TD 9308_Final

Federal Register / Vol. 71, No. 250 / Friday, December 29, 2006 / Rules and Regulations
7. Options, SARs and similar option-like
instruments granted in connection with a
repricing transaction or other material
modification shall be reported in this Table.
However, the disclosure required by this
Table does not apply to any repricing that
occurs through a pre-existing formula or
mechanism in the plan or award that results
in the periodic adjustment of the option or
SAR exercise or base price, an antidilution
provision in a plan or award, or a
recapitalization or similar transaction equally
affecting all holders of the class of securities
underlying the options or SARs.

*

*
*
*
*
(k) * * *
(2) * * *
(iii) For awards of stock, the dollar
amount recognized for financial
statement reporting purposes with
respect to the fiscal year in accordance
with FAS 123R (column (c));
(iv) For awards of stock options, with
or without tandem SARs, the dollar
amount recognized for financial
statement reporting purposes with
respect to the fiscal year in accordance
with FAS 123R (column (d));
Instruction to Item 402(k)(2)(iii) and (iv).
For each director, disclose by footnote to
the appropriate column: the grant date fair
value of each equity award computed in
accordance with FAS 123R; for each option,
SAR or similar option like instrument for
which the registrant has adjusted or amended
the exercise or base price during the last
completed fiscal year, whether through
amendment, cancellation or replacement
grants, or any other means (‘‘repriced’’), or
otherwise has materially modified such
awards, the incremental fair value, computed
as of the repricing or modification date in
accordance with FAS 123R; and the aggregate
number of stock awards and the aggregate
number of option awards outstanding at
fiscal year end. However, the disclosure
required by this Instruction does not apply to
any repricing that occurs through a preexisting formula or mechanism in the plan or
award that results in the periodic adjustment
of the option or SAR exercise or base price,
an antidilution provision in a plan or award,
or a recapitalization or similar transaction
equally affecting all holders of the class of
securities underlying the options or SARs.

*
*
*
*
(vii) * * *
(I) The dollar value of any dividends
or other earnings paid on stock or
option awards, when those amounts
were not factored into the grant date fair
value for the stock or option award; and
*
*
*
*
*

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*

Instruction to Item 402(k).
In addition to the Instruction to paragraphs
402(k)(2)(iii) and (iv) and the Instructions to
paragraph (k)(2)(vii) of this Item, the
following apply equally to paragraph (k) of
this Item: Instructions 2 and 4 to paragraph
(c) of this Item; Instructions to paragraphs
(c)(2)(iii) and (iv) of this Item; the Instruction
to paragraphs (c)(2)(v) and (vi) of this Item;
Instructions to paragraph (c)(2)(vii) of this

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Item; Instructions to paragraph (c)(2)(viii) of
this Item; and Instructions 1 and 5 to
paragraph (c)(2)(ix) of this Item. These
Instructions apply to the columns in the
Director Compensation Table that are
analogous to the columns in the Summary
Compensation Table to which they refer and
to disclosures under paragraph (k) of this
Item that correspond to analogous
disclosures provided for in paragraph (c) of
this Item to which they refer.
Dated: December 22, 2006.
By the Commission.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06–9932 Filed 12–26–06; 2:29 pm]
BILLING CODE 8011–01–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9308]
RIN 1545–BF75

Reporting Rules for Widely Held Fixed
Investment Trusts
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
the temporary regulations.
AGENCY:

SUMMARY: This document contains final
regulations amending § 1.671–5 which
provides reporting rules for widely held
fixed investment trusts (WHFITs). These
final regulations clarify and simplify
reporting for trustees and middlemen of
non-mortgage widely held fixed
investment trusts (NMWHFITs). These
final regulations also provide temporary
safe harbor reporting rules for widely
held mortgage trusts (WHMTs) that are
outside the WHMT safe harbor. The
preamble to these regulations also
provides that trustees of WHFITs are to
indicate on the Form 1041, ‘‘U.S.
Income Tax Return for Estates and
Trusts,’’ filed for a WHFIT’s 2006
calendar year that the return is a final
return.
DATES: Effective Date: These regulations
are effective December 29, 2006.
Applicability Date: For date of
applicability see § 1.671–5(n).
FOR FURTHER INFORMATION CONTACT:
Faith Colson, (202) 622–3060 (not a tollfree number).
SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act
The collection of information
contained in these final regulations has
been previously reviewed and approved
by the Office of Management and

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Budget in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507) under control number
1545–1540. The collection of
information in these final regulations is
in § 1.671–5. 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.
The estimated annual burden per
recordkeeper varies from 1 to 4 hours,
depending on individual circumstances,
with an estimated average of 2 hours.
Comments concerning the accuracy of
this burden estimate should be sent to
the Internal Revenue Service, Attn: IRS
Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington DC
20224, and to the Office of Management
and Budget, Attn: Desk Officer for the
Department of Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503.
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.
Background
This document contains amendments
to 26 CFR part 1. On January 24, 2006,
the Internal Revenue Service (IRS) and
the Treasury Department published the
WHFIT reporting rules in the Federal
Register (TD 9241) (71 FR 4002) under
§ 1.671–5 (WHFIT reporting rules). On
August 3, 2006, in response to
comments received subsequent to the
publication of the WHFIT reporting
rules, the IRS and the Treasury
Department published final and
temporary regulations (TD 9279) (71 FR
43968) (temporary regulations) as well
as proposed regulations that, in part,
cross-referenced the temporary
regulations (71 FR 43998) (proposed
regulations) (REG–125071–06) in the
Federal Register. No public hearing was
requested or held with respect to the
temporary or proposed regulations.

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Written comments responding to those
regulations were received. After
consideration of the comments, the
proposed regulations, with certain
revisions, are adopted as final
regulations by this Treasury decision,
and the corresponding temporary
regulations are removed. The comments
and the revisions are discussed in this
preamble.
Summary of Comments and
Explanation of Revisions
I. Application of the WHFIT Reporting
Rules to NMWHFITs

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A. The Qualified NMWHFIT Exception
Trustees and middlemen of
NMWHFITs that satisfy the qualified
NMWHFIT exception in § 1.671–
5(c)(2)(iv)(E) are excepted from
reporting information regarding market
discount and bond premium, and are
permitted to use the simplified
reporting 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). The temporary
regulations provide 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, as amended (15 U.S.C. 77a, et.
seq.) (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, 2006 and before July
31, 2006, and the NMWHFIT is fully
funded before October 1, 2006. These
final regulations retain this amendment
to the WHFIT reporting rules.
Additionally, commentators on the
temporary regulations expressed
concern that certain trusts that
otherwise satisfy the eligibility
requirements for the qualified
NMWHFIT exception would be
disqualified because additional assets
are deposited into the trust pursuant to
a distribution reinvestment program.
These final regulations clarify that for
the purpose of determining whether a
NMWHFIT is fully funded before
October 1, 2006, deposits to the
NMWHFIT pursuant to a distribution
reinvestment program that is consistent

