Denial of deduction for losses on registration-required obligations not in registered form.

(a) In general. Except as provided in paragraph (c) of this section, nothing in section 165(a) and the regulations thereunder, or in any other provision of law, shall be construed to provide a deduction for any loss sustained on any registration-required obligation held after December 31, 1982, unless the obligation is in registered form or the issuance of the obligation was subject to tax under section 4701. The term “registration-required obligation” has the meaning given to that term in section 163(f)(2), except that clause (iv) of subparagraph (A) thereof shall not apply. Therefore, although an obligation that is not in registered form is described in § 1.163-5(c)(1), the holder of such an obligation shall not be allowed a deduction for any loss sustained on such obligation unless paragraph (c) of this section applies. The term “holder” means the person that would be denied a loss deduction under section 165(j)(1) or denied capital gain treatment under section 1287(a). (b) Registered form— (1) Obligations issued after September 21, 1984. With respect to any obligation originally issued after September 21, 1984, the term “registered form” has the meaning given that term in section 103(j)(3) and the regulations thereunder. Therefore, an obligation that would otherwise be in registered form is not considered to be in registered form if it can be transferred at that time or at any time until its maturity by any means not described in § 5f.103-1(c). An obligation that, as of a particular time, is not considered to be in registered form because it can be transferred by any means not described in § 5f.103-1(c) is considered to be in registered form at all times during the period beginning with a later time and ending with the maturity of the obligation in which the obligation can be transferred only by a means described in § 5f.103-1(c). (2) Obligations issued after December 31, 1982 and on or before September 21, 1984. With respect to any obligation originally issued after December 31, 1982 and on or before September 21, 1984 or an obligation originally issued after September 21, 1984 pursuant to the exercise of a warrant or the conversion of a convertible obligation, which warrant or obligation (including conversion privilege) was issued after December 31, 1982 and on or before September 21, 1984, that obligation will be considered in registered form if it satisfied § 5f.163-1 or the proposed regulations provided in § 1.163-5(c) and published in the Federal Register on September 2, 1983 (48 FR 39953). (c) Registration-required obligations not in registered form which are not subject to section 165(j)(1). Notwithstanding the fact that an obligation is a registration-required obligation that is not in registered form, the holder will not be subject to section 165(j)(1) if the holder meets the conditions of any one of the following subparagraphs (1), (2), (3), or (4) of this paragraph (c). (1) Persons permitted to hold in connection with the conduct of a trade or business. (i) The holder is an underwriter, broker, dealer, bank, or other financial institution (defined in paragraph (c)(1)(v)) that holds such obligation in connection with its trade or business conducted outside the United States; or the holder is a broker-dealer (registered under Federal or State law or exempted from registration by the provisions of such law because it is a bank) that holds such obligation for sale to customers in the ordinary course of its trade or business. (ii) The holder must offer to sell, sell and deliver the obligation in bearer form only outside of the United States except that a holder that is a registered broker-dealer as described in paragraph (c)(1)(i) may offer to sell and sell the obligation in bearer form inside the United States to a financial institution as defined in paragraph (c)(1)(v) for its own account or for the account of another financial institution or exempt organization as defined in section 501(c)(3) if the transaction consists of the purchases of a block of obligations the total denominations of which are at least $1,000,000. (iii) If a financial institution purchases an obligation in bearer form that is offered or sold inside the United States, it must agree as a condition of the purchase to provide on delivery the statement described in paragraph (c)(1)(iv). (iv) The holder may deliver an obligation in bearer form that is offered or sold inside the United States only if the holder delivers it to a financial institution that states that it is a financial institution as defined in § 1.165-12(c)(1)(v) that is purchasing for its own account or for the account of another financial institution or exempt organization, that will comply with the requirements of section 165(j)(3)(A), (B), or (C) and the regulations thereunder and the holder has no actual knowledge that the statement is false. The statement must contain the name and address of the person entitled to delivery and must be signed by such person under penalties of perjury. The holder may deliver an obligation in bearer form that is offered and sold outside the United States to a financial institution if it delivers to such person a confirmation stating that any United States taxpayer who holds this obligation in bearer form and who is not exempt under section 165(j)(3) (A), (B), or (C) and the regulations thereunder will, for purposes of the United States income tax, be denied a deduction for any loss incurred with respect to the obligation and will be denied capital gain treatment with respect to the obligation. The holder may deliver a registration-required obligation in bearer form that is offered and sold outside the United States to a person other than a financial institution only if the holder has documentary evidence as described in subdivision (iii) of A-5 of § 35a.9999-4T that the person is not a United States person. For purposes of this paragraph (c), the word “deliver” includes the transfer of an obligation evidenced by a book entry including a book entry notation by a clearing organization evidencing transfer of the obligation from one member of the organization to another member. For purposes of this paragraph (c), the word “deliver” does not include a transfer of an obligation to