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Tuesday,

January 24, 2006

Part III

Department of the
Treasury
Internal Revenue Service

26 CFR Parts 1, 301, and 602


Reporting for Widely Held Fixed
Investment Trusts; Final Rule
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4002 Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations

DEPARTMENT OF THE TREASURY Books or records relating to a fixed investment trust (WHFIT). (See
collection of information must be section IA below.)
Internal Revenue Service retained as long as their contents might In general, the final regulations retain
become material in the administration the structure of the Reproposed
26 CFR Parts 1, 301, and 602 of any internal revenue law. Generally, Regulations. Paragraph (c) of the
[TD 9241] tax returns and tax return information reproposed and final regulations
are confidential, as required by 26 provides general reporting requirements
RIN 1545–BA83 U.S.C. 6103. for trustees to provide information to
Reporting for Widely Held Fixed Background requesting persons, which include: (1)
Investment Trusts Middlemen, (2) beneficial owners who
This document contains amendments are brokers, (3) exempt recipients who
AGENCY: Internal Revenue Service (IRS), to 26 CFR parts 1, 301 and 602. On June hold their trust interests directly (and
Treasury. 20, 2002, the Internal Revenue Service not through a middleman), (4)
ACTION: Final regulations. (IRS) and the Treasury Department noncalendar-year beneficial owners who
withdrew proposed regulations (REG– hold their trust interests directly, and
SUMMARY: This document contains final 209813–96) relating to the reporting (5) a representative or agent of any of
regulations that define widely held requirements for widely held fixed the above. Paragraphs (d) and (e) of the
fixed investment trusts, clarify the investment trusts (WHFITs) previously reproposed and final regulations
reporting obligations of the trustees and published in the Federal Register (63 describe the responsibility of trustees
the middlemen connected with these FR 43354) on August 13, 1998 (1998 and middlemen for information
trusts, and provide for communication Proposed Regulations) and published a reporting to the IRS and beneficial
of tax information to beneficial owners new notice of proposed rulemaking owners. Paragraphs (f) and (g) of the
of trust interests. The regulations will (REG–106871–00) in the Federal reproposed and final regulations
affect trustees of, and middlemen Register (67 FR 41892) on June 20, 2002 provide reporting safe harbors.
holding interests on behalf of beneficial (Reproposed Regulations). No public
owners of trust interests with respect to, hearing was requested or held with Explanation of Revisions to Reproposed
widely held fixed investment trusts. respect to the Reproposed Regulations. Regulations and Summary of
DATES: Effective Date: These regulations Comments responding to the Comments
are effective January 24, 2006. Reproposed Regulations were received. I. Definitions
Applicability Date: For dates of After consideration of the comments,
applicability of these regulations, see the Reproposed Regulations, with A. Definition of a Widely Held Fixed
§ 1.671–5(m). certain revisions, are adopted as final Investment Trust and Classification as a
FOR FURTHER INFORMATION CONTACT: regulations by this Treasury decision. Widely Held Mortgage Trust or a Non-
Faith Colson, (202) 622–3060 (not a toll- Section 301.7701–4(c) of the Mortgage Widely Held Fixed Investment
free number). Procedure and Administration Trust
SUPPLEMENTARY INFORMATION: Regulations provides grantor trust
The Reproposed Regulations define a
treatment to an investment trust with a
Paperwork Reduction Act WHFIT as an arrangement classified as
single class of ownership interests,
a trust under § 301.7701–4(c) in which
The collection of information representing undivided beneficial
at least one interest is held by a
contained in these final regulations has interests in the assets of the trust, if
middleman, provided that the trust is
been previously reviewed and approved there is no power to vary the investment
classified as a United States person
by the Office of Management and of the owners (a fixed investment trust).
under section 7701(a)(30)(E). The final
Budget in accordance with the An investment trust with multiple
regulations retain this definition.
Paperwork Reduction Act (44 U.S.C. classes of ownership interests, in which
3507) under control number 1545–1540. there is no power to vary the investment The Reproposed Regulations
Response to this collection of of the owners will also be treated as a introduced the term widely held
information is mandatory. grantor trust, if the trust is formed to mortgage trust (WHMT) to describe a
An agency may not conduct or facilitate direct investment in the assets WHFIT, the assets of which are
sponsor, and a person is not required to of the trust and the existence of multiple mortgages, amounts received on
respond to, a collection of information classes is incidental to that purpose. mortgages, and reasonably required
unless it displays a valid control Beneficial owners of trust interests are reserve funds, as measured by value.
number assigned by the Office of treated as grantors. See § 301.7701–4(c); The final regulations expand the
Management and Budget. see also Rev. Rul. 84–10, (1984–1 C.B. definition of a WHMT, to provide that
The estimated annual burden per 155); Rev. Rul. 61–175, (1961–2 C.B. a WHFIT is also a WHMT if
recordkeeper varies from 1 to 4 hours, 128). substantially all its assets also include
depending on individual circumstances, Trustees of fixed investment trusts trust interests in one or more WHMTs
with an estimated average of 2 hours. frequently do not know the identities of and regular interests in one or more real
Comments concerning the accuracy of the beneficial owners of the trust estate mortgage investment conduits
this burden estimate and suggestions for interests and are unable to communicate (REMICs).
reducing this burden should be sent to tax information directly to them because The final regulations also introduce a
the Internal Revenue Service, Attn: IRS trust interests often are held in street new term, non-mortgage widely held
Reports Clearance Officer, name, i.e., in the name of a middleman. fixed investment trust (NMWHFIT), to
SE:W:CAR:MP:T:T:SP, Washington DC The reproposed and final regulations clarify and distinguish the requirements
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20224, and to the Office of Management provide rules that specifically require and reporting safe-harbor for WHMTs
and Budget, Attn: Desk Officer for the the sharing of tax information among from the requirements and reporting
Department of Treasury, Office of trustees, middlemen, and beneficial safe harbor applicable to other WHFITS.
Information and Regulatory Affairs, owners of fixed investment trusts that A NMWHFIT is any WHFIT that is not
Washington, DC 20503. meet the definition of a widely held a WHMT.

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B. Definition of a Mortgage individual item or to a group of items requesting persons throughout the
The Reproposed Regulations provide depending on whether the item must be calendar year at the trustee’s discretion.
a reporting safe harbor for WHMTs that reported individually under § 1.671– For example, if a trustee uses a monthly
directly hold interests in mortgages; the 5(c)(1)(i) and (e)(1). calculation period, the trustee must
safe harbor is not available to tiered provide a single statement to requesting
E. Definition of Start-Up Date persons at the end of the year that
arrangements. The IRS and the Treasury
The Reproposed Regulations define contains the information required to be
Department, after considering the
the start-up date of a WHFIT as the date reported under these regulations for
comments received with respect to the
on which substantially all of the assets each month of the calendar year. In
Reproposed Regulations, have
and the contracts for the purchase of addition to the calendar year statement,
determined that the definition of a
assets are deposited with the trustee of the trustee may, but is not required to,
mortgage should be clarified in the final
the WHFIT. The Reproposed provide additional statements to
regulations to provide that an interest in
Regulations also define an asset to requesting persons during the calendar
a WHMT is not a mortgage under the
include an interest in a contract. year.
regulations. Accordingly, the final To further clarify that a trustee may
Because the definition of an asset
regulations define a mortgage as an choose the period for calculating the
includes an interest in a contract, the
obligation that is principally secured by information required to be reported
definition of the start-up date in the
an interest in real property within the under these regulations, but in all
Reproposed Regulations is revised in
meaning of § 1.860G–2(a)(5) of the events must report that information to
the final regulations to provide that the
Income Tax Regulations, except that a requesting persons on a calendar year
start-up date is the date on which
mortgage does not include an interest in basis, the final regulations refer to the
substantially all of the assets are
another WHMT or an interest in a period chosen by the trustee for
deposited with the trustee.
mortgage held by another WHMT. The calculating trust information as the
principal effect of this change is to II. General Reporting and Record calculation period rather than the
clarify that, although a WHFIT investing Retention Obligations reporting period.
in another WHMT is classified as a
A. Requirement That the Trustee B. Trustee’s Burden To Retain
WHMT and is subject to the general
Provide Trust Information on a Information and Supplemental Data
reporting provisions that apply only to
Calendar Year Basis
WHMTs, it is not eligible for the WHMT The Reproposed Regulations provide
safe harbor reporting rules for the In general, the reproposed and final that, throughout the duration of the trust
reasons discussed in section VI(B) regulations require the trustee to and for a period of five years following
below. provide information regarding the the termination of the trust, a trustee
WHFIT to requesting persons. The must retain: (1) A copy of the
C. Definition of Trust Interest Holders, Reproposed Regulations provide that information required to be provided to
Beneficial Owners and Middleman the trustee could choose either a requesting persons each year; and (2)
Under the Reproposed Regulations, a calendar month, calendar quarter, or any supplemental data necessary to
unit interest holder is defined as any half or full calendar year reporting establish that the information provided
person who holds a direct or indirect period, provided that the information to requesting persons is correct and
interest in a WHFIT at any time during furnished by the trustee under the meets the requirements of paragraph (c)
the calendar year. The final regulations chosen reporting period allowed the (supplemental data).
replace the term unit interest holder recipient to determine the WHFIT items One commentator noted that some
with two new terms: Trust interest attributable to a particular beneficial WHFITs, particularly WHMTs, may be
holder (TIH) and beneficial owner. A owner with reasonable accuracy, in existence for up to 30 years and that
TIH is any person who holds a direct or regardless of the owner’s taxable year or the requirement in the Reproposed
indirect interest in a WHFIT at any time the period of time during the calendar Regulations for a trustee to maintain the
during the calendar year. A beneficial year that the owner held the unit WHFIT’s records for up to 35 years is
owner is a TIH who holds a beneficial interest. overly burdensome. The commentator
interest in a WHFIT. As in the One commentator was concerned that acknowledged that the IRS and
Reproposed Regulations, in the final if a trustee choose a reporting period investors may need to obtain WHFIT
regulations, the term middleman refers shorter than a full calendar year, the information from the trustee before the
to a TIH that holds a trust interest on trustee might also report trust limitations period applicable to a
behalf of, or for the account of, another information to middlemen more than beneficial owner’s taxable year expires
person, or who otherwise acts in a once a year and because of this, and suggested that the final regulations
capacity as an intermediary for the middlemen would be required to provide that a trustee only be required
account of another person. process WHFIT information more than to retain information for a certain period
once a year. Another commentator was after the close of the calendar year to
D. Definition of Item concerned that, if a trustee chose a which the information relates.
The Reproposed Regulations use the reporting period shorter than a calendar The IRS and the Treasury Department
term item without defining that term. year, the trustee could be required to adopt this suggestion with respect to
Item as used in the final regulations report trust information more than once supplemental data. However,
refers broadly to an item of income, a year. information with respect to each
expense, or credit as well as any trust In response to these comments, the calendar year of the WHFIT may be
event (for example, the sale of an asset) final regulations provide that, regardless required by the IRS and by beneficial
or any characteristic or attribute of the of the period chosen by the trustee for owners in order to determine tax items
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above that affects the income, calculating trust information, the trustee of a beneficial owner (for example,
deductions, or credits reported by a must provide the information required market discount or basis) for the entire
beneficial owner in any taxable year that under these regulations on a calendar life of the WHFIT and for several years
the beneficial owner holds a trust year basis. The trustee, of course, may after its termination. For this reason, the
interest. Item also may refer to an provide additional trust information to final regulations continue to require the

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trustee to retain a copy of the trustee calculates and provides identifying investment trusts as WHFITs
information required to be provided to information on the basis of a trust and in locating the WHFIT’s
requesting persons for the duration of interest with respect to that trust item representatives.
the WHFIT and for at least five years under paragraph (c) of the regulations. In response to these comments, the
after its termination. The IRS and the final regulations require a trustee to
D. Elimination of Separate General
Treasury Department believe that this identify the WHFIT as either a WHMT
Reporting Rules for WHMTs
requirement is not overly burdensome or a NMWHFIT when identifying the
because this information can be The Reproposed Regulations include
separate reporting requirements for trust representative. Further, the IRS
maintained electronically. The final and the Treasury Department are
regulations modify the requirement with trustees and middlemen of WHMTs and
trustees and middlemen of WHFITs studying whether a directory or list of
respect to supplemental data by WHFITs can be compiled by the IRS.
providing that trustees need only retain other than WHMTs (i.e., non-mortgage
widely-held fixed investment trusts or The IRS and Treasury Department are
supplemental data for five years after concerned that such a directory is not
the close of the calendar year to which NMWHFITs as defined in these final
regulations), with respect to market currently feasible because of the large
the supplemental data relates.
discount, bond premium, and principal number of WHMTs. However, the IRS
C. Manner in Which WHFIT Information payments. The final regulations include and Treasury request additional
Is To Be Provided general reporting requirements with comments from middlemen regarding
The Reproposed Regulations provide respect to market discount, bond the type of WHFITs that should be
that WHFIT information may be premium, and non pro-rata partial included in any directory, the type of
provided in any manner that enables a principal payment information that information needed by middlemen
requesting person to determine, with apply to all WHFITs. As under the (especially, middlemen holding WHMT
reasonable accuracy, the WHFIT items Reproposed Regulations, the final interests), and the format of a directory
that are attributable to a beneficial regulations require WHMTs to provide that would be most helpful. The IRS and
owner for the taxable year of that market discount, bond premium, and Treasury Department also request
beneficial owner. The Reproposed non pro-rata partial principal payment comments from trustees regarding how
Regulations further require that this information regardless of whether the the IRS could obtain the trust
information be furnished in a format WHMT meets one of the de minimis information needed for the directory
that generally conforms to industry tests described in section III of the from the trustees in the least
practice for the reporting of a particular Preamble. Under the final regulations, burdensome manner for taxpayers as
item of income, deduction, or credit for however, NMWHFITs that meet the well as the Government.
the type of asset or assets held by the general de minimis test or the qualified III. Reporting of Asset Sales and
WHFIT. NMWHFIT exception (also described in Dispositions
One commentator suggested that, if section III of the Preamble) are not
the trustee is not providing trust required to provide information A. General Information Reporting
information under a safe harbor, regarding bond premium and market Requirements
information could be shared more discount.
accurately and processed more Under the Reproposed Regulations,
efficiently if trustees were required to E. Requirement That a Trustee Identify the trustee is required to provide
calculate and provide trust information a Representative of the WHFIT and information that would enable a
on the basis of trust interests. The IRS Identify the WHMT or as a NMWHFIT requesting person to calculate the
and the Treasury Department do not The Reproposed Regulations require a amount of trust sales proceeds
agree that calculating and providing trustee of a WHFIT to provide the name, attributable to a beneficial owner with
trust information on a per trust interest address and telephone number of the respect to each sale or disposition of an
basis is always the best method for WHFIT representative in a publication asset by the trust. In addition, consistent
conveying information with respect to widely available to middlemen, in the with grantor trust treatment, unless a
trust items that are not reported under trust’s prospectus, or at the trustee’s WHFIT meets the ‘‘de minimis test,’’
the safe harbors. The requirement that Internet website. The final regulations (discussed in III(B) of this Preamble),
the trustee provide information retain this requirement. Further, if the the trustee is required under the
consistent with industry practice is trustee provides trust information at an Reproposed Regulations to provide
intended to ensure that trustees provide Internet website, the final regulations information that would enable a
WHFIT information in a format that can also require trustees, in addition to beneficial owner to allocate with
be processed by the systems used by the providing information regarding the reasonable accuracy a portion of its
majority of middlemen. Accordingly, WHFIT representative, to provide the basis in its trust interest and to allocate
the final regulations do not adopt the address of the Internet website at which a portion of its market discount or bond
suggestion. the trustee provides WHFIT premium, if any, to each sale or
One commentator also suggested that information. disposition of an asset by the trust. The
middlemen be permitted to furnish Two commentators were concerned final regulations retain these general
beneficial owners with information that middlemen would not be able to information reporting requirements for
calculated on a trust interest basis rather identify a client’s investment as an asset sales and dispositions. Although
than the amount of the item that is investment in a WHFIT and suggested the requirements to provide market
attributable to the beneficial owner. The that the IRS publish a directory or list discount and bond premium
final regulations permit a middleman or of WHFITs that would include the name information (discussed in section II(D)
a trustee to furnish information and CUSIP number of each WHFIT, of this Preamble), are the same as those
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calculated on a trust interest basis to a along with the name, address and in the Reproposed Regulations, in the
beneficial owner with respect to a trust telephone number of the WHFIT’s final regulations, for purposes of clarity,
item, if: (1) The amount of the item is representative. Commentators noted that these requirements are provided
not required to be provided to the IRS a publicly available directory or list separately from the requirement to
on an information return; and (2) the would assist middlemen and brokers in provide information with respect to

