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Bulletin No. 2007-32 August 6, 2007 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX Rev. Rul. 2007–50, page 311. Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For pur- poses of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for August 2007. T.D. 9329, page 312. Final regulations under section 1502 of the Code simplify, clar- ify, or eliminate taxpayer reporting burdens. They also elimi- nate regulatory impediments to the electronic filing of certain statements that taxpayers are required to include on or with their federal income tax returns. T.D. 9332, page 300. REG–138707–06, page 342. Final, temporary, and proposed regulations under sections 883(a) and (c) of the Code relate to the exclusion from gross income of income derived by certain foreign corporations engaged in the international operation of ships or aircraft. The regulations introduce a new qualified U.S. person ownership test to replace the income inclusion test and provide corre- sponding documentation and reporting rules. The regulations also identify in regulations section 1.883–1(g) certain services as activities that are incidental to the international operation of ships or aircraft. They also explain in regulations section 1.883–1(h) that a foreign country may grant an equivalent exemption solely by means of an income tax convention. A public hearing on the proposed regulations is scheduled for October 24, 2007. Rev. Rul. 2001–48 and Notice 2006–43 modified. REG–147171–05, page 334. Proposed regulations under section 274 of the Code provide rules relating to the deduction for expenses for the use of busi- ness aircraft for entertainment of specified individuals. A public hearing is scheduled for October 25, 2007. EMPLOYEE PLANS T.D. 9331, page 298. Final regulations amend section 408(a) of the Code with regard to the requirements under section 408(a) for non-bank trustees for deemed IRAs. The regulations under section 408(a) provide that the Commissioner may, in his discretion, allow governmen- tal entities to act as qualified nonbank trustees for deemed IRAs which are part of the entities’ qualified employer plan within the meaning of section 408(q). Notice 2007–62, page 331. This notice announces the intent of the Treasury Department and the Service to issue guidance under section 457 of the Code, which applies to nonqualified deferred compensation plans of state and local governments and tax exempt entities, concerning the definitions of a bona fide severance pay plan under section 457(e)(11) and a substantial risk of forfeiture under section 457(f)(1)(B). This notice also describes the guid- ance that the Treasury and the Service anticipate issuing and requests comments on the issues intended to be addressed by such guidance. Announcement 2007–68, page 348. This document contains numerous corrections to the preamble of final regulations (T.D. 9321, 2007–19 I.R.B. 1123) setting forth guidance on the application of section 409A to nonqual- ified compensation plans. (Continued on the next page) Finding Lists begin on page ii.

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Page 1: IRB 2007-32 (Rev. August 6, 2007) - Internal Revenue Service · 2007–32 I.R.B. August 6, 2007 August 6, 2007 2007–32 I.R.B. Part I. Rulings and Decisions Under the Internal Revenue

Bulletin No. 2007-32August 6, 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. 2007–50, page 311.Federal rates; adjusted federal rates; adjusted federallong-term rate and the long-term exempt rate. For pur-poses of sections 382, 642, 1274, 1288, and other sectionsof the Code, tables set forth the rates for August 2007.

T.D. 9329, page 312.Final regulations under section 1502 of the Code simplify, clar-ify, or eliminate taxpayer reporting burdens. They also elimi-nate regulatory impediments to the electronic filing of certainstatements that taxpayers are required to include on or withtheir federal income tax returns.

T.D. 9332, page 300.REG–138707–06, page 342.Final, temporary, and proposed regulations under sections883(a) and (c) of the Code relate to the exclusion from grossincome of income derived by certain foreign corporationsengaged in the international operation of ships or aircraft. Theregulations introduce a new qualified U.S. person ownershiptest to replace the income inclusion test and provide corre-sponding documentation and reporting rules. The regulationsalso identify in regulations section 1.883–1(g) certain servicesas activities that are incidental to the international operationof ships or aircraft. They also explain in regulations section1.883–1(h) that a foreign country may grant an equivalentexemption solely by means of an income tax convention. Apublic hearing on the proposed regulations is scheduled forOctober 24, 2007. Rev. Rul. 2001–48 and Notice 2006–43modified.

REG–147171–05, page 334.Proposed regulations under section 274 of the Code providerules relating to the deduction for expenses for the use of busi-ness aircraft for entertainment of specified individuals. A publichearing is scheduled for October 25, 2007.

EMPLOYEE PLANS

T.D. 9331, page 298.Final regulations amend section 408(a) of the Code with regardto the requirements under section 408(a) for non-bank trusteesfor deemed IRAs. The regulations under section 408(a) providethat the Commissioner may, in his discretion, allow governmen-tal entities to act as qualified nonbank trustees for deemed IRAswhich are part of the entities’ qualified employer plan within themeaning of section 408(q).

Notice 2007–62, page 331.This notice announces the intent of the Treasury Departmentand the Service to issue guidance under section 457 of theCode, which applies to nonqualified deferred compensationplans of state and local governments and tax exempt entities,concerning the definitions of a bona fide severance pay planunder section 457(e)(11) and a substantial risk of forfeitureunder section 457(f)(1)(B). This notice also describes the guid-ance that the Treasury and the Service anticipate issuing andrequests comments on the issues intended to be addressed bysuch guidance.

Announcement 2007–68, page 348.This document contains numerous corrections to the preambleof final regulations (T.D. 9321, 2007–19 I.R.B. 1123) settingforth guidance on the application of section 409A to nonqual-ified compensation plans.

(Continued on the next page)

Finding Lists begin on page ii.

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EXEMPT ORGANIZATIONS

Announcement 2007–67, page 345.A list is provided of organizations now classified as private foun-dations.

ADMINISTRATIVE

T.D. 9329, page 312.Final regulations under section 1502 of the Code simplify, clar-ify, or eliminate taxpayer reporting burdens. They also elimi-nate regulatory impediments to the electronic filing of certainstatements that taxpayers are required to include on or withtheir federal income tax returns.

August 6, 2007 2007–32 I.R.B.

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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.

2007–32 I.R.B. August 6, 2007

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August 6, 2007 2007–32 I.R.B.

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Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 42.—Low-IncomeHousing Credit

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

Section 61.—Gross IncomeDefined26 CFR 1.61–21: Taxation of fringe benefits.

Proposed regulations provide rules relating to thevaluation for income inclusion purposes of the enter-tainment use of business aircraft by specified individ-uals. See REG-147171-05, page 334.

Section 280G.—GoldenParachute Payments

Federal short-term, mid-term, and long-term ratesare set forth for the month of August 2007. See Rev.Rul. 2007-50, page 311.

Section 302.—Distributionsin Redemption of Stock

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 331.—Gain orLoss to Shareholders inCorporate Liquidations

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 332.—CompleteLiquidations of Subsidiaries

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 338.—CertainStock Purchases Treatedas Asset Acquisitions

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 351.—Transferto Corporation Controlledby Transferor

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 355.—Distributionof Stock and Securities ofa Controlled Corporation

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 368.—DefinitionsRelating to CorporateReorganizations

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 381.—Carryoversin Certain CorporateAcquisitions

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 382.—Limitationon Net Operating LossCarryforwards and CertainBuilt-In Losses FollowingOwnership Change

The adjusted applicable federal long-term rate isset forth for the month of August 2007. See Rev. Rul.2007-50, page 311.

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 408.—IndividualRetirement Accounts26 CFR 1.408–2: Individual retirement accounts.

T.D. 9331

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Part 1

Deemed IRAs in GovernmentalPlans/Qualified NonbankTrustee Rules

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations and removalof temporary regulations.

SUMMARY: This document contains finalregulations under section 408 of the Inter-nal Revenue Code. The final regulationsprovide special rules for a governmentalunit which seeks to qualify as a nonbanktrustee of a deemed IRA that is part ofits qualified employer plan. These finalregulations affect only such governmentalunits.

DATES: Effective Date: June 18, 2007.Applicability Date: For dates of appli-

cability, see §1.408–2(e)(8)(iv).

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FOR FURTHER INFORMATIONCONTACT: Linda L. Conway,202–622–6090, or Cathy A. Vohs,202–622–6090 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains final amend-ments to the Income Tax Regulations(26 CFR Part 1) under section 408 of theInternal Revenue Code of 1986 (Code).On July 22, 2004, temporary and pro-posed regulations under section 408 wereissued. A notice of proposed rulemak-ing (REG–101447–04, 2004–2 C.B. 344)was published in the Federal Register(69 FR 43786). The text of the temporaryregulations also served as the text of theproposed regulations. The text of tempo-rary §1.408–2(e)(8) was published in thesame issue of the Federal Register (T.D.9142, 2004–2 C.B. 302 [69 FR 43735]).The RIN published in connection withthat notice of proposed rulemaking was1545–BD07. However, due to technicaldifficulties that RIN is no longer valid andthe RIN number of these final regulationsis 1545–BG46. No comments were re-ceived regarding the proposed regulations.

Explanation of Provisions andSummary of Comments

These final regulations amend§1.408–2(e) of the regulations to pro-vide that a governmental unit may serve asthe trustee of any deemed IRA establishedby that governmental unit as part of itsqualified employer plan if that govern-mental unit establishes to the satisfactionof the Commissioner that the manner inwhich it will administer the deemed IRAwill be consistent with the requirements ofsection 408. These final regulations alsoprovide special rules regarding the ap-plication of §1.408–2(e) to governmentalunits. These final regulations are adoptedwithout substantive change from the pro-posed and temporary regulations. Thesefinal regulations are applicable for writtenapplications made on or after June 18,2007. The rules in this section also maybe relied on for applications submitted onor after August 1, 2003 (or such earlierapplication as the Commissioner deemsappropriate) and before June 18, 2007.

Special Analyses

It has been determined that this Trea-sury Decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It also has been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) doesnot apply to these regulations, and, be-cause the regulation does not impose a col-lection of information on small entities, theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) does not apply. Pursuant to section7805(f) of the Code, the notice of proposedrulemaking preceding these final regula-tions was submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on its impact onsmall business.

Drafting Information

The principal author of these regula-tions is Linda L. Conway of the Officeof the Division Counsel/Associate ChiefCounsel (Tax Exempt and GovernmentEntities). However, other personnel fromthe IRS and Treasury Department par-ticipated in the development of theseregulations.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR part 1 is amendedas 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 1.408–2 (e)(8) is revised

to read as follows:

§1.408–2 Individual retirement accounts.

* * * * *(e) * * *(8) Special rules for governmental

units—(i) In general. A governmentalunit that seeks to qualify as a nonbanktrustee of a deemed IRA that is part of itsqualified employer plan must demonstrateto the satisfaction of the Commissionerthat it is able to administer the trust in a

manner that is consistent with the require-ments of section 408. The demonstrationmust be made by written application tothe Commissioner. Notwithstanding therequirement of paragraph (e)(1) of thissection that a person must demonstrateby written application that the require-ments of paragraphs (e)(2) through (e)(6)of this section will be met in order toqualify as a nonbank trustee, a govern-mental unit that maintains a plan qualifiedunder section 401(a), 403(a), 403(b) or457 need not demonstrate that all of theserequirements will be met with respect toany individual retirement accounts main-tained by that governmental unit pursuantto section 408(q). For example, a gov-ernmental unit need not demonstrate thatit satisfies the net worth requirements ofparagraph (e)(3)(ii) of this section if itdemonstrates instead that it possesses tax-ing authority under applicable law. TheCommissioner, in his discretion, may ex-empt a governmental unit from certainother requirements upon a showing thatthe governmental unit is able to administerthe deemed IRAs in the best interest ofthe participants. Moreover, in determiningwhether a governmental unit satisfies theother requirements of paragraphs (e)(2)through (e)(6) of this section, the Com-missioner may apply the requirements ina manner that is consistent with the appli-cant’s status as a governmental unit.

(ii) Governmental unit. For purposesof this special rule, the term governmentalunit means a state, political subdivision ofa state, and any agency or instrumentalityof a state or political subdivision of a state.

(iii) Additional rules. The Commis-sioner may in revenue rulings, notices,or other guidance of general applicabilityprovide additional rules for governmen-tal units seeking approval as nonbanktrustees.

(iv) Effective/Applicability date. Thissection is applicable for written applica-tions made on or after June 18, 2007. Therules in this section also may be relied onfor applications submitted on or after Au-gust 1, 2003 (or such earlier application asthe Commissioner deems appropriate) andbefore June 18, 2007.

§1.408–2T [Removed]

Par. 3. Section 1.408–2T is removed.

August 6, 2007 299 2007–32 I.R.B.

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Kevin M. Brown,Deputy Commissioner forServices and Enforcement.

Approved June 2, 2007.

Eric Solomon,Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on June 15, 2007,8:45 a.m., and published in the issue of the Federal Registerfor June 18, 2007, 72 F.R. 33387)

Section 412.—MinimumFunding Standards

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

Section 467.—CertainPayments for the Use ofProperty or Services

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

Section 468.—SpecialRules for Mining and SolidWaste Reclamation andClosing Costs

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

Section 482.—Allocationof Income and DeductionsAmong Taxpayers

Federal short-term, mid-term, and long-term ratesare set forth for the month of August 2007. See Rev.Rul. 2007-50, page 311.

Section 483.—Interest onCertain Deferred Payments

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

Section 642.—SpecialRules for Credits andDeductions

Federal short-term, mid-term, and long-term ratesare set forth for the month of August 2007. See Rev.Rul. 2007-50, page 311.

Section 807.—Rules forCertain Reserves

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

Section 846.—DiscountedUnpaid Losses Defined

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

Section 883.—ExclusionsFrom Gross Income26 CFR 1.883–1: Exclusion of income from the inter-national operation of ships or aircraft.

T.D. 9332

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Parts 1 and 602

Exclusions From Gross Incomeof Foreign Corporations

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final and temporary regula-tions.

SUMMARY: This document containsfinal and temporary regulations under sec-tion 883(a) and (c) of the Internal RevenueCode (Code), relating to the exclusionfrom gross income of income derived bycertain foreign corporations engaged in theinternational operation of ships or aircraft.These regulations revise §1.883–3 of thefinal regulations, relating to the eligibilityof controlled foreign corporations for theexclusion under section 883, following therepeal of section 954(a)(4) and (f) (foreignbase company shipping provisions) by

section 415 of the American Jobs CreationAct of 2004. In addition, these regulationsprovide certain additional guidance un-der section 883(a) and (c), including forforeign corporations that are organized incountries providing an exemption fromtaxation for certain shipping and air trans-port income solely through an income taxconvention. The text of these temporaryregulations also serves as the text of theproposed regulations (REG–138707–06)set forth in this issue of the Bulletin.

DATES: Effective Date: These regulationsare effective on June 25, 2007.

Applicability Date: For dates of appli-cability, see §1.883–5T.

FOR FURTHER INFORMATIONCONTACT: Patricia A. Bray, at (202)622–3880 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

These regulations are being issuedwithout prior notice and public procedurepursuant to the Administrative ProcedureAct (5 U.S.C. 553). For this reason, thecollections of information contained inthese regulations has been reviewed, andpending receipt and evaluation of pub-lic comments, approved by the Office ofManagement and Budget under controlnumber 1545–1667. Responses to thesecollections of information are mandatory.

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.

For further information concerningthese collections of information, whereto submit comments on the collectionsof information and the accuracy of theestimated burden, and suggestions forreducing this burden, please refer to thepreamble to the cross-referencing noticeof proposed rulemaking published in thisissue of the Bulletin.

Books and records relating to a collec-tion of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns and taxreturn information are confidential, as re-quired by 26 U.S.C. 6103.

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Background

1. Section 883 and the Final Regulations

Sections 883(a)(1) and (a)(2) of theCode generally provide that income fromthe international operation of ships oraircraft derived by a foreign corporationwill be excluded from gross income andexempt from U.S. taxation if the foreigncountry in which the corporation is or-ganized grants an equivalent exemptionto corporations organized in the UnitedStates. Section 883(c)(1) provides that aforeign corporation cannot qualify for thesection 883(a) exemption if 50 percent ormore of the value of its stock is ownedby individuals who are not residents of acountry that grants an equivalent exemp-tion to U.S. corporations. However, undersection 883(c)(2), section 883(c)(1) doesnot apply to a foreign corporation that is acontrolled foreign corporation as definedin section 957(a) (CFC). In addition, undersection 883(c)(3), section 883(c)(1) doesnot apply to a foreign corporation whosestock is primarily and regularly tradedon an established securities market in theUnited States or in a foreign country thatgrants an equivalent exemption to U.S.corporations.

On August 26, 2003, the IRS and theTreasury Department issued final regu-lations under section 883 in T.D. 9087,2003–2 C.B. 781 [68 FR 51394]. Thefinal regulations provide, in general, thata foreign corporation organized in a qual-ified foreign country and engaged in theinternational operation of ships or air-craft may exclude qualified income fromgross income for purposes of U.S. Fed-eral income taxation provided that thecorporation can satisfy certain ownershipand related substantiation and reportingrequirements. A foreign corporation thatmeets these requirements is a “qualifiedforeign corporation.” A foreign countrythat grants U.S. corporations an equiv-alent exemption from gross income is a“qualified foreign country.” The final reg-ulations also provide definitions of theterms “qualified income” and “equivalentexemption.” In addition, the final regula-tions specify how a foreign corporationcan satisfy the ownership and related sub-stantiation and reporting requirements,and the information that the foreign cor-

poration must include on its U.S. incometax return in order to claim an exemption.

In general, a foreign corporation mustown or lease an entire ship or aircraft,and the ship or aircraft must carry cargo orpassengers for hire, in order for the foreigncorporation to be engaged in the opera-tion of a ship or aircraft for this purpose.Section 1.883–1(e). Section 1.883–1(f)provides rules for determining whetherincome is derived from the internationaloperation of a ship or aircraft. Section1.883–1(g)(1) provides rules for determin-ing whether certain activities of a foreigncorporation that is engaged in the interna-tional operation of ships or aircraft are soclosely related to that operation as to beconsidered incidental to the internationaloperation of ships or aircraft. The finalregulations provide a nonexclusive list ofactivities that are considered incidentalto the international operation of ships oraircraft. Income from these incidentalactivities is deemed to be income derivedfrom the international operation of a shipor aircraft for purposes of the exclusionunder section 883. Section 1.883–1(g)(2)also provides a nonexclusive list of ac-tivities that are not incidental to the in-ternational operation of ships or aircraft.The final regulations reserve on whetherservices, including ground services, main-tenance, catering, and other services, areconsidered incidental to the internationaloperation of ships or aircraft.

Section 1.883–1(h) provides that anequivalent exemption may exist if a for-eign country generally imposes no tax onincome or specifically provides a domes-tic tax law exemption for income derivedfrom the international operation of ships oraircraft. Alternatively, a foreign countrymay exchange a diplomatic note, or enterinto an agreement, with the United Statesthat provides for a reciprocal exemptionfor purposes of section 883. Section1.883–1(h)(3)(i) generally provides thata foreign country that grants an exemp-tion from taxation for income from theinternational operation of ships or aircraftsolely through an income tax conventionwith the United States is not consideredto grant an equivalent exemption. Thus,a corporation organized in such a countrymay not claim an exclusion under section883, and can only claim available treatybenefits to exempt income derived frominternational transport.

The final regulations require that a for-eign corporation must satisfy one of threestock ownership tests to satisfy the own-ership requirements of section 883(c): apublicly-traded test in §1.883–2(a), a CFCstock ownership test in §1.883–3(a), or aqualified shareholder stock ownership testin §1.883–4(a). Under §1.883–3(a), a for-eign corporation satisfies the CFC stockownership test if it meets an “income in-clusion test” and satisfies certain substan-tiation and reporting requirements under§1.883–3(c) and (d). The income inclusiontest requires that more than 50 percent ofthe CFC’s adjusted net foreign base com-pany income (as defined in §1.954–1(d)and as increased or decreased by section952(c)) derived from the international op-eration of ships or aircraft be includiblein the gross income of one or more U.S.citizens, individual residents of the UnitedStates, or domestic corporations. Section1.883–3(b). This rule prevents individu-als residing in foreign countries that do notgrant an equivalent exemption to U.S. cor-porations from benefiting from the section883 exemption by owning a CFC througha domestic partnership, estate or trust.

Section 1.883–4 of the final regulationsprovides rules for when a foreign corpo-ration satisfies the qualified shareholderstock ownership test. To satisfy this test,qualified shareholders must own (apply-ing the attribution rules of §1.883–4(c))more than 50 percent of the value of a for-eign corporation’s outstanding shares forhalf the number of days in the corpora-tion’s taxable year. The foreign corpora-tion must also meet the substantiation andreporting requirements of §1.883–4(d) and(e). Under the reporting requirements of§1.883–4(e), a foreign corporation mustattach a statement with certain informa-tion to its Form 1120–F, “U.S. Income TaxReturn of a Foreign Corporation,” includ-ing the names and addresses of individualshareholders with large shareholdings (atleast 5 percent) in the foreign corporation.

2. Elimination of Foreign Base CompanyShipping Income

Section 415 of the American Jobs Cre-ation Act of 2004 (Public Law 108–357(118 Stat. 1418 ) (AJCA) repealed section954(a)(4) and (f), eliminating foreign basecompany shipping income as a type offoreign base company income, and there-

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fore, as subpart F income. The repealis effective for taxable years of foreigncorporations beginning after December31, 2004, and for taxable years of UnitedStates shareholders with or within whichsuch taxable years of foreign corporationsend. Section 423 of AJCA also delayedthe applicability date of the final regula-tions under section 883(a) and (c) for oneyear, until taxable years beginning afterSeptember 24, 2004.

Commentators noted that the repeal ofthe foreign base company shipping pro-visions created uncertainty about the ap-plication of the income inclusion test forCFCs that no longer have foreign basecompany income.

On August 5, 2005, the IRS and theTreasury Department issued T.D. 9218,2005–2 C.B. 503 [70 FR 45529], to con-form the applicability date of the finalregulations in light of section 423 ofAJCA. The preamble to T.D. 9218 alsoacknowledged commentators’ concernsregarding the application of the incomeinclusion test after the repeal of the for-eign base company shipping provisions.The preamble stated that a CFC that sat-isfied the income inclusion test prior tothe effective date of section 415 of AJCAwould continue to satisfy that test after theeffective date of the legislation, providedthe CFC is able to demonstrate that if theforeign base company shipping provisionshad not been repealed, more than 50 per-cent of the its current earnings and profitsderived from the international operationof ships or aircraft would have been attrib-utable to amounts includible in the grossincome of one or more U.S. citizens, in-dividual residents of the United States, ordomestic corporations (pursuant to section951(a)(1)(A) or another provision of theCode) for the taxable years of such personsin which the taxable year of the CFC ends.

The preamble to T.D. 9218 also statedthat the IRS and the Treasury Departmentwould issue regulations to clarify the ap-plication of the income inclusion test, andinvited further comments on the most ap-propriate way to accomplish a clarificationconsistent with the principles of the exist-ing section 883 regulations, and the repealof the foreign base company shipping pro-visions.

3. Issuance of Notice 2006–43

The IRS and the Treasury Departmentreceived a number of comments in re-sponse to the preamble language in T.D.9218 dealing with the income inclusiontest. Generally, commentators stated thatto require CFCs to calculate hypotheticalamounts of subpart F income as though theforeign base company shipping provisionshad not been repealed was too complexan approach to administer properly. Com-mentators proposed several alternativeapproaches they viewed as simpler to theapproach described in T.D. 9218.

After considering these comments, theIRS and the Treasury Department issuedNotice 2006–43, “Interim Guidance WithRespect to the Application of Treas. Reg.§1.883–3,” (2006–1 C.B. 921 (May 22,2006)), which announced a new approach.Under the notice, a CFC would satisfy thestock ownership test of §1.883–1(c)(2) ifit met a “qualified U.S. person ownershiptest” and satisfied revised substantiationand reporting requirements. To satisfy thequalified U.S. person ownership test, a cor-poration would be required to be a CFC formore than half the days of its taxable year,and more than 50 percent of the total valueof the CFC’s outstanding stock would haveto be owned (within the meaning of section958(a) as modified by the notice) by oneor more qualified U.S. persons for morethan half the days of its taxable year. See§601.601(d)(2).

These temporary regulations incorpo-rate the rules of Notice 2006–43, withcertain amendments, and respond to com-ments that have been received concerningother portions of the existing section 883regulations.

4. Additional Comments

The following additional commentswere received regarding the final regula-tions.

A. Ground services

The final regulations reserved onwhether the performance of a variety ofground services should be treated as activ-ities that are incidental to the internationaloperation of ships or aircraft. Section1.883–1(g)(3). The IRS and the TreasuryDepartment have received a number of

comments from the air transport industryrequesting guidance under section 883 onthe treatment of ground services, includ-ing cargo handling, maintenance services,catering, and customer service. Com-mentators have pointed to recent changesin the Commentaries to Article 8 (Ship-ping, Inland Waterways Transport and AirTransport) of the Model Tax Conventionon Income and on Capital published bythe Organisation for Economic Co-opera-tion and Development (the OECD ModelConvention) that clarify the circumstancesunder which certain services performedby an enterprise engaged in the operationof ships or aircraft in international trafficmay be either ancillary or directly relatedto such operations, and thereby coveredservices for purposes of Article 8 of theOECD Model Convention.

B. U.S. income tax conventions asequivalent exemptions

Commentators have also suggested thatcountries that provide an exemption toU.S. corporations only through an incometax convention with the United Statesshould be treated as granting an equivalentexemption for purposes of section 883.In support of their position, commenta-tors cite the Senate Committee Report tothe Tax Reform Act of 1986 (Public Law99–514 (100 Stat. 2085)), which states:

The committee intends that a countrywhich, as a result of a treaty with theUnited States, exempts U.S. citizensand domestic corporations from tax inthe country on income derived fromthe operation of ships or aircraft, hasan equivalent exemption, even thoughthe treaty technically contains certainadditional requirements other than res-idence, such as U.S. registration ordocumentation of the ship or aircraft.

(S. Rep. No. 99–313, at 343–44 (1986))Prior to 2001, a foreign country that

provided an exemption from taxation forincome from the international operationof ships or aircraft through an incometax convention was treated as grantingan equivalent exemption for purposes ofsection 883. See Rev. Rul. 89–42, 1989–1C.B. 234; Rev. Rul. 97–31, 1997–2 C.B.77 (supplementing Rev. Rul. 89–42). In2001, however, the IRS and the TreasuryDepartment reconsidered this position,and concluded that an exemption under an

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income tax convention could not consti-tute an equivalent exemption for purposesof section 883(a) because the Code andincome tax conventions have differenteligibility requirements, and provide ex-emptions that vary in scope. See Rev. Rul.2001–48, 2001–2 C.B. 324 (modifyingand superseding Rev. Rul. 97–31). Theposition taken in Rev. Rul. 2001–48 wasincorporated into §1.883–1(h)(3)(i) of thefinal regulations. See §601.601(d)(2).

C. Reporting requirements related toqualified shareholder stock ownership test

In connection with the substantia-tion and reporting requirements for thequalified shareholder stock ownershiptest under §1.883–4(a), the IRS and theTreasury Department have continued toreceive comments expressing concernover the requirement that the names andaddresses of individual shareholders withlarge shareholdings (at least 5 percent)in corporations relying on this ownershiptest be disclosed on Form 1120–F. Re-cent comments have suggested that in lieuof providing such names and addresses,taxpayers should be permitted to submita sworn statement by a U.S. tax practi-tioner subject to Circular 230 with theirreturn that states that the taxpayer satisfiesthe qualified shareholder stock ownershiptest, and that the names and addresses ofshareholders with large shareholdings areavailable for inspection by the IRS at theoffice of that such practitioner.

Explanation of Provisions

These temporary regulations incorpo-rate the rules of Notice 2006–43 and alsoaddress a number of comments that havebeen received concerning other portions ofthe existing section 883 regulations.

1. Modifications to the Income InclusionTest

These temporary regulations generallyadopt the qualified U.S. person ownershiptest contained in Notice 2006–43. A CFCmeets the qualified U.S. person ownershiptest in §1.883–3T(b)(1) only if more than50 percent of the total value of all the out-standing stock of the CFC is owned (withinthe meaning of section 958(a), as modifiedin §1.883–3T(b)(4)), by one or more qual-ified U.S. persons. The term qualified U.S.

person means a U.S. citizen, resident alien,domestic corporation, or domestic trust de-scribed in section 501(a). For purposes ofapplying the qualified U.S. person own-ership test, the value of the stock of theCFC that is owned (directly or indirectly)through bearer shares is not taken into ac-count in the numerator, but is taken intoaccount in the denominator to determinethe portion of the overall stock value that isowned by qualified U.S. persons. Section1.883–3T(b)(3).

For purposes of applying the qualifiedU.S. person ownership test, the attributionrules of section 958(a) will apply to deter-mine the ownership interests of qualifiedU.S. persons held through foreign entities.In addition, the temporary regulations ex-tend the attribution rules of section 958(a)to domestic partnerships, domestic trustsnot described in section 501(a), and do-mestic estates. In the case of these domes-tic entities, stock will be treated as ownedproportionately by the partners, beneficia-ries, grantors, or other interest holders insuch entities, respectively, applying therules of section 958(a) as if the domesticpartnership, estate, or trust were a foreignpartnership, estate, or trust, respectively.The regulations also contain conformingchanges to the substantiation and report-ing provisions in this section to reflect thenew qualified U.S. person ownership testfor CFCs. A CFC that fails this test willnot be a qualified foreign corporation un-less it meets either the publicly-traded testof §1.883–2(a) or the qualified shareholderstock ownership test of §1.883–4(a).

2. Activities Incidental to the InternationalOperation of Ships or Aircraft

The IRS and the Treasury Departmentrecognize that guidance is needed on theextent to which ground services that areconducted by foreign corporations en-gaged in the international operation ofships or aircraft are so closely related tosuch operation that they are consideredactivities incidental to the internationaloperation of ships or aircraft. Section1.883–1T(g)(1)(xi) treats the provision ofgoods and services by engineers, groundand equipment maintenance staff, cargohandlers, catering staff, and customer ser-vices personnel, and the provision of fa-cilities such as passenger lounges, counterspace, ground handling equipment, and

hanger facilities as activities incidental tothe international operation of a ship or air-craft. The regulations also make clear thatsuch services will be treated as incidental,whether provided to another enterprise aspart of a pooling arrangement, alliance, orother joint venture.

3. Countries Providing an ExemptionOnly Through an Income Tax Convention

In response to comments and fur-ther study, the IRS and the TreasuryDepartment believe that it is appropri-ate to provide additional guidance onwhen a country that only provides for anexemption by means of an income taxconvention with the United States willbe considered as granting an equivalentexemption for purposes of section 883(a).Section 1.883–1(h)(1), which sets forththe various bases on which equivalent ex-emptions may be claimed, is broadenedby §1.883–1T(h)(1)(ii) to include a do-mestic tax law exemption by income taxconvention. Section 1.883–1T(h)(3) setsout the conditions under which an exemp-tion under an income tax convention mayconstitute an equivalent exemption.

If a foreign country provides an ex-emption from tax under a shipping and airtransport or gains article of an income taxconvention with the United States, and itdoes not otherwise provide an equivalentexemption through a diplomatic note, do-mestic statutory law, or by generally notimposing income tax on foreign corpora-tions engaged in the international opera-tion of ships or aircraft, a corporation orga-nized in that country may treat that incometax convention as providing an equivalentexemption for purposes of section 883, butonly if the foreign corporation meets allthe conditions for claiming benefits withrespect to such income under the incometax convention, and the category of incomefor which the convention grants benefits isalso described in §1.883–1(h)(2).

For example, if a foreign corporationis seeking an exemption with respect tonon-incidental container-related income,it may not treat an exemption providedby an income tax convention for that typeof income as an equivalent exemption,because that category of income is notlisted in §1.883–1(h)(2). Equivalent ex-emptions are determined separately withrespect to each category of income listed

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in §1.883–1(h)(2). As a result, the foreigncorporation may treat an exemption underan income tax convention with respect toanother category of income that is listedin §1.883–1(h)(2) (for example, incidentalbareboat charter income) as an equivalentexemption for purposes of section 883.

