Internal Revenue Bulletin 2006-23 (PDF rendition): IRS Announcements

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

Bulletin No. 200
6-23
June 5, 2006
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. 2006–29, page 1031.
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 June 2006.
T.D. 9260,
page 1001.
REG–14478
4–02, page 1036.
Temporary
and proposed regulations under section 904 of the
Code provi
de guidance relating to the look-through treatment of
dividends
from noncontrolled section 902 corporations (10/50
corporati
ons). The American Jobs Creation Act (AJCA) of 2004
amended s
ection 904(d) and repealed the separate limitation
category
for dividends from 10/50 corporations effective for
taxable y
ears beginning after December 31, 2002. The tem-
porary re
gulations also provide guidance concerning the Gulf
Opportu
nity Zone Act of 2005, which permitted taxpayers to
elect to
defer the effective date of the AJCA amendments until
after ta
xable years beginning after December 31, 2004.
EXEMPT ORGANIZATIONS
Announcement 2006–36, page 1038.
A list is provided of organizations now classified as private foun-
dations.
Announcement 2006–37, page 1039.
Budget and Credit Counseling Services, Inc., of New York, NY;
Felton Dean Minority and Disadvantaged Youth Sports Founda-
tion, Inc., of Lawton, OK; Guardian Angel Academy, Inc., of
Front Royal, VA; Northwest Passage Foundation of Salt Lake
City, UT; and The Paul Revere Society of Mill Valley, CA, no
longer qualify as organizations to which contributions are de-
ductible under section 170 of the Code.
ADMINISTRATIVE
Rev. Proc. 2006–22, page 1033.
This procedure provides methods to be used in determining
the amount of W–2 wages for purposes of the limitation con-
tained in section 199(b)(1) of the Code on the amount of the
deduction provided by section 199(a)(1) for domestic produc-
tion activities. This procedure applies only for taxable years
beginning on or after January 1, 2005, and on or before May
17, 2006, and only under certain specific conditions.
Fi
nding Lists begin on page ii.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents 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 of
the 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 internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al 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 these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents 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.
June 5, 20062006–23 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of June 2006. See Rev.
Rul. 2006-29, page 1031.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of June 2006. See Rev. Rul.
2006-29, page 1031.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of June 2006. See Rev.
Rul. 2006-29, page 1031.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of June 2006. See Rev.
Rul. 2006-29, page 1031.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 861.—Income
From Sources Within the
United States
Temporary and proposed regulat
ions provide guid-
ance on apportioning interest e
xpense of a noncon-
trolled section 902 corporatio
n and, for purposes of
apportioning the interest expe
nse of a taxpayer, char-
acterizing the stock of a noncon
trolled section 902
corporation. The regulations
also clarify the defini-
tion of a 10 percent owned corpo
ration. See T.D.
9260, page 1001. See REG-144784-02
, page 1036.
Section 902.—Deemed
Paid Credit Where Domestic
Corporation Owns 10
Percent or More of
Voting Stock of Foreign
Corporation
Temporary and proposed regulations provide guid-
ance on applying the look-through rules to dividends
from noncontrolled section 902 corporations. The
regulations also provide guidance on dividends from
a fourth-, fifth- or sixth-tier foreign corporation, and
modify the definition of foreign income taxes. See
T.D. 9260, page 1001. See REG-144784-02, page
1036.
Section 904.—Limitation
on Credit
26 CFR 1.904–2: Carryback and carryover of unused
foreign tax.
T.D. 9260
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Application of Separate
Limitations to Dividends From
Noncontrolled Section 902
Corporations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Temporary regulations.
SUMMARY: This document contains
temporary regulations regarding the ap-
plication of separate foreign tax credit
limitations to dividends received from
noncontrolled section 902 corporations
under section 904(d)(4). Section 403 of
the American Jobs Creation Act of 2004,
Public Law 108–357, 118 Stat. 1418 (Oc-
tober 22, 2004) (AJCA), modified the
treatment of such dividends effective for
taxable years beginning after December
31, 2002. Section 403(l) of the Gulf Op-
portunity Zone Act of 2005, Public Law
109–135, 119 Stat. 2577 (December 22,
2005) (GOZA), permitstaxpayers to elect
to defer the effective date of the AJCA
amendments until taxable years beginning
after December 31, 2004. The tempo-
rary regulations provide guidance needed
to comply with these changes and affect
corporations claimingforeign tax credits.
The text of these temporary regulations
also serves as the text of the proposed
regulations (REG–144784–02) set forth in
the notice of proposed rulemaking on this
subject published elsewhere in this issue
of the Bulletin.
2006–23 I.R.B.1001June 5, 2006

DATES:Effective Date:These regulations
are effective April 25, 2006. For dates of
applicability, see §§1.861–9T(f)(4)(iv),
1.861–12T(c)(4)(iii),1.902–1T(g),
1.904–2T(h)(1) and (2), 1.904–4T(c)
(2)(i), 1.904–5T(o)(2), 1.904–7T(f)(10),
1.904(f)–12T(g)(5), and 1.964–1T(c)(2)
and (c)(6).
Applicability Dates:These regulations
generally apply to dividends paid in tax-
able years of noncontrolled section 902
corporations beginning after December 31,
2002.
FOR FURTHER INFORMATION
CONTACT: Ginny Chung (202) 622–3850
(not a toll-free call).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These temporary regulations are being
issued without prior notice and public pro-
cedure pursuant to the Administrative Pro-
cedure Act (5 U.S.C. 553). For this reason,
the collections of information contained in
these regulations have been reviewed and,
pending receipt and evaluation of public
comments, approved by the Office of Man-
agement and Budget under control num-
ber 1545–2014. Responses to these collec-
tions of information are required to obtain
a tax benefit.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
For further information concerning
these collections of information, and
where to submit comments on the col-
lections of information and the accuracy
of the estimated burden, and suggestions
for reducing this burden, please refer to the
preamble of the cross-referencing notice
of proposed rulemaking published in this
issue of the Bulletin.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
This document contains amendments
to the regulations under sections 861,
902, 904, and 964 relating to the applica-
tion of separate limitations to dividends
from noncontrolled section 902 corpora-
tions (10/50 corporations) under section
904(d)(4), as amended by the AJCA and
GOZA. Prior to the Taxpayer Relief Act of
1997, Public Law No. 105–34, 111 Stat.
788, 971 (1997) (1997 Act), dividends
from each 10/50 corporation were subject
to a separate foreign tax credit limitation
(a separate category for dividends from
each 10/50 corporation). The 1997 Act
modified these rules, effective for taxable
years beginning after December 31, 2002.
In lieu of the separate category treatment,
the 1997 Act provided that dividends paid
by 10/50 corporations that are not passive
foreign investment companies out of earn-
ings and profits accumulated in taxable
years beginning on or before December
31, 2002, (10/50 dividends out of pre-2003
earnings) would be included in a single
separate category (the single category for
dividends from all 10/50 corporations),
and dividends from 10/50 corporations out
of earnings andprofits accumulated in tax-
able years beginning after December 31,
2002, (10/50 dividends out of post-2002
earnings) would be treated as income in
a separate category based on the separate
category of the underlying earnings and
profits being distributed (look-through
treatment). On December 23, 2002, the
IRS and the Treasury Department issued
Notice 2003–5, 2003–1 C.B. 294, which
provided guidance addressing the applica-
tion of section 904 to dividends paid by
10/50 corporations under the 1997 Act.
The AJCA modified the 10/50 dividend
rules in the 1997 Act and provided that div-
idends from 10/50 corporations would be
eligible for look-through treatment effec-
tive for taxable years beginning after De-
cember 31, 2002, without regard to when
the distributed earnings were accumulated.
Section 403(l) of the GOZA provided a
rule allowing a taxpayer to elect, for tax-
able years beginning after December 31,
2002, and before January 1, 2005, not to
apply the expanded look-through rules en-
acted in the AJCA to 10/50 dividends out
of pre-2003 earnings. Section 403(l) of
the GOZA also provided, with respect to
carrybacks and carryforwards under sec-
tion 904(c) of excess foreign taxes allo-
cable to a dividend from a 10/50 corpora-
tion, that a taxpayer that elects not to apply
the expanded look-through rules enacted
in the AJCA to taxable years beginning in
2003 and 2004 must defer the application
of the look-through rules for carryovers of
excess foreign taxes contained in section
904(d)(4)(C)(iv).
The temporary regulations modify the
section 902 and 904 regulations to reflect
the look-through treatment of dividends
from 10/50 corporations and provide tran-
sition rules for the treatment of overall for-
eign losses and separate limitation losses
under section 904(f) and the carryover of
excess foreign taxes under section 904(c).
The temporary regulations also modify the
grouping rules of §1.904–4(c) that apply
for purposes of determining whether an
item of income is considered high-taxed
income, the rules under §1.861–9T gov-
erning the apportionment of interest ex-
pense of a 10/50 corporation, and the rules
under §1.861–12T governing the charac-
terization of stock of a 10/50 corporation
for purposes of apportioning the share-
holder’s interest expense.
In addition, the temporary regulations
modify the regulations under section 964
to add rules permitting majority domes-
tic corporate shareholders of a 10/50 cor-
poration to make taxaccounting elections
on behalf of the 10/50 corporation. The
temporary regulations also expand the sec-
tion 964 regulations to allow controlling
United States shareholders and majority
domestic corporate shareholders to adopt
or change the taxable year of a controlled
foreign corporation or 10/50 corporation
(as the case may be) on behalf of the for-
eign corporation. The temporary regula-
tions also revise the regulations’ proce-
dural rules to permit statements evidenc-
ing the shareholders’ action to be filed with
the shareholders’ tax returns instead of 183
days after the close of the foreign corpora-
tion’s taxable year. Finally, the temporary
regulations modify the section 964 regula-
tions to eliminate obsolete provisions and
reorganize some of the rules contained in
§1.964–1T(g).
The IRS and the Treasury Department
request comments on additional guidance
that may be needed to implement section
403oftheAJCAandsection403(l)ofthe
GOZA.
June 5, 200610022006–23 I.R.B.

Explanation of Provisions
I. Interest Expense Apportionment
A. Interest expense of a 10/50 corporation
For purposes of apportioning interest
expense of a 10/50 corporation in or-
der to apply the dividend look-through
rule, new §1.861–9T(f)(4) generally ap-
plies the principles of §1.861–9T(f)(3)
(apportionment of interest expense of a
controlled foreign corporation). Under
this rule, interest expense of a 10/50 cor-
poration may be apportioned using either
the asset method or the modified gross
income method. Section 1.861–9T(f)(4)
also provides that the election to use the
asset method or modified gross income
method may be made by either the 10/50
corporation itself or by the “majority
domestic corporate shareholders” of the
10/50 corporation. The termmajority
domestic corporate shareholdersmeans
those domestic corporations that meet the
ownership requirements of section 902(a)
with respect to the 10/50 corporation (or
to a first-tier foreign corporation that is a
member of the same qualified group as the
10/50 corporation) that, in the aggregate,
own directly or indirectly more than 50
percent of the combined voting power of
all of the voting stock of the 10/50 corpo-
ration that is owned directly or indirectly
by all domestic corporations that meet the
ownership requirements of section 902(a)
with respect to the 10/50 corporation (or
a relevant first-tier 10/50 corporation).
Unlike a controlled foreign corporation
(CFC), however, a 10/50 corporation will
notberequiredtousetheassetmethod
even though the majority domestic cor-
porate shareholders elect the fair market
value method of apportionment. Compare
§1.861–9T(f)(3)(i) and §1.861–8T(c)(2)
(requiring CFC to use fair market value
method if controlling United States share-
holders as defined in §1.861–9T(f)(3)(ii)
elect fair market value method). The IRS
and the Treasury Department believe that
the conformity rule of §1.861–8T(c)(2)
should not apply to foreign corporations
that are not controlled by domestic share-
holders. Therefore, regardless of the
methods used by the majority domestic
corporate shareholders of a 10/50 corpora-
tion, the 10/50 corporation (or the majority
domestic corporate shareholders on behalf
of the 10/50 corporation) may elect to use
any of the methods described in §1.861–9T
or §1.861–9 (e.g., the modified gross in-
come, tax book value, alternative tax book
value, or fair market value method) to
apportion the 10/50 corporation’s interest
expense.
B. Characterization of stock of a 10/50
corporation
For purposes of apportioning interest
expense to income of a taxpayer in the
various separate categories under section
904(d), §1.861–12T(c)(4) currently treats
stock of each 10/50 corporation owned
by the taxpayer as an asset giving rise to
income in a separate category. The tem-
porary regulations are amended to reflect
the repeal of separate categories for divi-
dends from 10/50 corporations. Because
dividends from 10/50 corporations are
eligible for look-through treatment in the
same manner as dividends from CFCs,
the IRS and the Treasury Department be-
lieve that stock of a 10/50 corporation
should be treated for interest expense ap-
portionment purposes in the same manner
as stock of a CFC, which is character-
ized based on the income produced in
the current year, or expected to be pro-
duced in future years, by the assets of
the CFC. See §1.861–12T(c)(3). Accord-
ingly, §1.861–12T(c)(4) is amended to
provide that stock in a 10/50 corpora-
tion is characterized as an asset in the
various separate categories on the ba-
sis of either the asset method (described
in §1.861–12T(c)(3)(ii)) or the modi-
fied gross income method (described in
§1.861–12T(c)(3)(iii)), depending on the
method used by the 10/50 corporation to
apportion its interest expense. In addition,
the temporary regulations eliminate the
special rule in §1.861–12T(c)(4)(ii) for
separate limitation losses, which provided
that a taxpayer could elect to reallocate
interest expense that resulted in a loss in
a separate category for dividends from a
10/50 corporation. This rule is no longer
necessary due to the elimination of sepa-
rate categories for dividends from 10/50
corporations.
C. Definition of “10 percent owned
corporation”
The current temporary regulations re-
quire an affiliated group using the tax
book value method in apportioning its
interest expense to adjust the basis of
stock in any “10 percent owned corpo-
ration” that is held directly by members
of the group to reflect the member’spro
ratashare of such corporation’s earn-
ings and profits (or deficit in earnings
and profits). §1.861–12T(c)(1), (c)(2).
The adjustment must take into account
such corporation’spro ratashare of the
earnings and profits (or deficit) of any
lower-tier 10 percent owned corporation.
§1.861–12T(c)(2)(iii). In general, a corpo-
ration is a “10 percent owned corporation”
if members of the affiliated group own
directly or indirectly 10 percent or more
of the voting power of the corporation.
§1.861–12T(c)(2)(ii). As amended by this
Treasury Decision, the basis adjustment
rule of §1.861–12T(c)(2)(i) is revised to
clarify that it applies to stock of a 10 per-
cent owned corporation not only where
stock in a 10 percent owned corporation
is held directly by members of the affil-
iated group, but also where the stock is
held indirectly through a partnership or
other pass-through entity. Thus, the basis
adjustment is required whenever the stock
(rather than the interest in the pass-through
entity) is the relevant asset for purposes of
interest expense apportionment.
II. Deemed Paid Credit Under Section 902
A. Extension of look-through rules and
tier limitation
The 1997 Act and AJCA amendments
expanded the look-through treatment of
dividends from 10/50 corporations. The
temporary regulations amend §1.902–1(d)
to reflect these changes. The temporary
regulations also reflect provisions of the
1997 Act amending section 902 to provide
for the calculation of deemed-paid taxes
with respect to distributions through up to
six tiers of foreign corporations in a chain
of corporations in a “qualified group” de-
scribed in section 902(b)(2). Under sec-
tion 902(b)(2), the term “qualified group”
does not include any foreign corporation
below the third tier in the chain unless such
corporation is a controlled foreign corpo-
ration of which the domestic corporation
is a United States shareholder. For a mem-
ber of the qualified group below the third
tier, only foreign income taxes paid with
respect to periods during which it was a
2006–23 I.R.B.1003June 5, 2006

controlled foreign corporation are eligible
to be deemed paid. The temporary reg-
ulations modify §1.902–1 to reflect these
statutory amendments, effective for taxes
paid by fourth-, fifth-, and sixth-tier quali-
fied group members with respect to taxable
years beginning after August 5, 1997.
B. Amounts included in post-1986 foreign
income taxes
Under §1.902–1(a)(7), foreign income
taxes do not include amounts not treated
as a tax or certain taxes for which credit
is disallowed under various provisions of
section 901. The temporary regulations
update the definition of foreign income
taxes in §1.902–1(a)(7) to exclude taxes
for which a credit is disallowed under sec-
tions 901(j) (relating to the disallowance
of a credit for foreign taxes paid or accrued
to certain countries), sections 901(k) and
(l) (disallowing credit for certain withhold-
ing taxes paid with respect to dividends
or other income if the recipient does not
meet certain holding period requirements
or is under an obligation to make related
payments with respect to substantially
similar or related property), or any similar
provision. In addition, the temporary reg-
ulations modify §1.902–1(a)(8) to reflect
the amendment of section 902(c)(2)(B)
in 1997, which clarified the definition of
post-1986 foreign income taxes by substi-
tuting the phrase “attributable to” for the
phrase “deemed paid with respect to.”
Section 1113(c)(2) of the 1997 Act pro-
vided that in the case of any chain of for-
eign corporations described in clauses (i)
and (ii) of section 902(b)(2)(B), no liqui-
dation, reorganization, or similar transac-
tion in a taxable year beginning after Au-
gust 5, 1997, can have the effect of per-
mitting taxes to be taken into account un-
der section 902 which could not have been
taken into account under section 902 but
for the transaction. This rule was enacted
as part of the effective date of the 1997
Act’s extension of the deemed-paid credit
rules from three to six tiers as discussed
above. Accordingly, §1.902–1T(c)(8) is
added to clarify that foreign taxes paid or
accrued by a qualified group member are
not eligible to be deemed paid if they were
paid or accrued in a taxable year beginning
on or before August 5, 1997, if such mem-
berwasafourth-,fifth-orsixth-tiercorpo-
ration with respect to the taxpayer on the
first day of its first taxable year beginning
after August 5, 1997.
III. Carryovers and Carrybacks of Excess
Foreign Taxes Under Section 904(c)
Section 904(d)(4)(C)(iv), as amended
by the AJCA, provides that look-through
treatment applies to the carryover of ex-
cess foreign taxes from pre-2003 taxable
years to post-2002 taxable years to the
extent that they are allocable to divi-
dends from 10/50 corporations. Con-
sistent with this statutory amendment,
§1.904–2T(h)(1) provides that to the ex-
tent that a taxpayer has paid, accrued, or
deemed paid excess taxes in a separate
category for dividends from a 10/50 cor-
poration paid in a pre-2003 taxable year
and these excess taxes are carried over
to taxable years beginning on or after the
first day of the 10/50 corporation’s first
post-2002 taxable year, the excess taxes
are assigned to the appropriate separate
category as if the associated dividends had
been eligible for look-through treatment
when paid, based on the reconstruction of
the 10/50 corporation’s pre-2003 earnings
in accordance with §1.904–7T(f) (dis-
cussed below in section V.E., “Treatment
of earnings and taxes accumulated during
a non-look-through period”). In the case
of excess taxes attributable to dividends
from a 10/50 corporation with respect to
which the taxpayer is no longer a qualify-
ing shareholder as of the first day of its first
post-2002 taxable year, §1.904–2T(h)(1)
provides that the excess taxes are assigned
pro ratato the separate categories to which
the foreign corporation’s pre-2003 earn-
ings would have been assigned had they
been distributed in the last year that the
taxpayer was a qualifying shareholder.
If the Commissioner determines that
the look-through characterization of the
excess taxes cannot be reasonably deter-
mined under one of the methods described
in §1.904–7T(f)(4), the Commissioner will
assign such taxes to the general limitation
category. Section 1.904–2T(h)(1) also
provides that any excess taxes carried over
from pre-2003 taxable years to post-2002
taxable years that would otherwise be
assigned to the passive category are as-
signed to the general limitation category.
The IRS and the Treasury Department
believe that these rules are appropriate be-
cause to the extent the pre-2003 dividend
paid by the 10/50 corporation that gener-
ated the excess credits would have been
treated as passive income, such income
and associated taxes would have been con-
sidered high-taxed income under section
904(d)(2)(A)(iii)(III) and generally would
have been recharacterized as general limi-
tation income and taxes.
Section 904(d)(4)(C)(iv), as amended
by the AJCA, authorizes the Secretary to
issue regulations for allocating carrybacks
of excess taxes allocable to a dividend
paid by a 10/50 corporation in a post-2002
taxable year to a pre-2003 taxable year
for purposes of allocating such dividend
among the separate categories in effect for
the taxable year to which carried. The IRS
and the Treasury Department determined
that the regulations should not provide for
the carryback of post-2002 excess taxes at-
tributable to look-through dividends paid
by a 10/50 corporation to a separate lim-
itation category for dividends from each
10/50 corporation in pre-2003 years. Such
a rule would be administratively burden-
some because it would require taxpayers
to maintain multiple sets of section 904(c)
accounts for separate categories for the
2003 and 2004 taxable years and because it
would necessitate complex stacking rules
to determine the amount of excess taxes in
a separate category that were attributable
to dividends paid by specific 10/50 cor-
porations. Accordingly, §1.904–2T(h)(2)
provides that excess taxes that are alloca-
ble to dividends from 10/50 corporations
paid in post-2002 taxable years that are
attributable to one or more separate cat-
egories are carried back to prior taxable
years in the same separate categories to
which the dividends were assigned.
IV. High-taxed Income of a 10/50
Corporation
In general, income received or accrued
by a United States person that would oth-
erwise be passive income is treated as
general limitation income if the income is
determined to be high-taxed income within
the meaning of section 904(d)(2)(F). In
determining whether passive income is
high-taxed income, the grouping rules of
§1.904–4(c) apply separately to dividends
and subpart F inclusions from each con-
trolled foreign corporation, income of a
qualified business unit (QBU), and income
of a QBU of a controlled foreign corpora-
June 5, 200610042006–23 I.R.B.

tion and any other look-through entity as
defined in §1.904–5(i). §§1.904–4(c)(4)
and (c)(5)(iv). The temporary regulations
at §1.904–4T(c)(3) and (c)(4) provide
that the grouping rules similarly apply
separately to dividends from each 10/50
corporation, which includes dividends that
are treated as passive income either on a
look-through basis or due to inadequate
substantiation. The IRS and the Trea-
sury Department believe that this rule is
consistent with the intent of the existing
separate grouping rules as well as legisla-
tive intent that “the high-tax income rules
apply appropriately to dividends treated
as passive category income because of
inadequate substantiation.” H.R. Conf.
Rep. No. 755, 108th Cong. 2d Sess. 386
n.222 (2004). Consistent with the changes
to the look-through rules enacted in the
AJCA, this rule is effective for dividends
paid in post-2002 taxable years of 10/50
corporations.
V. Look-through Rules as Applied to 10/50
Corporations
A. Treatment of dividends paid by a 10/50
corporation in general
Section 904(d)(4)(A), as amended by
the AJCA, provides that look-through
treatment applies to any dividend paid by
a 10/50 corporation in a post-2002 taxable
year, regardless of the year in which the
earnings were accumulated. Accordingly,
§1.904–5T(c)(4)(iii) provides that any div-
idends paid in a post-2002 taxable year to
a domestic corporation by a 10/50 corpo-
ration with respect to which the domestic
corporation meets the stock ownership re-
quirements of section 902(a) are treated as
income in a separate category in propor-
tion to the ratio of the portion of earnings
and profits attributable to income in such
category to the total amount of earnings
and profits of the 10/50 corporation. In-
terest, rents, and royalties paid by a 10/50
corporation to a domestic corporation
are not eligible for look-through treat-
ment and are treated as passive income
except as otherwise provided in section
904(d)(2)(A) and the regulations thereun-
der. Any dividend distribution by a 10/50
corporation to a shareholder that is not a
corporation meeting the stock ownership
requirements of section 902(a) or (b) is
also treated as passive income. Finally,
as provided in section 904(d)(4)(C)(ii),
§1.904–5T(c)(4)(iii) provides that a divi-
dend from a 10/50 corporation is treated
as passive income if the look-through
characterization of the dividend is not
substantiated to the satisfaction of the
Commissioner. These rules are generally
applicable to dividends paid by a 10/50
corporation during its first post-2002 tax-
able year and thereafter, without regard
to whether the corresponding taxable year
of the dividend recipient is a post-2002
taxable year.
B. Allocation and apportionment of
expenses of a 10/50 corporation
In applying look-through to dividends
from 10/50 corporations, expenses of the
10/50 corporation (such as payments of
interest, rents, and royalties) must be allo-
cated and apportioned to the 10/50 corpo-
ration’s pools of post-1986 undistributed
earnings. §1.904–5T(c)(2)(iii) provides
that expenses of a 10/50 corporation are
allocated and apportioned to the income of
the 10/50 corporation in the same manner
as expenses of a CFC. See,e.g., section
954(b)(5); §1.904–5(c)(2)(ii)).
The temporary regulations, however,
do not extend the special allocation rule
for related person interest expense under
section 954(b)(5) and §1.904–5(c)(2)(ii)
(providing that interest paid by a CFC
to a U.S. shareholder or any related
look-through entity is first allocated to
reduce foreign personal holding company
income which is passive income) to inter-
est paid by 10/50 corporations. The AJCA
did not extend look-through treatment
to interest paid by a 10/50 corporation
to a domestic shareholder or to a related
entity, and 10/50 corporations are not sub-
ject to subpart F. Accordingly, interest
paid by a 10/50 corporation to a domestic
shareholder, CFC, or another 10/50 cor-
poration is treated as passive income (or
high withholding tax interest, financial
services income, or high-taxed general
limitation income, as appropriate) and is
apportioned to reduce the payor’s pools
of post-1986 undistributed earnings under
the rules applicable to unrelated person
interest expense, even though the gener-
ally applicable expense allocation rules
of §1.904–5 apply to determine which
earnings are reduced at the payor 10/50
corporation level.
C. Treatment of dividends paid between
lower-tier look-through entities
To reflect the extension of look-through
treatment to dividends paid by 10/50 cor-
porations and the repeal of separate cat-
egories for dividends from each 10/50
corporation, the temporary regulations re-
move the rules of §1.904–4(g) and amend
the relevant provisions of §§1.902–1
and 1.904–5. In order for a dividend
from a 10/50 corporation to qualify for
look-through treatment, the shareholder
must be a domestic corporation meet-
ing the stock ownership requirements of
section 902(a) with respect to the 10/50
corporation. Sections 904(d)(2)(E) and
904(d)(4).
In determining whether dividends paid
by lower-tier corporations are eligible
for look-through treatment, the eligibility
requirements for dividends from 10/50
corporations and CFCs cannot be pre-
cisely conformed, because a taxpayer’s
eligibility for look-through treatment of
a dividend from a 10/50 corporation is
based on whether the taxpayer meets the
stock ownership requirements of section
902, whereas a taxpayer’s eligibility for
look-through treatment of a dividend from
a CFC is based on whether the taxpayer is
a United States shareholder with respect
to the CFC under section 951(b). See
sections 904(d)(2)(E)(i), 904(d)(3)(A),
904(d)(3)(D), and 904(d)(4)(A). How-
ever, the IRS and the Treasury Department
believe that the eligibility requirements for
look-through treatment of dividends from
10/50 corporations and CFCs should be
conformed to the greatest extent possible.
Accordingly, §1.902–1T(d)(1) provides
that the amount of foreign taxes deemed
paid is computed separately with respect
to post-1986 undistributed earnings or pre-
1987 accumulated profits in each separate
category out of which a look-through div-
idendispaidinthefollowingsituations:
(1) a dividend from a CFC to a domes-
tic corporation meeting the stock owner-
ship requirements of section 902(a) that
is a United States shareholder (as defined
in section 951(b) or section 953(c)) of the
CFC; (2) a dividend from a 10/50 corpora-
tion to a domestic corporation meeting the
stock ownership requirements of section
902(a); (3) a dividend received by an up-
per-tier CFC from a lower-tier CFC where
the CFCs are related look-through entities
2006–23 I.R.B.1005June 5, 2006

