Final Regs Provide Information Reporting Option for Small Bond Issues

 DEPARTMENT OF THE TREASURY

 ACTION: Final and temporary regulations.

 SUMMARY: This document contains final regulations concerning information reporting requirements for tax-exempt bonds. Changes to the applicable law were made by the Tax Reform Act of 1986. These final regulations affect issuers and purchasers of tax-exempt bonds and provide them with guidance on how to comply with the reporting requirements. This document also contains a minor conforming change to an existing temporary regulation.

 DATES: The regulations are effective on January 1, 1987. The regulations apply to bonds issued after December 31, 1986, including bonds issued to refund a prior issue of bonds, with the exception that section 1.149(e)-1(c)(2)(i)(A) applies to bonds issued after December 31, 1991.

 FOR FURTHER INFORMATION CONTACT: Eric E. Boody of the Office of Chief Counsel, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224, (202) 622-3960 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

PAPERWORK REDUCTION ACT

The collection of information contained in this final regulation has been reviewed and approved by the Office of Management and Budget in accordance with the requirements of the Paperwork Reduction Act (44 U.S.C. 3504(h)) under control number 1545-0720. The estimated annual burden per respondent varies from 4 hours to 18 hours, depending on individual circumstances, with an estimated average of 11 hours.

 These estimates are an approximation of the average time expected to be necessary for a collection of information. They are based on such information as is available to the Internal Revenue Service. Individual respondents may require greater or less time, depending on their particular circumstances.

 Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be sent to the Internal Revenue Service, Attn: IRS Reports Clearance Officer T:FP, Washington, D.C. 20224, and to the Office of Management and Budget, Attention: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, D.C. 20503.

BACKGROUND

 This document contains final regulations to be added to the Income Tax Regulations (26 CFR part 1) under section 149(e) of the Internal Revenue Code (the Code). The final regulations implement changes made by section 1301(a) of the Tax Reform Act of 1986 (100 Stat. 2602). This document also contains conforming amendments to 26 CFR parts 5f and 602.

 On March 11, 1987, the Federal Register published a notice of proposed rulemaking (52 FR 7449) by cross reference to temporary regulations published the same day in the Federal Register (52 FR 7408) under section 149(e) of the Code. Public comments were received concerning the regulations, and a public hearing was held on June 26, 1987. After consideration of the written comments and those presented at the hearing, the proposed regulations are adopted as revised by this Treasury decision.

EXPLANATION OF PROVISIONS

 Section 1301(a) of the Tax Reform Act of 1986 amended the information reporting requirements of sections 103(l) and 103A(j)(3) by adding section 149(e) to the Code. The 1986 Act revised the information required to be reported to the Internal Revenue Service, extended the information reporting requirements to all tax-exempt bonds, and imposed certain requirements under section 149(e). Section 149(e) applies to bonds issued after December 31, 1986 (including bonds issued to refund a prior issue of bonds). The information reporting requirements apply to the issuer of a bond. Thus, the issuer may not rely on another person such as a conduit issuer to comply with these requirements.

 The temporary and proposed regulations published on March 11, 1987, provide rules and definitions relating to the expanded reporting requirements under section 149(e). Under the temporary and proposed regulations, an issuer generally must file a separate information return for each issue of tax-exempt bonds. Issuers of governmental bond issues with issue prices of less than $100,000, however, must file a single, consolidated information return for all of those small issues issued during the calendar year.

CHANGE IN RESPONSE TO PUBLIC COMMENTS

 Eight commentators requested that issuers of governmental bond issues with issue prices of less than $100,000 be given the option of filing a separate information return for each small issue, instead of being required to file a consolidated annual information return for all small issues. The commentators expressed concern that consolidated reporting imposes increased accounting and recordkeeping burdens on issuers of small governmental bond issues. The commentators argued that permitting issuers to file separate information reports for these small issues will minimize recordkeeping burdens and provide greater certainty to investors that the information reporting requirement has been satisfied.

 Section 1.149(e)-1(c)(2) of the final regulation addresses these comments. Issuers of governmental bond issues with issue prices of less than $100,000 are allowed the option of filing a separate information return for each small issue. An issuer must file a consolidated information return for all governmental bond issues with issue prices of less than $100,000 that are issued within the calendar year and that are not reported on a separate information return. The separate filing option applies to bonds issued after December 31, 1991. A special rule extends the date for filing separate information returns for funds issued during the first and second calendar quarters of 1992.

 The final regulations also contain stylistic changes that were made to simplify and clarify the regulations.

SPECIAL ANALYSES

 It has been determined that these rules are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a final Regulatory Flexibility Analysis is not required.

DRAFTING INFORMATION

 The principal author of these regulations is Eric E. Boody of the Office of the Assistant Chief Counsel (Financial Institutions & Products), Internal Revenue Service. Personnel from other offices of the Internal Revenue Service and the Treasury Department, however, participated in developing the regulations on matters of both substance and style.

