Internal Revenue Bulletin 2007-32 (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
7-32
August 6, 2007
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2007–50, page 311.
Federal rates; adjusted federal rates; adjusted federal
long-termrateandthelong-termexemptrate.For pur-
poses of sections 382, 642, 1274, 1288, and other sections
of the Code, tables set forth the rates for August 2007.
T.D. 9329,
page 312.
Final regu
lations under section 1502 of the Code simplify, clar-
ify, or eli
minate taxpayer reporting burdens. They also elimi-
nate regul
atory impediments to the electronic filing of certain
statemen
ts that taxpayers are required to include on or with
their fed
eral income tax returns.
T.D. 9332, page 300.
REG–138707–06, page 342.
Final, temporary, and proposed regulations under sections
883(a) and (c) of the Code relate to the exclusion from gross
income of income derived by certain foreign corporations
engaged in the international operation of ships or aircraft. The
regulations introduce a new qualified U.S. person ownership
test to replace the income inclusion test and provide corre-
sponding documentation and reporting rules. The regulations
also identify in regulations section 1.883–1(g) certain services
as activities that are incidental to the international operation
of ships or aircraft. They also explain in regulations section
1.883–1(h) that a foreign country may grant an equivalent
exemption solely by means of an income tax convention. A
public hearing on the proposed regulations is scheduled for
October 24, 2007. Rev. Rul. 2001–48 and Notice 2006–43
modified.
REG–147171–05, page 334.
Proposed regulations under section 274 of the Code provide
rules relating to the deduction for expenses for the use of busi-
ness aircraft for entertainment of specified individuals. A public
hearing is scheduled for October 25, 2007.
EMPLOYEE PLANS
T.D. 9331, page 298.
Final regulations amend section 408(a) of the Code with regard
to the requirements under section 408(a) for non-bank trustees
for deemed IRAs. The regulations under section 408(a) provide
that the Commissioner may, in his discretion, allow governmen-
tal entities to act as qualified nonbank trustees for deemed IRAs
which are part of the entities’ qualified employer plan within the
meaning of section 408(q).
Notice 2007–62, page 331.
This notice announces the intent of the Treasury Department
and the Service to issue guidance under section 457 of the
Code, which applies to nonqualified deferred compensation
plans of state and local governments and tax exempt entities,
concerning the definitions of abona fideseverance pay plan
under section 457(e)(11) and a substantial risk of forfeiture
under section 457(f)(1)(B). This notice also describes the guid-
ance that the Treasury and the Service anticipate issuing and
requests comments on the issues intended to be addressed by
such guidance.
Announcement 2007–68, page 348.
This document contains numerous corrections to the preamble
of final regulations (T.D. 9321, 2007–19 I.R.B. 1123) setting
forth guidance on the application of section 409A to nonqual-
ified compensation plans.
(Continued on the next page)
Fi
nding Lists begin on page ii.

EXEMPT ORGANIZATIONS
Announcement 2007–67, page 345.
A list is provided of organizations now classified as private foun-
dations.
ADMINISTRATIVE
T.D. 9329, page 312.
Final regulations under section 1502 of the Code simplify, clar-
ify, or eliminate taxpayer reporting burdens. They also elimi-
nate regulatory impediments to the electronic filing of certain
statements that taxpayers are required to include on or with
their federal income tax returns.
August 6, 20072007–32 I.R.B.

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.
2007–32 I.R.B.August 6, 2007

