Boardman Law Firm LLP—Banking Group

Informational Reporting Requirements For Organizational Transactions Affecting The Basis of Corporate Stock Are Effective January 17, 2012 With Some Transitional Relief

Section 403 of the Energy Improvement and Extension Act added Section 6045B to the Internal Revenue Code ("Code") which requires informational reporting on corporate transactions affecting the cost-basis of corporate stock. Under the rule, issuers of corporate stock are required to file a return with the Internal Revenue Service (the "Service") to describe any organizational action occurring on or after January 1, 2011 that affects the stock's cost basis. Issuers must also furnish a separate written statement to each holder of record or the holder's nominee. Transactions that trigger the reporting requirements may include the issuance of dividends, stock splits, mergers or acquisitions. The Service requires issuers of stock to comply with the reporting requirements beginning January 17, 2012. However, as discussed below, the Service has recently issued a notice providing some transitional relief for reporting.

Reporting Requirements

Code Section 6045B requires an issuer of corporate stock that undertakes an organizational action that affects the basis of the stock to:

• file an issuer return with the Service the earlier of 45 days after the organizational action or January 15th of the year following the calendar year in which the action took place; and
• furnish a corresponding statement containing the information in the issuer return to each stockholder (or to the stockholder's nominee, if any) by January 15th of the year following the calendar year of the organization action.

If an issuer posts the information required in the return on its primary public website in a readily accessible format, the issuer is deemed to satisfy both reporting requirements above.

Exempt Stockholders

Issuers are not required to provide corresponding statements to certain exempt shareholders, including:

• foreign or domestic corporations (excluding S corporations);
• financial institutions;
• The U.S., or a State, the District of Columbia, a possession of the U.S. or a political subdivision thereof;
• foreign governments, a political subdivision thereof, or an international organization;
• A foreign central bank of issue;
• real estate investment trusts;
• insurance companies;
• tax-exempt organizations under Code Section 501(a) or individual retirement plans;
• entities registered under the Investment Company Act of 1940;
• common trust funds (as defined in Code Section 584);
• registered securities or commodities dealers; and
• registered future commission merchants.

If the issuer reasonably determines that all of the holders of the affected stock are exempt, then the issuer does not have to file an issuer return with IRS or publish the information on its website.

In addition, an S corporation does not have to file an issuer return or furnish correspondence to its stockholders or their nominees if the corporation reports the effect of an organizational action affecting the basis of its stock on a timely filed Schedule K-1 for each shareholder and timely furnishes copies of these schedules to all proper parties.

Issuer Return Form

On January 5, 2012 the Service published Form 8937, Report of Organization Actions Affected Basis of Securities, to comply with Section 6045B. The form can be found at http://www.irs.gov/pub/irs-pdf/f8937.pdf. Instructions can be found at http://www.irs.gov/pub/irs-pdf/i8937.pdf.

According to the applicable Treasury regulations, the information that is required on the issuer return and to be furnished to issuers stockholders or their nominees includes:

• The name and taxpayer identification number of the reporting issuer.
• The identifiers of each security involved in the organizational action including, if applicable:
• The CUSIP number or other security identifier number that the Treasury Secretary may designate by publication in the Federal Register or in the Internal Revenue Bulletin;
• The name, address, email address, and telephone number of a contact person at the issuer;
• The type or nature of the organization action, including, as applicable, the date of action or the date against which the shareholders' ownership is measure for the action; and
• The quantitative effect of the organization action on the basis of the security in the hands of the taxpayer as an adjustment per share or as a percentage of old basis, including a description of the calculation such as the market values of securities and valuation dates, any other information necessary to implement the adjustment including the reportable taxable year, and whether any resulting loss will be recognized.

If an issuer fails to comply with the reporting requirements under section 6045B, the Service may assess a penalty of $100 for each return that is not reported correctly.

Notice 2012-11

On January 13, 2012, the Service issued Notice 2012-11, which provides some transitional relief from the reporting requirements. Under the relief, an issuer's requirement to file and furnish Form 8937 for organizational actions occurring in 2011 will be satisfied by either posting Form 8937 or the required information in a readily accessible format on the issuer's primary public website. The Service will treat the issuer as having filed Form 8937 on the date the form or required information is posted. The Service has also provided penalty relief for issuers that make good faith efforts to timely post Form 8937 or the required information on their primary public websites or to timely file Form 8937 and furnish the corresponding issuer statements. The transitional relief is limited to reporting organizational actions occurring in 2011. It does not apply to issuers of stock in a regulated investment company, which are not subject to issuer reporting requirements for 2011 organizational actions. The notice can be found at http://www.irs.gov/pub/irs-drop/n-12-11.pdf.