Identification of Basket Contract Transactions as Listed Transactions
| Published date | 12 July 2024 |
| Record Number | 2024-14787 |
| Citation | 89 FR 57111 |
| Court | Internal Revenue Service |
| Section | Proposed rules |
Federal Register, Volume 89 Issue 134 (Friday, July 12, 2024)
[Federal Register Volume 89, Number 134 (Friday, July 12, 2024)]
[Proposed Rules]
[Pages 57111-57120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14787]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-102161-23]
RIN 1545-BQ89
Identification of Basket Contract Transactions as Listed
Transactions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations that would
identify transactions that are the same as, or substantially similar
to, certain basket contract transactions as listed transactions, a type
of reportable transaction. Material advisors and certain participants
in these listed transactions would be required to file disclosures with
the IRS and would be subject to penalties for failure to disclose. The
proposed regulations would affect participants in these transactions as
well as material advisors. This document also provides notice of a
public hearing on the proposed regulations.
DATES:
Comments: Written or electronic comments must be received by
September 10, 2024.
Public Hearing: A public hearing has been scheduled for September
26, 2024, at 10:00 a.m. ET. Pursuant to Announcement 2023-16, 2023-20
I.R.B. 854 (May 15, 2023), the public hearing is scheduled to be
conducted in person, but the IRS will provide a telephonic option for
individuals who wish to attend or testify at the hearing by telephone.
Requests to speak and outlines of topics to be discussed at the public
hearing must be received by September 10, 2024. If no outlines are
received by September 10, 2024, the public hearing will be cancelled.
Requests to attend the public hearing must be received by 5:00 p.m. ET
on September 24, 2024. The hearing will be made accessible to people
with disabilities. Requests for special assistance during the hearing
must be received by 5:00 p.m. on September 23, 2024.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-102161-23) by following the
online instructions for submitting comments. Once submitted to the
Federal eRulemaking Portal, comments cannot be edited or withdrawn. The
Department of the Treasury (Treasury Department) and the IRS will
publish for public availability any comments submitted to the IRS's
public docket. Send paper submissions to: CC:PA:01:PR (REG-102161-23),
Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin
Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Danielle M. Heavey of the Office of Associate Chief Counsel (Financial
Institutions & Products), (202) 317-5931 (not a toll-free number);
concerning the submission of comments or the hearing, Publications and
Regulations Section at (202) 317-6901 (not a toll-free number) or by
email at [email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed additions to 26 CFR part 1 (Income
Tax Regulations) under section 6011 of the Internal Revenue Code
(Code). The proposed additions identify certain transactions as
``listed transactions'' for purposes of section 6011.
I. Disclosure of Reportable Transactions by Participants and Penalties
for Failure To Disclose
Section 6011(a) generally provides that, when required by
regulations prescribed by the Secretary of the Treasury or her delegate
(Secretary), any person made liable for any tax imposed by this title,
or with respect to the collection thereof, shall make a return or
statement according to the forms and regulations prescribed by the
Secretary. Every person required to make a return or statement shall
include therein the information required by such forms or regulations.
Section 1.6011-4(a) provides that every taxpayer that has
participated in a reportable transaction within the meaning of Sec.
1.6011-4(b) and who is required to file a tax return must file a
disclosure statement within the time prescribed in Sec. 1.6011-4(e).
Reportable transactions are identified in Sec. 1.6011-4 and include
listed transactions, confidential transactions, transactions with
contractual protection, loss transactions, and transactions of
interest. See Sec. 1.6011-4(b)(2) through (6). Section 1.6011-4(b)(2)
defines a listed transaction as a transaction that is the same as or
substantially similar to one of the types of transactions that the IRS
has determined to be a tax avoidance transaction and identified by
[[Page 57112]]
notice, regulation, or other form of published guidance as a listed
transaction. Section 1.6011-4(b)(6) defines a ``transaction of
interest'' as a transaction that is the same as or substantially
similar to one of the types of transactions that the IRS has identified
by notice, regulation, or other form of published guidance as a
transaction of interest.
Section 1.6011-4(c)(4) provides that a transaction is
``substantially similar'' if it is expected to obtain the same or
similar types of tax consequences and is either factually similar or
based on the same or similar tax strategy. Receipt of an opinion
regarding the tax consequences of the transaction is not relevant to
the determination of whether the transaction is the same as or
substantially similar to another transaction. Further, the term
substantially similar must be broadly construed in favor of disclosure.
For example, a transaction may be substantially similar to a listed
transaction even though it may involve different entities or use
different Code provisions.
Section 1.6011-4(c)(3)(i)(A) provides that a taxpayer has
participated in a listed transaction if the taxpayer's tax return
reflects tax consequences or a tax strategy described in the published
guidance that lists the transaction under Sec. 1.6011-4(b)(2).
Published guidance may identify other types or classes of persons that
will be treated as participants in a listed transaction. Published
guidance may also identify types or classes of persons that will not be
treated as participants in a listed transaction. Section 1.6011-
4(c)(3)(i)(E) provides that a taxpayer has participated in a
transaction of interest if the taxpayer is one of the types or classes
of persons identified as participants in the transaction in the
published guidance describing the transaction of interest.
Sections 1.6011-4(d) and (e) provide that the disclosure-
statement--Form 8886, Reportable Transaction Disclosure Statement (or
successor form)--must be attached to the taxpayer's tax return for each
taxable year for which a taxpayer participates in a reportable
transaction. A copy of the disclosure statement must be sent to IRS's
Office of Tax Shelter Analysis (OTSA) at the same time that any
disclosure statement is first filed by the taxpayer pertaining to a
particular reportable transaction.
Section 1.6011-4(e)(2)(i) provides that if a transaction becomes a
listed transaction or a transaction of interest after the filing of a
taxpayer's tax return reflecting the taxpayer's participation in the
transaction and before the end of the period of limitations for
assessment for any taxable year in which the taxpayer participated in
the transaction, then a disclosure statement must be filed with OTSA
within 90 calendar days after the date on which the transaction becomes
a listed transaction or transaction of interest. This requirement
extends to an amended return and exists regardless of whether the
taxpayer participated in the transaction in the year the transaction
became a listed transaction or transaction of interest. The
Commissioner of Internal Revenue may also determine the time for
disclosure of listed transactions and transactions of interest in the
published guidance identifying the transaction.
Participants required to disclose these transactions under Sec.
