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Bulletin No. 1996–11

March 11, 1996

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

INCOME TAX

applicable financial

indebtedness.

Rev. Rul. 96–15, page 9.

Federal rates; adjusted federal rates; adjusted federal

long-term rate, and the long-term exempt rate. For

purposes of sections 1274, 1288, 382, and other

sections of the Code, tables set forth for March 1996.

entities

for

discharges

EE–148–81, page 29.

Proposed regulations under section 1.409–1(b)(2)(i) of

the Code relating to retirement bonds as part of the

President’s Regulatory Reinvention Initiative are

withdrawn.

Rev. Rul. 96–16, page 4.

Low-income housing credit; satisfactory bond; ‘‘bond

factor’’ amounts for the period January through March

1996. This ruling announces the monthly bond factor

amounts to be used by taxpayers who dispose of

qualified low-income buildings or interests therein

during the period January through March 1996.

ADMINISTRATIVE

Rev. Proc. 96–27, page 27.

Low-income housing tax credit. Resident populations of

the various states for determining the 1996 calendar

year (1) state housing credit ceiling under section

42(h) of the Code, and (2) private activity bond volume

cap under section 146 are reproduced.

T.D. 8643, page 4.

Final regulations under section 305(c) of the Code

relate to constructive distributions on preferred stock.

T.D. 8651, page 27.

IA–41–93, page 29.

Temporary and proposed regulations provide new

simpler procedures for an individual to obtain an

automatic extension of time to file an individual income

tax return.

T.D. 8652, page 11.

Final regulations under section 6050I(g) of the Code

provide information reporting requirements of Federal

and state court clerks who receive more than $10,000

in cash as bail for any individual charged with a

specified criminal offense.

Announcement 96–12, page 30.

The United States recently exchanged instruments of

ratification for new income tax treaties with Canada,

France, Mexico, Portugal, and Sweden. This announcement provides supplemental tables of income rates and

exempt personal service income under these treaties.

T.D. 8654, page 14.

Final regulations under section 6050P of the Code

relate to the information reporting requirements of

Finding Lists begin on page 34.

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Mission of the Service

The purpose of the Internal Revenue Service is to

collect the proper amount of tax revenue at the least

cost; serve the public by continually improving the

quality of our products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

The function of the Internal Revenue Service is to

administer the Internal Revenue Code. Tax policy

for raising revenue is determined by Congress.

With this in mind, it is the duty of the Service to

carry out that policy by correctly applying the laws

enacted by Congress; to determine the reasonable

meaning of various Code provisions in light of the

Congressional purpose in enacting them; and to

perform this work in a fair and impartial manner,

with neither a government nor a taxpayer point of

view.

At the heart of administration is interpretation of the

Code. It is the responsibility of each person in the

Service, charged with the duty of interpreting the

law, to try to find the true meaning of the statutory

provision and not to adopt a strained construction in

the belief that he or she is ‘‘protecting the revenue.’’

The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

The Service also has the responsibility of applying

and administering the law in a reasonable,

practical manner. Issues should only be raised by

examining officers when they have merit, never

arbitrarily or for trading purposes. At the same

time, the examining officer should never hesitate

to raise a meritorious issue. It is also important

that care be exercised not to raise an issue or to

ask a court to adopt a position inconsistent with

an established Service position.

Administration should be both reasonable and

vigorous. It should be conducted with as little

delay as possible and with great courtesy and

considerateness. It should never try to overreach,

and should be reasonable within the bounds of law

and sound administration. It should, however, be

vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax

devices and fraud.

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Introduction

The Internal Revenue Bulletin is the authoritative

instrument of the Commissioner of Internal Revenue for

announcing official rulings and procedures of the

Internal Revenue Service and for publishing Treasury

Decisions, Executive Orders, Tax Conventions, legislation, court decisions, and other items of general

interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription basis. Bulletin contents of a permanent nature are

consolidated semiannually into Cumulative Bulletins,

which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin

all substantive rulings necessary to promote a uniform

application of the tax laws, including all rulings that

supersede, revoke, modify, or amend any of those

previously published in the Bulletin. All published

rulings apply retroactively unless otherwise indicated.

Procedures relating solely to matters of internal

management are not published; however, statements of

internal practices and procedures that affect the rights

and duties of taxpayers are published.

Revenue rulings represent the conclusions of the

Service on the application of the law to the pivotal facts

stated in the revenue ruling. In those based on

positions taken in rulings to taxpayers or technical

advice to Service field offices, identifying details and

information of a confidential nature are deleted to

prevent unwarranted invasions of privacy and to comply

with statutory requirements.

Rulings and procedures reported in the Bulletin do not

have the force and effect of Treasury Department

Regulations, but they may be used as precedents.

Unpublished rulings will not be relied on, used, or cited

as precedents by Service personnel in the disposition of

other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be

considered, and Service personnel and others concerned are cautioned against reaching the same

conclusions in other cases unless the facts and

circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on

provisions of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows:

Subpart A, Tax Conventions, and Subpart B, Legislation

and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellanous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and

Subparts. Also included in this part are Bank Secrecy

Act Administrative Rulings. Bank Secrecy Act Administrative Rulings are issued by the Department of the

Treasury’s Office of the Assistant Secretary

(Enforcement).

Part IV.—Items of General Interest.

With the exception of the Notice of Proposed Rulemaking and the disbarment and suspension list included in

this part, none of these announcements are consolidated in the Cumulative Bulletins.

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly

and semiannual basis, and are published in the first

Bulletin of the succeeding quarterly and semi-annual

period, respectively.

The Bulletin Index-Digest System, a research and

reference service supplementing the Bulletin, may be

obtained from the Superintendent of Documents on a

subscription basis. It consists of four Services: Service

No. 1, Income Tax; Service No. 2, Estate and Gift

Taxes; Service No. 3, Employment Taxes; Service No.

4, Excise Taxes. Each Service consists of a basic

volume and a cumulative supplement that provides (1)

finding lists of items published in the Bulletin, (2)

digests of revenue rulings, revenue procedures, and

other published items, and (3) indexes of Public Laws,

Treasury Decisions, and Tax Conventions.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

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Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 42.—Low-Income Housing

Credit

Low-income housing credit; satisfactory bond; ‘‘bond factor’’ amounts for

the period January through March

1996. This ruling announces the

monthly bond factor amounts to be

used by taxpayers who dispose of

qualified low-income buildings or interests therein during the period January

through March 1996.

Rev. Rul. 96–16

In Rev. Rul. 90–60, 1990–2 C.B. 3,

the Internal Revenue Service provided

guidance to taxpayers concerning the

general methodology used by the

Treasury Department in computing the

bond factor amounts used in calculating

the amount of bond considered satisfactory by the Secretary under § 42(j)(6)

of the Internal Revenue Code. It further

announced that the Secretary would

publish in the Internal Revenue Bulletin a table of ‘‘bond factor’’ amounts

for dispositions occurring during each

calendar month.

This revenue ruling provides in

Table 1 the bond factor amounts for

calculating the amount of bond considered satisfactory under § 42(j)(6) for

dispositions of qualified low-income

buildings or interests therein during the

period January through March 1996.

Table 1

Rev. Rul. 96–16

Monthly Bond Factor Amounts for Dispositions Expressed

As a Percentage of Total Credits

Calendar Year Building Placed in Service

or, if Section 42(f)(1) Election Was

Made, the Succeeding Calendar Year

Month of

Disposition

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

Jan ’96

Feb ’96

Mar ’96

82.72

82.47

82.22

85.18

84.92

84.66

87.85

87.58

87.31

91.00

90.71

90.43

94.73

94.42

94.11

99.06

98.71

98.38

103.57

103.18

102.80

107.87

107.41

106.98

111.88

111.30

110.81

112.52

For a list of bond factor amounts

applicable to dispositions occurring

during other calendar years, see the

following revenue rulings: Rev. Rul.

90–60, 1990–2 C.B. 3, for dispositions

occurring during calendar years 1987,

1988, and 1989; Rev. Rul. 90–88,

1990–2 C.B. 7, for dispositions occurring during calendar year 1990; Rev.

Rul. 91–67, 1991–2 C.B. 13, for

dispositions occurring during calendar

year 1991; Rev. Rul. 92–101, 1992–2

C.B. 9, for dispositions occurring during calendar year 1992; Rev. Rul 93–

83, 1993–2 C.B. 6, for dispositions

occurring during calendar year 1993;

Rev. Rul. 94–71, 1994–2 C.B. 4, for

dispositions occurring during calendar

year 1994; and Rev. Rul. 95–83, 1995–

52 I.R.B. 5, for dispositions occurring

during calendar year 1995.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Jack Malgeri of the Office of

Assistant Chief Counsel (Passthroughs

and Special Industries). For further

information regarding this revenue ruling, contact Mr. Malgeri at (202)

622-3040 (not a toll-free call).

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

page 9.

Section 280G.—Golden Parachute

Payments

Federal short-term, mid-term, and long-term

rates are set forth for the month of March 1996.

See Rev. Rul. 96–15, page 9.

Section 305.—Distributions of Stock

and Stock Rights

26 CFR 1.305–5: Distributions on preferred

stock.

T.D. 8643

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Distributions of Stock and Stock

Rights

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations amending regulations

under section 305(c) of the Internal

Revenue Code relating to constructive

distributions on preferred stock. The

final regulations concern the treatment

of stock redeemable at a premium by

the issuer. The regulations generally

treat a call premium as giving rise to a

constructive distribution only if redemption pursuant to the call provision

is more likely than not to occur. The

final regulations also reflect 1990

amendments to section 305(c).

DATES: These regulations are effective

December 20, 1995.

For dates of applicability of these

regulations, see Effective dates under

SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION

CONTACT: Kirsten L. Simpson, (202)

622-7790 (not a toll-free number).

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SUPPLEMENTARY INFORMATION:

Explanation of Provisions

Paperwork Reduction Act

The primary focus of the final regulations is on preferred stock callable at

a premium at the option of the issuer.

The final regulations retain the approach of the proposed regulations and

require constructive distribution treatment with respect to an issuer call only

if, based on all of the facts and

circumstances as of the issue date,

redemption pursuant to the call right is

more likely than not to occur.

Safe harbor rule. The proposed

regulations provided a safe harbor,

under which constructive distribution

treatment does not result from an issuer

call if the issuer and holder are

unrelated, there are no arrangements

that effectively require the issuer to

redeem the stock, and exercise of the

option to redeem would not reduce the

yield of the stock. In response to

comments, the final regulations make

certain modifications to the safe harbor

to clarify its scope.

Commentators suggested that the

exclusion from the safe harbor where

there are ‘‘arrangements that effectively

require the issuer to redeem’’ is too

narrow and will permit taxpayers who

issue stock with ‘‘understandings’’ concerning redemption, whether or not

legally enforceable, to qualify for the

safe harbor. Commentators recommended safeguarding against abuse by

changing the effectively requires redemption test to one that requires a

lesser degree of probability. The IRS

and Treasury intend that the safe

harbor not be available where an issuer

and a holder have an underlying understanding. Although the IRS and Treasury believe that the word ‘‘arrangement’’ is broad enough to include such

understandings, in response to these

comments, this prong of the safe harbor

has been clarified.

To retain greater certainty for nonabusive transactions, however, the

effectively requires redemption test has

not been substantially modified. Instead, the final regulations safeguard

against abuse by lowering the threshold

for determining whether an issuer and a

holder are related. The proposed regulations adopted a 50-percent threshold

for determining whether an issuer and a

holder are related. The final regulations

lower this threshold to 20 percent. This

threshold relates only to eligibility for

the safe harbor, and not to the application of the general ‘‘more likely than

The collection of information contained in these final regulations has

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–1438. Responses to

this collection of information are required to comply with the consistency

requirements of the regulation.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number. The

estimated annual burden per respondent

varies from 5 minutes to 15 minutes,

depending on individual circumstances,

with an estimated average of 10

minutes.

Comments concerning the accuracy

of this burden estimate and suggestions

for reducing this burden should be sent

to the Internal Revenue Service, Attn:

IRS Reports Clearance Officer, T:FP,

Washington, DC 20224, and to the Office of Management and Budget, Attn:

Desk Officer for the Department of the

Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503.

Books or records relating to this

collection of information must be retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

On June 22, 1994, a notice of

proposed rulemaking (CO–8–91 [1994–

2 C.B. 844]), amending regulations

under section 305(c) of the Internal

Revenue Code relating to constructive

distributions on preferred stock, was

published in the Federal Register (59

FR 32160). No public hearing was

requested and none was held.

Written comments responding to the

notice were received. After consideration of all the comments, the regulations proposed by CO–8–91 are

adopted as revised by this Treasury

decision. The principal revisions are

discussed below.

not’’ test. When a holder’s ownership

interest exceeds this threshold, the IRS

and Treasury believe it is appropriate

to determine whether redemption is

more likely than not to occur based on

all of the facts and circumstances.

Commentators also suggested that

the IRS and Treasury except preferred

stock within the meaning of section

1504(a)(4) in determining whether the

issuer and holder are related. The

regulations do not adopt this suggestion. As noted above, the determination

of whether the issuer and holder are

related only governs eligibility for the

safe harbor. The IRS and Treasury

believe that when a holder’s ownership

interest in an issuer exceeds the threshold, even if all that the holder owns is

preferred stock within the meaning of

section 1504(a)(4), it is appropriate to

determine whether redemption is more

likely than not to occur based on all of

the facts and circumstances.

In response to comments, the final

regulations clarify that the ‘‘arrangements’’ that effectively require or are

intended to compel the issuer to

redeem the stock relate to the issuer

call right, and not to a later mandatory

redemption feature.

In testing whether a call right meets

the yield prong of the safe harbor, the

final regulations clarify that principles

similar to the principles of section

1272(a) and the original issue discount

regulations apply to determine whether

exercise of the right to redeem would

reduce the yield of the stock.

Miscellaneous. The final regulations

expand the definition of issuer in

certain circumstances. In particular, the

regulations provide that if preferred

stock may be acquired by a person

other than the issuer (a third person),

the term issuer includes such third

person if the regulations would apply

to the stock if the third person were the

issuer, and acquisition of the stock by

the third person would be treated as a

redemption for federal income tax

purposes (under section 304 or otherwise). In addition, if the issuer and the

third person are members of the same

affiliated group, the term issuer includes the third person if a principal

purpose of the arrangement is to avoid

the application of section 305 and the

final regulations. Furthermore, an

agreement or other arrangement for a

person other than the issuer of the

stock to acquire the stock may create a

conversion transaction within the meaning of section 1258.

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The final regulations provide rules for

the treatment of mandatory redemption

obligations and put options that are

subject to contingencies. Generally, premiums on such stock are not subject to

constructive distribution treatment if the

contingency renders remote the likelihood of redemption. For example, where

an issuer issues stock that is mandatorily

redeemable in the event of an initial

public offering, the regulations require

evaluation of the likelihood of the

occurrence of the initial public offering.

The regulations provide, however, that a

contingency does not include the possibility of default, insolvency, or similar

circumstances, or that a redemption may

be precluded by applicable law due to

insufficient capital.

