Bulletin No. 2006-21May 22, 2006

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2006–27, page 915.Down payment assistance; home buyers. This rulingsets forth the applicable rules and standards for determiningwhether organizations that provide down payment assistanceto home buyers qualify as tax-exempt charities. In addition,the ruling addresses whether assistance received for a downpayment is treated as a gift and included in a home buyer’sbasis.

T.D. 9261, page 919.Final regulations under section 1502 of the Code relate to in-tercompany transactions. Section 1.1502–13(c)(7)(ii), Exam-ple 13, illustrates the treatment of manufacturer incentive pay-ments. This example relies, in part, upon the premise thatmanufacturer incentive payment is an ordinary and necessarybusiness expense deductible under section 162. Becausethis treatment is now under reconsideration (see Rev. Rul.2005–28, 2005–19 I.R.B. 997), these final regulations removeand reserve this example.

Notice 2006–43, page 921.This notice announces that the Treasury Department and theService will amend the regulations under section 883 of theCode. The regulations exclude from gross income the incomederived from the international operation of a ship or ships oraircraft by a corporation organized in a foreign country thatgrants an equivalent exemption to U.S. corporations. To re-ceive this benefit, a foreign corporation must also satisfy oneof three ownership tests. One such test applies to a controlledforeign corporation (CFC), as defined in section 957(a). Tosatisfy the CFC ownership test, section 1.883–3(a) requiresa CFC to meet an “income inclusion test,” as defined in section1.883–3(b). After the repeal of section 954(a)(4) and (f) (for-

eign base company shipping income provisions) by the Ameri-can Jobs Creation Act (AJCA), it is unclear how to apply the in-come inclusion test. This notice announces that Treasury andthe IRS will amend section 1.883–3(b) in light of the repeal ofsection 954(a) and (f) and provide a new “qualified U.S. personownership test” that is clear and simple to apply and on whichtaxpayers may rely until the regulations are amended.

Notice 2006–48, page 922.This notice provides guidance relating to amendments made bysection 415 of the American Jobs Creation Act of 2004 (AJCA),which affect the treatment of certain income and assets relatedto the leasing of aircraft or vessels in foreign commerce. TheTreasury Department and the Service intend to amend the reg-ulations under sections 367(a), 954, and 956 to address theamendments made by section 415 of the AJCA and this notice.Until regulations reflecting these changes are issued, taxpay-ers may rely upon this notice. This notice also solicits com-ments on whether any other changes to the regulations undersections 367, 954, and 956 are necessary to implement thepurposes of section 415 of the AJCA.

Rev. Proc. 2006–25, page 926.Specifications are set forth for the private printing of paperand laser-printed substitutes for the January 2006 revisionsof Form 941, Employer’s QUARTERLY Federal Tax Return, andSchedule B (Form 941), Report of Tax Liability for SemiweeklySchedule Depositors. This procedure will be reproduced asthe next revision of Publication 4436, General Rules and Spec-ifications for Substitute Form 941 and Schedule B (Form 941).Rev. Proc. 2005–21 superseded.

(Continued on the next page)

Finding Lists begin on page ii.

Announcement 2006–34, page 937.This document withdraws proposed regulations(REG–131264–04, 2004–2 C.B. 506) under section1502 of the Code regarding intercompany transactions.The regulations provided additional examples in section1.1502–13(c)(7)(ii), Example 13, to clarify the propertreatment of manufacturer incentive payments. One ofthese examples relied, in part, upon the premise that themanufacturer incentive payment is an ordinary and necessarybusiness expense deductible under section 162. Becausethis treatment is now under reconsideration (see Rev. Rul.2005–28, 2005–19 I.R.B. 997), the proposed regulations arewithdrawn.

EXEMPT ORGANIZATIONS

Rev. Rul. 2006–27, page 915.Down payment assistance; home buyers. This rulingsets forth the applicable rules and standards for determiningwhether organizations that provide down payment assistanceto home buyers qualify as tax-exempt charities. In addition,the ruling addresses whether assistance received for a downpayment is treated as a gift and included in a home buyer’sbasis.

EMPLOYMENT TAX

Rev. Proc. 2006–25, page 926.Specifications are set forth for the private printing of paperand laser-printed substitutes for the January 2006 revisionsof Form 941, Employer’s QUARTERLY Federal Tax Return, andSchedule B (Form 941), Report of Tax Liability for SemiweeklySchedule Depositors. This procedure will be reproduced asthe next revision of Publication 4436, General Rules and Spec-ifications for Substitute Form 941 and Schedule B (Form 941).Rev. Proc. 2005–21 superseded.

ADMINISTRATIVE

Rev. Proc. 2006–26, page 936.This procedure announces the introduction of user fees for re-quests submitted to the U.S. competent authority for discre-tionary determinations under limitation on benefits provisionsof U.S. income tax treaties. Rev. Proc. 2002–52 modified.

May 22, 2006 2006–21 I.R.B.

The IRS MissionProvide America’s taxpayers top quality service by helpingthem understand and meet their tax responsibilities and by

applying the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Sec-retary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

2006–21 I.R.B. May 22, 2006

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 61.—Gross IncomeDefined

Whether certain down payment assistance pro-vided to a home buyer is includible in the recipient’sgross income under section 61. See Rev. Rul.2006-27, page 915.

Section 102.—Gifts andInheritances

Whether certain down payment assistance pro-vided to a home buyer is excludible from the recipi-ent’s gross income as a gift under section 102. SeeRev. Rul. 2006-27, page 915.

Section 501.—ExemptionFrom Tax on Corporations,Certain Trusts, etc.26 CFR 1.501(c)(3)–1: Organizations organized andoperated for religious, charitable, scientific, testingfor public safety, literary, or educational purposes, orfor the prevention of cruelty to children or animals.(Also §§ 61, 102, 1012.)

Down payment assistance; homebuyers. This ruling sets forth the appli-cable rules and standards for determiningwhether organizations that provide downpayment assistance to home buyers qual-ify as tax-exempt charities. In addition,the ruling addresses whether assistance re-ceived for a down payment is treated as agift and included in a home buyer’s basis.

Rev. Rul. 2006–27

ISSUES:

1. Whether organizations that other-wise meet the requirements of § 501(c)(3)of the Internal Revenue Code and are de-scribed in the situations below operate ex-clusively for charitable purposes.

2. Whether home buyers who receivedown payment assistance from the orga-nizations may exclude the amount of theassistance from their gross income as giftsunder § 102.

3. Whether home buyers who receivedown payment assistance from the organi-zations may include the amount of the as-sistance in the cost basis of their homes un-der § 1012.

FACTS

Situation 1

X is a non-profit corporation that helpslow-income individuals and families pur-chase decent, safe and sanitary homesthroughout the metropolitan area in whichX is located. As a substantial part of itsactivities, X makes assistance availableexclusively to low-income individuals andfamilies to provide part or all of the fundsthey need to make a down payment on thepurchase of a home. X uses standards setby Federal housing statutes and adminis-tered by the Department of Housing andUrban Development to determine whois a low-income individual. Individualsare eligible to receive assistance from X’sprogram if they are low-income individ-uals, have the employment history andfinancial history necessary to qualify for amortgage, and would so qualify but for thelack of a down payment. X also offers fi-nancial counseling seminars and conductsother educational activities to help preparepotential low-income home buyers for theresponsibility of home ownership.

X will consider applications for assis-tance in connection with an applicant’spurchase of any home that meets X’s stan-dards for habitability. Before making agrant of down payment assistance, X re-quires a home inspection report for theproperty that the applicant intends to buyto ensure that the house will be habitable.

To fund its down payment assistanceprogram and other activities, X conducts abroad based fundraising program that at-tracts gifts, grants and contributions fromseveral foundations, businesses and thegeneral public.

X’s grantmaking process is structuredto ensure that X’s staff awarding grants onbehalf of X does not know the identity ofthe party selling the home to the grant ap-plicant or the identities of any other par-ties, such as real estate agents or develop-ers, who may receive a financial benefitfrom the sale. The staff also does not knowwhether any of the interested parties to thetransaction have been solicited for contri-butions to X or have made pledges or ac-tual contributions to X. Further, X does not

accept any contributions contingent on thesale of a particular property or properties.

Situation 2

Y is a nonprofit corporation that is likeX in all respects as set forth in Situation1, except as follows. Under Y’s grant-making procedures, Y’s staff consideringa particular applicant’s application knowsthe identity of the party selling the hometo the grant applicant and may also knowthe identities of other parties, such as realestate agents and developers, who mayreceive a financial benefit from the sale.Moreover, in substantially all of the casesin which Y provides down payment assis-tance to a home buyer, Y receives a pay-ment from the home seller. Further, thereis a direct correlation between the amountof the down payment assistance providedby Y in connection with each of these trans-actions and the amount of the home seller’spayment to Y. Finally, Y does not conducta broad based fundraising campaign to at-tract financial support. Rather, most of Y’ssupport comes from home sellers and realestate-related businesses that may benefitfrom the sale of homes to buyers who re-ceive Y’s down payment assistance.

Situation 3

Z is a nonprofit corporation formedto combat community deterioration inan economically depressed area that hassuffered a major loss of population andjobs. Studies have shown that the av-erage income in the area is below themedian level for the State. Z cooperateswith government agencies and commu-nity groups to develop an overall planto attract new businesses to the area andto provide stable sources of decent, safeand sanitary housing for the area resi-dents without relocating them outside thearea. As part of the renewal project, Zreceives funding from government agen-cies to build affordable housing units forsale to low and moderate-income families.As a substantial part of its activities, Zmakes down payment assistance avail-able to eligible home buyers who wishto purchase the newly-constructed units

2006–21 I.R.B. 915 May 22, 2006

from Z. Z also offers financial counselingseminars and conducts other educationalactivities to help prepare potential lowand moderate-income home buyers for theresponsibility of home ownership.

To fund its down payment assistanceprogram and other activities, Z conducts abroad based fundraising program that at-tracts gifts, grants and contributions fromseveral foundations, businesses and thegeneral public.

LAW

Section 501 of the Code provides forthe exemption from federal income tax ofcorporations organized and operated ex-clusively for charitable or educational pur-poses, provided that no part of the net earn-ings inures to the benefit of any privateshareholder or individual. See § 501(c)(3).

Section 1.501(c)(3)–1(c)(1) of the In-come Tax Regulations provides that an or-ganization operates exclusively for exemptpurposes only if it engages primarily in ac-tivities that accomplish exempt purposesspecified in § 501(c)(3). An organiza-tion must not engage in substantial activ-ities that fail to further an exempt purpose.In Better Business Bureau of Washington,D.C. v. U.S., 326 U.S. 279, 283 (1945),the Supreme Court held that the “presenceof a single . . . [nonexempt] purpose, ifsubstantial in nature, will destroy the ex-emption regardless of the number or im-portance of truly . . . [exempt] purposes.”

Section 1.501(c)(3)–1(d)(1)(ii) pro-vides that an organization is not organizedor operated exclusively for exempt pur-poses unless it serves a public rather than aprivate interest. To meet this requirementit is necessary for an organization to es-tablish that it is not organized or operatedfor the benefit of private interests.

Section 1.501(c)(3)–1(d)(2) defines theterm “charitable” as used in § 501(c)(3) asincluding the relief of the poor and dis-tressed or of the underprivileged, and thepromotion of social welfare by organiza-tions designed to lessen neighborhood ten-sions, to eliminate prejudice and discrimi-nation, or to combat community deteriora-tion. The term “charitable” also includesthe advancement of education.

Section 1.501(c)(3)–1(d)(3)(i) pro-vides, in part, that the term “educational”as used in § 501(c)(3) relates to the in-struction of the public on subjects useful

to the individual and beneficial to thecommunity.

Section 1.501(c)(3)–1(e) provides thatan organization that operates a trade orbusiness as a substantial part of its ac-tivities may meet the requirements of§ 501(c)(3) if the trade or business furthersan exempt purpose, and if the organiza-tion’s primary purpose does not consist ofcarrying on an unrelated trade or business.

