Reporting Requirements for Widely Held Fixed Investment Trusts

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Parts 1 and 301 [REG-209813-96] RIN
1545-AU15

TITLE: Reporting Requirements for Widely Held Fixed Investment
Trusts

AGENCY: Internal Revenue Service (IRS), Treasury

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

SUMMARY: This document contains proposed regulations that define
widely held fixed investment trusts, clarify the reporting
obligations of the trustees of these trusts and the middlemen
connected with these trusts, and provide for the communication of
necessary tax information to beneficial owners of trust interests.
This document also provides notice of a public hearing on these
proposed regulations.

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

Requests to speak (with outlines of oral comments) at a public
hearing scheduled for Thursday, November 5, 1998 at 10 a.m. must be
submitted by October 15, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209813-96), room
5228, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alternative, submissions may be hand
delivered between the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (REG-209813-96), Courier's Desk, Internal Revenue
Building, 1111 Constitution Avenue, NW., Washington, DC.

Alternatively, taxpayers may submit comments electronically via the
Internet by selecting the "Tax Regs" option on the IRS Home Page, or
by submitting comments directly to the IRS Internet site at
http://www.irs.ustreas.gov/prod/tax_regs/comments.html. The public
hearing will be held in room 2615, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Faith
Colson, (202) 622-3060; concerning submissions and the hearing,
LaNita Van Dyke, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Office of Management and Budget, Attn: Desk
Officer for the Department of Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer,
OP:FS:FP, Washington, DC 20224. Comments on the collection of
information should be received by, October 13, 1998. Comments are
specifically requested concerning:

Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed
collection of information (see below);

How the quality, utility, and clarity of the information to be
collected may be enhanced;

How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and Estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of service to provide
information.

The collection of information in these proposed regulations is in
§1.671-4 of the Income Tax Regulations. This information is required
to enable holders of trust interests to report items of income,
deduction, and credit of a widely held fixed investment trust under
section 671. This information will be used by the IRS to ensure that
those items are reported accurately by beneficial owners of trust
interests. The collection of information is mandatory. The likely
respondents are businesses and other for-profit institutions.

Estimated total annual reporting burden: 2,400 hoU.S.

Estimated average annual burden hours per respondent: 2 hoU.S.

Estimated number of respondents: 1,200.

Estimated annual frequency of responses: Annually (but more often
for a trust providing information to certain persons on request).

An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
valid control number assigned by the Office of Management and
Budget.

Books or records relating to the collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26
U.S.C. 6103.

Background

This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 671. The proposed
amendments are to be issued under the authority of sections 671,
6034A, 6049(d)(7), and 7805.

A fixed investment trust is an arrangement classified as a trust
under §301.7701-4(c). Beneficial interests in these trusts are
divided into units. The Service treats these trusts as grantor
trusts under section 671 and the owners of the beneficial interests,
or units, as the grantors. See Rev. Rul. 84-10 (1984- 1 C.B. 155);
Rev. Rul. 70-545 (1970-2 C.B. 7); Rev. Rul. 70-544 (1970-2 C.B. 6);
Rev. Rul. 61-175 (1961-2 C.B. 128). Under the proposed regulations,
a widely held fixed investment trust is a fixed investment trust in
which any interest is held by a middleman. For this purpose, the
term middleman includes, but is not limited to, a custodian of a
person's account, a nominee, and a broker holding an interest for a
customer in street name. The IRS and Treasury request comments on
the application and scope of these definitions, including the
appropriateness of a de minimis rule as to the number of middlemen.

Interests in widely held fixed investment trusts are often held in
the street name of a middleman, who holds such interests on behalf
of the beneficial owners. Thus, trustees frequently do not know the
identity of the beneficial owners and are not in a position to
communicate necessary tax information directly to such owners.
Currently, there are no tax information reporting rules specifically
providing for the sharing of tax information among trustees,
middlemen, and beneficial owners of these trusts.

On December 21, 1995, final regulations (TD 8633) under section 671,
relating to the information reporting requirements of grantor
trusts, were published in the Federal Register (60 FR 66085). See
§1.671-4. While drafting the final regulations, the IRS and Treasury
concluded that special reporting requirements were needed for widely
held fixed investment trusts but that such guidance fell outside the
scope of the final regulations. The preamble to the final
regulations stated that the IRS and Treasury anticipated providing
guidance for these trusts in a separate project and invited comments
from interested taxpayers and practitioners regarding such guidance.

In developing these proposed regulations, the IRS and Treasury have
continued to solicit comments from the public.

Comments were received from various industry members and
practitioners, and these proposed regulations take such comments
into account. The proposed regulations are intended to clarify the
reporting requirements of trustees and middlemen and to ensure that
beneficial owners of trust interests receive accurate and timely tax
reporting information. The IRS and Treasury welcome comments on
specific instances of industry practice that differ significantly
from the framework of these proposed regulations and on suggestions
to tailor the reporting requirements to account for those
differences.

