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and readability of the animal drug
regulations.
DATES: This rule is effective August 3,
2006.
FOR FURTHER INFORMATION CONTACT:
George K. Haibel, Center for Veterinary
Medicine (HFV–6), Food and Drug
Administration, 7519 Standish Pl.,
Rockville, MD 20855, 301–827–4567,
e-mail: [email protected].
SUPPLEMENTARY INFORMATION: FDA is
amending the animal drug regulations
in part 520 (21 CFR part 520) in
§§ 520.1204 and 520.1205 to remove
aminopentamide hydrogen sulfate and
pectin from the specifications for an oral
suspension and for tablets containing
kanamycin, bismuth subcarbonate, and
activated attapulgite. These ingredients
have been declared inactive or have
been removed from the formulations. In
addition, these sections are being
reformatted and consolidated. These
actions are being taken to improve the
accuracy and readability of the animal
drug regulations.
This rule does not meet the definition
of ‘‘rule’’in 5 U.S.C. 804(3)(A) because it
is a rule of ‘‘particular applicability’’
Therefore, it is not subject to the
congressional review requirements in 5
U.S.C. 801–808.
List of Subjects in 21 CFR Part 520
Animal drugs.
■ Therefore, under the Federal Food,
Drug, and Cosmetic Act and under
authority delegated to the Commissioner
of Food and Drugs and redelegated to
the Center for Veterinary Medicine, 21
CFR part 520 is amended as follows:
PART 520—ORAL DOSAGE FORM
NEW ANIMAL DRUGS
1. The authority citation for 21 CFR
part 520 continues to read as follows:

■

Authority: 21 U.S.C. 360b.

2. In § 520.1204, revise the section
heading and paragraphs (a) and (c) to
read as follows:

■

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§ 520.1204 Kanamycin, bismuth
subcarbonate, activated attapulgite.

(a) Specifications—(1) Each 5
milliliters (mL) of suspension contains
100 milligrams (mg) kanamycin (as the
sulfate), 250 mg bismuth subcarbonate,
and 500 mg activated attapulgite
(aluminum magnesium silicate).
(2) Each tablet contains 100 mg
kanamycin (as the sulfate), 250 mg
bismuth subcarbonate, and 500 mg
activated attapulgite.
*
*
*
*
*
(c) Conditions of use in dogs—(1)
Amount. 5 mL of suspension or 1 tablet
per 20 pounds body weight every 8

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hours. Maximum dose: 5 mL of
suspension or 3 tablets every 8 hours.
Dogs under 10 pounds: 2.5 mL of
suspension or 1/2 tablet every 8 hours.
A recommended initial loading dose
should be twice the amount of a single
dose.
(2) Indications for use. For the
treatment of bacterial enteritis caused by
organisms susceptible to kanamycin and
the symptomatic relief of the associated
diarrhea.
(3) Limitations. Federal law restricts
this drug to use by or on the order of
a licensed veterinarian.
§ 520.1205
■

[Removed]

3. Remove § 520.1205.

Dated: July 21, 2006.
Daniel G. McChesney,
Director, Office of Surveillance and
Compliance, Center for Veterinary Medicine.
[FR Doc. E6–12568 Filed 8–2–06; 8:45 am]
BILLING CODE 4160–02–S

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9279]
RIN 1545–BF86

Reporting Rules for Widely Held Fixed
Investment Trusts
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and Temporary
regulations.

Paperwork Reduction Act
These final and temporary regulations
amend § 1.671–5. The collection of
information contained in these
regulations is in § 1.671–5 and has been
previously reviewed and approved by
the Office of Management and Budget in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3507)
under control number 1545–1540.
Response to this collection of
information is mandatory. This
information is required to be reported to
beneficial owners of trust interests to
enable them to correctly report their
share of the items of income, deduction,
and credit of the WHFIT in which they
have invested. This information is also
required to be reported to the IRS to
enable the IRS to verify that trustees and
middlemen are accurately reporting
information to beneficial owners of trust
interests and that beneficial owners are
properly reporting their ownership of a
trust interest.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents might
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.

AGENCY:

Background

SUMMARY: This document contains final
and temporary regulations amending
§ 1.671–5, a provision which provides
reporting rules for widely held fixed
investment trusts (WHFITs). These
regulations clarify and simplify
reporting for trustees and middlemen of
non-mortgage widely held fixed
investment trusts (NMWHFITs). The
text of these final and temporary
regulations also serves, in part, as the
text of the proposed regulations set forth
in the notice of proposed rulemaking
(REG–125071–06) on this subject in this
issue of the Federal Register.
DATES: Effective Date: These regulations
are effective July 28, 2006.
Applicability Date: For dates of
applicability see § 1.671–5(m).
FOR FURTHER INFORMATION CONTACT:
Faith Colson, 202–622–3060 (not a tollfree number).
SUPPLEMENTARY INFORMATION:

This document contains amendments
to 26 CFR part 1. On January 24, 2006,
the Internal Revenue Service (IRS) and
the Treasury Department published
final regulations (TD 9241) (final
regulations) under § 1.671–5 in the
Federal Register (71 FR 4002) providing
reporting rules for WHFITs. On
February 23, 2006, in response to
comments received subsequent to the
publication of the final regulations, the
IRS and the Treasury Department issued
Notice 2006–29 (2006–12 I.R.B. 644).
Notice 2006–29 informed trustees and
middlemen of NMWHFITs that § 1.671–
5 would be amended to extend the
availability of the qualified NMWHFIT
exception (discussed in section I)
beyond February 23, 2006, the cut-off
date provided in the final regulations for
funding a NMWHFIT that satisfied the
exception, and to clarify the application
of certain provisions in the final
regulations to NMWHFITs. On May 25,
2006, the IRS and Treasury Department
issued Notice 2006–30 (2006–24 I.R.B.
1044) stating that the IRS and the

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Federal Register / Vol. 71, No. 149 / Thursday, August 3, 2006 / Rules and Regulations
Treasury Department expected to issue
the additional guidance under § 1.671–
5 discussed in Notice 2006–29 in the
near future but that such guidance
would not be issued prior to the
expiration of the extended cut-off date
for the qualified NMWHFIT exception
in Notice 2006–29. Accordingly, Notice
2006–30 extended the cut-off date for
the availability of the qualified
NMWHFIT exception in Notice 2006–29
for an additional 60 days. These
temporary regulations extend the
availability of the qualified NMWHFIT
exception to the dates provided in
Notice 2006–30 and clarify the
NMWHFIT reporting rules as described
in Notice 2006–29. These temporary
regulations also simplify the application
of § 1.671–5 as it applies to NMWHFIT
sales and dispositions as well as sales or
redemptions of trust interests in an
equity trust (a trust, substantially all of
whose income is comprised of
dividends).

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Summary and Explanation of Revisions
I. The Qualified NMWHFIT Exception
In general, under the final regulations,
trustees and middlemen of NMWHFITs
are required to report information
regarding market discount, bond
premium, sales and dispositions of trust
assets, redemptions, and sales of trust
interests. Trustees and middlemen of
NMWHFITs that satisfy the qualified
NMWHFIT exception in § 1.671–
5(c)(2)(iv)(E) are, however, excepted
from reporting market discount and
bond premium and are permitted to use
the simplified reporting rules for sales
and dispositions of trust assets in
§ 1.671–5(c)(2)(iv)(B) and the simplified
reporting rules for sales or redemptions
of trust interests in § 1.671–5(c)(2)(v)(C).
As provided in Notice 2006–29 and
subsequently modified in Notice 2006–
30, § 1.671–5T(c)(2)(iv)(E) of these final
and temporary regulations provides that
the qualified NMWHFIT exception is
satisfied if the calendar year for which
the trustee is reporting begins before
January 1, 2011, and the NMWHFIT
meets any of the following
requirements: (1) The NMWHFIT has a
start-up date as defined in § 1.671–
5(b)(19) before February 23, 2006; (2)
the registration statement for the
NMWHFIT becomes effective under the
Securities Act of 1933 (15 U.S.C. 77a)
(Securities Act of 1933) and trust
interests are offered for sale to the
public before February 23, 2006; or (3)
the registration statement of the
NMWHFIT becomes effective under the
Securities Act of 1933 and trust interests
are offered for sale to the public on or
after February 23 and before July 31,

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2006, and the NMWHFIT is fully funded
before October 1, 2006. The IRS and the
Treasury Department have also received
comments suggesting that the January 1,
2011 cut-off date be extended or
eliminated. The IRS and the Treasury
Department are not adopting that
suggestion.
II. Availability of the NMWHFIT Safe
Harbor
Section 1.671–5(f) provides a
reporting safe harbor for NMWHFITs. If
trustees and middlemen report
consistently with the safe harbor,
trustees and middlemen are deemed to
have provided information in a manner
that enables a trust interest holder to
reasonably accurately report the items of
income, deduction, and credit of the
trust on the trust interest holder’s own
federal income tax return. Section
1.671–5(f)(1)(i) provides that if
substantially all of a NMWHFIT’s
income is from dividends (as defined in
section 6042(b) and the regulations
thereunder) or interest (as defined in
section 6049(b) and the regulations
thereunder) and all trust interests have
identical value and rights, a NMWHFIT
may report under the safe harbor in
§ 1.671–5(f). Commentators have
expressed concern that, if a trustee of a
NMWHFIT must sell or dispose of a
significant number of trust assets and
trust sales proceeds are included in the
determination of whether ‘‘substantially
all’’ of a trust’s income is from interest
or dividends, the NMWHFIT will be
ineligible for the safe harbor reporting
rules in § 1.671–5(f). To address this
concern, § 1.671–5T(f)(1)(i) of the final
and temporary regulations provides that
trust sales proceeds are to be ignored in
determining whether a NMWHFIT is
eligible to report under the NMWHFIT
safe harbor in § 1.671–5(f). Accordingly,
a NMWHFIT may be eligible to report
under the NMWHFIT safe harbor even
if it has significant trust sales proceeds
from the sale or disposition of trust
assets.
Commentators also noted that
§ 1.671–5(f)(1)(i)(1) refers to section
6049(b) and the definition of interest in
sectional 6049(b) does not include
interest that is exempt from tax under
section 103 of the Internal Revenue
Code. These commentators were
concerned that if a NMWHFIT’s income
is from tax-exempt interest, the
NMWHFIT would not be eligible to
report under the NMWHFIT safe harbor
reporting rules. To address this concern,
§ 1.671–5T(f)(1)(i)(A)(1) of the final and
temporary regulations does not refer to
sections 6042(b) and 6049(b) and the
regulations thereunder. Accordingly,
NMWHFITs whose income is from