In Easter House v. U.S., 12 Cl. Ct.476, 486 (1987), aff’d, 846 F.2d 78 (Fed.Cir. 1988), the U.S. Court of FederalClaims considered whether an organiza-tion that provided adoption and relatedhealth services to pregnant women whoagreed to place their newborns for adop-tion through the organization qualified forexemption under § 501(c)(3). The courtconcluded that the organization did notqualify for exemption under § 501(c)(3)because its primary activity was placingchildren for adoption in a manner indis-tinguishable from that of a commercialadoption agency. The court rejected theorganization’s argument that the adop-tion services merely complemented thehealth-related services to unwed moth-ers and their children. Rather, the courtfound that the health-related services weremerely incident to the organization’s op-eration of an adoption service, which, inand of itself, did not serve an exempt pur-pose. The organization did not providehealth-related services to unwed motherswho wished to keep their children or whoarranged for an adoption independent ofthe organization. The organization’s solesource of support was the fees it chargedadoptive parents, rather than contribu-tions from the public. The court alsofound that the organization competed withfor-profit adoption agencies, engaged insubstantial advertising, and accumulatedsubstantial profits. Accordingly, the courtfound that the “business purpose, andnot the advancement of educational andcharitable activities purpose, of plaintiff’sadoption service is its primary goal” andheld that the organization was not oper-ated exclusively for purposes described in§ 501(c)(3). Easter House, 12 Cl. Ct. at485–86.

In American Campaign Academy v.Commissioner, 92 T.C. 1053 (1989), thecourt held that an organization that op-erated a school to train individuals forcareers as political campaign profession-

als, but that could not establish that itoperated on a nonpartisan basis, did notexclusively serve purposes described in§ 501(c)(3) because it also served privateinterests more than incidentally. The courtfound that the organization was createdand funded by persons affiliated with aparticular political party and that mostof the organization’s graduates workedin campaigns for the party’s candidates.Consequently, the court concluded that theorganization conducted its educational ac-tivities with the objective of benefiting theparty’s candidates and entities. Althoughthe candidates and entities benefited werenot organization “insiders,” the courtstated that the conferral of benefits on dis-interested persons who are not membersof a charitable class may cause an organi-zation to serve a private interest within themeaning of § 1.501(c)(3)–1(d)(1)(ii). Thecourt concluded by stating that even if thepolitical party’s candidates and entities did“comprise a charitable class, [the organi-zation] would bear the burden of provingthat its activities benefited members of theclass in a non-select manner.” AmericanCampaign Academy, 92 T.C. at 1077.

In Columbia Park and Recreation Asso-ciation v. Commissioner, 88 T.C. 1 (1987),aff’d without published opinion, 838 F.2d465 (4th Cir. 1988), the court held that anassociation formed in a private real estatedevelopment to operate parks, swimmingpools, boat docks, and other recreationalfacilities did not qualify as a § 501(c)(3) or-ganization. Although the organization pro-vided some benefit to the general public,the primary intended beneficiaries werethe residents and property owners of theprivate development. Thus, the organiza-tion operated for a substantial non-exemptpurpose rather than for exclusively chari-table purposes.

Rev. Rul. 67–138, 1967–1 C.B. 129,held that helping low-income persons ob-tain adequate and affordable housing is“charitable” because it relieves the poorand distressed or underprivileged. In Rev.Rul. 67–138, the organization carriedon several activities directed to assistinglow-income families in obtaining im-proved housing, including (1) conductinga training course relative to various aspectsof homebuilding and homeownership, (2)coordinating and supervising joint con-struction projects, (3) purchasing building

May 22, 2006 916 2006–21 I.R.B.

sites for resale at cost, and (4) lending aidin obtaining home construction loans.

Rev. Rul. 70–585, 1970–2 C.B. 115,discussed four situations of organizationsproviding housing and analyzed whethereach organization qualified as charitablewithin the meaning of § 501(c)(3). Situa-tion 1 described an organization formed toconstruct new homes and renovate exist-ing homes for sale to low-income familieswho could not obtain financing throughconventional channels. The organizationalso provided financial aid to low-incomefamilies eligible for loans under a Federalhousing program who did not have thenecessary down payment. The organiza-tion made rehabilitated homes availableto families who could not qualify for anytype of mortgage. When possible, the or-ganization recovered the cost of the homesthrough very small periodic payments, butits operating funds were obtained fromfederal loans and contributions from thegeneral public. The revenue ruling heldthat by providing homes for low-incomefamilies who otherwise could not affordthem, the organization relieved the poorand distressed.

Situation 2 described an organizationformed to ameliorate the housing needs ofminority groups by building housing unitsfor sale to persons of low and moderate-in-come on an open-occupancy basis. Thehousing was made available to members ofminority groups who were unable to obtainadequate housing because of local discrim-ination. The housing units were located tohelp reduce racial and ethnic imbalances inthe community. As the activities were de-signed to eliminate prejudice and discrim-ination and to lessen neighborhood ten-sions, the revenue ruling held that the or-ganization was engaged in charitable ac-tivities within the meaning of § 501(c)(3).

Situation 3 described an organizationformed to formulate plans for the renewaland rehabilitation of a particular area in acity as a residential community. The me-dian income level in the area was lowerthan in other sections of the city and thehousing in the area generally was old andbadly deteriorated. The organization de-veloped an overall plan for the rehabil-itation of the area, sponsored a renewalproject, and involved residents in the arearenewal plan. The organization also pur-chased an apartment building that it re-habilitated and rented at cost to low and

moderate-income families with a prefer-ence given to residents of the area. Therevenue ruling held that the organizationwas described in § 501(c)(3) because itspurposes and activities combated commu-nity deterioration.

Situation 4 described an organizationformed to alleviate a shortage of housingfor moderate-income families in a particu-lar community. The organization plannedto build housing to be rented at cost tomoderate-income families. The Serviceheld that the organization failed to qual-ify for exemption under § 501(c)(3) be-cause the organization’s program was notdesigned to provide relief to the poor orfurther any other charitable purpose withinthe meaning of § 501(c)(3) and the regula-tions.

Rev. Rul. 72–147, 1972–1 C.B. 147,held that an organization that providedhousing to low-income families did notqualify for exemption under § 501(c)(3)because it gave preference to employeesof a business operated by the individualwho also controlled the organization. Al-though providing housing for low-incomefamilies furthers charitable purposes, do-ing so in a manner that gives preferenceto employees of the founder’s businessprimarily serves the private interest of thefounder rather than a public interest.

Rev. Rul. 72–559, 1972–2 C.B. 247,held that an organization that subsidizedrecent law graduates during the first threeyears of their practice to enable them toestablish legal practices in economicallydepressed communities that have a short-age of available legal services, and to pro-vide free legal services to needy membersof the community, qualified for exemptionunder § 501(c)(3). Although the recipientsof the subsidies were not themselves mem-bers of a charitable class, the resulting ben-efit to them did not detract from charita-ble purposes. Rather, the young lawyerswere merely the instruments by which theorganization accomplished the charitablepurpose of providing free legal services forthose unable to pay for, or obtain, such ser-vices.

Rev. Rul. 74–587, 1974–2 C.B. 162,held that an organization providing low-cost or long-term loans to, or equity in-vestments in, businesses operating in eco-nomically depressed areas qualified for ex-emption under § 501(c)(3). The organiza-tion provided financial assistance only to

businesses that were unable to obtain fundsfrom conventional sources, and gave pref-erence to businesses that would providetraining and employment opportunities forunemployed or under-employed area res-idents. Although some of the individualbusiness owners receiving financial assis-tance from the organization were not them-selves members of a charitable class, thebenefit to them did not detract from thecharitable character of the organization’sprogram. As in Rev. Rul. 72–559, therecipients of aid were instruments for ac-complishing the organization’s charitablepurposes.

Rev. Rul. 76–419, 1976–2 C.B. 146,held that an organization that convertsblighted land in an economically de-pressed community to an industrial parkand leases space on favorable terms tobusinesses that agree to hire a significantnumber of unemployed area residents andtrain them in needed skills qualifies forexemption under § 501(c)(3). The organ-ization furthered charitable purposes byimproving economic conditions for thepoor and distressed and combating com-munity deterioration. The organizationoffered inducements to businesses solelyfor the purpose of advancing charitablegoals.

Section 61 provides that, except as oth-erwise provided in subtitle A (relating toincome taxes), gross income means all in-come from whatever source derived.

Section 1012 provides, generally, thatthe basis of property shall be its cost to thetaxpayer.

Section 1016(a)(1) provides that properadjustment shall be made to the basis ofproperty for expenditures, receipts, losses,or other items properly chargeable to cap-ital account.

Section 1001(a) provides that the gainfrom the sale or other disposition of prop-erty is the excess of the amount realizedover the adjusted basis for determininggain provided in § 1011. Section 1011(a)provides generally that the adjusted basisfor determining gain from the sale or otherdisposition of property is the basis deter-mined under § 1012, adjusted as providedin § 1016.

Section 102 provides that the value ofproperty acquired by gift is excluded fromgross income. A gift “proceeds from a‘detached and disinterested generosity,’. . . ‘out of affection, respect, admiration,

2006–21 I.R.B. 917 May 22, 2006

charity or like impulses.’” Commissionerv. Duberstein, 363 U.S. 278, 285 (1960).Payments that proceed from “the con-straining force of any moral or legal duty,”or from “‘the incentive of anticipated ben-efit’ of an economic nature,” are not gifts.Duberstein, 363 U.S. at 285. Thus, pay-ments attendant to ordinary business orcommercial transactions, or that proceedprimarily from the moral or legal obliga-tions attendant such transactions, are notgifts. However, a payment made to an in-dividual that responds to the individual’sneeds, that is made without economic orother consideration being received by thedonor, and that does not proceed fromany moral or legal duty, is motivated bydetached and disinterested generosity, andmay be excluded from gross income asa gift under § 102. See, e.g., Rev. Rul.99–44, 1999–2 C.B. 549.

ANALYSIS

In Situation 1, X’s purposes and activi-ties relieve the poor, distressed and under-privileged by enabling low-income indi-viduals and families to obtain decent, safeand sanitary homes. The way X conductsits down payment assistance program es-tablishes that X’s primary purpose is to ad-dress the needs of its low-income grantees.See Rev. Rul. 70–585, Sit. 1. As acondition of providing assistance, X re-quires a home inspection to ensure that thehouse the applicant intends to buy will behabitable. X’s financial counseling semi-nars and other educational programs helpto prepare potential home buyers for the re-sponsibility of home ownership. See Rev.Rul. 67–138. X conducts a broad basedfundraising program, and X receives sup-port from a wide array of sources. X’spolicies of ensuring that its grantmakingstaff does not know the identity or contrib-utor status of the party selling the hometo the grant applicant (or any other partywho may receive a financial benefit fromthe sale), and of not accepting contribu-tions contingent on the sale of any particu-lar properties, ensure that X is not beholdento any particular donors or other supporterswhose interest may conflict with that of thelow-income buyers X is working to help.

X’s grantmaking procedures combinedwith its efforts to educate home buyers en-sure that X is operated primarily to benefitthe low-income beneficiaries of its down-

payment assistance. The low-incomebeneficiaries constitute a charitable class.Any benefit to other parties (such as homesellers, real estate agents, or developers)who participate in the transactions doesnot detract from the charitable purpose ofrelieving the poor and distressed. See Rev.Ruls. 72–559, 74–587, 76–419. BecauseX is operated exclusively for charitablepurposes, X qualifies for exemption fromfederal taxation as an organization de-scribed in § 501(c)(3).

By contrast, in Situation 2, Y does notqualify as an organization described in§ 501(c)(3). To finance its down paymentassistance activities, Y relies on sellersand other real-estate related businessesthat stand to benefit from the transactionsY facilitates. Furthermore, in decidingwhether to provide assistance to a low-in-come applicant, Y’s grantmaking staffknows the identity of the home seller andmay also know the identities of other in-terested parties and is able to take intoaccount whether the home seller or an-other interested party is willing to makea payment to Y. Y’s receipt of a paymentfrom the home seller corresponding to theamount of the down payment assistancein substantially all of the transactions, andY’s reliance on these payments for mostof its funding indicate that the benefit tothe home seller is a critical aspect of Y’soperations. In this respect, Y is like theorganization considered in Easter House,which received all of its support from feescharged to adoptive parents, so that thebusiness purpose of the adoption servicebecame its primary goal and overshad-owed any educational or charitable pur-pose. Like the organization considered inAmerican Campaign Academy, Y is struc-tured and operated to assist private partieswho are affiliated with its funders. Likethe organizations considered in AmericanCampaign Academy, Easter House, andColumbia Park Recreation Association,Y also serves an exempt purpose, but be-cause Y is not operated exclusively forexempt purposes, Y does not qualify forexemption from federal income tax as anorganization described in § 501(c)(3).