under §1.904–5(i)(3); and (4) a dividend
from a CFC or 10/50 corporation to a for-
eign corporation that is eligible to com-
pute an amount of foreign taxes deemed
paid under section 902(b)(1) (i.e.,boththe
payor and payee corporations are mem-
bers of the same qualified group as de-
fined in section 902(b)(2)). Similarly, the
temporary regulations at §1.904–5T(i)(4)
apply look-through treatment to any div-
idend paid by a CFC or 10/50 corpora-
tion to another member of the same quali-
fied group (as defined insection 902(b)(2))
that is eligible to compute an amount of
foreign taxes deemed paid under section
902(b)(1), and retain the current rule of
§1.904–5(i)(3) to the extent that it applies
look-through treatment to dividends be-
tween CFCs that have a common 10 per-
cent U.S. shareholder but do not meet the
requirements of section 902(b).
D. Application of section 904(g) to 10/50
corporations
Section 904(g) (redesignated under
the AJCA as section 904(h) for taxable
years beginning after 2006) provides that
certain inclusions, including dividends
and interest paid or accrued by a United
States-owned foreign corporation to a
United States shareholder or a related
person and which would be treated as for-
eign source income, are treated as U.S.
source income. Section 904(g)(6) defines
a United States-owned foreign corporation
as any foreign corporation if United States
persons (as defined in section 7701(a)(30)
hold 50 percent or more of either the total
combined voting power of all classes of
voting stock or the total value of the stock.
Section 1.904–5(m) provides rules con-
cerning the resourcing of certain amounts
received or accrued (or treated as received
or accrued) by a United States shareholder
from a CFC. The temporary regulations at
§1.904–5T(m) clarify that the rules for re-
sourcing interest and dividends also apply
to a 10/50 corporation that meets the def-
inition of a United States-owned foreign
corporation. These temporary regulations
apply to amounts paid by a 10/50 corpo-
ration in taxable years of such corporation
beginning after April 25, 2006.
E. Treatment of earnings and taxes
accumulated during a non-look-through
period
Section 1.904–7T(f)(2) provides that
earnings accumulated and foreign income
taxes paid after a 10/50 corporation had
a domestic corporate shareholder that
met the stock ownership requirements
of section 902(a) but before any such
shareholder was eligible for look-through
treatment of dividends (non-look-through
pool) that exist as of the end of the 10/50
corporation’s last pre-2003 taxable year
are treated as if they were accumulated
andpaidduringaperiodinwhichthe
distribution would have been eligible for
look-through treatment (look-through pe-
riod). These earnings and taxes are treated
as the opening balance of the post-1986
undistributed earnings and taxes pools
in the 10/50 corporation’s other separate
categories on the first day of the 10/50
corporation’s first post-2002 taxable year.
Dividends that were paid in pre-2003 tax-
able years out of earnings accumulated in
a non-look-through pool are not eligible
for look-through treatment.
Section 1.904–7T(f)(4)(i) provides that
in order to substantiate the look-through
characterization of the earnings and
taxes in the non-look-through pools,
the taxpayer must reconstruct the
non-look-through pools of earnings and
taxes for each year in the non-look-through
period, beginning with the first year in
which earnings were accumulated in the
non-look-through pool. Earnings and
taxes are treated as if they were accumu-
lated during a look-through period, taking
into account earnings distributed and taxes
deemed paid in the non-look-through
period as if they were distributed and
deemed paidpro ratafrom the amounts
that were added to the non-look-through
pools during the non-look-through pe-
riod. As reconstructed, earnings and taxes
in the non-look-through pools as of the
last day of the 10/50 corporation’s last
pre-2003 taxable year are assigned to the
look-through pools on the first day of the
10/50 corporation’s first post-2002 taxable
year.
The IRS and the Treasury Department
recognize that shareholders may face
difficulties in reconstructing historical ac-
cumulated earnings and taxes accounts
of a 10/50 corporation on a look-through
basis, because noncontrolling sharehold-
ers may have difficulty obtaining detailed
records for prior periods from the 10/50
corporation. Therefore, the IRS and the
Treasury Department anticipate that a rea-
sonable approximation of the amounts
properly included in the look-through
pools, based on available records obtained
through reasonable, good-faith efforts by
the taxpayer, will adequately substantiate
the reconstruction required by the statute.
Alternatively, §1.904–7T(f)(4)(ii) pro-
vides a safe harbor in reconstructing the
non-look-through pools. Under the safe
harbor, a taxpayer may allocate the earn-
ings and taxes in the non-look-through
pools ratably to the look-through pools on
the first day of the 10/50 corporation’s first
post-2002 taxable year in the same per-
centages as the taxpayer (or the qualified
group member that owns the 10/50 cor-
poration) properly characterizes the stock
of the 10/50 corporation in the separate
categories for purposes of apportioning
the taxpayer’s (or qualified group mem-
ber’s) interest expense in its first taxable
year ending after the first day of the 10/50
corporation’s first post-2002 taxable year.
Under §1.861–12T(c)(3) and (4), this char-
acterization generally is based on how the
assets or income of the 10/50 corporation
are characterized in the separate categories
for purposes of apportioning interest ex-
pense of the 10/50 corporation in the
10/50 corporation’s first post-2002 tax-
able year. However, §1.904–7T(f)(4)(ii)
provides that if a taxpayer elects to use
the safe harbor rule with respect to a
10/50 corporation that uses the modified
gross income method to apportion inter-
est expense for the 10/50 corporation’s
first post-2002 taxable year, earnings and
taxes in the non-look-through pools are
allocated to the look-through pools based
on an average of the 10/50 corporation’s
modified gross income ratios for its tax-
able years beginning in 2003 and 2004.
The IRS and the Treasury Department
believe that the two-year base period rule
is necessary to avoid potential distortions
associated with allocating earnings and
taxes from the non-look-through pool to
the look-through pools based on the 10/50
corporation’s modified gross income for
just one taxable year.
Section 904(d)(4)(C)(ii), as amended
by the AJCA, provides that if the Secretary
determines that look-through treatment of
June 5, 200610062006–23 I.R.B.

a dividend out of earnings formerly ac-
cumulated in the non-look-through pool
has not been adequately substantiated,
the dividend is treated as passive income
for purposes of section 904(d). Section
1.904–7T(f)(4)(iii)provides that in the
case where a taxpayer does not elect the
safe harbor rule of §1.904–7T(f)(4)(ii)
and the Commissioner determines that the
look-through characterization of earnings
and taxes in the non-look-through pools
cannot reasonably be determined based
on the available information, the Com-
missioner will assign the earnings and
associated taxes to the passive category
forpurposesofsection904(d).
As provided in §1.904–7T(f)(3), rules
similar to §1.904–7T(f)(2) will apply in as-
signing to separate categories earnings and
taxes of a CFC that were accumulated dur-
ing a non-look-through period. As recon-
structed, earnings and taxes in a CFC’s
non-look-through pools as of the last day
of the CFC’s last pre-2003 taxable year
will be added to the opening balance of
the CFC’s look-through pools of earnings
and taxes on the first day of the CFC’s
first post-2002 taxable year. The taxpayer
must substantiate the look-through charac-
terization of such earnings and taxes in ac-
cordance with §1.904–7T(f)(4) by either
reconstructing the non-look-through pools
or electing the safe harbor.
In addition, as provided in
§1.904–7T(f)(6),the rules of
§1.904–7T(f)(2) will apply to assign
to separate categories pre-1987 accumu-
lated profits and pre-1987 foreign income
taxes of a foreign corporation that were
accumulated during anon-look-through
period and, prior to the AJCA amend-
ments, would have been assigned to a
separate category for dividends from a
10/50 corporation. Accordingly, pre-1987
accumulated profits and pre-1987 foreign
income taxes accumulated during a
non-look-through period will be treated
as if they were accumulated during a
look-through period. The taxpayer must
substantiate the look-through charac-
terization of such earnings and taxes
in accordance with §1.904–7T(f)(4) by
either reconstructingthe annual layers of
pre-1987 accumulated profits or electing
thesafeharbor.
F. Treatment of a deficit accumulated in a
non-look-through period
Section 1.904–7T(f)(5) provides that
if there is an accumulated deficit in the
non-look-through pool as of the end of a
10/50 corporation’s last pre-2003 taxable
year, the deficit and associated taxes are
treated in the same manner as earnings
and taxes in a positive non-look-through
pool,i.e., the deficit and taxes are treated
as if they had been accumulated and paid
during a look-through period. The earn-
ings and deficits in earnings making up
the accumulated deficit are assigned to the
look-through pools based on where the
10/50 corporation’s income and expenses
or losses would have been assigned had
they been incurred during a look-through
period, or, if the taxpayer elects the safe
harbor, the deficit is allocated based on
how the stock of the 10/50 corporation
is properly characterized for interest ex-
pense apportionment purposes. If the
taxpayer does not elect the safe harbor
and the Commissioner determines that
the look-through characterization of the
deficit in the non-look-through pool can-
not be reasonably determined based on the
available information, the Commissioner
will assign the deficit and any associated
taxes to the 10/50 corporation’s passive
category.
The temporary regulations treat the
deficit in the non-look-through pool as
the opening balance of the post-1986
undistributed earnings pools in the 10/50
corporation’s other separate categories on
the first day of the 10/50 corporation’s first
post-2002 taxable year. If the 10/50 corpo-
ration makes a distribution in a post-2002
taxable year in which there is a deficit bal-
ance in the aggregate of the look-through
pools (as increased or reduced by earnings
or a deficit in the non-look-through pool),
the deficit balance is carried back, on a
look-through basis, to reduce pre-1987
accumulated profits on a last in-first out
basis, and the deficit is removed from
post-1986 undistributed earnings. See
§1.902–2(a)(1). If the deficit reduces to
zero all of the pre-1987 accumulated prof-
its, no foreign taxes in any of the pre-1987
annual layers are deemed paid with respect
to the dividend. See §1.902–1(b)(4).
In the case of a CFC that was formerly
a 10/50 corporation and has a deficit
in the non-look-through pool that was
accumulated while it was a 10/50 corpo-
ration, any deficit that was not absorbed
by earnings in the look-through pools
and that remains at the end of the CFC’s
last pre-2003 taxable year is assigned to
the look-through pools on the first day
of the CFC’s first post-2002 taxable year
based on the reconstruction or safe harbor
rules of §1.904–7T(f)(4). Foreign income
taxes associated with this deficit pool that
were previously not creditable are also
assigned to the look-through pools on the
first day of the CFC’s first post-2002 tax-
able year based on the same method. To
the extent that the portion of the deficit
in the non-look-through pool that is as-
signed to a separate category exceeds
post-1986 undistributed earnings in that
category as of the end of the CFC’s last
pre-2003 taxable year, the deficit will
carry forward into the CFC’s post-1986
undistributed earnings pools for 2003.
Under §1.904–7T(f)(6), similar rules ap-
ply to recharacterize a deficit in pre-1987
accumulated profits and any associated
pre-1987 foreign income taxes that were
accumulated during a non-look-through
period.
G. Pre-acquisition E&P of a 10/50
corporation
Section 904(d)(4)(C)(i)(II), as amended
by the AJCA, provides that the Secretary
may prescribe regulations regarding the
treatment of distributions out of earnings
and profits of a 10/50 corporation for peri-
ods before the taxpayer’s acquisition of the
stock to which the distributions relate (pre-
acquisition E&P). Such distributions may
be out of post-1986 undistributed earnings
accumulated by a 10/50 corporation be-
fore the specific shareholder acquired its
stock or out of pre-1987 accumulated prof-
its accumulated before the 10/50 corpora-
tion had any qualifying shareholder. Prior
to the AJCA amendments, such distribu-
tions, as well as distributions by a CFC
out of earnings and profits for periods dur-
ing which it was not a CFC, were sub-
ject to a separate foreign tax credit limi-
tation for dividends from a 10/50 corpo-
ration. See section 904(d)(1)(E), section
904(d)(2)(E), and §1.904–4(g)(3).
The temporary regulations do not limit
look-through treatment for dividends out
of earnings and profits accumulated in
non-look-through periods during which
2006–23 I.R.B.1007June 5, 2006

a 10/50 corporation or CFC had no
qualifying shareholder. The IRS and
the Treasury Department believe that
look-through treatment of pre-acquisition
earnings is the more appropriate policy
result than passive category treatment, if
look-through characterization can be ad-
equately substantiated under the rules of
§§1.904–5T(c)(4)(iii)and 1.904–7T(f)(4).
In addition, the temporary regulations
do not limit look-through treatment for
dividends out of pre-acquisition E&P ac-
cumulated in periods during which the
distributing corporation was a 10/50 cor-
poration, because any such restriction
would create administrative complexities
associated with maintaining multiple sets
of look-through pools starting on differ-
ent dates for different U.S. shareholders.
Accordingly, distributions of earnings
and profits from 10/50 corporations and
CFCs in post-2002 taxable years are gen-
erally eligible for look-through treatment,
regardless of whether the distributing cor-
poration was a look-through entity when
the earnings were accumulated, and re-
gardless of when the taxpayer acquired its
stock.
H. Post-1986 undistributed earnings of
a CFC attributable to dividends from
lower-tier 10/50 corporations
Where a CFC has a separate category
for dividends from each 10/50 corpora-
tion containing earnings attributable to
pre-2003 distributions from the lower-tier
10/50 corporation, §1.904–7T(f)(7) pro-
vides that the CFC’s look-through pools
of earnings and taxes will be adjusted
to account for accumulated earnings and
taxes attributable to dividends from the
lower-tier 10/50 corporation as if the
earnings and taxes were accumulated and
deemed paid during a look-through pe-
riod. Therefore, the earnings and taxes
are recharacterized on the same basis
used by the taxpayer to reconstruct the
non-look-through pools of the lower-tier
10/50 corporation under §1.904–7T(f)(4).
Taxes in each separate category for div-
idends from a lower-tier 10/50 corpora-
tion are assigned to the upper-tier CFC’s
look-through pools based on where the
associated earnings distributed by the
lower-tier foreign corporation (prior to
being reduced by, for example, expense
apportionment or payment of foreign in-
come taxes at the CFC level) would have
been assigned had such earnings been
eligible for look-through treatment when
received by the CFC.
If a CFC has a deficit in a separate
category for dividends from a lower-tier
10/50 corporation (due to, for example,
expense apportionment or the payment of
foreign income taxes by the CFC with re-
spect to the lower-tier 10/50 corporation),
the deficit and any associated taxes are
treated as if they had been accumulated
and deemed paid during a look-through pe-
riod. Accordingly, the deficit is assigned
to the upper-tier CFC’s look-through pools
based on where the upper-tier CFC’s in-
come and expenses or losses would have
been assigned had dividends from the
lower-tier 10/50 corporation been eligible
for look-through treatment in the year such
dividends were paid or such expenses and
losseswereincurredbytheCFC.
Similar to §1.904–7T(f)(4)(ii) (which
provides a safe harbor in reconstruct-
ing the non-look-through pools to ac-
count for undistributed earnings (or a
deficit) and taxes inthe non-look-through
pool of a 10/50 corporation or CFC),
§1.904–7T(f)(7)(iii) provides a safe har-
bor in reconstructing the look-through
pools at the CFC level to account for
undistributed earnings(or a deficit) and
taxes in a CFC-level separate category
for dividends from a lower-tier 10/50
corporation. The taxpayer may allocate
the earnings (or deficit) and taxes to the
look-through pools at the CFC level by
applying the safe harbor at the level of
the CFC. Thus, if the taxpayer elects the
safe harbor, the earnings (or deficit) and
taxes are allocated based on how the CFC
would properly characterize the stock
of the lower-tier 10/50 corporation for
purposes of apportioning the CFC’s in-
terest expense, which in turn is based on
the apportionment ratios properly used
by the 10/50 corporation to apportion its
interest expense in its first post-2002 tax-
able year. In the case of a taxpayer that
elects to use the safe harbor rule where the
10/50 corporation uses the modified gross
income method to apportion interest ex-
pense for its first post-2002 taxable year,
undistributed earnings(or a deficit) and
taxes in a CFC-level separate category for
dividends from a 10/50 corporation are
allocated to the look-through pools based
on the average of the 10/50 corporation’s
modified gross income ratios for its tax-
able years beginning in 2003 and 2004.
In the case of a CFC that has in its
qualified group a chain of 10/50 corpora-
tions, the safe harbor applies first to the
stock of the third-tier 10/50 corporation
and then to the stock of the second-tier
10/50 corporation. In the case of a tax-
payer that elects the safe harbor with re-
spect to a lower-tier 10/50 corporation of
which the taxpayer was no longer a quali-
fying shareholder as of the end of the up-
per-tier CFC’s last pre-2003 taxable year
(e.g., because the 10/50 corporation was
no longer a member of the CFC’s quali-
fied group), the earnings (or deficit) and
taxes in the separate category for dividends
from the lower-tier 10/50 corporation are
assigned to the CFC’s look-through pools
in the same percentages as the stock of the
10/50 corporation would have been char-
acterized had the look-through rules ap-
plied in the last year the taxpayer was a
qualifying shareholder of the 10/50 corpo-
ration.
If the taxpayer does not elect the safe
harbor and the Commissioner determines
that the look-through characterization of
the undistributed earnings (or deficit) and
taxes in a CFC’s separate category for div-
idends from a lower-tier 10/50 corporation
cannot reasonably be determined based on
the available information, the Commis-
sioner will assign the earnings (or deficit)
and taxes to the CFC’s passive category.
I. Treatment of distributions received by a
10/50 corporation from a lower-tier 10/50
corporation when the corporations do not
have the same taxable years
Section 1.904–7T(f)(8) provides guid-
ance concerning when a dividend paid
by a lower-tier corporation to an up-
per-tier corporation that is a member of
the same qualified group is eligible for
look-through treatment when the cor-
porations’ first post-2002 taxable years
begin on different dates. In the case of a
dividend paid during the upper-tier corpo-
ration’s post-2002 taxable year but during
the lower-tier corporation’s pre-2003 tax-
able year, the dividend will be included in
a separate category in the year received.
However, any earnings of the upper-tier
corporation attributable to such dividends
are treated, beginning on the first day of
the upper-tier corporation’s next taxable
June 5, 200610082006–23 I.R.B.

year, as if they were accumulated during a
look-through period. Dividends paid dur-
ing the upper-tier corporation’s pre-2003
taxable year but during the lower-tier
corporation’s post-2002 taxable year are
eligible for look-through treatment in the
year received.
VI. Separate Limitation Losses and
Overall Foreign Losses
Because the 1997 Act and the AJCA
eliminated separate categories for div-
idends from 10/50 corporations for
post-2002 taxable years, the temporary
regulations provide transition rules for
recapture in a post-2002 taxable year of
(1) an overall foreign loss (OFL) or sep-
arate limitation loss (SLL) in a separate
category for dividends from each 10/50
corporation that offset U.S. source income
or income in other separate categories,
respectively, in a pre-2003 taxable year;
and (2) an SLL in another separate cate-
gory (e.g., the general limitation or passive
category) that offset income in a separate
category for dividends from each 10/50
corporation in a pre-2003 taxable year.
A. Recapture of an OFL or SLL incurred
in a separate category for dividends from
a 10/50 corporation
Section 1.904(f)–12T(g)(1) provides
that where a taxpayer had an OFL or SLL
in a separate category for dividends from
a 10/50 corporation (i.e., an OFL, or SLL,
in the separate category that offset U.S.
source income, or income in other separate
categories, in a pre-2003 taxable year, or a
later year in which the taxpayer received a
dividend in the separate category, and the
OFL or SLL would have been recaptured
out of income in the separate category for
dividends from that 10/50 corporation),
the OFL or SLL account is recaptured out
of income in the taxpayer’s other sepa-
rate categories in the same percentages
as the income generated by the assets of
the 10/50 corporation. Specifically, the
loss account will be recaptured in sub-
sequent taxable years out of income in
the same separate categories in which the
stock of the 10/50 corporation is properly
characterized for purposes of apportion-
ing the taxpayer’s interest expense in
its first taxable year in which dividends
from the 10/50 corporation are eligible
for look-through treatment (i.e., its first
taxable year ending after the first day of
the 10/50 corporation’s first post-2002
taxable year). Any SLL account in a sep-
arate category for dividends from a 10/50
corporation with respect to another cate-
gory that would be assigned to that other
category under this rule will be elimi-
nated, since “recapture” to and from the
same category would be meaningless. See
§1.904(f)–12T(g)(4) Example 1.
The IRS and the Treasury Department
determined that it is appropriate to real-
locate OFL and SLL accounts based on
how the taxpayer characterizes the stock
of the 10/50 corporation for interest ex-
pense apportionment purposes in its first
taxable year ending after the first day of the
10/50 corporation’s first post-2002 taxable
year. The IRS and the Treasury Depart-
ment believe that recapturing losses from
income earned in subsequent years is a for-
ward-looking concept.Reallocating losses
that were incurred in a separate category
for dividends from each 10/50 corpora-
tion to the appropriate separate category
based on the interest expense apportion-
ment ratio (as opposed to, for example,
reallocating losses based on reconstructed
non-look-through pools) is consistent with
that concept.
In the case of a taxpayer that has an OFL
or SLL account in a separate category for
dividends from a 10/50 corporation but
no longer is a qualifying shareholder with
respect to the foreign corporation, the
IRS and the Treasury Department deter-
mined that reallocating OFLs and SLLs
incurred in separate categories for divi-
dends from 10/50 corporations to the other
separate categories may be inappropriate.
In pre-2003 taxable years, recapture of
the OFL or SLL would not have occurred
because the taxpayer would not have re-
ceived any additional dividends from the
corporation that would be treated as in-
come in the separate 10/50 loss category
(unless the former shareholder reacquired
a sufficient interest in the corporation to
become a qualifying shareholder). Ac-
cordingly, §1.904(f)–12T(g)(3) provides
that where a taxpayer was not a qualify-
ing shareholder with respect to a foreign
corporation on December 20, 2002 (or
was not a qualifying shareholder on the
first day of the taxpayer’s first post-2002
taxable year, pursuant to a transaction that
was the subject of a binding contract which
was in effect on December 20, 2002), any
OFL or SLL accounts in the taxpayer’s
separate category for dividends from that
corporation will not be reallocated. See
Notice 2003–5 (announcing regulations
would provide that OFL and SLL accounts
in a separate category for dividends from
each 10/50 corporation where the taxpayer
was no longer a qualifying shareholder of
as of December 20, 2002, will not be con-
solidated into the OFL and SLL accounts
of the single category for dividends from
10/50 corporations).
Section 1.904(f)–12T(g)(3) also pro-
vides that where an OFL or SLL account
in a separate category for dividends from
each 10/50 corporation is not reallocated
because the taxpayer is no longer a qual-
ifying shareholder of that foreign corpo-
ration, the taxpayer may not carry over
any excess foreign taxes in that separate
category to another separate category on
a look-through basis. However, the tem-
porary regulations allow the taxpayer to
elect to carry over all excess taxes in its
separate categories for dividends from
10/50 corporations to the other separate
categories, provided that the taxpayer also
reallocates the OFL and SLL accounts
of such separate categories for dividends
from 10/50 corporations into the OFL and
SLL accounts of the appropriate separate
categories.
B. Recapture of an SLL incurred in other
categories
TotheextentthatanSLLinanother
separate category (e.g., the general limita-
tion or passive category) offset income in a
separate category for dividends from each
10/50 corporation in a pre-2003 taxable
year (or later year with or within which the
10/50 corporation’s last pre-2003 taxable
year ends), income subsequently earned
in the loss category will be recaptured as
income in the same separate categories
in which the taxpayer properly charac-
terizes the stock of the 10/50 corporation
on a look-through basis for purposes of
apportioning the taxpayer’s interest ex-
pense. See §§1.904(f)–12T(g)(2). Section
1.904(f)–12T(g)(4), Example 2, illustrates
how the apportionment rule applies to
SLLs in the general limitation and passive
categories that previously offset income
in a separate category for dividends from
a 10/50 corporation, where the taxpayer
2006–23 I.R.B.1009June 5, 2006

characterizes the stock of the 10/50 corpo-
ration as a multiple category asset.
VII. Tax Elections, Adoptions of Method of
Accounting or Taxable Year, and Changes
in Method of Accounting or Taxable
Year Made on Behalf of a CFC or 10/50
Corporation
Section 1.964–1T(c)(2) and (3) add
rules allowing the majority domestic cor-
porate shareholders of a 10/50 corporation
to make an election, adopt a method of
accounting or taxable year, or change a
method of accounting or taxable year on
behalf of the 10/50 corporation. Under
§1.964–1T(c)(5), the termmajority do-
mestic corporate shareholdersis defined
as those domestic corporations that meet
the ownership requirements of section
902(a) with respect to the 10/50 corpora-
tion (or to a first-tier foreign corporation
that is a member of the same qualified
group as the 10/50 corporation), that, in
the aggregate, own directly or indirectly
more than 50 percent of the combined
voting power of all the voting stock of the
10/50 corporation that is owned directly
or indirectly by all domestic corporations
that meet the ownership requirements of
section 902(a) with respect to the 10/50
corporation (or a relevant first-tier foreign
corporation).
Section 1.964–1(c)(3) of the current fi-
nal regulations permits controlling United
States shareholders of a CFC to make an
election, or to adopt or change a method
of accounting, on behalf of the CFC. Sub-
ject to the rules of section 898, the tem-
porary regulations at §1.964–1T(c)(3) ex-
tend this rule to permit controlling United
States shareholders of a CFC to adopt or
change the taxable year of a CFC. Finally,
the temporary regulations revise the re-
quirement that the controlling sharehold-
ers file a written statement executed by
each of the controlling shareholders with
the IRS within 180 days of the close of
the foreign corporation’s taxable year for
which the adoption or change in method of
accounting is to be effective. In lieu of the
written statement, §1.964–1T(c)(3)(i)(B)
requires that the jointly executed statement
evidencing the controlling shareholders’
consent to the adoption or change be re-
tained by one or more of the shareholders,
and that each shareholder file a separate
statement with its tax return for the taxable
year with or within which the foreign cor-
poration’s taxable year ends. This change
will facilitate e-filing by eliminating the
signature requirement and will facilitate
compliance by conforming the dates on
which the election statement and the share-
holder’s tax return must be filed.
VIII. Election to Defer Effective Date of
10/50 Look-through Rules
A. Time, form, and manner of election
As discussed in the Background sec-
tion of this document, section 403(l) of the
GOZA provides a rule under which a tax-
payer may elect not to apply the extended
look-through rules enacted in the AJCA
for taxable years of 10/50 corporations be-
ginning after December 31, 2002, and be-
fore January 1, 2005 (2003 and 2004 tax-
able years). In order to make the election,
a taxpayer must attach a statement notify-
ingtheIRSofsuchelectiontoitsnexttax
return for which the due date (with exten-
sions) is more than 90 days after April 25,
2006. The electing taxpayer’s tax liabil-
ity as shown on its original or amended tax
returns for its affected taxable years gener-
ally must be consistent with the guidance
set forth in Notice 2003–5, 2003–1 C.B.
294, and the rules of §1.861–12T(c)(4)
(characterizing the stock of a 10/50 corpo-
ration as an asset in the various separate
categories). The electing taxpayer must
also make appropriate adjustments to elim-
inate any double benefit arising from the
election in years that are not open for as-
sessment. §1.904–7T(f)(9).
B. Transition rules
Taxpayers that elect to apply the pre-
AJCA look-through rules for the 2003 and
2004 taxable years must assign dividends
paid by 10/50 corporations in their 2003
and 2004 taxable years out of pre-2003
earnings to a single separate category for
dividends from all 10/50 corporations (see
Notice 2003–5). The temporary regula-
tions provide transition rules for applying
the AJCA look-through rules in taxable
years of 10/50 corporations beginning af-
ter December 31, 2004.
Under §1.904–7T(f)(9)(iii), pre-2003
earnings (or a deficit) and taxes in the
non-look-through pool that existed as of
the end of the foreign corporation’s last
pre-2005 taxable year are treated as if
they were accumulated and paid during a
period in which a distribution from that
corporation would have been eligible for
look-through treatment. These earnings
(or deficits) and taxes are added to the for-
eign corporation’s post-1986 undistributed
earnings and taxes pools in the appropriate
separate categories on the first day of the
foreign corporation’s first post-2004 tax-
able year. In accordance with the princi-
ples of §1.904–7T(f)(4), the taxpayer must
reconstruct the non-look-through pools or,
if the taxpayer elects the safe harbor, allo-
cate the earnings and taxes in the foreign
corporation’s non-look-through pools to
the foreign corporation’s look-through
pools on the first day of the foreign corpo-
ration’s first post-2004 taxable year. Un-
der the safe harbor, this allocation is made
in the same percentages as the taxpayer
properly characterized the stock of the for-
eign corporation for purposes of interest
expense apportionment in the taxpayer’s
first taxable year ending after the first day
of the foreign corporation’s first post-2002
taxable year. If the taxpayer does not elect
the safe harbor and the Commissioner
determines that the look-through charac-
terization of the earnings (or deficit) and
taxes cannot reasonably be determined,
the Commissioner will allocate the earn-
ings (or deficit) and taxes to the passive
category.
To the extent that a taxpayer had ex-
cess foreign taxes in the single category
for dividends from all 10/50 corporations
(regardless of whether they were car-
ried forward from separate categories for
dividends from each 10/50 corporation
in pre-2003 taxable years under Notice
2003–5 or resulted from dividends paid
in 2003 and 2004 taxable years), they
will be carried forward to the appropriate
separate categories in the same manner
as excess taxes in the separate categories
for dividends from each 10/50 corporation
are carried over in the case of a non-elect-
ing taxpayer. See §1.904–2T(h)(1). The
taxpayer must determine which 10/50 cor-
porations paid the dividends to which the
excess taxes are attributable and then as-
sign the taxes to the appropriate separate
categories as if such dividends had been
eligible for look-through treatment when
paid. Accordingly, §1.904–7T(f)(9)(iv)
provides that excess taxes in the single
category for dividends from 10/50 cor-
porations are assigned to the appropriate
June 5, 200610102006–23 I.R.B.

