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Internal Revenue Bulletin - February 2, 2004 - REG-143321-02; REG-156232-03
Internal Revenue Bulletin: 2004-5 February 2, 2004 REG-143321-02; REG-156232-03
Withdrawal of Previous Proposed Rules; Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations and Notice
of Public Hearing Information Reporting Relating to Taxable Stock Transactions Table of Contents
of public hearing.
This document withdraws proposed regulations published in the Federal Register on November 18, 2002 (REG-143321-02, 2002-2 C.B. 922). In this issue of the Bulletin, the IRS is issuing temporary regulations
(T.D. 9101) relating to information reporting relating to taxable stock transactions. This document contains proposed regulations
under section 6043(c) requiring information reporting by a corporation if control of the corporation is acquired or if the
corporation has a recapitalization or other substantial change in capital structure. This document also contains proposed
regulations under section 6045 concerning information reporting requirements for brokers with respect to transactions described
in section 6043(c). The text of the temporary regulations serves as the text of these proposed regulations. This document
also provides notice of a public hearing on these proposed regulations.
Written or electronic comments must be received by March 29, 2004. Outlines of topics to be discussed at the public hearing
scheduled for March 31, 2004, at 10 a.m., must be received by March 10, 2004.
Send submissions to: CC:PA:LPD:PR (REG-156232-03), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,
(REG-156232-03), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers
may submit electronic comments directly to the IRS Internet site at www.irs.gov/regs. The public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington,
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Nancy L. Rose (202) 622-4910; concerning submissions of comments, the hearing, and/or
to be placed on the building access list to attend the hearing, Robin Jones at (202) 622-7180 (not toll-free numbers).
Paperwork Reduction Act The forms referenced in these regulations have been, or will be, approved by the Office of Management and Budget in accordance
with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection
of information displays a valid OMB control number. Books and records relating to a collection of information must be retained as long as their contents may become material in
Background This document withdraws the Notice of Proposed Rulemaking (REG-143321-02) that was published in the Federal Register on November 18, 2002 (67 FR 65496). Temporary regulations in this issue of the Bulletin amend the Income Tax Regulations
(26 CFR Part 1) relating to sections 6043 and 6045. The temporary regulations set forth information reporting requirements
relating to acquisitions of control and substantial changes in capital structure. The text of those regulations also serves
as the text of these proposed regulations. The preamble to the temporary regulations explains the amendments and these proposed
by brokers (together with the section 6043(c) temporary regulations, the “2002 temporary regulations”). The 2002 temporary
regulations were effective for acquisitions of control and substantial changes in capital structure occurring after December
31, 2001, if the reporting corporation or any shareholder was required to recognize gain (if any) as a result of th e application
of section 367(a) as a result of the transaction. The text of the 2002 temporary regulations also served as the text of proposed regulations set forth in a cross-referencing
notice of proposed rulemaking published in the Proposed Rules section of the same issue of the Federal Register (2002 proposed regulations) (REG-143321-02). The provisions of the proposed regulations were proposed to be effective with
respect to any acquisition of control or substantial change in capital structure occurring after the date on which final regulations
would be published in the Federal Register. The preamble to the notice of proposed rulemaking invited public comments with respect to the potential for duplicate reporting
and with respect to the burden of compliance with the reporting requirements. The IRS received a number of written public comments with respect to the information reporting requirements set forth in the
industry. The text of the revised temporary regulations also serves as the text of these proposed regulations (reproposed
Summary of Comments and Explanation of Provisions The commentators noted certain gaps in the transmission of information under the 2002 temporary and proposed regulations between
gaps in the process of transmitting this information. As provided in the 2002 temporary and proposed regulations, a reporting corporation would file Forms 1099-CAP, “Changes in Corporate Control and Capital Structure,” with respect to its shareholders of record, including brokers, under §1.6043-4T(b) and proposed §1.6043-4(b). Brokers
who received Forms 1099-CAP would then file Forms 1099-CAP with respect to their customers pursuant to §1.6045-3T and proposed
§1.6045-3. The commentators pointed out that a large majority of U.S. publicly issued securities are actually held on behalf
of brokerage firms through clearing organizations. Pursuant to the 2002 temporary and proposed regulations, clearing organizations
would receive Forms 1099-CAP from the reporting corporation; however, because clearing organizations are not treated as brokers,
they in turn would not be required under §1.6045-3T and reproposed §1.6045-3 to file Forms 1099-CAP with respect to their
broker-members. Consequently, brok ers (who had the requirement to file a Form 1099-CAP upon receiving one) would not receive
Form 1099-CAP if they held their shares through a clearing organization. In addition, brokers may not be aware of the requirement
to report with respect to a particular corporate transaction, or may have difficulty obtaining the information necessary for
reporting. Thus, under the 2002 temporary and proposed regulations, the actual shareholders of the reporting corporation,
the broker’s customers, may not receive information returns to assist them in preparing their income tax returns.