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43969

taxπexempt interest, may be eligible to
report under the NMWHFIT safe harbor
reporting rules.
III. Simplified Reporting of Sales and
Redemptions of Trust Interests for
Equity Trusts
Section 1.671–5(c)(2)(v) requires
trustees and middlemen to provide
information regarding the income that is
attributable to a redeeming, selling or
purchasing beneficial owner up to the
date of the sale or redemption of a trust
interest. Section 1.671–5(c)(2)(v)(C)
provides an exception to this rule for
NMWHFITs if substantially all their
income is comprised of dividends
(equity trusts) and the NMWHFIT is
required by its governing document to
distribute income at least monthly.
Commentators reported that some
equity trusts do not receive significant
dividend income and that it would not
be feasible for these trusts to make
monthly distributions. These
commentators suggested that there be a
de minimis exception to the
requirement that the trust make monthly
distributions.
Accordingly, § 1.671–5T(c)(2)(v)(C)
provides that a NMWHFIT will be
considered to have satisfied the
requirement that it make monthly
distributions notwithstanding the fact
that, although the governing document
requires monthly distributions, the
governing document of the NMWHFIT
also permits the trustee to forego making
its normally required monthly
distribution if the cash held for
distribution is less than 0.1% of the net
asset value of the trust (aggregate fair
market value of the trust’s assets less the
trust’s liabilities) as of the date that the
amount of the monthly distribution is
required to be determined.
Commentators suggested various other
modifications to the § 1.675(c)(2)(v)(C)
exception; however, the IRS and
Treasury Department believe that the
modification adopted above addresses
the majority of the commentators’
concerns while maintaining the
integrity of the reporting information to
be provided under § 1.671–5.
Similar to the ‘‘substantially all’’ test
for eligibility to use the NMWHFIT safe
harbor discussed in section II above,
commentators have expressed concern
that if a NMWHFIT has significant sales
and dispositions and trust sales
proceeds are included for the purpose of
determining if ‘‘substantially all’’ of the
NMWHFIT’s income is from dividends,
then the NMWHFIT will not qualify for
this exception even though the
NMWHFIT only holds assets that
produce dividend income. To address
this concern, § 1.671–5T(c)(2)(v)(C) of

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the final and temporary regulations
provides that proceeds received by a
NMWHFIT from the sale or disposition
of trust assets are to be ignored for the
purpose of determining whether an
equity trust is eligible to report under
that paragraph.
IV. Simplified Reporting for Certain
NMWHFIT Sales and Dispositions
In addition to the qualified
NMWHFIT exception, the final
regulations provide that the trustees of
NMWHFITs that meet the general de
minimis test in § 1.671–5(c)(2)(iv)(D)(1)
are only required, under § 1.671–
5(c)(2)(iv)(B), to provide information
regarding the amount of trust sales
proceeds distributed to a trust interest
holder. The reason for the de minimis
exception, as stated in the preamble to
the final regulations, is that the IRS and
the Treasury Department believe that if
a NMWHFIT only sells or disposes of
assets infrequently, although there will
be some deferral of gains and losses if
sales and dispositions are not fully
reported, the deferral is acceptable, in
light of the burden of fully, accurately
reporting the sales and dispositions.
Commentators reported that trustees
of NMWHFITs frequently have to sell
trust assets to obtain cash to effect
redemptions. These commentators
indicated that because of certain
securities laws, trustees of many
NMWHFITs must redeem trust interests
every time an interest is tendered for
redemption. Trustees have no control
over the number of trust interests
tendered for redemption and as a result,
have no control over the number of
corresponding sales of trust assets to
obtain cash for these redemptions.
Because of these sales to effect
redemptions, many NMWHFITs will
also not be able to meet the general de
minimis test in § 1.671–5(c)(2)(iv)(D)(1).
If a NMWHFIT does not meet the
general de minimis test, trustees and
middlemen must provide information
regarding the amount of trust sales
proceeds that are attributable to a trust
interest holder, and information that
will enable a trust interest holder to
allocate with reasonable accuracy a
portion of its basis and a portion of its
market discount or premium to the
assets sold. Commentators indicated
that, under the final regulations, a
significant number of NMWHFITs do
not qualify for the reduced reporting in
§ 1.671–5(c)(2)(iv)(B) and that as a
result, many investors will be provided
with more information than they can
accurately process and trustees and
middlemen will be subject to the
significant reporting costs of supplying
this information. These commentators

