KIRKLAND & ELLIS SUGGEST RELAXATION OF 'REGULARLY TRADED' RULES APPLICABLE TO UNITED STATES REAL PROPERTY INTERESTS.

The regulations base the determination of "regularly traded" on the frequency and volume of the USRPI trading. Browne and Stein favor eliminating those tests, arguing that the rules "needlessly [distort] investors' economic decisions by interjecting tax considerations into the decision whether to invest in foreign-traded interests." They suggest replacing frequency and volume tests "with a provision stating that, for purposes of sections 897, 1445, and 6039C, a class of interests traded on an established securities market will be considered regularly traded for any calendar quarter during which it is regularly quoted by brokers or dealers making a market in such interests on an established securities market."

The two attorneys also suggest revising temporary regulation section 1.897-9T(d) to provide "(a) a presumption of regularly traded status for interests in a class having a specified number of shareholders and (b) a procedure for certifying the regularly traded status of a class of interests." They support revised regulations that would provide: "(1) a presumption of regularly traded status for interests in a class having a specified number of shareholders (perhaps 500) and (2) a procedure whereby holders of interests may rely upon a certificate from the issuing entity stating that, for purposes of sections 897, 1445, and 6039C, a specified class of interests will be considered regularly traded on an established securities market for the calendar year."

Finally, Browne and Stein urge the Service to clarify that, "for purposes of applying the regularly traded exception of regulation sections 1.897-1(c)(2)(iii) and (iv), interests which are regularly traded in any quarter of a calendar year will be considered regularly traded for that entire year."

On May 5, 1988, the Internal Revenue Service (the "Service") issued Temporary Treasury Regulations under sections 897 and 1445 of the Internal Revenue Code of 1986 as amended (the "Code"), relating to the tax treatment of United States real property interests ("USRPIs"). This letter comments on Temp. Treas. Reg. section 1.897- 9T(d), which revised the definition of "regularly traded" (previously set forth in Treas. Reg. section 1.897-1(n)) applicable for purposes of Code sections 897 and 1445.

Briefly summarized, we suggest that Temp. Treas. Reg. section 1.897-9T(d) should be revised

(1) to provide a presumption of regularly traded status for interests in a class having 500 or more shareholders;

(2) to provide a procedure for certifying the regularly traded status of a class of interests;

(3) to replace the rule of Temp. Treas. Reg. section 1.897- 9T(d)(1)(ii)(B) (which states that a class of interests will not be considered regularly traded if 100 or fewer persons own 50% or more of the class at any time during the calendar quarter) with a rule denying regularly traded status for calendar quarters during which the average number of shareholders is less than 200;

(4) to provide a procedure upon which a reporting entity may rely to satisfy its obligation under Temp. Treas. Reg. section 1.897-9T(d)(3)(ii) to identify owners of greater- than-5% interests; and

(5) to clarify that, for purposes of applying the regularly traded exception of Treas. Reg. sections 1.897-1(c)(2)(iii) and (iv), interests which are regularly traded in any quarter of a calendar year will be considered regularly traded for that entire year.

BACKGROUND

The Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA") added section 897 to the Code. Pursuant to Code section 897, gain realized by a nonresident alien individual or a foreign corporation from the disposition of a USRPI generally is subject to United States income tax. This tax is enforced in part through Code section 1445(a), which generally requires a transferee to deduct and withhold a portion of the amount realized upon a disposition of a USRPI by a foreign person.

The definition of a USRPI includes an interest in real property located in the United States, and a stock interest in a domestic corporation which qualifies as a United States real property holding corporation ("RPHC"). In addition, an interest in a partnership may be treated in whole or in part as a USRPI, depending on the extent to which the value of the partnership's assets is attributable to USRPIs.

Code section 897(c)(3) and the Treasury Regulations thereunder provide an exception to the general rule that a stock interest in an RPHC is a USRPI. Under this exception (the "regularly traded exception"), if a class of stock in an RPHC is regularly traded on an established securities market at any time during the calendar year, then for purposes of Code sections 897 and 1445 such stock will not be treated as a USRPI unless held by a person beneficially owning more than 5% of such class at any time during the five-year period ending on the date of disposition of the stock. See Code sections 897(c)(3), 1445(a); Treas. Reg. section 1.897-1(c)(2)(iii).