Explanation of Provisions

A. General Framework of Reporting Rules The information reporting
framework in the proposed regulations is similar to that for regular
interests in a real estate mortgage investment conduit. See
§1.6049-7.

Under the proposed regulations, the responsibility for information
reporting lies primarily with the person in the ownership chain who
holds a unit interest for a beneficial owner and is, therefore, in
the best position to communicate with, and provide tax information
to, the beneficial owner. Thus, a brokerage firm that holds a unit
interest directly for an individual as a middleman will have the
primary obligation to report to the IRS and to provide tax
information to the individual. Similarly, if a unit interest is held
directly by an individual and not through a middleman, the trustee
is to report to the IRS and to provide tax information to the
individual.

Information reporting generally is not required for interests held
by exempt recipients. Middlemen and trustees, however, are to make
trust tax information available upon request to exempt recipients.

Appropriate adjustments may be necessary to other information
reporting rules to make them compatible with these proposed
regulations.

B. Trustee or Middleman to Report to the IRS on Form 1099 Under
proposed §1.671-4(j)(2)(i)(A), a trustee must report to the IRS, on
the appropriate Forms 1099, the gross amount of trust income
(determined in accordance with proposed §1.671- 4(j)(6)(i))
attributable to a unit interest holder who holds an interest in the
trust directly and not through a middleman.

Similarly, under proposed §1.671-4(j)(2)(i)(B), a middleman must
report for any unit interest holder on whose behalf or account the
middleman holds an interest. (To comply with this requirement,
middlemen may request the necessary tax information from the
trustee. See the discussion below.) In addition, the trustee or
middleman is to report on the appropriate Form 1099 the gross
proceeds from the sale or other disposition of a trust asset that is
attributable to the unit interest holder. Forms 1099 are not
required for any unit interest holder who is an exempt recipient, as
defined in proposed §1.671-4(j)(1).

C. Statements to be Furnished to the Beneficial Owners of Unit
Interests

Every middleman or trustee required to file with the IRS a Form 1099
under these proposed regulations for a unit interest holder must
furnish to the unit interest holder a written statement providing
the holder with necessary tax reporting information including: (1)
the items of income (determined in accordance with proposed
§1.671-4(j)(6)(i)), deduction, and credit of the trust attributable
to the unit interest holder; (2) if any trust asset has been sold or
otherwise disposed of during the calendar year, the portion of the
gross proceeds relating to the trust asset which is attributable to
the unit interest holder, the date of sale or disposition of the
trust asset, and the percentage of that trust asset that has been
sold or disposed of; and (3) any other information necessary for the
unit interest holder to accurately report the income, deductions,
and credits of the trust attributable to the unit interest as
required under section 671.

In addition, to enable unit interest holders to calculate gain or
loss on the disposition of a trust asset, if a trust sells or
disposes of a trust asset during a particular calendar year, the
proposed regulations require the trustee or middleman to include,
with the statement to the holder, a schedule showing the portion
(expressed as a percentage) of the total fair market value of all
the assets held by the trust that the trust asset sold or disposed
of represented as of the last day of each quarter that the asset was
held by the trust. It is contemplated that, in the absence of more
accurate information, this information may be used by the unit
interest holder to determine the percentage of the holder's basis in
its unit interest that the disposed asset represents, so that the
holder may calculate its gain or loss on the disposition of the
asset.

The IRS and Treasury welcome comments on whether the approach taken
in the proposed regulations to communicate information to enable the
holder of a unit interest to calculate its basis in a trust asset is
effective, or whether a different approach, which continues to be
consistent with the taxation of grantor trusts, would be more
effective. In addition, the IRS and Treasury invite comments on
whether, for trusts consisting of fungible assets, an approach other
than the proposed asset-by-asset approach for reporting sales and
determining basis is administratively feasible or whether an
aggregate approach would be more appropriate and on the manner in
which such an aggregate approach would be applied.

D. Information to be Furnished to Middlemen by Trusts

In general, information reporting is not required for unit interests
held by exempt recipients. To enable such persons to receive
necessary trust information, however, §1.671-4(j)(3)(iii) of the
proposed regulations provides that middlemen, exempt recipients, and
certain other persons may request from the trust tax information for
a calendar quarter, computed as of the last day of the quarter
specified, or for a calendar year, computed as of December 31 of the
year specified. The tax reporting information the trust is to make
available includes: (1) all items of income (determined in
accordance with proposed §1.671-4(j)(6)(i)), deduction, and credit
of the trust for the period specified; (2) if any trust asset has
been sold or otherwise disposed of during the period specified, the
gross proceeds received by the trust for the trust asset, the date
of sale or disposition, and the percentage of that trust asset that
has been sold or disposed of; (3) the number of units outstanding on
the last business day of the period specified; and (4) any other
information necessary for the unit interest holder to accurately
report the income, deductions, and credits attributable to the
portion of the trust treated as owned by the holder, as required
under section 671. In addition, if a trust asset is sold or
otherwise disposed of during the period specified, the trust must
provide a schedule showing the portion (expressed in terms of a
percentage) of the total fair market value of all the assets held by
the trust that the asset sold or disposed of represented as of the
last day of each calendar quarter that the trust held the asset.

