7698 / Must bonds be in registered form? What are “registration required” bonds?

Any obligation of a type offered to the public that has a maturity of more than one year must be in registered form (a “registration required” bond). This includes obligations of federal, state, and local governments as well as corporations and partnerships. An exception is made for certain obligations reasonably designed to be sold only outside the United States to non-United States persons and payable outside the United States and its possessions. However, if they are in bearer form, these obligations must carry a statement that any United States person holding the obligation will be subject to tax limitations.¹ A “United States person” is a United States citizen or resident, a domestic partnership or corporation, or an estate or certain trusts (other than a foreign estate or trust).²

Bonds that are “not of a type offered to the public” do not have to meet the registration requirement.³ Temporary regulations state that a bond is “of a type offered to the public” if similar obligations are publicly offered or traded.⁴ Even if a bond is not publicly traded, it may be considered “of a type offered to the public” if: (a) the bond would be treated as readily tradable in an established securities market under the installment sales rules; (2) the bond is comparable to a bond described in (1); or (3) similar obligations are publicly offered or traded.⁵

The Treasury also has authority to require registration of other obligations if they are used frequently for tax avoidance.⁶

A book entry obligation is considered registered if the right to principal of, and stated interest on, the obligation may be transferred only through a book entry system that identifies the owner of an interest in the obligation. Regulations may permit book entries in the case of a nominee or a chain of nominees.⁷