[Federal Register: December 29, 2003 (Volume 68, Number 248)]
[Rules and Regulations]
[Page 74847-74848]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29de03-4]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9103]
RIN 1545-BC97
Information Statements for Certain Substitute Payments
AGENCY: Internal Revenue Service (IRS) Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations under section 6045(d)
that reflect the changes to information reporting for payments in lieu
of dividends effected by the Jobs and Growth Tax Relief Reconciliation
Act of 2003 (JGTRRA). These regulations provide that brokers must file
information returns and furnish information statements reporting
substitute payments in lieu of dividends to individuals who receive
substitute payments in lieu of dividends on or after January 1, 2003.
DATES: Effective Date: These final regulations are effective December
29, 2003.
Applicability Date: These regulations apply to information returns
required to be filed, and information statements required to be
furnished, after December 31, 2003.
FOR FURTHER INFORMATION CONTACT: Michael Hara of the Office of
Associate Chief Counsel (Procedure and Administration), (202) 622-4910
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 302 of the Jobs and Growth Tax Relief Reconciliation Act of
2003 (the JGTRRA), Public Law No. 108-27 (117 Stat. 752), reduced the
tax rate for ``qualified dividends'' paid to an individual shareholder
to the same tax rate as capital gains for taxable years beginning after
December 31, 2002, and beginning before January 1, 2009. The
legislative history states, however, ``Payments in lieu of dividends
are not eligible for the lower rates.'' See H.R. Rep. No. 108-94, 108th
Cong., 1st Sess. 31 n.36 (2003).
Explanation of Provisions
Section 6045(a) of the Internal Revenue Code (Code) provides that
every person doing business as a broker shall, when required by the
Secretary, make a return showing the name and
[[Page 74848]]
address of each customer, together with information as required by
forms and regulations. Section 6045(d) provides that brokers who
transfer a customer's securities for use in a short sale or similar
transaction, and receive payments in lieu of a dividend, tax-exempt
interest, or other items set forth in regulations (substitute
payments), must furnish the customer with a written statement
identifying the payment as being in lieu of the dividend, tax-exempt
interest, or other item. This section authorizes the Secretary to
prescribe regulations that require brokers to file information returns
that include the information contained in the written statement.
Section 1.6045-2 of the existing Income Tax Regulations provides
rules for reporting substitute payments under section 6045(d). In
general, Sec. 1.6045-2(a)(3)(i) of the existing regulations excludes
payments in lieu of dividends received by a broker on behalf of an
individual from the broker reporting requirements of section 6045(d).
Section 1.6045-2(a)(3)(ii) of the existing regulations requires
reporting for certain dividend substitute payments received by a broker
on behalf of an individual, such as payments in lieu of exempt interest
dividends distributed by regulated investment companies.
These regulations contain amendments to the existing regulations to
require reporting under section 6045(d) for payments in lieu of
dividends made to individuals on or after January 1, 2003. For taxable
years beginning on or after January 1, 2003, brokers must use Form
1099-MISC, ``Miscellaneous Income'', to report substitute payments to
individuals, including payments in lieu of dividends.
The IRS issued interim guidance regarding provisions of the JGTRRA
that affect information reporting for payments in lieu of dividends in
Notice 2003-67 (2003-40 I.R.B. 752). The notice also provided guidance
on the definition of loanable shares and the allocation and selection
of transferred shares (that is, shares giving rise to payments in lieu
of dividends to customers). The IRS intends to issue comprehensive
regulations amending Sec. 1.6045-2 in the future. The IRS anticipates
that these regulations will define payments in lieu of dividends,
provide rules for determining loanable shares, and provide rules for
allocating and selecting transferred shares to customers. Pending
issuance of further amendments to Sec. 1.6045-2 of the existing
regulations, brokers may rely on Notice 2003-67 to comply with the
requirements of the JGTRRA and section 6045(d).
In addition, pending issuance of further amendments to Sec.
1.6045-2, the IRS will permit brokers to continue to use the rules of
Sec. 1.6045-2 of the existing regulations for allocating transferred
shares to customers. A broker may continue to allocate transferred
shares to shares of stock that the broker has borrowed under a security
agreement with the customer. In addition, if a broker uses the lottery
method of allocation and selection of loanable shares specified in
Sec. 1.6045-2(f)(2)(ii), the broker may make the selection of the
transferred shares within the individual pool described in Sec.
1.6045-2(f)(2)(ii)(C) using the methods of selection of transferred
shares used within the nonindividual pool as prescribed in Sec.
1.6045-2(f)(2)(ii)(B).
Special Analyses
These final regulations are necessary to provide brokers and
taxpayers with immediate guidance regarding provisions in the JGTRRA
that affect information reporting for substitute payments in lieu of
dividends. The regulations apply to information returns required to be
filed, and information statements required to be furnished, after
December 31, 2003. Based on these considerations, it is determined that
these final regulations will provide brokers and taxpayers with the
necessary guidance and authority to comply with the tax laws. Because
of the need for immediate guidance, notice and public procedure are
impracticable and contrary to the public interest pursuant to 5 U.S.C.
553(b)(B) and delayed effective date is not required pursuant to 5
U.S.C. 553(d)(3).
Because no notice of proposed rulemaking is required, the
provisions of the Regulatory Flexibility Act, 5 U.S.C. 601 (et seq.) do
not apply. Further, it has been determined that this Treasury decision
is not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. Pursuant to
section 7805(f) of the Code, these regulations were submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business.
Drafting Information
The principal author of these regulations is Michael Hara, Office
of Associate Chief Counsel (Procedures and Administration),
Administrative Provisions and Judicial Practice.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.6045-2 is amended by:
0
1. Paragraph (a)(3)(i) is revised.
0
2. The heading for paragraph (a)(3)(ii) is revised.
The revisions read as follows:
Sec. 1.6045-2 Furnishing statement required with respect to certain
substitute payments.
(a) * * *
(3) * * * (i) In general. Except as otherwise provided in paragraph
(a)(3)(ii) of this section, for taxable years beginning before January
1, 2003, a broker that receives a substitute payment in lieu of a
dividend on behalf of a customer who is an individual (``individual
customer'') need not furnish a statement to the customer.
(ii) Reporting for certain dividends. * * *
* * * * *
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Approved: December 18, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03-31671 Filed 12-24-03; 8:45 am]
BILLING CODE 4830-01-P