The preamble to the proposed regulations requested comments on the appropriate treatment of unpaid cumulative

dividends. Because of the complexity of

this issue, the final regulations do not

provide rules for those dividends. The

IRS and Treasury will continue to

consider the issue, as well as other

issues involving the implementation of

the amendments to section 305(c) made

by the Revenue Reconciliation Act of

1990. The IRS and Treasury continue to

invite public comments on these issues.

Effective dates. The regulations apply

to stock issued on or after December

20, 1995. Although the regulations do

not apply to stock issued before December 20, 1995, the rules of sections

305(c)(1), (2), and (3) apply to stock

described therein issued on or after

October 10, 1990, except as provided

in section 11322(b)(2) of the Revenue

Reconciliation Act of 1990 (Public

Law 101–508 Stat.). Moreover, except

as provided in section 11322(b)(2) of

the Revenue Reconciliation Act of

1990 (Public Law 101–508 Stat.), with

respect to stock issued on or after

October 10, 1990, and issued before

December 20, 1995, the economic

accrual rule of section 305(c)(3) will

apply to the entire call premium on

stock that is not described in paragraph

(b)(2) of this section if the premium is

considered to be unreasonable under

the principles of §1.305–5(b) (as contained in the 26 CFR part 1 edition

revised April 1, 1995). A call premium

described in the preceding sentence

will be accrued over the period of time

during which the preferred stock cannot

be called for redemption.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It has also been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not

apply to these regulations, and, therefore, a Regulatory Flexibility Analysis

is not required. Pursuant to section

7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking preceding these regulations was submitted

to the Small Business Administration

for comment on its impact on small

business.

Drafting Information

The principal author of these regulations is Kirsten L. Simpson of the

Office of Assistant Chief Counsel

(Corporate), IRS. However, other personnel of the IRS and Treasury Department participated in their development.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and

602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding the

following entries in numerical order to

read as follows:

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

Section 1.305–3 also issued under 26

U.S.C. 305.

Section 1.305–5 also issued under 26

U.S.C. 305.

Section 1.305–7 also issued under 26

U.S.C. 305. * * *

Par. 2. Section 1.305–3 is amended

as follows:

1. In paragraph (e), remove the

parentheses from the numbers in the

headings for Examples (1) through

(15).

2. In paragraph (e), Example 15 is

revised to read as follows:

§1.305–3 Disproportionate

distributions.

(e) * * *

Example 15. (i) Facts. Corporation V is

organized with two classes of stock, class A

common and class B convertible preferred. The

class B stock is issued for $100 per share and is

convertible at the holder’s option into class A at

a fixed ratio that is not subject to full adjustment

in the event stock dividends or rights are distributed to the class A shareholders. The class B

stock pays no dividends but it is mandatorily

redeemable in 10 years for $200. Under sections

305(c) and 305(b)(4), the entire redemption

premium (i.e., the excess of the redemption price

over the issue price) is deemed to be a distribution of preferred stock on preferred stock

which is taxable as a distribution of property

under section 301. This amount is considered to

be distributed over the 10-year period under

principles similar to the principles of section

1272(a). During the year, the corporation declares a dividend on the class A stock payable in

additional shares of class A stock.

(ii) Analysis. The distribution on the class A

stock is a distribution to which sections

305(b)(2) and 301 apply since it increases the

proportionate interests of the class A shareholders in the assets and earnings and profits of

the corporation and the class B shareholders have

received property (i.e., the constructive distribution described above). If, however, the conversion ratio of the class B stock were subject to

full adjustment to reflect the distribution of stock

to class A shareholders, the distribution of stock

dividends on the class A stock would not increase the proportionate interest of the class A

shareholders in the assets and earnings and profits of the corporation and such distribution

would not be a distribution to which section 301

applies.

(iii) Effective date. This Example 15 applies to

stock issued on or after December 20, 1995. For

previously issued stock, see §1.305–3(e) Example

(15) (as contained in the 26 CFR part 1 edition

revised April 1, 1995).

Par. 3. Section 1.305–5 is amended

as follows:

1. Paragraph (b) is revised.

2. In paragraph (d), remove the

parentheses from the numbers in the

headings for Examples (1) through (9),

redesignate Examples 8 and 9 as

Examples 9 and 10, respectively.

3. In paragraph (d), Examples 4, 5,

and 7 are revised, and Example 8 is

added.

4. Paragraph (e) is added.

The revisions read as follows:

§1.305–5 Distributions on preferred

stock.

(b) Redemption premium—(1) In

general. If a corporation issues preferred stock that may be redeemed

under the circumstances described in

this paragraph (b) at a price higher than

the issue price, the difference (the

redemption premium) is treated under

section 305(c) as a constructive distribution (or series of constructive

distributions) of additional stock on

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preferred stock that is taken into

account under principles similar to the

principles of section 1272(a). However,

constructive distribution treatment does

not result under this paragraph (b) if

the redemption premium does not exceed a de minimis amount, as determined under the principles of section

1273(a)(3). For purposes of this paragraph (b), preferred stock that may be

acquired by a person other than the

issuer (the third person) is deemed to

be redeemable under the circumstances

described in this paragraph (b), and

references to the issuer include the

third person, if—

(i) this paragraph (b) would apply to

the stock if the third person were the

issuer; and

(ii) either—

(A) the acquisition of the stock by

the third person would be treated as a

redemption for federal income tax

purposes (under section 304 or otherwise); or

(B) the third person and the issuer

are members of the same affiliated

group (having the meaning for this

purpose given the term by section

1504(a), except that section 1504(b)

shall not apply) and a principal purpose

of the arrangement for the third person

to acquire the stock is to avoid the

application of section 305 and paragraph (b)(1) of this section.

(2) Mandatory redemption or holder

put. Paragraph (b)(1) of this section

applies to stock if the issuer is required

to redeem the stock at a specified time

or the holder has the option (whether

or not currently exercisable) to require

the issuer to redeem the stock. However, paragraph (b)(1) of this section

will not apply if the issuer’s obligation

to redeem or the holder’s ability to

require the issuer to redeem is subject

to a contingency that is beyond the

legal or practical control of either the

holder or the holders as a group (or

through a related party within the

meaning of section 267(b) or 707(b)),

and that, based on all of the facts and

circumstances as of the issue date,

renders remote the likelihood of redemption. For purposes of this paragraph, a contingency does not include

the possibility of default, insolvency, or

similar circumstances, or that a redemption may be precluded by applicable law which requires that the issuer

have a particular level of capital,

surplus, or similar items. A contingency also does not include an

issuer’s option to require earlier redemption of the stock. For rules

applicable if stock may be redeemed at

more than one time, see paragraph

(b)(4) of this section.

(3) Issuer call—(i) In general. Paragraph (b)(1) of this section applies to

stock by reason of the issuer’s right to

redeem the stock (even if the right is

immediately exercisable), but only if,

based on all of the facts and circumstances as of the issue date, redemption

pursuant to that right is more likely

than not to occur. However, even if

redemption is more likely than not to

occur, paragraph (b)(1) of this section

does not apply if the redemption premium is solely in the nature of a

penalty for premature redemption. A

redemption premium is not a penalty

for premature redemption unless it is a

premium paid as a result of changes in

economic or market conditions over

which neither the issuer nor the holder

has legal or practical control.

(ii) Safe harbor. For purposes of this

paragraph (b)(3), redemption pursuant

to an issuer’s right to redeem is not

treated as more likely than not to occur

if—

(A) The issuer and the holder are

not related within the meaning of section 267(b) or 707(b) (for purposes of

applying sections 267(b) and 707(b)

(including section 267(f)(1)), the phrase

‘‘20 percent’’ shall be substituted for

the phrase ‘‘50 percent’’);

(B) There are no plans, arrangements, or agreements that effectively

require or are intended to compel the

issuer to redeem the stock (disregarding, for this purpose, a separate mandatory redemption obligation described in

paragraph (b)(2) of this section); and

would not reduce the yield of the stock,

as determined under principles similar

to the principles of section 1272(a) and

the regulations under sections 1271

through 1275.

(iii) Effect of not satisfying safe

harbor. The fact that a redemption

right is not described in paragraph

(b)(3)(ii) of this section does not affect

the determination of whether a redemption pursuant to the right to redeem is

more likely than not to occur.

(4) Coordination of multiple redemption provisions. If stock may be redeemed at more than one time, the time

and price at which redemption is most

likely to occur must be determined

based on all of the facts and circum-

stances as of the issue date. Any constructive distribution under paragraph

(b)(1) of this section will result only

with respect to the time and price

identified in the preceding sentence.

However, if redemption does not occur

at that identified time, the amount of

any additional premium payable on any

later redemption date, to the extent not

previously treated as distributed, is

treated as a constructive distribution

over the period from the missed call or

put date to that later date, to the extent

required under the principles of this

paragraph (b).

(5) Consistency. The issuer’s determination as to whether there is a

constructive distribution under this

paragraph (b) is binding on all holders

of the stock, other than a holder that

explicitly discloses that its determination as to whether there is a constructive distribution under this paragraph (b) differs from that of the

issuer. Unless otherwise prescribed by

the Commissioner, the disclosure must

be made on a statement attached to the

holder’s timely filed federal income tax

return for the taxable year that includes

the date the holder acquired the stock.

The issuer must provide the relevant

information to the holder in a reasonable manner. For example, the issuer

may provide the name or title and

either the address or telephone number

of a representative of the issuer who

will make available to holders upon

request the information required for

holders to comply with this provision

of this paragraph (b).

(d) * * *

Example 4—(i) Facts. Corporation X is a

domestic corporation with only common stock

outstanding. In connection with its acquisition of

Corporation T, X issues 100 shares of its 4%

preferred stock to the shareholders of T, who are

unrelated to X both before and after the transaction. The issue price of the preferred stock is

$40 per share. Each share of preferred stock is

convertible at the shareholder’s election into

three shares of X common stock. At the time the

preferred stock is issued, the X common stock

has a value of $10 per share. The preferred stock

does not provide for its mandatory redemption or

for redemption at the option of the holder. It is

callable at the option of X at any time beginning

three years from the date of issuance for $100

per share. There are no other plans, arrangements, or agreements that effectively require or

are intended to compel X to redeem the stock.

(ii) Analysis. The preferred stock is described

in the safe harbor rule of paragraph (b)(3)(ii) of

this section because X and the former shareholders of T are unrelated, there are no plans,

arrangements, or agreements that effectively

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require or are intended to compel X to redeem

the stock, and calling the stock for $100 per

share would not reduce the yield of the preferred

stock. Therefore, the $60 per share call premium

is not treated as a constructive distribution to the

shareholders of the preferred stock under paragraph (b) of this section.

Example 5—(i) Facts—(A) Corporation Y is a

domestic corporation with only common stock

outstanding. On January 1, 1996, Y issues 100

shares of its 10% preferred stock to a holder.

The holder is unrelated to Y both before and

after the stock issuance. The issue price of the

preferred stock is $100 per share. The preferred

stock is—

(1) Callable at the option of Y on or before

January 1, 2001, at a price of $105 per share

plus any accrued but unpaid dividends; and

(2) Mandatorily redeemable on January 1,

2006, at a price of $100 per share plus any

accrued but unpaid dividends.

(B) The preferred stock provides that if Y

fails to exercise its option to call the preferred

stock on or before January 1, 2001, the holder

will be entitled to appoint a majority of Y’s

directors. Based on all of the facts and circumstances as of the issue date, Y is likely to

have the legal and financial capacity to exercise

its right to redeem. There are no other facts and

circumstances as of the issue date that would

affect whether Y will call the preferred stock on

or before January 1, 2001.

(ii) Analysis. Under paragraph (b)(3)(i) of this

section, paragraph (b)(1) of this section applies

because, by virtue of the change of control provision and the absence of any contrary facts, it is

more likely than not that Y will exercise its

option to call the preferred stock on or before

January 1, 2001. The safe harbor rule of paragraph (b)(3)(ii) of this section does not apply

because the provision that failure to call will

cause the holder to gain control of the corporation is a plan, arrangement, or agreement that

effectively requires or is intended to compel Y to

redeem the preferred stock. Under paragraph

(b)(4) of this section, the constructive distribution occurs over the period ending on January 1,

2001. Redemption is most likely to occur on that

date, because that is the date on which the

corporation minimizes the rate of return to the

holder while preventing the holder from gaining

control. The de minimis exception of paragraph

(b)(1) of this section does not apply because the

$5 per share difference between the redemption

price and the issue price exceeds the amount

determined under the principles of section

1273(a)(3) (5 3 .0025 3 $105 = $1.31).

Accordingly, $5 per share, the difference between the redemption price and the issue price, is

treated as a constructive distribution received by

the holder on an economic accrual basis over the

five-year period ending on January 1, 2001,

under principles similar to the principles of

section 1272(a).

Example 7—(i) Facts—(A) Corporation Z is a

domestic corporation with only common stock

outstanding. On January 1, 1996, Z issues 100

shares of its 10% preferred stock to C, an

individual unrelated to Z both before and after

the stock issuance. The issue price of the

preferred stock is $100 per share. The preferred

stock is—

(1) Not callable for a period of 5 years from

the issue date;

(2) Callable at the option of Z on January 1,

2001, at a price of $110 per share plus any

accrued but unpaid dividends;

(3) Callable at the option of Z on July 1,

2002, at a price of $120 per share plus any

accrued but unpaid dividends; and

(4) Mandatorily redeemable on January 1,

2004, at a price of $150 per share plus any

accrued but unpaid dividends.

(B) There are no other plans, arrangements, or

agreements between Z and C concerning redemption of the stock. Moreover, there are no other

facts and circumstances as of the issue date that

would affect whether Z will call the preferred

stock on either January 1, 2001, or July 1, 2002.

(ii) Analysis. This stock is described in

paragraph (b)(2) of this section because it is

mandatorily redeemable. It is also potentially

described in paragraph (b)(3)(i) of this section

because it is callable at the option of the issuer.

The safe harbor rule of paragraph (b)(3)(ii) of

this section does not apply to the option to call

on January 1, 2001, because the call would reduce the yield of the stock when compared to the

yield produced by the January 1, 2004, mandatory redemption feature. Moreover, absent any

other facts indicating a contrary result, the fact

that redemption on January 1, 2001, would

produce the lowest yield indicates that redemption is most likely to occur on that date. Under

paragraph (b)(4) of this section, paragraph (b)(1)

of this section applies with respect to the issuer’s

right to call on January 1, 2001, because redemption is most likely to occur on January 1,

2001, for $110 per share. The de minimis exception of paragraph (b)(1) of this section does not

apply because the $10 per share difference

between the redemption price payable in 2001

and the issue price exceeds the amount determined under the principles of section 1273(a)(3)

(5 3 .0025 3 $110 = $1.38). Accordingly, $10

per share, the difference between the redemption

price and the issue price, is treated as a

constructive distribution received by the holder

on an economic accrual basis over the five-year

period ending January 1, 2001, under principles

similar to the principles of section 1272(a).

