The Treasury Department and IRS today released for publication in the Federal Register final regulations (T.D. 9750) concerning information reporting by brokers for transactions involving debt instruments and options, including rules for:
Read text of the final regulations [PDF 218 KB]
The IRS and Treasury in March 2015 issued temporary regulations and, by cross-reference, proposed regulations to require a broker or payor to report amortizable bond premium on taxable and tax-exempt debt instruments acquired on or after January 1, 2014, and acquisition premium on taxable debt instruments acquired on or after January 1, 2014—in effect, providing information that enables the IRS to verify that a taxpayer is reporting the correct amount of interest (including OID) each year. These 2015 regulations:
Read more about the 2015 regulations in TaxNewsFlash-United States
Previously, the IRS and Treasury in April 2013 issued final “basis reporting” regulations under which certain debt instruments are subject to basis reporting only if the debt instrument is acquired by a customer on or after January 1, 2016, including a debt instrument that is not issued by a U.S. issuer and a debt instrument the terms of which are not reasonably available to a broker within 90 days of acquisition of the debt instrument by the customer.
Today’s final regulations adopt the 2015 proposed regulations and remove the corresponding temporary regulations, and adjust Reg. section 1.6045-1 of the 2013 final regulations.
Constant yield election: The preamble to today’s final regulations includes explanations of certain provisions, including that there are no changes to the rules for the constant yield method for electing accruals of market discount. The final regulations permit, but do not require, a broker to apply the default constant yield method to a debt instrument acquired on or after January 1, 2014, and before January 1, 2015, provided that:
Transfer statements: The preamble to the final regulations explains that the IRS and Treasury declined to adopt a suggested comment to eliminate the fair market value information on a transfer statement. Thus, the final regulations are “substantially the same” as the temporary regulations, except that the rules relating to the transfer statements are re-numbered and placed within Reg. section 1.6045A-1(b) of these final regulations.
Reporting OID on a tax-exempt obligation: The final regulations generally are the same as the temporary regulations, but reflect the consideration of comments regarding the applicability date of these rules. For tax years beginning after December 31, 2016, the final regulations allow—but do not require—a broker to report OID and acquisition discount for a tax-exempt obligation that is a covered security acquired before January 1, 2017.
Debt instruments subject to January 2016 reporting: In response to comments received seeking guidance regarding the 2013 final regulations, the final regulations provide that a debt instrument issued by a non-U.S. issuer or a tax-exempt obligation issued before January 1, 2014, is treated as a “noncovered security” and thus is not subject to basis reporting if the terms of the debt instrument are not reasonably available to the broker within 90 days of the date when the debt instrument was acquired by the customer.
The preamble to the final regulations provide the following effective / applicability date provisions:
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