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sales and dispositions of assets by the C. Extension of Simplified Reporting to NMWHFIT meets either the general
trust. NMWHFITs That Meet the Qualified WHFIT de minimis test for the calendar
The final regulations retain the NMWHFIT Exception year, or the qualified NMWHFIT
exception from the general information Several commentators requested that exception, the final regulations require:
reporting requirements for WHFITs that the final regulations except WHFITs (1) Trustees to report information that
meet the general de minimis test. In having a start-up date prior to the date will enable middlemen to determine the
addition, the final regulations provide of publication of these final regulations amount of trust sales proceeds
an exception for WHMTs that meet a from the requirement to report basis, distributed to each beneficial owner
special de minimis test for WHMTs that market discount, and bond premium during the calendar year; and (2)
directly hold interests in mortgages (the information with respect to sales and middlemen and trustees to report to the
WHMT de minimis test is discussed in dispositions. These commentators also IRS and to each beneficial owner the
section III(E) of this Preamble). The final requested that trustees and middlemen amount of trust sales proceeds that are
regulations also provide an exception be permitted to report information distributed to that beneficial owner.
from the general information reporting regarding distributed trust sales
proceeds rather than attributable trust E. Simplified Reporting for WHMTs
requirements for NMWHFITs that meet
sales proceeds. That Meet the General de minimis Test
the qualified NMWHFIT exception,
To accommodate the industry’s or the Special WHMT de minimis Test
which is applicable only to NMWHFITs
with a start up date that is on or before concerns regarding existing
In addition to the general WHFIT de
February 23, 2006. NMWHFITs, the final regulations add
an exception for qualified NMWHFITs minimis test, the final regulations also
B. Simplified Reporting for WHFITs (the qualified NMWHFIT exception). provide a special WHMT de minimis
That Meet the General WHFIT de The qualified NMWHFIT exception is test that applies to WHMTs that directly
minimis Test met if a NMWHFIT has a start-up date hold interests in mortgages (the special
that is on or before February 23, 2006 WHMT de minimis test). The special
For WHFITs that meet a de minimis and the calendar year for which the WHMT de minimis test is met if the
test, the Reproposed Regulations trustee is reporting begins before trust sales proceeds received by the
substantially simplified reporting with January 1, 2011. NMWHFITs that meet WHMT for the calendar year are not
respect to the sale or disposition of a the qualified NMWHFIT exception are more than five percent of the aggregate
trust asset from that required under the excepted from the requirement that outstanding principal balance of the
1998 Proposed Regulations. These trustees and middlemen provide WHMT (as defined in paragraph
simplified rules balanced current information regarding basis, market (g)(1)(iii)(D) of the final regulations) as
industry practice with the need for discount, and bond premium. of January 1 of that year. In applying the
beneficial owners to accurately report special WHMT de minimis test,
the tax consequences of ownership of a D. Distributed Trust Sales Proceeds May
Be Reported by Trustees and Middlemen amounts that result from the complete
trust interest. Under the Reproposed or partial payment of the outstanding
Regulations, the WHFIT de minimis test of Trusts Meeting the General de
minimis Test or the Qualified principal balance of the mortgages held
is satisfied for the calendar year if the by the WHMT are not included in the
NMWHFIT Exception
aggregate amount of trust sales proceeds amount of trust sales proceeds. A
for that calendar year is not more than Several commentators noted that the WHMT that holds interests in another
five percent of the fair market value of requirement in the Reproposed
WHMT or that holds interests in a
the assets of the trust as of January 1 of Regulations that trustees of WHFITs
REMIC may not use the special WHMT
that year (the general WHFIT de other than WHMTs (NMWHFITs in
these final regulations) report de minimis test, but may use the general
minimis test). The Reproposed WHFIT de minimis test (discussed in
Regulations define trust sales proceeds information to enable a requesting
person to determine the amount of trust section III(B), above).
as the gross proceeds received by the
WHFIT with respect to a sale or sales proceeds attributable to a If a WHMT meets the special WHMT
disposition of an asset by the WHFIT. beneficial owner would impose an de minimis test or the general WHFIT
undue burden. These commentators de minimis test, trustees and
Under the Reproposed Regulations, if noted that, under current industry middlemen are excepted from the
the trust meets the general WHFIT de practice, trustees and middlemen of general requirement to report
minimis test, the trustee is excepted WHFITs other than WHMTs only report information to enable a beneficial owner
from the requirement to report to the IRS and the beneficial owner the to allocate basis to a sale or disposition
information regarding basis, market amount of trust sales proceeds and are only required to report
discount and bond premium. The IRS distributed to the beneficial owner.
and Treasury Department recognize that information regarding the trust sales
The IRS and Treasury Department proceeds that are attributable to a
this method of reporting will likely have determined that if a NMWHFIT
result in some deferral of both gain and particular beneficial owner. If a WHMT
meets either the general WHFIT de does not meet a de miminis test, trustees
loss for investors, but have determined minimis test for the calendar year or the
that, in cases where the WHFIT has de and middlemen must report information
qualified NMWHFIT exception, the
minimis sales and dispositions, the to enable a beneficial owner to allocate
purpose of reporting trust sales proceeds
level of deferral is acceptable given the basis to the sale or disposition as well
information to beneficial owners (e.g., to
costs of fully accurate reporting of sales enable beneficial owners to adjust their as the trust sales proceeds that are
and dispositions. The final regulations basis in their trust interest to account for attributable to the beneficial owner.
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retain this exception from the general the sale or disposition of the trust asset)
requirement to provide basis, market is met if the beneficial owner is given
discount and bond premium information regarding the amount of
information for WHFITs that meet the trust sales proceeds distributed to the
general de minimis test. beneficial owner. Accordingly, if a

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IV. Exception for Certain Equity Trusts middlemen provide information to safe harbor requirements on or before
From the Requirement That Trustees determine the trust income that should January 1, 2007 and does so for the life
and Middlemen Report Information To be attributed to a redeeming, selling, or of the WHFIT.
Enable a Requesting Person To purchasing beneficial owner. Under the Reproposed Regulations
Determine the Income That Is The IRS and the Treasury Department and the final regulations, a WHMT must
Attributable to a Redeeming or Selling recognize, however, that if an equity meet the eligibility requirements of
Beneficial Owner Up to the Date of trust frequently distributes its income, § 1.671–5(g)(1)(ii) and report
Redemption or Sale the trust is not likely to accumulate consistently with the safe harbor
The Reproposed Regulations require significant undistributed dividend reporting rules to be deemed to have
trustees and middlemen to report income. In such a case, the increased met its reporting requirements under
accuracy that results from providing paragraph (c) of the regulations with
information to enable requesting
beneficial owners with accurate income respect to the trust items described in
persons to determine the income of the
information up to the date of sale or the safe harbor. The final regulations
WHFIT attributable to a selling,
redemption does not warrant the burden eliminate two of the eligibility
purchasing, or redeeming beneficial
of compiling and reporting this requirements in the Reproposed
owner for the portion of the calendar
information. Accordingly, under the Regulations that are inconsistent with
year that the beneficial owner held its
final regulations, trustees or middlemen the rule that the safe harbor must be
trust interest. Commentators objected to
of equity trusts that are required by their used for the life of the WHMT.
this requirement for WHFITs if
substantially all the income of the governing documents to distribute all B. Request for Comments Regarding the
WHFIT is comprised of dividends cash (less reasonably required reserve Need for Safe Harbors for NMWHFITs
(equity trusts). These commentators funds) held by the NMWHFIT at least That Are Outside the Safe Harbor in the
noted that although trustees and monthly need not provide information Final Regulations
middlemen report interest income regarding the income that is attributable
to a redeeming, selling, or purchasing The Reproposed Regulations include
earned by the WHFIT up to the date of safe harbor reporting rules available to
redemption or sale of a trust interest, beneficial owner up to the date of sale
or redemption. The final regulations WHFITs other than WHMTs (i.e.,
providing this information with respect NMWHFITs). If the trustee of a WHFIT
to dividend income is inconsistent with also except trustees and middlemen of
an equity trust that meets the qualified other than a WHMT reports consistently
long-standing WHFIT industry reporting with the safe harbor, the trustee is
practice. Currently there is no NMWHFIT exception (described in
deemed to have met the requirements of
mechanism in place for communicating section III of this Preamble) from the
paragraph (c)(1) of the Reproposed
this information between trustees and requirement that trustees and
Regulations. Those safe harbor reporting
middlemen of equity trusts. Under middlemen provide information
rules were developed in response to
current industry practice, the entire regarding the income that is attributable
comments received on the 1998
amount paid to a beneficial owner who to a redeeming, selling, or purchasing
Proposed Regulations describing the
sells or redeems an interest in an equity beneficial owner up to the date of sale
current reporting practices of WHFITs
trust, including the amount paid for or redemption.
that primarily receive dividend and
undistributed dividends held by the V. Safe Harbor Reporting for WHFITs interest income.
trust at the time of the sale or Upon reconsideration of those safe
redemption, is reported to the IRS and A. The Safe Harbors Must Be Used harbor reporting rules and the various
to the beneficial owner as gross Consistently types of NMWHFITs, the IRS and the
proceeds. As a result, a selling or Under the Reproposed Regulations, a Treasury Department recognize that the
redeeming beneficial owner may report trustee of a WHFIT can decide whether type of information reported under
the ordinary dividend income portion of or not to use the safe harbor reporting those reporting rules is only relevant to
the payment as a capital gain. The practices on a year-by-year basis. The NMWHFITs that hold stock and debt
purchasing beneficial owner also IRS and the Treasury Department have instruments and that information
receives incorrect income information concluded, however, that middlemen reported under the safe harbor probably
that may lead the purchasing beneficial and beneficial owners should receive would not be useful to middlemen and
owner to overstate its dividend income. WHFIT information that is calculated beneficial owners of NMWHFITs that
Commentators objected to expending consistently from one calendar year to hold other types of assets. As a result,
resources for the development and the next because, assuming beneficial the IRS and Treasury concluded that
testing of new tax reporting systems to owners report trust items consistent safe harbor treatment should only be
accurately report dividend income to with the WHFIT information provided available to NMWHFITs for which the
selling, purchasing, and redeeming to them, a trustee’s change in reporting safe harbors were designed (e.g.,
beneficial owners, especially with could result in changes in the timing NMWHFITs that hold stock and debt
respect to existing equity trusts. that may impact beneficial owners. instruments) and that other safe harbor
Commentators acknowledge, Further, allowing trustees to report reporting rules should govern
however, that the net asset value of an under the safe harbor one year and not NMWHFITs that are outside the safe
equity trust, including the cash held for the next, likely would confuse and harbor. Accordingly, in the final
distribution, generally is calculated on a burden the middlemen and beneficial regulations only NMWHFITs
daily basis. Because in the final owners that must process WHFIT substantially all the income of which is
regulations, the cash held for information. Accordingly, the final comprised of dividends (as defined in
distribution is a key component in regulations require trustees that choose section 6042(b) and the regulations
calculating the amount of income to use the safe harbor to report under thereunder) or interest (as defined in
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attributable to a selling, purchasing, or the safe harbor for the life of the WHFIT. section 6049(b) and the regulations
redeeming beneficial owner under the WHFITs that have a start-up date prior thereunder) that report as provided in
safe harbor for NMWHFITs, the final to January 1, 2007 may choose to report the NMWHFIT safe harbor will be
regulations retain the general under the safe harbor provided the deemed to have met the requirements of
requirement that trustees and trustee begins to report according to the paragraph (c)(1) of the final regulations.

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The IRS and the Treasury Department treated for federal income tax purposes mortgages held by the WHMT as of the
are considering providing additional as having a proportionate share of beginning of the month. The
safe harbor reporting rules for equitable ownership in each of the Reproposed Regulations require trustees
NMWHFITs that are not under the mortgages of the WHMT. If a taxpayer to utilize a method that takes into
NMWHFIT safe harbor in the final owns mortgages outright and not in account the prepayment assumption
regulations and encourage trustees and trust, the taxpayer does not report used in pricing the original issue of trust
middlemen to submit comments mortgage sales proceeds or the complete interests. The Reproposed Regulations
regarding NMWHFITs for which further prepayment of a mortgage in the same also include a WHMT safe harbor
reporting safe harbors should be manner as the receipt of a non pro-rata provision for OID information that
provided, including information partial principal payment. That is, a required the use of the same
regarding current industry reporting taxpayer that owns two mortgages does prepayment assumption.
practice for NMWHFITs that do not not combine the sale of one mortgage Commentators reported that they
qualify for the NMWHIFIT safe harbor with the receipt of non pro-rata partial assumed that the Reproposed
in the final regulations. principal payments from the other Regulations permit trustees to use the
mortgage for purposes of calculating the safe harbor for reporting only sales and
C. Safe Harbor Reporting for WHMTs taxpayer’s federal income tax liability. dispositions and the receipt of principal
1. Reporting Sales and Dispositions For this reason and the reasons payments and to ignore other trust
Under the WHMT Safe Harbor discussed in section V(B)(3) of this items, such as market discount and OID,
Preamble, the IRS and Treasury when reporting under the safe harbor.
The 1998 Proposed Regulations did The WHMT safe harbor in the final
Department do not adopt the
not allow trustees and middlemen to regulations permits trustees and
commentators’ request.
aggregate sales and dispositions of trust middlemen of WHMTs that meet the
assets, even fungible trust assets, for 2. Requirement That Trustees Use a requirements of § 1.671–5(g)(1)(ii), to
reporting purposes. In response to Prepayment Assumption When aggregate the trust sales proceeds
comments on the 1998 Proposed Providing Market Discount and OID received from sales and dispositions of
Regulations, as well as the addition of Information Under the WHMT Safe some mortgages with non pro-rata
section 1272(a)(6)(C)(iii) to the Code in Harbor partial principal payments on other
1997, the Reproposed Regulations The Reproposed Regulations require mortgages, but the safe harbor also
permit aggregate reporting for sales and trustees and middlemen of all WHMTs requires trustees and middlemen to
dispositions and principal receipts for to report information to enable report market discount and OID
WHMTs eligible to report under the beneficial owners to calculate market information consistent with section
WHMT safe harbor. Under the WHMT discount in any reasonable manner that 1272(a)(6). Safe harbor treatment is
safe harbor, a trustee is permitted to is consistent with section 1276(a)(3). available to WHMTs that meet the
combine, for reporting purposes, Regulations have not been issued under requirements of § 1.671–5(g)(1)(ii)
amounts received as trust sales proceeds the market discount provisions of the because the IRS and the Treasury
from the sale or disposition of some Code (sections 1276 to 1278). The Department have determined that, for
mortgages (including principal receipts preamble to the Reproposed Regulations those WHMTs, if market discount and
that completely retire a mortgage) with notes that, in the absence of regulations OID are reported as provided in the safe
non pro-rata partial principal payments governing accrual of market discount, harbor, mortgage-by-mortgage reporting
from other mortgages. Thus, the safe guidance regarding the accrual of with respect to sales and dispositions
harbor permits trustees and middlemen market discount with respect to the and principal payments is unnecessary.
to report trust information as if the partial payment of a debt instrument is Accordingly, the final regulations clarify
WHMT, in effect, held only one provided in the conference report (see that, for a trustee to be deemed to have
mortgage, and to report the aggregate of H.R. Rep. No. 841, 99th Cong., 2nd met the requirements of paragraph (c)(1)
trust sales proceeds and non pro-rata Sess., at II–842 (1986)) accompanying of the regulations, the trustee must
partial principal payments as though the the amendment that enacted section report all items identified in the WHMT
trustee had received a non pro-rata 1276(a)(3) (see section 1803(a)(13)(A) of safe harbor consistent with the WHMT
partial principal payment on that the Tax Reform Act of 1986, Public Law safe harbor.
mortgage. 99–514, 100 Stat. 2085) (the Conference
The WHMT safe harbor in the 3. Reporting for WHMTs That Are
Report). Consistent with Congressional
Reproposed Regulations is only Outside the Safe Harbor
intent expressed in the Conference
available to WHMTs that met the Report indicating that holders must Some commentators may view the
requirements of § 1.671–5(g)(1)(ii) of report market discount in the absence of Conference Report as providing
those regulations. Commentators regulations, the Reproposed Regulations authority to report market discount
requested that the final regulations impose a general requirement that information using a single composite
provide that trustees of all WHMTs, not trustees and middlemen of WHMTs fraction, regardless of whether the
just those meeting the eligibility report market discount information. trustee is permitted to, and does in fact,
requirements of § 1.671–5(g)(1)(ii), be The WHMT safe harbor provision for report under the WHMT safe harbor.
allowed to apply this treatment for reporting market discount information The IRS and the Treasury Department
reporting purposes. The commentators in the Reproposed Regulations is based disagree with the commentators’ reading
suggested that reporting sales and on the Conference Report. Under that of the Conference Report as applied to
dispositions separately from principal safe harbor, trustees report market WHMTs. The Conference Report simply
payments is unnecessary because discount by providing one market provides that, until such time as the
receipt by the trust of trust sales discount fraction for the WHMT that is Treasury Department issues regulations
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proceeds and receipt of principal the ratio of, either: (1) The OID accrued regarding the computation of the accrual
payments have identical tax during the month to the total remaining of market discount, holders may elect to
consequences for a beneficial owner. OID as of the beginning of the month; accrue market discount using either a
Under Rev. Rul. 84–10 (1984–1 C.B. or (2) the interest paid during the month constant interest method or a market
155), a beneficial owner of a WHMT is to the remaining interest payable on the discount fraction.