In Situation 3, although Z does not limitits down payment assistance program tolow-income recipients, Z’s down paymentassistance program still serves a charita-ble purpose described in § 501(c)(3) be-cause it combats community deterioration

in a specific, economically depressed areathat has suffered a major loss of populationand jobs. Through a combination of coun-seling and financial assistance, Z helps lowand moderate-income families in that areato acquire decent, safe and sanitary hous-ing and to prepare for the responsibilitiesof home ownership. In this respect, Z islike the organization described in Situa-tion 3 of Rev. Rul. 70–585. Because Zis operated exclusively for charitable pur-poses, Z qualifies for exemption from fed-eral taxation as an organization describedin § 501(c)(3).

Down payment assistance paymentsfor home buyers in Situations 1 and 3are made by those organizations out ofa detached and disinterested generosityand from charitable or like impulse, ratherthan to fulfill any moral or legal duty,and thus qualify for exclusion from suchhome buyers’ gross incomes as “gifts”under § 102. The benefits provided to thehome buyers in these circumstances aresufficiently removed from the interests ofany home sellers or sales agents that theyproceed from a detached and disinterestedgenerosity on the part of the donor organ-ization, and such grants lack the indiciaof a rebate, price adjustment, or quid proquo incident to a sale. Favorable treat-ment under § 102 is thus appropriate. Thehome buyer’s payment of such amounttoward the purchase of the residence willbe included in his or her cost basis under§ 1012.

In Situation 2, in substantially all ofthe cases in which Y provides down pay-ment assistance to a home buyer, Y re-ceives a payment from the home sellerthat directly correlates to the amount ofthe down payment assistance Y providesto the home buyer. In those cases, thepayments received by the home buyers donot qualify for exclusion from gross in-come as gifts under § 102. The paymentsdo not proceed from detached and disin-terested generosity, but rather are in re-sponse to an anticipated economic bene-fit, namely facilitating the sale of a seller’shome. Under Duberstein, supra, such pay-ments are not gifts for purposes of § 102.Unlike in Situations 1 and 3, in Situation2, the down payment assistance receivedby those home buyers represents a rebateor purchase price reduction. As a rebateor purchase price reduction, the down pay-ment assistance is not includible in a home

May 22, 2006 918 2006–21 I.R.B.

buyer’s gross income under § 61 and theamount of the down payment assistance isnot included in the home buyer’s cost ba-sis under § 1012, as adjusted under § 1016.

HOLDINGS

1. In Situations 1 and 3, the organi-zation is operated exclusively for charita-ble purposes and qualifies for exemptionfrom federal income tax as an organiza-tion described in § 501(c)(3). In Situa-tion 2, the organization is not operated ex-clusively for charitable purposes, and con-sequently, does not qualify for exemptionfrom federal income tax as an organizationdescribed in § 501(c)(3).

2. In Situations 1 and 3, the home buy-ers may exclude the down payment assis-tance from their gross income as gifts un-der § 102. In Situation 2, the home buy-ers may not exclude the down payment as-sistance as gifts under § 102. However,in Situation 2, the down payment assis-tance is excluded from the gross income ofhome buyers because it represents a rebateor purchase price reduction.

3. In Situations 1 and 3, the homebuyers may include the down payment as-sistance in the cost basis of their homesunder § 1012. In Situation 2, the homebuyers may not include the amount of thedown payment assistance in the cost ba-sis of their homes under § 1012. Rather,the amount of the down payment assis-tance represents a rebate or purchase pricereduction that is excluded from the homebuyer’s cost basis under § 1012.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Elizabeth C. Kastenberg of ExemptOrganizations, Tax Exempt and Govern-ment Entities Division. For further in-formation regarding this revenue ruling,contact Elizabeth C. Kastenberg at (202)283–9468 (not a toll-free call).

Section 1012.—Basis ofProperty—Cost

Whether certain down payment assistance pro-vided to a home buyer is included in the buyer’s costbasis under section 1012. See Rev. Rul. 2006-27,page 915.

Section 1502.—Regulations26 CFR 1.1502–13: Intercompany transactions.

T.D. 9261

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Part 1

Intercompany Transactions;Manufacturer IncentivePayments

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains finalregulations under section 1502 of the Inter-nal Revenue Code. Example 13 of the in-tercompany transaction regulations illus-trates the treatment of manufacturer incen-tive payments. Because a premise under-lying the example is under reconsideration,these final regulations remove and reservethis example. The regulations will affectcorporations filing consolidated returns.

DATES: Effective Date: These regulationsare effective on May 8, 2006.

FOR FURTHER INFORMATIONCONTACT: Frances Kelly, (202)622–7770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 1.1502–13 of the consolidatedreturn regulations provides rules for tak-ing into account items of income, gain,deduction, and loss of members fromintercompany transactions. In particu-lar, §1.1502–13(c)(7)(ii), Example 13,illustrates how the matching rule of the in-tercompany transaction regulations treatsa transaction involving manufacturer in-centive payments. On August 13, 2004,the IRS and Treasury Department pub-lished a notice of proposed rulemaking(REG–131264–04, 2004–2 C.B. 506)in the Federal Register (69 FR 50112)proposing regulations to address addi-tional transactions involving manufacturerincentive payments and to clarify the

proper treatment of such incentive pay-ments under the intercompany transactionregulations.

On April 25, 2005, the IRS and Trea-sury Department published Rev. Rul.2005–28, 2005–19 I.R.B. 997, which sus-pends, in part, Rev. Rul. 76–96, 1976–1C.B. 23. Rev. Rul. 2005–28 states thatthe IRS will not apply, and taxpayers maynot rely upon, the conclusion reached inRev. Rul. 76–96 that certain rebates madeby a manufacturer to retail customers areordinary and necessary business expensesdeductible under section 162, pending theIRS’s reconsideration of the issue andpublication of subsequent guidance.

Explanation of Provisions

The manufacturer incentivepayment transaction described in§1.1502–13(c)(7)(ii), Example 13 relies,in part, upon the premise that the manufac-turer incentive payment is an ordinary andnecessary business expense deductibleunder section 162. To the extent that thispremise is correct, this example illustratesthe proper application of the intercom-pany transaction regulations. However,because Rev. Rul. 2005–28 suspends Rev.Rul. 76–96, in pertinent part, these finalregulations remove §1.1502–13(c)(7)(ii),Example 13, pending further guidance onthe section 162 issue considered in Rev.Rul. 76–96.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Or-der 12866. Therefore, a regulatory assess-ment is not required. It is hereby certi-fied that these regulations will not have asignificant economic impact on a substan-tial number of small entities. These finalregulations do not alter substantive provi-sions of the intercompany transaction reg-ulations. They merely remove an examplewhich may be misleading and cause con-fusion for taxpayers. Accordingly, goodcause is found for dispensing with priornotice and comment pursuant to 5 U.S.C553(b), and for dispensing with a delayedeffective date pursuant to 5 U.S.C 553(d).Because no notice of proposed rulemakingis required, the provisions of the Regula-tory Flexibility Act (5 U.S.C. chapter 6)do not apply. Pursuant to section 7805(f)

2006–21 I.R.B. 919 May 22, 2006

of the Internal Revenue Code, this regula-tion was submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comments on its impact onsmall business.

Drafting Information

The principal author of these regula-tions is Frances Kelly of the Office ofthe Associate Chief Counsel (Corporate).However, other personnel from the IRSand Treasury Department participated intheir development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding an entry innumerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.1502–13 also issued under 26U.S.C. 1502. * * *

Par. 2. In §1.1502–13, paragraph(c)(7)(ii), Example 13 is removed and re-served.

Mark E Matthews,Deputy Commissioner forServices and Enforcement.

Approved April 28, 2006.

Eric Solomon,Deputy Assistant

Secretary of the Treasury.

(Filed by the Office of the Federal Register on May 5, 2006,8:45 a.m., and published in the issue of the Federal Registerfor May 8, 2006, 71 F.R. 26687)

May 22, 2006 920 2006–21 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousInterim Guidance WithRespect to the Application ofTreas. Reg. §1.883–3

Notice 2006–43

SECTION I. PURPOSE

This notice announces that the Trea-sury Department (Treasury) and the Inter-nal Revenue Service (IRS) will amend theregulations under section 883 of the In-ternal Revenue Code (Code) to provideguidance regarding the proper interpreta-tion of §1.883–3(b) in light of the repealof section 954(a)(4) and (f) (foreign basecompany shipping provisions) by section415 of the American Jobs Creation Actof 2004, Pub. L. No. 108–357, 118 Stat.1418 (2004) (“AJCA”). Until such regula-tions are issued, taxpayers may rely on therules set forth in this notice.

SECTION 2. BACKGROUND

.01 Section 883(a) and (c)

Section 883(a)(1) and (a)(2) of the Codegenerally provide that income from the in-ternational operation of ships or aircraftderived by a corporation organized in aforeign country shall be excluded fromgross income and exempt from U.S. tax-ation if the foreign country in which suchcorporation is organized grants an equiva-lent exemption to corporations organizedin the United States. Section 883(c)(1)provides that the section 883(a)(1) and (2)exclusion will not apply if 50 percent ormore of the value of the stock of the for-eign corporation is owned by individualswho are not residents of a country thatgrants an equivalent exemption to U.S.corporations (the section 883(c)(1) limita-tion). Under section 883(c)(2), the sec-tion 883(c)(1) limitation does not apply toany foreign corporation that is a CFC. Un-der section 883(c)(3), the section 883(c)(1)limitation does not apply if the stock of theforeign corporation is primarily and reg-ularly traded on an established securitiesmarket in the United States or in a foreigncountry that grants an equivalent exemp-tion to U.S. corporations.

.02 Treasury Regulations under Section883(a) and (c)

On August 26, 2003, Treasury andthe IRS issued Treasury Decision 9087,2003–2 C.B. 781. Treasury Decision 9087included final regulations implementingsection 883(a) and (c) and provided thatthe section 883(a)(1) and (2) exclusion isconditioned on the corporation satisfyingcertain stock ownership and related sub-stantiation and reporting requirements.

Under § 1.883–3(a), a CFC satisfies thestock ownership requirement if it meetsthe “income inclusion test” of §1.883–3(b)and satisfies certain substantiation andreporting requirements. The income in-clusion test requires that more than 50percent of the CFC’s adjusted net for-eign base company income (as defined in§ 1.954–1(d) and as increased or decreasedby section 952(c)) derived from the inter-national operation of ships or aircraft isincludible in the gross income of one ormore United States citizens, individualresidents of the United States, or domesticcorporations.

.03 AJCA Shipping Income Provisions

Section 415 of the AJCA eliminatedforeign base company shipping income asa type of subpart F income, effective fortaxable years of foreign corporations be-ginning after December 31, 2004, and tax-able years of U.S. shareholders with orwithin which such taxable years of the for-eign corporations end. The legislative his-tory to section 415 of the AJCA indicatesthat Congress believed the elimination offoreign base company shipping income asa type of subpart F income would provide“U.S. shippers the opportunity to be com-petitive with their tax-advantaged foreigncompetitors.” See H. Rep. No. 548, Part I,108th Cong., 2nd Sess. 209 (2004).

Commentators requested guidance onthe proper interpretation of §1.883–3(b) inlight of the repeal of the foreign base com-pany shipping provisions. Commentatorsalso expressed concern that foreign corpo-rations may no longer satisfy the incomeinclusion test if they no longer derive for-eign base company shipping income fromthe international operation of their ships or

aircraft as a result of the statutory amend-ments to sections 954(a)(4) and (f).

Section 423 of the AJCA delayed theapplicability date of the final regulationsunder section 883(a) and (c) for one year,until taxable years beginning after Septem-ber 24, 2004.

.04 T.D. 9218

On August 5, 2005, Treasury and theIRS issued T.D. 9218, 2005–37 I.R.B. 503,to conform the applicability date of thesection 883(a) and (c) final regulations inlight of section 423 of the AJCA. In thepreamble to T.D. 9218, Treasury and theIRS also addressed the interpretation of theincome inclusion test in light of the AJCA.The preamble stated that the better inter-pretation of §1.883–3(b) is that a CFC thatsatisfied the income inclusion test prior tothe effective date of the AJCA may con-tinue to satisfy it after the effective dateof the legislation, provided the CFC candemonstrate that had section 954(a)(4) and(f) of the Code not been repealed, morethan 50 percent of its current earnings andprofits derived from its international oper-ation of ships or aircraft would have beenattributable to amounts includible in thegross income of one or more U.S. citizens,individual residents of the United States ordomestic corporations (pursuant to section951(a)(1)(A) or another provision of theCode) for the taxable years of such per-sons in which the taxable year of the CFCends. The preamble to T.D. 9218 statedthat Treasury and the IRS would issue reg-ulations to clarify the application of the in-come inclusion test and invited commentson the most appropriate way to accomplishthis clarification consistent with the princi-ples of the existing section 883 regulationsand the AJCA.

