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Regulations on tax treatment of “Treasury Inflation-Protected Securities” issued with more than de minimis amount of premium

December 2, 2011 | No. 2011-587


The Treasury Department and IRS today released for publication in the Federal Register temporary regulations (T.D. 9561) and, by cross-reference, proposed regulations (REG-130777-11) concerning the tax treatment of “Treasury Inflation-Protected Securities” (TIPS)* issued with more than a de minimis amount of premium.

The temporary regulations reflect guidance issued by the IRS in April 2011, and apply to TIPS issued on or after April 8, 2011.

For electronic versions of these regulations: T.D. 9561 and REG-130777-11

*TIPS are securities issued by the Treasury Department, of which the principal amount is adjusted for any inflation (or deflation) that occurs over the term of the security.

Background

In April 2011, the IRS issued Notice 2011-21 announcing that regulations would be issued to provide a more uniform method for the federal income taxation of TIPS. The regulations were to provide that taxpayers must apply the coupon bond method described in Reg. section 1.1275-7(d) with respect to TIPS issued with more than a de minimis amount of premium. Thus, the discount bond method described in Reg. section 1.1275-7(e) would not apply to TIPS issued with more than a de minimis amount of premium.

See TaxNewsFlash 2011-179.

 

Temporary regulations

The temporary regulations released today contain the rules that were described in Notice 2011-21.

Under the temporary regulations, a taxpayer must use the coupon bond method described in Reg. section 1.1275-7(d) for a TIPS that is issued with more than a de minimis amount of premium.

The temporary regulations include an example of how to apply the coupon bond method to a TIPS issued with more than a de minimis amount of premium.

T.D. 9561 and REG-130777-11 will be published in the Federal Register on Monday, December 5, 2011. Comments on the proposed regulations or requests to present oral comments at a public hearing on the proposed regulations (including an outline of the topics to be discussed and the time to be devoted to each topic) must be received by March 7, 2012. A public hearing has been scheduled for March 28, 2012.

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ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

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