificate may be either a 

grantor trust or another type of entity, 

such as a partnership or a disregarded 

entity, so long as the obligations in the 

pool are held through an arrangement 

that meets the requirements to be in 

registered form. Commenters have also 

requested that Treasury and the IRS 

amend § 1.871–14(d)(1) so that the 

definition of pass-through certificate for 

purposes of the portfolio interest 

exception is identical to the definition 

of pass-through certificate under 

§ 1.163–5T(d)(1). 

3. Definition of Registered Form 

A. In General 

For purposes of determining whether 

an obligation is in registered form under 

section 163(f),1 the principles of section 

149(a)(3) apply. See section 163(f)(3). 

Section 149(a)(3)(A) provides that a 

bond is treated as being in registered 

form if the right to the principal of, and 

stated interest on, the bond may be 

transferred only through a book entry 

consistent with regulations prescribed 

by the Secretary. Section 149(a)(3)(B) 

authorizes the Secretary to prescribe 

regulations to carry out the requirement 

that a bond be issued in registered form 

when there is one or more nominee. For 

purposes of section 149(a), the 

conditions for an obligation to be 

considered in registered form are 

described in § 5f.103–1(c).2 The 

regulations under both section 163(f) 

and section 871(h), specifically 

§§ 5f.163–1(a) and 1.871–14(c), refer to 

§ 5f.103–1(c) for a definition of 

registered form. Obligations that do not 

meet the conditions described in 

§ 5f.103–1(c) are treated as issued in 

bearer form. 

Generally, under § 5f.103–1(c), an 

obligation is in registered form if: (1) 

The obligation is registered as to both 

principal and any stated interest with 

the issuer (or its agent) and any transfer 

of the obligation may be effected only by 

surrender of the old obligation and 

reissuance to the new holder; (2) the 

right to principal and stated interest 

with respect to the obligation may be 

transferred only through a book entry 

system maintained by the issuer or its 

agent; or (3) the obligation is registered 

as to both principal and stated interest 

with the issuer or its agent and may be 

transferred both by surrender and 

reissuance and through a book entry 

system. An obligation is considered 

transferable through a book entry system 

if ownership of an interest in the 

obligation is required to be reflected in 

a book entry, whether or not physical 

securities are issued. An obligation that 

would otherwise be considered to be in 

registered form is not considered to be 

in registered form if the obligation may 


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be converted at any time in the future 

into an obligation that is not in 

registered form. See § 5f.103–1(e). 

B. Dematerialized Book Entry Systems 

Since the publication of § 5f.103–1, 

market practices have changed with 

respect to how interests in obligations 

are recorded and transferred. For 

example, many obligations trade in fully 

dematerialized form. An obligation that 

is fully dematerialized is not 

represented by a physical (paper) 

certificate, and a clearing organization 

that is the registered holder of the 

obligation operates an electronic book 

entry system that identifies the clearing 

organization’s member or members 

holding the obligation (or interests in 

the obligation). The clearing 

organization facilitates and records 

transfers of the obligation (or interests in 

the obligation) among the clearing 

organization’s members. The members 

(typically, banks or broker-dealers), in 

turn, record their clients’ ownership of 

the obligation (or interests in the 

obligation) in their book entry systems. 

Alternatively, an obligation may be 

represented by a physical global 

certificate that is nominally in bearer 

form but that is immobilized in a 

clearing organization, which handles 

the obligation thereafter exactly as it 

does an obligation that was fully 

dematerialized when issued. 

Commenters have requested additional 

guidance on how the registered form 

rules in § 5f.103–1 apply to these 

arrangements. 

Treasury and the IRS provided 

guidance on how to apply the registered 

form rules to certain of these 

arrangements in Notice 2006–99, 2006– 

2 CB 907. Notice 2006–99 addresses an 

arrangement in which no physical 

certificates are issued and under which 

ownership interests in bonds are 

required to be represented only by book 

entries in a dematerialized book entry 

system maintained by a clearing 

organization. Notice 2006–99 provides 

that an obligation issued under such an 

arrangement is treated as in registered 

form notwithstanding the ability of 

holders to obtain physical certificates in 

bearer form upon the termination of the 

business of the clearing organization 

without a successor. 

The HIRE Act also addressed 

dematerialized book entry systems. For 

obligations issued after March 18, 2012, 

section 163(f)(3), as amended by the 

HIRE Act, provides that, for purposes of 

section 163(f), a dematerialized book 

entry system or other book entry system 

specified by the Secretary will be 

treated as a book entry system described 

in section 149(a)(3). The Joint 

Committee on Taxation’s technical 

explanation of the HIRE Act further 

explained that an obligation ‘‘that is 

formally in bearer form is treated, for 

the purposes of section 163(f), as held 

in a book entry system as long as the 

debt obligation may be transferred only 

through a dematerialized book entry 

system or other book entry system 

specified by the Secretary.’’ J. Comm. on 

Tax’n, Technical Explanation of the 

Revenue Provisions Contained in Senate 

Amendment 3310, the ‘‘Hiring 

Incentives to Restore Employment Act,’’ 

Under Consideration by the Senate 

(JCX–4–10), Feb. 23, 2010, at 53. 

C. Notice 2012–20 

Commenters expressed concern that 

the explicit reference to a 

‘‘dematerialized book entry system’’ in 

section 163(f)(3), as amended by the 

HIRE Act, would create uncertainty 

about obligations issued in a manner not 

specifically described in Notice 2006– 

99. In particular, commenters requested 

guidance to address the treatment of 

obligations represented by a physical 

global certificate that is nominally in 

bearer form, but that is immobilized in 

a clearing system. In addition, 

commenters requested guidance 

regarding whether an obligation will be 

considered to be in registered form if 

holders may obtain physical certificates 

in bearer form under circumstances not 

described in Notice 2006–99. 

In response to these comments, 

Treasury and the IRS published Notice 

2012–20, 2012–13 IRB 574, on March 

26, 2012. Notice 2012–20 provides 

additional guidance on the definition of 

registered form and further states that 

Treasury and the IRS intend to publish 

regulations consistent with the guidance 

described in the notice. Under Notice 

2012–20, an obligation is considered to 

be in registered form if it is issued either 

through a dematerialized book entry 

system in which beneficial interests are 

transferable only through a book entry 

system maintained by a clearing 

organization (or by an agent of the 

clearing organization) or through a 

clearing system in which the obligation 

is effectively immobilized. Notice 2012– 

20 provides that an obligation is 

considered to be effectively 

immobilized if: (1) The obligation is 

represented by one or more global 

securities in physical form that are 

issued to and held by a clearing 

organization (or by a custodian or 

depository acting as an agent of the 

clearing organization) for the benefit of 

purchasers of interests in the obligation 

under arrangements that prohibit the 

transfer of the global securities except to 

a successor clearing organization subject 

to the same terms; and (2) beneficial 

interests in the underlying obligation 

are transferable only through a book 

entry system maintained by the clearing 

organization (or an agent of the clearing 

organization). Notice 2012–20 further 

states that an interest in an obligation is 

considered to be transferable only 

through a book entry system if the 

interest would be considered 

transferable through a book entry system 

under § 5f.103–1(c)(2), except that 

holders may obtain physical certificates 

in bearer form in certain limited 

circumstances stated in the notice. 