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requested that the final regulations be
amended to provide for reduced
reporting for other situations in which
it will have little or no compliance
impact. In response to these comments,
the IRS and the Treasury Department
provide the following modifications to
the sales and disposition reporting rules
for NMWHFITs in the final regulations:
1. NMWHFIT Final Calendar Year
Exception
Commentators requested that the IRS
and Treasury Department extend the
simplified reporting in § 1.671–
5(c)(2)(iv)(B) to the final calendar year
of a NMWHFIT regardless of whether
the de minimis test or the qualified
NMWHFIT exception is satisfied. The
commentators reported that for a
significant number of NMWHFITs, 95%
of a trustee’s sales of assets to effect
redemptions occur during the last three
months of the NMWHFIT. The
commentators asserted that there would
not be significant deferral of gains or
losses on sales or dispositions of assets
by NMWHFITs in their final calendar
year if information regarding the sales
and dispositions of trust assets during
these final months were not
communicated to non-redeeming trust
interest holders because the nonredeeming trust interest holders would
be cashing out their investment during
that calendar year. Accordingly,
§ 1.671–5T(c)(2)(iv)(F) of the final and
temporary regulations provide that all
NMWHFITs qualify for the simplified
reporting in § 1.671–5T(c)(2)(iv)(B) in
the final calendar year of the
NMWHFIT, regardless of whether the
NMWHFIT has otherwise satisfied the
de minimis test, provided that a trust
interest holder cannot roll-over its
investment in the NMWHFIT to another
WHFIT.
2. Pro-Rata Sale Exception
Commentators also requested that
pro-rata sales of trust assets be excepted
from reporting. The commentators
contended that trustees generally sell a
redeeming trust interest holder’s prorata share of the trust assets to effect a
redemption so that there is no change in
the investments of the non-redeeming
trust interest holders and therefore little
or no compliance benefit of reporting to
the non-redeeming trust interest
holders. Accordingly, the commentators
requested that pro-rata sales of trust
assets to effect redemptions be excepted
from the reporting requirements of
§ 1.671–5(c)(2)(iv).
In response to this request, § 1.671–
5T(c)(2)(iv)(G) of the final and
temporary regulations provides that a
pro-rata sale of a trust asset to effect a

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redemption is not required to be
reported under § 1.671–5. A pro-rata
sale of a trust asset occurs when (1) a
trust interest holder tenders one or more
trust interests for redemption; (2) the
trustee sells the pro-rata share of a trust
asset that is deemed to be owned by the
trust interest holder as a result of the
trust interest holder’s ownership of the
trust interest or interests tendered for
redemption; (3) the trustee engages in
the sale solely to obtain cash that is
immediately distributed to the
redeeming trust interest holder as a
result of the redemption; and (4) the
redemption is reported as required
under § 1.671–5(c)(2)(v).
Commentators strongly urged the IRS
and the Treasury Department to except
NMWHFITs with a duration of no more
than 15 months and that span no more
than two calendar years (short-term
NMWHFITs) from all reporting of sales
and dispositions of trust assets. The IRS
and the Treasury Department believe
that the NMWHFIT final year exception,
discussed in section IV(1), adequately
provides reporting relief for most shortterm NMWHFITs for the sales and
dispositions of trust assets to effect
redemptions that a trustee must make
during the final three months of the
NMWHFIT. Further, § 1.671–5T(b)(21)
provides an amended definition of trust
sales proceeds excluding the gross
proceeds paid to a NMWHFIT for a prorata sale of a trust asset to effect a
redemption from the definition of trust
sales proceeds. The effect of this change
in the definition of trust sales proceeds
is to exclude the proceeds from a prorata sale of a trust asset to effect a
redemption when determining whether
a trust has met the de minimis test.
Since only the proceeds from non prorata sales of trust assets are considered
for purposes of determining whether a
NMWHFIT meets the de minimis test,
more trusts will meet the de minimis
test and qualify for the reduced
reporting in § 1.671–5T(c)(2)(iv)(B). The
IRS and the Treasury Department
believe that the combined application of
the pro-rata sales exception, the revised
definition of trust sales proceeds, and
the de minimis test adequately address
the commentators’ concerns regarding
sales and dispositions of trust assets by
trustees of short-term NMWHFITs
during the first year of the trust.
Commentators also suggested that
there be a reporting exception for when
a trustee engages in a non pro-rata sale
of a trust asset because the redeeming
trust interest holder is only deemed to
own a fractional share of a trust asset or
because market conditions or
restrictions prevent a pro-rata sale of a
trust asset. The IRS and the Treasury

