81 FR 8149 - Reporting of Original Issue Discount on Tax-Exempt Obligations; Basis and Transfer Reporting by Securities Brokers for Debt Instruments and Options

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 32 (February 18, 2016)

This document contains final regulations relating to information reporting by brokers for transactions involving debt instruments and options, including the reporting of original issue discount (OID) on tax-exempt obligations, the treatment of certain holder elections for reporting a taxpayer's adjusted basis in a debt instrument, and transfer reporting for section 1256 options and debt instruments. The regulations in this document provide guidance to brokers and payors and to their customers.

[Federal Register Volume 81, Number 32 (Thursday, February 18, 2016)]
[Rules and Regulations]
[Pages 8149-8154]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-03429]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9750]
RIN 1545-BM59


Reporting of Original Issue Discount on Tax-Exempt Obligations; 
Basis and Transfer Reporting by Securities Brokers for Debt Instruments 
and Options

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to 
information reporting by brokers for transactions involving debt 
instruments and options, including the reporting of original issue 
discount (OID) on tax-exempt obligations, the treatment of certain 
holder elections for reporting a taxpayer's adjusted basis in a debt 
instrument, and transfer reporting for section 1256 options and debt 
instruments. The regulations in this document provide guidance to 
brokers and payors and to their customers.

DATES: 
    Effective date: These regulations are effective on February 18, 
2016.

[[Page 8150]]

    Applicability dates: For the dates of applicability, see Sec. Sec.  
1.6045-1(n)(11)(i)(A), 1.6045-1(n)(11)(i)(B), 1.6045-1(n)(12)(ii), 
1.6045A-1(b)(3)(x), 1.6045A-1(b)(4)(iv), and 1.6049-10(c).

FOR FURTHER INFORMATION CONTACT: Pamela Lew of the Office of the 
Associate Chief Counsel (Financial Institutions and Products) at (202) 
317-7053 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in Sec. Sec.  1.6045-1(n) 
and 1.6045A-1(b) of these final regulations has been reviewed and 
approved by the Office of Management and Budget in accordance with the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control 
number 1545-2186. The collection of information is required to comply 
with the provisions of section 403 of the Energy Improvement and 
Extension Act of 2008, Division B of Public Law 110-343 (122 Stat. 
3765, 3854 (2008)) (the Act). The information required under Sec.  
1.6045-1(n) minimizes the need for reconciliation between information 
reported by a broker to both a customer and the IRS and the amounts 
reported on the customer's tax return. The information required under 
Sec.  1.6045A-1 is necessary to allow brokers that effect sales of 
transferred section 1256 options and debt instruments that are covered 
securities to determine and report the adjusted basis of these 
securities in compliance with section 6045(g) of the Internal Revenue 
Code (Code). The burden for the collection of information contained in 
Sec.  1.6049-10 of these final regulations will be reflected in the 
burden for Form 1099-OID, Original Issue Discount (OMB control number 
1545-0117), when it is revised to request the additional information in 
the regulations. This information is required to enable the IRS to 
verify that a taxpayer is reporting the correct amount of tax-exempt 
interest each year for alternative minimum tax and other purposes. In 
addition, because this information is used to determine a taxpayer's 
adjusted basis in a debt instrument for purposes of section 6045(g), 
this information is required to enable the IRS to verify that a 
taxpayer is reporting the correct amount of gain or loss upon the sale 
of a tax-exempt obligation.
    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 a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by section 6103.

