EXEMPT ORGANIZATIONS TAX CONVENTIONS · 2012. 7. 17. · I.R.B. 551) providing guidance on which costs incurred by estates or non-grantor trusts are subject to the 2–percent floor

Bulletin No. 2007-42October 15, 2007

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. 2007–61, page 799.This ruling suspends Rev. Rul. 2007–54, 2007–38 I.R.B. 604,and informs taxpayers that Treasury and the Service intendto address the issues considered in Rev. Rul. 2007–54 byregulations. Rev. Rul. 2007–54 suspended.

Notice 2007–79, page 809.This notice allows Electronic Return Originators (EROs) to signthe following forms by rubber stamp, mechanical device (suchas signature pen), or computer software program: Form 8453,U.S. Individual Income Tax Declaration for an IRS e-file Return;Form 8878, IRS e-file Signature Authorization for Form 4868 orForm 2350; and Form 8879, IRS e-file Signature Authorization.

Announcement 2007–88, page 801.This announcement contains an official copy of the diplomaticnotes exchanged between the United States and Angola provid-ing for a reciprocal exemption from taxation for income fromthe international operation of ships and aircraft. It includes theUnited States offer and the Angola acceptance in Portugueseand an English translation of the Angolan note.

EMPLOYEE PLANS

REG–113891–07, page 821.Proposed regulations under section 436 of the Code provideguidance regarding benefit restrictions for certain underfundeddefined benefit pension plans and regarding the use of certainfunding balances maintained for defined benefit pension plans.

Announcement 2007–90, page 856.Pre-approved defined contribution plans; determinationletters. This announcement states that the program for de-termination letters for pre-approved defined contribution plans,which are submitted on Form 5307, is being closed for a tem-porary period of time.

EXEMPT ORGANIZATIONS

Announcement 2007–96, page 859.The IRS has revoked its determination that The GeorgetownFoundation of Sandy, UT; Lumberton Family Life Center, Inc.,of Lumberton, MS; Truth in Youth & Family Services, Inc., ofLeland, NC; and Cunningham Charitable Group of Los Angeles,CA, qualify as organizations described in sections 501(c)(3)and 170(c)(2) of the Code.

TAX CONVENTIONS

Announcement 2007–88, page 801.This announcement contains an official copy of the diplomaticnotes exchanged between the United States and Angola provid-ing for a reciprocal exemption from taxation for income fromthe international operation of ships and aircraft. It includes theUnited States offer and the Angola acceptance in Portugueseand an English translation of the Angolan note.

(Continued on the next page)

Finding Lists begin on page ii.

ADMINISTRATIVE

Notice 2007–79, page 809.This notice allows Electronic Return Originators (EROs) to signthe following forms by rubber stamp, mechanical device (suchas signature pen), or computer software program: Form 8453,U.S. Individual Income Tax Declaration for an IRS e-file Return;Form 8878, IRS e-file Signature Authorization for Form 4868 orForm 2350; and Form 8879, IRS e-file Signature Authorization.

Rev. Proc. 2007–63, page 809.This procedure provides optional rules for deeming substan-tiated the amount of certain business expenses of travelingaway from home reimbursed to an employee or deductible byan employee or self-employed individual. Rev. Proc. 2006–41superseded.

Rev. Proc. 2007–64, page 818.This procedure modifies a scope provision and one of the termsand conditions under which the Service grants approval of re-quests by corporations for changes in annual accounting pe-riods filed under Rev. Proc. 2006–45, 2006–45 I.R.B. 851.Rev. Proc. 2006–45 modified and clarified.

Announcement 2007–91, page 857.This document provides a change of location for a publichearing on proposed regulations (REG–142695–05, 2007–39I.R.B. 681) providing guidance on cafeteria plans under section125 of the Code.

Announcement 2007–92, page 857.This document provides a change of location for a publichearing on proposed regulations (REG–128224–06, 2007–36I.R.B. 551) providing guidance on which costs incurred byestates or non-grantor trusts are subject to the 2–percentfloor for miscellaneous itemized deductions under section67(a) of the Code.

Announcement 2007–93, page 858.This document contains corrections to final and temporary reg-ulations (T.D. 9344, 2007–36 I.R.B. 535) relating to the dis-charge of liens under sections 7425 and 6343 of the Code.

Announcement 2007–94, page 858.This document contains corrections to proposed regulations bycross-reference to temporary regulations (REG–148951–05,2007–36 I.R.B. 550) relating to the discharge of liens undersections 7425 and 6343 of the Code.

October 15, 2007 2007–42 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.

2007–42 I.R.B. October 15, 2007

Place missing child here.

October 15, 2007 2007–42 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 62.—AdjustedGross Income Defined

A revenue procedure provides optional rules fordeeming substantiated the amount of certain businessexpenses of traveling away from home reimbursed toan employee or deductible by an employee or self-employed individual. See Rev. Proc. 2007-63, page809.

Section 162.—Trade orBusiness Expenses


Section 267.—Losses,Expenses, and Interest WithRespect to TransactionsBetween Related Taxpayers


Section 274.—Disallowanceof Certain Entertainment,etc., Expenses


Section 430.—MinimumFunding Standards forSingle-Employer DefinedBenefit Pension Plans26 CFR 1.430(f)–1: Effect of prefunding balance andfunding standard carryover balance.

The proposed regulations under section 430(f)provide guidance regarding the use of certain fund-ing balances maintained for defined benefit pensionplans. The proposed regulations reflect changesmade by the Pension Protection Act of 2006. SeeREG-113891-07, page 821.

Section 436.—Funding-Based Limits on Benefitsand Benefit Accruals UnderSingle-Employer Plans26 CFR 1.436–1: Limits on benefits and benefit ac-cruals under single employer defined benefit plans.

The proposed regulations under section 436 pro-vide guidance regarding benefit restrictions thatapply to certain underfunded defined benefit pensionplans. The proposed regulations reflect changesmade by the Pension Protection Act of 2006. SeeREG-113891-07, page 821.

Section 442.—Change ofAnnual Accounting Period

This revenue procedure modifies a scope provisionand one of the terms and conditions under which theService grants approval of requests by corporationsfor changes in annual accounting periods filed underRev. Proc. 2006–45, 2006–45 I.R.B. 851. See Rev.Proc. 2007-64, page 818.

Section 807.—Rules forCertain Reserves(Also § 812.)

This ruling suspends Rev. Rul.2007–54, 2007–38 I.R.B. 604, and informstaxpayers that Treasury and the Serviceintend to address the issues considered inRev. Rul. 2007–54 by regulations. Rev.Rul. 2007–54 suspended.

Rev. Rul. 2007–61

Rev. Rul. 2007–54, 2007–38 I.R.B.604, released on August 16, 2007, ad-dresses the determination of life insurancereserves under section 807 of the Inter-nal Revenue Code for a variable contractwhere some or all of the reserves are ac-counted for as part of a life insurance com-pany’s separate account reserves. The rul-ing also addresses the interest rate used un-der section 812(b)(2) to calculate requiredinterest on the reserves if the amounts ofthose reserves are determined under sec-tion 807(d)(2).

Sections 807 and 812 were added tothe Code by the Deficit Reduction Act of1984, P.L. 98–369 (the 1984 Act). The leg-islative history of the 1984 Act providesthat the regulations, rulings and case law

under the Life Insurance Company Tax Actof 1959 (the 1959 Act) are to serve as in-terpretive guides to those 1984 Act provi-sions that carry over the provisions of priorlaw. See H. Rep. No. 432, Pt. 2, 98th

Cong., 2d Sess. 1402; S. Prt. 169, Vol.1, 98th Cong. 2d Sess. 524. Since Rev.Rul. 2007–54 was issued, some taxpayershave argued that the provisions on whichthe ruling is based carried over from the1959 Act to the 1984 Act, and that the rul-ing should not be applied retroactively be-cause its analysis is not consistent with cer-tain authorities under the 1959 Act.

The Treasury Department and the Inter-nal Revenue Service (IRS) believe it is im-portant that the company’s share and poli-cyholders’ share of net investment incomebe determined in a manner that effectivelyprevents the double benefit that otherwisewould result from the use of tax favored in-vestment income (such as dividends qual-ifying for the dividends received deduc-tion) to fund the company’s obligations topolicyholders. In addition, the TreasuryDepartment and the IRS are mindful ofthe benefit of notice and public commentand believe the issues in the revenue rulingwould more appropriately be addressed byregulation. Accordingly, this ruling sus-pends Rev. Rul. 2007–54 and informs tax-payers that the Treasury Department andthe IRS intend to address in regulations theissues considered in Rev. Rul. 2007–54.Until such time, the issues should be an-alyzed as though Rev. Rul. 2007–54 hadnot been issued. Regulations also may pro-vide guidance for determining required in-terest under section 812(b)(2) if neither theprevailing State assumed rate nor the ap-plicable Federal rate is used to determinethe reserves for an insurance or annuitycontract. This project has been added tothe 2007-2008 Priority Guidance Plan andwill be reflected in the next periodic updateto that plan.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2007–54 is suspended.

DRAFTING INFORMATION

The principal author of this revenue rul-ing is Stephen D. Hooe of the Office of

2007–42 I.R.B. 799 October 15, 2007

Associate Chief Counsel (Financial Insti-tutions & Products). For further infor-mation regarding this revenue ruling, con-tact Mr. Hooe at (202) 622–3900 (not atoll-free call).

Section 812.—Definitionof Company’s Share andPolicyholders’ Share

A revenue ruling that suspends Rev. Rul.2007–54, 2007–38 I.R.B. 604, and informs taxpayersthat Treasury and the Service intend to address the

issues considered in Rev. Rul. 2007–54 by regula-tions. See Rev. Rul. 2007-61, page 799.

Section 898.—TaxableYear of Certain ForeignCorporations

This revenue procedure modifies a scope provisionand one of the terms and conditions under which theService grants approval of requests by corporationsfor changes in annual accounting periods filed underRev. Proc. 2006–45, 2006–45 I.R.B. 851. See Rev.Proc. 2007-64, page 818.

Section 6061.—Signingof Returns and OtherDocuments

This notice allows Electronic Return Originators(EROs) to sign the following forms by rubber stamp,mechanical device (such as signature pen), or com-puter software program: Form 8453, U.S. Individ-ual Income Tax Declaration for an IRS e-file Return;Form 8878, IRS e-file Signature Authorization forForm 4868 or Form 2350; and Form 8879, IRS e-fileSignature Authorization. See Notice 2007-79, page809.

October 15, 2007 800 2007–42 I.R.B.

Part II. Treaties and Tax LegislationSubpart A.—Tax Conventions and Other Related Items

United States AngolaReciprocol ExemptionAgreement

Announcement 2007–88

The United States and Angola have ex-changed diplomatic notes evidencing a re-ciprocal exemption agreement for incomefrom the international operation of ships

and aircraft for taxable years beginning onor after January 1, 2006. The diplomaticnotes reproduced herein contain the termsof the reciprocal exemptions.

The principal author of this announce-ment is Patricia Bray of the Office ofAssociate Chief Counsel (International).For further information regarding this an-nouncement, contact Patricia Bray at (202)622–5871 (not a toll-free call).

The text of the agreement is as follows.

2007–42 I.R.B. 801 October 15, 2007

October 15, 2007 802 2007–42 I.R.B.

2007–42 I.R.B. 803 October 15, 2007

October 15, 2007 804 2007–42 I.R.B.

2007–42 I.R.B. 805 October 15, 2007

October 15, 2007 806 2007–42 I.R.B.

2007–42 I.R.B. 807 October 15, 2007

October 15, 2007 808 2007–42 I.R.B.

Part III. Administrative, Procedural, and MiscellaneousAlternative Signature Methodsfor Electronic ReturnOriginators

Notice 2007–79

SECTION I. PURPOSE

This notice provides that the InternalRevenue Service will allow Electronic Re-turn Originators (EROs) to sign the follow-ing forms by rubber stamp, mechanical de-vice (such as signature pen), or computersoftware program: Form 8453, U.S. Indi-vidual Income Tax Declaration for an IRSe-file Return; Form 8878, IRS e-file Signa-ture Authorization for Form 4868 or Form2350; and Form 8879, IRS e-file SignatureAuthorization.

SECTION 2. BACKGROUND

Section 6061 of the Internal RevenueCode and Treas. Reg. § 1.6061–1(a) gen-erally provide that any tax return, state-ment, or other document shall be signedin accordance with forms, instructions, orregulations prescribed by the Secretary.Publication 1345, Handbook for Autho-rized IRS e-file Providers of IndividualIncome Tax Returns, sets forth the proce-dures for completing the Form 8453, Form8878, and Form 8879. If providing the sig-nature on a paper declaration, the taxpayerand the ERO (and the paid preparer if dif-ferent from the ERO) must complete andsign the Form 8453 before the electronicdata portion of the return is submitted.Taxpayers may wish to sign their returnselectronically, but may choose to authorizetheir ERO to enter their Personal Identi-fication Number (PIN) in the electronicreturn record by completing the appro-priate IRS e-file signature authorizationform. Form 8879 authorizes an ERO toenter PINs on Individual Income Tax Re-turns, and Form 8878 authorizes an EROto enter PINs on Forms 4868, Applicationfor Automatic Extension of Time To FileU.S. Individual Income Tax Return; andForm 2350, Application for Extension ofTime To File U.S. Income Tax Return.

SECTION 3. REQUIREMENTS FORUSE OF ALTERNATIVE METHODSOF SIGNING

The alternative methods of signing thatthis notice authorizes must include eithera facsimile of the individual ERO’s signa-ture or of the ERO’s printed name. EROsusing one of these alternative means arepersonally responsible for affixing theirsignatures to returns or requests for exten-sion.

This notice applies only to EROs thatsign Form 8453, Form 8878, or Form8879, and does not alter the signature re-quirements for any other type of documentcurrently required to be manually signed,such as elections, applications for changesin accounting method, powers of attorney,or consent forms. In addition, this noticedoes not alter the requirement that Form8453, Form 8878, or Form 8879 be signedby the taxpayer making these forms byhandwritten signature or other authorizedmeans.

SECTION 4. EFFECTIVE DATE

This notice applies to any Form 8453,Form 8878, or Form 8879 filed on or afterOctober 15, 2007.

SECTION 5. DRAFTINGINFORMATION

The principal author of this notice isMichael E. Hara of the Office of Asso-ciate Chief Counsel (Procedure & Admin-istration). For further information regard-ing this notice, contact Michael E. Hara at(202) 622–4910 (not a toll-free call).

26 CFR 601.105: Examination of returns and claimsfor refund, credit, or abatement; determination ofcorrect tax liability.(Also Part I, §§ 62, 162, 267, 274; 1.62–2, 1.162–17,1.267(a)–1, 1.274–5.)

Rev. Proc. 2007–63

SECTION 1. PURPOSE

This revenue procedure updates Rev.Proc. 2006–41, 2006–43 I.R.B. 777, andprovides rules under which the amount ofordinary and necessary business expenses

of an employee for lodging, meal, and in-cidental expenses, or for meal and inci-dental expenses, incurred while travelingaway from home are deemed substantiatedunder § 1.274–5 of the Income Tax Reg-ulations when a payor (the employer, itsagent, or a third party) provides a per diemallowance under a reimbursement or otherexpense allowance arrangement to pay forthe expenses. In addition, this revenueprocedure provides an optional method foremployees and self-employed individualswho are not reimbursed to use in comput-ing the deductible costs paid or incurredfor business meal and incidental expenses,or for incidental expenses only if no mealcosts are paid or incurred, while travel-ing away from home. Use of a methoddescribed in this revenue procedure is notmandatory, and a taxpayer may use actualallowable expenses if the taxpayer main-tains adequate records or other sufficientevidence for proper substantiation. Thisrevenue procedure does not provide rulesunder which the amount of an employee’slodging expenses will be deemed substan-tiated when a payor provides an allowanceto pay for those expenses but not meal andincidental expenses.

SECTION 2. BACKGROUND ANDCHANGES

.01 Section 162(a) of the Internal Rev-enue Code allows a deduction for all the or-dinary and necessary expenses paid or in-curred during the taxable year in carryingon any trade or business. Under that pro-vision, an employee or self-employed in-dividual may deduct expenses paid or in-curred while traveling away from home inpursuit of a trade or business. However,under § 262, no portion of the travel ex-penses that is attributable to personal, liv-ing, or family expenses is deductible.

.02 Section 274(n) generally limits theamount allowable as a deduction under§ 162 for any expense for food, bever-ages, or entertainment to 50 percent ofthe amount of the expense that otherwisewould be allowable as a deduction. In thecase of any expenses for food or bever-ages consumed while away from home(within the meaning of § 162(a)(2)) by anindividual during, or incident to, the pe-riod of duty subject to the hours of service

2007–42 I.R.B. 809 October 15, 2007

limitations of the Department of Trans-portation, § 274(n)(3) gradually increasesthe deductible percentage to 80 percentfor taxable years beginning in 2008 orthereafter. For taxable years beginning in2007, the deductible percentage for theseexpenses is 75 percent.

.03 Section 274(d) provides, in part,that no deduction is allowed under § 162for any travel expense (including mealsand lodging while away from home) unlessthe taxpayer complies with certain sub-stantiation requirements. Section 274(d)further provides that regulations may pre-scribe that some or all of the substantiationrequirements do not apply to an expensethat does not exceed an amount prescribedby the regulations.

.04 Section 1.274–5(g), in part, grantsthe Commissioner the authority to pre-scribe rules relating to reimbursementarrangements or per diem allowances forordinary and necessary expenses paidor incurred while traveling away fromhome. Pursuant to this grant of author-ity, the Commissioner may prescriberules under which these arrangements orallowances, if in accordance with reason-able business practice, are regarded (1) asequivalent to substantiation, by adequaterecords or other sufficient evidence, of theamount of travel expenses for purposesof § 1.274–5(c), and (2) as satisfying therequirements of an adequate accountingto the employer of the amount of travelexpenses for purposes of § 1.274–5(f).

.05 For purposes of determining ad-justed gross income, § 62(a)(2)(A) allowsan employee a deduction for expenses al-lowed by Part VI (§ 161 and following),subchapter B, chapter 1 of the Code, paidor incurred by the employee in connectionwith the performance of services as an em-ployee under a reimbursement or other ex-pense allowance arrangement with a payor.

.06 Section 62(c) provides that an ar-rangement is not treated as a reimburse-ment or other expense allowance arrange-ment for purposes of § 62(a)(2)(A) if it—

(1) does not require the employee tosubstantiate the expenses covered by thearrangement to the payor, or

(2) provides the employee with the rightto retain any amount in excess of the sub-stantiated expenses covered under the ar-rangement.

Section 62(c) further provides that the sub-stantiation requirements described thereindo not apply to any expense to the extentthat, under the grant of regulatory authorityprescribed in § 274(d), the Commissionerhas provided that substantiation is not re-quired for the expense.

.07 Under § 1.62–2(c), a reimburse-ment or other expense allowance arrange-ment satisfies the requirements of § 62(c)if it meets the requirements of businessconnection, substantiation, and returningamounts in excess of expenses as specifiedin the regulations. If an arrangement meetsthese requirements, all amounts paid underthe arrangement are treated as paid underan accountable plan and are excluded fromincome and wages. If an arrangement doesnot meet these requirements, all amountspaid under the arrangement are treated aspaid under a nonaccountable plan and areincluded in the employee’s gross income,must be reported as wages or compensa-tion on the employee’s Form W–2, and aresubject to the withholding and payment ofemployment taxes. Section 1.62–2(e)(2)specifically provides that substantiation ofcertain business expenses in accordancewith rules prescribed under the authority of§ 1.274–5(g) or (j) is treated as substantia-tion of the amount of the expenses for pur-poses of § 1.62–2. Under § 1.62–2(f)(2),the Commissioner may prescribe rules un-der which an arrangement providing perdiem allowances is treated as satisfying therequirement of returning amounts in ex-cess of expenses, even though the arrange-ment does not require the employee to re-turn the portion of the allowance that re-lates to days of travel substantiated andthat exceeds the amount of the employee’sexpenses deemed substantiated pursuant torules prescribed under § 274(d), providedthe allowance is reasonably calculated notto exceed the amount of the employee’sexpenses or anticipated expenses and theemployee is required to return within a rea-sonable period of time any portion of theallowance that relates to days of travel notsubstantiated.

.08 Section 1.62–2(h)(2)(i)(B) pro-vides that, if a payor pays a per diemallowance that meets the requirements of§ 1.62–2(c)(1), the portion, if any, of theallowance that relates to days of travel sub-stantiated in accordance with § 1.62–2(e),that exceeds the amount of the employee’sexpenses deemed substantiated for the

travel pursuant to rules prescribed under§ 274(d) and § 1.274–5(g) or (j), and thatthe employee is not required to return, issubject to withholding and payment ofemployment taxes. See §§ 31.3121(a)–3,31.3231(e)–1(a)(5), 31.3306(b)–2, and31.3401(a)–4 of the Employment TaxRegulations. Because the employee is notrequired to return this excess portion, thereasonable period of time provisions of§ 1.62–2(g) (relating to the return of ex-cess amounts) do not apply to this portion.

.09 Under § 1.62–2(h)(2)(i)(B)(4), theCommissioner has the discretion to pre-scribe special rules regarding the timing ofwithholding and payment of employmenttaxes on per diem allowances.

.10 Section 1.274–5(j)(1) grants theCommissioner the authority to establish amethod under which a taxpayer may electto use a specified amount for meals paid orincurred while traveling away from homein lieu of substantiating the actual cost ofmeals.

.11 Section 1.274–5(j)(3) grants theCommissioner the authority to establish amethod under which a taxpayer may electto use a specified amount for incidentalexpenses paid or incurred while travelingaway from home in lieu of substantiatingthe actual cost of incidental expenses.

.12 Sections 3.02(1)(a), 4.04(6), and5.06 of this revenue procedure providetransition rules for the last 3 months ofcalendar year 2007.

.13 Section 5.02 of this revenue pro-cedure contains revisions to the per diemrates for high-cost localities and for otherlocalities for purposes of section 5.

.14 Section 5.03 of this revenue proce-dure contains the list of high-cost localitiesand section 5.04 of this revenue proceduredescribes changes to the list of high-costlocalities for purposes of section 5.

.15 Sections 7.10 and 8.06 of thisrevenue procedure refer to Rev. Rul.2006–56, 2006–46 I.R.B. 874, whichdescribes circumstances when a payor’sreimbursement or other expense allowancearrangement evidences a pattern of abuseof the rules of § 62(c) and the regulationsthereunder.

SECTION 3. DEFINITIONS

.01 Per diem allowance. The term “perdiem allowance” means a payment under a

October 15, 2007 810 2007–42 I.R.B.

reimbursement or other expense allowancearrangement that is —

(1) paid with respect to ordinary andnecessary business expenses incurred, orthat the payor reasonably anticipates willbe incurred, by an employee for lodging,meal, and incidental expenses, or for mealand incidental expenses, for travel awayfrom home in connection with the perfor-mance of services as an employee of theemployer,

(2) reasonably calculated not to exceedthe amount of the expenses or the antici-pated expenses, and

(3) paid at or below the applicable fed-eral per diem rate, a flat rate or statedschedule, or in accordance with any otherService-specified rate or schedule.

.02 Federal per diem rate and federalM&IE rate.

(1) In general. The federal per diemrate is equal to the sum of the applicablefederal lodging expense rate and the appli-cable federal meal and incidental expense(M&IE) rate for the day and locality oftravel.

(a) CONUS rates. The rates for lo-calities in the continental United States(“CONUS”) are set forth in Appendix Ato 41 C.F.R. ch. 301. However, in apply-ing section 4.01, 4.02, or 4.03 of this rev-enue procedure, taxpayers may continueto use the CONUS rates in effect for thefirst 9 months of 2007 for expenses of allCONUS travel away from home that arepaid or incurred during calendar year 2007in lieu of the updated GSA rates. A tax-payer must consistently use either theserates or the updated rates for the period Oc-tober 1, 2007, through December 31, 2007.

(b) OCONUS rates. The rates for local-ities outside the continental United States(“OCONUS”) are established by the Sec-retary of Defense (rates for non-foreign lo-calities, including Alaska, Hawaii, PuertoRico, the Northern Mariana Islands, andthe possessions of the United States) andby the Secretary of State (rates for for-eign localities), and are published in thePer Diem Supplement to the StandardizedRegulations (Government Civilians, For-eign Areas) (updated on a monthly basis).

(c) Internet access to the rates. TheCONUS and OCONUS rates may be foundon the Internet at www.gsa.gov.

(2) Locality of travel. The term “lo-cality of travel” means the locality wherean employee traveling away from home in

connection with the performance of ser-vices as an employee of the employer stopsfor sleep or rest.

(3) Incidental expenses. The term “in-cidental expenses” has the same meaningas in the Federal Travel Regulations, 41C.F.R. 300–3.1 (2007). Thus, based on thecurrent definition of “incidental expenses”in the Federal Travel Regulations, “inci-dental expenses” means fees and tips givento porters, baggage carriers, bellhops, ho-tel maids, stewards or stewardesses andothers on ships, and hotel servants in for-eign countries; transportation betweenplaces of lodging or business and placeswhere meals are taken, if suitable mealscan be obtained at the temporary dutysite; and the mailing cost associated withfiling travel vouchers and payment of em-ployer-sponsored charge card billings.

.03 Flat rate or stated schedule.(1) In general. Except as provided in

section 3.03(2) of this revenue procedure,an allowance is paid at a flat rate or statedschedule if it is provided on a uniformand objective basis with respect to the ex-penses described in section 3.01 of thisrevenue procedure. The allowance may bepaid with respect to the number of daysaway from home in connection with theperformance of services as an employeeor on any other basis that is consistentlyapplied and in accordance with reasonablebusiness practice. Thus, for example, anhourly payment to cover meal and inciden-tal expenses paid to a pilot or flight atten-dant who is traveling away from home inconnection with the performance of ser-vices as an employee is an allowance paidat a flat rate or stated schedule. Likewise,a payment based on the number of milestraveled (such as cents per mile) to covermeal and incidental expenses paid to anover-the-road truck driver who is travelingaway from home in connection with theperformance of services as an employee isan allowance paid at a flat rate or statedschedule.

(2) Limitation. An allowance that iscomputed on a basis similar to that usedin computing the employee’s wages orother compensation (such as the numberof hours worked, miles traveled, or piecesproduced) does not meet the business con-nection requirement of § 1.62–2(d), is nota per diem allowance, and is not paid ata flat rate or stated schedule, unless, asof December 12, 1989, (a) the allowance

was identified by the payor either by mak-ing a separate payment or by specificallyidentifying the amount of the allowance,or (b) an allowance computed on that ba-sis was commonly used in the industryin which the employee is employed. See§ 1.62–2(d)(3)(ii).

SECTION 4. PER DIEMSUBSTANTIATION METHOD

.01 Per diem allowance. If a payor paysa per diem allowance in lieu of reimburs-ing actual lodging, meal, and incidental ex-penses incurred or to be incurred by anemployee for travel away from home, theamount of the expenses that is deemed sub-stantiated for each calendar day is equal tothe lesser of the per diem allowance forthat day or the amount computed at thefederal per diem rate (see section 3.02 ofthis revenue procedure) for the locality oftravel for that day (or partial day, see sec-tion 6.04 of this revenue procedure).

.02 Meal and incidental expenses onlyper diem allowance. If a payor pays aper diem allowance only for meal and in-cidental expenses in lieu of reimbursingactual meal and incidental expenses in-curred or to be incurred by an employeefor travel away from home, the amount ofthe expenses that is deemed substantiatedfor each calendar day is equal to the lesserof the per diem allowance for that day orthe amount computed at the federal M&IErate for the locality of travel for that day(or partial day). A per diem allowanceis treated as paid only for meal and inci-dental expenses if (1) the payor pays theemployee for actual expenses for lodgingbased on receipts submitted to the payor,(2) the payor provides the lodging in kind,(3) the payor pays the actual expenses forlodging directly to the provider of the lodg-ing, (4) the payor does not have a reason-able belief that lodging expenses were orwill be incurred by the employee, or (5) theallowance is computed on a basis similarto that used in computing the employee’swages or other compensation (such as thenumber of hours worked, miles traveled,or pieces produced).

.03 Optional method for meal and in-cidental expenses only deduction. In lieuof using actual expenses in computing theamount allowable as a deduction for or-dinary and necessary meal and inciden-tal expenses paid or incurred for travel

2007–42 I.R.B. 811 October 15, 2007

away from home, employees and self-em-ployed individuals who pay or incur mealexpenses may use an amount computed atthe federal M&IE rate for the locality oftravel for each calendar day (or partial day)the employee or self-employed individualis away from home. This amount will bedeemed substantiated for purposes of para-graphs (b)(2) and (c) of § 1.274–5, pro-vided the employee or self-employed indi-vidual substantiates the elements of time,place, and business purpose of the travelfor that day (or partial day) in accordancewith those regulations. See section 6.05(1)of this revenue procedure for rules relatedto the application of the limitation under§ 274(n) to amounts determined under thissection 4.03. See section 4.05 of this rev-enue procedure for a method for substanti-ating incidental expenses that may be usedby employees or self-employed individu-als who do not pay or incur meal expenses.

.04 Special rules for transportation in-dustry.

(1) In general. This section 4.04 ap-plies to (a) a payor that pays a per diemallowance only for meal and incidental ex-penses for travel away from home as de-scribed in section 4.02 of this revenue pro-cedure to an employee in the transportationindustry, or (b) an employee or self-em-ployed individual in the transportation in-dustry who computes the amount allow-able as a deduction for meal and incidentalexpenses for travel away from home in ac-cordance with section 4.03 of this revenueprocedure.

(2) Transportation industry defined.For purposes of this section 4.04, an em-ployee or self-employed individual is inthe transportation industry only if the em-ployee’s or individual’s work (a) is of thetype that directly involves moving peopleor goods by airplane, barge, bus, ship,train, or truck, and (b) regularly requirestravel away from home which, duringany single trip away from home, usuallyinvolves travel to localities with differ-ing federal M&IE rates. For purposesof the preceding sentence, a payor mustdetermine that an employee or a group ofemployees is in the transportation indus-try by using a method that is consistentlyapplied and in accordance with reasonablebusiness practice.

(3) Rates. A taxpayer described in sec-tion 4.04(1) of this revenue procedure maytreat $52 as the federal M&IE rate for any

CONUS locality of travel, and $58 as thefederal M&IE rate for any OCONUS lo-cality of travel. A payor that uses either (orboth) of these special rates with respect toan employee must use the special rate(s)for all amounts subject to section 4.02 ofthis revenue procedure paid to that em-ployee for travel away from home withinCONUS and/or OCONUS, as the case maybe, during the calendar year. Similarly, anemployee or self-employed individual thatuses either (or both) of these special ratesmust use the special rate(s) for all amountscomputed pursuant to section 4.03 of thisrevenue procedure for travel away fromhome within CONUS and/or OCONUS, asthe case may be, during the calendar year.See section 4.04(6) of this revenue proce-dure for transition rules.

(4) Periodic rule. A payor described insection 4.04(1) of this revenue proceduremay compute the amount of the em-ployee’s expenses that is deemed substan-tiated under section 4.02 of this revenueprocedure periodically (not less frequentlythan monthly), rather than daily, by com-paring the total per diem allowance paidfor the period to the sum of the amountscomputed either at the federal M&IErate(s) for the localities of travel, or at thespecial rate described in section 4.04(3),for the days (or partial days) the employeeis away from home during the period.

(5) Examples.(a) Example 1. Taxpayer, an employee in the

transportation industry, travels away from home onbusiness within CONUS on 17 days (including par-tial days) during a calendar month and receives a perdiem allowance only for meal and incidental expensesfrom a payor that uses the special rule under sec-tion 4.04(3) of this revenue procedure. The amountdeemed substantiated under section 4.02 of this rev-enue procedure is equal to the lesser of the total perdiem allowance paid for the month or $884 (17 daysat $52 per day).

(b) Example 2. Taxpayer, a truck driver employeein the transportation industry, is paid a “cents-per-mile” allowance that qualifies as an allowance paidunder a flat rate or stated schedule as defined in sec-tion 3.03 of this revenue procedure. Taxpayer travelsaway from home on business for 10 days. Based onthe number of miles driven by Taxpayer, Taxpayer’semployer pays an allowance of $500 for the 10 daysof business travel. Taxpayer actually drives for 8days, and does not drive for the other 2 days Taxpayeris away from home. Taxpayer is paid under the peri-odic rule used for transportation industry employersand employees in accordance with section 4.04(4) ofthis revenue procedure. The amount deemed substan-tiated is the full $500 because that amount does notexceed $520 (ten days away from home at $52 perday).

(6) Transition rules. Under the calen-dar-year convention provided in section4.04(3), a taxpayer who used the federalM&IE rates during the first 9 months ofcalendar year 2007 to substantiate theamount of an individual’s travel expensesunder sections 4.02 or 4.03 of Rev. Proc.2006–41 may not use, for that individual,the special transportation industry ratesprovided in this section 4.04 until January1, 2008. Similarly, a taxpayer who usedthe special transportation industry ratesduring the first 9 months of calendar year2007 to substantiate the amount of an in-dividual’s travel expenses may not use,for that individual, the federal M&IE ratesuntil January 1, 2008.

.05 Optional method for incidental ex-penses only deduction. In lieu of usingactual expenses in computing the amountallowable as a deduction for ordinary andnecessary incidental expenses paid or in-curred for travel away from home, employ-ees and self-employed individuals who donot pay or incur meal expenses for a calen-dar day (or partial day) of travel away fromhome may use, for each calendar day (orpartial day) the employee or self-employedindividual is away from home, an amountcomputed at the rate of $3 per day for anyCONUS or OCONUS locality of travel.This amount will be deemed substantiatedfor purposes of paragraphs (b)(2) and (c)of § 1.274–5, provided the employee orself-employed individual substantiates theelements of time, place, and business pur-pose of the travel for that day (or partialday) in accordance with those regulations.See section 4.03 of this revenue procedurefor a method that may be used by em-ployees or self-employed individuals whopay or incur meal expenses. The methodauthorized by this section 4.05 may notbe used by payors that use section 4.01,4.02, or 5.01 of this revenue procedure, orby employees or self-employed individu-als who use the method described in sec-tion 4.03 of this revenue procedure. Seesection 6.05(4) of this revenue procedurefor rules related to the application of thelimitation under § 274(n) to amounts de-termined under this section 4.05.

SECTION 5. HIGH-LOWSUBSTANTIATION METHOD

.01 In general. If a payor pays a perdiem allowance in lieu of reimbursing ac-

October 15, 2007 812 2007–42 I.R.B.

tual lodging, meal, and incidental expensesincurred or to be incurred by an employeefor travel away from home and the payoruses the high-low substantiation methoddescribed in this section 5 for travel withinCONUS, the amount of the expenses thatis deemed substantiated for each calendarday is equal to the lesser of the per diemallowance for that day or the amount com-puted at the rate set forth in section 5.02 ofthis revenue procedure for the locality oftravel for that day (or partial day, see sec-tion 6.04 of this revenue procedure). Ex-cept as provided in section 5.06 of this rev-enue procedure, this high-low substantia-

tion method may be used in lieu of theper diem substantiation method providedin section 4.01 of this revenue procedure,but may not be used in lieu of the meal andincidental expenses only per diem substan-tiation method provided in section 4.02 ofthis revenue procedure.

.02 Specific high-low rates. Except asprovided in section 5.06 of this revenueprocedure, the per diem rate set forth in thissection 5.02 is $237 for travel to any “high-cost locality” specified in section 5.03 ofthis revenue procedure, or $152 for travelto any other locality within CONUS. Thehigh or low rate, as appropriate, applies

as if it were the federal per diem rate forthe locality of travel. For purposes of ap-plying the high-low substantiation methodand the § 274(n) limitation on meal ex-penses (see section 6.05(3) of this revenueprocedure), the amount of the high and lowrates that is treated as paid for meals is$58 for a high-cost locality and $45 for anyother locality within CONUS.

.03 High-cost localities. The followinglocalities have a federal per diem rate of$194 or more, and are high-cost localitiesfor all of the calendar year or the portion ofthe calendar year specified in parenthesesunder the key city name:

Key City County or other defined location

ArizonaPhoenix/Scottsdale Maricopa

(January 1-March 31)Sedona City Limits of Sedona

(March 1-April 30)

CaliforniaNapa NapaPalm Springs Riverside

(January 1-April 30)San Diego San DiegoSan Francisco San FranciscoSanta Barbara Santa BarbaraSanta Monica City limits of Santa MonicaSouth Lake Tahoe El Dorado

(December 1-March 31)Yosemite National Park Mariposa

ColoradoAspen Pitkin

(December 1-April 30)Crested Butte/Gunnison Gunnison

(December 1-March 31)Silverthorne/Breckenridge Summit

(December 1-March 31)Steamboat Springs Routt

(December 1-February 29)Telluride San Miguel

(October 1-March 31)Vail Eagle

District of ColumbiaWashington, D.C. (also the cities of Alexandria, Falls Church, and Fairfax, and the counties of Arlington and Fairfax, inVirginia; and the counties of Montgomery and Prince George’s in Maryland) (See also Maryland and Virginia)

2007–42 I.R.B. 813 October 15, 2007


FloridaFort Lauderdale Broward

(October 1-April 30)Fort Walton Beach/De Funiak Springs Okaloosa and Walton

(June 1-July 31)Key West MonroeMiami Miami-Dade

(October 1-February 29)Naples Collier

(February 1-March 31)Palm Beach

(January 1-March 31)Boca Raton, Delray Beach, Jupiter, PalmBeach Gardens, Palm Beach, Palm BeachShores, Singer Island and West Palm Beach

Stuart Martin(February 1-March 31)

IllinoisChicago Cook and Lake

Maryland(For the counties of Montgomery and Prince George’s,see District of Columbia)Baltimore City BaltimoreCambridge/St. Michaels Dorchester and Talbot

(April 1-August 31)Ocean City Worcester

(June 1-August 31)

MassachusettsBoston/Cambridge Suffolk, City of CambridgeMartha’s Vineyard Dukes

(July 1-August 31)Nantucket Nantucket

NevadaIncline Village/Crystal Bay/Reno/Sparks Washoe

(June 1-August 31)

New HampshireConway Caroll

(July 1-August 31)

New YorkFloral Park/Garden City/Glen Cove/Great Neck/Roslyn NassauManhattan The Boroughs of Manhattan, Brooklyn, the

Bronx and Staten IslandQueens QueensSaratoga Springs/Schenectady Saratoga and Schenectady

(July 1-August 31)Tarrytown/White Plains/New Rochelle/Yonkers Westchester

PennsylvaniaPhiladelphia Philadelphia

October 15, 2007 814 2007–42 I.R.B.


