Attached is a link to the new proposed regulations.
More analysis to follow but for now the proposed regulations, in short, attempt to clarify:
(1) Whether the holder is deemed to receive (a) a right to acquire stock, or (b) acquire additional stock. The former, the value of which is the (x) the fair market of the right to acquire stock immediately after an adjustment over (y) the fair market value of the right to acquire stock without the adjustment.
(2) When the deemed distribution occurs. At the time of the adjustment.
(3) New proposed rules relating to the withholding agent’s duties. The proposed regulations indicate that the withholding agent has an obligation to withholding but only where EITHER (1) the issuer meets its reporting requirements under 1.6045B-1, or (2) the withholding agent has ACTUAL KNOWLEDGE of the deemed distribution.
(4) Generally delaying the withholding agent’s requirement to withhold until (x) future payments on the security, (y) upon earlier disposition, or (z) upon the due date for filing of Form 1042. In the case of (z), the rules of 1461-2(b) are amended to allow the withholding agent to collect the amount from the beneficial owner by liquidating other property of the beneficial owner over which it has control. The withholding agent would remain liable for these amounts after terminating its relationship with the client.
(5) Withholding agents will be able to rely on information provided by issuer on an issuer statement described in 1.6045B-1(b)(1) or a public website described in 1.6045B-1(a)(3).
(6) Changes to issuer reporting obligations to facilitate downstream withholding. Basically requiring issuer reporting under 1.6045B-1 regardless of any exceptions.
(7) Effective date. When the regs. go final but taxpayer’s may rely on the regs. before they go final. Prior to finalization, a taxpayer may determine the amount of the distribution by treating the distribution as (a) the right to acquire stock or (b) a distribution of actual stock.