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with the requirements of § 301.7701–
4(c) will be disregarded.
Commentators have also expressed
concern regarding NMWHFITs that hold
debt instruments (fixed income trusts)
that were originated before the WHFIT
reporting rules were published in the
Federal Register. Commentators are
concerned because the simplified
reporting permitted under the exception
terminates after December 31, 2010, and
many fixed income trusts will be unable
to comply with the WHFIT reporting
rules once the simplified reporting
permitted under the qualified
NMWHFIT exception terminates
because these NMWHFITs generally are
not able to engage in pro-rata sales of
trust assets to effect redemptions.
Commentators have requested that these
NMWHFITs be permanently permitted
to report consistent with the qualified
NMWHFIT exception. In response, these
regulations amend § 1.671–5(c)(2)(iv)(E)
to eliminate the requirement that the
trustee must be reporting for a year that
begins before January 1, 2011 for the
NMWHFIT to be eligible for the
simplified reporting. Accordingly,
NMWHFITs that satisfy the qualified
NMWHFIT exception and continue in
existence after December 31, 2010 may
report under the simplified reporting
permitted under the exception until
those NMWHFITs terminate.
B. Simplified Reporting of Sales and
Redemptions of Trust Interests
With respect to the sale or redemption
of a trust interest, section 1.671–
5(c)(2)(v) of the WHFIT reporting rules
requires trustees and middlemen to
provide information regarding the sales
assets proceeds (as defined in § 1.671–
5(b)(17)) or the redemption assets
proceeds (as defined in § 1.671–5(b)(14))
as well as 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) excepts a
NMWHFIT from the requirement to
provide information to enable
requesting persons to differentiate
between income and proceeds if
substantially all the NMWHFIT’s
income is comprised of dividends
(equity trusts) and the NMWHFIT is
required by its governing document to
distribute the cash held for distribution
by the NMWHFIT at least monthly. The
temporary regulations, and these final
regulations revise § 1.671–5(c)(2)(v)(C)
to provide that a NMWHFIT will be
considered to have satisfied the
requirement that it distribute the cash
held for distribution monthly
notwithstanding the fact that, although
the governing document requires

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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 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 date that the amount
of the monthly distribution is required
to be determined.
Commentators have indicated that it
will be extremely difficult for a certain
class of NMWHFITs that are not equity
trusts to comply with § 1.671–5(c)(2)(v).
These NMWHFITs hold assets that
produce income that is treated as
interest income, not dividend income,
for Federal income tax purposes. The
assets of these NMWHFITs, however,
are similar to assets that produce
dividend income in that the assets are
traded on a recognized exchange or
securities market in such a way that the
price of the assets is determined without
a component attributable to accrued
interest. As with NMWHFITs that hold
assets that produce dividend income, it
is difficult for the trustees and
middlemen of these NMWHFITs to
determine the income attributable to a
redeeming, selling, or purchasing
beneficial owner between trust
distribution dates. For these reasons, the
final regulations provide that
NMWHFITs that hold assets that
produce income that is treated as
interest income for Federal income tax
purposes will also qualify for the
simplified reporting under § 1.671–
5(c)(2)(v)(C) but only if the assets are
traded on a recognized exchange or
securities market in such a way that the
price of the assets is determined without
a component attributable to accrued
interest.
C. Simplified Reporting for Sales and
Dispositions by Certain NMWHFITs
In addition to the qualified
NMWHFIT exception, the WHFIT
reporting rules 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 beneficial
owner. A NMWHFIT meets the general
de minimis test if trust sales proceeds
(as defined in § 1.671–5(b)(21)) for the
calendar year are not more than five
percent of the net asset value of the trust
as of the later of January 1 of the year
for which the trustee is reporting or the
start-up date. The reason for the de
minimis exception, as stated in the
preamble to the WHFIT reporting rules,
is that the IRS and the Treasury

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Federal Register / Vol. 71, No. 250 / Friday, December 29, 2006 / Rules and Regulations
Department believe that if a NMWHFIT
only sells or disposes of assets
infrequently, although there may 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 on the WHFIT
reporting rules reported that trustees of
NMWHFITs frequently have to sell trust
assets to obtain cash to effect
redemptions and that, because of those
sales, many NMWHFITs will not be able
to meet the general de minimis test in
§ 1.671–5(c)(2)(iv)(D)(1). Commentators
on the WHFIT reporting rules requested
that those regulations be amended to
provide for reduced reporting where
this will have little or no compliance
impact. In response to those comments,
the temporary regulations provide a
number of modifications to the
NMWHFIT reporting rules as applied to
certain sales and dispositions of trust
assets by NMWHFITs. Those
modifications, as well as additional
modification made by these final
regulations, include:

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1. NMWHFIT Final Calendar Year
Exception
Section 1.671–5T(c)(2)(iv)(F) of the
temporary regulations provides 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
general de minimis test, provided that a
beneficial owner cannot roll over its
investment in the NMWHFIT to another
WHFIT. Commentators on the
temporary regulations requested that the
IRS and Treasury Department clarify
that a taxable roll-over would not
preclude a trustee from reporting under
the final year exception. Accordingly,
these regulations remove the reference
to a roll-over and instead require that,
to be eligible for the final year
exception, beneficial owners of trust
interests must exchange their trust
interests for cash or be treated as having
exchanged their trust interests for cash
for Federal income tax purposes upon
the termination of the trust.
2. Pro-rata Sales to Effect Redemptions
Exception
Section 1.671–5T(c)(2)(iv)(G) of the
temporary regulations provides that a
pro-rata sale of a trust asset to effect a
redemption is not required to be
reported under § 1.671–5. The
temporary regulations describe a prorata sale of a trust asset as occurring
when (1) a trust interest holder tenders
one or more trust interests for

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redemption; (2) the trustee sells the prorata 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 on the temporary
regulations have requested that the prorata sales to effect a redemption
exception in the temporary regulations
be adjusted to accommodate economic
and practical issues that trustees
confront in executing sales of trust
assets to effect redemptions. These
commentators requested that the prorata sales to effect a redemption
exception be revised to provide the
trustee with some flexibility regarding
the time period in which the trustee has
to execute sales following the tender of
trust interests for redemptions and to
permit trustees to aggregate sales of
assets from several redemptions for the
purpose of testing whether the asset
sales have been pro-rata. In response,
the final regulations provide that prorata sales to effect redemptions occur
when (i) one or more trust interests are
tendered for redemption; (ii) the trustee
identifies the pro-rata share of the trust
assets deemed to be owned by the trust
interest or interests tendered for
redemption, and sells those assets as
soon as practicable; (iii) proceeds from
the sale of the identified assets are used
solely to effect redemptions; and (iv) the
redemptions are reported as required
under § 1.671–5(c)(2)(v) by the trustee.
Additionally, the final regulations
provide that the trustee may compare
the aggregate of the pro-rata share of the
trust assets deemed to be owned by the
trust interests tendered for redemption
and the sales of assets sold to effect
redemptions determine the pro-rata
sales of assets to effect redemptions for
a calendar month. Further, if the
aggregate pro-rata share of the assets
deemed to be owned by the redeemed
trust interests for the month equals a
fractional share, the trustee may round
that amount to the next whole share for
the purpose of determining the pro-rata
sales to effect a redemption for the
calendar month.
3. De minimis Test Modifications
Section 1.671–5T(b)(21) of the
temporary regulations provides an
amended definition of trust sales
proceeds that excludes the gross
proceeds paid to a NMWHFIT for a pro-