Background

    Section 6045 generally requires a broker to report gross proceeds 
upon the sale of a security. Section 6045 was amended by section 403 of 
the Act to require the reporting of adjusted basis for a covered 
security and whether any gain or loss upon the sale of the security is 
long-term or short-term. In addition, the Act added section 6045A of 
the Code, which requires certain information to be reported in 
connection with a transfer of a covered security to another broker, and 
section 6045B of the Code, which requires an issuer of a specified 
security to file a return relating to certain actions that affect the 
basis of the security. Section 6049 requires the reporting of interest 
payments (including accruals of OID treated as payments).
    On November 25, 2011, the Treasury Department and the IRS published 
in the Federal Register proposed regulations relating to information 
reporting by brokers, transferors, and issuers of securities under 
sections 6045, 6045A, and 6045B for debt instruments, options, and 
securities futures contracts (REG-102988-11 at 76 FR 72652) (the 2011 
proposed basis reporting regulations). On April 18, 2013, the Treasury 
Department and the IRS published in the Federal Register final 
regulations under sections 6045, 6045A, and 6045B (the 2013 final basis 
reporting regulations) and temporary regulations relating to 
information reporting for bond premium and acquisition premium under 
section 6049 (TD 9616 at 78 FR 23116) (the 2013 temporary interest 
reporting regulations). A notice of proposed rulemaking cross-
referencing the 2013 temporary interest reporting regulations also was 
published in the Federal Register on April 18, 2013 (REG-154563-12 at 
78 FR 23183) (the 2013 proposed interest reporting regulations).
    On March 13, 2015, the Treasury Department and the IRS published in 
the Federal Register final regulations under sections 6045, 6045A, and 
6049 (TD 9713 at 80 FR 13233) (the 2015 final basis reporting 
regulations, and, together with the 2013 final basis reporting 
regulations, the final basis reporting regulations). A number of 
commenters on the 2013 final basis reporting regulations requested 
changes to the basis reporting rules relating to certain debt 
elections. In addition, for purposes of section 6045A, several 
commenters requested that a transferring broker provide additional 
information on the transfer statement for a debt instrument and that a 
transferring broker provide a transfer statement for a section 1256 
option contract. Several commenters also suggested that the rules for 
reporting OID associated with a tax-exempt obligation be conformed to 
the rules regarding basis reporting for those debt instruments. 
Accordingly, TD 9713 also included temporary regulations relating to 
information reporting for debt instruments under sections 6045, 6045A, 
and 6049 (the 2015 temporary reporting regulations). A notice of 
proposed rulemaking cross-referencing the 2015 temporary reporting 
regulations was published in the Federal Register on March 13, 2015 
(REG-143040-14 at 80 FR 13292) (the 2015 proposed reporting 
regulations). A correction to Sec.  1.6045A-1T(f) was published on June 
5, 2015 (TD 9713 at 80 FR 31995), delaying the effective date of Sec.  
1.6045A-1T(f) from June 30, 2015, to January 1, 2016.
    Written comments were received on the 2015 proposed reporting 
regulations and are summarized below. No public hearing was requested 
or held. In general, these final regulations adopt the provisions of 
the 2015 proposed reporting regulations. These final regulations also 
remove the corresponding 2015 temporary reporting regulations.
    After the publication of the 2015 final basis reporting 
regulations, the Treasury Department and the IRS received written 
comments on certain provisions of the final basis reporting 
regulations. In response to these comments, this document contains 
final regulations under section 6045 relating to the treatment of 
certain debt instruments as non-covered securities.
    The written comments on the 2015 proposed reporting regulations and 
the 2015 final basis reporting regulations are available for public 
inspection at http://www.regulations.gov or upon request.

Explanation of Provisions

A. Constant Yield Election for Accruals of Market Discount

    Under section 1276(b)(2), a customer may elect to accrue market 
discount on a constant yield method rather than a ratable method. The 
election may be made on a debt instrument by debt instrument basis and 
must be made for the earliest taxable year for which the customer is 
required to determine

[[Page 8151]]