E. Special Rules

A beneficial owner of a unit interest must report trust items
consistent with the owner's method of accounting. See, e.g., Rev.
Rul. 84-10. For administrative convenience, and with the intent of
being consistent with industry practice, however, the proposed
regulations require a trust to provide tax information as if the
trust were a taxpayer using the cash receipts and disbursements
method of tax accounting (cash method). Although a trust must
provide tax information to unit holders as if the trust were a cash
method taxpayer, the trust must provide information necessary for
such holders to comply with the original issue discount rules and
other provisions requiring the inclusion of accrued amounts
regardless of the holder's method of accounting. The IRS and
Treasury are continuing to study, and welcome comments on, whether
to require trusts to provide tax reporting information to
accommodate the different methods of accounting used by the
beneficial owners of a trust.

In the case of a widely held fixed investment trust that holds a
pool of debt instruments subject to section 1272(a)(6)(C)(iii), the
proposed regulations require that middlemen, unit interest holders,
exempt recipients, and noncalendar-year taxpayers be provided with
certain additional information that is necessary for compliance with
the market discount rules and, where applicable, section 1272(a)(6)
(as amended by section 1004 of the Taxpayer Relief Act of 1997,
Public Law 105-34, 111 Stat. 788, 911 (1997)). This additional
information includes information necessary to compute (1) the
accrual of market discount, including the type of information
required under §1.6049-7(f)(2)(i)(G) in the case of a REMIC regular
interest or a collateralized debt obligation not issued with
original issue discount; and (2) the accrual of original issue
discount and market discount, including the type of information
required under §1.6049-7(f)(2)(ii)(E), (F), (I), and (K) in the case
of a REMIC regular interest or a collateralized debt obligation that
is issued with original issue discount. The IRS and Treasury request
comments on whether similar information reporting requirements, for
example, reporting of information necessary to compute the accrual
of market discount, should be extended to widely held fixed
investment trusts that hold instruments (or pools of instruments)
not subject to section 1272(a)(6)(C).

To enable a beneficial owner to comply fully with section 671 and
section 67 (where applicable), §1.671-4(j)(6)(i) of the proposed
regulations requires the amount of trust income to be reported by
the trustee to be the gross amount of income generated by the trust
assets (other than from the sale or other disposition of trust
assets). Thus, in the case of a trust that receives a payment net of
an expense, the payment must be grossed up to reflect the deducted
expense. Trustees must also have, and make available, information
regarding the trust's affected expenses (as defined in §1.67-2T(i)
(1)) for the calendar year.

In addition, in the case of a unit interest holder that is an
affected investor (as defined in §1.67-2T(h)(1)), the trustee or
middleman must provide such unit interest holder with information
regarding the holder's proportionate share of the trust's affected
expenses for the calendar year.

The proposed regulations also require the trust to separately state
any other item that, if taken into account separately by any unit
interest holder, could result in an income tax liability for that
unit interest holder different from that which would result if the
unit interest holder did not take the item into account separately.
The IRS and Treasury request comments on whether this requirement is
administratively feasible in the context of a widely held fixed
investment trust or whether a different approach, also consistent
with the taxation of grantor trusts, would be more appropriate.

F. Coordination with Backup Withholding Rules

Section 1.671-4(j)(7) of the proposed regulations contains
provisions to coordinate these regulations with the backup
withholding rules.

Proposed Effective Date

These regulations are proposed to apply to calendar years beginning
on or after the date that final regulations are published in the
Federal Register.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not required.

It is hereby certified that these regulations will not have a
significant economic impact on a substantial number of small
entities. This certification is based on the fact that the
regulations generally clarify existing reporting obligations and are
expected, for the most part, to have a minimal impact on industry
practice. Thus, the regulations will not result in a significant
economic impact on any entity subject to the regulations. Further,
the reporting burdens in these regulations will fall primarily on
large brokerage firms, large banks, and other large entities acting
as trustees or middlemen, most of which are not small entities
within the meaning of the Regulatory Flexibility Act (5 U.S.C.
chapter 6). Thus, a substantial number of small entities will not be
affected. Therefore, a Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed
original and eight (8) copies) that are submitted timely (in the
manner described in the ADDRESSES caption) to the IRS. All comments
will be available for public inspection and copying.

A public hearing has been scheduled for Thursday, November 5, 1998
at 10 a.m., in room 2615, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Because of access
restrictions, visitors will not be admitted beyond the Internal
Revenue Building lobby more than 15 minutes before the hearing
starts.

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

Persons that wish to present oral comments at the hearing must
submit written comments by, November 12, 1998, and submit an outline
of the topics to be discussed and the time to be devoted to each
topic (signed original and eight (8) copies) by October 15, 1998.

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

An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed.

Copies of the agenda will be available free of charge at the
hearing.

Drafting Information

The principal author of these regulations is Faith Colson, Office of
Assistant Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the IRS and Treasury Department
participated in their development.