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4008 Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations

The Conference Report may implicitly Regulations or the final regulations. Regarding the applicability of these
discuss aggregate reporting in that it Nothing in the Reproposed Regulations reporting rules to existing WHFITs, one
states that, in the case of debt or these final regulations alters the commentator requested that the final
instruments that would be subject to the application of section 6048 to United regulations except all WHFITs in
OID rules contained in section States investors in a foreign fixed existence as of the effective date of the
1272(a)(6) (without regard to whether investment trust. The preamble to the final regulations from the new reporting
the debt instruments have OID), the Reproposed Regulations notes that the rules. Other commentators requested
same prepayment assumption that IRS and the Treasury Department that WHFITs in existence as of the
would be made in computing OID continue to study how to facilitate the effective date of the final regulations be
would be made in computing the application of section 6048 rules to excepted from specific provisions. The
accrual of market discount (whether or foreign fixed investment trusts and final regulations apply to all WHFITs,
not the taxpayer elects to accrue market requested comments on this issue, including those in existence as of the
discount on the basis of a constant including how forms 3520 and 3520A effective date. However, in response to
interest rate). Section 1272(a)(6)(C)(iii) could be adapted for use with foreign the comments, the final regulations
provides that section 1272(a)(6) applies fixed investment trusts. except certain NMWHFITs that have a
to any pool of debt instruments, the Commentators suggested that many start-up date on or before February 23,
yield on which may be affected by beneficial owners of interests in a 2006 from specific reporting
reason of prepayments. However, no foreign fixed investment trust cannot requirements regarding market discount,
guidance has been issued regarding the comply with the reporting requirements bond premium, sales and dispositions,
application of section 1272(a)(6)(C)(iii). of section 6048 because they cannot redemptions, and sales of trust interests
Until guidance is issued under section obtain the necessary information from until January 1, 2011. The details of
1272(a)(6)(C)(iii), the IRS and Treasury the trustee. These commentators these exceptions have been discussed in
Department believe that it is appropriate suggested that, rather than adapting sections IID, III, and IV of this preamble.
to provide safe harbor treatment only for Forms 3520 and 3520A to foreign fixed Special Analysis
trustees of relatively straight forward investment trusts, the IRS and the
arrangements who report information It has been determined that this
Treasury Department should permit Treasury decision is not a significant
consistent with the application of certain foreign fixed investment trusts to
section 1272(a)(6) as provided by the regulatory action as defined in
report pursuant to the reporting rules in Executive Order 12866. Therefore, a
safe harbor reporting rules. these regulations. The commentators regulatory assessment is not required. It
4. Reporting Bond Premium Under the also suggested that the final regulations is hereby certified that these regulations
WHMT Safe Harbor provide that, if a foreign fixed will not have a significant economic
The Reproposed Regulations include investment trust reports pursuant to impact on a substantial number of small
a general requirement that trustees and these reporting rules, United States entities. This certification is based on
middlemen of all WHMTs report investors in the trust be excepted from the fact that the regulations generally
information to enable beneficial owners the reporting rules in section 6048. The clarify existing reporting obligations and
to determine the amount of amortizable IRS and the Treasury Department intend are expected, for the most part, to have
bond premium, if any, in any manner to provide guidance in the area of minimal impact on industry practice,
that is reasonably consistent with foreign trust reporting and will consider and to not have a significant economic
section 171. The Reproposed whether any of the suggested impact on entities subject to the
Regulations reserve the portion of the approaches for WHFITs are more regulations. Further, the reporting
WHMT safe harbor on reporting appropriate in this context. burdens in these regulations will fall
information regarding bond premium. VII. Effective Date of Final Regulations primarily on large brokerage firms, large
None of the comments on the and Applicability to Existing WHFITs banks, and other large entities acting as
Reproposed Regulations specifically trustees or middlemen, most of which
addressed bond premium issues. The Reproposed Regulations provide are not small entities within the
Accordingly, the final regulations that the reporting rules were to be meaning of the Regulatory Flexibility
continue to reserve guidance on the applicable beginning January 1, 2004. Act (5 U.S.C. chapter 6). Thus, a
issue while the IRS and the Treasury Most commentators requested that the substantial number of small entities are
Department study how bond premium applicability date be delayed until not expected to be affected. Therefore, a
information is to be appropriately January 1, 2005, to enable trustees and Regulatory Flexibility Analysis under
reported for WHMTs. The IRS and the middlemen to change their reporting the Regulatory Flexibility Act (5 U.S.C.
Treasury Department welcome systems to comply with the new chapter 6) is not required. Pursuant to
comments on this issue. Until safe reporting rules. To ensure that there is section 7805(f) of the Code, the
harbor reporting rules are provided for sufficient time to comply with the proposed and the Reproposed
bond premium, a trustee will not be reporting requirements, the final Regulations preceding these regulations
penalized if the trustee reports regulations provide that these were submitted to the Chief Counsel for
information that enables a beneficial regulations are effective January 1, 2007. Advocacy of the Small Business
owner to determine, in any manner Accordingly, beginning with the 2007 Administration for comment on their
reasonably consistent with section 171, calendar year, trustees must report trust impact on small business.
the amount of the beneficial owner’s information in accordance with
paragraph (c) of the final regulations. Drafting Information
amortizable bond premium, if any, for
the calendar year. Trustees and middlemen must file The principal author of these
Forms 1099 with the IRS and furnish tax regulations is Faith Colson of the Office
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VI. Application of Reporting Rules to information statements to beneficial of Associate Chief Counsel
Foreign Fixed Investment Trusts owners that meet the requirements of (Passthroughs and Special Industries).
A fixed investment trust that is not paragraphs (d) and (e) of the final However, other personnel from the IRS
classified as a United States person is regulations with respect to the 2007 and the Treasury Department
not a WHFIT under the Reproposed calendar year and all subsequent years. participated in their development.

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List of Subjects (iv) Gross income requirement. (vi) Reporting the sale of a trust interest
(2) Information to be reported by all WHFITs. under the safe harbor.
26 CFR Part 1 (i) Trust identification and calculation period (vii) Reporting OID information under the
Income taxes, Reporting and chosen. safe harbor.
recordkeeping requirements. (ii) Items of income, expense, and credit. (viii) Reporting market discount information
(iii) Non pro-rata partial principal payments. under the safe harbor.
26 CFR Part 301 (iv) Asset sales and dispositions. (ix) Reporting bond premium information
(v) Redemptions and sales of WHFIT under the safe harbor.
Employment taxes, Estate taxes, interests. (x) Reporting additional information.
Excise taxes, Gift taxes, Income taxes, (vi) Information regarding bond premium. (2) Use of information provided by trustees
Penalties, Reporting and recordkeeping (vii) Information regarding market discount. under the safe harbor for NMWHFITs.
requirements. (viii) Other information. (i) In general.
(3) Identifying the representative who will (ii) Determining NMWHFIT income and
26 CFR Part 602 provide trust information. expenses under the safe harbor.
Reporting and recordkeeping (4) Time and manner of providing (iii) Reporting non pro-rata partial principal
requirements. information. payments under the safe harbor.
(i) Time. (iv) Reporting sales and dispositions of
Adoption of the Amendments to the (ii) Manner. NMWHFIT assets under the safe harbor.
Regulations (iii) Inclusion of information with respect to (v) Reporting redemptions under the safe
all calculation periods. harbor.
■ Accordingly, 26 CFR parts 1, 301, and (5) Requesting information from a WHFIT. (vi) Reporting sales of trust interests under
602 are amended as follows: (i) In general. the safe harbor.
(ii) Manner of requesting information. (vii) Reporting OID information under the
PART 1—INCOME TAXES (iii) Period of time during which a requesting safe harbor.
person may request WHFIT information. (viii) Reporting market discount information
■ Paragraph 1. The authority citation (6) Trustee’s requirement to retain records. under the safe harbor.
for part 1 continues to read, in part, as (d) Form 1099 requirement for trustees and (ix) Reporting bond premium information
follows: middlemen. under the safe harbor.
Authority: 26 U.S.C. 7805 * * * (1) Obligation to file Form 1099 with the IRS. (3) Example of the use of the safe harbor for
(i) In general. NMWHFITs.
■ Par. 2. Section 1.671–4 is amended by (ii) Forms 1099 not required for exempt (i) Facts.
revising paragraph (a) to read as follows: recipients. (ii) Trustee reporting.
(iii) Reporting and withholding with respect (iii) Brokers’ use of information provided by
§ 1.671–4 Method of reporting. to foreign persons. Trustee.
(a) Portion of trust treated as owned (2) Information to be reported. (g) Safe Harbor for certain WHMTs.
by the grantor or another person. Except (i) Determining amounts to be provided on (1) Safe harbor for trustees of certain WHMTs
as otherwise provided in paragraph (b) Forms 1099. for reporting information.
(ii) Information to be provided on Forms (i) In general.
of this section and § 1.671–5, items of 1099. (ii) Requirements.
income, deduction, and credit (3) Time and manner of filing Forms 1099. (iii) Reporting WHMT income, expenses, non
attributable to any portion of a trust (i) Time and place. pro-rata partial principal payments, and
that, under the provisions of subpart E (ii) Reporting trust sales proceeds, sales and dispositions under the safe
(section 671 and following), part I, redemption asset proceeds, redemption harbor.
subchapter J, chapter 1 of the Internal proceeds, sales asset proceeds, sales (iv) Reporting OID information under the safe
Revenue Code, is treated as owned by proceeds, and non pro-rata partial harbor.
the grantor or another person, are not principal payments. (v) Reporting market discount information
reported by the trust on Form 1041, (e) Requirement to furnish a written tax under the safe harbor.
information statement to the TIH. (vi) Reporting bond premium information
‘‘U.S. Income Tax Return for Estates and (1) In general. under the safe harbor.
Trusts,’’ but are shown on a separate (2) Information required. (2) Use of information provided by a trustee
statement to be attached to that form. (i) WHFIT information. under the safe harbor.
Section 1.671–5 provides special (ii) Identification of the person furnishing the (i) In general.
reporting rules for widely held fixed statement. (ii) Reporting WHMT income, expenses, non
investment trusts. Section 301.7701– (iii) Items of income, expense, and credit. pro-rata partial principal payments, and
4(e)(2) of this chapter provides guidance (iv) Non pro-rata partial principal payments. sales and dispositions under the safe
regarding the application of the (v) Asset sales and dispositions. harbor.
reporting rules in this paragraph (a) to (vi) Redemption or sale of a trust interest. (iii) Reporting OID information under the
(vii) Information regarding market discount safe harbor.
an environmental remediation trust. and bond premium. (iv) Requirement to provide market discount
* * * * * (viii) Other information. information under the safe harbor.
■ Par. 3. Section 1.671–5 is added to (ix) Required statement. (v) Requirement to provide bond premium
read as follows: (3) Due date and other requirements. information under the safe harbor.
(4) Requirement to retain records. (3) Example of safe harbor in paragraph (g)(1)
§ 1.671–5 Reporting for widely held fixed (f) Safe harbor for providing information for of this section.
investment trusts. certain NMWHFITs. (i) Facts.
(a) Table of contents. This table of (1) Safe harbor for trustee reporting of (ii) Trustee reporting.
contents lists the major paragraph NMWHFIT information. (iii) Broker’s use of the information provided
(i) In general. by Trustee.
headings for this section. (ii) Reporting NMWHFIT income and (h) Requirement that middlemen furnish
(a) Table of contents. expenses. information to beneficial owners that are
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(b) Definitions. (iii) Reporting non pro-rata partial principal exempt recipients and non calendar year
(c) Trustee’s obligation to report information. payments under the safe harbor. beneficial owners.
(1) In general. (iv) Reporting sales and dispositions of (1) In general.
(i) Calculation. NMWHFIT assets under the safe harbor. (2) Time for providing information.
(ii) Calculation period. (v) Reporting redemptions under the safe (3) Manner of providing information.
(iii) Accounting method. harbor. (4) Clearing organization.

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4010 Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations

(i) Reserved. group of items depending on whether (iv) A noncalendar-year beneficial


(j) Coordination with other information the item must be reported separately owner who holds a trust interest
reporting rules. under paragraphs (c)(1)(i) and (e)(1) of directly and not through a middleman;
(k) Backup withholding requirements. this section. or
(l) Penalties for failure to comply. (v) A representative or agent of a
(10) A middleman is any TIH, other
(m) Effective date.
than a qualified intermediary as defined person specified in this paragraph
(b) Definitions. Solely for purposes of in § 1.1031(k)–1(g), who, at any time (b)(16).
this section: during the calendar year, holds an (17) The sales asset proceeds equal
(1) An asset includes any real or interest in a WHFIT on behalf of, or for the sales proceeds (as defined in
personal, tangible or intangible property the account of, another TIH, or who paragraph (b)(18) of this section) less the
held by the trust, including an interest otherwise acts in a capacity as an cash held for distribution with respect
in a contract. intermediary for the account of another to the sold trust interest at the time of
(2) An affected expense is an expense person. A middleman includes, but is the sale.
described in § 1.67–2T(i)(1). not limited to— (18) The sales proceeds equal the total
(3) A beneficial owner is a trust (i) A custodian of a person’s account, amount paid to a selling TIH in
interest holder (TIH) (as defined in such as a bank, financial institution, or consideration for the sale of a trust
paragraph (b)(20) of this section) that brokerage firm acting as custodian of an interest.
holds a beneficial interest in a widely account; (19) The start-up date is the date on
held fixed investment trust (WHFIT) (as (ii) A nominee; which substantially all of the assets
defined in paragraph (b)(22) of this (iii) A joint owner of an account or have been deposited with the trustee of
section.) instrument other than— the WHFIT.
(4) The calculation period is the (A) A joint owner who is the spouse (20) A trust interest holder (TIH) is
period the trustee chooses under of the other owner; and any person who holds a direct or
paragraph (c)(1)(ii) of this section for (B) A joint owner who is the indirect interest, including a beneficial
calculating the trust information beneficial owner and whose name interest, in a WHFIT at any time during
required to be provided under appears on the Form 1099 filed with the calendar year.
paragraph (c) of this section. respect to the trust interest under (21) Trust sales proceeds equal the
(5) The cash held for distribution is paragraph (d) of this section; and amount paid to a WHFIT for the sale or
the amount of cash (other than trust (iv) A broker (as defined in section disposition of an asset held by the
sales proceeds) that would be payable to 6045(c)(1) and § 1.6045–1(a)(1)), holding WHFIT, including principal payments
TIHs if the amount of a distribution an interest for a customer in street received by the WHFIT that completely
were required to be determined as of the name. retire a debt instrument (other than a
date in question. (11) A mortgage is an obligation that final scheduled principal payment) and
(6) A clean-up call is the redemption is principally secured by an interest in pro-rata partial principal prepayments
of all trust interests in termination of the real property within the meaning of described under § 1.1275–2(f)(2). Trust
WHFIT when the administrative costs of § 1.860G–2(a)(5), except that a mortgage sales proceeds do not include amounts
the WHFIT outweigh the benefits of does not include an interest in another paid for any interest income that would
maintaining the WHFIT. WHFIT or mortgages held by another be required to be reported under
(7) An exempt recipient is— WHFIT. § 1.6045–(d)(3).
(i) Any person described in § 1.6049– (12) A non-mortgage widely held fixed (22) A widely held fixed investment
4(c)(1)(ii); investment trust (NMWHFIT) is a trust (WHFIT) is an arrangement
(ii) A middleman (as defined in classified as a trust under § 301.7701–
WHFIT other than a widely held
paragraph (b)(10) of this section); 4(c) of this chapter, provided that—
mortgage trust (as defined in paragraph
(iii) A real estate mortgage investment (i) The trust is a United States person
(b)(23) of this section). under section 7701(a)(30)(E);
conduit (as defined in section 860(D)(a)) (13) A non pro-rata partial principal
(REMIC); (ii) The beneficial owners of the trust
payment is any partial payment of are treated as owners under subpart E,
(iv) A WHFIT; or principal received on a debt instrument
(v) A trust or an estate for which the part I, subchapter J, chapter 1 of the
which does not retire the debt Internal Revenue Code; and
trustee or middleman of the WHFIT is instrument and which is not a pro-rata
also required to file a Form 1041, ‘‘U.S. (iii) At least one interest in the trust
prepayment described in § 1.1275– is held by a middleman.
Income Tax Return for Estates and 2(f)(2). (23) A widely held mortgage trust
Trusts,’’ in its capacity as a fiduciary of (14) The redemption asset proceeds (WHMT) is a WHFIT, the assets of
that trust or estate. equal the redemption proceeds (as which consist only of one or more of the
(8) An in-kind redemption is a defined in paragraph (b)(15) of this following—
redemption in which a beneficial owner section) less the cash held for (i) Mortgages;
receives a pro-rata share of each of the distribution with respect to the (ii) Regular interests in a REMIC;
assets of the WHFIT that the beneficial redeemed trust interest. (iii) Interests in another WHMT;
owner is deemed to own under section (15) The redemption proceeds equal (iv) Reasonably required reserve
671. the total amount paid to a redeeming funds;
(9) An item refers to an item of TIH as the result of a redemption of a (v) Amounts received on the assets
income, expense, or credit as well as trust interest. described in paragraphs (b)(23)(i), (ii),
any trust event (for example, the sale of (16) A requesting person is— (iii), and (iv) of this section pending
an asset) or any characteristic or (i) A middleman; distribution to TIHs; and
attribute of the trust that affects the (ii) A beneficial owner who is a (vi) During a brief initial funding
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income, deductions, and credits broker; period, cash and short-term contracts for
reported by a beneficial owner in any (iii) A beneficial owner who is an the purchase of the assets described in
taxable year that the beneficial owner exempt recipient who holds a trust paragraphs (b)(23)(i), (ii), and (iii).
holds an interest in the trust. An item interest directly and not through a (c) Trustee’s obligation to report
may refer to an individual item or a middleman; information—(1) In general. Upon the