Treas. Reg. sections 1.897-1(c)(2)(iii) and (iv) extend the regularly traded exception to interests in publicly-traded partnerships by providing that if a class of partnership interests is regularly traded on an established securities market, then for purposes of determining whether such an interest constitutes a USRPI the partnership will be treated as if it were a corporation, and a disposition of such interest by a transferor who has not beneficially owned more than 5% of the class of interests during the five-year testing period will not be treated as a disposition of a USRPI. Thus, interests in a corporation or partnership held by persons owning 5% or less of the class of such interests during the five-year testing period will not be treated as USRPIs, and a disposition of such interests will not be subject to income tax under Code section 897 or tax withholding under Code section 1445(a), if those interests are considered regularly traded on an established securities market.

FORMER DEFINITION OF REGULARLY TRADED

Prior to the issuance of Temp. Treas. Reg. section 1.897-9T(d), the definition of "regularly traded" was set forth in Treas. Reg. section 1.897-1(n), which provided that:

A class of interests that is traded on an established securities market is considered to be "regularly traded" if it is regularly quoted by brokers or dealers making a market in such interests. A class of interests shall be presumed to be regularly traded if the corporation has a total of 500 or more shareholders. . . . Interests in a domestic entity that are traded on a foreign securities market shall not be considered to be regularly traded on an established securities market unless such interests are --

(1) Traded in registered form, and

(2) Registered pursuant to provisions of the Securities Exchange Act of 1934, 15 U.S.C. 78.

With respect to classes of interests traded solely on a domestic securities market, this definition was both reasonable and practicable, especially since it provided that such a class of interests in an entity having 500 or more shareholders was presumed to be regularly traded. However, with respect to classes of interests traded on a foreign securities market, this definition was problematic because it denied regularly traded status to every such class of interests (including interests in entities having 500 or more shareholders) unless the interests were registered pursuant to the Securities Exchange Act of 1934. Cf. Committee on U.S. Activities of Foreign Taxpayers of the New York State Bar Association Tax Section, Report on the Temporary and Proposed Regulations under Code Sections 897 and 6039C ("FIRPTA"), 18 Tax Notes 883, 897 (Mar. 14, 1983) ("The Committee believes that whether or not 5 percent shareholders are required to be reported to the SEC should have no bearing on whether a corporation's stock is considered to be traded on an established securities market."); Tax Section of the Florida Bar, Comments on Selected Provisions of the Temporary Regulations under the Foreign Investment in Real Property Tax Act of 1980, 15 (Nov. 19, 1982), reprinted in Tax Notes Microfiche Database, Doc. No. 83-1318 (1983) ("[T]here are situations under the U.S. Securities Law under which bona fide public trading can exist in securities of companies that are not registered under . . . the 1934 Act.").

TEMPORARY REGULATIONS' DEFINITION OF REGULARLY TRADED

The definition of "regularly traded" formerly set forth in Treas. Reg. section 1.897-1(n) was replaced with a new definition set forth in Temp. Treas. Reg. section 1.897-9T(d). Under this new definition, a class of interests that is traded solely on one or more established securities markets located outside the United States will generally be considered regularly traded for a calendar quarter if the following requirements are satisfied:

(1) Trades in such class must be effected, other than in de minimis quantities, on at least 15 days during the calendar quarter;

(2) The aggregate number of such interests traded during the calendar quarter must equal at least 7.5% (2.5% in the case of interests held by 2,500 or more record shareholders) of the average number of interests in such class outstanding during the calendar quarter;

(3) The issuing entity must either register the class of interests pursuant to the Securities Exchange Act of 1934 or attach to the entity's annual federal income tax return a statement providing various information including the identities of beneficial owners of more than 5% of any class of interests in the entity; and

(4) Certain other requirements must be satisfied.

Under the new definition, a class of interests that is traded on an established securities market located in the United States will generally be considered regularly traded for a calendar quarter during which the interests are regularly quoted by brokers or dealers making a market in such interests.

COMMENTS

1. THE FREQUENCY AND VOLUME REQUIREMENTS OF TEMP. TREAS. REG. SECTIONS 1.897-9T(d)(1)(i)(A), (d)(1)(i)(B), AND (d)(1)(ii)(A) SHOULD BE ELIMINATED.

Under the general rule set forth in Temp. Treas. Reg. section 1.897-9T(d)(1), a class of interests will be considered regularly traded for any calendar quarter during which trading in such class satisfies frequency and volume requirements, provided that certain other requirements are also satisfied.