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rata sale of a trust asset to effect a
redemption. The effect of this change in
the definition of trust sales proceeds is
to exclude the proceeds from pro-rata
sales of trust assets to effect
redemptions when determining whether
a trust has met the general de minimis
test. Since only the proceeds from non
pro-rata sales of trust assets are
considered for purposes of determining
whether a NMWHFIT meets the general
de minimis test, more trusts will meet
the general de minimis test and qualify
for the reduced reporting in § 1.671–
5(c)(2)(iv)(B). This amended definition
is adopted by these final regulations.
Commentators on the temporary
regulations requested that the final
regulations also except certain other
trust sales proceeds for the purpose of
determining whether a NMWHFIT has
met the general de minimis test if these
sales are fully reported under § 1.671–
5(c)(2)(iv)(A) (the general reporting rules
for sales and dispositions). These sales
and dispositions include corporate
reorganizations and restructurings for
which the trust receives cash, the sale
of securities received by the trust in
corporate reorganizations and
restructurings (including conversions of
closed-end investment companies to
open-end investment companies),
principal prepayments, bond calls, bond
maturities, and the sale of securities by
the trustee as required by the governing
document or applicable law governing
fiduciaries in order to maintain the
sound investment character of the trust,
and any other nonvolitional
dispositions.
The IRS and the Treasury Department
agree that this exclusion may be
appropriate but are concerned that there
may be some potential for abuse if
trustees can choose to fully report some
of these sales and not fully report other
sales. Accordingly, the final regulations
provide that the trust sales proceeds
from these sales and dispositions may
be excluded when determining whether
the general de minimis test has been
met, provided that the trustee
consistently reports all such sales or
dispositions, other than certain small
excepted sales or dispositions
(described in § 1.671–
5(c)(2)(iv)(D)(4)(iii)), under § 1.671–
5(c)(2)(iv)(A) during the life of the
WHFIT.
The regulations currently provide that
a WHFIT meets the general de minimis
test in § 1.671–5(c)(2)(iv)(D)(1) for its
initial year if trust sales proceeds equal
five percent or less of the net fair market
value of the trust assets as of the startup date. The start-up date is defined as
the date when substantially all of the
assets have been deposited with the

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trustee. Commentators suggested that
the regulations provide trustees with an
alternative date for measuring whether
the de minimis test has been met for the
initial trust year. They suggested that
trustees be permitted to measure
whether the de minimis test has been
met by using the net fair market value
of the trust’s assets as of the date of the
last deposit of trust assets into the
NMWHFIT (not including any deposit
of assets into the NMWHFIT pursuant to
a distribution reinvestment program),
not to exceed 90 days after the date the
registration statement of the WHFIT
becomes effective under the Securities
Act of 1933. The final regulations adopt
this suggestion.
The special WHMT de minimis test in
§ 1.671–5(c)(2)(iv)(D)(2) of the WHFIT
reporting rules was added to the WHFIT
reporting rules in response to comments
from the WHMT industry indicating
that WHMT trustees would have
difficulty applying the general de
minimis test because it would be
extremely difficult for the trustee to
determine the fair market value of the
mortgages held by the WHMT on an
annual basis, as required under the
general de minimis test. Under the
special WHMT de minimis test, trustees
of certain WHMTs are permitted to
determine whether the de minimis test
has been met using the outstanding
principal balance of the mortgages of the
trust as of January 1 rather than the net
fair market value of the trust’s assets. A
commentator suggested that this de
minimis test be expanded so that all
WHFITs with hard to value debt
instruments be permitted to use this de
minimis test. In response, the IRS and
Treasury Department request that
trustees of WHFITs that hold hard to
value debt instruments and that believe
the application of the WHMT de
minimis test to the instruments held by
the WHFIT for which the trustees act
would be useful, submit additional
comments on this issue. The final
regulations amend § 1.671–
5(c)(2)(iv)(D)(2) to provide that the
application of the special de minimis
test may be expanded by revenue ruling
or other published guidance.

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4. Non Taxable Exchanges of Assets
Commentators suggested that the final
regulations provide an exception to the
reporting rules for sales and
dispositions of trust assets for exchanges
of trust assets that result from
nontaxable corporate reorganizations.
The final regulations adopt this
suggestion.

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D. Market Discount
Commentators requested amendments
to the information required to be
reported under the NMWHFIT safe
harbor with respect to market discount.
If a NMWHFIT is required to provide
information regarding market discount
under the general rules in § 1.671–
5(c)(2)(vii), the NMWHFIT safe harbor
provides that a trustee’s requirement to
provide information regarding market
discount is satisfied by providing
information regarding the portion of the
trust that the assets sold represented.
Assuming that a trust interest holder
purchased its interest at a discount, it
was contemplated that the trust interest
holder would allocate the same portion
of its discount to the sale as the assets
represented to the NMWHFIT.
This information was incomplete,
however, with respect to a NMWHFIT
holding debt instruments with original
issue discount (OID). Under both the
general provisions (§ 1.671–5(c)(2)(ii)(A)
and (vii)) and the safe harbor (§ 1.671–
5(f)(1)(vii) and (viii)), OID information
and market discount information are
required to be calculated and provided
separately. Accordingly, for beneficial
owners to determine the amount of
market discount an owner must allocate
to a particular sale or disposition of a
debt instrument by the NMWHFIT,
§ 1.671–5(f)(1)(viii)(A) is amended with
respect to NMWHFITs that hold debt
instruments with OID, to include a
requirement that trustees provide a list
of the aggregate adjusted issue prices of
the debt instruments held by the
NMWHFIT per trust interest as of the
start-up date or the measuring date (as
defined in § 1.671–5(c)(2)(iv)(D)(1))
whichever will provide the more
accurate information, as well as of
January 1 of each subsequent year of the
NMWHFIT. The IRS and the Treasury
Department expect that beneficial
owners of trust interests will use the
adjusted issue price for the trust’s debt
instruments per trust interest for the
year in which the beneficial owner
purchased its interest to determine
whether a trust interest has market
discount.
II. Applicability of the WHFIT
Reporting Rules to WHMTs
A. Temporary WHMT Safe Harbor for
WHMTs That Hold Interests in a REMIC,
Hold Interests in Another WHFIT, or
Hold or Issue Stripped Interests
The WHFIT reporting rules include a
safe harbor for WHMTs that directly
hold mortgages (as defined in § 1.671–
5(b)(11)) and issue trust interests that
represent an equal pro-rata right to
payments of interest and principal on

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the underlying mortgages. WHMTs that
hold or issue stripped interests, hold
interests in another WHFIT, or hold
interests in a REMIC, are not eligible to
report under the WHMT safe harbor.
The IRS and the Treasury Department
received comments expressing concern
about the application of the WHFIT
reporting rules to WHMTs that are
outside the WHMT safe harbor because
trustees and middlemen of these
WHMTs are required to comply with the
general WHFIT reporting rules in
§ 1.671–5(c). The commentators
contended that some of the information
required to be reported under the
general information rules would be
burdensome to obtain and moreover, is
not required by beneficial owners to
accurately report the tax consequences
of owning a trust interest. In response to
these concerns, pending the issuance of
additional WHMT safe harbors, these
final regulations provide a temporary
safe harbor for all WHMTs that are
outside the WHMT safe harbor in
§ 1.671–5(g) of the WHFIT reporting
rules because they hold or issue
stripped interests, hold interests in a
REMIC or hold an interest in another
WHMT. Under the safe harbor, a trustee
will be deemed to satisfy the
requirements of § 1.671–5(c)(1) if the
trustee calculates and provides trust
information in a manner that enables a
requesting person to provide trust
information to a beneficial owner of a
trust interest that enables the owner to
reasonably accurately report the tax
consequences of its ownership of a trust
interest on the Federal income tax
return of the beneficial owner.
Additionally, in order to be deemed to
have satisfied the requirements of
§ 1.671–5(c)(1), the trustee must provide
information regarding market discount
and original issue discount (OID) that is
calculated in any reasonable manner
consistent with section 1272(a)(6).
Pending the issuance of additional
guidance, it is intended that this safe
harbor except trustees from any
penalties that may apply for not fully
complying with paragraph (c) of the
WHFIT reporting rules where it can be
shown that full compliance with
paragraph (c) is unnecessary in order to
provide trust interest holders with
appropriate information. A trustee or
middleman required to provide
information to the IRS under § 1.671–
5(d) and to beneficial owners under
paragraph § 1.671–5(e) may satisfy those
obligations by calculating and providing
trust information consistent with the
information provided by the trustee
under this safe harbor.

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calculating OID and market discount
information for that WHMT.