Rhode IslandJamestown/Middletown/Newport Newport

(October 1-November 30 andFebruary 1-September 30)

Providence Providence

UtahPark City Summit

(January 1-March 31)

Virginia(For the cities of Alexandria, Falls Church, and Fairfax, and the counties of Arlington and Fairfax, see District of Columbia)Loudon County LoudonVirginia Beach City of Virginia Beach

(June 1-August 31)

WashingtonSeattle King

WisconsinLake Geneva Walworth

(June 1-September 30)

.04 Changes in high-cost localities.The list of high-cost localities in section5.03 of this revenue procedure differs fromthe list of high-cost localities in section5.03 of Rev. Proc. 2006–41 (changeslisted by key cities).

(1) The following localities havebeen added to the list of high-cost lo-calities: Sedona, Arizona; Napa, Cal-ifornia; Palm Springs, California; SanDiego, California; Yosemite NationalPark, California; Silverthorne/Brecken-ridge, Colorado; Incline Village/CrystalBay/Reno/Sparks, Nevada; Conway, NewHampshire; Tarrytown/White Plains/NewRochelle/Yonkers, New York; LoudonCounty, Virginia; Virginia Beach, Vir-ginia; and Lake Geneva, Wisconsin.

(2) The portion of the year for whichthe following are high-cost localities hasbeen changed: Santa Barbara, Califor-nia; Crested Butte/Gunnison, Colorado;Steamboat Springs, Colorado; Telluride,Colorado; Vail, Colorado; Fort Laud-erdale, Florida; Miami, Florida; PalmBeach, Florida; Cambridge/St. Michaels,Maryland; Ocean City, Maryland; Nan-tucket, Massachusetts; Jamestown/Mid-dletown/Newport, Rhode Island; and ParkCity, Utah.

(3) The following localities have beenremoved from the list of high-cost local-

ities: New Orleans, Louisiana and LakePlacid, New York.

.05 Specific limitation.(1) Except as provided in section

5.05(2) of this revenue procedure, apayor that uses the high-low substanti-ation method with respect to an employeemust use that method for all amounts paidto that employee for travel away fromhome within CONUS during the calendaryear. See section 5.06 of this revenueprocedure for transition rules.

(2) With respect to an employee de-scribed in section 5.05(1) of this revenueprocedure, the payor may reimburse ac-tual expenses or use the meal and inci-dental expenses only per diem substan-tiation method described in section 4.02of this revenue procedure for any travelaway from home, and may use the perdiem substantiation method described insection 4.01 of this revenue procedure forany OCONUS travel away from home.

.06 Transition rules. A payor who usedthe substantiation method of section 4.01of Rev. Proc. 2006–41 for an employeeduring the first 9 months of calendar year2007 may not use the high-low substanti-ation method in section 5 of this revenueprocedure for that employee until January1, 2008. A payor who used the high-lowsubstantiation method of section 5 of Rev.

Proc. 2006–41 for an employee during thefirst 9 months of calendar year 2007 mustcontinue to use the high-low substantiationmethod for the remainder of calendar year2007 for that employee. A payor describedin the previous sentence may use the ratesand high-cost localities published in sec-tion 5 of Rev. Proc. 2006–41, in lieu ofthe updated rates and high-cost localitiesprovided in section 5 of this revenue proce-dure, for travel on or after October 1, 2007,and before January 1, 2008, if those ratesand localities are used consistently duringthis period for all employees reimbursedunder this method.

SECTION 6. LIMITATIONS ANDSPECIAL RULES

.01 In general. The federal per diemrate and the federal M&IE rate described insection 3.02 of this revenue procedure forthe locality of travel will be applied in thesame manner as applied under the FederalTravel Regulations, 41 C.F.R. Part 301–11(2007), except as provided in sections 6.02through 6.04 of this revenue procedure.

.02 Federal per diem rate. A receiptfor lodging expenses is not required in de-termining the amount of expenses deemedsubstantiated under section 4.01 or 5.01 ofthis revenue procedure. See section 7.01of this revenue procedure for the require-

2007–42 I.R.B. 815 October 15, 2007

ment that the employee substantiate thetime, place, and business purpose of theexpense.

.03 Federal per diem or M&IE rate. Apayor is not required to reduce the federalper diem rate or the federal M&IE rate forthe locality of travel for meals provided inkind, provided the payor has a reasonablebelief that meal and incidental expenseswere or will be incurred by the employeeduring each day of travel.

.04 Proration of the federal per diem orM&IE rate. Pursuant to the Federal TravelRegulations, in determining the federal perdiem rate or the federal M&IE rate forthe locality of travel, the full applicablefederal M&IE rate is available for a fullday of travel from 12:01 a.m. to 12:00midnight. The method described in sec-tion 6.04(1) of this revenue procedure mustbe used for purposes of determining theamount deemed substantiated under sec-tion 4.03 or 4.05 of this revenue procedurefor partial days of travel away from home.For purposes of determining the amountdeemed substantiated under section 4.01,4.02, 4.04, or 5 of this revenue procedurefor partial days of travel away from home,either of the following methods may beused to prorate the federal M&IE rate todetermine the federal per diem rate or thefederal M&IE rate for the partial days oftravel:

(1) The rate may be prorated using themethod prescribed by the Federal TravelRegulations. Currently the Federal TravelRegulations allow three-fourths of the ap-plicable federal M&IE rate for each partialday during which the employee or self-em-ployed individual is traveling away fromhome in connection with the performanceof services as an employee or self-em-ployed individual. The same ratio may beapplied to prorate the allowance for inci-dental expenses described in section 4.05of this revenue procedure; or

(2) The rate may be prorated using anymethod that is consistently applied and inaccordance with reasonable business prac-tice. For example, if an employee travelsaway from home from 9 a.m. one day to5 p.m. the next day, a method of prorationthat results in an amount equal to two timesthe federal M&IE rate will be treated asbeing in accordance with reasonable busi-ness practice (even though only one and ahalf times the federal M&IE rate would be

allowed under the Federal Travel Regula-tions).

.05 Application of the appropriate§ 274(n) limitation on meal expenses. Ex-cept as provided in section 6.05(4), all orpart of the amount of an expense deemedsubstantiated under this revenue procedureis subject to the appropriate limitation un-der § 274(n) (see section 2.02 of thisrevenue procedure) on the deductibility offood and beverage expenses.

(1) If an amount for meal and incidentalexpenses is computed pursuant to section4.03 of this revenue procedure, the tax-payer must treat that amount as an expensefor food and beverages.

(2) If a per diem allowance is paid onlyfor meal and incidental expenses, the payormust treat an amount equal to the lesser ofthe allowance or the federal M&IE rate forthe locality of travel for each day (or partialday, see section 6.04 of this revenue pro-cedure) as an expense for food and bever-ages.

(3) If a per diem allowance is paid forlodging, meal, and incidental expenses foreach calendar day (or partial day) the em-ployee is away from home at a rate equal toor in excess of the federal per diem rate forthe locality of travel, the payor must treatan amount equal to the federal M&IE ratefor the locality of travel for each calendarday (or partial day) as an expense for foodor beverages.

(4) If a per diem allowance is paid forlodging, meal, and incidental expenses foreach calendar day (or partial day) the em-ployee is away from home at a rate lessthan the federal per diem rate for the lo-cality of travel, the payor must:

(a) treat an amount equal to the federalM&IE rate for the locality of travel foreach calendar day (or partial day) or, ifless, the amount of the allowance, as anexpense for food or beverages; or

(b) treat an amount equal to 40 percentof the allowance as an expense for food orbeverages.

(5) If an amount for incidental expensesis computed under section 4.05 of this rev-enue procedure, none of the amount socomputed is subject to limitation under§ 274(n) on the deductibility of food andbeverage expenses.

.06 No double reimbursement or deduc-tion. If a payor pays a per diem allowancein lieu of reimbursing actual lodging, meal,and incidental expenses, or meal and inci-

dental expenses, in accordance with sec-tion 4 or 5 of this revenue procedure, andsuch amounts are treated as paid under anaccountable plan, any additional paymentwith respect to those expenses is treatedas paid under a nonaccountable plan, isincluded in the employee’s gross income,is reported as wages or other compensa-tion on the employee’s Form W–2, andis subject to withholding and payment ofemployment taxes. Similarly, if an em-ployee or self-employed individual com-putes the amount allowable as a deductionfor meal and incidental expenses for travelaway from home in accordance with sec-tion 4.03 or 4.04 of this revenue procedure,no other deduction is allowed to the em-ployee or self-employed individual withrespect to those expenses. For example,assume an employee receives a per diemallowance from a payor for lodging, meal,and incidental expenses, or for meal andincidental expenses, incurred while travel-ing away from home and such amounts aretreated as paid under an accountable plan.During that trip, the employee pays for din-ner for the employee and two business as-sociates. The payor reimburses as a busi-ness entertainment meal expense the mealexpense for the employee and the two busi-ness associates. Because the payor alsopays a per diem allowance to cover the costof the employee’s meals, the amount paidby the payor for the employee’s portion ofthe business entertainment meal expenseis treated as paid under a nonaccountableplan, is reported as wages or other com-pensation on the employee’s Form W–2,and is subject to withholding and paymentof employment taxes.

.07 Related parties. Sections 4.01 and5 of this revenue procedure do not apply ifa payor and an employee are related withinthe meaning of § 267(b), but for this pur-pose the percentage of ownership interestreferred to in § 267(b)(2) is 10 percent.

SECTION 7. APPLICATION

.01 If the amount of travel expenses isdeemed substantiated under the rules pro-vided in section 4 or 5 of this revenue pro-cedure, and the employee substantiates tothe payor the elements of time, place, andbusiness purpose of the travel for that day(or partial day) in accordance with para-graphs (b)(2) and (c) (other than subpara-graph (2)(iii)(A) thereof) of § 1.274–5, the

October 15, 2007 816 2007–42 I.R.B.

employee is deemed to satisfy the adequateaccounting requirements of § 1.274–5(f)as well as the requirement to substantiateby adequate records or other sufficient ev-idence for purposes of § 1.274–5(c). Seealso § 1.62–2(e)(1) for the rule that in orderto satisfy the substantiation requirement ofan accountable plan, an arrangement mustrequire business expenses to be substanti-ated to the payor within a reasonable pe-riod of time.

.02 An arrangement providing per diemallowances will be treated as satisfying therequirement of § 1.62–2(f)(2) of return-ing amounts in excess of expenses if theemployee is required to return within areasonable period of time (as defined in§ 1.62–2(g)) any portion of the allowancethat relates to days of travel not substan-tiated, even though the arrangement doesnot require the employee to return the por-tion of the allowance that relates to daysof travel substantiated and that exceedsthe amount of the employee’s expensesdeemed substantiated. For example, as-sume a payor provides an employee an ad-vance per diem allowance for meal and in-cidental expenses of $250, based on an an-ticipated 5 days of business travel at $50per day to a locality for which the fed-eral M&IE rate is $39, and the employeesubstantiates 3 full days of business travel.The requirement to return excess amountsis treated as satisfied if the employee isrequired to return within a reasonable pe-riod of time (as defined in § 1.62–2(g)) theportion of the allowance that is attribut-able to the 2 unsubstantiated days of travel($100), even though the employee is notrequired to return the portion of the al-lowance ($33) that exceeds the amount ofthe employee’s expenses deemed substan-tiated under section 4.02 of this revenueprocedure ($117) for the 3 substantiateddays of travel. However, the $33 excessportion of the allowance is treated as paidunder a nonaccountable plan as discussedin section 7.04 of this revenue procedure.

.03 An employee is not required to in-clude in gross income the portion of aper diem allowance received from a payorthat is less than or equal to the amountdeemed substantiated under the rules pro-vided in section 4 or 5 of this revenue pro-cedure if the employee substantiates thebusiness travel expenses covered by theper diem allowance in accordance withsection 7.01 of this revenue procedure. See

§ 1.274–5(f)(2)(i). Assuming that the re-maining requirements for an accountableplan provided in § 1.62–2 are satisfied, thatportion of the allowance is treated as paidunder an accountable plan, is not reportedas wages or other compensation on the em-ployee’s Form W–2, and is exempt fromthe withholding and payment of employ-ment taxes. See § 1.62–2(c)(2) and (c)(4).

.04 An employee is required to includein gross income only the portion of the perdiem allowance received from a payor thatexceeds the amount deemed substantiatedunder the rules provided in section 4 or 5of this revenue procedure if the employeesubstantiates the business travel expensescovered by the per diem allowance in ac-cordance with section 7.01 of this revenueprocedure. See § 1.274–5(f)(2)(ii). In ad-dition, the excess portion of the allowanceis treated as paid under a nonaccountableplan, is reported as wages or other compen-sation on the employee’s Form W–2, andis subject to withholding and payment ofemployment taxes. See § 1.62–2(c)(3)(ii),(c)(5), and (h)(2)(i)(B).

.05 If the amount of the expenses thatis deemed substantiated under the rulesprovided in section 4.01, 4.02, or 5 of thisrevenue procedure is less than the amountof the employee’s business expenses fortravel away from home, the employeemay claim an itemized deduction for theamount by which the business travel ex-penses exceed the amount that is deemedsubstantiated, provided the employee sub-stantiates all the business travel expenses(not just the excess over the federal perdiem rate), includes on Form 2106, “Em-ployee Business Expenses,” the deemedsubstantiated portion of the per diem al-lowance received from the payor, and in-cludes in gross income the portion (if any)of the per diem allowance received fromthe payor that exceeds the amount deemedsubstantiated. See § 1.274–5(f)(2)(iii).However, for purposes of claiming thisitemized deduction with respect to mealand incidental expenses, substantiation ofthe amount of the expenses is not requiredif the employee is claiming a deductionthat is equal to or less than the amountcomputed under section 4.03 of this rev-enue procedure minus the amount deemedsubstantiated under sections 4.02 and 7.01of this revenue procedure. The itemizeddeduction is subject to the appropriatelimitation (see section 2.02 of this revenue

procedure) on meal and entertainmentexpenses provided in § 274(n) and the2-percent floor on miscellaneous itemizeddeductions provided in § 67.

.06 An employee who pays or incursamounts for meal expenses and does notreceive a per diem allowance for meal andincidental expenses may deduct an amountcomputed pursuant to section 4.03 of thisrevenue procedure only as an itemized de-duction. This itemized deduction is sub-ject to the appropriate limitation on mealand entertainment expenses provided in§ 274(n) and the 2-percent floor on miscel-laneous itemized deductions provided in§ 67. See section 7.07 of this revenue pro-cedure for the treatment of an employeewho does not pay or incur amounts formeal expenses and does not receive a perdiem allowance for incidental expenses.

.07 An employee who does not pay orincur amounts for meal expenses and doesnot receive a per diem allowance for in-cidental expenses may deduct an amountcomputed pursuant to section 4.05 of thisrevenue procedure only as an itemized de-duction. This itemized deduction is sub-ject to the 2-percent floor on miscellaneousitemized deductions provided in § 67. Seesection 7.06 of this revenue procedure forthe treatment of an employee who pays orincurs amounts for meal expenses and doesnot receive a per diem allowance for mealand incidental expenses.

.08 A self-employed individual whopays or incurs meal expenses for a calen-dar day (or partial day) of travel away fromhome may deduct an amount computedpursuant to section 4.03 of this revenueprocedure in determining adjusted grossincome under § 62(a)(1). This deductionis subject to the appropriate limitation onmeal and entertainment expenses providedin § 274(n).

.09 A self-employed individual whodoes not pay or incur meal expenses fora calendar day (or partial day) of travelaway from home may deduct an amountcomputed pursuant to section 4.05 of thisrevenue procedure in determining adjustedgross income under § 62(a)(1).

.10 If a payor’s reimbursement orother expense allowance arrangement ev-idences a pattern of abuse of the rules of§ 62(c) and the regulations thereunder,all payments under the arrangement willbe treated as made under a nonaccount-able plan. See § 1.62–2(k) and Rev. Rul.

2007–42 I.R.B. 817 October 15, 2007

2006–56. Thus, these payments are in-cluded in the employee’s gross income,are reported as wages or other compen-sation on the employee’s Form W–2, andare subject to withholding and paymentof employment taxes. See § 1.62–2(c)(3),(c)(5), and (h)(2), and section 8.06 of thisrevenue procedure.

SECTION 8. WITHHOLDING ANDPAYMENT OF EMPLOYMENT TAXES

.01 The portion of a per diem al-lowance, if any, that relates to the daysof business travel substantiated and thatexceeds the amount deemed substantiatedfor those days under section 4.01, 4.02, or5 of this revenue procedure is treated aspaid under a nonaccountable plan and issubject to withholding and payment of em-ployment taxes. See § 1.62–2(h)(2)(i)(B).

.02 In the case of a per diem allowancepaid as a reimbursement, the excess de-scribed in section 8.01 of this revenue pro-cedure is subject to withholding and pay-ment of employment taxes in the payrollperiod in which the payor reimburses theexpenses for the days of travel substanti-ated. See § 1.62–2(h)(2)(i)(B)(2).

.03 In the case of a per diem allowancepaid as an advance, the excess describedin section 8.01 of this revenue procedureis subject to withholding and payment ofemployment taxes no later than the firstpayroll period following the payroll periodin which the days of travel with respectto which the advance was paid are sub-stantiated. See § 1.62–2(h)(2)(i)(B)(3). Ifsome or all of the days of travel with re-spect to which the advance was paid arenot substantiated within a reasonable pe-riod of time and the employee does not re-turn the portion of the allowance that re-lates to those days within a reasonable pe-riod of time, the portion of the allowancethat relates to those days is subject to with-holding and payment of employment taxesno later than the first payroll period follow-ing the end of the reasonable period. See§ 1.62–2(h)(2)(i)(A).

.04 In the case of a per diem allowanceonly for meal and incidental expenses fortravel away from home paid to an em-ployee in the transportation industry by apayor that uses the rule in section 4.04(4)of this revenue procedure, the excess ofthe per diem allowance paid for the pe-riod over the amount deemed substanti-

ated for the period under section 4.02 ofthis revenue procedure (after applying sec-tion 4.04(4) of this revenue procedure),is subject to withholding and payment ofemployment taxes no later than the firstpayroll period following the payroll pe-riod in which the excess is computed. See§ 1.62–2(h)(2)(i)(B)(4).

.05 For example, assume that an em-ployer pays an employee a per diemallowance under an arrangement thatotherwise meets the requirements of anaccountable plan to cover business ex-penses for meals and lodging for travelaway from home at a rate of 120 percentof the federal per diem rate for the local-ities to which the employee travels. Theemployer does not require the employeeto return the 20 percent by which the re-imbursement for those expenses exceedsthe federal per diem rate. The employeesubstantiates 6 days of travel away fromhome: 2 days in a locality in which thefederal per diem rate is $160 and 4 daysin a locality in which the federal per diemrate is $120. The employer reimbursesthe employee $960 for the 6 days of travelaway from home (2 x (120% x $160) + 4x (120% x $120)), and does not requirethe employee to return the excess paymentof $160 (2 days x $32 ($192-$160) + 4days x $24 ($144-$120)). For the payrollperiod in which the employer reimbursesthe expenses, the employer must withholdand pay employment taxes on $160. Seesection 8.02 of this revenue procedure.

.06 If a per diem allowance arrange-ment has no mechanism or process todetermine when an allowance exceeds theamount that may be deemed substantiatedand the arrangement routinely pays al-lowances in excess of the amount that maybe deemed substantiated without requiringactual substantiation of all the expenses orrepayment of the excess amount, the fail-ure of the arrangement to treat the excessallowances as wages for employment taxpurposes causes all payments made underthe arrangement to be treated as made un-der a nonaccountable plan. See Rev. Rul.2006–56.


This revenue procedure is effective forper diem allowances for lodging, meal andincidental expenses, or for meal and inci-dental expenses only, that are paid to an

employee on or after October 1, 2007, withrespect to travel away from home on or af-ter October 1, 2007. For purposes of com-puting the amount allowable as a deduc-tion for travel away from home, this rev-enue procedure is effective for meal andincidental expenses or for incidental ex-penses only paid or incurred on or after Oc-tober 1, 2007.

SECTION 10. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2006–41 is superseded.


The principal author of this revenueprocedure is Jeffrey T. Rodrick of the Of-fice of Associate Chief Counsel (IncomeTax and Accounting). For further infor-mation regarding this revenue procedure,contact Mr. Rodrick at (202) 622–4930(not a toll-free call).

26 CFR 601.204: Changes in accounting periods andin methods of accounting.(Also Part I, §§ 442, 898; 1.442–1.)

Rev. Proc. 2007–64

SECTION 1. PURPOSE

This revenue procedure modifies ascope provision and one of the terms andconditions under which the Internal Rev-enue Service grants approval of requestsby corporations for changes in annual ac-counting periods filed under Rev. Proc.2006–45, 2006–45 I.R.B. 851. Specifi-cally, this revenue procedure modifies thescope provision regarding a corporationthat exits a consolidated group. See sec-tion 4.02(13) of Rev. Proc. 2006–45. Inaddition, this revenue procedure modifiesthe terms and conditions relating to record-keeping and book conformity in the case ofa controlled foreign corporation (“CFC”)that has a majority U.S. shareholder year(as defined in § 898(c)(3) of the InternalRevenue Code) and that is changing toa one-month deferral year described in§ 898(c)(2) or to a 52–53-week taxableyear that references such one-month de-ferral year. See section 6.02 of Rev. Proc.2006–45.

October 15, 2007 818 2007–42 I.R.B.

SECTION 2. BACKGROUND

.01 Section 442 and § 1.442–1(a) of theIncome Tax Regulations generally providethat a taxpayer that wants to change itsannual accounting period and use a newtaxable year must obtain the approval ofthe Commissioner.

.02 Section 1.442–1(b)(2) provides thata change in annual accounting period willbe approved only if the taxpayer agreesto the Commissioner’s prescribed terms,conditions, and adjustments for effectingthe change.

.03 Rev. Proc. 2006–45 provides theexclusive procedures for certain corpora-tions to obtain automatic approval of theCommissioner to change their annual ac-counting periods.

.04 Section 4.02(13) of Rev. Proc.2006–45 excludes from the scope of therevenue procedure a corporation thatceases to be a member of a consolidatedgroup during the consolidated group’s firsteffective year (as defined in section 5.05of Rev. Proc. 2006–45).

.05 The Service has determined that itis appropriate to modify the scope of Rev.Proc. 2006–45 to clarify that any corpo-ration leaving a consolidated group is ex-cluded from the automatic change proce-dures under Rev. Proc. 2006–45 dur-ing the consolidated group’s taxable year(without regard to a change in the consoli-dated group’s accounting period) in whichthe corporation ceases to be a member ofthe consolidated group. A corporation thatceases to be a member of a consolidatedgroup must continue to use the annual ac-counting period of the consolidated group,unless the corporation receives approvalunder Rev. Proc. 2002–39, 2002–1 C.B.1046, to change its annual accounting pe-riod (or is required to change its annual ac-counting period upon joining another con-solidated group).

.06 Section 898(c)(2) provides that aspecified foreign corporation (i.e., a CFC)may elect, in lieu of the taxable year un-der § 898(c)(1)(A) (i.e., the majority U.S.shareholder year as defined in § 898(c)(3)),a taxable year beginning one month ear-lier than the majority U.S. shareholder year(i.e., one-month deferral year described in§ 898(c)(2)).

.07 Section 4.02(8) of Rev. Proc.2006–45 includes in the scope of the rev-enue procedure a CFC that has a majority

U.S. shareholder year and that is chang-ing to a one-month deferral year or to a52–53-week taxable year that referencessuch one-month deferral year.

.08 With respect to the terms and condi-tions of change under Rev. Proc. 2006–45,section 6.02(1) of that revenue proceduregenerally requires that a corporation com-pute its income and keep its books andrecords (including financial statementsand reports to creditors) on the basis ofthe requested taxable year. That sectionfurther requires that the books and recordsof the corporation be closed as of the lastday of the first effective year and that thecorporation conform the accounting pe-riod used for financial statement purposesand reports to creditors concurrently.

.09 The Service has determined that inthe case of a CFC changing to a one-monthdeferral year or to a 52–53-week taxableyear that references such one-month defer-ral year, the CFC is not required to issuefinancial statements and reports to credi-tors on the basis of the requested year asotherwise required by section 6.02(1) ofRev. Proc. 2006–45. However, as re-quired by section 6.02(1) of Rev. Proc.2006–45, the CFC must close its books andrecords as of the last day of the first ef-fective year and, every year after the firsteffective year, must close its books andrecords as of the last day of the requestedtaxable year, either a one-month deferralyear or a 52–53-week taxable year that ref-erences such one-month deferral year. TheCFC must also compute its income andearnings and profits for U.S. tax purposeson the basis of the requested year.

SECTION 3. SCOPE

.01 Corporations leaving a consol-idated group. This revenue procedureapplies to a corporation leaving a con-solidated group that wants to change itsannual accounting period in the year thecorporation ceases to be a member of theconsolidated group.

.02 CFCs changing to one-month de-ferral year or to a 52–53-week taxableyear that references such one-month de-ferral year. This revenue procedure alsoapplies to a CFC that has a majority U.S.shareholder year, and that is properlyapplying under Rev. Proc. 2006–45 tochange to a one-month deferral year or to

a 52–53-week taxable year that referencessuch one-month deferral year.

SECTION 4. MODIFICATIONS

.01 Section 4.02(13) is modified toread as follows: “Corporation that exitsa consolidated group. A corporation thatceases to be a member of a consolidatedgroup and wants to change its annual ac-counting period during the consolidatedgroup’s taxable year in which the cor-poration ceases to be a member of theconsolidated group. For purposes of theprior sentence, the consolidated group’staxable year is determined without regardto a change in the consolidated group’s an-nual accounting period. A corporation thatceases to be a member of a consolidatedgroup must continue to use the annual ac-counting period of the consolidated group,unless the corporation receives approvalunder Rev. Proc. 2002–39 to change itsannual accounting period (or is required tochange its annual accounting period uponjoining another consolidated group). Acorporation that ceases to be a member ofa consolidated group during the consoli-dated group’s first effective year is not amember of the consolidated group for pur-poses of the consolidated group’s changein accounting period. See section 7.02(7)of this revenue procedure.

(a) Example 1. On March 31, 2006, ABC Corpo-ration ceases to be a member of a consolidated groupthat has a taxable year ending on November 30. ABCCorporation is not eligible to change its annual ac-counting period under this revenue procedure to a tax-able year beginning before December 1, 2006.

(b) Example 2. Assume the same facts as Exam-ple 1, except that the consolidated group changes itsannual accounting period to a taxable year ending onAugust 31, effective August 31, 2006. ABC Corpo-ration is not eligible to change its annual accountingperiod under this revenue procedure to a taxable yearbeginning before December 1, 2006.

(c) Example 3. Assume the same facts as Exam-ple 2, except that the consolidated group changes itsannual accounting period to a taxable year ending onJanuary 31, effective January 31, 2006. ABC Corpo-ration is not eligible to change its annual accountingperiod under this revenue procedure to a taxable yearbeginning before February 1, 2007.”

.02 Section 6.02 of Rev. Proc.2006–45 is modified to add paragraph(4) as follows: “(4) CFCs changing toa year described in § 898(c)(2) or to a52–53-week taxable year that referencessuch one-month deferral year. The termsand conditions regarding financial state-ments and reports to creditors in section

2007–42 I.R.B. 819 October 15, 2007

6.02(1) of this revenue procedure do notapply in the case of a CFC that has a ma-jority U.S. shareholder year (as definedin § 898(c)(3)), and that is changing toa one-month deferral year described in§ 898(c)(2) or to a 52–53-week taxableyear that references such one-month de-ferral year. Such a CFC is neverthelessrequired to close its books and recordsas of the last day of the first effectiveyear and every year thereafter to close itsbooks and records on the last day of therequested taxable year, and to compute itsincome and earnings and profits for U.S.

tax purposes on the basis of the requestedtaxable year.

SECTION 5. EFFECT ON OTHERDOCUMENTS

Rev. Proc. 2006–45 is modified andclarified.


This revenue procedure is effective forchanges in annual accounting periods forwhich the first effective year (as defined in

section 5.05 of Rev. Proc. 2006–45) endson or after October 18, 2006.


The principal author of this revenueprocedure is Jeffrey S. Marshall of the Of-fice of Associate Chief Counsel (IncomeTax and Accounting). For further infor-mation regarding this revenue procedure,contact Mr. Marshall at (202) 622–4960(not a toll-free call).

October 15, 2007 820 2007–42 I.R.B.

Part IV. Items of General InterestNotice of ProposedRulemaking

Benefit Restrictions forUnderfunded Pension Plans

REG–113891–07

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains pro-posed regulations providing guidance re-garding the use of certain funding bal-ances maintained for defined benefit pen-sion plans and regarding benefit restric-tions for certain underfunded defined ben-efit pension plans. The proposed regu-lations reflect changes made by the Pen-sion Protection Act of 2006. These regula-tions affect sponsors, administrators, par-ticipants, and beneficiaries of single em-ployer defined benefit pension plans.

DATES: Written or electronic commentsand requests for a public hearing must bereceived by November 28, 2007.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–113891–07),room 5203, Internal Revenue Service,P.O. Box 7604, Ben Franklin Sta-tion, Washington, DC 20044. Submis-sions may be hand-delivered Mondaythrough Friday between the hours of8 a.m. to 4 p.m. to CC:PA:LPD:PR(REG–113891–07), Courier’s Desk, In-ternal Revenue Service, 1111 ConstitutionAvenue, NW, Washington, DC, or sentelectronically via the Federal eRulemak-ing Portal at www.regulations.gov (IRSREG–113891–07).

FOR FURTHER INFORMATIONCONTACT: Lauson C. Green orLinda S.F. Marshall at (202) 622–6090;concerning submissions and requests fora public hearing, contact Kelly Banks at(202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information con-tained in this notice of proposed rulemak-ing have been submitted to the Office ofManagement and Budget for review inaccordance with the Paperwork Reduc-tion Act of 1995 (44 U.S.C. 3507(d)).Comments on the collections of infor-mation should be sent to the Office ofManagement and Budget, Attn: Desk Of-ficer for the Department of the Treasury,Office of Information and RegulatoryAffairs, Washington, DC 20503, withcopies to the Internal Revenue Service,Attn: IRS Reports Clearance Officer,SE:W:CAR:MP:T:T:SP, Washington, DC20224. Comments on the collection ofinformation should be received by Octo-ber 29, 2007. Comments are specificallyrequested concerning:

Whether the proposed collection of in-formation is necessary for the proper per-formance of the functions of the InternalRevenue Service, including whether theinformation will have practical utility;

The accuracy of the estimated burdenassociated with the proposed collection ofinformation;

How the quality, utility, and clarity ofthe information to be collected may be en-hanced;

How the burden of complying with theproposed collections of information maybe minimized, including through the appli-cation of automated collection techniquesor other forms of information technology;and

Estimates of capital or start-up costsand costs of operation, maintenance, andpurchase of service to provide information.

The collection of information in thisproposed regulation is in §1.430(f)–1(f)and §§1.436–1(f) and 1.436–1(h). This in-formation is required in order for a qual-ified defined benefit plan’s enrolled ac-tuary to provide a timely certification ofthe plan’s AFTAP for each plan year toavoid certain benefit restrictions. In ad-

dition, these proposed regulations providefor several written elections to be made bythe plan sponsor upon occasion. This in-formation is voluntary to obtain a benefit.The likely respondents are qualified retire-ment plan sponsors and enrolled actuaries.

Estimated total annual reporting bur-den: 60,000 hours.

Estimated average annual burden hoursper respondent: 0.75 hours.

Estimated number of respondents:80,000.

Estimated annual frequency of re-sponses: occasional.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid control number assigned by the Of-fice of Management and Budget.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

Background

This document contains proposed In-come Tax Regulations (26 CFR part 1) un-der sections 430(f) and 436, as added tothe Code by the Pension Protection Act of2006 (PPA ’06), Public Law 109–280, 120Stat. 780.

Section 412 contains minimum fundingrules that generally apply to defined bene-fit plans.1 The minimum funding rules thatapply specifically to single employer de-fined benefit plans (including multiple em-ployer plans within the meaning of section413(c)) are set forth in new section 430.

Section 430 generally provides that theminimum required contribution for a yearis the sum of the target normal cost for theyear and the shortfall and waiver amorti-zation charges. Under section 430(f)(3),certain funding balances referred to as theprefunding balance and the funding stan-dard carryover balance are permitted tobe used to reduce the otherwise applica-

1 Section 302 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), sets forth funding rules that are parallel to those in section 412 of the Code, section 303 ofERISA sets forth additional funding rules for defined benefit plans (other than multiemployer plans) that are parallel to those in section 430 of the Code, and section 206(g) of ERISA setsforth funding-based limitations for defined benefit plans (other than multiemployer plans) that are parallel to those in section 436 of the Code. Under section 101 of Reorganization PlanNo. 4 of 1978 (43 FR 47713) and section 302 of ERISA, the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed in these proposed regulations for purposesof ERISA, as well as the Code. Thus, these proposed Treasury regulations issued under sections 430(f) and 436 of the Code apply as well for purposes of ERISA sections 303(f) and 206(g),respectively.

2007–42 I.R.B. 821 October 15, 2007

ble minimum required contribution for aplan year in certain situations. Under sec-tion 430(f)(7), the funding standard carry-over balance is based on the funding stan-dard account credit balance as determinedunder section 412 for a plan as of the lastday of the last plan year beginning in 2007.Under section 430(f)(6), the prefundingbalance represents the accumulation of thecontributions that an employer makes fora plan year that exceed the minimum re-quired contribution for the year. Thus, anemployer that makes additional contribu-tions for a plan year is permitted in cer-tain circumstances to use those excess con-tributions in order to satisfy the minimumfunding requirement in a subsequent planyear.

The treatment of these balances undersection 430 reflects congressional concernwith the treatment of a funding standardaccount credit balance under the section412 rules in effect prior to PPA ’06. Ac-cordingly, section 430(f)(3) sets forth newlimits on the ability of a poorly fundedplan to use the prefunding balance and thefunding standard carryover balance for aplan year. In addition, section 430(f)(4)requires that the prefunding balance andthe funding standard carryover balance besubtracted from the value of plan assets forcertain purposes (including the determina-tion of the plan’s funding target attainmentpercentage (FTAP), as defined under sec-tion 430(d)(2)) and section 430(f)(8) re-quires that the prefunding balance and thefunding standard carryover balance be ad-justed for actual investment return on theplan assets. In order to give employers theopportunity to minimize the impact of therequirement to subtract the prefunding bal-ance and funding standard carryover bal-ance from the plan assets, section 430(f)(5)permits an employer to elect to reduce thebalances.

Section 401(a)(29) requires that a de-fined benefit plan (other than a multiem-ployer plan) satisfy the requirements ofsection 436. Section 436 sets forth a seriesof limitations on the accrual and paymentof benefits under an underfunded plan.Under section 436(g), these limitations(other than the limitations on acceleratedbenefit payments under section 436(d))do not apply to a plan for the first 5 planyears of the plan, taking into account anypredecessor plan.

Section 436(b) sets forth a limitationon plant shutdown and other unpredictablecontingent event benefits in situationswhere the plan’s adjusted funding targetattainment percentage (AFTAP) for theplan year is less than 60 percent or wouldbe less than 60 percent taking into accountthe occurrence of the event. For this pur-pose, an “unpredictable contingent eventbenefit” means any benefit payable solelyby reason of (1) a plant shutdown (or asimilar event) or (2) an event other thanattainment of age, performance of service,receipt or derivation of compensation,or the occurrence of death or disability.Under section 436(b)(2), the limitationdoes not apply for a plan year if the plansponsor makes a specified contribution (inaddition to any minimum required con-tribution). If the AFTAP for a plan yearis less than 60 percent, then the specifiedcontribution is equal to the amount of theincrease in the plan’s funding target forthe plan year attributable to the occurrenceof the event. If the AFTAP for a plan yearis 60 percent or more but would be lessthan 60 percent taking into account theoccurrence of the event, then the specifiedcontribution is the amount sufficient toresult in an AFTAP of 60 percent takinginto account the occurrence of the event.

Under section 436(c), a plan amend-ment that has the effect of increasing theliabilities of the plan by reason of any in-crease in benefits (including changes investing) may not take effect if the plan’sAFTAP for the plan year is less than 80percent or would be less than 80 percenttaking into account the amendment. Un-der section 436(c)(2), the limitation doesnot apply for a plan year if the plan spon-sor makes a specified contribution (in ad-dition to any minimum required contribu-tion). If the plan’s AFTAP for the plan yearis less than 80 percent, then the specifiedcontribution is equal to the amount of theincrease in the plan’s funding target for theplan year attributable to the amendment.If the plan’s AFTAP for the plan year is80 percent or more but would be less than80 percent taking into account the amend-ment, then the specified contribution is theamount sufficient to result in an AFTAP of80 percent taking into account the amend-ment. In addition, under section 436(c)(3),the limitation does not apply to an amend-ment that provides for a benefit increaseunder a formula not based on compensa-

tion, but only if the rate of increase doesnot exceed the contemporaneous rate of in-crease in average wages of the participantscovered by the amendment.

Under section 436(d), a plan is requiredto set forth certain limitations on accel-erated benefit distributions. If the plan’sAFTAP for a plan year is less than 60 per-cent, the plan must not make any prohib-ited payments after the valuation date forthe plan year. If the plan’s AFTAP for aplan year is at least 60 percent but is lessthan 80 percent, the plan must not pay anyprohibited payment to the extent the pay-ment exceeds the lesser of (1) 50 percentof the amount otherwise payable under theplan and (2) the present value of the max-imum PBGC guarantee with respect to aparticipant. In addition, if the plan spon-sor is in bankruptcy proceedings, the planmay not pay any prohibited payment un-less the plan’s enrolled actuary certifiesthat the AFTAP of the plan is at least 100percent. However, section 436(d) does notapply to a plan for a plan year if the termsof the plan provide for no benefit accrualswith respect to any participant for the pe-riod beginning on September 1, 2005, andextending throughout the plan year.

Under section 436(d)(5), a “prohibitedpayment” is (1) any payment, in excess ofthe monthly amount paid under a singlelife annuity (plus any social security sup-plements that are provided under the plan),to a participant or beneficiary, (2) any pay-ment for the purchase of an irrevocablecommitment from an insurer to pay ben-efits (an annuity contract), or (3) any otherpayment specified by the Secretary by reg-ulations.

Under section 436(e), a plan is requiredto provide that if the plan’s AFTAP is lessthan 60 percent for a plan year, all fu-ture benefit accruals under the plan mustcease as of the valuation date for the planyear. Under section 436(e)(2), the limi-tation ceases to apply with respect to anyplan year, effective as of the first day of theplan year, if the plan sponsor makes a con-tribution (in addition to any minimum re-quired contribution for the plan year) equalto the amount sufficient to result in anAFTAP of 60 percent.

Section 436(f) sets forth a series of rulesunder which the limitations of section 436will not apply to a plan. Under section436(f)(1), an employer is permitted to pro-vide security to the plan (in the form of a

October 15, 2007 822 2007–42 I.R.B.

surety bond, cash, or other forms satisfac-tory to the Treasury Department and theparties involved) that is treated as an assetof the plan for purposes of determining theplan’s AFTAP. Under section 436(f)(2),if an employer uses the option in section436(b)(2), 436(c)(2), or 436(e)(2) to makethe specified contribution that would avoida limitation under section 436, the speci-fied contribution must be an actual contri-bution and the employer may not use a pre-funding balance or funding standard carry-over balance in lieu of making the speci-fied contribution. In addition, a contribu-tion to avoid a benefit limitation is disre-garded in determining whether the mini-mum required contribution under section430 has been made and in determining theplan’s prefunding balance.