The frequency and volume requirements present several significant problems which can be addressed most appropriately by eliminating the requirements. Some of the problems are described below.

a. Temp. Treas. Reg. section 1.897-9T(d)(1)(i)(A) requires trades to have been effected on at least 15 days during the calendar quarter other than in de minimis quantities. However, the Temporary Regulations fail to specify the minimum quantity of trades which will be considered more than de minimis.

b. Temp. Treas. Reg. sections 1.897-9T(d)(1)(i)(B) and (d)(1)(ii)(A) require at least 7.5% of the average number of outstanding interests in a class to have been traded during the calendar quarter, except that only 2.5% of the average number of outstanding interests are required to have been traded if the class of interests is held by 2,500 or more record shareholders.

Imposition of the frequency and volume requirements needlessly distorts investors' economic decisions by interjecting tax considerations into the decision whether to invest in foreign-traded interests. In many cases investors will not know at the time of investing in such interests whether the requirements will be satisfied when the interests are sold. This uncertainty regarding tax consequences will cause investors to avoid investing in foreign- traded interests which are relatively thinly traded. This distortive effect did not exist under the former definition of regularly traded, and is contrary to sound tax policy.

c. Temp. Treas. Reg. section 1.897-9T(d)(1)(iii) states that if there is an arrangement or pattern of trades designed to meet the requirements of Temp. Treas. Reg. section 1.897-9T(d)(1), the class of interests "shall not be treated as regularly traded." This provision does not make clear whether the denial of regularly traded status applies only to the calendar quarter during which the abusive arrangement or pattern of trades exists, or to other calendar quarters as well.

d. Pursuant to Temp. Treas. Reg. section 1.897-9T(d)(2), a class of interests that is traded on an established securities market in the United States will be considered regularly traded for any calendar quarter during which it is regularly quoted by brokers or dealers making a market in such interests. As a result, the frequency and volume requirements of Temp. Treas. Reg. sections 1.897- 9T(d)(1)(i)(A) and (d)(1)(i)(B) apply only with respect to interests traded solely on foreign securities markets. ¹ Thus, the new definition of regularly traded discriminates harshly against foreign- traded entities and their foreign investors who wish to qualify for the regularly traded exception. Such discrimination directly conflicts with the purpose of FIRPTA "to establish equity of tax treatment in U.S. real property between foreign and domestic investors . . . [and not] to discourage foreign investors from investing in the United States." See H.R. Rep. No. 1167, 96th Cong., 2d Sess. 511 (1980).

The discriminatory effect of the new definition could extend beyond the context of the regularly traded exception. For example, in order to protect the fungibility of interests in publicly traded partnerships, the Service is expected in the near future to prescribe special withholding procedures under post-TAMRA Code section 1446 requiring publicly traded partnerships to withhold at the time distributions are made to foreign partners. If for this purpose a publicly traded partnership is defined (as it was defined in Revenue Procedure 88-21 for purposes of determining the availability of special withholding procedures under pre-TAMRA Code section 1446) as a partnership in which the interests are considered regularly traded on an established securities market (and if, as expected, the special withholding procedures are available only to publicly traded partnerships), the new definition of regularly traded will discriminate against partnerships traded on established foreign securities markets by making the special withholding procedures unavailable to many such partnerships. As a result, the fungibility of interests in such partnerships may be destroyed. ²

e. Imposition of the frequency and volume requirements only with respect to foreign-traded interests presumably reflects the Service's misgivings about certain securities markets located outside the United States. However, since the regularly traded exception applies only to interests traded on an "established securities market" as defined in Treas. Reg. section 1.897-1(m), the Service's misgivings are already addressed in Treas. Reg. section 1.897-1(m). If the Service is dissatisfied with the definition of an "established securities market," then clearly that dissatisfaction should be remedied by revising the Treas. Reg. section 1.897-1(m) standards used to evaluate securities markets, and not by imposing a restrictive and discriminatory definition of "regularly traded" upon all foreign-traded interests.

In view of the foregoing problems associated with the frequency and volume requirements, we suggest that Temp. Treas. Reg. sections 1.897-9T(d)(1)(i)(A), (d)(1)(i)(B), (d)(1)(ii)(A) and (d)(1)(iii) should be deleted and replaced with a provision stating that for purposes of Code sections 897, 1445 and 6039C a class of interests traded on an established securities market will be considered regularly traded for any calendar quarter during which it is regularly quoted by brokers or dealers making a market in such interests on an established securities market. It is noteworthy that although Treasury Regulations interpreting the regularly traded exception were first issued more than six years ago, and were subsequently amended several times, the definition of regularly traded has never before imposed trading frequency or volume requirements.