Finally, Notice 2012–20 states that, for 

purposes of determining when an 

obligation is a registration-required 

obligation under section 4701, rules 

identical to the foreign-targeting rules 

under section 163(f)(2)(B), prior to its 

amendment by the HIRE Act, and 

§ 1.163–5(c) will apply to obligations 

issued after March 18, 2012. 

Explanation of Provisions 

1. In General 

Consistent with Notice 2012–20, these 

proposed regulations amend the 

definition of registered form to take into 

account current market practices and 

changes made by the HIRE Act, 

including the repeal of the foreigntargeting rules in section 163(f)(2)(B). In 

addition, these proposed regulations 

amend the definition of a registrationrequired obligation in two ways. First, 

the proposed regulations specify the 

types of obligations that are treated as 

‘‘of a type offered to the public’’ and 

withdraw the 1993 proposed 

regulations. Second, the proposed 

regulations take into account comments 

requesting clarification on the types of 

arrangements that qualify as passthrough certificates. 

Though the definitions of the terms 

registered form and registration-required 

obligation are generally consistent 

across the various provisions in which 

they are used, the rules are set forth in 

a number of existing regulations, 

including several promulgated under 

section 163(f). To the extent possible, 

these proposed regulations simplify the 

definitions of registered form and 

registration-required obligation by 

centralizing the rules in § 1.163–5. 

Thus, the applicable rules have been 

relocated from §§ 5f.103–1 (definition of 

registered form), 1.163–5T (pass-through 

certificates and regular interests in 

REMICs), and 5f.163–1 (definition of 

registration-required obligation) to 

paragraphs (a) and (b) of proposed 

§ 1.163–5. Appropriate cross-references 

to § 1.163–5 are proposed to be added to 

regulations that rely on one or both 


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definitions, including §§ 1.149(a)–1, 

1.165–12, 1.860D–1(b)(5)(i)(A), 1.871– 

14, 1.1287–1, and 46.4701–1. 

2. Registration-Required Obligations 

A. Obligation of a Type Offered to the 

Public 

Consistent with the 1993 proposed 

regulations, Treasury and the IRS 

continue to believe that it is appropriate 

to determine whether an obligation is of 

a type offered to the public by reference 

to whether the obligation is ‘‘traded on 

an established market.’’ Although a 

number of Code and regulation sections 

refer to and define that phrase (for 

example, sections 453, 1092, 1273, and 

7704, as well as the regulations 

promulgated under those Code 

sections), Treasury and the IRS have 

concluded that the definition provided 

in § 1.1273–2(f) is most appropriate for 

purposes of defining a registrationrequired obligation. Thus, the proposed 

regulations generally treat an obligation 

as of a type offered to the public if the 

obligation is traded on an established 

market as determined under § 1.1273– 

2(f). For this purpose, however, the 

proposed regulations do not take into 

account the exception for small debt 

issues in § 1.1273–2(f)(6). 

B. Pass-Through Certificates and 

Participation Interests 

Commenters indicated that an entity 

that issues pass-through certificates may 

hold a pool of debt instruments that is 

either fixed or that changes over time. 

For example, the issuing entity may 

have the right to acquire additional 

assets after formation, or the right to 

dispose of assets at any time. In those 

situations, the entity generally will not 

be classified as a grantor trust for federal 

tax purposes, but that does not preclude 

it from issuing pass-through certificates. 

To address these situations, the 

proposed regulations amend the 

definition of a pass-through certificate 

to provide that a pass-through certificate 

may be issued by a grantor trust or a 

similar fund, and specify that a similar 

fund includes entities that are 

partnerships or disregarded for federal 

tax purposes and funds that have the 

power to vary the assets they hold or the 

sequence of payments to holders. A 

similar fund, however, does not include 

a business entity classified as a 

corporation. 

In addition, Treasury and the IRS 

have concluded that an arrangement 

that satisfies the definition of a 

registration-required obligation and the 

registered form rules should be treated 

the same as a pass-through certificate 

even if the arrangement is with respect 

to only one underlying obligation or if 

the arrangement is treated as coownership of one or more obligations 

(rather than, for purposes of TEFRA or 

otherwise, ownership of an entity that 

holds the underlying obligations). The 

proposed regulations eliminate the 

requirement that the fund hold a pool of 

loans and replace it with a requirement 

that the fund primarily hold debt 

instruments. Thus, a fund can hold one 

or more debt instruments, so long as the 

fund primarily holds debt instruments. 

In addition, the proposed regulations 

treat an interest that evidences coownership of one or more obligations 

(including a participation interest) as a 

registration-required obligation if, 

standing alone, the interest satisfies the 

definition of a registration-required 

obligation. The proposed regulations 

also propose to amend § 1.871–14(d)(1) 

to include a cross-reference to the rules 

for pass-through certificates and 

participation interests in proposed 

§ 1.163–5(a)(3)(i) and (ii) such that 

similar rules apply for purposes of the 

portfolio interest exception. 

3. Definition of Registered Form 

The proposed regulations amend the 

definition of registered form in a 

number of ways. First, the proposed 

regulations provide that an obligation is 

considered to be in registered form if it 

is transferable through a book entry 

system, including a dematerialized book 

entry system, maintained by the issuer 

of the obligation, an agent of the issuer, 

or a clearing organization. A clearing 

organization includes an entity that 

holds obligations for its members or 

maintains a system that reflects the 

ownership interests of members and 

transfers of obligations among members’ 

accounts without the necessity of 

physical delivery of the obligation. 

Second, the proposed regulations 

provide that an obligation represented 

by a physical certificate in bearer form 

will be considered to be in registered 

form if the physical certificate is 

effectively immobilized. To be 

effectively immobilized, the physical 

certificate evidencing an obligation 

must be issued to and held by a clearing 

organization for the benefit of 

purchasers of interests in the obligation 

under arrangements that prohibit the 

transfer of the physical certificate except 

to a successor clearing organization and 

permit transfers of ownership interests 

in the underlying obligation only 

through a book entry system maintained 

by the clearing organization (or a 

successor clearing organization). As 

suggested in comments, the proposed 

regulations change the requirement in 

Notice 2012–20 that a successor clearing 

organization hold the physical 

certificate subject to the same terms as 

the predecessor; Treasury and the IRS 

concluded that it is sufficient if the 

successor clearing organization has 

rules that effectively immobilize the 

physical certificate. 

Third, the proposed regulations 

permit holders of obligations (or 

interests in obligations) to have a right 

to obtain physical certificates 

evidencing the obligation (or interests in 

the obligation) in bearer form without 

causing the obligation to be treated as 

not in registered form in two 

circumstances: (1) A termination of the 

clearing organization’s business without 

a successor; or (2) the issuance of 

physical securities at the issuer’s 

request upon a change in tax law that 

would be adverse to the issuer but for 

the issuance of physical securities in 

bearer form. This exception from bearer 

form treatment is consistent with the 

guidance provided in Notice 2012–20, 

except that the proposed regulations do 

not permit a holder to have a right to 

obtain a physical bearer certificate if 

there is an issuer event of default 

(default exception). Treasury and the 

IRS understand that in certain situations 

holders may be required to obtain 

physical certificates to pursue claims 

against the issuer, but in such instances 

it would be appropriate to expect those 

physical certificates to be issued in 

registered form. Taxpayers may rely on 

the default exception in Notice 2012–20 

for obligations issued prior to 

publication of a Treasury decision 

adopting these rules as final regulations 

in the Federal Register. 