(iii) Coordination rules—(A) If Z does not

exercise its option to call the preferred stock on

January 1, 2001, paragraph (b)(4) of this section

provides that the principles of paragraph (b) of

this section must be applied to determine if any

remaining constructive distribution occurs. Under

paragraphs (b)(3)(i) and (b)(4) of this section,

paragraph (b)(1) of this section applies because,

absent any other facts indicating a contrary

result, the fact that redemption on July 1, 2002,

would produce a lower yield than the yield

produced by the mandatory redemption feature

indicates that redemption on that date is most

likely to occur. The safe harbor rule of paragraph

(b)(3)(ii) of this section does not apply to the

option to call on July 1, 2002, because, as of

January 1, 2001, a call by Z on July 1, 2002, for

$120 would reduce the yield of the stock. The de

minimis exception of paragraph (b)(1) of this

section does not apply because the $10 per share

difference between the redemption price and the

issue price (revised as of the missed call date as

provided by paragraph (b)(4) of this section)

exceeds the amount determined under the principles of section 1273(a)(3) (1 3 .0025 3 $120 =

$.30). Accordingly, the $10 per share of additional redemption premium that is payable on

July 1, 2002, is treated as a constructive

distribution received by the holder on an

economic accrual basis over the period between

January 1, 2001, and July 1, 2002, under

principles similar to the principles of section

1272(a).

(B) If Z does not exercise its second option to

call the preferred stock on July 1, 2002, then the

$30 additional redemption premium that is

payable on January 1, 2004, is treated as a

constructive distribution under paragraphs (b)(2)

and (b)(1) of this section. The de minimis

exception of paragraph (b)(1) of this section does

not apply because the $30 per share difference

between the redemption price and the issue price

(revised as of the second missed call date)

exceeds the amount determined under the principles of section 1273(a)(3) (1 3 .0025 3 $150 =

$.38). The holder is treated as receiving the

constructive distribution on an economic accrual

basis over the period between July 1, 2002, and

January 1, 2004, under principles similar to the

principles of section 1272(a).

Example 8—(i) Facts. The facts are the same

as in paragraph (i) of Example 7, except that,

based on all of the facts and circumstances as of

the issue date (including an expected lack of

funds on the part of Z), it is unlikely that Z will

exercise the right to redeem on either January 1,

2001, or July 1, 2002.

(ii) Analysis. The safe harbor rule of paragraph (b)(3)(ii) of this section does not apply to

the option to call on either January 1, 2001, or

July 1, 2002, because each call would reduce the

yield of the stock. Under paragraph (b)(3)(i) of

this section, neither option to call is more likely

than not to occur, because, based on all of the

facts and circumstances as of the issue date

(including an expected lack of funds on the part

of Z), it is not more likely than not that Z will

exercise either option. However, the $50 per

share redemption premium that is payable on

January 1, 2004, is treated as a constructive

distribution under paragraphs (b)(1) and (2) of

this section, regardless of whether Z is anticipated to have sufficient funds to redeem on that

date, because Z is required to redeem the stock

on that date. The de minimis exception of

paragraph (b)(1) of this section does not apply

because the $50 per share difference between the

redemption price and the issue price exceeds the

amount determined under the principles of

section 1273(a)(3) (8 3 .0025 3 $150 = $3).

(e) Effective date. The rules of paragraph (b) of this section and Examples

4, 5, 7, and 8 of paragraph (d) of this

section apply to stock issued on or

after December 20, 1995. For rules

applicable to previously issued stock,

see §1.305–5(b) and (d) Examples (4),

(5), and (7) (as contained in the 26

CFR part 1 edition revised April 1,

1995). Although the rules of paragraph

(b) of this section and the revised

examples do not apply to stock issued

before December 20, 1995, the rules of

sections 305(c)(1), (2), and (3) apply to

stock described therein issued on or

after October 10, 1990, except as

provided in section 11322(b)(2) of the

Revenue Reconciliation Act of 1990

(Public Law 101–508 Stat.). Moreover,

except as provided in section 11322(b)-

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(2) of the Revenue Reconciliation Act

of 1990 (Public Law 101–508 Stat.),

with respect to stock issued on or after

October 10, 1990, and issued before

December 20, 1995, the economic accrual rule of section 305(c)(3) will

apply to the entire call premium on

stock that is not described in paragraph

(b)(2) of this section if the premium is

considered to be unreasonable under

the principles of §1.305–5(b) (as contained in the 26 CFR part 1 edition

revised April 1, 1995). A call premium

described in the preceding sentence

will be accrued over the period of time

during which the preferred stock cannot

be called for redemption.

Par. 4. Section 1.305–7 is amended

by revising the fourth sentence in the

concluding text of paragraph (a) to read

as follows:

(Filed by the Office of the Federal Register on

December 20, 1995, 8:45 a.m., and published

in the issue of the Federal Register for

December 21, 1995, 60 F.R. 66134)

Section 846.—Discounted Unpaid

Losses Defined

Section 382.—Limitation on Net

Operating Loss Carryforwards and

Certain Built-In Losses Following

Ownership Change

The adjusted federal long-term rate is set forth

for the month of March 1996. See Rev. Rul. 96–

15, on this page.

Section 412.—Minimum Funding

Standards

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

on this page.

§1.305–7 Certain transactions treated

as distributions.

(a) * * *

* * * For example, where a redemption

premium exists with respect to a class

of preferred stock under the circumstances described in §1.305–5(b) and

the other requirements of this section

are also met, the distribution will be

deemed made with respect to such preferred stock, in stock of the same class.

* * *

Section 467.—Certain Payments for

the Use of Property or Services

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

on this page.

Section 468.—Special Rules for

Mining and Solid Waste Reclamation

and Closing Costs

PART 602—OMB CONTROL

NUMBERS UNDER THE

PAPERWORK REDUCTION ACT

Par. 5. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 6. In §602.101, paragraph (c) is

amended in the table by adding the

entry ‘‘1.305–5 . . 1545–1438’’ in numerical order.

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

on this page.

Section 483.—Interest on Certain

Deferred Payments

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

on this page.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved December 11, 1995.

Leslie Samuels,

Assistant Secretary of the Treasury.

the month of March 1996. See Rev. Rul. 96–15,

on this page.

Section 807.—Rules for Certain

Reserves

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

on this page.

Section 1274.—Determination of

Issue Price in the Case of Certain

Debt Instruments Issued for Property

(Also Sections 42, 280G, 382, 412, 467, 468,

483, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal

rates; adjusted federal long-term rate,

and the long-term exempt rate. For

purposes of sections 1274, 1288, 382,

and other sections of the Code, tables

set forth for March 1996.

Rev. Rul. 96–15

This revenue ruling provides various

prescribed rates for federal income tax

purposes for March 1996 (the current

month.) Table 1 contains the shortterm, mid-term, and long-term applicable federal rates (AFR) for the current

month for purposes of section 1274(d)

of the Internal Revenue Code. Table 2

contains the short-term, mid-term, and

long-term adjusted applicable federal

rates (adjusted AFR) for the current

month for purposes of section 1288(b).

Table 3 sets forth the adjusted federal

long-term rate and the long-term taxexempt rate described in section 382(f).

Table 4 contains the appropriate percentages for determining the lowincome housing credit described in

section 42(b)(2) for buildings placed in

service during the current month. Finally, Table 5 contains the federal rate

for determining the present value of an

annuity, an interest for life or for a

term of years, or a remainder or a

reversionary interest for purposes of

section 7520.

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REV. RUL. 96–15 TABLE 1

Applicable Federal Rates (AFR) for March 1996

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-Term

AFR

110% AFR

120% AFR

5.05%

5.57%

6.08%

4.99%

5.49%

5.99%

4.96%

5.45%

5.95%

4.94%

5.43%

5.92%

Mid-Term

AFR

110% AFR

120% AFR

150% AFR

175% AFR

5.45%

6.01%

6.56%

8.23%

9.64%

5.38%

5.92%

6.46%

8.07%

9.42%

5.34%

5.88%

6.41%

7.99%

9.31%

5.32%

5.85%

6.37%

7.94%

9.24%

Long-Term

AFR

110% AFR

120% AFR

6.07%

6.69%

7.31%

5.98%

6.58%

7.18%

5.94%

6.53%

7.12%

5.91%

6.49%

7.07%

Quarterly

Monthly

REV. RUL. 96–15 TABLE 2

Adjusted AFR for March 1996

Period for Compounding

Annual

Semiannual

Short-term

adjusted AFR

Mid-term

adjusted AFR

Long-term

adjusted AFR

3.46%

3.43%

3.42%

3.41%

4.26%

4.22%

4.20%

4.18%

5.19%

5.12%

5.09%

5.07%

REV. RUL. 96–15 TABLE 3

Rates Under Section 382 for March 1996

Adjusted federal long-term rate for the current month

5.19%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the

adjusted federal long-term rates for the current month and the prior two months).

5.31%

REV. RUL. 96–15 TABLE 4

Appropriate Percentages Under Section 42(b)(2)

for March 1996

Appropriate percentage for the 70% present value low-income housing credit

8.35%

Appropriate percentage for the 30% present value low-income housing credit

3.58%

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REV. RUL. 96–15 TABLE 5

Rate Under Section 7520 for March 1996

Applicable federal rate for determining the present value of an annuity, an interest for life or a term

of years, or a remainder or reversionary interest

6.6%

Section 1288.—Treatment of Original

Issue Discount on Tax-Exempt

Obligations

SUPPLEMENTARY INFORMATION:

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

page 9.

The collection of information contained in these final regulations has

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under

control number 1545–1449. Responses

to this collection of information are

required to implement the statutory

requirements of section 6050I(g).

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

The time estimates for the reporting

requirements contained in this regulation are reflected in the burden estimates for Form 8300.

Comments concerning the accuracy

of this burden estimate and suggestions

for reducing this burden should be sent

to the Internal Revenue Service, Attn:

IRS Reports Clearance Officer, T:FP,

Washington, DC 20224, and to the

Office of Management and Budget,

Attn: Desk Officer for the Department

of the Treasury, Office of Information

and Regulatory Affairs, Washington,

DC 20503.

Books and records relating to this

collection of information must be retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Section 6050I.—Returns Relating to

Cash Received in Trade or Business,

Etc.

26 CFR 1.6050I–1: Returns relating to cash in

excess of $10,000 received in a trade or

business.

T.D. 8652

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Cash Reporting by Court Clerks

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations concerning the information reporting requirements of Federal and State court clerks upon receipt

of more than $10,000 in cash as bail

for any individual charged with a

specified criminal offense. The final

regulations reflect changes to the law

made by the Violent Crime Control and

Law Enforcement Act of 1994, and

affect court clerks who receive more

than $10,000 in cash as bail.

Paperwork Reduction Act

Background

EFFECTIVE DATE: These regulations

are effective February 13, 1995.

FOR FURTHER INFORMATION

CONTACT: Susie K. Bird, (202)

622-4960 (not a toll-free number).

This document provides final Income

Tax Regulations (26 CFR parts 1 and

602) under section 6050I(g) of the

Internal Revenue Code of 1986 (Code).

This provision was added by section

20415 of the Violent Crime Control

and Law Enforcement Act of 1994 (the

Act)(Public Law 103–322).

On December 15, 1994, the IRS

published in the Federal Register temporary regulations (TD 8572, 59 FR

64572 [1995–1 C.B. 200]) with a crossreference to a notice of proposed

rulemaking (IA–57–94, 59 FR 64635

[1995–1, C.B. 952]).

Written comments responding to the

notice were received. No public hearing

was requested or held. After consideration of all comments, the proposed

regulations are adopted as revised by

this Treasury decision, and the corresponding temporary regulations are removed.

Explanation of Revisions and

Summary of Comments

Under the temporary and proposed

regulations, reporting may be required

when more than $10,000 in cash is

received as bail by a clerk of a Federal

or State court. The temporary and

proposed regulations provide that a

clerk is the clerk’s office or the office,

department, division, branch, or unit of

the court that is authorized to receive

bail. One commentator suggested that

the regulations clarify whether reporting under section 6050I(g) is required

by a clerk if an entity that is not a part

of the court receives bail. In some

jurisdictions, for example, a sheriff

receives bail. The final regulations

provide that if someone other than a

clerk receives bail on behalf of a clerk,

the clerk is treated as receiving the

bail. Thus, the clerk must make the

return of information if the other

requirements of section 6050I(g) are

satisfied.

Under the temporary and proposed

regulations, a statement must be sent to

each payor of bail reporting certain

information, including the ‘‘aggregate

amount of reportable cash received

during the calendar year by the clerk

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who made the information return required by [section 6050I(g)] in all cash

transactions relating to the payor of

bail.’’ The temporary and proposed

regulations reflect the statutory requirement in section 6050I(g)(5)(B) that

clerks provide the aggregate amount of

reportable cash. A commentator asked

whether separately reported amounts

satisfy this aggregate amount requirement. The final regulations clarify that

the aggregate amount requirement can

be satisfied either by sending a single

written statement with an aggregate

amount listed or by furnishing a copy

of each Form 8300 relating to that

payor of bail.

In addition, the final regulations

clarify that, if multiple payments are

made to satisfy bail reportable under

this section and the initial payment

does not exceed $10,000, the initial

payment and subsequent payments must

be aggregated and the information

return required by section 6050I(g)

must be filed by the 15th day after

receipt of the payment that causes the

aggregate amount to exceed $10,000.

However, payments made to satisfy

separate bail requirements are not

required to be aggregated.

Adoption of Amendments to the

Regulations

Special Analyses

§1.6050I–1 Returns relating to cash

in excess of $10,000 received in a

trade or business.

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It has also been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility

Act (5 U.S.C. chapter 6) do not apply to

these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of

the Internal Revenue Code, the notice of

proposed rulemaking preceding these

regulations was submitted to the Chief

Counsel for Advocacy of the Small

Business Administration for comment

on their impact on small businesses.

Drafting Information

The principal author of these regulations is Susie K. Bird, Office of

Assistant Chief Counsel (Income Tax

and Accounting). However, other personnel from the IRS and Treasury

Department participated in their

development.

(2)

(3)

(4)

Accordingly, 26 CFR parts 1 and

602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by removing the

entry for §1.6050I–2T and adding an

entry in numerical order to read as

follows:

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

Section 1.6050I–2 also issued under 26

U.S.C. 6050I. * * *

(5)

(6)

(d)

§§1.6050I–OT and 1.6050I–2T

[Removed]

Par. 2. Sections 1.6050I–0T and

1.6050I–2T are removed.

Par. 3. Sections 1.6050I–0 and

1.6050I–2 are added to read as follows:

§1.6050I–0 Table of contents.

This section lists the major captions

that appear in §§1.6050I–1 and

1.6050I–2.

(a) Reporting requirement.

(1)

In general.

(2) Cash received for the account of another.

(3) Cash received by agents.

(i) General rule.

(ii) Exception.

(iii) Example.

(b) Multiple payments.

(1) Initial payment in excess of

$10,000.

(2) Initial payment of $10,000

or less.

(3) Subsequent payments.

(4) Example.

(1) Cash.

(i) Amounts received prior

to February 3, 1992.

(ii) Amounts received on or

after February 3, 1992.

(iii) Designated reporting

transaction.

(iv) Exception for certain

loans.

(v) Exception for certain installment sales.

(e)

(f)

(g)

(vi) Exception for certain

down payment plans.

(vii) Examples.

Consumer durable.

Collectible.

Travel or entertainment

activity.

Retail sale.

Trade or business.

(7) Transaction.