separate categories by reconstructing the
non-look-through pools or, if the taxpayer
elects the safe harbor, by allocating the
taxes in the same percentages as the tax-
payer properly characterized the stock
of the foreign corporation for purposes
of apportioning the taxpayer’s interest
expense for its first taxable year with or
within which the 10/50 corporation’s first
post-2002 taxable year began. This tran-
sition rule appliesonly to excess taxes
attributable to dividends out of pre-2003
earnings, because only these taxes are in-
cluded in the single category for dividends
from all 10/50 corporations.
To the extent that excess taxes carried
forward to the single category for divi-
dends from 10/50 corporations under the
rules of Notice 2003–5 were absorbed by
low-taxed dividends paid by 10/50 cor-
porations in 2003 or 2004 taxable years
out of pre-2003 earnings, or expired un-
used, the amount of excess taxes carried
forwardtoaseparatecategoryonalook-
through basis will be smaller than the ag-
gregate amount of excess taxes initially
carried forward to the single category for
dividends from 10/50 corporations. To
simplify the process of determining which
10/50 corporations paid the dividends to
which the remaining excess taxes are at-
tributable, §1.904–7T(f)(9)(iv) treats the
remaining excess taxes as attributablepro
ratato the dividends paid by all 10/50 cor-
porations out of non-look-through pools
in a particular taxable year that resulted
in excess taxes that were eligible to be
carried forward. Such excess taxes are
then carried forward to the separate cate-
gories based on how the non-look-through
pools are recharacterized under the rules of
§1.904–7T(f)(4).
Excess taxes that would otherwise be
assigned to the passive category and ex-
cess taxes with respect to which neither
the IRS nor the taxpayer can substanti-
ate look-through character are assigned to
the general limitation category. This rule,
previously discussed in section III above,
applies regardless of whether a taxpayer
elects to apply the pre-AJCA look-through
rules to dividends paid in taxable years of
its 10/50 corporations beginning in 2003
and 2004.
To the extent that a taxpayer has excess
foreign taxes attributable to a look-through
dividend paid by a 10/50 corporation in
post-2002 taxable years and such taxes are
eligible for carryback, the taxes will be car-
ried back within the same separate cate-
gory and not to the separate categories or
single category for dividends from 10/50
corporations. See §1.904–7T(f)(9)(v).
For taxpayers that maintained OFL and
SLL recapture accounts in the single cat-
egory for dividends from all 10/50 corpo-
rations (for example, as the result of con-
solidating OFL and SLL accounts of sep-
arate categories for dividends from each
10/50corporationintoonesetofOFLand
SLL accounts of the single category for
dividends from all 10/50 corporations un-
der Notice 2003–5), the temporary regu-
lations provide a transition rule for recap-
ture in a post-2004 taxable year of an OFL
and SLL in the single category for divi-
dends from all 10/50 corporations. Section
1.904–7T(f)(9)(vi) provides that the OFL
and SLL accounts are assigned to the ap-
propriate separate categories, on the first
day of the taxpayer’s first post-2004 tax-
able year following the last taxable year in
which it received a dividend in this cate-
gory. The assignment is based on how the
stock of each 10/50 corporation giving rise
to the OFL or SLL is properly character-
ized for purposes of apportioning the tax-
payer’s interest expense for its first taxable
year with or within which the 10/50 corpo-
ration’s first post-2002 taxable year began.
For taxpayers that maintained an SLL
recapture account in another separate cat-
egory (e.g., the general or passive cate-
gory) with respect to the single category
for dividends from all 10/50 corporations,
§1.904–7T(f)(9)(vii) provides that the SLL
will be recaptured as income in the appro-
priate separate categories in post-2004 tax-
able years. Income is recaptured in the
separate categories in the same percent-
ages as the taxpayer properly characterized
the stock of the 10/50 corporations with re-
spect to which the loss account was estab-
lished for purposes of apportioning the tax-
payer’s interest expense for its first taxable
year with or within which the 10/50 corpo-
ration’s first post-2002 taxable year began.
Where a CFC or 10/50corporation had
a single category for dividends from all
10/50 corporations containing earnings
attributable to dividends paid in 2003 or
2004 taxable years of a lower-tier 10/50
corporation, the undistributed earnings,
previously-taxed earnings, and associ-
ated taxes are treated in post-2004 taxable
years in the same manner as pre-2003
undistributed earnings and taxes in a sep-
arate category for dividends from each
10/50 corporation maintained at the CFC
or 10/50 corporation level. Accordingly,
§1.904–7T(f)(9)(viii) provides that the
undistributed earnings and associated
taxes in the single category for dividends
from all 10/50 corporations are assigned to
the appropriate separate categories based
on the taxpayer’s reconstruction of the
non-look-through pools of the lower-tier
foreign corporation, or, if the taxpayer
elects the safe harbor, by allocating the
earnings and taxes in the same percent-
ages as the taxpayer properly characterized
(or would have characterized) the stock
of the lower-tier 10/50 corporation for
purposes of apportioning the upper-tier
corporation’s interest expense for its first
post-2002 taxable year.
Where a CFC or 10/50 corporation had
an aggregate deficit in the single category
for dividends from all 10/50 corporations
as of the end of the foreign corporation’s
2004 taxable year, the deficit and associ-
ated taxes are treated in the same manner
as a deficit in post-1986 undistributed
earnings attributable to dividends from
a lower-tier 10/50 corporation. Accord-
ingly, §1.904–7T(f)(9)(ix) provides that
the deficit is assigned to the look-through
pools based on where the upper-tier cor-
poration’s income and expenses or losses
would have been assigned had they been
incurred during a look-through period, or,
if the taxpayer elects the safe harbor, the
deficit is allocated based on how the tax-
payer properly characterized the stock of
the lower-tier corporation for purposes of
apportioning the upper-tier corporation’s
interest expense in its first taxable year
with or within which the lower-tier corpo-
ration’s first post-2002 taxable year began.
Where the taxpayer does not elect the safe
harbor and the Commissioner determines
that the look-through characterization of
the deficit cannot reasonably be deter-
mined based on the available information,
the Commissioner willassign the deficit
and taxes to the upper-tier corporation’s
passive category.
IX. Effective Date
Section 403 of the AJCA provides that
the amendments apply to taxable years
beginning after December 31, 2002. The
statutory language and legislative his-
2006–23 I.R.B.1011June 5, 2006

tory of the AJCA do not specifically state
whether the effective date refers to the tax-
able year of the foreign corporation or that
of the U.S. shareholder. The temporary
regulations clarify that the effective date
of the amendments refers to the foreign
corporation’s taxableyear, thereby elimi-
nating the separate category for dividends
from each 10/50 corporation as of the be-
ginning of the foreign corporation’s first
post-2002 taxable year. Thus, dividends
paid by the foreign corporation on and af-
ter that date (including dividends paid in a
U.S. shareholder’s pre-2003 taxable year)
are eligible for look-through treatment.
Basingtheeffectivedateontheforeign
corporation’s taxableyear eliminates the
need to create and maintain multiple sets
of look-through pools of a single foreign
corporation that begin on different dates
for different shareholders. Accordingly,
the temporary regulations are effective for
dividends paid in taxable years of 10/50
corporations beginning after December
31, 2002.
As discussed in the Background sec-
tion of this document, section 403(l) of the
GOZA provides a rule allowing taxpayers
to elect not to apply the expanded look-
through rules enacted in the AJCA to tax-
able years beginning in 2003 and 2004. As
discussed in section VIII above, the tem-
porary regulations provide guidance on the
time, form, and manner of the election as
well as transition rules applicable to tax-
payers that elect to apply the pre-AJCA
rules governing 10/50 dividends to 2003
and 2004 taxable years.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. For
the applicability of the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6), refer to the
Special Analyses section of the preamble
of the cross-referenced notice of proposed
rulemaking published in this issue of the
Bulletin. Pursuant to section 7805(f) of
the Internal Revenue Code, these tempo-
rary regulations will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small businesses.
Drafting Information
The principal author of these regula-
tions is Ginny Chung, Office of Associate
Chief Counsel (International). However,
other personnel from the IRS and the Trea-
sury Department participated in their de-
velopment.
*****
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority for part 1
continues to read in part:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861–9T is amended as
follows:
1. Revise the last sentence of paragraph
(f)(3)(ii).
2. Redesignate paragraph (f)(4) as
paragraph (f)(5) and add a new paragraph
(f)(4).
The revision and addition read as fol-
lows:
§1.861–9T Allocation and apportionment
of interest expense (temporary).
*****
(f) * * *
(3) * * *
(ii) * * * The election shall be
made by filing a statement described
in §1.964–1T(c)(3)(ii) at the time and
in the manner described therein and
providing a written notice described in
§1.964–1T(c)(3)(iii), except that no such
statement or notice is required to be filed
or sent before July 24, 2006.
*****
(4)Noncontrolled section 902 corpora-
tions—(i)In general. For purposes of
computing earnings and profits of a non-
controlled section 902 corporation (as de-
fined in section 904(d)(2)(E)) for federal
tax purposes, the interest expense of a non-
controlled section 902 corporation may be
apportioned using either the asset method
described in paragraph (g) of this section
or the modified gross income method de-
scribed in paragraph (j) of this section. A
noncontrolled section 902 corporation that
is not a controlled foreign corporation may
elect to use a different method of appor-
tionment than that elected by one or more
of its shareholders. A noncontrolled sec-
tion 902 corporation must use the same
method of apportionment with respect to
all its domestic corporate shareholders.
(ii)Manner of election. The election
to use the asset method described in para-
graph (g) of this section or the modified
gross income method described in para-
graph (j) of this section may be made
either by the noncontrolled section 902
corporation or by the majority domes-
tic corporate shareholders (as defined in
§1.964–1T(c)(5)(ii)) on behalf of the non-
controlled section 902 corporation. The
election shall be made by filing a state-
ment described in §1.964–1T(c)(3)(ii)
at the time and in the manner described
therein and providing a written notice
described in §1.964–1T(c)(3)(iii), except
that no such statement or notice is required
to be filed or sent before July 24, 2006.
(iii)Stock characterization.Ingen-
eral, the stock of a noncontrolled section
902 corporation shall be characterized in
the hands of any domestic corporation that
meets the ownership requirements of sec-
tion 902(a) with respect to the noncon-
trolled section 902 corporation, or in the
hands of any member of the same qualified
group as defined in section 902(b)(2), us-
ing the same method that the noncontrolled
section 902 corporation uses to apportion
its interest expense. Stock in a noncon-
trolled section 902 corporation shall be
characterized as a passive category asset in
the hands of any such shareholder that fails
to meet the substantiation requirements of
§1.904–5T(c)(4)(iii), or in the hands of any
shareholder that is not eligible to compute
an amount of foreign taxes deemed paid
with respect to a dividend from the non-
controlled section 902 corporation for the
taxable year. See §1.861–12T(c)(4).
(iv)Effective date. This paragraph
(f)(4) applies for taxable years of share-
holders ending after the first day of the
first taxable year of the noncontrolled
section 902 corporation beginning after
December 31, 2002.
*****
June 5, 200610122006–23 I.R.B.

Par. 3. Section 1.861–12T is amended
as follows:
1. Remove the language “directly by
the taxpayer” from paragraph (c)(2)(i) in-
troductory text and add the language “by
the taxpayer either directly or, for tax-
able years beginning after April 25, 2006,
indirectly through a partnership or other
pass-through entity” in its place.
2. Revise paragraph (c)(4).
The revision reads as follows:
§1.861–12T Characterization rules and
adjustment for certain assets (temporary
regulations.)
*****
(c) * * *
(4)Characterization of stock of non-
controlled section 902 corporations—(i)
General rule. The principles of paragraph
(c)(3) of this section shall apply to stock
in a noncontrolled section 902 corporation
(as defined in section 904(d)(2)(E)). Ac-
cordingly, stock in a noncontrolled sec-
tion 902 corporation shall be character-
ized as an asset in the various separate
limitation categories on the basis of ei-
ther the asset method described in (c)(3)(ii)
of this section or the modified gross in-
come method described in (c)(3)(iii) of
this section. Stock in a noncontrolled sec-
tion 902 corporation the interest expense
of which is apportioned on the basis of
assets shall be characterized in the hands
of its domestic shareholders (as defined
in §1.902–1(a)(1)) under the asset method
described in paragraph (c)(3)(ii). Stock
in a noncontrolled section 902 corpora-
tion the interest expense of which is appor-
tioned on the basis of gross income shall
be characterized in the hands of its domes-
tic shareholders under the gross income
method described in paragraph (c)(3)(iii).
(ii)Nonqualifying shareholders.Stock
in a noncontrolled section 902 corporation
shall be characterized as a passive cate-
gory asset in the hands of a shareholder
that is not eligible to compute an amount of
foreign taxes deemed paid with respect to
a dividend from the noncontrolled section
902 corporation for the taxable year, and in
the hands of any shareholder with respect
to whom look-through treatment is not
substantiated. See §1.904–5T(c)(4)(iii).
(iii)Effective date. This paragraph
(c)(4) applies for taxable years of share-
holders ending after the first day of the
first taxable year of the noncontrolled
section 902 corporation beginning after
December 31, 2002.
*****
Par. 4. Section 1.902–0 is amended as
follows:
1. Revise the entry for §1.902–1(a)(4)
and add entries for §§1.902–1(a)(4)(i) and
(a)(4)(ii) .
2. Revise the entry for §1.902–1(b).
3. Revise the entry for §1.902–1(c)(8),
and add entries for §§1.902–1(c)(8)(i) and
(ii).
4.Remove the entry for
§1.902–1(c)(9).
5. Revise the entry for §1.902–1(d).
6.Remove the entries for
§1.902–1(d)(3), (d)(3)(i), and (d)(3)(ii).
7. Revise the entries for §§1.902–2,
1.902–2(a), and 1.902–2(b).
The revisions and additions read as fol-
lows:
§1.902–0 Outline of regulations provisions
for section 902.
*****
§1.902–1 Credit for domestic corporate
shareholder of a foreign corporation for
foreign income taxes paid by the foreign
corporation.
(a) * * *
(4)Third-orlower-tiercorporation.
(i) Third-tier corporation.
(ii) Fourth-, fifth-, or sixth-tier corpora-
tion.
*****
(b) Computation of foreign income
taxes deemed paid by a domestic share-
holder, first-tier corporation, or lower-tier
corporation.
*****
(c) * * *
(8) Effect of certain liquidations, reor-
ganizations, or similar transactions on cer-
tain foreign taxes paid or accrued in tax-
able years beginning on or before August
5, 1997.
(i) General rule.
(ii) Example.
(d) Dividends from controlled foreign
corporations and noncontrolled section
902 corporations.
*****
§1.902–2 Treatment of deficits in
post-1986 undistributed earnings and
pre-1987 accumulated profits of a first-
or lower-tier corporation for purposes
of computing an amount of foreign taxes
deemed paid under §1.902–1.
(a) Carryback of deficits in post-1986
undistributed earnings of a first- or lower-
tier corporation to pre-effective date tax-
able years.
*****
(b) Carryforward of deficit in pre-1987
accumulated profits of a first- or lower-
tier corporation to post-1986 undistributed
earnings for purposes of section 902.
*****
Par. 5. Section 1.902–1 is amended as
follows:
1. Revise paragraph (a)(4).
2. Revise paragraph (a)(6).
3. Revise paragraph (a)(7).
4. Revise paragraph (a)(8)(i).
5. In paragraph (a)(8)(iii), add the
language “in a taxable year beginning
on or before December 31, 2002” af-
ter the language “(as defined in section
904(d)(2)(E)(i))” and add the language
“(26 CFR revised as of April 1, 2006)”
after the language “§1.904–4(g)(2)(iii)”.
6. Revise the heading of paragraph (b).
7. Revise paragraph (c)(8).
8. Remove paragraph (c)(9).
9. Revise paragraphs (d)(1) and
(d)(2)(i).
10. Remove paragraph (d)(3).
11. Revise paragraph (g).
The revisions and additions read as fol-
lows:
§1.902–1 Credit for domestic corporate
shareholder of a foreign corporation for
foreign income taxes paid by the foreign
corporation.
(a) * * *
(4)Third- or lower-tier corporation.(i)
In the case of dividends paid to a sec-
ond-tier corporation by a foreign corpora-
tion in a taxable year beginning after De-
cember 31, 1986, a foreign corporation
is a third-tier corporation if, at the time
a second-tier corporation receives a div-
idend from that foreign corporation, the
second-tier corporation owns at least 10
percent of the foreign corporation’s vot-
ing stock and the product of the following
equals at least 5 percent—
2006–23 I.R.B.1013June 5, 2006

(A) The percentage of voting stock
owned by the domestic shareholder in the
first-tier corporation; multiplied by
(B) The percentage of voting stock
owned by the first-tier corporation in the
second-tier corporation; multiplied by
(C) The percentage of voting stock
owned by the second-tier corporation in
the third-tier corporation.
*****
(ii)Fourth-, fifth-, or sixth-tier corpora-
tion. [Reserved]. For further guidance, see
§1.902–1T(a)(4)(ii).
*****
(6)Upper- and lower-tier corpora-
tions. [Reserved]. For further guidance,
see §1.902–1T(a)(6).
(7)Foreign income taxes.[Reserved].
For further guidance, see §1.902–1T(a)(7).
(8)***(i)In general.[Reserved].For
further guidance, see §1.902–1T(a)(8)(i).
*****
(b)Computation of foreign income
taxes deemed paid by a domestic share-
holder, first-tier corporation, or lower-tier
corporation.
*****
(c) * * *
(8)Effect of certain liquidations, reor-
ganizations, etc., on certain foreign taxes
paid or accrued in taxable years beginning
on or before August 5, 1997.[Reserved].
For further guidance, see §1.902–1T(c)(8).
(d)Dividends from controlled foreign
corporations and noncontrolled section
902 corporations—(1)General rule.
[Reserved]. For further guidance, see
§1.902–1T(d)(1).
(2)Look-through—(i)Dividends.
[Reserved]. For further guidance, see
§1.902–1T(d)(2)(i).
(g)Effective date.[Reserved.]Forfur-
ther guidance, see §1.902–1T(g).
Par. 6. Section 1.902–1T is added to
read as follows:
§1.902–1T Credit for domestic corporate
shareholder of a foreign corporation for
foreign income taxes paid by the foreign
corporation (temporary).
(a)(1) through (a)(3) [Reserved]. For
further guidance, see §1.902–1(a)(1)
through (a)(3).
(a)(4)(i) [Reserved]. For further guid-
ance, see §1.902–1(a)(4)(i).
(ii)Fourth-, fifth-, or sixth-tier corpo-
ration. In the case of dividends paid to a
third-, fourth-, or fifth-tier corporation by
a foreign corporation in a taxable year be-
ginning after August 5, 1997, the foreign
corporation is a fourth-, fifth-, or sixth-tier
corporation, respectively, if at the time the
dividend is paid, the corporation receiv-
ing the dividend owns at least 10 percent
of the foreign corporation’s voting stock,
the chain of foreign corporations that in-
cludes the foreign corporation is connected
through stock ownership of at least 10 per-
cent of their voting stock, the domestic
shareholder in the first-tier corporation in
such chain indirectly owns at least 5 per-
cent of the voting stock of the foreign cor-
poration through such chain, such corpora-
tion is a controlled foreign corporation (as
defined in section 957) and the domestic
shareholder is a United States shareholder
(as defined in section 951(b)) in the foreign
corporation. Taxes paid by a fourth-, fifth-,
or sixth-tier corporation shall be taken into
account in determining post-1986 foreign
income taxes only if such taxes are paid
with respect to taxable years beginning af-
ter August 5, 1997, in which the corpora-
tion was a controlled foreign corporation.
(a)(5) [Reserved]. For further guid-
ance, see §1.902–1(a)(5).
(6)Upper- and lower-tier corporations.
In the case of a sixth-tier corporation, the
term upper-tier corporation means a first-,
second-, third-, fourth-, or fifth-tier corpo-
ration. In the case of a fifth-tier corpora-
tion, the term upper-tier corporation means
a first-, second-, third-, or fourth-tier cor-
poration. In the case of a fourth-tier cor-
poration, the term upper-tier corporation
means a first-, second-, or third-tier cor-
poration. In the case of a third-tier cor-
poration, the term upper-tier corporation
means a first- or second-tier corporation.
In the case of a second-tier corporation, the
term upper-tier corporation means a first-
tier corporation. In the case of a first-tier
corporation, the term lower-tier corpora-
tion means a second-, third-, fourth-, fifth-,
or sixth-tier corporation. In the case of
a second-tier corporation, the term lower-
tier corporation means a third-, fourth-,
fifth-, or sixth-tier corporation. In the case
of a third-tier corporation, the term lower-
tier corporation means afourth-, fifth-, or
sixth-tier corporation. In the case of a
fourth-tier corporation, the term lower-tier
corporation means a fifth- or sixth-tier cor-
poration. In the case of afifth-tier corpora-
tion, the term lower-tier corporation means
a sixth-tier corporation.
(7)Foreign income taxes.Theterm
foreign income taxesmeans income, war
profits, and excess profits taxes as defined
in §1.902–1(a), and taxes included in the
term income, war profits, and excess prof-
its taxes by reason of section 903, that are
imposed by a foreign country or a posses-
sion of the Untied States, including any
such taxes deemed paid by a foreign corpo-
ration under this section. Foreign income,
war profits, and excess profits taxes shall
not include amounts excluded from the
definition of those taxes pursuant to sec-
tion 901 and the regulations under that sec-
tion. See sections 901(f) and (i) and para-
graph (c)(5) of this section. Foreign in-
come, war profits, and excess profits taxes
also shall not include taxes for which a
credit is disallowed under section 901 and
the regulations thereunder. See sections
901(e), (h), (j), (k), and (l), and paragraphs
(c)(4) and (c)(8) of this section.
(8)Post-1986 foreign income taxes—(i)
In general. Except as provided in para-
graphs (a)(10) and (a)(13) of this section,
the term post-1986 foreign income taxes
of a foreign corporation means the sum
of the foreign income taxes paid, accrued,
or deemed paid in the taxable year of the
foreign corporation in which it distributes
a dividend plus the foreign income taxes
paid, accrued, or deemed paid in the for-
eign corporation’s prior taxable years be-
ginning after December 31, 1986, to the
extent the foreign taxes were not attribut-
able to dividends distributed to, or earn-
ings otherwise included (e.g., under sec-
tion 304, 367(b), 551, 951(a), 1248, or
1293) in the income of, a foreign or do-
mestic shareholder in prior taxable years.
Except as provided in paragraph (b)(4) of
this section, foreign taxes paid or deemed
paid by the foreign corporation on or with
respect to earnings that were distributed or
otherwise removed from post-1986 undis-
tributed earnings in prior post-1986 tax-
able years shall be removed from post-
1986 foreign income taxes regardless of
whether the shareholder is eligible to com-
pute an amount of foreign taxes deemed
paid under section 902, and regardless of
whether the shareholder in fact chose to
credit foreign income taxes under section
901 for the year of the distribution or in-
clusion. Thus, if an amount is distributed
June 5, 200610142006–23 I.R.B.

ordeemeddistributedbyaforeigncor-
poration to a United States person that
is not a domestic shareholder within the
meaning of paragraph (a)(1) of this sec-
tion (e.g., an individual or a corporation
that owns less than 10% of the foreign
corporation’s voting stock), or to a for-
eign person that does not meet the defi-
nition of an upper-tier corporation under
paragraph (a)(6) of this section, then al-
though no foreign income taxes shall be
deemed paid under section 902, foreign in-
come taxes attributable to the distribution
or deemed distribution that would have
been deemed paid had the shareholder met
the ownership requirements of paragraphs
(a)(1) through (4) of this section shall be
removed from post-1986 foreign income
taxes. Further, if a domestic shareholder
chooses to deduct foreign taxes paid or ac-
crued for the taxable year of the distribu-
tion or inclusion, it shall nonetheless be
deemed to have paid a proportionate share
of the foreign corporation’s post-1986 for-
eign income taxes under section 902(a),
and the foreign income taxes deemed paid
must be removed from post-1986 foreign
income taxes. In the case of a foreign cor-
poration the foreign income taxes of which
are determined based on an accounting pe-
riod of less than one year, the term year
means that accounting period. See sec-
tions 441(b)(3) and 443.
(a)(8)(ii) through (c)(7) [Reserved].
For guidance, see §1.902–1(a)(8)(ii)
through (c)(7).
(8)Effect of certain liquidations, re-
organizations, or similar transactions on
certain foreign taxes paid or accrued in
taxable years beginning on or before Au-
gust 5, 1997—(i)General rule. Notwith-
standing the effect of any liquidation, re-
organization, or similar transaction, for-
eign taxes paid or accrued by a member
of a qualified group (as defined in sec-
tion 902(b)(2)) shall not be eligible to be
deemed paid if they were paid or accrued
in a taxable year beginning on or before
August 5, 1997, by a corporation that was a
fourth-, fifth- or sixth-tier corporation with
respect to the taxpayer on the first day of
the corporation’s first taxable year begin-
ning after August 5, 1997.
(ii)Example. P, a domestic corporation,
has owned 100 percent of the voting stock
of foreign corporation S at all times since
January 1, 1987. Until June 30, 2002, S
owned 100 percent of the voting stock of
foreign corporation T, T owned 100 per-
cent of the voting stock of foreign corpo-
ration U, and U owned 100 percent of the
voting stock of foreign corporation V. P, S,
T, U, and V each use the calendar year as
their U.S. taxable year. Thus, beginning
in 1998 V was a fourth-tier controlled for-
eign corporation, and its foreign taxes paid
or accrued in 1998 and later taxable years
were eligible to be deemed paid. On June
30, 2002, T was liquidated, causing S to
acquire 100 percent of the stock of U. As
a result, V became a third-tier controlled
foreign corporation. In 2003, V paid a div-
idend to U. Under paragraph (c)(8) of this
section, foreign taxes paid by V in tax-
able years beginning before 1998 are not
taken into account in computing the for-
eign taxes deemed paid with respect to the
dividend paid by V to U.
(d)Dividends from controlled foreign
corporations and noncontrolled section
902 corporations—(1)General rule.If
a dividend is described in paragraphs
(d)(1) (A) through (D) of this section,
the following rules apply. If a dividend
is paid out of post-1986 undistributed
earnings or pre-1987 accumulated prof-
its of a foreign corporation attributable
to more than one separate category, the
amount of foreign income taxes deemed
paid by the domestic shareholder or the
upper-tier corporation under section 902
and paragraph (b) of this section shall
be computed separately with respect to
the post-1986 undistributed earnings or
pre-1987 accumulated profits in each sep-
arate category out of which the dividend is
paid. See §§1.904–5T(c)(4), 1.904–5(i),
and paragraph (d)(2) of this section. The
separately computed deemed-paid taxes
shall be added to other taxes paid by the
domestic shareholder or upper-tier cor-
poration with respect to income in the
appropriate separate category. The rules
of this paragraph (d)(1) apply to dividends
received by—
(A) A domestic shareholder that is a
United States shareholder (as defined in
section 951(b) or section 953(c)) from a
first-tier corporation that is a controlled
foreign corporation;
(B) A domestic shareholder from a first-
tier corporation that is a noncontrolled sec-
tion 902 corporation;
(C) An upper-tier controlled for-
eign corporation from a lower-tier con-
trolled foreign corporation if the corpo-
rations are related look-through entities
within the meaning of §1.904–5(i) (see
§1.904–5T(i)(3)); or
(D) A foreign corporation that is eligi-
ble to compute an amount of foreign taxes
deemed paid under section 902(b)(1),
from a controlled foreign corporation or
a noncontrolled section 902 corporation
(i.e., both the payor and payee corpora-
tions are members of the same qualified
group as defined in section 902(b)(2) (see
§1.904–5T(i)(4)).
(2)Look-through—(i)Dividends.Any
dividend distribution by a controlled for-
eign corporation ornoncontrolled section
902 corporation to a domestic shareholder
or a foreign corporation that is eligible
to compute an amount of foreign taxes
deemed paid under section 902(b)(1) shall
be deemed paidpro rataout of each
separate category of income. Any divi-
dend distribution by a controlled foreign
corporation to a controlled foreign corpo-
ration that is a related look-through entity
within the meaning of §1.904–5T(i)(3)
shall also be deemed to be paidpro rata
out of each separate category of income.
See §§1.904–5T(c)(4), 1.904–5(i), and
1.904–7. The portion of the foreign in-
come taxes attributable to a particular
separate category that shall be deemed
paid by the domestic shareholder or up-
per-tier corporation must be computed
under the following formula:
Divident amount attributable to
the separate category
Foreign taxes deemed paid by
domestic shareholder or upper-tier
corporation with respect to a
separate category
=
Post-1986 foreign income taxes of
first-tier or lower-tier corporation
allocated and apportioned to the
separate category under §1.904–6
x
Post-1986 undistributed earnings of
first-tier or lower-tier corporation
in the separate category
2006–23 I.R.B.1015June 5, 2006