Treasury and the IRS received a num-ber of comments in response to T.D.9218. Generally, commentators suggestedthat the test proposed in the preamble toT.D. 9218 was too complex because itrequired CFCs to calculate hypotheticalamounts of subpart F income as thoughsections 954(a)(4) and (f) had not beenrepealed. Commentators proposed sev-eral alternative approaches they viewedas simpler than the approach described inT.D. 9218, including replacing the income

2006–21 I.R.B. 921 May 22, 2006

inclusion test with a test that determineswhether certain U.S. persons, who are notflow-through entities own, directly or in-directly, more than 50 percent of the valueof the CFC for more than half of the daysin the CFC’s taxable year. Some commen-tators suggested that CFCs organized in aforeign country that provides a reciprocalexemption to U.S. corporations on theirincome from the international operationof their ships or aircraft should be eligiblefor the exclusion under section 883(a)(1)and (2) without further limitation.

SECTION 3. NEW RULE: QUALIFIEDU.S. PERSON OWNERSHIP TEST

Treasury and the IRS have consideredthe comments received in response to T.D.9218. Treasury and the IRS continue tobelieve that residents of countries that donot provide a reciprocal exemption to U.S.corporations on their income from the in-ternational operation of their ships or air-craft might attempt to use the CFC ex-ception to circumvent the rules of sec-tion 883(c)(1) by owning more than 50percent of the value of a foreign corpo-ration through a U.S. fiscally transparententity, such as a U.S. partnership. Trea-sury and the IRS continue to believe thatthis is contrary to the Congressional in-tent to ensure that the exclusion providedin section 883(a)(1) and (2) is providedonly to foreign corporations that are ownedby residents of foreign countries that pro-vide a reciprocal exemption to U.S. cor-porations. See S. Rep. No. 313, 99th

Cong., 2nd Sess. 340–41 (1986); see alsoJoint Committee on Taxation, General Ex-planation of the Tax Reform Act of 1986,at 927–928. In addition, Treasury and theIRS continue to believe this result is alsocontrary to the Conference report accom-panying the legislation that added the CFCexception, which states that: “corporationsare not considered residents of countriesthat exempt U.S. persons unless 50 percentor more of the ultimate individual ownersare U.S. shareholders of controlled foreigncorporations.” H.R. Conf. Rep. No. 841,99th Cong., 2d Sess. 598 (1986).

However, Treasury and the IRS agreethat the income inclusion test, as it wasinterpreted in T.D. 9218, is overly com-plex and unnecessary. As a result, basedon the comments received and Congres-sional intent to increase the competitive-

ness of U.S. shippers through the elimina-tion of foreign base company shipping in-come as a type of subpart F income, Trea-sury and the IRS intend to amend §1.883–3to replace the income inclusion test with anew ownership based test. Under the newtest, a foreign corporation will satisfy thestock ownership test of §1.883–1(c)(2) if itmeets a “qualified U.S. person ownershiptest” and satisfies the substantiation and re-porting requirements of paragraphs (c) and(d), respectively, of § 1.883–3.

A foreign corporation shall satisfy the“qualified U.S. person ownership test” if,for more than half the days of the corpo-ration’s taxable year: (i) it is a CFC, and(ii) more than 50 percent of the total valueof all the outstanding stock of the CFCis owned (within the meaning of section958(a), as modified for purposes of apply-ing this notice) by one or more “qualifiedU.S. persons.”

A “qualified U.S. person” is a U.S. per-son (as defined in section 7701(a)(30)) thatis a U.S. citizen, resident alien, or a do-mestic corporation. For purposes of apply-ing the “qualified U.S. person ownershiptest,” the value of the stock in the CFC thatis owned (directly or indirectly) throughbearer shares shall not be considered in thenumerator or denominator of the owner-ship fraction. In addition, for purposes ofapplying this test, stock owned by a do-mestic partnership, domestic trust or do-mestic estate, shall be treated as owned byits partners, beneficiaries or owners, re-spectively, applying the rules of section958(a) as if such domestic entity were aforeign partnership, foreign trust, or for-eign estate, respectively.

SECTION 4. EFFECTIVE DATE

Regulations to be issued incorporatingthe guidance set forth in this notice willapply for taxable years beginning after theMay 2, 2006. Taxpayers also may ap-ply the provisions of this notice to taxableyears beginning before May 2, 2006, butafter December 31, 2004. Taxpayers ap-plying this notice, however, must do soconsistently for all taxable years for whichthis notice is applied and for which it is ineffect.

SECTION 5. REQUEST FORCOMMENTS

Treasury and the IRS request fur-ther comments from interested personson the rules announced in this notice.Written comments may be submitted toCC:INTL:Br1 (Notice 2006–43), room4607, Internal Revenue Service, P.O.Box 7604, Ben Franklin Station, Wash-ington, DC 20224. Submissions maybe hand delivered Monday through Fri-day between the hours of 8 a.m. and5 p.m. to: CC:INTL:Br1 (Notice 2006–43)Courier’s desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington, DC 20224. Alternatively,taxpayers may submit comments electron-ically via the following e-mail address:Notice.Comments@irscounsel.treas.gov.Please include “Notice 2006–43” in thesubject line of any electronic communica-tions.

DRAFTING INFORMATION

The principal author of this notice isPatricia A. Bray of the Office of AssociateChief Counsel (International). However,other personnel from Treasury and the IRSparticipated in its development. For fur-ther information regarding this notice, con-tact Patricia A. Bray at (202) 622–3880(not a toll-free call).

Announcement of RulesImplementing AmericanJobs Creation Act of 2004Section 415 Modifications tothe Subpart F Treatment ofAircraft and Vessel LeasingIncome

Notice 2006–48

SECTION 1. OVERVIEW

This notice provides guidance relatingto amendments made by section 415 ofthe American Jobs Creation Act of 2004(Public Law 108–357) (October 24, 2004)(AJCA), which affect the treatment of cer-tain income and assets related to the leas-ing of aircraft or vessels in foreign com-merce. The Treasury Department (Trea-sury) and the Internal Revenue Service

May 22, 2006 922 2006–21 I.R.B.

(IRS) intend to amend the regulations un-der sections 367(a), 954, and 956 of theInternal Revenue Code (Code) to addressthe amendments made by section 415 ofthe AJCA and this notice. Until regula-tions reflecting these changes are issued,taxpayers may rely upon this notice. Thisnotice also solicits comments on whetherany other changes to the regulations undersections 367, 954, and 956 are necessaryto implement the purposes of section 415of the AJCA.

SECTION 2. BACKGROUND

.01 In General

Section 415 of the AJCA repealed sec-tion 954(a)(4) and (f), the foreign basecompany shipping income provisionsof subpart F. Following repeal of theforeign base company shipping incomeprovisions, rents derived from leasingan aircraft or vessel may be included insubpart F income only if the rents are de-scribed in another category of subpart Fincome such as foreign personal holdingcompany income as defined in section954(c) (FPHCI). Rents are included inFPHCI under section 954(c)(1)(A). Sec-tion 954(c)(2)(A) excludes from FPHCIrents received from unrelated persons andderived in the active conduct of a trade orbusiness.

Rents derived by a controlled foreigncorporation (CFC) (i.e., the lessor) are con-sidered to be derived in the active con-duct of a trade or business if the rentsare derived under any one of four circum-stances described in the Income Tax Reg-ulations under section 954(c)(2)(A). Onesuch relevant circumstance, provided in§ 1.954–2(c)(1)(iv), is when rents are de-rived from leasing property that is leasedas a result of the performance of market-ing functions by the lessor. These rentsare considered to be derived in the ac-tive conduct of a trade or business if thelessor, through its own officers or employ-ees located in a foreign country, maintainsand operates an organization in the for-eign country that is regularly engaged inthe business of marketing, or of market-ing and servicing, the leased property andthat is substantial in relation to the amountof rents derived from leasing the property.

Section 1.954–2(c)(2)(ii) provides that thedetermination of whether the foreign or-ganization is substantial in relation to theamount of rents derived is based on allthe facts and circumstances. However, un-der § 1.954–2(c)(ii), the organization willbe considered substantial in relation to theamount of rents if active leasing expensesequal or exceed 25 percent of the adjustedleasing profit, as those terms are definedunder the regulations.

Section 415 of the AJCA amendedsection 954(c)(2)(A) to create a new safeharbor for rents derived from leasing anaircraft or vessel in foreign commerce.The amendment to section 954(c)(2)(A)provides that, for purposes of section954(c)(2)(A):

[R]ents derived from leasing an aircraftor vessel in foreign commerce shall notfail to be treated as derived in the activeconduct of a trade or business if, as de-termined under regulations prescribedby the Secretary, the active leasing ex-penses are not less than 10 percent ofthe profit on the lease.

The legislative history of section 415 ofthe AJCA provides that the new safe har-bor for rents derived from leasing an air-craft or vessel in foreign commerce “is tobe applied in accordance with the exist-ing regulations under section 954(c)(2)(A)by comparing the lessor’s ‘active leasingexpenses’ for its pool of leased assets toits ‘adjusted leasing profit.’” H.R. Rep.No. 548, 108th Cong., 2d Sess. 210(2004) (hereinafter 2004 House Report).The legislative history of section 415 of theAJCA1 further indicates:

[T]he requirements of section954(c)(2)(A) will be met if a lessorregularly and directly performs activeand substantial marketing, remarketing,management and operational functionswith respect to the leasing of an aircraftor vessel (or component engines). Thiswill be the case regardless of whetherthe lessor engages in marketing ofthe lease as a form of financing (ver-sus marketing the property as such)or whether the lease is classified asa finance lease or operating lease for

financial accounting purposes. If alessor acquires, from an unrelated orrelated party, a ship or aircraft subjectto an existing FSC or ETI lease, therequirements of section 954(c)(2)(A)will be satisfied if, following the acqui-sition, the lessor performs active andsubstantial management, operational,and remarketing functions with respectto the leased property.

Id.An aircraft or vessel will qualify

for the new safe harbor under section954(c)(2)(A) only if it is leased in “foreigncommerce.” The legislative history pro-vides that, for purposes of this safe harbor:

An aircraft or vessel will be consideredto be leased in foreign commerce if itis used for the transportation of prop-erty or passengers between a port (orairport) in the United States and onein a foreign country or between foreignports (or airports), provided the aircraftor vessel is used predominantly outsidethe United States. An aircraft or ves-sel will be considered used predomi-nantly outside the United States if morethan 50 percent of the miles during thetaxable year are traversed outside theUnited States or the aircraft or vessel islocated outside the United States morethan 50 percent of the time during suchtaxable year.

2004 House Report at 210. This defini-tion of “foreign commerce” is similar tothe definition of foreign commerce con-tained in § 1.954–6(b)(3), the regulationsunder the now repealed foreign base com-pany shipping income provisions, exceptthat this regulation does not include a pre-dominant use standard.

The legislative history directs the Sec-retary of the Treasury to make conformingchanges to current regulations “includingguidance that aircraft or vessel leasing ac-tivity that satisfies the requirements of sec-tion 954(c)(2)(A) shall also satisfy the re-quirements for avoiding income inclusionunder section 956 and section 367(a).” Id.This legislative history indicates that Con-gress anticipated that taxpayers might re-structure their operations to take advantage

1 While the legislative history indicates that the requirements of this provision may be met whether the lease is classified as a finance lease or an operating lease, under other provisions of theCode financing and operating leases are provided different treatment.

2006–21 I.R.B. 923 May 22, 2006

of the new benefits under subpart F pro-vided by section 415 of the AJCA, namelythe repeal of the foreign base companyshipping income provisions and a liberal-ized safe harbor for excluding active leas-ing income from aircraft or vessels fromforeign personal holding income.

.02 Section 956

Section 956(c)(1)(A) provides thatthe term “United States property” (“U.S.property”) generally includes tangibleproperty located in the United States. Sec-tion 956(c)(2) provides exceptions to thegeneral definition of U.S. property. Sec-tion 956(c)(2)(D) excludes from the termU.S. property any aircraft, railroad rollingstock, vessel, motor vehicle, or containerused in the transportation of persons orproperty in foreign commerce and usedpredominantly outside the United States.

Section 1.956–2(b)(1)(vi) provides thatwhether an aircraft, railroad rolling stock,vessel, motor vehicle, or container is usedpredominantly outside the United Statesdepends on the facts and circumstances ineach case. This regulation also providesthat as a general rule, such transportationproperty will be considered used predomi-nantly outside the United States if 70 per-cent or more of the miles traversed in theuse of such property are traversed outsidethe United States or if such property is lo-cated outside the United States 70 percentof the time during such taxable year.