List of Subjects

26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements

26 CFR Part 301 Employment taxes, Estate taxes, Excise taxes, Gift
taxes, Income taxes, Penalties, Reporting and recordkeeping
requirements Proposed Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as
follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read as follows:

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

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

6034A, and 26 U.S.C. 6049(d)(7).

Par. 2. Section 1.671-4 is amended by revising paragraph (a) and
adding paragraph (j) to read as follows:

§1.671-4 Method of reporting.

(a) Portion of trust treated as owned by the grantor or another
person. Except as otherwise provided in paragraphs (b) and (j) of
this section, items of income, deduction, and credit attributable to
any portion of a trust which, under the provisions of subpart E
(section 671 and following), part I, subchapter J, chapter 1 of the
Internal Revenue Code, is treated as owned by the grantor or another
person are not reported by the trust on Form 1041, but are shown on
a separate statement to be attached to that form. Paragraph (j) of
this section provides special reporting rules for widely held fixed
investment trusts.

Section 301.7701-4(e)(2) of this chapter provides guidance on how
the reporting rules in this paragraph (a) apply to an environmental
remediation trust.

* * * * *

(j) Special rules applicable to widely held fixed investment trusts.
The reporting rules contained in this paragraph (j) apply to any
widely held fixed investment trust.

(1) Definitions. For purposes of this paragraph (j): Affected
expenses. The term affected expenses has the meaning given that term
by §1.67-2T(i)(1).

Affected investor. The term affected investor has the meaning given
that term by §1.67-2T(h)(1).

Exempt recipient. An exempt recipient is any person described in
paragraphs (j)(2)(iv)(A) through (R) of this section.

Middleman. A middleman is any person who holds an interest in an
arrangement classified as a trust under §301.7701-4(c) of this
chapter, and subject to subpart E, part I, subchapter J, chapter 1
of the Internal Revenue Code, on behalf of, or for the account of,
another person, or who otherwise acts in a capacity as an
intermediary for the account of another person, at any time during
the calendar year. A middleman includes, but is not limited to--

(i) A custodian of a person's account, such as a bank, financial
institution, or brokerage firm acting as custodian of an account;

(ii) A nominee, including the joint owner of an account or
instrument except if the joint owners are husband and wife; and

(iii) A broker (as defined in section 6045(c)(1) and §1.6045-1(a)
(1)) holding an interest for a customer in street name.

Requesting person. A requesting person is a person specified in
paragraph (j)(3)(iii)(A) of this section who is entitled to request
from the trustee the information specified in paragraph (j)(3)(ii)
of this section.

Trustee. Trustee means the trustee of a widely held fixed investment
trust.

Unit interest holder. A unit interest holder is any person who holds
a direct or indirect interest, including a beneficial interest, in a
widely held fixed investment trust at any time during the calendar
year.

Widely held fixed investment trust. A widely held fixed investment
trust is an arrangement classified as a trust under §301.7701-4(c)
of this chapter, and subject to subpart E, part I, subchapter J,
chapter 1 of the Internal Revenue Code, in which any interest is
held by a middleman.

(2) Form 1099 requirement for trustees and middlemen--(i) Obligation
to file Form 1099 with the Internal Revenue Service.

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

(A) Every trustee must file with the Internal Revenue Service the
appropriate Forms 1099 reporting the information specified in
paragraph (j)(2)(ii) of this section with respect to any unit
interest holder who holds an interest in the trust directly and not
through a middleman; and

(B) Every middleman must file with the Internal Revenue Service the
appropriate Forms 1099, reporting the information specified in
paragraph (j)(2)(ii) of this section with respect to any unit
interest holder on whose behalf or account the middleman holds an
interest in the trust or acts in a capacity as an intermediary.

(ii) Information to be reported. The following information must be
reported to the Internal Revenue Service on the appropriate Forms
1099--

(A) The name, address, and taxpayer identification number of the
unit interest holder;

(B) The name, address, and taxpayer identification number of the
person required to file the form;

(C) The amount of trust income (determined in accordance with
paragraph (j)(6)(i) of this section) attributable to the unit
interest holder for the calendar year for which the return is made;

(D) In the case of the sale or other disposition of a trust asset
during the calendar year, the portion of the gross proceeds relating
to the trust asset that is attributable to the unit interest holder;
and

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

(iii) Time and place for filing Forms 1099. The Forms 1099 required
to be filed with the Internal Revenue Service by trustees or
middlemen pursuant to paragraph (j)(2)(i) of this section must be
filed on or before February 28 of the year following the year for
which the Forms 1099 are being filed. The returns must be filed with
the appropriate Internal Revenue Service Center, at the address
listed in the instructions for the Forms 1099. For extensions of
time for filing returns under this section, see §1.6081-1. For
magnetic media filing requirements, see §301.6011-2 of this chapter.