1.6011-4 who fail to do so are subject to penalties under section
6707A. Section 6707A(b) provides that the amount of the penalty is 75
percent of the decrease in tax shown on the return as a result of the
reportable transaction (or which would have resulted from such
transaction if such transaction were respected for Federal tax
purposes), subject to minimum and maximum penalty amounts. The minimum
penalty amount is $5,000 in the case of a natural person and $10,000 in
any other case. For listed transactions, the maximum penalty amount is
$100,000 in the case of a natural person and $200,000 in any other
case. For other reportable transactions, including transactions of
interest, the maximum penalty is $10,000 in the case of a natural
person and $50,000 in any other case.
Additional penalties may also apply. In general, section 6662A
imposes a 20 percent accuracy-related penalty on any understatement (as
defined in section 6662A(b)(1)) attributable to an adequately disclosed
reportable transaction. If the taxpayer had a requirement to disclose
participation in the reportable transaction but did not adequately
disclose the transaction in accordance with the regulations under
section 6011, the taxpayer is subject to an increased penalty rate
equal to 30 percent of the understatement. See section 6662A(c).
Section 6662A(b)(2) provides that section 6662A applies to any item
which is attributable to any listed transaction and any reportable
transaction (other than a listed transaction) if a significant purpose
of such transaction is the avoidance or evasion of Federal income tax.
Participants required to disclose listed transactions who fail to
do so are also subject to an extended period of limitations under
section 6501(c)(10). That section provides that the time for assessment
of any tax with respect to the transaction does not expire before the
date that is one year after the earlier of the date the participant
discloses the transaction or the date a material advisor discloses the
participation pursuant to a written request under section
6112(b)(1)(A).
II. Disclosure of Reportable Transactions by Material Advisors and
Penalties for Failure To Disclose
Section 6111(a) provides that ``[e]ach material advisor with
respect to any reportable transaction shall make a return . . . setting
forth . . . (1) information identifying and describing the transaction,
(2) information describing any potential tax benefits expected to
result from the transaction, and (3) such other information as the
Secretary may prescribe. Such return shall be filed not later than the
date specified by the Secretary.''
Section 301.6111-3(a) of the Procedure and Administration
Regulations provides that each material advisor with respect to any
reportable transaction, as defined in Sec. 1.6011-4(b), must file a
return as described in Sec. 301.6111-3(d) by the date described in
Sec. 301.6111-3(e).
Section 301.6111-3(b)(1) provides that a person is a material
advisor with respect to a transaction if the person provides any
material aid, assistance, or advice with respect to organizing,
managing, promoting, selling, implementing, insuring, or carrying out
any reportable transaction, and directly or indirectly derives gross
income in excess of the threshold amount as defined in Sec. 301.6111-
3(b)(3) for the material aid, assistance, or advice. Under Sec.
301.6111-3(b)(2)(i) and (ii), a person provides material aid,
assistance, or advice if the person provides a tax statement, which is
any statement (including another person's statement), oral or written,
that relates to a tax aspect of a transaction that causes the
transaction to be a reportable transaction as defined in Sec. 1.6011-
4(b)(2) through (7).
Material advisors must disclose transactions on Form 8918, Material
Advisor Disclosure Statement (or successor form), as provided in Sec.
301.6111-3(d) and (e). Section 301.6111-3(e) provides that the material
advisor's disclosure statement for a reportable transaction must be
filed with OTSA by the last day of the month that follows the end of
the calendar quarter in which the advisor becomes a material advisor
with respect to a reportable transaction or in which the circumstances
necessitating an amended disclosure statement occur. The disclosure
statement must be sent to
[[Page 57113]]
OTSA at the address provided in the instructions for Form 8918 (or
successor form).
Section 301.6111-3(d)(2) provides that the IRS will issue to a
material advisor a reportable transaction number with respect to the
disclosed reportable transaction. Receipt of a reportable transaction
number does not indicate that the disclosure statement is complete, nor
does it indicate that the transaction has been reviewed, examined, or
approved by the IRS. Material advisors must provide the reportable
transaction number to all taxpayers and material advisors for whom the
material advisor acts as a material advisor as defined in Sec.
301.6111-3(b). The reportable transaction number must be provided at
the time the transaction is entered into, or, if the transaction is
entered into prior to the material advisor receiving the reportable
transaction number, within 60 calendar days from the date the
reportable transaction number is mailed to the material advisor.
Section 6707(a) provides that a material advisor who fails to file
a timely disclosure, or files an incomplete or false disclosure
statement, is subject to a penalty. Pursuant to section 6707(b)(2), for
listed transactions, the penalty is the greater of (A) $200,000, or (B)
50 percent of the gross income derived by such person with respect to
aid, assistance, or advice which is provided with respect to the listed
transaction before the date the return is filed under section 6111.
Pursuant to section 6707(b)(1), the penalty for other reportable
transactions, including transactions of interest, is $50,000.
A material advisor may also be subject to a penalty under section
6708 for failing to maintain a list under section 6112(a) and failing
to make the list available upon written request to the Secretary in
accordance with section 6112(b) within 20 business days after the date
of such request. Section 6708(a) provides that the penalty is $10,000
per day for each day of the failure after the 20th day. However, no
penalty will be imposed with respect to the failure on any day if such
failure is due to reasonable cause.
Additionally, section 6112(a) provides that ``[e]ach material
advisor . . . with respect to any reportable transaction . . . shall
(whether or not required to file a return under section 6111 with
respect to such transaction) maintain (in such manner as the Secretary
may by regulations prescribe) a list (1) identifying each person with
respect to whom such advisor acted as a material advisor with respect
to such transaction and (2) containing such other information as the
Secretary may by regulations require.'' Material advisors must furnish
such lists to the IRS in accordance with Sec. 301.6112-1(e).
III. Basket Contract Transactions and Notices 2015-73 and 2015-74
The Treasury Department and the IRS are aware of a type of
structured financial transaction in which a taxpayer attempts to defer
income recognition and to convert short-term capital gain and ordinary
income to long-term capital gain using a contract denominated as an
option, notional principal contract, forward contract, or other
derivative contract (basket contract). On July 8, 2015, the Treasury
Department and the IRS released Notice 2015-47, 2015-30 I.R.B. 76,
which identified certain basket contracts described in that notice as
listed transactions. In addition, on July 8, 2015, the Treasury
Department and the IRS released Notice 2015-48, 2015-30 I.R.B. 77,
which identified certain basket contracts described in that notice as
transactions of interest. Although Notice 2015-47 and Notice 2015-48
did not request comments, some industry comments were submitted
expressing concern that difficulty in identifying transactions
described in Notice 2015-47 and Notice 2015-48 may cause taxpayers to
file disclosures for transactions that were not intended to be treated
as listed transactions or transactions of interest.
