Par. 2. Section 1.6011-16 is added to read as follows:
(a) Identification as listed transaction. Transactions that are the same as, or substantially similar to, transactions described in paragraph (c) of this section are identified as listed transactions for purposes of § 1.6011-4(b)(2).
(b) Definitions. The following definitions apply for purposes of this section:
(1) Counterparty. The term counterparty or C means a person who enters into a contract described in paragraph (c) of this section with the taxpayer.
(2) Taxpayer. The term taxpayer or T means—
(i) A taxpayer as defined in § 1.6011-4(c)(1) that enters into a contract described in paragraph (c) of this section with the counterparty; and
(ii) With respect to any reference to T having discretion, or having exercised discretion, T's designee.
(3) Designee —(i) In general. Except as provided in paragraph (b)(3)(ii) of this section, the term designee, with respect to a T having discretion or having exercised discretion, means any person who is—
(A) T's agent under principles of agency law;
(B) Compensated by T for suggesting, requesting, or determining changes in the assets in the reference basket or the trading algorithm; or
(C) Selected by T to suggest, request, or determine changes in the assets in the reference basket or the trading algorithm.
(ii) Exceptions. A person will not be treated as compensated by T under paragraph (b)(3)(i)(B) of this section, or selected by T under paragraph (b)(3)(i)(C) of this section, as a result of:
(A) The person's position as an investment advisor, officer, or employee of an entity, such as a mutual fund, when the entity's publicly offered securities are included in the reference basket; or
(B) The person's use of, the person's payment of a licensing fee for the right to use, or the person's authority to suggest, request, or determine changes in the assets included in a widely used and publicly quoted index that is based on objective financial information or an index that tracks a broad market or a market segment.
(4) Discretion— (i) In general. Except as provided in paragraphs (b)(4)(ii) and (iii) of this section, the term discretion includes T's right to change, either directly or through a request to C, the assets in the reference basket or the trading algorithm, even if the terms of the transaction permit C to reject certain changes requested by T to the assets in the reference basket or the trading algorithm.
(ii) Changes made according to rules that T cannot amend or alter. T will not be treated as having discretion to change (either directly or through a request to C) the assets in the reference basket or the trading algorithm if—
(A) Changes in the assets in the reference basket or the trading algorithm are made according to objective instructions, operations, or calculations that are disclosed at the inception of the transaction (rules); and
(B) T does not have the right to alter or amend the rules during the term of the transaction or to deviate from the assets in the reference basket or the trading algorithm selected in accordance with the rules.
(iii) Exception for certain rights. T will not be treated as having the right to alter or amend the rules for purposes of paragraph (b)(4)(ii)(B) of this section solely because T has the authority to—
(A) Exercise routine judgment in the administration of the rules, which does not include deviations or alterations to the rules that are designed to improve the financial performance of the reference basket;
(B) Correct errors in the implementation of the rules or calculations made pursuant to the rules; or
(C) Make an adjustment to respond to an unanticipated event outside of T's control, such as a stock split, merger, listing or delisting, nationalization, or insolvency of a component of a basket, a disruption in the financial markets for specific assets or in a particular jurisdiction, a regulatory compliance requirement, force majeure, or any other unanticipated event of similar magnitude and significance.
(5) Tax benefit. The term tax benefit means a deferral of income into a later taxable year or a conversion of ordinary income or short-term capital gain or loss into long-term capital gain or loss.
(6) Reference basket. The term reference basket means a notional basket of assets that may include:
(i) Actively traded personal property as defined under § 1.1092(d)-1(a);
(ii) Interests in entities that trade securities, commodities, foreign currency, digital assets as defined in section 6045(g)(3)(D) of the Internal Revenue Code, or similar property;
(iii) Securities;
(iv) Commodities;
(v) Foreign currency;
(vi) Digital assets as defined in section 6045(g)(3)(D); or
(vii) Similar property (or positions in such property).