As noted above, the legislative historyof section 415 of the AJCA provides,for purposes of the newly-created section954(c)(2)(A) safe harbor, an aircraft orvessel will be considered used predomi-nantly outside the United States if morethan 50 percent of the miles during the tax-able year are traversed outside the UnitedStates or the aircraft or vessel is usedpredominantly outside the United Statesmore than 50 percent of the time duringsuch taxable year. 2004 House Report at210. In addition, the legislative history in-dicates that Congress intended to excludeaircraft or vessels from the definition ofU.S. property under section 956 if the rentsderived from leasing the aircraft or ves-sels are excluded from foreign personalholding company income under section954(c)(2)(A). To implement congressionalintent with regard to aircraft or vesselsleased in foreign commerce, conforming

changes must be made to the regulationsunder section 956.

.03 Section 367(a)

Section 367(a)(1) provides that if, inconnection with any exchange describedin section 332, 351, 354, 356, or 361, aUnited States person transfers property toa foreign corporation, the foreign corpo-ration will not, for purposes of determin-ing the extent to which gain will be rec-ognized on such transfer, be considered tobe a corporation. The effect of this gen-eral rule is that the transfer will not qual-ify for nonrecognition treatment, and thus,the transferor must recognize gain on thetransferred assets. However, under section367(a)(3)(A), except as provided in regu-lations, this general rule does not apply toany property transferred to a foreign cor-poration for use by the foreign corporationin the active conduct of a trade or busi-ness outside of the United States. Exceptas provided in regulations, however, sec-tion 367(a)(3)(A) does not apply to prop-erty with respect to which the transferoris a lessor at the time of the transfer (un-less the transferee is the lessee). I.R.C§ 367(a)(3)(B)(v).

Section 1.367(a)–2T(a) provides, inpart, that section 367(a)(1) does not applyto property transferred to a foreign corpo-ration if the property is transferred for useby that corporation in the active conductof a trade or business outside of the UnitedStates and certain reporting requirementsare met. Section 1.367(a)–2T(b)(3), inturn, provides that “[w]hether a trade orbusiness that produces rents or royaltiesis actively conducted shall be determinedunder the principles of § 1.954–2(d)(1)(but without regard to whether the rents orroyalties are received from an unrelatedperson).” Section 1.367(a)–2T(b)(4) pro-vides generally that a foreign corporationconducts a trade or business outside of theUnited States if the primary managerialand operational activities of the trade orbusiness are located outside of the UnitedStates and if immediately after the transferthe transferred assets are located outsideof the United States.

Section 1.367(a)–5T(f) then providesthat, regardless of use in an active tradeor business, section 367(a)(1) applies to atransfer of tangible property with respectto which the transferor is a lessor at the

time of the transfer unless: (1) the trans-feree was the lessee and the transfereewill not lease to third persons, or (2) thetransferee will lease to third persons andthe transferee satisfies the conditions of§ 1.367(a)–4T(c)(1) or (2).

Finally, § 1.367(a)–4T(c)(1) providesthat if the transferred property will beleased by the transferee foreign corpora-tion, the property generally is consideredto be transferred for use in the activeconduct of a trade or business outsideof the United States only if all three ofthe following conditions are met: (i) thetransferee’s leasing constitutes the activeconduct of a leasing business; (ii) thelessee does not use the property in theUnited States; and (iii) the transferee hasneed for substantial investment in assetsof the type transferred.

Even if property qualifies for the activetrade or business exception, when a U.S.person transfers U.S. depreciated prop-erty to a foreign corporation, that personmust include as ordinary income in theyear of the transfer the gain realized thatwould have been included as ordinary in-come under sections 617(d)(1), 1245(a),1250(a), 1252(a), or 1254(a) if the tax-payer had sold the property at its fairmarket value on the date of the transfer.Treas. Reg. § 1.367(a)–4T(b)(1) (“section367 recapture”). For this purpose, U.S.depreciated property includes propertythat has been used in the United Statesor has qualified as section 38 property byvirtue of section 48(a)(2)(B). Treas. Reg.§ 1.367(a)–4T(b)(2)(ii). Some transferorsthat qualify for the section 367 trade orbusiness exception under the provisionsof this notice may have used depreciatedproperty in the United States prior to thetransfer to the foreign corporation andtherefore may be subject to section 367recapture.

The section 367 recapture amount is re-duced if the property has been used partlyoutside the United States. Treas. Reg.§ 1.367(a)–4T(b)(3). In this circumstance,the amount of the section 367 deprecia-tion recapture is determined by multiply-ing the full section 367 recapture amountby a fraction, the numerator of which is theU.S. use of the property and denominatorof which is the total use of the property.U.S. use is the number of months that theproperty either was used within the UnitedStates or qualified as section 38 property

May 22, 2006 924 2006–21 I.R.B.

by virtue of section 48(a)(2)(B) and wassubject to depreciation by the transferoror a related person. Total use is the totalnumber of months that the property wasused (or was available for use), and sub-ject to depreciation, by the transferor or arelated person. Property is not consideredto be used outside the United States dur-ing any period in which the property was,for purposes of section 38 or 168, treatedas property not used predominately out-side the United States pursuant to the pro-visions of section 48(a)(2)(B).

Therefore, to apply the section 367 re-capture provisions, transferors must deter-mine the number of months that the prop-erty was used in the United States or qual-ified as section 38 property. Mobile as-sets such as airplanes and vessels may en-ter and leave the United States a numberof times during a month, thus raising theissue of how to determine whether such anasset was used predominately outside theUnited States during that month. Rev. Rul.71–178, 1971–1 C.B. 6, provides gener-ally that each day an aircraft under for-eign registry is physically located in theUnited States for more than 12 hours isconsidered a day within the United Statesfor purposes of § 1.48–1(g). There is noguidance under either section 48 or section367, however, that specifies how to deter-mine whether the aircraft was used pre-dominately outside the United States for aparticular month.

SECTION 3. SECTION 954 GUIDANCE

Future guidance will amend the regula-tions under section 954 to address the de-termination of whether rents derived fromleasing an aircraft or vessel in foreign com-merce will be treated as derived in the ac-tive conduct of a trade or business undersection 954(c)(2)(A), as amended by sec-tion 415 of the AJCA. Comments are re-quested on whether there are issues withregard to this determination that requireclarification.

In addition, future guidance will clarifythat an aircraft or vessel will be consid-ered to be leased in foreign commerce,for purposes of section 954(c)(2)(A), onlyif the aircraft or vessel is used in for-eign commerce, within the meaning of§ 1.954–6(b)(3), and is used predom-inately outside the United States. Forthis purpose, an aircraft or vessel will be

treated as used predominately outside theUnited States if it would be so treatedunder § 1.956–2(b)(1)(vi) with the phrase“more than 50 percent” substituted forthe phrases “70 percent or more” or “70percent.”

SECTION 4. SECTION 956 GUIDANCE

Future guidance will provide that, forpurposes of applying § 1.956–2(b)(1)(vi),an aircraft or vessel used in the trans-portation of persons or property in foreigncommerce is excluded from U.S. propertyunder § 1.956–2(b)(1)(vi) if rents derivedfrom leasing such aircraft or vessel are ex-cluded from foreign personal holding com-pany income under section 954(c)(2)(A)and such property is considered to be usedpredominately outside the United Statesunder § 1.956–2(b)(1)(vi), determinedby substituting the phrase “more than 50percent” for the phrases “70 percent ormore” or “70 percent.” For purposes ofdetermining whether an aircraft or vesselis used in foreign commerce, the defini-tion of “foreign commerce” contained in§ 1.954–6(b)(3) shall continue to apply.

SECTION 5. SECTION 367(a)GUIDANCE

.01 Active Conduct of a Trade or Businessthat Produces Rents or Royalties

In light of section 415 of the AJCA andits legislative history, the regulations undersection 367(a) will provide that the princi-ples of section 954(c)(2)(A) (as amendedby the AJCA), and the regulations there-under (as they will be amended pursuantto section 3 of this notice), shall apply todetermine whether a trade or business thatproduces rents or royalties is actively con-ducted under § 1.367(a)–2T(b)(3). Untilthose regulations under section 367(a) areissued, taxpayers relying upon this noticemust state that they are applying the provi-sions of this notice to meet the requirementof § 1.6038B–1T(c)(4)(i) and (iv) to spec-ify the reason the transfer qualifies for theactive trade or business exception.

.02 Conduct of Trade or Business Outsideof the United States

For purposes of applying§ 1.367(a)–2T(b)(4) or a similar provisionof future regulations, the regulations

under section 367(a) will provide thatgenerally the primary managerial andoperational activities of the trade orbusiness of leasing an aircraft or vesselmust be conducted outside of the UnitedStates, and the aircraft or vessel must beused predominantly outside of the UnitedStates, as defined above in section 3.A lessee that uses an aircraft or vesselpredominantly outside of the UnitedStates will satisfy the requirement in§ 1.367(a)–4T(c)(1)(ii).

.03 Depreciation Recapture for CertainSection 367 Transfers

Treasury and the IRS are consideringfuture guidance regarding how to deter-mine whether an aircraft or vessel wasused predominantly outside the UnitedStates for a particular month for purposesof calculating section 367 recapture. Untilfurther guidance is issued, taxpayers arepermitted to use any reasonable method tomake this determination.

SECTION 6. EFFECTIVE DATE

The future regulations described in thisnotice will be effective beginning on or af-ter May 2, 2006. Until those regulationsare issued, taxpayers may rely upon theprovisions of this notice as of May 2, 2006.In addition, taxpayers may elect to applysections 3 and 4 of this notice retroactivelyto tax years of foreign corporations begin-ning after December 31, 2004, and for taxyears of United States shareholders withor within which such tax years of foreigncorporations end. Taxpayers may elect toapply section 5 of this notice retroactivelyto transfers of aircraft or vessels occurringon or after October 22, 2004. This elec-tion is made by providing the descriptionof the transfer under § 1.6038B–1T(c) asspecified in section 5.01 of this notice. Norelief under § 301.9100–1 is necessary forthis election. Taxpayers electing to applysections 3 through 5 of this notice retroac-tively must do so consistently for all trans-actions.

SECTION 7. COMMENTS

Comments are requested on whetherany other changes to the regulations undersections 367, 954, and 956 are necessaryto implement the purposes of section 415of the AJCA. Specifically, Treasury and

2006–21 I.R.B. 925 May 22, 2006

the IRS are considering clarifying howthe depreciation recapture rules apply toaircraft and vessels that were used both inand outside the United States. Treasuryand the IRS request comments on how thedepreciation recapture rules under section367(a) should apply to leased aircraft andvessels.

Written comments on the issues ad-dressed in this notice may be sub-mitted to the Office of AssociateChief Counsel International, Attention:Jason Kleinman (Notice 2006–48), room

4710, CC:INTL:B2, Internal RevenueService, 1111 Constitution Avenue, NW,Washington, D.C., 20224. Alternatively,taxpayers may submit comments electron-ically to Notice.comments@ml.irscoun-sel.treas.gov. Comments will be availablefor public inspection and copying.

SECTION 8. DRAFTINGINFORMATION

The principal authors of this notice areJason Kleinman and Daniel McCall of the

Office of Associate Chief Counsel (In-ternational). For comments or questionsregarding sections 954 or 956, contactMr. Kleinman at (202) 622–3840. Forcomments or questions regarding sec-tion 367, contact Mr. McCall at (202)622–3860.

Note. This revenue procedure will be reproduced as the next revision of IRS Publication 4436, General Rules and Specifications forSubstitute Form 941 and Schedule B (Form 941).

Rev. Proc. 2006–25

TABLE OF CONTENTS

SECTION 1 – PURPOSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926

SECTION 2 – WHAT’S NEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927

SECTION 3 – GENERAL REQUIREMENTS FOR REPRODUCING IRS OFFICIAL FORM 941 ANDSCHEDULE B (FORM 941) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927

SECTION 4 – REPRODUCING FORM 941 AND SCHEDULE B (FORM 941) FOR SOFTWARE-GENERATEDPAPER FORMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 927

SECTION 5 – OMB REQUIREMENTS FOR SUBSTITUTE FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 928

SECTION 6 – REPRODUCIBLE COPIES OF FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929

SECTION 7 – EFFECT ON OTHER DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929

SECTION 8 – EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929

Section 1 – Purpose

.01 The purpose of this publication is to provide general rules and specifications from the Internal Revenue Service (IRS) for paperand computer-generated substitutes for the January 2006 revision of Form 941, Employer’s QUARTERLY Federal Tax Return, andSchedule B (Form 941), Report of Tax Liability for Semiweekly Schedule Depositors.