LIST OF SUBJECTS

26 CFR 1.148-0T through 1.150-1T

 Bonds, Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 5f

 Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

 Reporting and recordkeeping requirements.

Treasury Decision 8425

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR parts 1, 5f, and 602 are amended as follows:

PART 1 -- INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953

Paragraph 1. The authority for part 1 is amended by removing the "T" in the entry for section 1.149(e)-1T to read as follows:

Authority: 26 U.S.C. 7805. * * * Section 1.149(e)-1 also issued under 26 U.S.C. 149(e); * * *

Par. 2. Section 1.149(e)-1T is removed.

Par. 3. New section 1.149(e)-1 is added to read as follows:

SECTION 1.149(e)-1 INFORMATION REPORTING REQUIREMENTS FOR TAX-EXEMPT BONDS.

(a) GENERAL RULE. Interest on a bond is included in gross income unless certain information with respect to the issue of which the bond is a part is reported to the Internal Revenue Service in accordance with the requirements of this section. This section applies to any bond if the issue of which the bond is a part is issued after December 31, 1986 (including any bond issued to refund a bond issued on or before December 31, 1986).

(b) REQUIREMENTS FOR PRIVATE ACTIVITY BONDS -- (1) IN GENERAL. If the issue of which the bond is a part is an issue of private activity bonds, the issuer must comply with the following requirements --

(i) Not later than the 15th day of the second calendar month after the close of the calendar quarter in which the issue is issued, the issuer must file with the Internal Revenue Service a completed information reporting form prescribed for this purpose;

(ii) If any bond that is part of the issue is taken into account under section 146 (relating to volume cap on private activity bonds), the state certification requirement of paragraph (b)(2) of this section must be satisfied; and

(iii) If any bond that is part of the issue is a qualified mortgage bond or qualified veterans' mortgage bond (within the meaning of section 143(a) or (b) or section 103A(c)(1) or (3) as in effect on the day before enactment of the Tax Reform Act of 1986), the issuer must submit the annual report containing information on the borrowers of the original proceeds of the issue as required under section 1.103A-2(k)(2)(ii) and (k)(3) through (k)(6).

(2) STATE CERTIFICATION WITH RESPECT TO VOLUME CAP -- (i) IN GENERAL. If an issue is subject to the volume cap under section 146, a state official designated by state law (if there is no such official, then the governor or the governor's delegate) must certify that the issue meets the requirements of section 146, and a copy of this certification must be attached to the information reporting form filed with respect to the issue. In the case of any constitutional home rule city (as defined in section 146(d)(3)(C)), the preceding sentence is applied by substituting "city" for "state" and "chief executive officer" for "governor."

(ii) CERTIFICATION. The certifying official need not perform an independent investigation in order to certify that the issue meets the requirements of section 146. For example, if the certifying official receives an affidavit that was executed by an officer of the issuer who is responsible for issuing the bonds and that sets forth, in brief and summary terms, the facts necessary to determine that the issue meets the requirements of section 146 and if the certifying official has compared the information in that affidavit to other readily available information with respect to that issuer (e.g., previous affidavits and certifications for other private activity bonds issued by that issuer), the certifying official may rely on the affidavit.

(c) REQUIREMENTS FOR GOVERNMENTAL BONDS -- (1) ISSUE PRICE OF $100,000 OR MORE. If the issue of which the bond is a part has an issue price of $100,000 or more and is not an issue of private activity bonds, then, not later than the 15th day of the second calendar month after the close of the calendar quarter in which the issue is issued, the issuer must file with the Internal Revenue Service a completed information reporting form prescribed for this purpose.

(2) ISSUE PRICE OF LESS THAN $100,000 -- (i) IN GENERAL. If the issue of which the bond is a part has an issue price of less than $100,000 and is not an issue of private activity bonds, the issuer must file with the Internal Revenue Service one of the following information reporting forms within the prescribed period --

(A) SEPARATE RETURN. Not later than the 15th day of the second calendar month after the close of the calendar quarter in which the issue is issued, a completed information reporting form prescribed for this purpose with respect to that issue; or

(B) CONSOLIDATED RETURN. Not later than February 15 of the calendar year following the calendar year in which the issue is issued, a completed information form prescribed for this purpose with respect to all issues to which this paragraph (c)(2) applies that were issued by the issuer during the calendar year and for which information was not reported on a separate information return pursuant to paragraph (c)(2)(i)(A) of this section.

(ii) BOND ISSUES ISSUED BEFORE JANUARY 1, 1992. Paragraph (c)(2)(i)(A) of this section does not apply if the issue of which the bond is a part is issued before January 1, 1992.

(iii) EXTENDED FILING DATE FOR FIRST AND SECOND CALENDAR QUARTERS OF 1992. If the issue of which the bond is a part is issued during the first or second calendar quarter of 1992, the prescribed period for filing an information reporting form with respect to that issue pursuant to paragraph (c)(2)(i)(A) of this section is extended until November 16, 1992.