A foreign corporation that is entitled totreat an income tax convention as provid-ing an equivalent exemption with respectto a particular category of income un-der §1.883–1T(h)(1)(ii) will not alwaysqualify for an exclusion from gross in-come under section 883. For example,a corporation that is a resident of a for-eign country for purposes of an incometax convention because that is where it ismanaged and controlled is not a qualifiedforeign corporation under §1.883–1(c)(1),and may not claim an exclusion from grossincome under section 883, if it is not alsoorganized in that country. Similarly, aforeign corporation that does not meet oneof the stock ownership tests described in§1.883–1(c)(2) is not a qualified foreigncorporation under §1.883–1(c)(1), andmay not claim an exclusion from grossincome under section 883, even thoughit would satisfy the limitation on benefitsarticle under the relevant convention.

4. Countries that Provide an ExemptionThrough an Income Tax Convention andby Other Means

As provided in the final regulations, aforeign corporation that qualifies for anexemption from tax under an income taxconvention and an equivalent exemptionunder section 883 through a diplomaticnote, domestic statutory law, or by gen-erally imposing no income tax on foreigncorporations engaged in the internationaloperation of ships or aircraft will con-tinue to have the choice of whether toclaim an exemption under the income taxconvention or under section 883. Sec-tion 1.883–1T(h)(3)(ii)(A). If a foreigncorporation chooses to claim an exemp-tion under an income tax convention, itmay also choose to claim an exemptionunder section 883 for any category ofincome listed in §1.883–1(h)(2), to theextent that such income is also exemptunder an income tax convention. Section1.883–1T(h)(3)(ii)(B).

The rules provided in §1.883–1(h)(3)(iii) of the final regulations for

certain joint ventures also continue inmodified form. A foreign corporationresident in a country that only providesan exemption through an income tax con-vention with the United States, and thatparticipates in a joint venture entity that isfiscally transparent for U.S. tax purposesbut not under the law of the treaty juris-diction, will not be able to take advantageof the new rules on equivalent exemptionsunder income tax conventions, and mustrely on §1.883–1T(h)(3)(iii).

5. Reporting Requirements Related toQualified Shareholder Stock OwnershipTest

Upon further study and review, theIRS and the Treasury Department havedecided to bring the disclosure requiredunder each of the stock ownership testsprovided in §1.883–1(c)(2) into greateraccord with the disclosure required forcomparable stock ownership tests withsimilar tax policy objectives. For ex-ample, reporting in conjunction with thestock ownership tests found in the branchprofits tax regulations and limitation onbenefits articles in U.S. income tax con-ventions does not require the disclosure ofcertain shareholder names and addressesto the IRS. See §1.884–5 and Form 8833,“Treaty-Based Return Position DisclosureUnder Section 6114 or 7701(b).” Conse-quently, these regulations have eliminatedthe requirement that the names and ad-dresses of shareholders in corporationsrelying on the various stock ownershiptests in §1.883–1(c)(1) (that is, underthe closely held exception to the pub-licly-traded test, the CFC stock ownershiptest, and the qualified shareholder stockownership test) be disclosed on Form1120–F. See §§1.883–2T(e), 1.883–3T(c),and 1.883–4T(d).

Foreign corporations will continue tohave to report on Form 1120–F certainsummary information regarding the share-holdings that are relied upon to satisfy theapplicable stock ownership test (for exam-ple, aggregate percentage of interests heldby shareholders by country of residence).Under new §1.883–1T(c)(3)(i)(G), theyalso will have to report whether any share-holder whose stock holdings are reliedupon to meet an ownership test holdssuch stock either directly or indirectlythrough bearer shares. In addition, each

qualified shareholder and intermediary(if any) must declare under penalties ofperjury that its ownership interest in theforeign corporation or any corporate inter-mediary is not held through bearer shares.Conforming amendments to the substanti-ation and documentation requirements in§§1.883–2T(e) and 1.883–4T(d)(4) havebeen made.

Commentators suggested alternativemethods for making the names and ad-dresses of 5-percent shareholders avail-able to the IRS. However, these methodswere not adopted due to the complexityof the regimes proposed, and questionsas to whether such approaches would infact address the commentators’ concerns.Instead, the IRS and the Treasury Depart-ment chose to rely on procedures alreadyin place in §1.883–1(c)(3) and as modi-fied by §1.883–1T(c)(3), which requires,among other things, that a foreign cor-poration obtain ownership statements todocument and substantiate all represen-tations it has made on Form 1120–F, andthat it provide substantiating documen-tation in response to a written requestfrom the Commissioner. Such informationmust be provided to the IRS within 30days (rather than the 60 days allowed by§1.883–1(c)(3)) of a written request bythe Commissioner, because the names andaddresses of relevant shareholders will nolonger be provided on the Form 1120–Fby taxpayers. See §1.883–1T(c)(3).

The IRS and the Treasury Departmentbelieve that these revised reporting ruleswill simultaneously reduce disclosure con-cerns raised by taxpayers and encouragegreater reporting of the information theIRS needs to administer section 883. TheIRS and the Treasury Department also be-lieve these changes, in conjunction withthe remaining reporting requirements in§§1.883–2(f), 1.883–2T(f), 1.883–3T(d),1.883–4(e), and 1.883–4T(e), will providesufficient information to ensure the soundand efficient administration of section 883.

Effective Dates

See §1.883–5T(d) for effective dateof these temporary regulations and§1.883–5T(e) for applicability dates thatapply to these temporary regulations.

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Effect on Other Documents

The following publications are modi-fied as of June 25, 2007:

Notice 2006–43, 2006–1 C.B. 921(May 22, 2006).

Rev. Rul. 2001–48, 2001–2 C.B. 324.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It has also been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) doesnot apply to these regulations. For appli-cability of the Regulatory Flexibility Act(5 U.S.C. chapter 6), please refer to theSpecial Analyses section of the preambleto the cross-reference notice of proposedrulemaking published elsewhere in this is-sue of the Bulletin. Pursuant to section7805(f) of the Code, these regulations weresubmitted to the Chief Counsel for Advo-cacy of the Small Business Administrationfor comment on their impact on small busi-ness.

Drafting Information

The principal author of these regula-tions is Patricia A. Bray of the Office ofAssociate Chief Counsel (International).However, other personnel from the IRSand the Treasury Department participatedin their development.

* * * * *

Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602are 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 1.883–0 is amended by:1. Revising the entries for

§1.883–1(g)(3) and (h)(3).2. Revising the entry for

§1.883–2(e)(2).3. Revising the entries for §1.883–3.4. Adding the entries for §1.883–5(d)

and (e).The revisions and additions read as fol-

lows:

§1.883–0 Outline of major topics.

* * * * *

§1.883–1 Exclusion of income fromthe international operation of ships oraircraft.

* * * * *(g) * * *(3) [Reserved]. For further guidance,

see the entry for §1.883–1T(g)(3).

* * * * *(h) * * *(3) [Reserved]. For further guidance,

see the entries for §1.883–1T(h)(3).

* * * * *

§1.883–2 Treatment of publicly-tradedcorporations.

* * * * *(e)(2) [Reserved]. For further guid-

ance, see the entry for §1.883–2T(e)(2).

* * * * *

§1.883–3 Treatment of controlled foreigncorporations.

[Reserved]. For further guidance, seethe entry for §1.883–3T.

* * * * *

§1.883–5 Effective/applicability dates.

* * * * *(d) [Reserved]. For further guidance,

see the entry for §1.883–5T(d).(e) [Reserved]. For further guidance,

see the entry for §1.883–5T(e).Par. 3. Section 1.883–0T is added to

read as follows:

§1.883–0T Outline of major topics(temporary).

This section lists the major para-graphs contained in §§1.883–1T through1.883–5T.

§1.883–1T Exclusion of income fromthe international operation of ships oraircraft (temporary).

(a) through (c)(3)(i) [Reserved].For further guidance, see entries for§1.883–1(a) through (c)(3)(i).

(ii) Further documentation.

(A) General rule.(B) Names and addresses of certain

shareholders.(c)(4) through (g)(2) [Reserved].

For further guidance, see entries for§1.883–1(c)(4) through (g)(2).

(3) Other services. [Reserved].(g)(4) through (h)(2) [Reserved].

For further guidance, see entries for§1.883–1(g)(4) through (h)(2).

(3) Special rules with respect to incometax conventions.

(i) Countries with only an income taxconvention.

(ii) Countries with both an income taxconvention and an equivalent exemption.

(A) General rule.(B) Special rule for simultaneous ben-

efits under section 883 and an income taxconvention.

(iii) Participation in certain joint ven-tures.

(iv) Independent interpretation of in-come tax conventions.

(h)(4) through (j) [Reserved]. Forfurther guidance, see entries for§1.883–1(h)(4) through (j).

§1.883–2T Treatment of publicly-tradedcorporations (temporary).

(a) through (e)(1) [Reserved]. For fur-ther guidance, see entries for §1.883–2(a)through (e)(1).

(2) Availability and retention of docu-ments for inspection.

(f) [Reserved]. For further guidance,see entry for §1.883–2(f).

§1.883–3T Treatment of controlled foreigncorporations (temporary).

(a) General rule.(b) Qualified U.S. person ownership

test.(1) General rule.(2) Qualified U.S. person.(3) Treatment of bearer shares.(4) Attribution of ownership through

certain domestic entities.(5) Examples.(c) Substantiation of CFC stock owner-

ship.(1) In general.(2) Ownership statements from quali-

fied U.S. persons.(3) Ownership statements from inter-

mediaries.(4) Three-year period of validity.

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(5) Availability and retention of docu-ments for inspection.

(d) Reporting requirements.

§1.883–5T Effective/applicability dates(temporary).

(a) through (c) [Reserved]. For fur-ther guidance, see entries for §1.883–5(a)through (c).

(d) Effective date.(e) Applicability dates.(f) Expiration date.Par. 4. Section 1.883–1 is amended by:1. Revising paragraphs (c)(3)(i)(D),

(c)(3)(ii), (g)(1)(ix), (g)(1)(x), (g)(3),(h)(1)(ii), and (h)(3).

2. Revising paragraphs (c)(3)(i)(G) and(c)(3)(i)(H).

3. Adding new paragraph (c)(3)(i)(I).4. Adding paragraph (g)(1)(xi).5. Revising paragraph (g)(3).The revisions and additions read as fol-

lows:

§1.883–1 Exclusion of income fromthe international operation of ships oraircraft.

* * * * *(c) * * *(3) * * *(i) * * *(D) [Reserved]. For further guidance,

see §1.883–1T(c)(3)(i)(D).

* * * * *(G) through (I) [Reserved]. For fur-

ther guidance, see §1.883–1T(c)(3)(i)(G)through (I).

(ii) [Reserved]. For further guidance,see §1.883–1T(c)(3)(ii).

* * * * *(g) * * *(1) * * *(ix) through (xi) [Reserved]. For fur-

ther guidance, see §1.883–1T(g)(1)(ix)through (xi).

(2) * * *(3) [Reserved]. For further guidance,

see §1.883–1T(g)(3).

* * * * *(h) * * *(1) * * *(ii) [Reserved]. For further guidance,

see §1.883–1T(h)(1)(ii).

* * * * *

(3) [Reserved]. For further guidance,see §1.883–1T(h)(3).

* * * * *Par. 5. Section 1.883–1T is added to

read as follows:

§1.883–1T Exclusion of income fromthe international operation of ships oraircraft (temporary).

(a) through (c)(3)(i)(C) [Reserved]. Forfurther guidance, see §1.883–1(a) through(c)(3)(i)(C).

(D) The applicable authority for anequivalent exemption, for example, thecitation of a statute in the country wherethe corporation is organized, a diplomaticnote between the United States and suchcountry, or an income tax convention be-tween the United States and such countryin the case of a corporation described inparagraphs (h)(3)(i) through (iii) of thissection;

(c)(3)(i)(E) through (F) [Reserved]. Forfurther guidance, see §1.883–1(c)(3)(i)(E)through (F).

(G) A statement that none of the for-eign corporation’s shares or shares of anyintermediary entity, if any, that are heldby qualified shareholders and relied on tosatisfy any of the stock ownership testsdescribed in §1.883–1(c)(2) are issued inbearer form;

(H) Any other information requiredunder §1.883–2(f), §1.883–2T(f),§1.883–3T(d), §1.883–4(e), or§1.883–4T(e), as applicable; and

(I) Any other relevant information spec-ified in Form 1120–F, “U.S. Income TaxReturn of a Foreign Corporation,” and itsaccompanying instructions.

(ii) Further documentation—(A) Gen-eral rule. Except as provided in thisparagraph (c)(3)(ii)(B), if the Commis-sioner requests in writing that the for-eign corporation document or substan-tiate representations made under para-graph (c)(3)(i) of this section, or under§1.883–2(f), §1.883–2T(f), §1.883–3T(d),§1.883–4(e), or §1.883–4T(e), as applica-ble, the foreign corporation must providethe documentation or substantiation within60 days following the written request. Ifthe foreign corporation does not providethe documentation and substantiation re-quested within the 60-day period, butdemonstrates that the failure was due toreasonable cause and not willful neglect,

the Commissioner may grant the foreigncorporation a 30-day extension. Whethera failure to obtain the documentation orsubstantiation in a timely manner was dueto reasonable cause and not willful neglectshall be determined by the Commissionerafter considering all the facts and circum-stances.

(B) Names and addresses of certainshareholders. If the Commissioner re-quests the names and permanent addressesof individual qualified shareholders ofa foreign corporation, as represented oneach such individual’s ownership state-ment, to substantiate the requirements ofthe exception to the closely-held test inthe publicly-traded test in §1.883–2(e), thequalified shareholder stock ownership testin §1.883–4(a), or the qualified U.S. per-son ownership test in §1.883–3T(b), theforeign corporation must provide the doc-umentation and substantiation within 30days following the written request. If theforeign corporation does not provide thedocumentation and substantiation withinthe 30-day period, but demonstrates thatthe failure was due to reasonable causeand not willful neglect, the Commissionermay grant the foreign corporation a 30-dayextension. Whether a failure to obtainthe documentation or substantiation in atimely manner was due to reasonable causeand not willful neglect shall be determinedby the Commissioner after considering allthe facts and circumstances.

(c)(4) through (g)(1)(viii) [Reserved].For further guidance, see §1.883–1(c)(4)through (g)(1)(viii).

(ix) Arranging by means of a space orslot charter for the carriage of cargo listedon a bill of lading or airway bill or simi-lar document issued by the foreign corpo-ration on the ship or aircraft of another cor-poration engaged in the international oper-ation of ships or aircraft;

(x) The provision of containers and re-lated equipment by the foreign corporationin connection with the international car-riage of cargo for use by its customers, in-cluding short-term use within the UnitedStates immediately preceding or followingthe international carriage of cargo (and forthis purpose, a period of five days or lessshall be presumed to be short-term); and

(xi) The provision of goods and ser-vices by engineers, ground and equipmentmaintenance staff, cargo handlers, cateringstaff, and customer services personnel, and

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the provision of facilities such as passen-ger lounges, counter space, ground han-dling equipment, and hanger facilities.

(2) [Reserved]. For further guidance,see §1.883–1(g)(2).

(3) Other services. [Reserved].(g)(4) through (h)(1)(i) [Reserved].

For further guidance, see §1.883–1(g)(4)through (h)(1)(i).

(ii) Specifically provides a domesticlaw tax exemption for income derivedfrom the international operation of shipsor aircraft, either by statute, decree, in-come tax convention, or otherwise; or

(h)(1)(iii) and (h)(2) [Reserved]. Forfurther guidance, see §1.883–1(h)(1)(iii)and (h)(2).

(3) Special rules with respect to incometax conventions—(i) Countries with onlyan income tax convention. If a foreigncountry only provides an exemption fromtax for profits from the operation of shipsor aircraft in international transport or in-ternational traffic under the shipping andair transport or gains article of an incometax convention with the United States, aforeign corporation organized in that coun-try may treat that exemption as an equiva-lent exemption for purposes of section 883,but only if—

(A) The foreign corporation meets allthe conditions for claiming benefits withrespect to such profits under the incometax convention; and

(B) The profits that are exempt pur-suant to the income tax convention also fallwithin a category of income described inparagraphs (h)(2)(i) through (viii) of thissection.

(ii) Countries with both an incometax convention and an equivalent ex-emption—(A) General rule. If a foreigncountry provides an exemption from taxfor profits from the operation of ships oraircraft in international transport or inter-national traffic under the shipping and airtransport or gains article of an income taxconvention, and that foreign country alsoprovides an equivalent exemption undersection 883 by some other means for oneor more categories of income under para-graph (h)(2) of this section, the foreigncorporation may choose annually whetherto claim an exemption under section 883or the income tax convention. Except asprovided in this paragraph (h)(3)(ii)(B),any such choice will apply with respectto all categories of qualified income of

the foreign corporation and cannot bemade separately with respect to differentcategories of income. If a foreign corpo-ration bases its claim for an exemptionon section 883, it must satisfy all of therequirements of this section to qualify foran exemption from U.S. income tax. If theforeign corporation bases its claim for anexemption on an income tax convention,it must satisfy all of the requirements forclaiming benefits under the income taxconvention. See §1.883–4(b)(3) for rulesabout satisfying the stock ownership testof §1.883–1(c)(2) using shareholders res-ident in a foreign country that offers anexemption under an income tax conven-tion.

(B) Special rule for simultaneous ben-efits under section 883 and an income taxconvention. If a foreign corporation is or-ganized in a foreign country that offers anexemption from tax under an income taxconvention and also by some other means,such as by diplomatic note or domesticstatutory law, with respect to the same cat-egory of income, and the foreign corpora-tion chooses to claim an exemption underan income tax convention under paragraph(h)(3)(ii)(A) of this section, it may simulta-neously claim an exemption under section883 with respect to a category of incomeexempt from tax by such other means ifit satisfies the requirements of paragraphs(h)(3)(i)(A) and (B) of this section for eachcategory of income, satisfies one of thestock ownership tests of paragraph (c)(2)of this section, and complies with the sub-stantiation and reporting requirements inparagraph (c)(3) of this section.

(iii) Participation in certain joint ven-tures. A foreign corporation resident in aforeign country that provides an exemp-tion only through an income tax conven-tion will not be precluded from treatingthat exemption as an equivalent exemptionif it derives income through a participa-tion, directly or indirectly, in a pool,partnership, strategic alliance, joint op-erating agreement, code-sharing arrange-ment, or other joint venture described in§1.883–1(e)(2), and the foreign corpora-tion would be ineligible to claim benefitsunder the convention for that category ofincome solely because the joint venturewas not fiscally transparent, within themeaning of §1.894–1(d)(3)(iii)(A), withrespect to that category of income under

the income tax laws of the foreign corpo-ration’s country of residence.

(iv) Independent interpretation ofincome tax conventions. Nothing in§§1.883–1 through 1.883–5, or in this sec-tion and §§1.883–2T through1.883–5T,affects the rights or obligations under anyincome tax convention. The definitionsprovided in §§1.883–1 through 1.883–5,or in this section and §§1.883–2T through1.883–5T, shall not give meaning to sim-ilar terms used in any income tax con-vention, or provide guidance regardingthe scope of any exemption provided bysuch convention, unless the income taxconvention entered into force after August26, 2003, and it, or its legislative history,explicitly refers to section 883 and guid-ance promulgated under that section forits meaning.

1. Par. 6. Section 1.883–2 is amendedby revising paragraphs (e)(2), (f)(3), and(f)(4)(ii) to read as follows:

§1.883–2 Treatment of publicly-tradedcorporations.

* * * * *(e) * * *(2) [Reserved]. For further guidance,

see §1.883–2T(e)(2).(f) * * *(3) [Reserved]. For further guidance,

see §1.883–2T(f)(3).(4) * * *(ii) [Reserved]. For further guidance,

see §1.883–2T(f)(4)(ii).

* * * * *Par. 7. Section 1.883–2T is added to

read as follows:

§1.883–2T Treatment of publicly-tradedcorporations (temporary).

(a) through (e)(1) [Reserved]. For fur-ther guidance, see §1.883–2(a) through(e)(1).

(2) Availability and retention of doc-uments for inspection. The documenta-tion described in §1.883–2(e)(1) must beretained by the corporation seeking qual-ified foreign corporation status until theexpiration of the statute of limitations forthe taxable year of the foreign corporationto which the documentation relates. Suchdocumentation must be made available forinspection by the Commissioner at suchtime and such place as the Commissioner

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may request in writing in accordance with§1.883–1T(c)(3)(ii)(A) or (B), as applica-ble.

(f) through (f)(2) [Reserved]. For fur-ther guidance, see §1.883–2(f) through(f)(2).

(3) A description of each class of stockrelied upon to meet the requirements of§1.883–2(d), including whether the classof stock is issued in registered or bearerform, the number of issued and outstand-ing shares in that class of stock as of theclose of the taxable year, and the value ofeach class of stock in relation to the totalvalue of all the corporation’s shares out-standing as of the close of the taxable year;

(4) and (4)(i) [Reserved]. For furtherguidance, see §1.883–2(f)(4) and (f)(4)(i).

(ii) With respect to all qualified share-holders who own directly, or by applica-tion of the attribution rules in §1.883–4(c),stock in the closely-held block of stockupon which the corporation intends to relyto satisfy the exception to the closely-heldtest of §1.883–2(d)(3)(ii)—

(A) The total number of qualified share-holders, as defined in §1.883–4(b)(1);

(B) The total percentage of the valueof the shares owned, directly or indi-rectly, by such qualified shareholders bycountry of residence, determined under§1.883–4(b)(2) (residence of individualshareholders) or §1.883–4(d)(3) (specialrules for residence of certain sharehold-ers); and

(C) The days during the taxable year ofthe corporation that such qualified share-holders owned, directly or indirectly, theirshares in the closely held block of stock.

(5) [Reserved]. For further guidance,see §1.883–2(f)(5).

Par. 8. Section 1.883–3 is revised toread as follows:

§1.883–3 Treatment of controlled foreigncorporations.

[Reserved]. For further guidance, see§1.883–3T.

Par. 9. Section 1.883–3T is added toread as follows:

§1.883–3T Treatment of controlled foreigncorporations (temporary).

(a) General rule. A foreign corpora-tion satisfies the stock ownership test of§1.883–1(c)(2) if it is a controlled foreigncorporation (as defined in section 957(a)),

satisfies the qualified U.S. person own-ership test in paragraph (b) of this sec-tion, and satisfies the substantiation and re-porting requirements of paragraphs (c) and(d) of this section, respectively. A CFCthat fails the qualified U.S. person own-ership test of paragraph (b) of this sectionwill not satisfy the stock ownership test of§1.883–1(c)(2) unless it meets either thepublicly-traded test of §1.883–2(a) or thequalified shareholder stock ownership testof §1.883–4(a).

(b) Qualified U.S. person ownershiptest—(1) General rule. A foreign corpo-ration will satisfy the requirements of thequalified U.S. person ownership test onlyif it—

(i) Is a CFC for more that half the daysin the corporation’s taxable year; and

(ii) More than 50 percent of the totalvalue of its outstanding stock is owned(within the meaning of section 958(a) andparagraph (b)(4) of this section) by oneor more qualified U.S. persons for morethan half the days of the CFC’s taxableyear, provided such days of ownership areconcurrent with the time period duringwhich the foreign corporation satisfies therequirement in paragraph (b)(1)(i) of thissection.

(2) Qualified U.S. person. For purposesof this section, the term qualified U.S. per-son means a U.S. citizen, resident alien,domestic corporation, or domestic trust de-scribed in section 501(a), but only if theperson provides the CFC with an owner-ship statement as described in paragraph(c)(2) of this section, and the CFC meetsthe reporting requirements of paragraph(d) of this section with respect to that per-son.

(3) Treatment of bearer shares. For pur-poses of applying the qualified U.S. personownership test, the value of the stock of aCFC that is owned (directly or indirectly)through bearer shares by qualified U.S.persons is not taken into account in the nu-merator of the fraction, but is taken intoaccount in the denominator to determinethe portion of the value of stock owned byqualified U.S. persons.

(4) Attribution of ownership throughcertain domestic entities. For purposesof applying the qualified U.S. personownership test of paragraph (b)(1) of thissection, stock owned, directly or indi-rectly, by or for a domestic partnership,domestic trust not described in section

501(a), or domestic estate, shall be treatedas owned proportionately by its partners,beneficiaries, grantors, or other interestholders, respectively, applying the rules ofsection 958(a) as if such domestic entitywere a foreign entity. Stock consideredto be owned by a person by reason of thepreceding sentence shall, for purposes ofapplying such sentence, be treated as ac-tually owned by such person.

(5) Examples. The qualified U.S. per-son ownership test of paragraph (b)(1) ofthis section is illustrated in the followingexamples:

Example 1. Ship Co is a CFC for more than halfthe days of Ship Co’s taxable year. Ship Co is orga-nized in a qualified foreign country. All of its sharesare owned by a domestic partnership for the entiretaxable year. All of the partners in the domestic part-nership are citizens and residents of foreign countries.Ship Co fails the qualified U.S. person ownership testof paragraph (b)(1) of this section because none of thevalue of Ship Co’s stock is owned, applying the attri-bution rules of paragraph (b)(4) of this section, forat least half the number of days of Ship Co’s taxableyear, by one or more qualified U.S. persons. There-fore, Ship Co must satisfy the qualified shareholderstock ownership test of §1.883–4(a) in order to sat-isfy the stock ownership test of §1.883–1(c)(2), andbe considered a qualified foreign corporation.

Example 2. Ship Co is a CFC for more than halfthe days of its taxable year. Ship Co is organized ina qualified foreign country. Corp A, a foreign corpo-ration whose stock is owned by a citizen and residentof a foreign country, owns 40 percent of the value ofthe stock of Ship Co for the entire taxable year. X, adomestic partnership, owns the remaining 60 percentof the value of the stock of Ship Co for Ship Co’s en-tire taxable year. X is owned by 20 partners, all ofwhom are U.S. citizens and each of whom has owneda 5-percent interest in X for the entire taxable yearof Ship Co. Ship Co satisfies the qualified U.S. per-son ownership test of paragraph (b)(1) of this sectionbecause 60 percent of the value of the stock of ShipCo is owned, applying the attribution of ownershiprules of paragraph (b)(4) of this section, for at leasthalf the number of days of Ship Co’s taxable year bythe partners of X, who are all qualified U.S. personsas defined in paragraph (b)(2) of this section. If ShipCo satisfies the substantiation and reporting require-ments of paragraphs (c) and (d) of this section, it willmeet the stock ownership test of §1.883–1(c)(2).

Example 3. Ship Co is a foreign corporation or-ganized in a qualified foreign country. Ship Co hastwo classes of stock, Class A representing 60 percentof the vote and value of all the shares outstanding ofShip Co, and Class B representing the remaining 40percent of the vote and value of Ship Co. A, a U.S. cit-izen, holds for the entire taxable year all of the ClassA stock, which is issued in bearer form, and B, a non-resident alien, owns all the Class B stock, which is inregistered form. Ship Co cannot satisfy the qualifiedU.S. person ownership test of paragraph (b)(1) of thissection because A’s bearer shares cannot be taken intoaccount as being owned by a qualified U.S. personin determining if the qualified U.S. person ownershiptest has been met; the shares are, however, taken into

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account in determining the total value of Ship Co’soutstanding shares.

(c) Substantiation of CFC stock owner-ship—(1) In general. A foreign corpora-tion that relies on this CFC test to satisfythe stock ownership test of §1.883–1(c)(2)must establish all the facts necessary todemonstrate to the Commissioner that itsatisfies the qualified U.S. person owner-ship test of paragraph (b)(1) of this section.Specifically, the CFC must obtain a writtenownership statement, signed under penal-ties of perjury by an individual authorizedto sign that person’s Federal tax or infor-mation return, from—

(i) Each qualified U.S. person uponwhose stock ownership it relies to meetthis test; and

(ii) Each domestic intermediary de-scribed in paragraph (b)(4) of this section,each foreign intermediary (including aforeign corporation, partnership, trust, orestate), and mere legal owners or recordholders acting as nominees standing inthe chain of ownership between each suchqualified U.S. person and the CFC, if any.

(2) Ownership statements from quali-fied U.S. persons. A qualified U.S. personownership statement must contain the fol-lowing information:

(i) The qualified U.S. person’s name,permanent address, and taxpayer identifi-cation number.

(ii) If the qualified U.S. person ownsshares directly in the CFC, the number ofshares of each class of stock of the CFCowned by the qualified person, the periodof time during the taxable year of the CFCwhen the person owned the stock, and arepresentation that its interest in the CFCis not held through bearer shares.

(iii) If the qualified person owns an in-direct interest in the CFC through an inter-mediary described in paragraph (c)(1)(ii)of this section, the name of that intermedi-ary, the amount and nature of the interestin the intermediary, the period of time dur-ing the taxable year of the CFC when theperson held such interest, and, in the caseof an interest in a foreign corporate inter-mediary, a representation that such interestis not held through bearer shares.

(iv) Any other information as specifiedin guidance published by the Internal Rev-enue Service (see §601.601(d)(2) of thischapter).

(3) Ownership statements from inter-mediaries. An intermediary ownership

statement required of an intermediarydescribed in paragraph (c)(1)(ii) of thissection must contain the following infor-mation:

(i) The intermediary’s name, permanentaddress, and taxpayer identification num-ber, if any.

(ii) If the intermediary directly ownsstock in the CFC, the number of shares ofeach class of stock of the CFC owned bythe intermediary, the period of time duringthe taxable year of the CFC when the inter-mediary owned the stock, and a represen-tation that such interest is not held throughbearer shares.

(iii) If the intermediary indirectly ownsthe stock of the CFC, the name and addressof each intermediary standing in the chainof ownership between it and the CFC, theperiod of time during the taxable year ofthe CFC when the intermediary owned theinterest, the percentage of interest it holdsindirectly in the CFC, and, in the case of aforeign corporate intermediary, a represen-tation that its interest is not held throughbearer shares.

(iv) Any other information as specifiedin guidance published by the Internal Rev-enue Service (see §601.601(d)(2) of thischapter).

(4) Three-year period of validity. Therules of §1.883–4(d)(2)(ii) apply for pur-poses of determining the validity of theownership statements required under para-graph (c)(2) of this section.

(5) Availability and retention of docu-ments for inspection. The documentationdescribed in this paragraph (c) must be re-tained by the corporation seeking qualifiedforeign corporation status (the CFC) untilthe expiration of the statute of limitationsfor the taxable year of the CFC to whichthe documentation relates. Such documen-tation must be made available for inspec-tion by the Commissioner at such place asthe Commissioner may request in writingin accordance with §1.883–1T(c)(3)(ii).

(d) Reporting requirements. A foreigncorporation that relies on the CFC test ofthis section to satisfy the stock ownershiptest of §1.883–1(c)(2) must provide thefollowing information in addition to the in-formation required by §1.883–1(c)(3) to beincluded in its Form 1120–F, “U.S. IncomeTax Return of a Foreign Corporation,” forthe taxable year. The information must bebased upon the documentation received bythe foreign corporation pursuant to para-

graph (c) of this section and must be cur-rent as of the end of the corporation’s tax-able year—

(1) The percentage of the value of theshares of the CFC that is owned by all qual-ified U.S. persons identified in paragraph(c)(2) of this section, applying the attribu-tion of ownership rules of paragraph (b)(4)of this section;

(2) The period during which such qual-ified U.S. persons held such stock;

(3) The period during which the foreigncorporation was a CFC;

(4) A statement that the CFC is directlyheld by qualified U.S. persons and does nothave any bearer shares outstanding or, inthe alternative, that it is not relying on di-rect or indirect ownership of such shares tomeet the qualified U.S. person ownershiptest; and

(5) Any other relevant informationspecified by Form 1120–F, and its ac-companying instructions, or in guidancepublished by the Internal Revenue Service(see §601.601(d)(2) of this chapter).