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B. Application of the Requirement To
Provide Market Discount and OID
Information for Existing WHMTs
Section 1.671–5(c)(2)(ii)(A) requires a
trustee of a WHFIT to provide
information regarding OID.
Commentators have expressed concern
regarding the application of this
requirement to existing WHMTs because
the historical information that would
enable the trustee to provide OID
information has never been provided or
maintained by the trustee or the persons
responsible for information reporting.
Commentators contend that it is
unlikely that these trustees will be able
to comply with this requirement for
existing WHMTs. The IRS and the
Treasury Department recognize that, in
some cases, the information necessary
for a WHMT to comply with this
provision may not be available. If it can
be demonstrated that a trustee of a
WHMT with a start-up date on or after
August 13, 1998 and on or before
January 24, 2006, has attempted in good
faith, but without success, to obtain the
historical information required to
provide OID information, the IRS will
not impose any penalties that would
apply under § 1.671–5(l) of the WHFIT
reporting rules (redesignated § 1.671–
5(m) by these final regulations) as a
result of a trustee’s failure to comply
with the requirement to provide OID
information. Further, § 1.671–
5(c)(2)(ii)(A) of these final regulations
excepts a trustee of a WHMT with a
start-up date prior to August 13, 1998
from the requirement to provide OID
information. For purposes of calculating
the market discount fraction under the
WHMT safe harbor in § 1.671–5(g)(1)(v),
these trustees may assume that the
WHMT is holding mortgages that were
issued without OID.
The WHMT safe harbor provisions for
calculating OID information in § 1.671–
5(g)(i)(iv) and market discount
information in § 1.671–5(g)(1)(v) require
trustees to use the prepayment
assumption used in pricing the original
issue of trust interests. Commentators
have indicated that trustees of existing
WHMTs may not know the prepayment
assumption used in pricing the original
issue of trust interests. In response, the
safe harbor is amended to provide that
if the trustee does not know the
prepayment assumption used in pricing
the original issue of trust interests for a
WHMT with a start-up date prior to
January 24, 2006, and the trustee makes
a good faith effort without success to
obtain the prepayment assumption, the
trustee may use any reasonable
prepayment assumption when

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III. Requirement to Register and
Continued Consideration of a WHFIT
Directory
Prior to the publication of the WHFIT
reporting rules, commentators expressed
concern that middlemen would not be
able to identify a client’s investment as
an investment in a WHFIT and
suggested that the IRS publish a
directory or list of WHFITs that would
include the name and CUSIP number of
each WHFIT, along with the name,
address and telephone number of the
WHFIT’s representative. Commentators
noted that a publicly available directory
or list would assist middlemen and
brokers in identifying a client’s
investment as an investment in a
WHFIT and in locating the WHFIT’s
representative. The WHFIT reporting
rules did not provide for a directory and
instead, required the trustee to identify
a representative of the trust to provide
trust information in a publication
generally read by and available to
requesting persons, in the trust’s
prospectus, or on the trustee’s Internet
Web site.
Following the publication of the
WHFIT reporting rules, additional
comments were received regarding the
need for a directory of WHFITs. In
response to those comments, the
proposed regulations indicated that the
IRS and Treasury Department
considered expanding Publication 938,
‘‘Real Estate Mortgage Investment
Conduits (REMICs) Reporting
Information (and other Collateralized
Debt Obligations (CDOs)),’’ or creating a
separate publication to list WHMT
trustees and NMWHFITs. The IRS and
Treasury Department continue to
consider how a directory of WHFITs
could be implemented. Pending the
publication of such a directory, trustees
must provide information regarding a
trust representative in the manner
provided in the WHFIT reporting rules.
IV. Form 1041 Reporting
A trustee of a WHFIT must indicate
on the Form 1041 filed for the 2006
calendar year that the return is a final
return.
Effective Date
These final amendments are effective
December 29, 2006. In general, these
final regulations are applicable to the
reporting required under § 1.671–5 as of
January 1, 2007 (see § 1.671–5(m)
(redesignated § 1.671–5(n) by these final
regulations)) and will be applied as
though these amendments were
included in the WHFIT reporting rules.

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The IRS and the Treasury Department
are aware that some trustees and
middlemen were unable to complete
updates to their computer and
information reporting systems to
comply with the WHFIT reporting rules
until the amendments to the WHFIT
reporting rules included in these
regulations are finalized. Accordingly,
the IRS will not impose any penalties
that would apply under § 1.671–5(l)
(redesignated § 1.671–5(m) by these
final regulations) of the WHFIT
reporting rules as a result of the failure
to comply with the WHFIT reporting
rules as amended by these final
regulations with respect to the 2007
calendar year in cases where a trustee or
middleman was unable to change its
information reporting systems to
comply with the WHFIT reporting rules
because of uncertainty regarding the
application of certain provisions of
those rules pending the publication of
these final regulations. For example,
penalties will not be imposed on a
trustee of a NMWHFIT that reports the
amount of trust sales proceeds
distributed to trust interest holders for
the 2007 calendar year under § 1.671–
5(c)(2)(iv)(B) even though the trustee is
unable to determine whether the
NMWHFIT has met the de minimis test
for the 2007 calendar year, provided
that the trustee’s failure to determine
whether a NMWHFIT has met the de
minimis test results from the trustee’s
inability to alter its existing information
reporting systems by January 1, 2007, to
capture the necessary information. As
an additional example, penalties will
not be imposed on the trustees or the
middlemen of WHMTs that are unable
to comply with certain provisions of the
WHFIT reporting rules with respect to
the 2007 calendar year because those
trustees and middlemen were not able
to change their existing reporting
systems to comply with the WHFIT
reporting rules pending the publication
of these final regulations.
Special Analyses
It has been determined that these final
regulations are not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
is hereby certified that this regulation
will not have a significant economic
impact on a substantial number of small
entities. This certification is based on
the fact that the regulations will not
have a significant economic impact on
small entities because the reporting
burdens in these regulations will fall
primarily on large brokerage firms, large
banks, and other large entities acting as
trustees or middlemen, most of which

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are not small entities within the
meaning of the Regulatory Flexibility
Act (5 U.S.C. chapter 6). Thus, a
substantial number of small entities are
not expected to be affected. Therefore, a
Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding this regulation was submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for
comment on its impact on small
business.
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.
Adoption of 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 paragraph (a) by
redesignating entries for paragraphs (h),
(j), (k), (l), and (m) as entries for
paragraphs (j), (k), (l), (m) and (n) and
adding a new entry for paragraph (h).
■ 2. Revising paragraphs (b)(5), (b)(8),
(b)(21), (c)(2)(ii)(A), (c)(2)(iv), (c)(2)(v),
(c)(2)(vi), (c)(2)(vii), (d)(2)(ii)(C),
(d)(2)(ii)(F), (d)(2)(ii)(G), (f)(1),
(f)(1)(i)(A), (f)(1)(viii)(A), (f)(2)(viii)(A),
(f)(3)(i)(A)(1), (f)(3)(i)(B)(5),
(f)(3)(i)(B)(9), (f)(3)(ii)(B)(4)(i),
(f)(3)(ii)(B)(5), (f)(3)(ii)(B)(6),
(g)(1)(iv)(A)(2), and (g)(1)(v)(A).
■ 3. Redesignating paragraphs (h), (j),
(k), (l) and (m) as (j), (k), (l), (m) and (n)
respectively.
■ 4. Adding new paragraph (h).
Revising newly designated paragraph
(m).
The additions and revisions read as
follows:

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■

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

(a) * * *

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(h) Additional safe harbors.
(1) Temporary safe harbors.
(2) Additional safe harbors provided
by other published guidance.
*
*
*
*
*
(b) * * *
(5) The cash held for distribution is
the amount of cash held by the WHFIT
(other than trust sales proceeds and
proceeds from sales described in
paragraphs (c)(2)(iv)(D)(4), (G), and (H)
of this section) less reasonably required
reserve funds as of the date that the
amount of a distribution is required to
be determined under the WHFIT’s
governing document.
*
*
*
*
*
(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.
*
*
*
*
*
(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 pro-rata sales
of trust assets to effect a redemption
described in paragraph (c)(2)(iv)(G) of
this section or the value of assets
received as a result of a tax-free
corporate reorganization as described in
paragraph (c)(2)(iv)(H) of this section.
*
*
*
*
*
(c) * * *
(2) * * *
(ii) * * *
(A) All items of gross income
(including OID, except that OID is not
required to be included for a WHMT
that has a start-up date (as defined in
paragraph (b)(19) of this section) prior to
August 13, 1998).
*
*
*
*
*
(iv) Asset sales and dispositions. The
trustee must report information
regarding sales and dispositions of
WHFIT assets as required in this

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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. Pro-rata sales of trust assets
to effect redemptions, as defined in
paragraph (c)(2)(iv)(G) of this section, or
exchanges of trust assets as the result of
a corporate reorganization under
paragraph (c)(2)(iv)(H) of this section,
are not reported as sales or dispositions
under this paragraph (c)(2)(iv).
(A) General rule. Except as provided
in paragraph (c)(2)(iv)(B) (regarding the
exception for certain NMWHFITs) or
paragraph (c)(2)(iv)(C) (regarding the
exception for certain WHMTs) of this
section, the trustee 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 paragraph
(c)(2)(iv)(D)(1)(regarding the general de
minimis test), paragraph (c)(2)(iv)(E)
(regarding the qualified NMWHFIT
exception), or paragraph (c)(2)(iv)(F)
(regarding the NMWHFIT final calendar
year exception) 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 the general or the
special de minimis test 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

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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 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 and the start-up date (as
defined paragraph (b)(19) of this
section); or, if the trustee chooses, the
later of January 1 and the measuring
date. The measuring date is the date of
the last deposit of assets into the WHFIT
(not including any deposit of assets into
the WHFIT pursuant to a distribution
reinvestment program), not to exceed 90
days after the date the registration
statement of the WHFIT becomes
effective under the Securities Act of
1933.
(2) Special WHMT de minimis test. A
WHMT that meets the asset requirement
of paragraph (g)(1)(ii)(E) of this section
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
paragraph (g)(1)(iii)(D) of this section) 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. The IRS
and the Treasury Department may
provide by revenue ruling, or by other
published guidance, that the special de
minimis test of this paragraph
(c)(2)(iv)(D)(2) may be applied to
WHFITs holding debt instruments other
than those described in paragraph
(g)(1)(ii)(E) of this section.
(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 paragraph (b)(6) of this
section, the WHFIT will be treated as
having met the de minimis test.
(4) Exception for certain fully reported
sales—(i) Rule. If a trustee of a
NMWHFIT reports the sales described
in paragraph (c)(2)(iv)(D)(4)(ii) of this
section as provided under paragraph
(c)(2)(iv)(A) of this section (regardless of
whether the general minimis test in

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paragraph (c)(2)(iv)(D)(1) of this section
is satisfied for a particular calendar
year) consistently throughout the life of
the WHFIT, a trustee may exclude the
trust sales proceeds received by the
WHFIT as a result of those sales from
the trust sales proceeds used to
determine whether a WHFIT has
satisfied the general de minimis test in
paragraph (c)(2)(iv)(D)(1) of this section.
(ii) Applicable sales and dispositions.
This paragraph (c)(2)(iv)(D)(4) applies to
sales and dispositions resulting from
corporate reorganizations and
restructurings for which the trust
receives cash, the sale of assets received
by the trust in corporate reorganizations
and restructurings (including
conversions of closed-end investment
companies to open-end investment
companies), principal prepayments,
bond calls, bond maturities, and the sale
of securities by the trustee as required
by the governing document or
applicable law governing fiduciaries in
order to maintain the sound investment
character of the trust, and any other
nonvolitional dispositions of trust
assets.
(iii) Certain small sales and
dispositions. If the amount of trust sales
proceeds from a sale or disposition
described in paragraph (c)(2)(iv)(D)(4)(ii)
of this section is less than .01 percent
of the net fair market value of the
WHFIT as determined for applying the
de minimis test for the calendar year,
the trustee is not required to report the
sale or disposition under paragraph
(c)(2)(iv)(A) of this section provided the
trustee includes the trust sales proceeds,
received for purposes of determining
whether the trust has met the general de
minimis test of paragraph (c)(2)(iv)(D)(1)
of this section.
(E) Qualified NMWHFIT exception.
The qualified NMWHFIT exception is
satisfied if—
(1) The NMWHFIT has a start-up date
(as defined in paragraph (b)(19) of this
section) 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 becomes 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. For
purposes of determining whether a
NMWHFIT is fully funded under this
paragraph (c)(2)(iv)(E), deposits to the
NMWHFIT after October 1, 2006, that
are made pursuant to a distribution

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78357

reinvestment program that is consistent
with the requirements of § 301.7701–
4(c) of this chapter are disregarded.
(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) Beneficial owners exchange their
interests for cash or are treated as
having exchanged their interests for
cash upon termination of the trust; 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) Rule. Pro-rata
sales of trust assets to effect
redemptions are not required to be
reported under this paragraph (c)(2)(iv).
(2) Definition. Pro-rata sales of trust
assets to effect redemptions occur
when—
(i) One or more trust interests are
tendered for redemption;
(ii) The trustee identifies the pro-rata
shares of the trust assets that are
deemed to be owned by 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)) and sells those
assets as soon as practicable;
(iii) Proceeds from the sales of the
assets identified in paragraph
(c)(2)(iv)(G)(2)(ii) of this section are used
solely to effect redemptions; and
(iv) The redemptions are reported as
required under paragraph (c)(2)(v) of
this section by the trustee.
(3) Additional rules—(i) Calendar
month aggregation. The trustee may
compare the aggregate pro-rata share of
the assets deemed to be owned by the
trust interests tendered for redemption
during the calendar month with the
aggregate sales of assets to effect
redemptions for the calendar month to
determine the pro-rata sales of trust
assets to effect redemptions for the
calendar month. If the aggregate pro-rata
share of an asset deemed to be owned
by the trust interests tendered for
redemption for the month is a fractional
amount, the trustee may round that
number up to the next whole number
for the purpose of determining the prorata sales to effect redemptions for the
calendar month;
(ii) Sales of assets to effect
redemptions may be combined with
sales of assets for other purposes. Sales
of assets to effect redemptions may be
combined with the sales of assets to
obtain cash for other purposes but the
proceeds from the sales of assets to
effect redemptions must be used solely

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to provide cash for redemptions and the
sales of assets to obtain cash for other
purposes must be reported as otherwise
provided in this paragraph (c)(2)(iv). For
example, if a trustee sells assets and the
proceeds are used by the trustee to pay
trust expenses, these amounts are to be
included in the amounts reported under
paragraph (c)(2)(iv)(A) or (B), as
appropriate.
(4) Example—(i) January 1, 2008. Trust has
one million trust interests and all interests
have equal value and equal rights. The
number of shares of stock in corporations A
through J and the pro-rata share of each stock
that a trust interest is deemed to own as of
January 1, 2008, is as follows:
Stock
A .......................
B .......................
C .......................
D .......................
E .......................
F ........................
G .......................
H .......................
I .........................
J ........................

Total shares

Per trust interest

24,845
28,273
35,575
13,866
25,082
39,154
16,137
14,704
17,436
31,133

.024845
.028273
.035575
.013866
.025082
.039154
.016137
.014704
.017436
.031133

(ii) Transactions of January 2, 2008. On
January 2, 2008, 50,000 trust interests are
tendered for redemption. The deemed prorata ownership of stocks A through J
represented by the 50,000 redeemed trust
interests and the stocks sold to provide cash
for the redemptions are set out in the
following table:
Deemed
pro-rata
ownership

Stock
A .......................
B .......................
C .......................
D .......................
E .......................
F ........................
G .......................
H .......................
I .........................
J ........................