After the occurrence of one of the two 

events described in the first sentence of 

the preceding paragraph, an obligation 

will no longer be in registered form if 

a holder, or a group of holders acting 

collectively, has a right to obtain a 

physical certificate in bearer form, 

regardless of whether any option to 

obtain a physical certificate in bearer 

form has actually been exercised. 

4. Section 881 

Commenters requested that examples 

10 and 19 set forth in § 1.881–3(e) be 

removed or revised to take into account 

the repeal of the foreign-targeted bearer 

obligation exception. Consistent with 

these comments, the proposed 

regulations propose to remove those 

examples. 

5. Section 4701 

Commenters requested clarification 

on whether the foreign-targeting rules 

under § 1.163–5(c) would apply to 

obligations issued after March 18, 2012, 

for purposes of section 4701. Consistent 


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with Notice 2012–20, proposed 

§ 46.4701–1 provides that, for purposes 

of determining whether an obligation is 

a foreign-targeted bearer obligation, the 

rules of § 1.163–5(c) apply. 

6. Applicability Dates 

Notice 2012–20 stated that regulations 

incorporating the guidance described in 

that notice will be effective for 

obligations issued after March 18, 2012. 

Accordingly, the proposed regulations 

will generally apply to obligations 

issued after March 18, 2012. However, 

taxpayers may apply the rules in section 

3 of Notice 2012–20, including the 

default exception, for obligations issued 

prior to publication of a Treasury 

decision adopting these rules as final 

regulations in the Federal Register. The 

rules related to pass-through certificates, 

participation interests, and regular 

interests in REMICs and the rules 

related to obligations not of a type 

offered to the public are not described 

in Notice 2012–20 and, therefore, will 

apply only to obligations issued after 

the publication of a Treasury decision 

adopting these rules as final regulations 

in the Federal Register, except as 

otherwise provided in the next 

sentence. The existing regulations under 

§ 5f.103–1 will continue to apply to taxexempt bonds issued prior to the date 

90 days after publication of a Treasury 

decision adopting these rules as final 

regulations in the Federal Register. 

Special Analyses 

Certain IRS regulations, including 

these, are exempt from the requirements 

of Executive Order 12866, as 

supplemented and reaffirmed by 

Executive Order 13563. Therefore, a 

regulatory impact assessment is not 

required. It is hereby certified that these 

regulations will not have a significant 

economic impact on a substantial 

number of small entities. Sections 163(f) 

and 149(a) require that certain 

obligations be in registered form which 

is satisfied if the obligations are 

transferable only through a book entry 

system. The existing regulations under 

these sections therefore permit issuers 

to satisfy the registration requirement 

through a book entry system and 

describe the arrangements that are 

necessary for a system to qualify as a 

book entry system. Certain systems that 

are now common, however, may not 

qualify as book entry systems under the 

existing regulations. Because the 

proposed regulations merely clarify that 

these systems are book entry systems, 

the proposed regulations would not 

impose a significant economic impact. 

Accordingly, a regulatory flexibility 

analysis is not required. Pursuant to 

section 7805(f) of the Code, this notice 

of proposed rulemaking will be 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small entities. 

Comments and Requests for Public 

Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

comments that are submitted timely to 

the IRS as prescribed in this preamble 

under the ADDRESSES heading. Treasury 

and the IRS request comments on all 

aspects of the proposed rules. All 

comments will be available at 

www.regulations.gov or upon request. A 

public hearing will be scheduled if 

requested in writing by any person that 

timely submits written comments. If a 

public hearing is scheduled, notice of 

the date, time, and place for the hearing 

will be published in the Federal 

Register. 

Drafting Information 

The principal authors of these 

regulations are Spence Hanemann and 

Diana Imholtz, Office of Associate Chief 

Counsel (Financial Institutions and 

Products), IRS. However, other 

personnel from Treasury and the IRS 

participated in their development. 

Availability of IRS Documents 

The IRS notices cited in this preamble 

are published in the Internal Revenue 

Bulletin (or Cumulative Bulletin) and 

are available from the Superintendent of 

Documents, U.S. Government 

Publishing Office, Washington, DC 

20402, or by visiting the IRS Web site 

at www.irs.gov. 

List of Subjects 

26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 5f 

Income taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 46 

Excise taxes, Insurance, Reporting and 

recordkeeping requirements. 

Partial Withdrawal of Notice of 

Proposed Rulemaking 

Accordingly, under the authority of 

26 U.S.C. 7805, 5f.163–1(b)(2) of the 

notice of proposed rulemaking (INTL– 

0115–90, subsequently converted to 

REG–208245–90) that was published in 

the Federal Register (58 FR 5316) on 

January 21, 1993, is withdrawn. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR parts 1, 5f, and 

46 are proposed to be amended as 

follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 is amended by adding entries 

in numerical order to read in part as 

follows: 

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

Section 1.149(a)–1 also issued under 26 

U.S.C. 149(a)(3). 

* * * * * 

Section 1.163–5 also issued under 26 

U.S.C. 163(f)(3). 

* * * * * 

■ Par. 2. Section 1.149(a)–1 is added to 

read as follows: 

§ 1.149(a)–1 Obligations required to be in 

registered form. 

(a) General rule. Interest on a 

registration-required bond shall not be 

exempt from tax notwithstanding 

section 103(a) or any other provision of 

law, exclusive of any treaty obligation of 

the United States, unless the bond is 

issued in registered form (as defined in 

§ 1.163–5(b)). For this purpose, 

registration-required bond has the same 

meaning as registration-required 

obligation in § 1.163–5(a)(2). 

(b) Applicability date. This section 

applies to bonds issued on or after the 

date 90 days after the publication of the 

Treasury decision adopting these rules 

as final regulations in the Federal 

Register. For bonds issued before the 

date 90 days after the publication of the 

Treasury decision adopting these rules 

as final regulations in the Federal 

Register, see § 5f.103–1 of this chapter. 

■ Par. 3. Section 1.163–5 is amended by 

revising the section heading and adding 

paragraphs (a), (b), and (c)(3)(iii) to read 

as follows: 

§ 1.163–5 Denial of interest deduction on 

certain obligations unless issued in 

registered form. 

(a) Denial of deduction—(1) In 

general. No deduction shall be allowed 

a taxpayer under section 163 for interest 

paid or accrued on a registrationrequired obligation (as defined in 

section 163(f) and paragraph (a)(2) of 

this section) unless such obligation is 

issued in registered form (as defined in 

paragraph (b) of this section). An 

obligation that is not in registered form 

under paragraph (b) of this section is an 

obligation in bearer form. 