Section 436(f)(3) describes certain sit-uations in which an employer is deemed tohave made the election in section 430(f)(5)to reduce the plan’s funding standard car-ryover balance or prefunding balance.Such an election has the effect of increas-ing the plan’s FTAP (because the result ofthe election is a higher asset value usedto determine the FTAP) and could leadto the plan not being subject to a benefitlimitation under section 436. In particu-lar, if the limitation under section 436(d)would otherwise apply to a plan, the plansponsor is treated as having made an elec-tion (a deemed election) to reduce anyprefunding balance or funding standardcarryover balance by the amount neces-sary to prevent the benefit limitation fromapplying. A comparable rule applies tothe other benefit limitations under sections436(b), 436(c), and 436(e), but only in thecase of a plan maintained pursuant to acollective bargaining agreement. In eithercase, this deeming rule applies only if theprefunding balance and funding standardcarryover balances are large enough toavoid the application of a section 436 lim-itation.

Section 436(h) sets forth a series ofpresumptions that apply during the por-tion of the plan year that is before theplan’s enrolled actuary has certified theplan’s AFTAP for the year. Under sec-tion 436(h)(1), if a plan was subject toa limitation under section 436(b), 436(c),436(d), or 436(e) for the plan year pre-

ceding the current plan year, the plan’sAFTAP for the current year is presumed tobe the same as for the preceding year un-til the plan’s enrolled actuary certifies theplan’s AFTAP for the current year. Un-der section 436(h)(3), if any of these lim-itations did not apply to the plan for thepreceding year, but the plan’s AFTAP forthe preceding year was within 10 percent-age points of the limitation’s threshold, theplan’s AFTAP is presumed to be reducedby 10 percentage points as of the first dayof the 4th month of the current plan year,unless the plan’s enrolled actuary has certi-fied the plan’s AFTAP for the current yearby that day (and that day is deemed to bethe plan’s valuation date for purposes ofapplying the benefit limitations). If theplan’s enrolled actuary has not certified theplan’s AFTAP by the first day of the 10thmonth of the current plan year, section436(h)(2) provides that the plan’s AFTAPis conclusively presumed to be less than60 percent as of that day (and that day isdeemed to be the valuation date for pur-poses of applying the benefit limitations).

Under section 436(i), unless the planprovides otherwise, if a limitation on pro-hibited payments or future benefit accrualsunder section 436(d) or (e) ceases to applyto a plan, all such payments and benefit ac-cruals resume, effective as of the day fol-lowing the close of the limitation period.

Section 436(j) provides definitions thatare used under section 436, including theplan’s AFTAP. In general, the plan’sAFTAP is based on the plan’s FTAP forthe plan year. However, the plan’s AFTAPis determined by adding the aggregateamount of purchases of annuities for em-ployees other than highly compensatedemployees (within the meaning of section414(q)) made by the plan during the twopreceding plan years to the numerator andthe denominator of the fraction used todetermine the FTAP.

In addition, section 436(j)(3) provides aspecial rule which applies to certain well-funded plans under which the plan’s FTAPfor purposes of section 436 (and hence theplan’s AFTAP) is determined by using theplan’s assets without reduction for the pre-funding balance and the funding standardcarryover balance. Section 436(j)(3)(B)

sets forth a transition rule for determiningeligibility for this special rule.

Section 436(k) provides that, for planyears that begin in 2008, the determinationof the plan’s FTAP for the preceding yearis to be made pursuant to guidance issuedby the Secretary.

Explanation of Provisions

I. Section 430(f) — Effect of PrefundingBalance and Funding Standard CarryoverBalance.

A. Overview.

1. In general.

The proposed regulations would be thesecond in a series of proposed regulationsunder new section 430.2 These regulationswould provide guidance on the applica-tion of section 430(f), relating to the es-tablishment and maintenance of a fundingstandard carryover balance and a prefund-ing balance for purposes of sections 430and 436. The Treasury Department andthe IRS intend to issue additional proposedregulations relating to other portions of therules under section 430 later in 2007.

2. Multiple employer plans.

The proposed regulations under section430(f) apply to plans subject to section412 that are maintained by one employeror a controlled group of employers and tomultiple employer plans within the mean-ing of section 413(c). In the case of amultiple employer plan to which section413(c)(4)(A) applies, the rules under theproposed regulations would be appliedseparately for each employer under theplan, as if each employer maintained aseparate plan. Thus, each employer undersuch a multiple employer plan may havea separate funding standard carryover bal-ance and a prefunding balance for the plan.In the case of a multiple employer planto which section 413(c)(4)(A) does notapply (that is, a plan described in section413(c)(4)(B) that has not made the elec-tion for section 413(c)(4)(A) to apply), theproposed regulations under section 430(f)would apply as if all participants in theplan were employed by a single employer.

2 Proposed regulation §§1.430(h)(3)–1 and 1.430(h)(3)–2, relating to the mortality tables used to determine liabilities under section 430(h)(3), were issued May 29, 2007 (REG–143601–06,2007–24 I.R.B. 1398 [72 FR 29456]).

2007–42 I.R.B. 823 October 15, 2007

B. Establishment of prefunding balanceand funding standard carryover balance.

The proposed regulations would pro-vide that an employer is permitted to es-tablish a prefunding balance for a plan thatrepresents the accumulation of contribu-tions made for plan years beginning on orafter the effective date of section 430 withrespect to the plan (the first effective planyear) that are in excess of the minimum re-quired contributions (determined withoutregard to the prefunding balance and fund-ing standard carryover balance) for thoseplan years. Specifically, for the first ef-fective plan year of a plan, the prefundingbalance is initialized at zero dollars and anemployer is permitted to elect to add someor all of the excess contributions made toa plan for each plan year to the prefund-ing balance as of the first day of the nextplan year. For this purpose, the excess con-tributions are generally determined as theamount by which the employer contribu-tions to the plan for the plan year exceedthe minimum required contribution for theplan year, with appropriate adjustments forinterest determined at the effective inter-est rate under section 430(h)(2)(A). How-ever, the proposed regulations would pro-vide that any contribution that is made toavoid the application of a benefit limitationunder section 436 is not taken into accountin determining the amount of excess con-tributions.

The proposed regulations would alsoprovide that the minimum required con-tribution for purposes of determining theamount of excess contributions for the yearis determined without regard to any offsetof the minimum required contribution forthe year as a result of the use of the pre-funding or funding standard carryover bal-ances. Accordingly, an employer wouldnot be permitted to add to the prefund-ing balance any amount of contributionsthat are “excess” by reason of an offsetof the minimum required contribution forthe year through the use of the prefundingbalance or funding standard carryover bal-ance. This prohibition precludes an em-ployer from avoiding the requirement toadjust the prefunding balance and fundingstandard carryover balance by the actualrate of return on plan assets in the situationwhere the plan assets have experienced aloss (or a rate of return that is lower thanthe effective interest rate that is used for

interest adjustments with respect to min-imum required contributions for the planyear).

The proposed regulations would pro-vide that the funding standard carryoverbalance is initialized as the balance in thefunding standard account as of the last dayof the last plan year before section 430 ap-plies to a plan (the pre-effective plan year).This is generally the last plan year begin-ning in 2007, but could be a later year in thecase of a plan to which a delayed effectivedate applies under the rules of sections 104through 106 of PPA ’06.

C. Maintenance of prefunding balanceand funding standard carryover balance.

The proposed regulations would pro-vide that a plan’s prefunding balance andfunding standard carryover balance as ofthe beginning of a plan year are adjustedto reflect the actual rate of return on planassets for the plan year. This calculationof the actual rate of return on plan assetsfor the plan year is determined on the basisof fair market value and must take into ac-count the amount and timing of all contri-butions, distributions, and other plan pay-ments made during the year. The adjust-ment for investment return is applied to theprefunding balance and funding standardcarryover balance after any reductions tothose balances as described under the fol-lowing two headings in this preamble. Inaddition, the proposed regulations wouldprovide special rules in the case of a planwith a valuation date that is not the first dayof the plan year.

D. Use of prefunding balance and fundingstandard carryover balance to offsetminimum funding requirements for a year.

The proposed regulations would pro-vide that the employer may elect to usesome or all of the prefunding balance orfunding standard carryover balance to off-set the otherwise applicable minimum re-quired contribution for a plan year, pro-vided that the plan met a funding percent-age threshold for the preceding plan year.Specifically, an employer is permitted tomake such an election only if the plan’sprior year funding ratio was at least 80 per-cent. For this purpose, the plan’s prior yearfunding ratio generally is a fraction (ex-pressed as a percentage), the numerator ofwhich is the value of plan assets on the

valuation date for the preceding plan year,reduced by the amount of any prefundingbalance (but not the amount of any fund-ing standard carryover balance), and thedenominator of which is the funding targetof the plan for the preceding plan year (de-termined without regard to the at-risk rulesof section 430(i)(1)).

The proposed regulations would pro-vide a transition rule to determine a plan’sprior year funding ratio for the first effec-tive plan year. Under this transition rule,the current liability for the plan for thepre-effective plan year is substituted forthe funding target of the plan for that planyear. In addition, the transition rule pro-vides that the value of plan assets is deter-mined under section 412(c)(2) as in effectfor that pre-effective plan year, except thatthe value of plan assets must be limited sothat it is not less than 90 percent and notmore than 110 percent of the fair marketvalue of plan assets.

The proposed regulations would reflectthe rule in section 430(f)(3)(B) that re-quires the plan sponsor to have reducedthe funding standard carryover balancein full (either by using the funding stan-dard carryover balance to offset the min-imum required contribution for a yearor through a voluntary reduction undersection 430(f)(5)) before the prefundingbalance is permitted to be used to offseta current year minimum funding require-ment.

E. Subtraction from plan assets andemployer election to reduce balances.

The proposed regulations would reflectthe rules under section 430(f)(4) whichprovide that the prefunding balance andfunding standard carryover balance aresubtracted from the plan assets for certainpurposes. These include the determinationof the FTAP, which is also relevant forpurposes of applying the benefit limita-tions of section 436.

In accordance with section430(f)(4)(A), the proposed regula-tions would provide that the amount ofthe prefunding balance is subtracted fromthe value of plan assets for purposes ofdetermining whether a plan is exemptfrom the requirement to establish a newshortfall amortization base under section430(c)(5) only if an election to use theprefunding balance to offset the minimum

October 15, 2007 824 2007–42 I.R.B.

required contribution is made for the planyear. In addition, pursuant to section430(f)(4)(B)(ii), the proposed regulationswould provide that the prefunding balanceand funding standard carryover balanceare not subtracted from plan assets for pur-poses of determining the funding shortfallunder section 430(c)(4) to the extent thatthere is a binding written agreement withthe Pension Benefit Guaranty Corporation(PBGC) which provides that all or a por-tion of those balances cannot be used tooffset the minimum required contributionfor a plan year. For this purpose, anagreement with the PBGC is taken intoaccount with respect to a plan year only ifthe agreement was executed prior to thevaluation date for the plan year.

In addition, section 436(j) sets forth anexception from the requirement to subtractthe plan’s prefunding balance and fund-ing standard carryover balance from thevalue of plan assets in determining a plan’sFTAP for purposes of the benefit limita-tion rules of section 436 provided that theplan’s FTAP would meet certain standardsif it were calculated without subtractingthe balances from plan assets.

Section 430(f)(5) provides that an em-ployer may elect to reduce the amountof the prefunding balance and the fund-ing standard carryover balance. This willhave the effect of increasing the plan as-sets for various purposes. For example,the increase in plan assets will increase theFTAP, which may allow the plan to avoidthe application of section 436 limitations.The proposed regulations would reflect therule in section 430(f)(5)(B) that requiresthe employer to reduce the funding stan-dard carryover balance in full (either byusing the funding standard carryover bal-ance to offset the minimum required con-tribution for a year or through a voluntaryreduction under section 430(f)(5)) beforeany reduction is permitted for the prefund-ing balance.

F. Elections under section 430(f).

The proposed regulations would pro-vide that an election under section 430(f)is made by the plan sponsor by provid-ing written notification of the election tothe plan’s enrolled actuary and the planadministrator, must be irrevocable whenmade, and must satisfy certain timing

rules. The written notification must setforth the relevant details of the election,including the specific amounts involved inthe election with respect to the prefundingbalance and funding standard carryoverbalance. An election under section 430(f)generally must be made on or before thedue date (with extensions) for the filing ofthe plan’s Form 5500, “Annual Return/Re-port of Employee Benefit Plan”, for theplan year to which the election relates(or, in the case of a plan not required tofile a Form 5500 for the plan year, on orbefore the last day of the seventh monthafter the end of the plan year to whichthe election relates). For this purpose, anelection to add to the prefunding balancerelates to the plan year for which excesscontributions were made. However, theproposed regulations would require anysection 430(f)(5) election to reduce a por-tion of the prefunding balance or fundingstandard carryover balance for a plan yearto be made by the end of the plan year towhich the election relates. For example,in the case of a calendar year plan requiredto file Form 5500, an election to add tothe prefunding balance as of the first dayof the 2010 plan year (in an amount notin excess of the 2009 interest-adjusted ex-cess contributions), must be made no laterthan the due date for filing the 2009 Form5500 (with extensions), while an electionto reduce the prefunding balance as of thefirst day of the 2010 plan year must bemade by the end of the 2010 plan year. Inboth cases, the election would be reportedon the 2010 Form 5500 (Schedule SB) thatwould be filed in 2011.

The proposed regulations would pro-vide that, for purposes of elections undersection 430(f), any reference in the pro-posed regulations to the plan sponsor gen-erally means the employer or employersresponsible for making contributions to theplan. However, in the case of elections un-der section 430(f) for multiple employerplans to which section 413(c)(4)(A) doesnot apply, any reference in the proposedregulations to the plan sponsor means theplan administrator within the meaning ofsection 414(g).

II. Section 436 — Limits on Benefits andBenefit Accruals Under Single EmployerDefined Benefit Plans.

A. Overview and general rules.

1. In general.

The proposed regulations would setforth the rules that a defined benefit pen-sion plan that is subject to section 412and that is not a multiemployer plan mustsatisfy in order to comply with the re-quirement in section 401(a)(29) that theplan meet the requirements of section 436.This requirement is a qualification require-ment. A plan satisfies the requirementsof section 436 only if the plan meets therequirements of these regulations.

2. New plans.

In accordance with section 436(g),the proposed regulations would providethat the limitations described in sections436(b), 436(c), and 436(e) do not applyto a plan for the first five plan years ofthe plan. For purposes of applying thisnew plan rule, plan years under a planare aggregated with plan years under apredecessor plan. Thus, the only benefitlimitation that could apply under a planthat is not a successor plan during the firstfive years of its existence is the section436(d) limitation applicable to acceleratedbenefit payments (such as single sum dis-tributions).

3. Multiple employer plans.

The proposed regulations under sec-tion 436 apply to plans maintained by oneemployer (including a controlled group ofemployers) and to multiple employer plans(within the meaning of section 413(c)). Inthe case of a multiple employer planto which section 413(c)(4)(A) applies,the rules under the proposed regulationswould be applied separately for each em-ployer under the plan, as if each employermaintained a separate plan. Thus, the ben-efit limitations under section 436 couldapply differently to employees of differentemployers under such a multiple employerplan. In the case of a multiple employerplan to which section 413(c)(4)(A) doesnot apply (that is, a plan described insection 413(c)(4)(B) that has not madethe election for section 413(c)(4)(A) to

2007–42 I.R.B. 825 October 15, 2007

apply), the proposed regulations undersection 436 would apply as if all partic-ipants in the plan were employed by asingle employer.

4. Treatment of plan as of close ofprohibited or cessation period.

The proposed regulations would pro-vide that, if a limitation on accelerated ben-efit payments under section 436(d) (suchas single sum distributions) applies to aplan as of a section 436 measurement date,but that limit subsequently ceases to ap-ply to the plan as of a later section 436measurement date, then the limitation doesnot apply to benefits with annuity startingdates that are on or after that later section436 measurement date. In addition, theproposed regulations would provide that, ifa limitation on benefit accruals under sec-tion 436(e) applies to a plan, unless theplan provides otherwise, benefit accrualsunder the plan will resume effective as ofthe section 436 measurement date as ofwhich benefit accruals are no longer re-stricted.

With respect to a participant who had anannuity starting date within a period dur-ing which the accelerated benefit paymentlimitation rules of section 436(d) appliedto the plan, once the limitation ceases toapply, the participant’s benefits will con-tinue to be paid in the form previouslyelected unless the plan permits the partic-ipant to be offered a new election whichwould modify the prior election. The pro-posed regulations would permit a plan toprovide that the participant will be offeredthe opportunity to have a new election un-der which the form of benefit previouslyelected may be modified, subject to appli-cable qualification requirements, and thatnew election will constitute a new annu-ity starting date for purposes of section417. Similarly, a plan is permitted to beamended to provide that any benefit ac-cruals that were limited under the rules ofsection 436(e) will be credited under theplan once the limitation no longer applies,subject to applicable qualification require-ments. If a plan provides for the restora-tion of benefit accruals for the period ofthe limitation under preexisting plan terms,the plan is treated as having adopted anamendment that has the effect of increas-

ing liabilities under the plan if the pe-riod of the limitation exceeded 12 months.Whether a plan is amended or is treated ashaving been amended as described above,the amendment or pre-existing plan provi-sion is subject to the limitations of section436(c).3

In addition, the proposed regulationswould provide that a plan is permitted to beamended to provide that any unpredictablecontingent event benefits that were limitedunder the rules of section 436(b) will bepaid or reinstated when the limitation nolonger applies, subject to applicable qual-ification requirements. Any such amend-ment is subject to the limitations of sec-tion 436(c). A plan is not permitted toprovide for restoration of any such unpre-dictable contingent event benefits withoutan amendment that complies with section436(c).

5. Deemed election to reduce prefundingand funding standard carryover balances.

The proposed regulations would pro-vide that, if a limitation on accelerated ben-efit payments under section 436(d) wouldotherwise apply to a plan, the plan spon-sor is treated as having made an electionunder section 430(f) to reduce the prefund-ing balance or funding standard carryoverbalance by such amount as is necessary forthe AFTAP to be at or above the applica-ble threshold (60, 80, or 100 percent, as thecase may be) in order for the benefit limita-tion not to apply to the plan. In such a case,the plan sponsor is treated as having madethat election on the section 436 measure-ment date as of which the benefit limita-tion would otherwise apply. This deemedelection applies if the plan provides for ac-celerated distributions that would be lim-ited in a plan year, regardless of whether aplan participant is eligible or elects to re-ceive such a distribution during the planyear (but does not apply if the plan doesnot provide for any accelerated distribu-tions that are subject to the benefit limita-tion). However, the deemed reduction ap-plies with respect to this limitation only ifthe prefunding and funding standard car-ryover balances to be reduced are largeenough to avoid the application of the lim-itation. Thus, no reduction of prefundingand funding standard carryover balances is

required if the limitation would still applyfor a year even if those balances were re-duced to zero.

In addition, the proposed regulationswould provide that, in the case of a planmaintained pursuant to one or more col-lective bargaining agreements between anemployee representative and one or moreemployers in which a benefit limitationunder section 436(b), 436(c), or 436(e)would otherwise apply to the plan, the em-ployer is treated for purposes of section436 as having made an election under sec-tion 430(f) to reduce the prefunding bal-ance or funding standard carryover bal-ance by such amount as is necessary forthe AFTAP to be at or above the applica-ble threshold for the benefit limitation notto apply to the plan, taking into account theunpredictable contingent event benefits orplan amendment, as applicable. The pro-posed regulations would provide that, inthe case of a plan with respect to whichcollective bargaining agreements apply tosome, but not all, of the plan participants,the plan is considered a collectively bar-gained plan for purposes of this provisionif at least 25 percent of the participants inthe plan are members of the collective bar-gaining units for whom the benefit levelsunder the plan are specified under the col-lective bargaining agreements. As in thecase of the deemed reduction in fundingbalances for the accelerated benefit distri-butions under section 436(d), the deemedreduction applies only if the prefundingand funding standard carryover balances tobe reduced are large enough to avoid theapplication of the limitation under section436(b), 436(c), or 436(e), as applicable.

If the mandatory reduction of fundingbalances applies to a plan, the employeris treated as having made that election onthe date as of which the applicable bene-fit restriction would otherwise apply. Inaddition, the proposed regulations wouldprovide that, if a plan (whether or not col-lectively bargained) is presumed to havean AFTAP of less than 60 percent underthe section 436(h) presumption rules, thenthe plan is treated as if the plan’s fundingstandard carryover balance and prefund-ing balance are insufficient to increase theplan’s AFTAP to the threshold percentage.

3 The PBGC has informed the IRS and the Treasury Department that it expects similarly to treat such an automatic restoration of missed benefit accruals as a plan amendment.

October 15, 2007 826 2007–42 I.R.B.

6. Section 436 measurement date.

The “section 436 measurement date” isa defined term under the proposed regu-lations that is used to describe the datethat stops or starts the application of thelimitations of sections 436(d) and 436(e)and is also used for calculations with re-spect to applying the limitations of sec-tions 436(b) and 436(c). The regulationswould provide that the date of the enrolledactuary’s certification of the AFTAP forthe plan year is a section 436 measure-ment date if it occurs within the first ninemonths of the plan year. If the date ofan enrolled actuary’s certification of theAFTAP is between the first day of the 10thmonth of a plan year and the last day ofthat plan year, that date is not a section436 measurement date for purposes of thelimitations of section 436(d) or 436(e) be-cause, in that case, the plan’s AFTAP ispresumed to be under 60 percent (however,receipt of the enrolled actuary’s certifica-tion during that period impacts the plan’spresumed “carryover” AFTAP for the fol-lowing year). The proposed regulationswould provide that a section 436 measure-ment date occurs where there is a changein the plan’s AFTAP under the presump-tion rules of section 436(h). In addition,the proposed regulations would provide aseries of rules in cases where the enrolledactuary’s certification of the AFTAP for aplan year is made after the end of the planyear, as described below under the head-ing “Presumed underfunding for purposesof benefit limitations.”

B. Limitation on plant shutdown and otherunpredictable contingent event benefits.

In accordance with section 436(b),the proposed regulations would providethat a plan that provides for any unpre-dictable contingent event benefit4 mustprovide that the benefit will not be paidto a plan participant during a plan yearif the AFTAP for the plan year is lessthan 60 percent (or is 60 percent or morebut would be less than 60 percent if thebenefits attributable to the unpredictablecontingent event were taken into accountin determining the AFTAP). However, thisprohibition on payment of unpredictablecontingent event benefits no longer ap-

plies for a plan year, effective as of thefirst day of the plan year, if the employermakes the contribution specified in section436(b)(2), as described in paragraph II.Fin this preamble.

For this purpose, the proposed reg-ulations would provide that an “unpre-dictable contingent event benefit” meansany benefit or increase in benefits to theextent the benefit or increase would notbe payable but for the occurrence of anunpredictable contingent event, and an“unpredictable contingent event” meansa plant shutdown (whether full or partial)or similar event, or an event other thanthe attainment of any age, performanceof any service, receipt or derivation ofany compensation, or the occurrence ofdeath or disability. Thus, for example,if a plan provides for an unreduced earlyretirement benefit upon the occurrenceof an event other than the attainment ofany age, performance of any service, re-ceipt or derivation of any compensation,or the occurrence of death or disability,then that unreduced early retirement ben-efit is an unpredictable contingent eventbenefit to the extent of any portion of thebenefit that would not be payable but forthe occurrence of the event, even if theremainder of the benefit is payable with-out regard to the occurrence of the event.Similarly, an unpredictable contingentevent benefit under the proposed regu-lations includes a benefit payable uponthe presence of circumstances specified inthe plan (other than the attainment of anyage, performance of any service, receiptor derivation of any compensation, or theoccurrence of death or disability), so thata plan that provides those benefits upon aparticipant’s severance from employmentin those circumstances, but not upon aseverance from employment that does notinvolve those circumstances, is providingan unpredictable contingent event benefit.

Unpredictable contingent event ben-efits attributable to a plant shutdown orother unpredictable contingent event thatoccurred within a period during which nolimitation under section 436(b) applied tothe plan are not affected by the limitationas it applies in a subsequent period. Forexample, if a plant shutdown occurs in2010 and a plan’s funded status is such

that its shutdown benefits are not subjectto the limitation for that plan year, benefitspaid pursuant to that shutdown are per-mitted to be paid in a later plan year evenif the plan’s AFTAP for the subsequentyear is less than 60 percent. Conversely,if a plant shutdown occurs in 2010 and aplan’s funded status is such that its shut-down benefits are subject to the limitationunder section 436(b) for that plan year andcannot be paid, those shutdown benefitsrelated to the 2010 plant shutdown are notpermitted to be paid in a later year evenif the plan’s AFTAP for the later year isat or above the 60 percent threshold forthe section 436(b) limitation (subject tothe rules permitting plan amendments toreinstate previously restricted benefits,including unpredictable contingent eventbenefits, as described in paragraph II.A.4of this preamble).

C. Limitations on plan amendmentsincreasing liability for benefits.

In accordance with section 436(c), theproposed regulations would provide that aplan satisfies the limitation on plan amend-ments increasing liability for benefits onlyif the plan provides that no amendmentto the plan that has the effect of increas-ing liabilities of the plan by reason of in-creases in benefits, establishment of newbenefits, changing the rate of benefit ac-crual, or changing the rate at which bene-fits become nonforfeitable is permitted totake effect if the AFTAP for the plan yearis less than 80 percent (or is 80 percentor more but would be less than 80 percentif the benefits attributable to the amend-ment were taken into account in determin-ing the AFTAP). However, this prohibi-tion on plan amendments no longer appliesfor a plan year if the employer makes thecontribution specified in section 436(c)(2),as described in paragraph II.F of this pre-amble.

In accordance with section 436(c)(3),the limitation on amendments increasingliabilities does not apply to any amend-ment that provides for an increase in ben-efits under a formula that is not based ona participant’s compensation, but only ifthe rate of increase in benefits does not ex-ceed the contemporaneous rate of increasein average wages of participants covered

4 See also Notice 2007–14, 2007–7 I.R.B. 501 (see §601.601(d)(2) of this chapter), requesting comments on the types of benefits that are permitted to be provided in a qualified defined benefitplan, including benefits payable in the event of a plant shutdown or similar event.

2007–42 I.R.B. 827 October 15, 2007

by the amendment. The proposed regula-tions would provide that the determinationof the rate of increase in average wages ismade by taking into consideration the netincrease in average wages during the pe-riod beginning with the effective date ofthe most recent benefit increase applicableto all of those participants who are cov-ered by the current amendment and end-ing on the effective date of the currentamendment. If the participants covered byan amendment include both currently em-ployed participants and terminated partic-ipants (who will have no increase or de-crease in wages for this purpose after sev-erance from employment), all covered par-ticipants must be included in determiningthe increase in average wages of the par-ticipants covered by the amendment. Al-ternatively, the employer could adopt twoamendments — one that increases ben-efits for currently employed participantsand another one that increases benefits forthe terminated participants. In that case,this exception from application of the sec-tion 436(c) limitation generally would ap-ply to the amendment that increases ben-efits for currently employed participants(based solely on the wages of those currentemployees), but the amendment that ap-plies only to terminated participants (whoreceived no increase in wages from the em-ployer during the period over which theincrease in average wages is determined)would not be eligible for the exception.

In addition, the proposed regulationswould provide that, to the extent that anyamendment results in (or is made pursuantto) a mandatory increase in the vesting ofbenefits under the Code or ERISA (suchas vesting rate increases pursuant to statuteand plan termination amendments undersection 411(d)(3)), that amendment doesnot constitute an amendment that changesthe rate at which benefits become nonfor-feitable for purposes of section 436(c).

D. Limitations on accelerated benefitdistributions.

1. Funding percentage less than 60percent.

In accordance with section 436(d)(1),under the proposed regulations, a planmust provide that, if the plan’s AFTAPfor a plan year is less than 60 percent, theplan will not pay any prohibited payment

with an annuity starting date that is onor after the applicable section 436 mea-surement date. However, if a participantrequests such a prohibited distribution, theplan must permit the participant to electanother form of benefit available underthe plan or to defer payment to a later dateto the extent permitted under applicablequalification requirements. Similar rulesapply in any case in which a beneficiaryis entitled to a prohibited payment (forexample, where a qualified pre-retirementsurvivor annuity is offered in an alterna-tive single sum payment).

2. Bankruptcy.

In accordance with section 436(d)(2),under the proposed regulations, a planmust provide that the plan will not payany prohibited payment with an annuitystarting date that is during any period dur-ing a plan year in which the plan sponsoris a debtor in a case under title 11, UnitedStates Code, or similar Federal or Statelaw, until the date on which the enrolledactuary of the plan certifies that the plan’sAFTAP is not less than 100 percent.

3. Limited payment if percentage at least60 percent but less than 80 percent.

In accordance with section 436(d)(3),under the proposed regulations, a planmust provide that, in any case in whichthe plan’s AFTAP for a plan year is 60percent or more but is less than 80 per-cent, a participant is permitted to electa prohibited payment only if the presentvalue of the portion of the payment thatis greater than the amount of the monthlystraight life annuity under the plan (andany social security supplement, if appli-cable) does not exceed 50 percent of thepresent value of the participant’s benefits(or if less, 100 percent of the present valueof the maximum guarantee with respectto the participant under section 4022 ofERISA). For this purpose, present valueis determined using the rules of section417(e) except that, if the plan provides asingle sum distribution that is larger thanthe present value of the benefit determinedusing the rules of section 417(e), then thatlarger benefit is substituted for the presentvalue of the participant’s benefits beforeapplying the 50 percent factor. Similarrules apply in any case in which a benefi-ciary is entitled to a prohibited payment.

If an optional form of benefit that isotherwise available under the terms of theplan is not available as of the annuity start-ing date because it is a prohibited pay-ment that cannot be paid under the preced-ing paragraph, then the plan must providea participant who elects such an optionalform with the option either to defer pay-ment to a later date (to the extent permit-ted under applicable qualification require-ments) or to bifurcate the benefit into un-restricted and restricted portions. If theparticipant elects to bifurcate the bene-fit, the plan must permit the participant toelect, with respect to the unrestricted por-tion, any optional form of benefit other-wise available under the plan with respectto the participant’s entire benefit (whetheror not the optional form of benefit with re-spect to the unrestricted portion is a pro-hibited payment). The unrestricted portionof the benefit is the lesser of (i) 50 percentof the benefit and (ii) the benefit that hasa present value that does not exceed 100percent of the present value of the maxi-mum PBGC guarantee with respect to theparticipant under section 4022 of ERISA.If the participant elects payment of the un-restricted portion of the benefit in the formof a prohibited payment, then the plan mustpermit the participant to elect payment ofthe restricted portion in any optional formof benefit under the plan that would havebeen permitted with respect to the partici-pant’s entire benefit other than a prohibitedpayment. A plan is also permitted (but notrequired) to offer optional forms of benefitthat are solely available during the periodsection 436(d)(3) applies to the plan, suchas an optional form of benefit that providesfor the current payment of the unrestrictedportion of the benefit, with a delayed com-mencement for the restricted portion of thebenefit, subject to other applicable qualifi-cation requirements.

A participant who receives a prohib-ited payment (or a series of prohibited pay-ments under a single optional form of ben-efit) under the rule permitting certain pro-hibited payments cannot receive any ad-ditional payment that would be a prohib-ited payment until there is a plan year forwhich none of the limitations on accel-erated distributions under section 436(d)apply. Benefits provided to a participantand any beneficiary are aggregated for pur-poses of determining the limited distribu-tion under section 436(d)(3). The pro-

October 15, 2007 828 2007–42 I.R.B.

posed regulations would also reflect therules of section 436(d)(3)(B)(ii), which de-scribes how this limited distribution is al-located among the beneficiaries of a par-ticipant.

4. Exception for certain frozen plans.

In accordance with section 436(d)(4),the limitations under section 436(d) willnot apply to a plan for any plan year if theterms of the plan, as in effect for the periodbeginning on September 1, 2005, providedfor no benefit accruals with respect to anyparticipants. However, if such a plan pro-vides for any benefit accruals during a planyear, this exception will cease to apply forthe plan as of the date those accruals start.

5. Prohibited payment.

In accordance with section 436(d)(5),the proposed regulations would providethat the term “prohibited payment” means:

(i) Any payment for a month that is inexcess of the monthly amount paid under asingle life annuity (plus any social securitysupplements described in the last sentenceof section 411(a)(9)), to a participant orbeneficiary whose annuity starting date (asdefined in section 417(f)(2)) occurs duringany period that a limitation on acceleratedbenefit payments is in effect;

(ii) Any payment for the purchase of anirrevocable commitment from an insurer topay benefits; and

(iii) Any other payment that is iden-tified as a prohibited payment by theCommissioner in revenue rulings andprocedures, notices and other guidancepublished in the Internal Revenue Bulletin(see §601.601(d)(2) of this chapter).

In addition, for purposes of applyingthe limitations on accelerated benefit pay-ments under the requirements of section436(d), the term annuity starting datemeans, as applicable—

(a) The first day of the first period forwhich an amount is payable as an annuityas described in section 417(f)(2)(A)(i);

(b) In the case of a benefit not payablein the form of an annuity, the first day onwhich all events have occurred (includingthe participant’s election, the participant’sseverance from employment if the partici-pant is below normal retirement age, and,if applicable, the participant’s survival tothe date as of which payment is made)

which entitle the participant to such bene-fit as described in section 417(f)(2)(A)(ii);

(c) In the case of an amount payableunder a retroactive annuity starting date,the benefit commencement date; and

(d) The date of any payment for the pur-chase of an irrevocable commitment froman insurer to pay benefits under the plan.

E. Limitation on benefit accruals.

In accordance with section 436(e), un-der the proposed regulations, a plan mustprovide that, in any case in which theplan’s AFTAP for a plan year is less than60 percent, benefit accruals under the planwill cease as of the applicable section 436measurement date. If a plan must ceasebenefit accruals under this limitation,then the plan is also not permitted to beamended in a manner that would increasethe liabilities of the plan by reason of an in-crease in benefits or establishment of newbenefits. This rule applies regardless ofwhether an amendment would otherwisebe permissible under section 436(c)(3)(involving certain amendments to increasebenefits under a formula not based on aparticipant’s compensation). This prohi-bition on additional benefit accruals willno longer apply for a plan year if the plansponsor makes the contribution specifiedin section 436(e)(2), as described in para-graph II.F of this preamble.

F. Rules relating to contributions requiredto avoid benefit limitations.

The proposed regulations provide rulesregarding contributions by the plan spon-sor to avoid benefit limitations undersection 436. An employer sponsoring aplan that would otherwise be subject to thelimitations of section 436 can avoid theapplication of those limits through one offour different techniques: 1) reducing thefunding standard carryover balance andprefunding balance; 2) making additionalcontributions for a prior plan year thatare not added to the prefunding balance;3) making the specific contributions de-scribed in sections 436(b)(2), 436(c)(2),and 436(e)(2); and 4) providing security,as described in section 436(f)(1).

As noted in this preamble, under thefirst of the techniques, if a plan sponsorelects to reduce the plan’s funding stan-dard carryover balance or the prefunding

balance, this will have the effect of increas-ing the plan assets that are taken into ac-count in determining the plan’s FTAP andAFTAP and, thereby, will raise the AFTAPto a level so that the benefit limitationsmay no longer apply to the plan. Alter-natively, if the deadline for making prioryear contributions has not passed, the plansponsor could utilize the second technique— making additional contributions for theprior plan year. If these additional con-tributions are not added to the prefundingbalance, then the additional contributionswill also have the effect of increasing theplan’s FTAP and AFTAP.

The third and fourth techniques foravoiding the application of the benefitlimitations of section 436 are described in§1.436–1(f) of the proposed regulations.Under the third technique, the plan spon-sor makes additional contributions thatare specifically designated at the time thecontribution is used to avoid the applica-tion of a limitation under section 436(b),436(c), or 436(e). The proposed regula-tions would provide for this designation tobe provided to the plan’s enrolled actuaryand plan administrator in writing. Further-more, the designation must be irrevocable,except as described below. If the con-tributions are made on a date other thanthe valuation date for the plan year, thecontributions must be adjusted for interest(using the plan’s effective interest rate,except as provided in the proposed regu-lations). These contributions are separatefrom any minimum required contributionsrequired by section 430, and no prefund-ing balance or funding standard carryoverbalance under section 430(f) may be usedas a contribution to avoid a section 436benefit limitation. A plan sponsor thatmakes such a current year contributionwill nonetheless fail to satisfy the mini-mum funding requirements if it does notmake the minimum required contributionunder section 430 for the year. In addition,as noted above, these contributions are nottaken into account in determining whethera plan sponsor is making excess contribu-tions for purposes of adding to the plan’sprefunding balance.

The fourth technique for a plan sponsorto avoid the application of the benefit lim-itations of section 436 is for the plan spon-sor to provide security. In such a case, theAFTAP for the plan year is determined bytreating as an asset of the plan any security

2007–42 I.R.B. 829 October 15, 2007

provided by a plan sponsor by the valua-tion date for the plan year in a form meet-ing certain specified requirements. How-ever, this security is not taken into accountfor any other purpose, including section430. The only security permitted to be pro-vided by a plan sponsor for this purposeis (i) a bond issued by a corporate suretycompany that is an acceptable surety forpurposes of section 412 of ERISA, or (ii)cash or United States obligations that ma-ture in three years or less that are heldin escrow by a bank or insurance com-pany. The regulations would reflect sec-tions 436(f)(1)(C) and (D) in specifyingwhen the security is to be contributed tothe plan and when it may be released. Ifthe security is turned over to the plan, thenthat amount is treated as an employer con-tribution when it is turned over to the plan.The proposed regulations would providethat any such security turned over to theplan pursuant to the enforcement mecha-nism cannot be treated as a contribution toavoid or terminate the application of a sec-tion 436 benefit limitation under section436(b)(2), 436(c)(2), or 436(e)(2).

G. Presumed underfunding for purposesof benefit limitations.

The proposed regulations reflect therules of section 436(h), which sets fortha series of presumptions that are used toapply the section 436 benefit limitationsin situations where the plan’s enrolledactuary has not yet issued a certificationof the plan’s AFTAP for the plan year. Inaddition, the proposed regulations also setforth rules for the application of the limi-tations prior to and during the period thosepresumptions apply to a plan, and describethe interaction of those presumptions withplan operations after the plan’s enrolledactuary has issued a certification of theplan’s AFTAP for the plan year. Theserules are designed to encourage plans toobtain certifications in a timely manner,with a particular emphasis with respect toplans that have a greater likelihood of hav-ing a new section 436 benefit limitationapply because they had an AFTAP for theprior plan year that was near a thresholdfor a benefit limitation to apply.