1,242.25
1,413.65
1,778.75
693.30
1,254.10
1,957.70
806.85
735.20
871.80
1,556.65

Shares sold
1,242
1,413
1,779
694
1,254
1,957
807
735
872
1,557

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(iii) Transactions on January 15 through
17, 2008. On January 15, 2008, 10,000 trust
interests are tendered for redemption.
Trustee lends money to Trust for
redemptions. On January 16, B merges into
C at a rate of .55 per share. On January 17,
Trustee sells stock to obtain cash to be
reimbursed the cash loaned to Trust to effect
the redemptions. The pro-rata share of the
stock deemed to be owned by the 10,000
redeemed trust interests and the stock sold
by the trustee to effect the redemptions are
set out in the following table:
Stock
A .....................

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Deemed prorata ownership

Shares sold

248.45

249

14:43 Dec 28, 2006

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Stock

Deemed prorata ownership

Shares sold

00
511.25
138.66
250.82
391.54
161.37
147.04
174.36
311.33

00
512
138
251
392
162
148
174
311

B .....................
C .....................
D .....................
E .....................
F ......................
G .....................
H .....................
I .......................
J ......................

(iv) Transactions on January 28 and 29,
2008. On January 28, 2008, the value of the
H stock is $30.00 per share and Trustee,
pursuant to Trust’s governing document,
sells the H stock to preserve the financial
integrity of Trust and receives $414,630.
Trustee intends to report this sale under
paragraph (c)(2)(iv)(A) of this section and to
distribute the proceeds of the sale pro-rata to
trust interest holders on Trust’s next
scheduled distribution date. On January 29,
2008, while trustee still holds the proceeds
from the January 28 sale, 10,000 trust
interests are tendered for redemption. The
pro-rata share of the stock deemed to be
owned by the 10,000 redeemed trust interests
and the stock sold by the trustee to effect the
redemptions are set out in the following
table:
Stock

Deemed prorata ownership

Shares sold

248.45
0
511.25
138.66
250.82
391.54
161.37
10
174.36
311.33

248
0
511
139
251
391
161
0
175
312

A .....................
B .....................
C .....................
D .....................
E .....................
F ......................
G .....................
H .....................
I .......................
J ......................
1Share

of cash proceeds: $4,458.39.

(v) Monthly amounts. To determine the
pro-rata sales to effect redemptions for
January, trustee compares the aggregate prorata share of stocks A through J (rounded to
the next whole number) deemed to be owned
by the trust interests tendered for redemption
during the month of January with the sales
of stocks A through J to effect redemptions:
Deemed
pro-rata
ownership

Stock
A .......................
B .......................
C .......................
D .......................
E .......................
F ........................
G .......................
H .......................
I .........................
J ........................

1740
0
3579
971
1756
2741
1130
883
1221
2180

Shares sold
1739
0
3579
971
1756
2741
1130
883
1221
2180

(vi) Pro-rata sales to effect redemptions for
the month of January. For the month of

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January, the deemed pro-rata ownership of
shares of stocks A through J equal or exceed
the sales of stock to effect redemptions for
the month. Accordingly, all of the sales to
effect redemptions during the month of
January are considered to be pro-rata and are
not required to be reported under this
paragraph (c)(2)(iv).

(H) Corporate Reorganizations. The
exchange of trust assets for other assets
of equivalent value pursuant to a tax
free corporate reorganization is not
required to be reported as a sale or
disposition under this paragraph
(c)(2)(iv).
(v) Redemptions and sales of WHFIT
interests—(A) Redemptions—(1) In
general. Unless paragraph (c)(2)(v)(C) of
this section applies, for each date on
which the amount of a redemption
proceeds for the redemption of a trust
interest is determined, the trustee must
provide information to enable a
requesting person to determine—
(i) The redemption proceeds (as
defined in paragraph (b)(15) of this
section) per trust interest on that date;
(ii) The redemption asset proceeds (as
defined in paragraph (b)(14) of this
section) per trust interest on that date;
and
(iii) The gross income that is
attributable to the redeeming beneficial
owner for the portion of the calendar
year that the redeeming beneficial
owner held its interest (including
income earned by the WHFIT after the
date of the last income distribution.
(2) In kind redemptions. The value of
the assets received with respect to an inkind redemption (as defined in
paragraph (b)(8) of this section) is not
required to be reported under this
paragraph (c)(2)(v)(A). Information
regarding the income attributable to a
redeeming beneficial owner must,
however, be reported under paragraph
(c)(2)(v)(A)(1)(iii) of this section.
(B) Sale of a trust interest. Under
paragraph (c)(2)(v)(C) of this section
applies, if a secondary market for
interests in the WHFIT is established,
the trustee must provide, for each day
of the calendar year, information to
enable requesting persons to
determine—
(1) The sale assets proceeds (as
defined in paragraph (b)(17) of this
section) per trust interest on that date;
and
(2) The gross income that is
attributable to a selling beneficial owner
and to a purchasing beneficial owner for
the portion of the calendar year that
each held the trust interest.
(C) Simplified Reporting for Certain
NMWHFITs—(1) In general. The trustee
of an NMWHFIT described in paragraph
(c)(2)(v)(C)(2) of this section is not

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required to report the information
described in paragraph (c)(2)(v)(A) of
this section (regarding redemptions) or
(c)(2)(v)(B) of this section (regarding
sales). However, the trustee must report
to requesting persons, for 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—
(i) Substantially all the assets of the
NMWHFIT produce income that is
treated as interest income (but only if
these assets trade on a recognized
exchange or securities market without a
price component attributable to accrued
interest) or produce dividend income
(as defined in section 6042(b) and the
regulations under that section). (Trust
sales proceeds and gross proceeds from
sales described in paragraphs
(c)(2)(iv)(G) and (H) of this section are
ignored for the purpose of determining
if substantially all of a NMWHFIT’s
assets produce dividend or the interest
income described in this paragraph);
and
(ii) The qualified NMWHFIT
exception of paragraph (c)(2)(iv)(E) of
this section is satisfied, or 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 percent 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.
(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 in paragraph
(c)(2)(iv)(D)(1) of this section, the
qualified NMWHFIT exception of

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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 the
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
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 in
paragraph (c)(2)(iv)(D) 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 provide
information regarding market discount.
*
*
*
*
*
(d) * * *
(2) * * *
(ii) * * *
(C) Gross income. All items of gross
income of the WHFIT attributable to the
TIH for the calendar year (including OID
(unless the exception for certain
WHMTs applies (see paragraph
(c)(2)(ii)(A) of this section)) and all
amounts of income attributable to a
selling, purchasing, or redeeming TIH
for the portion of the calendar year that
the TIH held its interest (unless
paragraph (c)(2)(v)(C) of this section
(regarding an exception for certain
NMWHFITs) applies));
*
*
*
*
*
(F) Reporting Redemptions. All
redemption asset proceeds (as defined
in paragraph (b)(14) of this section) paid
to the TIH for the calendar year, if any,
or, if paragraph (c)(2)(v)(C) of this
section (regarding an exception for
certain NMWHFITs) applies, all
redemption proceeds (as defined in
paragraph (b)(15) of this section) paid to
the TIH for the calendar year;
(G) Reporting sales of a trust interest
on a secondary market. All sales asset
proceeds (as defined in paragraph
(b)(17) of this section) paid to the TIH
for the sale of a trust interest or interests
on a secondary market established for
the NMWHFIT for the calendar year, if
any, or, if paragraph (c)(2)(v)(C) of this
section (regarding an exception for
certain NMWHFITs) applies, all sales
proceeds (as defined in paragraph
(b)(18) of this section) paid to the TIH
for the calendar year; and
*
*
*
*
*
(f) Safe harbor for providing
information for certain NMWHFITs—(1)