Responding to these concerns, on October 21, 2015, the Treasury
Department and the IRS released Notice 2015-73, 2015-46 I.R.B. 660,
which revoked Notice 2015-47 and provided additional details on the
types of basket contracts that were identified as listed transactions.
Similarly, on October 21, 2015, the Treasury Department and the IRS
released Notice 2015-74, 2015-46 I.R.B. 663, which revoked Notice 2015-
48 and provided additional details on the types of basket contracts
that were identified as transactions of interest. Also in response to
commenter concerns, Notice 2015-73 and Notice 2015-74 more specifically
describe the tax benefits that identify the transaction as a listed
transaction or transaction of interest, respectively.
The background section of Notice 2015-73 provides the following
description of one type of structured financial transaction that the
Treasury Department and the IRS were concerned about when the Notice
was issued: a taxpayer (T) enters into a contract denominated as an
option with a counterparty (C) to receive a return based on the
performance of a notional basket of referenced actively traded personal
property (reference basket). T, or a designee named by T, will either
determine the assets that comprise the reference basket or design or
select a trading algorithm that determines the assets. While the basket
contract remains open, T \1\ has the right to change the assets in the
reference basket, request that C change the assets in the reference
basket, change the trading algorithm, or request that C change the
trading algorithm (collectively, discretion). The terms of the basket
contract may permit C to reject certain changes requested by T to the
assets in the reference basket or the trading algorithm. C, however,
generally accepts all or nearly all of the changes requested by T.
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\1\ When used in this sentence and subsequently with respect to
changing or requesting changes to the assets in the reference basket
or the trading algorithm, references to ``T'' include T's designee.
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When the basket contract is entered into, T typically makes an
upfront cash payment to C of between 10 and 40 percent of the value of
the assets in the reference basket. To manage its risk under the basket
contract, C typically acquires substantially all of the assets in the
reference basket at the inception of the contract and acquires and
disposes of assets during the term of the contract either when T
changes the assets in the reference basket or the trading algorithm
provides for such changes. C generally supplies the additional cash
required to purchase the assets in the reference basket. The assets in
the reference basket would typically generate ordinary income if held
directly by T, and short-term gains and losses if purchases and sales
of the assets were carried out directly by T.
The basket contract has a stated term of more than one year but
contains provisions that in effect allow either party to terminate the
contract at any time during the stated contract term with proper
notice. The amount that T receives upon settlement of the basket
contract is based on the performance of the assets in the reference
basket. A common payout formula on the basket contract entitles T to a
return equal to the upfront payment, plus net basket gain or minus net
basket loss. The net basket gain or net basket loss includes net
changes in the values of the assets in the reference basket, together
with interest, dividend, and other periodic income on the assets,
reduced by C's fee for its role in the transaction. The basket contract
typically includes a provision automatically terminating the contract
if the amount of the net basket loss reaches the amount of the upfront
payment, giving T a cash settlement
[[Page 57114]]
amount of zero. The basket contract also may permit or require T to
provide additional collateral or otherwise reduce risk in the reference
basket if a specified level of risk is reached.
The basket contract typically contains other safeguards to minimize
the economic risk to C. For example, C may terminate the basket
contract if T violates investment guidelines that are part of the
contract. C typically holds the rights associated with legal title to
the assets and positions in the reference basket, including voting
rights and the right to comingle, lend, pledge, transfer, or otherwise
use the assets in the basket without notice to T.
Notice 2015-73 identifies a transaction as being the same as, or
substantially similar to, the described basket contract transaction
only if: (1) T enters into a transaction with C that is denominated as
an option contract; (2) T receives a return based on the performance of
the reference basket; (3) substantially all of the assets in the
reference basket primarily consist of actively traded personal property
as defined under Sec. 1.1092(d)-1(a); (4) the contract is not fully
settled at intervals of one year or less; (5) T or T's designee has
exercised discretion to change (either directly or through a request to
C) the assets in the reference basket or the trading algorithm; and (6)
T's tax return for a taxable year ending on or after January 1, 2011
reflects a tax benefit consisting of a deferral of income into a later
taxable year or a conversion of ordinary income or short-term capital
gain or loss into long-term capital gain or loss.
The basket contracts identified as transactions of interest in
Notice 2015-74 closely resemble the basket contracts identified as
listed transactions in Notice 2015-73. The primary factual differences
between the basket contracts identified in Notice 2015-73 and the
basket contracts identified in Notice 2015-74 are: (1) the form of the
derivative contract; (2) the type of assets in the reference basket;
and (3) the term of the contract. Regarding the form of the derivative
contract, Notice 2015-73 identifies only contracts denominated as
options, while Notice 2015-74 identifies contracts more generally,
including those denominated as options, notional principal contracts,
forwards, or other derivative contracts. Regarding the type of assets
in the reference basket, the transactions identified in Notice 2015-73
are transactions in which substantially all of the assets in the
reference basket primarily consist of actively traded personal property
as defined under Sec. 1.1092(d)-1(a), while, with respect to the
contracts identified in Notice 2015-74, the assets that comprise the
reference basket can include (i) interests in entities that trade
securities, commodities, foreign currency, or similar property (hedge
fund interests), (ii) securities, (iii) commodities, (iv) foreign
currency, or (v) similar property (or positions in such property).
Regarding the term of the contract, Notice 2015-73 identifies contracts
with a term of more than one year, while Notice 2015-74 identifies
contracts with a term of more than one year and contracts that overlap
two taxable years.
In the basket contracts identified in Notice 2015-73 and Notice
2015-74, T takes the position that T's short-term trading gains and
interest, dividend, and other ordinary income from the performance of
the reference basket are deferred until the basket contract terminates
and, if the basket contract is held for more than one year, that the
entire gain is treated as long-term capital gain. The Treasury
Department and the IRS are concerned that taxpayers may be using basket
contracts to inappropriately defer income recognition or convert
ordinary income or short-term capital gain into long-term capital gain.
The Treasury Department and the IRS are also concerned that taxpayers
may be mischaracterizing the transaction as an option or certain other
derivatives in an effort to avoid application of section 1260 (with
respect to constructive ownership transactions), section 1291 (with
respect to passive foreign investment companies), or both.