(e) through (f) [Reserved]. For further
guidance, see §1.902–1(e) through (f).
(g)Effective dates. This section and
§1.902–1 apply to any distribution made
in and after a foreigncorporation’s first
taxable year beginning on or after Jan-
uary 1, 1987, except that the provisions
of paragraphs (a)(4)(ii), (a)(6), (a)(7),
(a)(8)(i), and (c)(8) of this section apply
to distributions made in taxable years
of foreign corporations beginning after
April 25, 2006, and, except as provided
in §1.904–7T(f)(9), the provisions of
paragraph (d) of this section apply to
distributions in taxable years of foreign
corporations beginning after December
31, 2002.
Par. 7. Section 1.902–2 is amended as
follows:
1. Revise the section heading of
§1.902–2 and the headings for paragraphs
(a) and (b).
2. In paragraph (a)(1), remove two in-
stances of the language “a first-, second-
or third-tier corporation” and add the lan-
guage “a first- or lower-tier corporation” in
its place.
3. In paragraph (b)(1), remove the lan-
guage“afirst-,second-orthird-tiercor-
poration” and add the language “a first- or
lower-tier corporation” in its place.
The revisions read as follows:
§1.902–2 Treatment of deficits in
post-1986 undistributed earnings and
pre-1987 accumulated profits of a first-
or lower-tier corporation for purposes
of computing an amount of foreign taxes
deemed paid under §1.902–1.
(a)Carryback of deficits in post-1986
undistributed earnings of a first- or lower-
tier corporation to pre-effective date tax-
able years.
*****
(b)Carryforward of deficit in pre-1987
accumulated profits of a first- or lower-tier
corporation to post-1986 undistributed
earnings for purposes of section 902.
Par. 8. Section 1.904–0 is amended as
follows:
1. Add the entries for §1.904–2(h),
(h)(1), and (h)(2).
2. Revise the entry for §1.904–4(c)(4).
3. Remove the entry for §1.904–
4(c)(5)(iv), and redesignate the entry for
§1.904–4(c)(5)(v) as §1.904–4(c)(5)(iv).
4. Remove the entries for §1.904–
4(g)(1) through (g)(3).
5. Redesignate the entries for §1.904–
5(c)(2)(iii) and (iv) as §1.904–5(c)(2)(iv)
and (v), respectively, and add the entry for
§1.904–5(c)(2)(iii).
6. Revise the entry for §1.904–
5(c)(4)(i), redesignate the entry for
§1.904–5(c)(4)(iii) as §1.904–5(c)(4)(iv),
and add the entry for §1.904–5(c)(4)(iii).
7. Remove the entry for §1.904–5(f)(2),
and redesignate the entries for
§1.904–5(f)(3) and (4) as §1.904–5(f)(2)
and (3), respectively.
8. Revise the entry for §1.904–5(i)(3),
redesignate the entry for §1.904–5(i)(4)
as §1.904–5(i)(5), and add the entry for
§1.904–5(i)(4).
9. Add the entries for §1.904–
5(m)(2)(i) and (ii).
10. Add the entries for §1.904–5(o)(1)
and (2).
11. Revise the entry for §1.904–6(a)(2).
12. Add the entry for §1.904–7(f).
13. Add the entry for §1.904(f)–12(g).
The revisions and additions read as fol-
lows:
§1.904–0 Outline of regulations provisions
for section 904.
*****
§1.904–2 Carryback and carryover of
unused foreign tax.
*****
(h) Transition rules for carryovers and
carrybacks of pre-2003 and post-2002 un-
used foreign tax paid or accrued with re-
spect to dividends from noncontrolled sec-
tion 902 corporations.
(1)Carryoverofunusedforeigntax.
(2) Carryback of unused foreign tax.
*****
§1.904–4 Separate application of section
904 with respect to certain categories of
income.
*****
(c) * * *
(4) Dividends and inclusions from con-
trolled foreign corporations, dividends
from noncontrolled section 902 corpora-
tions, and income of foreign QBUs.
*****
§1.904–5 Look-through rules as applied
to controlled foreign corporations and
other entities.
*****
(c) * * *
(2) * * *
(iii) Allocating and apportioning ex-
penses of a noncontrolled section 902
corporation.
*****
(4) * * *
(i) Look-through rule for controlled for-
eign corporations.
***
(iii) Look-through rule for noncon-
trolled section 902 corporations.
***
(i) * * *
(3) Special rule for dividends between
controlled foreign corporations.
(4) Payor and recipient of dividend are
members of the same qualified group.
***
(m)***
(2) * * *
(i) Interest payments from controlled
foreign corporations.
(ii) Interest payments from noncon-
trolled section 902 corporations.
***
(o) * * *
(i) Rules for controlled foreign corpora-
tions and other look-through entities.
(ii) Rules for noncontrolled section 902
corporations.
§1.904–6 Allocation and apportionment
of taxes.
(a) * * *
(2) Reserved.
*****
§1.904–7 Transition rules.
*****
(f) Treatment of non-look-through
pools of a noncontrolled section 902 cor-
poration or a controlled foreign corpora-
tion in post-2002 taxable years.
*****
§1.904(f)–12 Transition rules.
*****
June 5, 200610162006–23 I.R.B.

(g) Recapture in years beginning after
December 31, 2002, of separate limita-
tion losses and overall foreign losses in-
curred in years beginning before January
1, 2003, with respect to the separate cat-
egory for dividends from a noncontrolled
section 902 corporation.
*****
Par. 9. Section 1.904–2 is amended as
follows:
1. Revise paragraph (a).
2. Add new paragraph (h).
The revisions and addition reads as fol-
lows:
§1.904–2 Carryback and carryover of
unused foreign tax.
(a)Credit for foreign tax carryback or
carryover. [Reserved]. For further guid-
ance, see §1.904–2T(a).
*****
(h)Transition rules for carryovers and
carrybacks of pre-2003 and post-2002 un-
used foreign tax paid or accrued with re-
spect to dividends from noncontrolled sec-
tion 902 corporations.[Reserved].For
further guidance, see §1.904–2T(h).
*****
Par. 10. Section 1.904–2T is added to
read as follows:
§1.904–2T Carryback and carryover of
unused foreign tax.
(a)Credit for foreign tax carryback or
carryover (temporary). A taxpayer who
chooses to claim a credit under section
901 for a taxable year is allowed a credit
under that section not only for taxes oth-
erwise allowable as a credit but also for
taxes deemed paid or accrued in that year
as a result of a carryback or carryover
of an unused foreign tax under section
904(c). However, the taxes so deemed
paid or accrued shall not be allowed as
a deduction under section 164(a). Para-
graphs (b) through (g) of §1.904–2 and
§1.904–3, providing rules for the compu-
tation of carryovers and carrybacks, do not
reflect a number of intervening statutory
amendments, including the redesignation
of section 904(d) as section 904(c) for tax-
able years beginningafter 1975, amend-
ments to sections 904(d) and (f) regard-
ing the application of separate limitations
in taxable years beginning after 1986, the
limitation of the carryback period to one
year for unused foreign taxes arising in
taxable years beginning after October 22,
2004, and the extension of the carryover
period to ten years for unused foreign taxes
that may be carried to any taxable year
ending after October 22, 2004. However,
the principles of paragraphs (b) through
(g) of §1.904–2 and §1.904–3 shall apply
in determining carrybacks and carryovers
of unused foreign taxes, modified so as
to take into account the effect of statutory
amendments. For transition rules relating
to the carryover and carryback of unused
foreign tax paid with respect to dividends
from noncontrolled section 902 corpora-
tions, see paragraph (h) of this section. For
special rules regarding these computations
in case of taxes paid, accrued, or deemed
paid with respect to foreign oil and gas ex-
traction income or foreign oil related in-
come, see section 907(f) and the regula-
tions under that section.
(b) through (g) [Reserved]. For further
guidance, see §1.904–2(b) through (g).
(h)Transition rules for carryovers and
carrybacks of pre-2003 and post-2002 un-
used foreign tax paid or accrued with re-
spect to dividends from noncontrolled sec-
tion 902 corporations (temporary).
(1)Carryover of unused for-
eign tax.Except as provided
in§§1.904–7T(f)(9)(iv)and
1.904(f)–12T(g)(3), the rules of this
paragraph (h)(1) apply to reallocate to
the taxpayer’s other separate categories
any unused foreign taxes (as defined in
§1.904–2(b)(2)) that were paid or accrued
or deemed paid under section 902 with
respect to a dividend from a noncontrolled
section 902 corporation paid in a taxable
year of the noncontrolled section 902
corporation beginning before January
1, 2003, which taxes were subject to a
separate limitation for dividends from that
noncontrolled section 902 corporation. To
the extent any such unused foreign taxes
are carried forward to a taxable year of
a domestic shareholder beginning on or
after the first day of the noncontrolled
section 902 corporation’s first taxable
year beginning after December 31, 2002,
such taxes shall be allocated among the
taxpayer’s separate categories in the same
proportions as the related dividend would
have been assigned had such dividend
been eligible for look-through treatment
when paid. Accordingly, the taxes shall
be allocated in the same percentages
as the reconstructed earnings in the
noncontrolled section 902 corporation’s
non-look-through pool and pre-1987 ac-
cumulated profits that were accumulated
in taxable years beginning before January
1, 2003, out of which the dividend was
paid, in accordance with the rules of
§1.904–7T(f), or, if the taxpayer elects
the safe harbor of §1.904–7T(f)(4)(ii),
in the same percentages as the taxpayer
properly characterizes the stock of the
noncontrolled section 902 corporation
for purposes of apportioning its interest
expense in its first taxable year ending
after the first day of the noncontrolled
section 902 corporation’s first taxable
year beginning after December 31, 2002.
See §1.904–7T(f)(2) and (f)(4). In the
case of unused foreign taxes allocable to
dividends from a noncontrolled section
902 corporation with respect to which
the taxpayer was no longer a domestic
shareholder (as defined in §1.902–1(a))
as of the first day of such taxable year,
such taxes shall be allocated among the
taxpayer’s separate categories in the
same percentages as the earnings in the
noncontrolled section 902 corporation’s
non-look-through pool or pre-1987 accu-
mulated profits would have been assigned
had they been distributed in the last
taxable year in which the taxpayer was a
domestic shareholder in such corporation.
The unused foreign taxes that are carried
forward shall be treated as allocable to
general limitation income to the extent
that such taxes would otherwise have
been allocable to passive income, either
on a look-through basis or as a result of
inadequate substantiation under the rules
of §1.904–7T(f)(4).
(2)Carryback of unused foreign tax.
The rules of this paragraph (h)(2) apply to
any unused foreign taxes that were paid or
accrued or deemed paid under section 902
with respect to a dividend from a noncon-
trolled section 902 corporation paid in a
taxable year of a noncontrolled section 902
corporation beginning after December 31,
2002, which dividends were eligible for
look-through treatment. To the extent any
such unused foreign taxes are carried back
toapriortaxableyearofadomesticshare-
holder, a credit for such taxes shall be al-
lowed only to the extent of the excess limi-
tation in the same separate category or cat-
egories to which the related look-through
2006–23 I.R.B.1017June 5, 2006

dividend was assigned and not in any sep-
arate category for dividends from noncon-
trolled section 902 corporations.
Par. 11. Section 1.904–4 is amended as
follows:
1. Revise paragraphs (c)(2)(i), (c)(3),
(c)(4), and (c)(6)(iv)(B).
2. Remove paragraph (c)(5)(iv), and re-
designate paragraph (c)(5)(v) as paragraph
(c)(5)(iv).
3. In paragraph (e)(5)(iii), remove the
language “and paragraph (9) of this sec-
tion” and add the language “paid in taxable
years beginning before January 1, 2003” in
its place.
4. In paragraph (f), remove the lan-
guage “received or accrued from a non-
controlled section 902 corporation,” and
add the language “paid by a noncontrolled
section 902 corporation in a taxable year
beginning before January 1, 2003” in its
place.
5. Revise the text of paragraph (g).
The revisions and additions read as fol-
lows:
§1.904–4 Separate application of section
904 with respect to certain categories of
income.
*****
(c)***(2)***
(i)Effective dates. [Reserved]. For fur-
ther guidance, see §1.904–4T(c)(2)(i).
***
(3)and(4)[Reserved]. Forfurther
guidance, see §1.904–4T(c)(3) and (4).
*****
(c)(6)***(iv)***(A)***
(B)Exception. For a special rule ap-
plicable to distributions prior to August
6, 1997, to U.S. shareholders not enti-
tled to look-through treatment, see 26 CFR
1.904–4(c)(6)(iv)(B) (revised as of April
1, 2006).
*****
(g)Noncontrolled section 902 corpora-
tion. See §1.904–5 for the treatment of
dividends paid by a noncontrolled section
902 corporation in taxable years beginning
after December 31, 2002. For rules appli-
cable to dividends paid by noncontrolled
section 902 corporations in taxable years
beginning before January 1, 2003, see 26
CFR 1.904–4 (revised as of April 1, 2006).
*****
Par. 12. Section 1.904–4T is added to
read as follows:
§1.904–4T Separate application of section
904 with respect to certain categories of
income (temporary).
(a) through (b) [Reserved]. For further
guidance, see §1.904–4(a) through (b).
(c)(1) [Reserved]. For further guid-
ance, see §1.904–4(c)(1).
(2)Grouping of items of income in or-
der to determine whether passive income
is high-taxed income—(i)Effective dates.
For purposes of determining whether pas-
sive income is high-taxed income, the
grouping rules of paragraphs (c)(3) and
(c)(4) of this section apply to taxable years
beginning after December 31, 2002. For
corresponding rules applicable to taxable
years beginning before January 1, 2003,
see 26 CFR §1.904–4(c)(2)(i) (revised as
of April 1, 2006).
(c)(2)(ii) [Reserved]. For further guid-
ance, see §1.904–4(c)(2)(ii).
(3)Amounts received or accrued by
United States persons. Except as oth-
erwise provided in §1.904–4(c)(5), all
passive income received by a United
States person shall be subject to the rules
of this paragraph (c)(3). However, sub-
part F inclusions that are passive income,
dividends from a controlled foreign cor-
poration or noncontrolled section 902
corporation that are passive income, and
income that is earned by a United States
person through a foreign qualified busi-
ness unit (foreign QBU) that is passive
income shall be subject to the rules of
this paragraph only to the extent provided
in paragraph (c)(4) of this section. For
purposes of this section, a foreign QBU
is a QBU (as defined in section 989(a)),
other than a controlled foreign corporation
or noncontrolled section 902 corporation,
that has its principal place of business out-
side the United States. These rules shall
apply whether the income is received from
a controlled foreign corporation of which
the United States person is a United States
shareholder, from a noncontrolled sec-
tion 902 corporation of which the United
States person is a domestic corporation
meeting the stock ownership requirements
of section 902(a), or from any other per-
son. For purposes of determining whether
passive income is high-taxed income, the
following rules apply:
(i) All passive income received during
the taxable year that is subject to a with-
holding tax of fifteen percent or greater
shall be treated as one item of income.
(ii) All passive income received during
the taxable year that is subject to a with-
holding tax of less than fifteen percent (but
greater than zero) shall be treated as one
item of income.
(iii) All passive income received during
the taxable year that is subject to no with-
holding tax or other foreign tax shall be
treated as one item of income.
(iv) All passive income received dur-
ing the taxable year that is subject to no
withholding tax but is subject to a foreign
tax other than a withholding tax shall be
treated as one item of income.
(4)Dividends and inclusions from con-
trolled foreign corporations, dividends
from noncontrolled section 902 corpo-
rations, and income of foreign QBUs.
Except as provided in paragraph (c)(5) of
this section, all dividends and all amounts
included in gross income of a United
States shareholder under section 951(a)(1)
with respect to the foreign corporation
that (after application of the look-through
rules of section 904(d)(3) and §1.904–5)
are attributable to passive income re-
ceived or accrued by a controlled foreign
corporation, all dividends from a non-
controlled section 902 corporation that
are received or accrued by a domestic
corporate shareholder meeting the stock
ownership requirements of section 902(a)
that (after application of the look-through
rules of section 904(d)(4) and §1.904–5)
are treated as passive income, and all
amounts of passive income received or
accrued by a United States person through
a foreign QBU shall be subject to the
rules of this paragraph (c)(4). This para-
graph (c)(4) shall be applied separately
to dividends and inclusions with respect
to each controlled foreign corporation
of which the taxpayer is a United States
shareholder and to dividends with respect
to each noncontrolled section 902 corpo-
ration of which the taxpayer is a domestic
corporate shareholder meeting the stock
ownership requirements of section 902(a).
This paragraph (c)(4) also shall be applied
separately to income attributable to each
QBU of a controlled foreign corporation,
noncontrolled section 902 corporation, or
any other look-through entity as defined in
§1.904–5(i), except that if the entity sub-
June 5, 200610182006–23 I.R.B.

ject to the look-through rules is a United
States person, then this paragraph (c)(4)
shall be applied separately only to each
foreign QBU of that United States person.
(c)(4)(i) through (m) [Reserved]. For
further guidance, see §1.904–4(c)(4)(i)
through (m).
Par. 13. Section 1.904–5 is amended as
follows:
1. Revise paragraph (a)(1).
2. Add paragraph (a)(4).
3. Revise paragraph (b).
4. Revise the heading of para-
graph (c)(2)(ii), redesignate paragraphs
(c)(2)(iii) and (2)(iv) as paragraphs
(c)(2)(iv) and (2)(v) and add a new para-
graph (c)(2)(iii).
5. Revise the heading of paragraph
(c)(4)(i), redesignate paragraph (c)(4)(iii)
as paragraph (c)(4)(iv), and add a new
paragraph (c)(4)(iii).
6. Remove paragraph (f)(2).
7. Redesignate paragraphs (f)(3) and
(f)(4) as paragraphs (f)(2) and (f)(3), re-
spectively.
8. Revise paragraphs (i)(1) and (i)(3),
redesignate paragraph (i)(4) as paragraph
(i)(5), add a new paragraph (i)(4), and add
two examples at the end of newly desig-
nated paragraph (i)(5).
9. Revise paragraph (m)(1), redes-
ignate paragraph (m)(2) as paragraph
(m)(2)(i) and add a heading for newly
designated paragraph (m)(2)(i), add new
paragraph (m)(2)(ii), and revise paragraph
(m)(4)(i).
10. Revise paragraph (n).
11. Revise the heading for paragraph
(o), redesignate paragraph (o) as paragraph
(o)(1), add a heading for newly redesig-
nated paragraph (o)(1), and add new para-
graph (o)(2).
The revisions read as follows:
§1.904–5 Look-through rules as applied
to controlled foreign corporations and
other entities.
(a) and (a)(1) [Reserved]. For further
guidance, see §1.904–5T(a) and (a)(1).
*****
(4) [Reserved]. For further guidance,
see §1.904–5T(a)(4).
(b) [Reserved]. For further guidance,
see §1.904–5T(b).
(c) * * *
(2) * * *
(ii)Allocating and apportioning ex-
penses of a controlled foreign corporation
including interest paid to a related person.
***
(iii) [Reserved]. For further guidance,
see §1.904–5T(c)(2)(iii).
*****
(4)***(i)Look-through rule for con-
trolled foreign corporations.***
*****
(iii) [Reserved]. For further guidance,
see §1.904–5T(c)(4)(iii).
*****
(i) * * *
(1) [Reserved]. For further guidance,
see §1.904–5T(i)(1).
*****
(3) and (4) [Reserved]. For further
guidance, see §1.904–5T(i)(3) and (4).
*****
(m) * * *
(1) [Res
erved]. For further guidance,
see §1.9
04–5T(m)(1).
(2) * * *
(i)Inte
rest payments from controlled
foreign
corporations.***
(ii) [Re
served]. For further guidance,
see §1.9
04–5T(m)(2)(ii).
*****
(4) * * *
(i) [Reserved]. For further guidance,
see §1.904–5T(m)(4)(i).
*****
(n) [Reserved]. For further guidance,
see §1.904–5T(n).
(o)Effective dates.
(1)Rules for controlled foreign corpo-
rations and other look-through entities.
***
(2) [Reserved]. For further guidance,
see §1.904–5T(o)(2).
Par. 14. Section 1.904–5T is added as
follows:
§1.904–5T Look-through rules as applied
to controlled foreign corporations and
other entities (temporary).
(a)Definitions. For purposes of sec-
tions 904(d)(3) and 904(d)(4) and the reg-
ulations under section 904, the following
definitions apply:
(1) The termseparate categorymeans,
as the context requires, any category of
income described in section 904(d)(1)(A),
(B), (C), (D), (F), (G), (H), or (I) and in
§1.904–4(b), (d), (e), and (f), any cate-
gory of income described in §1.904–4(m),
or any category of earnings and profits to
which income described in such provisions
is attributable.
(2) and (3) [Reserved]. For further
guidance, see §1.904–5(a)(2) and (3).
(4) The termnoncontrolled section 902
corporation
means any foreign corpora-
tion with respect to which the taxpayer
meets the stock ownership requirements
of section 902(a), or, with respect to a
lower-tier foreign corporation, the tax-
payer meets the requirements of section
902(b). Except as provided in section 902
and the regulations under that section and
paragraphs (i)(3) and (i)(4) of this section,
a controlled foreign corporation shall not
be treated as a noncontrolled section 902
corporation with respect to any distribu-
tions out of its earnings and profits for
periods during which it was a controlled
foreign corporation. In the case of a part-
nership owning a foreign corporation, the
determination of whether a taxpayer meets
the ownership requirements of section
902(a) or (b) will be made with respect
to the taxpayer’s indirect ownership, and
not the partnership’s direct ownership,
in the foreign corporation. See section
902(b)(7).
(b)In general. Except as otherwise pro-
vided in section 904(d)(3) and (4) and this
section, dividends, interest, rents, and roy-
alties received or accrued by a taxpayer
from a controlled foreign corporation
in which the taxpayer is a United States
shareholder shall be treated as general lim-
itation income. See §1.904–5T(c)(4)(iii)
for the treatment of dividends received by
a domestic corporation from a noncon-
trolled section 902 corporation in which
the domestic corporation meets the stock
ownership requirements of section 902(a).
(c)(1) through (c)(2)(ii) [Reserved].
For further guidance, see §1.904–5(c)(1)
through (c)(2)(ii).
(iii)Allocating and apportioning ex-
penses of a noncontrolled section 902
corporation. Expenses of a noncontrolled
section 902 corporation shall be allocated
and apportioned in the same manner as
expenses of a controlled foreign corpo-
ration under §1.904–5(c)(2)(ii), except
that the related person interest rule of
2006–23 I.R.B.1019June 5, 2006

§1.904–5(c)(2)(ii)(C) and (D) shall not
apply.
(c)(2)(iv) through (c)(4)(ii) [Re-
served]. For further guidance, see
§1.904–5(c)(2)(iv) through (c)(4)(ii).
(iii)Look-through rule for dividends
from noncontrolled section 902 corpora-
tions. Except as otherwise provided in
this subparagraph (iii), any dividend that
is distributed by a noncontrolled section
902 corporation and received or accrued
by a domestic corporation that meets the
stock ownership requirements of section
902(a) shall be treated as income in a sep-
arate category in proportion to the ratio of
the portion of earnings and profits attrib-
utable to income in such category to the
total amount of earnings and profits of the
noncontrolled section 902 corporation. A
dividend distributed by a noncontrolled
section 902 corporation shall be treated
as passive income if the look-through
characterization of such dividend is not
substantiated to the satisfaction of the
Commissioner, or if such dividend is re-
ceived or accrued by a shareholder that is
neither a domestic corporation meeting the
stock ownership requirements of section
902(a) nor a foreign corporation meeting
the requirements of section 902(b). See
§1.904–5T(i)(4). See §1.904–7T for tran-
sition rules concerning the treatment of
undistributed earnings (or a deficit) of a
noncontrolled section 902 corporation that
were accumulated in taxable years begin-
ning before January 1, 2003.
(c)(4)(iv) through (h) [Reserved]. For
further guidance, see §1.904–5(c)(4)(iv)
through (h).
(i)Application of look-through rules to
related entities—(1)In general. Except as
provided in paragraphs (i)(2), (3), and (4)
of this section, the principles of this section
shall apply to distributions and payments
that are subject to the look-through rules
of section 904(d)(3) and this section from
a controlled foreign corporation or other
entity otherwise entitled to look-through
treatment (a “look-through entity”) under
this section to a related look-through en-
tity. A noncontrolled section 902 corpo-
ration shall be considered a look-through
entity only to the extent provided in para-
graph (i)(4) of this section. Two look-
through entities shall be considered to be
related to each other if one owns, directly
or indirectly, stock possessing more than
50 percent of the total voting power of all
classes of voting stock of the other en-
tity or more than 50 percent of the total
value of such entity. In addition, two look-
through entities are related if the same
United States shareholders own, directly or
indirectly, stock possessing more than 50
percent of the total voting power of all vot-
ing classes of stock (in the case of a corpo-
ration) or more than 50 percent of the total
value of each look-through entity. In the
case of a corporation, value shall be deter-
mined by taking into account all classes of
stock. In the case of a partnership, value
shall be determined under the rules in para-
graph (h)(4) of this section. For purposes
of this section, indirect ownership shall be
determined under section 318 and the reg-
ulations thereunder.
(2) [Reserved]. For further guidance,
see §1.904–5(i)(2).
(3)Special rule for dividends between
controlled foreign corporations.Solely
for purposes of dividend payments be-
tween controlled foreign corporations,
two controlled foreign corporations shall
be considered related look-through enti-
ties if the same United States shareholder
owns, directly or indirectly, at least 10 per-
cent of the total voting power of all classes
of stock of each foreign corporation. If
two controlled foreign corporations are
not considered related look-through enti-
ties for purposes of this section because
a United States shareholder does not sat-
isfy the ownership requirement set forth
in this paragraph (i)(3), the dividend
payment will be characterized under the
look-through rules of section 904(d)(4)
and this section if the requirements set
forth in paragraph (i)(4) of this section are
satisfied.
(4)Payor and recipient of dividend are
members of same qualified group.Solely
for purposes of dividend payments in tax-
able years beginning after December 31,
2002, between controlled foreign corpora-
tions, noncontrolled section 902 corpora-
tions, or a controlled foreign corporation
and a noncontrolled section 902 corpora-
tion, the payor and recipient corporations
shall be considered related look-through
entities if the corporations are members of
the same qualified group as defined in sec-
tion 902(b)(2) and the recipient corpora-
tion is eligible to compute foreign taxes
deemed paid with respect to the dividend
under section 902(b)(1).
(5)Examples. The following examples
illustrate the provisions of this paragraph
(i):
Examples 1 through 3[Reserved]. For
further guidance, see §1.904–5(i)(5)Ex-
amples 1 through 3.
Example 4. P, a domestic corporation, owns all
of the voting stock of S, a controlled foreign corpora-
tion. S owns 5 percent of the voting stock of T, a con-
trolled foreign corporation. The remaining 95 percent
of the stock of T is owned by P. In 2006, T pays a
$50dividendtoSanda$950dividendtoP.Thediv-
idend to S is not eligible for look-through treatment
under paragraph (i)(4) of this section, and S is not el-
igible to compute an amount of foreign taxes deemed
paid with respect to the dividend from T, because S
and T are not members of the same qualified group
(S owns less than 10 percent of the voting stock of
T). See section 902(b) and §1.902–1(a)(3). However,
the dividend is eligible for look-through treatment un-
der paragraph (i)(3) of this section because P owns at
least 10 percent of the voting power of all classes of
stock of both S and T. The dividend is subpart F in-
come of S that is taxable to P.
Example 5. P, a domestic corporation, owns 50
percent of the voting stock of S, a controlled foreign
corporation. S owns 10 percent of the voting stock
of T, a controlled foreign corporation. The remain-
ing 50 percent of the stock of S and the remaining 90
percent of the stock of T are owned, respectively, by
X and Y. X and Y are each United States sharehold-
ers of T but are not related to P, S, or each other. In
2006, T pays a $100 dividend to S. The dividend is not
eligible for look-through treatment under paragraph
(i)(3) of this section because no United States share-
holder owns at least 10 percent of the voting power
of all classes of stock of both S and T (P and X each
own only 5 percent of T). However, the dividend is
eligible for look-through treatment under paragraph
(i)(4) of this section, and S is eligible to compute an
amount of foreign taxes deemed paid with respect to
the dividend from T, because S and T are members
of the same qualified group. See section 902(b) and
§1.902–1(a)(3). The dividend is subpart F income of
S that is taxable to P and X.
(j) through (l) [Reserved]. For further
guidance, see §1.904–5(j) through (l).
(m)Application of section 904(g)—(1)
In general. This paragraph (m) applies to
certain amounts derived from controlled
foreign corporations and noncontrolled
section 902 corporations that are treated as
United States-owned foreign corporations
as defined in section 904(g)(6). For pur-
poses of determining the portion of an in-
terest payment that is allocable to income
earned or accrued by a controlled for-
eign corporation ornoncontrolled section
902 corporation from sources within the
United States under section 904(g)(3), the
rules in paragraph (m)(2) of this section
apply. For purposes of determining the
portion of a dividend (or amount treated as
a dividend, including amounts described
June 5, 200610202006–23 I.R.B.