accrued market discount. The election may not be revoked once it has 
been made. In most cases, the use of a constant yield method backloads 
market discount and is therefore more taxpayer favorable than the use 
of a ratable method.
    In response to comments on the 2013 final basis reporting 
regulations (which required the broker to assume that the customer had 
not made a constant yield election), Sec.  1.6045-1T(n)(11)(i)(B) of 
the 2015 temporary reporting regulations provided that for a debt 
instrument acquired on or after January 1, 2015, brokers are required 
to assume that a customer has elected to determine accrued market 
discount using a constant yield method unless the customer notifies the 
broker otherwise. A customer that does not want to use a constant yield 
method to determine accrued market discount must, by the end of the 
calendar year in which the customer acquired the debt instrument in an 
account with the broker, notify the broker in writing that the customer 
wants the broker to use the ratable method to determine accrued market 
discount.
    No comments were received on the substantive rules in Sec.  1.6045-
1T(n)(11)(i)(B). Accordingly, the rules in the final regulations in 
this document are the same as the rules in Sec.  1.6045-
1T(n)(11)(i)(B). Several commenters requested permission to apply the 
default constant yield method to debt instruments acquired on or after 
January 1, 2014, which was the first date for which a broker was 
required to report accrued market discount under section 6045, provided 
that the broker had not reported accrued market discount to a customer 
for the 2014 calendar year using the ratable method. According to the 
commenters, the use of a single method to compute market discount 
accruals for all covered securities with market discount would simplify 
the calculation of accrued market discount and the reporting of this 
information to their customers.
    The final regulations in this document 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 the broker was not informed that the customer had made a 
section 1278(b) election (the election to include market discount in 
income as it accrues rather than upon a disposition or receipt of a 
partial principal payment), there were no principal payments on the 
debt instrument during the 2014 calendar year, and the broker therefore 
had not reported accrued market discount to the customer for the 2014 
calendar year using the ratable method.

B. Transfer Statements

    Under Sec.  1.6045A-1T(e) of the 2015 temporary reporting 
regulations, a transferring broker is required to provide a transfer 
statement upon the transfer of a section 1256 option to ensure that the 
receiving broker has all of the information required for purposes of 
section 6045. The temporary regulations provide that a transfer 
statement is required for the transfer of a section 1256 option that 
occurs on or after January 1, 2016. The temporary regulations also list 
the data specific to section 1256 options that must be provided.
    One commenter asserted that including the fair market value 
information on a transfer statement for a section 1256 option is 
unnecessary because the receiving broker can look up the information if 
it is needed and suggested saving space on the transfer statement by 
eliminating this data item. After considering the suggestion, the 
Treasury Department and IRS decline to adopt this suggestion. Providing 
fair market value information on a transfer statement will help ensure 
that the receiving broker is reporting an amount of realized but 
unrecognized gain or loss from the prior year that is consistent with 
the amount reported in the prior year by the transferring broker, which 
will minimize the possibility of double counting or omission of gain or 
loss.
    No other comments were received on Sec.  1.6045A-1T of the 2015 
temporary reporting regulations. The rules in the final regulations in 
this document are substantively the same as the rules in the 2015 
temporary regulations. However, the rules in Sec.  1.6045A-1T(e) are in 
Sec.  1.6045A-1(b)(4)(iv) of the final regulations in this document and 
the rules in Sec.  1.6045A-1T(f) are in Sec.  1.6045A-1(b)(3)(x) of the 
final regulations in this document.

C. Reporting of OID on a Tax-Exempt Obligation

    To coordinate the reporting of OID under section 6049 with the 
reporting of basis for tax-exempt obligations under section 6045, Sec.  
1.6049-10T of the 2015 temporary reporting regulations provides that a 
payor must report under section 6049 the daily portions of OID on a 
tax-exempt obligation. The daily portions of OID are determined as if 
section 1272 and Sec.  1.1272-1 applied to a tax-exempt obligation. A 
payor must determine whether a tax-exempt obligation was issued with 
OID and the amount that accrues for each relevant period. In addition, 
OID on a tax-exempt obligation is determined without regard to the de 
minimis rule in section 1273(a)(3) and Sec.  1.1273-1(d). Because the 
temporary regulations require the reporting of OID, payors also must 
report amortized acquisition premium (which offsets OID) on a tax-
exempt obligation. A broker may report either a gross amount for both 
OID and amortized acquisition premium, or a net amount of OID that 
reflects the offset of the OID by the amount of amortized acquisition 
premium allocable to the OID. Section 1.6049-10T of the 2015 temporary 
reporting regulations applies to a tax-exempt obligation acquired on or 
after January 1, 2017.
    No comments were received on the substantive rules in Sec.  1.6049-
10T. Accordingly, the rules in the final regulations in this document 
are the same as the rules in Sec.  1.6049-10T. However, several 
commenters requested that, for taxable years beginning after December 
31, 2016, a broker be permitted to report on Form 1099-OID the OID and 
acquisition premium on a tax-exempt obligation that is a covered 
security acquired before January 1, 2017. According to the commenters, 
customers might be confused because of the difference between the date 
that a tax-exempt obligation generally became a covered security (that 
is, an obligation acquired on or after January 1, 2014), and the date 
after which a tax-exempt obligation that is a covered security becomes 
subject to mandatory reporting of OID and acquisition premium (that is, 
an obligation acquired on or after January 1, 2017). Because a broker 
is required to track basis for a tax-exempt obligation that is a 
covered security for purposes of section 6045, the broker is 
responsible for calculating OID on a tax-exempt obligation acquired on 
or after January 1, 2014, even if the broker has no obligation to 
report the obligation's OID to the customer for purposes of section 
6049. To simplify the reporting of OID and acquisition premium and to 
minimize any customer confusion, the commenters requested that the 
final regulations permit a broker to report OID and acquisition 
discount on all tax-exempt bonds that are covered securities.
    After considering the requests, for taxable years beginning after 
December 31, 2016, the final regulations in this document permit, 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.