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78359

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 the requirements of paragraph
(f)(1)(i)(A)(1) of this section are met,
trust sales proceeds and gross proceeds
from sales described in paragraphs
(c)(2)(iv)(G) and (H) 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.
*
*
*
*
*
(viii) Reporting market discount
information under the safe harbor—(A)
In general—(1) Trustee required to
provide market discount information. If
the trustee is required to provide
information regarding market discount
under paragraph (c)(2)(vii) of this
section, the trustee must provide—
(i) The information required to be
provided under paragraph
(f)(1)(iv)(A)(1)(iii) of this section; and
(ii) If the NMWHFIT holds debt
instruments with OID, a list of the
aggregate adjusted issue prices of the
debt instruments per trust interest
calculated as of the start-up date or
measuring date (see paragraph
(c)(2)(iv)(D)(4) of this section)
(whichever provides more accurate
information) and as of January 1 for
each subsequent year of the NMWHFIT.
(2) Trustee not required to provide
market discount information. If the
trustee is not required to provide market
discount information under paragraph
(c)(2)(vii) of this section (because the
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 year
exception of paragraph (c)(2)(iv)(F) of
this section), the trustee is not required
under this paragraph (f) to provide any
information regarding market discount.
*
*
*
*
*
(2) * * *
(viii) * * *

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(A) Except as provided in paragraph
(f)(2)(viii)(B) of this section, the trustee
or middleman must provide the TIH
with the information provided under
paragraph (f)(1)(viii) of this section.
(3) * * *
(i) * * *
(A) * * *
(1) Trust is a NMWHFIT that holds
common stock in ten different corporations
and has 100 trust interests outstanding. The
start-up date for Trust is December 15, 2006,
and Trust’s registration statement under the
Securities Act of 1933 became effective after
July 31, 2006. Trust terminates on March 15,
2008. The agreement governing Trust
requires Trust to distribute cash held by
Trust reduced by accrued but unpaid
expenses on April 15, July 15, and October
15 of the 2007 calendar year. The agreement
also provides that the trust interests will be
redeemed by the Trust for an amount equal
to the value of the trust interest, as of the
close of business, on the day the trust interest
is tendered for redemption. There is no
reinvestment plan. A secondary market for
interests in Trust will be created by Trust’s
sponsor and Trust’s sponsor will provide
Trustee with a list of dates on which sales
occurred on this secondary market.

(B) * * *
(5) On June 1, 2007, Trustee sells shares of
stock for $1000x to preserve the soundness
of the trust. The stock sold on June 1, 2007,
equaled 20% of the aggregate fair market
value of the assets held by Trust on the startup date of Trust. Trustee has chosen not to
report sales described in paragraph
(c)(2)(iv)(4)(ii) of Trust’s assets under
paragraph (c)(2)(iv)(D)(4) of this section.

*

*

*

*

*

(9) On December 10, 2007, J tenders a trust
interest to Trustee for redemption through
Broker1. Trustee determines that the amount
of the redemption proceeds to be paid for a
trust interest that is tendered for redemption
on December 10, 2007 is $116x, of which
$115x represents the redemption asset
proceeds. Trustee pays this amount to
Broker1 on J’s behalf. On December 12, 2007,
trustee engages in a non pro-rata sale of
shares of common stock for $115x to effect
J’s redemption of a trust interest. The stock
sold on December 12, 2007, equals 2% of the
aggregate fair market value of all the assets
of Trust as of the start-up date.

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*

*
*
(ii) * * *
(B) * * *

*

*

(4) * * * (i) Application of the de minimis
test. The aggregate fair market value of the
assets of Trust as of January 1, 2007, was
$10,000x. During the 2007 calendar year,
Trust received trust sales proceeds of $1115x.
The trust sales proceeds received by Trust for
the 2007 calendar year equal 11.15% of
Trust’s fair market value as of January 1,
2007. Accordingly, the de minimis test is not
satisfied for the 2007 calendar year. The
qualified NMWHFIT exception in paragraph
(c)(2)(iv)(E) of this section and the
NMWHFIT final calendar year exception in

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13:55 Dec 28, 2006

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(c)(2)(iv)(F) of this section also do not apply
to Trust for the 2007 calendar year.

*

*

*

*

*

(5) Reporting redemptions. Because Trust
is not required to make distributions at least
as frequently as monthly, and Trust does not
satisfy the qualified NMWHFIT exception in
paragraph (c)(2)(iv)(E) of this section, the
exception in paragraph (c)(2)(v)(C) does not
apply to Trust. To satisfy the requirements of
paragraph (f)(1) of this section, Trustee
provides a list of dates for which the
redemption proceeds to be paid for the
redemption of a trust interest was determined
for the 2007 calendar year and the
redemptions asset proceeds paid for each
date. During 2007, Trustee only determined
the amount of redemption proceeds paid for
the redemption of a trust interest once, for
December 10, 2007 and the redemption asset
proceeds determined for that date was $115x.
(6) Reporting sales of trust interests.
Because trust is not required to make
distributions at least as frequently as
monthly, and Trust does not satisfy the
qualified NMWHFIT exception in paragraph
(c)(2)(iv)(E) of this section, the exception in
paragraph (c)(2)(v)(C) of this section does not
apply to Trust. Sponsor, in accordance with
the trust agreement, provides Trustee with a
list of dates on which sales on the secondary
market occurred. To satisfy the requirements
of paragraph (f)(1) of this section, Trustee
provides requesting persons with a list of
dates on which sales on the secondary
market occurred and the amount of cash held
for distribution, per trust interest, on each
date. The first sale during the 2007 calendar
year occurred on September 30, 2007, and
the amount of cash held for distribution, per
trust interest, on that date is $1.35x. The
second sale occurred on December 10, 2007,
and the amount of cash held for distribution,
per trust interest, on that date is $1.00x.

(g) * * *
(1) * * *
(iv) * * * (A) * * *
(2) In calculating the daily portion of
OID, the trustee must use the
prepayment assumption used in pricing
the original issue of trust interests. If the
WHMT has a start-up date prior to
January 24, 2006, and the trustee, after
a good faith effort to ascertain that
information, does not know the
prepayment assumption used in pricing
the original issue of trust interests, the
trustee may use any reasonable
prepayment assumption to calculate
OID provided it continues to use the
same prepayment assumption
consistently thereafter.
*
*
*
*
*
(v) * * * (A) * * *
(3) Computing the total amount of
stated interest remaining to be paid and
the total remaining OID at the beginning
of the month. To compute the total
amount of stated interest remaining to
be paid to the WHMT as of the
beginning of the month and the total
remaining OID as of the beginning of the