2. TEMP. TREAS. REG. SECTION 1.897-9T(d) SHOULD BE REVISED TO PROVIDE (a) A PRESUMPTION OF REGULARLY TRADED STATUS FOR INTERESTS IN A CLASS HAVING A SPECIFIED NUMBER OF SHAREHOLDERS AND (b) A PROCEDURE FOR CERTIFYING THE REGULARLY TRADED STATUS OF A CLASS OF INTERESTS.

Temp. Treas. Reg. section 1.897-9T(d) fails to provide (1) a presumption of regularly traded status (similar to the presumption under the former definition of regularly traded) for interests in an entity or a class having a specified number of shareholders or (2) a procedure whereby holders of interests may rely upon a certificate from the issuing entity stating that for purposes of Code sections 897, 1445 and 6039C a specified class of interests will be considered regularly traded on an established securities market for the calendar year. Without such a presumption or certification procedure, shareholders hoping to qualify for the regularly traded exception have no way to determine with certainty whether their interests will be considered regularly traded under Temp. Treas. Reg. section 1.897- 9T(d)(1). Accordingly, we suggest that Temp. Treas. Reg. section 1.897-9T(d) should be revised to provide (1) a presumption of regularly traded status for interests in a class having a specified number of shareholders (perhaps 500) and (2) a procedure whereby holders of interests may rely upon a certificate from the issuing entity stating that for purposes of Code sections 897, 1445 and 6039C a specified class of interests will be considered regularly traded on an established securities market for the calendar year.

3. TEMP. TREAS. REG. SECTION 1-897-9T(d)(1)(ii)(B) SHOULD BE REVISED TO DENY REGULARLY TRADED STATUS ONLY FOR CALENDAR QUARTERS DURING WHICH THE AVERAGE NUMBER OF SHAREHOLDERS IS LESS THAN A SPECIFIED NUMBER.

Temp. Treas. Reg. section 1.897-9T(d)(1)(ii)(B) states that if at any time during the calendar quarter 100 or fewer persons own 50 percent or more of the outstanding shares of a class of interests, "such class shall not be considered to be regularly traded." This provision does not make clear whether the denial of regularly traded status applies only to calendar quarters during which 100 or fewer persons own 50 percent or more of the class of interests, or to other calendar quarters as well. It seems unduly harsh to deny regularly traded status in other calendar quarters because such prolonged denial of regularly traded status could effectively eviscerate the rule of Treas. Reg. section 1.897-1(c)(2)(iii) which applies the regularly traded exception to classes of interests which are regularly traded on an established securities market "at any time during the calendar year." Moreover, denial of regularly traded status for even one calendar quarter seems harsh where 100 or fewer persons hold 50 percent or more of a class of interests for only a few days in the calendar quarter (e.g., where interests are sold to the public through a firm commitment underwriting).

Even if 100 or fewer persons hold 50 percent or more of a class of interests throughout a calendar quarter, automatic denial of regularly traded status with respect to the interests held by the other shareholders seems inappropriate, especially since the regularly traded exception does not apply to persons beneficially owning more than 5% of the class of interests. For example, if 51% of the stock of a corporation is owned by a single family and the other 49% is widely held and frequently traded by the investing public, members of the controlling family would be precluded from qualifying for the regularly traded exception and, therefore, the mere fact that control of the corporation is closely held would not justify automatically denying application of the regularly traded exception to the public investors. Treas. Reg. section 1.897-1(c)(2)(iii); Temp. Treas. Reg. section 1.897-9T(b).

Denial of regularly traded status might more appropriately be based upon the average number of shareholders of the class of interests during the calendar quarter. Accordingly, we suggest that Temp. Treas. Reg. section 1.897-9T(d)(1)(ii)(B) should be revised to deny regularly traded status to a class of interests only for calendar quarters during which the average number of shareholders of the class is less than a specified number (perhaps 200).

4. THE REPORTING ALTERNATIVE UNDER TEMP. TREAS. REG. SECTION 1.897-9T(d)(3)(ii) SHOULD BE REVISED TO PROVIDE A PROCEDURE FOR DETERMINING WHETHER A SHAREHOLDER OWNS A GREATER-THAN-5% INTEREST.