[[Page 8152]]

D. Treatment of Certain Debt Instruments Subject to January 1, 2016, 
Reporting

    Under Sec.  1.6045-1(n)(3) of the 2013 final basis reporting 
regulations, certain debt instruments are subject to basis reporting 
only if the debt instrument is acquired by a customer on or after 
January 1, 2016. For example, Sec.  1.6045-1(n)(3) applies to a 
contingent payment debt instrument, 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.
    Several commenters on the 2013 final basis reporting regulations 
requested guidance for a debt instrument the terms of which are not 
reasonably available to the broker. The commenters stated that they 
would not have the information necessary to comply with the information 
reporting rules for these instruments. Several commenters stated that 
information for a debt instrument issued by a non-U.S. issuer and for a 
tax-exempt obligation is particularly difficult to obtain. One 
commenter noted that under SEC Release 34-67908, issued on September 
21, 2012 (77 FR 59427), issuers of municipal securities are required to 
provide certain data to the Electronic Municipal Market Access system 
set up by the Municipal Securities Rulemaking Board for new issuances, 
but there is no requirement to file similar information for issuances 
already outstanding as of the November 1, 2012, effective date of the 
release.
    The Treasury Department and the IRS agree that a broker may not 
always be able to obtain information for a debt instrument issued by a 
non-U.S. issuer or for a tax-exempt obligation issued before January 1, 
2014. The final regulations in this document therefore 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, therefore, is not subject to basis reporting under section 6045) 
if the terms of the debt instrument are not reasonably available to the 
broker within 90 days of the date the debt instrument was acquired by 
the customer. The Treasury Department and the IRS believe that the 
information necessary for section 6045 compliance should be available 
for other debt instruments.

