Tax Alert

New IRS Regulations for Brokers Focus on Debt Instruments, Options, and Futures

(April 29, 2013)

On April 18, 2013, the IRS released final regulations implementing new broker information reporting requirements for transactions involving debt instruments, options, and futures contracts. The IRS also released proposed and temporary regulations implementing reporting requirements for bond premium and acquisition premium. The required broker reporting of gain or loss for debt instruments, options, and futures contracts is an extension of the currently required reporting by brokers with respect to stocks.

These regulations provide some clarifications and extend compliance deadlines from those in the previously proposed regulations. Following are some highlights of the new regulations:

  • Broker reporting is required for “less complex” debt instruments and options acquired on or after Jan. 1, 2014. “Less complex” debt instruments include, for example, debt instruments providing for a single fixed payment schedule or an alternative payment schedule with an embedded put or call option.
  • Debt instruments with “more complex” features receive a two-year deferral, with reporting required for debt instruments acquired on or after Jan. 1, 2016. Debt instruments with “more complex” features include debt instruments with no fixed yield or maturity dates, stepped interest rates, convertible debt, stripped bonds or coupons, debts including a foreign component, certain tax credit bonds, and debts with a payment-in-kind feature.
  • Short-term debt instruments with a fixed maturity date of a year or less are exempt from the broker reporting requirement.
  • The regulations direct brokers to use statutory default methods to compute original-issue discount, bond premium, and acquisition premium reported to holders, but they also allow the brokers to use certain alternative computational methods if a client requests them in writing. The regulations also provide guidance about information required when a debt instrument is transferred from one broker to another.
  • Information reporting of gain or loss applies to options granted or acquired and securities futures contracts entered into on Jan. 1, 2014, or later.

The regulations also address a large number of technical reporting questions.


For More Information
David Holets

Sheryl Vander Baan

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