in section 951(a)(1)(B)) paid or accrued
by a controlled foreign corporation or non-
controlled section 902 corporation that is
treated as from sources within the United
States under section 904(g)(4), the rules
in paragraph (m)(4) of this section apply.
For purposes of determining the portion of
an amount included in gross income under
section 951(a)(1)(A) that is attributable
to income of the controlled foreign cor-
poration from sources within the United
States under section 904(g)(2), the rules in
paragraph (m)(5) of this section apply. In
order to determine whether section 904(g)
applies, section 904(g)(5) (exception if a
United States-owned foreign corporation
has ade minimisamount of United States
source income) shall be applied to the
total amount of earnings and profits of
a controlled foreign corporation or non-
controlled section902 corporation for a
taxable year without regard to the charac-
terization of those earnings under section
904(d).
(2)(i) [Reserved]. For further guidance,
see §1.904–5(m)(2)(i).
(ii)Interest payments from noncon-
trolled section 902 corporations.Ifinter-
est is received or accrued by a shareholder
from a noncontrolled section 902 corpora-
tion (where the shareholder is a domestic
corporation that meets the stock owner-
ship requirements of section 902(a)), the
rules of subparagraph (m)(2)(i) apply in
determining the portion of the interest
payment that is from sources within the
United States, except that the related party
interest rules of subparagraph (c)(2)(ii)(C)
shall not apply.
(3) [Reserved]. For further guidance,
see §1.904–5(m)(3).
(4)Treatment of dividend pay-
ments—(i)Rule. Any dividend or dis-
tribution treated asa dividend under this
section (including an amount included in
gross income under section 951(a)(1)(B))
that is received or accrued by a United
States shareholder from a controlled for-
eign corporation, or any dividend that
is received or accrued by a domestic
corporate shareholder meeting the stock
ownership requirements of section 902(a)
from a noncontrolled section 902 corpo-
ration, shall be treated as income in a
separate category derived from sources
within the United States in proportion
to the ratio of the portion of the earn-
ings and profits of the controlled foreign
corporation or noncontrolled section 902
corporation in the corresponding separate
category from United States sources to
the total amount of earnings and profits
of the controlled foreign corporation or
noncontrolled section 902 corporation in
that separate category.
(m)(4)(ii) through (7) [Reserved]. For
further guidance, see §1.904–5(m)(4)(ii)
through (7).
(n)Order of application of sections
904(d) and (g). In order to apply the rules
of this section, section 904(d)(1) shall
first be applied to the controlled foreign
corporation or noncontrolled section 902
corporation to determine the amount of
income and earnings and profits derived
by the controlled foreign corporation or
noncontrolled section 902 corporation
in each separate category. The income
and earnings and profits in each sepa-
rate category that are from United States
sources shall then be determined. Sec-
tions 904(d)(3), 904(d)(4), and 904(g),
and this section shall then be applied for
purposes of characterizing and sourcing
income received, accrued, or included by
a United States shareholder in the con-
trolled foreign corporation or a domestic
corporate shareholder that meets the stock
ownership requirements of section 902(a)
with respect to a noncontrolled section 902
corporation that is attributable or allocable
to income or earnings and profits of the
foreign corporation.
(o)(1) [Reserved]. For further guid-
ance, see §1.904–5(o)(1).
(2)Rules for noncontrolled section
902 corporations. Except as provided in
§1.904–7T(f)(9), section 904(d)(4) and
this section apply to distributions from a
noncontrolled section 902 corporation that
are paid during the first taxable year of
the noncontrolled section 902 corporation
beginning after December 31, 2002, and
thereafter, without regard to whether the
corresponding taxable year of the recipient
of the distribution begins after December
31, 2002, except that the provisions of
paragraphs (m)(1), (m)(2)(ii), (m)(4)(i),
and (n) apply to distributions from a non-
controlled section 902 corporation paid
in taxable years of such corporation be-
ginning after April 25, 2006. For corre-
sponding rules applicable to taxable years
beginning before January 1, 2003, see
26 CFR §1.904–5 (revised as of April 1,
2006).
Par. 15. Section 1.904–6 is amended as
follows:
1. Revise paragraph (a)(2).
2. Revise paragraph (c)Example 6.
3. Remove paragraph (c)Example 7.
4. Redesignate paragraph (c)Example
8as paragraph (c)Example 7.
The revisions read as follows:
§1.904–6 Allocation and apportionment
of taxes.
(a) * * *
(2) [Reserved].
*****
(c)Examples.***
Example 6. P, a domestic corporation, owns all of
the stock of S, a controlled foreign corporation that
is incorporated in country X. In 2004, S has $100 of
passive income, $200 of shipping income and $200
of general limitation income. S also has $100 of re-
lated person interest expense and $100 of other ex-
penses that under foreign law are directly allocable
to the general limitation income of S. S has no other
expenses. Country X imposes a tax of 25 percent on
all of the net income of S and S, therefore, pays $75
in foreign tax. Under paragraph (a)(1)(ii) of this sec-
tion, the passive income of S is first reduced by the
amount of related person interest for purposes of de-
termining the net amount for purposes of allocating
the $75 of tax. Under paragraph (a)(1)(ii) of this sec-
tion, the general limitation income of S is reduced by
the $100 of other expenses. Therefore, $50 of the for-
eign tax is allocated to the shipping income of S ($50
= $75 x $200/$300), $25 is allocated to the general
limitation income of S ($25 = $75 x $100/$300), and
no taxes are allocated to S’s passive income.
*****
Par. 16. Section 1.904–7 is amended by
adding paragraph (f) to read as follows:
§1.904–7 Transition rules (temporary).
*****
(f) [Reserved]. For further guidance,
see §1.904–7T(f).
Par. 17. Section 1.904–7T is added as
follows:
§1.904–7T Transition rules.
(a) through (e) [Reserved]. For further
guidance, see §1.904–7(a) through (e).
(f)Treatment of non-look-through pools
of a noncontrolled section 902 corpora-
tion or a controlled foreign corporation
in post-2002 taxable years—(1)Def-
inition of non-look-through pools.The
termnon-look-through poolsmeans the
pools of post-1986 undistributed earnings
(as defined in §1.902–1(a)(9)) that were
2006–23 I.R.B.1021June 5, 2006

accumulated, and post-1986 foreign in-
come taxes (as defined in §1.902–1(a)(8))
paid, accrued, or deemed paid, in and
after the first taxable year in which the
foreign corporation had a domestic share-
holder (as defined in §1.902–1(a)(1)) but
before any such shareholder was eligible
for look-through treatment with respect to
dividends from the foreign corporation.
(2)Treatment of non-look-through
pools of a noncontrolled section 902 cor-
poration. Any undistributed earnings
in the non-look-through pool that were
accumulated in taxable years beginning
before January 1, 2003, by a noncon-
trolled section 902 corporation as of the
last day of the corporation’s last taxable
year beginning before January 1, 2003,
shall be treated in taxable years beginning
after December 31, 2002, as if they were
accumulated during a period when a div-
idend paid by the noncontrolled section
902 corporation to a domestic shareholder
would have been eligible for look-through
treatment under section 904(d)(4) and
§1.904–5. Post-1986 foreign income
taxes paid, accrued or deemed paid with
respect to such earnings shall be treated
as if they were paid, accrued or deemed
paid during a period when the related
earnings were eligible for look-through
treatment. Any such earnings and taxes
in the non-look-through pools shall con-
stitute the opening balance of the non-
controlled section 902corporation’s pools
of post-1986 undistributed earnings and
post-1986 foreign income taxes on the
first day of the foreigncorporation’s first
taxable year beginning after December
31, 2002, in accordance with the rules of
paragraph (f)(4) of this section.
(3)Treatment of non-look-through
pools of a controlled foreign corporation.
A controlled foreign corporation may
have non-look-through pools of post-1986
undistributed earnings and post-1986 for-
eign income taxes that were accumulated
and paid in a taxable year beginning be-
fore January 1, 2003, in which it was a
noncontrolled section 902 corporation.
Any such undistributed earnings in the
non-look-through pool as of the last day
of the controlled foreign corporation’s
last taxable year beginning before January
1, 2003, shall be treated in taxable years
beginning on or after January 1, 2003, as
if they were accumulated during a period
when a dividend paid by the controlled
foreign corporation out of such earnings,
or an amount included in the gross in-
come of a United States shareholder under
section 951 that is attributable to such
earnings, would have been eligible for
look-through treatment. Any post-1986
foreign income taxes paid, accrued, or
deemed paid with respect to such earnings
shall be treated in taxable years beginning
on or after January 1, 2003, as if they were
paid, accrued, or deemed paid during a
period when a dividend or inclusion out
of such earnings would have been eligi-
ble for look-through treatment. Any such
undistributed earnings and taxes in the
non-look-through pools shall be added to
the pools of post-1986 undistributed earn-
ings and post-1986 foreign income taxes
of the controlled foreign corporation in the
appropriate separatecategories on the first
day of the controlled foreign corporation’s
first taxable year beginning after Decem-
ber 31, 2002, in accordance with the rules
of paragraph (f)(4) of this section. Similar
rules shall apply to characterize any previ-
ously-taxed earnings and profits described
in section 959(c)(1)(A) that are attribut-
able to earnings in the non-look-through
pool.
(4)Substantiation of look-through
character of undistributed earnings and
taxes in a non-look-through pool—(i)Re-
construction of earnings and taxes pools.
In order to substantiate the look-through
characterization ofundistributed earnings
and taxes in a non-look-through pool under
section 904(d)(4) and §1.904–5, the tax-
payer shall make a reasonable, good-faith
effort to reconstruct the non-look-through
pools of post-1986 undistributed earnings
and post-1986 foreign income taxes (and
previously-taxed earnings and profits, if
any) on a look-through basis for each year
in the non-look-through period, begin-
ning with the first taxable year in which
post-1986 undistributed earnings were ac-
cumulated in the non-look-through pool.
Reconstruction shall be based on rea-
sonably available books and records and
other relevant information, and it must
account for earnings distributed and taxes
deemed paid in these years as if they
were distributed and deemed paidpro
ratafrom the amounts that were added
to the non-look-through pools during the
non-look-through period.
(ii)Safe harbor method. A taxpayer
may allocate the undistributed earnings
and taxes in the non-look-through pools
to the foreign corporation’s look-through
pools of post-1986 undistributed earn-
ings and post-1986 foreign income taxes
in other separate categories on the first
day of the foreign corporation’s first
taxable year beginning after December
31, 2002, in the same percentages as
the taxpayer properly characterizes the
stock of the foreign corporation in the
separate categories for purposes of ap-
portioning the taxpayer’s interest expense
in its first taxable year ending after the
first day of the foreign corporation’s first
taxable year beginning after December
31, 2002, under §1.861–12T(c)(3) or
(c)(4), as the case may be. If the mod-
ified gross income method described in
§1.861–9T(j) is used to apportion inter-
est expense of the foreign corporation
in its first taxable year beginning after
December 31, 2002, the taxpayer must
allocate the undistributed earnings and
taxes in the non-look-through pools to the
foreign corporation’s look-through pools
of post-1986 undistributed earnings and
post-1986 foreign income taxes based on
an average of the foreign corporation’s
modified gross income ratios for the for-
eign corporation’s taxable years beginning
in 2003 and 2004. A taxpayer may also
use the safe harbor method described
in this paragraph (f)(4)(ii) to allocate to
separate categories any previously-taxed
earnings and profits described in section
959(c)(1)(A) that are attributable to the
non-look-through pool.
(iii)Inadequate substantiation.Ifa
taxpayer does not elect the safe harbor
method described in paragraph (f)(4)(ii)
of this section and the Commissioner
determines that the look-through char-
acterization of earnings and taxes in the
non-look-through pools cannot reason-
ably be determined based on the available
information, the Commissioner shall allo-
cate the undistributed earnings and taxes
in the non-look-through pools to the for-
eign corporation’s passive category.
(iv)Examples. The following examples
illustrate the application of this paragraph
(f)(4):
Example 1. P, a domestic corporation, has owned
50 percent of the voting stock of S, a foreign corpo-
ration, at all times since January 1, 1987, and S has
been a noncontrolled section 902 corporation with re-
spect to P since that date. P and S each use the cal-
endar year as their U.S. taxable year. 1987 was the
first year in which post-1986 undistributed earnings
June 5, 200610222006–23 I.R.B.

were accumulated in the non-look-through pool of S.
As of December 31, 2002,S had 200u of post-1986
undistributed earnings and $100 of post-1986 for-
eign income taxes in its non-look-through pools. P
does not elect the safe harbor method under para-
graph(f)(4)(ii) of this section to allocate the earnings
and taxes in the non-look-through pools to S’s other
separate categories and does not attempt to substanti-
ate the look-through characterization of S’s non-look-
through pools. The Commissioner, however, reason-
ably determines, based on information used to char-
acterize S’s stock for purposes of apportioning P’s in-
terest expense in P’s 2003 and 2004 taxable years,
that 100u of the earnings and all $100 of the taxes
in the non-look-through pools are properly assigned
on a look-through basis to the general limitation cat-
egory, and 100u of earnings and no taxes are prop-
erly assigned on a look-through basis to the passive
category. Therefore, in accordance with the Commis-
sioner’s look-through characterization of the earnings
and taxes in S’s non-look-through pools, on January
1, 2003, S has 100u of post-1986 undistributed earn-
ings and $100 of post-1986 foreign income taxes in
the general limitation category and 100u of post-1986
undistributed earnings and no post-1986 foreign in-
come taxes in the passive category.
Example 2. ThefactsarethesameasinExam-
ple 1, except that the Commissioner cannot reason-
ably determine, based on the available information,
the proper look-through characterization of the 200u
of undistributed earnings and $100 of taxes in S’s
non-look-through pools. Accordingly, the Commis-
sioner will assign such earnings and taxes to the pas-
sive category, so that as of January 1, 2003, S has
200u of post-1986 undistributed earnings and $100
of post-1986 foreign income taxes in the passive cat-
egory, and the Commissioner will treat S as a passive
category asset for purposes of apportioning P’s inter-
est expense.
(5)Treatment of a deficit accumulated
in a non-look-through pool.Anydeficit
in the non-look-through pool of a noncon-
trolled section 902 corporation or a con-
trolled foreign corporation as of the end
of its last taxable year beginning before
January 1, 2003, shall be treated in taxable
years beginning after December 31, 2002,
as if the deficit had been accumulated dur-
ing a period in which a dividend paid by
the foreign corporation would have been
eligible for look-through treatment. In the
case of a noncontrolled section 902 corpo-
ration, the deficit and taxes, if any, in the
non-look-through pools shall constitute
the opening balance of the look-through
pools of post-1986 undistributed earnings
and post-1986 foreign income taxes of the
noncontrolled section 902 corporation in
the appropriate separate categories on the
first day of its first taxable year beginning
after December 31, 2002. In the case of a
controlled foreign corporation, the deficit
and taxes, if any, in the non-look-through
pools shall be added to the balance of the
look-through pools of post-1986 undis-
tributed earnings and post-1986 foreign
income taxes of the controlled foreign
corporation in the appropriate separate
categories on the first day of its first tax-
able year beginning after December 31,
2002. The taxpayer must substantiate
the look-through characterization of the
deficit and taxes in accordance with the
rules of paragraph (f)(4) of this section. If
a taxpayer does not elect the safe harbor
described in paragraph (f)(4)(ii) of this
section and the Commissioner determines
that the look-through characterization of
the deficit and taxes cannot reasonably
be determined based on the available
information, the Commissioner shall al-
locate the deficit and taxes, if any, in the
non-look-through pools to the foreign
corporation’s passive category. If, as of
the end of a taxable year beginning after
December 31, 2002, in which it pays a
dividend, the foreign corporation has zero
or a deficit in post-1986 undistributed
earnings (taking into account any earnings
or a deficit accumulated in taxable years
beginning before January 1, 2003), the
deficit in post-1986undistributed earnings
shall be carried back to reduce pre-1987
accumulated profits, if any, on a last-in
first-out basis. See §1.902–2(a)(1). If, as
of the end of a taxable year beginning after
December 31, 2002, in which the foreign
corporation pays a dividend out of current
earnings and profits, it has zero or a deficit
in post-1986 undistributed earnings (tak-
ing into account any earnings or a deficit
accumulated in taxable years beginning
before January 1, 2003), and the sum of
current plus accumulated earnings and
profits is zero or less than zero, no foreign
taxes shall be deemed paid with respect to
the dividend. See §1.902–1(b)(4).
(6)Treatment of pre-1987 accumu-
lated profits. Any pre-1987 accumulated
profits (as defined in §1.902–1(a)(10)) of
a controlled foreign corporation or non-
controlled section 902 corporation shall
be treated in taxable years beginning af-
ter December 31, 2002, as if they were
accumulated during a period in which a
dividend paid by the foreign corporation
would have been eligible for look-through
treatment. Any pre-1987 foreign income
taxes (as defined in §1.902–1(a)(10)(iii))
shall be treated as if they were paid, ac-
crued or deemed paid during a year when a
dividend out of the related pre-1987 accu-
mulated profits would have been eligible
for look-through treatment. The tax-
payer must substantiate the look-through
characterization of the pre-1987 accu-
mulated profits and pre-1987 foreign
income taxes in accordance with the rules
of paragraph (f)(4) of this section. If a
taxpayer does not elect the safe harbor
described in paragraph (f)(4)(ii) of this
section and the Commissioner determines
that the look-through characterization
of the pre-1987 accumulated profits and
pre-1987 foreign income taxes cannot
reasonably be determined based on the
available information, the pre-1987 ac-
cumulated profits and pre-1987 foreign
income taxes shall be allocated to the for-
eign corporation’s passive category.
(7)Treatment of post-1986 undis-
tributed earnings or a deficit of a con-
trolled foreign corporation attributable
to dividends from a noncontrolled section
902 corporation paid in taxable years
beginning before January 1, 2003—(i)
Look-through treatment of post-1986
undistributed earnings at controlled for-
eign corporation level. Dividends paid
by a noncontrolled section 902 corpora-
tion to a controlled foreign corporation
in post-1986 taxable years of the noncon-
trolled section 902 corporation beginning
before January 1, 2003, were assigned to a
separate category for dividends from that
noncontrolled section 902 corporation.
Beginning on the first day of the con-
trolled foreign corporation’s first taxable
year beginning on or after the first day of
the lower-tier corporation’s first taxable
year beginning after December 31, 2002,
any post-1986 undistributed earnings, or
previously-taxed earnings and profits de-
scribed in section 959(c)(1) or (2), of the
controlledforeigncorporationinsucha
separate category shall be treated as if
they were accumulated during a period
when a dividend paid by the noncontrolled
section 902 corporation would have been
eligible for look-through treatment. Any
post-1986 foreign income taxes in such
a separate category shall also be treated
as if they were paid, accrued or deemed
paid during a period when such a dividend
would have been eligible for look-through
treatment. Any such post-1986 undis-
tributed earnings and post-1986 foreign
income taxes in a separate category for
dividends from a noncontrolled section
902 corporation shall be added to the
2006–23 I.R.B.1023June 5, 2006

opening balance of the controlled for-
eign corporation’s look-through pools
of post-1986 undistributed earnings and
post-1986 foreign income taxes in the ap-
propriate separate categories on the first
day of the controlled foreign corpora-
tion’s first taxable year beginning on or
after the first day of the lower-tier cor-
poration’s first taxable year beginning
after December 31, 2002. The taxpayer
must substantiate the look-through char-
acterization of such earnings and taxes in
accordance with the rules of paragraph
(f)(7)(iii) of this section.
(ii)Look-through treatment of deficit in
post-1986 undistributed earnings at con-
trolled foreign corporation level.Ifacon-
trolled foreign corporation has a deficit in
a separate category for dividends from a
lower-tier noncontrolled section 902 cor-
poration that is a member of the controlled
foreign corporation’s qualified group as
defined in section 902(b)(2), such deficit
shall be treated in taxable years of the up-
per-tier corporation beginning on or after
the first day of the lower-tier corporation’s
first taxable year beginning after Decem-
ber 31, 2002, as if the deficit had been
accumulated during a period in which a
dividend from the lower-tier corporation
would have been eligible for look-through
treatment. Any post-1986 foreign income
taxes in the separate category for dividends
from the noncontrolled section 902 cor-
poration shall also be treated as if they
were paid, accrued or deemed paid dur-
ing a period when the dividends were el-
igible for look-through treatment. The
deficit and related post-1986 foreign in-
come taxes, if any, shall be added to the
opening balance of the controlled foreign
corporation’s look-through pools of post-
1986 undistributed earnings and post-1986
foreign income taxes in the appropriate
separate categories on the first day of the
controlled foreign corporation’s first tax-
able year beginning on or after the first day
of the lower-tier corporation’s first taxable
year beginning after December 31, 2002.
The taxpayer must substantiate the look-
through characterization of the deficit and
taxes in accordance with the rules of para-
graph (f)(7)(iii) of this section.
(iii)Substantiation required for look-
through treatment. The taxpayer must sub-
stantiate the look-through characterization
of post-1986 undistributed earnings, pre-
viously-taxed earnings and profits, or a
deficit in post-1986undistributed earnings
in a separate category for dividends paid
by a noncontrolled section 902 corpora-
tion in taxable years beginning before Jan-
uary 1, 2003, by making a reasonable,
good-faith effort to reconstruct the earn-
ings (or deficit) and taxes in the sepa-
rate category at the level of the controlled
foreign corporation on a look-through ba-
sis, in accordance with the principles of
paragraph (f)(4)(i) of this section. Al-
ternatively, the taxpayer may allocate the
earnings (or deficit)and taxes to the con-
trolled foreign corporation’s look-through
pools by electing to apply the safe har-
bor described in paragraph (f)(4)(ii) at the
level of the controlled foreign corpora-
tion. If the taxpayer so elects, the earn-
ings (or deficit) and taxes shall be allo-
cated to the controlled foreign corpora-
tion’s look-through pools in the appropri-
ate separate categories on the first day of
the controlled foreign corporation’s first
taxable year beginning on or after the first
day of the lower-tier corporation’s first
taxable year beginning after December 31,
2002. The allocation shall be made in
the same percentages as the controlled for-
eign corporation would properly charac-
terize the stock of the lower-tier noncon-
trolled section 902 corporation in the sep-
arate categories for purposes of apportion-
ing the controlled foreign corporation’s in-
terest expense in its first taxable year end-
ing after the first day of the noncontrolled
section 902 corporation’s first taxable year
beginning after December 31, 2002. Un-
der §1.861–12T(c)(3), the apportionment
ratios properly used by the controlled for-
eign corporation are in turn based on the
apportionment ratios properly used by the
noncontrolled section 902 corporation to
apportion its interest expense in its first
taxable year beginning after December 31,
2002. In the case of a taxpayer that elects
to use the safe harbor rule where the lower-
tier noncontrolled section 902 corporation
uses the modified gross income method
described in §1.861–9T(j) to apportion in-
terest expense for its first taxable year be-
ginning after December 31, 2002, earn-
ings (or a deficit) and taxes in the sepa-
rate category for dividends from the non-
controlled section 902 corporation shall be
allocated to the look-through pools based
on the average of the noncontrolled section
902 corporation’s modified gross income
ratios for its taxable years beginning in
2003 and 2004. In the case of a controlled
foreign corporation that has in its qualified
group a chain of lower-tier noncontrolled
section 902 corporations, the safe harbor
applies first to characterize the stock of the
third-tier corporation and then to charac-
terize the stock of the second-tier corpo-
ration. Where a taxpayer elects the safe
harbor with respect to a lower-tier non-
controlled section 902 corporation with re-
spect to which the taxpayer did not meet
the requirements of section 902(a) as of
the end of the upper-tier controlled foreign
corporation’s last taxable year beginning
before January 1, 2003, the earnings (or
deficit) and taxes in the separate category
for dividends from the lower-tier corpora-
tion shall be allocated to the upper-tier cor-
poration’s look-through pools in the sep-
arate categories in the same percentages
as the stock of the lower-tier corporation
would have been characterized for pur-
poses of apportioning the upper-tier cor-
poration’s interest expense in the last year
the taxpayer met the ownership require-
ments of section 902(a) with respect to the
lower-tier corporation if the look-through
rules had applied in that year. If a tax-
payer does not elect the safe harbor method
described in this subparagraph (f)(7)(iii),
and the Commissioner determines that the
look-through characterization of the earn-
ings (or deficit) and taxes cannot reason-
ably be determined based on the available
information, the Commissioner shall allo-
cate the earnings (or deficit) and associated
foreign income taxes to the controlled for-
eign corporation’s passive category.
(8)Treatment of distributions received
by an upper-tier corporation from a
lower-tier noncontrolled section 902 cor-
poration when the corporations do not
have the same taxable years—(i)Rule.In
the case of dividends paid by a lower-tier
noncontrolled section 902 corporation to
an upper-tier corporation where both are
members of the same qualified group as
defined in section 902(b)(2), the follow-
ing rules apply. Dividends paid by the
lower-tier corporation in taxable years
beginning before January 1, 2003, are
assigned to a separate category for divi-
dends from that corporation, regardless of
whether the corresponding taxable year of
the recipient corporation began after De-
cember 31, 2002. Post-1986 undistributed
earnings, previously-taxed earnings and
profits, and post-1986 foreign income
June 5, 200610242006–23 I.R.B.