Applicability Dates

    The final regulations under section 6045 in this document (other 
than Sec.  1.6045-1(n)(12)) apply to a debt instrument acquired on or 
after January 1, 2015. Section 1.6045-1(n)(12) applies to a debt 
instrument acquired on or after February 18, 2016. The final 
regulations under section 6049 in this document apply to a tax-exempt 
obligation that is a covered security acquired on or after January 1, 
2017. The final regulations under section 6045A in this document apply 
to a transfer of a section 1256 option that occurs on or after January 
1, 2016, and to a transfer of a debt instrument that occurs on or after 
January 1, 2016.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required. It also has been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these regulations.
    It is hereby certified that the final regulations in this document 
will not have a significant economic impact on a substantial number of 
small entities. Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. It is 
anticipated that the requirements in the final regulations in this 
document, except in the case of the notification by a customer 
discussed in the next paragraph, will fall only on financial services 
firms with annual receipts greater than the $38.5 million threshold 
and, therefore, on no small entities.
    Section 403(a) of the Act requires a broker to report the adjusted 
basis of a debt instrument that is a covered security. Although a 
holder of a debt instrument (customer) is permitted to make a number of 
elections that affect how basis is computed, a broker only is required 
to take into account specified elections in reporting the adjusted 
basis of a debt instrument, including the election under section 
1276(b)(2) to determine accruals of market discount on a constant yield 
method. Under the 2013 final basis reporting regulations, a customer 
was required to notify the broker that the customer had made the 
section 1276(b)(2) election. However, Sec.  1.6045-1(n)(11)(i)(B) 
requires a broker to take into account the election under section 
1276(b)(2) in reporting a debt instrument's adjusted basis unless the 
customer timely notifies the broker that the customer has not made the 
election. The notification must be in writing, which includes a writing 
in electronic format. In most cases, this election results in a more 
taxpayer-favorable result than the default ratable method. It is 
anticipated that this collection of information in the regulations will 
not fall on a substantial number of small entities, especially because 
fewer customers will need to notify brokers about the election. 
Further, the regulations implement the statutory requirements for 
reporting adjusted basis under section 403 of the Act. Moreover, any 
economic impact is expected to be minimal because it should take a 
customer no more than seven minutes to satisfy the information-sharing 
requirement in these regulations.
    Section 403(c) of the Act added section 6045A, which requires 
applicable persons to provide a transfer statement in connection with 
the transfer of custody of a covered security. Section 1.6045A-1 
effectuates the Act by giving the broker who receives the transfer 
statement the information necessary to determine and report adjusted 
basis and whether any gain or loss with respect to a debt instrument or 
section 1256 option is long-term or short-term as required by section 
6045 when the security is subsequently sold. Consequently, Sec.  
1.6045A-1 does not add to the impact on small entities imposed by the 
statutory provisions. Instead, the regulations limit the information to 
be reported to only those items necessary to effectuate the statutory 
scheme.
    The information required under Sec.  1.6049-10 will enable the IRS 
to verify that a taxpayer is reporting the correct amount of tax-exempt 
interest each year for alternative minimum tax and other purposes. In 
addition, because this information is used to determine a taxpayer's 
adjusted basis in a debt instrument for purposes of section 6045(g), 
this information is required to enable the IRS to verify that a 
taxpayer is reporting the correct amount of gain or loss upon the sale 
of a tax-exempt obligation. Any economic impact on small entities is 
expected to be minimal because a broker already is required to 
determine the accruals of OID and acquisition premium for purposes of 
determining and reporting a customer's adjusted basis on Form 1099-B 
under section 6045. Moreover, any effect on small entities of the rules 
in the final regulations flows from section 6049 and section 403 of the 
Act.
    Therefore, because the final regulations in this document will not 
have a significant economic impact on a substantial number of small 
entities, a regulatory flexibility analysis is not required.
    Pursuant to section 7805(f) of the Internal Revenue Code, the 
proposed regulations preceding the final regulations in this document 
were

[[Page 8153]]

submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small businesses. No 
comments were received.

Drafting Information

    The principal author of these regulations is Pamela Lew, Office of 
Associate Chief Counsel (Financial Institutions and Products). However, 
other personnel from the Treasury Department and the IRS participated 
in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by removing 
the entries for Sec. Sec.  1.6045A-1T and 1.6049-10T and adding an 
entry for Sec.  1.6049-10 to read in part as follows:

    Authority:  26 U.S.C. 7805 * * *
    Section 1.6049-10 also issued under 26 U.S.C. 6049(a). * * *


0
Par. 2. Section 1.6045-1 is amended by:
0
1. Adding a sentence at the end of paragraph (n)(4) introductory text.
0
2. Revising the last sentence in paragraph (n)(4)(iv).
0
3. Revising the last sentence in paragraph (n)(5)(i).
0
4. Revising the second sentence in paragraph (n)(6)(i).
0
5. Adding a sentence at the end of paragraph (n)(6)(ii).
0
6. Revising the last sentence in paragraph (n)(7)(iii).
0
7. Revising ``Sec.  1.6049-9T'' to read ``Sec.  1.6049-9'' in two 
places in paragraph (n)(9).
0
8. Revising paragraph (n)(11).
0
9. Adding paragraph (n)(12).
    The revisions and additions read as follows:


Sec.  1.6045-1  Returns of information of brokers and barter exchanges.

