Reporting Requirements for Widely Held Fixed Investment Trusts

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-209813-96]

RIN 1545-AU15

Reporting Requirements for Widely Held Fixed Investment Trusts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that define widely

held fixed investment trusts, clarify the reporting obligations of the

trustees of these trusts and the middlemen connected with these trusts,

and provide for the communication of necessary tax information to

beneficial owners of trust interests. This document also provides

notice of a public hearing on these proposed regulations.

DATES: Written comments must be received by November 12, 1998. Requests

to speak (with outlines of oral comments) at a public hearing scheduled

for Thursday, November 5, 1998 at 10 a.m. must be submitted by October

15, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209813-96), 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

(REG-209813-96), Courier's Desk, Internal Revenue Building, 1111

Constitution Avenue, NW., Washington, DC. Alternatively, taxpayers may

submit comments electronically via the Internet by selecting the ``Tax

Regs'' option on the IRS Home Page, or by submitting comments directly

to the IRS Internet site at http://www.irs.ustreas.gov/prod/tax__regs/

comments.html. The public hearing will be held in room 2615, Internal

Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Faith

Colson, (202) 622-3060; concerning submissions and the hearing, LaNita

Van Dyke, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed

rulemaking has been submitted to the Office of Management and Budget

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

U.S.C. 3507(d)). Comments on the collection of information should be

sent to the Office of Management and Budget, Attn: Desk Officer for the

Department of Treasury, Office of Information and Regulatory Affairs,

Washington, DC 20503, with copies to the Internal Revenue Service,

Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224.

Comments on the collection of information should be received by October

13, 1998. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the

proper performance of the functions of the Internal Revenue Service,

including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed

collection of information (see below);

How the quality, utility, and clarity of the information to be

collected may be enhanced;

How the burden of complying with the proposed collection of

information may be minimized, including through the application of

automated collection techniques or other forms of information

technology; and

Estimates of capital or start-up costs and costs of operation,

maintenance, and purchase of service to provide information.

The collection of information in these proposed regulations is in

Sec. 1.671-4 of the Income Tax Regulations. This information is

required to enable holders of trust interests to report items of

income, deduction, and credit of a widely held fixed investment trust

under section 671. This information will be used by the IRS to ensure

that those items are reported accurately by beneficial owners of trust

interests. The collection of information is mandatory. The likely

respondents are businesses and other for-profit institutions.

Estimated total annual reporting burden: 2,400 hours.

Estimated average annual burden hours per respondent: 2 hours.

Estimated number of respondents: 1,200.

Estimated annual frequency of responses: Annually (but more often

for a trust providing information to certain persons on request).

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless it displays a valid

control number assigned by the Office of Management and Budget.

Books or records relating to the 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 contains proposed amendments to the Income Tax

Regulations (26 CFR part 1) under section 671. The proposed amendments

are to be issued under the authority of sections 671, 6034A,

6049(d)(7), and 7805.

A fixed investment trust is an arrangement classified as a trust

under Sec. 301.7701-4(c). Beneficial interests in these trusts are

divided into units. The Service treats these trusts as grantor trusts

under section 671 and the owners of the beneficial interests, or units,

as the grantors. See Rev. Rul. 84-10 (1984-1 C.B. 155); Rev. Rul. 70-

545 (1970-2 C.B. 7); Rev. Rul. 70-544 (1970-2 C.B. 6); Rev. Rul. 61-175

(1961-2 C.B. 128). Under the proposed regulations, a widely held fixed

investment trust is a fixed investment trust in which any interest is

held by a middleman. For this purpose, the term middleman includes, but

is not limited to, a custodian of a person's account, a nominee, and a

broker holding an interest for a customer in street name. The IRS and

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Treasury request comments on the application and scope of these

definitions, including the appropriateness of a de minimis rule as to

the number of middlemen.

Interests in widely held fixed investment trusts are often held in

the street name of a middleman, who holds such interests on behalf of

the beneficial owners. Thus, trustees frequently do not know the

identity of the beneficial owners and are not in a position to

communicate necessary tax information directly to such owners.

Currently, there are no tax information reporting rules specifically

providing for the sharing of tax information among trustees, middlemen,

and beneficial owners of these trusts.

On December 21, 1995, final regulations (TD 8633) under section

671, relating to the information reporting requirements of grantor

trusts, were published in the Federal Register (60 FR 66085). See

Sec. 1.671-4. While drafting the final regulations, the IRS and

Treasury concluded that special reporting requirements were needed for

widely held fixed investment trusts but that such guidance fell outside

the scope of the final regulations. The preamble to the final

regulations stated that the IRS and Treasury anticipated providing

guidance for these trusts in a separate project and invited comments

from interested taxpayers and practitioners regarding such guidance.

In developing these proposed regulations, the IRS and Treasury have

continued to solicit comments from the public. Comments were received

from various industry members and practitioners, and these proposed

regulations take such comments into account. The proposed regulations

are intended to clarify the reporting requirements of trustees and

middlemen and to ensure that beneficial owners of trust interests

receive accurate and timely tax reporting information. The IRS and

Treasury welcome comments on specific instances of industry practice

that differ significantly from the framework of these proposed

regulations and on suggestions to tailor the reporting requirements to

account for those differences.