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request of a requesting person (as trust’s sponsor knows or reasonably completely retires a debt instrument
defined in paragraph (b)(16) of this should know that a WHFIT is marketed (including a mortgage held by a WHMT)
section), a trustee of a WHFIT must primarily to accrual method TIHs and or a pro-rata prepayment on a debt
report the information described in the WHFIT holds assets for which the instrument (see § 1.1275–2(f)(2)) held by
paragraph (c)(2) of this section to the timing of the recognition of income is a WHFIT must be reported as a full or
requesting person. The trustee must materially affected by the use of the partial sale or disposition of the debt
determine such information in accrual method of accounting, the instrument.
accordance with the following rules— trustee must calculate and report trust (A) General rule. Except as provided
(i) Calculation. WHFIT information information using the accrual method of in paragraph (c)(2)(iv)(B) (regarding the
may be calculated in any manner that accounting. exception for certain NMWHFITs) or
enables a requesting person to (iv) Gross income requirement. The (c)(2)(iv)(C) (regarding the exception for
determine with reasonable accuracy the amount of income required to be certain WHMTs) of this section, the
WHFIT items described in paragraph reported by the trustee is the gross trustee must report with respect to each
(c)(2) of this section that are attributable income (as defined in section 61) sale or disposition of a WHFIT asset—
(or, if permitted under paragraphs generated by the WHFIT’s assets. Thus, (1) The date of each sale or
(c)(2)(iv)(B) or (f)(2)(iii) of this section, in the case of a WHFIT that receives a disposition;
distributed) to a beneficial owner for the payment of income from which an (2) Information that enables a
taxable year of that owner. The manner expense (or expenses) has been requesting person to determine the
of calculation must generally conform deducted, the trustee, in calculating the amount of trust sales proceeds (as
with industry practice for calculating income to be reported under paragraph defined in paragraph (b)(21) of this
the WHFIT items described in (c)(2)(ii) of this section, must report the section) attributable to a beneficial
paragraph (c)(2) of this section for the income earned on the trusts assets owner as a result of each sale or
type of asset or assets held by the unreduced by the deducted expense or disposition; and
WHFIT, and must enable a requesting (3) Information that enables a
expenses and separately report the
person to separately state any WHFIT beneficial owner to allocate, with
deducted expense or expenses. See
item that, if taken into account reasonable accuracy, a portion of the
paragraph (c)(2)(iv) of this section
separately by a beneficial owner, would owner’s basis in its trust interest to each
regarding reporting with respect to sales
result in an income tax liability different sale or disposition.
and dispositions. (B) Exception for certain NMWHFITs.
from that which would result if the (2) Information to be reported by all
owner did not take the item into If a NMWHFIT meets either the general
WHFITs. With respect to all WHFITs—
account separately. WHFIT de minimis test of paragraph
(i) Trust identification and
(ii) Calculation period—WHFIT (c)(2)(iv)(D)(1) of this section for a
calculation period chosen. The trustee
information may be calculated on the calendar year, or the qualified
must report information identifying the
basis of a calendar month, calendar NMWHFIT exception of paragraph
WHFIT, including—
quarter, or half or full calendar year, (A) The name of the WHFIT; (c)(2)(iv)(E) of this section, the trustee is
provided that a trustee uses the same (B)The employer identification not required to report under paragraph
calculation period for the life of the number of the WHFIT; (c)(2)(iv)(A) of this section. Instead, the
WHFIT and the information provided by (C) The name and address of the trustee must report sufficient
the trustee meets the requirements of trustee; information to enable a requesting
paragraph (c)(1)(i) of this section. (D) The Committee on Uniform person to determine the amount of trust
Regardless of the calculation period Security Identification Procedure sales proceeds distributed to a beneficial
chosen by the trustee, the trustee must (CUSIP) number, account number, serial owner during the calendar year with
provide information requested by a number, or other identifying number of respect to each sale or disposition of a
requesting person under paragraph the WHFIT; trust asset. The trustee also must
(c)(5) on a calendar year basis. The (E) The classification of the WHFIT as provide requesting persons with a
trustee may provide additional either a WHMT or NMWHFIT; and statement that the NMWHFIT is
information to requesting persons (F) The calculation period used by the permitted to report under this paragraph
throughout the calendar year at the trustee. (c)(2)(iv)(B).
trustee’s discretion. (ii) Items of income, expense, and (C) Exception for certain WHMTs. If a
(iii) Accounting method—(A) General credit. The trustee must report WHMT meets either of the de minimis
rule. WHFIT information must be information detailing— tests of paragraph (c)(2)(iv)(D) of this
calculated and reported using the cash (A) All items of gross income section for the calendar year, the trustee
receipts and disbursements method of (including OID); is not required to report under
accounting unless another method is (B) All items of expense (including paragraph (c)(2)(iv)(A) of this section.
required by the Internal Revenue Code affected expenses); and Instead, the trustee must report
or regulations with respect to a specific (C) All items of credit. information to enable a requesting
trust item. Accordingly, a trustee must (iii) Non pro-rata partial principal person to determine the amount of trust
provide information necessary for TIHs payments. The trustee must report sales proceeds attributable to a
to comply with the rules of subtitle A, information detailing non pro-rata beneficial owner as a result of the sale
chapter 1, subchapter P, part V, subpart partial principal payments (as defined or disposition. The trustee also must
A of the Internal Revenue Code, which in paragraph (b)(13) of this section) provide requesting persons with a
require the inclusion of accrued received by the WHFIT. statement that the WHMT is permitted
amounts with respect to OID, and (iv) Asset sales and dispositions. The to report under this paragraph
section 860B(b), which requires the trustee must report information (c)(2)(iv)(C).
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inclusion of accrued amounts with regarding sales and dispositions of (D) De minimis tests—(1) General
respect to a REMIC regular interest. WHFIT assets as required in this WHFIT de minimis test. The general
(B) Exception for WHFITs marketed paragraph (c)(2)(iv). For purposes of this WHFIT de minimis test applies to a
predominantly to taxpayers on the paragraph (c)(2)(iv), a payment (other NMWHFIT or to a WHMT that does not
accrual method. If the trustee or the than a final scheduled payment) that meet the requirements for the special

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WHMT de minimis test in paragraph (2) In-kind redemptions. The value of WHFIT de minimis test of paragraph
(c)(2)(iv)(D)(2) of this section. The the assets received with respect to an in- (c)(2)(iv)(D)(1) of this section or the
general WHFIT de minimis test is kind redemption (as defined in qualified NMWHFIT exception of
satisfied if trust sales proceeds for the paragraph (b)(8) of this section) is not paragraph (c)(2)(iv)(E) of this section,
calendar year are not more than five required to be reported under this the trustee of such NMWHFIT is not
percent of the aggregate fair market paragraph (c)(2)(v)(A). Information required to report information regarding
value of all assets held by the trust as regarding the income attributable to a bond premium.
of the later of January 1st of that year or redeeming beneficial owner must, (vii) Information regarding market
the trust’s start-up date (as defined in however, be reported under paragraph discount. The trustee generally must
paragraph (b)(19) of this section). (c)(2)(v)(A)(1)(iii) of this section. report information that enables a
(2) Special WHMT de minimis test. A (B) Sale of a trust interest—Unless beneficial owner to determine, in any
WHMT that meets the asset requirement paragraph (c)(2)(v)(C) (regarding certain manner reasonably consistent with
of paragraph (g)(1)(ii)(D) of this section NMWHFITs with dividend income) of section 1276 (including section
satisfies the special WHMT de minimis this section applies, if a secondary 1276(a)(3)), the amount of the market
test in this paragraph (c)(2)(iv)(D)(2) if market for trust interests in the WHFIT discount that has accrued during the
trust sales proceeds for the calendar is established, the trustee must provide, calendar year. However, if for the
year are not more than five percent of for each day of the calendar year, calendar year, a NMWHFIT meets either
the aggregate outstanding principal information to enable a requesting the general WHFIT de minimis test of
balance of the WHMT (as defined in person to determine— paragraph (c)(2)(iv)(D)(1) of this section
paragraph (g)(1)(iii)(D) of this section) as (1) The sale asset proceeds (as defined or the qualified NMWHFIT exception of
of the later of January 1st of that year or in paragraph (b)(17) of this section) per paragraph (c)(2)(iv)(E) of this section,
the trust’s start-up date. For purposes of trust interest on that date; and the trustee of such NMWHFIT is not
(2) The gross income that is required to provide information
applying the special WHMT de minimis
attributable to a selling beneficial owner regarding market discount.
test in this paragraph (c)(2)(iv)(D)(2),
and to a purchasing beneficial owner for (viii) Other information. The trustee
amounts that result from the complete
the portion of the calendar year that must provide any other information
or partial payment of the outstanding
each held the trust interest. necessary for a beneficial owner of a
principal balance of the mortgages held (C) Exception for certain NMWHFITs
by the trust are not included in the trust interest to report, with reasonable
with dividend income. The trustee of a accuracy, the items (as defined in
amount of trust sales proceeds. NMWHFIT to which this paragraph
(3) Effect of clean-up call. If a WHFIT paragraph (b)(9) of this section)
applies is not required to report the attributable to the portion of the trust
fails to meet either de minimis test information described in paragraph
described in this paragraph (c)(2)(iv)(D) treated as owned by the beneficial
(c)(2)(v)(A) (regarding redemptions) or owner under section 671.
solely as the result of a clean-up call, as (c)(2)(v)(B) (regarding sales) of this
defined in paragraph (b)(6) of this (3) Identifying the representative who
section. However, the trustee must will provide trust information. The
section, the WHFIT will be treated as report to requesting persons, for each
having met the de minimis test. trustee must identify a representative of
date on which the amount of the WHFIT who will provide the
(E) Qualified NMWHFIT exception. redemption proceeds to be paid for the
The qualified NMWHFIT exception is information specified in this paragraph
redemption of a trust interest is (c). The trustee also may identify an
satisfied if a NMWHFIT has a start-up determined, information that will
date that is before February 23, 2006 Internet website at which the trustee
enable requesting persons to determine will provide the information specified
and the calendar year for which the the redemption proceeds per trust
trustee is reporting begins before in this paragraph (c). This information
interest on that date. The trustee also must be—
January 1, 2011. must provide requesting persons with a
(v) Redemptions and sales of WHFIT (i) Printed in a publication generally
statement that this paragraph applies to read by, and available to, requesting
interests—(A) Redemptions—(1) In the NMWHFIT. This paragraph applies
general. Unless paragraph (c)(2)(v)(C) of persons;
to a NMWHFIT if substantially all the (ii) Stated in the trust’s prospectus; or
this section (regarding certain income of the NMWHFIT consists of (iii) Posted at the trustee’s Internet
NMWHFITs with dividend income) dividends (as defined in section 6042(b) website.
applies, for each date on which the and the regulations thereunder) and— (4) Time and manner of providing
amount of redemption proceeds for the (1) The trustee is required by the information—(i) Time—(A) In general.
redemption of a trust interest is governing document of the NMWHFIT Except as provided in paragraph
determined, the trustee must provide to make distributions of all cash (less (c)(4)(i)(B) of this section, a trustee must
information to enable a requesting reasonably required reserve funds) held provide the information specified in this
person to determine— by the NMWHFIT no less frequently paragraph (c) to requesting persons on
(i) The redemption proceeds (as than monthly; or or before the later of—
defined in paragraph (b)(15) of this (2) The qualified NMWHFIT (1) The 30th day after the close of the
section) per trust interest on that date; exception of paragraph (c)(2)(iv)(E) of calendar year to which the request
(ii) The redemption asset proceeds (as this section is satisfied. relates; or
defined in paragraph (b)(14) of this (vi) Information regarding bond (2) The day that is 14 days after the
section) per trust interest on that date; premium. The trustee generally must receipt of the request.
and report information that enables a (B) Trusts holding interests in other
(iii) The gross income that is beneficial owner to determine, in any WHFITs or in REMICs. If the WHFIT
attributable to the redeeming beneficial manner that is reasonably consistent holds an interest in one or more other
rwilkins on PROD1PC63 with RULES_3

owner for the portion of the calendar with section 171, the amount of the WHFITs or holds one or more REMIC
year that the redeeming beneficial beneficial owner’s amortizable bond regular interests, or holds both, a trustee
owner held its interest (including premium, if any, for each calendar year. must provide the information specified
income earned by the WHFIT after the However, if for the calendar year, a in this paragraph (c) to requesting
date of the last income distribution). NMWHFIT meets either the general persons on or before the later of—

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(1) The 44th day after the close of the may be necessary to establish that the or middleman on the appropriate Form
calendar year to which the request information provided to requesting 1099 must be consistent with the
relates; or persons is correct and meets the information provided by the trustee
(2) The day that is 28 days after the requirements of this paragraph (c). under paragraph (c) of this section and
receipt of the request. (d) Form 1099 requirement for must reflect with reasonable accuracy
(ii) Manner. The information specified trustees and middlemen—(1) Obligation the amount of each item required to be
in this paragraph (c) must be provided— to file Form 1099 with the IRS—(i) In reported on a Form 1099 that is
(A) By written statement sent by first general. Except as provided in attributable (or if permitted under
class mail to the address provided by paragraphs (d)(1)(ii) and (iii) of this paragraphs (d)(2)(ii)(D) and (E) of this
the requesting person; section— section, distributed) to the TIH. If the
(B) By causing it to be printed in a (A) The trustee must file with the IRS trustee, in providing WHFIT
publication generally read by and the appropriate Forms 1099, reporting information, uses the safe harbors in
available to requesting persons and by the information specified in paragraph paragraph (f)(1) or (g)(1) of this section,
notifying requesting persons in writing (d)(2) of this section with respect to any then the trustee or middleman must
of the publication in which it will TIH who holds an interest in the WHFIT calculate the information to be provided
appear, the date on which it will appear, directly and not through a middleman; to the IRS on the Forms 1099 in
and, if possible, the page on which it and accordance with paragraph (f)(2) or
will appear; (B) Every middleman must file with (g)(2) of this section, as appropriate.
(C) By causing it to be posted at an the IRS the appropriate Forms 1099, (ii) Information to be provided on
Internet website, provided the trustee reporting the information specified in Forms 1099. The trustee or middleman
identifies the website under paragraph paragraph (d)(2) of this section with must include on the appropriate Forms
(c)(3) of this section; respect to any TIH on whose behalf or 1099:
(D) By electronic mail provided that account the middleman holds an
(A) Taxpayer information. The name,
the requesting person requests that the interest in the WHFIT or acts as an
address, and taxpayer identification
trustee furnish the information by intermediary.
(ii) Forms 1099 not required for number of the TIH;
electronic mail and the person furnishes
exempt recipients—(A) In general. A (B) Information regarding the person
an electronic address; or
(E) By any other method agreed to by Form 1099 is not required with respect filing the Form 1099. The name,
the trustee and the requesting person. to a TIH who is an exempt recipient (as address, taxpayer identification number,
(iii) Inclusion of information with defined in paragraph (b)(7) of this and telephone number of the person
respect to all calculation periods. If a section), unless the trustee or required to file the Form 1099;
trustee calculates WHFIT information middleman backup withholds under (C) Gross income. All items of gross
using a calculation period other than a section 3406 on payments made to an income of the WHFIT attributable to the
calendar year, the trustee must provide exempt recipient (because, for example, TIH for the calendar year (including OID
information for each calculation period the exempt recipient has failed to and all amounts of income attributable
that falls within the calendar year furnish a Form W–9 on request). If the to a selling, purchasing, or redeeming
requested. trustee or middleman backup TIH for the portion of the calendar year
(5) Requesting information from a withholds, then the trustee or that the TIH held its interest (unless
WHFIT—(i) In general. Requesting middleman is required to file a Form paragraph (c)(2)(v)(C) of this section
persons may request the information 1099 under this paragraph (d) unless the (regarding certain NMWHFITs with
specified in this paragraph (c) from a trustee or middleman refunds the dividend income) applies));
WHFIT. amount withheld in accordance with (D) Non pro-rata partial principal
(ii) Manner of requesting information. § 31.6413(a)–3 of this chapter. payments. All non pro-rata partial
In requesting WHFIT information, a (B) Exempt recipients must include principal payments (as defined in
requesting person must specify the WHFIT information in computing paragraph (b)(13) of this section)
WHFIT and the calendar year for which taxable income. A beneficial owner who received by the WHFIT that are
information is requested. is an exempt recipient must obtain attributable (or distributed, in the case
(iii) Period of time during which a WHFIT information and must include of a trustee or middleman reporting
requesting person may request WHFIT the items (as defined in paragraph (b)(9) under paragraph (f)(2)(iii) of this
information. For the life of the WHFIT of this section) of the WHFIT in section) to the TIH;
and for five years following the date of computing its taxable income on its (E) Trust sales proceeds. All trust
the WHFIT’s termination, a requesting federal income tax return. Paragraphs sales proceeds (as defined in paragraph
person may request the information (c)(3) and (h) of this section provide (b)(21) of this section) that are
specified in this paragraph (c) for any rules for exempt recipients to obtain attributable to the TIH for the calendar
calendar year of the WHFIT’s existence information from a WHFIT. year, if any, or, if paragraph (c)(2)(iv)(B)
beginning with the 2007 calendar year. (iii) Reporting and withholding with of this section (regarding certain
(6) Trustee’s requirement to retain respect to foreign persons. The items of NMWHFITs) applies, the amount of
records. For the life of the WHFIT and the WHFIT attributable to a TIH who is trust sales proceeds distributed to the
for five years following the date of not a United States person must be TIH for the calendar year;
termination of the WHFIT, the trustee reported, and amounts must be (F) Reporting redemptions. All
must maintain in its records a copy of withheld, as provided under subtitle A, redemption asset proceeds (as defined
the information required to be provided chapter 3 of the Internal Revenue Code in paragraph (b)(14) of this section) paid
to requesting persons this paragraph (c) (sections 1441 through 1464) and the to the TIH for the calendar year, if any,
for each calendar year beginning with regulations thereunder and not reported or, if paragraph (c)(2)(v)(C) of this
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the 2007 calendar year. For a period of under this paragraph (d). section (regarding certain NMWHFITs
five years following the close of the (2) Information to be reported—(i) with dividend income) applies, all
calendar year to which the data Determining amounts to be provided on redemption proceeds (as defined in
pertains, the trustee also must maintain Forms 1099. The amounts reported to paragraph (b)(15) of this section) paid to
in its records such supplemental data as the IRS for a calendar year by a trustee the TIH for the calendar year;