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Federal Register / Vol. 71, No. 149 / Thursday, August 3, 2006 / Rules and Regulations
Department believe that this issue is
also adequately addressed by the
combined application of the pro-rata
sale exception, the revised definition of
trust sales proceeds and the de minimis
test.
Effective Date
These amendments are effective July
28, 2006. The amendments are
applicable to the reporting required
under § 1.671–5 as of January 1, 2007
(see § 1.671–5(m)) and will be applied
as though these amendments were
included in TD 9241.
Special Analysis
These regulations are necessary to
provide trustees and middlemen of
NMWHFITs with immediate guidance
on the application of the final
regulations so they can take measures
necessary to be able to comply with the
final regulations on their January 1,
2007, effective date. Additionally, the
IRS and the Treasury Department have
published Notice 2006–29 and Notice
2006–30 indicating that § 1.671–5
would be amended as provided in these
temporary regulations and received
comments regarding the application of
§ 1.671–5 from trustees and middlemen
of NMWHFITs. Accordingly, good cause
is found for dispensing with notice and
public comment pursuant to 5 U.S.C.
553(b)(B)(3). The final and temporary
regulations are applicable more than 30
days after they are published in the
Federal Register and accordingly, no
exemption is required under 5 U.S.C.
553(d). For the applicability of the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) refer to the Special Analysis
section of the preamble to the crossreferenced notice of proposed
rulemaking published in this issue of
the Federal Register. Pursuant section
7805(f) of the Code, these final and
temporary regulations will be submitted
to the Chief Counsel for Advocacy of
Small Business Administration for
comment on its impact on small
business.

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Drafting Information
The principal author of these
regulations is Faith Colson, Office of
Associate Chief Counsel (Passthroughs
& Special Industries). However, other
personnel from the IRS and the Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.

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Amendments to the Regulations
Accordingly, 26 CFR part 1 is
amended as follows:

■

PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read, in part, as
follows:

■

Authority: 26 U.S.C. 7805 * * *
■ Par. 2. Section 1.671–5 is amended
by:
■ 1. Revising paragraphs (b)(5), (b)(8),
and (b)(21)
■ 2. Revising paragraphs (c)(2)(iv),
(v)(C), (vi), and (vii)
■ 3. Revising paragraphs (f)(1)(i)(A) and
(viii)(A)
The revisions read as follows:

§ 1.671–5 Reporting for widely held fixed
investment trusts.

*

*
*
*
*
(b) * * *
(5) [Reserved.] For further guidance,
see § 1.671–5T(b)(5).
*
*
*
*
*
(8) [Reserved.] for further guidance,
see § 1.671–5T(b)(8).
*
*
*
*
*
(21) [Reserved.] For further guidance,
see § 1.671–5T(b)(21).
*
*
*
*
*
(c) * * *
(2) * * *
(iv) [Reserved.] For further guidance,
see § 1.671–5T(c)(2)(iv).
(v) * * *
(C) [Reserved.] For further guidance,
see § 1.671–5T(c)(2)(v)(C).
(vi) [Reserved.] For further guidance,
see § 1.671–5T(c)(2)(vi).
(vii) [Reserved.] For further guidance,
see § 1.671–5T(c)(2)(vii).
*
*
*
*
*
(f) * * *
(1) * * *
(i) * * *
(A) [Reserved] For further guidance,
see § 1.671–5T(f)(1)(i)(A).
*
*
*
*
*
(viii) * * *
(A) [Reserved.] For further guidance,
see § 1.671–5T(f)(1)(viii).
■ Par. 3. Section 1.671–5T is added to
read as follows:
§ 1.671–5T Reporting for widely held fixed
investment trusts (temporary).

(a) Through (b)(4) [Reserved.] For
further guidance, see § 1.671–5(a)
through (b)(4).
(5) The cash held for distribution is
the cash held by the WHFIT (other than
trust sales proceeds and proceeds from
sales described in paragraph (c)(2)(iv)(G)
of this section) less reasonably required

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43971

reserve funds as of the date that the
amount of a distribution is required to
be determined under the WHFIT’s
governing document.
(b)(6) and (b)(7) [Reserved.] For
further guidance, see § 1.671–5(b)(6) and
(b)(7).
(8) An in-kind redemption is a
redemption in which a beneficial owner
receives a pro-rata share of each of the
assets of the WHFIT that the beneficial
owner is deemed to own under section
671. For example, for purposes of this
paragraph (b)(8), if beneficial owner A
owns a one percent interest in a WHFIT
that holds 100 shares of X corporation
stock, so that A is considered to own a
one percent interest in each of the 100
shares, A’s pro-rata share of the X
corporation stock for this purpose is one
share of X corporation stock.
(b)(9) through (b)(20) [Reserved.] For
further guidance, see § 1.671–5(b)(9)
through (b)(20).
(21) Trust sales proceeds equal the
amount paid to a WHFIT for the sale or
disposition of an asset held by the
WHFIT, including principal payments
received by the WHFIT that completely
retire a debt instrument (other than a
final scheduled principal payment) and
pro-rata partial principal prepayments
described under § 1.1275–2(f)(2). Trust
sales proceeds do not include amounts
paid for any interest income that would
be required to be reported under
§ 1.6045–1(d)(3). Trust sales proceeds
also do not include amounts paid to a
NMWHFIT as the result of a pro-rata
sales of trust assets to effect a
redemption described in paragraph
(c)(2)(iv)(G) of this section.
(b)(22) through (c)(2)(iii) [Reserved.]
For further guidance, see § 1.671–
5(b)(22) through (c)(2)(iii).
(iv) Asset sales and dispositions. The
trustee must report information
regarding sales and dispositions of
WHFIT assets as required in this
paragraph (c)(2)(iv). For purposes of this
paragraph (c)(2)(iv), a payment (other
than a final scheduled payment) that
completely retires a debt instrument
(including a mortgage held by a WHMT)
or a pro-rata prepayment on a debt
instrument (see § 1.1275–2(f)(2)) held by
a WHFIT must be reported as a full or
partial sale or disposition of the debt
instrument. A pro-rata sale of a trust
asset to effect a redemption, as defined
in paragraph (c)(2)(iv)(G) of this section,
is not reported as a sale or disposition
under this paragraph (c)(2)(iv).
(A) General rule. Except as provided
in paragraph (c)(2)(iv)(B) of this section
(regarding the exception for certain
NMWHFITs) or paragraph (c)(2)(iv)(C)
(regarding the exception for certain
WHMTs) of this section, the trustee