taxes in such a separate category shall
be treated, beginning on the first day of
the upper-tier corporation’s first taxable
year beginning on or after the first day
of the lower-tier corporation’s first tax-
able year beginning after December 31,
2002, as if they were accumulated dur-
ing a period when a dividend paid by the
lower-tier corporation would have been
eligible for look-through treatment under
section 904(d)(4) and §1.904–5. Divi-
dends paid by a lower-tier corporation in
taxable years beginning after December
31, 2002, are eligible for look-through
treatment when paid, without regard to
whether the corresponding taxable year of
the recipient upper-tier corporation began
after December 31, 2002.
(ii)Example. The following example
illustrates the application of paragraph (f)
of this section:
Example. M, a domestic corporation, has directly
owned 50 percent of the stock of X, and X has directly
owned 50 percent of the stock of Y, at all times since
X and Y were organized on January 1, 1990. Accord-
ingly, X and Y are noncontrolled section 902 corpora-
tions with respect to M, and X and Y are members of
the same qualified group. M and Y use the calendar
year as their U.S. taxable year, and X uses a taxable
year beginning on July 1. Under §1.904–4(g) and
paragraph (f)(10) of this section, a dividend paid to M
by X on January 15, 2003 (during X’s last pre-2003
taxable year) is not eligible for look-through treat-
ment in 2003. However, under §1.861–12T(c)(4), M
will characterize the stock of X on a look-through ba-
sis for purposes of interest expense apportionment in
its 2003 taxable year. Under §1.904–4T(h)(1), any
unused foreign taxes in M’s separate category for div-
idends from X will be carried over to M’s other sep-
arate categories on a look-through basis for M’s tax-
able years beginning on and after January 1, 2004.
Under paragraph (f)(2) of this section, any undis-
tributed earnings and taxesin X’s non-look-through
pools will be allocated to X’s other separate cate-
gories on July 1, 2003. Under §1.904–5(i)(4) and
paragraphs (f)(8)(i) and (f)(10) of this section, a div-
idend paid to X by Y on January 15, 2003 (during
Y’s first post-2002 taxable year) is eligible for look-
through treatment when paid, notwithstanding that it
is received in a pre-2003 taxable year of X.
(9)Election to apply pre-AJCA rules to
2003 and 2004 taxable years—(i)Defini-
tion.Thetermsingle category for divi-
dends from all noncontrolled section 902
corporationsmeans the separate category
describedinsection904(d)(1)(E)asinef-
fect for taxable years beginning after De-
cember 31, 2002, and prior to its repeal by
the American Jobs Creation Act (AJCA),
Public Law 108–357, 118 Stat. 1418 (Oc-
tober 22, 2004).
(ii)Time, manner, and form of election.
A taxpayer may elect not to apply the pro-
visions of section 403 of the AJCA and
to apply the rules of this paragraph (f)(9)
to taxable years of noncontrolled section
902 corporations beginning after Decem-
ber 31, 2002, and before January 1, 2005,
without regard to whether the correspond-
ing taxable years of the taxpayer or any up-
per-tier corporation begin before or after
such dates. A taxpayer shall be eligible to
make such an election provided that —
(A) The taxpayer’s tax liability as
shownonanoriginaloramendedtaxre-
turn for each of its affected taxable years
is consistent with the rules of this para-
graph (f)(9), the guidance set forth in
Notice 2003–5, 2003–1 C.B. 294 (see
§601.601(d)(2) of this chapter), and the
principles of §1.861–12T(c)(4) for each
such year for which the statute of limi-
tations does not preclude the filing of an
amended return;
(B) The taxpayer makes appropriate ad-
justments to eliminate any double benefit
arising from the application of this para-
graph (f)(9) to years that are not open for
assessment; and
(C) The taxpayer attaches a statement
to its next tax return for which the due date
(with extensions) is more than 90 days af-
ter April 25, 2006, indicating that the tax-
payer elects not to apply the provisions of
section 403 of the AJCA to taxable years of
its noncontrolled section 902 corporations
beginning in 2003 and 2004, and that the
taxpayer has filed original returns or will
file amended returns reflecting tax liabili-
ties for each affected year that satisfy the
requirements described in this paragraph
(f)(9)(ii).
(iii)Treatment of non-look-through
pools in taxable years beginning af-
ter December 31, 2004. Undistributed
earnings (or a deficit) and taxes in the
non-look-through pools of a controlled
foreign corporation or a noncontrolled
section 902 corporation as of the end of its
last taxable year beginning before January
1, 2005, shall be treated in taxable years
beginning after December 31, 2004, as if
they were accumulated and paid during a
period in which a distribution out of earn-
ings in the non-look-through pool would
have been eligible for look-through treat-
ment. Such earnings (or deficit) and taxes
shall be added to the foreign corporation’s
pools of post-1986 undistributed earn-
ings and post-1986 foreign income taxes
in the appropriate separate categories on
the first day of the foreign corporation’s
first taxable year beginning after Decem-
ber 31, 2004. In accordance with the
principles of paragraph (f)(4) of this sec-
tion, the taxpayer must reconstruct the
non-look-through pools or, if the taxpayer
elects the safe harbor, allocate the earnings
and taxes in the non-look-through pools
to the foreign corporation’s look-through
pools in the appropriate separate cat-
egories on the first day of the foreign
corporation’s first taxable year begin-
ning after December 31, 2004. Under the
safe harbor, this allocation is made in the
same percentages as the taxpayer prop-
erly characterized the stock of the foreign
corporation for purposes of apportion-
ing the taxpayer’s interest expense in the
taxpayer’s first taxable year ending after
the first day of the foreign corporation’s
first taxable year beginning after Decem-
ber 31, 2002. See §1.861–12T(c)(3) and
(4). If a taxpayer does not elect the safe
harbor described in paragraph (f)(4)(ii)
and the Commissioner determines that
the look-through characterization of the
earnings (or deficit) and taxes cannot
reasonably be determined based on the
available information, the earnings (or
deficit) and taxes shall be allocated to the
foreign corporation’s passive category.
(iv)Carryover of unused foreign tax.
To the extent that a taxpayer has unused
foreign taxes in the single category for
dividends from all noncontrolled section
902 corporations, such taxes shall be car-
ried forward to the appropriate separate
categories in the taxpayer’s taxable years
beginning on or after the first day of the
relevant noncontrolled section 902 cor-
poration’s first taxable year beginning
after December 31, 2004. Such unused
taxes shall be carried forward in the same
manner as §1.904–2T(h)(1) provides that
unused foreign taxesin the separate cat-
egories for dividends from each noncon-
trolled section 902 corporation are carried
over to taxable years beginning on or after
the first day of the noncontrolled section
902 corporation’s first taxable year begin-
ning after December 31, 2002, in the case
of a taxpayer that does not make the elec-
tion under paragraph (f)(9) of this section.
The electing taxpayer shall determine
which noncontrolled section 902 corpo-
rations paid the dividends to which the
unused foreign taxes are attributable and
assign the taxes to the appropriate separate
2006–23 I.R.B.1025June 5, 2006

categories as if such dividends had been
eligible for look-through treatment when
paid. Accordingly, the taxpayer must sub-
stantiate the look-through characterization
of the unused foreign taxes in accordance
with paragraph (f)(4) of this section by
reconstructing the non-look-through pools
or, if the taxpayer elects the safe harbor,
by allocating the unused foreign taxes
to other separate categories in the same
percentages as the taxpayer properly char-
acterized the stock of the noncontrolled
section 902 corporation for purposes of
apportioning the taxpayer’s interest ex-
pense for its first taxable year ending after
the first day of the noncontrolled section
902 corporation’s first taxable year be-
ginning after December 31, 2002. The
rule described in this paragraph (f)(9)(iv)
shall apply only to unused foreign taxes
attributable to dividends out of earnings
that were accumulated by noncontrolled
section 902 corporations in taxable years
of such corporations beginning before
January 1, 2003, because only unused
foreign taxes attributable to distributions
out of pre-2003 earnings are included in
the single category for dividends from
all noncontrolled section 902 corpora-
tions. To the extent that unused foreign
taxes carried forward to the single cate-
gory for dividends from all noncontrolled
section 902 corporations under the rules
of Notice 2003–5 (see §601.601(d)(2)
of this chapter) were either absorbed by
low-taxed dividends paid by noncon-
trolled section 902 corporations out of the
non-look-through pool in taxable years
of such corporations beginning in 2003
or 2004, or expired unused, the amount
of taxes carried forward to the separate
categories on a look-through basis will
be smaller than the aggregate amount of
taxes initially carriedforward to the single
category for dividends from all noncon-
trolled section 902 corporations. In this
case, the unused foreign taxes arising in
each taxable year shall be deemed attrib-
utable to each noncontrolled section 902
corporation in the same ratio as the div-
idends included in the separate category
that were paid by such corporation in such
year bears to all such dividends paid by
all noncontrolled section 902 corporations
in such year. Unused foreign taxes carried
forward from the separate categories for
dividends from each noncontrolled section
902 corporation to the single category for
dividends from all noncontrolled section
902 corporations will similarly be deemed
to have been utilized on apro ratabasis.
The remaining unused foreign taxes are
then assigned to the appropriate separate
categories under the rules of paragraph
(f)(4) of this section. Unused foreign taxes
shall be treated as allocable to general lim-
itation income to the extent that such taxes
would otherwise have been allocable to
passive income (based on reconstructed
pools or the safe harbor method), or to the
extent that, under paragraph (f)(4)(iii) of
this section, the Commissioner determines
that the look-through characterization can-
not reasonably be determined based on the
available information.
(v)Carryback of unused foreign tax.
To the extent that a taxpayer has unused
foreign taxes attributable to a dividend
paid by a noncontrolled section 902 cor-
poration that was eligible for look-through
treatment under section 904(d)(4) and
§1.904–5, any such unused foreign taxes
shall be carried back toprior taxable years
within the same separate category and
not to the single category for dividends
from all noncontrolled section 902 cor-
porations or any separate category for
dividends from a nonctonrolled section
902 corporation. See Notice 2003–5 (see
§601.601(d)(2) of this chapter) for rules
relating to the carryback of unused foreign
taxes in the single category for dividends
from all noncontrolled section 902 corpo-
rations.
(vi)Recapture of overall foreign loss or
separate limitation loss in the single cate-
gory for dividends from all noncontrolled
section 902 corporations.Totheextent
that a taxpayer has a balance in a separate
limitation loss or overall foreign loss ac-
count in the single category for dividends
from all noncontrolled section 902 corpo-
rations under section 904(d)(1)(E) (prior
to its repeal by the AJCA), at the end of
the taxpayer’s last taxable year beginning
before January 1, 2005 (or a later taxable
year in which the taxpayer received a div-
idend subject to the separate limitation for
dividends from all noncontrolled section
902 corporations), the amount of such bal-
ance shall be allocated on the first day
of the taxpayer’s next taxable year to the
taxpayer’s other separate categories. The
amount of such balance that is attributable
to each noncontrolled section 902 corpora-
tion shall be allocated in the same percent-
ages as the taxpayer properly characterized
the stock of such corporation for purposes
of apportioning the taxpayer’s interest ex-
pense for its first taxable year ending af-
ter the first day of such corporation’s first
taxable year beginning after December 31,
2002, under §1.861–12T(c)(3) or (c)(4), as
the case may be. To the extent that a tax-
payer has a balance in a separate limita-
tion loss account for the single category
for dividends from all noncontrolled sec-
tion 902 corporations with respect to an-
other separate category, and the separate
limitation loss account would otherwise be
assigned to that other category under this
paragraph (f)(9)(vi), such balance shall be
eliminated.
(vii)Recapture of separate limitation
losses in other separate categories.Tothe
extent that a taxpayer has a balance in any
separate limitation loss account in a sep-
arate category with respect to the single
category for dividends from all noncon-
trolled section 902 corporations at the end
of the taxpayer’s last taxable year with or
within which ends the last taxable year of
the relevant noncontrolled section 902 cor-
poration beginning before January 1, 2005,
such loss shall be recaptured in subsequent
taxable years as income in the appropri-
ate separate category. The separate limi-
tation loss account shall be deemed attrib-
utable on apro ratabasis to those noncon-
trolled section 902 corporations that paid
dividends out of earnings accumulated in
taxable years beginning before January 1,
2003, in the years in which the separate
limitation loss in the other separate cate-
gory arose. The ratable portions of the sep-
arate limitation loss account shall be re-
captured as income in the taxpayer’s sep-
arate categories in the same percentages
as the taxpayer properly characterized the
stock of the relevant noncontrolled sec-
tion 902 corporation for purposes of ap-
portioning the taxpayer’s interest expense
in its first taxable year ending after the
first day of such corporation’s first taxable
year beginning after December 31, 2002,
under §1.861–12T(c)(3) or (c)(4), as the
case may be. To the extent that a tax-
payer has a balance in any separate lim-
itation loss account inany separate cate-
gory that would have been recaptured as
income in that same category under this
paragraph (f)(9)(vii), such balance shall be
eliminated.
June 5, 200610262006–23 I.R.B.

(viii)Treatment of undistributed earn-
ings in an upper-tier corporation-level sin-
gle category for dividends from lower-tier
noncontrolled section 902 corporations.
Where a controlled foreign corporation
or noncontrolled section 902 corporation
has a single category for dividends from
all noncontrolled section 902 corpora-
tions containing earnings attributable to
dividends paid by one or more lower-tier
corporations, the following rules apply.
The post-1986 undistributed earnings,
previously-taxed earnings and profits de-
scribed in section 959(c)(1) or (2), if any,
and associated post-1986 foreign income
taxes shall be allocated to the upper-tier
corporation’s other separate categories in
the same manner as earnings and taxes in a
separate category for dividends from each
noncontrolled section 902 corporation
maintained by the upper-tier corpora-
tion are allocated under paragraph (f)(7)
of this section. Accordingly, post-1986
undistributed earnings, previously-taxed
earnings and profits, if any, and post-1986
foreign income taxes in the single category
for dividends from all noncontrolled sec-
tion 902 corporations shall be treated as if
they were accumulated and paid, accrued
or deemed paid during a period when a
dividend paid by each lower-tier corpo-
ration that paid dividends included in the
single category would have been eligible
for look-through treatment. If the tax-
payer elects the safe harbor rule described
in paragraph (f)(7)(iii) of this section,
the earnings and taxes shall be allocated
based on the apportionment ratios prop-
erly used by the lower-tier corporation to
apportion its interest expense for its first
taxable year beginning after December 31,
2002. The taxpayer must substantiate the
look-through characterization of the earn-
ings and taxes in accordance with the rules
of paragraph (f)(7)(iii) of this section. If
the taxpayer does not elect the safe harbor
and the Commissioner determines that
the look-through characterization of the
earnings cannot reasonably be determined
based on the available information, the
earnings and taxes shall be assigned to the
upper-tier corporation’s passive category.
(ix)Treatment of a deficit in the single
category for dividends from lower-tier
noncontrolled section 902 corporations.
Where a controlled foreign corporation
or noncontrolled section 902 corporation
had an aggregate deficit in the single cate-
gory for dividends from all noncontrolled
section 902 corporations as of the end of
the upper-tier corporation’s last taxable
year beginning before January 1, 2005,
such deficit and the associated post-1986
foreign income taxes, if any, shall be allo-
cated to the upper-tier corporation’s other
separate categories in the same percent-
ages in which the non-look-through pools
of each lower-tier corporation to which the
deficit is attributable were assigned to such
corporation’s other separate categories in
its first taxable year beginning after De-
cember 31, 2002. If the taxpayer elects
the safe harbor rule described in paragraph
(f)(7)(iii) of this section, the deficit and
taxes shall be allocated based on how the
taxpayer properly characterized the stock
of the lower-tier noncontrolled section
902 corporation for purposes of apportion-
ing the upper-tier corporation’s interest
expense for the upper-tier corporation’s
first taxable year ending after the first
day of the lower-tier corporation’s first
taxable year beginning after December
31, 2002. The taxpayer must substantiate
the look-through characterization of the
deficit and taxes in accordance with the
rules of paragraph (f)(7)(iii) of this section.
If the taxpayer does not elect the safe har-
bor and the Commissioner determines that
the look-through characterization of the
deficit cannot reasonably be determined
based on the available information, the
deficit and taxes shall be assigned to the
upper-tier corporation’s passive category.
(10)Effective date. Except in the case
of a taxpayer that makes the election un-
der paragraph (f)(9) of this section, sec-
tion 904(d)(4) and this paragraph (f) shall
apply to dividends from a noncontrolled
section 902 corporation that are paid dur-
ing the first taxable year of the noncon-
trolled section 902 corporation beginning
after December 31, 2002, and thereafter,
without regard to whether the correspond-
ing taxable year of the recipient of the div-
idend begins after December 31, 2002. In
the case of a taxpayer that makes the elec-
tion under paragraph (f)(9) of this section,
the provisions of section 403 of the AJCA,
including section 904(d)(4), and this para-
graph (f) shall apply to dividends from a
noncontrolled section 902 corporation that
are paid in taxable years of the noncon-
trolled section 902 corporation beginning
after December 31, 2004, without regard
to whether the corresponding taxable year
of the recipient of the dividend begins after
December 31, 2004.
Par. 18. Section 1.904(f)–12 is
amended by adding paragraph (g) to read
as follows:
§1.904(f)–12 Transition rules (temporary).
*****
(g)Recapture in years beginning after
December 31, 2002, of separate limita-
tion losses and overall foreign losses in-
curred in years beginning before January
1, 2003, with respect to the separate cat-
egory for dividends from a noncontrolled
section 902 corporation. [Reserved]. For
further guidance, see §1.904(f)–12T(g).
Par. 19. Section 1.904(f)–12T is added
as follows:
§1.904(f)–12T Transition rules.
(a) through (f) [Reserved]. For further
guidance, see §1.904(f)–12(a) through (f).
(g)Recapture in years beginning af-
ter December 31, 2002, of separate lim-
itation losses and overall foreign losses
incurred in years beginning before Jan-
uary 1, 2003, with respect to the sepa-
rate category for dividends from a noncon-
trolled section 902 corporation—(1)Re-
capture of separate limitation loss or over-
all foreign loss incurred in a separate cat-
egory for dividends from a noncontrolled
section 902 corporation. To the extent that
a taxpayer has a balance in any separate
limitation loss or overall foreign loss ac-
count in a separate category for dividends
from a noncontrolled section 902 corpora-
tion under section 904(d)(1)(E) (prior to its
repeal by Public Law 108–357, 118 Stat.
1418 (October 22, 2004)) at the end of the
taxpayer’s last taxable year beginning be-
fore January 1, 2003 (or a later taxable year
in which the taxpayer received a dividend
subject to a separate limitation for divi-
dends from that noncontrolled section 902
corporation), the amount of such balance
shall be allocated on the first day of the tax-
payer’s next taxable year to the taxpayer’s
other separate categories. The amount of
such balance shall be allocated in the same
percentages as the taxpayer properly char-
acterized the stock of the noncontrolled
section 902 corporation for purposes of ap-
portioning the taxpayer’s interest expense
for its first taxable year ending after the
first day of such corporation’s first taxable
year beginning after December 31, 2002,
2006–23 I.R.B.1027June 5, 2006

under §1.861–12T(c)(3) or (c)(4), as the
case may be. To the extent a taxpayer
has a balance in any separate limitation
loss account in a separate category for div-
idends from a noncontrolled section 902
corporation with respect to another sepa-
rate category, and the separate limitation
loss would otherwise be assigned to that
other category under this paragraph (g)(1),
such balance shall be eliminated.
(2)Recapture of separate limitation
loss in another separate category.To
the extent that a taxpayer has a balance
in any separate limitation loss account
in a separate category with respect to a
separate category for dividends from a
noncontrolled section 902 corporation
under section 904(d)(1)(E) (prior to its
repeal by Public Law 108–357, 118 Stat.
1418 (October 22, 2004)) at the end of the
taxpayer’s last taxable year with or within
which ends the last taxable year of the
noncontrolled section 902 corporation be-
ginning before January 1, 2003, such loss
shall be recaptured in subsequent taxable
years as income in the appropriate sep-
arate categories. The separate limitation
loss shall be recaptured as income in other
separate categories in the same percent-
ages as the taxpayer properly characterizes
the stock of the noncontrolled section 902
corporation for purposes of apportioning
the taxpayer’s interest expense in its first
taxable year ending after the first day of
the foreign corporation’s first taxable year
beginning after December 31, 2002, under
§1.861–12T(c)(3) or (c)(4), as the case
may be. To the extent a taxpayer has a bal-
ance in a separate limitation loss account
in a separate category that would have
been recaptured as income in that same
category under this paragraph (g)(2), such
balance shall be eliminated.
(3)Exception. Where a taxpayer for-
merly met the stock ownership require-
ments of section 902(a) with respect to a
foreign corporation, but did not meet the
requirements of section 902(a) on Decem-
ber 20, 2002 (or on the first day of the
taxpayer’s first taxable year beginning af-
ter December 31, 2002, in the case of a
transaction that was the subject of a bind-
ing contract in effect on December 20,
2002), if the taxpayer has a balance in
any separate limitation loss or overall for-
eign loss account for a separate category
for dividends from that foreign corpora-
tion under section 904(d)(1)(E) (prior to
its repeal by Public Law 108–357, 118
Stat. 1418 (October 22, 2004)) at the
end of the taxpayer’s last taxable year be-
ginning before January 1, 2003, then the
amount of such balance shall not be sub-
ject to recapture under section 904(f) and
this section. If a separate limitation loss or
overall foreign loss account for such cate-
gory is not subject to recapture under this
paragraph (g)(3), the taxpayer cannot carry
over any unused foreign taxes in such sep-
arate category to any other limitation cate-
gory. However, a taxpayer may elect to re-
capture the balances of all separate limita-
tion loss and overall foreign loss accounts
for all separate categories for dividends
from such formerly-owned noncontrolled
section 902 corporations under the rules of
paragraphs (g)(1) and (2) of this section.
If a taxpayer so elects, it may carry over
any unused foreign taxes in these separate
categories to the appropriate separate cat-
egories as provided in §1.904–2T(h).
(4)Examples. The following examples
illustrate the application of this paragraph
(g):
Example 1. X is a domestic corporation that
meets the ownership requirements of section 902(a)
with respect to Y, a foreign corporation the stock
of which X owns 50 percent. Therefore, Y is a
noncontrolled section 902 corporation with respect
to X. Both X and Y use the calendar year as their
taxable year. As of December 31, 2002, X had a
$100 balance in its separate limitation loss account
for the separate category for dividends from Y, of
which $60 offset general limitation income and $40
offset passive income. For purposes of apportioning
X’s interest expense for its 2003 taxable year, X
properly characterized the stock of Y as a multiple
category asset (80% general and 20% passive). Un-
der paragraph (g)(1) of this section, on January 1,
2003, $80 ($100 x 80/100) of the $100 balance in
the separate limitation loss account is assigned to the
general limitation category. Of this $80 balance, $32
($80 x 40/100) is with respect to the passive category,
and $48 ($80 x 60/100) is with respect to the general
limitation category and therefore is eliminated. The
remaining $20 balance ($100 x 20/100) of the $100
balance is assigned to the passive category. Of this
$20 balance, $12 ($20 x 60/100) is with respect to the
general limitation category, and $8 ($20 x 40/100) is
with respect to the passive category and therefore is
eliminated.
Example 2. The facts are the same as inExample
1, except that as of December 31, 2002, X had a $30
balance in its separate limitation loss account in the
general limitation category, and a $20 balance in its
separate limitation loss account in the passive cate-
gory, both of which offset income in the separate cat-
egory for dividends from Y. Under paragraph (g)(2)
of this section, the separate limitation loss accounts
in the general limitation and passive categories with
respect to the separate category for dividends from
Y will be recaptured on and after January 1, 2003,
from income in other separate categories, as follows.
Of the $30 balance in X’s separate limitation loss ac-
count in the general category with respect to the sepa-
rate category for dividends from Y, $6 ($30 x 20/100)
is with respect to the passive category, and $24 ($30
x 80/100) is with respect to the general limitation cat-
egory and therefore is eliminated. Of the $20 bal-
ance in X’s separate limitation loss account in the pas-
sive category with respect tothe separate category for
dividends from Y, $16 ($20 x 80/100) will be recap-
tured out of general limitation income, and $4 ($20 x
20/100) would otherwise be recaptured out of passive
income and therefore is eliminated.
(5)Effective date. This paragraph (g)
shall apply for taxable years beginning af-
ter December 31, 2002.
Par. 20. Section 1.964–1 is amended as
follows:
1. In the first sentence of paragraph
(a) introductory text, remove the language
“For purposes of section 951 through 964”
and add “For taxable years beginning after
December 31, 1986,” in its place, and re-
move the language “, except as provided in
paragraph (f) of this section,”.
2. Remove paragraphs (a)(4) and
(a)(5), add the word “and” at the end of
paragraph (a)(2), replace the semicolon
with a period at the end of paragraph
(a)(3), and remove the language “may
be made by following the procedures de-
scribed in paragraphs (a)(1) through (5)”
in the first sentence of the undesignated
paragraph following paragraph (a)(3) and
add the language “shall be made in the
foreign corporation’s functional currency
(determined under section 985 and the
regulations under that section) and may
be made by following the procedures
described in paragraphs (a)(1) through
(a)(3)” in its place.
3. Add a new sentence at the end of
paragraph (a)(1).
4. Add a new paragraph (c)(1)(v).
5. Revise paragraphs (c)(2), (c)(3),
(c)(4), (c)(5), and (c)(6).
6. Remove paragraphs (d), (e), and (f).
The revisions read as follows:
§1.964–1 Determination of the earnings
and profits of a foreign corporation.
(a) * * *
(1)***Forrulesfordeterminingthe
earnings and profits (or deficit in earnings
and profits) of a foreign corporation for
taxable years beginning before January 1,
1987, for purposes of sections 951 through
964, see 26 CFR 1.964–1(a) (revised as of
April 1, 2006).
June 5, 200610282006–23 I.R.B.

*****
(c) * * *
(1) * * *
(v) [Reserved]. For further guidance,
see §1.964–1T(c)(1)(v).
(c)(2) through (c)(6) [Reserved]. For
further guidance, see §1.964–1T(c)(2)
through (c)(6).
Par. 21. Section 1.964–1T is amended
as follows:
1. Revise the section heading.
2. Add new paragraph (c)(1)(v).
3. Add new paragraphs (c)(2) through
(8).
4. Add new paragraphs (d), (e), and (f).
The revisions and additions read as fol-
lows:
§1.964–1T Determination of the earnings
and profits of a foreign corporation
(temporary).
(a) through (c)(1)(iv) [Reserved]. For
further guidance, see §1.964–1(a) through
(c)(1)(iv).
(v)Taxable years. The period for com-
putation of taxable income and earnings
and profits known as the taxable year shall
reflect the provisions of section 441 and
the regulations thereunder.
(2)Adoption or change of method or
taxable year. For the first taxable year
of a foreign corporation beginning after
April 25, 2006, in which a foreign cor-
poration is a controlled foreign corpora-
tion (as defined in section 957 or 953) or
a noncontrolled section 902 corporation
(as defined in section 904(d)(2)(E)), any
method of accounting or taxable year al-
lowable under this section may be adopted,
and any election allowable under this sec-
tion may be made, by such foreign cor-
poration or on its behalf notwithstanding
that, in previous years, its books or finan-
cial statements were prepared on a differ-
ent basis, and notwithstanding that such
election is required by the Code or regu-
lations to be made in a prior taxable year.
Any allowable methods adopted or elec-
tions made shall be reflected in the com-
putation of the foreign corporation’s earn-
ings and profits for such taxable year, prior
taxable years, and (unless the Commis-
sioner consents to a change) subsequent
taxable years. However, see section 898
for the rules regarding the taxable year of
a specified foreign corporation as defined
in section 898(b). Any allowable method
of accounting or election that relates to
events that first arise in a subsequent tax-
able year may be adopted or made by or
on behalf of the foreign corporation for
such year. See paragraph (a)(3) of this
section for the manner in which a method
of accounting or a taxable year may be
adopted or changed on behalf of the for-
eign corporation. See paragraph (c)(4)
and (g)(3) of this section for applicable
rules if the amount of the foreign corpora-
tion’s earnings and profits became signifi-
cant for United States tax purposes before
a method of accounting or taxable year was
adopted by the foreign corporation or on
its behalf in accordance with the rules of
paragraph (c)(3) of this section. See para-
graphs (c)(6) and (g)(2) of this section for
special rules postponing the time for tak-
ingactionbyoronbehalfofaforeigncor-
poration until the amount of its earnings
and profits becomes significant for U.S.
tax purposes.
(3)Action on behalf of corporation—(i)
In general. An election shall be deemed
made, or an adoption or change in method
of accounting or taxable year deemed ef-
fectuated, on behalf of the foreign corpora-
tion only if its controlling domestic share-
holders (as defined in paragraph (c)(5) of
this section)—
(A) Satisfy for such corporation any re-
quirements imposed by the Internal Rev-
enue Code or applicable regulations with
respect to such election or such adoption
or change in method or taxable year (in-
cluding the provisions of sections 442 and
446 and the regulations thereunder, as well
as any operative provisions), such as the
filing of forms, the execution of consents,
securing the permission of the Commis-
sioner, or maintaining books and records
in a particular manner. For purposes of
this paragraph (c)(3)(i)(A), the books of
the foreign corporation shall be considered
to be maintained in a particular manner if
the controlling domestic shareholders or
the foreign corporation regularly keep the
records and accounts required by section
964(c) and the regulations thereunder in
that manner;
(B) File the statement described in para-
graph (c)(3)(ii) of this section, at the time
and in the manner prescribed therein; and
(C) Provide the written notice required
by paragraph (c)(3)(iii) of this section at
the time and in the manner prescribed
therein.
(ii)Statement required to be filed with
ataxreturn. The statement required by
this paragraph (c)(3)(ii) shall set forth
the name, country of organization, and
U.S. employer identification number (if
applicable) of the foreign corporation,
the name, address, stock interests, and
U.S. employer identification number of
each controlling domestic shareholder
(or, if applicable, the shareholder’s com-
mon parent) approving the action, and the
names, addresses, U.S. employer identi-
fication numbers, and stock interests of
all other domestic shareholders notified
of the action taken. Such statement shall
describe the nature of the action taken on
behalf of the foreign corporation and the
taxable year for which made, and identify
a designated shareholder who retains a
jointly executed consent confirming that
such action has been approved by all of
the controlling domestic shareholders and
containing the signature of a principal
officer of each such shareholder (or its
common parent). Each controlling do-
mestic shareholder shall file the statement
with its own tax return (or information
return, if applicable) for its taxable year
with or within which ends the taxable year
of the foreign corporation for which the
election is made or for which the method
of accounting or taxable year is adopted or
changed.
(iii)Notice. On or before the filing date
described in paragraph (c)(3)(ii) of this
section, the controlling domestic share-
holders shall provide written notice of the
election made or the adoption or change
of method or taxable year effected to all
other persons known by them to be do-
mestic shareholders who own (within the
meaning of section 958(a)) stock of the
foreign corporation. Such notice shall set
forth the name, country of organization
and U.S. employer identification number
(ifapplicable)oftheforeigncorpora-
tion, and the names, addresses, and stock
interests of the controlling domestic share-
holders. Such noticeshall describe the
nature of the action taken on behalf of the
foreign corporation and the taxable year
for which made, and identify a designated
shareholder who retains a jointly executed
consent confirming that such action has
been approved by all of the controlling
domestic shareholders and containing the
signature of a principal officer of each
such shareholder (or its common parent).
2006–23 I.R.B.1029June 5, 2006