Note. Substitute territorial forms (941-PR, 941-SS, and Anexo B (Forma 941-PR)) should also conform to the specifications outlinedin this revenue procedure.

.02 This publication provides measurements and printing specifications for substitute Form 941 and Schedule B (Form 941). Ifyou need more in-depth information on who must complete the forms and how to complete them, see the Instructions for Form 941and Publication 15 (Circular E), Employer’s Tax Guide, or visit the IRS website at www.irs.gov.

.03 Forms should not be submitted to the IRS for specific approval. If you are uncertain of any specification and want clarification,do the following.

(1) Submit a letter citing the specification.

(2) State your understanding of the specification.

(3) Enclose an example (if appropriate) of how the form would appear if produced using your understanding.

(4) Use the following address. Be sure to include your name, complete address, phone number, and, if applicable, your emailaddress with your correspondence.

May 22, 2006 926 2006–21 I.R.B.

Internal Revenue ServiceAttn: Substitute Forms ProgramSE:W:CAR:MP:T:T:SP, IR-64061111 Constitution Avenue, NWWashington, DC 20224

Note. Allow at least 30 days for the IRS to respond..04 However, software developers and form producers should send a blank copy of their substitute Form 941 and Schedule B (Form

941) in pdf format to Victor.V.Martin@irs.gov. The purpose is not specifically for approval but to assist the IRS in preparing to scanthese forms. Submitters will only receive comments if a significant problem is discovered through this process. Submitters are notexpected to delay marketing their forms in order to receive feedback. In no case should submitters include “live” taxpayer data.

Section 2 – What’s New

.01 The 2006 revisions of Form 941 and Schedule B (Form 941) have six-digit Form ID codes instead of the four-digit codes usedin 2005.

.02 The 2006 revision of Schedule B (Form 941) now includes a calendar year designation area near the top of the form.

.03 There are new 6x10 grid layouts for the 2006 revisions.

Section 3 – General Requirements for Reproducing IRS Official Form 941 and Schedule B(Form 941)

.01 Do not submit substitute Form 941 and Schedule B (Form 941) to the IRS for approval. Substitute Form 941 and Schedule B(Form 941) that completely conform to the specifications contained in this revenue procedure do not require prior approval from theIRS. Substitute forms filed with the IRS that do not conform may be returned.

.02 Print the form on paper that is 8.5 inches wide by 11 inches deep.

.03 Use white paper that meets generally-accepted weight, color, and quality standards (minimum 20 lb. white bond paper).

Note. Reclaimed fiber in any percentage is permitted provided that the requirements of this standard are met..04 The IRS prefers printing Form 941 on both sides of a single sheet of paper, but it is acceptable to print on one side of each of

two separate sheets of paper..05 Make substitute paper forms as identical to the official IRS-printed forms as possible..06 Print using nonreflective black inks..07 Use typefaces that are substantially identical in size and shape to the official forms and use rules and shading that are substan-

tially identical to those on the official forms..08 Print the six-digit form ID codes in the upper right-hand corner of each form using nonreflective black, carbon-based, 12-point

(minimum 10-point required) OCR-A font. Use the official paper over-the-counter IRS forms to develop your substitute paper forms.Print “950106” on page 1 of Form 941, “950206” on page 2 of Form 941, and “950306” on Schedule B (Form 941) of substitute paperforms. See Section 4 for form ID codes for software-generated forms.

Note. Maintain as much white space as possible around the form ID code. Do not allow character strings to print adjacent to the code..09 Print the OMB number in the same location as on the official forms..10 Print all entry boxes and checkboxes exactly as shown on the official forms..11 Print your IRS-issued three-letter substitute form printer source code in the middle at the bottom of page 1 of Form 941.

Note. You can obtain a three-letter substitute form printer source code by requesting it by email at *taxforms@irs.gov. (The asteriskmust be included in the address.) Please enter “Substitute Forms” on the subject line.

.12 Print “For Privacy Act and Paperwork Reduction Act Notice, see the back of the Payment Voucher” at the bottom of page 1 ofForm 941.

.13 Print “For Paperwork Reduction Act Notice, see separate instructions” at the bottom of Schedule B (Form 941).

.14 Do not print the form catalog number (“Cat. No.”) at the bottom of the forms or instructions.

.15 Do not print the Government Printing Office (GPO) symbol at the bottom of the forms or instructions.

.16 See Exhibits A and B in Section 8.

Section 4 – Reproducing Form 941 and Schedule B (Form 941) for Software-Generated PaperForms

.01 You may use the 6x10 grid exhibits (C and D) at the end of this document to develop a software version of Form 941 andSchedule B (Form 941). Please follow the specifications exactly to develop the fields.

2006–21 I.R.B. 927 May 22, 2006

.02 If you are developing software that is designed using the 6x10 grid in the exhibits, you may make the following modifications.See Exhibits C and D in Section 8.

• Use “970106” for page 1 of Form 941, “970206” for page 2 of Form 941, and “970306” for Schedule B (Form 941) as the formID codes.

Note. Maintain as much white space as possible around the form ID code. Do not allow character strings to print adjacent to thecode.

• Place all boxes and entry spaces in the same field locations as indicated in the 6x10 grid exhibits.

• Use single lines for “Employer Identification Number” (EIN) and other entry areas in the entity section of page 1 of Form 941.

• You do not need to use reverse type as shown on the IRS official form.

• You do not need to pre-print decimal points in the data boxes. However, all amounts should be printed with decimal points andplace holders for cents.

• Use a single box for “state abbreviation” in line 14 of Form 941.

• Delete the pre-printed formatting in the “date” box for line 16 and in Parts 5 and 6 of Form 941.

• Delete the pre-printed formatting in the “Phone” box for Parts 4, 5, and 6.

• Use a single box for “Personal Identification Number (PIN)” in Part 4 of Form 941.

• You may delete all shading when using the 6x10 grid format..03 If producing both the form and the data or the form only, print your three-letter IRS-issued form printer source code in Row

63, Columns 49-51 on page 1 of Form 941. See Section 3.11..04 If producing only the data on the form, print your four-digit software industry form code in Row 4, Columns 58-61 on page 1

of Form 941. See the National Association of Computerized Tax Processors (NACTP) website at www.nactp.org for information onthese codes.

.05 Print “For Privacy Act and Paperwork Reduction Act Notice, see the Payment Voucher” at the bottom of page 1 of Form 941.

.06 Print “For Paperwork Reduction Act Notice, see separate instructions” at the bottom of Schedule B (Form 941).

.07 Do not print the form catalog number (“Cat. No.”) at the bottom of the forms or instructions.

.08 Do not print the Government Printing Office (GPO) symbol at the bottom of the forms or instructions.

.09 To enable accurate scanning and processing, enter data on Form 941 and Schedule B (Form 941) as follows:

• Show name and EIN on all pages and attachments.

• Use 12-point (minimum 10-point) Courier font (if possible).

• Omit dollar signs, but use commas to show amounts.

• Except for lines 1, 2, and 10, leave blank any data field with a value of zero.

• Enter negative amounts with a minus sign.

Note. The IRS prefers that you use a minus sign for negative amounts instead of parentheses or some other means. The IRS willupdate the Instructions for Form 941 in 2007 to specify this preference.

Section 5 – OMB Requirements for Substitute Forms

.01 The Paperwork Reduction Act (the Act) of 1995 (Public Law 104-13) requires the following.

• The Office of Management and Budget (OMB) approves all IRS tax forms that are subject to the Act.

• Each IRS form contains the OMB approval number, if assigned. (The official OMB numbers may be found on the official IRSforms and are also shown on the forms in the exhibits.)

May 22, 2006 928 2006–21 I.R.B.

• Each IRS form (or its instructions) states:

(1) Why the IRS needs the information,

(2) How it will be used, and

(3) Whether or not the information is required to be furnished to the IRS..02 This information must be provided to any users of official or substitute IRS forms or instructions..03 The OMB requirements for substitute IRS forms are the following.

• Any substitute form or substitute statement to a recipient must show the OMB number as it appears on the official IRS form.

• For Form 941 and Schedule B (Form 941), the OMB number (1545-0029) must appear exactly as shown on the official IRS form.

• For Form 941 and Schedule B (Form 941), the OMB number must use one of the following formats.

(1) OMB No. 1545-0029 (preferred) or

(2) OMB # 1545-0029 (acceptable)..04 If no instructions are provided to users on your forms, you must furnish to them the exact text of the Privacy Act and Paperwork

Reduction Act Notice.

Section 6 – Reproducible Copies of Forms

.01 You can order official IRS forms and information copies of federal tax materials at local IRS offices or by calling the IRSNational Distribution Center at 1-800-829-3676. Other ways to get federal tax material include the following.

• The IRS website at www.irs.gov.

• The IRS’ CD-ROM (Publication 1796)..02 The IRS also offers an alternative to downloading electronic files and provides current and prior year access to tax forms and

instructions through its Federal Tax Forms CD-ROM. Order Publication 1796, IRS Federal Tax Products CD-ROM, by using the IRSwebsite at www.irs.gov/cdorders or by calling 1-877-CDFORMS (1-877-233-6767).

Section 7 – Effect on Other Documents

.01 Revenue Procedure 2005-21, 2005-1 C.B. 899 (reproduced as Publication 4436, Rev. 4-2005) is superseded.

Section 8 – Exhibits

.01 Please follow the specifications indicated in the following exhibits to produce substitute Form 941 and Schedule B (Form 941).

.02 These forms are subject to review and possible change as required. Therefore, employers are cautioned against overstockingsupplies of privately-printed substitutes.

.03 Do not submit substitute Form 941 and Schedule B (Form 941) to the IRS for approval. Substitute Form 941 and Schedule B(Form 941) that completely conform to the specifications contained in this revenue procedure may be privately printed without priorapproval from the IRS. Substitute forms filed with the IRS that do not conform may be returned. See Section 3 of this publication.

2006–21 I.R.B. 929 May 22, 2006

May 22, 2006 930 2006–21 I.R.B.

2006–21 I.R.B. 931 May 22, 2006

May 22, 2006 932 2006–21 I.R.B.

2006–21 I.R.B. 933 May 22, 2006

May 22, 2006 934 2006–21 I.R.B.

2006–21 I.R.B. 935 May 22, 2006

26 CFR 601.201: Rulings and determination letters.(Also: Part l, Section 7528.)

Rev. Proc. 2006–26

SECTION 1. PURPOSE

The purpose of this revenue procedureis to announce the introduction of user feesfor requests submitted to the U.S. compe-tent authority for discretionary determina-tions under limitation on benefits provi-sions of U.S. income tax treaties. This rev-enue procedure modifies section 14 (Fees)of Rev. Proc. 2002–52, 2002–2 C.B. 242,and will be effective for such requests sub-mitted on or after May 4, 2006.

SECTION 2. BACKGROUND

Almost all U.S. income tax treaties con-tain a limitation on benefits article. A res-ident of a Contracting State must satisfyone of the enumerated tests set forth in thatarticle to be entitled to U.S. treaty benefitswith respect to an item of income, profitor gain. The U.S. competent authority willnot make a determination on whether ornot a resident of a Contracting State meetsthe conditions of one of these enumeratedtests. However, if a resident of a Contract-ing State does not meet one of the tests,most limitation on benefits articles autho-rize the U.S. competent authority to makea discretionary determination that the res-ident be entitled to some or all of the ben-efits of the income tax treaty. Rev. Proc.2002–52, Procedures for Obtaining Com-petent Authority Assistance, currently setsforth rules for requesting a discretionarydetermination under a limitation on bene-fits provision of an income tax treaty. Sec-tion 3.08 of Rev. Proc. 2002–52.

Section 14 of Rev. Proc. 2002–52 cur-rently provides that user fees are not re-quired as a condition to requesting com-petent authority assistance, including re-quests for a discretionary determinationpursuant to section 3.08. The Internal Rev-enue Service has recently determined thatuser fees are appropriate for this limited

type of request for competent authority as-sistance. The rules for these user feesare set forth below and will be incorpo-rated into the next update of Rev. Proc.2002–52.

SECTION 3. PROCEDURES

.01 Fees

Effective May 4, 2006, a user fee of$15,000 will be charged for each entity re-questing a discretionary limitation on ben-efits determination. The fee will apply re-gardless of whether the request is for: (1)an initial determination; (2) a renewal ofa previously issued determination; or (3)a supplemental determination required, forexample, if there is a material change infact, or the applicant seeks benefits withrespect to a different type of income, or re-quests a lower rate of withholding tax ondividends. If a request is submitted that re-quires the competent authority to make adiscretionary determination for more thanone entity, a separate fee will be chargedfor each entity.