The proposed regulations would pro-vide that, in any case in which a plan wassubject to a benefit limitation on the lastday of the prior plan year, the first day of

the plan year is a section 436 measurementdate and the AFTAP of the plan for thecurrent plan year is presumed to be equalto the preceding year’s certified AFTAPuntil the plan’s enrolled actuary certifiesthe AFTAP of the plan for the current planyear. Because no plan could be subject toa benefit limitation for a plan year that pre-cedes the plan year that begins in 2008,the section 436(h)(1) presumption gener-ally will not apply to any plan before thefirst plan year beginning in 2009.

In accordance with section 436(h)(3),the proposed regulations would providethat, if the enrolled actuary of the plan hasnot certified the AFTAP of the plan for thecurrent plan year by the first day of the 4thmonth of the plan year and the AFTAP forthe preceding year was certified to be atleast 60 percent but less than 70 percent orat least 80 percent but less than 90 percent(or, if that preceding year is the pre-effec-tive plan year, was certified to be less than90 percent), then the first day of the 4thmonth of the current plan year is a section436 measurement date, and the AFTAPof the plan is presumed to be equal to 10percentage points less than the AFTAP ofthe plan for the preceding plan year. Thispresumption will apply until the earlier ofthe date the enrolled actuary certifies theAFTAP for the plan year or the first day ofthe 10th month of the plan year.

In accordance with section 436(h)(2),the proposed regulations would providethat, in any case in which no certifica-tion of the specific AFTAP for the currentplan year is made before the first day ofthe 10th month of such year, that date isa section 436 measurement date and, asof that date, the plan’s AFTAP is conclu-sively presumed to be less than 60 percent.In such a case, the presumed AFTAP of un-der 60 percent for the current plan year willcontinue to apply under the rules of sec-tion 436(h)(1) for the next plan year, untilsuch time as the enrolled actuary certifiesthe AFTAP for either the current plan yearor the next plan year.

The proposed regulations would pro-vide rules that apply the section 436(h)presumptions for the plan year in casesin which the enrolled actuary’s certifica-tion for the prior plan year is made on orafter the first day of the 10th month ofthat prior plan year. If the date of the en-rolled actuary’s certification of the specificAFTAP for a plan year occurs on or af-

ter the date the conclusive presumption ap-plies but on or before the last day of theplan year, the proposed regulations wouldprovide that the certified percentage is dis-regarded for that plan year but is used forpurposes of the presumption rule of sec-tion 436(h)(1) starting with the beginningof the following plan year (rather than con-tinuing to apply the less-than-60 percentpresumption that applied before the firstday of that following plan year). If thedate of the enrolled actuary’s certificationof the specific AFTAP for a plan year oc-curs after the end of the plan year but priorto the first day of the 4th month in the fol-lowing plan year, the proposed regulationswould provide that the certification date istreated as a section 436 measurement datefor that following plan year and that, start-ing on that date, the plan’s AFTAP is pre-sumed to be the certified AFTAP for theprior year (rather than continuing to ap-ply the less-than-60 percent presumptionthat applied before the certification). Ifthe date of the enrolled actuary’s certifi-cation of the specific AFTAP for a planyear occurs after the first day of the 4thmonth in the following plan year but be-fore the first day of the 10th month, theproposed regulations would provide thatthe certification date also is a section 436measurement date for that following planyear, and the plan’s AFTAP for that fol-lowing year beginning on that date is pre-sumed to be the certified AFTAP for theprior year (rather than continuing to applythe less-than-60 percent presumption thatapplied before the certification). However,in such a case, if a 10 percentage point re-duction in the AFTAP would have appliedon the first day of the 4th month of that fol-lowing plan year if the AFTAP for the priorplan year had been certified before thatday, then the same 10 percentage point re-duction applies on the date of the certifica-tion. These presumption rules based on theprior year AFTAP do not apply once a cer-tification of the following year’s AFTAPis issued by the plan’s enrolled actuary.

The enrolled actuary’s certification ofthe AFTAP for a plan year must be madein writing, must be provided to the planadministrator, and must certify the plan’sAFTAP for the plan year. As an alterna-tive to certifying a specific number for theplan’s AFTAP, the regulations would pro-vide that the enrolled actuary is permittedto certify during the first nine months of a

October 15, 2007 830 2007–42 I.R.B.

plan year that the plan’s AFTAP for thatyear is within a percentage “range” thatis either (i) 60 percent or higher, but lessthan 80 percent, (ii) 80 percent or higher,or (iii) 100 percent or higher. The pro-posed regulations would provide that sucha “range” certification ends the applicationof the presumptions provided that the en-rolled actuary follows up with a certifica-tion of the specific AFTAP before the firstday of the 10th month of that year and thatthe certified specific AFTAP is within therange of the earlier certification.

If this “range” certification alternativeis followed, the plan is treated as havinga certified AFTAP at the smallest valuewithin the applicable range. Thus, for ex-ample, if the enrolled actuary certified thatthe AFTAP was more than 60 percent butless than 80 percent, then the plan is treatedas having an AFTAP of 60 percent for pur-poses of applying the limitations of sec-tion 436(b) until the earlier of the dateof the specific AFTAP certification or thefirst day of the 10th month of the planyear. In such a case, if the plan has anunpredictable contingent event or a planamendment that increases liability for ben-efits, unpredictable contingent event ben-efits cannot be paid and the plan amend-ment cannot take effect unless the plansponsor makes a contribution described insection 436(b)(2) or 436(c)(2), as applica-ble. If the plan sponsor makes a contri-bution under section 436(b)(2) or section436(c)(2), the proposed regulations wouldprovide that the contribution is recharac-terized as a regular employer contributionthat is taken into account under section 430for the current plan year to the extent it isdetermined that the contribution was notneeded to avoid the application of the ben-efit limit, based on the subsequent calcula-tion of the specific AFTAP.

The proposed regulations would spec-ify that the enrolled actuary is generallynot permitted to certify the AFTAP basedon a value of assets that includes contribu-tions receivable for the prior year that havenot actually been made as of the date ofthe certification. However, this rule wouldnot apply to certifications that are madefor plan years beginning before January 1,2009. Thus, for a certification with respectto 2008, the enrolled actuary is permittedto take in account contributions for 2007that are reasonably expected but have notyet been made by the plan sponsor at the

time of the certification. However, if theplan sponsor does not make those contri-butions, the enrolled actuary’s certificationwill be incorrect, which will result in a fail-ure to satisfy section 401(a)(29) and sec-tion 436 if the difference constitutes a ma-terial change.

If the enrolled actuary for the planprovides a certification of the AFTAP forthe plan year (including a range certifi-cation) and that certified percentage issuperseded by a subsequent determinationof the AFTAP for that plan year, that laterpercentage must be applied and a determi-nation must be made whether the changein the applicable percentage is a materialchange or an immaterial change. For thispurpose, the proposed regulations wouldspecify that there is a material change ifplan operations with respect to benefitsthat are addressed by section 436, takinginto account any actual contributions andelections under section 430(f) made by theplan sponsor based on the prior certifiedpercentage, would have been differentbased on the subsequent determination ofthe plan’s AFTAP for the plan year. Thus,for example, if after the actuary certifiesthe plan’s AFTAP for a plan year, the plansponsor elects to add excess contributionsfor the prior plan year to the plan’s pre-funding balance, this would have the effectof reducing the plan’s AFTAP, and such achange could be a material change.

The proposed regulations would spec-ify that an immaterial change is a change inan AFTAP that is not a material change. Inaddition, the proposed regulations wouldprovide that if the difference between theAFTAP for a plan year and the later reviseddetermination of that percentage is the re-sult of additional contributions for the pre-ceding year that are made by the plan spon-sor after the date of the enrolled actuary’scertification or results from the plan spon-sor’s election to reduce the prefunding orfunding standard carryover balance afterthe date of the certification, such changeis always treated as an immaterial change(regardless of whether it would otherwiseaffect the application of the section 436benefit limitations).

In the case of a material change wherethe plan was operated in accordance withthe prior certification of the AFTAP forthe plan year, the plan will not have satis-fied the requirements of section 401(a)(29)and section 436. In the case of a material

change where the plan was operated in ac-cordance with the subsequent certificationof the AFTAP during the period of time theprior certification applied, the plan will nothave been operated in accordance with itsterms. In addition, in the case of a materialchange, the rules requiring application ofa presumed AFTAP under section 436(h)continue to apply from and after the dateof the prior certification until the date ofthe subsequent certification. In the case ofan immaterial change, the revised percent-age applies prospectively but it does notchange the inapplicability of the presump-tions under section 436(h) for the plan yearprior to the date of the subsequent certifi-cation.

H. Coordination between presumptionsand determination of AFTAP.

1. Periods during which a presumptionapplies to the plan.

A plan must provide that, for any pe-riod during which a presumption undersection 436(h) applies to the plan, the lim-itations applicable under sections 436(b),436(c), 436(d), and 436(e) apply to theplan as if the actual AFTAP for the yearwere the presumed AFTAP. During thatperiod, the rules relating to the deemedelection to reduce the funding standardcarryover balance and the prefunding bal-ance must be applied based on the pre-sumed percentage with respect to the ap-plicable limitations. Thus, a plan’s pre-funding balance and funding standard car-ryover balance must be reduced if the re-duction would be sufficient to avoid theapplicable limitation. The proposed reg-ulations provide rules for determining theamount of the reduction in balances.

If the presumed AFTAP for the planyear changes during the year because ofapplication of the presumption in section436(h)(3), the rules regarding the deemedelection to reduce funding balances mustbe reapplied based on the new presumedAFTAP. This reapplication of the deemedelection may require an additional reduc-tion in funding balances if the amount ofthe reduction in funding balances that isnecessary to reach the applicable thresholdto avoid the application of the limitationunder section 436(d) or 436(e) is greaterthan the amount that was initially reduced.

2007–42 I.R.B. 831 October 15, 2007

2. Periods prior to certification where nopresumption applies.

If no presumptions under section 436(h)apply to a plan for a period and the plan’senrolled actuary has not yet issued the cer-tification of the plan’s AFTAP for the planyear, the plan is not permitted to limit thepayment of unpredictable contingent eventbenefits or the accrual of benefits basedon an expectation that the limitations un-der section 436(d) or 436(e) will apply tothe plan once the enrolled actuary’s certi-fication of the AFTAP is issued. In addi-tion, the proposed regulations would pro-vide that, if no presumptions under sec-tion 436(h) apply to a plan during a pe-riod and the plan’s enrolled actuary hasnot yet issued a certification of the plan’sAFTAP for the plan year, the limitationsunder sections 436(b) and 436(c) that ap-ply to unpredictable contingent event ben-efits and certain plan amendments, respec-tively, during that period must be appliedfollowing the special rules described be-low in paragraph H.3. of this preamble.Thus, if after application of those rules theplan would be treated as having an AFTAPbelow the applicable threshold under sec-tion 436(b) or 436(c), the limitation willapply unless the plan sponsor makes a con-tribution to avoid application of the appli-cable benefit limitations described in sec-tion 436(b)(2) or 436(c)(2). In such case,following the certification of the AFTAPfor the current plan year by the plan’s en-rolled actuary, the proposed regulationswould provide that those contributions arerecharacterized as employer contributionsunder section 430 for the current plan yearto the extent they exceed the amount nec-essary to avoid application of the appli-cable limitation under section 436(b) or436(c) based on the certified percentage.

3. Periods prior to certification —special rules for unpredictable contingentevent benefits and plan amendments thatincrease liability.

The proposed regulations would pro-vide that, during the pre-certification pe-riod, the rules relating to the deemed elec-tion to reduce the funding standard carry-over balance and the prefunding balancemust be applied based on the plan’s pre-sumed AFTAP. The proposed regulationswould provide rules for determining the

amount of the reduction in those balancesthat would apply in such a situation andprovide that, in making such determina-tion, the presumed adjusted funding targetis increased to take into account the ben-efits attributable to the unpredictable con-tingent event or the plan amendment de-scribed in section 436(b) and 436(c), re-spectively. For this purpose, if no pre-sumption applies under the rules of section436(h) (for example, because the plan’s ac-tual AFTAP for the prior year was certifiedto be at least 80 percent), then that prioryear’s actual AFTAP is substituted for thepresumed AFTAP for the plan year in de-termining the presumed adjusted fundingtarget. In the case of a plan that is not acollectively bargained plan with a fundingstandard carryover balance or a prefund-ing balance, the deemed election rules donot apply for purposes of sections 436(b)and 436(c), and the plan sponsor is permit-ted (but not required) to reduce those bal-ances in order to increase the adjusted planassets that are compared to the presumedAFTAP.

If, after application of such funding bal-ance reductions and the other calculationsset forth in the proposed regulations, theplan’s AFTAP (taking into account the ad-ditional benefits) is less than the applicablethreshold under section 436(b) or 436(c),as applicable, then the plan is not permit-ted to provide any benefits attributable tothe unpredictable contingent event or planamendment unless the plan sponsor makesa contribution that would allow payment ofunpredictable contingent event benefits orwould permit a plan amendment increas-ing benefit liabilities to go into effect underthe rules of section 436(b)(2) or 436(c)(2).

If, after application of such funding bal-ance reductions, the plan’s AFTAP (tak-ing into account the additional benefits)is greater than or equal to the applicablethreshold under section 436(b) or 436(c),as applicable, then the plan is not permittedto limit the payment of unpredictable con-tingent event benefits under section 436(b)or to restrict a plan amendment increasingliability for benefits from taking effect un-der section 436(c) based on an expectationthat those limitations will apply to the planonce the enrolled actuary’s certification isissued.

4. Limitations based on AFTAP.

The proposed regulations would pro-vide that, on and after the date the enrolledactuary for the plan issues a certificationof the AFTAP for the current plan year,the plan must apply that certified percent-age (however, if the certification is issuedon or after the first day of the 10th monthof the current plan year but before the firstday of the following plan year, the certifiedpercentage applies under the presumptionrules beginning on the first day of that fol-lowing plan year). For example, the plansponsor must apply the certified AFTAPfor a plan year to an unpredictable con-tingent event that occurs or a plan amend-ment that is effective on or after the dateof the enrolled actuary’s certification dur-ing the plan year. Thus, the plan admin-istrator must determine if the AFTAP is ator above the applicable threshold, takinginto account the increase in the funding tar-get that would be attributable to the unpre-dictable contingent event or plan amend-ment if the unpredictable contingent eventbenefits or the increase in liability attrib-utable to the plan amendment were takeninto account.

After the AFTAP for a plan year is cer-tified by the plan’s enrolled actuary, withrespect to the application of limitations un-der sections 436(d) and 436(e) (acceler-ated benefit payments and benefit accruals,respectively) for the plan year, the deemedelection to reduce funding balances mustbe reapplied based on the actual fundingtarget for the year (provided the certifica-tion is issued by the first day of the 10thmonth). This reapplication of the deemedelection may require an additional reduc-tion in funding balances if the amount ofthe reduction in funding balances that isnecessary to reach the applicable thresh-old to avoid the application of those lim-itations is greater than the amount of aprior reduction for the plan year. The pro-posed regulations would also reflect sec-tion 436(d)(2), which provides that no pro-hibited payments under section 436(d)(5)are permitted to be paid by a plan duringany period in which the plan sponsor isa debtor in a case under title 11, UnitedStates Code, or any similar Federal or Statelaw, if the plan’s enrolled actuary has notyet certified the plan’s AFTAP for the planyear to be at least 100 percent. Thus, the

October 15, 2007 832 2007–42 I.R.B.

presumptions do not apply for purposes ofsection 436(d)(2).

The proposed regulations would pro-vide that the enrolled actuary’s certifica-tion of the AFTAP does not affect the ap-plication of the limitation under section436(d) for participants with annuity start-ing dates before the certification. Sim-ilarly, the enrolled actuary’s certificationfor the plan year does not affect the ap-plication of the limitation under section436(e) of this section prior to the date ofthat certification.

With respect to the impact of the en-rolled actuary’s certification of the AFTAPfor a plan year on periods prior to the cer-tification, the proposed regulations wouldprovide that the certification does not af-fect the application of limitations undersections 436(b) and 436(c) for periodsprior to the date the certification is issued,regardless of the extent to which the certi-fied percentage varies from the presumedpercentage. Notwithstanding the forego-ing, in the case of a plan that, for a planyear, did not provide benefits attributableto an unpredictable contingent event orplan amendment based on the precedingyear’s certified AFTAP (and where suffi-cient contributions under section 436(b)(2)or 436(c)(2) were not made), the plan mustprovide any benefits that were not so pro-vided if those benefits would be permittedunder the rules of section 436 based on thecertified AFTAP, taking into account theincrease in the funding target that wouldbe attributable to the unpredictable contin-gent event benefits or increase in liabilitydue to the plan amendment.

A special rule applies if a plan is pro-viding benefits with respect to one or moreunpredictable contingent events occurringwithin the plan year or amendments tak-ing effect within the plan year. In sucha case, the restrictions on unpredictablecontingent event benefits and plan amend-ments are applied with respect to a sub-sequent unpredictable contingent event oramendment by treating the increase in thefunding target attributable to the subse-quent event or amendment as if it includedthe increases in the funding target attrib-utable to all such earlier events or amend-ments.

I. Determination of funding targetattainment percentage.

For purposes of section 436, the fund-ing target means the funding target undersection 430(d) or section 430(i), as appli-cable to the plan for a plan year.

For purposes of section 436, the fund-ing target attainment percentage (FTAP)for any plan year is the fraction (expressedas a percentage), the numerator of which isthe value of net plan assets, and the denom-inator of which is the plan’s funding target(determined without regard to the at-riskrules under section 430(i) even in the caseof a plan that is in at-risk status). Forthis purpose, pursuant to section 430(f)(4),the value of net plan assets for the planyear is generally determined by subtract-ing the plan’s funding standard carryoverbalance and prefunding balance (if any) forthe plan year from the value of plan assets.

The adjusted funding target attainmentpercentage (AFTAP) for any plan year isthe fraction (expressed as a percentage),the numerator of which is the adjusted planassets and the denominator of which is theadjusted funding target. The adjusted planassets equals the net plan assets, increasedby the aggregate amount of purchases ofannuities for employees other than highlycompensated employees (as defined insection 414(q)) which were made by theplan during the preceding 2 plan years.The proposed regulations would providethat the adjusted funding target equals thefunding target for the plan year (deter-mined without regard to the at-risk rulesunder section 430(i)), increased by the ag-gregate amount of purchases of annuitiesfor employees other than highly compen-sated employees (as defined in section414(q)) which were made by the plan dur-ing the preceding 2 plan years.

If the FTAP for a plan year, determinedwithout regard to the section 430(f)(4) sub-traction of the funding standard carryoverbalance and the prefunding balance fromthe value of plan assets, would be 100 per-cent or more, then, for purposes of sec-tion 436 (but not section 430(d)), the valueof net plan assets used in the determina-tion of the FTAP and the AFTAP is deter-mined without regard to any subtraction offunding balances under section 430(f)(4).The proposed regulations would reflect thetransition rule of section 436(j)(3)(B) un-der which a plan is permitted to phase up

to 100 percent for purposes of the preced-ing sentence.

The proposed regulations would alsoprovide that, in the case of the first planyear beginning in 2008, the FTAP for thepreceding plan year is determined as afraction (expressed as a percentage), thenumerator of which is the value of net planassets, and the denominator of which isthe plan’s current liability determined pur-suant to section 412(l)(7) on the valuationdate for the last plan year that begins be-fore 2008 (the 2007 plan year). For thispurpose, the value of plan assets is de-termined under section 412(c)(2) as in ef-fect for the 2007 plan year, except thatthe value of plan assets prior to subtrac-tion of the plan’s funding standard accountcredit balance described below can neitherbe less than 90 percent of the fair marketvalue of plan assets nor greater than 110percent of the fair market value of plan as-sets on the valuation date for that plan year.If a plan has a funding standard accountcredit balance as of the valuation date forthe 2007 plan year, that balance must besubtracted from the asset value describedabove as of that date unless the value ofplan assets is greater than or equal to 90percent of the plan’s current liability deter-mined under section 412(l)(7) on the valu-ation date for the 2007 plan year.

In the case of the first plan year begin-ning in 2008, for purposes of determin-ing the AFTAP for the 2007 plan year, theproposed regulations provide that the ad-justed funding target is equal to the cur-rent liability determined pursuant to sec-tion 412(l)(7) on the valuation date for the2007 plan year, increased by the aggre-gate amount of purchases of annuities foremployees other than highly compensatedemployees (as defined in section 414(q))which were made by the plan during thepreceding 2 plan years. In any case inwhich the plan’s enrolled actuary has notissued a certification of the AFTAP of theplan for the 2007 plan year using this rule,the AFTAP of the plan for the first planyear beginning in 2008 is presumed to beless than 60 percent until the AFTAP of theplan for the 2007 plan year has been certi-fied or the AFTAP of the plan for the firstplan year beginning in 2008 has been certi-fied. This rule applies for purposes of sec-tions 436(b) and 436(c) at the beginning ofthe first plan year beginning in 2008 andapplies for purposes of sections 436(d) and

2007–42 I.R.B. 833 October 15, 2007

436(e) as of the first day of the 4th monthof the first plan year beginning in 2008.The special rules permitting range certifi-cations for plan years beginning after 2007do not apply to the 2007 plan year.

However, if the employer makes anelection to reduce some or all of the fund-ing standard carryover balance as of thefirst day of the first plan year beginningin 2008 in accordance with proposed§1.430(f)–1(e), then the present value(determined as of the valuation date forthe prior year using the valuation interestrate for that prior year) of the amount soreduced is not treated as part of the fund-ing standard account credit balance whenthat balance is subtracted from the valueof net plan assets. Thus, an employer’selection to reduce the funding standardcarryover balance in 2008 will have theeffect of reducing the amount that must besubtracted from the assets in determiningthe 2007 AFTAP for purposes of applyingthe presumptions under section 436(h)(3)as of the first day of the 4th month of theplan year beginning in 2008.

Proposed Legislation

As of the date of issuance of theseproposed regulations, bills have been in-troduced in the House of Representativesand the Senate that would exclude manda-tory cash-out distributions under section411(a)(11) from application of the accel-erated payments limitation under section436(d) and that would provide the Trea-sury Department with authority to addressapplication of the presumptions under sec-tion 436(h) to plans that have valuationdates that are later than the first day of theplan year.5 Proposed §1.436–1(d)(6) and§1.436–1(h)(5), respectively, are reservedin order to accommodate such changes.

Section 1107 of PPA ’06 and Code Section411(d)(6)

Under section 1107 of PPA ’06, a plansponsor is permitted to delay adopting aplan amendment pursuant to statutory pro-visions under PPA ’06 (or pursuant to anyregulation issued under PPA ’06) until thelast day of the first plan year beginning on

or after January 1, 2009 (January 1, 2011in the case of governmental plans). As de-scribed in Rev. Proc. 2007–44, 2007–28I.R.B. 54, this amendment deadline appliesto both interim and discretionary amend-ments that are made pursuant to PPA ’06statutory provisions or any regulation is-sued under PPA ’06. See §601.601(d)(2)of this chapter. If section 1107 of PPA ’06applies to an amendment of a plan, sec-tion 1107 provides that the plan does notfail to meet the requirements of section411(d)(6) by reason of such amendment,except as provided by the Secretary of theTreasury.6 For example, section 411(d)(6)relief would be available for plan amend-ments that would prohibit single sum orother accelerated distributions if the plan’sAFTAP was less than 60 percent, in accor-dance with section 436(d) and §1.436–1(d)of the proposed regulations. Plan sponsorsshould note that the IRS and the TreasuryDepartment are reviewing whether sampleplan amendments should be issued with re-spect to section 436 and the §1.436–1 reg-ulations.

ERISA notice to participants andbeneficiaries

Under section 101(j) of ERISA, asamended by PPA ’06, the plan administra-tor of a single employer plan is requiredto provide a written notice to participantsand beneficiaries within 30 days after:

• The date the plan has become sub-ject to a restriction described in theERISA provisions that are parallel toparagraphs (b) and (d) of Code section436;

• In the case of a plan that is subject tothe ERISA provisions that are parallelto paragraph (e) of Code section 436,the valuation date for the plan year forwhich the plan’s AFTAP is less than60 percent (or, if earlier, the date theAFTAP is presumed to be less than60 percent under the ERISA provisionsthat parallel the presumption rules inparagraph (h) of Code section 436);and

• At such other time as may be deter-mined by the Secretary of the Treasury.

The notice is required to be provided inwriting, except that the notice may be inelectronic or other form to the extent thatsuch form is reasonably accessible to therecipient.

Effective/Applicability Dates

1. Section 1.430(f)–1.

In general, these regulations under sec-tion 430(f) are proposed to apply to planyears beginning on or after January 1,2008. However, in the case of a plan forwhich the effective date of section 430 isdelayed in accordance with sections 104through 106 of the Pension ProtectionAct of 2006, Public Law 109–280, 120Stat. 780, the regulations under section430(f) are proposed to apply to plan yearsbeginning on or after the effective dateof section 430 with respect to the plan.Unlike section 436, section 430 and theregulations under section 430(f) do notinclude a delayed effective date for collec-tively bargained plans.

2. Section 1.436–1.

In general, the regulations under section436 are proposed to apply to plan years be-ginning on or after January 1, 2008. How-ever, in the case of a plan for which the ef-fective date of section 436 is delayed in ac-cordance with sections 104 through 106 ofthe Pension Protection Act of 2006, Pub-lic Law 109–280, 120 Stat. 780, the reg-ulations under section 436 are proposed toapply to plan years beginning on or afterthe effective date of section 436 with re-spect to the plan. In addition, in the caseof a collectively bargained plan maintainedpursuant to one or more collective bargain-ing agreements between employee repre-sentatives and one or more employers rat-ified before January 1, 2008, the regula-tions under section 436 would not apply toplan years beginning before the earlier of:(1) the later of the date on which the lastcollective bargaining agreement relating tothe plan terminates (determined without

5 H.R. 3361 (August 3, 2007) and S. 1974 (August 2, 2007), at sections 2(c)(1)(C), 2(c)(2)(C), 2(c)(1)(F), and 2(c)(2)(F).

6 Except to the extent permitted under section 411(d)(6) and the §1.411(d)–4 regulations, or under a statutory provision such as section 1107 of PPA ’06, section 411(d)(6) prohibits a planamendment that decreases a participant’s accrued benefits or that has the effect of eliminating or reducing an early retirement benefit or retirement-type subsidy, or eliminating an optionalform of benefit, with respect to benefits attributable to service before the amendment. However, an amendment that eliminates or decreases benefits that have not yet accrued does not violatesection 411(d)(6), provided the amendment is adopted and effective before the benefits accrue.

October 15, 2007 834 2007–42 I.R.B.

regard to any extension thereof agreed toafter August 17, 2006), or the first day ofthe first plan year to which the proposedregulations under section 436 would oth-erwise apply, or (2) January 1, 2010. Forthis purpose, any plan amendment madepursuant to a collective bargaining agree-ment relating to the plan which amends theplan solely to conform to any requirementunder the proposed regulations would notbe treated as a termination of the collec-tive bargaining agreement. The determina-tion of whether a plan is a collectively bar-gained plan is the same as described abovein paragraph II.A.5 of this preamble withrespect to a plan sponsor’s deemed elec-tion to reduce funding balances.

3. Reliance on proposed regulations.

For periods following the issuance ofthese proposed regulations and before finalregulations are issued, these proposed reg-ulations may be relied upon for plan qual-ification purposes, provided that such re-liance is on a consistent and reasonable ba-sis.

4. Effect on plans subject to section 402of PPA ’06.

The IRS and the Treasury Departmentare reviewing the applicability of section436 and the funding balance rules of sec-tion 430(f) to plans that have made elec-tions under section 402 of PPA ’06 (tak-ing into account the amendments to section402 of PPA ’06 by section 6615 of the U.S.Troop Readiness, Veterans’ Care, KatrinaRecovery, and Iraq Accountability Appro-priations Act, 2007 (Public Law 110–28))and any special rules for such plans will beaddressed in future guidance.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866. Therefore, a regulatory as-sessment is not required. It has also beendetermined that section 553(b) of the Ad-ministrative Procedure Act (5 U.S.C. chap-ter 5) does not apply to these regulations. Itis hereby certified that the collection of in-formation imposed by these proposed reg-ulations will not have a significant eco-nomic impact on a substantial number ofsmall entities. Accordingly, a regulatory

flexibility analysis is not required. Theestimated burden imposed by the collec-tion of information contained in these pro-posed regulations is 0.75 hours per respon-dent. Moreover, most of this burden is at-tributable to the requirement for a quali-fied defined benefit plan’s enrolled actu-ary to provide a timely certification of theplan’s AFTAP for each plan year to avoidcertain benefit restrictions, which is im-posed by section 436(h) of the Code. In ad-dition, these proposed regulations providefor several written elections to be madeby the plan sponsor upon occasion; thesewritten elections will require minimal timeto prepare. Pursuant to section 7805(f) ofthe Code, these regulations have been sub-mitted to the Chief Counsel for Advocacyof the Small Business Administration forcomment on its impact on small business.

Comments and Requests for a PublicHearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written (one signedand eight (8) copies) or electronic com-ments that are submitted timely to theIRS. The IRS and Treasury Departmentspecifically request comments on the clar-ity of the proposed regulations and howthey may be made easier to understand.All comments will be available for publicinspection and copying. A public hearingwill be scheduled if requested in writingby any person who timely submits writtencomments. If a public hearing is sched-uled, notice of the date, time, and place ofthe public hearing will be published in theFederal Register.

Drafting Information

The principal authors of these reg-ulations are Lauson C. Green andLinda S.F. Marshall, Office of DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities). How-ever, other personnel from the IRS and theTreasury Department participated in thedevelopment of these regulations.

* * * * *

Proposed Amendments to theRegulations

Accordingly, 26 CFR part 1 is proposedto be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.430(f)–1 is added to

read as follows:

§1.430(f)–1 Effect of prefunding balanceand funding standard carryover balance.

(a) In general—(1) Overview. This sec-tion provides rules relating to the appli-cation of prefunding balances and fund-ing standard carryover balances under sec-tion 430(f). Section 430 and this sectionapply to single employer defined benefitplans (including multiple employer plans)that are subject to section 412, but do notapply to multiemployer plans (as definedin section 414(f)). Paragraph (b) of thissection sets forth rules regarding a plansponsor’s election to maintain a fundingstandard carryover balance or a prefund-ing balance. Paragraph (c) of this sectionprovides rules under which those balancesmust be subtracted from plan assets. Para-graph (d) of this section describes a plansponsor’s election to use those balances tooffset the minimum required contribution.Paragraph (e) of this section describes aplan sponsor’s election to reduce those bal-ances (which will affect the determinationof the value of plan assets for purposes ofsections 430 and 436). Paragraph (f) ofthis section sets forth rules regarding elec-tions under this section. Paragraph (g) ofthis section contains examples. Paragraph(h) of this section contains effective/appli-cability dates and transitional provisions.

(2) Special rules for multiple employerplans. In the case of a multiple employerplan to which section 413(c)(4)(A) applies,the rules of this section are applied sep-arately for each employer under the plan,as if each employer maintained a separateplan. Thus, each employer under such amultiple employer plan may have a sep-arate funding standard carryover balanceand a prefunding balance for the plan. Inthe case of a multiple employer plan towhich section 413(c)(4)(A) does not ap-ply (that is, a plan described in section413(c)(4)(B) that has not made the elec-tion for section 413(c)(4)(A) to apply), therules of this section are applied as if all par-ticipants in the plan were employed by asingle employer.

2007–42 I.R.B. 835 October 15, 2007

(b) Election to maintain balances—(1)Prefunding balance—(i) In general. Aplan sponsor is permitted to maintain a pre-funding balance for a plan. A prefundingbalance maintained for a plan consists ofa beginning balance of zero, increased bythe amount of excess contributions to theextent the employer elects to do so as de-scribed in paragraph (b)(1)(ii) of this sec-tion, and decreased to the extent providedin paragraph (b)(1)(iii) of this section. Theprefunding balance is adjusted further forinvestment return and interest as providedin paragraphs (b)(3) and (b)(4) of this sec-tion.

(ii) Increases—(A) In general. If theplan sponsor of a plan elects to add to theplan’s prefunding balance, as of the firstday of each plan year following the firsteffective plan year for the plan, the pre-funding balance is increased by the amountso elected by the plan sponsor for the planyear. The amount added to the prefund-ing balance cannot exceed the interest-ad-justed excess contributions for the preced-ing plan year determined under paragraph(b)(1)(ii)(B) of this section.

(B) Interest-adjusted excess contri-bution. For purposes of this paragraph(b)(1)(ii), the interest-adjusted excesscontribution for the preceding plan yearis the amount, increased with interest inaccordance with the rules of paragraph(b)(1)(iv)(A) of this section, of the excess,if any, of—

(1) The present value of the employercontributions (other than contributions toavoid or terminate benefit limitations de-scribed in §1.436–1(f)(2)) to the plan forthe preceding plan year determined underthe rules of paragraph (b)(1)(iv)(B) of thissection); over

(2) The minimum required contributionfor the preceding plan year (determinedwithout regard to any election to offsetthe minimum required contribution underparagraph (d) of this section for the pre-ceding plan year).

(iii) Decreases. The prefunding bal-ance of a plan is decreased (but not belowzero) by the sum of—

(A) As of the first day of each plan yearafter the first effective plan year for theplan, any amount of the prefunding bal-ance that was used under paragraph (d) ofthis section to offset the minimum requiredcontribution of the plan for the precedingplan year; and

(B) As of the first day of each plan year,any reduction in the prefunding balanceunder paragraph (e) of this section for theplan year.

(iv) Adjustments for interest—(A) Ad-justment of excess contribution. Theamount of the excess contribution forthe preceding year (as determined underparagraph (b)(1)(ii)(B) of this section)is increased for interest accruing for theperiod between the valuation date for thepreceding plan year and the first day ofthe current year. For this purpose, interestis determined by using the plan’s effectiveinterest rate under section 430(h)(2)(A)for the preceding plan year.

(B) Determination of present value.The present value of the contributionsdescribed in paragraph (b)(1)(ii)(B)(1) ofthis section is determined as of the valua-tion date for the preceding plan year, usingthe plan’s effective interest rate under sec-tion 430(h)(2)(A) for the preceding planyear.

(2) Funding standard carryover bal-ance—(i) In general. A funding standardcarryover balance is only permitted to bemaintained by a plan that had a positivebalance in the funding standard accountunder section 412(b) as of the end of thepre-effective plan year for the plan. Thefunding standard carryover balance as ofthe beginning of the first effective planyear for the plan is the positive balance inthe funding standard account under section412(b) as of the end of the pre-effectiveplan year for the plan, decreased to theextent provided in paragraph (b)(2)(ii) ofthis section and adjusted further for in-vestment return and interest as providedin paragraphs (b)(3) and (b)(4) of this sec-tion.

(ii) Decreases. The funding standardcarryover balance of a plan is decreased(but not below zero) by the sum of—

(A) As of the first day of each planyear after the first effective plan year forthe plan, any amount of the funding stan-dard carryover balance that was used un-der paragraph (d) of this section to offsetthe minimum required contribution of theplan for the preceding plan year; and

(B) As of the first day of each plan year,any reduction in the funding standard car-ryover balance under paragraph (e) of thissection for the plan year.

(3) Adjustments for investment experi-ence. In determining a plan’s prefund-

ing balance under paragraph (b)(1) of thissection or a plan’s funding standard car-ryover balance under paragraph (b)(2) ofthis section as of the first day of a planyear, the balance must be adjusted to re-flect the actual rate of return on plan assetsfor the preceding plan year. This adjust-ment is applied to the balance after sub-tracting amounts used to offset the mini-mum required contribution for the preced-ing plan year pursuant to paragraph (d) ofthis section and after any reduction of bal-ances for that preceding plan year underparagraph (e) of this section. For this pur-pose, the actual rate of return on plan assetsfor the preceding plan year is determinedon the basis of fair market value and musttake into account the amount and timing ofall contributions, distributions, and otherplan payments made during that period.

(4) Valuation date other than the firstday of the plan year—(i) In general. Ifa plan’s valuation date is not the first dayof the plan year, solely for purposes ofapplying paragraphs (c), (d), and (e) ofthis section, the plan’s prefunding balanceand funding standard carryover balance (ifany) determined under this paragraph (b)are increased to the valuation date usingthe plan’s effective interest rate under sec-tion 430(h)(2)(A) for the plan year.

(ii) Special rule for adjustments for in-vestment experience. For purposes of ap-plying the rules regarding the adjustmentsfor investment experience in paragraph(b)(3) of this section, in the case of a planwith a valuation date that is not the firstday of the plan year, the amount of thefunding balances that must be subtractedfrom plan assets under paragraph (d) ofthis section (because they are used to off-set the minimum required contribution forthe plan year) must be adjusted to the firstday of the plan year using the effectiveinterest rate under section 430(h)(2)(A)for that year.

(c) Effect of balances on plan as-sets—(1) In general. In the case of anyplan with a prefunding balance or a fund-ing standard carryover balance, the amountof those balances must be subtracted fromthe value of plan assets for purposes ofsections 430 and 436, except as providedin paragraphs (c)(2), (c)(3), and (c)(4) ofthis section.

(2) Subtraction of balances in determin-ing new shortfall amortization base—(i)Prefunding balance. For purposes of de-

October 15, 2007 836 2007–42 I.R.B.

termining whether a plan is exempt fromthe requirement to establish a new shortfallamortization base under section 430(c)(5),the amount of the prefunding balance issubtracted from the value of plan assetsonly if an election under paragraph (d) ofthis section to use the prefunding balanceto offset the minimum required contribu-tion is made for the plan year.

(ii) Funding standard carryover bal-ance. For purposes of determiningwhether a plan is exempt from the re-quirement to establish a new shortfallamortization base under section 430(c)(5),the funding standard carryover balanceis not subtracted from the value of planassets regardless of whether any portionof either the funding standard carryoverbalance or the prefunding balance is usedto offset the minimum required contribu-tion for the plan year under paragraph (d)of this section.

(3) Special rule for certain bindingagreements with PBGC. If there is in effectfor a plan year a binding written agree-ment with the Pension Benefit GuarantyCorporation (PBGC) which provides thatall or a portion of the prefunding balanceor funding standard carryover balance (orboth balances) is not available to offsetthe minimum required contribution fora plan year, that specified amount is notsubtracted from the value of plan assetsfor purposes of determining the fundingshortfall under section 430(c)(4). Forexample, if a PBGC agreement providesthat $5 million of a plan’s balances is un-available to offset the minimum requiredcontribution for a plan year, the sum ofthe plan’s prefunding balance and fundingstandard carryover balance is $20 million,and the plan’s assets are $100 million, thevalue of plan assets for purposes of deter-mining the funding shortfall under section430(c)(4) is reduced by $15 million ($20million less $5 million) to $85 million.For purposes of this paragraph (c)(3), anagreement with the PBGC is taken intoaccount with respect to a plan year onlyif the agreement was executed prior to thevaluation date for the plan year.

