Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has issued guidance regarding the reporting requirements of widely held fixed investment trusts (WHFITs). The new guidance provides interim rules on transition payments for trustees and "middlemen" with respect to WHFITs and trust interest holders (TIHs) and also limited penalty relief for trustees and middlemen. A middleman for this purpose is a person who hold interests in a WHFIT, but is not the ultimate beneficial owner of such interest. The guidance also provides rules for: inclusion of summary totals of WHFIT interest, dividend and miscellaneous income on Form 1099; the format of the written tax information statement required to be provided to TIHs; and the obligations of trustees and middlemen for information reporting with respect to certain non-mortgage WHFITs (NMWHFITs).

 
Reg. §1.671-5 contains the WHFIT reporting rules. The IRS had previously informed trustees and middlemen of WHFITs in Notice 2008-77, IRB 2008-40, 814, that it would not assess penalties as a result of failure to comply with WHFIT reporting rules with respect to calendar year 2008. In the new guidance, the IRS states that trustees and middlemen must comply with the Reg. §1.671-5 rules, except as provided in the new guidance.

  Under the rules, the trustee or middleman of the WHFIT must report income paid to the beneficial owner as of the record date, rather than the payment date, as had often been the previous practice. To avoid confusion, a trustee or middleman who transitions to the new rules must provide the TIH with a statement that it is transitioning from reporting based on payment dates to reporting based on record dates and that the record date was in the previous calendar year, even though the payment date is in the current year, and the TIH must include the relevant payment as a Code Sec. 481(a) adjustment. Because the IRS recognizes that the trustees and middlemen may not have time to modify their reporting systems to report payments that span the 2008 and 2009 calendar years, it will not sanction them for 2009 for a failure to comply with Reg. §1.671-5(d), (e), and (g)(2).

  A change in recognizing trust income in the year of the payment date to the year of the record date is a change in accounting method under Code Sec. 446(e), which would normally require IRS approval. In the guidance, the IRS gives consent to all cash method TIHs to make this change.

  The new guidance also sets out procedures for information reporting with respect to WHFIT income. Middlemen and trustees may report such information on Form 1099-INT, Form 1099-DIV, or Form 1099-MISC, as appropriate, with a summary total included on Form 1099. Information may be furnished to TIHs via electronic and composite statements and may include summary totals, provided such statement provides enough information to the TIH to enable it to properly report its income.

  Finally, the IRS determined that a trustee or middleman may satisfy its reporting requirements under Reg. §1.671-5(e) by providing a TIH of a royalty or commodity trust (two types of NMWFITs) with the address of a website where information can be found sufficient to meet the requirements of that regulation, if the middleman or trustee also provides the TIH with the option of receiving a written statement containing such information.

Notice 2010-4,
2010FED ¶46,205

Other References:

 
Code Sec. 671

  CCH Reference - 2009FED ¶24,686.0525

  CCH Reference - 2009FED ¶24,686.86

  Tax Research Consultant

  CCH Reference - TRC ESTTRUST: 36,300