Explanation of Provisions

A. General Framework of Reporting Rules

The information reporting framework in the proposed regulations is

similar to that for regular interests in a real estate mortgage

investment conduit. See Sec. 1.6049-7.

Under the proposed regulations, the responsibility for information

reporting lies primarily with the person in the ownership chain who

holds a unit interest for a beneficial owner and is, therefore, in the

best position to communicate with, and provide tax information to, the

beneficial owner. Thus, a brokerage firm that holds a unit interest

directly for an individual as a middleman will have the primary

obligation to report to the IRS and to provide tax information to the

individual. Similarly, if a unit interest is held directly by an

individual and not through a middleman, the trustee is to report to the

IRS and to provide tax information to the individual. Information

reporting generally is not required for interests held by exempt

recipients. Middlemen and trustees, however, are to make trust tax

information available upon request to exempt recipients.

Appropriate adjustments may be necessary to other information

reporting rules to make them compatible with these proposed

regulations.

B. Trustee or Middleman to Report To the IRS on Form 1099

Under proposed Sec. 1.671-4(j)(2)(i)(A), a trustee must report to

the IRS, on the appropriate Forms 1099, the gross amount of trust

income (determined in accordance with proposed Sec. 1.671-4(j)(6)(i))

attributable to a unit interest holder who holds an interest in the

trust directly and not through a middleman. Similarly, under proposed

Sec. 1.671-4(j)(2)(i)(B), a middleman must report for any unit interest

holder on whose behalf or account the middleman holds an interest. (To

comply with this requirement, middlemen may request the necessary tax

information from the trustee. See the discussion below.) In addition,

the trustee or middleman is to report on the appropriate Form 1099 the

gross proceeds from the sale or other disposition of a trust asset that

is attributable to the unit interest holder. Forms 1099 are not

required for any unit interest holder who is an exempt recipient, as

defined in proposed Sec. 1.671-4(j)(1).

C. Statements To Be Furnished to the Beneficial Owners of Unit

Interests

Every middleman or trustee required to file with the IRS a Form

1099 under these proposed regulations for a unit interest holder must

furnish to the unit interest holder a written statement providing the

holder with necessary tax reporting information including: (1) the

items of income (determined in accordance with proposed Sec. 1.671-

4(j)(6)(i)), deduction, and credit of the trust attributable to the

unit interest holder; (2) if any trust asset has been sold or otherwise

disposed of during the calendar year, the portion of the gross proceeds

relating to the trust asset which is attributable to the unit interest

holder, the date of sale or disposition of the trust asset, and the

percentage of that trust asset that has been sold or disposed of; and

(3) any other information necessary for the unit interest holder to

accurately report the income, deductions, and credits of the trust

attributable to the unit interest as required under section 671.

In addition, to enable unit interest holders to calculate gain or

loss on the disposition of a trust asset, if a trust sells or disposes

of a trust asset during a particular calendar year, the proposed

regulations require the trustee or middleman to include, with the

statement to the holder, a schedule showing the portion (expressed as a

percentage) of the total fair market value of all the assets held by

the trust that the trust asset sold or disposed of represented as of

the last day of each quarter that the asset was held by the trust. It

is contemplated that, in the absence of more accurate information, this

information may be used by the unit interest holder to determine the

percentage of the holder's basis in its unit interest that the disposed

asset represents, so that the holder may calculate its gain or loss on

the disposition of the asset.

The IRS and Treasury welcome comments on whether the approach taken

in the proposed regulations to communicate information to enable the

holder of a unit interest to calculate its basis in a trust asset is

effective, or whether a different approach, which continues to be

consistent with the taxation of grantor trusts, would be more

effective. In addition, the IRS and Treasury invite comments on

whether, for trusts consisting of fungible assets, an approach other

than the proposed asset-by-asset approach for reporting sales and

determining basis is administratively feasible or whether an aggregate

approach would be more appropriate and on the manner in which such an

aggregate approach would be applied.

D. Information to be Furnished to Middlemen by Trusts

In general, information reporting is not required for unit

interests held by exempt recipients. To enable such persons to receive

necessary trust information, however, Sec. 1.671-4(j)(3)(iii) of the

proposed regulations provides that middlemen, exempt recipients, and

certain other persons may request from the trust tax information for a

calendar quarter, computed as of the last day of

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the quarter specified, or for a calendar year, computed as of December

31 of the year specified. The tax reporting information the trust is to

make available includes: (1) all items of income (determined in

accordance with proposed Sec. 1.671-4(j)(6)(i)), deduction, and credit

of the trust for the period specified; (2) if any trust asset has been

sold or otherwise disposed of during the period specified, the gross

proceeds received by the trust for the trust asset, the date of sale or

disposition, and the percentage of that trust asset that has been sold

or disposed of; (3) the number of units outstanding on the last

business day of the period specified; and (4) any other information

necessary for the unit interest holder to accurately report the income,

deductions, and credits attributable to the portion of the trust

treated as owned by the holder, as required under section 671. In

addition, if a trust asset is sold or otherwise disposed of during the

period specified, the trust must provide a schedule showing the portion

(expressed in terms of a percentage) of the total fair market value of

all the assets held by the trust that the asset sold or disposed of

represented as of the last day of each calendar quarter that the trust

held the asset.