(8) Recipient.

Exceptions to the reporting requirements of section 6050I.

(1) Receipt of cash by certain

financial institutions.

(2) Receipt of cash by certain

casinos having gross annual

gaming revenue in excess of

$1,000,000.

(i) In general.

(ii) Casinos exempt under

31 CFR 103.45(c).

(iii) Reporting of cash received in a nongaming

business.

(iv) Example.

(3) Receipt of cash not in the

course of the recipient’s

trade or business.

(4) Receipt is made with respect

to a foreign cash transaction.

(i) In general.

(ii) Example.

Time, manner, and form of

reporting.

(1) Time of reporting.

(2) Form of reporting.

(3) Manner of reporting.

(i) Where to file.

(ii) Verification.

(iii) Retention of returns.

Requirement of furnishing

statements.

(1) In general.

(2) Form of statement.

(3) When statement is to be

furnished.

Cross-reference to penalty

provisions.

(1) Failure to file correct information return.

(2) Failure to furnish correct

statement.

(3) Criminal penalties.

§1.6050I–2 Returns relating to cash

in excess of $10,000 received as bail

by court clerks.

(a) Reporting requirement.

(b) Meaning of terms.

reporting.

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(1) Time of reporting.

(i) In general.

(ii) Multiple payments.

(2) Form of reporting.

(3) Manner of reporting.

(i) Where to file.

(ii) Verification of identity.

(d) Requirement to furnish

statements.

(1) Information to Federal

prosecutors.

(i) In general.

(ii) Form of statement.

(2) Information to payors of

bail.

(i) In general.

(ii) Form of statement.

(iii) Aggregate amount.

(e) Cross-reference to penalty

provisions.

(f) Effective date.

§1.6050I–2 Returns relating to cash

in excess of $10,000 received as bail

by court clerks.

(a) Reporting requirement. Any

clerk of a Federal or State court who

receives more than $10,000 in cash as

bail for any individual charged with a

specified criminal offense must make a

return of information with respect to

that cash receipt. For purposes of this

section, a clerk is the clerk’s office or

the office, department, division, branch,

or unit of the court that is authorized to

receive bail. If someone other than a

clerk receives bail on behalf of a clerk,

the clerk is treated as receiving the bail

for purposes of this paragraph (a).

(b) Meaning of terms. The following

definitions apply for purposes of this

section—

Cash means—

(1) The coin and currency of the

United States, or of any other country,

that circulate in and are customarily

used and accepted as money in the

country in which issued; and

(2) A cashier’s check (by whatever

name called, including treasurer’s

check and bank check), bank draft,

traveler’s check, or money order having

a face amount of not more than

$10,000.

Specified criminal offense means—

(1) A Federal criminal offense involving a controlled substance (as

defined in section 802 of title 21 of the

United States Code), provided the

offense is described in Part D of

Subchapter I or Subchapter II of title

21 of the United States Code;

(2) Racketeering (as defined in section 1951, 1952, or 1955 of title 18 of

the United States Code);

(3) Money laundering (as defined in

section 1956 or 1957 of title 18 of the

United States Code); and

(4) Any State criminal offense substantially similar to an offense described in this paragraph (b).

general. The information return required by this section must be filed

with the Internal Revenue Service by

the 15th day after the date the cash bail

is received.

(ii) Multiple payments. If multiple

payments are made to satisfy bail

reportable under this section and the

initial payment does not exceed

$10,000, the initial payment and subsequent payments must be aggregated and

the information return required by this

section must be filed with the Internal

Revenue Service by the 15th day after

receipt of the payment that causes the

aggregate amount to exceed $10,000.

However, if payments are made to

satisfy separate bail requirements, no

aggregation is required. Thus, if in

Month 1 a clerk receives $6,000 in bail

for an individual charged with a

specified criminal offense and later, in

Month 2, receives $7,000 in bail for

that same individual charged with

another specified criminal offense, no

aggregation is required.

(2) Form of reporting. The return of

information required by paragraph (a)

of this section must be made on Form

8300 and must contain the following

information—

(i) The name, address, and taxpayer

identification number (TIN) of the

individual charged with the specified

criminal offense;

(ii) The name, address, and TIN of

each person posting the bail (payor of

bail), other than a person posting bail

who is licensed as a bail bondsman in

the jurisdiction in which the bail is

received;

(iii) The amount of cash received;

(iv) The date the cash was received;

and

(v) Any other information required

by Form 8300 or its instructions.

(3) Manner of reporting—(i) Where

to file. Returns required by this section

must be filed with the Internal Revenue

Service office designated in the instructions for Form 8300. A copy of the in-

formation return required to be filed

under this section must be retained for

five years from the date of filing.

(ii) Verification of identity. A clerk

required to make an information return

under this section must, in accordance

with §1.6050I–1(e)(3)(ii), verify the

identity of each payor of bail listed in

the return.

(d) Requirement to furnish statements—(1) Information to Federal

prosecutors—(i) In general. A clerk

required to make an information return

under this section must furnish a

written statement to the United States

Attorney for the jurisdiction in which

the individual charged with the specified crime resides and the United

States Attorney for the jurisdiction in

which the specified criminal offense

occurred (applicable United States Attorney(s)). The written statement must

be filed with the applicable United

States Attorney(s) by the 15th day after

the date the cash bail is received.

(ii) Form of statement. The written

statement must include the information

required by paragraph (c)(2) of this

section. The requirement of this paragraph (d)(1)(ii) will be satisfied if the

clerk provides to the applicable United

States Attorney(s) a copy of the Form

8300 that is filed with the Internal

Revenue Service pursuant to this

section.

(2) Information to payors of bail—

(i) In general. A clerk required to make

an information return under this section

must furnish a written statement to

each payor of bail whose name is set

forth in a return required by this

section. A statement required under this

paragraph (d)(2) must be furnished to a

payor of bail on or before January 31

of the year following the calendar year

in which the cash is received. A

statement will be considered furnished

to a payor of bail if it is mailed to the

payor’s last known address.

(ii) Form of statement. The statement required by this paragraph (d)(2)

need not follow any particular format,

but must contain the following

information—

(A) The name and address of the

clerk’s office making the return;

(B) The aggregate amount of reportable cash received during the calendar

year by the clerk who made the information return required by this section in all cash transactions relating to

the payor of bail; and

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been reported to the Internal Revenue

Service and the applicable United

States Attorney(s).

(iii) Aggregate amount. The requirement of furnishing the aggregate

amount in paragraph (d)(2)(ii)(B) of

this section will be satisfied if the clerk

provides to the payor of bail either a

single written statement listing the

aggregate amount, or a copy of each

Form 8300 relating to that payor of

bail.

(e) Cross-reference to penalty provisions. See sections 6721 through

6724 for penalties relating to the failure

to comply with the provisions of this

section.

(f) Effective date. This section applies to cash received by court clerks

on or after February 13, 1995.

PART 602—OMB CONTROL

NUMBERS UNDER THE

PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

§602.101 [Amended]

Par. 5. In §602.101, paragraph(c) is

amended by removing the entry

‘‘1.6050I–2T’’ from the table and

adding the entry ‘‘1.6050I–2 . . . . . . .

1545–1449’’ in numerical order in the

table.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved December 12, 1995.

Leslie Samuels,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

December 29, 1995, 8:45 a.m., and published

in the issue of the Federal Register for January

2, 1996, 61 F.R. 6)

Section 6050P.—Returns Relating to

the Cancellation of Indebtedness by

Certain Entities

26 CFR 1.6050P–1: Information reporting for

discharges of indebtedness by certain financial

entities.

T.D. 8654

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

Information Reporting for Discharges

of Indebtedness

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains

final regulations relating to the information reporting requirements of applicable financial entities for discharges of

indebtedness. The final regulations reflect changes to the Internal Revenue

Code of 1986 (Code) made by section

13252 of the Omnibus Budget Reconciliation Act of 1993 (the Act). The

final regulations affect certain financial

institutions and federal executive

agencies.

DATES: These regulations are effective

December 22, 1996.

For dates of applicability, see

§1.6050P–1(h).

FOR FURTHER INFORMATION

CONTACT: Sharon L. Hall (timing

and amount of discharge) at (202)

622-4930 or Michael F. Schmit (other

issues) at (202) 622-4960, both of the

Office of Assistant Chief Counsel

(Income Tax and Accounting). Neither

telephone number is toll-free.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations has

been reviewed and approved by the

Office of Management and Budget in

accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under

control number 1545–1419. Responses

to this collection of information are

required for the IRS to monitor

whether discharged debtors are properly complying with tax laws respecting cancellations of indebtedness.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

The time estimates for the reporting

requirements contained in these final

regulations are reflected in the burden

estimates for Form 1099–C.

Comments concerning the accuracy

of this burden estimate and suggestions

for reducing this burden should be sent

to the Internal Revenue Service, Attn:

IRS Reports Clearance Officer, T:FP,

Washington, DC 20224, and to the

Office of Management and Budget,

Attn: Desk Officer for the Department

of Treasury, Office of Information and

Regulatory Affairs, Washington, DC

20503.

Books or records relating to this

collection of information must be retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax information are

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

6103.

Background

Section 6050P was added to the

Code by section 13252 of the Act.

Section 6050P requires certain financial

entities to report discharges of indebtedness of $600 or more during any

calendar year, and requires reporting

entities to make a return at such time

and in such form as the Secretary may

by regulations prescribe.

On December 27, 1993, temporary

regulations (TD 8506 [1994–1 C.B.

286]) relating to the reporting of

discharge of indebtedness under section

6050P were published in the Federal

proposed rulemaking (IA–63–93

[1994–1 C.B. 803]) cross-referencing

the temporary regulations was published in the Federal Register for the

same day (58 FR 68337).

Written comments were received in

response to the notice of proposed

rulemaking. Fourteen speakers provided

testimony at a public hearing held on

March 30, 1994. In response to the

comments and testimony, the IRS and

Treasury issued Notice 94–73 (1994–2

C.B. 553), providing interim relief from

penalties for failure to comply with

certain of the reporting requirements of

the temporary regulations. The Notice

provided that, with respect to a discharge of indebtedness occurring before

the later of January 1, 1995, or the

effective date of the final regulations

under section 6050P, no penalties

would be imposed for the failure to

report a discharge of indebtedness:

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(a) Under title 11 of the United

States Code;

(b) Resulting from the expiration of

the statute of limitations for collection

of an indebtedness;

in connection with a lending transaction; or

(d) For a person other than the

primary (or first-named) debtor in the

case of indebtedness incurred before

January 1, 1995, that involves multiple

debtors.

After consideration of all the comments, the proposed regulations under

section 6050P are adopted, as revised

by this Treasury decision, effective for

discharges of indebtedness occurring

after December 21, 1996. The temporary regulations and interim relief from

penalties provided in Notice 94–73

remain in effect through December 21,

1996, at which time the temporary

regulations are removed. However, no

penalties will be imposed for the

failure to report a discharge of indebtedness occurring after December

21, 1996, and before January 1, 1997,

if the failure to report would have

qualified for penalty relief under Notice

94–73 had the discharge occurred prior

to December 22, 1996. Additionally,

the final regulations provide that a

financial entity subject to section

6050P may, at its discretion, apply any

of the provisions of the final regulations to any discharge of indebtedness

occurring on or after January 1, 1996,

and before December 22, 1996. The

comments and revisions to the proposed regulations are discussed below.

At the request of commentators, the

IRS and Treasury are considering the

issuance of guidance providing uniform

procedures for requesting extensions of

time within which to file information

returns with the IRS and related

statements to taxpayers. This guidance,

if issued, would apply to the information reporting requirements set forth in

this Treasury decision.

Explanation of Revisions and

Summary of Comments

1. Identifiable events

Comments were received relating to

the issue of when an indebtedness is

discharged for purposes of section

6050P. Under the temporary and proposed regulations, indebtedness is con-

sidered discharged, and reporting is

required, upon the occurrence of an

identifiable event indicating that the

indebtedness will never have to be

repaid by the debtor, taking into

account all of the facts and circumstances. The temporary and proposed

regulations list three identifiable events,

but make clear that the three items do

not represent an exclusive list of events

requiring reporting.

Commentators objected to this facts

and circumstances test, and stated that

the final regulations should instead

provide an exclusive list of reporting

events. The comments indicated that

creditors do not have the resources to

weigh all the facts and circumstances

in order to determine whether a debt

will never have to be repaid by the

debtor.

In response to these comments, the

final regulations provide that, for purposes of section 6050P, indebtedness is

considered discharged, and reporting is

required, only upon the occurrence of

certain identifiable events. The regulations contain an exclusive list of eight

identifiable events, and provide that, in

the absence of the occurrence of one of

these events, a Form 1099–C is not

required to be filed.

A. Discharges of indebtedness in

bankruptcy

Commentators objected to the requirement in the temporary and proposed regulations relating to the reporting of a discharge of indebtedness in

bankruptcy. The commentators stated

that the obligation to report debts

discharged in bankruptcy was extremely burdensome due to the large

number of information returns that

these bankruptcies would generate.

These commentators also stated that

some lenders do not receive information regarding a debtor’s bankruptcy

discharge in the normal course of

business.

Commentators also objected to the

requirement to report debts discharged

in bankruptcy because income from a

discharge in bankruptcy is excludable

under section 108(a)(1)(A). Additionally, while acknowledging that section 108(b) generally requires the reduction of tax attributes for amounts of

cancellation of indebtedness income

excluded under section 108(a), these

commentators indicated that the majority of bankruptcies involve consumer

debt, the discharge of which is unlikely

to give rise to attribute reduction. Thus,

they contended that the reporting of

consumer debts discharged in bankruptcy will not further the purposes of

section 6050P.

Finally, based on language in section

6050P, commentators contended that

the IRS and Treasury lacked authority

to require reporting in bankruptcy.

Under section 6050P(a), ‘‘any applicable financial entity which discharges . . .

the indebtedness of any person’’ is

subject to the rules of section 6050P.

Commentators argued that creditors

should not be subject to the rules of

section 6050P for debts discharged in

bankruptcy because it is the bankruptcy

court, not the creditor, that discharges

the debt.

In promulgating the temporary regulations, the IRS and Treasury fully

considered the issue of whether bankruptcy discharges could be excluded

from the reporting requirement. The

legislative history to section 6050P

states that ‘‘information returns are

required regardless of whether the

debtor is subject to tax on the discharged debt. For example, Congress

does not expect reporting financial

institutions and agencies to determine

whether the debtor qualifies for an

exclusion under section 108.’’ H.R.

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

Sess. 1, 671 (1993). This language

indicates that Congress intended that

discharges resulting in excluded income

(such as bankruptcy discharges) be

reported.

Accordingly, the IRS and Treasury

do not believe that a requirement to

report debts discharged in bankruptcy

is outside the scope of section 6050P.

In enacting section 6050P, Congress

intended to increase debtor compliance

in reporting discharges of indebtedness.

With respect to the tax consequences to

the debtor, it generally makes no

difference whether the debt is voluntarily discharged by the financial entity,

or discharged by a court order. Further,

the creditor is receiving an amount that

is less than the amount of the outstanding indebtedness whether the debt is

voluntarily discharged or ordered to be

discharged by a court. Thus, the

language ‘‘any applicable financial entity which discharges . . . indebtedness’’

should not be narrowly construed to

exclude instances in which a debt is

ordered to be discharged or is discharged by operation of law.