Explanation of Provisions
A. Basket Contract Listed Transactions
1. In General
Since the release of Notice 2015-74, examinations of taxpayers and
promoters and information received through disclosures filed in
response to Notice 2015-74 have clarified the Treasury Department's and
the IRS's understanding of basket contracts identified in Notice 2015-
74. The information received indicates that basket contracts identified
in Notice 2015-74 have been used to inappropriately defer income
recognition or inappropriately convert ordinary income or short-term
capital gain into long-term capital gain. In other words, the Treasury
Department and the IRS believe that there is now sufficient information
to conclude that one or both of the abuses about which the Treasury
Department and the IRS are concerned exists in the transactions
identified in both Notice 2015-73 and Notice 2015-74. Therefore, the
Treasury Department and the IRS are proposing in these proposed
regulations to identify both the transactions in Notice 2015-73 and the
transactions in Notice 2015-74 as listed transactions. Consistent with
this determination, the definition of a basket contract listed
transaction in these proposed regulations would include the
transactions in Notice 2015-74.
The IRS may assert one or more arguments to challenge the parties'
tax characterization of a basket contract, including: (1) that C, in
substance, holds the assets in the reference basket as an agent of T
and that T is the beneficial owner of the assets for tax purposes; (2)
that the basket contract is not an option or other derivative contract
for tax purposes; (3) that changes to the assets in the reference
basket during the year materially modify the basket contract and result
in taxable dispositions of the contract under section 1001 of the Code
throughout the term of the contract; (4) that T actually owns separate
contractual rights with respect to each asset in the reference basket
such that each change to assets in the basket results in a taxable
disposition of a contractual right under section 1001 with respect to
the asset affected by the change; (5) that T is mischaracterizing the
transaction as an option or certain other derivatives in an effort to
avoid application of section 1260 (with respect to constructive
ownership transactions), section 1291 (with respect to passive foreign
investment companies), or both; (6) that a change from accounting for
basket contracts as derivative contracts with respect to the referenced
assets to accounting for the contracts in a manner consistent with T's
beneficial ownership of the referenced assets results in one or more
accounting method changes within the meaning of section 446; and (7)
any accounting method change generally will be implemented with a
section 481(a) adjustment that takes on the character of the item to
which the adjustment relates. The IRS may also assert other arguments
supporting the conclusion that T is the beneficial owner of the assets
in the reference basket for tax purposes. Furthermore, the IRS may
challenge, including by asserting judicial doctrines, claimed tax
positions under sections 871, 881, and 882 or other provisions of the
Code, and may assert failures to comply with reporting obligations
associated with investments in passive foreign investment companies and
withholding and reporting obligations under chapters 3 and 4 of the
Code.
[[Page 57115]]
2. Definition of Basket Contract Listed Transaction
Proposed Sec. 1.6011-16(a) would provide that a transaction that
is the same as, or substantially similar to, a transaction described in
proposed Sec. 1.6011-16(c) is a listed transaction for purposes of
Sec. 1.6011-4(b)(2), except as provided in proposed Sec. 1.6011-
16(d).
Proposed Sec. 1.6011-16(b) would provide definitions of terms used
to describe basket contract listed transactions, including counterparty
(or C), taxpayer (or T), designee, discretion, tax benefit, and
reference basket.
The term designee, with respect to a T having discretion or having
exercised discretion, is defined in proposed Sec. 1.6011-16(b)(3) as
any person who is: T's agent under principles of agency law;
compensated by T for suggesting, requesting, or determining changes in
the assets in the reference basket or the trading algorithm; or
selected by T to suggest, request, or determine changes in the assets
in the reference basket or the trading algorithm. A person would not,
however, be treated as compensated or selected by T as a result of: the
person's position as an investment advisor, officer, or employee of an
entity, such as a mutual fund, when the entity's publicly offered
securities are included in the reference basket; or the person's use
of, the person's payment of a licensing fee for the right to use, or
the person's authority to suggest, request, or determine changes in the
assets included in a widely used and publicly quoted index that is
based on objective financial information or an index that tracks a
broad market or a market segment.
With respect to the term discretion, proposed Sec. 1.6011-16(b)(4)
would provide that discretion includes T's right to change, either
directly or through a request to C, the assets in the reference basket
or the trading algorithm, even if the terms of the transaction permit C
to reject certain changes requested by T to the assets in the reference
basket or the trading algorithm. T would not be treated as having
discretion to change (either directly or through a request to C) the
assets in the reference basket or the trading algorithm if changes in
the assets in the reference basket or the trading algorithm were made
according to objective instructions, operations, or calculations that
were disclosed at the inception of the transaction (the rules) and T
does not have the right to alter or amend the rules during the term of
the transaction or to deviate from the assets in the reference basket
or the trading algorithm selected in accordance with the rules. For
these purposes, T would not be treated as having the right to alter or
amend the rules solely because T has the authority: to exercise routine
judgment in the administration of the rules, which would not include
deviations or alterations to the rules that are designed to improve the
financial performance of the reference basket; to correct errors in the
implementation of the rules or calculations made pursuant to the rules;
or to make an adjustment to respond to an unanticipated event outside
of T's control, such as a stock split, merger, listing or delisting,
nationalization, or insolvency of a component of a basket, a disruption
in the financial markets for specific assets or in a particular
jurisdiction, regulatory compliance requirement, force majeure, or any
other unanticipated event of similar magnitude and significance.
The term tax benefit would be defined in proposed Sec. 1.6011-
16(b)(5) as a deferral of income into a later taxable year or a
conversion of ordinary income or short-term capital gain or loss into
long-term capital gain or loss.
The term reference basket would be defined in proposed Sec.
1.6011-16(b)(6) as a notional basket of assets that may include:
actively traded personal property as defined under Sec. 1.1092(d)-
1(a); interests in entities that trade securities, commodities, foreign
currency, digital assets as defined in section 6045(g)(3)(D), or
similar property; securities; commodities; foreign currency; digital
assets as defined in section 6045(g)(3)(D); or similar property (or
positions in such property).
The types of assets included in the definition of reference basket
in these proposed regulations would be expanded from the types set
forth in Notice 2015-73 and Notice 2015-74. Specifically, since the
publication of Notice 2015-73 and Notice 2015-74, digital assets have
grown in popularity as an investment or trading asset. Taxpayers can
trade digital assets directly and also trade digital assets through
derivatives, including futures and option contracts, on digital assets.
The Treasury Department and the IRS believe that derivatives on digital
assets raise the same issues as derivatives on other types of assets.
As a result, the types of assets in the definition of reference basket
in these proposed regulations include digital assets. No inference is
intended as to whether a digital asset should or should not be properly
classified for Federal income tax purposes as a security, commodity,
option, securities futures contract, regulated futures contract, or
forward contract. Similarly, the potential characterization of digital
assets as securities, commodities, or derivatives for purposes of any
other legal regime, such as the Federal securities laws and the
Commodity Exchange Act, is outside the scope of these proposed
regulations.