(c) Transaction description. A transaction is described in this paragraph (c) if—
(1) T enters into a contract with C, including a contract denominated as an option contract, notional principal contract (as defined in § 1.446-3(c)(1)(i)), forward contract, or other derivative contract, to receive a return based on the performance of a reference basket;
(2) The contract has a stated term of more than one year, or overlaps two or more of T's taxable years;
(3) T has exercised discretion to change (either directly or through a request to C) the assets in the reference basket or the trading algorithm;
(4) T's tax return for a taxable year ending on or after January 1, 2011, reflects a tax benefit with respect to the transaction; and
(5) The transaction is not described in paragraph (d) of this section.
(d) Exceptions. A transaction is not the same as, or substantially similar to, the transaction described in paragraph (c) of this section if it is described in any of paragraphs (d)(1) through (3) of this section.
(1) The contract is traded on a national securities exchange that is regulated by the Securities and Exchange Commission or a domestic board of trade regulated by the Commodity Futures Trading Commission, or a foreign exchange or board of trade that is subject to regulation by a comparable regulator.
(2) The contract is treated as a contingent payment debt instrument under § 1.1275-4 (including a short-term contingent payment debt instrument) or a variable rate debt instrument under § 1.1275-5.
(3) With respect to C, a transaction is not the same as, or substantially similar to, the transaction described in paragraph (c) of this section if—
(i) T represents to C in writing under penalties of perjury that none of T's tax returns for taxable years ending on or after January 1, 2011, has reflected or will reflect a tax benefit with respect to the transaction; or
(ii) C has established that T is a nonresident alien that is not engaged in a U.S. trade or business or a foreign corporation that is not engaged in a U.S. trade or business by obtaining a valid withholding certificate (W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals), or W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting ( Entities ) (or successor forms)) upon which it may rely under the requirements of § 1.1441-1 from T as the beneficial owner of the payments made or to be made under the basket contract, or in the case of payments made outside of the U.S. on offshore obligations, by obtaining documentary evidence described in § 1.1441-1(c)(17) upon which it is permitted to rely.
(e) Special participation rules. For purposes of § 1.6011-4(c)(3)(i)(A), for each year in which a transaction identified in paragraph (a) of this section is open, only the following parties are treated as participating in the listed transaction identified in this section:
(1) The taxpayer;
(2) If the taxpayer is treated as a partnership for Federal tax purposes and has one or more general partners or managing members, each general partner or managing member of the taxpayer;
(3) If the taxpayer is treated as a partnership for Federal tax purposes and does not have a general partner or managing member, each partner in the partnership;
(4) The counterparty to the contract.
(f) Applicability date —(1) In general. This section identifies transactions that are the same as, or substantially similar to, the transactions described in paragraph (c) of this section as listed transactions for purposes of § 1.6011-4(b)(2) effective on [date of publication of final regulations in the Federal Register ].
(2) Obligations of participants with respect to prior periods. Taxpayers who have filed a tax return (including an amended return) reflecting their participation in transactions described in paragraph (a) of this section prior to [date of publication of final regulations in the Federal Register ], must disclose the transactions as required by § 1.6011-4(d) and (e) provided that the period of limitations for assessment of tax (as determined under section 6501 of the Code, including section 6501(c)) for any taxable year in which the taxpayer participated has not ended on or before [date of publication of final regulations in the Federal Register ]. However, taxpayers who have filed a disclosure statement regarding their participation in the transaction with the Office of Tax Shelter Analysis pursuant to Notice 2015-73, 2015-46 I.R.B. 660, will be treated as having made the disclosure with respect to the transaction pursuant to the final regulations for the taxable years for which the taxpayer filed returns before [date of publication of final regulations in the Federal Register ]. If a taxpayer described in the preceding sentence participates in the basket contract listed transaction in a taxable year for which the taxpayer files a return on or after [date of publication of final regulations in the Federal Register ], the taxpayer must file a disclosure statement with the Office of Tax Shelter Analysis at the same time the taxpayer files its return for the first such taxable year.
(3) Obligations of material advisors with respect to prior periods. Material advisors defined in § 301.6111-3(b) of this chapter who have previously made a tax statement with respect to a transaction described in paragraph (a) of this section have disclosure and list maintenance obligations as described in §§ 301.6111-3 and 301.6112-1 of this chapter, respectively. Notwithstanding § 301.6111-3(b)(4)(i) and (iii) of this chapter, material advisors are required to disclose only if they have made a tax statement on or after the date that is six years before [date of publication of final regulations in the Federal Register ].