Par. 10. Section 1.883–4 is amendedby:

1. Revising paragraphs (d)(4)(i)(C) and(d)(4)(i)(D).

2. Removing paragraph (e)(2).3. Redesignating paragraphs (e)(3) and

(e)(4) as paragraphs (e)(2) and (e)(3), re-spectively, and revising them.

The revisions read as follows:

§1.883–4 Qualified shareholder stockownership test.

* * * * *(d) * * *(4) * * *(i) * * *(C) and (D) [Reserved]. For further

guidance, see §1.883–4T(d)(4)(i)(C) and(D).

(e) * * *(2) and (3) [Reserved]. For further

guidance, see §1.883–4T(e)(2) and (3).Par. 11. Section 1.883–4T is added to

read as follows:

§1.883–4T Qualified shareholder stockownership test (temporary).

(a) through (d)(4)(i)(B) [Reserved]. Forfurther guidance, see §1.883–4(a) through(d)(4)(i)(B).

(C) If the individual directly owns stockin the corporation seeking qualified for-

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eign corporation status, the name of thecorporation, the number of shares in eachclass of stock of the corporation that are soowned, with a statement that such sharesare not issued in bearer form, and the pe-riod of time during the taxable year ofthe foreign corporation when the individ-ual owned the stock;

(D) If the individual directly owns aninterest in a corporation, partnership, trust,estate, or other intermediary that directlyor indirectly owns stock in the corporationseeking qualified foreign corporation sta-tus, the name of the intermediary, the num-ber and class of shares or the amount andnature of the interest of the individual insuch intermediary, and, in the case of a cor-porate intermediary, a statement that suchshares are not held in bearer form, and theperiod of time during the taxable year ofthe foreign corporation seeking qualifiedforeign corporation status when the indi-vidual held such interest;

(d)(4)(i)(E) through (e)(1) [Re-served]. For further guidance, see§1.883–4(d)(4)(i)(E) through (e)(1).

(2) With respect to all qualified share-holders relied upon to satisfy the 50 per-cent ownership test of §1.883–4(a), the to-tal number of such qualified sharehold-ers as defined in §1.883–4(b)(1); the to-

tal percentage of the value of the outstand-ing shares owned, applying the attribu-tion rules of §1.883–4(c), by such quali-fied shareholders by country of residenceor organization, whichever is applicable;and the period during the taxable year ofthe foreign corporation that such stock washeld by qualified shareholders; and

(3) Any other relevant informationspecified by the Form 1120–F, “U.S. In-come Tax Return of a Foreign Corpora-tion,” and its accompanying instructions,or in guidance published by the InternalRevenue Service (see §601.601(d)(2) ofthis chapter).

Par. 12. Section 1.883–5 is amendedby revising the heading and adding para-graphs (d) and (e) to read as follows:

§1.883–5 Effective/applicability dates.

* * * * *(d) through (e) [Reserved]. For further

guidance, see §1.883–5T(d) through (e).Par. 13. Section 1.883–5T is added to

read as follows:

§1.883–5T Effective/applicability dates(temporary).

(a) through (c) [Reserved]. For furtherguidance, see §1.883–5(a) through (c).

(d) Effective date. These regulations areeffective on June 25, 2007.

(e) Applicability dates. Sections1.883–1T, 1.883–2T, 1.883–3T, and1.883–4T are applicable to taxable yearsof the foreign corporation beginning afterJune 25, 2007. Taxpayers may elect to ap-ply §1.883–3T to any open taxable yearsof the foreign corporation beginning on orafter December 31, 2004.

(f) Expiration date. The applicabilityof §§1.883–1T, 1.883–2T, 1.883–3T, and1.883–4T expires on or before June 22,2010.

PART 602—OMB CONTROLNUMBERS UNDER THE PAPERWORKREDUCTION ACT

Par. 14. The authority citation for part602 continues to read as follows:

Authority: 26 U.S.C. 7805.Par. 15. In §602.101, paragraph (b)

is amended by adding entries in numericalorder to the table to read as follows:

§602.101 OMB Control numbers.

* * * * *(b) * * *

CFR part or section whereidentified and described

Current OMBcontrol No.

* * * * *

§1.883–1T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1667§1.883–2T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1667§1.883–3T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1667§1.883–4T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1667§1.883–5T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–1667

* * * * *

Kevin M. Brown,Deputy Commissioner forServices and Enforcement.

Approved June 14, 2007.

Eric Solomon,Assistant Secretary of

the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on June 22, 2007,8:45 a.m., and published in the issue of the Federal Registerfor June 25, 2007, 72 F.R. 34600)

Section 1081.—Nonrecog-nition of Gain or Losson Exchanges or Distri-butions in Obedience toOrders of S.E.C.

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

Section 1221.—CapitalAsset Defined

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on orwith their Federal income tax returns. See T.D. 9329,page 312.

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Section 1274.—Determi-nation of Issue Price in theCase of Certain Debt Instru-ments Issued for Property(Also Sections 42, 280G, 382, 412, 467, 468, 482,483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates;adjusted federal long-term rate and thelong-term exempt rate. For purposes ofsections 382, 642, 1274, 1288, and othersections of the Code, tables set forth therates for August 2007.

Rev. Rul. 2007–50

This revenue ruling provides variousprescribed rates for federal income taxpurposes for August 2007 (the currentmonth). Table 1 contains the short-term,mid-term, and long-term applicable fed-eral rates (AFR) for the current monthfor purposes of section 1274(d) of theInternal Revenue Code. Table 2 containsthe short-term, mid-term, and long-termadjusted applicable federal rates (adjustedAFR) for the current month for purposes

of section 1288(b). Table 3 sets forth theadjusted federal long-term rate and thelong-term tax-exempt rate described insection 382(f). Table 4 contains the ap-propriate percentages for determining thelow-income housing credit described insection 42(b)(2) for buildings placed inservice during the current month. Finally,Table 5 contains the federal rate for deter-mining the present value of an annuity, aninterest for life or for a term of years, ora remainder or a reversionary interest forpurposes of section 7520.

REV. RUL. 2007–50 TABLE 1

Applicable Federal Rates (AFR) for August 2007

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 5.00% 4.94% 4.91% 4.89%110% AFR 5.50% 5.43% 5.39% 5.37%120% AFR 6.02% 5.93% 5.89% 5.86%130% AFR 6.52% 6.42% 6.37% 6.34%

Mid-term

AFR 5.09% 5.03% 5.00% 4.98%110% AFR 5.61% 5.53% 5.49% 5.47%120% AFR 6.13% 6.04% 6.00% 5.97%130% AFR 6.65% 6.54% 6.49% 6.45%150% AFR 7.69% 7.55% 7.48% 7.43%175% AFR 8.99% 8.80% 8.71% 8.64%

Long-term

AFR 5.31% 5.24% 5.21% 5.18%110% AFR 5.84% 5.76% 5.72% 5.69%120% AFR 6.39% 6.29% 6.24% 6.21%130% AFR 6.93% 6.81% 6.75% 6.72%

REV. RUL. 2007–50 TABLE 2

Adjusted AFR for August 2007

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjustedAFR

3.75% 3.72% 3.70% 3.69%

Mid-term adjusted AFR 3.97% 3.93% 3.91% 3.90%

Long-term adjustedAFR

4.50% 4.45% 4.43% 4.41%

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REV. RUL. 2007–50 TABLE 3

Rates Under Section 382 for August 2007

Adjusted federal long-term rate for the current month 4.50%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjustedfederal long-term rates for the current month and the prior two months.) 4.50%

REV. RUL. 2007–50 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for August 2007Appropriate percentage for the 70% present value low-income housing credit 8.21%

Appropriate percentage for the 30% present value low-income housing credit 3.52%

REV. RUL. 2007–50 TABLE 5

Rate Under Section 7520 for August 2007

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,or a remainder or reversionary interest 6.2%

Section 1288.—Treatmentof Original Issue Discounton Tax-Exempt Obligations

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

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

T.D. 9329

DEPARTMENT OFTHE TREASURYInternal Revenue Service26 CFR Parts 1, 301, and 602

Guidance Necessary toFacilitate Business ElectronicFiling and Burden Reduction

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations and removalof temporary regulations.

SUMMARY: This document contains fi-nal regulations that affect taxpayers filingFederal income tax returns. They simplify,

clarify, or eliminate reporting burdens andalso eliminate regulatory impediments tothe electronic filing of certain statementsthat taxpayers are required to include on orwith their Federal income tax returns. Thisdocument also makes conforming changesto certain current regulations.

DATES: Effective Date: These regulationsare effective on June 14, 2007.

Applicability Date: For datesof applicability, see §§1.302–2(d),1.302–4(h), 1.331–1(f), 1.332–6(e),1.338–10(c), 1.351–3(f), 1.355–5(e),1.368–3(e), 1.381(b)–1(e), 1.382–8(j)(4),1.382–11(b), 1.1081–11(f), 1.1221–2(j),1.1502–13(m), 1.1502–31(j), 1.1502–32(j), 1.1502–33(k), 1.1502–95(g),1.1563–3(e) and 1.6012–2(k).

FOR FURTHER INFORMATIONCONTACT: For all sections except§1.6012–2, Grid Glyer, (202) 622–7930;for §1.6012–2, William T. Sullivan (202)622–7052 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in these final regulations has beenreviewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of 1995

(44 U.S.C. 3507(d)) under control number1545–2019.

The collection of information inthese final regulations is in §§1.302–2,1.302–4, 1.331–1, 1.332–6, 1.338–10,1.351–3, 1.355–5, 1.368–3, 1.381(b)–1,1.382–8, 1.382–11, 1.1081–11, 1.1221–2,1.1502–13, 1.1502–31, 1.1502–32,1.1502–33, 1.1502–95, 1.1563–3 and1.6012–2. This information is required toenable the IRS to verify that a taxpayeris reporting the correct amount of the fairmarket value of any property (includingstock) received and the basis of any prop-erty (including stock) surrendered in thetransaction described in such section.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless the collec-tion of information displays a valid controlnumber by the Office of Management andBudget.

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

Background

On May 30, 2006, the IRS and TreasuryDepartment published temporary regula-tions (T.D. 9264, 2006–1 C.B. 1150) under

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26 CFR part 1 and 26 CFR part 602. See71 FR 30591. The IRS and Treasury De-partment issued a notice of proposed rule-making (REG–134317–05, 2006–1 C.B.1184) cross-referencing those temporaryregulations on the same day. See 71 FR30640.

In general, the regulations simplify,clarify, or eliminate reporting burdens forcorporations and shareholders for certaintransactions, including distributions, ex-changes and reorganizations. They alsoeliminate impediments to the electronicfiling of statements that taxpayers, primar-ily large corporations that are members ofconsolidated or controlled groups, are re-quired to include on their Federal incometax returns.

These regulations were part of a se-ries of regulations published by the IRSand Treasury Department that are designedto eliminate impediments to the electronicfiling of forms and statements that taxpay-ers are required to include on their Federalincome tax returns. See, for example, T.D.9300, 2007–2 I.R.B. 246 [71 FR 71040],and T.D. 9243, 2006–1 C.B. 475 [71 FR4276].

Explanation of Provisions

Except as provided in the followingparagraph, this Treasury decision adoptsthe proposed regulations with no substan-tive changes. In addition, this Treasurydecision removes the corresponding tem-porary regulations.

This Treasury decision doesnot adopt the following proposedregulations: §1.1502–35(c)(4)(i),§1.1502–76(b)(2)(ii)(D) and §1.1563–1(c)(2)(i) through (iii). These proposedregulations will be addressed as part ofother guidance projects.

The IRS and Treasury Department re-ceived no written or electronic commentsfrom the public in response to the notice ofproposed rulemaking and no public hear-ing was requested or held. However, threequestions were raised informally and areaddressed in this preamble.

Sec. 1.302–2

The first question involves a report-ing requirement under §1.302–2 (re-demptions not taxable as dividends).Specifically, the question involved pro-posed §1.302–2(b)(2), which requires

all “significant holders” receiving prop-erty from a corporation in exchange forthe corporation’s stock (“redemption ex-changes”) to include a brief informationstatement on their return. The statementsets forth certain information necessaryto determine the proper treatment of theredemption exchange. Under proposed§1.302–2(b)(3)(i), a significant holder isany stockholder owning 5 percent or moreof the stock of a publicly traded companyand any stockholder owning 1 percent ormore of the stock of a company that is notpublicly traded.

The specific question raised waswhether the statement is necessary inall redemption exchanges, whether theexchange is treated as a distribution thatis essentially equivalent to a dividendor not. Under the proposed regulations,all redemption exchanges are subject tothis reporting requirement. The IRS andTreasury Department determined that thesimplified information to be provided inthe statement is necessary for the identifi-cation and evaluation of redemptions thatare essentially equivalent to dividends.Furthermore, the required information isinformation that taxpayers should alreadyhave or be prepared to produce. Finally,as noted in this preamble, the regulationslimit any remaining burden by imposingthe reporting requirement only on sig-nificant holders. For all these reasons,the IRS and Treasury Department haveconcluded that the requirement does notimpose an unnecessary or inappropriateburden on taxpayers. Accordingly, thefinal regulations adopt the rule proposedin §1.302–2(b)(2) and do not limit theapplication of the reporting requirement.

Sec. 1.302–4

The second question involves a report-ing requirement under §1.302–4 (termi-nation of shareholder’s interest). Specifi-cally, the question involved the statementin proposed §1.302–4(a) regarding thewaiver of family attribution. Under thissection and section 302(c)(2), a redeemingshareholder can avoid being treated as re-ceiving a dividend equivalent distributionby waiving the application of the family at-tribution rules of section 318(a)(1). Priorto the promulgation of §1.302–4T(a),§1.302–4(a)(1) provided that taxpayerswere required to file family attribution

waiver agreements and §1.302–4(a)(2)prescribed conditions under which a tax-payer that had failed to timely file theagreement could obtain an extension oftime to file from the appropriate districtdirector. Section 1.302–4T(a) removedthe requirement that an agreement be filedas well as the instructions regarding latefiling. Instead, that regulation providedthat a statement must be filed and set forththe information that must be included.Section 1.302–4T(a) did not include in-structions for late filers.

The specific question raised waswhether the change affected taxpayers’ability to remedy late filing. The IRS andTreasury Department did not intend anychange to taxpayers’ ability to remedylate filing. However, the final regulationsdo not incorporate instructions for latefiling because the statement required isa regulatory election and the late filingof all regulatory elections is addressedby §301.9100–1. Accordingly, such in-structions are not necessary and couldinadvertently imply that the general ruleswould not otherwise apply.

Sec. 1.6012–2

Finally, a question was also raisedconcerning the reporting requirementsapplicable to foreign insurance corpora-tions electing under section 953(d) to betreated as domestic insurance corpora-tions. Specifically, the question raisedwas whether such corporations have a re-porting requirement.

Section 1.6012–2(c)(1)(i) requires thata domestic life insurance company filewith its return a copy of its annual state-ment which shows the reserves used bythe company in computing the taxable in-come reported on its return, and a copy ofSchedule A (real estate) and of ScheduleD (bonds and stocks), or any successorthereto, of such annual statement. Sec-tion 1.6012–2(c)(2) similarly requires thata domestic nonlife insurance companyfile with its return a copy of its annualstatement, including the underwritingand investment exhibit (or any successorthereto), for the year covered by suchreturn. Section 953(d) provides that aforeign insurance company that satisfiesthe requirements of section 953(d), in-cluding the making of an election undersection 953(d)(1)(D), shall be treated as a

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domestic corporation for purposes of theInternal Revenue Code. Thus, a foreigninsurance company that elects under sec-tion 953(d) to be treated as a domesticcorporation generally is required under§1.6012–2(c)(1) or (2), as appropriate, tofile with its return a copy of its annualstatement. Under §1.6012–2(c)(5), theterm “annual statement” includes a proforma annual statement if the insurancecompany is not required to file the NAICannual statement.

Because the reporting requirements ofelecting corporations are addressed in thecurrent regulations, the IRS and TreasuryDepartment are not modifying the regula-tions to address this point further.

Special Analysis

It has been determined that this Trea-sury Decision is not a significant reg-ulatory action as defined in ExecutiveOrder 12866. Therefore, a regulatoryassessment is not required. It has alsobeen determined that section 553(b) of theAdministrative Procedure Act (5 U.S.C.chapter 5) does not apply to §§1.302–2,1.302–4, 1.331–1, 1.332–6, 1.351–3,1.355–5, 1.368–3, 1.381(b)–1, 1.1081–11,1.1563–3, and 1.6012–2. With respectto the collections of information in suchsections, and with respect to §§1.338–10,1.382–8, 1.382–11, 1.1221–2, 1.1502–13,1.1502–31, 1.1502–32, 1.1502–33 and1.1502–95, it is hereby certified that theseregulations will not have a significant eco-nomic impact on a substantial number ofsmall entities. This certification is basedon the fact that these regulations primarilyaffect large corporations (which are mem-bers of either controlled or consolidatedgroups) and in the case of all corporationswill substantially reduce or eliminate theexisting reporting burden. Therefore, aregulatory flexibility analysis under theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) is not required. Pursuant to section7805(f) of the Internal Revenue Code,these regulations were submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment ontheir impact on small business.

Drafting Information

The principal author of these regula-tions is Grid Glyer, Office of AssociateChief Counsel (Corporate). However,

other personnel from the IRS and TreasuryDepartment participated in their develop-ment.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 1 and 602are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by removing the entriesfor §§1.302–2T, 1.302–4T, 1.331–1T,1.332–6T, 1.338–10T, 1.351–3T,1.355–5T, 1.368–3T, 1.381(b)–1T,1.382–8T, 1.382–11T, 1.1081–11T,1.1221–2T, 1.1502–13T, 1.1502–31T,1.1502–33T, 1.1502–95T, 1.1563–3T and1.6012–2T to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.302–2 is amended by:1. Adding headings to paragraphs (a),

(b), (b)(1) and (c).2. Revising paragraphs (b)(2) and (d).3. Adding paragraphs (b)(3) and (b)(4).The additions and revisions read as fol-

lows:

§1.302–2 Redemptions not taxable asdividends.

(a) In general. * * *(b) Redemption not essentially equiva-

lent to a dividend—(1) In general. * * *(2) Statement. Unless §1.331–1(d) ap-

plies, every significant holder that trans-fers stock to the issuing corporation in ex-change for property from such corporationmust include on or with such holder’s re-turn for the taxable year of such exchangea statement entitled, “STATEMENT PUR-SUANT TO §1.302–2(b)(2) BY [INSERTNAME AND TAXPAYER IDENTIFI-CATION NUMBER (IF ANY) OF TAX-PAYER], A SIGNIFICANT HOLDEROF THE STOCK OF [INSERT NAMEAND EMPLOYER IDENTIFICATIONNUMBER (IF ANY) OF ISSUING COR-PORATION].” If a significant holder isa controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its return.The statement must include—

(i) The fair market value and basis of thestock transferred by the significant holderto the issuing corporation; and

(ii) A description of the property re-ceived by the significant holder from theissuing corporation.

(3) Definitions. For purposes of thissection:

(i) Significant holder means any personthat, immediately before the exchange—

(A) Owned at least five percent (by voteor value) of the total outstanding stock ofthe issuing corporation if the stock ownedby such person is publicly traded; or

(B) Owned at least one percent (by voteor value) of the total outstanding stock ofthe issuing corporation if the stock ownedby such person is not publicly traded.

(ii) Publicly traded stock means stockthat is listed on—

(A) A national securities exchange reg-istered under section 6 of the SecuritiesExchange Act of 1934 (15 U.S.C. 78f); or

(B) An interdealer quotation systemsponsored by a national securities as-sociation registered under section 15Aof the Securities Exchange Act of 1934(15 U.S.C. 78o–3).

(iii) Issuing corporation means the cor-poration that issued the shares of stock,some or all of which were transferred bya significant holder to such corporation inthe exchange described in paragraph (b)(2)of this section.

(4) Cross reference. See section 6043of the Internal Revenue Code for require-ments relating to a return by a liquidatingcorporation.

(c) Basis adjustments. * * *(d) Effective/applicability date. Para-

graphs (b)(2), (b)(3) and (b)(4) of this sec-tion apply to any taxable year beginningon or after May 30, 2006. However, tax-payers may apply paragraphs (b)(2), (b)(3)and (b)(4) of this section to any originalFederal income tax return (including anyamended return filed on or before the duedate (including extensions) of such origi-nal return) timely filed on or after May 30,2006. For taxable years beginning beforeMay 30, 2006, see §1.302–2 as containedin 26 CFR part 1 in effect on April 1, 2006.

§1.302–2T [Removed]

Par. 3. Section 1.302–2T is removed.Par. 4. Section 1.302–4 is amended by:1. Revising paragraphs (a) and (h).

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2. Adding headings to paragraphs (b),(c), (d), (e), (f), and (g) introductory text.

The additions and revisions read as fol-lows:

§1.302–4 Termination of shareholder’sinterest.

(a) Statement. The agreement specifiedin section 302(c)(2)(A)(iii) shall be in theform of a statement entitled, “STATE-MENT PURSUANT TO SECTION302(c)(2)(A)(iii) BY [INSERT NAMEAND TAXPAYER IDENTIFICATIONNUMBER (IF ANY) OF TAXPAYEROR RELATED PERSON, AS THE CASEMAY BE], A DISTRIBUTEE (OR RE-LATED PERSON) OF [INSERT NAMEAND EMPLOYER IDENTIFICATIONNUMBER (IF ANY) OF DISTRIBUT-ING CORPORATION].” The distributeemust include such statement on or withthe distributee’s first return for the taxableyear in which the distribution described insection 302(b)(3) occurs. If the distributeeis a controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its re-turn. The distributee must represent in thestatement—

(1) THE DISTRIBUTEE (OR RE-LATED PERSON) HAS NOT AC-QUIRED, OTHER THAN BY BEQUESTOR INHERITANCE, ANY INTERESTIN THE CORPORATION (AS DE-SCRIBED IN SECTION 302(c)(2)(A)(i))SINCE THE DISTRIBUTION; and

(2) THE DISTRIBUTEE (OR RE-LATED PERSON) WILL NOTIFY THEINTERNAL REVENUE SERVICE OFANY ACQUISITION, OTHER THANBY BEQUEST OR INHERITANCE, OFSUCH AN INTEREST IN THE COR-PORATION WITHIN 30 DAYS AFTERTHE ACQUISITION, IF THE ACQUI-SITION OCCURS WITHIN 10 YEARSFROM THE DATE OF THE DISTRIBU-TION.

(b) Substantiation information. * * *(c) Stock of parent, subsidiary or suc-

cessor corporation redeemed. * * *(d) Redeemed shareholder as creditor.

* * *(e) Acquisition of assets pursuant to

creditor’s rights. * * *

(f) Constructive ownership rules appli-cable. * * *

(g) Avoidance of Federal income tax.* * *

(h) Effective/applicability date. Para-graph (a) of this section applies to anytaxable year beginning on or after May30, 2006. However, taxpayers may applyparagraph (a) of this section to any originalFederal income tax return (including anyamended return filed on or before the duedate (including extensions) of such origi-nal return) timely filed on or after May 30,2006. For taxable years beginning beforeMay 30, 2006, see §1.302–4 as containedin 26 CFR part 1 in effect on April 1, 2006.

§1.302–4T [Removed]

Par. 5. Section 1.302–4T is removed.Par. 6. Section 1.331–1 is amended by:1. Adding headings to paragraphs (a),

(b), (c) and (e).2. Revising paragraphs (d) and (f).The additions and revisions read as fol-

lows:

§1.331–1 Corporate liquidations.

(a) In general. * * *(b) Gain or loss. * * *(c) Recharacterization. * * *(d) Reporting requirement—(1) Gen-

eral rule. Every significant holder thattransfers stock to the issuing corporation inexchange for property from such corpora-tion must include on or with such holder’sreturn for the year of such exchange thestatement described in paragraph (d)(2) ofthis section unless—

(i) The property is part of a distribu-tion made pursuant to a corporate resolu-tion reciting that the distribution is madein complete liquidation of the corporation;and

(ii) The issuing corporation is com-pletely liquidated and dissolved withinone year after the distribution.

(2) Statement. If required by para-graph (d)(1) of this section, a signif-icant holder must include on or withsuch holder’s return a statement enti-tled, “STATEMENT PURSUANT TO§1.331–1(d) BY [INSERT NAME ANDTAXPAYER IDENTIFICATION NUM-BER (IF ANY) OF TAXPAYER], A SIG-NIFICANT HOLDER OF THE STOCKOF [INSERT NAME AND EMPLOYER

IDENTIFICATION NUMBER (IF ANY)OF ISSUING CORPORATION].” If asignificant holder is a controlled foreigncorporation (within the meaning of sec-tion 957), each United States shareholder(within the meaning of section 951(b))with respect thereto must include thisstatement on or with its return. The state-ment must include—

(i) The fair market value and basis of thestock transferred by the significant holderto the issuing corporation; and

(ii) A description of the property re-ceived by the significant holder from theissuing corporation.

(3) Definitions. For purposes of thissection:

(i) Significant holder means any personthat, immediately before the exchange—

(A) Owned at least five percent (by voteor value) of the total outstanding stock ofthe issuing corporation if the stock ownedby such person is publicly traded; or

(B) Owned at least one percent (by voteor value) of the total outstanding stock ofthe issuing corporation if the stock ownedby such person is not publicly traded.

(ii) Publicly traded stock means stockthat is listed on—

(A) A national securities exchange reg-istered under section 6 of the SecuritiesExchange Act of 1934 (15 U.S.C. 78f); or

(B) An interdealer quotation systemsponsored by a national securities as-sociation registered under section 15Aof the Securities Exchange Act of 1934(15 U.S.C. 78o–3).

(iii) Issuing corporation means the cor-poration that issued the shares of stock,some or all of which were transferred bya significant holder to such corporation inthe exchange described in paragraph (d)(1)of this section.

(4) Cross reference. See section 6043of the Code for requirements relating to areturn by a liquidating corporation.

(e) Example. * * *(f) Effective/applicability date. Para-

graph (d) of this section applies to anytaxable year beginning on or after May30, 2006. However, taxpayers may applyparagraph (d) of this section to any originalFederal income tax return (including anyamended return filed on or before the duedate (including extensions) of such origi-nal return) timely filed on or after May 30,2006. For taxable years beginning before

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May 30, 2006, see §1.331–1 as containedin 26 CFR part 1 in effect on April 1, 2006.

§1.331–1T [Removed]

Par. 7. Section 1.331–1T is removed.Par. 8. Section 1.332–6 is added to read

as follows:

§1.332–6 Records to be kept andinformation to be filed with return.

(a) Statement filed by recipient corpora-tion. If any recipient corporation receiveda liquidating distribution from the liquidat-ing corporation pursuant to a plan (whetheror not that recipient corporation has re-ceived or will receive other such distribu-tions from the liquidating corporation inother tax years as part of the same plan)during the current tax year, such recipi-ent corporation must include a statemententitled, “STATEMENT PURSUANT TOSECTION 332 BY [INSERT NAME ANDEMPLOYER IDENTIFICATION NUM-BER (IF ANY) OF TAXPAYER], A COR-PORATION RECEIVING A LIQUIDAT-ING DISTRIBUTION,” on or with its re-turn for such year. If any recipient cor-poration is a controlled foreign corpora-tion (within the meaning of section 957),each United States shareholder (within themeaning of section 951(b)) with respectthereto must include this statement on orwith its return. The statement must in-clude—

(1) The name and employer identifica-tion number (if any) of the liquidating cor-poration;

(2) The date(s) of all distribution(s)(whether or not pursuant to the plan) bythe liquidating corporation during the cur-rent tax year;

(3) The aggregate fair market value andbasis, determined immediately before theliquidation, of all of the assets of the liq-uidating corporation that have been or willbe transferred to any recipient corporation;

(4) The date and control number of anyprivate letter ruling(s) issued by the Inter-nal Revenue Service in connection withthe liquidation;

(5) The following representation: THEPLAN OF COMPLETE LIQUIDATIONWAS ADOPTED ON [INSERT DATE(mm/dd/yyyy)]; and

(6) A representation by such recipientcorporation either that—

(i) THE LIQUIDATION WASCOMPLETED ON [INSERT DATE(mm/dd/yyyy)]; or

(ii) THE LIQUIDATION IS NOTCOMPLETE AND THE TAXPAYERHAS TIMELY FILED [INSERT EITHERFORM 952, “Consent To Extend the Timeto Assess Tax Under Section 332(b),” ORNUMBER AND NAME OF THE SUC-CESSOR FORM].

(b) Filings by the liquidating corpo-ration. The liquidating corporation musttimely file Form 966, “Corporate Disso-lution or Liquidation,” (or its successorform) and its final Federal corporate in-come tax return. See also section 6043 ofthe Code.

(c) Definitions. For purposes of thissection:

(1) Plan means the plan of completeliquidation within the meaning of section332.

(2) Recipient corporation means thecorporation described in section 332(b)(1).

(3) Liquidating corporation means thecorporation that makes a distribution ofproperty to a recipient corporation pur-suant to the plan.

(4) Liquidating distribution meansa distribution of property made by theliquidating corporation to a recipient cor-poration pursuant to the plan.

(d) Substantiation information. Under§1.6001–1(e), taxpayers are required toretain their permanent records and makesuch records available to any authorizedInternal Revenue Service officers and em-ployees. In connection with a liquida-tion described in this section, these recordsshould specifically include information re-garding the amount, basis, and fair mar-ket value of all distributed property, andrelevant facts regarding any liabilities as-sumed or extinguished as part of such liq-uidation.

(e) Effective/applicability date. Thissection applies to any taxable year begin-ning on or after May 30, 2006. How-ever, taxpayers may apply this section toany original Federal income tax return (in-cluding any amended return filed on or be-fore the due date (including extensions) ofsuch original return) timely filed on or af-ter May 30, 2006. For taxable years begin-ning before May 30, 2006, see §1.332–6as contained in 26 CFR part 1 in effect onApril 1, 2006.

§1.332–6T [Removed]

Par. 9. Section 1.332–6T is removed.Par. 10. Section 1.338–0 is

amended by revising the entries for§§1.338–10(a)(4)(iii) and 1.338–10(c)and removing the entry for §1.338–10T toread as follows:

§1.338–0 Outline of topics.

* * * * *

§1.338–10 Filing of returns.

(a) * * *(4) * * *(iii) Procedure for filing a combined re-

turn.

* * * * *(c) Effective/applicability date.

* * * * *Par. 11. Section 1.338–10 is amended

by revising paragraphs (a)(4)(iii) and (c) toread as follows:

§1.338–10 Filing of returns.

(a) * * *(4) * * *(iii) Procedure for filing a combined re-

turn. A combined return is made by fil-ing a single corporation income tax re-turn in lieu of separate deemed sale re-turns for all targets required to be includedin the combined return. The combinedreturn reflects the deemed asset sales ofall targets required to be included in thecombined return. If the targets includedin the combined return constitute a sin-gle affiliated group within the meaning ofsection 1504(a), the income tax return issigned by an officer of the common par-ent of that group. Otherwise, the returnmust be signed by an officer of each tar-get included in the combined return. Rulessimilar to the rules in §1.1502–75(j) applyfor purposes of preparing the combined re-turn. The combined return must include astatement entitled, “ELECTION TO FILEA COMBINED RETURN UNDER SEC-TION 338(h)(15).” The statement must in-clude—

(A) The name, address, and employeridentification number of each target re-quired to be included in the combined re-turn; and

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(B) The following declaration: EACHTARGET IDENTIFIED IN THIS ELEC-TION TO FILE A COMBINED RETURNCONSENTS TO THE FILING OF ACOMBINED RETURN.

* * * * *(c) Effective/applicability date. Para-

graph (a)(4)(iii) of this section applies toany taxable year beginning on or after May30, 2006. However, taxpayers may ap-ply paragraph (a)(4)(iii) of this section toany original Federal income tax return (in-cluding any amended return filed on or be-fore the due date (including extensions) ofsuch original return) timely filed on or af-ter May 30, 2006. For taxable years begin-ning before May 30, 2006, see §1.338–10as contained in 26 CFR part 1 in effect onApril 1, 2006.