E. Special Rules

A beneficial owner of a unit interest must report trust items

consistent with the owner's method of accounting. See, e.g., Rev. Rul.

84-10. For administrative convenience, and with the intent of being

consistent with industry practice, however, the proposed regulations

require a trust to provide tax information as if the trust were a

taxpayer using the cash receipts and disbursements method of tax

accounting (cash method). Although a trust must provide tax information

to unit holders as if the trust were a cash method taxpayer, the trust

must provide information necessary for such holders to comply with the

original issue discount rules and other provisions requiring the

inclusion of accrued amounts regardless of the holder's method of

accounting. The IRS and Treasury are continuing to study, and welcome

comments on, whether to require trusts to provide tax reporting

information to accommodate the different methods of accounting used by

the beneficial owners of a trust.

In the case of a widely held fixed investment trust that holds a

pool of debt instruments subject to section 1272(a)(6)(C)(iii), the

proposed regulations require that middlemen, unit interest holders,

exempt recipients, and noncalendar-year taxpayers be provided with

certain additional information that is necessary for compliance with

the market discount rules and, where applicable, section 1272(a)(6) (as

amended by section 1004 of the Taxpayer Relief Act of 1997, Public Law

105-34, 111 Stat. 788, 911 (1997)). This additional information

includes information necessary to compute (1) the accrual of market

discount, including the type of information required under Sec. 1.6049-

7(f)(2)(i)(G) in the case of a REMIC regular interest or a

collateralized debt obligation not issued with original issue discount;

and (2) the accrual of original issue discount and market discount,

including the type of information required under Sec. 1.6049-

7(f)(2)(ii)(E), (F), (I), and (K) in the case of a REMIC regular

interest or a collateralized debt obligation that is issued with

original issue discount. The IRS and Treasury request comments on

whether similar information reporting requirements, for example,

reporting of information necessary to compute the accrual of market

discount, should be extended to widely held fixed investment trusts

that hold instruments (or pools of instruments) not subject to section

1272(a)(6)(C).

To enable a beneficial owner to comply fully with section 671 and

section 67 (where applicable), Sec. 1.671-4(j)(6)(i) of the proposed

regulations requires the amount of trust income to be reported by the

trustee to be the gross amount of income generated by the trust assets

(other than from the sale or other disposition of trust assets). Thus,

in the case of a trust that receives a payment net of an expense, the

payment must be grossed up to reflect the deducted expense. Trustees

must also have, and make available, information regarding the trust's

affected expenses (as defined in Sec. 1.67-2T(i)(1)) for the calendar

year. In addition, in the case of a unit interest holder that is an

affected investor (as defined in Sec. 1.67-2T(h)(1)), the trustee or

middleman must provide such unit interest holder with information

regarding the holder's proportionate share of the trust's affected

expenses for the calendar year.

The proposed regulations also require the trust to separately state

any other item that, if taken into account separately by any unit

interest holder, could result in an income tax liability for that unit

interest holder different from that which would result if the unit

interest holder did not take the item into account separately. The IRS

and Treasury request comments on whether this requirement is

administratively feasible in the context of a widely held fixed

investment trust or whether a different approach, also consistent with

the taxation of grantor trusts, would be more appropriate.

F. Coordination With Backup Withholding Rules

Section 1.671-4(j)(7) of the proposed regulations contains

provisions to coordinate these regulations with the backup withholding

rules.

Proposed Effective Date

These regulations are proposed to apply to calendar years beginning

on or after the date that final regulations are published in the

Federal Register.

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 is hereby certified that

these regulations will not have a significant economic impact on a

substantial number of small entities. This certification is based on

the fact that the regulations generally clarify existing reporting

obligations and are expected, for the most part, to have a minimal

impact on industry practice. Thus, the regulations will not result in a

significant economic impact on any entity subject to the regulations.

Further, the reporting burdens in these regulations will fall primarily

on large brokerage firms, large banks, and other large entities acting

as trustees or middlemen, most of which are not small entities within

the meaning of the Regulatory Flexibility Act (5 U.S.C. chapter 6).

Thus, a substantial number of small entities will not be affected.

Therefore, a Regulatory Flexibility Analysis under the Regulatory

Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to

section 7805(f) of the Internal Revenue Code, this notice of proposed

rulemaking will be submitted to the Chief Counsel for Advocacy of the

Small Business Administration for comment on its impact on small

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 (in the manner

described in the ADDRESSES caption) to the IRS. All comments will be

available for public inspection and copying.

A public hearing has been scheduled for Thursday, November 5, 1998

at 10 a.m., in room 2615, Internal Revenue Building, 1111 Constitution

Avenue, NW., Washington, DC. Because of access

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restrictions, visitors will not be admitted beyond the Internal Revenue

Building lobby more than 15 minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must

submit written comments by November 12, 1998 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 October 15, 1998.

A period of 10 minutes will be allotted to each person for making

comments.

An agenda showing the scheduling of the speakers will be prepared

after the deadline for receiving outlines has passed. Copies of the

agenda will be available free of charge at the hearing.