from its Form 8806, “Information Return for Acquisition of Control or Substantial Change in Capital Structure,” to an IRS website. Based on the comments, revised §1.6043-4T(a)(1)(vi) and reproposed §1.6043-4(a)(1)(vi) provide that reporting corporations
may elect on Form 8806 to consent to the publication by the IRS of information necessary for brokers to file information returns
with respect to their customers. To provide every corporation with the ability to make this election, the revised temporary
regulations require reporting corporations to file Form 8806 even though the corporation may also report the transaction under
sections 351, 355, or 368. In order to enable the IRS to publish the information timely, the revised temporary regulations
require reporting corporations to file Form 8806 within 45 days after the transaction, and in no event later than January
5 of the year following the calendar year in which the transaction occurs.
The role of clearing organizations was also the subject of comments. Commentators suggested that the regulations utilize
existing processes for distributing information to minimize the cost of and the time required for implementing reporting by
the industry. Those existing processes include the dissemination of information by clearing organizations. Under current
practices, important information regarding corporate transactions (including tax information) is disseminated by clearing
organizations to their members. The revised temporary and reproposed regulations try to take advantage of this existing information
flow by continuing to require corporations to provide a Form 1099-CAP to clearing organizations that are listed as shareholders
of record at the time of an acquisition of control or substantial change in capital structure. It is anticipated that clearing
organizations will disseminate information obtained from the Form 1099-CAP to their members and that broker-members will use
that informat ion (and information obtained from other sources) to satisfy their own reporting obligations under §1.6045-3T
and reproposed §1.6045-3. Under the revised regulations, a broker is required to report information if the broker knows or
has reason to know, based on readily available information, that there was an acquisition of control or substantial change
in capital structure with respect to shares held by the broker on behalf of a customer. If a clearing organization disseminates
information identifying an acquisition of control or a substantial change in capital structure to a broker-member, the broker-member
has readily available information about the transaction and must satisfy its reporting obligations under §1.6045-3T and reproposed
§1.6045-3 with respect to the transaction. The revised temporary and reproposed regulations provide that a reporting corporation is not required to file Forms 1099-CAP
with respect to its shareholders which are clearing organizations, or to furnish Forms 1099-CAP to such clearing organizations,
if the corporation makes the election to permit the IRS to publish information regarding the transaction. The IRS’ publication
of such information pursuant to the corporation’s consent will provide readily available information for brokers, who must
satisfy their reporting obligations with respect to the transaction.
Commentators also requested that brokers be permitted to utilize Form 1099-B for reporting under §1.6045-3T and reproposed
§1.6045-3, rather than overhaul their systems to report on Form 1099-CAP. The commentators point out that this would also
avoid any confusion stemming from the issuance of both types of forms to the same taxpayer in the same transaction. The revised
temporary regulations and reproposed regulations provide that Form 1099-B should be used by brokers for reporting under §1.6045-3T
and reproposed §1.6045-3. With respect to transactions occurring in 2003, brokers may use either Form 1099-B or 1099-CAP.
Proposed Effective Date The provisions of these regulations are proposed to be applicable for any acquisition of control and change in capital structure
occurring after the date on which these regulations are published in the Federal Register as final regulations. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive
Comments and Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic or written
comments on the clarity of the proposed rules and how they can be made easier to understand. Comments are particularly requested
with respect to the ability of brokers to obtain the information necessary for reporting under the proposed rules. All comments
will be available for public inspection and copying. A public hearing has been scheduled for March 31, 2004, beginning at
10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Because of access
For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION
CON TACT portion of this preamble. The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments must submit electronic
or written comments and an outline of the topics to be discussed and the time to be devoted to each topic (a signed original
and eight (8) copies) by March 10, 2004. A period of 10 minutes will be allotted to each person for making comments. An
agenda showing the scheduling of the speakers will be prepared after the deadline for reviewing outlines has passed. Copies
of the agenda will be available free of charge at the hearing. Withdrawal of a Previous Notice of Proposed Rulemaking Accordingly, under the authority of 26 U.S.C. 7805, the notice of proposed rulemaking published in the Federal Register on November 18, 2002 (REG-143321-02) is withdrawn.
§1.6043-4 Information returns relating to certain acquisitions of control and changes in capital structure. [The text of proposed §1.6043-4 is the same as the text of §1.6043-4T published elsewhere in this issue of the Bulletin]
§1.6045-3 Information reporting for acquisitions of control or substantial changes in capital structure. [The text of proposed §1.6045-3 is the same as the text of §1.6045-3T published elsewhere in this issue of the Bulletin]
for December 30, 2003, 68 F.R. 75182)
The principal author of this notice of proposed rulemaking is Nancy L. Rose, Office of Associate Chief Counsel (Procedure
and Administration). * * * * *