A transaction would be described in proposed Sec. 1.6011-16(c) if
it meets the five elements described in proposed Sec. 1.6011-16(c)(1)
through (5). These five elements are as follows:
(i) T enters into a contract with C, including a contract
denominated as an option, notional principal contract (as defined in
Sec. 1.446-3(c)(1)(i)), forward contract, or other derivative contract
to receive a return based on the performance of a reference basket;
(ii) The contract has a stated term of more than one year, or
overlaps two of T's taxable years;
(iii) T or T's designee has exercised discretion to change (either
directly or through a request to C) the assets in the reference basket
or the trading algorithm;
(iv) T's tax return for a taxable year ending on or after January
1, 2011, reflects a tax benefit described in proposed Sec. 1.6011-
16(b)(5) with respect to the transaction; and
(v) The transaction is not described in proposed Sec. 1.6011-
16(d).
3. Exceptions
Proposed Sec. 1.6011-16(d) would provide that a transaction is not
the same as, or substantially similar to, the transaction described in
proposed Sec. 1.6011-16(c) if any of the three exceptions described in
proposed Sec. 1.6011-16(d)(1) through (3) applies. Certain exceptions
would apply only to C. Proposed Sec. 1.6011-16(d) would provide that
these three exceptions are as follows:
(i) The contract is traded on a national securities exchange that
is regulated by the Securities and Exchange Commission or a domestic
board of trade regulated by the Commodity Futures Trading Commission,
or a foreign exchange or board of trade that is subject to regulation
by a comparable regulator.
(ii) The contract is treated as a contingent payment debt
instrument under Sec. 1.1275-4 (including a short-term contingent
payment debt instrument) or a variable rate debt instrument under Sec.
1.1275-5.
(iii) With respect to C, if:
(A) T represents to C in writing under penalties of perjury that
none of T's tax returns for taxable years ending on or after January 1,
2011, has reflected or will reflect a tax benefit of the transaction
that is described in proposed Sec. 1.6011-16(b)(5); or
[[Page 57116]]
(B) C has established that T is a nonresident alien that is not
engaged in a U.S. trade or business or a foreign corporation that is
not engaged in a U.S. trade or business by obtaining a valid
withholding certificate (W-8BEN, Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding and Reporting
(Individuals), or W-8BEN-E, Certificate of Status of Beneficial Owner
for United States Tax Withholding and Reporting (Entities) (or
successor forms)) upon which it may rely under the requirements of
Sec. 1.1441-1 from T as the beneficial owner of the payments made or
to be made under the basket contract, or in the case of payments made
outside of the U.S. on offshore obligations, by obtaining documentary
evidence described in Sec. 1.1441-1(c)(17) upon which it is permitted
to rely.
4. Participants
Proposed Sec. 1.6011-16(e) would provide the rules for determining
who is a participant in a listed transaction identified in proposed
Sec. 1.6011-16(a). The rules provided in proposed Sec. 1.6011-16(e)
generally are consistent with Notice 2015-73 and Notice 2015-74, which
included rules regarding the treatment of a general partner of a
partnership or a managing member of a limited liability company as a
participant. However, because an entity may be treated as a partnership
for Federal tax purposes but not have one or more general partners or
managing members, proposed Sec. 1.6011-16(e) would provide that in
such a case each partner is a participant for purposes of Sec. 1.6011-
4(c)(3)(i)(A).
B. Effect of Becoming a Listed Transaction Under These Regulations
If these proposed regulations are finalized as proposed, taxpayers
that participate in the basket contract transactions that would be
identified as listed transactions by these proposed regulations, and
persons who act as material advisors with respect to these
transactions, would be required to disclose these transactions in
accordance with the final regulations and the regulations issued under
sections 6011 and 6111. Material advisors also would have list
maintenance requirements under the final regulations and the
regulations issued under section 6112. Participants required to
disclose these transactions under Sec. 1.6011-4 who fail to do so
would be subject to penalties under section 6707A. Participants
required to disclose listed transactions under Sec. 1.6011-4 who fail
to do so would also be subject to an extended period of limitations
under section 6501(c)(10). Material advisors required to disclose these
transactions under section 6111 who fail to do so would be subject to
the penalty under section 6707. Material advisors required to maintain
lists of investors under section 6112 who fail to do so (or who fail to
provide such lists when requested by the IRS) would be subject to the
penalty under section 6708(a). In addition, the IRS might impose other
penalties on persons involved in these transactions or substantially
similar transactions, including accuracy-related penalties under
section 6662 or section 6662A, the section 6694 penalty for
understatements of a taxpayer's liability by a tax return preparer, the
section 6700 penalty for promoting abusive tax shelters, and the
section 6701 penalty for aiding and abetting understatement of a tax
liability.
Taxpayers who have filed a tax return (including an amended return
(or Administrative Adjustment Request (AAR) for certain partnerships))
reflecting their participation in these transactions prior to [date of
publication of final regulations in the Federal Register] would be
required to disclose the transactions as provided in Sec. 1.6011-4(d)
and (e) provided that the period of limitations for assessment of tax,
including any applicable extensions, for any taxable year in which the
taxpayer participated in the transaction has not ended on or before
[date of publication of final regulations in the Federal Register].
Taxpayers who have filed a tax return reflecting their
participation in a basket contract transaction identified as a listed
transaction in Notice 2015-73 and in the final regulations before [date
of publication of final regulations in the Federal Register] and who
have not disclosed the transaction pursuant to Notice 2015-73 would be
required by the final regulations and Sec. 1.6011-4(e)(2)(i) to file a
disclosure within 90 calendar days after [date of publication of final
regulations in the Federal Register] if the period of limitations for
assessment for any taxable year in which the taxpayer participated in
the transaction remains open.
A participant in a transaction that is a basket contract listed
transaction that has previously filed a disclosure statement with OTSA
pursuant to Notice 2015-73 regarding the transaction would be treated
as having disclosed the transaction pursuant to the final regulations
for taxable years for which the taxpayer filed returns before [date of
publication of final regulations in the Federal Register]. However, if
a taxpayer described in the preceding sentence participates in the
basket contract listed transaction in a taxable year for which the
taxpayer files a return on or after [date of publication of final
regulations in the Federal Register], the taxpayer would be required to
file a disclosure statement with OTSA at the same time the taxpayer
files its return for the first such taxable year.
A participant in a transaction that is a basket contract listed
transaction under the proposed regulations and that is identified as a
transaction of interest under Notice 2015-74 would be required to file
a disclosure statement with OTSA when required to do so under the rules
provided in Sec. 1.6011-4(e)(2)(i) for disclosure of listed
transactions, notwithstanding that the participant has previously
disclosed the transaction to OTSA pursuant to Notice 2015-74.