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The IRS and Treasury believe that an

objective of the legislative history

quoted above is that information reporting under section 6050P not impose an

undue burden on filers by requiring

determinations regarding whether discharges result in income to debtors.

However, the legislative history does

not preclude an exception for certain

discharges in appropriate circumstances. Accordingly, in response to the

above concerns of the commentators,

the final regulations provide an exception from reporting in the case of

certain bankruptcy discharges. Under

the final regulations, indebtedness discharged in bankruptcy is required to be

reported only if the creditor knows that

the debtor incurred the indebtedness for

business or investment purposes.

Therefore, reporting is not required for

consumer debts discharged in bankruptcy or in cases in which the creditor

is not aware of the purpose for the

borrowing or that purpose is not clear.

Information relating to whether a debt

was incurred for business or investment

purposes will be available to a creditor

in some cases, such as those in which

loan documents require the borrower to

state the purpose of the loan. This

limited reporting of debts discharged in

bankruptcy will exclude information

returns relating to consumer debt, while

retaining reporting for those discharges

most likely to involve the reduction of

tax attributes under section 108(b).

Pursuant to Notice 94–73, no penalties

will be imposed for the failure to report

any indebtedness discharged before

December 22, 1996, in bankruptcy.

Additionally, no penalties will be imposed for the failure to report any

indebtedness discharged after December 21, 1996, and before January 1,

1997, in bankruptcy, since the failure

to report would have qualified for

penalty relief under Notice 94-73 had

the discharge occurred prior to December 22, 1996.

B. Expiration of statute of

limitations for collection

Under the temporary and proposed

regulations, an identifiable event includes a cancellation or extinguishment

by operation of law that renders a debt

unenforceable, such as the expiration of

the statute of limitations for collection

of an indebtedness.

Comments were received relating to

the requirement to report indebtedness

discharged as a result of the expiration

of the statute of limitations. Commentators argued that expiration of the

statute of limitations should not be an

identifiable event because of the recordkeeping and other administrative

burdens that are created by such a rule.

Commentators noted that the statute of

limitations for collection of debt varies

from state to state, and that debtors

may relocate and be subject to the rules

of multiple jurisdictions. Further, they

contended, an isolated payment by a

debtor will frequently restart the running of the statute of limitations.

According to the commentators, making lenders track the expiration of the

statute of limitations for reporting

purposes would require special computer applications not needed for any

other creditor function, require legal

expertise in the collection department,

and be very costly.

As a legal matter, commentators

argued that the statute of limitations is

an affirmative defense, and affects only

judicial enforceability of the obligation.

Most commentators indicated that collection activity routinely continues after

the expiration of the statute of limitations. The temporary and proposed

regulations list collection activity on

the part of the creditor as a factor to be

considered in determining whether debt

has been discharged. Thus, even under

the temporary and proposed regulations, expiration of the statute of

limitations would rarely mark the date

on which debt is considered discharged,

because collection activity routinely

continues after that date.

In response to these comments, the

final regulations provide that expiration

of the statute of limitations for collection of an indebtedness is an identifiable event for which a Form 1099–C is

required to be filed only if, and at such

time as, a debtor’s affirmative defense

of the expiration of the statute of

limitations is upheld in a final judgment or decision of a judicial proceeding, and the period for appealing the

judgment or decision has expired.

C. Other discharges by operation

of law

As stated above, the temporary and

proposed regulations provide that an

identifiable event includes a cancellation or extinguishment by operation of

law that renders a debt unenforceable

(such as the expiration of the statute of

limitations for collection of the in-

debtedness). The temporary and proposed regulations do not specify all of

the circumstances requiring reporting

under this identifiable event.

In order to further the goal of

providing an exclusive list of reporting

events, the final regulations specify

those discharges occurring by operation

of law that are required to be reported

under section 6050P. In addition to the

statute of limitations identifiable event

previously discussed, the events relating to operation of law that must be

reported are (i) a cancellation or

extinguishment of an indebtedness that

renders a debt unenforceable in a

receivership, foreclosure, or similar

proceeding in a federal or State court,

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

(ii) a cancellation or extinguishment of

an indebtedness upon the expiration of

a statutory period for filing a claim or

commencing a deficiency judgment

proceeding; (iii) a cancellation or extinguishment of an indebtedness that

renders a debt unenforceable pursuant

to a probate or similar proceeding; and

(iv) a cancellation or extinguishment of

an indebtedness pursuant to an election

of foreclosure remedies by a creditor

that statutorily extinguishes or bars the

creditor’s right to pursue collection of

the indebtedness. This final event relating to an election of foreclosure

remedies will require reporting only

where a mortgage lender or holder is

barred by local law from pursuing a

deficiency judgment or note collection

proceeding following exercise of a

power of sale contained in a mortgage

or deed of trust.

A discharge of indebtedness occurring by operation of law not enumerated above is not required to be

reported under the final regulations.

D. Collection activity

Commentators indicated that the temporary and proposed regulations were

unclear regarding the effect of continuing collection activity on the requirement to report under section 6050P.

The temporary and proposed regulations provide that collection activity is

one of the facts and circumstances to

be taken into account in determining

whether a discharge of indebtedness

has occurred. The commentators argued

that the final regulations should clarify

that reporting is not required prior to

termination of collection efforts on the

part of the creditor.

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In response to these comments, the

final regulations address the effect of

collection efforts on the requirement to

report under section 6050P. Under the

final regulations, an identifiable event

occurs and reporting is required upon a

decision by the creditor, or the application of a defined policy of the creditor,

to discontinue collection activity and

discharge indebtedness. For this purpose, a defined policy may be either a

written policy or a creditor’s

established business practice.

Additionally, under the final regulations, there is a rebuttable presumption

that an identifiable event has occurred

during a calendar year if a creditor has

not received a payment on an indebtedness at any time during a 36-month

testing period ending at the close of the

year. This presumption is rebutted by

the creditor if the creditor (or a thirdparty collection agency on behalf of the

creditor) has engaged in significant,

bona fide collection activity at any time

during the 12-month period ending at

the close of the calendar year, or if

facts and circumstances existing as of

January 31 of the calendar year following expiration of the 36-month testing

period indicate that the indebtedness

has not been discharged. Under the

final regulations, significant, bona fide

collection activity does not include

merely nominal or ministerial collection action, such as an automated

mailing. Further, facts and circumstances indicating that an indebtedness

has not been discharged include the

existence of a lien relating to the

indebtedness against the debtor (to the

extent of the value of the security), or

the sale or packaging for sale of the

indebtedness by the creditor.

E. Other reportable discharges

Under the temporary and proposed

regulations, an identifiable event includes an agreement between the applicable financial entity and the debtor to

discharge an indebtedness, provided

that the last event necessary to effectuate the discharge has occurred. The

final regulations retain this reporting

requirement, restating that an identifiable event includes a discharge of indebtedness pursuant to an agreement

between an applicable financial entity

and a debtor to discharge indebtedness

at less than full consideration. As under

the temporary regulations, this identifiable event will not occur until the last

event necessary to effectuate the discharge has occurred.

The final regulations also provide

that a discharge of indebtedness occurring before the date on which an

identifiable event occurs may, at the

creditor’s discretion, be reported under

section 6050P.

report an amount other than principal

in the case of indebtedness arising in

connection with a lending transaction.

2. Definition of indebtedness

Commentators also argued that, like

interest, penalties, fees, administrative

costs, and fines are not tracked by

lenders once an indebtedness is written

off on the books of the lender. Thus,

they contended, tracking these amounts

would require additional computer programming and recordkeeping, and

would be very costly. With respect to

lending transactions, the IRS and

Treasury have concluded that the benefits that would be derived from requiring the reporting of penalties, fees,

administrative costs, and fines are

outweighed by the burden associated

with the requirement. Accordingly, the

final regulations provide that, in the

case of a lending transaction, only

discharged amounts of stated principal

are required to be reported. In the case

of non-lending transactions, the amount

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

reportable if discharged.

Commentators objected to the broad

definition of indebtedness provided in

the temporary and proposed regulations. The temporary and proposed

regulations provide that, for purposes

of reporting the amount of indebtedness

discharged, an indebtedness is any

amount owed to the creditor including

principal, interest, penalties, fees, administrative costs, and fines, to the

extent the amount constitutes an indebtedness under section 61(a)(12).

Commentators argued that this definition is overly broad and should be

amended to include principal only (or

the primary indebtedness in the case of

a non-lending transaction). In response

to these comments, the final regulations

provide certain exceptions relating to

the reporting of amounts other than

stated principal.

A. Reporting of interest

Commentators offered two main objections to the reporting of interest.

First, commentators stated that reporting interest was burdensome because

interest is not tracked by lenders once

indebtedness is written off or placed on

nonaccrual status on the lender’s

books. Second, commentators suggested that reporting of interest would

be of marginal benefit to the IRS

because in many cases discharged

interest may be excluded from gross

income under sections 108(e)(2) and

111.

In response to these comments, and

in an effort to reduce the information

reporting burden on affected filers, the

final regulations do not require the

reporting of amounts of discharged

interest (whether or not arising in

connection with a lending transaction),

despite the fact that some discharged

interest will give rise to gross income.

However, at the option of the applicable financial entity, interest may be

included in the amount reported. Additionally, as provided in Notice 94–73,

in the case of a discharge of indebtedness before December 22, 1996, no

penalties will be imposed for failure to

B. Penalties, fees, administrative

costs, and fines

3. Reporting for multiple debtors

Commentators recommended that the

multiple debtor rules of the temporary

and proposed regulations be amended

so that reporting is required only with

respect to the primary or first-named

debtor on the lender’s account. The

rationale for this approach is that, in

general, lenders track loans involving

multiple debtors only by the name of

the borrower of record, and thus, the

information required to be reported

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

address, and taxpayer identification

number (TIN)) for debtors other than

the primary debtor is generally not

available to lenders. In addition, the

commentators pointed out that most

other information return regulations

require reporting only with respect to a

single taxpayer (e.g., §1.6050H–1 requires reporting only with respect to

one designated interest payor even if

multiple debtors are liable on a mortgage). Finally, these commentators

stated that the majority of multiple

debtor situations involve a husband and

wife who will likely file a joint return,

and therefore, requiring reporting for

each debtor is not necessary.

The IRS and Treasury believe, however, that requiring reporting for multi-

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ple debtors is consistent with section

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

reporting of a name, address, and TIN

is required for each person whose

indebtedness was discharged. Further,

while reporting with respect to only

one taxpayer is required under many

information reporting sections of the

Code, section 6050J, which is comparable to section 6050P in that it relates

to the reporting of acquisitions and

abandonments of property securing indebtedness, requires reporting for each

person who is a borrower with respect

to the secured indebtedness. Moreover,

in Notice 94–73, the IRS addressed the

concerns of commentators by providing

that no penalties would be imposed for

failure to report a discharge of indebtedness for other than the primary

(or first-named) debtor in the case of

indebtedness incurred before January 1,

1995, thus allowing creditors time to

begin collecting the necessary information for all debtors in the case of

indebtedness incurred after December

31, 1994. The final regulations incorporate this relief.

In order to reduce the information

reporting burden on applicable financial

entities, the final regulations contain

two exceptions relating to multiple

debtor reporting. In the case of indebtedness of less than $10,000 incurred on or after January 1, 1995, that

involves multiple debtors, reporting is

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

duplication, the final regulations

provide a husband/wife exception to

the requirement for reporting in the

case of multiple debtors. Under this

exception, only one Form 1099–C must

be prepared if the creditor knows, or

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

at the same address when the indebtedness was incurred, and does not know

or have reason to know that such

circumstances have changed at the time

of the discharge. These two exceptions

apply to discharges of indebtedness

after December 31, 1994.

The final regulations retain the rule

of the temporary and proposed regulations relating to the amount to be

reported with respect to each joint and

several debtor.

4. Multiple creditors/lending pools/

REMICs

Commentators indicated that further

guidance should be provided in the

final regulations regarding section

6050P reporting obligations in the case

of participation loans, lending pools,

and other multiple-creditor situations.

In response to these comments, the

final regulations provide a general rule

that, in the case of an indebtedness

owned (or treated as owned for federal

income tax purposes) by more than one

creditor, each creditor that is an applicable financial entity must comply with

the reporting requirements of this section with respect to any discharge of

indebtedness of $600 or more allocable

to such creditor. A creditor will be

considered to have complied with the

requirements of this section if a lead

bank or other designee of the creditor

complies on its behalf.

Comments were received advocating

an exception from reporting for discharges of certain widely-owned securitized indebtedness. The commentators reasoned that the owners of

widely-held securitized indebtedness

will generally have no knowledge

regarding when a discharge occurs, or

the amount of discharged debt allocable

to each owner. Further, commentators

suggested that it is likely that a

significant portion of such securitized

indebtedness may be owned by persons

that are not applicable financial entities

and, therefore, are not subject to

section 6050P.

The IRS and Treasury believe, however, that it would be inconsistent with

the purpose of section 6050P to

provide a general exception from reporting for such securitized indebtedness. Section 6050P is intended to

increase the likelihood that a debtor

will comply with the tax laws relating

to discharge of indebtedness by requiring the reporting of that event to the

IRS. The fact that indebtedness has

been securitized and sold to numerous

owners generally does not affect the

tax consequences to the debtor upon a

discharge of that indebtedness. Thus,

the IRS and Treasury do not believe

that a discharge of indebtedness should

be excepted from section 6050P reporting simply because that indebtedness

was part of a securitization

arrangement.

Commentators also argued that the

discharge of an indebtedness held by a

real estate mortgage investment conduit

(REMIC) should not be required to be

reported under section 6050P. Because

a REMIC is not an applicable financial

entity, commentators contended that

section 6050P should not apply upon a

discharge of indebtedness held by a

REMIC.

However, section 860F(e) provides

that, for purposes of subtitle F of the

Code (Procedure and Administration,

including section 6050P), a REMIC is

treated as a partnership and holders of

residual interests in the REMIC are

treated as partners. Under the final

regulations, indebtedness owned by a

partnership is treated as owned by the

partners. Thus, arguably a discharge of

REMIC indebtedness should be treated

similar to partnership indebtedness and

thus should be reported to the extent

the residual owners of the REMIC are

applicable financial entities.

Because the IRS and Treasury believe that further study of these issues

is warranted, the final regulations reserve on the application of section

6050P to discharges of indebtedness

held (1) in a pass-through securitized

indebtedness arrangement, or (2) by a

REMIC. For this purpose, a passthrough securitized indebtedness arrangement is any arrangement whereby

one or more debt obligations are

pooled and held for twenty or more

persons whose interests in the debt

obligations are undivided co-ownership

interests that are freely transferrable.

Co-ownership interests that are actively

traded personal property (as defined in

§1.1092(d)–1) are presumed to be

freely transferrable and held by twenty

or more persons. Pending issuance of

further guidance, no penalties will be

imposed for failure to report a discharge of indebtedness held under these

circumstances. This relief from penalties does not extend to arrangements

formed for a principal purpose of

avoiding the reporting requirements of

this section. The IRS and Treasury

welcome comments regarding compliance with section 6050P in the case

of pass-through securitized indebtedness arrangements and REMICs.