.02 Acceptance of Request

A user fee will not be charged untilthe U.S. competent authority has formallyaccepted the request for consideration.Requests should continue to be submittedto the Director, International (LMSB), andinclude the information required in sec-tion 3.08 of Rev. Proc. 2002–52. Within30 days of receipt of a complete submis-sion, the U.S. competent authority willprovide written notice to the applicant asto whether the request will be accepted orrejected for consideration. If a request isaccepted, the applicant will be requiredto mail a check or money order in theappropriate amount, along with a copyof the written notice of acceptance to theIRS office identified below. The checkor money order should be payable to theUnited States Treasury. Substantive con-sideration of a request for a discretionarydetermination will not begin until the ap-

plicant has submitted the appropriate userfee.

The mailing address for the user fee is:

IRS/BFCP.O. Box 9002Beckley, WV 25802

.03 Refunds of user fees

In general, a user fee will not be re-funded once the competent authority ac-cepts a request for consideration and theuser fee is paid. For example, the Servicewill not refund the user fee if the requestfor a discretionary determination is with-drawn by the applicant, or if the applicantfails to submit additional information asrequested by the Competent Authority.

A user fee may be refunded, however,if:

(a) A higher user fee is paid than isrequired; or

(b) Taking into account all the factsand circumstances, including the Service’sresources devoted to the request, the Com-petent Authority declines to rule and, in hisor her sole discretion, decides a refund isappropriate.

SECTION 4. EFFECT ON OTHERDOCUMENTS

Section 14 of Rev. Proc. 2002–52,2002–2 C.B. 242, is modified accordingly.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effectiveMay 4, 2006.

SECTION 6. DRAFTINGINFORMATION

The principal author of this revenueprocedure is Quyen P. Huynh of the Of-fice of Associate Chief Counsel (Inter-national). For further information re-garding this revenue procedure, contactQuyen P. Huynh at (202) 622–3880 (not atoll-free call).

May 22, 2006 936 2006–21 I.R.B.

Part IV. Items of General InterestWithdrawal of ProposedRegulations RegardingIntercompany Transactions;Manufacturer IncentivePayments

Announcement 2006–34

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Withdrawal of notice of pro-posed rulemaking.

SUMMARY: This document with-draws a notice of proposed rulemaking(REG–131264–04, 2004–38 I.R.B. 506)regarding the treatment of manufacturerincentive payments. The proposed reg-ulations were published in the FederalRegister on August 13, 2004 (69 FR50112). After consideration of additionalissues, the IRS and Treasury Departmenthave decided to withdraw the proposedregulations.

DATES: These proposed regulations arewithdrawn on May 8, 2006.

FOR FURTHER INFORMATIONCONTACT: Frances Kelly, (202)622–7770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On August 13, 2004, the IRS and Trea-sury Department published a notice of

proposed rulemaking (REG–131264–04)in the Federal Register (69 FR 50112)proposing regulations to address addi-tional transactions involving manufacturerincentive payments and to clarify theproper treatment of such incentive pay-ments under the intercompany transactionregulations.

On April 25, 2005, the IRS and Trea-sury Department published Rev. Rul.2005–28, 2005–19 I.R.B. 997, which sus-pends, in part, Rev. Rul. 76–96, 1976–1C.B. 23. Rev. Rul. 2005–28 states thatthe IRS will not apply, and taxpayers maynot rely upon, the conclusion reached inRev. Rul. 76–96 that certain rebates madeby a manufacturer to retail customers areordinary and necessary business expensesdeductible under section 162, pending theIRS’s reconsideration of the issue andpublication of subsequent guidance.

The example in paragraph (c) of theproposed regulations relies, in part, uponthe premise that the manufacturer incen-tive payment is an ordinary and necessarybusiness expense deductible under section162. To the extent that this premise is cor-rect, paragraph (d) of the proposed regu-lations illustrates the proper application ofthe intercompany transaction regulations.However, because Rev. Rul. 2005–28 sus-pends Rev. Rul. 76–96, in pertinent part,these paragraphs of the proposed regula-tions are withdrawn pending further guid-ance on the section 162 issue considered inRev. Rul. 76–96.

The example in paragraph (e) of theproposed regulations illustrates the appli-

cation of the original issue discount rulesto the facts described in paragraph (e) and,based on these facts, concludes that thetransaction is not an intercompany trans-action. This conclusion is not dependentupon the issue being reconsidered in Rev.Rul. 76–96. Nevertheless, because theexample in paragraph (e), standing alone,does not provide guidance with respect tothe application of the intercompany trans-action regulations to an intercompanytransaction, paragraph (e) of the proposedregulations is also withdrawn.

* * * * *

Withdrawal of Notice of ProposedRulemaking

Accordingly, under the authority of 26U.S.C. 7805, the notice of proposed rule-making (REG–131264–04) that was pub-lished in the Federal Register on August13, 2004 (69 FR 50112) is withdrawn.

Mark E. Matthews,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on May 5, 2006,8:45 a.m., and published in the issue of the Federal Registerfor May 8, 2006, 71 F.R. 26721)

2006–21 I.R.B. 937 May 22, 2006

Definition of TermsRevenue rulings and revenue procedures(hereinafter referred to as “rulings”) thathave an effect on previous rulings use thefollowing defined terms to describe the ef-fect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position is be-ing extended to apply to a variation of thefact situation set forth therein. Thus, ifan earlier ruling held that a principle ap-plied to A, and the new ruling holds that thesame principle also applies to B, the earlierruling is amplified. (Compare with modi-fied, below).

Clarified is used in those instanceswhere the language in a prior ruling is be-ing made clear because the language hascaused, or may cause, some confusion.It is not used where a position in a priorruling is being changed.

Distinguished describes a situationwhere a ruling mentions a previously pub-lished ruling and points out an essentialdifference between them.

Modified is used where the substanceof a previously published position is beingchanged. Thus, if a prior ruling held that aprinciple applied to A but not to B, and thenew ruling holds that it applies to both A

and B, the prior ruling is modified becauseit corrects a published position. (Comparewith amplified and clarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly used ina ruling that lists previously published rul-ings that are obsoleted because of changesin laws or regulations. A ruling may alsobe obsoleted because the substance hasbeen included in regulations subsequentlyadopted.

Revoked describes situations where theposition in the previously published rulingis not correct and the correct position isbeing stated in a new ruling.

Superseded describes a situation wherethe new ruling does nothing more than re-state the substance and situation of a previ-ously published ruling (or rulings). Thus,the term is used to republish under the1986 Code and regulations the same po-sition published under the 1939 Code andregulations. The term is also used whenit is desired to republish in a single rul-ing a series of situations, names, etc., thatwere previously published over a period oftime in separate rulings. If the new rul-ing does more than restate the substance

of a prior ruling, a combination of termsis used. For example, modified and su-perseded describes a situation where thesubstance of a previously published rulingis being changed in part and is continuedwithout change in part and it is desired torestate the valid portion of the previouslypublished ruling in a new ruling that is selfcontained. In this case, the previously pub-lished ruling is first modified and then, asmodified, is superseded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling and thatlist is expanded by adding further names insubsequent rulings. After the original rul-ing has been supplemented several times, anew ruling may be published that includesthe list in the original ruling and the ad-ditions, and supersedes all prior rulings inthe series.

Suspended is used in rare situationsto show that the previous published rul-ings will not be applied pending somefuture action such as the issuance of newor amended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current useand formerly used will appear in materialpublished in the Bulletin.

A—Individual.Acq.—Acquiescence.B—Individual.BE—Beneficiary.BK—Bank.B.T.A.—Board of Tax Appeals.C—Individual.C.B.—Cumulative Bulletin.CFR—Code of Federal Regulations.CI—City.COOP—Cooperative.Ct.D.—Court Decision.CY—County.D—Decedent.DC—Dummy Corporation.DE—Donee.Del. Order—Delegation Order.DISC—Domestic International Sales Corporation.DR—Donor.E—Estate.EE—Employee.E.O.—Executive Order.

ER—Employer.ERISA—Employee Retirement Income Security Act.EX—Executor.F—Fiduciary.FC—Foreign Country.FICA—Federal Insurance Contributions Act.FISC—Foreign International Sales Company.FPH—Foreign Personal Holding Company.F.R.—Federal Register.FUTA—Federal Unemployment Tax Act.FX—Foreign corporation.G.C.M.—Chief Counsel’s Memorandum.GE—Grantee.GP—General Partner.GR—Grantor.IC—Insurance Company.I.R.B.—Internal Revenue Bulletin.LE—Lessee.LP—Limited Partner.LR—Lessor.M—Minor.Nonacq.—Nonacquiescence.O—Organization.P—Parent Corporation.PHC—Personal Holding Company.PO—Possession of the U.S.PR—Partner.

PRS—Partnership.PTE—Prohibited Transaction Exemption.Pub. L.—Public Law.REIT—Real Estate Investment Trust.Rev. Proc.—Revenue Procedure.Rev. Rul.—Revenue Ruling.S—Subsidiary.S.P.R.—Statement of Procedural Rules.Stat.—Statutes at Large.T—Target Corporation.T.C.—Tax Court.T.D. —Treasury Decision.TFE—Transferee.TFR—Transferor.T.I.R.—Technical Information Release.TP—Taxpayer.TR—Trust.TT—Trustee.U.S.C.—United States Code.X—Corporation.Y—Corporation.Z —Corporation.

May 22, 2006 i 2006–21 I.R.B.

Numerical Finding List1

Bulletin 2006–1 through 2006–21

Announcements:

2006-1, 2006-1 I.R.B. 260

2006-2, 2006-2 I.R.B. 300

2006-3, 2006-3 I.R.B. 327

2006-4, 2006-3 I.R.B. 328

2006-5, 2006-4 I.R.B. 378

2006-6, 2006-4 I.R.B. 340

2006-7, 2006-4 I.R.B. 342

2006-8, 2006-4 I.R.B. 344

2006-9, 2006-5 I.R.B. 392

2006-10, 2006-5 I.R.B. 393

2006-11, 2006-6 I.R.B. 420

2006-12, 2006-6 I.R.B. 421

2006-13, 2006-7 I.R.B. 462

2006-14, 2006-8 I.R.B. 516

2006-15, 2006-11 I.R.B. 632

2006-16, 2006-12 I.R.B. 653

2006-17, 2006-12 I.R.B. 653

2006-18, 2006-12 I.R.B. 654

2006-19, 2006-13 I.R.B. 674

2006-20, 2006-13 I.R.B. 675

2006-21, 2006-14 I.R.B. 703

2006-22, 2006-16 I.R.B. 779

2006-23, 2006-14 I.R.B. 729

2006-24, 2006-16 I.R.B. 820

2006-25, 2006-18 I.R.B. 871

2006-26, 2006-18 I.R.B. 871

2006-27, 2006-18 I.R.B. 871

2006-28, 2006-18 I.R.B. 873

2006-29, 2006-19 I.R.B. 879

2006-30, 2006-19 I.R.B. 879

2006-31, 2006-20 I.R.B. 912

2006-32, 2006-20 I.R.B. 913

2006-33, 2006-20 I.R.B. 914

2006-34, 2006-21 I.R.B. 937

Court Decisions:

2081, 2006-13 I.R.B. 656

2082, 2006-14 I.R.B. 697

Notices:

2006-1, 2006-4 I.R.B. 347

2006-2, 2006-2 I.R.B. 278

2006-3, 2006-3 I.R.B. 306

2006-4, 2006-3 I.R.B. 307

2006-5, 2006-4 I.R.B. 348

2006-6, 2006-5 I.R.B. 385

2006-7, 2006-10 I.R.B. 559

2006-8, 2006-5 I.R.B. 386

2006-9, 2006-6 I.R.B. 413

2006-10, 2006-5 I.R.B. 386

2006-11, 2006-7 I.R.B. 457

Notices— Continued:

2006-12, 2006-7 I.R.B. 458

2006-13, 2006-8 I.R.B. 496

2006-14, 2006-8 I.R.B. 498

2006-15, 2006-8 I.R.B. 501

2006-16, 2006-9 I.R.B. 538

2006-17, 2006-10 I.R.B. 559

2006-18, 2006-8 I.R.B. 502

2006-19, 2006-9 I.R.B. 539

2006-20, 2006-10 I.R.B. 560

2006-21, 2006-12 I.R.B. 643

2006-22, 2006-11 I.R.B. 593

2006-23, 2006-11 I.R.B. 594

2006-24, 2006-11 I.R.B. 595

2006-25, 2006-11 I.R.B. 609

2006-26, 2006-11 I.R.B. 622

2006-27, 2006-11 I.R.B. 626

2006-28, 2006-11 I.R.B. 628

2006-29, 2006-12 I.R.B. 644

2006-31, 2006-15 I.R.B. 751

2006-32, 2006-13 I.R.B. 677

2006-33, 2006-15 I.R.B. 754

2006-34, 2006-14 I.R.B. 705

2006-35, 2006-14 I.R.B. 708

2006-36, 2006-15 I.R.B. 756

2006-37, 2006-18 I.R.B. 855

2006-38, 2006-16 I.R.B. 777

2006-39, 2006-17 I.R.B. 841

2006-40, 2006-18 I.R.B. 855

2006-41, 2006-18 I.R.B. 857

2006-42, 2006-19 I.R.B. 878

2006-43, 2006-21 I.R.B. 921

2006-44, 2006-20 I.R.B. 889

2006-45, 2006-20 I.R.B. 891

2006-47, 2006-20 I.R.B. 892

2006-48, 2006-21 I.R.B. 922

Proposed Regulations:

REG-107722-00, 2006-4 I.R.B. 354

REG-104385-01, 2006-5 I.R.B. 389

REG-122380-02, 2006-10 I.R.B. 563

REG-137243-02, 2006-3 I.R.B. 317

REG-133446-03, 2006-2 I.R.B. 299

REG-113365-04, 2006-10 I.R.B. 580

REG-148568-04, 2006-6 I.R.B. 417

REG-106418-05, 2006-7 I.R.B. 461

REG-133036-05, 2006-20 I.R.B. 911

REG-138879-05, 2006-8 I.R.B. 503

REG-143244-05, 2006-6 I.R.B. 419

REG-146384-05, 2006-17 I.R.B. 843

REG-146459-05, 2006-8 I.R.B. 504

REG-157271-05, 2006-12 I.R.B. 652

REG-164247-05, 2006-15 I.R.B. 758

Revenue Procedures:

2006-1, 2006-1 I.R.B. 1

Revenue Procedures— Continued:

2006-2, 2006-1 I.R.B. 89

2006-3, 2006-1 I.R.B. 122

2006-4, 2006-1 I.R.B. 132

2006-5, 2006-1 I.R.B. 174

2006-6, 2006-1 I.R.B. 204

2006-7, 2006-1 I.R.B. 242

2006-8, 2006-1 I.R.B. 245

2006-9, 2006-2 I.R.B. 278

2006-10, 2006-2 I.R.B. 293

2006-11, 2006-3 I.R.B. 309

2006-12, 2006-3 I.R.B. 310

2006-13, 2006-3 I.R.B. 315

2006-14, 2006-4 I.R.B. 350

2006-15, 2006-5 I.R.B. 387

2006-16, 2006-9 I.R.B. 539

2006-17, 2006-14 I.R.B. 709

2006-18, 2006-12 I.R.B. 645

2006-19, 2006-13 I.R.B. 677

2006-20, 2006-17 I.R.B. 841

2006-23, 2006-20 I.R.B. 900

2006-25, 2006-21 I.R.B. 926

2006-26, 2006-21 I.R.B. 936

Revenue Rulings:

2006-1, 2006-2 I.R.B. 261

2006-2, 2006-2 I.R.B. 261

2006-3, 2006-2 I.R.B. 276

2006-4, 2006-2 I.R.B. 264

2006-5, 2006-3 I.R.B. 302

2006-6, 2006-5 I.R.B. 381

2006-7, 2006-6 I.R.B. 399

2006-8, 2006-9 I.R.B. 520

2006-9, 2006-9 I.R.B. 519

2006-10, 2006-10 I.R.B. 557

2006-11, 2006-12 I.R.B. 635

2006-12, 2006-12 I.R.B. 637

2006-13, 2006-13 I.R.B. 656

2006-14, 2006-15 I.R.B. 740

2006-15, 2006-13 I.R.B. 661

2006-16, 2006-14 I.R.B. 694

2006-17, 2006-15 I.R.B. 748

2006-18, 2006-15 I.R.B. 743

2006-19, 2006-15 I.R.B. 749

2006-20, 2006-15 I.R.B. 746

2006-21, 2006-15 I.R.B. 745

2006-22, 2006-14 I.R.B. 687

2006-23, 2006-17 I.R.B. 839

2006-24, 2006-19 I.R.B. 875

2006-25, 2006-20 I.R.B. 882

2006-27, 2006-21 I.R.B. 915

Tax Conventions:

2006-6, 2006-4 I.R.B. 340

2006-7, 2006-4 I.R.B. 342

2006-8, 2006-4 I.R.B. 344

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin2005–52, dated December 27, 2005.

2006–21 I.R.B. ii May 22, 2006

Tax Conventions— Continued:

2006-19, 2006-13 I.R.B. 674

2006-20, 2006-13 I.R.B. 675

2006-21, 2006-14 I.R.B. 703

Treasury Decisions:

9231, 2006-2 I.R.B. 272

9232, 2006-2 I.R.B. 266

9233, 2006-3 I.R.B. 303

9234, 2006-4 I.R.B. 329

9235, 2006-4 I.R.B. 338

9236, 2006-5 I.R.B. 382

9237, 2006-6 I.R.B. 394

9238, 2006-6 I.R.B. 408

9239, 2006-6 I.R.B. 401

9240, 2006-7 I.R.B. 454

9241, 2006-7 I.R.B. 427

9242, 2006-7 I.R.B. 422

9243, 2006-8 I.R.B. 475

9244, 2006-8 I.R.B. 463

9245, 2006-14 I.R.B. 696

9246, 2006-9 I.R.B. 534

9247, 2006-9 I.R.B. 521

9248, 2006-9 I.R.B. 524

9249, 2006-10 I.R.B. 546

9250, 2006-11 I.R.B. 588

9251, 2006-11 I.R.B. 590

9252, 2006-12 I.R.B. 633

9253, 2006-14 I.R.B. 689

9254, 2006-13 I.R.B. 662

9255, 2006-15 I.R.B. 741

9256, 2006-16 I.R.B. 770

9257, 2006-17 I.R.B. 821

9258, 2006-20 I.R.B. 886

9259, 2006-19 I.R.B. 874

9261, 2006-21 I.R.B. 919

May 22, 2006 iii 2006–21 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletin 2006–1 through 2006–21

Announcements:

2000-48

Modified by

Notice 2006-35, 2006-14 I.R.B. 708

Notices:

2001-4

Sections (V)(C), (D), and (E) superseded by

T.D. 9253, 2006-14 I.R.B. 689

2001-11

Superseded by

T.D. 9253, 2006-14 I.R.B. 689

2001-43

Modified by

Notice 2006-35, 2006-14 I.R.B. 708

Sections 2 and 3 superseded by

T.D. 9253, 2006-14 I.R.B. 689

2002-35

Clarified and modified by

Notice 2006-16, 2006-9 I.R.B. 538

2005-30

Modified and superseded by

Notice 2006-31, 2006-15 I.R.B. 751

2005-44

Supplemented by

Notice 2006-1, 2006-4 I.R.B. 347

2005-66

Supplemented by

Notice 2006-20, 2006-10 I.R.B. 560

2005-73

Supplemented by

Notice 2006-20, 2006-10 I.R.B. 560

2005-81

Supplemented by

Notice 2006-20, 2006-10 I.R.B. 560

2005-98

Supplemented by

Notice 2006-7, 2006-10 I.R.B. 559

Proposed Regulations:

REG-103829-99

Withdrawn by

Ann. 2006-16, 2006-12 I.R.B. 653

REG-150313-01

Withdrawn by

Ann. 2006-30, 2006-19 I.R.B. 879

Proposed Regulations— Continued:

REG-131739-03

Corrected by

Ann. 2006-10, 2006-5 I.R.B. 393

REG-131264-04

Withdrawn by

Ann. 2006-34, 2006-21 I.R.B. 937

REG-138647-04

Corrected by

Ann. 2006-4, 2006-3 I.R.B. 328

REG-158080-04

Corrected by

Ann. 2006-11, 2006-6 I.R.B. 420

Revenue Procedures:

89-8

Superseded by

Rev. Proc. 2006-23, 2006-20 I.R.B. 900

96-52

Superseded by

Rev. Proc. 2006-10, 2006-2 I.R.B. 293

97-27

Modified by

Rev. Proc. 2006-11, 2006-3 I.R.B. 309

Modified and amplified by

Rev. Proc. 2006-12, 2006-3 I.R.B. 310

2002-9

Modified by

Rev. Proc. 2006-11, 2006-3 I.R.B. 309

Modified and amplified by

Notice 2006-47, 2006-20 I.R.B. 892Rev. Proc. 2006-12, 2006-3 I.R.B. 310Rev. Proc. 2006-14, 2006-4 I.R.B. 350Rev. Proc. 2006-16, 2006-9 I.R.B. 539

2002-17

Modified by

Rev. Proc. 2006-14, 2006-4 I.R.B. 350

2002-52

Modified by

Rev. Proc. 2006-26, 2006-21 I.R.B. 936

2003-31

Superseded by

Rev. Proc. 2006-19, 2006-13 I.R.B. 677

2003-38

Modified by

Rev. Proc. 2006-16, 2006-9 I.R.B. 539

2004-23

Superseded for certain taxable years by

Rev. Proc. 2006-12, 2006-3 I.R.B. 310

2004-40

Superseded by

Rev. Proc. 2006-9, 2006-2 I.R.B. 278

Revenue Procedures— Continued:

2005-1

Superseded by

Rev. Proc. 2006-1, 2006-1 I.R.B. 1

2005-2

Superseded by

Rev. Proc. 2006-2, 2006-1 I.R.B. 89

2005-3

Superseded by

Rev. Proc. 2006-3, 2006-1 I.R.B. 122

2005-4

Superseded by

Rev. Proc. 2006-4, 2006-1 I.R.B. 132

2005-5

Superseded by

Rev. Proc. 2006-5, 2006-1 I.R.B. 174

2005-6

Superseded by

Rev. Proc. 2006-6, 2006-1 I.R.B. 204

2005-7

Superseded by

Rev. Proc. 2006-7, 2006-1 I.R.B. 242

2005-8

Superseded by

Rev. Proc. 2006-8, 2006-1 I.R.B. 245

2005-9

Superseded for certain taxable years by

Rev. Proc. 2006-12, 2006-3 I.R.B. 310

2005-12

Section 10 modified and superseded by

Rev. Proc. 2006-1, 2006-1 I.R.B. 1

2005-15

Obsoleted in part by

Rev. Proc. 2006-17, 2006-14 I.R.B. 709

2005-21

Superseded by

Rev. Proc. 2006-25, 2006-21 I.R.B. 926

2005-22

Obsoleted by

Rev. Proc. 2006-20, 2006-17 I.R.B. 841

2005-24

Modified by

Notice 2006-15, 2006-8 I.R.B. 501

2005-61

Superseded by

Rev. Proc. 2006-3, 2006-1 I.R.B. 122

2005-68

Superseded by

Rev. Proc. 2006-1, 2006-1 I.R.B. 1Rev. Proc. 2006-3, 2006-1 I.R.B. 122

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin 2005–52, dated December 27,2005.

2006–21 I.R.B. iv May 22, 2006

Revenue Rulings:

55-355

Obsoleted by

T.D. 9244, 2006-8 I.R.B. 463

74-503

Revoked by

Rev. Rul. 2006-2, 2006-2 I.R.B. 261

77-230

Obsoleted by

T.D. 9249, 2006-10 I.R.B. 546

91-5

Modified by

T.D. 9250, 2006-11 I.R.B. 588

92-19

Supplemented in part by

Rev. Rul. 2006-25, 2006-20 I.R.B. 882

92-86

Modified by

T.D. 9250, 2006-11 I.R.B. 588

Treasury Decisions:

9191

Corrected by

Ann. 2006-26, 2006-18 I.R.B. 871

9192

Corrected by

Ann. 2006-15, 2006-11 I.R.B. 632

9203

Corrected by

Ann. 2006-12, 2006-6 I.R.B. 421

9244

Corrected by

Ann. 2006-31, 2006-20 I.R.B. 912

9248

Corrected by

Ann. 2006-32, 2006-20 I.R.B. 913

May 22, 2006 v 2006–21 I.R.B. U.S. GPO: 2006—320–797/20058