Under Temp. Treas. Reg. sections 1.897-9T(d)(1)(i)(C) and (d)(3), a class of interests traded on an established foreign securities market will not be considered regularly traded on such market unless either the class is registered pursuant to the Securities Exchange Act of 1934 or the issuing entity satisfies an annual reporting requirement. Under the annual reporting alternative, the issuing entity is required to attach to its annual federal income tax return a statement identifying, inter alia, each person who was the beneficial owner of more than 5% of any class of interests in the entity at any time during the taxable year. Temp. Treas. Reg. 1.897- 9T(d)(3)(ii)(C). Special ownership attribution rules apparently apply for this purpose. See Temp. Treas. Reg. section 1.897-9T(b). Unfortunately, Temp. Treas. Reg. section 1.897-9T(d)(3)(ii) does not specify any procedures upon which a reporting entity can rely to satisfy its obligation to determine the identities of, and other information pertaining to, owners of greater-than-5% interests. Without such a procedure, reporting entities cannot be certain that they have complied with Temp. Treas. Reg. sections 1.897- 9T(d)(1)(i)(C) and (d)(3), and shareholders of a reporting entity have no reasonable method of determining whether their interests will be considered regularly traded under Temp. Treas. Reg. section 1.897- 9T(d)(1).

In view of the foregoing, we suggest that Temp. Treas. Reg. section 1.897-9T(d)(3)(ii) should be revised to provide a procedure (perhaps certification by shareholders) upon which a reporting entity can rely to satisfy its obligation to determine the identities of, and other information pertaining to, owners of greater-than-5% interests.

5. TEMP. TREAS. REG. SECTION 1.897-9T(d)(1) AND (d)(4) SHOULD BE AMENDED TO CLARIFY THAT INTERESTS WHICH ARE REGULARLY TRADED IN ANY QUARTER OF A CALENDAR YEAR ARE CONSIDERED REGULARLY TRADED FOR THAT ENTIRE CALENDAR YEAR.

Treas. Reg. section 1.897-1(c)(2)(iii) applies the regularly traded exception to classes of interests which are regularly traded on an established securities market "at any time during the calendar year," whereas under Temp. Treas. Reg. section 1.897-9T(d)(1) a class of interests is considered regularly traded if it satisfies the applicable requirements for "any calendar quarter." Read in tandem, these two provisions indicate that the regularly traded exception should apply during a calendar year to a class of interests which is traded on an established securities market if that class is considered regularly traded under Temp. Treas. Reg. section 1.897- 9T(d) for ANY quarter in that calendar year. However, the language of Temp. Treas. Reg. section 1.897-9T(d)(1) could be construed to imply that the Service will deny application of the regularly traded exception to any class which is not considered regularly traded under Temp. Treas. Reg. section 1.897-9T(d) for EVERY quarter in the calendar year.

Temp. Treas. Reg. section 1.897-9T(d)(4) states that for purposes of Code section 1445 a class of interests will be presumed to be regularly traded during a calendar quarter if such interests were regularly traded during the previous calendar quarter. This provision serves a valuable purpose with respect to interests traded in the first quarter of a calendar year since at the time of such trades it might be impossible to determine whether the regularly traded exception will apply to such interests. However, since the regularly traded exception applies to classes of interests which are regularly traded on an established securities market at any time during the calendar year, Temp. Treas. Reg. section 1.897-9T(d)(4) does not appear to serve any useful purpose during subsequent quarters of the calendar year and consequently the language of this provision could be construed to imply that the Service will deny application of the regularly traded exception to any class of interests which is not considered regularly traded under Temp. Treas. Reg. section 1.897-9T(d) for every quarter in the calendar year. In addition, it seems more appropriate to presume that a class of interests is regularly traded during the first quarter of a calendar year if such interests were regularly traded during any quarter in the previous calendar year.

In view of the foregoing, we suggest that Temp. Treas. Reg. section 1.897-9T(d) should be revised (perhaps by inclusion of one or more examples) to clarify that, for purposes of applying the regularly traded exception, interests which are considered regularly traded for ANY quarter of a calendar year will be considered regularly traded for that entire calendar year. We also suggest that Temp. Treas. Reg. section 1.897-9T(d)(4) should be revised to provide that for purposes of Code section 1445 interests which are traded during the first quarter of a calendar year will be presumed to be regularly traded during that quarter if the class of such interests was regularly traded during any quarter in the previous calendar year.

We invite you to consider the foregoing comments on Temp. Treas. Reg. section 1.897-9T(d). At the same time, we note that it is important to pending and future transactions that the shortcomings of this provision be corrected.

We would be pleased to discuss any of the foregoing comments with you.