(4) Exception for section 436(j) and(k) special adjustment rules. See section436(j) and (k) and §1.436–1(j)(2)(ii) and(iii) for exceptions from the requirementto subtract the prefunding and fundingstandard carryover balances from planassets in determining a plan’s funding tar-

get attainment percentage for purposes ofsection 436.

(d) Election to apply balances againstminimum required contribution—(1) Ingeneral. Subject to the limitations pro-vided in paragraphs (d)(2) and (d)(3) ofthis section, in the case of any plan yearin which the plan sponsor elects to use allor a portion of the prefunding balance orthe funding standard carryover balance tooffset the minimum required contributionfor the current plan year, the minimumrequired contribution for the plan year(determined after taking into account anywaiver under section 412(c)) is offset asof the valuation date for the plan year bythe amount so used.

(2) Requirement to use funding stan-dard carryover balance before prefundingbalance. To the extent that a plan has afunding standard carryover balance greaterthan zero, no amount of the plan’s prefund-ing balance may be used to offset the mini-mum required contribution. Thus, a plan’sfunding standard carryover balance mustbe exhausted before the plan’s prefundingbalance may be applied under paragraph(d)(1) of this section to offset the minimumrequired contribution.

(3) Limitation for underfunded plans.An election to apply a funding standardcarryover balance or a prefunding balanceunder paragraph (d)(1) of this section is notavailable for a plan year if the plan’s prioryear funding ratio is less than 80 percent.For purposes of this paragraph (d)(3), ex-cept as provided in paragraph (h)(5) of thissection, the plan’s prior year funding ra-tio is the fraction (expressed as a percent-age)—

(i) The numerator of which is the valueof plan assets on the valuation date forthe preceding plan year, reduced by theamount of any prefunding balance (but notthe amount of any funding standard carry-over balance); and

(ii) The denominator of which is thefunding target of the plan for the precedingplan year (determined without regard tosection 430(i)(1)).

(e) Election to reduce balances—(1) Ingeneral. A plan sponsor may make anelection for a plan year to reduce any por-tion of a plan’s prefunding balance andfunding standard carryover balance underthis paragraph (e). If such an election ismade, the amount of those balances thatmust be subtracted from plan assets pur-

suant to paragraph (c)(1) of this sectionwill be smaller and, accordingly, the planassets taken into account for purposes ofsections 430 and 436 will be larger. Thus,this election to reduce a plan’s prefund-ing balance and funding standard carry-over balance is taken into account in thedetermination of plan assets for the planyear and applies for all purposes under sec-tions 430 and 436, including for purposesof determining the plan’s prior year fund-ing ratio under paragraph (d)(3) of thissection for the following plan year. Seealso section 436(f)(3) and §1.436–1(a)(5)for a rule under which the plan sponsor isdeemed to make the election described inthis paragraph (e).

(2) Coordination between prefundingbalance and funding standard carryoverbalance. To the extent that a plan hasa funding standard carryover balancegreater than zero, no election under para-graph (e)(1) of this section is permitted tobe made that reduces the plan’s prefund-ing balance. Thus, a plan must exhaustits funding standard carryover balancebefore it is permitted to make an electionunder paragraph (e)(1) of this section withrespect to its prefunding balance.

(f) Elections—(1) Method of makingelections. Any election under this sec-tion by the plan sponsor must be madeby providing written notification of theelection to the plan’s enrolled actuary andthe plan administrator. The written no-tification must set forth the relevant de-tails of the election, including the specificamounts involved in the election with re-spect to the prefunding balance and fund-ing standard carryover balance.

(2) Timing of elections—(i) Generalrule. Except as provided in paragraph(f)(2)(ii) of this section, any election underthis section must be made on or before thedue date (with extensions) for the filing ofthe plan’s Form 5500, “Annual Return/Re-port of Employee Benefit Plan”, for theplan year to which the election relates (or,in the case of a plan not required to file aForm 5500 for the plan year, on or beforethe last day of the seventh month after theend of the plan year to which the electionrelates). For this purpose, an election toadd to the prefunding balance relates to theplan year for which excess contributionswere made. For example, in the case ofa plan required to file a Form 5500, anelection to add to the prefunding balance

2007–42 I.R.B. 837 October 15, 2007

as of the first day of the 2010 plan year(in an amount not in excess of the 2009interest-adjusted excess contributions un-der the rules of paragraph (b)(1)(ii) of thissection) must be made no later than thedue date for filing the 2009 Form 5500even though the election is reported on the2010 Form 5500 (Schedule SB).

(ii) Election to reduce balances. Anyelection under paragraph (e) of this sectionto reduce the prefunding balance or fund-ing standard carryover balance for a planyear (for example, in order to avoid a ben-efit restriction under section 436) must bemade by the end of the plan year to whichthe election relates.

(3) Irrevocability of elections. A plansponsor’s election under this section withrespect to the plan’s funding standard car-ryover balance or prefunding balance is ir-revocable (and must be unconditional).

(4) Plan sponsor—(i) In general. Forpurposes of the elections described in thissection, except as provided in paragraph(f)(4)(ii) of this section, any reference tothe plan sponsor means the employer oremployers responsible for making contri-butions to or under the plan.

(ii) Certain multiple employer plans.For purposes of the elections described inthis section, in the case of plans that aremultiple employer plans to which section413(c)(4)(A) does not apply, any referenceto the plan sponsor means the plan ad-ministrator within the meaning of section414(g).

(g) Examples. The following examplesillustrate the application of this section:

Example 1. (i) Plan P is a defined benefit planwith a plan year that is the calendar year and a valu-ation date of January 1. The funding standard carry-over balance of Plan P is $25,000 as of the beginningof the 2008 plan year. The sponsor of Plan P, SponsorS, does not elect in 2008, pursuant to paragraph (e)(1)of this section, to reduce any portion of the fundingstandard carryover balance prior to the determinationof the value of plan assets. The actual rate of return onPlan P’s assets in 2008 is 2%. The effective interestrate in 2008 for Plan P is 6%. The minimum requiredcontribution for Plan P under section 430 for 2008 is$100,000. The prior year funding ratio for Plan P for2008, as determined under paragraph (h)(5) of thissection, is not less than 80%.

(ii) Sponsor S makes a contribution to Plan P of$150,000 on December 1, 2008, for the 2008 planyear and makes no other contributions for the 2008plan year. Because this contribution was made on adate other than the valuation date for the 2008 planyear, the contribution must be adjusted to reflect in-terest that would otherwise have accrued between thevaluation date and the date of the contribution, atthe effective rate of interest for the 2008 plan year.

The amount of the contribution after adjustment is$142,198, determined as $150,000 discounted for 11months of compound interest at an effective annualinterest rate of 6%.

(iii) The excess of employer contributions for2008 over the minimum required contribution for2008, as of the valuation date, is $42,198 ($142,198less $100,000). Accordingly, the increase in PlanP’s prefunding balance as of January 1, 2009, cannotexceed $44,730 (which is the excess contributionof $42,198 adjusted for 12 months of interest at aneffective interest rate of 6%).

(iv) Furthermore, if Sponsor S does not elect toapply any portion of the funding standard carryoverbalance toward the minimum contribution in 2008,the funding standard carryover balance as of January1, 2009, is $25,500 (which is the funding standardcarryover balance as of January 1, 2008, adjusted forinvestment experience at an effective interest rate of2%).

Example 2. (i) The facts are the same as in Exam-ple 1 except that the contribution of $150,000 is madeon February 1, 2009, for the 2008 plan year.

(ii) The amount of the contribution after adjust-ment is $140,824, which is determined as $150,000discounted for 13 months of interest at an effectiveinterest rate of 6%. Accordingly, the increase in PlanP’s prefunding balance as of January 1, 2009, cannotexceed $43,273 (which is the excess contribution of$40,824 adjusted for 12 months of interest at an ef-fective interest rate of 6%).

Example 3. (i) The facts are the same as in Ex-ample 1 except that Sponsor S contributes $85,000to Plan P on January 1, 2008, for the 2008 plan yearand makes no other contributions to Plan P for the2008 plan year. In addition, Sponsor S elects to use$15,000 of the funding standard carryover balanceto offset Plan P’s minimum required contribution in2008, pursuant to paragraph (d)(1) of this section.

(ii) With respect to the 2009 plan year, the ad-justment for investment experience under paragraph(b)(3) of this section for the funding standard carry-over balance for the preceding plan year is $200, de-termined as the actual rate of return on plan assets for2008 as applied to the 2008 funding standard carry-over balance after reduction for the amount of thatbalance used under paragraph (d)(1) of this section(that is, $25,000 less $15,000, multiplied by the ac-tual rate of return of 2%).

(iii) The funding standard carryover balance, as ofJanuary 1, 2009, is $10,200, determined as the 2008funding standard carryover balance less the amountused to offset the 2008 minimum required contribu-tion, adjusted for investment experience during the2008 year ($25,000 less $15,000 plus $200).

Example 4. (i) The facts are the same as in Ex-ample 3 except that Sponsor S contributes $90,000(instead of $85,000) to Plan P on January 1, 2008, forthe 2008 plan year.

(ii) Notwithstanding the fact that the amount thatSponsor S contributed to Plan P exceeds the mini-mum required contribution ($85,000) after it has beenoffset as a result of the use of the funding standardcarryover balance, the maximum amount that Spon-sor S may add to the prefunding balance as of Jan-uary 1, 2009, is $0. This is because the maximumamount that may be added to the prefunding balanceis the excess of $90,000 over $100,000. See para-graphs (b)(1)(ii)(A) and (B) of this section.

Example 5. (i) Plan Q is a defined benefit planwith a plan year that is the calendar year and a valu-ation date of July 1. The funding standard carryoverbalance of Plan Q is $50,000 as of January 1, 2009,the beginning of the 2009 plan year. The prefundingbalance of Plan Q as of the beginning of the 2009 planyear is $0. The actual rate of return on Plan Q’s assetsin 2009 is 10%. The effective interest rate for Plan Qfor 2009 is 5%. The funding ratio for Plan Q in 2008is 85%, as determined under paragraph (d)(3) of thissection. Thus, the prior year funding ratio for 2009 isnot less than 80%.

(ii) Pursuant to paragraph (b)(4) of this section,the funding standard carryover balance is increasedto $51,235 as of July 1, 2009 (that is, an increaseto reflect 6 months of interest at an effective inter-est rate of 5%). Sponsor T does not elect in 2009to reduce any portion of the funding standard carry-over balance pursuant to paragraph (e) of this section.The funding standard carryover balance ($51,235) issubtracted from the value of plan assets, as of July1, 2009, prior to the determination of the minimumfunding contribution and, accordingly, $51,235 is themaximum amount that may applied against the mini-mum required contribution.

(iii) The minimum required contribution for PlanQ for 2009 is $200,000. Sponsor T makes a contri-bution to Plan Q of $190,000 on July 1, 2009, for the2009 plan year, and makes no other contributions forthe 2009 plan year. Sponsor T elects to use $10,000 ofthe funding standard carryover balance to offset PlanQ’s minimum required contribution in 2009. Accord-ingly, the value of the funding standard carryover bal-ance as of July 1, 2009, prior to adjustment for in-vestment experience, is $41,235 (that is, $51,235 less$10,000).

(iv) The value of the funding standard carry-over balance as of January 1, 2010, is determinedby first discounting the value as of July 1, 2009,after amounts have been used to offset the mini-mum required contribution, to January 1, 2009, atthe effective interest rate and then crediting this sodetermined amount with a full year’s investmentexperience at a rate equal to the actual rate of re-turn. Thus, the July 1, 2009, value of $41,235 isdiscounted for 6 months of interest, at an effectiveinterest rate of 5%, to obtain a January 1, 2009, valueof $40,241. Accordingly, the value of the fundingstandard carryover balance as of January 1, 2010, is$44,265 (that is, $40,241 increased with one year’sinvestment return at a rate of 10%).

(h) Effective/applicablility date andtransition rules—(1) General effective/ap-plicability date. Except as provided inparagraph (h)(2) of this section, this sec-tion applies to plan years beginning on orafter January 1, 2008.

(2) Plans with delayed effective date.In the case of a plan for which the effec-tive date of section 430 is delayed in ac-cordance with sections 104 through 106 ofthe Pension Protection Act of 2006, PublicLaw 109–280, 120 Stat. 780, this sectionapplies to plan years beginning on or afterthe effective date of section 430 with re-spect to the plan.

October 15, 2007 838 2007–42 I.R.B.

(3) First effective plan year. For pur-poses of this section, the first effective planyear for a plan is the first plan year towhich this section applies under paragraph(h)(1) or (h)(2) of this section.

(4) Pre-effective plan year. For pur-poses of this section, the pre-effective planyear for a plan is the last plan year begin-ning before the first effective date applica-ble under paragraph (h)(1) or (h)(2) of thissection. Thus, except for plans with a de-layed effective date under paragraph (h)(2)of this section, the pre-effective plan yearfor a plan is the last plan year beginningbefore January 1, 2008.

(5) Special lookback rule for pre-effec-tive plan year’s funding ratio—(i) Plan as-sets. For purposes of determining a plan’sprior year funding ratio pursuant to para-graph (d)(3) of this section for the first ef-fective plan year, the value of plan assetson the valuation date of the preceding planyear is determined under section 412(c)(2)as in effect for that pre-effective plan year,except that—

(A) If the value of plan assets is lessthan 90 percent of the fair market value ofplan assets for the pre-effective plan yearon that date, for this purpose such valueis considered to be 90 percent of the fairmarket value; and

(B) If the value of plan assets is greaterthan 110 percent of the fair market valueof plan assets on the valuation date for thepre-effective plan year on that date, for thispurpose such value is considered to be 110percent of the fair market value.

(ii) Funding target. For purposes of de-termining a plan’s prior year funding ratiopursuant to paragraph (d)(3) of this sectionfor the first effective plan year, the fund-ing target of the plan for the preceding planyear is equal to the plan’s current liabil-ity under section 412(l)(7) on the valuationdate for the plan’s pre-effective plan year.

Par. 3. Section 1.436–1 is added to readas follows:

§1.436–1 Limits on benefits and benefitaccruals under single employer definedbenefit plans.

(a) General rules—(1) Qualification re-quirement. Section 401(a)(29) providesthat a defined benefit pension plan thatis subject to section 412 and that is nota multiemployer plan (within the mean-ing of section 414(f)) is a qualified plan

only if it satisfies the requirements of sec-tion 436. This section provides rules re-lating to funding-based limitations on cer-tain benefits under section 436, and therequirements of section 436 are satisfiedonly if the plan meets the requirements ofthis section beginning with the plan’s firsteffective plan year. This section applies tosingle employer defined benefit plans (in-cluding multiple employer plans), but doesnot apply to multiemployer plans.

(2) Organization of the regulation.Paragraph (b) of this section describes alimitation on shutdown benefits and otherunpredictable contingent event benefits.Paragraph (c) of this section describes lim-itations on plan amendments increasingliabilities. Paragraph (d) of this sectiondescribes limitations on accelerated bene-fit payments. Paragraph (e) of this sectiondescribes limitations on benefit accru-als. Paragraph (f) of this section providesrules relating to methods to avoid benefitlimitations. Paragraph (g) of this sectionprovides rules for the operation of the planin relation to benefit limitations undersection 436. Paragraph (h) of this sectiondescribes related presumptions regard-ing underfunding that apply for purposesof the benefit limitations under section436. Paragraph (j) of this section containsdefinitions. Paragraph (k) of this sectioncontains effective/applicability date pro-visions.

(3) Special rules for certain plans—(i)New plans. The limitations described inparagraphs (b), (c), and (e) of this sectiondo not apply to a plan for the first 5 planyears of the plan. For purposes of apply-ing this rule, plan years of a plan are ag-gregated with plan years of a predecessorplan in accordance with section 414(a) or§1.415(f)–1(c).

(ii) Multiple employer plans. In the caseof a multiple employer plan to which sec-tion 413(c)(4)(A) applies, this section ap-plies separately with respect to each em-ployer under the plan, as if each employermaintained a separate plan. Thus, the ben-efit limitations under section 436 and thissection could apply differently to partici-pants who are employees of different em-ployers under such a multiple employerplan. In the case of a multiple employerplan to which section 413(c)(4)(A) doesnot apply (that is, a plan described in sec-tion 413(c)(4)(B) that has not made theelection for section 413(c)(4)(A) to apply),

this section applies as if all participants inthe plan were employed by a single em-ployer.

(4) Treatment of plan as of close ofprohibited or cessation period—(i) Re-sumption of benefit payments and ac-cruals—(A) Resumption of acceleratedpayments. If a limitation on acceleratedbenefit payments under paragraph (d) ofthis section applied to a plan as of a sec-tion 436 measurement date, but that limitno longer applies to the plan as of a latersection 436 measurement date, then theprohibition on paying accelerated benefitsunder the plan does not apply to benefitswith annuity starting dates that are on orafter that later section 436 measurementdate. Any amendment to eliminate thepayment of accelerated benefit paymentsfor periods in which they are not restrictedunder section 436 is subject to the rules ofsection 411(d)(6).

(B) Resumption of benefit accruals.Unless the plan provides otherwise, bene-fit accruals under the plan resume effectiveas of the section 436 measurement dateon which benefit accruals are no longerrestricted under paragraph (e) of this sec-tion.

(ii) Missed benefit payments and ac-cruals—(A) Option to amend plan to re-store benefits. A plan is permitted to beamended to provide participants who hadan annuity starting date within a periodduring which the rules of paragraph (d)of this section applied to the plan withthe opportunity to have a new election un-der which the form of benefit previouslyelected may be modified, subject to appli-cable qualification requirements. A par-ticipant who makes such a new electionis treated as having a new annuity startingdate under section 417. Similarly, a planis permitted to be amended to provide thatany benefit accruals which were limitedunder the rules of paragraph (e) of this sec-tion are credited under the plan when thelimitation no longer applies, subject to ap-plicable qualification requirements. Anysuch plan amendment with respect to anew annuity starting date or crediting ofbenefit accruals is subject to the require-ments of section 436(c) and paragraph (c)of this section.

(B) Automatic plan provisions to re-store benefits. A plan is permitted to pro-vide that participants who had an annuitystarting date within a period during which

2007–42 I.R.B. 839 October 15, 2007

the rules of paragraph (d) of this sectionapplied to the plan are automatically pro-vided with the opportunity to have a newannuity starting date (which would consti-tute a new annuity starting date under sec-tion 417) under which the form of ben-efit previously elected may be modified,subject to applicable qualification require-ments, once the rules of paragraph (d) ofthis section cease to apply. In addition, aplan is permitted to provide for the auto-matic restoration of benefit accruals thathad been limited under section 436(e) asof the section 436 measurement date thatthe limitation ceases to apply, as describedin paragraph (a)(4)(ii)(A) of this section.However, if a plan provides for the auto-matic restoration of those benefit accrualsand the period of the limitation exceeds 12months, the plan will be treated as hav-ing adopted, effective as of the section 436measurement date on which the limitationceases to apply, a plan amendment that hasthe effect of increasing liabilities under theplan. Such an amendment is subject to thelimitations of paragraph (c) of this section.

(iii) Shutdown and other unpredictablecontingent event benefits—(A) In general.If any unpredictable contingent event ben-efits under paragraph (b) of this section arelimited with respect to an unpredictablecontingent event, that limitation appliesto all such benefits that otherwise wouldhave been paid to any plan participantwith respect to that unpredictable contin-gent event.

(B) Benefits not paid. Notwithstand-ing paragraph (a)(4)(iii)(A) of this sec-tion, a plan is permitted to be amendedto provide that any unpredictable contin-gent event benefits that were limited underthe rules of paragraph (b) of this sectionwill be paid or reinstated as of the section436 measurement date on which the limi-tation no longer applies, subject to appli-cable qualification requirements. Such aplan amendment is subject to the require-ments of section 436(c) and paragraph (c)of this section. A plan is not permitted toprovide for restoration of any such unpre-dictable contingent event benefits withoutan amendment that complies with section436(c).

(iv) Example. The following exampleillustrates the application of this paragraph(a)(4):

Example. (i) Plan T is a non-collectively bar-gained defined benefit plan with a plan year that is the

calendar year and a valuation date of January 1. As ofJanuary 1, 2011, Plan T does not have a funding stan-dard carryover balance or a prefunding balance. PlanT’s sponsor is not in bankruptcy. Beginning January1, 2011, Plan T is subject to the restriction on accel-erated benefit distributions under paragraph (d)(3) ofthis section based on a presumed adjusted funding tar-get attainment percentage (AFTAP) of 75%, and cantherefore only pay a portion (generally 50%) of theaccelerated benefit distributions otherwise payable toparticipants who commence benefit payments whilethe restriction is in effect.

(ii) U is a participant in Plan T. Participant U re-tires on February 1, 2011, and elects to receive ben-efits in the form of a single sum. However, becauseU elected a form of payment that is a prohibited pay-ment that is not permitted to be paid under paragraph(d)(3)(i) of this section, U elects in accordance withparagraph (d)(3)(ii) of this section to receive 50% ofhis benefit in a single sum and the remainder as animmediately commencing straight life annuity.

(iii) On March 1, 2011, the enrolled actuary forthe Plan certifies that the AFTAP for 2011 is 80%.Accordingly, beginning March 1, 2011, Plan T isno longer subject to the restriction under paragraph(d)(3) of this section.

(iv) Effective March 1, 2011, Plan T is amendedto provide that a participant whose benefits wererestricted under paragraph (d)(3) of this section mayelect within a specified period on or after March 1,2011, a new annuity starting date and receive theremainder of his or her pension benefits in an accel-erated form of payment. Plan T’s enrolled actuarydetermines that the AFTAP, taking into account theamendment, is still 80%. The amendment is per-mitted to take effect because Plan T has an AFTAPof 80% taking into account the amendment, and istherefore neither subject to the restriction on planamendments in paragraph (c) of this section nor therestrictions on accelerated benefit payments underparagraphs (d)(1) and (d)(3) of this section. Accord-ingly, Participant U may elect, subject to otherwiseapplicable qualification rules, including spousal con-sent, to receive the remainder of his benefits in theform of a single sum on or after March 1, 2011.

(5) Deemed election to reduce fund-ing balances—(i) Limitations on acceler-ated benefit payments. If a benefit limi-tation under paragraph (d) of this sectionwould (but for this paragraph (a)(5)) applyto a plan, the employer is treated as hav-ing made an election under section 430(f)to reduce the prefunding balance or fund-ing standard carryover balance by suchamount as is necessary for the adjustedfunding target attainment percentage to beat or above the applicable threshold (60,80, or 100 percent, as the case may be) inorder for the benefit limitation not to applyto the plan. In such a case, the employer istreated as having made that election on thesection 436 measurement date as of whichthe benefit limitation would otherwise ap-ply (without regard to whether a partici-pant is eligible for or requests a payment

that is a prohibited payment described inparagraph (d)(5) of this section).

(ii) Other limitations for collectivelybargained plans—(A) General rule. Inthe case of a collectively bargained planto which a benefit limitation under para-graph (b), (c), or (e) of this section would(but for this paragraph (a)(5)) apply, theemployer is treated as having made anelection under section 430(f) to reduce theprefunding balance or funding standardcarryover balance by such amount as isnecessary for the adjusted funding targetattainment percentage to be at or abovethe applicable threshold in order for thebenefit limitation not to apply to the plan,taking into account the unpredictable con-tingent event benefits or plan amendment,as applicable. In such a case, the employeris treated as having made that election onthe date as of which the applicable benefitlimitation would otherwise apply.

(B) Treatment of plans with both collec-tively bargained and non-collectively bar-gained employees. In the case of a planwith respect to which collective bargain-ing agreements apply to some, but not all,of the plan participants, the plan is consid-ered a collectively bargained plan for pur-poses of this paragraph (a)(5)(ii) if at least25 percent of the participants in the planare members of collective bargaining unitsfor which the benefit levels under the planare specified under a collective bargainingagreement.

(iii) Exception for insufficient fundingbalances—(A) In general. Paragraphs(a)(5)(i) and (a)(5)(ii) of this section applywith respect to a benefit limitation forany plan year only if the application ofthose paragraphs would result in the cor-responding benefit limitation not applyingfor such plan year. Thus, if the plan’sprefunding and funding standard carry-over balances were reduced to zero andthe resulting increase in plan assets takeninto account would still not increase theplan’s adjusted funding target attainmentpercentage enough to reach the thresholdpercentage applicable to the benefit limi-tation, the deemed election to reduce thosebalances pursuant to paragraph (a)(5)(i) or(a)(5)(ii) of this section does not apply.

(B) Presumed adjusted funding targetattainment percentage less than 60 per-cent. If a plan is presumed to have an ad-justed funding target attainment percent-age of less than 60 percent under para-

October 15, 2007 840 2007–42 I.R.B.

graph (h)(3) of this section, then the plan istreated as if the funding standard carryoverbalance and the prefunding balance are in-sufficient to increase the adjusted fundingtarget attainment percentage to the thresh-old percentage of 60 percent. Accordingly,paragraphs (a)(5)(i) and (a)(5)(ii) of thissection do not apply to such a plan.

(iv) Example. The following exampleillustrates the application of this paragraph(a)(5):

Example. (i) Plan W is a collectively bargained,single-employer defined benefit plan sponsored bySponsor X, with a plan year that is the calendar yearand a valuation date of January 1. Sponsor X is notin bankruptcy.

(ii) The enrolled actuary for Plan W issues a cer-tification on March 1, 2010, that the 2010 AFTAP is81%. Sponsor X adopts an amendment on March 25,2010, to increase benefits under a formula based onparticipant compensation, with an effective date ofMay 1, 2010. (Because the formula is based on com-pensation, the exception in paragraph (c)(3) of thissection for increases with respect to a formula notbased on compensation does not apply.) The plan’senrolled actuary determines that the plan’s AFTAPfor 2010 would be 75% if the benefits attributable tothe plan amendment were taken into account. Thispercentage is below the 80% threshold for the planamendment limitation under paragraph (c) of this sec-tion.

(iii) Because the AFTAP would be below the80% threshold if the benefits attributable to the planamendment were taken into account, Sponsor X isdeemed to have made an election under paragraph(a)(5)(ii) of this section to reduce Plan W’s prefund-ing balance and funding standard carryover balanceby the amount necessary for the AFTAP to reachthe 80% threshold (reflecting the increase in fundingtarget attributable to the plan amendment) in orderfor the limitation under paragraph (c) of this sectionnot to apply.

(iv) In this case, provided the reduction in fundingbalances is sufficient for the limitation not to apply,the plan amendment will go into effect on its effec-tive date (May 1). See paragraph (f) of this sectionfor other methods to avoid benefit limitations (where,for example, the amount necessary for a benefit limi-tation not to apply for a plan year exceeds the aggre-gate funding balances).

(b) Limitation on shutdown benefits andother unpredictable contingent event ben-efits—(1) In general. A plan that containsan unpredictable contingent event bene-fit satisfies section 436(b) and this sectiononly if it provides that the benefit will notbe paid to a plan participant during a planyear if the adjusted funding target attain-ment percentage for the plan year—

(i) Is less than 60 percent; or(ii) Is 60 percent or more, but would be

less than 60 percent if the benefits attribut-able to the unpredictable contingent eventwere taken into account in determining the

adjusted funding target attainment percent-age.

(2) Exemption—(i) In general. Theprohibition on payment of unpredictablecontingent event benefits under paragraph(b)(1) of this section ceases to apply withrespect to a plan year, effective as of thefirst day of the plan year, upon paymentby the plan sponsor of the contribution de-scribed in paragraph (f)(2) of this section.

(ii) Prior unpredictable contingentevent. Unpredictable contingent eventbenefits attributable to an unpredictablecontingent event that occurred within aperiod during which no limitation underthis paragraph (b) applied to the plan arenot affected by the limitation describedin this paragraph (b) as it applies in asubsequent period. For example, if aplant shutdown occurs in 2010 and theplan’s funded status is such that shutdownbenefits related to that shutdown are notsubject to the limitation described in thisparagraph (b) for that calendar plan year,this paragraph (b) will not apply to restrictpayment of those shutdown benefits evenif another shutdown occurs in 2012 thatresults in shutdown benefits related to thatlater shutdown being restricted under thisparagraph (b) (where the plan’s adjustedfunding target attainment percentage for2012 is less than 60 percent taking intoaccount the liability attributable to thoseshutdown benefits).

(3) Unpredictable contingent event. Forpurposes of this section, an unpredictablecontingent event benefit means any bene-fit or increase in benefits to the extent thebenefit or increase would not be payablebut for the occurrence of an unpredictablecontingent event. For this purpose, an un-predictable contingent event means a plantshutdown (whether full or partial) or sim-ilar event, or an event other than the at-tainment of any age, performance of anyservice, receipt or derivation of any com-pensation, or the occurrence of death ordisability. Thus, for example, if a planprovides for an unreduced early retirementbenefit upon the occurrence of an eventother than the attainment of any age, per-formance of any service, receipt or deriva-tion of any compensation, or the occur-rence of death or disability, then that unre-duced early retirement benefit is an unpre-dictable contingent event benefit to the ex-tent of any portion of the benefit that wouldnot be payable but for the occurrence of

the event, even if the remainder of the ben-efit is payable without regard to the oc-currence of the event. Similarly, if a planincludes a benefit payable upon the pres-ence of circumstances specified in the plan(other than the attainment of any age, per-formance of any service, receipt or deriva-tion of any compensation, or the occur-rence of death or disability), but not upona severance from employment that doesnot include those circumstances, the planis providing an unpredictable contingentevent benefit.

(c) Limitations on plan amendments in-creasing liability for benefits—(1) In gen-eral. Except as provided in this paragraph(c), a plan satisfies section 436(c) and thissection only if the plan provides that noamendment to the plan that has the effect ofincreasing liabilities of the plan by reasonof increases in benefits, establishment ofnew benefits, changing the rate of benefitaccrual, or changing the rate at which ben-efits become nonforfeitable takes effect ifthe adjusted funding target attainment per-centage for the plan year is—

(i) Less than 80 percent; or(ii) Is 80 percent or more, but would be

less than 80 percent if the benefits attrib-utable to the amendment were taken intoaccount in determining the adjusted fund-ing target attainment percentage.

(2) Exemption. The limitations on planamendments in paragraph (c)(1) of thissection cease to apply and the amendmentis permitted to take effect as of the later ofthe first day of the plan year or the effec-tive date of the amendment upon paymentby the plan sponsor of the contribution de-scribed in paragraph (f)(2) of this section.

(3) Exception for certain benefit in-creases—(i) In general. The limitationon plan amendments under paragraph(c)(1) of this section does not apply to anyamendment that provides for an increasein benefits under a formula that is notbased on a participant’s compensation, butonly if the rate of increase in benefits doesnot exceed the contemporaneous rate ofincrease in average wages of participantscovered by the amendment. The determi-nation of the rate of increase in averagewages is made by taking into considerationthe net increase in average wages from theperiod of time beginning with the effectivedate of the most recent benefit increaseapplicable to all of those participants whoare covered by the current amendment and

2007–42 I.R.B. 841 October 15, 2007

ending on the effective date of the currentamendment.

(ii) Application to terminated partici-pants. If an amendment applies to bothcurrently employed and terminated partic-ipants, all such participants must be in-cluded in determining the increase in av-erage wages of the participants covered bythe amendment. For this purpose, termi-nated participants are treated as having noincrease or decrease in wages for the pe-riod after severance from employment.

(iii) Separate amendments for differ-ent plan populations. In lieu of a singleamendment that applies to both currentlyemployed participants and terminatedparticipants as described in paragraph(c)(3)(ii) of this section, the employercould adopt two amendments — one thatincreases benefits for currently employedparticipants and another one that increasesbenefits for terminated participants. Inthat case, the two amendments are consid-ered separately in determining the increasein average wages, and the exception in thisparagraph (c)(3) from application of thesection 436(c) limitation would applyseparately to each amendment (so that anamendment providing for increases in ben-efits for currently employed participantscould go into effect, but an amendmentproviding for increases in benefits forterminated participants who received noincrease in wages from the employer dur-ing the period over which the increase inaverage wages is determined could not gointo effect).

(4) Exception for statutorily requiredvesting. To the extent that any amend-ment results in (or is made pursuant to) amandatory increase in the vesting of ben-efits under the Code or ERISA (such asvesting rate increases pursuant to statute,plan termination amendments under sec-tion 411(d)(3), and amendments that leadto vesting increases required by top heavyrules under section 416), that amendmentdoes not constitute an amendment thatchanges the rate at which benefits becomenonforfeitable for purposes of section436(c) and this paragraph (c).

(d) Limitations on accelerated ben-efit payments—(1) Funding percentageless than 60 percent—(i) In general. Aplan satisfies the requirements of section436(d)(1) and this paragraph (d)(1) onlyif the plan provides that, if the plan’sadjusted funding target attainment per-

centage for a plan year is less than 60percent, the plan will not pay any pro-hibited payment with an annuity startingdate on or after the applicable section 436measurement date.

(ii) Request for prohibited distribution.If a participant or beneficiary requests adistribution that is prohibited under para-graph (d)(1)(i) of this section, the planmust permit the participant or beneficiaryto elect another form of benefit availableunder the plan or to defer payment to a laterdate to the extent permitted under applica-ble qualification requirements.

(2) Bankruptcy. A plan satisfies the re-quirements of section 436(d)(2) and thisparagraph (d)(2) only if the plan providesthat the plan will not pay any prohibitedpayment with an annuity starting date thatis during any period in which the plansponsor is a debtor in a case under title 11,United States Code, or similar Federal orState law, except for payments made withan annuity starting date within a plan yearthat is on or after the date on which theenrolled actuary of the plan certifies thatthe plan’s adjusted funding target attain-ment percentage for that plan year is notless than 100 percent. The rules of para-graph (d)(1)(ii) of this section apply if pay-ments are prohibited under this paragraph(d)(2).

(3) Limited payment if percentage atleast 60 percent but less than 80 per-cent—(i) In general. A plan satisfies therequirements of section 436(d)(3) andthis paragraph (d)(3) only if the plan pro-vides that, in any case in which the plan’sadjusted funding target attainment per-centage for a plan year is 60 percent ormore but is less than 80 percent, a partic-ipant or beneficiary is permitted to electthe payment of a benefit with an annuitystarting date on or after the applicablesection 436 measurement date in the formof a prohibited payment only if the presentvalue, determined in accordance withsection 417(e)(3), of the portion of thepayment that is greater than the amount ofthe straight life annuity under the plan (asdescribed in paragraph (d)(5)(i)(A) of thissection) does not exceed the lesser of—

(A) 50 percent of the present value ofthe benefits, determined in accordancewith section 417(e)(3) (or, if greater, 50percent of the amount of any single sumthat would be payable without regard tothis paragraph (d)); or

(B) 100 percent of the PBGC guaranteeamount described in paragraph (d)(3)(iv)of this section.

(ii) Bifurcation if optional form un-available—(A) General rule. If an op-tional form of benefit that is otherwiseavailable under the terms of the plan isnot available as of the annuity startingdate because of the application of para-graph (d)(3)(i) of this section, then theplan must provide a participant or bene-ficiary who elects such an optional formwith the option either to defer payment toa later date (to the extent permitted underapplicable qualification requirements) orto bifurcate the benefit into unrestrictedand restricted portions. If the participantor beneficiary elects to bifurcate the ben-efit, the plan must permit the participantor beneficiary to elect, with respect to theunrestricted portion, any optional form ofbenefit otherwise available under the planwith respect to the participant’s or ben-eficiary’s entire benefit (whether or notthe optional form of benefit with respectto the unrestricted portion is a prohibitedpayment). In such a case, if the participantor beneficiary elects payment of the unre-stricted portion of the benefit described inparagraph (d)(3)(ii)(B) of this section inthe form of a prohibited payment, the planmust permit the participant or beneficiaryto elect payment of the restricted portiondescribed in paragraph (d)(3)(ii)(C) of thissection in any optional form of benefitunder the plan that is not a prohibitedpayment and that would have been per-mitted with respect to the participant’s orbeneficiary’s entire benefit. A plan is alsopermitted to offer optional forms of benefitthat are solely available during the periodthis paragraph (d)(3) applies to the plan,such as an optional form of benefit thatprovides for the current payment of theunrestricted portion of the benefit, with adelayed commencement for the restrictedportion of the benefit, subject to otherapplicable qualification requirements.

(B) Unrestricted portion of the benefit.The unrestricted portion of the benefit isthe lesser of—

(1) 50 percent of the benefit; and(2) The portion of the benefit that has a

present value equal to the PBGC guaranteeamount described in paragraph (d)(3)(iv)of this section.

(C) Restricted portion of the benefit.The restricted portion of the benefit is the

October 15, 2007 842 2007–42 I.R.B.

portion of the benefit that is not describedin paragraph (d)(3)(ii)(B) of this section.

(iii) One-time application—(A) In gen-eral. A plan satisfies the requirements ofthis paragraph (d) only if the plan pro-vides that, in the case of a participant whoreceives a prohibited payment (or seriesof prohibited payments under a single op-tional form of benefit) pursuant to para-graph (d)(3)(i) or (ii) of this section, theparticipant cannot thereafter receive anyadditional prohibited payment during anyperiod of consecutive plan years to whichthe limitations under either this paragraph(d)(3), paragraph (d)(1) of this section, orparagraph (d)(2) of this section apply.

(B) Treatment of beneficiaries. Forpurposes of this paragraph (d)(3), ben-efits provided to a participant and anybeneficiary (including an alternate payee,as defined in section 414(p)(8)) are ag-gregated. If the accrued benefit of aparticipant is allocated to such an alter-nate payee and one or more other persons,the unrestricted amount under paragraphs(d)(3)(i) and (d)(3)(ii) of this section isallocated among such persons in the samemanner as the accrued benefit is allocated,unless a qualified domestic relations order(as defined in section 414(p)(1)(A)) withrespect to the participant or the alternatepayee provides otherwise.

(iv) Present value of PBGC maximumbenefit guarantee. The amount describedin this paragraph (d)(3)(iv) is, with re-spect to a participant, the present value(determined under guidance prescribed bythe Pension Benefit Guaranty Corporation,using the interest and mortality assump-tions under section 417(e)) of the maxi-mum benefit guarantee under section 4022of ERISA.

(v) Examples. The following examplesillustrate the application of this paragraph(d)(3):

Example 1. (i) Plan A is subject to the restrictionon accelerated benefit distributions under paragraph(d)(3) of this section for the 2010 plan year, and cantherefore only pay a portion of the accelerated bene-fit payments otherwise payable to participants whoseannuity starting date occurs while the restriction ap-plies.

(ii) Participant P is not married, and retires at age65 during 2010, while the restriction under paragraph(d)(3) of this section applies to Plan A. P’s accruedbenefit is $10,000 per month, payable commencingat age 65 as a straight life annuity. Plan A providesfor an optional single sum payment (subject to therestrictions under section 436) equal to the presentvalue of the participant’s accrued benefit using ac-

tuarial assumptions under section 417(e). P’s singlesum payment, determined without regard to this para-graph (d), is calculated to be $1,416,000, payable atage 65.