Drafting Information. The principal author of these regulations is

Faith Colson, Office of Assistant Chief Counsel (Passthroughs and

Special Industries). However, other personnel from the IRS and Treasury

Department participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements

26 CFR Part 301

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

taxes, Penalties, Reporting and recordkeeping requirements

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 is amended by adding

an entry in numerical order to read as follows:

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

Section 1.671-4 also issued under 26 U.S.C. 671, 26 U.S.C. 6034A,

and 26 U.S.C. 6049(d)(7).

Par. 2. Section 1.671-4 is amended by revising paragraph (a) and

adding paragraph (j) to read as follows:

Sec. 1.671-4 Method of reporting.

(a) Portion of trust treated as owned by the grantor or another

person. Except as otherwise provided in paragraphs (b) and (j) of this

section, items of income, deduction, and credit attributable to any

portion of a trust which, under the provisions of subpart E (section

671 and following), part I, subchapter J, chapter 1 of the Internal

Revenue Code, is treated as owned by the grantor or another person are

not reported by the trust on Form 1041, but are shown on a separate

statement to be attached to that form. Paragraph (j) of this section

provides special reporting rules for widely held fixed investment

trusts. Section 301.7701-4(e)(2) of this chapter provides guidance on

how the reporting rules in this paragraph (a) apply to an environmental

remediation trust.

* * * * *

(j) Special rules applicable to widely held fixed investment

trusts. The reporting rules contained in this paragraph (j) apply to

any widely held fixed investment trust.

(1) Definitions. For purposes of this paragraph (j):

Affected expenses. The term affected expenses has the meaning given

that term by Sec. 1.67-2T(i)(1).

Affected investor. The term affected investor has the meaning given

that term by Sec. 1.67-2T(h)(1).

Exempt recipient. An exempt recipient is any person described in

paragraphs (j)(2)(iv)(A) through (R) of this section.

Middleman. A middleman is any person who holds an interest in an

arrangement classified as a trust under Sec. 301.7701-4(c) of this

chapter, and subject to subpart E, part I, subchapter J, chapter 1 of

the Internal Revenue Code, on behalf of, or for the account of, another

person, or who otherwise acts in a capacity as an intermediary for the

account of another person, at any time during the calendar year. A

middleman includes, but is not limited to--

(i) A custodian of a person's account, such as a bank, financial

institution, or brokerage firm acting as custodian of an account;

(ii) A nominee, including the joint owner of an account or

instrument except if the joint owners are husband and wife; and

(iii) A broker (as defined in section 6045(c)(1) and Sec. 1.6045-

1(a)(1)) holding an interest for a customer in street name.

Requesting person. A requesting person is a person specified in

paragraph (j)(3)(iii)(A) of this section who is entitled to request

from the trustee the information specified in paragraph (j)(3)(ii) of

this section.

Trustee. Trustee means the trustee of a widely held fixed

investment trust.

Unit interest holder. A unit interest holder is any person who

holds a direct or indirect interest, including a beneficial interest,

in a widely held fixed investment trust at any time during the calendar

year.

Widely held fixed investment trust. A widely held fixed investment

trust is an arrangement classified as a trust under Sec. 301.7701-4(c)

of this chapter, and subject to subpart E, part I, subchapter J,

chapter 1 of the Internal Revenue Code, in which any interest is held

by a middleman.

(2) Form 1099 requirement for trustees and middlemen--(i)

Obligation to file Form 1099 with the Internal Revenue Service. Except

as provided in paragraph (j)(2)(iv) of this section--

(A) Every trustee must file with the Internal Revenue Service the

appropriate Forms 1099 reporting the information specified in paragraph

(j)(2)(ii) of this section with respect to any unit interest holder who

holds an interest in the trust directly and not through a middleman;

and

(B) Every middleman must file with the Internal Revenue Service the

appropriate Forms 1099, reporting the information specified in

paragraph (j)(2)(ii) of this section with respect to any unit interest

holder on whose behalf or account the middleman holds an interest in

the trust or acts in a capacity as an intermediary.

(ii) Information to be reported. The following information must be

reported to the Internal Revenue Service on the appropriate Forms

1099--

(A) The name, address, and taxpayer identification number of the

unit interest holder;

(B) The name, address, and taxpayer identification number of the

person required to file the form;

(C) The amount of trust income (determined in accordance with

paragraph (j)(6)(i) of this section) attributable to the unit interest

holder for the calendar year for which the return is made;

(D) In the case of the sale or other disposition of a trust asset

during the calendar year, the portion of the gross proceeds relating to

the trust asset that is attributable to the unit interest holder; and

(E) Any other information required by the Forms 1099.

(iii) Time and place for filing Forms 1099. The Forms 1099 required

to be filed with the Internal Revenue Service by trustees or middlemen

pursuant to paragraph (j)(2)(i) of this section must be filed on or

before February 28 of the year following the year for which the Forms

1099 are being filed. The returns must be filed with the appropriate

Internal Revenue Service Center, at the address listed in the

instructions for the Forms 1099. For extensions of time for filing

returns under this section, see Sec. 1.6081-1. For magnetic media

filing requirements, see Sec. 301.6011-2 of this chapter.