§1.338–10T [Removed]

Par. 12. Section 1.338–10T is removed.Par. 13. Section 1.351–3 is added to

read as follows:

§1.351–3 Records to be kept andinformation to be filed.

(a) Significant transferor. Every signif-icant transferor must include a statemententitled, “STATEMENT PURSUANTTO §1.351–3(a) BY [INSERT NAMEAND TAXPAYER IDENTIFICATIONNUMBER (IF ANY) OF TAXPAYER], ASIGNIFICANT TRANSFEROR,” on orwith such transferor’s income tax returnfor the taxable year of the section 351exchange. If a significant transferor isa controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its return.The statement must include—

(1) The name and employer identifica-tion number (if any) of the transferee cor-poration;

(2) The date(s) of the transfer(s) of as-sets;

(3) The aggregate fair market value andbasis, determined immediately before theexchange, of the property transferred bysuch transferor in the exchange; and

(4) The date and control number of anyprivate letter ruling(s) issued by the Inter-nal Revenue Service in connection withthe section 351 exchange.

(b) Transferee corporation. Except asprovided in paragraph (c) of this section,every transferee corporation must includea statement entitled, “STATEMENT PUR-SUANT TO §1.351–3(b) BY [INSERTNAME AND EMPLOYER IDENTI-FICATION NUMBER (IF ANY) OFTAXPAYER], A TRANSFEREE COR-PORATION,” on or with its income taxreturn for the taxable year of the exchange.If the transferee corporation is a controlledforeign corporation (within the meaningof section 957), each United States share-holder (within the meaning of section951(b)) with respect thereto must includethis statement on or with its return. Thestatement must include—

(1) The name and taxpayer identifica-tion number (if any) of every significanttransferor;

(2) The date(s) of the transfer(s) of as-sets;

(3) The aggregate fair market value andbasis, determined immediately before theexchange, of all of the property receivedin the exchange; and

(4) The date and control number of anyprivate letter ruling(s) issued by the Inter-nal Revenue Service in connection withthe section 351 exchange.

(c) Exception for certain transferee cor-porations. The transferee corporation isnot required to file a statement under para-graph (b) of this section if all of the infor-mation that would be included in the state-ment described in paragraph (b) of thissection is included in any statement(s) de-scribed in paragraph (a) of this section thatis attached to the same return for the samesection 351 exchange.

(d) Definitions. For purposes of thissection:

(1) Significant transferor means a per-son that transferred property to a corpora-tion and received stock of the transfereecorporation in an exchange described insection 351 if, immediately after the ex-change, such person—

(i) Owned at least five percent (by voteor value) of the total outstanding stockof the transferee corporation if the stockowned by such person is publicly traded,or

(ii) Owned at least one percent (by voteor value) of the total outstanding stockof the transferee corporation if the stockowned by such person is not publiclytraded.

(2) Publicly traded stock means stockthat is listed on—

(i) A national securities exchange regis-tered under section 6 of the Securities Ex-change Act of 1934 (15 U.S.C. 78f); or

(ii) An interdealer quotation systemsponsored by a national securities as-sociation registered under section 15Aof the Securities Exchange Act of 1934(15 U.S.C. 78o–3).

(e) Substantiation information. Under§1.6001–1(e), taxpayers are required toretain their permanent records and makesuch records available to any authorizedInternal Revenue Service officers and em-ployees. In connection with the exchangedescribed in this section, these recordsshould specifically include informationregarding the amount, basis, and fair mar-ket value of all transferred property, andrelevant facts regarding any liabilitiesassumed or extinguished as part of suchexchange.

(f) Effective/applicability date. Thissection applies to any taxable year begin-ning on or after May 30, 2006. How-ever, taxpayers may apply this section toany original Federal income tax return (in-cluding any amended return filed on or be-fore the due date (including extensions) ofsuch original return) timely filed on or af-ter May 30, 2006. For taxable years begin-ning before May 30, 2006, see §1.351–3as contained in 26 CFR part 1 in effect onApril 1, 2006.

§1.351–3T [Removed]

Par. 14. Section 1.351–3T is removed.Par. 15. Section 1.355–0 is amended

by removing the entry for §1.355–5T andadding an entry for §1.355–5.

The revision and addition read as fol-lows:

§1.355–0 Outline of sections.

* * * * *

§1.355–5 Records to be kept andinformation to be filed.

(a) Distributing corporation.(1) In general.(2) Special rule when an asset transfer

precedes a stock distribution.(b) Significant distributee.(c) Definitions.(1) Significant distributee.

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(2) Publicly traded stock.(d) Substantiation information.(e) Effective/applicability date.

* * * * *Par. 16. Section 1.355–5 is added to

read as follows:

§1.355–5 Records to be kept andinformation to be filed.

(a) Distributing corporation—(1) Ingeneral. Every corporation that makesa distribution (the distributing corpora-tion) of stock or securities of a controlledcorporation, as described in section 355(or so much of section 356 as relates tosection 355), must include a statemententitled, “STATEMENT PURSUANTTO §1.355–5(a) BY [INSERT NAMEAND EMPLOYER IDENTIFICATIONNUMBER (IF ANY) OF TAXPAYER], ADISTRIBUTING CORPORATION,” onor with its return for the year of the dis-tribution. If the distributing corporationis a controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its return.The statement must include—

(i) The name and employer identifica-tion number (if any) of the controlled cor-poration;

(ii) The name and taxpayer identifica-tion number (if any) of every significantdistributee;

(iii) The date of the distribution of thestock or securities of the controlled corpo-ration;

(iv) The aggregate fair market valueand basis, determined immediately beforethe distribution or exchange, of the stock,securities, or other property (includingmoney) distributed by the distributing cor-poration in the transaction; and

(v) The date and control number of anyprivate letter ruling(s) issued by the Inter-nal Revenue Service in connection withthe transaction.

(2) Special rule when an asset transferprecedes a stock distribution. If the dis-tributing corporation transferred propertyto the controlled corporation in a transac-tion described in section 351 or 368, aspart of a plan to then distribute the stock orsecurities of the controlled corporation ina transaction described in section 355 (orso much of section 356 as relates to sec-

tion 355), then, unless paragraph (a)(1)(v)of this section applies, the distributingcorporation must also include on or withits return for the year of the distributionthe statement required by §1.351–3(a) or1.368–3(a). If the distributing corporationis a controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaningof section 951(b)) with respect theretomust include the statement required by§1.351–3(a) or 1.368–3(a) on or with itsreturn.

(b) Significant distributee. Everysignificant distributee must include astatement entitled, “STATEMENT PUR-SUANT TO §1.355–5(b) BY [INSERTNAME AND TAXPAYER IDENTIFI-CATION NUMBER (IF ANY) OF TAX-PAYER], A SIGNIFICANT DISTRIBU-TEE,” on or with such distributee’s returnfor the year in which such distributionis received. If a significant distributee isa controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its return.The statement must include—

(1) The names and employer identifi-cation numbers (if any) of the distributingand controlled corporations;

(2) The date of the distribution of thestock or securities of the controlled corpo-ration; and

(3) The aggregate basis, determinedimmediately before the exchange, of anystock or securities transferred by the sig-nificant distributee in the exchange, andthe aggregate fair market value, deter-mined immediately before the distributionor exchange, of the stock, securities orother property (including money) receivedby the significant distributee in the distri-bution or exchange.

(c) Definitions. For purposes of thissection:

(1) Significant distributee means—(i) A holder of stock of a distributing

corporation that receives, in a transactiondescribed in section 355 (or so much ofsection 356 as relates to section 355), stockof a corporation controlled by the distribut-ing corporation if, immediately before thedistribution or exchange, such holder—

(A) Owned at least five percent (by voteor value) of the total outstanding stockof the distributing corporation if the stock

owned by such holder is publicly traded;or

(B) Owned at least one percent (by voteor value) of the stock of the distributingcorporation if the stock owned by suchholder is not publicly traded; or

(ii) A holder of securities of a distribut-ing corporation that receives, in a transac-tion described in section 355 (or so muchof section 356 as relates to section 355),stock or securities of a corporation con-trolled by the distributing corporation if,immediately before the distribution or ex-change, such holder owned securities insuch distributing corporation with a basisof $1,000,000 or more.

(2) Publicly traded stock means stockthat is listed on—

(i) A national securities exchange regis-tered under section 6 of the Securities Ex-change Act of 1934 (15 U.S.C. 78f); or

(ii) An interdealer quotation systemsponsored by a national securities as-sociation registered under section 15Aof the Securities Exchange Act of 1934(15 U.S.C. 78o–3).

(d) Substantiation information. Under§1.6001–1(e), taxpayers are required toretain their permanent records and makesuch records available to any authorizedInternal Revenue Service officers and em-ployees. In connection with the distribu-tion or exchange described in this section,these records should specifically includeinformation regarding the amount, basis,and fair market value of all property dis-tributed or exchanged, and relevant factsregarding any liabilities assumed or extin-guished as part of such distribution or ex-change.

(e) Effective/applicability date. Thissection applies to any taxable year begin-ning on or after May 30, 2006. How-ever, taxpayers may apply this section toany original Federal income tax return (in-cluding any amended return filed on or be-fore the due date (including extensions) ofsuch original return) timely filed on or af-ter May 30, 2006. For taxable years begin-ning before May 30, 2006, see §1.355–5as contained in 26 CFR part 1 in effect onApril 1, 2006.

§1.355–5T [Removed]

Par. 17. Section 1.355–5T is removed.Par. 18. Section 1.368–3 is added to

read as follows:

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§1.368–3 Records to be kept andinformation to be filed with returns.

(a) Parties to the reorganization. Theplan of reorganization must be adoptedby each of the corporations that are par-ties thereto. Each such corporation mustinclude a statement entitled, “STATE-MENT PURSUANT TO §1.368–3(a)BY [INSERT NAME AND EMPLOYERIDENTIFICATION NUMBER (IF ANY)OF TAXPAYER], A CORPORATION APARTY TO A REORGANIZATION,” onor with its return for the taxable year ofthe exchange. If any such corporation isa controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its re-turn. However, it is not necessary for anytaxpayer to include more than one suchstatement on or with the same return forthe same reorganization. The statementmust include—

(1) The names and employer identifica-tion numbers (if any) of all such parties;

(2) The date of the reorganization;(3) The aggregate fair market value and

basis, determined immediately before theexchange, of the assets, stock or securitiesof the target corporation transferred in thetransaction; and

(4) The date and control number of anyprivate letter ruling(s) issued by the Inter-nal Revenue Service in connection withthis reorganization.

(b) Significant holders. Every signif-icant holder, other than a corporation aparty to the reorganization, must include astatement entitled, “STATEMENT PUR-SUANT TO §1.368–3(b) BY [INSERTNAME AND TAXPAYER IDENTIFI-CATION NUMBER (IF ANY) OF TAX-PAYER], A SIGNIFICANT HOLDER,”on or with such holder’s return for the tax-able year of the exchange. If a significantholder is a controlled foreign corpora-tion (within the meaning of section 957),each United States shareholder (within themeaning of section 951(b)) with respectthereto must include this statement on orwith its return. The statement must in-clude—

(1) The names and employer identifica-tion numbers (if any) of all of the parties tothe reorganization;

(2) The date of the reorganization; and

(3) The fair market value, determinedimmediately before the exchange, of all thestock or securities of the target corporationheld by the significant holder that is trans-ferred in the transaction and such holder’sbasis, determined immediately before theexchange, in the stock or securities of suchtarget corporation.

(c) Definitions. For purposes of thissection:

(1) Significant holder means—(i) A holder of stock of the target cor-

poration that receives stock or securities inan exchange described in section 354 (orso much of section 356 as relates to section354) if, immediately before the exchange,such holder—

(A) Owned at least five percent (by voteor value) of the total outstanding stock ofthe target corporation if the stock ownedby such holder is publicly traded; or

(B) Owned at least one percent (by voteor value) of the total outstanding stock ofthe target corporation if the stock ownedby such holder is not publicly traded; or

(ii) A holder of securities of the tar-get corporation that receives stock or se-curities in an exchange described in sec-tion 354 (or so much of section 356 as re-lates to section 354) if, immediately beforethe exchange, such holder owned securi-ties in such target corporation with a basisof $1,000,000 or more.

(2) Publicly traded stock means stockthat is listed on—

(i) A national securities exchange regis-tered under section 6 of the Securities Ex-change Act of 1934 (15 U.S.C. 78f); or

(ii) An interdealer quotation systemsponsored by a national securities as-sociation registered under section 15Aof the Securities Exchange Act of 1934(15 U.S.C. 78o–3).

(d) Substantiation information. Under§1.6001–1(e), taxpayers are required toretain their permanent records and makesuch records available to any authorizedInternal Revenue Service officers and em-ployees. In connection with the reorga-nization described in this section, theserecords should specifically include infor-mation regarding the amount, basis, andfair market value of all transferred prop-erty, and relevant facts regarding any lia-bilities assumed or extinguished as part ofsuch reorganization.

(e) Effective/applicability date. Thissection applies to any taxable year begin-

ning on or after May 30, 2006. How-ever, taxpayers may apply this section toany original Federal income tax return (in-cluding any amended return filed on or be-fore the due date (including extensions) ofsuch original return) timely filed on or af-ter May 30, 2006. For taxable years begin-ning before May 30, 2006, see §1.368–3as contained in 26 CFR part 1 in effect onApril 1, 2006.

§1.368–3T [Removed]

Par. 19. Section 1.368–3T is removed.Par. 20. Section 1.381(b)–1 is amended

by revising paragraphs (b)(3) and (e) toread as follows:

§1.381(b)–1 Operating rules applicableto carryovers in certain corporateacquisitions.

* * * * *(b) * * *(3) Election—(i) Content of state-

ments. The statements referred to inparagraph (b)(2) of this section mustbe entitled, “ELECTION OF DATE OFDISTRIBUTION OR TRANSFER PUR-SUANT TO §1.381(b)–1(b)(2),” andmust include: [INSERT NAME ANDEMPLOYER IDENTIFICATION NUM-BER (IF ANY) OF DISTRIBUTOR ORTRANSFEROR CORPORATION] AND[INSERT NAME AND EMPLOYERIDENTIFICATION NUMBER (IF ANY)OF ACQUIRING CORPORATION]ELECT TO DETERMINE THE DATEOF DISTRIBUTION OR TRANSFERUNDER §1.381(b)–1(b)(2). SUCH DATEIS [INSERT DATE (mm/dd/yyyy)].

(ii) Filing of statements. One statementmust be included on or with the timelyfiled Federal income tax return of the dis-tributor or transferor corporation for itstaxable year ending with the date of distri-bution or transfer. An identical statementmust be included on or with the timelyfiled Federal income tax return of the ac-quiring corporation for its first taxable yearending after that date. If the distributoror transferor corporation, or the acquiringcorporation, is a controlled foreign corpo-ration (within the meaning of section 957),each United States shareholder (within themeaning of section 951(b)) with respectthereto must include this statement on orwith its return.

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* * * * *(e) Effective/applicability date. Para-

graph (b)(3) of this section applies to anytaxable year beginning on or after May30, 2006. However, taxpayers may ap-ply paragraph (b)(3) of this section to anyoriginal Federal income tax return (includ-ing any amended return filed on or beforethe due date (including extensions) of suchoriginal return) timely filed on or afterMay 30, 2006. For taxable years beginningbefore May 30, 2006, see §1.381(b)–1 ascontained in 26 CFR part 1 in effect onApril 1, 2006.

§1.381(b)–1T [Removed]

Par. 21. Section 1.381(b)–1T is re-moved.

Par. 22. Section 1.382–1 is amendedby:

1. Revising the entry for§1.382–8(c)(2).

2. Revising the entry for§1.382–8(e)(4).

3. Revising the entry for §1.382–8(h).4. Revising the entry for

§1.382–8(j)(4).5. Removing the entry for §1.382–8T.6. Adding the entry for §1.382–11.7. Removing the entry for §1.382–11T.The additions and revisions read as fol-

lows:

§1.382–1 Table of contents.

* * * * *

§1.382–8 Controlled groups.

* * * * *(c) * * *(2) Restoration of value.

* * * * *(e) * * *(4) Foreign component member.(i) In general.(ii) Exception.

* * * * *(h) Time and manner of filing election

to restore.(1) Statements required.(i) Filing by loss corporation.(ii) Filing by electing member.(iii) Agreement.(2) Special rule for foreign component

members.

(i) Deemed election to restore fullvalue.

(ii) Election not to restore full value.(iii) Agreement.(3) Revocation of election.

* * * * *(j) * * *(4) Effective/applicability date.

* * * * *

§1.382–11 Reporting requirements.

(a) Information statement required.(b) Effective/applicability date.Par. 23. Section 1.382–8 is amended by

revising paragraphs (c)(2), (e)(4), (h) and(j)(4) to read as follows:

§1.382–8 Controlled groups.

* * * * *(c) * * *(2) Restoration of value. After the value

of the stock of each component memberis reduced pursuant to paragraph (c)(1) ofthis section, the value of the stock of eachcomponent member is increased by theamount of value, if any, restored to thecomponent member by another componentmember (the electing member) pursuant tothis paragraph (c)(2). The electing mem-ber may elect (or may be deemed to electunder paragraph (h)(2)(i) of this sectionin the case of a foreign component mem-ber) to restore value to another componentmember in an amount that does not exceedthe lesser of—

(i) The sum of—(A) The value, determined immediately

before the ownership change, of the elect-ing member’s stock (after adjustment un-der paragraph (c)(1) of this section andbefore any restoration of value under thisparagraph (c)(2)); plus

(B) Any amount of value restored tothe electing member by another compo-nent member under this paragraph (c)(2);or

(ii) The value, determined immediatelybefore any ownership change, of the elect-ing member’s stock (without regard toany adjustment under this section) that isdirectly owned by the other componentmember immediately after the ownershipchange.

* * * * *

(e) * * *(4) Foreign component member—(i) In

general. Except as provided in paragraph(e)(4)(ii) of this section, foreign compo-nent member means a component memberthat is a foreign corporation.

(ii) Exception. A foreign componentmember shall not include a foreign corpo-ration that has items treated as connectedwith the conduct of a trade or business inthe United States that it takes into accountin determining its value pursuant to section382(e)(3).

* * * * *(h) Time and manner of filing election

to restore—(1) Statements required— (i)Filing by loss corporation. The election torestore value described in paragraph (c)(2)of this section must be in the form setforth in this paragraph (h)(1)(i). It mustbe filed by the loss corporation by in-cluding a statement on or with its incometax return for the taxable year in whichthe ownership change occurs (or with anamended return for that year filed on orbefore the due date (including extensions)of the income tax return of any componentmember with respect to the taxable year inwhich the ownership change occurs). Thecommon parent of a consolidated groupmust make the election on behalf of thegroup. The election is made in the form ofa statement entitled, “STATEMENT PUR-SUANT TO §1.382–8(h)(1) TO ELECTTO RESTORE ALL OR PART OF THEVALUE OF [INSERT NAME AND EM-PLOYER IDENTIFICATION NUMBER(IF ANY) OF THE ELECTING MEM-BER] TO [INSERT NAME AND EM-PLOYER IDENTIFICATION NUMBER(IF ANY) OF THE CORPORATION TOWHICH VALUE IS RESTORED].” Thestatement must include the amount of thevalue being restored and must also indi-cate that an agreement signed and datedby both parties, as described in paragraph(h)(1)(iii) of this section, has been enteredinto. Each such party must retain eitherthe original or a copy of this agreement aspart of its records. See §1.6001–1(e).

(ii) Filing by electing member. Anelecting member must include a statementidentical to the one described in paragraph(h)(1)(i) of this section on or with itsincome tax return (or with an amended re-turn for that year filed on or before the due

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date (including extensions) of the incometax return of any component member withrespect to the taxable year in which theownership change occurs) (if any) for thetaxable year which includes the changedate in connection with which the elec-tion described in paragraph (c)(2) of thissection is made. If the electing memberis a controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its return.It is not necessary for the electing member(or the United States shareholder, as thecase may be) to include this statement onor with its return if the loss corporationincludes an identical statement on or withthe same return for the same election.

(iii) Agreement. Both the electingmember and the corporation to whichvalue is restored must sign and date anagreement. The agreement must—

(A) Identify the change date for the losscorporation in connection with which theelection is made;

(B) State the value of the electing mem-ber’s stock (without regard to any adjust-ment under paragraph (c) of this section)immediately before the ownership change;

(C) State the amount of any reductionrequired under paragraph (c)(1) of this sec-tion with respect to stock of the electingmember that is owned directly or indirectlyby the corporation to which value is re-stored;

(D) State the amount of value that theelecting member elects to restore to thecorporation; and

(E) State whether the value of eithercomponent member’s stock was adjustedpursuant to paragraph (c)(4) of this section.

(2) Special rule for foreign componentmembers—(i) Deemed election to restorefull value. Unless the election describedin paragraph (h)(2)(ii) of this section ismade for a foreign component member,each foreign component member of thecontrolled group is deemed to have electedto restore to each other component mem-ber the maximum value allowable underparagraph (c)(2) of this section, taking intoaccount the limitations of this section.

(ii) Election not to restore full value.(A) A loss corporation may elect to reducethe amount of value restored from a for-eign component member (the electing for-

eign component member) to another com-ponent member under paragraph (h)(2)(i)of this section in the form set forth in thisparagraph (h)(2)(ii). It must be filed bythe loss corporation by including a state-ment on or with its income tax return forthe taxable year in which the ownershipchange occurs (or with an amended returnfor that year filed on or before the duedate (including extensions) of the incometax return of any component member withrespect to the taxable year in which theownership change occurs). The commonparent of a consolidated group must makethe election on behalf of the group. Theelection is made in the form of a statemententitled, “STATEMENT PURSUANTTO §1.382–8(h)(2)(ii) TO ELECT NOTTO RESTORE FULL VALUE OF [IN-SERT NAME AND EMPLOYER IDEN-TIFICATION NUMBER (IF ANY) OFELECTING FOREIGN COMPONENTMEMBER] TO [INSERT NAME ANDEMPLOYER IDENTIFICATION NUM-BER (IF ANY) OF THE CORPORATIONTO WHICH SUCH VALUE IS NOT TOBE RESTORED].” The statement mustinclude the amount of the value not beingrestored and must also indicate that anagreement signed and dated by both par-ties, as described in paragraph (h)(2)(iii)of this section, has been entered into. Eachsuch party must retain either the originalor a copy of the agreement as part of itsrecords. See §1.6001–1(e).

(B) An electing foreign componentmember must include a statement iden-tical to the one described in paragraph(h)(2)(ii)(A) of this section on or with itsincome tax return (or with an amendedreturn for that year filed on or beforethe due date (including extensions) ofthe income tax return of any componentmember with respect to the taxable yearin which the ownership change occurs)(if any) for the taxable year which in-cludes the change date in connection withwhich the election described in paragraph(h)(2)(ii)(A) of this section is made. Ifthe electing foreign component memberis a controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaningof section 951(b)) with respect theretomust include this statement on or with itsreturn. It is not necessary for the electingforeign component member (or United

States shareholder, as the case may be) toinclude this statement on or with its returnif the loss corporation includes an identicalstatement on or with the same return forthe same election.

(iii) Agreement. Both the electing for-eign component member and the corpora-tion to which full value is not restored mustsign and date an agreement. The agree-ment must—

(A) Identify the change date for the losscorporation in connection with which theelection is made;

(B) State the value of the electing for-eign component member’s stock (withoutregard to any adjustment under paragraph(c) of this section) immediately before theownership change;

(C) State the amount of any reductionrequired under paragraph (c)(1) of this sec-tion with respect to stock of the electingforeign component member that is owneddirectly or indirectly by the corporation towhich value is not restored;

(D) State the amount of value that theelecting foreign component member electsnot to restore to the corporation; and

(E) State whether the value of eithercomponent member’s stock was adjustedpursuant to paragraph (c)(4) of this section.

(3) Revocation of election. An election(other than the deemed election describedin paragraph (h)(2)(i) of this section) madeunder this section is revocable only withthe consent of the Commissioner.

* * * * *(j) * * *(4) Effective/applicability date. Para-

graphs (c)(2), (e)(4) and (h) of this sectionapply to any taxable year beginning on orafter May 30, 2006. However, taxpayersmay apply paragraphs (c)(2), (e)(4) and (h)of this section to any original Federal in-come tax return (including any amendedreturn filed on or before the due date (in-cluding extensions) of such original re-turn) timely filed on or after May 30, 2006.For taxable years beginning before May30, 2006, see §1.382–8 as contained in26 CFR part 1 in effect on April 1, 2006.

§1.382–8T [Removed]

Par. 24. Section 1.382–8T is removed.Par. 25. Section 1.382–11 is added to

read as follows:

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§1.382–11 Reporting requirements.

(a) Information statement required. Aloss corporation must include a statemententitled, “STATEMENT PURSUANTTO §1.382–11(a) BY [INSERT NAMEAND EMPLOYER IDENTIFICATIONNUMBER OF TAXPAYER], A LOSSCORPORATION,” on or with its incometax return for each taxable year that it is aloss corporation in which an owner shift,equity structure shift or other transactiondescribed in §1.382–2T(a)(2)(i) occurs.The statement must include the date(s)of any owner shifts, equity structureshifts, or other transactions described in§1.382–2T(a)(2)(i), the date(s) on whichany ownership change(s) occurred, andthe amount of any attributes described in§1.382–2(a)(1)(i) that caused the corpo-ration to be a loss corporation. A losscorporation may also be required to in-clude certain elections on this statement,including—

(1) An election made under§1.382–2T(h)(4)(vi)(B) to disregardthe deemed exercise of an option if theactual exercise of that option occurredwithin 120 days of the ownership change;and

(2) An election made under§1.382–6(b)(2) to close the books ofthe loss corporation for purposes of allo-cating income and loss to periods beforeand after the change date for purposes ofsection 382.

(b) Effective/applicability date. Thissection applies to any taxable year begin-ning on or after May 30, 2006. How-ever, taxpayers may apply this section toany original Federal income tax return (in-cluding any amended return filed on or be-fore the due date (including extensions) ofsuch original return) timely filed on or af-ter May 30, 2006. For taxable years begin-ning before May 30, 2006, see §1.382–2Tas contained in 26 CFR part 1 in effect onApril 1, 2006.

§1.382–11T [Removed]

Par. 26. Section 1.382–11T is removed.Par. 27. Section 1.1081–11 is added to

read as follows:

§1.1081–11 Records to be kept andinformation to be filed with returns.

(a) Distributions and exchanges; signif-icant holders of stock or securities. Everysignificant holder must include a statemententitled, “STATEMENT PURSUANTTO §1.1081–11(a) BY [INSERT NAMEAND TAXPAYER IDENTIFICATIONNUMBER (IF ANY) OF TAXPAYER],A SIGNIFICANT HOLDER,” on or withsuch holder’s income tax return for thetaxable year in which the distribution orexchange occurs. If a significant holderis a controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its return.The statement must include—

(1) The name and employer identifi-cation number (if any) of the corporationfrom which the stock, securities, or otherproperty (including money) was receivedby such significant holder;

(2) The aggregate basis, determinedimmediately before the exchange, of anystock or securities transferred by the sig-nificant holder in the exchange, and theaggregate fair market value, determinedimmediately before the distribution or ex-change, of the stock, securities or otherproperty (including money) received bythe significant holder in the distribution orexchange; and

(3) The date of the distribution or ex-change.

(b) Distributions and exchanges; cor-porations subject to Commission orders.Each corporation which is a party to a dis-tribution or exchange made pursuant to anorder of the Commission must include onor with its income tax return for its taxableyear in which the distribution or exchangetakes place a statement entitled, “STATE-MENT PURSUANT TO §1.1081–11(b)BY [INSERT NAME AND EMPLOYERIDENTIFICATION NUMBER (IF ANY)OF TAXPAYER], A DISTRIBUTING OREXCHANGING CORPORATION.” If thedistributing or exchanging corporation isa controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its return.The statement must include—

(1) The date and control number of theCommission order, pursuant to which thedistribution or exchange was made;

(2) The names and taxpayer identifi-cation numbers (if any) of the significantholders;

(3) The aggregate fair market valueand basis, determined immediately beforethe distribution or exchange, of the stock,securities, or other property (includingmoney) transferred in the distribution orexchange; and

(4) The date of the distribution or ex-change.

(c) Sales by members of system groups.Each system group member must includea statement entitled, “STATEMENT PUR-SUANT TO §1.1081–11(c) BY [INSERTNAME AND EMPLOYER IDENTIFI-CATION NUMBER (IF ANY) OF TAX-PAYER], A SYSTEM GROUP MEM-BER,” on or with its income tax returnfor the taxable year in which the sale ismade. If any system group member isa controlled foreign corporation (withinthe meaning of section 957), each UnitedStates shareholder (within the meaning ofsection 951(b)) with respect thereto mustinclude this statement on or with its return.The statement must include—

(1) The dates and control numbers of allrelevant Commission orders;

(2) The aggregate fair market value andbasis, determined immediately before thesale, of all stock or securities sold; and

(3) The date of the sale.(d) Definitions. (1) For purposes of this

section, Commission means the Securitiesand Exchange Commission.

(2) For purposes of this section, signif-icant holder means a person that receivesstock or securities from a corporation (thedistributing corporation) pursuant to an or-der of the Commission, if, immediately be-fore the transaction, such person—

(i) In the case of stock—(A) Owned at least five percent (by vote

or value) of the total outstanding stockof the distributing corporation if the stockowned by such person is publicly traded,or

(B) Owned at least one percent (by voteor value) of the total outstanding stock ofthe distributing corporation if the stockowned by such person is not publiclytraded; or

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(ii) In the case of securities, owned se-curities of the distributing corporation witha basis of $1,000,000 or more.

(3) Publicly traded stock means stockthat is listed on—

(i) A national securities exchange regis-tered under section 6 of the Securities Ex-change Act of 1934 (15 U.S.C. 78f); or

(ii) An interdealer quotation systemsponsored by a national securities as-sociation registered under section 15Aof the Securities Exchange Act of 1934(15 U.S.C. 78o–3).

(4) For purposes of paragraph (b) of thissection, exchange means exchange, expen-diture, or investment.

(5) For purposes of paragraph (c) of thissection, system group member means eachcorporation which is a member of a systemgroup and which, pursuant to an order ofthe Commission, sells stock or securitiesreceived upon an exchange (pursuant to anorder of the Commission) and applies theproceeds derived therefrom in retirementor cancellation of its own stock or securi-ties.

(e) Substantiation information. Under§1.6001–1(e), taxpayers are required toretain their permanent records and makesuch records available to any authorizedInternal Revenue Service officers and em-ployees. In connection with the distribu-tion or exchange described in this section,these records should specifically includeinformation regarding the amount, basis,and fair market value of all property dis-tributed or exchanged, and relevant factsregarding any liabilities assumed or extin-guished as part of such distribution or ex-change.

(f) Effective/applicability date. Thissection applies to any taxable year begin-ning on or after May 30, 2006. How-ever, taxpayers may apply this section toany original Federal income tax return (in-cluding any amended return filed on or be-fore the due date (including extensions) ofsuch original return) timely filed on or af-ter May 30, 2006. For taxable years begin-ning before May 30, 2006, see §1.1081–11as contained in 26 CFR part 1 in effect onApril 1, 2006.

§1.1081–11T [Removed]

Par. 28. Section 1.1081–11T is re-moved.

Par. 29. Section 1.1221–2 is amendedby revising paragraphs (e)(2)(iv) and (j) toread as follows:

§1.1221–2 Hedging transactions.

* * * * *(e) * * *(2) * * *(iv) Making and revoking the elec-

tion. Unless the Commissioner otherwiseprescribes, the election described in para-graph (e)(2) of this section must be madein a separate statement that provides, “[IN-SERT NAME AND EMPLOYER IDEN-TIFICATION NUMBER OF COMMONPARENT] HEREBY ELECTS THE AP-PLICATION OF §1.1221–2(e)(2) (THESEPARATE-ENTITY APPROACH).”The statement must also indicate the dateas of which the election is to be effective.The election must be filed by includingthe statement on or with the consolidatedgroup’s income tax return for the taxableyear that includes the first date for whichthe election is to apply. The election ap-plies to all transactions entered into on orafter the date so indicated. The electionmay only be revoked with the consent ofthe Commissioner.