(2) Registration-required obligation— 

(i) In general. The term registrationrequired obligation means any 

obligation (including a pass-through 


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certificate or participation interest 

described in paragraph (a)(3) of this 

section and a regular interest in a 

REMIC described in paragraph (a)(4) of 

this section) other than— 

(A) An obligation issued by a natural 

person; 

(B) An obligation not of a type offered 

to the public (as described in paragraph 

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

(C) An obligation that has a maturity 

at the date of issue of not more than 1 

year. 

(ii) Obligation not of a type offered to 

the public. For purposes of section 

163(f)(2)(A)(ii) and paragraph (a)(2)(i)(B) 

of this section, an obligation is not of a 

type offered to the public unless the 

obligation is traded on an established 

market as determined under § 1.1273– 

2(f) without regard to § 1.1273–2(f)(6). 

(3) Pass-through certificates and 

participation interests—(i) Pass-through 

certificate—(A) In general. A passthrough certificate is considered to be a 

registration-required obligation if the 

pass-through certificate is described in 

paragraph (a)(2)(i) of this section 

without regard to whether any 

obligation held by the entity to which 

the pass-through certificate relates is 

described in paragraph (a)(2)(i) of this 

section. 

(B) Definition of pass-through 

certificate. For purposes of paragraph (a) 

of this section, a pass-through certificate 

is an instrument evidencing an interest 

in a grantor trust under Subpart E of 

Part I of Subchapter J of the Code, or a 

similar fund, that principally holds debt 

instruments. For purposes of this 

paragraph (a)(3)(i)(B), a similar fund 

includes an entity that, under 

§§ 301.7701–1 through 301.7701–3 of 

this chapter, is disregarded as an entity 

separate from its owner or classified as 

a partnership for federal tax purposes, 

without regard to whether the fund has 

the power to vary the assets in the fund 

or the sequence of payments made to 

holders. In addition, for purposes of this 

paragraph (a)(3)(i)(B), a similar fund 

does not include a business entity that 

is classified as a corporation under 

§ 301.7701–2 of this chapter. 

(ii) Participation interest. A 

participation interest that evidences 

ownership of some or all of one or more 

obligations and that is treated as 

conveying ownership of a specified 

portion of the obligation or obligations 

(and not ownership of an entity treated 

as created under § 301.7701–1(a)(2) of 

this chapter) is considered to be a 

registration-required obligation if the 

participation interest is described in 

paragraph (a)(2)(i) of this section 

without regard to whether any 

obligation to which the participation 

interest relates is described in paragraph 

(a)(2)(i) of this section. 

(iii) Treatment of obligation held by a 

trust or fund. An obligation held by a 

trust or a fund in which ownership 

interests are represented by passthrough certificates is considered to be 

in registered form or to be a registrationrequired obligation if the obligation held 

by the trust or fund is in registered form 

(as defined in paragraph (b) of this 

section) or is a registration-required 

obligation described in paragraph 

(a)(2)(i) of this section, without regard to 

whether the pass-through certificates are 

so considered. 

(iv) Examples. The application of 

paragraph (a)(3) of this section may be 

illustrated by the following examples: 

Example 1. Fund, a partnership under the 

laws of the state in which it is organized, 

acquires a pool of student loans. The student 

loans are issued by natural persons and, 

therefore, are not registration-required 

obligations as described in paragraph (a)(2)(i) 

of this section. Fund contributes the student 

loans to Trust, a business trust under the 

laws of the state in which Trust is organized. 

Trust has the power to vary the investments 

in Trust, and is not treated as a trust of which 

the grantor is the owner under Subpart E of 

Part I of Subchapter J of the Code. Trust 

issues certificates evidencing an interest in 

Trust. The certificates issued by Trust are 

offered to the public. The certificates issued 

by Trust are pass-through certificates (as 

described in paragraph (a)(3)(i)(B) of this 

section) and are described in paragraph 

(a)(2)(i) of this section, and thus, are 

registration-required obligations described in 

paragraph (a)(2)(i) of this section, even 

though the student loans held by Trust are 

not registration-required obligations. 

Example 2. Partnership U purchases a 

building from Partnership V. Partnership U 

makes a cash down payment and issues a 

note secured by a mortgage in the building 

to Partnership V for the remaining purchase 

price of the building. The note is not a 

registration-required obligation described in 

paragraph (a)(2)(i) of this section because it 

is not an obligation of a type offered to the 

public. Partnership V offers participations in 

the underlying note to the public. Under the 

terms of the participation, each participant 

will own an interest in the note that will 

entitle the participant to a specified portion 

of the interest and principal generated by the 

note. The participation is a participation 

interest described in paragraph (a)(3)(ii) of 

this section and is described in paragraph 

(a)(2)(i) of this section, and, thus, is a 

registration-required obligation described in 

paragraph (a)(2)(i) of this section, even 

though the underlying note is not a 

registration-required obligation. 

(4) REMICs—(i) Regular interest in a 

REMIC. A regular interest in a REMIC, 

as defined in sections 860D and 860G 

and the regulations thereunder, is 

considered to be a registration-required 

obligation if the regular interest is 

described in paragraph (a)(2)(i) of this 

section, without regard to whether one 

or more of the obligations held by the 

REMIC to which the regular interest 

relates is described in paragraph (a)(2)(i) 

of this section. 

(ii) Treatment of obligation held by a 

REMIC. An obligation described in 

paragraph (a)(2)(i) of this section and 

held by a REMIC is treated as a 

registration-required obligation 

regardless of whether the regular 

interests in the REMIC are so treated. 

(5) Applicability date—(i) In general. 

Except as otherwise provided in 

paragraphs (a)(5)(ii) and (iii) of this 

section, paragraph (a) of this section 

applies to obligations issued after March 

18, 2012. For obligations issued on or 

before March 18, 2012, see § 5f.163–1 of 

this chapter. 

(ii) Obligations not of a type offered 

to the public. Paragraph (a)(2)(ii) of this 

section applies to obligations issued 

after the date of publication of a 

Treasury decision adopting these rules 

as final regulations in the Federal 

Register. 

(iii) Pass-through certificates, 

participation interests, and regular 

interests in REMICs. Paragraph (a) of 

this section applies to pass-through 

certificates, participation interests, and 

regular interests in REMICs issued after 

the date of publication of a Treasury 

decision adopting these rules as final 

regulations in the Federal Register. For 

pass-through certificates or regular 

interests in REMICs issued on or before 

the date of publication of a Treasury 

decision adopting these rules as final 

regulations in the Federal Register, see 

§ 1.163–5T. 

(b) Registered form—(1) General rule. 

Except as provided in paragraph (b)(4) 

of this section, an obligation is in 

registered form if a transfer of the right 

to receive both principal and any stated 

interest on the obligation may be 

effected only— 

(i) By surrender of the old obligation 

and either the reissuance of the old 

obligation to the new holder or the 

issuance of a new obligation to the new 

holder; 

(ii) Through a book entry system (as 

described in paragraph (b)(2) of this 

section) maintained by the issuer of the 

obligation (or its agent) or by a clearing 

organization (as defined in paragraph 

(b)(3) of this section); or 

(iii) Through both of the methods 

described in paragraphs (b)(1)(i) and (ii) 

of this section. 

(2) Book entry system—(i) In general. 