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Fmt 4700

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month, the trustee must use the
prepayment assumption used in pricing
the original issue of trust interests. If the
WHMT has a start-up date prior to
January 24, 2006, and the trustee, after
a good faith effort to ascertain that
information, does not know the
prepayment assumption used in pricing
the original issue of trust interests, the
trustee may use any reasonable
prepayment assumption to calculate
these amounts provided it continues to
use the same prepayment assumption
consistently thereafter.
*
*
*
*
*
(h) Additional safe harbors—(1)
Temporary safe harbor for WHMTs—(i)
Application. Pending the issuance of
additional guidance, the safe harbor in
this paragraph applies to trustees and
middlemen of WHMTs that are not
eligible to report under the WHMT safe
harbor in paragraph (g) of this section
because they hold interests in another
WHFIT, in a REMIC, or hold or issue
stripped interests.
(ii) Safe harbor. A trustee is deemed
to satisfy the requirements of paragraph
(c) of this section, if the trustee
calculates and provides trust
information in a manner that enables a
requesting person to provide trust
information to a beneficial owner of a
trust interest that enables the owner to
reasonably accurately report the tax
consequences of its ownership of a trust
interest on its federal income tax return.
Additionally, to be deemed to satisfy the
requirements of paragraph (c) of this
section, the trustee must calculate and
provide trust information regarding
market discount and OID by any
reasonable manner consistent with
section 1272(a)(6). A middleman or a
trustee may satisfy its obligation to
furnish information to the IRS under
paragraph (d) of this section and to the
trust interest holder under paragraph (e)
of this section by providing information
consistent with the information
provided under this paragraph by the
trustee.
(2) Additional safe harbors provided
by other published guidance. The IRS
and the Treasury Department may
provide additional safe harbor reporting
procedures for complying with this
section or a specific paragraph of this
section by other published guidance
(see § 601.601(d)(2) of this chapter).
*
*
*
*
*
(m) Penalties for failure to comply—
(1) In general. Every trustee or
middleman who fails to comply with
the reporting obligations imposed by
this section is subject to penalties under
sections 6721, 6722, and any other
applicable penalty provisions.

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Federal Register / Vol. 71, No. 250 / Friday, December 29, 2006 / Rules and Regulations
(2) Penalties not imposed on trustees
and middlemen of certain WHMTs for
failure to report OID. Penalties will not
be imposed as a result of a failure to
provide OID information for a WHMT
that has a start-up date on or after
August 13, 1998 and on or before
January 24, 2006, if the trustee of the
WHMT does not have the historic
information necessary to provide this
information and the trustee
demonstrates that it has attempted in
good faith, but without success, to
obtain this information. For purposes of
calculating a market discount fraction
under paragraph (g)(1)(v) of this section,
for a WHMT described in this
paragraph, it may be assumed that the
WHMT is holding mortgages that were
issued without OID. A trustee availing
itself of this paragraph must include a
statement to that effect when providing
information to requesting persons under
paragraph (c) of these regulations.
*
*
*
*
*
§ 1.671–5T
■

[Removed]

Par. 3. Section 1.671–5T is removed.

Kevin M. Brown,
Deputy Commissioner for Services and
Enforcement.
Eric Solomon,
Assistant Secretary (Tax Policy).
[FR Doc. 06–9924 Filed 12–26–06; 10:22 am]
BILLING CODE 4830–01–P

DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[CGD05–07–123]
RIN 1625–AA00

Safety Zone: Transit of Industrial
Cranes, Cape Fear River, Wilmington,
NC
Coast Guard, DHS.
Temporary final rule.

AGENCY:

rmajette on PROD1PC72 with RULES

ACTION:

SUMMARY: The Coast Guard is
establishing a safety zone from the
mouth of the Cape Fear River to the
Cape Fear Memorial Bridge to provide
for the safety of the public during the
transit and mooring of a vessel carrying
four (4) large industrial cranes. The
cranes are of such size and dimension
that they will create a significant
obstruction to safe navigation for other
vessels operating in the vicinity.
Restricting vessel traffic is necessary to
ensure the safety of the public. Vessel

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13:55 Dec 28, 2006

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traffic will only be restricted during the
transit of the vessel.
DATES: This rule is effective from 1 a.m.
on February 1, 2007 until 11 p.m. on
February 15, 2007.
ADDRESSES: Documents indicated in this
preamble as being available in the
docket are part of docket CGD05–06–
123 and are available for inspection or
copying at the Coast Guard Marine
Safety Unit Wilmington, North Carolina
between 8 a.m. and 4 p.m., Monday
through Friday, except Federal
Holidays.
FOR FURTHER INFORMATION CONTACT: LT
Tim Grant, Chief of Response, Coast
Guard Marine Safety Unit Wilmington,
North Carolina at (910) 772–2191.
SUPPLEMENTARY INFORMATION:
Regulatory Information
Pursuant to 5 U.S.C. 553(b)(B), a
notice of proposed rulemaking (NPRM)
was not published for this regulation.
Good cause exists for not publishing a
NPRM. Any delay encountered in this
regulation’s effective date by publishing
a NPRM would be contrary to public
interest since immediate action is
needed to prevent traffic from transiting
the waters of the Cape Fear River. A
safety zone is needed in order to
provide for the safety of life and
property on navigable waters of the
Cape Fear River. The regulated area will
consist of the complete closure of the
Cape Fear River to vessel traffic
movement beginning at the
International Regulations for Prevention
of Collisions at Sea, 1972 (COLREGS,
72) Demarcation Line drawn from Oak
Island Light House to Bald Head Island
Abandon Light House noted on NOAA
chart 11537 and proceeding north up
the Cape Fear River bank to bank to the
Cape Fear Memorial Bridge. The safety
zone will be enforced until the vessel
transporting the cranes has been safely
moored at North Carolina State Port
Authority berth #8.
Background and Purpose
Sometime between February 1, 2007
and February 15, 2007, The North
Carolina State Port Authority (NCSPA)
intends to bring in four (4) new cranes
to enhance container operations at the
NCSPA’s facility located on the Cape
Fear River, Wilmington, North Carolina.
The combination of the size of the
cranes and the restricted
maneuverability in the Cape Fear River
necessitates the temporary restriction of
all commercial vessel movement in the
Cape Fear River to protect mariners
from the hazards associated with this
event. This temporary safety zone will
be enforced for approximately five (5) to

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78361

seven (7) hours on a day between
February 1 and February 15 when the
transit of the vessel carrying four large
industrial cranes occurs. The zone will
only be enforced on the day during the
transit. The zone will not be enforced on
subsequent days during the duration of
the effective period. The zone will have
minimal impact on vessel transits
because the waterway will only be
closed for five to seven hours.
Discussion of Rule
The Coast Guard is establishing a
safety zone on the specified waters of
the Cape Fear River. The regulated area
will consist of the complete closure of
the Cape Fear River to vessel traffic
movement beginning at the
International Regulations for Prevention
of Collisions at Sea, 1972 (COLREGS,
72) Demarcation Line drawn from Oak
Island Light House to Bald Head Island
Abandon Light House noted on NOAA
chart 11537 and proceeding north up
the Cape Fear River bank to bank to the
Cape Fear Memorial Bridge. The safety
zone will be in effect from 1 a.m. on
February 1, 2007 to 11 p.m. on February
15, 2007. The zone will be enforced for
approximately five (5) to seven (7) hours
on a day between February 1 and
February 15 when the transit of the
vessel carrying four large industrial
cranes occurs. After February 15, 2007
the zone will no longer be in effect.
Except for participants and vessels
authorized by the Coast Guard Patrol
Commander, no person or vessel may
enter or remain in the regulated area.
Regulatory Evaluation
This rule is not a ‘‘significant
regulatory action’’ under section 3(f) of
Executive Order 12866, Regulatory
Planning and Review, and does not
require an assessment of potential costs
and benefits under section 6(a)(3) of that
Order. The Office of Management and
Budget has not reviewed it under that
Order. It is not ‘‘significant’’ under the
regulatory policies and procedures of
the Department of Homeland Security
(DHS).
We expect the economic impact of
this rule to be so minimal that a full
Regulatory Evaluation under the
regulatory policies and procedures of
DHS is unnecessary. Although this
regulation restricts access to the
regulated area, the effect of this rule will
not be significant because: (i) The COTP
may authorize access to the safety zone;
(ii) the safety zone will be in effect for
a limited duration; and (iii) the Coast
Guard will make notifications via
maritime advisories so mariners can
adjust their plans accordingly.

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