* * * * *(j) Effective/applicability date. Para-

graph (e)(2)(iv) of this section applies toany original consolidated Federal incometax return due (without extensions) afterJune 14, 2007. For original consolidatedFederal income tax returns due (withoutextensions) after May 30, 2006, and on orbefore June 14, 2007, see §1.1221–2T ascontained in 26 CFR part 1 in effect onApril 1, 2007. For original consolidatedFederal income tax returns due (withoutextensions) on or before May 30, 2006, see§1.1221–2 as contained in 26 CFR part 1in effect on April 1, 2006.

§1.1221–2T [Removed]

Par. 30. Section 1.1221–2T is removed.Par. 31. Section 1.1502–13 is amended

by revising paragraphs (f)(5)(ii)(E),(f)(6)(i)(C)(2) and (m) to read as follows:

§1.1502–13 Intercompany transactions.

* * * * *(f) * * *(5) * * *

(ii) * * *(E) Election. An election to apply para-

graph (f)(5)(ii) of this section is made ina separate statement entitled, “[INSERTNAME AND EMPLOYER IDENTI-FICATION NUMBER OF COMMONPARENT] HEREBY ELECTS THE AP-PLICATION OF §1.1502–13(f)(5)(ii)FOR AN INTERCOMPANY TRANS-ACTION INVOLVING [INSERT NAMEAND EMPLOYER IDENTIFICATIONNUMBER OF S] AND [INSERT NAMEAND EMPLOYER IDENTIFICATIONNUMBER OF T].” A separate electionmust be made for each such application.The election must be filed by includingthe statement on or with the consolidatedgroup’s income tax return for the year ofT’s liquidation (or other transaction). TheCommissioner may impose reasonableterms and conditions to the applicationof paragraph (f)(5)(ii) of this section thatare consistent with the purposes of suchsection. The statement must—

(1) Identify S’s intercompany transac-tion and T’s liquidation (or other transac-tion); and

(2) Specify which provision of para-graph (f)(5)(ii) of this section applies andhow it alters the otherwise applicable re-sults under this section (including, for ex-ample, the amount of S’s intercompanyitems and the amount deferred or offset asa result of paragraph (f)(5)(ii) of this sec-tion).

(6) * * *(i) * * *(C) * * *(2) Election. The election described

in paragraph (f)(6)(i)(C)(1) of this sectionmust be made in a separate statement en-titled, “ELECTION TO REDUCE BASISOF P STOCK UNDER §1.1502–13(f)(6)HELD BY [INSERT NAME AND EM-PLOYER IDENTIFICATION NUMBEROF MEMBER WHOSE BASIS IN PSTOCK IS REDUCED].” The electionmust be filed by including the statementon or with the consolidated group’s in-come tax return for the year in whichthe nonmember becomes a member. Thestatement must identify the member’s ba-sis in the P stock (taking into account theeffect of this election) and the number ofshares of P stock held by the member.

* * * * *

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(m) Effective/applicability date. Para-graphs (f)(5)(ii)(E) and (f)(6)(i)(C)(2) ofthis section apply to any original consoli-dated Federal income tax return due (with-out extensions) after June 14, 2007. Fororiginal consolidated Federal income taxreturns due (without extensions) after May30, 2006, and on or before June 14, 2007,see §1.1502–13T as contained in 26 CFRpart 1 in effect on April 1, 2007. For orig-inal consolidated Federal income tax re-turns due (without extensions) on or be-fore May 30, 2006, see §1.1502–13 as con-tained in 26 CFR part 1 in effect on April1, 2006.

§1.1502–13T [Removed]

Par. 32. Section 1.1502–13T is re-moved.

Par. 33. Section 1.1502–31 is amendedby revising paragraphs (e)(2) and (j) toread as follows:

§1.1502–31 Stock basis after a groupstructure change.

* * * * *(e) * * *(2) Election. The election described

in paragraph (e)(1) of this section mustbe made in a separate statement enti-tled, “ELECTION TO TREAT LOSSCARRYOVER AS EXPIRING UNDER§1.1502–31(e).” The election must befiled by including the statement on or withthe consolidated group’s income tax re-turn for the year that includes the groupstructure change. The statement mustidentify the amount of each loss carryoverdeemed to expire (or the amount of eachloss carryover deemed not to expire, withany balance of any loss carryovers beingdeemed to expire).

* * * * *(j) Effective/applicability date. Para-

graph (e)(2) of this section applies to anyoriginal consolidated Federal income taxreturn due (without extensions) after June14, 2007. For original consolidated Fed-eral income tax returns due (without exten-sions) after May 30, 2006, and on or beforeJune 14, 2007, see §1.1502–31T as con-tained in 26 CFR part 1 in effect on April1, 2007. For original consolidated Fed-eral income tax returns due (without ex-tensions) on or before May 30, 2006, see

§1.1502–31 as contained in 26 CFR part 1in effect on April 1, 2006.

§1.1502–31T [Removed]

Par. 34. Section 1.1502–31T is re-moved.

Par. 35. Section 1.1502–32 is amendedby revising paragraphs (b)(4)(iv) and (j) toread as follows:

§1.1502–32 Investment adjustments.

* * * * *(b) * * *(4) * * *(iv) Election. The election described

in paragraph (b)(4) of this section mustbe made in a separate statement entitled,“ELECTION TO TREAT LOSS CAR-RYOVER OF [INSERT NAME ANDEMPLOYER IDENTIFICATION NUM-BER OF S] AS EXPIRING UNDER§1.1502–32(b)(4).” The election must befiled by including a statement on or withthe consolidated group’s income tax re-turn for the year S becomes a member.A separate statement must be made foreach member whose loss carryover isdeemed to expire. The statement mustidentify the amount of each loss carryoverdeemed to expire (or the amount of eachloss carryover deemed not to expire, withany balance of any loss carryovers beingdeemed to expire) and the basis of anystock reduced as a result of the deemedexpiration.

* * * * *(j) Effective/applicability date. Para-

graph (b)(4)(iv) of this section applies toany original consolidated Federal incometax return due (without extensions) afterJune 14, 2007. For original consolidatedFederal income tax returns due (withoutextensions) after May 30, 2006, and on orbefore June 14, 2007, see §1.1502–32T ascontained in 26 CFR part 1 in effect onApril 1, 2007. For original consolidatedFederal income tax returns due (withoutextensions) on or before May 30, 2006, see§1.1502–32 as contained in 26 CFR part 1in effect on April 1, 2006.

§1.1502–32T [Amended]

Par. 36. Section 1.1502–32T isamended by removing and reserving para-graphs (b)(4)(iv) and (j).

Par. 37. Section 1.1502–33 is amendedby revising paragraphs (d)(5)(i)(D) and (k)to read as follows:

§1.1502–33 Earnings and profits.

* * * * *(d) * * *(5) * * *(i) * * *(D) If a method is permitted under para-

graph (d)(4) of this section, provide thedate and control number of the private let-ter ruling issued by the Internal RevenueService approving such method.

* * * * *(k) Effective/applicability date. Para-

graph (d)(5)(i)(D) of this section applies toany original consolidated Federal incometax return due (without extensions) afterJune 14, 2007. For original consolidatedFederal income tax returns due (withoutextensions) after May 30, 2006, and on orbefore June 14, 2007, see §1.1502–33T ascontained in 26 CFR part 1 in effect onApril 1, 2007. For original consolidatedFederal income tax returns due (withoutextensions) on or before May 30, 2006, see§1.1502–33 as contained in 26 CFR part 1in effect on April 1, 2006.

§1.1502–33T [Removed]

Par. 38. Section 1.1502–33T is re-moved.

Par. 39. Section 1.1502–90 is amendedby:

1. Revising the entry for§1.1502–95(e)(8).

2. Revising the entry for§1.1502–95(f).

3. Revising the entry for§1.1502–95(g).

4. Removing the entry for§1.1502–95T.

The revisions read as follows:

§1.1502–90 Table of contents.

* * * * *

§1.1502–95 Rules on ceasing to be amember of a consolidated group (or losssubgroup).

* * * * *(e) * * *(8) Reporting requirements.

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(i) Common Parent.(ii) Former Member.(iii) Exception.(f) Filing the election to apportion the

section 382 limitation and net unrealizedbuilt-in gain.

(1) Form of the election to apportion.(i) Statement.(ii) Agreement.(2) Signing the agreement.(3) Filing the election.(i) Filing by the common parent.(ii) Filing by the former member.(4) Revocation of election.(g) Effective/applicability date.

* * * * *Par. 40. Section 1.1502–95 is amended

by revising paragraphs (e)(8), (f) and (g) toread as follows:

§1.1502–95 Rules on ceasing to be amember of a consolidated group (or losssubgroup).

* * * * *(e) * * *(8) Reporting requirements—(i) Com-

mon Parent. Except as provided in para-graph (e)(8)(iii) of this section, if a netunrealized built-in loss is allocated underparagraph (e) of this section, the commonparent must include a statement entitled,“STATEMENT OF NET UNREALIZEDBUILT-IN LOSS ALLOCATION PUR-SUANT TO §1.1502–95(e),” on or withits income tax return for the taxable yearin which the former member(s) (or a newloss subgroup that includes that member)ceases to be a member. The statementmust include—

(A) The name and employer identifica-tion number of the departing member;

(B) The amount of the remainingNUBIL balance for the taxable year inwhich the member departs;

(C) The amount of the net unrealizedbuilt-in loss allocated to the departingmember; and

(D) A representation that the commonparent has delivered a copy of the state-ment to the former member (or the com-mon parent of the group of which the for-mer member is a member) on or before theday the group files its income tax return forthe consolidated return year that the formermember ceases to be a member.

(ii) Former Member. Except as pro-vided in paragraph (e)(8)(iii) of this sec-

tion, the former member must include astatement on or with its first income tax re-turn (or the first return in which the formermember joins) that is filed after the close ofthe consolidated return year of the groupof which the former member (or a newloss subgroup that includes that member)ceases to be a member. The statement willbe identical to the statement filed by thecommon parent under paragraph (e)(8)(i)of this section except that instead of in-cluding the information described in para-graph (e)(8)(i)(A) of this section the for-mer member must provide the name, em-ployer identification number and tax yearof the former common parent, and insteadof the representation described in para-graph (e)(8)(i)(D) of this section the for-mer member must represent that it has re-ceived and retained the copy of the state-ment delivered by the common parent aspart of its records. See §1.6001–1(e).

(iii) Exception. This paragraph (e)(8)does not apply if the required information(other than the amount of the remainingNUBIL balance) is included in a statementof election under paragraph (f) of this sec-tion (relating to apportioning a section 382limitation).

(f) Filing the election to apportion thesection 382 limitation and net unrealizedbuilt-in gain—(1) Form of the electionto apportion—(i) Statement. An elec-tion under paragraph (c) of this sectionmust be made in the form set forth in thisparagraph (f)(1)(i). The election mustbe made by the common parent and theparty described in paragraph (f)(2) of thissection. It must be filed in accordancewith paragraph (f)(3) of this section andbe entitled, “THIS IS AN ELECTIONUNDER §1.1502–95 TO APPORTIONALL OR PART OF THE [INSERT THECONSOLIDATED SECTION 382 LIM-ITATION, THE SUBGROUP SECTION382 LIMITATION, THE LOSS GROUP’SNET UNREALIZED BUILT-IN GAIN,OR THE LOSS SUBGROUP’S NETUNREALIZED BUILT-IN GAIN, ASAPPROPRIATE] IN THE AMOUNTOF [INSERT THE AMOUNT OF THELOSS LIMITATION OR NET UNRE-ALIZED BUILT-IN GAIN] TO [INSERTNAME(S) AND EMPLOYER IDENTI-FICATION NUMBER(S) OF THE COR-PORATION (OR THE CORPORATIONSTHAT COMPOSE A NEW LOSS SUB-GROUP) TO WHICH ALLOCATION IS

MADE].” The statement must also indi-cate that an agreement, as described inparagraph (f)(1)(ii) of this section, hasbeen entered into.

(ii) Agreement. Both the common par-ent and the party described in paragraph(f)(2) of this section must sign and date theagreement. The agreement must include,as appropriate—

(A) The date of the ownership changethat resulted in the consolidated section382 limitation (or subgroup section 382limitation) or the loss group’s (or loss sub-group’s) net unrealized built-in gain;

(B) The amount of the departing mem-ber’s (or loss subgroup’s) pre-change netoperating loss carryovers and the taxableyears in which they arose that will be sub-ject to the limitation that is being appor-tioned to that member (or loss subgroup);

(C) The amount of any net unrealizedbuilt-in loss allocated to the departingmember (or loss subgroup) under para-graph (e) of this section, which, if recog-nized, can be a pre-change attribute subjectto the limitation that is being apportioned;

(D) If a consolidated section 382 limita-tion (or subgroup section 382 limitation) isbeing apportioned, the amount of the con-solidated section 382 limitation (or sub-group section 382 limitation) for the tax-able year during which the former member(or new loss subgroup) ceases to be a mem-ber of the consolidated group (determinedwithout regard to any apportionment underthis section);

(E) If any net unrealized built-in gain isbeing apportioned, the amount of the lossgroup’s (or loss subgroup’s) net unrealizedbuilt-in gain (as determined under para-graph (c)(2)(ii) of this section) that maybe apportioned to members that ceased tobe members during the consolidated returnyear;

(F) The amount of the value elementand adjustment element of the consoli-dated section 382 limitation (or subgroupsection 382 limitation) that is apportionedto the former member (or new loss sub-group) pursuant to paragraph (c) of thissection;

(G) The amount of the loss group’s (orloss subgroup’s) net unrealized built-ingain that is apportioned to the formermember (or new loss subgroup) pursuantto paragraph (c) of this section;

(H) If the former member is allocatedany net unrealized built-in loss under para-

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graph (e) of this section, the amount of anyadjustment element apportioned to the for-mer member that is attributable to recog-nized built-in gains (determined in a man-ner that will enable both the group and theformer member to apply the principles of§1.1502–93(c)); and

(I) The name and employer identifica-tion number of the common parent makingthe apportionment.

(2) Signing the agreement. The agree-ment must be signed by both the commonparent and the former member (or, in thecase of a loss subgroup, the common par-ent and the loss subgroup parent) by per-sons authorized to sign their respective in-come tax returns. If the allocation is madeto a loss subgroup for which an electionunder §1.1502–91(d)(4) is made, and notseparately to its members, the agreementunder this paragraph (f) must be signedby the common parent and any member ofthe new loss subgroup by persons autho-rized to sign their respective income taxreturns. Each party signing the agreementmust retain either the original or a copy ofthe agreement as part of its records. See§1.6001–1(e).

(3) Filing of the election—(i) Filing bythe common parent. The election must befiled by the common parent of the groupthat is apportioning the consolidated sec-tion 382 limitation (or the subgroup sec-tion 382 limitation) or the loss group’s netunrealized built-in gain (or loss subgroup’snet unrealized built-in gain) by includingthe statement on or with its income tax re-turn for the taxable year in which the for-mer member (or new loss subgroup) ceasesto be a member.

(ii) Filing by the former member. Anidentical statement must be included on orwith the first return of the former mem-ber (or the first return in which the formermember, or the members of a new loss sub-group, join) that is filed after the close ofthe consolidated return year of the groupof which the former member (or the mem-bers of a new loss subgroup) ceases to bea member.

(4) Revocation of election. An electionstatement made under paragraph (c) of thissection is revocable only with the consentof the Commissioner.

(g) Effective/applicability date. Para-graphs (e)(8) and (f) of this section apply toany original consolidated Federal incometax return due (without extensions) after

June 14, 2007. For original consolidatedFederal income tax returns due (withoutextensions) after May 30, 2006, and on orbefore June 14, 2007, see §1.1502–95T ascontained in 26 CFR part 1 in effect onApril 1, 2007. For original consolidatedFederal income tax returns due (withoutextensions) on or before May 30, 2006, see§1.1502–95 as contained in 26 CFR part 1in effect on April 1, 2006.

§1.1502–95T [Removed]

Par. 41. Section 1.1502–95T is re-moved.

Par. 42. Section 1.1563–3 is amendedby revising paragraph (d)(2)(iv), addingparagraph (d)(2)(v) and revising (e) to readas follows:

§1.1563–3 Rules for determining stockownership.

* * * * *(d) * * *(2) * * *(iv) Statement. If the application of

paragraph (d)(2)(ii) or (iii) of this sec-tion does not result in a corporation beingtreated as a component member of onlyone controlled group of corporations ona December 31, then such corporationwill be treated as a component memberof only one such group on such date.Such corporation may elect the group inwhich it is to be included by includingon or with its income tax return a state-ment entitled, “STATEMENT TO ELECTCONTROLLED GROUP PURSUANTTO §1.1563–3(d)(2)(iv).” The statementmust include—

(A) A description of each of the con-trolled groups in which the corporationcould be included. The description mustinclude the name and employer identifica-tion number of each component member ofeach such group and the stock ownershipof the component members of each suchgroup; and

(B) The following representation: [IN-SERT NAME AND EMPLOYER IDEN-TIFICATION NUMBER OF CORPORA-TION] ELECTS TO BE TREATED AS ACOMPONENT MEMBER OF THE [IN-SERT DESIGNATION OF GROUP].

(v) Election—(A) Election filed. Anelection filed under paragraph (d)(2)(iv) ofthis section is irrevocable and effective un-til paragraph (d)(2)(ii) or (iii) of this sec-

tion applies or until a change in the stockownership of the corporation results in ter-mination of membership in the controlledgroup in which such corporation has beenincluded.

(B) Election not filed. In the event noelection is filed in accordance with theprovisions of paragraph (d)(2)(iv) of thissection, then the Internal Revenue Servicewill determine the group in which suchcorporation is to be included. Such de-termination will be binding for all subse-quent years unless the corporation files avalid election with respect to any such sub-sequent year or until a change in the stockownership of the corporation results in ter-mination of membership in the controlledgroup in which such corporation has beenincluded.

* * * * *(e) Effective/applicability date. Para-

graph (d)(2)(iv) and (v) of this section ap-ply to any taxable year beginning on orafter May 30, 2006. However, taxpayersmay apply paragraph (d)(2)(iv) and (v) ofthis section to any original Federal incometax return (including any amended returnfiled on or before the due date (includingextensions) of such original return) timelyfiled on or after May 30, 2006. For taxableyears beginning before May 30, 2006, see§1.1563–3 as contained in 26 CFR part 1in effect on April 1, 2006.

§1.1563–3T [Removed]

Par. 43. Section 1.1563–3T is removed.Par. 44. Section 1.6012–2 is amended

by revising paragraphs (c) and (k) to readas follows:

§1.6012–2 Corporations required to makereturns of income.

* * * * *(c) Insurance companies—(1) Domes-

tic life insurance companies—(i) In gen-eral. A life insurance company subjectto tax under section 801 shall make a re-turn on Form 1120–L, “U.S. Life InsuranceCompany Income Tax Return.” Except asprovided in paragraph (c)(4) of this sec-tion, such company shall file with its re-turn—

(A) A copy of its annual statementwhich shows the reserves used by thecompany in computing the taxable incomereported on its return; and

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(B) A copy of Schedule A (real estate)and of Schedule D (bonds and stocks), orany successor thereto, of such annual state-ment.

(ii) Mutual savings banks. Mutualsavings banks conducting life insurancebusiness and meeting the requirements ofsection 594 are subject to partial tax com-puted on Form 1120, “U.S. CorporationIncome Tax Return,” and partial tax com-puted on Form 1120–L. The Form 1120–Lis attached as a schedule to Form 1120,together with the annual statement andschedules required to be filed with Form1120–L.

(2) Domestic nonlife insurance com-panies. Every domestic insurance com-pany other than a life insurance companyshall make a return on Form 1120–PC,“U.S. Property and Casualty InsuranceCompany Income Tax Return.” This in-cludes organizations described in section501(m)(1) that provide commercial-typeinsurance and organizations described insection 833. Except as provided in para-graph (c)(4) of this section, such companyshall file with its return a copy of its an-nual statement (or a pro forma annualstatement), including the underwritingand investment exhibit (or any successorthereto) for the year covered by such re-turn.

(3) Foreign insurance companies. Theprovisions of paragraphs (c)(1) and (c)(2)

of this section concerning the returns andstatements of insurance companies subjectto tax under section 801 or section 831 alsoapply to foreign insurance companies sub-ject to tax under those sections, except thatthe copy of the annual statement requiredto be submitted with the return shall, in thecase of a foreign insurance company thatis not required to file an annual statement,be a copy of the pro forma annual state-ment relating to the United States businessof such company.

(4) Exception for insurance companiesfiling their Federal income tax returnselectronically. If an insurance companydescribed in paragraph (c)(1), (c)(2), or(c)(3) of this section files its Federal in-come tax return electronically, it shouldnot include on or with such return itsannual statement (or pro forma annualstatement), or any portion thereof. Suchstatement must be available at all times forinspection by authorized Internal RevenueService officers or employees and retainedfor so long as such statements may be ma-terial in the administration of any internalrevenue law. See §1.6001–1(e).

(5) Definition. For purposes of this sec-tion, the term annual statement means theannual statement, the form of which is ap-proved by the National Association of In-surance Commissioners (NAIC), which isfiled by an insurance company for the yearwith the insurance departments of States,

Territories, and the District of Columbia.The term annual statement also includesa pro forma annual statement if the insur-ance company is not required to file theNAIC annual statement.

* * * * *(k) Effective/applicability date. Para-

graph (c) of this section applies to anytaxable year beginning on or after May30, 2006. However, taxpayers may applyparagraph (c) of this section to any originalFederal income tax return (including anyamended return filed on or before the duedate (including extensions) of such origi-nal return) timely filed on or after May 30,2006. For taxable years beginning beforeMay 30, 2006, see §1.6012–2 as containedin 26 CFR part 1 in effect on April 1, 2006.

§1.6012–2T [Removed]

Par. 45. Section 1.6012–2T is removed.

§§1.302–4, 1.338(h)(10)–1, 1.382–2T,1.382–6, 1.382–8, 1.1502–13, 1.1502–32,1.1502–92, 1.1502–94, 1.1502–95,1.1563–3, and 1.6043–2 [Amended]

Par. 46. For each entry in the “Lo-cation” column of the following table, re-move the language in the “Remove” col-umn and add the language in the “Add”column in its place:

Location Remove Add

The last sentence of the introductory textto §1.302–4

The rules described in paragraph (a) of§1.302–4T and in paragraphs (b) through(g) of this section apply in determiningwhether the specific requirements ofsection 302(c)(2) are met.

The following rules shall be applicablein determining whether the specificrequirements of section 302(c)(2) aremet:

§1.338(h)(10)–1(f) §1.331–1T(d) and §1.332–6T §1.331–1(d), and §1.332–6

§1.382–2T(a)(2)(ii) §1.382–11T §1.382–11

The last sentence of§1.382–2T(h)(4)(vi)(B)

paragraph (a) of §1.382–11T §1.382–11(a)

The first sentence of §1.382–6(b)(2)(i) §1.382–11T(a) §1.382–11(a)

The second sentence of §1.382–8(a) paragraphs (c)(1), (c)(3), (c)(4) and (c)(5)of this section and paragraph (c)(2) of§1.382–8T

paragraph (c) of this section

The third sentence of §1.382–8(a) paragraphs (c)(1), (c)(3), (c)(4) and (c)(5)of this section and paragraph (c)(2) of§1.382–8T

paragraph (c) of this section

§1.382–8(c)(3) paragraph (c)(2) of §1.382–8T paragraph (c)(2) of this section

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Location Remove Add

The first sentence of §1.382–8(c)(4) paragraphs (c)(1) and (c)(3) of this sectionand paragraph (c)(2) of §1.382–8T

paragraphs (c)(1), (2), and (3) of thissection

§1.382–8(c)(5) paragraphs (c)(1), (c)(3), (c)(4), and(c)(5) of this section, and paragraph (c)(2)of §1.382–8T

this paragraph (c)

The fifth sentence of §1.382–8(f) paragraphs (c)(1), (c)(3), (c)(4), and(c)(5) of this section, and paragraph (c)(2)of §1.382–8T

paragraph (c) of this section

§1.382–8(g), Example (1)(b)(2) paragraphs (c)(1), (c)(3), (c)(4), and(c)(5) of this section, and paragraph (c)(2)of §1.382–8T

paragraph (c) of this section

The second sentence of §1.382–8(g),Example (1)(c)

paragraphs (c)(1), (c)(3), (c)(4), and(c)(5) of this section, and paragraph (c)(2)of §1.382–8T

paragraph (c) of this section

§1.382–8(g), Example (2)(c) paragraph (c)(2) of §1.382–8T paragraph (c)(2) of this section

The first sentence of §1.382–8(g),Example (2)(e)

paragraph (c)(2) of §1.382–8T paragraph (c)(2) of this section

§1.382–8(g), Example (3)(b) paragraph (c)(2) of §1.382–8T paragraph (c)(2) of this section

§1.382–8(g), Example (3)(c)(1)(B) paragraph (c)(1) of this section andparagraph (c)(2) of §1.382–8T

paragraphs (c)(1) and (2) of this section

The second sentence of §1.382–8(g),Example (4)(c)

paragraph (c)(2) of §1.382–8T paragraph (c)(2) of this section

The second sentence of §1.382–8(g),Example (5)(c)

paragraph (c)(2) of §1.382–8T paragraph (c)(2) of this section

§1.1502–13(a)(6)(ii), Matching rule,Example 13.

Manufacturer incentive payments. [Reserved]

The first sentence of§1.1502–32(b)(4)(v)(A)

paragraph (b)(4)(iv) of §1.1502–32T paragraph (b)(4)(iv) of this section

The first sentence of§1.1502–32(b)(4)(v)(B)

paragraph (b)(4)(iv) of §1.1502–32T paragraph (b)(4)(iv) of this section

§1.1502–92(e)(1) §1.382–11T(a) §1.382–11(a)

The first sentence of §1.1502–92(e)(2) §1.382–11T(a) §1.382–11(a)

The first sentence of §1.1502–94(d) §1.382–11T(a) §1.382–11(a)

The second sentence of §1.1502–94(d) §1.382–11T(a) §1.382–11(a)

The last sentence of §1.1502–95(b)(3) paragraph (f) of §1.1502–95T paragraph (f) of this section

The second sentence of§1.1563–3(d)(2)(i)

paragraphs (d)(2)(ii) and (iii) of thissection, and paragraph (d)(2)(iv) of§1.1563–3T

paragraphs (d)(2)(ii), (iii) and (iv) of thissection

The first sentence of §1.6043–2(a) §1.332–6T(a), §1.368–3T(a), or§1.1081–11T

§1.332–6(b), 1.368–3(a), or 1.1081–11

PART 301—PROCEDURE ANDADMINISTRATION

Par. 46a. The authority citation for part300 continues to read in part as follows:

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

Section 301.6011–5T also issued under26 U.S.C. 6011.

§301.6011–5T [Amended]

Par. 46b. In the following table, re-move the language in the “remove” col-umn and add the text from the “add” col-umn in its place.

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Location Remove Add

The first sentence of §301.6011–5T(a)(twice)

paragraphs (a), (b) and (d) through (j)of §1.6012–2, and paragraph (c) of§1.6012–2T

§1.6012–2

PART 602—OMB CONTROLNUMBERS UNDER THE PAPERWORKREDUCTION ACT

Par. 47. The authority citation for part602 continues to read as follows:

Authority: 26 U.S.C. 7805.

§602.101 [Amended]

Par. 48.1. In §602.101(b), the following entries

to the table are removed:

1.302–2T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.302–4T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.331–1T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.332–6T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.338–10T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.351–3T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.355–5T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.368–3T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.381(b)–1T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.382–8T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.382–11T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1081–11T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1221–2T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1502–13T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1502–31T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1502–32T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1502–33T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1502–95T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1563–3T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.6012–2T . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–2019

2. In §602.101(b), the following entriesto the table are added:

1.332–6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.351–3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.355–5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.368–3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.382–11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–20191.1081–11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1545–2019

Kevin M. Brown,Deputy Commissioner forServices and Enforcement.

Approved June 4, 2007.

Eric Solomon,Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on June 13, 2007,8:45 a.m., and published in the issue of the Federal Registerfor June 14, 2007, 72 F.R. 32794)

Section 1563.—Definitionsand Special Rules

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on or

with their Federal income tax returns. See T.D. 9329,page 312.

Section 6012.—PersonsRequired to Make Returnsof Income

Final regulations simplify, clarify, or eliminate tax-payer reporting burdens. They also eliminate regu-latory impediments to the electronic filing of certainstatements that taxpayers are required to include on or

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with their Federal income tax returns. See T.D. 9329,page 312.

Section 7520.—ValuationTables

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

Section 7872.—Treatmentof Loans With Below-MarketInterest Rates

The adjusted applicable federal short-term, mid-term, and long-term rates are set forth for the monthof August 2007. See Rev. Rul. 2007-50, page 311.

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Part III. Administrative, Procedural, and MiscellaneousExcluded Bona FideSeverance Pay Plans Under§ 457(e)(11) and AmountsSubject to a Substantial Riskof Forfeiture Under § 457(f)

Notice 2007–62

I. PURPOSE

This notice announces the intent of theTreasury Department (Treasury) and theInternal Revenue Service (Service) to is-sue guidance under § 457, which applies tononqualified deferred compensation plansof state and local governments and tax-ex-empt entities, concerning the definitionsof a bona fide severance pay plan under§ 457(e)(11) and concerning the defini-tion of substantial risk of forfeiture under§ 457(f)(1)(B). This notice also describesthe guidance that the Treasury and the Ser-vice anticipate issuing, which in many re-spects would be similar to the rules in therecent final regulations under § 409A, andrequests comments on the issues intendedto be addressed by such guidance.

II. BACKGROUND

Section 457 applies to nonqualified de-ferred compensation plans established bystate and local government and tax-exemptemployers. Three types of nonqualifieddeferred compensation plans are subject to§ 457: (1) an eligible § 457(b) plan estab-lished by a state or local government em-ployer; (2) an eligible § 457(b) plan es-tablished by any other tax-exempt entitythat is not a governmental entity; and (3)any other deferred compensation plan es-tablished by either type of employer (anineligible nonqualified deferred compen-sation plan). An ineligible nonqualifieddeferred compensation plan is subject to§ 457(f). Section 457(f)(3)(A) providesthat the term plan includes any agreementor arrangement.

Section 457(e)(11) states that § 457does not apply to certain types of plans,including a bona fide severance pay plan.Section 457(f)(2) provides that the rulesof § 457(f) do not apply to a qualified plan

under § 401(a) or § 403(a), a § 403(b)annuity, a nonqualified annuity describedin § 403(c), that portion of any plan whichconsists of a transfer of property describedin § 83, that portion of any plan which con-sists of a trust to which § 402(b) applies,a qualified governmental excess benefitarrangement described in § 415(m), orthat portion of any applicable employmentretention plan described in § 457(f)(4).

Section 457(f)(1) provides that com-pensation under a nonqualified deferredcompensation plan subject to § 457(f) isincluded in the gross income of the par-ticipant or beneficiary for the first taxableyear in which there is no substantial riskof forfeiture of the rights to such com-pensation. Section 457(f)(3)(B) providesthat the rights of a person to compensationare subject to a substantial risk of forfei-ture if such person’s rights to such com-pensation are conditioned upon the futureperformance of substantial services by anyindividual. Any amount deferred undera § 457(f) plan that is not subject to asubstantial risk of forfeiture (i.e., a vestedamount) is currently included in gross in-come (even if not actually or construc-tively received), and the amount subse-quently paid or made available is taxed un-der § 72. See § 1.457–11(c).