An obligation will be considered 

transferable through a book entry 

system, including a dematerialized book 

entry system, if ownership of the 

obligation or an interest in the 


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obligation is required to be recorded in 

an electronic or physical register 

maintained by the issuer of the 

obligation (or its agent) or by a clearing 

organization (as defined in paragraph 

(b)(3) of this section). 

(ii) Book entry system maintained by 

clearing organization that effectively 

immobilizes a bearer form obligation. 

An obligation represented by one or 

more physical certificates in bearer form 

will be considered to be in registered 

form if the physical certificates are 

effectively immobilized. A physical 

certificate is effectively immobilized 

only if— 

(A) The physical certificate is issued 

to and held by a clearing organization 

(as defined in paragraph (b)(3) of this 

section) for the benefit of purchasers of 

interests in the obligation under 

arrangements that prohibit the transfer 

of the physical certificate except to a 

successor clearing organization subject 

to terms that effectively immobilize the 

physical certificate, as provided in 

paragraph (b)(2)(ii) of this section, in the 

hands of the successor clearing 

organization; and 

(B) Ownership of the obligation or an 

interest in the obligation is transferable 

only through a book entry system (as 

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

section) maintained by the clearing 

organization (as defined in paragraph 

(b)(3) of this section). 

(3) Definition of clearing organization. 

For purposes of paragraph (b) of this 

section, clearing organization means an 

entity that is in the business of holding 

obligations for or reflecting the 

ownership interests of member 

organizations and transferring 

obligations among such member 

organizations by credit or debit to the 

account of a member organization 

without the necessity of physical 

delivery of the obligation. 

(4) Temporal limitations on registered 

form—(i) In general. Except as provided 

in paragraphs (b)(4)(ii) and (iii) of this 

section, an obligation is not considered 

to be in registered form as of a particular 

time if the obligation may be transferred 

at that time or at a time or times on or 

before the maturity of the obligation by 

any means not described in paragraph 

(b)(1) of this section. 

(ii) Events that permit issuance of 

physical certificates in bearer form—(A) 

In general. An obligation transferrable 

through a dematerialized book entry 

system is not in bearer form pursuant to 

paragraph (b)(4)(i) of this section solely 

because a holder of the obligation (or an 

interest therein) has a right to obtain a 

physical certificate in bearer form upon 

the occurrence of one or both of the 

following events— 

(1) A termination of business without 

a successor by the clearing organization 

that maintains the book entry system; or 

(2) The issuance of physical securities 

at the issuer’s request upon a change in 

tax law that would be adverse to the 

issuer but for the issuance of physical 

securities in bearer form. 

(B) Treatment upon issuance of 

physical certificate in bearer form. Upon 

the occurrence of one or both of the 

events described in paragraph 

(b)(4)(ii)(A) of this section, any 

obligation with respect to which a 

holder, or a group of holders acting 

collectively, may obtain a physical 

certificate in bearer form will no longer 

be in registered form, regardless of 

whether a physical certificate in bearer 

form has actually been issued. 

(iii) Obligations in registered form 

until maturity. An obligation that as of 

a particular time is not considered to be 

in registered form because the obligation 

may be transferred at a time or times 

before the maturity of the obligation by 

a means not described in paragraph 

(b)(1) of this section and that during the 

period beginning at a later time and 

ending at maturity may be transferred 

only by a means described in paragraph 

(b)(1) of this section is considered to be 

in registered form during the period 

beginning at that later time. 

(5) Examples. The application of 

paragraph (b) of this section may be 

illustrated by the following examples: 

Example 1. X issues an obligation that is 

a registration-required obligation as 

described in paragraph (a)(2)(i) of this 

section. At issuance, X issues the obligation 

in the purchaser’s name evidencing the 

purchaser’s ownership of the principal and 

interest under the obligation. The purchaser 

may transfer the obligation only by 

surrendering the obligation to X and by X 

issuing a new instrument to the new holder. 

X’s obligation is issued in registered form 

under paragraph (b)(1) of this section. 

Example 2. Corporation A issues US$500 

million of debt (the Note) evidenced by a 

physical certificate that is registered in the 

name of ABC, a clearing organization (as 

defined in paragraph (b)(3) of this section). 

Under the terms of the Note, Corporation A 

must maintain an electronic register 

identifying the owners of interests in the 

Note, and a transfer of the right to receive 

either principal or any stated interest on such 

ownership interests may be effected only 

through a change to the electronic register. 

Pursuant to an agreement with Corporation 

A, ABC takes custody of the physical 

certificate evidencing the Note and receives 

all principal and interest on the Note from 

Corporation A. Independently of its 

agreement with Corporation A, ABC 

maintains electronic records of its members’ 

ownership interests in the Note and 

distributes principal and interest to members’ 

accounts in accordance with those interests. 

ABC’s members, in turn, maintain electronic 

records of their customers’ ownership 

interests in the Note and similarly distribute 

principal and interest to their customers’ 

accounts. Corporation A’s electronic register 

identifies ABC as the sole owner of the Note. 

Corporation A does not record transfers of 

ownership interests in the Note to or among 

ABC’s members, and ABC does not record 

transfers of ownership interests in the Note 

to or among its members’ customers. 

Corporation A’s electronic register is a book 

entry system as described in paragraph 

(b)(2)(i) of this section, and the Note is in 

registered form under paragraph (b)(1) of this 

section. 

Example 3. The facts are the same as in 

Example 2 of paragraph (b)(5) of this section, 

except that, instead of maintaining an 

electronic register, Corporation A issues a 

global bearer certificate (Certificate) to ABC 

pursuant to an agreement that prohibits the 

transfer of Certificate except to a successor 

clearing organization subject to terms that 

effectively immobilize Certificate, as 

provided in paragraph (b)(2)(ii) of this 

section, in the hands of the successor 

clearing organization. Further, holders of 

interests in Certificate may only obtain 

physical bearer certificates upon cessation of 

ABC’s operations without a successor or, at 

Corporation A’s request, upon a change in tax 

law that would be adverse to Corporation A 

but for the issuance of physical bearer 

certificates. Because ownership of interests in 

Certificate may be transferred only through a 

dematerialized book entry system maintained 

by ABC, and because the circumstances 

under which definitive bearer certificates 

may be issued to holders of interests in 

Certificate are limited to the circumstances 

described in paragraph (b)(4)(ii)(A) of this 

section, Certificate is an immobilized bearer 

form obligation described in paragraph 

(b)(2)(ii) of this section and is accordingly in 

registered form under paragraph (b)(2)(ii) of 

this section. 

Example 4. The facts are the same as in 

Example 3 of paragraph (b)(5) of this section, 

except that purchasers of interests in 

Certificate have the right to obtain definitive 

bearer certificates upon request at any time 

until maturity of Certificate. Because the 

circumstances under which definitive bearer 

obligations may be issued to holders of 

interests in Certificate are not limited to the 

circumstances described in paragraph 

(b)(4)(ii)(A) of this section, Certificate is not 

considered to be issued in registered form 

under paragraph (b)(4)(i) of this section. 

Example 5. Bank makes a loan to borrower 

secured by real property (Loan). 