5. Coordination of Form 1099–A and

Form 1099–C

The legislative history to section

6050P indicates that Congress intended

that the IRS and Treasury coordinate

reporting under section 6050P with the

reporting required under section 6050J.

Section 6050J requires information relating to foreclosures and abandonments of

secured property to be reported on Form

1099–A.

The final regulations provide that if,

in the same calendar year, a discharge

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of indebtedness reportable under section 6050P occurs in connection with a

foreclosure or abandonment of secured

property reportable under section

6050J, it is not necessary to file both a

Form 1099–A and a Form 1099–C for

the same debtor. Under the final

regulations, the filing requirements of

section 6050J will be satisfied with

respect to a debtor if, in lieu of filing a

Form 1099–A, a Form 1099–C is filed

in accordance with the instructions for

the filing of that form. This coordinated filing provision applies to discharges of indebtedness after December

31, 1994.

6. Direct or indirect subsidiary

Commentators requested that the final regulations include a definition of a

direct or indirect subsidiary for purposes of section 6050P. Section

6050P(c)(1)(C) provides that the definition of applicable financial entity includes a direct or indirect subsidiary of

an entity described in section 6050P(c)(1)(A). In response to these comments,

the final regulations provide that, for

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

term direct or indirect subsidiary means

a corporation in a chain of corporations

beginning with the entity described in

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

percent of the total combined voting

power of all classes of stock entitled to

vote, or at least 50 percent of the total

value of all classes of stock, of such

corporation is directly owned by the

entity described in section 6050P(c)(1)(A), or by one or more other

corporations in the chain.

7. Other exceptions from reporting

The IRS and Treasury received numerous comments advocating that the

final regulations include exceptions

from reporting with respect to certain

discharges of indebtedness.

A. Reporting for non-U.S. debtors

Comments were received relating to

the inclusion in final regulations of an

exception for reporting discharges of

indebtedness of certain foreign debtors.

These comments noted that, in some

cases, discharges of indebtedness that

involve such debtors will not result in

income that is taxable in the United

States.

On the other hand, there clearly are

cases in which a foreign person may be

subject to U.S. tax with respect to a

discharge of indebtedness. Because

there is no clear guidance on which

financial institutions may rely for purposes of determining whether a foreign

person would be subject to U.S. tax

with respect to cancellation of indebtedness income, it is not appropriate

to provide a general exception for

foreign persons. However, the IRS and

Treasury are continuing to study the

issue of whether reporting is necessary

in the case of foreign debtors whose

debt is discharged by foreign branches

of U.S. financial institutions. Accordingly, pending the issuance of further

guidance, no penalties will be imposed

if an applicable financial entity fails to

report a discharge of indebtedness of a

foreign debtor by a foreign branch of

the entity.

B. Reporting where debt is

acquired by related persons

Comments were received requesting

that the final regulations clarify

whether reporting is required in circumstances in which there is a deemed

discharge of indebtedness pursuant to

the regulations under section 108(e)(4).

Section 108(e)(4) and implementing

regulations (see §1.108–2) provide that

the acquisition of outstanding indebtedness by a person related to the debtor

from a person who is not related to the

debtor is treated as if the debtor had

acquired the indebtedness and may

result in a realization by the debtor of

income from discharge of indebtedness.

Commentators indicated that applicable

financial entities often will be unaware

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

have been satisfied and that the

debtor’s indebtedness is considered to

have been discharged. In response to

these comments, the final regulations

provide that no reporting is required

under section 6050P in the case of a

discharge of indebtedness under section

108(e)(4) unless the disposition of the

indebtedness by the creditor was made

with a view to avoiding the reporting

requirements of this section.

C. Reporting for guarantors of

indebtedness

Commentators also requested guidance on whether, and under what

circumstances, a Form 1099–C must be

filed for a guarantor of an indebtedness

when the underlying indebtedness is

discharged. The final regulations provide that, in the case of guaranteed

debt, a guarantor is not treated as a

debtor for purposes of reporting under

section 6050P. Thus, reporting for

guarantors is not required.

D. Reporting for non-lending

transactions

A number of comments were received advocating an exception in the

final regulations for discharges of

indebtedness where the indebtedness is

incurred in a non-lending transaction.

Advocates of this exception argued that

the primary reason applicable financial

entities, and not all trade or businesses,

were made subject to section 6050P is

that financial entities have extensive

involvement in lending transactions

where the majority of discharges of

indebtedness will occur. Commentators

argued that when an applicable financial entity is a creditor as a result of a

non-lending transaction, it should be

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

to that indebtedness, and not be subject

to section 6050P if a discharge occurs.

Neither the language of section

6050P nor its legislative history

provides any indication that Congress

intended for discharges of non-lending

indebtedness to be excluded from reporting. Moreover, it makes no difference in determining whether a

debtor has income under section

61(a)(12) that the indebtedness was

incurred in a non-lending transaction.

Accordingly, the final regulations do

not adopt this suggestion.

E. Reporting of disputed liabilities

The temporary and proposed regulations do not address the reporting

requirements under section 6050P in

the case of the settlement of a disputed

liability. The preamble to the temporary regulations solicited public comment relating to this issue. Several

commentators urged that the final

regulations include an exception from

reporting for settlements of bona fide

disputed liabilities.

The determination regarding whether

the settlement of a disputed liability

results in discharge of indebtedness

income under section 61(a)(12) is

inherently factual. Thus, it continues to

be the position of the IRS and Treasury

that this issue should be addressed on a

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case-by-case basis, rather than by these

final regulations. Therefore, the final

regulations do not provide an exception

from reporting for disputed liabilities.

Instead, resolution of the question of

whether there may have been a discharge of indebtedness reportable under

this section remains the obligation of

the applicable financial entity. The IRS

and Treasury recognize that a creditor

and debtor may take inconsistent positions on this issue. The IRS does not

intend to impose penalties for good

faith failures to report settlements that

constitute discharges of indebtedness.

8. Miscellaneous comments

Comments were also received relating to whether applicable financial

entities have any information reporting

obligations in instances where payments are received on previously discharged debts. In response to those

inquiries, the final regulations clarify

that no additional reporting or Form

1099–C correction is required if a

creditor receives a payment of all or a

portion of a discharged debt that has

been reported to the IRS for a prior

calendar year.

Comments were received respecting

the TIN solicitation requirements of the

temporary and proposed regulations. In

response to those comments, the final

regulations provide that a reasonable

effort (rather than all reasonable

efforts) must be made to obtain the

correct name/TIN combination of the

person whose indebtedness is discharged.

The IRS and Treasury received a

number of other comments in addition

to those summarized above. Some of

the suggestions contained in the comments have been adopted in the final

regulations. Other suggested changes

were not adopted primarily because

those suggestions were inconsistent

with the purpose of the statute and its

legislative history.

apply to these regulations, and, therefore, a Regulatory Flexibility Analysis

is not required. Pursuant to section

7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking

preceding these regulations was submitted to the Chief Counsel for Advocacy

of the Small Business Administration

for comment on its impact on small

business.

Drafting Information

The principal authors of these regulations are Sharon L. Hall and Michael F. Schmit, Office of the Assistant

Chief Counsel (Income Tax and Accounting), IRS. However, other personnel from the IRS and Treasury Department participated in their

development.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR Parts 1 and

602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by removing the

entry for §1.6050P–1T and adding an

entry in numerical order to read as

follows:

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

Section 1.6050P–1 also issued under 26

U.S.C. 6050P. * * *

Par. 2. Sections 1.6050P–0 and

1.6050P–1 are added to read as

follows:

§1.6050P–0 Table of contents.

This section lists the major captions

that appear in §1.6050P–1.

§1.6050P–1 Information reporting for

discharges of indebtedness by certain

financial entities.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It also has been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not

(a) Reporting requirement.

(1) In general.

(2) No aggregation.

(3) Amounts not includible in

income.

(4) Time and place for

reporting.

(i) In general.

(ii) Indebtedness discharged

in bankruptcy.

(b) Date of discharge.

(1) In general.

(2) Identifiable events.

(i) In general.

(ii) Statute of limitations.

(iii) Decision to discontinue

collection activity;

creditor’s defined

policy.

(iv) Expiration of nonpayment testing period.

(3) Permitted reporting.

(d) Exceptions from reporting

requirement.

(1) Certain bankruptcy

discharges.

(i) In general.

(ii) Business or investment

debt.

(2) Interest.

(3) Non-principal amounts in

lending transactions.

(4) Indebtedness of foreign persons held by foreign

branches of U.S. financial

institutions.

(i) Reporting requirements.

(ii) Definition.

(5) Acquisition of indebtedness

by related party.

(6) Releases.

(7) Guarantors and sureties.

(e) Additional rules.

(1) Multiple debtors.

(i) In general.

(ii) Amount to be reported.

(2) Multiple creditors.

(i) In general.

(ii) Partnerships.

(iii) Pass-through securitized

indebtedness

arrangement.

(A) R e p o r t i n g r e quirements.

(B) Definition.

(iv) REMICs.

(3) Coordination with reporting

under section 6050J.

(4) Direct or indirect subsidiary.

(5) Use of magnetic media.

(6) TIN solicitation requirement.

(i) In general.

(ii) Manner of soliciting

TIN.

(7) Recordkeeping requirements.

(8) No multiple reporting.

(f) Requirement to furnish statement.

(1) In general.

(2) Furnishing copy of Form

1099–C.

(3) Time and place for furnishing statement.

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(g) Penalties.

(h) Effective dates.

(1) In general.

(2) Earlier application.

§1.6050P–1 Information reporting for

discharges of indebtedness by certain

financial entities.

(a) Reporting requirement—(1) In

general. Except as provided in paragraph (d) of this section, any applicable

financial entity (as defined in section

6050P(c)(1)) that discharges an indebtedness of any person (within the

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

least $600 during a calendar year must

file an information return on Form

1099–C with the Internal Revenue

Service. Solely for purposes of the

reporting requirements of section

6050P and this section, a discharge of

indebtedness is deemed to have occurred, except as provided in paragraph

(b)(3) of this section, if and only if

there has occurred an identifiable event

described in paragraph (b)(2) of this

section, whether or not an actual

discharge of indebtedness has occurred

on or before the date on which the

identifiable event has occurred. The

return must include the following

information—

(i) The name, address, and taxpayer

identification number (TIN), as defined

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

for which there was an identifiable

event during the calendar year;

(ii) The date on which the identifiable event occurred, as described in

paragraph (b) of this section;

(iii) The amount of indebtedness

discharged, as described in paragraph

(iv) An indication whether the identifiable event was a discharge of

indebtedness in a bankruptcy, if known;

and

(v) Any other information required

by Form 1099–C or its instructions, or

current revenue procedures.

(2) No aggregation. For purposes of

reporting under this section, multiple

discharges of indebtedness of less than

$600 are not required to be aggregated

unless such separate discharges are

pursuant to a plan to evade the

reporting requirements of this section.

(3) Amounts not includible in income. Except as otherwise provided in

this section, discharged indebtedness

must be reported regardless of whether

the debtor is subject to tax on the

discharged debt under sections 61 and

108 or otherwise by applicable law.

(4) Time and place for reporting—

(i) In general. Except as provided in

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

returns required by this section must be

filed with the Internal Revenue Service

office designated in the instructions for

Form 1099–C on or before February 28

of the year following the calendar year

in which the identifiable event occurs.

(ii) Indebtedness discharged in

bankruptcy. Indebtedness discharged in

bankruptcy that is required to be

reported under this section must be

reported for the later of the calendar

year in which the amount of discharged

indebtedness first becomes ascertainable, or the calendar year in which the

identifiable event occurs.

(b) Date of discharge—(1) In general. Solely for purposes of this section, except as provided in paragraph

(b)(3) of this section, indebtedness is

discharged on the date of the occurrence of an identifiable event specified

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

(2) Identifiable events—(i) In general. An identifiable event is—

(A) A discharge of indebtedness under title 11 of the United States Code

(bankruptcy);

(B) A cancellation or extinguishment

of an indebtedness that renders a debt

unenforceable in a receivership, foreclosure, or similar proceeding in a

federal or State court, as described in

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

discharge described in paragraph

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

of an indebtedness upon the expiration

of the statute of limitations for collection of an indebtedness, subject to the

limitations described in paragraph

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

expiration of a statutory period for

filing a claim or commencing a deficiency judgment proceeding;

(D) A cancellation or extinguishment

of an indebtedness pursuant to an

election of foreclosure remedies by a

creditor that statutorily extinguishes or

bars the creditor’s right to pursue

collection of the indebtedness;

(E) A cancellation or extinguishment

of an indebtedness that renders a debt

unenforceable pursuant to a probate or

similar proceeding;

(F) A discharge of indebtedness pursuant to an agreement between an

applicable financial entity and a debtor

to discharge indebtedness at less than

full consideration;

(G) A discharge of indebtedness pursuant to a decision by the creditor, or

the application of a defined policy of

the creditor, to discontinue collection

activity and discharge debt; or

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

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

(ii) Statute of limitations. In the case

of an expiration of the statute of

limitations for collection of an indebtedness, an identifiable event occurs

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

section only if, and at such time as, a

debtor’s affirmative statute of limitations defense is upheld in a final

judgment or decision of a judicial proceeding, and the period for appealing

the judgment or decision has expired.

(iii) Decision to discontinue collection activity; creditor’s defined policy.

For purposes of the identifiable event

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

this section, a creditor’s defined policy

includes both a written policy of the

creditor and the creditor’s established

business practice. Thus, for example, a

creditor’s established practice to discontinue collection activity and abandon debts upon expiration of a particular non-payment period is considered a

defined policy for purposes of paragraph (b)(2)(i)(G) of this section.

(iv) Expiration of non-payment testing period. There is a rebuttable

presumption that an identifiable event

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

section has occurred during a calendar

year if a creditor has not received a

payment on an indebtedness at any

time during a testing period (as defined

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

the close of the year. The testing period

is a 36-month period increased by the

number of calendar months during all

or part of which the creditor was

precluded from engaging in collection

activity by a stay in bankruptcy or

similar bar under state or local law.

The presumption that an identifiable

event has occurred may be rebutted by

the creditor if the creditor (or a thirdparty collection agency on behalf of the

creditor) has engaged in significant,

bona fide collection activity at any time

during the 12-month period ending at

the close of the calendar year, or if

facts and circumstances existing as of

January 31 of the calendar year following expiration of the 36-month period

indicate that the indebtedness has not

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been discharged. For purposes of this

paragraph (b)(2)(iv)—

(A) Significant, bona fide collection

activity does not include merely nominal or ministerial collection action,

such as an automated mailing;

(B) Facts and circumstances indicating that an indebtedness has not been

discharged include the existence of a

lien relating to the indebtedness against

the debtor (to the extent of the value of

the security), or the sale or packaging

for sale of the indebtedness by the

creditor; and

event described in paragraph (b)(2)(i)(H) of this section occur prior to

December 31, 1997.