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must report with respect to each sale or
disposition of a WHFIT asset—
(1) The date of each sale or
disposition;
(2) Information that enables a
requesting person to determine the
amount of trust sales proceeds (as
defined in paragraph (b)(21) of this
section) attributable to a beneficial
owner as a result of each sale or
disposition; and
(3) Information that enables a
beneficial owner to allocate, with
reasonable accuracy, a portion of the
owner’s basis in its trust interest to each
sale or disposition.
(B) Exception for certain NMWHFITs.
If a NMWHFIT meets either the general
WHFIT de minimis test of paragraph
(c)(2)(iv)(D)(1) of this section for a
calendar year, the qualified NMWHFIT
exception of paragraph (c)(2)(iv)(E) of
this section, or the NMWHFIT final
calendar year exception of paragraph
(c)(2)(iv)(F) of this section, the trustee is
not required to report under paragraph
(c)(2)(iv)(A) of this section. Instead, the
trustee must report sufficient
information to enable a requesting
person to determine the amount of trust
sales proceeds distributed to a beneficial
owner during the calendar year with
respect to each sale or disposition of a
trust asset. The trustee also must
provide requesting persons with a
statement that the NMWHFIT is
permitted to report under this paragraph
(c)(2)(iv)(B).
(C) Exception for certain WHMTs. If a
WHMT meets either of the de minimis
tests of paragraph (c)(2)(iv)(D) of this
section for the calendar year, the trustee
is not required to report under
paragraph (c)(2)(iv)(A) of this section.
Instead, the trustee must report
information to enable a requesting
person to determine the amount of trust
sales proceeds attributable to a
beneficial owner as a result of the sale
or disposition. The trustee also must
provide requesting persons with a
statement that the WHMT is permitted
to report under this paragraph
(c)(2)(iv)(C).
(D) De minimis tests—(1) General
WHFIT de minimis test. The general
WHFIT de minimis test applies to a
NMWHFIT or to a WHMT that does not
meet the requirements for the special
WHMT test in paragraph (c)(2)(iv)(D)(2)
of this section. The general WHFIT de
minimis test is satisfied if trust sales
proceeds for the calendar year are not
more than five percent of the net asset
value of the trust (aggregate fair market
value of the trust’s assets less the trust’s
liabilities) as of the later of January 1 of
that year or the trust’s start-up date (as
defined in § 1.671–5(b)(19)).

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(2) Special WHMT de minimis test. A
WHMT that meets the asset requirement
of § 1.671–5(g)(1)(ii)(E) satisfies the
special WHMT de minimis test in this
paragraph (c)(2)(iv)(D)(2) if trust sales
proceeds for the calendar year are not
more than five percent of the aggregate
outstanding principal balance of the
WHMT (as defined in § 1.671–
5(g)(1)(iii)(D)) as of the later of January
1 of that year or the trust’s start-up date.
For purposes of applying the special
WHMT de minimis test in this
paragraph (c)(2)(iv)(D)(2), amounts that
result from the complete or partial
payment of the outstanding principal
balance of the mortgages held by the
trust are not included in the amount of
trust sales proceeds.
(3) Effect of clean-up call. If a WHFIT
fails to meet either de minimis test
described in this paragraph (c)(2)(iv)(D)
solely as the result of a clean-up call, as
defined in § 1.671–5(b)(6), the WHFIT
will be treated as having met the de
minimis test.
(E) Qualified NMWHFIT exception.
The qualified NMWHFIT exception is
satisfied if the calendar year for which
the trustee is reporting begins before
January 1, 2011 and—
(1) The NMWHFIT has a start-up date
(as defined in § 1.671–5(b)(19)) before
February 23, 2006;
(2) The registration statement of the
NMWHFIT becomes effective under the
Securities Act of 1933, as amended (15
U.S.C. 77a, et seq.) and trust interests
are offered for sale to the public before
February 23, 2006; or
(3) The registration statement of the
NMWHFIT become effective under the
Securities Act of 1933 and trust interests
are offered for sale to the public on or
after February 23, 2006, and before July
31, 2006, and the NMWHFIT is fully
funded before October 1, 2006.
(F) NMWHFIT final calendar year
exception. The NMWHFIT final
calendar year exception is satisfied if—
(1) The NMWHFIT terminates on or
before December 31 of the year for
which the trustee is reporting;
(2) A trust interest holder may not
roll-over its investment in the
NMWHFIT to another WHFIT; and
(3) The trustee makes reasonable
efforts to engage in pro-rata sales of trust
assets to effect redemptions.
(G) Pro-rata sales of trust assets to
effect a redemption—(1) Definition. A
pro-rata sale of a trust asset to effect a
redemption is not required to be
reported under this paragraph (c)(2)(iv).
A pro-rata sale of a trust asset to effect
a redemption occurs when a—
(i) A trust interest holder tenders one
or more trust interests for redemption;