However, the failure of the controlling do-
mestic shareholders to provide such notice
toapersonrequiredtobenotifiedshall
not invalidate the election made or the
adoption or change of method or taxable
year effected.
(4)Effect of action or inaction by
controlling domestic shareholders.Any
action taken by the controlling domes-
tic shareholders on behalf of the foreign
corporation pursuant to paragraph (c)(3)
of this section shall be reflected in the
computation of the earnings and profits of
such corporation under this section to the
extent that it bears upon the tax liability
of all domestic shareholders of the foreign
corporation. See §1.964–1T(g)(5). In the
event that action by or on behalf of the for-
eign corporation is not undertaken by the
time specified in paragraph (c)(6) of this
section and such failure is shown to the
satisfaction of the Commissioner to be due
to reasonable cause, such action may be
undertaken during any period of at least 30
days occurring after such showing is made
which the Commissioner may specify as
appropriate for this purpose. The princi-
ples of §1.964–1T(g)(3) and (g)(4) shall
apply in determining the effect of a failure
of the controlling domestic shareholders
to take action on behalf of the foreign cor-
poration pursuant to paragraph (c)(3) of
this section. Accordingly, if the earnings
and profits of a noncontrolled section 902
corporation became significant for United
States income tax purposes in a taxable
year beginning on or before April 25,
2006, the corporation’s earnings and prof-
its shall be computed as if no elections had
been made and any permissible account-
ing methods not requiring an election and
reflected in the booksof account regularly
maintained by the foreign corporation for
purposes of accounting to its shareholders
had been adopted. Any change in account-
ing method may be made by or on behalf
of the foreign corporation only with the
Commissioner’s consent.
(5)Controlling domestic sharehold-
ers—(i)Controlled foreign corporations.
For purposes of this paragraph, the con-
trolling domestic shareholders of a con-
trolled foreign corporation shall be its
controlling United States shareholders.
The controlling United States sharehold-
ers of a controlled foreign corporation
shall be those United States shareholders
(as defined in section 951(b) or 953(c))
who, in the aggregate, own (within the
meaning of section 958(a)) more than 50
percent of the total combined voting power
of all classes of the stock of such foreign
corporation entitled to vote and who un-
dertake to act on its behalf. In the event
that the United States shareholders of the
controlled foreign corporation do not, in
the aggregate, own (within the meaning of
section 958(a)) more than 50 percent of the
total combined voting power of all classes
of the stock of such foreign corporation
entitled to vote, the controlling United
States shareholders of the controlled for-
eign corporation shall be all those United
States shareholders who own (within the
meaningofsection958(a))stockofsuch
corporation.
(ii)Noncontrolled section 902 corpo-
rations. For purposes of this paragraph,
the controlling domestic shareholders of
a noncontrolled section 902 corporation
that is not a controlled foreign corpora-
tion shall be its majority domestic corpo-
rate shareholders. The majority domestic
corporate shareholders of a noncontrolled
section 902 corporation shall be those do-
mestic corporations that meet the owner-
ship requirements of section 902(a) with
respect to the noncontrolled section 902
corporation (or to a first-tier foreign corpo-
ration that is a member of the same quali-
fied group as defined in section 902(b)(2)
as the noncontrolled section 902 corpora-
tion) that, in the aggregate, own directly
or indirectly more than 50 percent of the
combined voting power of all of the vot-
ing stock of the noncontrolled section 902
corporation that is owned directly or in-
directly by all domestic corporations that
meet the ownership requirements of sec-
tion 902(a) with respect to the noncon-
trolled section 902 corporation (or a rele-
vant first-tier foreign corporation).
(6)Action not required until signifi-
cant. Notwithstanding any other provision
of this paragraph, action by or on behalf of
a foreign corporation (other than a foreign
corporation subject to tax under section
882) to make an election or to adopt a
taxable year or method of accounting
shall not be required until the due date
(including extensions) of the return for a
controlling domestic shareholder’s first
taxable year with or within which ends
the foreign corporation’s first taxable year
in which the computation of its earnings
and profits is significant for United States
tax purposes with respect to its control-
ling domestic shareholders (as defined in
§1.964–1T(c)(5)). The filing of the in-
formation return required by section 6038
shall not itself constitute a significant
event. For taxable years beginning on or
after April 25, 2006, events that cause a
foreign corporation’s earnings and prof-
its to have United States tax significance
include, without limitation,
(i) A distribution from the foreign cor-
poration to its shareholders with respect to
their stock;
(ii) An amount is includible in gross
income with respect to such corporation
under section 951(a);
(iii) An amount is excluded from sub-
part F income of the foreign corporation
or another foreign corporation by reason of
section 952(c);
(iv) Any event making the foreign cor-
poration subject to tax under section 882;
(v) The use by the foreign corporation’s
controlling domestic shareholders of the
tax book value (or alternative tax book
value) method of allocating interest ex-
pense under section 864(e)(4); or
(vi) A sale or exchange of the foreign
corporation’s stock of the controlling do-
mestic shareholders that results in the
recharacterization of gain under section
1248.
(c)(7) and (8) [Reserved]. For further
guidance, see §1.964–1(c)(7) and (c)(8)
and §1.964–1T(g)(6).
(d) through (f) [Reserved].
*****
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 22. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 23. In §602.101, paragraph (b) is
amended by adding the following entries
in numerical order to the table to read, in
part, as follows:
§602.101 OMB Control numbers
*****
June 5, 200610302006–23 I.R.B.

CFR part or section where
identified and described
Current OMB
control No.
*****
1.904–7T........................................................... 1545–2104
*****
1.964–1T........................................................... 1545–2104
*****
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved April 14, 2006.
Eric Solomon,
Acting Deputy Assistant
Secretary of the Treasury.
(Filed by the Office of the Federal Register on April 20, 2006,
3:51 p.m., and published in the issue of the Federal Register
for April 25, 2006, 71 F.R. 24515)
Section 964.—Miscella-
neous Provisions
Temporary and proposed regulations provide guid-
ance on tax elections and adoptions of or changes in a
method of accounting or taxable year made on behalf
of a controlled foreign corporation or noncontrolled
section 902 corporation. See T.D. 9260, page 1001.
See REG-144784-02, page 1036.
Section 1274.—Determi-
nation of Issue Price in the
Case 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 the
long-term exempt rate.For purposes of
sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for June 2006.
Rev. Rul. 2006–29
This revenue ruling provides vari-
ous prescribed rates for federal income
tax purposes for June 2006 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.
REV. RUL.
2006–29 TABLE 1
Applicable Federal Rates (AFR) for June 2006
Period for Compounding
AnnualSemiann
ual
Quarter
ly
Monthly
Short-term
AFR4.99%4.93%4.90%4.88%
110% AFR5.49%5.42%5.38%5.36%
120% AF
R
6.01%5.92%5.88%5.85%
130% AFR6.51%6.41%6.36%6.33%
Mid-t
erm
AFR5.06%5.00%4.97%4.95%
110% A
FR
5.58%5.50%5.46%5.44%
120% AFR6.09%6.00%5.96%5.93%
130% AFR6.61%6.50%6.45%6.41%
150%
AFR
7.64
%
7.50
%
7.43
%
7.39
%
175% AFR8.94%8.75%8.66%8.59%
Lon
g-term
AFR5.32%5.25%5.22%5.19%
110
%AFR
5.8
6%
5.7
8%
5.7
4%
5.7
1%
120% AFR6.40%6.30%6.25%6.22%
130% AFR6.95%6.83%6.77%6.73%
2006–23 I.R.B.1031June 5, 2006

REV. RUL. 2006–
29 TABLE 2
Adjusted AFR for June 2006
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted
AFR
3.61%3.58%3.56%3.55%
Mid-term adjusted AFR3.82%3.78%3.76%3.75%
Long-term ad
justed
AFR
4.45%4.40%4.38%4.36%
REV. RUL. 2006–29 TABLE 3
Rates Under Section 382 for June 2006
Adjusted federal long-term rate for the current month4.45%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)4.45%
REV. RUL. 2006–29 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for June 2006
Appropriate percentage for the 70% present value low-income housing credit8.21%
Appropriate percentage for the 30% present value low-income housing credit3.52%
REV. RU
L. 2006–29 TABLE 5
Rate Under Section 7520 for June 2006
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 interest6.0%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2006. See Rev. Rul. 2006-29, page 1031.
June 5, 200610322006–23 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 1.199–2: Wage limitation.
Methods of Determining W–2
Wages for Purposes of the
§ 199(b)(1) Limitation on the
§ 199 Deduction for Income
Attributable to Domestic
Production Activities
Rev. Proc. 2006–22
SECTI
ON 1. PURPOSE
This revenue procedure provides meth-
ods for calculating W–2 wages for pur-
poses of § 199(b)(1) of the Internal Rev-
enue Code, which limits the amount of the
§ 199 deduction for income attributable to
domestic production activities to 50 per-
cent of the W–2 wages of the taxpayer for
the taxable year.
Section 1.199–2(e)(3) of the Income
Tax Regulations provides the Internal
Revenue Service with authority to issue
guidance providing the methods that may
be used to calculate W–2 wages. Section
1.199–2(e)(3) is only effective for taxable
years beginning on or after June 1, 2006.
However, pursuant to § 1.199–8(i)(1), a
taxpayer may apply § 1.199–2(e)(3) to
a taxable year beginning before June 1,
2006, provided that the taxpayer applies
all the provisions of §§ 1.199–1 through
1.199–9 to the taxable year (or all the
provisions of §§ 1.199–1 through 1.199–8
for a taxable year beginning after May 17,
2006, the enactment date of the Tax In-
crease Prevention and Reconciliation Act
of 2005 (Public Law 109–222) (TIPRA),
and before June 1, 2006). This revenue
procedure provides such guidance for
taxpayers who choose to apply the final
regulations to taxable years beginning
before June 1, 2006, but only for taxable
years beginning on or after January 1,
2005, and on or before May 17, 2006.
SECTION 2. BACKGROUND
Section 199(a) provides a deduction for
an amount equal to a percentage of the
lesser of (A) the qualified production ac-
tivities income of the taxpayer for the tax-
able year, or (B) taxable income (deter-
mined without regard to § 199) for the tax-
able year (or, in the case of an individual,
adjusted gross income).
Section 199(b)(1) provides that the
amount of the deduction allowable under
§ 199(a) for any taxable year shall not
exceed 50 percent of the W–2 wages of
the taxpayer for the taxable year.
Section 199(b)(2) provides that, for
purposes of § 199, the term “W–2 wages”
means, with respect to any person for any
taxable year of such person, the sum of
the amounts described in § 6051(a)(3) and
(8)paidbysuchpersonwithrespectto
employment of employees by such person
during the calendar year ending during
such taxable year. Such term shall not
include any amount that is not properly
included in a return filed with the So-
cial Security Administration (SSA) on
or before the 60th day after the due date
(including extensions) for such return.
This revenue procedure provides three
methods for calculating W–2 wages for
purposes of § 199(b)(1). These meth-
ods are generally the same as were set
forth in both § 1.199–2 of the proposed
regulations that were published in the
Federal Registeron November 4, 2005
(REG–105847–05, 2005–47 I.R.B. 987
[70FR67220]),andinsection4.02ofNo-
tice 2005–14, 2005–1 C.B. 498, 514. The
first method (the unmodified Box method)
allows for a simplified calculation while
the second and third methods (the modi-
fied Box 1 method and the tracking wages
method) provide greater accuracy.
Section 514(a) of TIPRA amended
§ 199(b)(2) by excluding from the term
W–2 wages any amount that is not prop-
erly allocable to domestic production gross
receipts for purposes of § 199(c)(1). This
amendment made by TIPRA is effective
with respect to taxable years beginning
after the date of enactment, May 17, 2006.
The IRS and Treasury Department plan
on issuing regulations and a new revenue
procedure reflecting the amendment made
to § 199(b)(2) by TIPRA. It is expected
that any new revenue procedure will con-
tain methods for calculating W–2 wages
similar to the three methods in this revenue
procedure, but will reflect the additional
limitation on W–2 wages imposed by
TIPRA. Because of the amendment by
TIPRA, the guidance provided by this rev-
enue procedure does not apply to taxable
years beginning after the date of enact-
ment of TIPRA.
SECTION 3
. RULES OF APPLICATION
.01In general. Section 1.199–2(a)(1)
of the regulations provides that, ex-
cept as provided in § 1.199–2(a)(3) and
§ 1.199–2(b), the Forms W–2, “Wage and
Tax Statement,” used in determining the
amount of W–2 wages are those issued
for the calendar year ending during the
taxpayer’s taxable year for wages paid to
employees (or former employees) of the
taxpayer for employment by the taxpayer.
For purposes of § 1.199–2, § 1.199–2(a)(1)
provides that employees of the taxpayer
are limited to employees of the taxpayer
as defined in § 3121(d)(1) and (2) (that
is, officers of a corporate taxpayer and
employees of the taxpayer under common
law rules).
.02Wagespaidbyentityother
than common law employer. Section
1.199–2(a)(2) of the regulations provides
that, in determining W–2 wages, a tax-
payer may take into account any wages
paid by another entity and reported by the
other entity on Forms W–2 with the other
entity as the employer listed in Box c of
the Forms W–2, provided that the wages
were paid to employees of the taxpayer for
employment by the taxpayer. If the tax-
payer is treated as an employer described
in § 3401(d)(1) because of control of the
payment of wages (that is, the taxpayer
is not the common law employer of the
payee of the wages), the payment of wages
may not be included in determining W–2
wages of the taxpayer. If the taxpayer is
paying wages as an agent of another entity
to individuals who are not employees of
the taxpayer, the wages may not be in-
cluded in determining the W–2 wages of
the taxpayer.
.03Requirement that wages must be re-
ported on return filed with Social Security
Administration. Section 1.199–2(a)(3) of
the regulations provides that the term
“W–2 wages” shall not include any
amount that is not properly included in
a return filed with SSA on or before the
60th day after the due date (including ex-
tensions) for such return. For this purpose,
if a Form W–2c (or corrected return) is
filed to correct a Form W–2 that was not
2006–23 I.R.B.1033June 5, 2006

filed with SSA on or before the 60th day
after the due date (including extensions)
of the Form W–2 (or to correct a Form
W–2c relating to a Form W–2 that had not
been filed with SSA on or before the 60th
day after the due date (including exten-
sions) of the Form W–2), then such Form
W–2c (or corrected return) shall not be
considered to have been filed with SSA
on or before the 60th day after the due
date (including extensions) for such Form
W–2c (or corrected return), regardless of
when such Form W–2c (or corrected re-
turn) is filed. See § 1.199–2(a)(3) of the
regulations for further guidance related to
this requirement.
.04No application in determining
whether amounts are wages for employ-
ment tax purposes. The discussions of
“wages” in this revenue procedure and
in the regulations under § 199 are for
purposes of § 199 only and have no ap-
plication in determining whether amounts
are wages under § 3121(a) for purposes of
the Federal Insurance Contributions Act,
under § 3306(b) for purposes of the Fed-
eral Unemployment Tax Act, and under
§ 3401(a) for purposes of the Collec-
tion of Income Tax at Source on Wages
(federal income tax withholding), or any
other wage-related determination. See
§ 1.199–2(a)(1) of the regulations.
.05Application for a taxpayer with a
short taxable year. Subject to the other
rules of application of the regulations and
of this revenue procedure, the W–2 wages
of the taxpayer for a short taxable year
shall include those wages paid during the
short taxable year to employees of the tax-
payer as determined under the tracking
wages method described in section 5.03 of
this revenue procedure. See section 6 of
this revenue procedure.
.06Acquisition or disposition of a trade
or business (or major portion). Section
1.199–2(c) of the regulations provides that
if a taxpayer (a successor) acquires a trade
or business, the major portion of a trade or
business,orthemajorportionofasepa-
rate unit of a trade or business from another
taxpayer (a predecessor), then, for pur-
poses of computing the respective § 199
deduction of the successor and of the pre-
decessor, the W–2 wages paid for that cal-
endar year shall be allocated between the
successor and the predecessor based on
whether the wages are for employment by
the successor or for employment by the
predecessor. Thus, in this situation, the
W–2 wages are allocated based on whether
the wages are for employment for a period
during which the employee was employed
by the predecessor or for employment for
aperiodduringwhichtheemployeewas
employed by the successor, regardless of
which permissible method for Form W–2
reporting is used.
.07Non-duplication rule. Section
1.199–2(d) of the regulations provides that
amounts that are treated as W–2 wages for
a taxable year under any method of cal-
culating W–2 wages shall not be treated
as W–2 wages for any other taxable year.
Thus, for example, an amount of nonqual-
ified deferred compensation that is treated
as W–2 wages under the Unmodified Box
Method described in section 5.01 of this
revenue procedure shall not be treated
as W–2 wages in any other taxable year.
Section 1.199–2(d) of the regulations
also provides that an amount shall not be
treated as W–2 wages by more than one
taxpayer.
.08Trade or business requirement.Pur-
suant to § 1.199–8(c)(1), the term W–2
wages only includes those wages paid to
employees of the taxpayer that are attribut-
able to the actual conduct of a trade or busi-
ness of the taxpayer. For example, remu-
neration paid to an employee for domestic
service performed in the private home of
the taxpayer is not included in W–2 wages
of the taxpayer.
SECTION 4. DEFINITION OF W–2
WAGES AND CORRELATION WITH
BOXES ON FORM W–2
.01Definition of W–2 wages. Sec-
tion 199(b)(2) and § 1.199–2(e) of the
regulations provides that, for purposes
of § 199(b)(1), the term “W–2 wages”
means, with respect to any person for any
taxable year of such person, the sum of
the amounts described in § 6051(a)(3)
and (8) paid by such person with respect
to employment of employees by such
person during the calendar year ending
during such taxable year. Thus, the regu-
lations provide that the term W–2 wages
includes: (i) the total amount of wages as
defined in § 3401(a); (ii) the total amount
of elective deferrals (within the meaning
of § 402(g)(3)); (iii) the compensation de-
ferred under § 457; and (iv) for tax years
beginning after December 31, 2005, the
amount of designated Roth contributions
(as defined in § 402A).
.02Correlation with Form W–2.Un-
der the 2005 and 2006 Forms W–2, the
elective deferrals under § 402(g)(3) and
the amounts deferred under § 457 directly
correlate to coded items reported in Box
12 on Form W–2. Box 12, Code D is
for elective deferrals to a § 401(k) cash
or deferred arrangement (plan); Box 12,
Code E is for elective deferrals under a
§ 403(b) salary reduction agreement; Box
12, Code F is for elective deferrals un-
der a § 408(k)(6) salary reduction Sim-
plified Employee Pension (SEP); Box 12,
Code G is for elective deferrals and em-
ployer contributions (including nonelec-
tive deferrals) to any governmental or non-
governmental § 457(b) deferred compen-
sation plan; and Box 12, Code S is for em-
ployee salary reduction contributions un-
der a § 408(p) SIMPLE (simple retirement
account). Under the 2006 Form W–2,
the amount of designated Roth contribu-
tions (as defined in § 402A) directly cor-
relates to Box 12, Code AA for desig-
nated Roth contributions to a § 401(k) plan
and Box 12, Code BB for designated Roth
contributions under a § 403(b) salary re-
duction agreement. However, designated
Roth contributions are also reported in Box
1, Wages, tips, other compensation, and
Box 5, Medicare wages and tips, and are
subject to income tax withholding.
SECTION 5. METHODS FOR
CALCULATING W–2 WAGES
For any taxable year, a taxpayer gen-
erally must calculate W–2 wages for pur-
poses of § 199(b)(1) using one of the three
methods described in section 5.01, 5.02,
and 5.03 of this revenue procedure. These
three methods are subject to the non-dupli-
cation rule provided in § 1.199–2(d). For a
taxpayer with a short taxable year, see Sec-
tion 6 of this revenue procedure. In calcu-
lating W–2 wages for a taxable year under
the methods below, the taxpayer includes
only Forms W–2 that are for the calendar
year ending with or within the taxable year
of the taxpayer and that meet the rules of
application described in section 3 of this
revenue procedure.
.01Unmodified box method. Under
the unmodified box method, W–2 wages
are calculated by taking, without modifi-
cation, the lesser of—
June 5, 200610342006–23 I.R.B.

(A) The total entries in Box 1 of all
Forms W–2 filed with SSA by the taxpayer
with respect to employees of the taxpayer
for employment by the taxpayer; or
(B) The total entries in Box 5 of all
Forms W–2 filed with SSA by the taxpayer
with respect to employees of the taxpayer
for employment by the taxpayer.
.02Modified Box 1 method.Under
the Modified Box 1 method, the taxpayer
makes modifications to the total entries in
Box 1 of Forms W–2 filed with respect to
employees of the taxpayer. W–2 wages
under this method are calculated as fol-
lows—
(A) Total the amounts in Box 1 of all
Forms W–2 filed with SSA by the taxpayer
with respect to employees of the taxpayer
for employment by the taxpayer;
(B) Subtract from the total in paragraph
.02(A) of this section amounts included in
Box 1 of Forms W–2 that are not wages
for Federal income tax withholding pur-
poses and amounts included in Box 1 of
Forms W–2 that are treated as wages for
purposes of income tax withholding under
§ 3402(o) (for example, supplemental un-
employment compensation benefits); and
(C) Add to the amount obtained after
paragraph .02(B) of this section the total
of the amounts that are reported in Box 12
of Forms W–2 with respect to employees
of the taxpayer for employment by the tax-
payer and that are properly coded D, E, F,
G, and S.
.03Tracking wages method. Under the
tracking wages method, the taxpayer actu-
ally tracks total wages subject to Federal
income tax withholding and makes appro-
priate modifications. W–2 wages under
this method are calculated as follows—
(A) Total the amounts of wages subject
to Federal income tax withholding that are
paid to employees of the taxpayer for em-
ployment by the taxpayer and that are re-
ported on Forms W–2 filed with SSA by
the taxpayer for the calendar year;
(B) Subtract from the total in paragraph
.03(A) of this section the supplemental un-
employment compensation benefits (as de-
fined in § 3402(o)(2)(A)) that were in-
cluded in the total in paragraph .03(A) of
this section; and
(C) Add to the amount obtained after
paragraph .03(B) of this section the total
of the amounts that are reported in Box 12
of Forms W–2 with respect to employees
of the taxpayer for employment by the tax-
payer and that are properly coded D, E, F,
G, and S.
SECTION6.APPLICATIONINCASE
OF SHORT TAXABLE YEAR
.01Special rule for taxpayers with a
short taxable year. Section 1.199–2(b) of
the regulations provides that, in the case of
a taxpayer with a short taxable year, sub-
ject to the rules of § 1.199–2(a), the W–2
wages of the taxpayer for the short taxable
year shall include only those wages paid
during the short taxable year to employ-
ees of the taxpayer, only those elective de-
ferrals (within the meaning of § 402(g)(3))
made during the short taxable year by em-
ployees of the taxpayer, and only compen-
sation actually deferred under § 457 during
the short taxable year with respect to em-
ployees of the taxpayer.
.02Method required for a short taxable
year and modifications required in appli-
cation of method. The W–2 wages of a tax-
payer with a short taxable year shall be de-
termined under the tracking wages method
described in section 5.03 of this revenue
procedure. In applying the tracking wages
method in the case of a short taxable year,
the taxpayer must apply the method as fol-
lows—
(A) For purposes of section 5.03(A), the
total amount of wages subject to Federal
income tax withholding and reported on
Form W–2 must include only those wages
subject to Federal income tax withholding
that are actually paid to employees dur-
ing the short taxable year and reported on
Form W–2 for the calendar year ending
with or within that short taxable year;
(B) For purposes of section 5.03(B),
only the supplemental unemployment
compensation benefits paid during the
short taxable year that were included in
the total in section 5.03(A) as modified
by section 6.02(A) are required to be de-
ducted; and
(C) For purposes of section 5.03(C),
only the portion of the total amounts re-
ported in Box 12, Codes D, E, F, G, and
S on Forms W–2, that are actually deferred
or contributed during the short taxable year
are included in W–2 wages.
SECTION 7. EFFECTIVE DATE
A taxpayer must apply this revenue pro-
cedure to a taxable year beginning on or
before May 17, 2006, if the taxpayer ap-
plies §§ 1.199–1 through 1.199–9 to the
taxable year. For a taxpayer who chooses
not to rely on §§ 1.199–1 through 1.199–9
and this revenue procedure for a taxable
year beginning on or before May 17, 2006,
the guidance on W–2 wages under § 199
that applies to such taxable year is con-
tained in Notice 2005–14 or § 1.199–2
of the proposed regulations. If Notice
2005–14 and § 1.199–2 of the proposed
regulations include different rules for the
same particular issue, then a taxpayer may
rely on either the rule set forth in Notice
2005–14 or the rule set forth in § 1.199–2
of the proposed regulations. However, if
§ 1.199–2 of the proposed regulations in-
cludes a rule that was not included in No-
tice 2005–14, then a taxpayer is not per-
mitted to rely on the absence of a rule to
apply a rule contrary to § 1.199–2 of the
proposed regulations. For taxable years
beginning after May 17, 2006, and before
June 1, 2006, a taxpayer may not apply No-
tice 2005–14, the proposed regulations, or
any other guidance under § 199 in a man-
ner inconsistent with amendments made to
§ 199 by section 514 of TIPRA.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is A. G. Kelley of the Office of
Associate Chief Counsel (Tax Exempt &
Government Entities). For further infor-
mation regarding this revenue procedure,
contact Mr. Kelley at (202) 622–6040 (not
a toll-free call).
2006–23 I.R.B.1035June 5, 2006

Part IV. Items of General Interest
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Application of Separate
Limitations to Dividends From
Noncontrolled Section 902
Corporations
REG–144784–02
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9260) that provide guidance needed
to comply with amendments enacted by
the American Jobs Creation Act of 2004,
Public Law 108–357, 118 Stat. 1418 (Oc-
tober 22, 2004) (AJCA) and the Gulf Op-
portunity Zone Act of 2005, Public Law
109–135, 119 Stat. 2577 (December 22,
2005) (GOZA), concerning the treatment
of dividends from noncontrolled section
902 corporations. The AJCA modified the
treatment under section 904(d)(4) of divi-
dends from noncontrolled section 902 cor-
porations effective for taxable years be-
ginning after December 31, 2002. GOZA
permits taxpayers to elect to defer the ef-
fective date of the AJCA amendments un-
til taxable years beginning after December
31, 2004. The temporary regulations af-
fect domestic corporations that own stock
in foreign corporations and that claim for-
eign tax credits. The text of those tempo-
rary regulations published in this issue of
the Bulletin also serves as the text of these
proposed regulations.
DATES: Written and electronic comments
and requests for a public hearing must be
received by July 24, 2006.
ADDRESSES: Send submissions to
CC:PA:LPD:PR(REG–144784–02),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered between the hours of
8a.m. and4p.m. toCC:PA:LPD:PR
(REG–144784–02), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC, or sent
electronically via the IRS Internet site at
www.irs.gov/regsor via the Federal Rule-
making Portal atwww.regulations.gov
(IRS and REG–144784–02).
FOR FURTHER INFORMATION
CONTACT: Concerning submission
of comments, Kelly Banks (202)
622–7180; concerning the regulations,
Ginny Y. Chung (202) 622–3850 (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 of
Management and Budget for review in
accordance with the Paperwork Reduc-
tion Act of 1995 (44 U.S.C. 3507(d)).
Comments on the collections of infor-
mation should be sent to theOffice of
Management and Budget,Attn: Desk
Officer for the Department of the Trea-
sury, Office of Information and Regula-
tory Affairs, Washington, DC 20503, with
copies to theInternal Revenue Service,
Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collections of
information should be received by July
24, 2006. Comments are specifically re-
quested concerning:
Whether the proposed collections of in-
formation are necessary for the proper per-
formance of the functions of the IRS, in-
cluding whether the information will have
practical utility;
The accuracy of the estimated burdens
associated with the proposed collections of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burdens of complying with the
proposed collections of information may
be minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of services to provide informa-
tion.
The collections of information
in these proposed regulations are in
§§1.904–7(f)(9) and 1.964–1(c)(3)(ii).
This information is required to enable the
IRS to verify that taxpayers that make
certain elections (described in the Back-
ground section of this document) applied
the appropriate separate foreign tax credit
limitation rules to dividends from noncon-
trolled section 902 corporations, and, in
the case of shareholders making certain
tax elections on behalf of a controlled
foreign corporation or noncontrolled sec-
tion 902 corporation, the shareholders
complied with the applicable regulations
concerning such elections. The collec-
tions of information are mandatory. The
respondents are domestic shareholders of
noncontrolled section 902 corporations
and controlled foreign corporations.
Estimated total annual reporting bur-
den: 25 hours.
The estimated annual burden per re-
spondent is a half hour.
Estimated number of respondents: 50.
The estimated annual frequency of re-
sponses: on occasion.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
Background
Temporary regulations in this issue
of the Bulletin provide rules concerning
the application of separate foreign tax
credit limitations to dividends received
from noncontrolled section 902 corpora-
tions (10/50 corporations) under section
904(d)(4). Section 403 of the American
Jobs Creation Act of 2004, Public Law
June 5, 200610362006–23 I.R.B.