Participations in Loan are traded on an 

established market. The participations are 

participation interests described in paragraph 

(a)(3)(ii) of this section and are accordingly 

registration-required obligations described in 

paragraph (a)(2)(i) of this section. Bank 

remains the registered owner of Loan and 

maintains an electronic book entry system 

that identifies participants. Participation 

interests may be transferred only by 

surrender of the old participation interest 

and reissuance of the participation interest in 

the name of the new participant, or by 

transfer of the participation interest from the 

name of the old participant to the name of 


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the new participant in the book entry system 

of Bank. Bank’s book entry system is 

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

section, and, accordingly, under paragraph 

(b)(1)(iii) of this section, the participation 

interests are in registered form. 

(6) Applicability date. Paragraph (b) of 

this section applies to obligations issued 

after March 18, 2012. Taxpayers may 

apply the rules in section 3 of Notice 

2012–20, 2012–13 IRB 574, for 

obligations issued prior to the date of 

publication of the Treasury decision 

adopting these rules as final regulations 

in the Federal Register. For obligations 

issued on or before March 18, 2012, see 

§ 5f.103–1 of this chapter. 

(c) * * * 

(3) * * * 

(iii) Applicability to obligations issued 

after March 18, 2012. For purposes of 

section 163(f), paragraph (c) of this 

section does not apply to obligations 

issued after March 18, 2012. However, 

for purposes of determining whether an 

obligation is described in section 

4701(b)(1)(B) or whether the exception 

in section 6049 from information 

reporting of interest or original discount 

with respect to obligations that have an 

original term of 183 days or less applies, 

paragraph (c) of this section continues 

to apply to obligations issued after 

March 18, 2012. See §§ 1.4701–1(b)(3) 

and 1.6049–5(b)(10). 

■ Par. 4. Section 1.163–5T is amended 

by adding paragraph (f) to read as 

follows: 

§ 1.163–5T Denial of interest deduction on 

certain obligations issued after December 

31, 1982, unless issued in registered form 

(temporary). 

* * * * * 

(f) Applicability date. This section 

applies to obligations to which § 5f.163– 

1 of this chapter applies. See § 5f.163– 

1(d) of this chapter. 

■ Par. 5. Section 1.165–12 is amended 

by: 

■ 1. Revising paragraph (a). 

■ 2. Redesignating paragraphs (b)(1) and 

(2) as (b)(2) and (3), respectively. 

■ 3. Adding a new paragraph (b)(1). 

■ 4. Revising the paragraph heading and 

first sentence of newly redesignated 

paragraph (b)(2). 

■ 5. Redesignating paragraph (d) as 

paragraph (d)(1). 

■ 6. Revising the paragraph heading and 

the first sentence of newly redesignated 

paragraph (d)(1). 

■ 7. Adding a new paragraph heading 

for paragraph (d). 

■ 8. Adding paragraph (d)(2). 

The revisions and additions read as 

follows: 

§ 1.165–12 Denial of deduction for losses 

on registration-required obligations not in 

registered form. 

(a) In general. Except as provided in 

paragraph (c) of this section, nothing in 

section 165(a) and the regulations 

thereunder, or in any other provision of 

law, shall be construed to provide a 

deduction for any loss sustained on any 

registration-required obligation held 

after December 31, 1982, unless the 

obligation is in registered form or the 

issuance of the obligation was subject to 

tax under section 4701. The term 

registration-required obligation has the 

meaning given to that term in section 

163(f)(2) and § 1.163–5(a)(2)(i). For 

purposes of this section, the term holder 

means the person that would be denied 

a loss deduction under section 165(j)(1) 

or denied capital gain treatment under 

section 1287(a). For purposes of this 

section, the term United States means 

the United States and its possessions 

within the meaning of § 1.163– 

5(c)(2)(iv). 

(b) Registered form—(1) Obligations 

issued after March 18, 2012. With 

respect to obligations issued after March 

18, 2012, the term registered form has 

the meaning given that term in § 1.163– 

5(b). 

(2) Obligations issued after September 

21, 1984 and on or before March 18, 

2012. With respect to any obligation 

originally issued after September 21, 

1984, and on or before March 18, 2012, 

the term registered form has the 

meaning given that term in § 5f.103–1 of 

this chapter. * * * 

* * * * * 

(d) Applicability date—(1) In general. 

Except as provided in paragraph (d)(2) 

of this section, these regulations apply 

generally to obligations issued after 

January 20, 1987. * * * 

(2) Obligations issued after March 18, 

2012. Paragraph (a) of this section 

applies to obligations issued after March 

18, 2012. For the rules that apply to 

obligations issued on or before March 

18, 2012, see § 1.165–12 as contained in 

26 CFR part 1, revised as of the date of 

the most recent annual revision. 

§ 1.860D–1 [Amended] 

■ Par. 6. Section 1.860D–1(b)(5)(i)(A) is 

amended by removing the language 

‘‘§ 5f.103–1(c)’’ and adding in its place 

the language ‘‘§ 1.163–5(b).’’ 

■ Par. 7. Section 1.871–14 is amended 

by: 

■ 1. Revising the heading for paragraph 

(c). 

■ 2. Revising paragraph (c)(1)(i). 

■ 3. Revising the heading for paragraph 

(d). 

■ 4. Revising paragraphs (d)(1) and (2). 

■ 5. Adding paragraphs (j)(4) and (5). 

The revisions and additions read as 

follows: 

§ 1.871–14 Rules relating to repeal of tax 

on interest of nonresident alien individuals 

and foreign corporations received from 

certain portfolio debt investments. 

* * * * * 

(c) Obligations in registered form—(1) 

In general—(i) Registered form. For 

purposes of this section, the rules of 

§ 1.163–5(b) apply to determine when 

an obligation is in registered form. 

* * * * * 

(d) Application of repeal of 30-percent 

withholding to pass-through certificates 

or participation interests—(1) In 

general—(i) Pass-through certificates. 

Interest received on a pass-through 

certificate (as defined in § 1.163– 

5(a)(3)(i)(B)) qualifies as portfolio 

interest under section 871(h)(2) or 

881(c)(2) if the interest satisfies the 

conditions described in paragraph 

(c)(1)(ii) of this section or the conditions 

described in paragraph (e) of this 

section, without regard to whether any 

obligation held by the grantor trust, or 

similar fund, to which the pass-through 

certificate relates is described in 

paragraph (c)(1)(ii) or (e) of this section. 

For purposes of this paragraph (d)(1)(i), 

a similar fund includes an entity that, 

under §§ 301.7701–1 through 301.7701– 

3 of this chapter, is disregarded as an 

entity separate from its owner or 

classified as a partnership for federal tax 

purposes, without regard to the fund has 

the power to vary the assets in the fund 

or the sequence of payments made to 

holders. In addition, for purposes of this 

paragraph (d)(1)(i), a similar fund does 

not include a business entity that is 

classified as a corporation under 

§ 301.7701–2 of this chapter. 

(ii) Participation interests. Interest 

received on a participation interest 

described in § 1.163–5(a)(3)(ii) qualifies 

as portfolio interest under section 

871(h)(2) or 881(c)(2) if the interest 

satisfies the conditions described in 

paragraph (c)(1)(ii) of this section or the 

conditions described in paragraph (e) of 

this section, without regard to whether 

the obligation to which the participation 

interest relates is described in paragraph 

(c)(1)(ii) or (e) of this section. 