(iii) The PBGC guaranteed monthly benefit for astraight life annuity payable at age 65 in 2010 (forpurposes of this example) is $4,500. The presentvalue of the PBGC guaranteed benefit using actuarialassumptions under section 417(e) is $637,200.

(iv) Because Participant P retires during a periodwhen the restriction in paragraph (d)(3) of this sectionapplies to Plan A, only a portion of the benefit can bepaid in the form of a single sum. P elects a single sumpayment. Because a single sum payment is a prohib-ited payment, a determination must be made whetherthe payment can be paid under paragraph (d)(3)(i)of this section. In this case, because the portion ofParticipant P’s benefit that is greater than a straightlife annuity exceeds the lesser of 50% of the benefitotherwise payable, or the present value of the PBGCguaranteed benefit, it cannot be paid under paragraph(d)(3)(i) of this section. Accordingly, the maximumsingle sum that Participant P can receive is $637,200(that is, the lesser of 50% of $1,416,000 or $637,200).

(v) Pursuant to paragraph (d)(3)(ii) of this sec-tion, the plan must offer P the option to bifurcatethe benefit into restricted and unrestricted portions.The unrestricted portion is a monthly straight life an-nuity of $4,500, which can be paid in a single sumof $637,200. If P elects to receive the unrestrictedportion of the benefit in the form of a single sum,then, with respect to the $5,500 restricted portion, theplan must permit P to elect any form of benefit thatwould otherwise be permitted with respect to the full$10,000 that is not a prohibited payment. Alterna-tively, the plan could permit P to elect to defer com-mencement of the restricted portion, subject to appli-cable qualification rules.

Example 2. (i) The facts are the same as in Exam-ple 1. In addition, Plan A provides an optional formof payment (subject to any benefit restrictions undersection 436) that consists of a partial payment equal tothe total return of employee contributions to the planaccumulated with interest, with an annuity paymentfor the remainder of the participant’s benefit.

(ii) Participant Q is not married, and retires at age65 during 2010, while Plan A is subject to the re-striction under paragraph (d)(3) of this section. Par-ticipant Q has an accrued benefit equal to a straightlife annuity of $3,000 per month. Under the optionalform described in paragraph (i) of this Example 2, Qmay elect a partial payment of $99,120 (represent-ing the return of employee contributions accumulatedwith interest) plus a straight life annuity of $2,300per month. The present value of Participant Q’s ac-crued benefit, using actuarial assumptions under sec-tion 417(e), is $424,800. The present value of thePBGC guarantee payable at age 65 in the form of astraight life annuity is determined to be $637,200 forthe purposes of this Example 2.

(iii) Under the bifurcation approach of paragraph(d)(3)(ii) of this section, Q can receive the partialsingle sum payment available under the terms of PlanA as long as the amount of the single sum does notexceed the unrestricted portion of the benefit underparagraph (d)(3)(ii)(B) of this section. The unre-stricted portion of Q’s benefit is the lesser of 50% ofthe benefit otherwise payable, or the present valueof the PBGC guaranteed benefit. Accordingly, the

maximum single sum that Q can receive is $212,400(that is, the lesser of 50% of $424,800, or $637,200).

(iv) Because the present value of the portion ofQ’s benefit that is greater than the straight life annuity($99,120) is less than the lesser of 50% of the presentvalue of benefits (50% of $424,800) and $637,200(100% of the PBGC guaranteed benefit), the optionalform described in paragraph (i) of this Example 2 ispermitted to be paid under paragraph (d)(3)(i) of thissection.

(4) Exception for cessation of benefitaccruals. This paragraph (d) does not ap-ply to a plan for a plan year if the termsof the plan, as in effect for the period be-ginning on September 1, 2005, providedfor no benefit accruals with respect to anyparticipants. If a plan that is described inthis paragraph (d)(4) provides for benefitaccruals during any time after September1, 2005, this paragraph (d)(4) ceases to ap-ply for the plan as of the date any benefitsaccrue under the plan.

(5) Prohibited payment—(i) In general.For purpose of this paragraph (d), the termprohibited payment means—

(A) Any payment for a month that is inexcess of the monthly amount paid under astraight life annuity (plus any social secu-rity supplements described in the last sen-tence of section 411(a)(9)) to a participantor beneficiary whose annuity starting dateoccurs during any period that a limitationunder this paragraph (d) is in effect;

(B) Any payment for the purchase of anirrevocable commitment from an insurer topay benefits; and

(C) Any other payment that is iden-tified as a prohibited payment by theCommissioner in revenue rulings andprocedures, notices and other guidancepublished in the Internal Revenue Bulletin(see §601.601(d)(2) of this chapter).

(ii) Annuity starting date. Solely forpurposes of applying the limitations on ac-celerated benefit payments under this para-graph (d), the term annuity starting datemeans, as applicable—

(A) The first day of the first period forwhich an amount is payable as an annuityas described in section 417(f)(2)(A)(i);

(B) In the case of a benefit not payablein the form of an annuity, the first day onwhich all events have occurred (includingthe participant’s election, the participant’sseverance from employment if the partici-pant is below normal retirement age, and,if applicable, the participant’s survival tothe date as of which payment is made)

2007–42 I.R.B. 843 October 15, 2007

which entitle the participant to such bene-fit as described in section 417(f)(2)(A)(ii);

(C) In the case of an amount payableunder a retroactive annuity starting date,the benefit commencement date; and

(D) The date of any payment for thepurchase of an irrevocable commitmentfrom an insurer to pay benefits under theplan.

(6) Involuntary distributions under sec-tion 411(a)(11). [Reserved].

(e) Limitation on benefit accruals forplans with severe funding shortfalls—(1)In general. A plan satisfies the require-ments of section 436(e) and this paragraph(e) only if it provides that, in any case inwhich the plan’s adjusted funding target at-tainment percentage for a plan year is lessthan 60 percent, benefit accruals under theplan will cease as of the applicable sec-tion 436 measurement date. If a plan is re-quired to cease benefit accruals under thisparagraph (e), then the plan is not permit-ted to be amended in a manner that wouldincrease the liabilities of the plan by reasonof an increase in benefits or establishmentof new benefits. The preceding sentenceapplies regardless of whether an amend-ment would otherwise be permissible un-der paragraph (c)(3) of this section.

(2) Exemption. The prohibition on ad-ditional benefit accruals under a plan de-scribed in paragraph (e)(1) of this sectionceases to apply with respect to any planyear, effective as of the first day of the planyear, upon payment by the plan sponsorof the contribution described in paragraph(f)(2) of this section.

(f) Methods to avoid benefit limita-tions—(1) In general. This paragraph(f) sets forth rules relating to employercontributions and other methods to avoidthe application of section 436 limitationsunder a plan for a plan year. In general,there are four methods a plan sponsor mayutilize to avoid or terminate one or moreof the benefit limitations under this sec-tion for a plan year. Two of these methods(where the plan sponsor elects to reducethe prefunding balance or funding stan-dard carryover balance and where the plansponsor makes additional contributionsunder section 430 for the prior plan yearwithin the time period provided by sec-tion 430(j)(1) which are not added to theprefunding balance) involve increasingthe amount of plan assets which are takeninto account in determining the adjusted

funding target attainment percentage. Theother two methods (making a contributionthat is specifically designated as a currentyear contribution to avoid application ofa benefit limitation under paragraph (b),(c), or (e) of this section, and providingsecurity under section 436(f)(1)) are de-scribed in paragraphs (f)(2) and (f)(3) ofthis section, respectively.

(2) Current year contributions to avoidor terminate benefit limitations—(i) Gen-eral rules—(A) Amount of contribu-tion—(1) In general. This paragraph(f)(2) sets forth rules regarding contribu-tions to avoid the application of section436 limitations under a plan for a planyear that apply to unpredictable contin-gent event benefits, plan amendments thatincrease liabilities for benefits, and benefitaccruals.

(2) Interest adjustment. Any con-tribution made by a plan sponsor pur-suant to this paragraph (f)(2) on a dateother than the valuation date for the planyear must be adjusted with interest at theplan’s effective interest rate under sec-tion 430(h)(2)(A) for the plan year. If theplan’s effective interest rate for the planyear has not been determined at the timeof the contribution, then this interest ad-justment must be made using the highestof the three segment rates as applicable forthe plan year under section 430(h)(2)(C).In such a case, if the effective interest ratefor the year under section 430(h)(2)(A) issubsequently determined to be less thanthat highest rate, the excess is recharacter-ized as a section 430 contribution for thecurrent plan year.

(B) Prefunding balance or fundingstandard carryover balance may not beused. No prefunding balance or fundingstandard carryover balance under section430(f) may be used as a contribution de-scribed in this paragraph (f)(2). However,a plan sponsor is permitted to elect toreduce the funding standard carryover bal-ance or the prefunding balance in orderto increase the adjusted funding target at-tainment percentage for a plan year. Seeparagraph (a)(5) of this section for a rulemandating such a reduction in certain sit-uations.

(ii) Section 436 contributions sepa-rate from minimum required contribu-tions—(A) In general. The contributionsdescribed in this paragraph (f)(2) are con-tributions described in section 436(b)(2),

(c)(2), and (e)(2), and are separate fromany minimum required contributions un-der section 430. Thus, if a plan sponsormakes a contribution described in thisparagraph (f)(2) for a plan year but doesnot make the minimum required contri-bution for the plan year, the plan will failto satisfy the minimum funding require-ments under section 430 for the plan year.In addition, a contribution described inthis paragraph (f)(2) is disregarded in de-termining the prefunding balance undersection 430(f)(6) and §1.430(f)–1(b)(1)(i).

(B) Designation requirement. Any con-tribution made by a plan sponsor pursuantto this paragraph (f)(2) must be designatedas such at the time the contribution is usedto avoid or terminate the limitations un-der this paragraph (f)(2) and, except asspecifically provided in paragraph (g) or(h) of this section, cannot subsequently berecharacterized with respect to any planyear as a contribution to satisfy a mini-mum required contribution obligation, orotherwise. The designation must be madein accordance with the rules and proce-dures that otherwise apply to elections un-der §1.430(f)–1(f) with respect to fundingbalances.

(iii) Contribution for unpredictablecontingent event benefits. In the case ofa contribution to avoid the application ofthe limitation on benefits attributable toan unpredictable contingent event undersection 436(b)—

(A) If the adjusted funding target at-tainment percentage for the plan year de-termined without taking into account theliability attributable to the unpredictablecontingent event benefits is less than 60percent, then the amount of the contribu-tion under section 436(b)(2) is equal to theamount of the increase in the funding tar-get of the plan for the plan year if the ben-efits attributable to the unpredictable con-tingent event were included in the determi-nation of the funding target.

(B) If the adjusted funding target at-tainment percentage for the plan year de-termined without taking into account theliability attributable to the unpredictablecontingent event benefits is 60 percent ormore, then the amount of the contributionunder section 436(b)(2) is the amount thatwould be sufficient to result in an adjustedfunding target attainment percentage forthe plan year of 60 percent if—

October 15, 2007 844 2007–42 I.R.B.

(1) The benefits attributable to theunpredictable contingent event were in-cluded in the determination of the fundingtarget; and

(2) The contribution were included aspart of the assets of the plan.

(iv) Contribution for plan amendmentsincreasing liability for benefits. In the caseof a contribution to avoid the application ofthe limitation on benefits attributable to aplan amendment under section 436(c)—

(A) If the adjusted funding target attain-ment percentage for the plan year deter-mined without taking into account the li-ability attributable to the plan amendmentis less than 80 percent, then the amount ofthe contribution under section 436(c)(2) isequal to the amount of the increase in thefunding target of the plan for the plan yearif the liabilities attributable to the amend-ment were included in the determination ofthe funding target.

(B) If the adjusted funding target attain-ment percentage for the plan year deter-mined without taking into account the lia-bility attributable to the plan amendment is80 percent or more, then the amount of thecontribution under section 436(c)(2) is theamount that would be sufficient to result inan adjusted funding target attainment per-centage for the plan year of 80 percent if—

(1) The liabilities attributable to theplan amendment were included in the de-termination of the funding target; and

(2) The contribution were included aspart of the assets of the plan.

(v) Contribution required for continuedbenefit accruals. In the case of a contribu-tion to avoid the application of the limita-tion on accruals under section 436(e), theamount of the contribution under section436(e)(2) is equal to the amount sufficientto result in an adjusted funding target at-tainment percentage for the plan year of 60percent if the contribution were includedas part of the assets of the plan.

(3) Security to increase adjusted fund-ing target attainment percentage—(i) Ingeneral. For purposes of avoiding benefitlimitations under section 436, a plan spon-sor may provide security in the form de-scribed in paragraph (f)(3)(ii) of this sec-tion. In such a case, the adjusted fundingtarget attainment percentage for the planyear is determined by treating as an assetof the plan any security provided by a plansponsor by the valuation date for the planyear in a form meeting the requirements of

paragraph (f)(3)(ii) of this section. How-ever, this security is not taken into accountas a plan asset for any other purpose, in-cluding section 430.

(ii) Form of security. The forms of se-curity permitted under paragraph (f)(3)(i)of this section are limited to—

(A) A bond issued by a corporate suretycompany that is an acceptable surety forpurposes of section 412 of ERISA; or

(B) Cash, or United States obligationswhich mature in 3 years or less, held inescrow by a bank or an insurance company.

(iii) Enforcement. Any form of securityprovided under paragraph (f)(3)(i) of thissection must provide—

(A) That it will be paid to the plan uponthe earliest of—

(1) The plan termination date as definedin section 4048 of ERISA;

(2) If there is a failure to make a pay-ment of the minimum required contri-bution for any plan year beginning afterthe security is provided, the due date forthe payment under section 430(j)(1) or430(j)(3); or

(3) If the plan’s adjusted funding targetattainment percentage is less than 60 per-cent (without regard to any security pro-vided under this paragraph (f)(3)) for aconsecutive period of 7 years, the valua-tion date for the last year in the 7-year pe-riod; and

(B) That the plan administrator mustnotify the surety, bank, or insurancecompany that issued or holds the secu-rity of any event described in paragraph(f)(3)(iii)(A) of this section within 10 daysof its occurrence.

(iv) Release of security. The form of se-curity is permitted to provide that it willbe released (and any amounts thereunderwill be refunded together with any interestaccrued thereon) as provided in the agree-ment governing the escrow, but such re-lease is not permitted until the plan’s en-rolled actuary has certified that the plan’sadjusted funding target attainment percent-age for a plan year is at least 90 percent(without regard to any security providedunder this paragraph (f)(3)).

(v) Contribution of security to plan.Any amount of security provided underthis paragraph (f)(3) that is subsequentlyturned over to the plan (whether pursuantto the enforcement mechanism of para-graph (f)(3)(iii) of this section or after itsrelease under paragraph (f)(3)(iv) of this

section) is treated as a contribution bythe plan sponsor under section 430 whencontributed and, if turned over pursuant toparagraph (f)(3)(iii) of this section, is nota contribution under paragraph (f)(2) ofthis section.

(4) Examples. The following examplesillustrate the application of this paragraph(f):

Example 1. (i) Plan Z is a non-collectively bar-gained defined benefit plan with a plan year that isthe calendar year and a valuation date of January 1.Plan Z’s sponsor is not in bankruptcy and did not pur-chase any annuities in 2009 or 2010. As of January1, 2011, Plan Z does not have a funding standard car-ryover balance or a prefunding balance. As of thatdate, Plan Z has plan assets (and adjusted plan assets)of $2,000,000 and a funding target (and an adjustedfunding target) of $2,550,000. On March 1, 2011, theenrolled actuary for the plan certifies that the AFTAPas of January 1, 2011, is 78.43%. The effective rateof interest for Plan Z for the 2011 plan year is 5.5%.

(ii) On May 1, 2011, the plan sponsor amendsPlan Z to increase benefits. The enrolled actuary forthe plan determines that the present value, as of Jan-uary 1, 2011, of the increase in the funding target dueto this amendment is $400,000. Because the AFTAPprior to the plan amendment is less than 80%, PlanZ is subject to the restriction on plan amendments inparagraph (c) of this section, and the amendment can-not take effect unless the employer utilizes one of themethods described in paragraph (f) of this section toavoid benefit limitations.

(iii) In order for this amendment to be permittedto become effective, the plan sponsor makes a con-tribution described in paragraph (f)(2) of this section.Because the AFTAP prior to the amendment was lessthan 80%, the provisions of paragraph (f)(2)(iv)(A)of this section apply. The amount of the contributionas of January 1, 2011, needed to avoid the restrictionon plan amendments under paragraph (c) of this sec-tion is equal to the amount of the increase in the fund-ing target attributable to the amendment, or $400,000.Under the provisions of paragraph (f)(2)(iv)(A) ofthis section, this contribution is required even though,if the contribution were included as part of the planassets and the liability attributable to the plan amend-ment were included in the funding target, the AFTAPwould be 81.36% (because the adjusted plan assetswould have been $2,400,000 and the adjusted fund-ing target would have been $2,950,000 (that is, ad-justed plan assets of $2,000,000 plus the contributionof $400,000 as of January 1, 2011; divided by the ad-justed funding target of $2,550,000 increased to re-flect the additional $400,000 in the funding target at-tributable to the plan amendment)).

(iv) However, because the contribution is not paiduntil May 1, 2011, the necessary contribution amountmust be adjusted to reflect interest that would other-wise have accrued between the valuation date and thedate of the contribution, at Plan Z’s effective rate ofinterest for the 2011 plan year. The amount of the re-quired contribution after adjustment is $407,203, de-termined as $400,000 increased for 4 months of com-pound interest at an effective annual interest rate of5.5%.

(v) A contribution of $407,203 is made on May1, 2011, and is designated as a contribution under

2007–42 I.R.B. 845 October 15, 2007

paragraph (f)(2) of this section. Accordingly, thecontribution is not applied toward minimum fund-ing requirements under section 430, and is not eli-gible for inclusion in the prefunding balance under§1.430(f)–1(b)(1). Since this contribution meets therequirements of paragraph (f)(2) of this section, theplan amendment can take effect.

Example 2. (i) The facts are the same as in Ex-ample 1, except that the plan is in at-risk status un-der section 430(i). The funding target determinedunder section 430(i) is $2,600,000, and the fundingtarget determined without regard to section 430(i) is$2,550,000.

(ii) On May 1, 2011, the plan sponsor amendsPlan Z to increase benefits. The plan’s enrolled ac-tuary determines that the present value as of January1, 2011 of the increase in the funding target due tothe amendment (taking into account the at-risk sta-tus of the plan) is $440,000. Because the AFTAPprior to the plan amendment is less than 80%, PlanZ is subject to the restriction on plan amendments inparagraph (c) of this section, and the amendment can-not take effect unless the employer utilizes one of themethods described in paragraph (f) of this section toavoid benefit limitations.

(iii) In order for this amendment to be permittedto become effective, the plan sponsor makes a con-tribution described in paragraph (f)(2) of this section.Because the AFTAP prior to the amendment was lessthan 80%, the provisions of paragraph (f)(2)(iv)(A) ofthis section apply. The amount of the contribution asof January 1, 2011, needed to avoid the restriction onplan amendments under paragraph (c) of this sectionis equal to the amount of the increase in funding tar-get attributable to the amendment, or $440,000. Un-der the provisions of paragraph (f)(2)(iv)(A) of thissection, this contribution is required even though, ifthe contribution were included as part of the plan as-sets and the liability attributable to the plan amend-ment were included in the funding target, the AFTAPwould exceed 80%.

(iv) However, because the contribution is not paiduntil May 1, 2011, the necessary contribution amountmust be adjusted to reflect interest that would other-wise have accrued between the valuation date and thedate of the contribution, at Plan Z’s effective rate ofinterest for the 2011 plan year. The amount of the re-quired contribution after adjustment is $447,923, de-termined as $440,000 increased for 4 months of com-pound interest at an effective annual interest rate of5.5%.

(v) A contribution of $447,923 is made on May1, 2011, and is designated as a contribution underparagraph (f)(2) of this section. Accordingly, thecontribution is not applied toward minimum fund-ing requirements under section 430, and is not eli-gible for inclusion in the prefunding balance under§1.430(f)–1(b)(1). Since this contribution meets therequirements of paragraph (f)(2) of this section, theplan amendment can take effect.

Example 3. (i) The facts are the same as in Ex-ample 1, except that the enrolled actuary for the plandoes not issue the certification of the 2011 AFTAPuntil September 1, 2011. Prior to October 1, 2010, theenrolled actuary had certified the 2010 AFTAP to be82%. The highest of the three segment rates applica-ble to the 2011 plan year under section 430(h)(2)(C)is 6%.

(ii) Because the enrolled actuary has not certi-fied the actual AFTAP as of January 1, 2011, and theamendment is scheduled to take effect after April 1,2011, the rules of paragraph (h)(2)(ii) of this sectionapply. Accordingly, the AFTAP for 2011 (prior to re-flecting the effect of the amendment) is presumed tobe 10 percentage points lower than the 2010 AFTAP,or 72%. Because this presumed AFTAP is less than80%, the restriction on plan amendments in para-graph (c) of this section applies, and the plan amend-ment cannot take effect.

(iii) In order to allow the plan amendment to takeeffect, the plan sponsor decides to make a contribu-tion under paragraph (f)(2) of this section on May1, 2011. Because the presumed AFTAP was lessthan 80% prior to reflecting the plan amendment, therules of paragraph (f)(2)(iv)(A) of this section ap-ply, and the amount of the contribution under section436(c)(2) is the amount of the increase in the fund-ing target for the year if the plan amendment wereincluded in the determination of the funding target.Accordingly, an additional contribution of $400,000is required as of January 1, 2011, to avoid the restric-tion on plan amendments under paragraph (c) of thissection.

(iv) However, since the contribution is not madeuntil May 1, 2011, the amount of the required contri-bution must be adjusted to reflect interest that wouldotherwise have accrued between the valuation dateand the date of the contribution. Since the effectiveinterest rate has not yet been determined, the interestadjustment is based on the highest of the three seg-ment rates applicable for the 2011 plan year undersection 430(h)(2)(C), or 6%. The amount of the re-quired contribution after adjustment is $407,845, de-termined as $400,000 increased for 4 months of com-pound interest at the highest segment interest rate for2011, or 6%.

(v) Once the plan’s effective interest rate has beendetermined, if that rate for the year is less than 6%,the amount of excess interest previously contributedis recharacterized as a section 430 contribution for thecurrent plan year.

(g) Rules of operation for periods priorto and after certification—(1) In general.Section 436(h) and paragraph (h) of thissection set forth a series of presumptionsthat apply before the enrolled actuary fora plan issues a certification of the plan’sadjusted funding target attainment per-centage for a plan year. This paragraph(g) sets forth rules for the application oflimitations under sections 436(b), 436(c),436(d), and 436(e) prior to and duringthe period those presumptions apply toa plan, and describes the interaction ofthose presumptions with plan operationsafter the plan’s enrolled actuary has is-sued a certification of the plan’s adjustedfunding target attainment percentage forthe plan year. Paragraph (g)(2) of thissection sets forth rules that apply to pe-riods during which a presumption undersection 436(h) applies. Paragraph (g)(3)of this section sets forth rules that apply

to periods during which no presumptionsunder section 436(h) apply but which areprior to the enrolled actuary’s certifica-tion of the plan’s adjusted funding targetattainment percentage for the plan year.Paragraph (g)(4) of this section sets forthrules that apply after the enrolled actu-ary’s certification of the plan’s adjustedfunding target attainment percentage fora plan year. Paragraph (g)(5) of this sec-tion sets forth additional rules that applyprior to the enrolled actuary’s certificationof the adjusted funding target attainmentpercentage for a plan year with respect tothe limitations on unpredictable contin-gent event benefits and plan amendmentsthat increase liabilities under paragraphs(b) and (c) of this section, respectively.Paragraph (g)(6) of this section sets forthrules for multiple unpredictable contin-gent events and amendments during a planyear. Paragraph (g)(7) of this section setsforth examples of the application of thisparagraph (g).

(2) Periods prior to certification dur-ing which a presumption applies—(i) Planmust follow presumptions. A plan mustprovide that, for any period during whichparagraph (h)(1), (2), or (3) of this sectionapplies to the plan, the limitations appli-cable under paragraphs (b), (c), (d), and(e) of this section apply to the plan as ifthe actual adjusted funding target attain-ment percentage for the year were the pre-sumed adjusted funding target attainmentpercentage determined under the rules ofparagraph (h) of this section.

(ii) Determination of amount of reduc-tion in balances—(A) Valuation date ad-justment. During the period described inthis paragraph (g)(2), the rules of para-graph (a)(5) of this section (relating tothe deemed election to reduce the fund-ing standard carryover balance and the pre-funding balance) must be applied based onthe presumed percentage with respect tothe limitations under paragraphs (b), (c),(d), and (e) of this section. In order todetermine the amount of the reduction inthose balances that would apply in sucha situation, a presumed adjusted fundingtarget must be established, which is thencompared to the interim value of adjustedplan assets as of the valuation date forthe current plan year. For this purpose,the interim value of adjusted plan assetsis equal to the value of adjusted plan as-sets as of the valuation date, determined

October 15, 2007 846 2007–42 I.R.B.

without regard to future contributions, fu-ture elections to add to the prefunding bal-ance for the prior year, and future elections(including deemed elections under para-graph (a)(5) of this section) to reduce theprefunding and funding standard carryoverbalances for the current plan year, and thepresumed adjusted funding target is equalto the interim value of adjusted plan assetsfor the plan year divided by the presumedadjusted funding target attainment percent-age.

(B) Change in presumed percentagein 4th month. If the presumed adjustedfunding target attainment percentage forthe plan year changes during the year be-cause of application of the presumption inparagraph (h)(2) of this section, the rulesregarding the deemed election to reducefunding balances described in paragraph(a)(5) of this section must be reappliedbased on the new presumed adjusted fund-ing target attainment percentage. This willtypically occur on the first day of the 4thmonth of a plan year, but could happenlater if the enrolled actuary’s certificationof the adjusted funding target attainmentpercentage for a plan year occurs after thefirst day of the 4th month of the followingplan year. In order to perform this reappli-cation, a new adjusted funding target mustbe determined based on the new presumedadjusted funding target attainment percent-age and must be compared to an updatedinterim value of adjusted plan assets. Forthis purpose, the new presumed adjustedfunding target is redetermined based onthe new presumed adjusted funding targetattainment percentage, and is compared tothe adjusted plan assets updated to takeinto account the plan sponsor’s contri-butions made for the prior plan year andsection 430(f) elections with respect to theplan’s prefunding and funding standardcarryover balances since the earlier deter-mination of the interim plan assets. Thisreapplication of the deemed election mayrequire an additional reduction in fundingbalances if the amount of the reduction infunding balances that is necessary to reachthe applicable threshold to avoid the ap-plication of the limitation under paragraph(d) or (e) of this section is greater than theamount that was initially reduced. Priorreductions of funding balances continueto apply in accordance with the rules ofparagraph (g)(4)(i)(C) of this section.

(iii) Bankruptcy of plan sponsor. Pur-suant to section 436(d)(2), during any pe-riod in which the plan sponsor of a planis a debtor in a case under title 11, UnitedStates Code, or any similar Federal or Statelaw (as described in paragraph (d)(2) ofthis section), if the plan’s enrolled actu-ary has not yet certified the plan’s adjustedfunding target attainment percentage forthe plan year to be at least 100 percent,no prohibited payments within the mean-ing of paragraph (d)(5) of this section maybe paid. Thus, the presumption rules ofparagraph (h) of this section do not applyfor purposes of section 436(d)(2) and thisparagraph (g)(2)(iii).

(iv) Application to unpredictable con-tingent events and plan amendments. Forpurposes of applying the limitations underparagraphs (b) and (c) of this section dur-ing the period described in this paragraph(g)(2), the presumed adjusted funding tar-get under paragraph (g)(2)(ii) of this sec-tion is adjusted to reflect the increase inthe funding target that would be attribut-able to the unpredictable contingent eventor the plan amendment if the unpredictablecontingent event benefits or the increasein liability attributable to the plan amend-ment were taken into account. See para-graph (g)(5)(i) of this section for relatedrules regarding funding balances that ap-ply in the case of unpredictable contin-gent event benefits or plan amendments in-creasing benefit liabilities.

(3) Periods prior to certification dur-ing which no presumption applies—(i) Ac-celerated benefit payments and benefit ac-cruals. If no presumptions under section436(h) apply to a plan during a period andthe plan’s enrolled actuary has not yet is-sued the certification of the plan’s actualadjusted funding target attainment percent-age for the plan year, the plan is not per-mitted to limit the payment of acceleratedbenefits under paragraph (d) of this sec-tion or the accrual of benefits under para-graph (e) of this section based on an ex-pectation that those paragraphs will applyto the plan once an actuarial certification isissued. However, see paragraph (g)(2)(iii)of this section for a restriction on prohib-ited payments during any period in whichthe plan sponsor of a plan is a debtor in acase under title 11, United States Code, orany similar Federal or State law.

(ii) Unpredictable contingent eventbenefits and plan amendments increasing

benefit liability—(A) In general. If nopresumptions under section 436(h) applyto a plan during a period and the plan’senrolled actuary has not yet issued a cer-tification of the plan’s adjusted fundingtarget attainment percentage for the planyear, the limitations on unpredictable con-tingent event benefits under paragraph (b)of this section or plan amendments in-creasing benefit liability under paragraph(c) of this section during that period mustbe applied following the rules of paragraph(g)(5) of this section, based on the preced-ing year’s certified adjusted funding targetattainment percentage. Thus, if after ap-plication of those rules the plan wouldbe treated as having an adjusted fundingtarget attainment percentage below the ap-plicable threshold under paragraph (b) or(c) of this section (taking into account theincrease in the funding target attributableto the unpredictable contingent event ben-efits or the increase in liability attributableto the plan amendment), the unpredictablecontingent event benefits are not permittedto be paid, and the plan amendment is notpermitted to go into effect, unless the con-tribution described in paragraph (g)(5)(ii)of this section is made.

(B) Recharacterization of contributionsto avoid benefit limitations. If, pursuantto paragraph (g)(3)(ii)(A) of this section,the plan sponsor makes contributions de-scribed in paragraph (g)(5)(ii) of this sec-tion to avoid application of the applicablebenefit limitations, then, after the certifica-tion of the adjusted funding target attain-ment percentage for the current plan yearis issued by the plan’s enrolled actuary,those contributions are recharacterized asemployer contributions under section 430for the current plan year to the extent theyexceed the amount necessary to avoid ap-plication of the applicable limitation underparagraph (b) or (c) of this section basedon the certified percentage.

(4) Periods after certification of ad-justed funding target attainment per-centage—(i) Plan must follow certifiedpercentage—(A) In general. The rules ofparagraphs (g)(2) and (g)(3) of this sectionno longer apply for a plan year on andafter the date the enrolled actuary for theplan issues a certification of the adjustedfunding target attainment percentage ofthe plan for the current plan year, providedthat the certification is issued before thefirst day of the 10th month of the plan

2007–42 I.R.B. 847 October 15, 2007

year. Thus, for example, the plan mustprovide that paragraph (d) of this sec-tion applies for distributions with annuitystarting dates on and after the date of thatcertification using the certified adjustedfunding target attainment percentage ofthe plan for the plan year. Similarly, theplan must provide that any prohibition onaccruals under paragraph (e) of this sectionas a result of the enrolled actuary’s cer-tification that the adjusted funding targetattainment percentage of the plan for theplan year is less than 60 percent is effec-tive as of the date of the certification andthat any prohibition on accruals ceases tobe effective on the date the enrolled actu-ary issues a certification that the adjustedfunding target attainment percentage ofthe plan for the plan year is at least 60percent. In addition, in the case of a planthat has been issued a certification of theplan’s adjusted funding target attainmentpercentage for a plan year by the plan’senrolled actuary, the plan sponsor mustcomply with the requirements of para-graphs (b) and (c) of this section for anunpredictable contingent event that occursor a plan amendment that is effective onor after the date of the enrolled actuary’scertification. Thus, the plan administratormust determine if the adjusted fundingtarget attainment percentage is at or abovethe applicable threshold, taking into ac-count the increase in the funding target thatwould be attributable to the unpredictablecontingent event or plan amendment if theunpredictable contingent event benefits orthe increase in liability attributable to theplan amendment were taken into account.

(B) Application of rule for deemedelection to reduce funding balances. Af-ter the adjusted funding target attainmentpercentage for a plan year is certified bythe plan’s enrolled actuary, the deemedelection to reduce funding balances underparagraph (a)(5) of this section must bereapplied based on the actual funding tar-get for the year (provided the certificationis issued before the first day of the 10thmonth of the plan year). This reapplica-tion of the deemed election may require anadditional reduction in funding balancesif the amount of the reduction in fundingbalances that is necessary to reach theapplicable threshold to avoid the applica-tion of the limitations under paragraph (d)or (e) of this section is greater than the

amount that was reduced under paragraph(g)(2) or (g)(3) of this section.

(C) Prior reductions continue to apply.If the amount of the reduction in fundingbalances that is necessary to reach the ap-plicable threshold to avoid the applicationof the benefit limitation is less than theamount that was reduced under paragraph(g)(2) or (g)(3) of this section, then theprior reduction continues to apply. Sim-ilarly, if the amount of the reduction infunding balances that is necessary to reachthe applicable threshold to avoid the appli-cation of the corresponding benefit limita-tion exceeds the amount of the funding bal-ances, then the prior reduction continues toapply and no further reduction under para-graph (a)(5) of this section is provided.

(ii) Applicability to prior periods—(A)In general. Except as provided in para-graph (g)(4)(ii)(B) of this section, theenrolled actuary’s certification of theadjusted funding target attainment per-centage for the plan for the plan year doesnot affect the application of the limita-tion under paragraph (b) of this sectionwith respect to unpredictable contingentevents that occur during the periods towhich paragraphs (g)(2) and (g)(3) ofthis section apply. Except as providedin paragraph (g)(4)(ii)(B) of this section,the enrolled actuary’s certification of theadjusted funding target attainment per-centage for the plan for the plan year doesnot affect the application of the limita-tion under paragraph (c) of this sectionto a plan amendment that increases lia-bility for benefits where the amendmentis first effective during the periods towhich paragraphs (g)(2) and (g)(3) ap-ply. The enrolled actuary’s certificationof the adjusted funding target attainmentpercentage for the plan for the plan yeardoes not affect the application of the lim-itation under paragraph (d) of this sectionfor distributions with annuity startingdates before the certification. Similarly,the enrolled actuary’s certification of theadjusted funding target attainment per-centage for the plan for the plan year doesnot affect the application of the limita-tion under paragraph (e) of this sectionprior to the date of that certification. Seeparagraph (a)(4) of this section for rulesrelating to the period of time after benefitscease to be limited.

(B) Special rule for unpredictablecontingent event benefits and plan amend-

ments that increase liability. If a plandoes not pay benefits attributable to anunpredictable contingent event or planamendment because of the application ofparagraph (g)(5)(ii) of this section, theplan must provide for benefits that werenot previously paid (or accrued) if suchbenefits would be permitted under therules of section 436 based on the certifiedactual adjusted funding target attainmentpercentage, taking into account the in-crease in the funding target that would beattributable to the unpredictable contin-gent event benefits or increase in liabilitydue to the plan amendment.

(5) Additional rules regarding limita-tions on unpredictable contingent eventbenefits and certain plan amendmentsbased on presumed adjusted funding tar-get prior to certification—(i) Reductionin funding balances—(A) Mandatory re-duction for collectively bargained plans.During the period described in paragraph(g)(2) or (g)(3) of this section, the rules ofparagraph (a)(5) of this section (relating tothe deemed election to reduce the fundingstandard carryover balance and the pre-funding balance) must be applied basedon the presumed percentage. In order todetermine the amount of the reductionin those balances that would apply to acollectively bargained plan during thatperiod with respect to an unpredictablecontingent event or a plan amendmentthat increases liability for benefits, therules of paragraph (g)(2)(ii) of this sectionare applied, except that the presumed ad-justed funding target is increased to takeinto account the benefits attributable tothe unpredictable contingent event or theplan amendment. For this purpose, if nopresumption applies under the rules ofparagraph (h) of this section (for example,because the plan’s actual adjusted fundingtarget attainment percentage for the prioryear was certified to be at least 80 per-cent), then that prior year’s actual adjustedfunding target attainment percentage issubstituted for the presumed adjustedfunding target attainment percentage forthe plan year in determining the presumedadjusted funding target.

(B) Optional reduction for plans thatare not collectively bargained plans. Aplan sponsor of a plan that is not a collec-tively bargained plan (and, thus, is not re-quired to reduce the funding standard ac-count carryover balance and the prefund-

October 15, 2007 848 2007–42 I.R.B.

ing balance under the rules of paragraph(a)(5) of this section) is permitted to reducethose balances in order to increase the in-terim value of adjusted plan assets (as de-fined in paragraph (g)(2)(ii)(A) of this sec-tion) that is compared to the presumed ad-justed funding target determined under thisparagraph (g)(5)(i).

(ii) Plans funded below the threshold.If, after application of paragraph (g)(5)(i)of this section, the ratio of the interimvalue of adjusted plan assets (as definedin paragraph (g)(2)(ii)(A) of this section)to the presumed adjusted funding targetdetermined under that paragraph is lessthan the applicable threshold under sec-tion 436(b) or 436(c), as applicable, thenthe plan is not permitted to provide anybenefits attributable to the unpredictablecontingent event or plan amendment un-less the plan sponsor makes a contributionthat would allow payment of unpredictablecontingent event benefits or would permita plan amendment increasing benefit lia-bilities to go into effect under the rules ofparagraph (b)(2) or (c)(2) of this section.

(iii) Plans funded at or above thethreshold. If, after application of para-graph (g)(5)(i) of this section, the ratioof the interim value of adjusted plan as-sets (as defined in paragraph (g)(2)(ii)(A)of this section) to the presumed adjustedfunding target is greater than or equalto the applicable threshold under section436(b) or 436(c), as applicable, then theplan is not permitted to limit the paymentof unpredictable contingent event benefitsdescribed in paragraph (b) of this sec-tion nor is the plan permitted to restricta plan amendment increasing benefit li-ability described in paragraph (c) of thissection from becoming effective based onan expectation that the limitations underparagraph (b) or (c) of this section willapply to the plan once an actuarial certifi-cation is received.

(6) Application to multiple events andamendments. For purposes of this para-graph (g), if a plan is providing benefitswith respect to one or more unpredictablecontingent events occurring within theplan year or amendments taking effectwithin the plan year, then paragraphs (b)and (c) of this section are applied withrespect to a subsequent unpredictable con-tingent event or amendment by treating theincrease in the funding target attributableto the subsequent event or amendment as

if it included the increases in the fundingtarget attributable to all such earlier eventsor amendments.

(7) Examples. The following examplesillustrate the application of this paragraph(g). Unless otherwise indicated, these ex-amples are based on the following facts:each plan has a plan year that is the cal-endar year and a valuation date of January1; the first effective plan year is 2008; theplan sponsor is not in bankruptcy; and noannuity purchases have been made fromthe plan. No plan is in at-risk status for theyears discussed in the examples.