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(G) Reporting sales of a trust interest trust item reported to a TIH under this (3) Information that will enable the
on a secondary market. All sales asset paragraph (e) must be consistent with TIH to allocate with reasonable accuracy
proceeds (as defined in paragraph the information reported to the IRS with a portion of the TIH’s basis in the TIH’s
(b)(17) of this section) paid to a TIH for respect to the TIH under paragraph (d) trust interest to the sale or disposition.
the sale of a trust interest or interests on of this section. Information provided in (B) Special rule for certain
a secondary market established for the this written statement must be NMWHFITs and WHMTs. In the case of
WHFIT for the calendar year, if any, or, determined in accordance with the rules a NMWHFIT to which paragraph
if paragraph (c)(2)(v)(C) of this section provided in paragraph (d)(2)(i) of this (c)(2)(iv)(B) of this section applies or in
(regarding certain NMWHFITs with section (regardless of whether the the case of a WHMT to which paragraph
dividend income) applies, all sales information was required to be provided (c)(2)(iv)(C) of this section applies, the
proceeds (as defined in paragraph on a Form 1099). Further, the trustee or written tax information statement must
(b)(18) of this section) paid to the TIH middleman must separately state on the include, with respect to asset sales and
for the calendar year; and written tax information statement any dispositions, only the information
(H) Other information. Any other items that, if taken into account required to be reported to the IRS on
information required by the Form 1099. separately by that TIH, would result in Form 1099 under paragraph (d)(2)((ii)(E)
(3) Time and manner of filing Forms an income tax liability that is different of this section.
1099—(i) Time and place. The Forms from the income tax liability that would (vi) Redemption or sale of a trust
1099 required to be filed under this result if the items were not taken into interest. The written tax information
paragraph (d) must be filed on or before account separately. statement must include the information
February 28 (March 31, if filed (2) Information required. For the required to be reported to the IRS on
electronically) of the year following the calendar year, the written tax Forms 1099 under paragraphs
year for which the Forms 1099 are being information statement must meet the (d)(2)(ii)(F) and (G) of this section
filed. The returns must be filed with the following requirements: (regarding the sales and redemptions of
appropriate Internal Revenue Service (i) WHFIT information. The written trust interests made by the TIH for the
Center, at the address listed in the tax information statement must include calendar year);
instructions for the Forms 1099. For the name of the WHFIT and the (vii) Information regarding market
extensions of time for filing returns identifying number of the WHFIT ; discount and bond premium. The
under this section, see § 1.6081–1, the (ii) Identification of the person written tax information statement must
instructions for the Forms 1099, and furnishing the statement. The written include the information required to be
applicable revenue procedures (see tax information statement must include reported by the trustee under
§ 601.601(d)(2) of this chapter). For the name, address, and taxpayer paragraphs (c)(2)(vi) and (vii) of this
magnetic media filing requirements, see identification number of the person section (regarding bond premium and
§ 301.6011–2 of this chapter. required to furnish the statement; market discount);
(ii) Reporting trust sales proceeds, (iii) Items of income, expense, and (viii) Other information. The written
redemption asset proceeds, redemption credit. The written tax information tax information statement must include
proceeds, sale asset proceeds, sales statement must include information any other information necessary for the
proceeds and non pro-rata partial regarding the items of income (that is, TIH to report, with reasonable accuracy
principal payments—(A) Form to be the information required to be reported for the calendar year, the items (as
used. Trust sales proceeds, redemption to the IRS on Forms 1099), expense defined in paragraph (b)(9) of this
asset proceeds, redemption proceeds, (including affected expenses), and credit section) attributable to the portion of the
sale asset proceeds, sales proceeds, and that are attributable to the TIH for the trust treated as owned by the TIH under
non pro-rata partial principal payments calendar year; section 671. The written tax information
are to be reported on the same type of (iv) Non pro-rata partial principal statement may include information with
Form 1099 as that required for reporting payments. The written tax information respect to a trust item on a per trust
gross proceeds under section 6045. statement must include the information interest basis if the trustee has reported
(B) Appropriate reporting for in-kind required to be reported to the IRS on (or calculated) the information with
redemptions. The value of the assets Forms 1099 under paragraph respect to that item on a per trust
distributed with respect to an in-kind (d)(2)(ii)(D) of this section (regarding the interest basis and information with
redemption is not required to be non pro-rata partial principal payments respect to that item is not required to be
reported to the IRS. Unless paragraph that are attributable (or distributed, in reported on a Form 1099; and
(c)(2)(v)(C) of this section applies, the the case of a trustee or middleman (ix) Required statement. The written
trustee or middleman must report the reporting under paragraph (f)(2)(iii) of tax information statement must inform
gross income attributable to the this section) to the TIH for the calendar the TIH that the items of income,
redeemed trust interest for the calendar year). deduction, and credit, and any other
year up to the date of the redemption (v) Asset sales and dispositions—(A) information shown on the statement
under paragraph (d)(2)(ii)(C) of this General rule. Unless paragraph must be taken into account in
section. (c)(2)(iv)(B) (regarding the exception for computing the taxable income and
(e) Requirement to furnish a written certain NMWHFITs) or (c)(2)(iv)(C) credits of the TIH on the Federal income
tax information statement to the TIH— (regarding the exception for certain tax return of the TIH. If the written tax
(1) In general. Every trustee or WHMTs) of this section applies, the information statement reports that an
middleman required to file appropriate written tax information statement must amount of qualified dividend income is
Forms 1099 under paragraph (d) of this include, with respect to each sale or attributable to the TIH, the written tax
section with respect to a TIH must disposition of a WHFIT asset for the information statement also must inform
furnish to that TIH (the person whose calendar year— the TIH that the TIH must meet the
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identifying number is required to be (1) The date of sale or disposition; requirements of section 1(h)(11)(B)(iii)
shown on the form) a written tax (2) Information regarding the trust to treat the dividends as qualified
information statement showing the sales proceeds that are attributable to dividends.
information described in paragraph the TIH as a result of the sale or (3) Due date and other requirements.
(e)(2) of this section. The amount of a disposition; and The written tax information statement

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must be furnished to the TIH on or the calendar year. The trustee must total amount of NMWHFIT distributions
before March 15 of the year following determine the total amount of for the calendar year; and
the calendar year for which the NMWHFIT distributions (actual and (2) Expense factors. For each item of
statement is being furnished. deemed) for the calendar year. If the expense paid by a NMWHFIT during the
(4) Requirement to retain records. For calculation of the total amount of calendar year, the trustee must
a period of no less than five years from NMWHFIT distributions under this determine the ratio of the gross amount
the due date for furnishing the written paragraph (f)(1)(ii)(A) results in a zero or of that item of expense to the total
tax information statement, a trustee or a negative number, the trustee may not amount of NMWHFIT distributions for
middleman must maintain in its records determine income and expense the calendar year.
a copy of any written tax information information under this paragraph (C) Step Three: Determine
statement furnished to a TIH, and such (f)(1)(ii)(A) (but may report all other adjustments for reconciling the total
supplemental data as may be required to applicable items under this paragraph amount of NMWHFIT distributions
establish the correctness of the (f)(1)). The total amount of NMWHFIT (determined under Step One) with
statement. distributions equals the amount of amounts actually paid to TIHs.
(f) Safe harbor for providing NMWHFIT funds paid out to all TIHs Paragraph (f)(1)(ii)(B) of this section
information for certain NMWHFITs—(1) (including all trust sales proceeds, all (Step Two) requires an item of income
Safe harbor for trustee reporting of principal receipts, and all redemption or expense to be expressed as a ratio of
NMWHFIT information—The trustee of proceeds) for the calendar year— that item to the total amount of
a NMWHFIT that meets the (1) Increased by— NMWHFIT distributions as determined
requirements of paragraph (f)(1)(i) of (i) All amounts that would have been in paragraph (f)(1)(ii)(A) of this section
this section is deemed to satisfy distributed during the calendar year, but (Step One). A TIH’s share of the total
paragraph (c)(1)(i) of this section, if the were instead reinvested pursuant to a amount of NMWHFIT distributions may
trustee calculates and provides WHFIT reinvestment plan; and differ from the amount actually paid to
information in the manner described in (ii) All cash held for distribution to that TIH. A trustee, therefore, must
this paragraph (f) and provides a TIHs as of December 31 of the year for provide information that can be used to
statement to a requesting person giving compute a TIH’s share of the total
which the trustee is reporting; and
notice that information has been amount of NMWHFIT distributions
(2) Decreased by—
calculated in accordance with this based on the amount actually paid to
(i) All cash distributed during the
paragraph (f)(1). the TIH. A trustee satisfies this
current year that was included in a year-
(i) In general. (A) Eligibility to report requirement by providing a current
end cash allocation factor (see
under this safe harbor. Only year-end cash allocation factor, a prior
paragraph (f)(1)(ii)(C)(1) of this section) year cash allocation factor, and the date
NMWHFITs that meet the requirements for a prior year;
set forth in paragraphs (f)(1)(i)(A)(1) and on which the prior year cash was
(ii) All redemption asset proceeds distributed to TIHs (prior year cash
(2) of this section may report under this paid for the calendar year, or if
safe harbor. distribution date).
paragraph (c)(2)(v)(C) of this section (1) The current year-end cash
(1) Substantially all of the
applies to the NMWHFIT, all allocation factor. The current year-end
NMWHFIT’s income is from dividends
redemption proceeds paid for the cash allocation factor is the amount of
(as defined in section 6042(b) and the
calendar year; cash held for distribution to TIHs by the
regulations thereunder) or interest (as
(iii) All trust sales proceeds NMWHFIT as of December 31 of the
defined in section 6049(b) and the
distributed during the calendar year; calendar year for which the trustee is
regulations thereunder); and
(2) All trust interests have identical and reporting, divided by the number of
value and rights (iv) All non pro-rata partial principal trust interests outstanding as of that
(B) Consistency requirements. The payments distributed during the date.
trustee must— calendar year. (2) The prior year cash allocation
(1) Calculate all trust items subject to (3) For the purpose of determining the factor. The prior year cash allocation
the safe harbor consistent with the safe amount of all redemption asset proceeds factor is the amount of the distribution
harbor; and, (2) Report under this or redemption proceeds paid for the during the calendar year for which the
paragraph (f)(1) for the life of the calendar year with respect to paragraph trustee is reporting that was included in
NMWHFIT; or, if the NMWHFIT has a (f)(1)(ii)(A)(2)(ii) of this section, the determining a year-end cash allocation
start-up date before January 1, 2007, the value of the assets (not including cash) factor for a prior year, divided by the
NMWHFIT must begin reporting under distributed with respect to an in-kind number of trust interests outstanding on
this paragraph (f)(1) as of January 1, redemption is disregarded. Any cash the date of the distribution.
2007 and must continue to report under distributed as part of the redemption (iii) Reporting non pro-rata partial
this paragraph for the life of the must be included in the total amount of principal payments under the safe
NMWHFIT. NMWHFIT distributions. harbor. The trustee must provide a list
(ii) Reporting NMWHFIT income and (B) Step Two: Determine factors that of dates on which non pro-rata partial
expenses. A trustee must first determine express the ratios of NMWHFIT income principal payments were distributed by
the total amount of NMWHFIT and expenses to the total amount of the trust, and the amount distributed,
distributions (both actual and deemed) NMWHFIT distributions. The trustee per trust interest.
for the calendar year and then express must determine factors that express the (iv) Reporting sales and dispositions
each income or expense item as a ratios of NMWHFIT income and of NMWHFIT assets under the safe
fraction of the total amount of expenses to the total amount of harbor—(A) NMWHFITs that must
NMWHFIT distributions. These NMWHFIT distributions as follows: report under the general rule—(1) In
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fractions (hereinafter referred to as (1) Income factors. For each item of general. If a NMWHFIT must report
factors) must be accurate to at least four income generated by the NMWHFIT’s under the general rule of paragraph
decimal places. assets for the calendar year, the trustee (c)(2)(iv)(A) of this section, the trustee
(A) Step One: Determine the total must determine the ratio of the gross must provide a list of dates (from
amount of NMWHFIT distributions for amount of that item of income to the earliest to latest) on which sales or

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dispositions of NMWHFIT assets of this section applies to the NMWHFIT, reasonable accuracy the trust items that
occurred during the calendar year for the amount of the redemption proceeds are attributable to a TIH, the requesting
which the trustee is reporting and, for determined for that date; and person must request, and the trustee
each date identified, provide— (B) Paragraph (c)(2)(v)(C) statement. If must provide, additional information to
(i) The trust sales proceeds received paragraph (c)(2)(v)(C) of this section enable the requesting person to
by the trust, per trust interest, with applies to the NMWHFIT, the trustee determine the trust items that are
respect to the sales and dispositions, on must provide a statement to requesting attributable to the TIH. See, for example,
that date; persons to the effect that the trustee is paragraph (f)(2)(ii)(A)(4) of this section
(ii) The trust sales proceeds providing information consistent with which requires a middleman to request
distributed to TIHs, per trust interest, paragraph (c)(2)(v)(C) of this section. additional information from the trustee
with respect to the sales and (vi) Reporting the sale of a trust when the total amount of WHFIT
dispositions on that date, and the date interest under the safe harbor. If distributions attributable to a TIH equals
that the trust sales proceeds were paragraph (c)(2)(v)(C) of this section zero or less.
distributed to the TIHs; and does not apply to the NMWHFIT, the (2) Use of information provided by
(iii) The ratio (expressed as a trustee must provide, for each day of the trustees under the safe harbor for
percentage) of the assets sold or calendar year, the amount of cash held NMWHFITs—(i) In general. If a trustee
disposed of on that date to all assets for distribution, per trust interest, by the reports NMWHFIT items in accordance
held by the NMWHFIT. NMWHFIT on that date. If the trustee is with paragraph (f)(1) of this section, the
(2) Determination of the portion of all able to identify the date on which trust information provided with respect to
assets held by the NMWHFIT that the interests were sold on the secondary those items on the Forms 1099 required
assets sold or disposed of represented— market, the trustee alternatively may under paragraph (d) of this section to be
(i) If a NMWHFIT terminates within provide information for each day on filed with the IRS and on the statement
twenty-four months of its start-up date, which sales of trust interests occurred required under paragraph (e) of this
the ratio of the assets sold or disposed rather than for each day during the section to be furnished to the TIH must
of on that date to all assets held by the calendar year. If paragraph (c)(2)(v)(C) of be determined as provided in this
NMWHFIT is based on the fair market this section applies to the NMWHFIT, paragraph (f)(2).
value of the NMWHFIT’s assets as of the the trustee is not required to provide
(ii) Determining NMWHFIT income
start-up date; or any information under this paragraph
and expense under the safe harbor. The
(ii) If a NMWHFIT terminates more (f)(1)(vi), other than a statement that the
trustee or middleman must determine
than twenty-four months after its start- NMWHFIT meets the requirements to
the amount of each item of income and
up date, the ratio of the assets sold or report under paragraph (c)(2)(v)(C) of
expense attributable to a TIH as
disposed of on that date to all assets this section.
follows—
held by the NMWHFIT is based on the (vii) Reporting OID information under
fair market value of the NMWHFIT’s the safe harbor. The trustee must (A) Step One: Determine the total
assets as of the date of the sale or provide, for each calculation period, the amount of NMWHFIT distributions
disposition. average aggregate daily accrual of OID attributable to the TIH. To determine
(B) NMWHFITs excepted from the per $1,000 of original principal amount. the total amount of NMWHFIT
general rule. If paragraph (c)(2)(iv)(B) of (viii) Reporting market discount distributions attributable to a TIH for
this section applies to the NMWHFIT, information under the safe harbor—(A) the calendar year, the total amount paid
the trustee must provide a list of dates In general. If the trustee of a NMWHFIT to, or credited to the account of, the TIH
on which trust sales proceeds were is required to provide information during the calendar year (including
distributed, and the amount of trust regarding market discount under amounts paid as trust sales proceeds or
sales proceeds, per trust interest, that paragraph (c)(2)(vii) of this section, the partial non-pro rata principal payments,
were distributed on that date. The trustee must provide the information redemption proceeds, and sales
trustee also must also provide required under paragraph proceeds) is—
requesting persons with the statement (f)(1)(iv)(A)(1)(iii) of this section. If the (1) Increased by—
required by paragraph (c)(2)(iv)(B) of trustee is not required to provide market (i) All amounts that would have been
this section. discount information under paragraph distributed during the calendar year to
(v) Reporting redemptions under the (c)(2)(vii) of this section (because the the TIH, but that were reinvested
safe harbor—(A) In general. The trustee NMWHFIT meets either the de minimis pursuant to a reinvestment plan (unless
must: test of paragraph (c)(2)(iv)(D) of this another person (for example, the
(1) Provide a list of dates on which section, or the qualified NMWHFIT custodian of the reinvestment plan) is
the amount of redemption proceeds exception of paragraph (c)(2)(iv)(E) of responsible for reporting these amounts
paid for the redemption of a trust this section), the trustee is not required under paragraph (d) of this section); and
interest was determined and the amount under this paragraph (f) to provide any (ii) An amount equal to the current
of the redemption asset proceeds information regarding market discount. year-end cash allocation factor
determined per trust interest on that (B) Reporting market discount (provided by the trustee in accordance
date, or if paragraph (c)(2)(v)(C) of this information under the safe harbor when with paragraph (f)(1)(ii)(C)(1) of this
section applies to the NMWHFIT, the the yield of the debt obligations held by section) multiplied by the number of
amount of redemption proceeds the WHFIT is expected to be affected by trust interests held by the TIH as of
determined on that date; or prepayments. [Reserved.] December 31 of the calendar year for
(2) Provide to each requesting person (ix) Reporting bond premium which the trustee is reporting; and
that held (either for its own behalf or for information under the safe harbor. (2) Decreased by—
the behalf of a TIH) a trust interest that [Reserved.] (i) An amount equal to the prior year
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was redeemed during the calendar year, (x) Reporting additional information. cash allocation factor (provided by the
the date of the redemption and the If a requesting person cannot use the trustee in accordance with paragraph
amount of the redemption asset information provided by the trustee (f)(1)(ii)(C)(2) of this section) multiplied
proceeds per trust interest determined under paragraphs (f)(1)(ii) through (ix) by the number of trust interests held by
on that date, or if paragraph (c)(2)(v)(C) of this section to determine with the TIH on the date of the distribution;