(3) Permitted reporting. If a discharge of indebtedness occurs before

the date on which an identifiable event

occurs, the discharge may, at the

creditor’s discretion, be reported under

this section.

this section, indebtedness means any

amount owed to an applicable financial

entity, including stated principal, fees,

stated interest, penalties, administrative

costs and fines. The amount of indebtedness discharged may represent

all, or only a part, of the total amount

owed to the applicable financial entity.

(d) Exceptions from reporting requirement—(1) Certain bankruptcy

discharges—(i) In general. Reporting

is required under this section in the

case of a discharge of indebtedness in

bankruptcy only if the creditor knows

from information included in the reporting entity’s books and records

pertaining to the indebtedness that the

debt was incurred for business or investment purposes as defined in paragraph (d)(1)(ii) of this section.

(ii) Business or investment debt. Indebtedness is considered incurred for

business purposes if it is incurred in

connection with the conduct of any

trade or business other than the trade or

business of performing services as an

employee. Indebtedness is considered

incurred for investment purposes if it is

incurred to purchase property held for

investment, as defined in section

163(d)(5).

(2) Interest. The discharge of an

amount of indebtedness that is interest

is not required to be reported under this

section.

(3) Non-principal amounts in lending transactions. In the case of a

lending transaction, the discharge of an

amount other than stated principal is

not required to be reported under this

section. For this purpose, a lending

transaction is any transaction in which

a lender loans money to, or makes

advances on behalf of, a borrower

(including revolving credits and lines

of credit).

(4) Indebtedness of foreign debtors

held by foreign branches of U.S. financial institutions—(i) Reporting requirements. [Reserved]

(ii) Definition. An indebtedness held

by a foreign branch of a U.S. financial

institution is described in this paragraph (d)(4) only if—

(A) The financial institution is

engaged through a branch or office in

the active conduct of a banking or

similar business outside the United

States;

(B) The branch or office is a permanent place of business that is regularly

maintained, occupied, and used to carry

on a banking or similar financial

business;

least one employee of the branch or

office who is regularly in attendance at

such place of business during normal

working hours;

(D) The indebtedness is extended

outside of the United States by the

branch or office in connection with that

trade or business; and

(E) The financial institution does not

know or have reason to know that the

debtor is a United States person.

(5) Acquisition of indebtedness by

related party. No reporting is required

under this section in the case of a

deemed discharge of indebtedness under section 108(e)(4) (relating to the

acquisition of an indebtedness by a

person related to the debtor), unless the

disposition of the indebtedness by the

creditor was made with a view to

avoiding the reporting requirements of

this section.

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

under this section if the remaining

debtors remain liable for the full

amount of any unpaid indebtedness.

(7) Guarantors and sureties. Solely

for purposes of the reporting requirements of this section, a guarantor is not

a debtor. Thus, in the case of guaranteed indebtedness, reporting under this

section is not required with respect to a

guarantor, whether or not there has

been a default and demand for payment

made upon the guarantor.

(e) Additional rules—(1) Multiple

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

indebtedness of $10,000 or more incurred on or after January 1, 1995, that

involves more than one debtor, a reporting entity is subject to the requirements of paragraph (a) of this section

for each debtor discharged from such

indebtedness. In the case of indebtedness incurred prior to January 1,

1995, and indebtedness of less than

$10,000 incurred on or after January 1,

1995, involving multiple debtors, reporting under this section is required

only with respect to the primary (or

first-named) debtor. Additionally, only

one return of information is required

under this section if the reporting entity

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

at the same address when an indebtedness was incurred, and does not know

or have reason to know that such circumstances have changed at the date of

a discharge of the indebtedness. This

paragraph (e)(1) applies to discharges

of indebtedness after December 31,

1994.

(ii) Amount to be reported. In the

case of multiple debtors jointly and

severally liable on an indebtedness, the

amount of discharged indebtedness required to be reported under this section

with respect to each debtor is the total

amount of indebtedness discharged. For

this purpose, multiple debtors are presumed to be jointly and severally liable

on an indebtedness in the absence of

clear and convincing evidence to the

contrary.

(2) Multiple creditors—(i) In general. Except as otherwise provided in

this paragraph (e)(2), if indebtedness is

owned (or treated as owned for federal

income tax purposes) by more than one

creditor, each creditor that is an applicable financial entity must comply with

the reporting requirements of this section with respect to any discharge of

indebtedness of $600 or more allocable

to such creditor. A creditor will be

considered to have complied with the

requirements of this section if a lead

bank, fund administrator, or other

designee of the creditor complies on its

behalf in any reasonable manner, such

as by filing a single return reporting

the aggregate amount of indebtedness

discharged, or by filing a return with

respect to the portion of the discharged

indebtedness allocable to the creditor.

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

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any reasonable method may be used to

determine the portion of discharged

indebtedness allocable to each creditor.

(ii) Partnerships. For purposes of

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

indebtedness owned by a partnership is

treated as owned by the partners.

(iii) Pass-through securitized indebtedness arrangement—(A) Reporting requirements. [Reserved]

(B) Definition. For purposes of this

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

securitized indebtedness arrangement is

any arrangement whereby one or more

debt obligations are pooled and held

for twenty or more persons whose

interests in the debt obligations are

undivided co-ownership interests that

are freely transferrable. Co-ownership

interests that are actively traded personal property (as defined in §1.1092(d)–1) are presumed to be freely

transferrable and held by twenty or

more persons.

(iv) REMICs. [Reserved]

(3) Coordination with reporting under section 6050J. If, in the same

calendar year, a discharge of indebtedness reportable under section 6050P

occurs in connection with a transaction

also reportable under section 6050J

(relating to foreclosures and abandonments of secured property), an applicable financial entity need not file both a

Form 1099–A and a Form 1099–C with

respect to the same debtor. The filing

requirements of section 6050J will be

satisfied with respect to a borrower if,

in lieu of filing Form 1099–A, a Form

1099–C is filed in accordance with the

instructions for the filing of that form.

This paragraph (e)(3) applies to discharges of indebtedness after December

31, 1994.

(4) Direct or indirect subsidiary. For

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

term direct or indirect subsidiary means

a corporation in a chain of corporations

beginning with an entity described in

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

percent of the total combined voting

power of all classes of stock entitled to

vote, or at least 50 percent of the total

value of all classes of stock, of such

corporation is directly owned by the

entity described in section 6050P(c)(1)(A), or by one or more other

corporations in the chain.

(5) Use of magnetic media. Any

return required under this section must

be filed on magnetic media to the

extent required by section 6011(e) and

the regulations thereunder. A failure to

file on magnetic media when required

constitutes a failure to file an information return under section 6721. Any

person not required by section 6011(e)

to file returns on magnetic media may

request permission to do so under

applicable regulations and revenue

procedures.

(6) TIN solicitation requirement—(i)

In general. For purposes of reporting

under this section, a reasonable effort

must be made to obtain the correct

name/taxpayer identification number

(TIN) combination of a person whose

indebtedness is discharged. A TIN

obtained at the time an indebtedness is

incurred satisfies the requirement of

this section, unless the entity required

to file knows that such TIN is incorrect. If the TIN is not obtained prior to

the occurrence of an identifiable event,

it must be requested of the debtor for

purposes of satisfying the requirement

of this paragraph (e)(6).

(ii) Manner of soliciting TIN. Solicitations made in the manner described

in §301.6724–1(e)(1)(i) and (2) of this

chapter will be deemed to have satisfied the reasonable effort requirement

set forth in paragraph (e)(6)(i) of this

section. A TIN solicitation made after

the occurrence of an identifiable event

must clearly notify the debtor that the

Internal Revenue Service requires the

debtor to furnish its TIN, and that

failure to furnish such TIN may subject

the debtor to a $50 penalty imposed by

the Internal Revenue Service. A TIN

provided under this section is not required to be certified under penalties of

perjury.

(7) Recordkeeping requirements.

Any applicable financial entity required

to file a return with the Internal

Revenue Service under this section

must also retain a copy of the return, or

have the ability to reconstruct the data

required to be included on the return

under paragraph (a)(1) of this section,

for at least four years from the date

such return is required to be filed under

paragraph (a)(4) of this section.

(8) No multiple reporting. If discharged indebtedness is reported under

this section, no further reporting under

this section is required for the amount

so reported, notwithstanding that a

subsequent identifiable event occurs

with respect to the same amount.

Further, no additional reporting or

Form 1099–C correction is required if

a creditor receives a payment of all or

a portion of a discharged indebtedness

reported under this section for a prior

calendar year.

(f) Requirement to furnish statement—(1) In general. Any applicable

financial entity required to file a return

under this section must furnish to each

person whose name is shown on such

return a written statement that includes

the following information—

(i) The information required by paragraph (a)(1) of this section;

(ii) The name, address, and TIN of

the applicable financial entity required

to file a return under paragraph (a) of

this section;

(iii) A legend identifying the statement as important tax information that

is being furnished to the Internal

Revenue Service; and

(iv) Any other information required

by Form 1099–C or its instructions, or

current revenue procedures.

(2) Furnishing copy of Form 1099–

C. The requirement to provide a statement to the debtor will be satisfied if

the applicable financial entity furnishes

copy B of the Form 1099–C or a substitute statement that complies with the

requirements of the current revenue

procedure for substitute Forms 1099.

(3) Time and place for furnishing

statement. The statement required by

this paragraph (f) must be furnished to

the debtor on or before January 31 of

the year following the calendar year in

which the identifiable event occurs.

The statement will be considered furnished to the debtor if it is mailed to

the debtor’s last known address.

(g) Penalties. For penalties for

failure to comply with the requirements

of this section, see sections 6721

through 6724.

(h) Effective dates—(1) In general.

The rules in this section apply to discharges of indebtedness after December

21, 1996, except paragraphs (e)(1) and

(e)(3) of this section, which apply to

discharges of indebtedness after December 31, 1994.

(2) Earlier application. Notwithstanding the provisions of paragraph

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

financial entity may, at its discretion,

apply any of the provisions of this

section to any discharge of indebtedness occurring on or after January 1,

1996, and before December 22, 1996.

§§1.6050P–0T and 1.6050P–1T

[Removed]

Par. 3. Sections 1.6050P–0T and

1.6050P–1T are removed.

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PART 602—OMB CONTROL

NUMBERS UNDER THE

PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

For dates of applicability,

§1.6081–4T and §301.6651–1T.

see

FOR FURTHER INFORMATION

CONTACT: Margaret A. Owens, (202)

622-6232 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

§602.101 [Amended]

Par. 5. In §602.101, paragraph (c) is

amended by removing the entry for

1.6050P–1T and adding an entry in

numerical order in the table to read

‘‘1.6050P–1 . . . . . . . . . . . 1545–1419’’.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved December 12, 1995.

Leslie Samuels,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

January 3, 1996, 8:45 a.m., and published in

the issue of the Federal Register for January 4,

1996, 61 F.R. 262)

Section 6081.—Extensions of Time

for Filing Returns

26 CFR 1.6081–4: Automatic extension of time

for filing individual income tax returns.

T.D. 8651

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 301, and 602

Automatic Extension of Time for

Filing Individual Income Tax Returns

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains

temporary regulations that reflect new

simpler procedures for an individual to

obtain an automatic extension of time

to file an individual income tax return.

The text of the temporary regulations

also serves as the text of the cross

reference notice of proposed rulemaking on this subject in the Proposed

Rules section of this issue of the

Federal Register.

DATES: These regulations are effective

January 4, 1996.

Paperwork Reduction Act

These regulations are being issued

without prior notice and public procedure pursuant to the Administrative

Procedure Act (5 U.S.C. 553). For this

reason, the collection of information

contained in these regulations has been

reviewed and, pending receipt and

evaluation of public comments, approved by the Office of Management

and Budget under control number

1545–1479. Responses to this collection of information are required to

obtain a benefit (an automatic 4-month

extension of time to file an individual

income tax return).

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

For further information concerning

the collection of information, and

where to submit comments on the collection of information and the accuracy

of the estimated burden, and suggestions for reducing this burden, please

refer to the preamble to the crossreferencing notice of proposed

rulemaking published in the Proposed

Rules section of this issue of the

Federal Register.

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 26

U.S.C. 6103.

Background

This document amends the Income

Tax Regulations (26 CFR Part 1) under

section 6081 of the Internal Revenue

Code of 1986 to implement Notice 93–

22 (1993–1 C.B. 305). Notice 93–22,

released April 7, 1993, grants relief to

individuals who want an automatic

4-month extension of time to file an

individual income tax return but who

are unable to pay by the due date for

the return the tax properly estimated to

be due. The notice allows these individuals to obtain an automatic 4-month

extension of time to file their individual income tax returns for taxable years

ending on or after December 31, 1992,

by filing Form 4868, Application for

Automatic Extension of Time to File

U.S. Individual Income Tax Return,

without an accompanying remittance.

Individuals may rely on Notice 93–22

for taxable years ending on or after

December 31, 1992 and before December 31, 1995. Notice 93–22 also advised taxpayers that the regulations

under section 6081 will be amended to

reflect this change in the procedure for

an individual to obtain an automatic

4-month extension of time to file. In

addition, this document amends the

Regulations on Procedure and Administration (26 CFR Part 301) (relating to

an automatic extension of time for

filing an individual income tax return).

Explanation of Provisions

Under §1.6081–4, an individual required to file an income tax return is

allowed an automatic 4-month extension of time to file if (a) an application

is prepared on Form 4868, (b) the application is signed by the individual or

a person duly authorized by the individual, (c) the application is filed on

or before the date the return is due, (d)

the application shows the full amount

properly estimated as tax, and (e) the

application is accompanied by full

remittance of the amount properly

estimated as tax that is unpaid as of the

date prescribed for the filing of the

return.

These temporary regulations provide

that individuals may obtain an automatic 4-month extension of time to file

an individual income tax return without

remitting the unpaid amount of any tax

properly estimated to be due with the

application for extension of time to

file. Under these temporary regulations,

an individual’s inability to pay is not a

condition for obtaining an automatic

4-month extension. However, taxpayers

are encouraged to make payments, as

large as possible, in order to reduce

interest and penalties required by law.

In addition, these temporary regulations provide that the IRS may prescribe other manners for submitting an

application in lieu of a paper application on Form 4868.

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The temporary regulations remove

the regulatory requirement that applications for an automatic 4-month extension be signed. Thus, notwithstanding

the 1995 Form 4868 instructions, an

unsigned application will be processed.

In addition, the Commissioner may

prescribe additional methods of obtaining an extension of time to file that do

not require a signature.

Special Analyses

It has been determined that these

temporary regulations are not a significant regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It has also been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not

apply to these regulations and, therefore, a Regulatory Flexibility Analysis

is not required. Pursuant to section

7805(f) of the Internal Revenue Code,

a copy of these regulations will be

submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on their

impact on small business.

Drafting Information

The principal author of these regulations is Margaret A. Owens, Office of

the Assistant Chief Counsel (Income

Tax & Accounting), IRS. However,

other personnel from the IRS and the

Treasury Department participated in

their development.

26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes,

Penalties, Reporting and recordkeeping

requirements.

26 CFR Part 602

Reporting

requirements.

and

recordkeeping

Amendments to the Regulations

Accordingly, 26 CFR parts 1, 301,

and 602 are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as

follows:

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

Par. 2. Section 1.6081–4 is amended

by revising paragraph (a) to read as

follows:

§1.6081–4 Automatic extension of

time for filing individual income tax

returns.