Section 409A applies to ineligible non-qualified deferred compensation plansmaintained by tax-exempt and govern-mental employers, as well as to non-qualified deferred compensation plansmaintained by taxable employers. Sec-tion 409A generally provides that, unlesscertain requirements are met, amountsdeferred under a nonqualified deferredcompensation plan for all taxable yearsare currently includible in gross income tothe extent not subject to a substantial riskof forfeiture and not previously includedin gross income. Section 409A(d)(4)provides that the rights of a person tocompensation are subject to a substantialrisk of forfeiture if such person’s rights tosuch compensation are conditioned uponthe future performance of substantial ser-vices by any individual.

Section 409A does not apply to quali-fied plans (as defined under § 219(g)(5),without regard to subparagraph (A)(iii)thereof), eligible deferred compensa-tion plans under § 457(b), or quali-fied governmental excess benefit ar-rangements described in § 415(m). See§ 1.409A–1(a)(2). However, § 409A ap-plies to nonqualified (ineligible) deferredcompensation plans to which § 457(f)applies, separately and in addition to therequirements applicable to such plansunder § 457(f). See § 1.409A–1(a)(4).Section 409A(c) provides that nothing in§ 409A prevents the inclusion of amountsin gross income under any other provisionof the Code or any other rule of law earlierthan the time provided in § 409A. Section409A(c) further provides that any amountincluded in gross income under § 409Ais not required to be included in grossincome under any other Code provision orany other rule of law later than the timeprovided in § 409A.

Final regulations under § 409A werepublished on April 10, 2007 (72 FR 19234)and generally become applicable January1, 2008.1 Those regulations provide guid-ance on when a separation pay plan (asdefined in § 1.409A–1(m)) is treatedas not providing for a deferral of com-pensation for purposes of § 409A. See§ 1.409A–1(b)(9). The regulations alsodefine a substantial risk of forfeiture forpurposes of § 409A. See § 1.409A–1(d).

III. BONA FIDE SEVERANCE PAYPLANS UNDER § 457(e)(11)

The Treasury and the Service antici-pate issuing guidance providing that an ar-rangement is a bona fide severance payplan under § 457(e)(11), and thus is notsubject to the requirements of § 457, if: (1)the benefit is payable only upon involun-tary severance from employment, (2) theamount payable does not exceed two timesthe employee’s annual rate of pay (takinginto account only pay that does not exceedthe maximum amount that may be takeninto account under a qualified plan pur-suant to § 401(a)(17) for the year in whichthe employee has a severance from em-

1 For general and transition guidance regarding the application of § 409A, see Notice 2005–1, 2005–2 C.B. 274, and Notice 2006–79, 2006–43 I.R.B. 763. See also Notice 2006–100, 2006–51I.R.B. 1109, which provides guidance to employers and payers on their reporting and wage withholding for calendar years 2005 and 2006 with respect to deferrals of compensation and amountsincludible in gross income under § 409A.

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ployment), and (3) the plan provides thatthe payments must be completed by theend of the employee’s second taxable yearfollowing the year in which the employeeseparates from service. With respect tothe requirement that benefits be payableonly upon involuntary severance from em-ployment, it is anticipated that the guid-ance would include exceptions for windowprograms, collectively bargained separa-tion pay plans, and certain reimbursementor in-kind benefit arrangements (similarto the exceptions in § 1.409A–1(b)(9)(ii),(iv), and (v)).

IV. SUBSTANTIAL RISK OFFORFEITURE UNDER § 457(f)

The Treasury and the Service furtheranticipate issuing guidance regarding asubstantial risk of forfeiture for purposesof § 457(f)(3)(B) under rules similar tothose set forth under § 1.409A–1(d).

Section 1.409A–1(d) provides that aright to an amount of compensation issubject to a substantial risk of forfeiture ifentitlement to the amount is conditionedon the performance of substantial futureservices or the occurrence of a conditionthat is related to a purpose of the com-pensation and the possibility of forfeitureis substantial. For this purpose, if a ser-vice provider’s entitlement to the amountis conditioned on the occurrence of theservice provider’s involuntary separationfrom service without cause, the right issubject to a substantial risk of forfeiture ifthe possibility of forfeiture is substantial.An amount is not subject to a substantialrisk of forfeiture merely because the rightto the amount is conditioned, directly orindirectly, upon refraining from the perfor-mance of services. Further, as described in§ 1.409A–1(d)(1), the addition of any riskof forfeiture after the right to the compen-sation arises, or any extension of a periodduring which compensation is subject to arisk of forfeiture (sometimes referred to asa “rolling risk of forfeiture”), is generallydisregarded for purposes of determiningwhether such compensation is subject to asubstantial risk of forfeiture under § 409A.

Section 1.409A–1(d)(1) provides thatan amount is not considered subject toa substantial risk of forfeiture beyondthe date or time at which the recipientotherwise could have elected to receivethe amount of compensation, unless the

present value of the amount made subjectto a risk of forfeiture is materially greaterthan the present value of the amount therecipient otherwise could have elected toreceive absent such risk of forfeiture. Thisis because, absent tax considerations, arational participant normally would notagree to subject a right to amounts thatmay be earned and payable as currentcompensation, such as salary payments,to a condition that subjects the right tothe same payments to a real possibility offorfeiture. Accordingly, in this situation,agreement to subject the amount to a sub-stantial risk of forfeiture indicates that therecipient of the compensation is confidentthat there is not a real risk of forfeitureand is only subjecting the amount to thepurported risk of forfeiture as a means ofavoiding taxation. Thus, amounts that anindividual could have elected to receiveunder a salary deferral election generallycannot be made subject to a substantialrisk of forfeiture under the rules of § 409Abeyond the date or time the salary wouldotherwise have been received.

The Service and Treasury anticipatethat upcoming guidance under § 457(f)will generally adopt the rules relating tosubstantial risk of forfeiture that are con-tained in § 1.409A–1(d).

As noted above, § 1.409A–1(d) pro-vides that an amount of compensation issubject to a substantial risk of forfeitureif the entitlement to the amount is con-ditioned upon the occurrence of a con-dition related to a purpose of the com-pensation, and the possibility of forfeitureis substantial. Section 1.409A–1(d) fur-ther provides that a condition related to apurpose of the compensation must relateto the service provider’s performance forthe service recipient or the service recip-ient’s business activities or organizationalgoals (for example, the attainment of a pre-scribed level of earnings or equity valueof completion of an initial public offer-ing). Comments are requested on whetherany special rules should apply for purposesof § 457(f) with respect to this aspect ofthe definition of a substantial risk of for-feiture, taking into account that state andlocal government and tax-exempt entitiesto which § 457(f) applies generally do nothave business activities or organizationalgoals that are comparable to profit-makingentities.

V. INTERACTION OF §§ 409AAND 457(f) UNDER ANTICIPATEDSTANDARDS

Under the rules at § 1.409A–1(b)(4)(i)relating to short-term deferrals, a deferralof compensation for purposes of § 409Adoes not occur if the plan under which apayment is made does not provide for adeferred payment and the service provideractually or constructively receives suchpayment on or before the first day ofthe applicable 2½ month period. Under§ 1.409A–1(a)(4), the inclusion in incomeof an amount under § 457(f) is treated asa payment of the amount for purposes ofthe short-term deferral rule contained in§ 1.409A–1(b)(4).

If the standard for a substantial riskof forfeiture for purposes of § 409A de-scribed in Part IV of this notice is adopted,a substantial risk of forfeiture under§ 457(f)(1)(B) could not lapse later thanthe date the substantial risk of forfeiturelapsed under § 409A and § 1.409A–1(d).Accordingly, if a participant under anineligible plan under § 457(f) includedan amount of deferred compensation ingross income when it ceased to be subjectto a substantial risk of forfeiture under§ 457(f), the amount generally would notbe subject to § 409A because the rightto the amount and the payment wouldqualify as a short-term deferral under§ 1.409A–1(a)(4). However, the right toearnings on amounts that have previouslybeen included under § 457(f) would bedeferred compensation for purposes of§ 409A unless the right to the earnings in-dependently satisfied the requirements foran exclusion from coverage under § 409A.

VI. EFFECTIVE DATE ANDRELIANCE

The Treasury and the Service anticipatethat the guidance described in this noticewould be prospective. With respect to pe-riods before such guidance is issued, noinference should be made from the antic-ipated guidance described in this noticeregarding either the definition of a bonafide severance pay plan for purposes of§ 457(e)(11)(A)(i) or the determination ofsubstantial risk of forfeiture for purposesof § 457(f). However, pending the is-suance of further guidance, taxpayers mayrely on the definition of a bona fide sev-

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erance pay plan in the anticipated guid-ance described in section III of this noticefor purposes of § 457(e)(11)(A)(i) and therules regarding a substantial risk of forfei-ture in the anticipated guidance describedin the first two paragraphs of section IV ofthis notice for purposes of § 457(f). Com-ments are specifically requested as to theextent to which transition guidance regard-ing the application of § 457(f) would benecessary and appropriate, and what suchtransition guidance would provide.

This notice does not affect the applica-tion of § 409A or the guidance thereunder,including the determination of whether aplan is subject to § 409A and the applica-tion of the transition guidance issued under§ 409A.

VII. REQUEST FOR COMMENTS

Treasury and the Service intend to is-sue guidance reflecting the definitions of abona fide severance pay plan for purposesof § 457(e) and substantial risk of forfei-ture for purposes of § 457(f), as describedin Parts III and IV of this notice. Com-ments regarding these definitions, and anyrelated issues that should be addressed un-der § 457, are requested.

Written comments should be submittedby October 15, 2007. Send submissions toCC:PA:LPD:PR, (Notice 2007–62), Room5203, Internal Revenue Service, PO Box7604, Ben Franklin Station, Washing-ton, D.C. 20044. Comments may alsobe hand delivered Monday through Fri-day between the hours of 8:30 a.m. and4:00 p.m. to: Internal Revenue Ser-

vice, CC:PA:LPD:PR, (Notice 2007–62),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, N.W.,Washington, D.C. Alternatively, com-ments may be submitted via the Internetat [email protected](Notice 2007–62). All comments will beavailable for public inspection.

VIII. DRAFTING INFORMATION

The principal author of this notice isCheryl Press of the Office of DivisionCounsel/Associate Chief Counsel (TaxExempt and Government Entities). How-ever, other personnel from the Treasuryand the Service participated in its devel-opment. For further information regardingthis notice, contact Ms. Press at (202)622–6060 (not a toll-free call).

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Part IV. Items of General InterestNotice of ProposedRulemaking and Notice ofPublic Hearing

Deductions for EntertainmentUse of Business Aircraft

REG–147171–05

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemakingand notice of public hearing.

SUMMARY: This document contains pro-posed regulations relating to the use ofbusiness aircraft for entertainment. Theseproposed regulations affect taxpayers thatdeduct expenses for entertainment, amuse-ment, or recreation provided to specifiedindividuals. This document also providesnotice of a public hearing on these pro-posed regulations. The proposed regula-tions reflect amendments under the Ameri-can Jobs Creation Act of 2004 (AJCA) andthe Gulf Opportunity Zone Act of 2005(GOZA).

DATES: Written comments must be re-ceived by September 13, 2007. Requeststo speak and outlines of topics to be dis-cussed at the public hearing scheduled forOctober 25, 2007, at 10 a.m., must be re-ceived by October 4, 2007.

ADDRESSES: Send submissions to:CC:PA:LPD:PR (REG–147171–05),room 5203, Internal Revenue Ser-vice, PO Box 7604, Ben Franklin Sta-tion, Washington, DC 20044. Sub-missions may be hand delivered be-tween the hours of 8 a.m. and 4 p.m.to CC:PA:LPD:PR (REG–147171–05),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington, DC. Alternatively, taxpay-ers may submit electronic commentsvia the internet at the Federal eRule-making Portal at www.regulations.gov(IRS-REG–147171–05). The public hear-ing will be held in the auditorium, InternalRevenue Building, 1111 Constitution Av-enue, NW, Washington, DC.

FOR FURTHER INFORMATIONCONTACT: Concerning the regulationsunder section 274, Michael A. Nixonof the Office of Associate Chief Coun-sel (Income Tax & Accounting), (202)622–4930; concerning the regulations un-der section 61, Lynne A. Camillo of theOffice of Division Counsel/AssociateChief Counsel (Tax Exempt & Gov-ernment Entities), (202) 622–6040 (nottoll-free numbers); concerning submis-sions of comments, the hearing, and/orto be placed on the building access listto attend the hearing, Richard Hurst [email protected].

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed reg-ulations under section 274(e)(2) of theInternal Revenue Code (Code). Section274(e)(2) was amended by section 907of the AJCA, Public Law 108–357, andby section 403(mm) of the GOZA, Pub-lic Law 109–135. Both amendments areeffective for certain expenses incurred af-ter October 22, 2004. On May 27, 2005,the IRS and Treasury Department is-sued Notice 2005–45, 2005–1 C.B. 1228,providing interim guidance on amendedsection 274(e)(2) and inviting comments.Notice 2005–45 is effective for expensesincurred after June 30, 2005. Commen-tators submitted written and electroniccomments responding to Notice 2005–45.The IRS and Treasury Department havereviewed and considered all the commentsin the process of preparing these proposedregulations. See §601.601(d)(2)(ii)(b) ofthis chapter.

Generally, section 162(a) allows asa deduction all the ordinary and neces-sary expenses paid or incurred during thetaxable year in carrying on any trade orbusiness. Under section 274(a)(1)(A),no deduction is allowed for an activitygenerally considered to be entertain-ment, amusement, or recreation, unlessthe taxpayer establishes that the activityis directly related to or (in certain cases)associated with the active conduct of thetaxpayer’s trade or business.

Section 1.274–2(b)(1) of the IncomeTax Regulations provides that entertain-

ment means any activity of a type gen-erally considered to constitute entertain-ment, amusement, or recreation, suchas entertaining at night clubs, cocktaillounges, theaters, country clubs, golf andathletic clubs, sporting events, and onhunting, fishing, vacation and similartrips. Similar activities relating solely tothe taxpayer’s family also may constituteentertainment. Entertainment may includean activity that satisfies the personal, liv-ing, or family needs of an individual,such as providing food and beverages ora hotel suite to a business customer or thecustomer’s family. Entertainment doesnot include activities, however, that areclearly not regarded as constituting enter-tainment, such as the provision of suppermoney by an employer to an employeeworking overtime, the maintenance of ahotel room by an employer for lodgingof an employee while in business travelstatus, or the use of an automobile in theactive conduct of a trade or business eventhough also used for routine personal pur-poses such as commuting to and fromwork. Under §1.274–2(b)(1)(ii), an objec-tive test is used to determine whether anactivity is of a type generally consideredto constitute entertainment.

Section 274(e) provides exceptions tothe general disallowance provisions ofsection 274(a). Prior to amendment bythe AJCA, section 274(e)(2) excepted ex-penses from section 274(a) “to the extentthat the expenses are treated by the tax-payer” as compensation to the employee.Under prior law, section 274(e)(9) simi-larly excepted expenses to the extent thatthe expenses are treated by the taxpayer asincome to persons who are not employees.

Section 274(o) provides that the Secre-tary shall prescribe regulations necessaryto carry out the purposes of the section.

Generally, §1.61–21(b)(1) requires anemployee to include in gross income thefair market value of a fringe benefit, suchas an entertainment flight, after subtract-ing amounts paid, by or on behalf of theemployee, for the fringe benefit, as well asamounts excluded from income by anothersection of the Code. If an employee takesa personal flight on an employer’s aircraft,and the employer also provides a pilot, thegeneral rule under §1.61–21(b)(6) is that

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the fair market value of the flight is equalto the amount that an individual wouldhave to pay in an arm’s-length transactionto charter the same or a comparable pilotedaircraft for that period for the same or acomparable flight. If the employer doesnot provide a pilot, the general rule un-der §1.61–21(b)(7) is that the fair marketvalue of the flight is equal to the amountthat an individual would have to pay inan arm’s-length transaction to rent a com-parable aircraft for that period in the geo-graphic area in which the aircraft is used.The regulations do not permit valuationof a flight by reference to the employer’scosts.

As an alternative to the general val-uation rules just described, §1.61–21(g)provides that an employee’s personalflights on an employer’s aircraft may bevalued using an optional special valuationrule, the non-commercial flight valuationrule. In order to use the non-commercialflight valuation rule, applying the applica-ble aircraft multiple from §1.61–21(g)(7),it is necessary to know the weight of theemployer’s aircraft, the number of milesfor the flight being valued, and whetherthe employee receiving the benefit is acontrol employee within the meaning of§1.61–21(g)(8) or (9). The value of anemployee’s personal use of a companyaircraft is computed by multiplying theStandard Industry Fare Level (SIFL) bythe terminal charge to arrive at the valueof the flight (the SIFL formula). SIFL is acents-per-mile factor that, taken with theaircraft multiple and the terminal charge,is intended to approximate coach and firstclass fares on commercial aircraft.

The consistency rule set forth in§1.61–21(g)(14)(i) provides that a tax-payer who uses the SIFL formula in acalendar year to value any flight providedto an employee must use the SIFL formulato value all flights provided to employ-ees during that calendar year. Notice2005–45 advised taxpayers that the con-sistency rule in the regulations would beamended to permit taxpayers to value theentertainment use of aircraft by specifiedindividuals (within the meaning of sec-tion 274(e)(2)(B)) under the fair marketvalue rules of §1.61–21(b) but continueto value flights for other employees and

for specified individuals not traveling forentertainment purposes using the SIFLformula.

In Sutherland Lumber-Southwest, Inc.v. Comm’r, 114 T.C. 197 (2000), aff’d255 F.3d 495 (8th Cir. 2001), acq. 2002–1C.B. xvii, the Tax Court held that theamount a taxpayer may deduct for the costof entertainment-related flights under thesection 274(e)(2) exception is not limitedto the amount included in the income ofthe employees and corporate officers whotook the flights. Rather, the court heldthat a taxpayer may deduct the full cost ofan employee’s or officer’s non-businessflight on the taxpayer’s aircraft if the tax-payer includes in the recipient’s incomethe value of the flights computed under thenon-commercial flight valuation rule of§1.61–21. As a result, a deduction greaterthan the amount included in the recipient’sincome was allowable.

Section 907 of the AJCA was intendedto overturn Sutherland Lumber in certaincases. H.R. Conf. Rep. No. 108–755, at798 (2004). Specifically, as amended bythe AJCA, the section 274(e)(2) and (9) ex-ceptions to the section 274(a) disallowanceapply in the case of a specified individualonly “to the extent that the expenses donot exceed the amount of expenses” thatare treated as compensation to the speci-fied individual. A specified individual isany individual who is subject to the re-quirements of section 16(a) of the Securi-ties Exchange Act of 1934 (15 U.S.C. sec-tion 78p(a)) with respect to the taxpayer,or who would be subject to those require-ments if the taxpayer were an issuer of eq-uity securities referred to in that section.Section 274(e)(2)(B).

Thus, in the case of a specified indi-vidual, the section 274(e)(2) and (9) dis-allowance exceptions apply only to the ex-tent that a taxpayer treats as compensationto the specified individual an amount equalto or greater than the amount of deductibleentertainment expenses allocable to enter-tainment provided to the specified individ-ual. Expenses allocable to entertainmentprovided to the specified individual thatthe taxpayer does not treat as compensa-tion to the specified individual are disal-lowed.

Explanation of Provisions andSummary of Comments

1. Definition of Entertainment

a. Distinction between entertainment andother personal use

Notice 2005–45 references§1.274–2(b)(1) in defining entertain-ment. Commentators suggested thatthe proposed regulations should provideadditional guidance on the meaning of“entertainment” in order to assist taxpay-ers in delineating between entertainmentuse and “nonentertainment” personal use.The proposed regulations do not adoptthese comments because these rules areaddressed in the existing regulations at§1.274–2(b)(1). Consistent with thoseregulations, entertainment does not in-clude travel for reasons such as attendingto business other than that of the employer,medical purposes, attending funerals, andparticipating in charitable activities.

b. Primary purpose test

Several commentators recommendedthat the proposed regulations adopt apurpose of the flight test that would char-acterize a flight as a business flight forall purposes if the primary purpose of theflight is business. Thus, under the rec-ommendation, if the primary purpose ofthe flight were business, no amount wouldbe disallowed for entertainment providedto specified individuals who are travelingfor entertainment purposes. Conversely,if the primary purpose of the flight wereentertainment, no amount would be al-lowed as an expense deduction with re-spect to individuals traveling for business.The proposed regulations do not adoptthese comments. The IRS and TreasuryDepartment believe that disregarding en-tertainment use by a specified individualwould be contrary to Congressional intentin amending section 274(e)(2) to disallowexpenses allocable to entertainment use ofaircraft by specified individuals. Section274(e)(2)(B) focuses on the recipient ofthe entertainment, amusement, or recre-ation, not the purpose of the employerproviding the entertainment or the overalluse of the aircraft.

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c. Use of aircraft for bona fide securitypurposes

Several commentators suggested thatentertainment use by a specified individ-ual of an aircraft should not be treated asentertainment within the meaning of sec-tion 274 or subject to section 274(e)(2)(B)if there is a business need to use theaircraft to provide security, pursuantto §1.132–5(m). The proposed regula-tions do not adopt this comment. Section1.132–5(m) merely computes the incomeinclusion for a fringe benefit. It reducesthe income inclusion amount rather thaneliminates it. It does not convert entertain-ment flights into business flights.

2. Definition of Expenses

a. Fixed costs

To calculate the amount of expensesfor entertainment use of an aircraft, No-tice 2005–45 provides that taxpayers musttake into account all of the expenses ofmaintaining and operating the aircraft.Commentators recommended that enter-tainment expenses should not includefixed costs such as depreciation. Com-mentators noted that the legislative historyrefers to “aircraft operating costs” and“actual cost” and interpreted this languageto mean that costs should be limited tovariable costs. H. Conf. Rept. 108–755 at798. Some commentators have suggestedthat incremental costs are the only coststhat should be disallowed.

The proposed regulations do not adoptthese comments. Industry use of the term“operating costs” generally refers to allcosts, fixed and variable, including de-preciation claimed on the taxpayer’s taxreturn. Therefore, the IRS and TreasuryDepartment believe that the use of theterm “operating costs” in the legislativehistory does not reflect Congressional in-tent to apply section 274(e)(2) to variablecosts only. Moreover, the term “aircraftoperating costs” in the legislative his-tory is consistent with use of that term inSutherland Lumber, in which it referredto fixed and variable costs for purposes ofsection 274(e)(2).

b. Depreciation

Commentators suggested that disallow-ing accelerated depreciation (including the

additional first-year depreciation under,for example, sections 168(k), 1400L(b),and 1400N(d)) would result in excessiveamounts disallowed in early years andis inconsistent with Congressional intentto provide incentives for purchasing air-craft. In response to these comments, theproposed regulations permit a taxpayerto elect to calculate depreciation on astraight-line basis over the class life of anaircraft for all of the taxpayer’s aircraft forthe current year and all future years whencalculating the amount of disallowed ex-penses.

c. Aggregation of aircraft

Notice 2005–45 permits taxpayers tocalculate expenses separately for each air-craft or to aggregate the expenses of air-craft of similar cost profiles. For exam-ple, the expenses of turboprop aircraft maybe aggregated (but may not be aggregatedwith the expenses of a jet aircraft) and theexpenses of a two-engine jet aircraft maybe aggregated (but may not be aggregatedwith the expenses of a four-engine jet air-craft).

Commentators requested that the pro-posed regulations provide more details onthe definition of cost profile. In responseto these comments, the proposed regu-lations provide additional characteristicsthat define similar cost profiles. Specificcomments are requested on the appropri-ateness of these characteristics in definingsimilar cost profiles and on other charac-teristics that may be useful in determiningcriteria for aggregating aircraft.

3. Allocation Methods

Notice 2005–45 provides an occupiedseat hour or mile formula to allocate ex-penses to entertainment flights provided tospecified individuals. The formula multi-plies the hours or miles flown by an aircraftby the number of occupied seats. Then ataxpayer aggregates all fixed and variableexpenses to determine the total expensespaid or incurred during the taxable yearwith respect to an aircraft (or aggregatedaircraft) and divides the amount of totalexpenses by total occupied seat hours ormiles to determine the cost per occupiedseat hour or mile. Once a taxpayer deter-mines this cost, the taxpayer uses the costto determine the expenses allocable to eachspecified individual’s entertainment flight.

Commentators expressed concern thatthis formula may not produce accurate re-sults and is administratively burdensome.The proposed regulations retain the occu-pied seat hour or mile formula, which al-lows averaging of fixed and variable costsand yields a simple formula for determin-ing the cost of one occupied seat hour ormile. It does not require a determinationof whether a flight is for entertainment ofspecified individuals or other uses or an al-location of entertainment and other costsfor a particular flight. Once the taxpayerdetermines the cost per occupied seat houror mile, the disallowance calculation is rel-atively easy and results in a cost for eachoccupied seat hour or mile allocable toeach entertainment flight taken by a speci-fied individual.

Nevertheless, in response to commen-tators’ concerns, the proposed regulationsprovide the option of allocating expenseson a flight-by-flight basis as an alternativeto using the occupied seat mile or hour for-mula. Under the flight-by-flight method,a taxpayer may aggregate all expenses forthe taxable year and divide the amountof total expenses by the number of flighthours or miles for the taxable year to de-termine the cost per hour or mile. The tax-payer allocates expenses to each flight bymultiplying the number of miles or hoursfor the flight by the expense per hour ormile and allocates expenses for the flightto the passengers on the flight per capita.

4. Specified Individuals

Notice 2005–45 applies to entertain-ment use of an aircraft provided to aspecified individual of a taxpayer by aparty related to the taxpayer within themeaning of sections 267(b) or 707(b). Thenotice also defines a specified individualas the recipient of entertainment providedto a spouse or family member of thespecified individual or to another personbecause of the person’s relationship to thespecified individual, cf. §1.61–21(a)(4),and includes those entertainment flightswithin the potential disallowance of coststo the taxpayer. Commentators expressedconcern that these provisions defined spec-ified individual too broadly, exceeding theauthority of the IRS and Treasury Depart-ment, and suggested that the definition benarrowed.

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The proposed regulations do not adoptthese comments. In the GOZA, Con-gress enacted technical corrections thatclarify that the related party rules of sec-tions 267(b) and 707(b) apply to section274(e)(2). The IRS and Treasury Depart-ment conclude that Congress intended allentertainment flights to be subject to thesection 274(e)(2) requirements. How-ever, comments on how the regulationscould define passengers aboard by virtueof a relationship with a specified individ-ual are welcome. Finally, the proposedregulations define officer by reference toregulations at 17 CFR §240.16a–1(f) thatimplement section 16(a) of the SecuritiesExchange Act of 1934.

5. Other

a. Determination of basis

The proposed regulations provide that,if an amount disallowed is allocable to de-preciation, §1.274–7 applies and the basisof the aircraft is not reduced for the amountof depreciation disallowed.

b. Allocation of expenses pro rata

Numerous commentators inquired howtaxpayers should allocate disallowed ex-penses between fixed and variable ex-penses. In response to these comments,the proposed regulations provide that theexpense disallowance provisions apply toexpenses on a pro rata basis.

c. Deadhead flights

Notice 2005–45 provides that an air-craft returning empty from a flight afterdischarging passengers or traveling emptyto pick up passengers (deadheading) istreated as having the same number andcharacter of occupied seat hours or milesas the leg or legs of the trip on whichpassengers are aboard.

Commentators, citing confusion onthe treatment of deadhead flights, haverequested additional guidance, includingsafe harbors such as treating the emptyflight as if it had the same composition asthe prior or subsequent flight. The pro-posed regulations adopt these commentsby providing more detail on how taxpayersshould treat deadhead flights.

d. Leasing of taxpayer aircraft

Commentators requested guidance onthe leasing of aircraft to unrelated thirdparties. In response to these requests, theproposed regulations provide guidance onthe treatment of expenses allocable to tax-payers that charter their aircraft.

e. Aircraft as entertainment facilities

Notice 2005–45 addressed the treat-ment of expenses for the entertainmentuse of aircraft and did not address the ef-fect of the amendment to section 274(e)(2)on the treatment of aircraft as entertain-ment facilities. Commentators asked howthe entertainment facility disallowanceunder section 274(a)(1)(B) interacts withrules on aircraft used to provide specifiedindividuals with entertainment.

Section 274(a)(1)(B) disallows all theexpenses, direct and indirect, associatedwith the ownership and operation of an air-craft that is an entertainment facility, ex-cept for expenses for business travel andexpenses that meet the exceptions of sec-tion 274(e). Thus, expenses for personal,nonentertainment travel (such as for medi-cal purposes or attending funerals), as wellas for entertainment travel, are disallowed,unless an exception such as 274(e)(2) ap-plies.

The IRS and Treasury Departmentbelieve that Congress, in adding section274(e)(2)(B), contemplated entertain-ment use of aircraft by specified indi-viduals without specifically consider-ing circumstances in which aircraft maybe regarded as entertainment facilities.Therefore, these proposed regulationsare limited to use of taxpayer-providedaircraft in entertainment activities undersection 274(a)(1)(A), and do not pro-vide rules relating to the application ofsection 274(e)(2)(B) in circumstancesunder which aircraft may be regardedas entertainment facilities under section274(a)(1)(B). Comments are requested onwhether the IRS and Treasury Departmentshould issue guidance on aircraft as enter-tainment facilities and the content of theguidance.

f. Fringe benefit consistency rules

The proposed regulations relax theconsistency rule of §1.61–21(g)(14)(i) to

permit taxpayers to value the entertain-ment use of aircraft by specified individ-uals under the fair market value rules of§1.61–21(b), but continue to value flightsfor other employees and for specifiedindividuals not traveling for entertain-ment using either the SIFL formula of§1.61–21(g) or the general (fair marketvalue) rule of §1.61–21(b).

The proposed regulations preserve theconsistency rule of §1.61–21(g)(14)(i)with respect to particular groups of em-ployees (specified and non-specified indi-viduals) and with respect to non-entertain-ment flights. Thus, if an employer valuesthe entertainment use of aircraft by onespecified individual under the fair marketvalue rules of §1.61–21(b) in a calendaryear, the employer must use the fair mar-ket value rules to value the entertainmentuse of aircraft by all specified individualsduring that calendar year.

The existing consistency rules of§1.61–21(g)(14)(i) continue to apply forvaluing the entertainment use of aircraftfor other employees (non-specified in-dividuals) and for valuing the personaluse of aircraft by specified individualsnot traveling for entertainment purposes.Thus, if an employer values the personaluse of aircraft by any other employeeor the non-entertainment personal use ofaircraft by any specified individual us-ing the SIFL formula of §1.61–21(g) in acalendar year, the employer must use theSIFL formula to value the personal useof aircraft by all other employees and thenon-entertainment personal use of aircraftby all specified individuals during thatcalendar year. Similarly, if the employervalues the personal use of aircraft by anyother employee or the non-entertainmentpersonal use of aircraft by any specifiedindividual using the fair market valuerules of §1.61–21(b) in a calendar year,the employer must use the fair marketvalue rules to value the personal use ofaircraft by all other employees and thenon-entertainment personal use of aircraftby all specified individuals during thatcalendar year.

g. Treatment as compensation tonon-specified individuals

The proposed regulations clarify that inorder for a taxpayer to meet the require-ments of section 274(e)(2) for expenses

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treated as compensation, the taxpayer mustinclude the proper amount as compensa-tion to an employee on the taxpayer’s re-turn.

h. Section 162(m)

Notice 2005–45 provides that anyamount for the entertainment use of anaircraft that is treated by the taxpayer ascompensation to a specified individualwho is also a covered employee is subjectto section 162(m). Commentators dis-agreed with this conclusion. They opinedthat the deduction disallowance of section274 relates to the expenses of the aircraft,not amounts treated as income to the em-ployee, and that, under §1.162–25T, theexpenses associated with providing theaircraft are not deducted by the employeras compensation. Thus, according to thecommentators, expenses treated as com-pensation for purposes of section 274(e)(2)should not be subject to the deduction lim-itation of section 162(m). However, theIRS and Treasury Department believe thatthe deduction limitation of section 162(m)applies to amounts treated as compen-sation for purposes of section 274(e)(2).The legislative history of section 162(m)provides that the deduction limitation ofsection 162(m) applies to all remunerationfor services, including cash and the cashvalue of all remuneration (including ben-efits) paid in a medium other than cashregardless of whether the remunerationis deducted as compensation. H.R. Conf.Rep. No. 103–213 (1993) at 585 (1993–3C.B. 463). Any amount included in an em-ployee’s income for entertainment flightsis remuneration for services and thereforeis subject to section 162(m).

i. Entertainment sold to customers

Commentators requested clarificationon whether section 274(e)(8), the excep-tion to section 274(a) for entertainmentsold to customers, applies to a taxpayer’sexpenses for providing an aircraft for theentertainment use of specified individu-als. A commentator asserted that section274(e)(8) excepts expenses of a flightfrom the section 274(a) disallowance tothe extent a passenger pays full and fairconsideration. The commentator sug-gested that expenses are excepted from thesection 274(a) disallowance under section274(e)(8) in three circumstances common

in business aviation: (1) a lease of anaircraft without a pilot at a fair marketvalue lease rate; (2) payment of a fair mar-ket value charter rate for an aircraft thetaxpayer has enrolled under a charter cer-tificate held by a charter company; and (3)payment of expenses allowed to be reim-bursed in a time-sharing agreement underFederal Aviation Regulation 91.501(d),14 CFR 91.501(d).