In addition, material advisors would have disclosure requirements
with regard to transactions occurring in prior years. However,
notwithstanding Sec. 301.6111-3(b)(4)(i) and (ii), material advisors
would be required to disclose only if they have made a tax statement on
or after the date that is 6 years before [date of publication of final
regulations in the Federal Register].
A material advisor with respect to a transaction that is a basket
contract listed transaction would be required to file a disclosure
statement with OTSA when required to do so under Sec. 301.6111-3(e),
regardless of whether the material advisor has previously disclosed the
transaction to OTSA pursuant to Notice 2015-73 or Notice 2015-74.
Proposed Applicability Dates
Proposed Sec. 1.6011-16 would identify transactions that are the
same as, or substantially similar to, the basket contract transactions
described in proposed Sec. 1.6011-16(c) as listed transactions
effective as of [date of publication of final regulations in the
Federal Register].
Effect on Other Documents
This document obsoletes Notice 2015-74, 2015-46 I.R.B. 663, as of
July 12, 2024. These proposed regulations do not obsolete, revoke, or
modify Notice 2015-73, 2015-46 I.R.B. 660.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject
[[Page 57117]]
to the requirements of section 6 of Executive Order 12866, as amended.
Therefore, a regulatory impact assessment is not required.
II. Paperwork Reduction Act
The collection of information contained in these proposed
regulations is reflected in the collection of information for Forms
8886 and 8918 that have been reviewed and approved by OMB in accordance
with the Paperwork Reduction Act (44 U.S.C. 3507(c)) under control
numbers 1545-1800 and 1545-0865.
To the extent there is a change in burden as a result of these
regulations, the change in burden will be reflected in the updated
burden estimates for the Forms 8886 and 8918. The requirement to
maintain records to substantiate information on Forms 8886 and 8918 is
already contained in the burden associated with the control numbers for
the forms and is unchanged.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid OMB control number.
III. Regulatory Flexibility Act
The Secretary of the Treasury hereby certifies that the proposed
regulations will not have a significant economic impact on a
substantial number of small entities pursuant to the Regulatory
Flexibility Act (5 U.S.C. chapter 6).
The basis for these proposed regulations relates to the
transactions described in Notice 2015-73 and Notice 2015-74. The
following charts set forth the gross receipts of respondents to Notice
2015-73 and Notice 2015-74, based on data for the tax year 2021. The
number of small entities affected in all cases is expected to be less
than 50.
------------------------------------------------------------------------
Firms Filings
Receipts (%) (%)
------------------------------------------------------------------------
Notice 2015-73 Respondents by Size
------------------------------------------------------------------------
Under 25M............................................ 60 10
Over 25M............................................. 40 90
------------------------------------------------------------------------
Notice 2015-74 Respondents by Size
------------------------------------------------------------------------
Under 25M............................................ 75 33
Over 25M............................................. 25 67
------------------------------------------------------------------------
These charts show that the majority of respondents reported gross
receipts under $25 million. The proposed regulations will not have a
significant economic impact on these entities because the proposed
regulations implement sections 6111 and 6112 and Sec. 1.6011-4 by
specifying the manner in which and the time at which an identified
basket contract transaction must be reported. Accordingly, because the
proposed regulations are limited in scope to time and manner of
information reporting and definitional information, the economic impact
of the proposal is expected to be minimal.
Further, the Treasury Department and the IRS expect that the
reporting burden is low; the information sought is necessary for
regular annual return preparation and ordinary recordkeeping. The
estimated burden for any taxpayer required to file Form 8886 is
approximately 10 hours, 16 minutes for recordkeeping; 4 hours, 50
minutes for learning about the law or the form; and 6 hours, 25 minutes
for preparing, copying, assembling, and sending the form to the IRS.
The IRS's Research, Applied Analytics, and Statistics division
estimates that the appropriate wage rate for this set of taxpayers is
$59.45 (2021 dollars) per hour for Notice 2015-73 and $55.67 (2021
dollars) per hour for Notice 2015-74. Thus, it is estimated that a
respondent will incur costs of approximately $1,873.67 per filing for
Notice 2015-73 and $1,754.53 per filing for Notice 2015-74. Disclosures
received to date by the Treasury Department and the IRS in response to
the reporting requirements of Notice 2015-73 and Notice 2015-74
indicate that this small amount will not pose any significant economic
impact for those taxpayers who would be required to disclose if the
proposed regulations were finalized as proposed.
For the reasons stated, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required. The Treasury Department and
the IRS invite comments on the impact of the proposed regulations on
small entities. Pursuant to section 7805(f) of the Code, this notice of
proposed rulemaking has been submitted to the Chief Counsel for the
Office of Advocacy of the Small Business Administration for comment on
its impact on small business.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million (updated annually for inflation). This proposed
rule does not include any Federal mandate that may result in
expenditures by State, local, or Tribal governments or by the private
sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. This proposed rule does not have
federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Comments and Public Hearing
Before these proposed amendments to the regulations are adopted as
final regulations, consideration will be given to any comments
regarding the notice of proposed rulemaking that are submitted timely
to the IRS as prescribed in the preamble under the ADDRESSES section.
The Treasury Department and the IRS request comments on all aspects
of the proposed regulations. The Treasury Department and the IRS are
aware that there have been developments in the financial markets since
Notice 2015-73 and Notice 2015-74 were issued, and that taxpayers may
have questions about how certain definitions or terms in the notices
apply to transactions of a kind that did not exist at that time.
Accordingly, the Treasury Department and the IRS are soliciting
comments in order to better understand these more recent transactions
and to determine whether any responsive changes should be made to the
proposed regulations. Any comment should explain how any proposal
contained in the comment would be consistent with the objective of
these proposed regulations to require disclosure of transactions
involving the abuse described in these proposed regulations to enable
the Treasury Department and the IRS to learn about abusive
transactions.
The Treasury Department and the IRS specifically request comments
on the following:
1. Are there types of transactions to which the proposed
regulations may apply that did not exist when Notice 2015-73 and Notice
2015-74 were issued?
2. Specific examples of indices that should qualify as a ``widely
used and publicly quoted index that is based on objective financial
information'' (see proposed Sec. 1.6011-16(b)(3)(ii)(B)).
3. Specific examples of indices that should be treated as one that
``tracks a broad market or a market segment'' (see proposed Sec.
1.6011-16(b)(3)(ii)(B)).