Example 1. (i) As of January 1, 2011, Plan Ahas assets of $3,300,000 and a prefunding balanceof $300,000. Plan A has no funding standard carry-over balance. Beginning on January 1, 2011, PlanA’s AFTAP for 2011 is presumed to be 75%, underthe rules of paragraph (h) of this section and based onthe certified AFTAP for 2010.

(ii) Based on Plan A’s presumed AFTAP of 75%,Plan A would be subject to the restriction on prohib-ited payments in paragraph (d)(3) of this section asof January 1, 2011. However, under the provisionsof paragraph (a)(5) of this section, if the prefundingbalance is large enough, Plan A’s sponsor is deemedto elect to reduce the prefunding balance to the extentneeded to avoid this restriction.

(iii) The amount needed to avoid the restrictionin paragraph (d)(3) of this section is determined bycomparing the presumed adjusted funding target forPlan A with the interim value of adjusted plan assetsas of the valuation date. The interim value of planassets for Plan A is $3,000,000 (that is, the asset valueof $3,300,000 reduced by the prefunding balance of$300,000). The presumed adjusted funding target forPlan A is the interim value of the adjusted plan assetsdivided by the presumed AFTAP, or $4,000,000 (thatis, $3,000,000 divided by 75%).

(iv) In order to avoid the restriction on prohibitedpayments in paragraph (d)(3) of this section, Plan A’spresumed AFTAP must be increased to 80%. Thisrequires an increase in Plan A’s adjusted plan assetsof $200,000 (that is, 80% of the presumed adjustedfunding target of $4,000,000, minus the interim valueof the adjusted plan assets of $3,000,000). Plan A’sprefunding balance as of January 1, 2011, is reducedby $200,000 under the deemed election provisionsof paragraph (a)(5) of this section. Accordingly,Plan A’s prefunding balance is $100,000 (that is,$300,000 minus $200,000) and the interim value ofadjusted plan assets is increased to $3,200,000 (thatis, $3,300,000 minus the reduced prefunding balanceof $100,000). Plan A must pay the full amount ofthe accelerated benefit distributions elected by par-ticipants with an annuity starting date of January 1,2011, or later.

Example 2. [Reserved].Example 3. (i) The facts are the same as in Ex-

ample 1. On July 1, 2011, the enrolled actuary forPlan A calculates the actual adjusted funding targetas $3,700,000 as of January 1, 2011. Therefore,the 2011 AFTAP would have been 81.08% with-out reducing the prefunding balance (that is, planassets of $3,300,000 minus the prefunding balance

of $300,000, divided by the adjusted funding targetof $3,700,000), and Plan A would not have beensubject to the restrictions under paragraph (d)(3) ofthis section.

(ii) However, paragraph (g)(4)(i)(C) of this sec-tion requires that any prior reductions in the prefund-ing or funding standard carryover balances continueto apply, and so Plan A’s prefunding balance remainsat the reduced amount of $100,000 as of January 1,2011. The enrolled actuary certifies that the 2011AFTAP is 86.49% (that is, plan assets of $3,300,000reduced by the prefunding balance of $100,000, di-vided by the adjusted funding target of $3,700,000).

Example 4. (i) Plan B is a collectively bargainedplan with assets of $2,500,000 and a prefunding bal-ance of $150,000 as of January 1, 2011. Plan B hasno funding standard carryover balance. Beginning onJanuary 1, 2011, Plan B’s AFTAP for 2011 is pre-sumed to be 83% under the rules of paragraph (g)(3)of this section and based on the certified AFTAP for2010.

(ii) On January 10, 2011, Plan B’s sponsoramends the plan to increase benefits effective onFebruary 1, 2011. The amendment would increasePlan B’s funding target by $350,000. Under the rulesof paragraph (g)(5) of this section, the presumedadjusted funding target is calculated, and then thepresumed adjusted funding target is increased totake into account the benefits attributable to the planamendment.

(iii) Plan B’s interim value of adjusted planassets as of the valuation date is $2,350,000 (thatis, $2,500,000 minus the prefunding balance of$150,000). Prior to reflecting the amendment, PlanB’s presumed adjusted funding target as of January1, 2011, is $2,831,325, which is equal to the interimvalue of adjusted plan assets as of the valuation dateof $2,350,000, divided by the presumed AFTAP of83%. Increasing Plan B’s presumed adjusted fundingtarget by $350,000 to reflect the amendment resultsin a presumed adjusted funding target of $3,181,325and a presumed AFTAP of 73.87% (that is, the in-terim value of adjusted plan assets as of the valuationdate of $2,350,000 divided by the presumed adjustedfunding target of $3,181,325).

(iv) Because Plan B’s presumed AFTAP was over80% prior to taking the amendment into account butless than 80% when the amendment is reflected, sec-tion 436(c) and paragraph (c) of this section prohibitthe plan amendment from taking effect unless the ad-justed plan assets are increased so that the presumedAFTAP (reflecting the increase due to the amend-ment) is increased to 80%. This would require an ad-ditional amount of $195,060 (that is, 80% of the pre-sumed adjusted funding target of $3,181,325 less theinterim value of adjusted plan assets of $2,350,000).

(v) Plan B’s prefunding balance of $150,000 isnot large enough for Plan B to avoid the restrictionon plan amendments, and therefore the deemed elec-tion to reduce the prefunding balance under para-graph (a)(5) of this section does not apply and theamendment cannot take effect.

Example 5. (i) The facts are the same as in Exam-ple 4, except that Plan B’s sponsor decides to makea contribution on February 1, 2011, to avoid the ben-efit limitation as provided in paragraph (f)(2) of thissection. Pursuant to paragraph (f)(2)(i)(A)(2) of thissection, Plan B’s effective rate of interest for 2011 istreated as 5.25%.

2007–42 I.R.B. 849 October 15, 2007

(ii) The amount of the contribution as of Jan-uary 1, 2011, needed to avoid the restriction on planamendments under paragraph (c) of this section is$195,060. However, because the contribution is notpaid until February 1, 2011, the necessary contribu-tion amount must be adjusted to reflect interest thatwould otherwise have accrued between the valuationdate and the date of the contribution, at Plan B’s ef-fective rate of interest for the 2011 plan year. Theamount of the required contribution after adjustmentis $195,894, determined as $195,060 increased forone month of compound interest at an effective an-nual interest rate of 5.25%.

(iii) As of April 1, 2011, the enrolled actuary forthe plan has not certified the 2011 AFTAP. There-fore, beginning April 1, 2011, Plan A’s presumedAFTAP is presumed to be 73%, 10 percentage pointslower than the 2010 AFTAP, in accordance withparagraph (h)(2) of this section. However, para-graph (g)(2)(ii)(B) of this section does not requirereapplication of the deemed election if necessaryto avoid the application of benefit restrictions un-der paragraph (c) of this section. Therefore, sincethe effective date of the plan amendment occurredprior to April 1, 2011, no additional reduction inthe prefunding balance is required and no additionalcontribution is required for the plan amendment toremain in effect.

(iv) On July 1, 2011, the enrolled actuary for theplan calculates the actual adjusted funding target,prior to taking the plan amendment into account,as $2,700,000 and certifies the actual AFTAP for2011 (prior to taking the amendment into account)as 87.04% (that is, adjusted assets of $2,350,000 di-vided by the adjusted funding target of $2,700,000).Reflecting the $350,000 increase in funding tar-get due to the plan amendment would increase theadjusted funding target to $3,050,000 and woulddecrease Plan B’s AFTAP to 77.05%.

(v) Based on the certified AFTAP, the amountnecessary to avoid the benefit restriction under para-graph (c) of this section is $90,000 (that is, 80% ofthe adjusted funding target reflecting the plan amend-ment (or $3,050,000), minus the adjusted value ofplan assets of $2,350,000). This amount must be ad-justed for interest between the valuation date and thedate the contribution was made using the effective in-terest rate for Plan B. Therefore, the amount requiredon the payment date of February 1, 2011, is $90,385(that is, $90,000 adjusted for compound interest forone month at Plan B’s effective interest rate of 5.25%per year).

(vi) Under paragraph (g)(3)(ii)(B) of this section,the contribution made under paragraph (g)(5)(ii)of this section is recharacterized as an employercontribution under section 430 to the extent that itexceeds the amount necessary to avoid application ofthe restriction on plan amendments under paragraph(c) of this section. Therefore, $105,509 (that is, the$195,894 actual contribution paid on February 1,2011, minus the $90,385 required contribution basedon the actual certified AFTAP) is recharacterized asan employer contribution under section 430 for the2011 plan year. As such, it may be applied towardthe minimum required contribution for 2011, or theplan sponsor can elect to credit the contribution toPlan B’s prefunding balance to the extent that thecontributions for the 2011 plan year exceed the min-imum required contribution.

Example 6. (i) The facts are the same as in Ex-ample 5, except that on July 1, 2011, the enrolled ac-tuary for Plan B calculates the actual adjusted fund-ing target (before reflecting the plan amendment) as$3,000,000 and certifies the actual AFTAP as 78.33%prior to reflecting the plan amendment (that is, ad-justed plan assets of $2,350,000 divided by the actualadjusted funding target of $3,000,000). Based on theprovisions of paragraph (c) of this section, becausethe AFTAP prior to reflecting the amendment is lessthan 80%, the contribution required to avoid the re-striction on plan amendments would have been theamount equal to the increase in funding target due tothe plan amendment, or $350,000.

(ii) However, according to paragraph(g)(4)(ii)(A) of this section, the enrolled actu-ary’s certification of the 2011 AFTAP does not affectthe application of the limitation under paragraph(c) of this section regardless of the extent to whichthe certified percentage varies from the presumedpercentage, because the amendment to Plan Bwas effective prior to the date of the certification.Therefore, it is not necessary for Plan B’s sponsor tocontribute an additional amount in order for the planamendment to remain in effect.

(h) Presumed underfunding for pur-poses of benefit limitations—(1) Presump-tion of continued underfunding—(i) Ingeneral. This paragraph (h)(1) appliesto a plan for which a limitation underparagraph (b), (c), (d), or (e) of this sec-tion applied to the plan on the last day ofthe plan year preceding the current planyear. If this paragraph (h)(1) applies toa plan, the first day of the plan year is asection 436 measurement date and the pre-sumed adjusted funding target attainmentpercentage for the plan is the percentageunder paragraph (h)(1)(ii) or (iii) of thissection, whichever applies to the plan, be-ginning on that first day until it is changedunder this paragraph (h).

(ii) Rule where preceding year certifi-cation issued during preceding year. Inany case in which the plan’s enrolled ac-tuary has issued a certification under para-graph (h)(4) of this section of the adjustedfunding target attainment percentage forthe plan year preceding the current year be-fore the first day of the current year, theadjusted funding target attainment percent-age of the plan for the current plan yearis presumed to be equal to the precedingyear’s actual adjusted funding target at-tainment percentage until the plan’s en-rolled actuary issues a certification of theadjusted funding target attainment percent-age of the plan for the current plan year un-der paragraph (h)(4) of this section or untilchanged under paragraph (h)(2) or (h)(3)of this section.

(iii) No certification for precedingyear issued during preceding year—(A)Deemed percentage under 60 percent.In any case in which the plan’s enrolledactuary has not issued a certification un-der paragraph (h)(4) of this section ofthe adjusted funding target attainmentpercentage of the plan for the plan yearpreceding the current year during thatprior plan year, the adjusted funding targetattainment percentage of the plan for thecurrent plan year is presumed to be lessthan 60 percent until changed under para-graph (h)(1)(iii)(B) or (h)(2)(iii) of thissection or where the plan’s enrolled actu-ary issues the certification of the adjustedfunding target attainment percentage forthe current year under paragraph (h)(4) ofthis section.

(B) Enrolled actuary’s certification infirst 3 months of following year. In anycase in which the plan’s enrolled actu-ary has issued the certification under para-graph (h)(4) of this section of the adjustedfunding target attainment percentage of theplan for the plan year preceding the cur-rent year on or after the first day of the cur-rent year but before the first day of the 4thmonth of that year, the date of that prioryear certification is a new section 436 mea-surement date for the plan year. In such acase, until it is changed by a certificationof the current year’s adjusted funding tar-get attainment percentage under paragraph(h)(4) of this section or otherwise changedunder paragraph (h)(2) or (h)(3) of this sec-tion, the presumed percentage for the cur-rent year beginning on the date of certifi-cation is equal to the certified percentagefor the preceding year.

(2) Presumption of underfunding afterfirst day of 4th month for nearly under-funded plans—(i) In general. This para-graph (h)(2) applies to a plan for whichthe actual adjusted funding target attain-ment percentage for the plan year preced-ing the current plan year was certified forthat prior plan year to be at least 60 per-cent but less than 70 percent, or was cer-tified for that prior plan year to be at least80 percent but less than 90 percent (or, ifthat prior plan year is the pre-effective planyear, was certified to be less than 90 per-cent), and where the enrolled actuary forthe plan has not issued a certification ofthe adjusted funding target attainment per-centage for the plan year by the first dayof the 4th month of the plan year. If this

October 15, 2007 850 2007–42 I.R.B.

paragraph (h)(2) applies to a plan, the pre-sumed adjusted funding target attainmentpercentage for the plan is the percentageunder paragraph (h)(2)(ii) or (iii) of thissection, as applicable.

(ii) Presumed adjusted funding targetattainment percentage. If this paragraph(h)(2) applies to a plan, and the date ofthe enrolled actuary’s certification underparagraph (h)(4) of this section for the planyear preceding the current year occurredbefore the first day of the 4th month ofthe current plan year, then, commencingon the first day of the 4th month of thecurrent plan year and continuing until theearlier of the date the enrolled actuary is-sues a certification under paragraph (h)(4)of this section of the adjusted funding tar-get attainment percentage for the plan yearor the first day of the 10th month of theplan year as described in paragraph (h)(3)of this section—

(A) The adjusted funding target attain-ment percentage of the plan as of the valu-ation date for the plan year is presumed tobe equal to 10 percentage points less thanthe actual adjusted funding target attain-ment percentage of the plan for the preced-ing plan year; and

(B) The first day of the 4th month ofthe plan year is treated as a section 436measurement date.

(iii) Certification for prior year. If thisparagraph (h)(2) applies to a plan, and thedate of the enrolled actuary’s certificationunder paragraph (h)(4) of this section ofthe actual adjusted funding target attain-ment percentage for the plan year preced-ing the current year occurs on or after thefirst day of the 4th month of the currentplan year, then, commencing on the dateof that prior year certification and contin-uing until the earlier of the date the en-rolled actuary issues a certification underparagraph (h)(4) of this section of the ad-justed funding target attainment percent-age for the plan year or the first day of the10th month of the plan year as described inparagraph (h)(3) of this section—

(A) The adjusted funding target attain-ment percentage of the plan as of the valu-ation date for the plan year is presumed tobe equal to 10 percentage points less thanthe actual adjusted funding target attain-ment percentage of the plan for the preced-ing plan year; and

(B) The date of the prior year certifica-tion is treated as a section 436 measure-ment date.

(3) Presumption of underfunding onand after first day of 10th month—(i) Sec-tion 436 measurement date. In any casein which no certification of the specificadjusted funding target attainment per-centage for the current plan year underparagraph (h)(4) of this section is madewith respect to the plan before the firstday of the 10th month of the plan year,that first day is treated as a section 436measurement date.

(ii) Presumed percentage under 60 per-cent. In any case in which no certifica-tion of the specific adjusted funding tar-get attainment percentage for the currentplan year under paragraph (h)(4) of thissection is made with respect to the plan be-fore the first day of the 10th month of theplan year, the plan’s adjusted funding tar-get attainment percentage is presumed tobe less than 60 percent beginning on thatdate and continuing through the remainderof the plan year.

(4) Certification of adjusted fund-ing target attainment percentage—(i)Rules generally applicable to certifi-cations—(A) In general. The enrolledactuary’s certification referred to in thissection must be made in writing, must beprovided to the plan administrator, and,except as provided in paragraph (h)(4)(ii)of this section, must certify the plan’s ad-justed funding target attainment percent-age for the plan year (including settingforth the aggregate amount of annuity pur-chases taken into account under paragraph(j)(3)(ii) of this section).

(B) Determination of plan assets. Forpurposes of making any determination ofthe adjusted funding target attainment per-centage under this section, the determina-tion is not permitted to take into accountassets that have not been contributed to theplan by the certification date. For example,the enrolled actuary’s certification of theadjusted funding target attainment percent-age for a plan year cannot take into accountcontributions that are expected to be madeafter the certification date. Notwithstand-ing the foregoing, for plan years beginningbefore January 1, 2009, the enrolled ac-tuary’s certification of the adjusted fund-ing target attainment percentage is permit-ted to take into account employer contri-butions for the prior plan year that are rea-

sonably expected to be made for that priorplan year but have not been contributed bythe date of the enrolled actuary’s certifica-tion. See paragraph (h)(4)(iii) of this sec-tion for rules relating to changes in the cer-tified percentage.

(ii) Special rules for certification withinrange—(A) In general. Under this para-graph (h)(4)(ii), the plan’s enrolled actu-ary is permitted to certify during the firstnine months of a plan year that the plan’sadjusted funding target attainment percent-age for that plan year either is 60 percentor higher (but is less than 80 percent), is80 percent or higher, or is 100 percent orhigher. If the enrolled actuary has issuedsuch a range certification for a plan yearand the enrolled actuary subsequently is-sues a certification of the specific adjustedfunding target attainment percentage forthe plan before the first day of the 10thmonth of that plan year, the certificationof the specific adjusted funding target at-tainment percentage is treated as a changein the applicable percentage to which para-graph (h)(4)(iii) of this section applies. Ifthe enrolled actuary has issued a range cer-tification for a plan year but no specificcertification of the adjusted funding targetattainment percentage of the plan for theplan year is issued by the plan’s enrolledactuary before the first day of the 10thmonth of that plan year, then the rules ofparagraph (h)(3) of this section apply andthe change in the applicable percentage tounder 60 percent on that date is treatedas a change in the applicable percentagewhich is subject to the rules of paragraph(h)(4)(iii) of this section.

(B) Effect of range certification—(1)Before certification of specific percent-age. If a plan’s enrolled actuary issues arange certification pursuant to this para-graph (h)(4)(ii), then, for all purposesunder this section (for example, applyingthe limitations of sections 436(b) and (c),making contributions described in sec-tions 436(b)(2), 436(c)(2), and 436(e)(2),and the mandatory reduction of fundingbalances under paragraph (a)(5) of thissection), the plan is treated as having acertified percentage at the smallest valuewithin the applicable range.

(2) On and after certification of spe-cific percentage. Once the certification ofthe specific adjusted funding target attain-ment percentage is issued by the plan’s en-rolled actuary (before the first day of the

2007–42 I.R.B. 851 October 15, 2007

10th month of the plan year), that certifiedpercentage applies for all purposes of thissection on and after the date of that cer-tification. If the plan sponsor made sec-tion 436 contributions to avoid applicationof a benefit limitation during the period arange certification was in effect, those sec-tion 436 contributions will be recharacter-ized as employer contributions under sec-tion 430 to the extent the contributions ex-ceed the amount necessary to avoid appli-cation of a limitation based on the specificadjusted funding target attainment percent-age as certified by the plan’s enrolled ac-tuary before the first day of the 10th monthof the plan year.

(iii) Change of certified percent-age—(A) Application of new percentage.If the enrolled actuary for the plan providesa certification of the adjusted funding tar-get attainment percentage of the plan forthe plan year under this paragraph (h)(4)(including a range certification) and thatcertified percentage is superseded by asubsequent determination of the adjustedfunding target attainment percentage forthat plan year, that later percentage mustbe applied.

(B) Determination of materiality—(1)In general. With respect to the effect ofthat subsequent determination of the ad-justed funding target attainment percent-age on the plan for the period during whichthe plan’s operation was based on the priorpercentage, a determination must be madewhether the change in the applicable per-centage is a material change or an immate-rial change.

(2) Definition of material change. Forthis purpose, there is a material changein a plan’s certified adjusted funding tar-get attainment percentage if plan opera-tions with respect to benefits that are ad-dressed by section 436, taking into accountany actual contributions and elections un-der section 430(f) made by the plan spon-sor based on the prior certified percent-age, would have been different based onthe subsequent determination of the plan’sadjusted funding target attainment percent-age for the plan year. However, if the dif-ference between the adjusted funding tar-get attainment percentage for a plan yearand the later revised determination of thatpercentage is the result of additional con-tributions for the preceding year that aremade by the plan sponsor after the date ofthe enrolled actuary’s certification or re-

sults from the plan sponsor’s election toreduce the prefunding balance or fundingstandard carryover balance after the date ofthe certification, such change is not treatedas a material change.

(3) Definition of immaterial change.An immaterial change is any change inan adjusted funding target attainment per-centage for a plan year that is not a materialchange.

(C) Effect of change in percentage—(1)Material change. In the case of a mate-rial change where the plan was operatedin accordance with the prior certificationof the adjusted funding target attainmentpercentage for the plan year, the plan willnot have satisfied the requirements of sec-tion 401(a)(29) and section 436. In thecase of a material change where the planwas operated in accordance with the sub-sequent certification of the adjusted fund-ing target attainment percentage during theperiod of time the prior certification ap-plied, the plan will not have been oper-ated in accordance with its terms. In ad-dition, in the case of a material change, therules requiring application of a presumedadjusted funding target attainment percent-age under paragraphs (h)(1) through (h)(3)of this section continue to apply from andafter the date of the prior certification untilthe date of the subsequent certification.

(2) Effect of immaterial change. If theenrolled actuary for a plan provides a cer-tification of the adjusted funding target at-tainment percentage of the plan for theplan year under this paragraph (h)(4) andthat certified percentage is superseded bya subsequent determination of the adjustedfunding target attainment percentage forthat plan year that does not result in a mate-rial change under paragraph (h)(4)(iii)(B)of this section, the revised percentage doesnot change the inapplicability of the pre-sumptions under paragraphs (h)(1), (2),and (3) of this section prior to the date ofthe later certification.

(5) Application to plan with valuationdate after first day of plan year. [Re-served].

(6) Examples of application of para-graphs (h)(1), (h)(2), and (h)(3) of this sec-tion. The following examples illustrate theapplication of paragraphs (h)(1), (h)(2),and (h)(3) of this section. Unless other-wise indicated, the examples in this sec-tion are based on the information in thisparagraph. Each plan is a non-collectively

bargained defined benefit plan with a planyear that is the calendar year and a valua-tion date of January 1. The first effectiveplan year is 2008. The plan does not havea funding standard carryover balance or aprefunding balance as of any of the datesmentioned, and the plan sponsor does notelect to utilize any of the methods in para-graph (f) of this section to avoid applica-ble benefit restrictions. No range certifica-tion under paragraph (h)(4) of this sectionhas been issued. The plan sponsor is not inbankruptcy.

Example 1. (i) On July 15, 2010, the adjustedfunding target attainment percentage (“AFTAP”) forPlan T is certified to be 65%. Based on this AFTAP,Plan T is subject to the restriction on prohibited pay-ments in paragraph (d)(3) of this section for the re-mainder of 2010.

(ii) Beginning January 1, 2011, Plan T’s AFTAPfor 2011 is presumed to be equal to the AFTAP for2010, or 65%, under the provisions of paragraph(h)(1)(ii) of this section. Accordingly, the restrictionon accelerated benefit distributions in paragraph(d)(3) of this section continues to apply.

(iii) On March 1, 2011, the enrolled actuary forthe plan certifies that the actual AFTAP for 2011 is80%. Therefore, beginning March 1, 2011, Plan T isno longer subject to the restriction under paragraph(d)(3) of this section, and so Plan T resumes payingthe full amount of any accelerated benefit distribu-tions elected by participants with an annuity startingdate of March 1, 2011, or later.

Example 2. (i) The facts are the same as in Ex-ample 1, except that the enrolled actuary for the plandoes not certify the AFTAP for 2011 until June 1,2011. Accordingly, Plan T’s AFTAP for 2011 is pre-sumed to be equal to the AFTAP for 2010 of 65%from January 1, 2011, through March 31, 2011, andPlan T is subject to the restriction on accelerated ben-efit distributions under paragraph (d)(3) of this sec-tion during this period.

(ii) Beginning April 1, 2011, the provisions ofparagraph (h)(2)(ii) of this section apply because theenrolled actuary for the plan still has not certifiedthe actual AFTAP as of January 1, 2011. Under theprovisions of paragraph (h)(2)(ii) of this section, theAFTAP for Plan T is presumed to be 10 percentagepoints lower, or 55%, beginning April 1, 2011. Ac-cordingly, Plan T is now subject to the restriction inparagraph (d)(1) of this section, and so cannot pay anyaccelerated benefit distributions otherwise payable toplan participants who have annuity starting dates onor after April 1, 2011.

(iii) On June 1, 2011, the enrolled actuary for theplan certifies that the AFTAP for 2011 for Plan T is66%. Accordingly, Plan T is no longer subject to therestriction under paragraph (d)(1) of this section, butit is subject to the restriction under paragraph (d)(3)of this section.

(iv) Since Plan T is no longer subject to the re-striction on payment of accelerated benefit distribu-tions under paragraph (d)(1) of this section, Plan Tmust resume paying the accelerated benefit distribu-tions, as restricted under paragraph (d)(3) of this sec-tion, for participants who elect benefits in accelerated

October 15, 2007 852 2007–42 I.R.B.

forms of payment and who have an annuity startingdate of June 1, 2011, or later.

Example 3. (i) The facts are the same as in Ex-ample 1, except that the enrolled actuary for the plandoes not certify the 2011 AFTAP until November 15,2011. Beginning October 1, 2011, Plan T is conclu-sively presumed to have an AFTAP of less than 60%,in accordance with the provisions of paragraph (h)(3)of this section. Accordingly, Plan T is subject to therestriction in paragraph (d)(1) of this section, and can-not pay any accelerated benefit distributions to partic-ipants whose annuity starting date occurs on or afterOctober 1, 2011.

(ii) On November 15, 2011, the enrolled actuaryfor the plan certifies that the AFTAP for 2011 is 72%.However, because the certification occurred after Oc-tober 1, 2011, the certification does not constitute anew section 436 measurement date, and Plan T con-tinues to be subject to the restrictions on acceleratedbenefit distributions and benefit accruals under para-graphs (d)(1) and (e) of this section.

(iii) Beginning January 1, 2012, the 2012 AFTAPfor Plan T is presumed to be equal to the 2011 AFTAPof 72%. Because the presumed 2012 AFTAP is be-tween 70% and 80% and, therefore, paragraph (h)(2)of this section (which provides for a 10 percentagepoint reduction in a plan’s AFTAP in certain cases)will not apply, the presumed AFTAP will remain at72% until the plan’s enrolled actuary certifies theAFTAP for 2012 or until paragraph (h)(3) of this sec-tion applies on the first day of the 10th month of theplan year. Because the presumed AFTAP is 72%,Plan T is no longer subject to the restrictions on ac-celerated benefit distributions under paragraph (d)(1)of this section, and Plan T must resume paying accel-erated benefit distributions, as restricted under para-graph (d)(3) of this section, that are elected by partic-ipants with annuity starting dates on or after January1, 2012. Similarly, Plan T is no longer subject to therestriction on benefit accruals under paragraph (e) ofthis section, and benefit accruals resume under PlanT beginning January 1, 2012, unless Plan T providesotherwise.

Example 4. (i) The facts are the same as in Ex-ample 3, except that the enrolled actuary for the plandoes not issue a certification of the AFTAP for 2011for Plan T until February 1, 2012.

(ii) Beginning on January 1, 2012, the presump-tions in paragraph (h)(1)(iii) of this section apply forthe 2012 plan year. Because the enrolled actuary forthe plan has not certified the AFTAP for 2011, thepresumed AFTAP as of October 1, 2011, continuesto apply for the period beginning January 1, 2012.Therefore, the AFTAP as of January 1, 2012, is pre-sumed to be less than 60%, and Plan T continues tobe subject to the restriction on accelerated benefit dis-tributions in paragraph (d)(1) of this section and therestriction on benefit accruals under paragraph (e) ofthis section.

(iii) On February 1, 2012, the enrolled actuary forthe plan certifies that the AFTAP for 2011 for Plan Tis 65%. Because the enrolled actuary for the plan hasnot issued a certification of the AFTAP for 2012, theprovisions of paragraph (h)(1)(iii)(B) of this sectionapply. Accordingly, the certification date for the 2011AFTAP (February 1, 2012) is a section 436 measure-ment date and 65% is the presumed AFTAP for 2012beginning on that date.

(iv) Because the presumed AFTAP is over 60%but less than 80%, the full restriction on acceleratedbenefit distributions under paragraph (d)(1) of thissection no longer applies; however the partial restric-tion on accelerated benefit distributions under para-graph (d)(3) of this section applies beginning on Feb-ruary 1, 2012. Therefore, Plan T must pay a portionof accelerated benefit distributions elected by partici-pants with annuity starting dates on or after February1, 2012. Furthermore, based on the presumed AFTAPof 65%, the restriction on benefit accruals under para-graph (e) of this section no longer applies, and unlessPlan T provides otherwise, benefit accruals will re-sume as of February 1, 2012.

Example 5. (i) The facts are the same as in Ex-ample 3, except that the enrolled actuary for the plandoes not issue a certification of the actual AFTAP forPlan T as of January 1, 2011, until May 1, 2012.

(ii) Beginning on January 1, 2012, the presump-tions in paragraph (h)(1)(iii) of this section apply forthe 2012 plan year. Because the enrolled actuary forthe plan has not certified the actual AFTAP as of Jan-uary 1, 2011, the presumed AFTAP as of October 1,2011, continues to apply for the period beginning Jan-uary 1, 2012. Therefore, the AFTAP as of January 1,2012, is presumed to be less than 60%, and Plan Tcontinues to be subject to the restriction on acceler-ated benefit distributions in paragraph (d)(1) of thissection and the restriction on benefit accruals underparagraph (e) of this section.

(iii) Since the enrolled actuary for the plan hasnot issued a certification of the actual AFTAP as ofJanuary 1, 2011, the rules of paragraph (h)(1)(iii) ofthis section apply beginning April 1, 2012, and theAFTAP is presumed to remain less than 60%. Plan Tcontinues to be subject to the restriction on acceler-ated benefit distributions and benefit accruals underparagraphs (d)(1) and (e) of this section.

(iv) On May 1, 2012, the enrolled actuary for theplan certifies that the actual AFTAP for 2011 for PlanT is 65%. Because the enrolled actuary for the planhas not issued a certification of the actual AFTAPas of January 1, 2012, the provisions of paragraph(h)(2)(iii) of this section apply. Accordingly, on May1, 2012, the 2012 AFTAP is presumed to be 10 per-centage points less than the 2011 AFTAP, or 55%, sothat the restrictions under paragraphs (d) and (e) ofthis section continue to apply.

Example 6. (i) The enrolled actuary for Plan Vcertifies the plan’s AFTAP for 2010 to be 69%. Basedon this AFTAP, Plan V is subject to the restriction inparagraph (d)(3) of this section, and can only pay aportion (generally 50%) of accelerated benefit distri-butions otherwise due to plan participants who com-mence benefits while the restriction is in effect. Theenrolled actuary for the plan does not issue a certifi-cation of the AFTAP for 2011 until June 1, 2011.

(ii) Beginning January 1, 2011, Plan V’s 2011AFTAP is presumed to be equal to the 2010 AFTAP,or 69%, under the provisions of paragraph (h)(1)(ii)of this section. Accordingly, the restriction on ac-celerated benefit distributions in paragraph (d)(3) ofthis section continues to apply from January 1, 2011,through March 31, 2011, and Plan T may only pay aportion of accelerated benefit distributions otherwisedue to participants who commence benefit paymentsduring this period.

(iii) Beginning April 1, 2011, the provisions ofparagraph (h)(2)(ii) of this section apply. Under those

provisions, the AFTAP beginning April 1, 2011, ispresumed to be 10 percentage points lower than thepresumed 2011 AFTAP, or 59%. Because Plan V’spresumed AFTAP for 2011 is less than 60%, the re-striction on the payment of accelerated benefit distri-butions under paragraph (d)(1) of this section and therestriction on benefit accruals under paragraph (e) ofthis section apply. Accordingly, Plan V cannot payany accelerated benefit distributions to participantswith an annuity starting date on or after April 1, 2011,and benefit accruals cease as of March 31, 2011.

(iv) On June 1, 2011, Plan V’s enrolled actu-ary certifies that the plan’s AFTAP for 2011 is 71%.Therefore, the restrictions on accelerated benefit dis-tributions and benefit accruals in paragraphs (d)(1)and (e) of this section no longer apply, but the partialrestriction on benefit payments in paragraph (d)(3) ofthis section does apply. Accordingly, Plan V beginspaying a portion of the accelerated benefit distribu-tions elected by participants with an annuity startingdate on or after June 1, 2011, and benefit accruals pre-viously restricted under paragraph (e) of this sectionresume effective June 1, 2011, unless Plan V providesotherwise.

(v) Participants who were not able to elect an ac-celerated form of payment during the period fromApril 1, 2011, through May 31, 2011, would be ableto elect a new annuity starting date with a partialdistribution of accelerated benefits effective June 1,2011, if Plan V contained a preexisting provision per-mitting such an election after the restriction in para-graph (d)(1) of this section no longer applies. Thisis permitted because, under paragraph (a)(4)(ii)(A)of this section, a preexisting provision of this typeis not considered a plan amendment and is thereforenot subject to the plan amendment restriction in para-graph (c) of this section even though Plan V’s AFTAPfor 2011 is less than 80%.

(vi) Benefit accruals for the period beginningApril 1, 2011, through May 31, 2011, would be auto-matically restored if Plan V contained a preexistingprovision to retroactively restore benefit accrualsrestricted under paragraph (e) of this section afterthe restriction no longer applies. This is permittedbecause under paragraph (a)(4)(ii)(A) of this section,a preexisting provision of this type is not consideredto be a plan amendment and is therefore not subjectto the plan amendment restriction in paragraph (c) ofthis section even though Plan V’s AFTAP for 2011is less than 80%, because the period of the restrictiondid not exceed 12 months.

(7) Examples of application of para-graph (h)(4) of this section. The followingexamples illustrate the application of para-graph (h)(4) of this section:

Example 1. (i) Plan Y is a non-collectively bar-gained defined benefit plan with a plan year that isthe calendar year and a valuation date of January 1.Plan Y does not have a funding standard carryoverbalance or a prefunding balance. Plan Y’s sponsor isnot in bankruptcy. In June of 2010, the actual AFTAPfor 2010 for Plan Y is certified as 65%. On the lastday of the 2010 plan year, Plan Y is subject to the re-strictions in paragraph (d)(3) of this section.

(ii) The enrolled actuary for the plan issues arange certification on March 21, 2011, certifying thatthe AFTAP for 2011 is at least 60% and less than80%. Because the certification was issued before the

2007–42 I.R.B. 853 October 15, 2007

first day of the 4th month of the plan year, the 10percentage point reduction in the presumed AFTAPunder paragraph (h)(2) of this section does not apply.In addition, because the enrolled actuary for the planhas certified that the AFTAP is within this range,Plan Y is not subject to the full restriction on accel-erated benefit payments in paragraph (d)(1) of thissection or the restriction on benefit accruals underparagraph (e) of this section.

(iii) On August 1, 2011, the enrolled actuary forthe plan certifies that the actual AFTAP as of January1, 2011, is 75.86%. This AFTAP falls within the pre-viously certified range. Thus, the change is immate-rial under paragraph (h)(4)(iii) of this section and thenew certification does not change the applicability orinapplicability of the restrictions in this section.

Example 2. (i) The facts are the same as in Ex-ample 1, except that the plan sponsor makes an addi-tional contribution for the 2010 plan year on Septem-ber 1, 2011, that is not added to the prefunding bal-ance. Reflecting this contribution, the enrolled actu-ary for the plan issues a revised certification statingthat the AFTAP for 2011 is 81%, and Plan Y is nolonger subject to the restriction on accelerated bene-fit payments under paragraph (d)(3) of this section onthat date.

(ii) Although the revised certification changes theapplicability of the restriction under paragraph (d)(3)of this section, the change not a material change underparagraph (h)(4)(iii)(B)(2) of this section because itchanged only because of additional contributions forthe preceding year made by the plan sponsor after thedate of the enrolled actuary’s initial certification.

(i) [Reserved].(j) Definitions. For purposes of this sec-

tion—(1) Funding target. For purposes of

section 436, the funding target means thefunding target under section 430(d) or430(i), as applicable to the plan for theplan year.

(2) Funding target attainment percent-age—(i) In general. For purposes of sec-tion 436, the funding target attainment per-centage for any plan year is the fraction(expressed as a percentage), the numera-tor of which is the value of net plan assetsfor the plan year, and the denominator ofwhich is the plan’s funding target for theplan year (but determined without regardto the at-risk rules under section 430(i)even in the case of a plan that is in at-riskstatus). For this purpose, pursuant to sec-tion 430(f)(4), the value of net plan assetsfor the plan year is generally determinedby subtracting the plan’s funding standardcarryover balance and prefunding balance(if any) for the plan year from the valueof plan assets. A plan with a value of netplan assets for a plan year of zero is treatedas having a funding target attainment per-

centage of zero, regardless of the amountof the plan’s funding target.

(ii) Application to plans that are fullyfunded without regard to subtraction offunding balances from plan assets—(A) Ingeneral. If the funding target attainmentpercentage for a plan year, determinedwithout regard to the section 430(f)(4)subtraction of the funding standard carry-over balance and the prefunding balancefrom the value of plan assets, would be100 percent or more, then, solely for pur-poses of section 436 and this section (butnot section 430(d)), the value of net planassets used in the determination of thefunding target attainment percentage de-scribed in this paragraph (j)(2) (and theadjusted funding target attainment per-centage described in paragraph (j)(3) ofthis section) is determined without regardto any subtraction of funding balancesunder section 430(f)(4).

(B) Transition rule. Paragraph(j)(2)(ii)(A) of this section is applied toplan years beginning after 2007 and before2011 by substituting for “100 percent” theapplicable percentage determined in ac-cordance with the following table:

In the case of a plan yearbeginning in calendar year:

The applicablepercentage is:

2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 922009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 942010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

(C) Limitation. Paragraph (j)(2)(ii)(B)of this section does not apply with re-spect to any plan year after 2008 unlessthe funding target attainment percentage(determined without regard to the section430(f)(4) subtraction of the funding stan-dard carryover balance and the prefundingbalance from the value of plan assets) ofthe plan for each preceding plan year (af-ter 2007) was not less than the applica-ble percentage with respect to such preced-ing plan year determined under paragraph(j)(2)(ii)(B) of this section.

(iii) Special rules for first effective planyear—(A) In general. In the case of theplan’s first effective plan year, the fundingtarget attainment percentage under section436 for the plan’s pre-effective plan yearis determined as the fraction (expressed asa percentage), the numerator of which isthe net plan assets determined under para-

graph (j)(2)(iii)(B) of this section, and thedenominator of which is the plan’s cur-rent liability determined pursuant to sec-tion 412(l)(7) on the valuation date for theplan’s pre-effective plan year.