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(iv) Forms 1099 not required. A Form 1099 is not required for a

unit interest holder that is an exempt recipient. However, if the

trustee or middleman backup withholds under section 3406 on payments

made to a unit interest holder (because, for example, the unit interest

holder has failed to furnish a Form W-9 on request), then the trustee

or middleman is required to make a return under this section, unless

the trustee or middleman refunds the amount withheld in accordance with

Sec. 31.6413(a)-3 of this chapter. An exempt recipient is generally

exempt from information reporting without filing a certificate claiming

exempt status unless the provisions of this paragraph (j)(2)(iv)

require the unit interest holder to file a certificate. A trustee or

middleman may in any case require a unit interest holder not otherwise

required to file a certificate under this paragraph (j)(2)(iv) to file

a certificate in order to qualify as an exempt recipient. See

Sec. 31.3406(h)-3(a)(1)(iii) and (c)(2) of this chapter for the

certificate that a unit interest holder must provide if a trustee or

middleman requires the certificate in order to treat the unit interest

holder as an exempt recipient under this paragraph (j)(2)(iv). A

trustee or middleman may treat a unit interest holder as an exempt

recipient based upon a properly completed form as described in

Sec. 31.3406(h)-3(e)(2) of this chapter, its actual knowledge that the

unit interest holder is a person described in this paragraph

(j)(2)(iv), or the indicators described in this paragraph (j)(2)(iv).

Any unit interest holder who ceases to be an exempt recipient shall, no

later than 10 days after such cessation, notify the trustee or

middleman in writing when it ceases to be an exempt recipient. For

purposes of this paragraph (j)--

(A) Corporation. A corporation, as defined in section 7701(a)(3),

whether domestic or foreign, is an exempt recipient. In addition, for

purposes of this paragraph (j)(2)(iv), the term corporation includes a

partnership all of whose members are corporations described in this

paragraph (j)(2)(iv), but only if the partnership files with the

trustee or middleman a properly completed form as described in

Sec. 31.3406(h)-3(e)(2) of this chapter. Absent actual knowledge

otherwise, a trustee or middleman may treat a unit interest holder as a

corporation (and, therefore, as an exempt recipient) if one of the

requirements of paragraph (j)(2)(iv)(A)(1), (2), (3), or (4), is met at

the time a unit interest holder acquires an interest in the trust.

(1) The name of the unit interest holder contains an unambiguous

expression of corporate status (that is, Incorporated, Inc.,

Corporation, Corp., P.C., (but not Company or Co.)) or contains the

term insurance company, indemnity company, reinsurance company, or

assurance company, or its name indicates that it is an entity listed as

a per se corporation under Sec. 301.7701-2(b)(8)(i) of this chapter.

(2) The trustee or middleman has on file a corporate resolution or

similar document clearly indicating corporate status. For this purpose,

a similar document includes a copy of Form 8832, filed by the unit

interest holder to elect classification as an association under

Sec. 301.7701-3(c) of this chapter.

(3) The trustee or middleman receives a Form W-9 which includes an

EIN and a statement from the unit interest holder that it is a domestic

corporation.

(4) The trustee or middleman receives a withholding certificate

described in Sec. 1.1441-1(e)(2)(i), that includes a certification that

the person whose name is on the certificate is a foreign corporation.

(B) Tax exempt organization. Any organization that is exempt from

taxation under section 501(a) is an exempt recipient. A custodial

account under section 403(b)(7) shall be considered an exempt recipient

under this paragraph. A trustee or middleman may treat an organization

as an exempt recipient under this paragraph (j)(2)(iv)(B) without

requiring a certificate if the organization's name is listed in the

compilation by the Commissioner of organizations for which a deduction

for charitable contributions is allowed, if the name of the

organization contains an unambiguous indication that it is a tax-exempt

organization, or if the organization is known to the trustee or

middleman to be a tax-exempt organization.

(C) Individual retirement plan. An individual retirement plan as

defined in section 7701(a)(37) is an exempt recipient. A trustee or

middleman may treat any such plan of which it is the trustee or

custodian as an exempt recipient under this paragraph (j)(2)(iv)(C)

without requiring a certificate.

(D) United States. The United States Government and any wholly-

owned agency or instrumentality thereof are exempt recipients. A

trustee or middleman may treat a person as an exempt recipient under

this paragraph (j)(2)(iv)(D) without requiring a certificate if the

name of such person reasonably indicates it is described in this

paragraph (j)(2)(iv)(D).

(E) State. A State, the District of Columbia, a possession of the

United States, a political subdivision of any of the foregoing, a

wholly-owned agency or instrumentality of any one or more of the

foregoing, and a pool or partnership composed exclusively of any of the

foregoing are exempt recipients. A trustee or middleman may treat a

person as an exempt recipient under this paragraph (j)(2)(iv)(E)

without requiring a certificate if the name of such person reasonably

indicates it is described in this paragraph (j)(2)(iv)(E) or if such

person is known generally in the community to be a State, the District

of Columbia, a possession of the United States or a political

subdivision or a wholly-owned agency or instrumentality or any one or

more of the foregoing (for example, an account held in the name of

``Town of S'' or ``County of T'' may be treated as held by an exempt

recipient under this paragraph (j)(2)(iv)(E)).