(2) Interest in REMICs. Interest 

received on a regular or residual interest 

in a REMIC, as defined in sections 860D 

and 860G and the regulations 

thereunder, qualifies as portfolio 

interest under section 871(h)(2) or 

881(c)(2) if the interest satisfies the 

conditions described in paragraph 

(c)(1)(ii) of this section or the conditions 

described in paragraph (e) of this 

section. For purposes of paragraphs 

(c)(1)(ii) and (e) of this section, interest 


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Federal Register / Vol. 82, No. 180 / Tuesday, September 19, 2017 / Proposed Rules 43729 

on a regular interest in a REMIC is not 

considered interest on any mortgage 

obligations held by the REMIC. The rule 

in the preceding sentence, however, 

applies only to payments made to the 

holder of the regular interest in the 

REMIC from the REMIC and does not 

apply to payments made to the REMIC. 

For purposes of paragraphs (c)(1)(ii) and 

(e) of this section, interest on a residual 

interest in a REMIC is considered to be 

interest on or with respect to the 

obligations held by the REMIC, and not 

on or with respect to the residual 

interest. 

* * * * * 

(j) * * * 

(4) Registered form. Paragraph (c)(1)(i) 

of this section applies to obligations 

issued after March 18, 2012. For the 

rules that apply to obligations issued on 

or before March 18, 2012, see § 1.871– 

14 as contained in 26 CFR part 1, 

revised as of the date of the most recent 

annual revision. 

(5) Pass-through certificates, 

participation interests, and interests in 

REMICs. Paragraph (d) of this section 

applies to pass-through certificates, 

participation interests, or interests in 

REMICs issued after the date of 

publication of a Treasury decision 

adopting these rules as final regulations 

in the Federal Register. 

§ 1.881–3 [Amended] 

■ Par. 8. Section 1.881–3(e) is amended 

by: 

■ 1. Removing Examples 10 and 19. 

■ 2. Redesignating Examples 11 through 

18 as Examples 10 through 17 and 

Examples 20 through 26 as Examples 18 

through 24. 

■ Par. 9. Section 1.1287–1 is amended 

by: 

■ 1. Revising paragraph (a). 

■ 2. Redesignating paragraphs (b)(1) and 

(2) as (b)(2) and (3), respectively. 

■ 3. Adding a new paragraph (b)(1). 

■ 4. Revising the paragraph heading and 

first sentence of newly redesignated 

paragraph (b)(2). 

■ 5. Redesignating paragraph (d) as 

paragraph (d)(1). 

■ 6. Revising the paragraph heading and 

the first sentence of newly redesignated 

paragraph (d)(1). 

■ 7. Adding a new paragraph heading 

for paragraph (d). 

■ 8. Adding paragraph (d)(2). 

The revisions and additions read as 

follows: 

§ 1.1287–1 Denial of capital gains 

treatment for gains on registration-required 

obligations not in registered form. 

(a) In general. Except as provided in 

paragraph (c) of this section, any gain on 

the sale or other disposition of a 

registration-required obligation held 

after December 31, 1982, that is not in 

registered form shall be treated as 

ordinary income unless the issuance of 

the obligation was subject to tax under 

section 4701. The term registrationrequired obligation has the meaning 

given to that term in section 163(f)(2) 

and § 1.163–5(a)(2)(i). The term holder 

means the person that would be denied 

a loss deduction under section 165(j)(1) 

or denied capital gain treatment under 

section 1287(a). 

(b) Registered form—(1) Obligations 

issued after March 18, 2012. With 

respect to obligations issued after March 

18, 2012, the term registered form has 

the meaning given that term in § 1.163– 

5(b). 

(2) Obligations issued after September 

21, 1984 and on or before March 18, 

2012. With respect to any obligation 

originally issued after September 21, 

1984, and on or before March 18, 2012, 

the term registered form has the 

meaning given that term in § 5f.103–1 of 

this chapter. * * * 

* * * * * 

(d) Applicability date—(1) In general. 

Except as provided in paragraph (d)(2) 

of this section, these regulations apply 

generally to obligations issued after 

January 20, 1987. * * * 

(2) Obligations issued after March 18, 

2012. Paragraph (a) of this section 

applies to obligations issued after March 

18, 2012. 

§ 1.6045–1 [Amended] 

■ Par. 10. Section 1.6045–1(n)(2)(ii)(J) is 

amended by removing the language 

‘‘§ 1.1471–1(b)(18)’’ and adding in its 

place the language ‘‘§ 1.1471–1(b)(21)’’. 

§ 1.6049–5 [Amended] 

■ Par. 11. Section 1.6049–5 is amended 

by: 

■ 1. Removing ‘‘§ 5f.103–1(c)),’’ and 

adding in its place ‘‘§ 1.163–5(b));’’ in 

paragraph (a)(1)(i). 

■ 2. Removing the language ‘‘§ 5f.163– 

1’’ and adding in its place the language 

‘‘§ 1.163–5(a)(2)’’ in paragraph (a)(1)(ii). 

PART 5f—TEMPORARY INCOME TAX 

REGULATIONS UNDER THE TAX 

EQUITY AND FISCAL RESPONSIBILITY 

ACT OF 1982 

■ Par. 12. The authority citation for part 

5f continues to read in part as follows: 

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

■ Par. 13. Section 5f.103–1(d) is 

amended by revising the paragraph 

heading and adding two sentences at the 

end of the paragraph to read as follows: 

§ 5f.103–1 Obligations issued after 

December 31, 1982, required to be in 

registered form. 

* * * * * 

(d) Applicability date. * * * For the 

purpose of determining whether bonds 

satisfy the requirements of section 

149(a), this section applies to bonds 

issued prior to the date 90 days after the 

publication of the Treasury decision 

adopting these rules as final regulations 

in the Federal Register, and § 1.149(a)– 

1 of this chapter applies to bonds issued 

on or after the date 90 days after the 

publication of the Treasury decision 

adopting these rules as final regulations 

in the Federal Register. For all other 

purposes, see § 1.163–5(a)(2) and (b) of 

this chapter for obligations issued after 

March 18, 2012. 

* * * * * 

■ Par. 14. Section 5f.163–1(d) is 

amended by revising the paragraph 

heading and adding a sentence at the 

end of the paragraph to read as follows: 

§ 5f.163–1 Denial of interest deduction on 

certain obligations issued after December 

31, 1982, unless issued in registered form. 

* * * * * 

(d) Applicability date. * * * For 

obligations issued after March 18, 2012, 

see § 1.163–5 of this chapter. 

* * * * * 

PART 46—EXCISE TAX ON POLICIES 

ISSUED BY FOREIGN INSURERS AND 

OBLIGATIONS NOT IN REGISTERED 

FORM 

■ Par. 15. The authority citation for part 

46 continues to read as follows: 

Authority: 26 U.S.C. 7805. 

■ Par. 16. Section 46.4701–1 is 

amended by: 

■ 1. Revising paragraphs (b)(3), (4), and 

(5). 

■ 2. Redesignating paragraph (e) as 

paragraph (e)(1). 

■ 3. Revising the paragraph heading of 

newly redesignated paragraph (e)(1). 