(a) [Reserved] For further guidance

see §1.6081–4T(a).

Par. 3. Section 1.6081–4T is added

to read as follows:

§1.6081–4T Automatic extension of

time for filing individual income tax

returns—taxable years ending on or

after December 31, 1995 (temporary).

(a) In general—(1) Period of extension. An individual who is required to

file an individual income tax return for

any taxable year ending on or after

December 31, 1995, will be allowed an

automatic 4-month extension of time to

file the return after the date prescribed

for filing the return provided the

requirements contained in paragraphs

(a)(2), (3), and (4) of this section are

met. In the case of an individual

described in §1.6081–5(a)(5) or (6), the

automatic 4-month extension will run

concurrently with the extension of time

to file granted pursuant to §1.6081–5.

(2) Manner for submitting an application. An application must be

submitted—

(i) On Form 4868, Application for

Automatic Extension of Time to File

U.S. Individual Income Tax Return; or

(ii) In any other manner as may be

prescribed by the Commissioner.

(3) Time and place for filing application. Except in the case of an

individual described in §1.6081–5(a)(5)

or (6), the application must be filed on

or before the date prescribed for filing

the individual income tax return. In the

case of an individual described in

§1.6081–5(a)(5) or (6), the application

must be filed on or before the expiration of the extension of time to file

granted pursuant to §1.6081–5. The

application must be filed with the IRS

office designated in the application’s

instructions.

(4) Proper estimate of tax. An application for extension must show the

full amount properly estimated as tax

for the taxable year.

(5) Allowance of extension. Upon

properly preparing and timely filing an

application, the 4-month extension will

be considered as allowed. Except in

undue hardship cases, no extension of

time for filing an individual income tax

return will be granted under §1.6081-1

until an automatic extension has been

allowed pursuant to the provisions of

this paragraph (a).

(b) and (c) [Reserved].

(d) Penalties. See section 6651 and

the regulations under that section for

the additions to tax for failure to file an

individual income tax return or failure

to pay the amount shown as tax on the

return. In particular, see §301.6651–1(c)(3) of this chapter (relating to a

presumption of reasonable cause in

certain circumstances involving an automatic extension of time for filing an

individual income tax return).

PART 301—PROCEDURE AND

ADMINISTRATION

Par. 4. The authority citation for part

301 continues to read in part as

follows:

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

Par. 5. Section 301.6651–1 is

amended by revising paragraph (c)(3)

to read as follows:

§301.6651–1 Failure to file tax

return or to pay tax.

(c)(3) [Reserved] For further guidance see §301.6651–1T (c)(3).

Par. 6. Section 301.6651–1T is added

to read as follows:

§301.6651–1T Failure to file tax

return or to pay tax—taxable years

ending on or after December 31,

1995 (temporary).

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

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

on or after December 31, 1995, an

individual taxpayer satisfies the requirements of §1.6081–4T(a) of this

chapter (relating to an automatic extension of time for filing an individual

income tax return), reasonable cause

shall be presumed, for the period of the

extension of time to file, with respect

to any underpayment of tax if—

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(i) The excess of the amount of tax

shown on the individual income tax

return over the amount of tax paid on

or before the regular due date of the

return (by virtue of taxes withheld by

the employer, estimated tax payments,

and any payment with an application

for extension of time to file pursuant to

§1.6081–4T of this chapter) is no

greater than 10 percent of the amount

of tax shown on the individual income

tax return; and

(ii) Any balance due shown on the

individual income tax return is remitted

with the return.

PART 602—OMB CONTROL

NUMBERS UNDER THE

PAPERWORK REDUCTION ACT

Par. 7. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

§602.101 [Amended]

Par. 8. In §602.101, paragraph (c) is

amended by adding an entry in numerical order to the table to read ‘‘1.6081–

4T . . . . . . . . . . . . . . . . . . 1545–1479’’.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

page 9.

Section 7872.—Treatment of Loans

with Below-Market Interest Rates

Approved December 20, 1995.

Leslie Samuels,

Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on

January 3, 1996, 8:45 a.m., and published in

the issue of the Federal Register for January 4,

1996, 61 F.R. 260)

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of March 1996. See Rev. Rul. 96–15,

page 9.

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Part III. Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and

claims for refund, Credit, or abatement;

determination of correct tax liability.

Rev. Proc. 96–27

SECTION 1. PURPOSE

This revenue procedure publishes the

population figures for states and the

District of Columbia for use in determining the 1996 calendar year (1)

population-based component of the

state housing credit ceiling under

§ 42(h)(3)(C)(i) of the Internal Revenue Code, and (2) volume cap under

§ 146.

SECTION 2. BACKGROUND

.01 State Housing Credit Ceiling

(1) Section 42(h)(1) provides generally that any building (other than a

building a certain percentage of which

is financed with proceeds of taxexempt private activity bonds) is

eligible for the low-income housing

credit under § 42 only if it receives an

allocation of a housing credit dollar

amount from the state or local housing

credit agency (state agency) of the

jurisdiction in which the building is

located.

(2) Section 42(h)(3)(A) provides

that the aggregate housing credit dollar

amount that a state agency may allocate for any calendar year is the

portion of the state housing credit

ceiling (credit ceiling) allocated to the

state agency for the calendar year.

(3) Section 42(h)(3)(C) defines the

credit ceiling as an amount equal to the

sum of four components. One component, the ‘‘population component,’’

equals $1.25 multiplied by the state

population.

(4) Section 42(h)(3)(G) provides

that for purposes of § 42(h), population

is determined in accordance with

§ 146(j).

.02 Volume Cap

(1) Section 103(a) provides that

gross income does not include interest

on any state or local bond. However,

§ 103(b) provides that § 103(a) does

not apply to any private activity bond

that is not a qualified bond within the

meaning of § 141.

(2) Section 141(e)(2) provides that

one requirement that must be met in

order for a private activity bond to be a

‘‘qualified bond’’ is that the issue of

which the bond is a part must meet the

applicable requirements of § 146.

(3) Section 146(a) provides that a

private activity bond meets the requirements of § 146 if the aggregate face

amount of the issue of private activity

bonds of which it is a part, when added

to the aggregate face amount of taxexempt private activity bonds previously issued by the issuing authority

(issuing authority) during the calendar

year, does not exceed the issuing

authority’s volume cap for the calendar

year.

(4) The volume cap for any issuing authority is defined by § 146(b) as

a percentage of the state ceiling for the

calendar year.

(5) Section 146(d) defines the

state ceiling applicable to any state for

any calendar year after 1987 as the

greater of $50 multiplied by the state

population or $150,000,000.

(6) Section 146(j) provides that

population determinations of any state

(or issuing authority) are made with

respect to any calendar year on the

basis of the most recent census estimate of the resident population of the

state (or issuing authority) released by

the Bureau of the Census before the

beginning of that calendar year.

.03 Population Figures

(1) On January 26, 1996, in press

release CB96–10, the Bureau of the

Census released resident population

estimates for the 50 states and the

District of Columbia as of July 1,

1995.

(2) The estimates released in press

release CB96–10 were not released

before the beginning of calendar year

1996. Accordingly, the estimates do not

meet the statutory requirements of

§ 146(j), and may not be used by state

agencies, states, or issuing authorities

for purposes of determining the 1996

calendar year credit ceiling or volume

cap.

(3) The most recent census estimates of the resident population of the

states (or issuing authorities) released

by the Bureau of the Census before the

beginning of calendar year 1996 are

those contained in CB94–204, which

are estimates as of July 1, 1994. These

population estimates are the same

estimates published in Notice 95–8,

1995–1 C.B. 293, for use by state

agencies, states, and issuing authorities

in determining the 1995 calendar year

credit ceiling and volume cap.

SECTION 3. SCOPE

The state population figures published in this revenue procedure are to

be used by state agencies, states, and

issuing authorities in determining the

1996 calendar year credit ceiling and

volume cap.

SECTION 4. PROCEDURE

.01 For purposes of § 146(j), the

state population figures to be used by

state agencies, states, and issuing authorities for the 1996 calendar year are

the estimates of the resident population

of states for July 1, 1994, released by

the Bureau of the Census on December

28, 1994, in press release CB94-204.

For convenience, these estimates are

reprinted below.

Resident Population Estimates for

July 1, 1994

State

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

D.C.

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

Population

4,219,000

606,000

4,075,000

2,453,000

31,431,000

3,656,000

3,275,000

706,000

570,000

13,953,000

7,055,000

1,179,000

1,133,000

11,752,000

5,752,000

2,829,000

2,554,000

3,827,000

4,315,000

1,240,000

5,006,000

6,041,000

9,496,000

4,567,000

2,669,000

5,278,000

856,000

1,623,000

1,457,000

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State

Population

State

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

1,137,000

7,904,000

1,654,000

18,169,000

7,070,000

638,000

11,102,000

3,258,000

3,086,000

12,052,000

997,000

3,664,000

721,000

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

Population

5,175,000

18,378,000

1,908,000

580,000

6,552,000

5,343,000

1,822,000

5,082,000

476,000

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective

for determinations of population under

§ 146(j) for the 1996 calendar year.

DRAFTING INFORMATION

The principal authors of this revenue

procedure are Christopher J. Wilson of

the Office of Assistant Chief Counsel

(Passthroughs and Special Industries)

and Timothy L. Jones of the Office of

Assistant Chief Counsel (Financial Institutions and Products). For further

information regarding this notice contact Mr. Wilson on (202) 622-3040 (not

a toll-free call).

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Part IV. Items of General Interest

Notice of Proposed Rulemaking

Notice of Proposed Rulemaking and

Notice of Public Hearing

Retirement Bonds

Paperwork Reduction Act

Automatic Extension of Time for

Filing Individual Income Tax Returns

EE–148–81

AGENCY: Internal Revenue Service

(IRS), Treasury.

IA–41–93

proposed

AGENCY: Internal Revenue Service

(IRS), Treasury.

SUMMARY: This document withdraws

proposed regulations relating to retirement bonds as part of the President’s

Regulatory Reinvention Initiative.

ACTION: Notice of proposed rulemaking by cross reference to temporary

regulations and notice of public

hearing.

ACTION: Withdrawal

regulations.

DATES: The proposed regulations are

withdrawn January 8, 1996.

FOR FURTHER INFORMATION

CONTACT: Philip Bennet, (202)

622-3926.

SUPPLEMENTARY INFORMATION:

Background

As part of the President’s Regulatory

Reinvention Initiative, the Treasury

Department and the IRS identified

obsolete regulations that relate to prior

law, provide elections for prior years,

or are otherwise outdated due to

changes in the underlying statutory

provisions.

SUPPLEMENTARY INFORMATION:

SUMMARY: In the Rules and Regulations section of this issue of the

Federal Register, the IRS is issuing

temporary regulations that reflect the

new procedures for obtaining an automatic extension of time to file an

individual income tax return. The text

of the temporary regulations also serves

as the comment document for this

notice of proposed rulemaking. This

document also provides notice of a

public hearing on these proposed

regulations.

DATES: Written comments must be

received by April 1, 1996. Outlines of

topics to be discussed at the public

hearing scheduled for May 8, 1996,

beginning at 10:00 a.m. must be

received by April 1, 1996.

Withdrawal of Proposed Amendments

to the Regulations

Accordingly, under the authority of

26 U.S.C. 7805, proposed regulations

§1.409–1(b)(2)(i) that were published

in the Federal Register on January 23,

1984 (49 FR 2794 [EE–148–81, 1984–

1, C.B. 580]) are withdrawn.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

January 5, 1996, 8:45 a.m., and published in

the issue of the Federal Register for January 8,

1996, 61 F.R. 552)

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (IA–41–93), Room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington, DC 20044. In the alternative,

submissions may be hand delivered

between the hours of 8 a.m. and 5 p.m.

to: CC:DOM:CORP:R (IA–41–93),

Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW.,

Washington, DC. The public hearing

will be held in the IRS Auditorium.

FOR FURTHER INFORMATION

CONTACT: Concerning the regulations, Margaret A. Owens, 202622-6232 (not a toll-free number). Concerning submissions and the public

hearing, Michael Slaughter, 202622-7190 (not a toll-free number).

The collection of information contained in this notice of proposed

rulemaking has been submitted to the

Office of Management and Budget for

review in accordance with the Paperwork Reduction Act of 1995 (44

U.S.C. 3507).

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, T:FP, Washington,

DC 20224. Comments on the collection

of information should be received by

March 4, 1996.

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

The collection of information is in

§1.6081–4T(a). This information is required by the IRS to monitor the filing

of individual income tax returns. This

information will be used to determine

which individuals need automatic

4-month extensions of time to file. The

likely respondents are individuals or

households. Responses to this collection of information are required to

obtain a benefit (an automatic 4-month

extension of time to file an individual

income tax return).

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 26

U.S.C. 6103.

Estimates of the reporting burden in

this Notice of Proposed Rulemaking

will be reflected in the burden of Form

4868.

Background

The temporary regulations published

in the Rules and Regulations section of

this issue of the Federal Register

1996 – 23 I.R.B.

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contain amendments to the Income Tax

Regulations (26 CFR part 1) and the

Regulations on Procedure and Administration (26 CFR part 301). The

temporary regulations provide rules

relating to obtaining an automatic

4-month extension of time to file an

individual income tax return. The text

of the temporary regulations also serves

as the text of these proposed regulations. The preamble to the temporary

regulations explains these proposed

regulations.

Special Analyses

It has been determined that this

notice of proposed rulemaking is not a

significant regulatory action as defined

in EO 12866. Therefore, a regulatory

assessment is not required. It also has

been determined that section 553(b) of

the Administrative Procedure Act (5

U.S.C. chapter 5) and the Regulatory

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

not apply to these rules, and therefore,

a Regulatory Flexibility Analysis is not

required. Pursuant to section 7805(f) of

the Internal Revenue Code, a copy of

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 business.

Comments and Public Hearing

Before these proposed regulations

are adopted as final regulations, consideration will be given to any written

comments (a signed original and eight

(8) copies) that are submitted timely to

the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled

for May 8, 1996, at 10:00 a.m., at the

IRS Auditorium. Because of access

restrictions, visitors will not be admitted beyond the building lobby more

than 15 minutes before the hearing

starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.

Persons who wish to present oral

comments at the hearing must submit

written comments by April 1, 1996,

and submit an outline of the topics to

be discussed and the time to be devoted

to each topic (signed original and eight

(8) copies) by April 1, 1996.

A period of 10 minutes will be

allotted to each person for making

comments.

1996 – 23 I.R.B.

An agenda showing the scheduling

of the speakers will be prepared after

the deadline for receiving comments

has passed. Copies of the agenda will

be available free of charge at the

hearing.

Drafting Information

The principal author of these regulations is Margaret A. Owens, Office of

the Assistant Chief Counsel (Income

Tax & Accounting), IRS. However,

other personnel from the IRS and

Treasury Department participated in

their development.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and

301 are proposed to be amended as

follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 continues to read in part as

follows:

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

Par. 2. Section 1.6081-4 is amended

by:

1. Revising paragraph (a).

2. Adding paragraph (d).

The revised and added provisions

read as follows:

§1.6081–4 Automatic ex

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