(F) Foreign government. A foreign government, a political

subdivision of a foreign government, and any wholly-owned agency or

instrumentality of either of the foregoing are exempt recipients. A

trustee or middleman may treat a foreign government or a political

subdivision thereof as an exempt recipient under this paragraph

(j)(2)(iv)(F) without requiring a certificate provided that its name

reasonably indicates that it is a foreign government or provided that

it is known to the trustee or middleman to be a foreign government or a

political subdivision thereof (for example, an account held in the name

of the ``Government of V'' may be treated as held by a foreign

government).

(G) International organization. An international organization and

any wholly-owned agency or instrumentality thereof are exempt

recipients. The term international organization shall have the meaning

ascribed to it in section 7701(a)(18). A trustee or middleman may treat

a unit interest holder as an international organization without

requiring a certificate if the unit interest holder is designated as an

international organization by executive order (pursuant to 22 U.S.C.

288 through 288f).

(H) Foreign central bank of issue. A foreign central bank of issue

is an exempt recipient. A foreign central bank of issue is a bank which

is by law or government sanction the principal authority, other than

the government itself, issuing instruments intended to circulate as

currency. See Sec. 1.895-1(b)(1). A trustee or middleman may treat a

person as a foreign central bank of issue (and, therefore, as an exempt

recipient) without requiring a certificate

[[Page 43359]]

provided that such person is known generally in the financial community

as a foreign central bank of issue or if its name reasonably indicates

that it is a foreign central bank of issue.

(I) Securities and commodities dealer. A dealer in securities,

commodities, or notional principal contracts that is registered as such

under the laws of the United States or a State or under the laws of a

foreign country is an exempt recipient. A trustee or middleman may

treat a dealer as an exempt recipient under this paragraph

(j)(2)(iv)(I) without requiring a certificate if the person is known

generally in the investment community to be a dealer meeting the

requirements set forth in this paragraph (j)(2)(iv)(I) (for example, a

registered broker-dealer or a person listed as a member firm in the

most recent publication of members of the National Association of

Securities Dealers, Inc.).

(J) Real Estate Investment Trust. A real estate investment trust,

as defined in section 856 and Sec. 1.856-1, is an exempt recipient. A

trustee or middleman may treat a person as a real estate investment

trust (and, therefore, as an exempt recipient) without requiring a

certificate if the person is known generally in the investment

community as a real estate investment trust.

(K) Entity registered under the Investment Company Act of 1940. An

entity registered at all times during the taxable year under the

Investment Company Act of 1940, as amended (15 U.S.C. 80a-1), (or

during such portion of the taxable year that it is in existence), is an

exempt recipient. An entity that is created during the taxable year

will be treated as meeting the registration requirement of the

preceding sentence provided that such entity is so registered at all

times during the taxable year for which such entity is in existence. A

trustee or middleman may treat such an entity as an exempt recipient

under this paragraph (j)(2)(iv)(K) without requiring a certificate if

the entity is known generally in the investment community to meet the

requirements of the preceding sentence.

(L) Common trust fund. A common trust fund, as defined in section

584(a), is an exempt recipient. A trustee or middleman may treat the

fund as an exempt recipient without requiring a certificate provided

that its name reasonably indicates that it is a common trust fund or

provided that it is known to the trustee or middleman to be a common

trust fund.

(M) Financial institution. A financial institution such as a bank,

mutual savings bank, savings and loan association, building and loan

association, cooperative bank, homestead association, credit union,

industrial loan association or bank, or other similar organization,

whether organized in the United States or under the laws of a foreign

country is an exempt recipient. A financial institution also includes a

clearing organization defined in Sec. 1.163-5(c)(2)(i)(D)(8) and the

Bank for International Settlements. A trustee or middleman may treat

any person described in the preceding sentence as an exempt recipient

without requiring a certificate if the person's name (including a

foreign name, such as ``Banco'' or ``Banque'') reasonably indicates the

unit interest holder is a financial institution described in the

preceding sentence.

(N) Trust. A trust which is exempt from tax under section 664(c)

(i.e., a charitable remainder annuity trust or a charitable remainder

unitrust) or is described in section 4947(a)(1) (relating to certain

charitable trusts) is an exempt recipient. A trustee or middleman which

is a trustee of the trust may treat the trust as an exempt recipient

without requiring a certificate.

(O) Middlemen. A middleman, as defined in paragraph (j)(1) of this

section, is an exempt recipient.

(P) Brokers. A broker, as defined in section 6045(c) and

Sec. 1.6045-1(a)(1), is an exempt recipient.

(Q) Real estate mortgage investment conduit. A real estate mortgage

investment conduit, as defined in section 860D(a), is an exempt

recipient.

(R) A widely held fixed investment trust. A widely held fixed

investment trust, as defined in paragraph (j)(1) of this section, is an

exempt recipient.

(3) Trustee's requirement to furnish information to middlemen,

exempt recipients, and noncalendar-year taxpayers--(i) In general. The

trustee must cause to be printed in a publication generally read by and

available to requesting persons, the name, address, and telephone

number of a representative or official of the trust who will provide

the information specified in paragraph (j)(3)(ii) of this section to

such persons. The trustee must provide the information in the time and

manner prescribed in paragraph (j)(3)(iii)(C) of this section to

requesting persons who request the information in the manner prescribed

in paragraph (j)(3)(iii)(B) of this section.