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(ii) An amount equal to all and each item of expense attributable to earliest to latest) on which sales or
redemption asset proceeds paid to the a TIH is determined as follows— dispositions of trust assets occurred
TIH for the calendar year, or if (1) Application of income factors. For during the calendar year and provide,
paragraph (c)(2)(v)(C) of this section each income factor, the trustee or for each date identified—
applies to the NMWHFIT, an amount middleman must multiply the income (i) The trust sales proceeds received
equal to all redemption proceeds paid to factor by the total amount of NMWHFIT by the trust, per trust interest, with
the TIH for the calendar year; distributions attributable to the TIH for respect to the sales or dispositions of
(iii) An amount equal to all sale asset the calendar year (as determined in trust assets on that date; and
proceeds paid to the TIH for the paragraph (f)(2)(i)(A) of this section). (ii) The information provided by the
calendar year, or if paragraph (2) Application of expense factors. For trustee under paragraph (f)(1)(iv)(B)(2)
(c)(2)(v)(C) of this section applies to the each expense factor, the trustee or of this section regarding the ratio of the
NMWHFIT, the amount of sales middleman must multiply the expense assets sold or disposed of on that date
proceeds paid to the TIH for the factor by the total amount of NMWHFIT to all the assets of the NMWHFIT held
calendar year; distributions attributable to the TIH for on that date, prior to such sale or
(iv) In the case of a TIH that the calendar year (as determined in disposition.
purchased a trust interest in a paragraph (f)(2)(i)(A) of this section). (3) Calculating the total amount of
NMWHFIT to which paragraph (iii) Reporting non pro-rata partial
trust sales proceeds distributed to the
(c)(2)(v)(C) of this section does not principal payments under the safe
TIH. To determine the total amount of
harbor. To determine the amount of non
apply, an amount equal to the cash held NMWHFIT distributions attributable to
pro-rata partial principal payments that
for distribution per trust interest on the a TIH, the trustee or middleman must
are distributed to a TIH for the calendar
date that the TIH acquired its interest, calculate the amount of trust sales
year, the trustee or middleman must
multiplied by the trust interests proceeds distributed to the TIH for the
aggregate the amount of non pro-rata
acquired on that date; calendar year. (See paragraph
partial principal payments distributed
(v) The amount of the trust sales (f)(2)(ii)(A)(2)(v) of this section.) To
to a TIH for each day that non pro-rata
proceeds distributed to the TIH, principal payments were distributed. To determine the amount of trust sales
calculated as provided in paragraph determine the amount of non pro-rata proceeds distributed to a TIH for the
(f)(2)(iv)(A)(3) of this section; and principal payments that are distributed calendar year, the trustee or middleman
(vi) The amount of non pro-rata to a TIH on each distribution date, the must aggregate the total amount of trust
partial principal prepayments trustee or middleman must multiply the sales proceeds distributed to the TIH for
distributed to the TIH during the amount of non-pro rata principal each date on which the NMWHFIT
calendar year, calculated as provided in payments per trust interest distributed distributed trust sales proceeds. To
paragraph (f)(2)(iii) of this section. on that date by the number of trust determine the total amount of trust sales
(3) Treatment of in-kind distributions interests held by the TIH. proceeds distributed to a TIH for each
under this paragraph (f)(2)(i). The value (iv) Reporting sales and dispositions date that the NMWHFIT distributed
of the assets (not including cash) of NMWHFIT assets under the safe trust sales proceeds, the trustee or
received with respect to an in-kind harbor—(A) Reporting under the safe middleman must multiply the amount
redemption is not included in the harbor if the general rules apply to the of trust sales proceeds distributed by the
amount used in paragraph NMWHFIT. Unless paragraph NMWHFIT per trust interest on that
(f)(2)(ii)(A)(2)(ii) of this section. The (c)(2)(iv)(B) of this section applies, the date by the number of trust interests
cash distributed as part of the trustee or middleman must comply with held by the TIH on that date.
redemption, however, must be included paragraphs (f)(2)(iv)(A)(1), (2), and (3) of (B) Reporting under the safe harbor if
in the total amount of NMWHFIT this section. paragraph (c)(2)(iv)(B) of this section
distributions paid to the TIH. (1) Form 1099. The trustee or applies to the NMWHFIT. If paragraph
(4) The total amount of distributions middleman must report the amount of (c)(2)(iv)(B) of this section applies, the
attributable to a TIH calculated under trust sales proceeds attributable to the trustee or middleman must calculate, in
this paragraph (f)(2)(i)(A) equals zero or TIH for the calendar year on Form 1099. the manner provided in paragraph
less. If the total amount of distributions To determine the amount of trust sales (f)(2)(iv)(A)(3) of this section, the
attributable to a TIH, calculated under proceeds attributable to a TIH for the amount of trust sales proceeds
this paragraph (f)(2)(i)(A), equals zero or calendar year, the trustee or middleman distributed to the TIH for the calendar
less, the trustee or middleman may not must aggregate the total amount of trust year. The trustee or middleman must
report the income and expense sales proceeds attributable to the TIH for report this amount on the Form 1099
attributable to the TIH under this each date on which the NMWHFIT sold filed for the TIH and on the written tax
paragraph (f)(2)(i). The trustee or or disposed of an asset or assets. To information statement furnished to the
middleman must request additional determine the total amount of trust sales TIH.
information from the trustee of the proceeds attributable to a TIH for each (v) Reporting redemptions under the
NMWHFIT to enable the trustee or date that the NMWHFIT sold or safe harbor—(A) Except as provided in
middleman to determine with disposed of an asset or assets, the paragraph (f)(2)(v)(B) or (C) of this
reasonable accuracy the items of income trustee or middleman multiplies the section, if the trustee has provided a list
and expense that are attributable to the amount of trust sales proceeds received of dates for which the amount of the
TIH. The trustee or middleman must by the NMWHFIT per trust interest on redemption proceeds to be paid for the
report the other items subject to that date by the number of trust interests redemption of a trust interest was
paragraph (f)(1) of this section in held by the TIH on that date. determined and the redemption asset
accordance with this paragraph (f)(2). (2) The written tax information proceeds paid for that date, the trustee
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(B) Step Two: Apply the factors statement furnished to the TIH. The or middleman must multiply the
provided by the trustee to determine the written tax information statement redemption asset proceeds determined
items of income and expense that are required to be furnished to the TIH per trust interest for that date by the
attributable to the TIH. The amount of under paragraph (e) of this section must number of trust interests redeemed by
each item of income (other than OID) include a list of dates (in order, from the TIH on that date.

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(B) If paragraph (c)(2)(v)(C) of this (B) If paragraph (c)(2)(iv)(B) of this equaled 20% of the aggregate fair market
section applies, and the trustee has section applies, the trustee and value of the assets held by Trust on the start-
provided a list of dates for which the middleman are not required under this up date of Trust.
amount of the redemption proceeds to paragraph (f)(2) to provide any (6) On July 15, 2007, Trustee distributes
be paid for the redemption of a trust information regarding market discount. $1,135x, which includes the $1,000x of trust
sales proceeds received by Trust for the sale
interest was determined and the (ix) Reporting bond premium
of assets on June 1, 2007. As a result of the
redemption proceeds determined per information under the safe harbor. distribution, Broker1 credits J’s account and
trust interest on each date, the trustee or [Reserved] A’s account for $113.50x each. Broker 2
middleman must multiply the (3) Example of the use of the safe credits S’s account for $113.50x.
redemption proceeds per trust interest harbor for NMWHFITs. The following (7) On September 30 2007, J, through
for each date by the number of trust example illustrates the use of the factors Trust’s sponsor, sells a trust interest to S for
interests redeemed by the TIH on that in this paragraph (f) to calculate and $115.35x. Trustee determines that the cash
date. provide NMWHFIT information: held for distribution per trust interest on
(C) If the trustee has provided the September 30 is $1.35x. As a result of the
Example: (i) Facts—(A) In general—(1)
requesting person with information sale, Broker1 credits J’s account for $115.35x.
Trust is a NMWHFIT that holds common
(8) On October 15, 2007, Trustee
regarding the redemption asset proceeds stock in ten different corporations and has
distributes $123x. As a result of the
paid for each redemption of a trust 100 trust interests outstanding. The start-up
distribution, Broker1 credits J’s account for
interest held by the middleman for the date for Trust is December 15, 2006, and the
$11.07x and A’s account for $12.30x. Broker2
calendar year, or if paragraph termination date for Trust is March 15, 2008.
credits S’s account for $13.53x.
(c)(2)(v)(C) of this section applies and The agreement governing Trust requires
(9) On December 10, 2007, J tenders a trust
the trustee has provided the amount of Trust to distribute the cash held by Trust
interest to Trustee for redemption through
reduced by accrued but unpaid expenses on
redemption proceeds paid for each Broker1. Trustee determines that the amount
April 15, July 15, and October 15 of the 2007
redemption of a trust interest held by of the redemption proceeds to be paid for a
calendar year. The agreement also provides
the middleman during the calendar trust interest that is tendered for redemption
that the trust interests will be redeemed by
year, the requesting person may use this on December 10, 2007, is $116x, of which
the Trust for an amount equal to the value
information to determine the amount of $115x represents the redemption asset
of the trust interest, as of the close of
the redemption asset proceeds or proceeds. On December 12, 2007, Trustee
business, on the day that the trust interest is
sells shares of common stock for $115x to
redemption proceeds paid to the TIH for tendered for redemption. There is no
have sufficient cash to pay J’s redemption
the calendar year. reinvestment plan. A secondary market for
proceeds. The stock sold on December 12,
(vi) Reporting sales of trust interests interests in Trust will be created by Trust’s
2007, equaled 2% of the aggregate fair market
under the safe harbor—(A) Except as sponsor and Trust’s sponsor will provide
value of all the assets of Trust as of the start
provided in paragraph (f)(2)(vi)(B) of Trustee with a list of dates on which sales
up date. On December 17, 2007, Trustee pays
occurred on this secondary market.
this section, the trustee or middleman the $116x redemption proceeds (including
(2) As of December 31, 2006, Trust holds
must subtract the amount of cash held the $115x trust sales proceeds received by
$12x for distribution to TIHs on the next
for distribution per trust interest on the Trust for the sale of the stock on December
distribution date and has no accrued but
date of the sale from the sales proceeds 12) to Broker1 on J’s behalf, and Broker1 in
unpaid expenses. Trustee includes the $12x
paid to the TIH to determine the sale turn pays $116x to J as redemption proceeds.
in determining the year-end cash allocation
(10) On December 10, 2007, J, through
asset proceeds that are to be reported to factor for December 31, 2006.
Trust’s sponsor, also sells a trust interest to
the TIH for each sale of a trust interest. (B) Events occurring during the 2007
S for $116x. Trustee determines that the cash
(B) If paragraph (c)(2)(v)(C) of this calendar year—(1) As of January 1, 2007,
held for distribution per trust interest on that
section applies, the trustee or Broker1 holds ten trust interests in Trust in
date is $1x. As a result of the sale, Broker1
middleman must report the sales street name for each of J and A and Broker2
credits J’s account for $116x.
holds ten trust interests in Trust in street
proceeds paid to the TIH as a result of (11) As of December 31, 2007, Trust holds
name for S. J, A, and S; are individual, cash
each sale of a trust interest. cash of $173x and has incurred $15x in
method taxpayers.
(vii) Reporting OID information under expenses that Trust has not paid. J is the only
(2) As of January 1, 2007, the fair market
TIH to redeem a trust interest during the
the safe harbor—The trustee or value of the Trust’s assets equals $10,000x.
calendar year. The sale of two trust interests
middleman must aggregate the amounts (3) During 2007, Trust receives $588x in
in Trust by J to S are the only sales that
of OID that are allocable to each trust dividend income. Trustee determines that
occurred on the secondary market
interest held by a TIH for each $400x of the dividend income received
established by Trust’s sponsor during 2007.
calculation period. The amount of OID during 2007 meets the definition of a
(ii) Trustee reporting—(A) Summary of
that is allocable to a trust interest, with qualified dividend in section 1(h)(11)(B)(i)
information provided by Trustee. Trustee
respect to each calculation period, is and the holding period requirement in
meets the requirements of paragraph (f)(1) of
section 1(h)(11)(B)(iii) with respect to the
determined by multiplying— this section if Trustee provides the following
Trust. During 2007, Trust also receives $12x
(A) The product of the OID factor and information to requesting persons:
in interest income from investment of Trust’s
the original principal balance of the (1) Income and expense information:
funds pending distribution to TIHs, and pays
trust interest, divided by 1,000; by $45x in expenses, all of which are affected Factor for ordinary dividend in- 0.3481
expenses. come.
(B) The number of days during the
(4) On April 15, 2007, Trustee distributes Factor for qualified dividend in- 0.7407
OID calculation period in that calendar come.
year that the TIH held the trust interest. $135x, which includes the $12x included in
determining the year-end cash allocation Factor for interest income ........... 0.0222
(viii) Reporting market discount Factor for affected expenses ....... 0.0833
factor for December 31, 2006. As a result of
information under the safe harbor—(A) Current year-end cash allocation 1.5960
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the distribution, Broker1 credits J’s account


Except as provided in paragraph factor.
and A’s account for $13.50x each. Broker2
(f)(2)(viii)(B) of this section, the trustee Prior year cash allocation factor 0.1200
credits S’s account for $13.50x.
or middleman must provide the TIH Prior year cash distribution date April 15
(5) On June 1, 2007, Trustee sells shares of
with the information provided under stock for $1000x to preserve the soundness (2) Information regarding asset sales and
paragraph (f)(1)(vii)(B) of this section. of the trust. The stock sold on June 1, 2007, distributions:

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Trust sales proceeds distributed and Percent of


Date of sale Trust sales proceeds received date distributed trust sold

June 1 ...................................................... $10.0000x ................................................ $10.0000x (July 15) ................................. 20


December 12 ........................................... 1.1616x .................................................... 0.0000x .................................................... 2

(3) Information regarding redemptions: amount of qualified dividend income ($400x) the calendar year, and provides, for each
to the total amount of NMWHFIT date: the trust sales proceeds (per trust
Redemption distributions for the calendar year ($540x). interest) received on that date; the trust sales
Date asset (iii) Interest income factor. The interest proceeds distributed to TIHs (per trust
proceeds income factor is 0.0222, which represents the interest) with respect to sales or dispositions
ratio of the gross amount of interest income on that date; the date those trust sales
December 10 ........................ $115x ($12x) to the total amount of NMWHFIT proceeds were distributed, and the ratio of
distributions for the calendar year ($540x). the assets sold or disposed of on that day to
(4) Information regarding sales of trust (iv) Expense factor. The affected expenses all the assets held by Trust. Because Trust
interests factor is 0.0833, which represents the ratio of will terminate within 15 months of its start-
the gross amount of affected expenses paid up date, Trustee must use the fair market
Cash held for by Trust for the calendar year ($45x) to the value of the assets as of the start-up date to
Date distribution per total amount of NMWHFIT distributions for
trust interest determine the portion of Trust sold or
the calendar year ($540x). disposed of on any particular date.
(3) Step Three: Trustee determines
September 30 ....................... $1.35x (5) Reporting redemptions. Because Trust
adjustments for reconciling the total amount
December 10 ........................ 1.00x is not required to make distributions at least
of NMWHFIT distributions with amounts
as frequently as monthly, and Trust’s start-up
paid to TIHs. To enable requesting persons
(B) Trustee determines this information as date is after February 23, 2006, the exception
to determine the total amount of NMWHFIT
follows: in paragraph (c)(2)(v)(C) of this section does
distributions that are attributable to a TIH
(1) Step One: Trustee determines the total not apply to Trust. To satisfy the
based on amounts actually paid to the TIH,
amount of NMWHFIT distributions for the the trustee must provide both a current year- requirements of paragraph (f)(1) of this
calendar year. The total amount of end cash allocation factor and a prior year section, Trustee provides a list of dates for
NMWHFIT distributions (actual and deemed) cash allocation factor. which the redemption proceeds to be paid for
for the calendar year for purposes of (i) Current year-end cash allocation factor. the redemption of a trust interest was
determining the safe harbor factors is $540x. determined for the 2007 calendar year and
The adjustment factor for cash held by Trust
This amount consists of the amounts paid on the redemption assets proceeds paid for each
at year end is 1.5960, which represents the
each scheduled distribution date during the date. During 2007, Trustee only determined
cash held for distribution as of December 31,
calendar year ($1135x, $135x, and $123x), the amount of redemption proceeds to be
2007 ($158x) (the amount of cash held by
plus the total amount paid to J as a result of paid for the redemption of a trust interest
J’s redemption of a trust interest ($116x) Trust on December 31, 2007 ($173x) reduced
by accrued, but unpaid, expenses ($15x)), once, for December 10, 2007, and the
($1,135x + $135x + $123x + $116x = redemption asset proceeds determined for
$1,509x)— divided by the number of trust interests
outstanding at year-end (99). that date was $115x.
(i) Increased by all cash held for (6) Reporting sales of trust interest.
distribution to TIHs as of December 31, 2007 (ii) Prior Year Cash Allocation Factor. The
adjustment factor for distributions of year- Because Trust is not required to make
($158x), which is the cash held as of distributions at least as frequently as
December 31, 2007 ($173x) reduced by the end cash from the prior year is 0.1200, which
represents the amount of the distribution monthly, and Trust’s start up date is after
accrued but unpaid expenses as of December
during the current calendar year that was February 23, 2006, the exception in
31, 2007 ($15x), and
included in a year-end cash allocation factor paragraph (c)(2)(v)(C) of this section does not
(ii) Decreased by all amounts distributed
for a prior year ($12x), divided by the apply to Trust. Sponsor, in accordance with
during the calendar year but included in the
year-end cash allocation factor from a prior number of trust interests outstanding at the the trust agreement, provides Trustee with a
year ($12x); all redemption asset proceeds time of the distribution (100). The prior year list of dates on which sales on the secondary
paid for the calendar year ($115x); and all cash distribution date is April 15, 2007. market occurred. To satisfy the requirements
trust sales proceeds distributed during the (4) Reporting sales and dispositions of trust of paragraph (f)(1) of this section, Trustee
calendar year ($1,000x). assets—(i) Application of the de minimis test provides requesting persons with a list of
(2) Step Two: Trustee determines factors and the qualified NMWHFIT exception. The dates on which sales on the secondary
that express the ratio of NMWHFIT income aggregate fair market value of the assets of market occurred and the amount of cash held
(other than OID) and expenses to the total Trust as of January 1, 2007, was $10,000x. for distribution per trust interest on each
amount of NMWHFIT distributions. Trustee During the 2007 calendar year, Trust received date. During 2007, two sales occurred on the
determines the factors for each item of trust sales proceeds of $1115x. Trust sales secondary market. The first sale occurred on
income earned by Trust and each item of proceeds received by Trust for the 2007 September 30, 2007, and the amount of cash
expense as follows: calendar year equal 11.15% of Trust’s fair held for distribution, per trust interest, on
(i) Ordinary dividend income factor. The market value as of January 1, 2007. that date is $1.35x. The second sale occurred
ordinary dividend income factor is 0.3481, Accordingly, neither the de minimis test or on December 10, 2007, and the amount of
which represents the ratio of the gross the qualified NMWHFIT exception is met for cash held for distribution, per trust interest,
amount of ordinary dividends ($188x) to the the calendar year. on that date is $1.00x.
total amount of NMWHFIT distributions for (ii) Information to be provided. To satisfy (iii) Brokers’ use of information provided
the calendar year ($540x). the requirements of paragraph (f)(1) of this by Trustee. (A) Broker1 and Broker2 use the
(ii) Qualified dividend income factor. The section with respect to sales and dispositions information furnished by Trustee under the
qualified dividend income factor is 0.7407 of Trust’s assets, Trustee provides a list of safe harbor to determine that the following
which represents the ratio of the gross dates on which trust assets were sold during items are attributable to J, A, and S—
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With respect to J
Ordinary Dividend Income ......................................................................................................................................................... $17.89x
Qualified Dividend Income ........................................................................................................................................................ 38.07x
Interest Income ............................................................................................................................................................................ 1.14x
Affected Expenses ....................................................................................................................................................................... 4.28x
Trust sales proceeds reported on Form 1099 ............................................................................................................................ 108.13x