(iv) Forms 1099 not required. A Form 1099 is not required for a unit
interest holder that is an exempt recipient. However, if the trustee
or middleman backup withholds under section 3406 on payments made to
a unit interest holder (because, for example, the unit interest
holder has failed to furnish a Form W-9 on request), then the
trustee or middleman is required to make a return under this
section, unless the trustee or middleman refunds the amount withheld
in accordance with §31.6413(a)-3 of this chapter. An exempt
recipient is generally exempt from information reporting without
filing a certificate claiming exempt status unless the provisions of
this paragraph (j)(2)(iv) require the unit interest holder to file a
certificate. A trustee or middleman may in any case require a unit
interest holder not otherwise required to file a certificate under
this paragraph (j)(2)(iv) to file a certificate in order to qualify
as an exempt recipient. See §31.3406(h)-3(a)(1)(iii) and (c)(2) of
this chapter for the certificate that a unit interest holder must
provide if a trustee or middleman requires the certificate in order
to treat the unit interest holder as an exempt recipient under this
paragraph (j)(2)(iv). A trustee or middleman may treat a unit
interest holder as an exempt recipient based upon a properly
completed form as described in §31.3406(h)-3(e)(2) of this chapter,
its actual knowledge that the unit interest holder is a person
described in this paragraph (j)(2)(iv), or the indicators described
in this paragraph (j)(2)(iv). Any unit interest holder who ceases to
be an exempt recipient shall, no later than 10 days after such
cessation, notify the trustee or middleman in writing when it ceases
to be an exempt recipient.

For purposes of this paragraph (j)-- (A) Corporation. A corporation,
as defined in section 7701(a)(3), whether domestic or foreign, is an
exempt recipient.

In addition, for purposes of this paragraph (j)(2)(iv), the term
corporation includes a partnership all of whose members are
corporations described in this paragraph (j)(2)(iv), but only if the
partnership files with the trustee or middleman a properly completed
form as described in §31.3406(h)-3(e)(2) of this chapter. Absent
actual knowledge otherwise, a trustee or middleman may treat a unit
interest holder as a corporation (and, therefore, as an exempt
recipient) if one of the requirements of paragraph (j)(2)(iv)(A)(1),
(2), (3), or (4), is met at the time a unit interest holder acquires
an interest in the trust.

(1) The name of the unit interest holder contains an unambiguous
expression of corporate status (that is, Incorporated, Inc.,
Corporation, Corp., P.C., (but not Company or Co.)) or contains the
term insurance company, indemnity company, reinsurance company, or
assurance company, or its name indicates that it is an entity listed
as a per se corporation under §301.7701-2(b)(8)(i) of this chapter.

(2) The trustee or middleman has on file a corporate resolution or
similar document clearly indicating corporate status. For this
purpose, a similar document includes a copy of Form 8832, filed by
the unit interest holder to elect classification as an association
under §301.7701-3(c) of this chapter.

(3) The trustee or middleman receives a Form W-9 which includes an
EIN and a statement from the unit interest holder that it is a
domestic corporation.

(4) The trustee or middleman receives a withholding certificate
described in §1.1441-1(e)(2)(i), that includes a certification that
the person whose name is on the certificate is a foreign
corporation.

(B) Tax exempt organization. Any organization that is exempt from
taxation under section 501(a) is an exempt recipient.

A custodial account under section 403(b)(7) shall be considered an
exempt recipient under this paragraph. A trustee or middleman may
treat an organization as an exempt recipient under this paragraph
(j)(2)(iv)(B) without requiring a certificate if the organization's
name is listed in the compilation by the Commissioner of
organizations for which a deduction for charitable contributions is
allowed, if the name of the organization contains an unambiguous
indication that it is a tax-exempt organization, or if the
organization is known to the trustee or middleman to be a tax-exempt
organization.

(C) Individual retirement plan. An individual retirement plan as
defined in section 7701(a)(37) is an exempt recipient. A trustee or
middleman may treat any such plan of which it is the trustee or
custodian as an exempt recipient under this paragraph (j)(2)(iv)(C)
without requiring a certificate.

(D) United States. The United States Government and any wholly-owned
agency or instrumentality thereof are exempt recipients. A trustee
or middleman may treat a person as an exempt recipient under this
paragraph (j)(2)(iv)(D) without requiring a certificate if the name
of such person reasonably indicates it is described in this
paragraph (j)(2)(iv)(D).

(E) State. A State, the District of Columbia, a possession of the
United States, a political subdivision of any of the foregoing, a
wholly-owned agency or instrumentality of any one or more of the
foregoing, and a pool or partnership composed exclusively of any of
the foregoing are exempt recipients. A trustee or middleman may
treat a person as an exempt recipient under this paragraph (j)(2)
(iv)(E) without requiring a certificate if the name of such person
reasonably indicates it is described in this paragraph (j)(2)(iv)(E)
or if such person is known generally in the community to be a State,
the District of Columbia, a possession of the United States or a
political subdivision or a wholly-owned agency or instrumentality or
any one or more of the foregoing (for example, an account held in
the name of "Town of S" or "County of T" may be treated as held by
an exempt recipient under this paragraph (j)(2)(iv)(E)).