(ii) Information required to be reported. For each calendar quarter

or calendar year specified, the trustee must have available and

provide, upon request, the following information computed as of the

last day of the quarter, or computed as of December 31 of the year

specified--

(A) The name of the trust, the name and address of the trustee of

the trust, and the employer identification number of the trust;

(B) The Committee on Uniform Security Identification Procedure

(CUSIP) number, account number, serial number or other identifying

number of the trust;

(C) All items of income (determined in accordance with paragraph

(j)(6)(i) of this section), deduction, and credit of the trust,

expressed both as a total dollar amount for the trust and as a dollar

amount per unit outstanding on the last day of the period requested;

(D) If any trust asset has been sold or otherwise disposed of

during the period requested, the gross proceeds received by the trust

for the trust asset, the date of sale or disposition of the trust

asset, and the percentage of that trust asset that has been sold or

disposed of. The trust must also provide a schedule showing the portion

(expressed in terms of a percentage) of the total fair market value of

all the assets held by the trust that the asset sold or disposed of

represented as of the last day of the quarter for each quarter that the

asset was held by the trust;

(E) The amount of affected expenses of the trust expressed both as

a total dollar amount and as a dollar amount per unit outstanding on

the last day of the period requested;

(F) In the case of a widely held fixed investment trust that holds

a pool of debt instruments subject to section 1272(a)(6)(C)(iii), the

information required by paragraph (j)(6)(ii) of this section;

(G) The number of units outstanding on the last business day of the

period requested; and

(H) Any other information necessary for a unit interest holder that

is the beneficial owner of a trust interest to properly report the

income, deductions, and credits attributable to the portion of the

trust treated as owned by the unit interest holder under section 671.

For this purpose, the trustee shall separately state any trust item

that, if taken into account separately by a unit interest holder, could

result in an income tax liability for that unit interest holder

different from that which would result if the unit interest holder did

not take the item into account separately.

(iii) Providing and requesting trust information--(A) Requesting

persons. The following persons that hold an interest in a trust may

request the information specified in paragraph (j)(3)(ii) of this

section from that trust--

(1) Any middleman;

[[Page 43360]]

(2) Any broker who holds a unit interest on its own behalf;

(3) Any other exempt recipient who holds an interest directly and

not through a middleman;

(4) Any noncalendar-year unit interest holder who holds a trust

interest directly and not through a middleman; and

(5) A representative or agent for a person specified in paragraphs

(j)(3)(iii)(A) (1) through (4) of this section.

(B) Manner of requesting information from the trust. A requesting

person may request the information specified in paragraph (j)(3)(ii) of

this section in writing or by telephone. The request must specify the

calendar quarters or years for which the information is needed.

(C) Time and manner of furnishing information--(1) Manner of

furnishing information. The information specified in paragraph

(j)(3)(ii) of this section may be furnished as follows--

(i) By telephone;

(ii) By written statement sent by first class mail to the address

provided by the requesting person;

(iii) By causing it to be printed in a publication generally read

by and available to requesting persons and by notifying the requesting

person in writing or by telephone of the publication in which it will

appear, the date on which it will appear, and, if possible, the page on

which it will appear; or

(iv) By any other method agreed to by the parties.

(2) Time for furnishing the information. The trustee must furnish,

or cause to be furnished, the information specified in paragraph

(j)(3)(ii) of this section on or before the later of--

(i) The 30th day after the close of the period for which the

information was requested; or

(ii) The day that is 2 weeks after the receipt of the request.

(4) Requirement of furnishing statement to unit interest holder--

(i) In general. Every trustee or middleman required to file appropriate

Forms 1099 under paragraph (j)(2)(i) of this section with respect to a

particular unit interest holder must furnish to that unit interest

holder (the person whose identifying number is required to be shown on

the form) a written statement showing the information required by

paragraph (j)(4)(ii) of this section.

(ii) Information required to be provided on written statement. The

written statement must specify for the calendar year for which the

return is made the following information--

(A) The name of the trust and the CUSIP number, account number,

serial number, or other identifying number for the trust or unit

interest;

(B) The name, address, and taxpayer identification number of the

person required to send the statement;

(C) All items of income (determined in accordance with paragraph

(j)(6)(i) of this section), deduction, and credit of the trust

attributable to the unit interest holder;

(D) If any trust asset is sold, or otherwise disposed of during the

calendar year, the portion of the gross proceeds relating to the trust

asset that is attributable to the unit interest holder, the date of

sale or disposition of the trust asset, and the percentage of that

trust asset that has been sold or otherwise disposed of. A schedule

showing the portion (expressed in terms of a percentage) of the total

fair market value of all the assets held by the trust that the asset

sold or disposed of represented as of the last day of the quarter for

each quarter that the asset was held by the trust must be included with

the statement;

(E) In the case of a unit interest holder that is an affected

investor, the affected expenses that are attributable to the unit

interest holder;

(F) In the case of a widely held fixed investment trust that holds

a pool of debt instruments subject to section 1272(a)(6)(C)(iii), the

information required by paragraph (j)(6)(ii) of this section;

(G) Any other information necessary for a unit interest holder to

properly report the income, deductions, and credit attributable to the

unit interest holder under section 671. For this purpose, the trustee

or middleman, as the case may be, shall separately state any trust item

that, if taken into account separately by any unit interest holder,

could result in an income tax liability for that unit interest holder

different from that which would result if the unit interest holder did

not take the item into account separately; and

(H) A statement that the items of income, deduction, and credit and

other information shown on the statement must be taken into account in

computing the taxable income and credits of the unit interest holder on

the income tax return of the unit interest holder.