* * * * *
    (n) * * *
    (4) * * * However, see paragraph (n)(11) of this section for the 
treatment of an election described in paragraph (n)(4)(iii) of this 
section (election to accrue market discount based on a constant yield) 
and an election described in paragraph (n)(4)(iv) of this section 
(election to treat all interest as OID).
    (iv) * * * However, see paragraph (n)(11)(i)(A) of this section for 
a debt instrument acquired on or after January 1, 2014.
* * * * *
    (5) * * *
    (i) * * * However, see paragraph (n)(11) of this section for the 
treatment of an election described in paragraph (n)(4)(iii) of this 
section (election to accrue market discount based on a constant yield) 
and an election described in paragraph (n)(4)(iv) of this section 
(election to treat all interest as OID).
* * * * *
    (6) * * *
    (i) * * * See paragraphs (n)(5) and (n)(11)(i)(B) of this section 
to determine whether the amount reported should take into account a 
customer election under section 1276(b)(2). * * *
    (ii) * * * See paragraphs (n)(5) and (n)(11)(i)(B) of this section 
to determine whether the amount reported should take into account a 
customer election under section 1276(b)(2).
    (7) * * *
    (iii) * * * However, if a broker took into account a customer 
election under Sec.  1.1272-3 in 2014, the broker must decrease the 
customer's basis in the debt instrument by the amount of acquisition 
premium that is taken into account each year to reduce the amount of 
the original issue discount that is otherwise includible in the 
customer's income for that year in accordance with Sec. Sec.  1.1272-
2(b)(5) and 1.1272-3.
* * * * *
    (11) Additional rules for certain holder elections--(i) In general. 
For purposes of this section, the rules in this paragraph (n)(11) apply 
notwithstanding any other rule in paragraph (n) of this section.
    (A) Election to treat all interest as OID. A broker must report the 
information required under paragraph (d) of this section without taking 
into account any election described in paragraph (n)(4)(iv) of this 
section (the election to treat all interest as OID in Sec.  1.1272-3). 
As a result, for example, a broker must determine the amount of any 
acquisition premium taken into account each year for purposes of this 
section in accordance with Sec.  1.1272-2(b)(4). This paragraph 
(n)(11)(i)(A) applies to a debt instrument acquired on or after January 
1, 2015. A broker, however, may rely on this paragraph (n)(11)(i)(A) 
for a debt instrument acquired on or after January 1, 2014, and before 
January 1, 2015.
    (B) Election to accrue market discount based on a constant yield. A 
broker must report the information required under paragraph (d) of this 
section by assuming that a customer has made the election described in 
paragraph (n)(4)(iii) of this section (the election to accrue market 
discount based on a constant yield). However, if a customer notifies a 
broker in writing that the customer does not want the broker to take 
into account this election, the broker must report the information 
required under paragraph (d) of this section without taking into 
account this election. The customer must provide this notification to 
the broker by the end of the calendar year in which the customer 
acquired the debt instrument in an account with the broker. This 
paragraph (n)(11)(i)(B) applies to a debt instrument acquired on or 
after January 1, 2015. A broker, however, may rely on this paragraph 
(n)(11)(i)(B) to report accrued market discount for a debt instrument 
that is a covered security acquired on or after January 1, 2014, and 
before January 1, 2015, if the customer had not informed the broker 
that the customer had made a section 1278(b) election and there were no 
principal payments on the debt instrument during this period.
    (ii) [Reserved].
    (12) Certain debt instruments treated as noncovered securities--(i) 
In general. Notwithstanding paragraph (a)(15) of this section, a debt 
instrument is treated as a noncovered security for purposes of this 
section if the terms of the debt instrument are not reasonably 
available to the broker within 90 days of the date the debt instrument 
was acquired by the customer and the debt instrument is either--
    (A) A debt instrument issued by a non-U.S. issuer; or
    (B) A tax-exempt obligation issued before January 1, 2014.
    (ii) Effective/applicability date. Paragraph (n)(12)(i) of this 
section applies to a debt instrument described in paragraph 
(n)(12)(i)(A) or (B) of this section that is acquired on or after 
February 18, 2016. However, a broker may rely on paragraph (n)(12)(i) 
of this section for a debt instrument described in paragraph 
(n)(12)(i)(A) or (B) of this section acquired before February 18, 2016.
* * * * *

0
Par. 3. Section 1.6045-1T is amended by revising paragraphs (h) through 
(p) to read as follows:


Sec.  1.6045-1T  Returns of information of brokers and barter exchanges 
(temporary).