[[Page 57118]]
4. Specific examples of ``objective instructions, operations or
calculations'' (see proposed Sec. 1.6011-16(b)(4)(ii)(A)).
5. Specific examples of the exercise of ``routine judgment in the
administration of the rules'' (see proposed Sec. 1.6011-
16(b)(4)(iii)(A)).
6. Are there changes that could be made to clarify how to apply the
terms described in requests 2 through 5, above, to specific types of
transactions?
7. Are there alternative rules that should apply to determine which
persons treated as partners in an arrangement or entity that is treated
as a partnership for Federal income tax purposes but that does not have
one or more general partners or managing members should be treated as
participants in a transaction carried out by the partnership?
All comments will be made available at https://www.regulations.gov.
Once submitted to the Federal eRulemaking Portal, comments cannot be
edited or withdrawn.
A public hearing has been scheduled for September 26, 2024,
beginning at 10:00 a.m. ET in the Auditorium at the Internal Revenue
Building, 1111 Constitution Avenue NW, Washington, DC. Due to building
security procedures, visitors must enter at the Constitution Avenue
entrance. In addition, all visitors must present photo identification
to enter the building. Because of access restrictions, visitors will
not be admitted beyond the immediate entrance area more than 30 minutes
before the hearing starts. Participants may alternatively attend the
public hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit an outline of
the topics to be discussed and the time to be devoted to each topic by
September 10, 2024. A period of 10 minutes will be allotted for each
person 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. If no outline of the topics to be discussed at the hearing is
received by September 10, 2024, the public hearing will be cancelled.
If the public hearing is cancelled, a notice of cancellation of the
public hearing will be published in the Federal Register.
Individuals who want to testify in person at the public hearing
must send an email to [email protected] to have your name added to
the building access list. The subject line of the email must contain
the regulation number REG-102161-23 and the language TESTIFY In Person.
For example, the subject line may say: Request to TESTIFY In Person at
Hearing for REG-102161-23.
Individuals who want to testify by telephone at the public hearing
must send an email to [email protected] to receive the telephone
number and access code for the hearing. The subject line of the email
must contain the regulation number REG-102161-23 and the language
TESTIFY Telephonically. For example, the subject line may say: Request
to TESTIFY Telephonically at Hearing for REG-102161-23.
Individuals who want to attend the public hearing in person without
testifying must also send an email to [email protected] to have
your name added to the building access list. The subject line of the
email must contain the regulation number REG-102161-23 and the language
ATTEND In Person. For example, the subject line may say: Request to
ATTEND Hearing In Person for REG-102161-23. Requests to attend the
public hearing must be received by 5:00 p.m. ET on September 24, 2024.
Individuals who want to attend the public hearing by telephone
without testifying must also send an email to [email protected] to
receive the telephone number and access code for the hearing. The
subject line of the email must contain the regulation number REG-
102161-23 and the language ATTEND Hearing Telephonically. For example,
the subject line may say: Request to ATTEND Hearing Telephonically for
REG-102161-23. Requests to attend the public hearing must be received
by 5:00 p.m. EST on September 24, 2024.
Hearings will be made accessible to people with disabilities. To
request special assistance during a hearing please contact the
Publications and Regulations Branch of the Office of Associate Chief
Counsel (Procedure and Administration) by sending an email to
[email protected] (preferred) or by telephone at (202) 317-6901
(not a toll-free number) by at least September 23, 2024.
Statement of Availability of IRS Documents
The notices cited in this document are published in the Internal
Revenue Bulletin (or Cumulative Bulletin) and are available from the
Superintendent of Documents, U.S. Government Publishing Office,
Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov.
Drafting Information
The principal author of these proposed regulations is Danielle M.
Heavey, Office of Associate Chief Counsel (Financial Institutions &
Products). However, other personnel from the Treasury Department and
the IRS participated in the development of these regulations.
List of Subjects in 26 CFR Part 1
Income Taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding an
entry for Sec. 1.6011-16 in numerical order to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.6011-16 also issued under 26 U.S.C. 6001 and 26 U.S.C.
6011.
* * * * *
0
Par. 2. Section 1.6011-16 is added to read as follows:
Sec. 1.6011-16 Basket contract listed transaction.
(a) Identification as listed transaction. Transactions that are the
same as, or substantially similar to, transactions described in
paragraph (c) of this section are identified as listed transactions for
purposes of Sec. 1.6011-4(b)(2).
(b) Definitions. The following definitions apply for purposes of
this section:
(1) Counterparty. The term counterparty or C means a person who
enters into a contract described in paragraph (c) of this section with
the taxpayer.
(2) Taxpayer. The term taxpayer or T means--
(i) A taxpayer as defined in Sec. 1.6011-4(c)(1) that enters into
a contract described in paragraph (c) of this section with the
counterparty; and
(ii) With respect to any reference to T having discretion, or
having exercised discretion, T's designee.
(3) Designee--(i) In general. Except as provided in paragraph
(b)(3)(ii) of this section, the term designee, with respect to a T
having discretion or having exercised discretion, means any person who
is--
(A) T's agent under principles of agency law;
[[Page 57119]]
(B) Compensated by T for suggesting, requesting, or determining
changes in the assets in the reference basket or the trading algorithm;
or
(C) Selected by T to suggest, request, or determine changes in the
assets in the reference basket or the trading algorithm.
(ii) Exceptions. A person will not be treated as compensated by T
under paragraph (b)(3)(i)(B) of this section, or selected by T under
paragraph (b)(3)(i)(C) of this section, as a result of:
(A) The person's position as an investment advisor, officer, or
employee of an entity, such as a mutual fund, when the entity's
publicly offered securities are included in the reference basket; or
(B) The person's use of, the person's payment of a licensing fee
for the right to use, or the person's authority to suggest, request, or
determine changes in the assets included in a widely used and publicly
quoted index that is based on objective financial information or an
index that tracks a broad market or a market segment.
(4) Discretion--(i) In general. Except as provided in paragraphs
(b)(4)(ii) and (iii) of this section, the term discretion includes T's
right to change, either directly or through a request to C, the assets
in the reference basket or the trading algorithm, even if the terms of
the transaction permit C to reject certain changes requested by T to
the assets in the reference basket or the trading algorithm.
(ii) Changes made according to rules that T cannot amend or alter.
T will not be treated as having discretion to change (either directly
or through a request to C) the assets in the reference basket or the
trading algorithm if--
(A) Changes in the assets in the reference basket or the trading
algorithm are made according to objective instructions, operations, or
calculations that are disclosed at the inception of the transaction
(rules); and
(B) T does not have the right to alter or amend the rules during
the term of the transaction or to deviate from the assets in the
reference basket or the trading algorithm selected in accordance with
the rules.