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(ii) The trustee sells the pro-rata share
of the trust asset that is deemed to be
owned by the trust interest holder under
section 671 as a result of the trust
interest holder’s ownership of the trust
interest or interests tendered for
redemption (See paragraph (b)(8) of this
section for a description of how pro-rata
is to be applied for purposes of this
paragraph (c)(2)(iv)(G));
(iii) The trustee engages in the sale
solely to obtain cash that is immediately
distributed to the redeeming trust
interest holder as a result of the
redemption; and
(iv) The redemption is reported as
required under § 1.671–5(c)(2)(v) by the
trustee.
(2) Example. The following example
illustrates the definition of a pro-rata
sale of a trust asset to effect a
redemption:
Example: Trust has two hundred trust
interests and all interests have equal value
and rights. Trust owns two hundred shares
of stock in corporation X, two hundred
shares of stock in corporation Y, and one
hundred shares of stock in corporation Z. C
owns one trust interest and tenders it for
redemption. To obtain cash for the
redemption, the trustee of Trust sells one
share of each of the X and Y stock and one
share of Z stock. Trustee immediately
distributes the proceeds from the sale of the
X and the Y stock, as well as 50% of the
proceeds from the sale of the Z stock to C as
redemption proceeds. Trustee will report the
redemption under § 1.671–5(c)(2)(v). The sale
of the share of X stock and the sale of the
share of Y stock are each a pro-rata sale of
a trust asset to effect a redemption and are
not required to be reported under this
paragraph (c)(2)(iv)(G). The proceeds from
the sale of the X stock and the Y stock are
not trust sales proceeds under paragraph
(b)(21) of this section and are not included
for the purpose of determining whether Trust
meets the de minimis test. The sale of the Z
stock, because it was not a sale of the prorata share of the trust asset that is treated as
owned by C is not a pro-rata sale of a trust
asset to effect a redemption and is required
to be reported as provided under paragraph
(c)(2)(iv)(A) or (B) of this section, whichever
is applicable. The proceeds from the sale of
the Z stock are trust sales proceeds under
paragraph (b)(21) of this section and included
for the purpose of determining whether Trust
meets the de minimis test in paragraph
(c)(2)(iv)(D)(1) of this section.

(c)(2)(v)(A) and (B) [Reserved.] For
further guidance, see § 1.671–
5(c)(2)(v)(A) and (B).
(C) Exception for certain NMWHFITs
with dividend income—(1) In general.
The trustee of a NMWHFIT described in
paragraph (c)(2)(v)(C)(2) of this section
is not required to report the information
described in § 1.671–5(c)(2)(v)(A)
(regarding redemptions) or (c)(2)(v)(B)
(regarding sales). However, the trustee
must report to requesting persons, for

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each date on which the amount of
redemption proceeds to be paid for the
redemption of a trust interest is
determined, information that will
enable requesting persons to determine
the redemption proceeds per trust
interest on that date. The trustee also
must provide requesting persons with a
statement that this paragraph applies to
the NMWHFIT.
(2) NMWHFITs that qualify for the
exception. This paragraph (c)(2)(v)(C)
applies to a NMWHFIT if substantially
all the income of the NMWHFIT
consists of dividends (as defined in
section 6042(b) and the regulations
thereunder) and the NMWHFIT satisfies
either paragraph (c)(2)(v)(C)(2)(i) or (ii)
of this section. Trust sales proceeds and
gross proceeds from a sale described in
paragraph (c)(2)(iv)(G) of this section are
ignored for the purpose of determining
if substantially all of a NMWHFIT’s
income consists of dividends.
(i) The trustee is required by the
governing document of the NMWHFIT
to determine and distribute all cash held
for distribution (as defined in paragraph
(b)(5) of this section) no less frequently
than monthly. A NMWHFIT will be
considered to have satisfied this
paragraph (c)(2)(v)(C)(2)(i)
notwithstanding that the governing
document of the NMWHFIT permits the
trustee to forego making a required
monthly or more frequent distribution,
if the cash held for distribution is less
than 0.1% of the aggregate net asset
value of the trust as of the date specified
in the governing document for
calculating the amount of the monthly
distribution.
(ii) The qualified NMWHFIT
exception of paragraph (c)(2)(iv)(E) of
this section is satisfied.
(vi) Information regarding bond
premium. The trustee generally must
report information that enables a
beneficial owner to determine, in any
manner that is reasonably consistent
with section 171, the amount of the
beneficial owner’s amortizable bond
premium, if any, for each calendar year.
However, if a NMWHFIT meets the
general de minimis test of paragraph
(c)(2)(iv)(D)(1) of this section, the
qualified NMWHFIT exception of
paragraph (c)(2)(iv)(E) of this section, or
the NMWHFIT final calendar year
exception of paragraph (c)(2)(iv)(F) of
this section, the trustee of such
NMWHFIT is not required to report
information regarding bond premium.
(vii) Information regarding market
discount. The trustee generally must
report information that enables a
beneficial owner to determine, in any
manner reasonably consistent with
section 1276 (including section