the issuer or its agent for cancellation or extinguishment. If a holder that is a member of a clearing organization (defined in § 1.163-5(c)(2)(i)(B)( 4 )) delivers an obligation to another member of the same or another clearing organization by transfer of the obligation between the clearing organization accounts of such members, the selling member shall receive the statement from the purchasing member (in the case of obligations offered or sold inside the United States) or send the confirmation to the purchasing member (in the case of obligations offered and sold outside the United States). (v) For purposes of paragraph (c) of this section, the term “financial institution” means a person which itself is, or more than 50 percent of the total combined voting power of all classes of whose stock entitled to vote is owned by a person which is— (A) Engaged in the conduct of a banking, financing, or similar business within the meaning of section 954(c)(3)(B) as in effect before the Tax Reform Act of 1986, and the regulations thereunder; (B) Engaged in business as a broker or dealer in securities; (C) An insurance company; (D) A person that provides pensions or other similar benefits to retired employees; (E) Primarily engaged in the business of rendering investment advice; (F) A regulated investment company or other mutual fund; or (G) A finance corporation a substantial part of the business of which consists of making loans (including the acquisition of obligations under a lease which is entered into primarily as a financing transaction), acquiring accounts receivable, notes or installment obligations arising out of the sale of tangible personal property or the performing of services, or servicing debt obligations. (2) Persons permitted to hold obligations for their own investment account. The holder is a financial institution holding the obligation for its own investment account that satisfies the conditions set forth in subdivisions (i), (ii), (iii), and (iv) of his paragraph (c) (2). (i) The holder reports on its Federal income tax return for the taxable year any interest payments received (including original issue discount includable in gross income for such taxable year) with respect to such obligation and gain or loss on the sale or other disposition of such obligation; (ii) The holder indicates on its Federal income tax return that income, gain or loss described in paragraph (c)(2)(i) is attributable to registration-required obligations held in bearer form for its own account; (iii) The holder of a bearer obligation that resells the obligation inside the United States resells the obligation only to another financial institution for its own account or for the account of another financial institution or exempt organization; and (iv) The holder delivers such obligation in bearer form to any other person in accordance with paragraph (c)(1) (ii) and (iv) of this section. (3) Persons permitted to hold through financial institutions. The holder is any person that purchases and holds a registration-required obligation in bearer form through a financial institution with which the holder maintains a customer, custodial or nominee relationship and such institution agrees to satisfy, and does in fact satisfy, the conditions set forth in subdivisions (i), (ii), (iii), (iv) and (v) of this paragraph (c)(3). (i) The financial institution makes a return of information to the Internal Revenue Service with respect to any interest payments received. The financial institution must report original issue discount includable in the holder's gross income for the taxable year on any obligation so held, but only if the obligation appears in an Internal Revenue Service publication of obligations issued at an original issue discount and only in an amount determined in accordance with information contained in that publication. An information return for any interest payment shall be made on a Form 1099 for the calendar year. It shall indicate the aggregate amount of the payment received, the name, address and taxpayer identification number of the holder, and such other information as is required by the form. No return of information is required under this subdivision if the financial institution reports payments under section 6041 or 6049. (ii) The financial institution makes a return of information on Form 1099B with respect to any disposition by the holder of such obligation. The return shall show the name, address, and taxpayer identification number of the holder of the obligation, Committee on Uniform Security Information Procedures (CUSIP), gross proceeds, sale date, and such other information as may be required by the form. No return of information is required under this subdivision if such financial institution reports with respect to the disposition under section 6045. (iii) In the case of a bearer obligation offered for resale or resold in the United States, the financial institution may resell the obligation only to another financial institution for its own account or for the account of an exempt organization. (iv) The financial institution covenants with the holder that the financial institution will deliver the obligation in bearer form in accordance with the requirements set forth in paragraph (c)(1) (ii) and (iv). (v) The financial institution delivers the obligation in bearer form in accordance with paragraph (c)(1) (ii) and (iv) as if the financial institution delivering the obligation were the holder referred to in such paragraph. (4) Conversion of obligations into registered form. The holder is not a person described in paragraph (c) (1), (2), or (3) of this section, and within thirty days of the date when the seller or other transferor is reasonably able to make the bearer obligation available to the holder, the holder surrenders the obligation to a transfer agent or the issuer for conversion of the obligation into registered form. If such obligation is not registered within such 30 day period, the holder shall be subject to sections 165(j) and 1287(a). (d) Effective date. These regulations apply generally to obligations issued after January 20, 1987. However, a taxpayer may choose to apply the rules of § 1.165-12 with respect to an obligation issued after December 31, 1982 and on or before January 20, 1987, which obligation is held after January 20, 1987.