(F) Foreign government. A foreign government, a political
subdivision of a foreign government, and any wholly-owned agency or
instrumentality of either of the foregoing are exempt recipients. A
trustee or middleman may treat a foreign government or a political
subdivision thereof as an exempt recipient under this paragraph (j)
(2)(iv)(F) without requiring a certificate provided that its name
reasonably indicates that it is a foreign government or provided
that it is known to the trustee or middleman to be a foreign
government or a political subdivision thereof (for example, an
account held in the name of the "Government of V" may be treated as
held by a foreign government).

(G) International organization. An international organization and
any wholly-owned agency or instrumentality thereof are exempt
recipients. The term international organization shall have the
meaning ascribed to it in section 7701(a)(18). A trustee or
middleman may treat a unit interest holder as an international
organization without requiring a certificate if the unit interest
holder is designated as an international organization by executive
order (pursuant to 22 U.S.C. 288 through 288f).

(H) Foreign central bank of issue. A foreign central bank of issue
is an exempt recipient. A foreign central bank of issue is a bank
which is by law or government sanction the principal authority,
other than the government itself, issuing instruments intended to
circulate as currency. See §1.895-1(b)(1). A trustee or middleman
may treat a person as a foreign central bank of issue (and,
therefore, as an exempt recipient) without requiring a certificate
provided that such person is known generally in the financial
community as a foreign central bank of issue or if its name
reasonably indicates that it is a foreign central bank of issue.

(I) Securities and commodities dealer. A dealer in securities,
commodities, or notional principal contracts that is registered as
such under the laws of the United States or a State or under the
laws of a foreign country is an exempt recipient. A trustee or
middleman may treat a dealer as an exempt recipient under this
paragraph (j)(2)(iv)(I) without requiring a certificate if the
person is known generally in the investment community to be a dealer
meeting the requirements set forth in this paragraph (j)(2)(iv)(I)
(for example, a registered broker-dealer or a person listed as a
member firm in the most recent publication of members of the
National Association of Securities Dealers, Inc.).

(J) Real Estate Investment Trust. A real estate investment trust, as
defined in section 856 and §1.856-1, is an exempt recipient. A
trustee or middleman may treat a person as a real estate investment
trust (and, therefore, as an exempt recipient) without requiring a
certificate if the person is known generally in the investment
community as a real estate investment trust.

(K) Entity registered under the Investment Company Act of 1940. An
entity registered at all times during the taxable year under the
Investment Company Act of 1940, as amended (15 U.S.C.

80a-1), (or during such portion of the taxable year that it is in
existence), is an exempt recipient. An entity that is created during
the taxable year will be treated as meeting the registration
requirement of the preceding sentence provided that such entity is
so registered at all times during the taxable year for which such
entity is in existence. A trustee or middleman may treat such an
entity as an exempt recipient under this paragraph (j)(2)(iv)(K)
without requiring a certificate if the entity is known generally in
the investment community to meet the requirements of the preceding
sentence.

(L) Common trust fund. A common trust fund, as defined in section
584(a), is an exempt recipient. A trustee or middleman may treat the
fund as an exempt recipient without requiring a certificate provided
that its name reasonably indicates that it is a common trust fund or
provided that it is known to the trustee or middleman to be a common
trust fund.

(M) Financial institution. A financial institution such as a bank,
mutual savings bank, savings and loan association, building and loan
association, cooperative bank, homestead association, credit union,
industrial loan association or bank, or other similar organization,
whether organized in the United States or under the laws of a
foreign country is an exempt recipient. A financial institution also
includes a clearing organization defined in §1.163-5(c)(2)(i)(D)(8)
and the Bank for International Settlements. A trustee or middleman
may treat any person described in the preceding sentence as an
exempt recipient without requiring a certificate if the person's
name (including a foreign name, such as "Banco" or "Banque")
reasonably indicates the unit interest holder is a financial
institution described in the preceding sentence.

(N) Trust. A trust which is exempt from tax under section 664(c)
(i.e., a charitable remainder annuity trust or a charitable
remainder unitrust) or is described in section 4947(a)(1) (relating
to certain charitable trusts) is an exempt recipient. A trustee or
middleman which is a trustee of the trust may treat the trust as an
exempt recipient without requiring a certificate.

(O) Middlemen. A middleman, as defined in paragraph (j)(1) of this
section, is an exempt recipient.

(P) Brokers. A broker, as defined in section 6045(c) and
§1.6045-1(a)(1), is an exempt recipient.

(Q) Real estate mortgage investment conduit. A real estate mortgage
investment conduit, as defined in section 860D(a), is an exempt
recipient.

(R) A widely held fixed investment trust. A widely held fixed
investment trust, as defined in paragraph (j)(1) of this section, is
an exempt recipient.

(3) Trustee's requirement to furnish information to middlemen,
exempt recipients, and noncalendar-year taxpayers--(i) In general.
The trustee must cause to be printed in a publication generally read
by and available to requesting persons, the name, address, and
telephone number of a representative or official of the trust who
will provide the information specified in paragraph (j)(3)(ii) of
this section to such persons. The trustee must provide the
information in the time and manner prescribed in paragraph (j)(3)
(iii)(C) of this section to requesting persons who request the
information in the manner prescribed in paragraph (j)(3)(iii)(B) of
this section.