* * * * *
    (h) through (p) [Reserved]. For further guidance, see Sec.  1.6045-
1(h) through (p).
* * * * *

[[Page 8154]]


0
Par. 4. Section 1.6045A-1 is amended by:
0
1. Removing ``and'' at the end of paragraph (b)(3)(viii), removing the 
period at the end of paragraph (b)(3)(ix) and adding ``and;'' in its 
place, and adding paragraph (b)(3)(x).
0
2. Removing ``and'' at the end of paragraph (b)(4)(ii), removing the 
period at the end of paragraph (b)(4)(iii) and adding ``and;'' in its 
place, and adding paragraph (b)(4)(iv).
0
3. Removing paragraphs (e) and (f).
    The additions read as follows:


Sec.  1.6045A-1  Statements of information required in connection with 
transfers of securities.

* * * * *
    (b) * * *
    (3) * * *
    (x) For a transfer that occurs on or after January 1, 2016, the 
last date on or before the transfer date that the transferor made an 
adjustment for a particular item (for example, the last date on or 
before the transfer date that bond premium was amortized). A broker, 
however, may rely on this paragraph (b)(3)(x) for a transfer of a 
covered security that occurs on or after June 30, 2015, and before 
January 1, 2016.
    (4) * * *
    (iv) For a transfer of an option described in Sec.  1.6045-1(m)(3) 
(section 1256 option) that occurs on or after January 1, 2016, the 
original basis of the option and the fair market value of the option as 
of the end of the prior calendar year.
* * * * *


Sec.  1.6045A-1T  [Removed]

0
Par. 5. Section 1.6045A-1T is removed.

0
Par. 6. Section 1.6049-10 is added to read as follows:


Sec.  1.6049-10  Reporting of original issue discount on a tax-exempt 
obligation.

    (a) In general. For purposes of section 6049, a payor (as defined 
in Sec.  1.6049-4(a)(2)) of original issue discount (OID) on a tax-
exempt obligation (as defined in section 1288(b)(2)) is required to 
report the daily portions of OID on the obligation as if the daily 
portions of OID that accrued during a calendar year were paid to the 
holder (or holders) of the obligation in the calendar year. The amount 
of the daily portions of OID that accrues during a calendar year is 
determined as if section 1272 and Sec.  1.1272-1 applied to a tax-
exempt obligation. Notwithstanding any other rule in section 6049 and 
the regulations thereunder, a payor must determine whether a tax-exempt 
obligation was issued with OID and the amount of OID that accrues for 
each relevant period. As prescribed by section 1288(b)(1), OID on a 
tax-exempt obligation is determined without regard to the de minimis 
rules in section 1273(a)(3) and Sec.  1.1273-1(d).
    (b) Acquisition premium. A payor is required to report acquisition 
premium amortization on a tax-exempt obligation in accordance with the 
rules in Sec.  1.6049-9(c) as if section 1272 applied to a tax-exempt 
obligation. See paragraph (a) of this section to determine the amount 
of OID allocable to an accrual period.
    (c) Effective/applicability date. This section applies to a tax-
exempt obligation that is a covered security (within the meaning of 
Sec.  1.6045-1(a)(15) and (n)(12)) acquired on or after January 1, 
2017. For a taxable year beginning after December 31, 2016, a broker, 
however, may rely on this section to report OID and acquisition premium 
for a tax-exempt obligation that is a covered security acquired before 
January 1, 2017.


Sec.  1.6049-10T  [Removed]

0
Par. 7. Section 1.6049-10T is removed.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: January 13, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2016-03429 Filed 2[dash]17-16; 8:45 am]
BILLING CODE 4830-01-P