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4020 Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations

Redemption asset proceeds


For redemption on December 10 ......................................................................................................................................... 115.00x
Sale asset proceeds
For sale on September 30 .................................................................................................................................................... 114.00x
For sale on December 10 ..................................................................................................................................................... 115.00x
With respect to A
Ordinary Dividend Income ......................................................................................................................................................... 18.82x
Qualified Dividend Income ........................................................................................................................................................ 40.04x
Interest Income ............................................................................................................................................................................ 1.20x
Affected Expenses ....................................................................................................................................................................... 4.50x
Trust sales proceeds reported on Form 1099 ............................................................................................................................ 11.62x
With respect to S
Ordinary Dividend Income ......................................................................................................................................................... 19.54x
Qualified Dividend Income ........................................................................................................................................................ 41.58x
Interest Income ............................................................................................................................................................................ 1.25x
Affected Expenses ....................................................................................................................................................................... 4.68x
Trust sales proceeds reported on Form 1099 ............................................................................................................................ 113.94x

With respect to J, A, and S (regarding the (A) An amount equal to the prior year cash distributions attributable to J, A, and S
sales and dispositions executed by Trust allocation factor (0.1200), multiplied by the ($51.39x, $54.06x, and $56.13x, respectively)
during the calendar year) number of trust interests held by J (10), A by the factor for qualified dividends (0.7407).
(10), and S (10) on the date of the prior year (iii) Application of factor for interest
Trust sales cash distribution; that is for J, A, and S, income. The amount of interest income
proceeds Percent of $1.20x, each; attributable to J is $1.14x, to A is $1.20x, and
Date received per trust sold (B) An amount equal to all redemption to S is $1.25x. The brokers determine these
trust interest asset proceeds paid to a TIH for the calendar amounts by multiplying the total amount of
year; that is, for J, $115x; NMWHFIT distributions attributable to J, A,
June 15 ......... $10.0000x ...... 20 (C) An amount equal to all sales asset and S ($51.39x, $54.06x, and $56.13x,
December 12 1.1616x .......... 2 proceeds attributable to the TIH for the respectively) by the factor for interest
calendar year; that is for J, $229x (for the (0.0222).
(B) The brokers determine the information September 30, 2007, sale: $115.35x¥1.35x (iv) Application of factor for affected
provided to J, A, and S as follows— (cash held for distribution per trust interest expenses. The amount of affected expenses
(1) Step One: Brokers determine the total on that date)¥$114x; and for the December attributable to J is $4.28x, to A is $4.50x, and
amount of NMWHFIT distributions 10, 2007, sale: $116x¥1.00 (cash held for to S is $4.68x. The brokers determine these
attributable to J, A, and S. Broker1 distribution per trust interest on that amounts by multiplying the total amount of
determines that the total amount of date)=$115x)); NMWHFIT distributions attributable to J, A,
NMWHFIT distributions attributable to J is (D) In the case of a purchasing TIH, an and S ($51.39x, $54.06x, and $56.13x,
$51.39x and the total amount of NMWHFIT amount equal to the amount of cash held for respectively) by the factor for affected
distributions attributable to A is $54.06x. distribution per trust interest at the time the expenses (0.0833).
Broker2 determines that the total amount of
TIH purchased its trust interest, multiplied (3) Brokers reporting of sales and
NMWHFIT distributions attributable to S is
by the number of trust interests purchased; dispositions of trust assets—(i) Determining
$56.13x.
that is for S, $2.35x ($1.35x with respect to the amount of trust sales proceeds to be
(i) To calculate these amounts the brokers
the September 30, 2007, sale and $1x with reported on Form 1099 for J, A, and S. The
begin by determining the total amount paid
to J, A, and S for the calendar year— respect to the December 10, 2007, sale); amount of trust sales proceeds to be reported
(A) The total amount paid to J for the (E) All amounts of trust sales proceeds on Form 1099 with respect to J is $108.13x,
calendar year equals $485.42x and includes distributed to the TIH for the calendar year; to A is $111.62x, and to S is $113.94x. To
the April 15, 2007, distribution of $13.50x, that is for J, A, and S, $100. ($100 each, with determine these amounts, the brokers
the July 15, 2007, distribution of $113.50x, respect to the June 15, 2007, sale of assets by aggregate the amount of trust sales proceeds
the sales proceeds for the September 30, Trust, and $0 each, with respect to the attributable to J, A, and S for each date on
2007, sale of $115.35x, the October 15, 2007, December 12, 2007, sale of assets by Trust). which Trust sold or disposed of assets. The
distribution of $11.07x, and the redemption (2) Step two: The brokers apply the factors brokers determine the amount of trust sales
proceeds of $116x and sales proceeds of provided by Trustee to determine the Trust’s proceeds to be reported with respect to the
$116x for the redemption and sale on income and expenses that are attributable to June 15, 2007, asset sale by multiplying the
December 10, 2007. J, A, and S. The amounts of each item of number of trust interests held by J (10), A (10)
(B) The total amount paid to A for the income (other than OID) and expense that are and S (10) on that date by the trust sales
calendar year equals $139.30x and includes attributable to J, A, and S are determined by proceeds received per trust interest on that
the April 15, 2007, distribution of $13.50x, multiplying the factor for that type of income date ($10x). The brokers determine the
the July 15, 2007, distribution of $113.50x or expense by the total amount of NMWHFIT amount of trust sales proceeds to be reported
and the October 15, 2007, distribution of distributions attributable to J, A, and S as with respect to the December 12, 2007, asset
$12.30x. follows: sale by multiplying the number of trust
(C) The total amount paid to S for the (i) Application of factor for ordinary interests held by J (7), A (10) and S (12) on
calendar year equals $140.53x and includes dividends. The amount of ordinary dividend that date by the trust sales proceeds received
the April 15, 2007, distribution of $13.50x, income attributable to J is $17.89x, to A is per trust interest on that date ($1.1616x).
the July 15, 2007, distribution of $113.50x $18.82x, and to S is $19.54x. The brokers (ii) Information provided on the tax
and the October 15, 2007, distribution of determine these amounts by multiplying the information statements furnished to J, A, and
$13.53x. total amount of NMWHFIT distributions S. The tax information statements furnished
(ii) The brokers increase the total amount attributable to J, A, and S ($51.39x, $54.06x, to J, A, and S must include the dates of each
paid to J, A, and S by an amount equal to the and $56.13x, respectively) by the factor for sale or disposition (June 15, 2007, and
current year-end cash allocation factor ordinary dividends (0.3481). December 12, 2007); the amount of trust sales
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(1.5960) multiplied by the number of trust (ii) Application of factor for qualified proceeds per trust interest received on those
interests held by J (7), A (10), and S (12) as dividend income. The amount of qualified dates ($10.00x and $1.1616x, respectively);
of December 31, 2007; that is for J, $11.17x; dividend income attributable to J is $38.07x, and, the percentage of Trust sold or disposed
for A, $15.96x; and for S, $19.15x. to A is $40.04x, and to S is $41.58x. The of on that date (20% and 2%, respectively).
(iii) The brokers reduce the amount paid to brokers determine these amounts by (4) Reporting redemptions. Broker1 reports
J, A, and S as follows— multiplying the total amount of NMWHFIT on Form 1099 and on the written tax

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Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations 4021

information statement furnished to J that J (iii) Reporting WHMT income, provide, for each month during the
received $115x in redemption asset proceeds expenses, non pro-rata partial principal calendar year, the aggregate daily
for the calendar year. payments, and sales and dispositions accrual of OID per $1,000 of aggregate
(5) Reporting sales of trust interests on the
secondary market. Broker1 reports on J’s two
under the safe harbor. A trustee must outstanding principal balance as of the
sales of trust interests. With respect to the comply with each step provided in this start-up date (daily portion). For
sale on September 30, 2007, the sale asset paragraph (g)(1)(iii). purposes of this paragraph (g)(1)(iv), the
proceeds equals $114x ($115.35x sale (A) Step One: Determine monthly pool daily portion of OID is determined by
proceeds—$1.35x cash held for distribution factors. The trustee must, for each allocating to each day of the month its
on that date) and with respect to the sale on month of the calendar year and for ratable portion of the excess (if any) of—
December 10, 2007, the sale asset proceeds January of the following calendar year, (i) The sum of the present value
equal $115x ($116x sale proceeds—$1x cash calculate and provide the ratio (determined under section
held for distribution on that date). Broker1
reports these amounts on Form 1099 and on
(expressed as a decimal carried to at 1272(a)(6)(B)) of all remaining payments
the tax information statement furnished to J. least eight places and called a pool under the mortgages held by the WHMT
factor) of— at the close of the month, and the
(g) Safe Harbor for certain WHMTs— (1) The amount of the aggregate payments during the month of amounts
(1) Safe harbor for trustee of certain outstanding principal balance of the included in the stated redemption price
WHMTs for reporting information—(i) WHMT as of the first business day of the of the mortgages, over
In general. The trustee of a WHMT that month; to (ii) The aggregate of each mortgage’s
meets the requirements of paragraph (2) The amount of the aggregate adjusted issue price as of the beginning
(g)(1)(ii) of this section is deemed to outstanding principal balance of the of the month.
satisfy paragraph (c)(1)(i) of this section, WHMT as of the start-up date. (2) In calculating the daily portion of
if the trustee calculates and provides (B) Step Two: Determine monthly OID, the trustee must use the
WHFIT information in the manner expense factors. For each month of the prepayment assumption used in pricing
described in this paragraph (g) and calendar year and for each item of the original issue of trust interests.
provides a statement to the requesting expense paid by the WHMT during that (B) Reporting OID after the issuance
person giving notice that information month, the trustee must calculate and of final regulations under section
has been calculated in accordance with provide the ratio (expressed as a 1272(a)(6)(C)(iii). [Reserved.]
this paragraph (g)(1). decimal carried to at least eight places (v) Reporting market discount
(ii) Requirements. A WHMT must and called an expense factor) of— information under the safe harbor— (A)
meet the following requirements— (1) The gross amount, for the month, Reporting market discount information
(A) The WHMT must make monthly prior to the issuance of final regulations
of each item of expense; to
distributions of the income and (2) The amount that represents the under sections 1272(a)(6)(C)(iii) and
principal payments received by the aggregate outstanding principal balance 1276(b)(3). For calendar years prior to
WHMT to its TIHs; of the WHMT as of the start-up date, the effective date of final regulations
(B) All trust interests in the WHMT
divided by 1,000. under sections 1272(a)(6)(C)(iii) and
must represent the right to receive an
(C) Step Three: Determine monthly 1276(b)(3), the trustee must provide—
equal pro-rata share of both the income
income factors. For each month of the (1) In the case of a WHMT holding
and the principal payments received by
calendar year and for each item of gross mortgages issued with OID, the ratio
the WHMT on the mortgages it holds
income earned by the WHMT during (expressed as a decimal carried to at
(for example, a WHMT that holds or
that month, the trustee must calculate least eight places) of—
issues trust interests that qualify as (i) The OID accrued during the month
and provide the ratio (expressed as a
stripped interests under section 1286 (calculated in accordance with
decimal carried to at least eight places
may not report under this safe harbor);
and called an income factor) of— paragraph (g)(1)(iv) of this section); to
(C) The WHMT must—
(1) The gross amount, for the month, (ii) The total remaining OID as of the
(1) Report under this paragraph
(g)(1)(ii) for the life of the WHMT; or of each item of income, to beginning of the month (as determined
(2) If the WHMT has a start-up date (2) The amount that represents the under paragraph (g)(1)(v)(A)(3) of this
before January 1, 2007, the WHMT must aggregate outstanding principal balance section); or
begin reporting under this paragraph of the WHMT as of the start-up date, (2) In the case of a WHMT holding
(g)(1)(ii) as of January 1, 2007, and must divided by 1,000. mortgages issued without OID, the ratio
continue to report under this paragraph (D) Definition of aggregate (expressed as a decimal carried to at
for the life of the WHMT; outstanding principal balance. For least eight places) of—
(D) The WHMT must calculate all purposes of this paragraph (g)(1)(iii), the (i) The amount of stated interest paid
items subject to the safe harbor amount of the aggregate outstanding to the WHMT during the month; to
consistent with the safe harbor; principal balance of a WHMT is the (ii) The total amount of stated interest
(E) The assets of the WHMT must be aggregate of— remaining to be paid to the WHMT as
limited to— (1) The outstanding principal balance of the beginning of the month (as
(1) Mortgages with uniform of all mortgages held by the WHMT; determined under paragraph
characteristics; (2) The amounts received on (g)(1)(v)(A)(3) of this section).
(2) Reasonably required reserve funds; mortgages as principal payments and (3) Computing the total amount of
and held for distribution by the WHMT; and stated interest remaining to be paid and
(3) Amounts received on mortgages or (3) The amount of the reserve fund the total remaining OID at the beginning
reserve funds and held for distribution (exclusive of undistributed income). of a month. To compute the total
to TIHs; and (iv) Reporting OID information under amount of stated interest remaining to
(F) The aggregate outstanding the safe harbor—(A) Reporting OID be paid to the WHMT as of the
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principal balance (as defined in prior to the issuance of final regulations beginning of the month and the total
paragraph (g)(1)(iii)(D) of this section) as under section 1272(a)(6)(C)(iii)—(1) For remaining OID as of the beginning of the
of the WHMT’s start-up date must equal calendar years prior to the effective date month, the trustee must use the
the aggregate of the original face of final regulations under section prepayment assumption used in pricing
amounts of all issued trust interests. 1272(a)(6)(C)(iii), the trustee must the original issue of unit interests.