(iii) Exception for certain rights. T will not be treated as having
the right to alter or amend the rules for purposes of paragraph
(b)(4)(ii)(B) of this section solely because T has the authority to--
(A) Exercise routine judgment in the administration of the rules,
which does not include deviations or alterations to the rules that are
designed to improve the financial performance of the reference basket;
(B) Correct errors in the implementation of the rules or
calculations made pursuant to the rules; or
(C) Make an adjustment to respond to an unanticipated event outside
of T's control, such as a stock split, merger, listing or delisting,
nationalization, or insolvency of a component of a basket, a disruption
in the financial markets for specific assets or in a particular
jurisdiction, a regulatory compliance requirement, force majeure, or
any other unanticipated event of similar magnitude and significance.
(5) Tax benefit. The term tax benefit means a deferral of income
into a later taxable year or a conversion of ordinary income or short-
term capital gain or loss into long-term capital gain or loss.
(6) Reference basket. The term reference basket means a notional
basket of assets that may include:
(i) Actively traded personal property as defined under Sec.
1.1092(d)-1(a);
(ii) Interests in entities that trade securities, commodities,
foreign currency, digital assets as defined in section 6045(g)(3)(D) of
the Internal Revenue Code, or similar property;
(iii) Securities;
(iv) Commodities;
(v) Foreign currency;
(vi) Digital assets as defined in section 6045(g)(3)(D); or
(vii) Similar property (or positions in such property).
(c) Transaction description. A transaction is described in this
paragraph (c) if--
(1) T enters into a contract with C, including a contract
denominated as an option contract, notional principal contract (as
defined in Sec. 1.446-3(c)(1)(i)), forward contract, or other
derivative contract, to receive a return based on the performance of a
reference basket;
(2) The contract has a stated term of more than one year, or
overlaps two or more of T's taxable years;
(3) T has exercised discretion to change (either directly or
through a request to C) the assets in the reference basket or the
trading algorithm;
(4) T's tax return for a taxable year ending on or after January 1,
2011, reflects a tax benefit with respect to the transaction; and
(5) The transaction is not described in paragraph (d) of this
section.
(d) Exceptions. A transaction is not the same as, or substantially
similar to, the transaction described in paragraph (c) of this section
if it is described in any of paragraphs (d)(1) through (3) of this
section.
(1) The contract is traded on a national securities exchange that
is regulated by the Securities and Exchange Commission or a domestic
board of trade regulated by the Commodity Futures Trading Commission,
or a foreign exchange or board of trade that is subject to regulation
by a comparable regulator.
(2) The contract is treated as a contingent payment debt instrument
under Sec. 1.1275-4 (including a short-term contingent payment debt
instrument) or a variable rate debt instrument under Sec. 1.1275-5.
(3) With respect to C, a transaction is not the same as, or
substantially similar to, the transaction described in paragraph (c) of
this section if--
(i) T represents to C in writing under penalties of perjury that
none of T's tax returns for taxable years ending on or after January 1,
2011, has reflected or will reflect a tax benefit with respect to the
transaction; or
(ii) C has established that T is a nonresident alien that is not
engaged in a U.S. trade or business or a foreign corporation that is
not engaged in a U.S. trade or business by obtaining a valid
withholding certificate (W-8BEN, Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding and Reporting
(Individuals), or W-8BEN-E, Certificate of Status of Beneficial Owner
for United States Tax Withholding and Reporting (Entities) (or
successor forms)) upon which it may rely under the requirements of
Sec. 1.1441-1 from T as the beneficial owner of the payments made or
to be made under the basket contract, or in the case of payments made
outside of the U.S. on offshore obligations, by obtaining documentary
evidence described in Sec. 1.1441-1(c)(17) upon which it is permitted
to rely.
(e) Special participation rules. For purposes of Sec. 1.6011-
4(c)(3)(i)(A), for each year in which a transaction identified in
paragraph (a) of this section is open, only the following parties are
treated as participating in the listed transaction identified in this
section:
(1) The taxpayer;
(2) If the taxpayer is treated as a partnership for Federal tax
purposes and has one or more general partners or managing members, each
general partner or managing member of the taxpayer;
(3) If the taxpayer is treated as a partnership for Federal tax
purposes and does not have a general partner or managing member, each
partner in the partnership;
(4) The counterparty to the contract.
(f) Applicability date--(1) In general. This section identifies
transactions that are the same as, or substantially similar
[[Page 57120]]
to, the transactions described in paragraph (c) of this section as
listed transactions for purposes of Sec. 1.6011-4(b)(2) effective on
[date of publication of final regulations in the Federal Register].
(2) Obligations of participants with respect to prior periods.
Taxpayers who have filed a tax return (including an amended return)
reflecting their participation in transactions described in paragraph
(a) of this section prior to [date of publication of final regulations
in the Federal Register], must disclose the transactions as required by
Sec. 1.6011-4(d) and (e) provided that the period of limitations for
assessment of tax (as determined under section 6501 of the Code,
including section 6501(c)) for any taxable year in which the taxpayer
participated has not ended on or before [date of publication of final
regulations in the Federal Register]. However, taxpayers who have filed
a disclosure statement regarding their participation in the transaction
with the Office of Tax Shelter Analysis pursuant to Notice 2015-73,
2015-46 I.R.B. 660, will be treated as having made the disclosure with
respect to the transaction pursuant to the final regulations for the
taxable years for which the taxpayer filed returns before [date of
publication of final regulations in the Federal Register]. If a
taxpayer described in the preceding sentence participates in the basket
contract listed transaction in a taxable year for which the taxpayer
files a return on or after [date of publication of final regulations in
the Federal Register], the taxpayer must file a disclosure statement
with the Office of Tax Shelter Analysis at the same time the taxpayer
files its return for the first such taxable year.
(3) Obligations of material advisors with respect to prior periods.
Material advisors defined in Sec. 301.6111-3(b) of this chapter who
have previously made a tax statement with respect to a transaction
described in paragraph (a) of this section have disclosure and list
maintenance obligations as described in Sec. Sec. 301.6111-3 and
301.6112-1 of this chapter, respectively. Notwithstanding Sec.
301.6111-3(b)(4)(i) and (iii) of this chapter, material advisors are
required to disclose only if they have made a tax statement on or after
the date that is six years before [date of publication of final
regulations in the Federal Register].
Douglas W. O'Donnell,
Deputy Commissioner.
[FR Doc. 2024-14787 Filed 7-11-24; 8:45 am]
BILLING CODE 4830-01-P
