SECTION 2. BACKGROUND

.01 Before September 2008, many banks and bank holding companies invested in the preferred stock of Fannie Mae and Freddie Mac. Many institutions invested directly in the preferred stock. Others invested indirectly—for example, through corporate subsidiaries that are not banks or through adjustable rate preferred interests in certain trusts designed to be

notice was released to the public. Persons entering into these transactions on or after November 2, 2006, must disclose the transaction as described in § 1.6011–4. Material advisors who make a tax statement on or after November 2, 2006, with respect to transactions entered into on or after November 2, 2006, have disclosure and list maintenance obligations under §§ 6111 and 6112. See § 1.6011–4(h) and §§ 301.6111–3(i) and 301.6112–1(g) of the Procedure and Administration Regulations.

Independent of their classification as transactions of interest, transactions that are the same as, or substantially similar to, the transaction described in this notice already may be subject to the requirements of §§ 6011, 6111, or 6112, or the regulations thereunder. When the IRS and Treasury Department have gathered enough information to make an informed decision as to whether this transaction is a tax avoidance type of transaction, the IRS and Treasury Department may take one or more actions, including removing the transaction from the transactions of interest category in published guidance, designating the transaction as a listed transaction, or providing a new category of reportable transaction.

Participation

Under § 1.6011–4(c)(3)(i)(E), each recipient of the term interest and Trust are participants in this transaction for each year in which their respective tax returns reflect tax consequences or a tax strategy described in this notice. Charity is not a participant if it sold or otherwise disposed of its interest in Trust on or prior to October 31, 2008. For interests sold or otherwise disposed of after October 31, 2008, under § 1.6011–4(c)(3)(i)(E), Charity is a participant for the first year for which Charity’s tax return reflects or is required to reflect the sale or other disposition of Charity’s interest in Trust. In general, Charity is required to report the sale or other disposition of its interest in Trust on its return for the year of the sale or other disposition. See § 6033 and § 1.6033–2(a)(ii). Therefore, in general, Charity will be a participant for the year in

which charity sells or otherwise disposes of its interest in Trust.

Time for Disclosure

See §1.6011–4(e) and § 301.6111–3(e).

Material Advisor Threshold Amount

The threshold amounts in § 301.6111–3(b)(3)(i)(B) are reduced to $5,000.

Penalties

Persons required to disclose these transactions under § 1.6011–4 who fail to do so may be subject to the penalty under § 6707A. Persons required to disclose these transactions under § 6111 who fail to do so may be subject to the penalty under § 6707(a). Persons required to maintain lists of advisees under § 6112 who fail to do so (or who fail to provide such lists when requested by the IRS) may be subject to the penalty under § 6708(a). In addition, the IRS may impose other penalties on parties involved in these transactions or substantially similar transactions, including the accuracy-related penalty under § 6662 or § 6662A.

REQUESTING COMMENTS

The IRS and Treasury Department are aware of concerns expressed by commentators regarding this transaction of interest. The IRS and Treasury Department share these concerns and are requesting written comments on how the transaction might be addressed in published guidance. One approach might involve issuing regulations under the authority of § 643(a)(7) to address the uniform basis rules under §§ 1014 and 1015 and the regulations thereunder.

Comments should be submitted by January 31, 2009, to: Internal Revenue Service, CC:PA:LPD:PR (Notice 2008–99), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20224. Alternatively, comments may be hand delivered Monday through Friday between the hours of 8:00 a.m. to 4:00 p.m. to: CC:PA:LPD:PR (Notice 2008–99), Courier’s Desk, Internal Revenue Service, 1111 Constitution

1 Only the first of the statute’s three divisions is the Emergency Economic Stabilization Act of 2008. Each of the other two divisions has its own section 301, both of which are unrelated to EESA § 301.

2008–47 I.R.B. 1195 November 24, 2008

(a) A partnership sold or exchanged QPS on or after January 1, 2008, and before September 7, 2008 (the Transaction);

(b) The taxpayer was a partner in the partnership on the date of the Transaction; and

(c) The taxpayer was an applicable financial institution (or a Subsidiary described in Section 6.01(1)(b)–(d) of this revenue procedure) on the date of the Transaction and at all times thereafter through the earlier of—

(i) The closing of the partnership’s tax year in which the Transaction occurred; or

(ii) The date on which the partnership’s tax year in which the Transaction occurred closed with respect to the taxpayer.