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4022 Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations

(B) Reporting market discount with respect to sales and dispositions (iii) Reporting OID information under
information under the safe harbor and non pro-rata partial principal the safe harbor. With respect to each
following the issuance of final payments. month, trustee or middleman must
regulations under sections (B) Step Two: Determine the amount determine the amount of OID that is
1272(a)(6)(C)(iii) and 1276(b)(3). of each item of expense that is attributable to each trust interest held by
[Reserved.] attributable to a TIH—(1) Determine the a TIH by multiplying—
(vi) Reporting bond premium monthly amounts per trust interest. For (A) The product of the OID factor
information under the safe harbor. each month of the calendar year that a multiplied by the original face amount
[Reserved.] trust interest was held on the record of the trust interest, divided by 1,000; by
(2) Use of information provided by a date, the trustee or middleman must
trustee under the safe harbor—(i) In (B) The number of days during the
determine the amount of each item of
general. If a trustee reports WHMT month that the TIH held the trust
expense that is attributable to each trust
items in accordance with paragraph interest.
interest by multiplying—
(g)(1) of this section, the information (i) The original face amount of the (iv) Requirement to provide market
provided with respect to those items on trust interest, divided by 1000; by discount information under the safe
the Forms 1099 required to be filed with (ii) The expense factor for that month harbor. The trustee or middleman must
the IRS under paragraph (d) of this and that item of expense. provide the market discount
section and on the statement required to (2) Determine the amount for the information in accordance with
be furnished to the TIH under paragraph calendar year. The trustee or paragraph (g)(1)(v) of this section to the
(e) of this section must be determined as middleman must multiply the monthly TIH in, or with, the written statement
provided in this paragraph (g)(2). amount of each item of expense per required to be furnished to the TIH
(ii) Reporting WHMT income, trust interest by the number of trust under paragraph (e) of this section.
expenses, non pro-rata partial principal interests held by the TIH on the record (v) Requirement to provide bond
payments, and sales and dispositions date of each month. The trustee or premium information under the safe
under the safe harbor. The amount of middleman then must aggregate the harbor. [Reserved]
each item of income, the amount of each monthly amounts for each item of (3) Example of safe harbor in
item of expense, and the combined expense to determine the total amount paragraph (g)(1) of this section. The
amount of non pro-rata partial principal of each item of expense that is following example illustrates the use of
payments and trust sales proceeds that attributable to the TIH for the calendar the factors in this paragraph (g) to
are attributable to a TIH for each month year. calculate and provide WHMT
of the calendar year must be computed (C) Step Three: Determine the amount information:
as follows: of each item of income that is
(A) Step One: Determine the aggregate attributable to the TIH for the calendar Example. (i) Facts—(A) In general. X is a
WHMT. X’s start-up date is January 1, 2007.
of the non pro-rata partial principal year—(1) Determine the monthly As of that date, X’s assets consist of 100 15-
payments and trust sales proceeds that amounts per trust interest. For each year mortgages, each having an unpaid
are attributable to the TIH for the month of the calendar year that a trust principal balance of $125,000 and a fixed,
calendar year. For each month of the interest was held on the record date, the annual interest rate of 7.25 percent. None of
calendar year that a trust interest was trustee or middleman must determine the mortgages were issued with OID. X’s
held on the record date— the amount of each item of income that TIHs are entitled to monthly, pro-rata
(1) Determine the monthly amounts is attributable to each trust interest by distributions of the principal payments
per trust interest. The trustee or multiplying— received by X. X’s TIHs are also entitled to
middleman must determine the (i) The original face amount of the monthly, pro-rata distributions of the interest
aggregate amount of non pro-rata partial earned on the mortgages held by X, reduced
trust interest, divided by 1,000; by
by expenses. Trust interests are issued in
principal payments and the trust sales (ii) The income factor for that month increments of $5,000 with a $25,000
proceeds that are attributable to each and that item of income. minimum. The prepayment assumption used
trust interest for each month by (2) Determine the amount for the in pricing the original issue of trust interests
multiplying— calendar year. The trustee or is six percent. Broker holds a trust interest in
(i) The original face amount of the middleman must multiply the monthly X, with an original face amount of $25,000,
trust interest; by amount of each item of income per trust in street name, for C during the entire 2007
(ii) The difference between the pool interest by the number of trust interests calendar year.
factor for the current month and the held by the TIH on the record date of (B) Trust events during the 2007 calendar
pool factor for the following month. each month. The trustee or middleman year. During the 2007 calendar year, X
(2) Determine the amount for the collects all interest and principal payments
then must aggregate the monthly
calendar year. The trustee or when due and makes all monthly
amounts for each item of income to distributions when due. One mortgage is
middleman must multiply the monthly determine the total amount of each item repurchased from X in July 2007 for
amount per trust interest by the number of income that is attributable to the TIH $122,249, the mortgage’s unpaid principal
of trust interests held by the TIH on the for the calendar year. balance plus accrued, but unpaid, interest at
record date of each month. The trustee (D) Definitions for this paragraph the time. During November 2007, another
or middleman then must aggregate these (g)(2). For purposes of this paragraph mortgage is prepaid in full. X earns $80
monthly amounts, and report the (g)(2)(ii)— interest income each month from the
aggregate amount on the Form 1099 (1) The record date is the date used temporary investment of X’s funds pending
filed with the IRS and on the tax by the WHMT to determine the owner distribution to the TIHs. All of X’s expenses
information statement furnished to the are affected expenses. The aggregate
of the trust interest for the purpose of
outstanding principal balance of X’s
TIH as trust sales proceeds. No other distributing the payment for the month.
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mortgages, X’s interest income, and X’s


information is required to be reported to (2) The original face amount of the expenses, for each month of the 2007
the IRS or the TIH to satisfy the trust interest is the original principal calendar year, along with the aggregate
requirements of paragraphs (d) and (e) amount of a trust interest on its issue outstanding principal balance of X as of
of this section under this paragraph (g) date. January 2008, are as follows:

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Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations 4023

Principal
Month Income Expenses
balance

January ........................................................................................................................................ $12,500,000 $75,601 $5,288


February ....................................................................................................................................... 12,461,413 75,368 5,273
March ........................................................................................................................................... 12,422,593 75,133 5,256
April .............................................................................................................................................. 12,383,538 74,897 5,240
May .............................................................................................................................................. 12,344,247 74,660 5,244
June ............................................................................................................................................. 12,304,719 74,421 5,207
July ............................................................................................................................................... 12,264,952 74,181 5,191
August .......................................................................................................................................... 12,102,696 73,200 5,122
September ................................................................................................................................... 12,062,849 72,960 5,106
October ........................................................................................................................................ 12,022,762 72,718 5,089
November .................................................................................................................................... 11,982,432 72,474 5,073
December .................................................................................................................................... 11,821,234 71,500 5,006
January ........................................................................................................................................ 11,780,829 ........................ ........................

(ii) Trustee reporting. (A) Trustee, X’s providing the following information to
fiduciary, comes within the safe harbor of requesting persons:
paragraph (g)(1)(ii) of this section by

Month Pool factor Income factor Expense factor

January ........................................................................................................................................ 1.00000000 6.04806667 0.42304000


February ....................................................................................................................................... 0.99691304 6.02941628 0.42184000
March ........................................................................................................................................... 0.99380744 6.01065328 0.42048000
April .............................................................................................................................................. 0.99068304 5.99177670 0.41920000
May .............................................................................................................................................. 0.98753976 5.97278605 0.41952000
June ............................................................................................................................................. 0.98437752 5.95368085 0.41656000
July ............................................................................................................................................... 0.98119616 5.93446013 0.41528000
August .......................................................................................................................................... 0.96821564 5.85603618 0.40976000
September ................................................................................................................................... 0.96502792 5.83677704 0.40848000
October ........................................................................................................................................ 0.96182096 5.81740161 0.40712000
November .................................................................................................................................... 0.95859459 5.79790896 0.40584000
December .................................................................................................................................... 0.94569875 5.71999659 0.40048000
January ........................................................................................................................................ 0.94246631 ........................ ........................

(B) Trustee determines this information as have only one expense factor for each month. (i) The gross amount of interest income
follows: For example, the expense factor for the earned by X during January ($75,601);
(1) Step One: Trustee determines monthly month of January 2007 is 0.42304000, which divided by
pool factors. Trustee calculates and provides represents the ratio of— (ii) The amount that represents that
X’s pool factor for each month of the 2007 (i) The gross amount of expenses paid aggregate outstanding principal balance of X
calendar year. For example, for the month of during January by X ($5,288); divided by as of the start-up date ($12,500,000), divided
January 2007 the pool factor is 1.0, which (ii) The amount that represents the by 1,000 ($12,500).
represents the ratio of — aggregate outstanding principal balance of X (4) Step Four: Trustee calculates and
(i) The amount that represents the
as of the start-up date ($12,500,000) divided provides monthly market discount fractions.
aggregate outstanding principal balance of X
by 1,000 ($12,500). Trustee calculates and provides a market
($12,500,000) as of the first business day of
January; divided by (3) Step Three: Trustee determines monthly discount fraction for each month of the 2007
(ii) The amount that represents the income factors. Trustee calculates and calendar year using a prepayment
aggregate outstanding principal balance of X provides the income factors for each month assumption of 6% and a stated interest rate
($12,500,000) as of the start-up day. of the 2007 calendar year. During 2007, X has of 7.25%.
(2) Step Two: Trustee determines monthly only interest income, and therefore, will have (iii) Broker’s use of the information
expense factors. Trustee calculates and only one income factor for each month. For provided by Trustee. (A) Broker uses the
provides the expense factors for each month example, the income factor for the month of information provided by Trustee under
of the 2007 calendar year. During 2007, X has January 2007 is 6.04806667, which paragraph (g) of this section to determine that
only affected expenses, and therefore, will represents the ratio of— the following trust items are attributable to C:

Aggregate
trust sales pro-
ceeds and non Affected Gross interest
Month pro-rata partial expenses income
principal pay-
ments

January ........................................................................................................................................ $77.17 $10.58 $151.20


February ....................................................................................................................................... 77.64 10.55 150.74
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March ........................................................................................................................................... 78.11 10.51 150.27


April .............................................................................................................................................. 78.58 10.48 149.79
May .............................................................................................................................................. 79.06 10.49 149.32
June ............................................................................................................................................. 79.53 10.41 148.84
July ............................................................................................................................................... 324.51 10.38 148.36
August .......................................................................................................................................... 79.69 10.24 146.40

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4024 Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations

Aggregate
trust sales pro-
ceeds and non Affected Gross interest
Month pro-rata partial expenses income
principal pay-
ments

September ................................................................................................................................... 80.17 10.21 145.92


October ........................................................................................................................................ 80.66 10.18 145.43
November .................................................................................................................................... 322.40 10.15 144.95
December .................................................................................................................................... 80.81 10.01 143.00

Total ...................................................................................................................................... 1438.33 124.19 1774.22

(B) Broker determines this information as (4) Step Four: Broker provides market (iv) Any other manner agreed to by
follows: discount information to C. Broker provides C the middleman and the beneficial owner
(1) Step One: Broker determines the with the market discount fractions calculated requesting the information.
amount of the non pro-rata partial principal and provided by the trustee of X under
payments and trust sales proceeds received
(4) Clearing organization. A clearing
paragraph (g)(3)(ii)(D) of this section.
by X that are attributable to C for the 2007 organization described in § 1.163–
calendar year. Broker determines the amount
(h) Requirement that middlemen 5(c)(2)(i)(D)(8) is not required to furnish
of the non pro-rata partial principal furnish information to beneficial owners information to exempt recipients or
payments and trust sales proceeds received that are exempt recipients and non-calendar-year TIHs under this
by X that are attributable to C for each month noncalendar-year beneficial owners—(1) paragraph (h).
of the 2007 calendar year. For example, for In general. A middleman that holds a (i) [Reserved.]
the month of January, Broker determines that trust interest on behalf of, or for the
the amount of principal receipts and the
(j) Coordination with other
account of, either a beneficial owner information reporting rules. In general,
amount of trust sales proceeds that are that is an exempt recipient defined in
attributable to C is $77.17. Broker determines in cases in which reporting is required
this by multiplying the original face amount
paragraph (b)(7) of this section or a for a WHFIT under both this section and
of C’s trust interest ($25,000) by 0.00308696, noncalendar-year beneficial owner, subpart B, part III, subchapter A,
the difference between the pool factor for must provide to such beneficial owner, chapter 61 of the Internal Revenue Code
January 2007 (1.00000000) and the pool upon request, the information provided (Sections 6041 through 6050S)
factor for the following month of February by the trustee to the middleman under (Information Reporting Sections), the
2007 (0.99691304). Broker reports the paragraph (c) of this section.
aggregate of the monthly amounts of non pro-
reporting rules for WHFITs under this
(2) Time for providing information. section must be applied. The provisions
rata partial principal payments and trust The middleman must provide the
sales proceeds that are attributable to C for of the Information Reporting Sections
requested information to any beneficial and the regulations thereunder are
the 2007 calendar year as trust sales proceeds
on the Form 1099 filed with the IRS. owner making a request under incorporated into this section as
(2) Step Two: Broker applies the expense paragraph (h)(1) of this section on or applicable, but only to the extent that
factors provided by Trustee to determine the before the later of the 44th day after the such provisions are not inconsistent
amount of expenses that are attributable to close of the calendar year for which the with the provisions of this section.
C for the 2007 calendar year. Broker information was requested, or the day (k) Backup withholding requirements.
determines the amount of X’s expenses that that is 28 days after the receipt of the
are attributable to C for each month of the Every trustee and middleman required
request. A middleman must provide to file a Form 1099 under this section
calendar year. For example, for the month of information with respect to a WHFIT
January 2007, Broker determines that the is a payor within the meaning of
amount of expenses attributable to C is holding an interest in another WHFIT, § 31.3406(a)–2, and must backup
$10.58. Broker determines this by or a WHFIT holding an interest in a withhold as required under section 3406
multiplying the original face amount of C’s REMIC, on or before the later of the 58th and any regulations thereunder.
trust interest ($25,000), divided by 1,000 day after the close of the calendar year
(l) Penalties for failure to comply.
($25) by the expense factor for January 2007 for which the information was
(0.42304000). Broker determines the Every trustee and middleman who fails
requested, or the 42nd day after the
expenses that are attributable to C for the to comply with the reporting obligations
receipt of the request.
2007 calendar year by aggregating the imposed by this section is subject to
(3) Manner of providing information.
monthly amounts. penalties under sections 6721, 6722,
The requested information must be
(3) Step Three: Broker applies the income and any other applicable penalty
factors provided by Trustee to determine the
provided—
(i) By written statement sent by first provisions.
amount of gross interest income attributable (m) Effective date. These regulations
to C for the 2007 calendar year. Broker class mail to the address provided by
the person requesting the information; are applicable January 1, 2007. Trustees
determines the amount of gross interest
income that is attributable to C for each (ii) By electronic mail provided that must calculate and provide trust
month of the calendar year. For example, for the person requesting the information information with respect to the 2007
the month of January 2007, Broker requests that the middleman furnish the calendar year and all subsequent years
determines that the amount of gross interest information by electronic mail and the consistent with these regulations.
income attributable to C is $151.20. Broker person furnishes an electronic address; Information returns required to be filed
determines this by multiplying the original (iii) At an Internet website of the with the IRS and the tax information
face amount of C’s trust interest ($25,000), middleman or the trustee, provided that statements required to be furnished to
rwilkins on PROD1PC63 with RULES_3

divided by 1,000 ($25), by the income factor trust interest holders after December 31,
for January 2007 (6.04806667). Broker
the beneficial owner requesting the
information is notified that the 2007 must be consistent with these
determines the amount of the gross interest
income that is attributable to C for the 2007 requested information is available at the regulations.
calendar year by aggregating the monthly Internet website and is furnished the ■ Par. 4. Section 1.6041–9 is added to
amounts. address of the site; or read as follows:

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Federal Register / Vol. 71, No. 15 / Tuesday, January 24, 2006 / Rules and Regulations 4025

§ 1.6041–9 Coordination with reporting section 3 of the Investment Company paragraph (d)(2) of this section for the
rules for widely held fixed investment trusts Act (15 U.S.C. section 80–a) and on first taxable year that the trust is no
under § 1.671–5. amounts paid on pooled funds or trusts. longer owned by one grantor or one
See § 1.671–5 for the reporting rules The interest to be reported with respect other person or for the first taxable year
for widely held fixed investment trusts to a widely held fixed investment trust, that the trust does not report pursuant
(WHFIT) (as defined under that section). as defined in § 1.671–5(b)(22), shall be to § 1.671–4(b)(2)(i)(A) of this chapter.
For purposes of section 6041, the interest earned on the assets held by
middlemen and trustees of WHFITs are * * * * *
the trust. See § 1.671–5 for the reporting
deemed to have management and rules for widely held fixed investment PART 602—OMB CONTROL NUMBERS
oversight functions in connection with trusts (as defined under that section). UNDER THE PAPERWORK
payments made by the WHFIT. * * * * *
■ Par. 5. Section 1.6042–5 is added to
REDUCTION ACT
■ Par. 9. Section 1.6050N–2 is added to
read as follows:
read as follows: ■ Par. 12. The authority citation for part
§ 1.6042–5 Coordination with reporting 602 continues to read as follows:
rules for widely held fixed investment trusts § 1.6050N–2 Coordination with reporting
under § 1.671–5. rules for widely held fixed investment trusts Authority: 26 U.S.C. 7805.
under § 1.671–5.
See § 1.671–5 for the reporting rules
See § 1.671–5 for the reporting rules ■ Par. 13. In § 602.101, paragraph (b) is
for widely held fixed investment trusts
for widely held fixed investment trusts amended by adding an entry in
(as defined under that section).
(as defined under that section). numerical order to the table to read as
■ Par. 6. Section 1.6045–1 is amended
follows:
by adding paragraph (d)(7) to read as PART 301—PROCEDURE AND
follows: ADMINISTRATION § 602.101 OMB Control numbers.
§ 1.6045–1 Returns of information of * * * * *
■ Par. 10. The authority citation for part
brokers and barter exchanges. (b) * * *
301 continues to read, in part, as
* * * * * follows:
(d) * * * CFR part or section where Current OMB
Authority: 26 U.S.C. 7805 * * * identified and described control No.
(7) Coordination with reporting rules
for widely held fixed investment trusts ■ Par. 11. Section 301.6109–1 is
under § 1.671–5 of this chapter. See amended by: * * * * *
§ 1.671–5 for the reporting rules for ■ 1. Revising the heading to paragraph
1.671–5 ................................. 1545–1540
widely held fixed investment trusts (as (a)(2).
defined under that section). ■ 2. Revising paragraph (a)(2)(i).
* * * * *
* * * * * The revisions read as follows:
■ Par. 7. Section 1.6049–4 is amended § 301.6109–1 Identifying numbers. Approved: January 5, 2006.
by adding paragraph (c)(3) to read as
(a) * * * Mark E. Matthews,
follows:
(2) A trust that is treated as owned by Deputy Commissioner for Services and
§ 1.6049–4 Return of information as to one or more persons pursuant to Enforcement.
interest paid and original issue discount sections 671 through 678—(i) Obtaining
Eric Solomon,
includible in gross income after December a taxpayer identification number—(A)
31, 1982. General rule. Unless the exception in Acting Deputy Assistant Secretary.
* * * * * paragraph (a)(2)(i)(B) of this section [FR Doc. 06–396 Filed 1–23–06; 8:45 am]
(c) * * * applies, a trust that is treated as owned BILLING CODE 4830–01–U
(3) Coordination with reporting rules by one or more persons under sections
for widely held fixed investment trusts 671 through 678 must obtain a taxpayer
under § 1.671–5 of this chapter. See identification number as provided in
§ 1.671–5 for the reporting rules for paragraph (d)(2) of this section.
widely held fixed investment trusts (as (B) Exception for a trust all of which
defined under that section). is treated as owned by one grantor or
* * * * * one other person and that reports under
■ Par. 8. In § 1.6049–5, paragraph (a)(6)
§ 1.671–4(b)(2)(i)(A) of this chapter. A
is revised to read as follows: trust that is treated as owned by one
grantor or one other person under
§ 1.6049–5 Interest and original issue sections 671 through 678 need not
discount subject to reporting after obtain a taxpayer identification number,
December 31, 1982. provided the trust reports pursuant to
(a) * * * § 1.671–4(b)(2)(i)(A) of this chapter. The
(6) Interest paid on amounts held by trustee must obtain a taxpayer
investment companies as defined in identification number as provided in
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