Very truly yours,

The text of Temp. Treas. Reg. section 1.897-9T(d) is set forth below:

(d) REGULARLY TRADED (1) GENERAL RULE -- (i) TRADING REQUIREMENTS. A class of interests that is traded on one or more established securities markets is considered to be regularly traded on such market or markets for any calendar quarter during which

(A) Trades in such class are effected, other than in de minimis quantities, on at least 15 days during the calendar quarter;

(B) The aggregate number of the interests in such class traded is at least 7.5 percent or more of the average number of interests in such class outstanding during the calendar quarter; and

(C) The requirements of paragraph (d)(3) of this section are met.

(ii) EXCEPTIONS -- (A) In the case of the class of interests which is held by 2,500 or more record shareholders, the requirements of paragraph (d)(1)(i)(B) of this section shall be applied by substituting "2.5 percent" for "7.5 percent".

(B) If at any time during the calendar quarter 100 or fewer persons own 50 percent or more of the outstanding shares of a class of interests, such class shall not be considered to be regularly traded for purposes of sections 897, 1445 and 6039C. Related persons shall be treated as one person for purposes of this paragraph (d)(1)(ii)(B).

(iii) Anti-abuse rule. Trades between related persons shall be disregarded. In addition, a class of interests shall not be treated as regularly traded if there is an arrangement or a pattern of trades designed to meet the requirements of this paragraph (d)(1). For example, trades between two persons that occur several times during the calendar quarter may be treated as an arrangement or a pattern of trades designed to meet the requirements of this paragraph (d)(1).

(2) INTERESTS TRADED ON DOMESTIC ESTABLISHED SECURITIES MARKETS. For purposes of sections 897, 1445 and 6039C, a class of interests that is traded on an established securities market located in the United States is considered to be regularly traded for any calendar quarter during which it is regularly quoted by brokers or dealers making a market in such interests. A broker or dealer makes a market in a class of interests only if the broker or dealer holds himself out to buy or sell interests in such class at the quoted price. Stock of a corporation that is described in section 851(a)(1) and units of a unit investment trust registered under the Investment Company Act of 1940 (15 U.S.C. sections 80a-1 to 80a-2) shall be treated as regularly traded within the meaning of this paragraph.

(3) REPORTING REQUIREMENT FOR INTERESTS TRADED ON FOREIGN SECURITIES MARKETS. A class of interests in a domestic corporation that is traded on one or more established securities markets located outside the United States shall not be considered to be regularly traded on such market or markets unless such class is traded in registered form, and

(i) The corporation registers such class of interests pursuant to section 12 of the Securities Exchange Act of 1934, 15 U.S.C. sec. 78, or

(ii) The corporation attaches to its federal income tax return a statement providing the following:

(A) A caption which states "The following information concerning certain shareholders of this corporation is provided in accordance with the requirements of section 1.897-9T."

(B) The name under which the corporation is incorporated, the state in which such corporation is incorporated, the principal place of business of the corporation, and its employer identification number, if any;

(C) The identity of each person who, at any time during the corporation's taxable year, was the beneficial owner of more than 5 percent of any class of interests of the corporation to which this paragraph (d)(3) applies;

(D) The title, and the total number of shares issued, of any class of interests so owned; and

(E) With respect to each beneficial owner of more than 5 percent of any class of interests of the corporation, the number of shares owned, the percentage of the class represented thereby, and the nature of the beneficial ownership of each class of shares so owned.

Interests in a domestic corporation which has filed a report pursuant to this paragraph (d)(3)(ii) shall be considered to be regularly traded on an established securities market only for the taxable year of the corporation with respect to which such a report is filed.

(4) COORDINATION WITH SECTION 1445. For purposes of section 1445, a class of interests in a corporation shall be presumed to be regularly traded during a calendar quarter if such interests were regularly traded within the meaning of this paragraph during the previous calendar quarter.

² Such a result would be astonishing in view of the fact that, at the time of issuance of Revenue Procedure 88-21, pre-TAMRA Code section 1446 REQUIRED many partnerships traded on established foreign securities markets to withhold at the time distributions were made to foreign partners. See Rev. Proc. 88-21, 1988-15 I.R.B. 13 (April 11, 1988); Treas. Reg. section 1.897-1(n) (as in effect immediately prior to adoption of Temp. Treas. Reg. section 1.897-9T). Of course, such a harsh result could be avoided if either (a) the special withholding procedures under post-TAMRA Code section 1446 were made available on an elective basis to partnerships in which the interests do not satisfy the new definition of regularly traded or (b) the Code section 7704 definition of publicly traded partnership were adopted for purposes of determining the availability of the special withholding procedures.