The proposed regulations do not ad-dress these issues, as rules implement-ing the section 274(e)(8) exception areprovided in §1.274–2(f)(2)(ix). There-fore, it is outside the scope of these pro-posed regulations on the exceptions undersection 274(e)(2) and (9). As stated in§1.274–2(f)(2)(ix), section 274(e)(8) ap-plies only to taxpayers that are in the tradeor business of providing entertainmentto customers, and only to entertainmentsold to customers. Therefore, the excep-tion does not apply to expenses paid orincurred for entertainment provided to in-dividuals by taxpayers that are not in thetrade or business of providing entertain-ment.

j. Charter Rate Safe Harbor

As an alternative to determining actualexpenses, the IRS and Treasury Depart-ment are considering whether the regu-lations should permit taxpayers to deter-mine the amount of their expenses paidor incurred for entertainment flights byreference to charter rates. Under such asafe harbor, taxpayers could elect to treatas the amount of expenses for entertain-ment flights an undiscounted charter ratefor each flight in lieu of calculating the ac-tual expenses of each entertainment flightprovided to specified individuals. Underthe safe harbor, the undiscounted charterrate for the flight would be allocated tothe individuals on the flight in lieu of theoccupied seat or flight-by-flight allocationmethods.

Under the charter rate method beingconsidered, an undiscounted charter ratewould be based on the amount that a per-son would pay in an arms-length transac-tion to charter the same or comparable air-craft for the same or comparable flight. Ataxpayer would have to show that a char-ter rate used to value flights is a substanti-ated actual, published, undiscounted char-ter rate charged to the general public within

10 days before or after the taxpayer’s flightby a qualified chartering company. A qual-ified chartering company would be a char-tering company unrelated to the taxpayer(within the meaning of section 267(b) or707(b)) that is in the trade or business ofchartering aircraft and that operates andcharters 10 or more aircraft to the generalpublic during the taxable year. Leasebackarrangements or rates charged for off-peakusage, aircraft downtime, or by employersto their employees would not qualify un-der the safe harbor. A qualified charteringcompany would not include a charteringcompany that charters any aircraft to or forthe use of a person (or an employee of theperson) that owns any aircraft used by thechartering company. If a taxpayer electsthe safe harbor, the taxpayer would have touse it for all entertainment flights on all ofthe taxpayer’s aircraft for the current andall subsequent taxable years unless the tax-payer makes a proper revocation.

The proposed regulations do not in-clude the safe harbor. Nonetheless, com-ments are requested on whether such asafe harbor, or other safe harbors, shouldbe adopted. Comments are also requestedon the availability of substantiated ac-tual, published, undiscounted charter ratescharged to the general public by com-panies that meet the requirements of aqualified chartering company.

Taxpayers may not use a charter rateto determine expenses allocable to enter-tainment flights unless and until a rule isadopted in final regulations.

Proposed Effective Date

The regulations, as proposed, apply toany taxable year beginning on or after thedate of publication of a Treasury decisionadopting these rules as final regulationsin the Federal Register. However, tax-payers may rely on the rules in these pro-posed regulations or those provided in No-tice 2005–45 for taxable years beginningbefore the publication of the Treasury deci-sion. If Notice 2005–45 and the proposedregulations include different rules for thesame particular issue, then the taxpayermay rely on either the rule set forth in No-tice 2005–45 or the rule set forth in theproposed regulations. However, if the pro-posed regulations include a rule that wasnot included in Notice 2005–45, taxpayersmay not rely on the absence of a rule in

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Notice 2005–45 to apply a rule contrary tothe proposed regulations.

Special Analyses

This notice of proposed rulemaking isnot a significant regulatory action as de-fined in Executive Order 12866. There-fore, a regulatory assessment is not re-quired. It has also been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations and, becausethe regulations do not impose a collec-tion of information on small entities, theRegulatory Flexibility Act (5 U.S.C. chap-ter 6) does not apply. Pursuant to section7805(f) of the Code, this notice of pro-posed rulemaking will be submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any electronic or writtencomments (a signed original and eight (8)copies) 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.

A public hearing has been scheduledfor October 25, 2007, at 10 a.m., in the au-ditorium, Internal Revenue Building, 1111Constitution Avenue, NW, Washington,DC. Due to building security procedures,visitors must enter through the Consti-tution Avenue entrance. In addition, allvisitors must present photo identificationto enter the building. Because of accessrestrictions, visitors will not be admit-ted beyond the immediate entrance morethan 30 minutes before the hearing starts.For information about having your nameplaced on the building access list to attendthe hearing, see the “FOR FURTHER IN-FORMATION CONTACT” section of thispreamble.

Drafting Information

The principal authors of these pro-posed regulations are Michael A. Nixonand Christian T. Wood of the Office ofAssociate Chief Counsel (Income Tax &Accounting) and Lynne A. Camillo of the

Office of the Division Counsel/AssociateChief Counsel (Tax Exempt & Govern-ment Entities). However, other personnelfrom the IRS and Treasury Departmentparticipated in their development.

* * * * *

Proposed Amendments to theRegulations

Accordingly, under the authority of 26U.S.C. 7805, 26 CFR Part 1 is proposed tobe amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended by adding entries in nu-merical order to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.274–9 also issued under

26 U.S.C. 274(o).* * *Section 1.274–10 also issued under

26 U.S.C. 274(o).* * *Par. 2. Section 1.61–21 is amended

by revising paragraphs (g)(14)(i) and (ii)and adding paragraph (g)(14)(iii) to read asfollows:

§1.61–21 Taxation of fringe benefits.

* * * * *(g) * * *(14) * * *(i) Use by employer. Except as oth-

erwise provided in paragraph (g)(13) orparagraph (g)(14)(iii) of this section or in§1.132–5(m)(4), if the non-commercialflight valuation rule of this paragraph (g)is used by an employer to value any flightprovided in a calendar year, the rule mustbe used to value all flights provided to allemployees in the calendar year.

(ii) Use by employee. Except as oth-erwise provided in paragraph (g)(13)or (g)(14)(iii) of this section or in§1.132–5(m)(4), if the non-commercialflight valuation rule of this paragraph (g)is used by an employee to value a flightprovided by an employer in a calendaryear, the rule must be used to value allflights provided to the employee by thatemployer in the calendar year.

(iii) Exception for entertainment flightsprovided to specified individuals after Oc-tober 22, 2004. Notwithstanding the pro-visions of paragraph (g)(14)(i) of this sec-tion, an employer may use the general val-uation rules of §1.61–21(b) to value the en-

tertainment use of an aircraft by a spec-ified individual. An employer who usesthe general valuation rules of §1.61–21(b)to value any entertainment use of an air-craft by a specified individual in a calendaryear must use the general valuation rulesof §1.61–21(b) to value all entertainmentuse of aircraft provided to all specified in-dividuals during that calendar year.

(A) Specified individuals defined. Forpurposes of paragraph (g)(14)(iii) of thissection, specified individual is defined insection 274(e)(2)(B) and §1.274–9(b).

(B) Entertainment defined. For pur-poses of paragraph (g)(14)(iii) of thissection, entertainment is defined in§1.274–2(b)(1).

* * * * *Par. 3. Section 1.274–9 is added to read

as follows:

§1.274–9 Entertainment provided tospecified individuals.

(a) In general. No deduction is allowedfor expenses for entertainment provided toa specified individual (as defined in para-graph (b) of this section) except to the ex-tent that the expenses do not exceed theamount of the expenses treated as compen-sation to the specified individual, as pro-vided in section 274(e)(2)(B) and (9) and§1.274–10. The amount disallowed is re-duced by any amount that the specified in-dividual reimburses a taxpayer for the en-tertainment.

(b) Specified individual defined. (1) Aspecified individual is an individual whois subject to section 16(a) of the SecuritiesAct of 1934 with respect to the taxpayer, oran individual who would be subject to sec-tion 16(a) if the taxpayer were an issuer ofequity securities referred to in that section.Thus, for example, a specified individualis an officer, director, or more than 10 per-cent owner of a corporation taxed undersubchapter C or subchapter S, or a personalservice corporation. A specified individ-ual includes every individual who—

(i) Is the direct or indirect beneficialowner of more than 10 percent of any classof any registered equity (other than an ex-empted security);

(ii) Is a director or officer of the issuerof the security;

(iii) Would be the direct or indirect ben-eficial owner of more than 10 percent ofany class of a registered security if the tax-

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payer were an issuer of equity securities;or

(iv) Is comparable to an officer or direc-tor of an issuer of equity securities.

(2) For partnership purposes, a speci-fied individual includes any partner thatholds more than a 10 percent equity inter-est in the partnership, or any general part-ner, officer, or managing partner of a part-nership.

(3) For purposes of this section, offi-cer has the same meaning as in 17 C.F.R.§240.16a–1(f).

(4) A specified individual includes a di-rector or officer of a tax-exempt entity.

(5) A specified individual of a taxpayerincludes a specified individual of a partyrelated to the taxpayer within the meaningof section 267(b) or section 707(b).

(6) For purposes of section 274(a), aspecified individual is treated as the recip-ient of entertainment provided to a spouseor family member of the specified individ-ual or to another individual because of therelationship of the spouse, family mem-ber or other individual to the specified in-dividual. Thus, expenses allocable to en-tertainment provided to the spouse, familymember, or other individual are attributedto the specified individual for purposes ofdetermining the amount of disallowed ex-penses.

(c) Entertainment use of aircraft byspecified individuals. For rules relating toentertainment use of aircraft by specifiedindividuals, see §1.274–10.

(d) Effective/applicability date. Thissection applies to taxable years beginningafter the date these regulations are pub-lished as final regulations in the FederalRegister.

Par. 4. Section 1.274–10 is added toread as follows:

§1.274–10 Special rules for aircraft usedfor entertainment.

(a) Use of an aircraft for entertain-ment—(1) In general. Under section274(a) and this section, no deductionotherwise allowable under chapter 1 isallowed for expenses for the use of a tax-payer-provided aircraft for entertainment,except as provided in paragraph (a)(2) ofthis section.

(2) Exceptions—(i) In general. Para-graph (a)(1) of this section does not applyto deductions for expenses for business en-

tertainment air travel or to deductions forexpenses that meet the exceptions of sec-tion 274(e), §1.274–2(f), and this section.

(ii) Expenses treated as compensa-tion—(A) Employees. Section 274(a),paragraphs (a) through (d) of §1.274–2,and paragraph (a)(1) of this section, inaccordance with section 274(e)(2), do notapply (in the case of specified individuals,as provided in paragraph (a)(2)(ii)(C) ofthis section), to expenses for entertain-ment air travel provided to employees tothe extent that a taxpayer—

(1) Properly treats the expenses with re-spect to the recipient of entertainment ascompensation to an employee under chap-ter 1 and as wages to the employee for pur-poses of chapter 24; and

(2) Includes the proper amount in theemployee’s income under §1.61–21.

(B) Persons who are not employees.Section 274(a), paragraphs (a) through(e) of §1.274–2, and paragraph (a)(1)of this section, in accordance with sec-tion 274(e)(9), do not apply (in the caseof specified individuals, as provided inparagraph (a)(2)(ii)(C) of this section), toexpenses for entertainment air travel pro-vided to persons who are not employeesto the extent the expenses are includible inthe income of those persons. This excep-tion does not apply to any amount paid orincurred by the taxpayer that is required tobe included in any information return filedby the taxpayer under part III of subchap-ter A of chapter 61 and is not so included.

(C) Specified individuals. Section274(a) and paragraphs (a) through (d)of §1.274–2, in accordance with section274(e)(2)(B), do not apply to expensesfor entertainment air travel of a specifiedindividual to the extent that the expensesdo not exceed the sum of—

(1) The amount treated as compensationunder paragraph (a)(2)(ii)(A) of this sec-tion or reported as income under paragraph(a)(2)(ii)(B) of this section to the specifiedindividual; and

(2) Any amount the specified individualreimburses the taxpayer.

(b) Definitions. The definitions in thisparagraph (b) apply for purposes of thissection.

(1) Entertainment. For the definitionof entertainment for purposes of this sec-tion, see §1.274–2(b)(1). Entertainmentdoes not include personal travel that is notfor entertainment purposes. For example,

travel to attend a family member’s funeralis not entertainment.

(2) Entertainment air travel. Entertain-ment air travel is any travel aboard a tax-payer-provided aircraft for entertainmentpurposes.

(3) Business entertainment air travel.Business entertainment air travel is anyentertainment air travel aboard a tax-payer-provided aircraft that is directlyrelated to the active conduct of the tax-payer’s trade or business or related to anexpenditure directly preceding or follow-ing a substantial and bona fide businessdiscussion and associated with the activeconduct of the taxpayer’s trade or busi-ness. See §1.274–2(a)(1)(i) and (ii). Airtravel is not business entertainment airtravel merely because a taxpayer-providedaircraft is used for the travel as a resultof a bona fide security concern under§1.132–5(m).

(4) Taxpayer-provided aircraft. A tax-payer-provided aircraft is any aircraftowned by, leased to, or chartered to, a tax-payer or any party related to the taxpayer(within the meaning of section 267(b) orsection 707(b)).

(5) Specified individual. For rules relat-ing to the definition of a specified individ-ual, see §1.274–9.

(c) Amount disallowed. The amountdisallowed under this section for an enter-tainment flight by a specified individualis the amount of expenses allocable tothe entertainment flight of the specifiedindividual under paragraph (e)(2)(ii)(D),(e)(3)(ii), or (f)(3) of this section, reduced(but not below zero) by the amount thetaxpayer treats as compensation underparagraph (a)(2)(ii)(A) of this sectionor reports as income under paragraph(a)(2)(ii)(B) of this section to the specifiedindividual, plus any amount the specifiedindividual reimburses the taxpayer.

(d) Expenses taken into account underthis section—(1) Definition of expenses. Indetermining the amount of expenses takeninto account under this section, a taxpayermust take into account all of the expensesof operating the aircraft, including all fixedand variable expenses the taxpayer deductsin the taxable year. These expenses in-clude, but are not limited to, salaries forpilots, maintenance personnel, and otherpersonnel assigned to the aircraft; mealand lodging expenses of flight personnel;take-off and landing fees; costs for main-

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tenance flights; costs of on-board refresh-ments, amenities and gifts; hangar fees (athome or away); management fees; costs offuel, tires, maintenance, insurance, regis-tration, certificate of title, inspection, anddepreciation; and all costs paid or incurredfor aircraft leased, or chartered, to or by thetaxpayer.

(2) Leases or charters to third parties.Expenses allocable to a lease or charter ofa taxpayer’s aircraft to an unrelated third-party in a bona-fide business transactionfor adequate and full consideration are nottaken into account for purposes of the def-inition of expenses in paragraph (d)(1) ofthis section. Only expenses allocable tothe charter period are not taken into ac-count under this paragraph (d)(2).

(3) Straight-line method permitted fordetermining depreciation disallowanceunder this section—(i) In general. In lieuof the amount of depreciation deductedin the taxable year, solely for purposesof paragraph (d)(1) of this section, a tax-payer may elect to treat as its depreciationdeduction the amount that would resultfrom using the straight-line method ofdepreciation over the class life (as de-fined by section 168(g)(2) and takinginto account the applicable conventionunder section 168(d)) of an aircraft, al-though the taxpayer uses another method-ology to calculate depreciation for theaircraft under other sections of the Inter-nal Revenue Code (for example, section168). If the property is qualified propertyor 50-percent bonus depreciation prop-erty under section 168(k), qualified NewYork Liberty Zone property under section1400L(b), or qualified Gulf OpportunityZone property under section 1400N(d), de-preciation for purposes of this straight-lineelection is determined on the unadjusteddepreciable basis of the property. For pur-poses of this section, a taxpayer that electsto use the straight-line method and classlife under this paragraph (d)(3) for anyaircraft it operates must use that methodfor all taxpayer-provided aircraft it oper-ates and must continue to use the methodfor the entire period the taxpayer uses anytaxpayer-provided aircraft.

(ii) Aircraft placed in service in earliertaxable years. If the taxpayer elects to usethis paragraph (d)(3) with respect to air-craft placed in service in taxable years be-fore the current taxable year, the amountof depreciation is determined by apply-

ing the straight-line method of deprecia-tion to the original cost (or, for propertyacquired in an exchange to which section1031 applies, the basis of the aircraft as de-termined under section 1031(d)) and overthe class life (taking into account the ap-plicable convention under section 168(d))of the aircraft as though the taxpayer usedthat methodology from the year the aircraftwas placed in service.

(iii) Manner of making and revokingelection. A taxpayer makes the electionunder this paragraph (d)(3) by filing anincome tax return for the taxable yearthat determines the taxpayer’s expensesfor purposes of paragraph (d)(1) of thissection by including depreciation as de-termined under this paragraph (d)(3). Anelection may be revoked only for com-pelling circumstances upon consent of theCommissioner by private letter ruling.

(4) Aggregation of aircraft—(i) In gen-eral. A taxpayer may aggregate the ex-penses of aircraft of similar cost profilesfor purposes of calculating disallowed ex-penses under paragraph (c) of this section.

(ii) Similar cost profiles. Aircraft are ofsimilar cost profiles if their operating costsper mile or per hour of flight are compara-ble. Aircraft must have the same enginetype (jet or propeller) and the same num-ber of engines to have similar cost profiles.Other factors to be considered in determin-ing whether aircraft have similar cost pro-files include, but are not limited to, pay-load, passenger capacity, fuel consumptionrate, age, maintenance costs, and deprecia-ble basis.

(e) Allocation of expenses—(1) Gen-eral rule. For purposes of determiningthe expenses allocated to entertainmentair travel of a specified individual underparagraph (a)(2)(ii)(C) of this section, ataxpayer must use either the occupiedseat hours or miles method of paragraph(e)(2) of this section or the flight-by-flightmethod of paragraph (e)(3) of this section.A taxpayer must use the chosen methodfor all flights of all aircraft for the taxableyear.

(2) Occupied seat hours or milesmethod—(i) In general. The occupiedseat hours or miles method determinesthe amount of expenses allocated to aparticular entertainment flight of a speci-fied individual based on the occupied seathours or miles for an aircraft for the tax-able year. Under this method, a taxpayer

may choose to use either occupied seathours or miles for the taxable year to de-termine the amount of expenses allocatedto entertainment flights of specified indi-viduals, but must use occupied seat hoursor miles consistently for all flights for thetaxable year.

(ii) Computation of the occupied seathours or miles method. The amount of ex-penses allocated to an entertainment flighttaken by a specified individual is deter-mined under the occupied seat hours ormiles method by—

(A) Determining the total expenses forthe year under paragraph (d)(1) of this sec-tion for the aircraft or group of aircraft (asdetermined under paragraph (d)(4) of thissection), as applicable;

(B) Determining the total number of oc-cupied seat hours or miles for the taxableyear for the aircraft or group of aircraft bytotaling the occupied seat hours or milesof all flights in the taxable year flown bythe aircraft or group of aircraft, as applica-ble. The occupied seat hours or miles for aflight is the number of hours or miles flownfor the flight multiplied by the number ofseats occupied on that flight. For example,a flight of six hours with three passengersresults in 18 occupied seat hours;

(C) Determining the cost per occupiedseat hour or mile for the aircraft or groupof aircraft, as applicable, by dividing thetotal expenses in paragraph (e)(2)(ii)(A)of this section by the total number of oc-cupied seat hours or miles determined inparagraph (e)(2)(ii)(B) of this section; and

(D) Determining the amount of ex-penses allocated to an entertainment flighttaken by a specified individual by mul-tiplying the number of hours or miles ofthe flight by the cost per occupied hour ormile for that aircraft or group of aircraft,as applicable, as determined in paragraph(e)(2)(ii)(C) of this section.

(iii) Allocation of expenses of multi-leg trips involving both business and en-tertainment legs. A taxpayer that usesthe occupied seat hours or miles alloca-tion method must allocate the expenses ofa trip by a specified individual that in-volves at least one segment for businessand one segment for entertainment pur-poses between the business travel and theentertainment travel unless none of the ex-penses for the entertainment segment aredisallowed. The entertainment cost of amulti-leg trip is the total cost of the flights

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(by occupied seat hours or miles) over thecost of the flights that would have beentaken without the entertainment segmentor segments.

(iv) Examples. The following examplesillustrate the provisions of this paragraph(e)(2):

Example 1. (i) A taxpayer-provided aircraft isused for Flights 1, 2, and 3, of 5 hours, 5 hours, and4 hours, respectively, during the Taxpayer’s taxableyear. On Flight 1, there are four passengers, none ofwhom are specified individuals. On Flight 2, passen-gers A and B are specified individuals traveling forentertainment purposes and passengers C and D arenot specified individuals. Taxpayer treats $1,200 ascompensation to A, and B reimburses Taxpayer $500.On Flight 3, all four passengers (A, B, E, and F) arespecified individuals traveling for entertainment pur-poses. The Taxpayer treats $1,300 each as compensa-tion to A, B, E, and F. Taxpayer incurs $56,000 in ex-penses for the operation of the aircraft for the taxableyear. The aircraft is operated for 56 occupied seathours for the period (four passengers times 5 hoursor 20 occupied seat hours for Flight 1, plus four pas-sengers times 5 hours or 20 occupied seat hours forFlight 2, plus four passengers times 4 hours or 16 oc-cupied seat hours for Flight 3). The cost per occupiedseat hour is $1,000 ($56,000/56 hours).

(ii) For purposes of determining the amount dis-allowed (to the extent not treated as compensation orreimbursed), $5,000 ($1,000 X 5 hours) each is allo-cable with respect to A and B for Flight 2, and $4,000($1,000 X 4 hours) each is allocable with respect toA, B, E, and F for Flight 3.

(iii) For Flight 2, because Taxpayer treats $1,200as compensation to A, and B reimburses Taxpayer$500, Taxpayer may deduct $1,700 of the cost ofFlight 2 allocable to A and B. The deduction for theremaining $8,300 cost allocable to entertainment pro-vided to A and B on Flight 2 is disallowed (with re-spect to A, $5,000 less the $1,200 treated as compen-sation, and with respect to B, $5,000 less the $500reimbursed).

(iv) For Flight 3, because Taxpayer treats $1,300each as compensation to A, B, E, and F, Taxpayer maydeduct $5,200 of the cost of Flight 3. The deductionfor the remaining $10,800 cost allocable to entertain-ment provided to A, B, E, and F on Flight 3 is disal-lowed ($4,000 less the $1,300 treated as compensa-tion to each specified individual).

Example 2. (i) G, a specified individual, is thesole passenger on an aircraft on a two-hour flightfrom City A to City B for business purposes. G thentravels on a three-hour flight from City B to City Cfor entertainment purposes, and returns from City Cto City A on a four-hour flight. G’s flights have re-sulted in nine occupied seat hours (two for the firstsegment, plus three for the second segment, plus fourfor the third segment). If G had returned directly toCity A from City B, the flights would have resultedin four occupied seat hours.

(ii) Under paragraph (e)(2)(iii) of this section, fiveoccupied seat hours are allocable with respect to G’sentertainment (nine total occupied seat hours minusthe four occupied seat miles that would have resultedif the travel had been a roundtrip business trip with-out the entertainment segment). If Taxpayer’s costper occupied seat hour for the year is $1,000, $5,000

is allocated with respect to G’s entertainment use ofthe aircraft ($1,000 X five occupied seat hours). Theamount disallowed is $5,000 minus any amount theTaxpayer treats as compensation to G or that G reim-burses Taxpayer.

(3) Flight-by-flight method—(i) In gen-eral. The flight-by-flight method deter-mines the amount of expenses allocated toa particular entertainment flight of a spec-ified individual on a flight-by-flight basisby allocating expenses to individual flightsand then to a specified individual travelingfor entertainment purposes on that flight.

(ii) Allocation of expenses. A taxpayerusing the flight-by-flight method must ag-gregate all expenses (as defined in para-graph (d)(1) of this section) for the taxableyear for the aircraft or group of aircraft(as determined under paragraph (d)(4) ofthis section), as applicable, and divide thetotal amount of expenses by the numberof flight hours or miles for the taxableyear for that aircraft or group of aircraft,as applicable, to determine the cost perhour or mile. Expenses are allocated toeach flight by multiplying the number ofmiles or hours for the flight by the costper hour or mile. The expenses for theflight are then allocated to the passengerson the flight per capita. Thus, if three offive passengers are traveling for businessand two passengers are specified individ-uals traveling for entertainment purposes,and the total expense allocated to the flightis $10,000, the expense allocable to eachspecified individual is $2,000.

(f) Special rules—(1) Determination ofbasis. If an amount disallowed is alloca-ble to depreciation under paragraph (f)(2)of this section, the rules of §1.274–7 ap-ply. In that case, the basis of an aircraft isnot reduced for the amount of depreciationdisallowed under this section.

(2) Pro rata disallowance. The expensedisallowance provisions of this section areapplied on a pro rata basis to all of theexpenses disallowed by this section.

(3) Deadhead flights. (i) For purposesof this section, an aircraft returning with-out passengers after discharging passen-gers or flying without passengers to pickup passengers (deadheading) is treated ashaving the same number and character ofpassengers as the leg of the trip on whichpassengers are aboard for purposes of theallocation of expenses under paragraphs(e)(2) or (e)(3) of this section. For exam-ple, when an aircraft travels from point A

to point B and then back to point A, andone of the legs is a deadhead flight, fordetermination of disallowed expenses, theaircraft is treated as having made both legsof the trip with the same passengers aboardfor the same purposes.

(ii) When a deadhead flight does notoccur within a roundtrip flight, but oc-curs between two unrelated flights involv-ing more than two destinations (such as anoccupied flight from point A to point B,followed by a deadhead flight from pointB to point C, and then an occupied flightfrom point C to point A), the allocation ofpassengers and expenses to the deadheadflight occurring between the two occupiedtrips is based on the number of passengerson board for the two occupied legs of theflight, the character of the passengers onboard (entertainment or nonentertainmentpurpose) and the length in hours or milesof the two occupied legs of the flight.

(g) Effective/applicability date. Thissection applies to taxable years beginningafter the date these regulations are pub-lished as final regulations in the FederalRegister.

Kevin M. Brown,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on June 14, 2007,8:45 a.m., and published in the issue of the Federal Registerfor June 15, 2007, 72 F.R. 33169)

Notice of ProposedRulemaking byCross-Reference toTemporary Regulationsand Notice of Public Hearing

Exclusions From Gross Incomeof Foreign Corporations

REG–138707–06

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Notice of proposed rulemakingby cross-reference to temporary regula-tions and notice of public hearing.

SUMMARY: In this issue of the Bulletin,the IRS is issuing temporary regulations(T.D. 9332) that modify final regulationsissued under section 883(a) and (c) of the

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Internal Revenue Code (Code), relatingto income derived by foreign corpora-tions from the international operation ofships or aircraft. Those regulations revise§1.883–3 of the final regulations, relatingto the treatment of controlled foreign cor-porations, following the repeal of section954(a)(4) and (f) (foreign base companyshipping provisions) by section 415 of theAmerican Jobs Creation Act of 2004. Inaddition, those regulations provide guid-ance for foreign corporations organized incountries that provide an exemption fromtaxation solely through an income tax con-vention, and amend certain provisions inthe current section 883 regulations. Thetext of those regulations serves as the textof these proposed regulations. This doc-ument also provides notice of a publichearing on these proposed regulations.

DATES: Written and electronic commentsmust be received by September 24, 2007.Outlines of topics to be discussed at thepublic hearing scheduled for Wednesday,October 24, 2007, at 10 a.m. must be re-ceived by Monday, September 24, 2007.

ADDRESSES: Send submissions toCC:PA:LPD:PR (REG–138707–06),room 5203, Internal Revenue Ser-vice, PO Box 7604, Ben Franklin Sta-tion, Washington, DC 20044. Submis-sions may be hand-delivered Mondaythrough Friday between the hours of8 a.m. and 4 p.m. to CC:PA:LPD:PR(REG–138707–06), 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–138707–06).

FOR FURTHER INFORMATIONCONTACT: Concerning the regulations,Patricia A. Bray, at (202) 622–3880; con-cerning submissions of comments and/orrequests for a hearing, Kelly Banks, at(202) 622–0392 (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 in

accordance with the Paperwork Reduc-tion Act of 1995 (44 U.S.C. 3507(d)), andpending receipt and evaluation of pub-lic comments, approved by the Office ofManagement and Budget under controlnumber 1545–1667.

Comments on the collections of infor-mation should be sent to the Office ofManagement and Budget, Attn: DeskOfficer for the Department of the Trea-sury, Office of Information and Regula-tory Affairs, 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 August24, 2007.

Comments are specifically requestedconcerning:

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 (see below);

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 start-up costs and costs ofoperation, maintenance, and purchase ofservice to provide information.

The collections of information in thisproposed regulation are in §§1.883–2(f),1.883–3(c) and (d), and 1.883–4(e). Thisinformation is required to enable a foreigncorporation to determine if it is eligible toexclude its income from the internationaloperation of ships or aircraft from grossincome on its U.S. Federal income tax re-turn. This information will also enable theIRS to monitor compliance with the provi-sions of the proposed regulations with re-spect to the stock ownership requirementsof §1.883–1(c)(2), and to make a prelimi-nary determination of whether the foreigncorporation is eligible to claim such anexemption and is accurately reporting in-come.

The collections of information aremandatory. The likely respondents areforeign corporations engaged in the in-ternational operation of ships or aircraftthat wish to claim an exemption fromU.S. tax under section 883, and certainof their shareholders owning (directly orindirectly) a majority of the value of theshares of such corporations.

Estimated total annual report-ing/recordkeeping burden on foreign cor-porations: 1200 hours.

The estimated annual burden per re-spondent varies from 0 minutes to 3 hours,depending on the circumstances of the for-eign corporation, with an estimated aver-age of one hour.

Estimated number of respondents:1,200.

Estimated annual frequency of re-sponses: once.

Estimated total annual reporting burdenon shareholders: 925 hours.

The estimated annual burden per re-spondent varies from 1 minute to onehour, depending on the circumstances ofthe shareholder or intermediary, with anestimated average of 30 minutes.

Estimated number of respondents:1850.

Estimated annual frequency of share-holder or intermediary responses: once ev-ery three years if no information changesand once a year if a change in ownershipinformation occurs.

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 and records relating to a collec-tion of information must be retained aslong as their contents may become mate-rial in the administration of any internalrevenue law. Generally, tax returns and taxreturn information are confidential, as re-quired by 26 U.S.C. 6103.