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1276(a)(3)), the amount of market
discount that has accrued during the
calendar year. However, if a NMWHFIT
meets the general de minimis test of
paragraph (c)(2)(iv)(D)(1) of this section,
the qualified NMWHFIT exception of
paragraph (c)(2)(iv)(E) of this section,
NMWHFIT final calendar year
exception of paragraph (c)(2)(iv)(F) of
this section, the trustee of such
NMWHFIT is not required to provide
information regarding market discount.
(c)(3) through (f)(1)(i) [Reserved.] For
further guidance, see § 1.671–5(c)(3)
through (e)(4).
(f) Safe harbor for providing
information for certain NMWHFITs—(1)
Safe harbor for trustee reporting of
NMWHFIT information. The trustee of a
NMWHFIT that meets the requirements
of paragraph (f)(1)(i) of this section is
deemed to satisfy paragraph (c)(1)(i) of
this section, if the trustee calculates and
provides WHFIT information in the
manner described in this paragraph (f)
and provides a statement to a requesting
person giving notice that information
has been calculated in accordance with
this paragraph (f)(1).
(i) In general—(A) Eligibility to report
under this safe harbor. Only
NMWHFITs that meet the requirements
set forth in paragraphs (f)(1)(i)(A)(1) and
(2) of this section may report under this
safe harbor. For purposes of determining
whether paragraph (f)(1)(i)(A)(1) of this
section is met, trust sales proceeds and
gross proceeds from sales described in
paragraph (c)(2)(iv)(G) of this section are
ignored:
(1) Substantially all of the
NMWHFIT’s income is from dividends
or interest; and
(2) All trust interests have identical
value and rights.
(f)(1)(i)(B) through (f)(vii) [Reserved.]
For further guidance, see § 1.671–
5(f)(1)(i)(B) through (f)(vii).
(viii) Reporting market discount
information under the safe harbor—(A)
In general. If the trustee of a NMWHFIT
is required to provide information
regarding market discount under
paragraph (c)(2)(vii) of this section, the
trustee must provide the information
required under § 1.671–
5(f)(1)(iv)(A)(1)(iii) of this section. If the
trustee is not required to provide market
discount information under paragraph
(c)(2)(vii) of this section (because
paragraph (c)(2)(iv) of this section
applies to the NMWHFIT), the trustee is
not required under this paragraph (f) to
provide any information regarding
market discount.

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(f)(1)(viii)(B) through (m) [Reserved.]
For further guidance, see § 1.671–
5(f)(1)(viii)(B) through (m).
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: July 28, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary (Tax
Policy).
[FR Doc. 06–6649 Filed 7–28–06; 4:15 pm]
BILLING CODE 4830–01–P

DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[CGD01–06–061]
RIN 1625–AA00

Safety Zone; Lynch Wedding
Fireworks Display, Marblehead, MA
Coast Guard, DHS.
Temporary final rule.

AGENCY:
ACTION:

SUMMARY: The Coast Guard is
establishing a temporary safety zone for
the Lynch Wedding Fireworks display
on August 5, 2006 in Marblehead,
Massachusetts, temporarily closing all
waters of the Atlantic Ocean between
Marblehead Neck and Marblehead Rock
in the vicinity of Lasque Ledge within
a four hundred (400) yard radius of the
fireworks barges located at approximate
positions 42°30.142′ N, 070°49.813′ W
and 42°30.146′ N, 070°49.733′ W. This
zone is necessary to protect the
maritime public from the potential
hazards posed by a fireworks display.
The safety zone temporarily prohibits
entry into or movement within this
portion of the Atlantic Ocean during its
closure period. Entry into this zone is
prohibited unless authorized by the
Captain of the Port, Boston,
Massachusetts or the COTP’s designated
representative.
DATES: This rule is effective from 7:30
p.m. until 10 p.m. on August 5, 2006.
ADDRESSES: Documents indicated in this
preamble as being available in the
docket are part of docket [CGD01–06–
061] and are available for inspection or
copying at Sector Boston, 427
Commercial Street, Boston, MA,
between 8 a.m. and 3 p.m., Monday
through Friday, except Federal holidays.
FOR FURTHER INFORMATION CONTACT:
Chief Petty Officer Paul English, Sector
Boston, Waterways Management
Division, at (617) 223–5456.
SUPPLEMENTARY INFORMATION:

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