108–357, 118 Stat. 1418 (October 22,
2004) (AJCA), modified the treatment
of such dividends effective for taxable
years beginning after December 31, 2002
(post-2002 taxable years). Section 403(l)
of the Gulf Opportunity Zone Act of 2005,
Public Law 109–135, 119 Stat. 2577 (De-
cember 22, 2005) (GOZA), permits tax-
payers to elect to defer the effective date
of the AJCA amendments until taxable
years beginning after December 31, 2004
(post-2004 taxable years). The temporary
regulations provide guidance needed to
comply with these changes. The text of
the temporary regulations also serves as
the text of these proposed regulations. The
preamble to the temporary regulations ex-
plains the temporary regulations and these
proposed regulations.
The collections of information
in these proposed regulations are in
§§1.904–7(f)(9) and 1.964–1(c)(3). Sec-
tion 1.904–7(f)(9)(ii) provides that a tax-
payer electing to defer the effective date
of the AJCA amendments until post-2004
taxable years must attach a statement to
its next tax return for which the due date
(with extensions) is more than 90 days
after April 20, 2006. This statement must
indicate that the taxpayer elects not to
apply the provisions of section 403 of the
AJCA to taxable years of its noncontrolled
section 902 corporations beginning in
2003 and 2004 and that the taxpayer has
filed original returns or will file amended
returns reflecting tax liabilities for all af-
fected years that satisfy the requirements
described in §1.904–7(f)(9)(ii).
Section 1.964–1(c)(2) and (3) provides
that the controlling United States share-
holders of a controlledforeign corporation,
and the majority domestic corporate share-
holders of a noncontrolled section 902 cor-
poration, may make an election, or adopt
or change a method of accounting or tax-
able year, on behalf of the foreign corpo-
ration. Section 1.964–1(c)(3)(ii) requires
that a jointly executed statement evidenc-
ing the controlling shareholders’ consent
to the election, or change in method of ac-
counting or taxable year of the foreign cor-
poration, be retained by one or more of
the shareholders, and that each controlling
shareholder file a separate statement with
its tax return for the taxable year with or
within which the foreign corporation’s tax-
able year ends.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in Exec-
utive Order 12866. Therefore, a regula-
tory assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations, and because the regulations do
not impose a collection of information on
small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6), does not apply.
Pursuant to section 7805(f) of the Internal
Revenue Code, these proposed regulations
will be submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comment on their impact on
small businesses.
Comments and Request for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will 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 request
comments on the clarity of the proposed
regulations and how they can be made eas-
ier to understand. All comments will be
available for public inspection and copy-
ing. A public hearing may be scheduled
if requested in writing by a person who
timely submits comments. If a public hear-
ing is scheduled, notice of the date, time,
and place for the hearing will be published
in theFederal Register.
Drafting Information
The principal author of these regula-
tions is Ginny Chung, Office of Associate
Chief Counsel (International). However,
other personnel from the IRS and the Trea-
sury Department participated in their de-
velopment.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1 – INCOME TAXES
Paragraph 1. The authority for part 1
continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In §1.861–9, paragraph (f) is
revised to read as follows:
§1.861–9 Allocation and apportionment
of interest expense.
*****
(f) [The text of proposed §1.861–9(f)
is the same as the text of §1.861–9T(f)
published elsewhere in this issue of the
Bulletin.]
*****
Par. 3. In §1.861–12, paragraph (c) is
revised to read as follows:
§1.861–12 Characterization rules and
adjustments for certain assets.
*****
(c) [The text of proposed §1.861–12(c)
is the same as the text of §1.861–12T(c)
published elsewhere in this issue of the
Bulletin.]
*****
Par. 4. In §1.902–1, paragraphs (a), (c),
(d) and (g) are revised to read as follows:
§1.902–1 Credit for domestic corporate
shareholder of a foreign corporation for
foreign income taxes paid by the foreign
corporation.
[The text of the proposed amendments
to §1.902–1(a), (c), (d), and (g) are the
same as the text of §1.902–1T(a), (c), (d),
and (g) published elsewhere in this issue of
the Bulletin.
*****
Par. 5. In §1.904–2, paragraph (a) is
revised and paragraph (h) is added to read
as follows:
§1.904–2 Carryback and carryover of
unused foreign tax.
[The text of the proposed amendment
to §1.904–2(a) and the text of proposed
§1.904–2(h) are the same as the text of
§1.904–2T(a) and (h) published elsewhere
in this issue of the Bulletin.]
Par. 6. In §1.904–4, paragraph (c) is
revised to read as follows:
2006–23 I.R.B.1037June 5, 2006

§1.904–4 Separate application of section
904 with respect to certain categories of
income.
*****
(c) [The text of the proposed amend-
ments to §1.904–4(c) is the same as the
text of §1.904–4T(c) published elsewhere
in this issue of the Bulletin.]
Par. 7. In §1.904–5, paragraphs (a), (b),
(c), (i), (m), (n), and (o) are revised to read
as follows:
§1.904–5 Look-through rules as applied
to controlled foreign corporations and
other entities.
*****
[The text of the proposed amend-
ments to §1.904–5(a), (b), (c), (i), (m),
(n), and (o) are the same as the text of
§1.904–5T(a), (b), (c), (i), (m), (n), and
(o) published elsewhere in this issue of the
Bulletin.]
Par. 8. In §1.904–7, paragraph (f) is
added as follows:
§1.904–7 Transition rules.
*****
(f) [The text of proposed §1.904–7(f)
is the same as the text of §1.904–7T(f)
published elsewhere in this issue of the
Bulletin.]
Par. 9. In §1.904(f)–12, paragraph (g)
is added as follows:
§1.904(f)–12 Transition rules.
*****
(g) [The text of proposed
§1.904(f)–12(g) is the same as the
text of §1.904(f)–12T(g) published else-
where in this issue of the Bulletin.]
Par. 10. In §1.964–1, paragraph (c) is
revised to read as follows:
§1.964–1 Determination of the earnings
and profits of a foreign corporation.
*****
(c) [The text of proposed §1.964–1(c)
is the same as the text of §1.964–1T(c)
published elsewhere in this issue of the
Bulletin.]
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on April 20, 2006,
3:51 p.m., and published in the issue of the Federal Register
for April 25, 2006, 71 F.R. 24543)
Foundations Status of Certain
Organizations
Announcement 2006–36
The following organizations have failed
to establish or have been unable to main-
tain their status as public charities or as op-
erating foundations. Accordingly, grantors
and contributors may not, after this date,
rely on previous rulings or designations
in the Cumulative List of Organizations
(Publication 78), or on the presumption
arising from the filing of notices under sec-
tion 508(b) of the Code. This listing does
notindicate that the organizations have lost
their status as organizations described in
section 501(c)(3), eligible to receive de-
ductible contributions.
Former Public Charities.The follow-
ing organizations (which have been treated
as organizations thatare not private foun-
dations described in section 509(a) of the
Code) are now classified as private foun-
dations:
Abilities Staffing, Inc., Atlanta, GA
Academy for Individual Excellence
Scholarship Foundation, Inc.,
Louisville, KY
Accord Institute, Memphis, TN
Agape Resource, Secane, PA
Ahead of the Game, Inc., New York, NY
Antioch A M E Community Development
Corporation, Inc., Stone Mountain, GA
Arthur Smoke Stack Hardy Fire Museum,
Inc., Baltimore, MD
Brother’s Keeper Economic Development
Corporation, Missouri City, TX
Buckhorn Association of Brooklyn, Inc.,
Brooklyn, NY
Capital City Chamber of Commerce
Foundation, Inc., Austin, TX
Central Coast Cultural Group, Inc.,
Santa Maria, CA
Central New York Cage Bird Club,
Syracuse, NY
Charles H. Owens, Sr. Memorial
Scholarship Fund, Inc., Columbia, MD
Chickasha Community Foundation, Inc.,
Chickasha, OK
C H I L D Initiative, Oak Lawn, IL
Clayton Community Learning Center,
Inc., Dover, DE
Coachella Institute for Vocational
Independent Living, Coachella, CA
Communities Against Substance Abuse
Foundation, El Cajon, CA
Community & Business Resource
Development Corp., East Hazel, IL
Congregation Ozer Dalim, Inc.,
Spring Valley, NY
Costa Rica-Latin America School
Supplies, Inc., Palm Bay, FL
Dayton Chamber Music Society,
Dayton, OH
East 23rd Street PAC Neighborhood
Association, Kansas City, MO
Faith Keepers, Inc., Chicago, IL
Flavin Educational Foundation,
Houston, TX
Freightliner Toys for Tots, Gastonia, NC
Friends of Napa Airport, Inc., Napa, CA
Garnered Grain, Elk Ridge, UT
Global Christian Ambassadors, Inc.,
Fremont, CA
Global Med Alliance, Inc.,
Lincolnton, NC
Good Neighbor Community Development
Corporation, Brooklyn, NY
Grasselli Community Development, Inc.,
Birmingham, AL
Greater Acadiana Community
Housing Development Organization,
Lafayette, LA
Growth International Development
Corporation, Memphis, TN
H & H Housing, Inc., Los Angeles, CA
Healing the Environment, Inc.,
Palm Springs, CA
Health Care for All-California Education
Fund, Inc., Berkeley, CA
Heart of Gold Child Service Corporation,
Phoenix, AZ
House of Peter, Inc., Prescott, AZ
Human Service Information Technology
Applications, Arlington, TX
Inland Valley Hockey Association,
Riverside, CA
It’s Not Your Fault, Inc., Portland, OR
Jastay Community Services, Inc.,
Bastrop, LA
Jumpstart Pre-School, Los Angeles, CA
Living Legacy Farm, Elk Ridge, UT
Main Stay Community Network,
Upper Darby, PA
Maranatha Corporation, Bakersfield, CA
Mariachi Nuestro Orgullo, Henderson, NV
Marti Nelson Medical Foundation,
Davis, CA
Maui Center for Health Care Education,
Kahului, HI
June 5, 200610382006–23 I.R.B.

Mauldin Scholarship Fund Account,
N. Little Rock, AR
Mayoral Fellows Foundation of
San Diego, Del Mar, CA
Mission of Love Care Home, Inc.,
Valdosta, GA
Mt. Moriah Community Ministry, Inc.,
Blytheville, AR
Namaste International, Allentown, PA
National Bicycle Greenway, Palo Alto, CA
New York Raptors Special Hockey Club,
Inc., Larchmont, NY
Olivias House of Love, Houston, TX
One Class at a Time, Fremont, CA
Open Hearth Foundation, Rockford, IL
Organization for Africans With Diabetes,
Inc., Bronx, NY
Our Kids Can Too, Inc.,
West Palm Beach, FL
Playground Foundation, Gardonsville, VA
Project 2000 — Community Center,
Moses Lake, WA
PS & QS Character Education Through
Social Graces, Inc., East Pointe, GA
Psalms One Hundred and Fifty
Instrumental Gospel Ensemble of,
Stockton, CA
Raj & Neelam Modi Charitable Trust,
Inc., Albertson, NY
Randy Caldwell Ministries, Inc.,
League City, TX
Resurrection Ministries, Texarkana, TX
Scottsdale Airpark Rotary Foundation,
Scottsdale, AZ
See Spot Fund, Inc., Garden Grove, CA
Seniors Learning Together, Inc.,
Apple Valley, MN
Serving Seniors, Inc., Dublin, OH
Sisters Outreach Foundation, Gretna, LA
Southwest Institute of Fitness and
Training, Phoenix, AZ
Spay Fund, Inc., Society Hill, SC
Students Tutorial Enrichment Program,
Inc.,Bowie,MD
Teen Education and Mentoring,
Encinitas, CA
United Hope Foundation,
Los Angeles, CA
Walk in Love Outreach, Inc., Decatur, GA
WesternBrownYouthFootball
Association, Williamsburg, OH
Western US Falun Dafa Association,
San Jose, CA
If an organization listed above submits
information that warrants the renewal of
its classification as a public charity or as
a private operating foundation, the Inter-
nal Revenue Service will issue a ruling or
determination letter with the revised clas-
sification as to foundation status. Grantors
and contributors may thereafter rely upon
such ruling or determination letter as pro-
vided in section 1.509(a)–7 of the Income
Tax Regulations. It is not the practice of
the Service to announce such revised clas-
sification of foundation status in the Inter-
nal Revenue Bulletin.
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2006–37
The names of organizations that no
longer qualify as organizations described
in section 170(c)(2) of the Internal Rev-
enue Code of 1986 are listed below.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on June 5, 2006, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
Budget and Credit Counseling
Services, Inc.
New York, NY
Felton Dean Minority and Disadvantaged
Youth Sports Foundation, Inc.
Lawton, OK
Guardian Angel Academy, Inc.
Front Royal, VA
Northwest Passage Foundation
Salt Lake City, UT
The Paul Revere Society
Mill Valley, CA
2006–23 I.R.B.1039June 5, 2006

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the 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 the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
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—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
June 5, 2006i2006–23 I.R.B.

Numerical Finding List
1
Bulletin 2006–1 through 2006–23
Announcements:
2006-1, 2006-1 I.R.B.260
2006-2, 2006-2 I.R.B.300
2006-3, 2006-3 I.R.B.327
2006-4, 2006-3 I.R.B.328
2006-5, 2006-4 I.R.B.378
2006-6, 2006-4 I.R.B.340
2006-7, 2006-4 I.R.B.342
2006-8, 2006-4 I.R.B.344
2006-9, 2006-5 I.R.B.392
2006-10, 2006-5 I.R.B.393
2006-11, 2006-6 I.R.B.420
2006-12, 2006-6 I.R.B.421
2006-13, 2006-7 I.R.B.462
2006-14, 2006-8 I.R.B.516
2006-15, 2006-11 I.R.B.632
2006-16, 2006-12 I.R.B.653
2006-17, 2006-12 I.R.B.653
2006-18, 2006-12 I.R.B.654
2006-19, 2006-13 I.R.B.674
2006-20, 2006-13 I.R.B.675
2006-21, 2006-14 I.R.B.703
2006-22, 2006-16 I.R.B.779
2006-23, 2006-14 I.R.B.729
2006-24, 2006-16 I.R.B.820
2006-25, 2006-18 I.R.B.871
2006-26, 2006-18 I.R.B.871
2006-27, 2006-18 I.R.B.871
2006-28, 2006-18 I.R.B.873
2006-29, 2006-19 I.R.B.879
2006-30, 2006-19 I.R.B.879
2006-31, 2006-20 I.R.B.912
2006-32, 2006-20 I.R.B.913
2006-33, 2006-20 I.R.B.914
2006-34, 2006-21 I.R.B.937
2006-36, 2006-23 I.R.B.1038
2006-37, 2006-23 I.R.B.1039
Court Decisions:
2081, 2006-13 I.R.B.656
2082, 2006-14 I.R.B.697
Notices:
2006-1, 2006-4 I.R.B.347
2006-2, 2006-2 I.R.B.278
2006-3, 2006-3 I.R.B.306
2006-4, 2006-3 I.R.B.307
2006-5, 2006-4 I.R.B.348
2006-6, 2006-5 I.R.B.385
2006-7, 2006-10 I.R.B.559
2006-8, 2006-5 I.R.B.386
2006-9, 2006-6 I.R.B.413
Notices— Continued:
2006-10, 2006-5 I.R.B.386
2006-11, 2006-7 I.R.B.457
2006-12, 2006-7 I.R.B.458
2006-13, 2006-8 I.R.B.496
2006-14, 2006-8 I.R.B.498
2006-15, 2006-8 I.R.B.501
2006-16, 2006-9 I.R.B.538
2006-17, 2006-10 I.R.B.559
2006-18, 2006-8 I.R.B.502
2006-19, 2006-9 I.R.B.539
2006-20, 2006-10 I.R.B.560
2006-21, 2006-12 I.R.B.643
2006-22, 2006-11 I.R.B.593
2006-23, 2006-11 I.R.B.594
2006-24, 2006-11 I.R.B.595
2006-25, 2006-11 I.R.B.609
2006-26, 2006-11 I.R.B.622
2006-27, 2006-11 I.R.B.626
2006-28, 2006-11 I.R.B.628
2006-29, 2006-12 I.R.B.644
2006-31, 2006-15 I.R.B.751
2006-32, 2006-13 I.R.B.677
2006-33, 2006-15 I.R.B.754
2006-34, 2006-14 I.R.B.705
2006-35, 2006-14 I.R.B.708
2006-36, 2006-15 I.R.B.756
2006-37, 2006-18 I.R.B.855
2006-38, 2006-16 I.R.B.777
2006-39, 2006-17 I.R.B.841
2006-40, 2006-18 I.R.B.855
2006-41, 2006-18 I.R.B.857
2006-42, 2006-19 I.R.B.878
2006-43, 2006-21 I.R.B.921
2006-44, 2006-20 I.R.B.889
2006-45, 2006-20 I.R.B.891
2006-47, 2006-20 I.R.B.892
2006-48, 2006-21 I.R.B.922
2006-49, 2006-22 I.R.B.943
Proposed Regulations:
REG-107722-00, 2006-4 I.R.B.354
REG-104385-01, 2006-5 I.R.B.389
REG-122380-02, 2006-10 I.R.B.563
REG-137243-02, 2006-3 I.R.B.317
REG-144784-02, 2006-23 I.R.B.1036
REG-133446-03, 2006-2 I.R.B.299
REG-113365-04, 2006-10 I.R.B.580
REG-148568-04, 2006-6 I.R.B.417
REG-106418-05, 2006-7 I.R.B.461
REG-133036-05, 2006-20 I.R.B.911
REG-138879-05, 2006-8 I.R.B.503
REG-143244-05, 2006-6 I.R.B.419
REG-146384-05, 2006-17 I.R.B.843
REG-146459-05, 2006-8 I.R.B.504
REG-157271-05, 2006-12 I.R.B.652
Proposed Regulations— Continued:
REG-164247-05, 2006-15 I.R.B.758
Revenue Procedures:
2006-1, 2006-1 I.R.B.1
2006-2, 2006-1 I.R.B.89
2006-3, 2006-1 I.R.B.122
2006-4, 2006-1 I.R.B.132
2006-5, 2006-1 I.R.B.174
2006-6, 2006-1 I.R.B.204
2006-7, 2006-1 I.R.B.242
2006-8, 2006-1 I.R.B.245
2006-9, 2006-2 I.R.B.278
2006-10, 2006-2 I.R.B.293
2006-11, 2006-3 I.R.B.309
2006-12, 2006-3 I.R.B.310
2006-13, 2006-3 I.R.B.315
2006-14, 2006-4 I.R.B.350
2006-15, 2006-5 I.R.B.387
2006-16, 2006-9 I.R.B.539
2006-17, 2006-14 I.R.B.709
2006-18, 2006-12 I.R.B.645
2006-19, 2006-13 I.R.B.677
2006-20, 2006-17 I.R.B.841
2006-22, 2006-23 I.R.B.1033
2006-23, 2006-20 I.R.B.900
2006-24, 2006-22 I.R.B.943
2006-25, 2006-21 I.R.B.926
2006-26, 2006-21 I.R.B.936
2006-27, 2006-22 I.R.B.945
Revenue Rulings:
2006-1, 2006-2 I.R.B.261
2006-2, 2006-2 I.R.B.261
2006-3, 2006-2 I.R.B.276
2006-4, 2006-2 I.R.B.264
2006-5, 2006-3 I.R.B.302
2006-6, 2006-5 I.R.B.381
2006-7, 2006-6 I.R.B.399
2006-8, 2006-9 I.R.B.520
2006-9, 2006-9 I.R.B.519
2006-10, 2006-10 I.R.B.557
2006-11, 2006-12 I.R.B.635
2006-12, 2006-12 I.R.B.637
2006-13, 2006-13 I.R.B.656
2006-14, 2006-15 I.R.B.740
2006-15, 2006-13 I.R.B.661
2006-16, 2006-14 I.R.B.694
2006-17, 2006-15 I.R.B.748
2006-18, 2006-15 I.R.B.743
2006-19, 2006-15 I.R.B.749
2006-20, 2006-15 I.R.B.746
2006-21, 2006-15 I.R.B.745
2006-22, 2006-14 I.R.B.687
2006-23, 2006-17 I.R.B.839
2006-24, 2006-19 I.R.B.875
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin
2005–52, dated December 27, 2005.
2006–23 I.R.B.iiJune 5, 2006

Revenue Rulings— Continued:
2006-25, 2006-20 I.R.B.882
2006-26, 2006-22 I.R.B.939
2006-27, 2006-21 I.R.B.915
2006-28, 2006-22 I.R.B.938
2006-29, 2006-23 I.R.B.1031
Tax Conventions:
2006-6, 2006-4 I.R.B.340
2006-7, 2006-4 I.R.B.342
2006-8, 2006-4 I.R.B.344
2006-19, 2006-13 I.R.B.674
2006-20, 2006-13 I.R.B.675
2006-21, 2006-14 I.R.B.703
Treasury Decisions:
9231, 2006-2 I.R.B.272
9232, 2006-2 I.R.B.266
9233, 2006-3 I.R.B.303
9234, 2006-4 I.R.B.329
9235, 2006-4 I.R.B.338
9236, 2006-5 I.R.B.382
9237, 2006-6 I.R.B.394
9238, 2006-6 I.R.B.408
9239, 2006-6 I.R.B.401
9240, 2006-7 I.R.B.454
9241, 2006-7 I.R.B.427
9242, 2006-7 I.R.B.422
9243, 2006-8 I.R.B.475
9244, 2006-8 I.R.B.463
9245, 2006-14 I.R.B.696
9246, 2006-9 I.R.B.534
9247, 2006-9 I.R.B.521
9248, 2006-9 I.R.B.524
9249, 2006-10 I.R.B.546
9250, 2006-11 I.R.B.588
9251, 2006-11 I.R.B.590
9252, 2006-12 I.R.B.633
9253, 2006-14 I.R.B.689
9254, 2006-13 I.R.B.662
9255, 2006-15 I.R.B.741
9256, 2006-16 I.R.B.770
9257, 2006-17 I.R.B.821
9258, 2006-20 I.R.B.886
9259, 2006-19 I.R.B.874
9260, 2006-23 I.R.B.1001
9261, 2006-21 I.R.B.919
June 5, 2006iii2006–23 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletin 2006–1 through 2006–23
Announcements:
2000-48
Modified by
Notice 2006-35, 2006-14 I.R.B.708
Notices:
2001-4
Sections (V)(C), (D), and (E) superseded by
T.D. 9253, 2006-14 I.R.B.689
2001-11
Superseded by
T.D. 9253, 2006-14 I.R.B.689
2001-43
Modified by
Notice 2006-35, 2006-14 I.R.B.708
Sections 2 and 3 superseded by
T.D. 9253, 2006-14 I.R.B.689
2002-35
Clarified and modified by
Notice 2006-16, 2006-9 I.R.B.538
2005-30
Modified and superseded by
Notice 2006-31, 2006-15 I.R.B.751
2005-44
Supplemented by
Notice 2006-1, 2006-4 I.R.B.347
2005-66
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-73
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-81
Supplemented by
Notice 2006-20, 2006-10 I.R.B.560
2005-98
Supplemented by
Notice 2006-7, 2006-10 I.R.B.559
Proposed Regulations:
REG-103829-99
Withdrawn by
Ann. 2006-16, 2006-12 I.R.B.653
REG-150313-01
Withdrawn by
Ann. 2006-30, 2006-19 I.R.B.879
Proposed Regulations— Continued:
REG-131739-03
Corrected by
Ann. 2006-10, 2006-5 I.R.B.393
REG-131264-04
Withdrawn by
Ann. 2006-34, 2006-21 I.R.B.937
REG-138647-04
Corrected by
Ann. 2006-4, 2006-3 I.R.B.328
REG-158080-04
Corrected by
Ann. 2006-11, 2006-6 I.R.B.420
Revenue Procedures:
81-17
Obsoleted by
Rev. Proc. 2006-24, 2006-22 I.R.B.943
89-8
Superseded by
Rev. Proc. 2006-23, 2006-20 I.R.B.900
96-52
Superseded by
Rev. Proc. 2006-10, 2006-2 I.R.B.293
97-27
Modified by
Rev. Proc. 2006-11, 2006-3 I.R.B.309
Modified and amplified by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2002-9
Modified by
Rev. Proc. 2006-11, 2006-3 I.R.B.309
Modified and amplified by
Notice 2006-47, 2006-20 I.R.B.892
Rev. Proc. 2006-12, 2006-3 I.R.B.310
Rev. Proc. 2006-14, 2006-4 I.R.B.350
Rev. Proc. 2006-16, 2006-9 I.R.B.539
2002-17
Modified by
Rev. Proc. 2006-14, 2006-4 I.R.B.350
2002-52
Modified by
Rev. Proc. 2006-26, 2006-21 I.R.B.936
2003-31
Superseded by
Rev. Proc. 2006-19, 2006-13 I.R.B.677
2003-38
Modified by
Rev. Proc. 2006-16, 2006-9 I.R.B.539
2003-44
Modified and superseded by
Rev. Proc. 2006-27, 2006-22 I.R.B.945
Revenue Procedures— Continued:
2004-23
Superseded for certain taxable years by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2004-40
Superseded by
Rev. Proc. 2006-9, 2006-2 I.R.B.278
2005-1
Superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
2005-2
Superseded by
Rev. Proc. 2006-2, 2006-1 I.R.B.89
2005-3
Superseded by
Rev. Proc. 2006-3, 2006-1 I.R.B.122
2005-4
Superseded by
Rev. Proc. 2006-4, 2006-1 I.R.B.132
2005-5
Superseded by
Rev. Proc. 2006-5, 2006-1 I.R.B.174
2005-6
Superseded by
Rev. Proc. 2006-6, 2006-1 I.R.B.204
2005-7
Superseded by
Rev. Proc. 2006-7, 2006-1 I.R.B.242
2005-8
Superseded by
Rev. Proc. 2006-8, 2006-1 I.R.B.245
2005-9
Superseded for certain taxable years by
Rev. Proc. 2006-12, 2006-3 I.R.B.310
2005-12
Section 10 modified and superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
2005-15
Obsoleted in part by
Rev. Proc. 2006-17, 2006-14 I.R.B.709
2005-21
Superseded by
Rev. Proc. 2006-25, 2006-21 I.R.B.926
2005-22
Obsoleted by
Rev. Proc. 2006-20, 2006-17 I.R.B.841
2005-24
Modified by
Notice 2006-15, 2006-8 I.R.B.501
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–27 through 2005–52 is in Internal Revenue Bulletin 2005–52, dated December 27,
2005.
2006–23 I.R.B.ivJune 5, 2006

Revenue Procedures— Continued:
2005-61
Superseded by
Rev. Proc. 2006-3, 2006-1 I.R.B.122
2005-68
Superseded by
Rev. Proc. 2006-1, 2006-1 I.R.B.1
Rev. Proc. 2006-3, 2006-1 I.R.B.122
Revenue Rulings:
55-355
Obsoleted by
T.D. 9244, 2006-8 I.R.B.463
74-503
Revoked by
Rev. Rul. 2006-2, 2006-2 I.R.B.261
77-230
Obsoleted by
T.D. 9249, 2006-10 I.R.B.546
91-5
Modified by
T.D. 9250, 2006-11 I.R.B.588
92-19
Supplemented in part by
Rev. Rul. 2006-25, 2006-20 I.R.B.882
92-86
Modified by
T.D. 9250, 2006-11 I.R.B.588
2000-2
Modified and superseded by
Rev. Rul. 2006-26, 2006-22 I.R.B.939
Treasury Decisions:
9191
Corrected by
Ann. 2006-26, 2006-18 I.R.B.871
9192
Corrected by
Ann. 2006-15, 2006-11 I.R.B.632
9203
Corrected by
Ann. 2006-12, 2006-6 I.R.B.421
9244
Corrected by
Ann. 2006-31, 2006-20 I.R.B.912
9248
Corrected by
Ann. 2006-32, 2006-20 I.R.B.913
June 5, 2006v2006–23 I.R.B.
U.S. GPO: 2006—320–797/20060