SIFMA Comments on Final and Temporary Treasury Regulations for Broker Reporting Obligations

SIFMA submitted a comment letter to the IRS about its final and temporary regulations relating to broker reporting on bond and acquisition premiums, original issue discounts ("OID") on tax-exempt bonds, and covered Section 1256 options.

SIFMA welcomed the new temporary regulations, which are effective for debt instruments acquired on or after January 1, 2015, that require brokers to report market discount to their customers with the assumption that the customers have elected to accrue market discount based on a constant yield basis. See Temporary Treasury regulations Section 1.6045-1T(n)(11)(i)(B). (Prior regulations required brokers to assume that customers accounted for market discount on a ratable basis.) Noting the strong possibility of confusion, particularly for individual investors, SIFMA requested that the effective date for the rule under the temporary regulations be extended to debt instruments that were purchased after January 1, 2014 and have not been reported under the ratable method already.

SIFMA also requested that the IRS clarify, with respect to a covered Section 1256 option, that the broker-transferee broker (rather than the broker-transferor) bears the Form 1099-B reporting obligation for the year of transfer. Under current regulations, a transferring broker may be required to report a holder's net unrealized profit or loss on a transferred position, notwithstanding the duplicative reporting. See Treasury regulations Section 1.6045-1(c)(5)(i)(C).

For tax-exempt bonds acquired on or after January 1, 2017, a payor must report OID and amortized acquisition premium on a tax-exempt obligation under Treasury regulations section 1.6049-10T. SIFMA requested that the IRS allow payors to report such information with respect to tax-exempt bonds acquired before 2017 as well. The comment letter also reiterated SIFMA's prior request that the IRS allow (but not require) brokers to make basis adjustments with respect to compensatory options and other equity-based compensation arrangements.

Reflecting on the various new broker and holder reporting obligations, and acknowledging that obtaining the information necessary to comply with simple and complex debt reporting obligations can be impossible, SIFMA asked the IRS to exempt broker reporting on an instrument-by-instrument basis if a broker's good-faith attempts to acquire the information necessary to comply with its reporting obligations have been unsuccessful. Finally, SIFMA requested that the IRS provide a safe harbor under which brokers could rely on an offering document's statement of the intended tax treatment of the issuer (or if no such tax treatment was disclosed, or if no offering documents existed, to treat the instrument as a noncovered security).

See: SIFMA Comment Letter; Treasury Final and Temporary Regulations.