Background and Explanation ofProvisions

Temporary regulations in this issue ofthe Bulletin amend 26 CFR part 1. Thoseregulations amend the income inclusiontest in §1.883–3 of the final regulationsissued in T.D. 9087, 2003–2 C.B. 781[68 FR 51394]. Those regulations alsoaddress a number of comments that have

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been received concerning other portionsof the final section 883 regulations. Thetext of those regulations serves as thetext of these regulations. The preambleto the temporary regulations explains thetemporary regulations and these proposedregulations.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a significantregulatory action as defined in ExecutiveOrder 12866. It also has been determinedthat section 553(b) of the AdministrativeProcedure Act (5 U.S.C. chapter 5) doesnot apply to these regulations. Therefore,a regulatory assessment is not required.It is hereby certified that the collectionof information in these regulations willnot have a significant economic impact ona significant number of U.S. small enti-ties. This certification is based on the factthat these regulations apply solely to for-eign corporations, and impose only a lim-ited collection of information burden onshareholders of such corporations, whichin some cases may include U.S. small en-tities. Therefore, a Regulatory FlexibilityAnalysis under the Regulatory FlexibilityAct (5 U.S.C. chapter 6) is not required.Pursuant to section 7805(f) of the Code,this regulation has been submitted to theChief Counsel for Advocacy of the SmallBusiness Administration for comment onits impact on small business.

Comments and Public Hearing

Before these proposed regulations areadopted as final regulations, considerationwill be given to any written (a signed origi-nal and eight (8) copies) or electronic com-ments that are submitted timely to the IRS.The IRS and Treasury Department specif-ically request comments on the clarity ofthe proposed regulations and how they canbe made easier to understand. All com-ments will be available for public inspec-tion and copying.

A public hearing has been scheduled forOctober 24, 2007, beginning at 10 a.m. inthe IRS Auditorium of the Internal Rev-enue Building, 1111 Constitution Avenue,NW, Washington, DC. Due to building se-curity procedures, visitors must enter at theConstitution Avenue entrance. In addition,all visitors must present photo identifica-tion to enter the building. Because of ac-

cess restrictions, visitors will not be ad-mitted beyond the immediate entrance areamore than 30 minutes before the hearingstarts. For information about having yourname placed on the building access list toattend the hearing, see the “FOR FUR-THER INFORMATION CONTACT” sec-tion of this preamble.

The rules of 26 CFR 601.601(a)(3) ap-ply to the hearing. Persons who wish topresent oral comments at the hearing mustsubmit written or electronic comments bySeptember 24, 2007, and an outline of thetopics to be discussed and the time devotedto each topic (a signed original and eight(8) copies) by September 24, 2007. A pe-riod of 10 minutes will be allocated to eachperson for making comments. An agendashowing the scheduling of the speakerswill be prepared after the deadline for re-ceiving outlines has passed. Copies of theagenda will be available free of charge atthe hearing.

Drafting Information

The principal author of these proposedregulations is Patricia A. Bray of the Of-fice of Associate Chief Counsel (Interna-tional). However, other personnel from theIRS and Treasury Department participatedin their development.

* * * * *

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 1.883–0 is amended

by revising the entries for §§1.883–1(g)(3)and (h)(3), 1.883–2(e)(2), 1.883–3, and1.883–5(d) and (e) to read as follows:

§1.883–0 Outline of major topics.

* * * * *

§1.883–1 Exclusion of income fromthe international operation of ships oraircraft.

* * * * *(g) * * *

(3) [The text of the proposed entry for§1.883–1(g)(3) is the same as the text ofthe entry for §1.883–1T(g)(3) publishedelsewhere in this issue of the Bulletin].

* * * * *(h) * * *(3) * * *(i) through (iv) [The text of the

proposed entries for §1.883–1(h)(3)(i)through (iv) is the same as the text of theentries for §1.883–1T(h)(3)(i) through (iv)published elsewhere in this issue of theBulletin].

* * * * *

§1.883–2 Treatment of publicly tradedcorporations.

* * * * *(e) * * *(2) [The text of the proposed entry for

§1.883–2(e)(2) is the same as the text ofthe entry for §1.883–2T(e)(2) publishedelsewhere in this issue of the Bulletin].

* * * * *

§1.883–3 Treatment of controlled foreigncorporations.

* * * * *[The text of the proposed entry for

§1.883–3 is the same as the entry for§1.883–3T published elsewhere in thisissue of the Bulletin].

§1.883–5 Effective/applicability dates.

* * * * *(d) and (e) [The text of the proposed

entries for §1.883–5(d) and (e) is the sameas the text of the entries for §1.883–5T(d)and (e) published elsewhere in this issue ofthe Bulletin].

Par. 3. Section 1.883–1 is amendedby revising paragraphs (c)(3)(i)(D),(c)(3)(i)(G), (c)(3)(i)(H), (c)(3)(i)(I),(c)(3)(ii), (g)(1)(ix), (g)(1)(x), (g)(1)(xi),(g)(3), (h)(1)(ii), and (h)(3) to read as fol-lows:

§1.883–1 Exclusion of income fromthe international operation of ships oraircraft.

* * * * *(c) * * *(3) * * *(i) * * *

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(D) [The text of the proposed amend-ment to §1.883–1(c)(3)(i)(D) is the sameas the text of §1.883–1T(c)(3)(i)(D) pub-lished elsewhere in this issue of the Bul-letin].

* * * * *(G) through (I) [The text of

the proposed amendments to§1.883–1(c)(3)(i)(G) through (I) is thesame as the text of §1.883–1T(c)(3)(i)(G)through (I) published elsewhere in thisissue of the Bulletin].

(ii) [The text of the proposed amend-ment to §1.883–1(c)(3)(ii) is the same asthe text of §1.883–1T(c)(3)(ii) publishedelsewhere in this issue of the Bulletin].

* * * * *(g) * * *(1) * * *(ix) through (xi) [The text of the pro-

posed amendments to §1.883–1(g)(1)(ix)through (xi) is the same as the text of§1.883–1T(g)(1)(ix) through (xi) pub-lished elsewhere in this issue of the Bul-letin].

* * * * *(3) [The text of the proposed amend-

ment to §1.883–1(g)(3) is the same as thetext of §1.883–1T(g)(3) published else-where in this issue of the Bulletin].

* * * * *(h) * * *(1) * * *(ii) [The text of the proposed amend-

ment to §1.883–1(h)(1)(ii) is the same asthe text of §1.883–1T(h)(1)(ii) publishedelsewhere in this issue of the Bulletin].

(2) * * *(3) [The text of the proposed amend-

ment to §1.883–1(h)(3) is the same as thetext of §1.883–1T(h)(3) published else-where in this issue of the Bulletin].

* * * * *Par. 4. Section 1.883–2 is amended

by revising paragraphs (e)(2), (f)(3), and(f)(4)(ii) to read as follows:

§1.883–2 Treatment of publicly–tradedcorporations.

* * * * *(e) * * *(2) [The text of the proposed amend-

ment to §1.883–2(e)(2) is the same as thetext of §1.883–2T(e)(2) published else-where in this issue of the Bulletin].

(f) * * *(3) [The text of the proposed amend-

ment to §1.883–2(f)(3) is the same as thetext of §1.883–2T(f)(3) published else-where in this issue of the Bulletin].

(4) * * *(ii) [The text of the proposed amend-

ment to §1.883–2(f)(4)(ii) is the same asthe text of §1.883–2T(f)(4)(ii) publishedelsewhere in this issue of the Bulletin].

* * * * *Par. 5. Section 1.883–3 is revised to

read as follows:

§1.883–3 Treatment of controlled foreigncorporations.

[The text of this proposed section is thesame as the text of §1.883–3T publishedelsewhere in this issue of the Bulletin].

Par. 6. Section 1.883–4 is amendedby revising paragraphs (d)(4)(i)(C),(d)(4)(i)(D), (e)(2), and (e)(3) to readas follows:

§1.883–4 Qualified shareholder stockownership test.

* * * * *(d) * * *(4) * * *(i) * * *(C) and (D) [The text of the proposed

amendments to §1.883–4(d)(4)(i)(C)and (D) is the same as the text of§1.883–4T(d)(4)(i)(C) and (D) publishedelsewhere in this issue of the Bulletin].

* * * * *(e) * * *(2) and (3) [The text of the proposed

amendments to §1.883–4(e)(2) and (3) isthe same as the text of §1.883–4T(e)(2)and (3) published elsewhere in this issueof the Bulletin].

Par. 7. Section 1.883–5 is amended byrevising paragraphs (d) and (e) to read asfollows:

§1.883–5 Effective/applicability dates.

* * * * *(d) [The text of the proposed amend-

ment to §1.883–5(d) is the same as thetext of §1.883–5T(d) published elsewherein this issue of the Bulletin].

(e) [The text of the proposed amend-ment to §1.883–5(e) is the same as the

text of §1.883–5T(e) published elsewherein this issue of the Bulletin].

Kevin M. Brown,Deputy Commissioner forServices and Enforcement.

(Filed by the Office of the Federal Register on June 22, 2007,8:45 a.m., and published in the issue of the Federal Registerfor June 25, 2007, 72 F.R. 34650)

Foundations Status of CertainOrganizations

Announcement 2007–67

The following organizations have failedto establish or have been unable to main-tain their status as public charities or as op-erating foundations. Accordingly, grantorsand contributors may not, after this date,rely on previous rulings or designationsin the Cumulative List of Organizations(Publication 78), or on the presumptionarising from the filing of notices under sec-tion 508(b) of the Code. This listing doesnot indicate that the organizations have losttheir status as organizations described insection 501(c)(3), eligible to receive de-ductible contributions.

Former Public Charities. The follow-ing organizations (which have been treatedas organizations that are not private foun-dations described in section 509(a) of theCode) are now classified as private foun-dations:

30815 Community DevelopmentCorporation, Inc., Hephzibah, GA

Abdur Rahim Memorial CommunityProject, Inc., Baltimore, MD

Abundance Ministries, Baton Rouge, LAAcction, Inc., Baltimore, MDAffordable Homes of Hampton Roads,

Inc., Chesapeake, VAAffordable Housing Real Estate Company,

Shafter, CAA G A P E Enterprises, Inc., Orlando, FLAgroforestry Council International,

Galveston, TXAll About Animals, Inc., San Angelo, TXAllan D. Wapner Community Foundation,

Ontario, CAAllegany Council for the Arts, Inc.,

Belmont, NYAmber Alert Foundation of Louisiana,

Baton Rouge, LAAmerican Bosnian Center, Hayward, CA

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American Children Across the Pacific,Gardena, CA

American Southeast Asian Literary& Educational Counseling, Inc.,Lowell, MA

American Vietnamese Writers ArtistsAssociation, Inc., Sacramento, CA

Americans for Child Care FightingPoverty a Not for Profit,Miami Beach, FL

Angels Touch Outreach Parental Services,San Jose, CA

Anointed Hands Ministries,Greensboro, NC

Aparem Foundation Corporation,Downey, CA

APEX Educational Institute, Inc.,Rancho Cucamonga, CA

Ashley Foundation, Chicago, ILBegin Again Ministry, Inc.,

Lynchburg, VABethlehem Community Development

Center, Woodbury, NJBig Fun in the Son Social Service Center,

Parma, OHBoth Parents Matter, Inc., Pittsboro, NCBoys & Girls Club of Hillsboro Texas,

Inc., Hillsboro, TXBrookshire Health Care, Inc., Atlanta, GACalifornia School Employees Association

Institute for Public Education,San Jose, CA

Campus Community Services, Inc.,Huntington Beach, CA

Careervision, Inc., Santa Barbara, CACEDI, St. Louis, MOCenter for Research in Vocational

Education, Fremont, CACenter of Excellence in Rural and

Minority Health, Inc., Columbia, SCChanging Faces Community CFC,

Sauk Rapids, MNChinese-American Foundation for Youth

Enrichment, Mineola, NYChristian Medical College Alumni

Association, Inc., Shreveport, LAChristian Stewardship Ministries, Inc.,

Mitchellville, MDChurch of Jesus Christ Ministries,

West Mifflin, PACleveland Performing Arts Ministries,

Inc., Chesterland, OHCommunity Based Learning Solutions,

Coronado, CACommunity Health Initiatives Center,

Inc., Brooklyn, NYCommunity Housing and Empowerment

Connection, Inc., Newark, DE

Community Resources for Growth,Erie, PA

Community Services Enterprise,Spanaway, WA

Community Wellness Institute, Inc.,Pittsburgh, PA

Conscious Action, Larkspur, CACrying in the Wilderness Church

Ministries, Palmetto, GACrystal City Housing Education and

Training Corporation, Crystal City, TXCuda One, Harlingen, TXCultural Connections International, Inc.,

Bellvale, NYDaviess County Rural Housing Finance

Corporation, Washington, INDelissa Development Corporation,

Natchez, MSDeliverance Tabernacle Economic

Development, Inc., Pensacola, FLDigital Volunteers, Inc., Washington, DCDolomite Royal Towers, Inc.,

Dolomite, ALDove Connection Ministries,

San Diego, CADowntown Overland Park Foundation,

Inc., Overland Park, KSEartha M M White Historical Museum,

Inc., Jacksonville, FLED4U2, Little Rock, AZEmpowerment Services, Inc.,

New Rochelle, NYEndless Imagination Production

Company, Incorporated,Los Angeles, CA

Extreme Sports PhilanthropyOrganization, Flint, MI

Ezras Chaveirim, Spring Valley, NYFaith Visionary Services, Oakland, CAFaiths Place Foundation, Chicago, ILFamily Education & Spiritual Center, Inc.,

St. Louis, MOFCT Broken Wings, Inc.,

Oakland Park, FLFirst Preferred Care, Inc., Jacksonville, FLFoster City Reserve Police Officers

Association, Foster City, CAFoundation for Responsible Citizenry,

Edmond, OKFoundation for Sustainable Development

With Human Values, Inc.,Washington, DC

Foundation to Empower Marriage, Inc.,Winter Springs, FL

Friends Enrichment Programs, Inc.,Huntsville, AL

Friends of Justice in Hampshire County,Inc., Leeds, MA

Friends of the Homeless, Chicago, ILGberaga Community Development

Corporation, Dallas, TXGenesis Addiction Prevention Programs,

Inc., Auburn, CAGeorge Washington Leadership

Foundation, Columbia, SCGlobal Friendship Mission, Inc.,

Everett, WAGlobal Intercultural Guide-GIG,

Olympia, WAGood Faith Network, Inc., El Paso, TXGood Start, Irving, TXGospel Music Hall of Fame Museum

Foundation, Philadelphia, PAGospel Testimonial Ministries, Inc.,

Birmingham, ALGreater Faith Housing Corporation,

Buffalo, NYGreenville Dream Center, Pelzer, SCGrog Show, Inc., North Las Vegas, NVGrowing Season Ranch, Lyle, WAHabakkuk Outreach Center, Inc.,

Franklin, VAHarmony Homes, Inc.,

Bowling Green, OHHealthy Images Producing Hope

Opportunity and Prosperity, Inc.,Cleveland, OH

Healthyliving Foundation, Inc.,Jupiter, FL

Help The Blind American Fund,Incorporated, Centerport, NY

Helping Out Poverty Environments(H.O.P.E.) Community DevelopmentCorporation, Stockton, CA

Holy Tabernacle of Deliverance CDC,Inc., Columbus, OH

Housing for Appalachia People, Inc.,Jonesville, VA

In Good Hands Ministry for CreativeArts and Spiritual Growth, Inc.,Glen Cove, NY

Ineglect, Inc., Dickinson, TXInner City Excel Community Learning

Center, Leavenworth, KSInternational All-Ukrainian Charitable

Foundation, Inc., Bronx, NYInternational Basketball Association,

Washington, DCInternational Creole & Cajun Cultural

Association, Church Point, LAInternational Fibrosis Foundation, Inc.,

Little Rock, ARInternational University Bremen

Foundation of America, Inc.,Boston, MA

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International Womens Fellowship,Cary, NC

Invision Foundation, Inc., Clarkston, GAIry D. & Gwendolyn Herbert Life

Enrichment Center, Incorporated,Riviera Beach, FL

Izzy Moving Dance Theatre,Covington, LA

Jail Ministries and Outreaches, Inc.,Palatka, FL

JC Community Services, Incorporated,Mebane, NC

Jefferson County Junior Golf Association,Dandridge, TN

Joy of the Lord Community, Canton, MIJTA Community Project, Inc.,

College Park, GAKingdom Work Enterprise, Inc.,

Canton, OHKingston Regional Senior Living Corp.,

Lake Katrine, NYLaney-Walker Safe Haven Foundation,

Inc., Augusta, GALCL Reintegration Institute,

Midwest City, OKL D M Wings of Eagles Ministries,

Graham, NCLe Collectif Trait D Union, Inc.,

Lanham, MDLewis Ministries, Inc., Columbus, GALiberty Community Development

Corporation, Inc., Canton, MSLife Stage Theatrical Troupe, Inc.,

Bowling Green, OHLife Work Community Development

Center, Detroit, MILiving Faith Outreach, Inc., Norfolk, VALiving Running Wells of Life International

Outreach Ministries, Whittier, CALofty Ideals, Inc., Florence, MSLos Angeles Latino Diabetes Coalition,

Los Angeles, CAL O S T Lifeline Organized Search Teams,

Clyde, OHLow Income Family Training, Inc.,

Culver City, CAMAC Resource & Transitional Center,

Inc., Euclid, OHMahoney Research Library, Minden, LAMarine Watch International,

San Francisco, CAMars Exploration Learning Center,

Isabella, PAMedication Compliance Institute,

Lakeside, CAMiami Dade Community Services, Inc.,

Miami, FL

Michigan City Economic DevelopmentFoundation, Inc., Michigan City, IN

Midway Community DevelopmentCorporation, Midway, FL

Millennium Minds, Inc., Queens, NYMission of Hope 2000, Inc.,

New Hyde Park, NYM & M Education and Training Center,

Inc., Las Vegas, NVMount Moriah Outreach Ministries, Inc.,

Jackson, TNName Above All, Inc., Moncks Corner, SCNational Endowment for the Christian

Arts, Inc., Fort Washington, MDNaturopathic Medical Association of

California, Anaheim, CANew Beginning Group Home, Inc.,

Houston, TXNew Birth Ministries, Inc., Norfolk, VANew Covenant Community Center, Inc.,

Bath, SCNew Foundation, Corona, CANew Foundation Outreach Ministries,

Inc., Thibodaux, LANext Step Mentoring Agency,

Oklahoma City, OKNorth Coast Humanities Council,

Bayside, CANorthside Women Outreach Center,

Lake Charles, LANorthwest Hereditary Disease Foundation,

Everett, WANovasia, Inc., Memphis, TNNu Yu Enterprises, Inc., Brookline, MAOIC Community Revitalization,

Incorporated, Philadelphia, PAOne Hope, Fort Worth, TXO T Transportation, Inc., Atco, NJPamaque Clan of Coahuila Y Tejas

Spanish Colonial Indian Missions,San Antonio, TX

Peace Education, Arlington, TXPeople With Pride of Michigan, Inc.,

Riverside, CAPhoenix Rising Tarot, Inc.,

Los Angeles, CAPilgrim House Productions, Inc.,

Los Angeles, CAPolar Bear Communications Corporation,

Dillingham, AKPolk County Chamber of Commerce

Foundation, Livingston, TXPony Angels, Inc., Carmel, CAPower House Outreach Ministries, Inc.,

Horn Lake, MSPrashanti Bhavan, Inc., Lake Mary, FLPrograms for Girls, Inc.,

Middleborough, MA

Project Outreach Unlimited, Inc.,Omaha, NE

Project Youth, Inc., Lawndale, CARainbow Children’s Truss, Inc.,

Jonesboro, GARefuge & Educational Measures

for Success & Publishing, Inc.,Houston, TX

Renaissance Educational Services, Inc.,San Bernardino, CA

Reproductive Counseling for Youth, Inc.,Benowa Waters, Australia

Resistance International, Washington, DCRetirement Clubs of New Jersey, Inc.,

Elizabeth, NJRivers of Faith Ministries,

Holly Springs, MSRocky Boy Health Board, Box Elder, MTRosewood Center for Wholeness,

Columbia, SCSabine Community Health Center, Inc.,

Many, LASaginaw County Fatherhood Initiative

Organization, Saginaw, MISalt of the Earth Outreach Ministries,

East Hazel Crest, ILSan Diego Urban Economic Corporation,

San Diego, CASan Jose-Silicon Valley Center for

Entrepreneurial Development,San Jose, CA

Saphires House, Ypsilanti, MISavy Education Services, Inc.,

Atlanta, GASend Home a Reading Experience, Inc.,

Windsor, VTS F Pickwick, Baytown, TXSheila’s Wish Foundation,

Daytona Beach, FLShow Them We Care STWC,

Potomac, MDSkills Building Training Centers of

America, New Orleans, LASmile Foundation, Inc., Weatherford, TXSoutheastern Housing and Development

Corporation, Miami, FLSouthern Wis. Mounted Search and

Rescue, Mineral Point, WISouthside Christian Charities, Inc.,

Jacksonville, FLStreet Light Ministries, Melrose, FLSunny Jordan Foundation, Shawnee, KSSupporters of the Fleming County Public

Library, Flemingsburg, KYSword of the Spirit Drug Outreach Center,

Inc., New Orleans, LATallapoosa Cornerstone, Inc.,

Tallapoosa, GA

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Team Verox Group, Inc., Wilmington, DEThompson Land Development Nonprofit

Housing Corporation, Detroit, MITop Hat Dancers, Inc.,

Canyon Country, CATrinity Liquidation Corporation, Inc.,

Cedartown, GATrinity Outreach, Decatur, GATrinity Village Foundation, Inc.,

Daphne, ALTrue Fact Ministry, Altadena, CATrumpbours Corners Farm Museum,

Saugerties, NYTwisted Sister, Inc., Norman, OKUnity Foundation International,

Dayton, OHUnity Housing Development Fund

Corporation, Rochester, NYUniversal Research Publishing &

Marketing, Inc., Southfield, MIUplift, Inc., Washington, DCUpper Savannah Community Economic

Development Corp., Greenwood, SCValley Mission Aviation, Inc.,

Broadway, VAVeteran Connection, Akron, OHVidalia Choice Childcare, Inc.,

Vidalia, LAVillage Project, Sacramento, CAVine City Community Outreach

Community Development Corporation,Atlanta, GA

Vision is Now, Inc., Cincinnati, OHVision Properties, Bolingbrook, ILWayne County Enrichment & Fitness

Center, Goldsboro, NCWe Do Our Best At Recovery, Inc., 12

Steps, Baltimore, MDWesley Community Development

Corporation, Houston, TXWest African Health Initiatives,

Evanston, ILWhite Star Horse Rescue & Rehabilitation,

Mayfield, KYWhitestone Village Revitalization Local

Development Corp., Whitestone, NYWoptura Medicine Society, Austin, TXWu-Kah-Ki Theatre Workshop,

Newark, NJZero2 Foundation, Matthews, NCZorya, Incorporated, Cos Cob, CT

If an organization listed above submitsinformation that warrants the renewal ofits classification as a public charity or asa private operating foundation, the Inter-nal Revenue Service will issue a ruling ordetermination letter with the revised clas-

sification as to foundation status. Grantorsand contributors may thereafter rely uponsuch ruling or determination letter as pro-vided in section 1.509(a)–7 of the IncomeTax Regulations. It is not the practice ofthe Service to announce such revised clas-sification of foundation status in the Inter-nal Revenue Bulletin.

Application of Section 409Ato Nonqualified DeferredCompensation Plans;Correction

Announcement 2007–68

AGENCY: Internal Revenue Service(IRS), Treasury.

SUMMARY: This document contains cor-rections to final regulations (T.D. 9321,2007–19 I.R.B. 1123) that were publishedin the Federal Register on Tuesday, April17, 2007 (73 FR 19234), relating to section409A.

DATES: This correction is effective April17, 2007.

FOR FURTHER INFORMATIONCONTACT: Stephen Tackney, (202)622–9639 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are subject tothese corrections are under section 409Aof the Internal Revenue Code.

Need for Correction

As published, final regulations (T.D.9321) contain errors that may prove mis-leading and are in need of correction.

Correction of Publication

Accordingly, the publication of the finalregulations (T.D. 9321), which were thesubject of FR Doc. 07–1820, is correctedas follows:

1. On page 19235, column 3, in thepreamble the paragraph heading III. thelanguage “Definition of Nonqualified De-ferred Compensation Plan”, is corrected toread “Definition of Deferral of Compensa-tion”.

2. On page 19243, column 1, in the pre-amble, paragraph E., the last sentence inthe first paragraph, the language “The finalregulations adopt this suggestion, so longas the risk of forfeiture to which the stockis subject constitutes a substantial risk offorfeiture for purposes of section 409A.”is corrected to read “The final regulationsadopt this suggestion.”.

3. On page 19243, column 2, paragraphG., line 2 from the bottom of the para-graph, the language “Q&A–7 and sectionII.E. of the preamble” is corrected to read“Q&A–7 and sections II.E. and VI.E. ofthe preamble.”.

4. On page 19247, column 2, in the pre-amble, lines 3 and 4 from the bottom ofthe last paragraph, the language “limitedperiod of time not to exceed one year fol-lowing the initial existence of” is correctedto read “limited period of time not to ex-ceed two years following the initial exis-tence of”.

5. On page 19258, column 2, in thepreamble the tenth line from the bottomof the column, the language “average levelof bona fide service” is corrected to read“average level of bona fide services”.

6. On page 19264, column 1, in the pre-amble, paragraph D., line 9 from the bot-tom of the first paragraph, the language“with section 409A if the service” is cor-rected to read “with section 409A only ifthe service”.

7. On page 19264, column 2, in thepreamble, paragraph D., the last sentenceof the top paragraph, the language “For adiscussion of the ability to provide for dif-ferent times and forms of payment due todifferent types of separations from service,including separations from service due tocertain disabilities, see section VII.C. 4 ofthis preamble.” is removed.

8. On page 19265, column 1, in the pre-amble under paragraph G., the third sen-tence of the paragraph, the language “Thefinal regulations clarify that for these pur-poses, the availability of payments dueto the unforeseeable emergency under anyother nonqualified deferred compensationplan as defined for purposes of section409A, including plans that would be non-qualified deferred compensation plans forpurposes of section 409A except due to theeffective date of the statute, or under anyqualified plan (including any assets avail-able by obtaining a loan under a qualifiedplan), need not be considered in determin-

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ing whether an emergency is or may be re-lieved through other means.” is correctedto read “The final regulations clarify thatfor these purposes, the availability of pay-ments under any qualified plan (includingany amount available by obtaining a loanunder a qualified plan), or under any othernonqualified deferred compensation plandue to the unforeseeable emergency, in-cluding plans that would be nonqualifieddeferred compensation plans for purposesof section 409A except due to the effectivedate of the statute, need not be consideredin determining whether an emergency is ormay be relieved through other means.”.

9. On page 19265, column 1, in the pre-amble under paragraph G., lines 1 through5 from the bottom of the first paragraph,the language “qualified plan, from a grand-fathered nonqualified deferred compensa-tion plan, or from another nonqualified de-ferred compensation plan that is subject tosection 409A.” is corrected to read “qual-ified plan, or from another nonqualifieddeferred compensation plan (including agrandfathered plan) due to the unforesee-able emergency.”.

10. On page 19267, column 2, in thepreamble under paragraph B., lines 4 and5 from the bottom of the column, the lan-guage “Where the change in control eventconsists of an asset purchase, the” is cor-rected to read “Solely for purposes of thisrule, the”.

11. On page 19270, column 2, in thepreamble under paragraph A., lines 2, 3,and 4 from the top of the paragraph, the

language “contributions, each up to thesection 402(g) dollar limit on elective de-ferrals, are separate, additive limits and arenot” is corrected to read “contributions issubject to two separate, additive limits andnot”.

12. On page 19272, column 1, in thepreamble, the paragraph heading of para-graph XII., the language “Effective Dateof Final Regulations” is corrected to read“Applicability Date of Final Regulations”.

13. On page 19272, column 2, in thepreamble under paragraph B., line 2, thelanguage “effective January 1, 2008. Forperiods” is corrected to read “applicableJanuary 1, 2008. For periods”.

14. On page 19272, column 2, in thepreamble, paragraph B., line 7 from thetop of the first paragraph, the language “re-lief for periods before the effective” is cor-rected to read “relief for periods before theapplicability”.

15. On page 19272, column 2, in thepreamble, paragraph B., line 3 from thetop of the second paragraph, the language“becoming effective January 1, 2008, on”is corrected to read “becoming applicableJanuary 1, 2008, on”.

16. On page 19272, column 2, in thepreamble, paragraph C., line 5 from the topof the paragraph, the language “rights is-sued before the effective date of” is cor-rected to read “rights issued before the ap-plicability date of”.

17. On page 19273, column 1, in thepreamble, paragraph C., line 13 from thetop of the second paragraph, the language

“2005) or on or before the effective date”is corrected to read “2005) or on or beforethe applicability date”.

18. On page 19273, column 1, in thepreamble, paragraph C., line 16 from thebottom of the paragraph, the language “ef-fective date of the regulations. In” is cor-rected to read “applicability date of theregulations. In”.

19. On page 19273, column 2, in thepreamble, paragraph D., line 4 of the sec-ond paragraph, the language “establishedbefore the effective date of” is corrected toread “established before the applicabilitydate of”.

20. On page 19273, column 2, in thepreamble, paragraph E., line 7 of the firstparagraph, the language “the time suchregulations were effective.” is corrected toread “the time such regulations were appli-cable.”.

Guy R. Traynor,Federal Register Liaison,

Publications & Regulations Branch,Legal Processing Division,

Associate Chief CounselProcedure & Administration).

(Filed by the Office of the Federal Register on July 12, 2007,8:45 a.m., and published in the issue of the Federal Registerfor July 13, 2007, 72 F.R. 38477)

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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.

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Numerical Finding List1

Bulletins 2007–27 through 2007–32

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

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

2007-61, 2007-30 I.R.B. 140

2007-62, 2007-32 I.R.B. 331

Proposed Regulations:

REG-119097-05, 2007-28 I.R.B. 74

REG-147171-05, 2007-32 I.R.B. 334

REG-138707-06, 2007-32 I.R.B. 342

REG-144540-06, 2007-31 I.R.B. 296

REG-103842-07, 2007-28 I.R.B. 79

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

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

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

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.

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Finding List of Current Actions onPreviously Published Items1

Bulletins 2007–27 through 2007–32

Notices:

2006-43

Modified by

T.D. 9332, 2007-32 I.R.B. 300

2007-26

Modified by

Notice 2007-56, 2007-27 I.R.B. 15

Proposed Regulations:

REG-109367-06

Hearing scheduled by

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

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

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

2004-42

Superseded by

Notice 2007-59, 2007-30 I.R.B. 135

2005-16

Modified by

Rev. Proc. 2007-44, 2007-28 I.R.B. 54

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

2006-55

Superseded by

Rev. Proc. 2007-43, 2007-27 I.R.B. 26

Revenue Procedures— Continued:

2007-15

Superseded by

Rev. Proc. 2007-50, 2007-31 I.R.B. 244

Revenue Rulings:

74-299

Amplified by

Rev. Rul. 2007-48, 2007-30 I.R.B. 129

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

2001-48

Modified by

T.D. 9332, 2007-32 I.R.B. 300

Treasury Decisions:

9321

Corrected by

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

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.

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INTERNAL REVENUE BULLETINThe Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-tendent of Documents when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weeklyBulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNETYou may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Under information for: select Businesses. Under

related topics, select More Topics. Then select Internal Revenue Bulletins.

INTERNAL REVENUE BULLETINS ON CD-ROMInternal Revenue Bulletins are available annually as part of Publication 1796 (Tax Products CD-ROM). The CD-ROM can be

purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.

HOW TO ORDERCheck the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,

detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two tosix weeks, plus mailing time, for delivery.

WE WELCOME COMMENTS ABOUT THE INTERNALREVENUE BULLETIN

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,we would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page(www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224

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