(B) General determination of valueof net plan assets—(1) In general. Thevalue of net plan assets for purposes ofthis paragraph (j)(2)(iii) is determined un-der section 412(c)(2) as in effect for theplan’s pre-effective plan year, except thatthe value of plan assets prior to subtract-ing the plan’s funding standard accountcredit balance described in paragraph(j)(2)(iii)(B)(2) of this section can neitherbe less than 90 percent of the fair marketvalue of plan assets nor greater than 110percent of the fair market value of planassets on the valuation date for that planyear.

(2) Subtraction of credit balance. If aplan has a funding standard account creditbalance as of the valuation date for theplan’s pre-effective plan year, that bal-ance is subtracted from the net asset valuedescribed in paragraph (j)(2)(iii)(B)(1)of this section as of that valuation date.However, the subtraction does not applyif the value of plan assets determined inparagraph (j)(2)(iii)(B)(1) of this sectionis greater than or equal to 90 percent ofthe plan’s current liability as of the valu-ation date for the plan determined underparagraph (j)(2)(iii)(A) of this section.

(3) Effect of funding standard carry-over balance reduction for first effectiveplan year. Notwithstanding paragraph(j)(2)(iii)(B)(2) of this section, if, for thefirst effective plan year, the employer hasmade an election to reduce some or all ofthe funding standard carryover balance as

October 15, 2007 854 2007–42 I.R.B.

of the first day of that year in accordancewith §1.430(f)–1(e), then the present value(determined as of the valuation date forthe pre-effective plan year using the val-uation interest rate for that pre-effectiveplan year) of the amount so reduced isnot treated as part of the funding standardaccount credit balance when that balanceis subtracted from the asset value underparagraph (j)(2)(iii)(B)(2) of this section.

(3) Adjusted funding target attainmentpercentage—(i) In general. The adjustedfunding target attainment percentage forany plan year is the fraction (expressed asa percentage), the numerator of which isthe adjusted plan assets described in para-graph (j)(3)(ii) of this section and the de-nominator of which is the adjusted fund-ing target described in paragraph (j)(3)(iii)of this section.

(ii) Adjusted plan assets. The adjustedplan assets equals the net plan assets (de-termined under paragraph (j)(2) of this sec-tion), increased by the aggregate amountof purchases of annuities for employeesother than highly compensated employees(as defined in section 414(q)) which weremade by the plan during the preceding 2plan years.

(iii) Adjusted funding target—(A) Ingeneral. The adjusted funding targetequals the funding target for the plan year(determined in accordance with paragraph(j)(1) of this section but without regardto the at-risk rules under section 430(i)),increased by the aggregate amount of pur-chases of annuities for employees otherthan highly compensated employees (asdefined in section 414(q)) which weremade by the plan during the preceding 2plan years.

(B) Special rule for first effective planyear. In the case of the plan’s first effec-tive plan year, for purposes of determiningthe adjusted funding target attainment per-centage for the pre-effective plan year,the adjusted funding target is equal to thecurrent liability determined pursuant tosection 412(l)(7) as of the plan’s valua-tion date for the pre-effective plan year,increased by the aggregate amount of pur-chases of annuities for employees otherthan highly compensated employees (asdefined in section 414(q)) which weremade by the plan during the preceding 2plan years.

(iv) Special rule where current liabil-ity not certified for pre-effective plan year.

In any case in which the plan’s enrolledactuary has not issued a certification un-der paragraph (h)(4)(i) of this section ofthe adjusted funding target attainment per-centage of the plan for the pre-effectiveplan year, the adjusted funding target at-tainment percentage of the plan for the firsteffective plan year is presumed to be lessthan 60 percent until the adjusted fundingtarget attainment percentage of the plan forthe pre-effective plan year has been certi-fied. The preceding sentence applies forpurposes of paragraphs (b) and (c) of thissection at the beginning of the first effec-tive plan year and applies for purposes ofparagraphs (d) and (e) of this section as ofthe first day of the 4th month of the firsteffective plan year. See paragraph (h) ofthis section for rules that apply after theadjusted funding target attainment percent-age for the plan has been certified for ei-ther the pre-effective plan year or the firsteffective plan year.

(4) Section 436 measurement date. Thesection 436 measurement date is the datethat is used to stop or start the applicationof the limitations of sections 436(d) and436(e), and is also used for calculationswith respect to applying the limitationsof paragraphs (b) and (c) of this section.See paragraph (h) of this section regardingsection 436 measurement dates that resultfrom application of the presumptions un-der that paragraph (h) of this section.

(5) Examples. The following examplesillustrate the application of this paragraph(j):

Example 1. (i) Plan S is a non-collectively bar-gained defined benefit plan with a plan year that isthe calendar year and a valuation date of January 1.The first effective plan year is 2008.

(ii) As of January 1, 2008, Plan S has a value ofplan assets (equal to the market value of assets) of$2,100,000 and a funding standard carryover balanceof $200,000. During 2006, assets from Plan S wereused to purchase a total of $100,000 in annuities foremployees other than highly compensated employ-ees. No annuities were purchased during 2007. OnMay 1, 2008, the enrolled actuary for the plan deter-mines that the funding target as of January 1, 2008, is$2,500,000.

(iii) The adjusted value of assets for Plan S as ofJanuary 1, 2008, is $2,000,000 (that is, plan assetsof $2,100,000 plus annuity purchases of $100,000minus the funding standard carryover balance of$200,000). The adjusted funding target is $2,600,000(that is, the funding target of $2,500,000, increasedby the annuity purchases of $100,000).

(iv) Based on the above adjusted plan assets andadjusted funding target, the AFTAP as of January 1,2008, would be 76.92%. Since the AFTAP is less

than 80% but is at least 60%, Plan S is subject to therestrictions in paragraph (d)(3) of this section.

Example 2. (i) The facts are the same as in Ex-ample 1, except that it is reasonable to expect thatthe plan sponsor will make a contribution of $80,000to Plan S for the 2007 plan year by September 15,2008. This amount is in excess of the minimum re-quired contribution for 2007. The plan sponsor electsto reduce the funding standard carryover balance by$80,000.

(ii) Because it is reasonable to expect that the$80,000 will be contributed by the plan sponsor, thatamount is taken into account when the enrolled actu-ary certifies the 2008 AFTAP under the special rulein paragraph (h)(4)(i)(B) of this section for plan yearsbeginning before 2009. Accordingly, the enrolled ac-tuary for the plan certifies the 2008 AFTAP as 80%(that is, adjusted plan assets of $2,080,000, reflect-ing the $80,000 in contributions receivable, dividedby the adjusted funding target of $2,600,000).

(iii) The ability to take contributions into accountbefore they are actually paid to the plan is availableonly for plan years beginning before 2009. Further-more, if the employer does not actually make thecontribution and the difference between the incorrectcertification and the corrected AFTAP constitutes amaterial change, the plan will have violated section401(a)(29) or will not have been operated in accor-dance with its terms.

Example 3. (i) Plan R is a defined benefit planwith a plan year that is the calendar year and a valu-ation date of January 1. The first effective plan yearfor Plan R is 2008. The valuation interest rate forthe 2007 plan year for Plan R is 7%. The fair mar-ket value of assets of Plan R as of January 1, 2007, is$1,000,000. The actuarial value of assets of Plan R asof January 1, 2007, is $1,200,000. The current liabil-ity of Plan R as of January 1, 2007, is $1,500,000. Thefunding standard account credit balance as of January1, 2007, is $80,000. The funding standard carryoverbalance of Plan R is $50,000 as of the beginning ofthe 2008 plan year. The sponsor of Plan R, Spon-sor T, elects in 2008 to reduce the funding standardcarryover balance in accordance with §1.430(f)–1 by$45,000.

(ii) Pursuant to paragraph (j)(2)(iii)(B)(1) of thissection, the asset value used to determine the fund-ing target attainment percentage (FTAP) for the 2007plan year is limited to 110% of the fair market valueof assets on January 1, 2007, or $1,100,000 (110% of$1,000,000).

(iii) Pursuant to paragraph (j)(2)(iii)(B)(2) ofthis section, the funding standard account creditbalance as of January 1, 2007, is subtracted fromthe asset value used to determine the FTAP for the2007 plan year. However, pursuant to paragraph(j)(2)(iii)(B)(3) of this section, the present value ofthe amount by which Sponsor T elected to reduce thefunding standard carryover balance in 2008 is notsubtracted.

(iv) The present value, determined at an interestrate of 7%, of the $45,000 reduction in the fundingstandard account carryover balance elected by Spon-sor T in 2008 is $42,056. Thus, $42,056 is not sub-tracted from the 2007 plan year asset value. Accord-ingly, the funding standard account credit balance thatis subtracted from the 2007 plan year asset value is$37,944 (that is, $80,000 less $42,056).

2007–42 I.R.B. 855 October 15, 2007

(v) Thus, the asset value that is used to deter-mine the FTAP for the 2007 plan year is $1,100,000less $37,944, or $1,062,056. Accordingly, for pur-poses of this section, the FTAP for the 2007 plan yearfor Plan R is 70.8% (that is, $1,062,056 divided by$1,500,000).

(k) Effective/applicability dates—(1) Ingeneral. In general, this section applies toplan years beginning on or after January 1,2008.

(2) Plans with delayed effective/appli-cability date. In the case of a plan forwhich the effective date of section 436 isdelayed in accordance with sections 104through 106 of the Pension Protection Actof 2006, Public Law 109–280, 120 Stat.780, this section applies to plan years be-ginning on or after the effective date of sec-tion 436 with respect to the plan.

(3) Collective bargaining excep-tion—(i) In general. In the case of acollectively bargained plan that is main-tained pursuant to one or more collectivebargaining agreements between employeerepresentatives and one or more employ-ers ratified before January 1, 2008, thissection does not apply to plan years begin-ning before the earlier of—

(A) The date described in paragraph(k)(3)(ii) of this section; or

(B) January 1, 2010.(ii) Termination of collective bargain-

ing agreement. The date described in thisparagraph (k)(3)(ii) is the later of—

(A) The date on which the last col-lective bargaining agreement relating tothe plan terminates (determined in accor-dance with paragraph (k)(3)(iii) of this sec-tion and without regard to any extensionthereof agreed to after August 17, 2006);or

(B) The first day of the first plan yearto which this section would (but for thisparagraph (k)(3)) apply.

(iii) Treatment of certain plan amend-ments. Any plan amendment made pur-suant to a collective bargaining agreementrelating to the plan which amends theplan solely to conform to any requirementadded by section 436 is not treated as atermination of the collective bargainingagreement.

(iv) Treatment of plans with both collec-tively bargained and non-collectively bar-gained employees. In the case of a plan

with respect to which a collective bargain-ing agreement applies to some, but not all,of the plan participants, the plan is consid-ered a collectively bargained plan for pur-poses of this paragraph (k)(3) if it is con-sidered a collectively bargained plan underthe rules of paragraph (a)(5)(ii)(B) of thissection.

(4) First effective plan year. For pur-poses of this section, the first effective planyear for a plan is the first plan year towhich this section applies under paragraph(k)(1), (k)(2), or (k)(3) of this section.

(5) Pre-effective plan year. For pur-poses of this section, the pre-effective planyear for a plan is the last plan year begin-ning before the effective date applicableunder paragraph (k)(1), (k)(2), or (k)(3) ofthis section. Thus, except for plans witha delayed effective date under paragraph(k)(2) or (k)(3) of this section, the pre-ef-fective plan year for a plan is the last planyear beginning before January 1, 2008.

Kevin M. Brown,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on August 28,2007, 8:45 a.m., and published in the issue of the FederalRegister for August 31, 2007, 72 F.R. 50543)

Temporary Closing of theDetermination Letter Programfor Adopters of Pre-ApprovedDefined Contribution Plans


On December 18, 2007, the Service willtemporarily stop accepting applications fordetermination letters for defined contribu-tion plans that are filed on Form 5307, Ap-plication for Determination for Adoptersof Master or Prototype or Volume Submit-ter Plans. The Service is taking this ac-tion because all pre-approved (i.e., mas-ter and prototype and volume submitter)defined contribution plans are required tobe restated to comply with the EconomicGrowth and Tax Relief Reconciliation Actof 2001, Pub. L. 107–16, (“EGTRRA”)and to be submitted to the Service for a de-termination letter (if needed) using Form

5307 during the approximately two-yearperiod which the Service expects to an-nounce early in 2008. The temporary hia-tus in accepting Form 5307 applicationswill allow the Service to prepare to receivethe EGTRRA applications.

Rev. Proc. 2007–44, 2007–28 I.R.B.54, and Rev. Proc. 2005–16, 2005–1 C.B.674, describe a staggered remedial amend-ment system for plans that are qualifiedunder § 401(a) of the Internal RevenueCode, with five-year amendment/approvalcycles for individually designed plans andsix-year cycles for pre-approved plans.The submission period for the initialsix-year cycle for pre-approved definedcontribution plans ran from February 17,2005, to January 31, 2006. Sponsors andpractitioners were required to restate theirpre-approved defined contribution plansfor EGTRRA and other changes in planqualification requirements described inNotice 2004–84, 2004–2 C.B. 1030, the“2004 Cumulative List,” and apply fornew opinion or advisory letters duringthis submission period. As provided inRev. Proc. 2007–44, when the reviewof the pre-approved defined contributionplans is near completion, the Service willpublish an announcement providing thedate by which adopting employers mustadopt the newly approved plans. This datewill also be the deadline for adopting em-ployers to file Form 5307 determinationletter applications for their EGTRRA-re-stated pre-approved defined contributionplans. The Service expects to publishthis announcement early next year andanticipates that adopting employers willhave approximately two years to adopt therestated plans and request determinationletters.

In order to prepare to receive the Form5307 applications for the EGTRRA-re-stated defined contribution plans that willbe filed starting next year, the Service willtemporarily stop accepting determinationletter applications for defined contribu-tion plans filed on Form 5307, beginningDecember 18, 2007. The Service willcontinue to process determination letterapplications for defined contribution plansfiled on Form 5307 before December 18,2007, provided the plan has a favorable

October 15, 2007 856 2007–42 I.R.B.

GUST1 opinion or advisory letter. Anydetermination letter application for a de-fined contribution plan filed on Form 5307on or after December 18, 2007 and beforethe opening of the approximately two-yearperiod for adopting EGTRRA-restatedpre-approved defined contribution planswill be returned to the applicant.

This announcement does not affect theability of adopting employers to applyfor determination letters on Form 5307for pre-approved defined benefit plans.The Service will continue to accept andprocess such applications until furthernotice. This announcement also does notaffect the ability of adopting employers ofpre-approved plans (whether defined con-tribution or defined benefit) to apply onForm 5307 for a determination letter forplan amendments related to a voluntarycorrection program (VCP) submission oras required under the correction on auditprogram (Audit CAP), under the proce-dures described in Rev. Proc. 2006–27,2006–1 C.B. 945.

Employee Benefits—CafeteriaPlans; Hearing



ACTION: Change of location for publichearing.

SUMMARY: This document provides achange of location for a public hearing onproposed regulations (REG–142695–05,2007–39 I.R.B. 681) providing guidanceon cafeteria plans.

DATES: The public hearing is being heldon Thursday, November 15, 2007, at10 a.m.

ADDRESSES: The public hearing wasoriginally being held in the IRS Audito-rium, Internal Revenue Building, 1111Constitution Avenue, NW, Washington,DC. The hearing location has changed.The public hearing will be held in room2615, Internal Revenue Building, 1111Constitution Avenue, NW, Washington,DC.

FOR FURTHER INFORMATIONCONTACT: LaNita Van Dyke, (202)622–3215 or Oluwafunmilayo Taylor,(202) 622–7180 (not toll-free numbers).


The subject of the public hearingis a notice of proposed rulemaking(REG–142695–05) that was publishedin the Federal Register on Monday, Au-gust 6, 2007 (72 FR 43938).

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons, who submitoutlines and written comments by Octo-ber 25 and November 5, 2007 respectively,may present oral comments at the hearing.

A period of 10 minutes is allotted toeach person for presenting oral comments.The IRS will prepare an agenda contain-ing the schedule of speakers. Copies ofthe agenda will be made available, free ofcharge, at the hearing.

LaNita Van Dyke,Chief, Publications and

Regulations Branch,Legal Processing Division,

Associate Chief Counsel(Procedure and Administration).

(Filed by the Office of the Federal Register on September20, 2007, 8:45 a.m., and published in the issue of the FederalRegister for September 21, 2007, 72 F.R. 53977)

Section 67 Limitations onEstates or Trusts; Hearing



ACTION: Change of location for publichearing.

SUMMARY: This document provides achange of location for a public hearing onproposed regulations (REG–128224–06,2007–36 I.R.B. 551) providing guid-ance on which costs incurred by estatesor non-grantor trusts are subject to the2-percent floor for miscellaneous itemizeddeductions under section 67(a).

DATES: The public hearing is being heldon Wednesday, November 14, 2007, at10 a.m.

ADDRESSES: The public hearing wasoriginally being held in the IRS Audito-rium, Internal Revenue Building, 1111Constitution Avenue, NW, Washington,DC. The hearing location has changed.The public hearing will be held in room2615, Internal Revenue Building, 1111Constitution Avenue, NW, Washington,DC.

FOR FURTHER INFORMATIONCONTACT: LaNita Van Dyke,(202) 622–3215 or Richard Hurst [email protected].


The subject of the public hearingis a notice of proposed rulemaking(REG–128224–06) that was publishedin the Federal Register on Friday, July27, 2007 (72 FR 41243).

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons, who submitoutlines and written comments by October24 and 25, 2007 respectively, may presentoral comments at the hearing.

A period of 10 minutes is allotted toeach person for presenting oral comments.The IRS will prepare an agenda contain-ing the schedule of speakers. Copies ofthe agenda will be made available, free ofcharge, at the hearing.

1 The term “GUST” refers to the following:• the Uruguay Round Agreements Act, Pub. L. 103–465;• the Uniformed Services Employment and Reemployment Rights Act of 1994, Pub. L. 103–353;• the Small Business Job Protection Act of 1996, Pub. L. 104–188;• the Taxpayer Relief Act of 1997, Pub. L. 105–34;• the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. 105–206; and• the Community Renewal Tax Relief Act of 2000, Pub. L. 106–554.

2007–42 I.R.B. 857 October 15, 2007

LaNita Van Dyke,Chief, Publications and

Regulations Branch,Legal Processing Division,


(Filed by the Office of the Federal Register on September20, 2007, 8:45 a.m., and published in the issue of the FederalRegister for September 21, 2007, 72 F.R. 53977)

Change to Office to WhichNotices of Nonjudicial Saleand Requests for Return ofWrongfully Levied PropertyMust Be Sent; Correction



ACTION: Correction to final and tempo-rary regulations.

SUMMARY: This document contains cor-rections to final and temporary regulations(T.D. 9344, 2007–36 I.R.B. 535) that werepublished in the Federal Register on Fri-day, July 20, 2007 relating to the dischargeof liens under section 7425 and return ofwrongfully levied property under section6343.

FOR FURTHER INFORMATIONCONTACT: Robin M. Ferguson at (202)622–3630.


Background

The final and temporary regulations(T.D. 9344) that are the subject of thesecorrections are under sections 7425 and6343 of the Internal Revenue Code.

Need for Correction

As published, the final and temporaryregulations (T.D. 9344) contain errors thatmay prove to be misleading and are in needof clarification.

Correction of Publication

Accordingly, the final and temporaryregulations (T.D. 9344) that were the sub-ject of FR. Doc. E7–14053 are correctedas follows:

1. On page 39738, column 1, in thepreamble, under the caption “FOR FUR-THER INFORMATION CONTACT:”,line 2, the language “Robin M. Ferguson,(202) 622–3610 (not” is corrected to read“Robin M. Ferguson, (202) 622–3630(not”.

2. On page 39739, column 1, in the pre-amble, under paragraph heading “DraftingInformation”, lines 4 and 5, the language“and Administration (Collection, Bank-ruptcy and Summonses Division)” shouldbe corrected to read “and Administration.”

LaNita Van Dyke,Branch Chief,

Publications and Regulations Branch,Legal Processing Division,



Change to Office to WhichNotices of Nonjudicial Saleand Requests for Return ofWrongfully Levied PropertyMust Be Sent; Correction



ACTION: Correction to notice of pro-posed rulemaking by cross-reference totemporary regulations.

SUMMARY: This document contains cor-rections to notice of proposed rulemaking(REG–148951–05, 2007–36 I.R.B. 550)by cross-reference to temporary regula-tions that was published in the FederalRegister on Friday, July 20, 2007 relatingto the discharge of liens under section 7425and return of wrongfully levied propertyunder section 6343.

FOR FURTHER INFORMATIONCONTACT: Robin M. Ferguson at (202)622–3630.


Background

The notice of proposed rulemaking bycross-reference to temporary regulations(REG–148951–05) that is the subject ofthese corrections is under sections 7425and 6343 of the Internal Revenue Code.

Need for Correction

As published, the notice of proposedrulemaking by cross-reference to tempo-rary regulations (REG–148951–05) con-tains errors that may prove to be mislead-ing and are in need of clarification.

Correction of Publication

Accordingly, the notice of proposedrulemaking by cross-reference to tempo-rary regulations (REG–148951–05) thatwas the subject of FR. Doc. E7–14051 iscorrected as follows:

1. On page 39771, column 3, inthe preamble, under the caption “FORFURTHER INFORMATION CON-TACT:”, line 1, the language “RobinM. Ferguson, (202) 622–3610; is cor-rected to read “Robin M. Ferguson, (202)622–3630;”.

2. On page 39772, column 1, in the pre-amble, under paragraph heading “DraftingInformation”, lines 4 and 5, the language“and Administration (Collection, Bank-ruptcy and Summonses Division)” shouldbe corrected to read “and Administration.”

LaNita Van Dyke,Branch Chief,

Publications and Regulations Branch,Legal Processing Division,



October 15, 2007 858 2007–42 I.R.B.

Deletions From CumulativeList of OrganizationsContributions to Whichare Deductible Under Section170 of the Code


The Internal Revenue Service has re-voked its determination that the organi-zations listed below qualify as organiza-tions described in sections 501(c)(3) and170(c)(2) of the Internal Revenue Code of1986.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is not

precluded from disallowing a deductionfor any contributions made after an or-ganization ceases to qualify under section170(c)(2) if the organization has not timelyfiled a suit for declaratory judgment undersection 7428 and if the contributor (1) hadknowledge of the revocation of the rulingor determination letter, (2) was aware thatsuch revocation was imminent, or (3) wasin part responsible for or was aware of theactivities or omissions of the organizationthat brought about this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-tributions from individuals and organiza-tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin on October 15, 2007,and would end on the date the court firstdetermines that the organization is not de-

scribed in section 170(c)(2) as more partic-ularly set forth in section 7428(c)(1). Forindividual contributors, the maximum de-duction protected is $1,000, with a hus-band and wife treated as one contributor.This benefit is not extended to any indi-vidual, in whole or in part, for the acts oromissions of the organization that were thebasis for revocation.

The Georgetown FoundationSandy, UT

Lumberton Family Life Center, Inc.Lumberton, MS

Truth in Youth & Family Services, Inc.Leland, NC

Cunningham Charitable GroupLos Angeles, CA

2007–42 I.R.B. 859 October 15, 2007

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.

October 15, 2007 i 2007–42 I.R.B.

Numerical Finding List1

Bulletins 2007–27 through 2007–42

Announcements:

2007-61, 2007-28 I.R.B. 84

2007-62, 2007-29 I.R.B. 115

2007-63, 2007-30 I.R.B. 236

2007-64, 2007-29 I.R.B. 125

2007-65, 2007-30 I.R.B. 236

2007-66, 2007-31 I.R.B. 296

2007-67, 2007-32 I.R.B. 345

2007-68, 2007-32 I.R.B. 348

2007-69, 2007-33 I.R.B. 371

2007-70, 2007-33 I.R.B. 371

2007-71, 2007-33 I.R.B. 372

2007-72, 2007-33 I.R.B. 373

2007-73, 2007-34 I.R.B. 435

2007-74, 2007-35 I.R.B. 483

2007-75, 2007-36 I.R.B. 540

2007-76, 2007-36 I.R.B. 560

2007-77, 2007-38 I.R.B. 662

2007-78, 2007-38 I.R.B. 663

2007-79, 2007-40 I.R.B. 749

2007-80, 2007-38 I.R.B. 667

2007-81, 2007-38 I.R.B. 667

2007-82, 2007-40 I.R.B. 749

2007-83, 2007-40 I.R.B. 752

2007-84, 2007-41 I.R.B. 797

2007-85, 2007-39 I.R.B. 719

2007-86, 2007-39 I.R.B. 719

2007-87, 2007-40 I.R.B. 753

2007-88, 2007-42 I.R.B. 801

2007-89, 2007-41 I.R.B. 798

2007-90, 2007-42 I.R.B. 856

2007-91, 2007-42 I.R.B. 857

2007-92, 2007-42 I.R.B. 857

2007-93, 2007-42 I.R.B. 858

2007-94, 2007-42 I.R.B. 858

2007-96, 2007-42 I.R.B. 859

Notices:

2007-54, 2007-27 I.R.B. 12

2007-55, 2007-27 I.R.B. 13

2007-56, 2007-27 I.R.B. 15

2007-57, 2007-29 I.R.B. 87

2007-58, 2007-29 I.R.B. 88

2007-59, 2007-30 I.R.B. 135

2007-60, 2007-35 I.R.B. 466

2007-61, 2007-30 I.R.B. 140

2007-62, 2007-32 I.R.B. 331

2007-63, 2007-33 I.R.B. 353

2007-64, 2007-34 I.R.B. 385

2007-65, 2007-34 I.R.B. 386

2007-66, 2007-34 I.R.B. 387

2007-67, 2007-35 I.R.B. 467

Notices— Continued:

2007-68, 2007-35 I.R.B. 468

2007-69, 2007-35 I.R.B. 468

2007-70, 2007-40 I.R.B. 735

2007-71, 2007-35 I.R.B. 472

2007-72, 2007-36 I.R.B. 544

2007-73, 2007-36 I.R.B. 545

2007-74, 2007-37 I.R.B. 585

2007-75, 2007-39 I.R.B. 679

2007-76, 2007-40 I.R.B. 735

2007-77, 2007-40 I.R.B. 735

2007-78, 2007-41 I.R.B. 780

2007-79, 2007-42 I.R.B. 809

Proposed Regulations:

REG-121475-03, 2007-35 I.R.B. 474

REG-128274-03, 2007-33 I.R.B. 356

REG-114084-04, 2007-33 I.R.B. 359

REG-149036-04, 2007-33 I.R.B. 365

REG-149036-04, 2007-34 I.R.B. 411

REG-101001-05, 2007-36 I.R.B. 548

REG-119097-05, 2007-28 I.R.B. 74

REG-128843-05, 2007-37 I.R.B. 587

REG-142695-05, 2007-39 I.R.B. 681

REG-143397-05, 2007-41 I.R.B. 790

REG-147171-05, 2007-32 I.R.B. 334

REG-148951-05, 2007-36 I.R.B. 550

REG-163195-05, 2007-33 I.R.B. 366

REG-118886-06, 2007-37 I.R.B. 591

REG-128224-06, 2007-36 I.R.B. 551

REG-138707-06, 2007-32 I.R.B. 342

REG-139268-06, 2007-34 I.R.B. 415

REG-142039-06, 2007-34 I.R.B. 415

REG-144540-06, 2007-31 I.R.B. 296

REG-148393-06, 2007-39 I.R.B. 714

REG-103842-07, 2007-28 I.R.B. 79

REG-113891-07, 2007-42 I.R.B. 821

REG-116215-07, 2007-38 I.R.B. 659

REG-118719-07, 2007-37 I.R.B. 593

Revenue Procedures:

2007-42, 2007-27 I.R.B. 15

2007-43, 2007-27 I.R.B. 26

2007-44, 2007-28 I.R.B. 54

2007-45, 2007-29 I.R.B. 89

2007-46, 2007-29 I.R.B. 102

2007-47, 2007-29 I.R.B. 108

2007-48, 2007-29 I.R.B. 110

2007-49, 2007-30 I.R.B. 141

2007-50, 2007-31 I.R.B. 244

2007-51, 2007-30 I.R.B. 143

2007-52, 2007-30 I.R.B. 222

2007-53, 2007-30 I.R.B. 233

2007-54, 2007-31 I.R.B. 293

2007-55, 2007-33 I.R.B. 354

2007-56, 2007-34 I.R.B. 388

Revenue Procedures— Continued:

2007-57, 2007-36 I.R.B. 547

2007-58, 2007-37 I.R.B. 585

2007-59, 2007-40 I.R.B. 745

2007-60, 2007-39 I.R.B. 679

2007-61, 2007-40 I.R.B. 747

2007-62, 2007-41 I.R.B. 786

2007-63, 2007-42 I.R.B. 809

2007-64, 2007-42 I.R.B. 818

Revenue Rulings:

2007-42, 2007-28 I.R.B. 44

2007-43, 2007-28 I.R.B. 45

2007-44, 2007-28 I.R.B. 47

2007-45, 2007-28 I.R.B. 49

2007-46, 2007-30 I.R.B. 126

2007-47, 2007-30 I.R.B. 127

2007-48, 2007-30 I.R.B. 129

2007-49, 2007-31 I.R.B. 237

2007-50, 2007-32 I.R.B. 311

2007-51, 2007-37 I.R.B. 573

2007-52, 2007-37 I.R.B. 575

2007-53, 2007-37 I.R.B. 577

2007-54, 2007-38 I.R.B. 604

2007-55, 2007-38 I.R.B. 604

2007-56, 2007-39 I.R.B. 668

2007-57, 2007-36 I.R.B. 531

2007-58, 2007-37 I.R.B. 562

2007-59, 2007-37 I.R.B. 582

2007-60, 2007-38 I.R.B. 606

2007-61, 2007-42 I.R.B. 799

2007-62, 2007-41 I.R.B. 767

2007-63, 2007-41 I.R.B. 778

Tax Conventions:

2007-75, 2007-36 I.R.B. 540

2007-88, 2007-42 I.R.B. 801

Treasury Decisions:

9326, 2007-31 I.R.B. 242

9327, 2007-28 I.R.B. 50

9328, 2007-27 I.R.B. 1

9329, 2007-32 I.R.B. 312

9330, 2007-31 I.R.B. 239

9331, 2007-32 I.R.B. 298

9332, 2007-32 I.R.B. 300

9333, 2007-33 I.R.B. 350

9334, 2007-34 I.R.B. 382

9335, 2007-34 I.R.B. 380

9336, 2007-35 I.R.B. 461

9337, 2007-35 I.R.B. 455

9338, 2007-35 I.R.B. 463

9339, 2007-35 I.R.B. 437

9340, 2007-36 I.R.B. 487

9341, 2007-35 I.R.B. 449

9342, 2007-35 I.R.B. 451

1 A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin2007–26, dated June 25, 2007.

2007–42 I.R.B. ii October 15, 2007

Treasury Decisions— Continued:

9343, 2007-36 I.R.B. 533

9344, 2007-36 I.R.B. 535

9345, 2007-36 I.R.B. 523

9346, 2007-37 I.R.B. 570

9347, 2007-38 I.R.B. 624

9348, 2007-37 I.R.B. 563

9349, 2007-39 I.R.B. 668

9350, 2007-38 I.R.B. 607

9351, 2007-38 I.R.B. 616

9352, 2007-38 I.R.B. 621

9353, 2007-40 I.R.B. 721

9354, 2007-41 I.R.B. 759

9355, 2007-37 I.R.B. 577

9356, 2007-39 I.R.B. 675

9357, 2007-41 I.R.B. 773

9358, 2007-41 I.R.B. 769

October 15, 2007 iii 2007–42 I.R.B.

Finding List of Current Actions onPreviously Published Items1

Bulletins 2007–27 through 2007–42

Announcements:

84-26

Obsoleted by

T.D. 9336, 2007-35 I.R.B. 461

84-37

Obsoleted by

T.D. 9336, 2007-35 I.R.B. 461

Notices:

89-110

Modified by

REG-142695-05, 2007-39 I.R.B. 681

99-6

Obsoleted as of January 1, 2009 by

T.D. 9356, 2007-39 I.R.B. 675

2002-45

Modified by

REG-142695-05, 2007-39 I.R.B. 681

2003-81

Modified and supplemented by

Notice 2007-71, 2007-35 I.R.B. 472

2006-1

Modified by

Notice 2007-70, 2007-40 I.R.B. 735

2006-43

Modified by

T.D. 9332, 2007-32 I.R.B. 300

2006-56

Clarified by

Notice 2007-74, 2007-37 I.R.B. 585

2006-89

Modified by

Notice 2007-67, 2007-35 I.R.B. 467

2007-3

Modified by

Notice 2007-69, 2007-35 I.R.B. 468

2007-26

Modified by

Notice 2007-56, 2007-27 I.R.B. 15

Proposed Regulations:

EE-16-79

Withdrawn by

REG-142695-05, 2007-39 I.R.B. 681

EE-130-86

Withdrawn by

REG-142695-05, 2007-39 I.R.B. 681

Proposed Regulations— Continued:

REG-243025-96

Withdrawn by

REG-142695-05, 2007-39 I.R.B. 681

REG-117162-99

Withdrawn by

REG-142695-05, 2007-39 I.R.B. 681

REG-157711-02

Corrected by

Ann. 2007-74, 2007-35 I.R.B. 483

REG-119097-05

Hearing location change by

Ann. 2007-81, 2007-38 I.R.B. 667

REG-142695-05


Ann. 2007-91, 2007-42 I.R.B. 857

REG-148951-05

Corrected by

Ann. 2007-94, 2007-42 I.R.B. 858

REG-109367-06

Hearing scheduled by

Ann. 2007-66, 2007-31 I.R.B. 296

REG-128224-06


Ann. 2007-92, 2007-42 I.R.B. 857

REG-138707-06

Corrected by

Ann. 2007-79, 2007-40 I.R.B. 749

REG-143601-06

Corrected by

Ann. 2007-71, 2007-33 I.R.B. 372

REG-143797-06

Cancellation of hearing by

Ann. 2007-85, 2007-39 I.R.B. 719

REG-103842-07

Corrected by

Ann. 2007-77, 2007-38 I.R.B. 662

Revenue Procedures:

90-27

Superseded by

Rev. Proc. 2007-52, 2007-30 I.R.B. 222

95-28

Superseded by

Rev. Proc. 2007-54, 2007-31 I.R.B. 293

97-14

Modified and superseded by

Rev. Proc. 2007-47, 2007-29 I.R.B. 108

98-48

Modified by

T.D. 9353, 2007-40 I.R.B. 721

Revenue Procedures— Continued:

2002-9

Modified and amplified by

Rev. Proc. 2007-48, 2007-29 I.R.B. 110Rev. Proc. 2007-53, 2007-30 I.R.B. 233

2003-43

Supplemented by

Rev. Proc. 2007-62, 2007-41 I.R.B. 786

2004-42

Superseded by

Notice 2007-59, 2007-30 I.R.B. 135

2004-48

Supplemented by

Rev. Proc. 2007-62, 2007-41 I.R.B. 786

2005-16

Modified by

Rev. Proc. 2007-44, 2007-28 I.R.B. 54

2005-27

Superseded by

Rev. Proc. 2007-56, 2007-34 I.R.B. 388

2005-66

Clarified, modified, and superseded by

Rev. Proc. 2007-44, 2007-28 I.R.B. 54

2006-25

Superseded by

Rev. Proc. 2007-42, 2007-27 I.R.B. 15

2006-27

Modified by

Rev. Proc. 2007-49, 2007-30 I.R.B. 141

2006-33

Superseded by

Rev. Proc. 2007-51, 2007-30 I.R.B. 143

2006-41

Superseded by

Rev. Proc. 2007-63, 2007-42 I.R.B. 809

2006-45

Modified and clarified by

Rev. Proc. 2007-64, 2007-42 I.R.B. 818

2006-53

Modified by

Rev. Proc. 2007-60, 2007-39 I.R.B. 679

2006-55

Superseded by

Rev. Proc. 2007-43, 2007-27 I.R.B. 26

2007-4

Modified by

Notice 2007-69, 2007-35 I.R.B. 468

2007-15

Superseded by

Rev. Proc. 2007-50, 2007-31 I.R.B. 244

1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin 2007–26, dated June 25, 2007.

2007–42 I.R.B. iv October 15, 2007

Revenue Rulings:

54-378

Clarified by

Rev. Rul. 2007-51, 2007-37 I.R.B. 573

67-93

Obsoleted by

T.D. 9347, 2007-38 I.R.B. 624

69-141

Modified by

REG-142695-05, 2007-39 I.R.B. 681

74-299

Amplified by

Rev. Rul. 2007-48, 2007-30 I.R.B. 129

75-425

Obsoleted by

Rev. Rul. 2007-60, 2007-38 I.R.B. 606

76-278

Obsoleted by

T.D. 9354, 2007-41 I.R.B. 759

76-288

Obsoleted by

T.D. 9354, 2007-41 I.R.B. 759

76-450

Obsoleted by

T.D. 9347, 2007-38 I.R.B. 624

78-257

Obsoleted by

T.D. 9347, 2007-38 I.R.B. 624

78-369

Revoked by

Rev. Rul. 2007-53, 2007-37 I.R.B. 577

89-96

Amplified by

Rev. Rul. 2007-47, 2007-30 I.R.B. 127

92-17

Modified by

Rev. Rul. 2007-42, 2007-28 I.R.B. 44

94-62

Supplemented by

Rev. Rul. 2007-58, 2007-37 I.R.B. 562

2001-48

Modified by

T.D. 9332, 2007-32 I.R.B. 300

2002-41

Modified by

REG-142695-05, 2007-39 I.R.B. 681

2003-102

Modified by

REG-142695-05, 2007-39 I.R.B. 681

2005-24

Modified by

REG-142695-05, 2007-39 I.R.B. 681

Revenue Rulings— Continued:

2006-36

Modified by

REG-142695-05, 2007-39 I.R.B. 681

2006-57

Modified by

Notice 2007-76, 2007-40 I.R.B. 735

2007-54

Suspended by

Rev. Rul. 2007-61, 2007-42 I.R.B. 799

2007-59

Amplified by

Notice 2007-74, 2007-37 I.R.B. 585

Treasury Decisions:

8073

Removed by

T.D. 9349, 2007-39 I.R.B. 668

9321

Corrected by

Ann. 2007-68, 2007-32 I.R.B. 348Ann. 2007-78, 2007-38 I.R.B. 663

9330

Corrected by

Ann. 2007-80, 2007-38 I.R.B. 667

9332

Corrected by

Ann. 2007-83, 2007-40 I.R.B. 752Ann. 2007-84, 2007-41 I.R.B. 797

9334

Corrected by

Ann. 2007-93, 2007-42 I.R.B. 858

October 15, 2007 v 2007–42 I.R.B.

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