(iii) Due date and other requirements with respect to statement

required to be furnished to the unit interest holder. The statement

required to be furnished to the unit interest holder under this

paragraph (j)(4) for a calendar year must be furnished to the holder

after April 30 of that year and on or before March 15 of the year

following the year for which the statement is being furnished. The

person sending the statement must maintain in its records a copy of the

statement furnished to the unit interest holder for a period of 3 years

from the due date for furnishing such statement specified in this

paragraph (j)(4).

(5) Requirement that middlemen furnish information to exempt

recipients and noncalendar-year taxpayers. For each calendar quarter or

calendar year specified, any exempt recipient listed in paragraph

(j)(2)(iv) of this section and any noncalendar-year unit interest

holder may request from the middleman who holds the unit interest on

behalf of, or for the account of, the unit interest holder, the

information listed in paragraph (j)(4)(ii) (A) through (G) of this

section computed as of the last day of the calendar quarter specified,

or computed as of December 31 of the year specified. The middleman must

provide in writing or by telephone the information listed in paragraph

(j)(4)(ii) (A) through (G) of this section to any such requester on or

before the later of the 45th day after the close of the period for

which the information was requested, or that day that is 4 weeks after

the receipt of the request.

(6) Special rules. For purposes of this paragraph (j):

(i) Determination of trust income. Trust income is to be determined

in the following manner--

(A) The trust is to be treated as a calendar year taxpayer using

the cash receipts and disbursements method of accounting; and

(B) The amount of trust income for the calendar year is the gross

amount of income generated by the trust assets (other than from the

sale or other disposition of trust assets). Thus, in the case of a

trust that receives a payment net of an expense, the payment must be

grossed up to reflect the deducted expense.

(ii) Widely held fixed investment trust holding pool of debt

instruments subject to section 1272(a)(6)(C)(iii). In the case of a

widely held fixed investment trust that holds a pool of debt

instruments subject to section 1272(a)(6)(C)(iii), requesting persons,

unit interest holders, exempt recipients, and noncalendar-year

taxpayers must be provided, as required under paragraphs (j)(3)(ii)(F),

(j)(4)(ii)(F), and (j)(5), respectively, of this section, information

necessary to compute--

(A) The accrual of market discount, including the type of

information required under paragraphs Sec. 1.6049-7(f)(2)(i)(G) in the

case of a REMIC regular interest or a collateralized debt

[[Page 43361]]

obligation not issued with original issue discount; and

(B) The accrual of original issue discount and market discount,

including the type of information required under Sec. 1.6049-

7(f)(2)(ii) (E), (F), (I), and (K) in the case of a REMIC regular

interest or a collateralized debt obligation that is issued with

original issue discount.

(7) Backup withholding requirements. Every trustee and middleman

filing a Form 1099 under this section shall be considered a payor

within the meaning of Sec. 31.3406(a)-2 of this chapter. The obligation

of a trustee or middleman as payor to backup withhold shall be

determined pursuant to section 3406 and the regulations promulgated

thereunder.

(8) Penalties for failure to comply. Every trustee and middleman

who has a reporting obligation under this paragraph (j) and who fails

to comply is subject to the penalties provided by sections 6721, 6722,

and any other applicable penalty provisions.

(9) Effective date. Trustees and middlemen must report in

accordance with this paragraph (j) for calendar years beginning on or

after the date that the final regulations are published in the Federal

Register.

Par. 3. Section 1.6049-7 is amended by adding a sentence to the end

of paragraph (f)(4) to read as follows:

Sec. 1.6049-7 Returns of information with respect to REMIC regular

interests and collateralized debt obligations.

* * * * *

(f) * * *

(4) * * * For rules regarding a widely held fixed investment trust

that holds a pool of debt instruments subject to section

1272(a)(6)(C)(iii), see Sec. 1.671-4(j).

* * * * *

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 301.6109-1 is amended by revising the last sentence

of paragraph (a)(2)(i) to read as follows:

Sec. 301.6109-1 Identifying numbers.

(a) * * *

(2) * * * (i) * * * If the trustee has not already obtained a

taxpayer identification number for the trust, the trustee must obtain a

taxpayer identification number for the trust as provided in paragraph

(d)(2) of this section in order to report pursuant to Sec. 1.671-4 (a),

(b)(2)(i)(B), (b)(3)(i), or (j) of this chapter.

* * * * *

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

[FR Doc. 98-21640 Filed 8-12-98; 8:45 am]

BILLING CODE CODE 4830-01-U