(2) Sale or exchange after September 6, 2008. (a) A partnership sold or exchanged QPS after September 6, 2008 (the Transaction);

(b) The partnership held the QPS on September 6, 2008, and at all times thereafter until the Transaction;

(c) The taxpayer was a partner in the partnership on September 6, 2008, and at all times thereafter through the date of the Transaction ; and

(d) The taxpayer was an applicable financial institution (or a Subsidiary described in Section 6.01(2)(b)–(e) of this revenue procedure) on September 6, 2008, and at all times thereafter through the earlier of—

(i) The closing of the partnership’s tax year in which the Transaction occurred; or

(ii) The date on which the partnership’s tax year in which the Transaction occurred closed with respect to the taxpayer.

.02 Application . (1) The taxpayer’s distributive share of the gain or loss on the Transaction is treated by EESA § 301 as ordinary income or loss.

(2) Section 3.02(1) of this revenue procedure does not apply to the extent that the taxpayer’s interest in gain or loss on the sale or exchange of the QPS that was sold or exchanged in the Transaction increased after September 6, 2008, including as a result of—

(a) The taxpayer’s acquisition of additional partnership interests;

(b) Changes in the manner in which partners share in such gains and losses; or

treated as partnerships for federal income tax purposes.

.02 Generally, under section 582(c)(1) of the Internal Revenue Code, the sale or exchange of a bond, debenture, note, and other evidence of indebtedness by banks and certain other financial institutions is not considered a sale or exchange of a capital asset. Common stock and preferred stock are not evidences of indebtedness for federal income tax purposes and, therefore, banks and these other financial institutions generally treat gain or loss from these instruments as capital.

.03 Under section 702(a) and (b) of the Code, gain and loss from sales of capital assets are separately stated by a partnership, and the character of gain or loss included in a partner’s distributive share is determined as if the item were realized directly from the source from which realized by the partnership, or incurred in the same manner as incurred by the partnership. The partnership tax rules, however, do not generally treat partners as holding the assets held by their partnerships.

.04 EESA § 301(a) provides, “[G]ain or loss from the sale or exchange of any ap- plicable preferred stock by any applicable financial institution shall be treated as ordinary income or loss” (emphasis added). Applicable preferred stock and applicable financial institution are defined in EESA § 301(b) and (c).

.05 EESA § 301(b) defines “applicable preferred stock” as—

any stock— (1) which is preferred stock in— (A) the Federal National Mortgage Association, established pursuant to the Federal National Mortgage Association Charter Act (12 U.S.C. 1716 et seq .), or

(B) the Federal Home Loan Mortgage Corporation, established pursuant to the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq .), and

(2) which— (A) was held by the applicable financial institution on September 6, 2008, or

(B) was sold or exchanged by the applicable financial institution on or after January 1, 2008, and before September 7, 2008. .06 For purposes of this revenue procedure, the term “qualified preferred stock” (QPS) means any stock that is described in EESA § 301(b)(1), regardless of whether the stock satisfies EESA § 301(b)(2).

.07 EESA § 301(c) provides— For purposes of [EESA § 301]: (1) IN GENERAL.—Except as provided in [EESA § 301(c)(2)], the term “applicable financial institution” means—

(A) a financial institution referred to in section 582(c)(2) of the Internal Revenue Code of 1986, or

(B) a depository institution holding company (as defined in section 3(w)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(w)(1))).

(2) SPECIAL RULES FOR CERTAIN SALES.—In the case of—

(A) a sale or exchange described in

[EESA § 301(b)(2)(B)], an entity shall be treated as an applicable financial institution only if it was an entity described in

[EESA § 301(c)(1)(A) or (B)] at the time of the sale or exchange, and

(B) a sale or exchange after September 6, 2008, of preferred stock described in [EESA § 301(b)(2)(A)], an entity shall be treated as an applicable financial institution only if it was an entity described in

[EESA § 301(c)(1)(A) or (B)] at all times during the period beginning on September 6, 2008, and ending on the date of the sale or exchange of the preferred stock.

.08 EESA § 301(d) authorizes administrative extension of the application of EESA § 301 to all, or a portion, of the gain or loss from certain transactions. In addition, under EESA § 301(e), “The Secretary of the Treasury or the Secretary’s delegate may prescribe such guidance, rules, or regulations as are necessary to carry out the purposes of [EESA § 301].” Sections 3 through 7 of this revenue procedure exercise the authority that is granted by EESA § 301(d) and (e).