(ii) Information required to be reported. For each calendar quarter
or calendar year specified, the trustee must have available and
provide, upon request, the following information computed as of the
last day of the quarter, or computed as of December 31 of the year
specified--

(A) The name of the trust, the name and address of the trustee of
the trust, and the employer identification number of the trust;

(B) The Committee on Uniform Security Identification Procedure
(CUSIP) number, account number, serial number or other identifying
number of the trust;

(C) All items of income (determined in accordance with paragraph (j)
(6)(i) of this section), deduction, and credit of the trust,
expressed both as a total dollar amount for the trust and as a
dollar amount per unit outstanding on the last day of the period
requested;

(D) If any trust asset has been sold or otherwise disposed of during
the period requested, the gross proceeds received by the trust for
the trust asset, the date of sale or disposition of the trust asset,
and the percentage of that trust asset that has been sold or
disposed of. The trust must also provide a schedule showing the
portion (expressed in terms of a percentage) of the total fair
market value of all the assets held by the trust that the asset sold
or disposed of represented as of the last day of the quarter for
each quarter that the asset was held by the trust;

(E) The amount of affected expenses of the trust expressed both as a
total dollar amount and as a dollar amount per unit outstanding on
the last day of the period requested;

(F) In the case of a widely held fixed investment trust that holds a
pool of debt instruments subject to section 1272(a)(6)(C)(iii), the
information required by paragraph (j)(6)(ii) of this section;

(G) The number of units outstanding on the last business day of the
period requested; and

(H) Any other information necessary for a unit interest holder that
is the beneficial owner of a trust interest to properly report the
income, deductions, and credits attributable to the portion of the
trust treated as owned by the unit interest holder under section
671. For this purpose, the trustee shall separately state any trust
item that, if taken into account separately by a unit interest
holder, could result in an income tax liability for that unit
interest holder different from that which would result if the unit
interest holder did not take the item into account separately.

(iii) Providing and requesting trust information--(A) Requesting
persons. The following persons that hold an interest in a trust may
request the information specified in paragraph (j)(3)(ii) of this
section from that trust--

(1) Any middleman;

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

(3) Any other exempt recipient who holds an interest directly and
not through a middleman;

(4) Any noncalendar-year unit interest holder who holds a trust
interest directly and not through a middleman; and

(5) A representative or agent for a person specified in paragraphs
(j)(3)(iii)(A)(1) through (4) of this section.

(B) Manner of requesting information from the trust. A requesting
person may request the information specified in paragraph (j)(3)(ii)
of this section in writing or by telephone.

The request must specify the calendar quarters or years for which
the information is needed.

(C) Time and manner of furnishing information--(1) Manner of
furnishing information. The information specified in paragraph (j)
(3)(ii) of this section may be furnished as follows--

(i) By telephone;

(ii) By written statement sent by first class mail to the address
provided by the requesting person;

(iii) By causing it to be printed in a publication generally read by
and available to requesting persons and by notifying the requesting
person in writing or by telephone of the publication in which it
will appear, the date on which it will appear, and, if possible, the
page on which it will appear; or

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

(2) Time for furnishing the information. The trustee must furnish,
or cause to be furnished, the information specified in paragraph (j)
(3)(ii) of this section on or before the later of--

(i) The 30th day after the close of the period for which the
information was requested; or

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

(4) Requirement of furnishing statement to unit interest holder--(i)
In general. Every trustee or middleman required to file appropriate
Forms 1099 under paragraph (j)(2)(i) of this section with respect to
a particular unit interest holder must furnish to that unit interest
holder (the person whose identifying number is required to be shown
on the form) a written statement showing the information required by
paragraph (j)(4)(ii) of this section.

(ii) Information required to be provided on written statement. The
written statement must specify for the calendar year for which the
return is made the following information--

(A) The name of the trust and the CUSIP number, account number,
serial number, or other identifying number for the trust or unit
interest;

(B) The name, address, and taxpayer identification number of the
person required to send the statement;

(C) All items of income (determined in accordance with paragraph (j)
(6)(i) of this section), deduction, and credit of the trust
attributable to the unit interest holder;

(D) If any trust asset is sold, or otherwise disposed of during the
calendar year, the portion of the gross proceeds relating to the
trust asset that is attributable to the unit interest holder, the
date of sale or disposition of the trust asset, and the percentage
of that trust asset that has been sold or otherwise disposed of. A
schedule showing the portion (expressed in terms of a percentage) of
the total fair market value of all the assets held by the trust that
the asset sold or disposed of represented as of the last day of the
quarter for each quarter that the asset was held by the trust must
be included with the statement;

(E) In the case of a unit interest holder that is an affected
investor, the affected expenses that are attributable to the unit
interest holder;

(F) In the case of a widely held fixed investment trust that holds a
pool of debt instruments subject to section 1272(a)(6)(C)(iii), the
information required by paragraph (j)(6)(ii) of this section;

(G) Any other information necessary for a unit interest holder to
properly report the income, deductions, and credit attributable to
the unit interest holder under section 671. For this purpose, the
trustee or middleman, as the case may be, shall separately state any
trust item that, if taken into account separately by any unit
interest holder, could result in an income tax liability for that
unit interest holder different from that which would result if the
unit interest holder did not take the item into account separately;
and

(H) A statement that the items of income, deduction, and credit and
other information shown on the statement must be taken into account
in computing the taxable income and credits of the unit interest
holder on the income tax return of the unit interest holder.