■ 4. Adding a new paragraph heading 

for paragraph (e). 

■ 5. Adding paragraph (e)(2). 

The revisions and additions read as 

follows: 

§ 46.4701–1 Tax on issuer of registrationrequired obligation not in registered form. 

* * * * * 

(b) * * * 

(3) Registration-required obligation. 

The term registration-required 

obligation has the same meaning as in 

section 163(f) and § 1.163–5(a)(2)(i) of 

this chapter, except that the term does 

not include an obligation described in 

section 4701(b)(1)(B) or any obligation 

that is required to be registered under 


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43730 Federal Register / Vol. 82, No. 180 / Tuesday, September 19, 2017 / Proposed Rules 

section 149(a), such as bonds that are 

tax-exempt under section 103. For 

purposes of determining whether an 

obligation is described in section 

4701(b)(1)(B), the rules of § 1.163–5(c) of 

this chapter apply. (4) Registered form. The term 

registered form has the same meaning as 

in § 1.163–5(b) of this chapter. (5) Issuer—(i) In general. Except as 

provided in paragraph (b)(5)(ii) of this 

section, the term issuer is the person 

whose interest deduction would be 

disallowed solely by reason of section 

163(f)(1). 

(ii) Sponsor treated as issuer. A passthrough certificate (as defined in 

§ 1.163–5(a)(3)(i)(B) of this chapter), a 

participation interest described in 

§ 1.163–5(a)(3)(ii) of this chapter, or a 

regular interest in a REMIC, as defined 

in sections 860D and 860G and the 

regulations thereunder, is considered to 

be issued solely by the recipient of the 

proceeds from the issuance of the 

certificate or interest (the sponsor). The 

sponsor is therefore liable for any excise 

tax under section 4701 that may be 

imposed with reference to the principal 

amount of the pass-through certificate, 

participation interest, or regular interest. 

* * * * * 

(e) Applicability date—(1) In general. 

* * * 

(2) Exception. Notwithstanding 

paragraph (e)(1) of this section, 

paragraphs (b)(3), (4), and (5) of this 

section apply to obligations issued after 

March 18, 2012. For the rules that apply 

to obligations issued on or before March 

18, 2012, see § 46.4701–1 as contained 

in 26 CFR part 46, revised as of the date 

of the most recent annual revision. 

Kirsten Wielobob, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2017–19753 Filed 9–15–17; 4:15 pm] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

33 CFR 100 

United States Mint 

Exchange of Coin 

AGENCY: United States Mint, Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The United States Mint 

proposes to revise its regulations 

relating to the exchange of uncurrent, 

bent, partial, fused, and mixed coins. 

The proposed revisions include updates 

to redemption rates and procedures 

previously proposed in the Federal 

Register on July 16, 2014, as well as 

revisions that will enhance the integrity 

of the acceptance and processing of bent 

and partial United States coins. 

DATES: Send comments on or before 

November 3, 2017. 

ADDRESSES: The United States Mint 

invites comments on all aspects of this 

proposed revision. You may send 

comments, identified by docket number 

and/or RIN number, by any of the 

following methods: • Federal eRulemaking Portal: 

www.regulations.gov. Follow the 

instructions for sending comments. • Mail: Submit all written comments 

to Mutilated Coin Redemption Program; 

Financial Directorate; United States 

Mint; 801 9th Street NW., Washington, 

DC 20220. • Hand Delivery/Courier: Same as 

mail address. 

Instructions: All submissions received 

must include the agency name and 

docket number or Regulatory 

Information Number (RIN) for this 

rulemaking. All comments received will 

be posted without change to 

regulations.gov, including any personal 

information provided. For additional 

information on the rulemaking process, 

see the ‘‘Public Participation’’ heading 

of the SUPPLEMENTARY INFORMATION

section of this document. 

FOR FURTHER INFORMATION CONTACT: 

Sheila Barnett, Legal Counsel, Office of 

the Chief Counsel, United States Mint, 

at (202) 354–7624 or sbarnett@

usmint.treas.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Treasury Regulations appearing 

at 31 CFR part 100, subpart C, are 

promulgated under 31 U.S.C. 5120, and 

relate to the exchange of uncurrent, 

bent, partial, fused, and mixed coins. 

The last amendment to 31 CFR part 100, 

subpart C, was on August 23, 1999. 

Since then, the United States Mint has 

identified portions of the regulations in 

need of revision to update redemption 

rates and procedures, and to enhance 

the integrity of the acceptance and 

processing of bent and partial United 

States coins. 

The first category of proposed 

revisions would update and improve the 

redemption process of bent and partial 

coins to enhance security and ensure 

the integrity of United States coinage. 

These revisions were not previously 

proposed. The revisions would establish 

procedures for certifying participants 

based on submission amounts and 

frequency, sampling submissions to 

authenticate material, conducting site 

visits for certain participants, and 

requiring information on how the 

submission came to be bent or partial. 

The revisions will also inform 

submitters of required banking 

information. Lastly, the revisions would 

provide the United States Mint 

discretion to cease processing 

submissions that appear to be part of an 

illegal scheme, or contain material that 

is not identifiable as bent or partial 

United States coinage. 

The second category of proposed 

revisions, previously proposed in 79 FR 

41468, July 16, 2014, relates to the 

redemption rates for uncurrent coins 

and bent and partial coins that have 

been withdrawn from circulation. For 

uncurrent coins, the revision would 

clarify the procedure for redemption by 

instructing the public to deposit the 

uncurrent coins with a financial 

institution that will accept them, or 

with a depository institution that has a 

direct relationship with a Federal 

Reserve Bank. The revision would make 

clear that a Federal Reserve Bank will 

redeem uncurrent coins based on the 

policies described in the Federal 

Reserve’s Operating Circular 2. 

For bent or partial coins, the proposed 

revision would update the redemption 

rates of certain coins to reflect the 

current values and compositions of 

coins being redeemed. For example, in 

the existing regulation, the redemption 

rate for one-cent coins is $1.4585 per 

pound; this redemption rate was 

derived from the weight of brass onecent coins (3.11 grams or 0.1097 ounces 

each), which the United States Mint has 

not minted and issued since 1982. In 

1983, the United States Mint began 

minting and issuing only copper-plated 

zinc one-cent coins, which weigh 2.50 

grams or 0.0882 ounces each. Due to the 

weight difference, a pound (the 

minimum weight for redemption) of 

copper-plated zinc one-cent coins 

contains a higher quantity of coins than 

a pound of brass one-cent coins. The 

proposed revisions would make the 

redemption rate $1.8100 for a pound 

consisting solely of copper-plated zinc 

one-cent coins. For brass one-cent coins, 

or a mix of both brass and copper-plated 

zinc one-cent coins, the lower 

redemption rate of $1.4585 will apply. 

A similar update would be made to the 

redemption rate for $1 coins. 

The third category of proposed 

revisions, also previously proposed in 

79 FR 41468, July 16, 2014, would 

clarify that the United States Mint will 

not accept fused coins. The United 

States Mint will also not accept mixed 

coins (coins of several alloy categories 

presented together) for redemption, with 

the exception of bent or partial one-cent 

coins and $1 coins that are presented in 

mixed years. 


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