(d) FILING OF FORMS AND SPECIAL RULES -- (1) COMPLETED FORM. For purposes of this section --

(i) GOOD FAITH EFFORT. An information reporting form is treated as completed if the issuer (or a person acting on behalf of the issuer) has made a good faith effort to complete the form (taking into account the instructions to the form).

(ii) INFORMATION. In general, information reporting forms filed pursuant to this section must be completed on the basis of available information and reasonable expectations as of the date the issue is issued. Forms that are filed on a consolidated basis pursuant to paragraph (c)(2)(i)(B) of this section, however, may be completed on the basis of information readily available to the issuer at the close of the calendar year to which the form relates, supplemented by estimates made in good faith.

(iii) CERTAIN INFORMATION NOT REQUIRED. An issuer need not report to the Internal Revenue Service any information specified in the first sentence of section 149(e)(2) that is not required to be reported to the Internal Revenue Service pursuant to the information reporting forms prescribed under that section and the instructions to those forms.

(2) MANNER OF FILING -- (i) PLACE FOR FILING. The information reporting form must be filed with the Internal Revenue Service at the address specified on the form or in the instructions to the form.

(ii) EXTENSION OF TIME. The Commissioner may grant an extension of time to file any form or attachment required under this section if the Commissioner determines that the failure to file in a timely manner was not due to willful neglect. The Commissioner may make this determination with respect to an issue or to a class of issues.

(e) DEFINITIONS. For purposes of this section only -- (1) Private activity bond. The term "private activity bond" has the meaning given that term in section 141(a) of the Internal Revenue Code, except that the term does not include any bond described in section 1312(c) of the Tax Reform Act of 1986 to which section 1312 or 1313 of the Tax Reform Act of 1986 applies.

(2) ISSUE -- (i) IN GENERAL. Except as otherwise provided in this paragraph (e)(2), bonds are treated as part of the same issue only if the bonds are issued --

(A) By the same issuer;

(B) On the same date; and

(C) Pursuant to a single transaction or to a series of related transactions.

(ii) DRAW-DOWN LOANS, COMMERCIAL PAPER, ETC.

(A) Bonds issued during the same calendar year may be treated as part of the same issue if the bonds are issued --

(1) Pursuant to a loan agreement under which amounts are to be advanced periodically ("draw-down loan"); or

(2) With a term not exceeding 270 days.

(B) In addition, the bonds must be equally and ratably secured under a single indenture or loan agreement and issued pursuant to a common financing arrangement e.g., pursuant to the same official statement that is periodically updated to reflect changing factual circumstances). In the case of bonds issued pursuant to a draw-down loan that meets the requirements of the preceding sentence, bonds issued during different calendar years may be treated as part of the same issue if all the amounts to be advanced pursuant to the draw- down loan are reasonably expected to be advanced within three years of the date of issue of the first bond.

(iii) LEASES AND INSTALLMENT SALES. Bonds other than private activity bonds may be treated as part of the same issue if --

(A) The bonds are issued pursuant to a single agreement that is in the form of a lease or installment sales agreement; and

(B) All of the property covered by that agreement is reasonably expected to be delivered within three years of the date of issue of the first bond.

(iv) QUALIFIED 501(c)(3) BONDS. If an issuer elects under section 141(b)(9) to treat a portion of an issue as a qualified 501(c)(3) bond, that portion is treated as a separate issue.

(3) DATE OF ISSUE -- (i) BOND. The date of issue of a bond is the date determined under section 1.150-1(c)(2).

(ii) ISSUE. The date of issue of an issue of bonds is the date of issue of the first bond that is part of the issue. See paragraphs (e)(2)(ii) and (iii) of this section for rules relating to draw-down loans, commercial paper, etc., and leases and installment sales.

(iii) BONDS TO WHICH PRIOR LAW APPLIED. Notwithstanding the provisions of this paragraph (e)(3), an issue for which an information report was required to be filed under section 103(l) or section 103A(j)(3) is treated as issued prior to January 1, 1987.

(4) ISSUE PRICE. The term "issue price" has the same meaning given the term by section 1.148-8(c).

PART 5f -- TEMPORARY INCOME TAX REGULATIONS UNDER THE TAX EQUITY AND FISCAL RESPONSIBILITY ACT OF 1982

Par. 4. The authority citation for part 5f continues to read in part:

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

Par. 5. Section 5f.103-3(a) is amended by revising the last sentence to read as follows:

SECTION 5F.103-3 INFORMATION REPORTING REQUIREMENTS FOR CERTAIN BONDS.

(a) GENERAL RULE. * * * For rules concerning bonds issued after December 31, 1986, see section 1.149(e)-1 of this chapter.

* * * * *

PART 602 -- OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 6. The authority citation for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 7. Section 602.101(c) is amended by removing the "T" in the entry for section 1.149(e)-1T.