(iii) Due date and other requirements with respect to statement
required to be furnished to the unit interest holder.

The statement required to be furnished to the unit interest holder
under this paragraph (j)(4) for a calendar year must be furnished to
the holder after April 30 of that year and on or before March 15 of
the year following the year for which the statement is being
furnished. The person sending the statement must maintain in its
records a copy of the statement furnished to the unit interest
holder for a period of 3 years from the due date for furnishing such
statement specified in this paragraph (j)(4).

(5) Requirement that middlemen furnish information to exempt
recipients and noncalendar-year taxpayers. For each calendar quarter
or calendar year specified, any exempt recipient listed in paragraph
(j)(2)(iv) of this section and any noncalendar-year unit interest
holder may request from the middleman who holds the unit interest on
behalf of, or for the account of, the unit interest holder, the
information listed in paragraph (j)(4)(ii)(A) through (G) of this
section computed as of the last day of the calendar quarter
specified, or computed as of December 31 of the year specified. The
middleman must provide in writing or by telephone the information
listed in paragraph (j)(4)(ii)(A) through (G) of this section to any
such requester on or before the later of the 45th day after the
close of the period for which the information was requested, or that
day that is 4 weeks after the receipt of the request.

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

(i) Determination of trust income. Trust income is to be determined
in the following manner--

(A) The trust is to be treated as a calendar year taxpayer using the
cash receipts and disbursements method of accounting; and

(B) The amount of trust income for the calendar year is the gross
amount of income generated by the trust assets (other than from the
sale or other disposition of trust assets). Thus, in the case of a
trust that receives a payment net of an expense, the payment must be
grossed up to reflect the deducted expense.

(ii) Widely held fixed investment trust holding pool of debt
instruments subject to section 1272(a)(6)(C)(iii). In the case of a
widely held fixed investment trust that holds a pool of debt
instruments subject to section 1272(a)(6)(C)(iii), requesting
persons, unit interest holders, exempt recipients, and noncalendar-
year taxpayers must be provided, as required under paragraphs (j)(3)
(ii)(F), (j)(4)(ii)(F), and (j)(5), respectively, of this section,
information necessary to compute--

(A) The accrual of market discount, including the type of
information required under paragraphs §1.6049-7(f)(2)(i)(G) in the
case of a REMIC regular interest or a collateralized debt obligation
not issued with original issue discount; and

(B) The accrual of original issue discount and market discount,
including the type of information required under §1.6049-7(f)(2)(ii)
(E), (F), (I), and (K) in the case of a REMIC regular interest or a
collateralized debt obligation that is issued with original issue
discount.

(7) Backup withholding requirements. Every trustee and middleman
filing a Form 1099 under this section shall be considered a payor
within the meaning of §31.3406(a)-2 of this chapter. The obligation
of a trustee or middleman as payor to backup withhold shall be
determined pursuant to section 3406 and the regulations promulgated
thereunder.

(8) Penalties for failure to comply. Every trustee and middleman who
has a reporting obligation under this paragraph (j) and who fails to
comply is subject to the penalties provided by sections 6721, 6722,
and any other applicable penalty provisions.

(9) Effective date. Trustees and middlemen must report in accordance
with this paragraph (j) for calendar years beginning on or after the
date that the final regulations are published in the Federal
Register.

Par. 3. Section 1.6049-7 is amended by adding a sentence to the end
of paragraph (f)(4) to read as follows:

§1.6049-7 Returns of information with respect to REMIC regular
interests and collateralized debt obligations.

* * * * *

(f) * * *

(4) * * * For rules regarding a widely held fixed investment trust
that holds a pool of debt instruments subject to section 1272(a)(6)
(C)(iii), see §1.671-4(j).

* * * * *

PART 301--PROCEDURE AND ADMINISTRATION

Par. 4. The authority citation for part 301 continues to read in
part as follows:

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

Par. 5. Section 301.6109-1 is amended by revising the last sentence
of paragraph (a)(2)(i) to read as follows:

§301.6109-1 Identifying numbers.

(a) * * *

(2) * * * (i) * * * If the trustee has not already obtained a
taxpayer identification number for the trust, the trustee must
obtain a taxpayer identification number for the trust as provided in
paragraph (d)(2) of this section in order to report pursuant to
§1.671-4(a), (b)(2)(i)(B), (b)(3)(i), or (j) of this chapter.

Deputy Commissioner of Internal Revenue
Michael P. Dolan

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