August 6, 20072007–32 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 August 2007. See Rev. Rul. 2007-50, page 311.
Section 61.—Gross Income
Defined
26 CFR 1.61–21: Taxation of fringe benefits.
Proposed regulations provide rules relating to the
valuation for income inclusion purposes of the enter-
tainment use of business aircraft by specified individ-
uals. See REG-147171-05, page 334.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of August 2007. See Rev.
Rul. 2007-50, page 311.
Section 302.—Distributions
in Redemption of Stock
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 331.—Gain or
Loss to Shareholders in
Corporate Liquidations
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 332.—Complete
Liquidations of Subsidiaries
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 338.—Certain
Stock Purchases Treated
as Asset Acquisitions
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 351.—Transfer
to Corporation Controlled
by Transferor
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 355.—Distribution
of Stock and Securities of
a Controlled Corporation
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 368.—Definitions
Relating to Corporate
Reorganizations
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 381.—Carryovers
in Cer
tain Corporate
Acquisitions
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
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 August 2007. See Rev. Rul.
2007-50, page 311.
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 408.—Individual
Retirement Accounts
26 CFR 1.408–2: Individual retirement accounts.
T.D. 9331
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Deemed IRAs in Governmental
Plans/Qualified Nonbank
Trustee Rules
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains final
regulations under section 408 of the Inter-
nal Revenue Code. The final regulations
provide special rules for a governmental
unit which seeks to qualify as a nonbank
trustee of a deemed IRA that is part of
its qualified employer plan. These final
regulations affect only such governmental
units.
DATES:Effective Date:June 18, 2007.
Applicability Date:For dates of appli-
cability, see §1.408–2(e)(8)(iv).
2007–32 I.R.B.298August 6, 2007

FOR FURTHER INFORMATION
CONTACT: Linda L. Conway,
202–622–6090, or Cathy A. Vohs,
202–622–6090 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains final amend-
ments to the Income Tax Regulations
(26 CFR Part 1) under section 408 of the
Internal Revenue Code of 1986 (Code).
On July 22, 2004, temporary and pro-
posed regulations under section 408 were
issued. A notice of proposed rulemak-
ing (REG–101447–04, 2004–2 C.B. 344)
was published in theFederal Register
(69 FR 43786). The text of the temporary
regulations also served as the text of the
proposed regulations. The text of tempo-
rary §1.408–2(e)(8) was published in the
same issue of theFederal Register(T.D.
9142, 2004–2 C.B. 302 [69 FR 43735]).
The RIN published in connection with
that notice of proposed rulemaking was
1545–BD07. However, due to technical
difficulties that RIN is no longer valid and
the RIN number of these final regulations
is 1545–BG46. No comments were re-
ceived regarding the proposed regulations.
Explanation of Provisions and
Summary of Comments
These final regulations amend
§1.408–2(e) of the regulations to pro-
vide that a governmental unit may serve as
the trustee of any deemed IRA established
by that governmental unit as part of its
qualified employer plan if that govern-
mental unit establishes to the satisfaction
of the Commissioner that the manner in
which it will administer the deemed IRA
will be consistent with the requirements of
section 408. These final regulations also
provide special rules regarding the ap-
plication of §1.408–2(e) to governmental
units. These final regulations are adopted
without substantive change from the pro-
posed and temporary regulations. These
final regulations are applicable for written
applications made on or after June 18,
2007. The rules in this section also may
be relied on for applications submitted on
or after August 1, 2003 (or such earlier
application as the Commissioner deems
appropriate) and before June 18, 2007.
Special Analyses
It has been determined that this Trea-
sury Decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory 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 regulations, and, be-
cause the regulation does not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Code, the notice of proposed
rulemaking preceding these final regula-
tions was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these regula-
tions is Linda L. Conway of the Office
of the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel from
the IRS and Treasury Department par-
ticipated in the development of these
regulations.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.408–2 (e)(8) is revised
to read as follows:
§1.408–2 Individual retirement accounts.
*****
(e) * * *
(8)Special rules for governmental
units—(i)In general. A governmental
unit that seeks to qualify as a nonbank
trustee of a deemed IRA that is part of its
qualified employer plan must demonstrate
to the satisfaction of the Commissioner
that it is able to administer the trust in a
manner that is consistent with the require-
ments of section 408. The demonstration
must be made by written application to
the Commissioner. Notwithstanding the
requirement of paragraph (e)(1) of this
section that a person must demonstrate
by written application that the require-
ments of paragraphs (e)(2) through (e)(6)
of this section will be met in order to
qualify as a nonbank trustee, a govern-
mental unit that maintains a plan qualified
under section 401(a), 403(a), 403(b) or
457 need not demonstrate that all of these
requirements will be met with respect to
any individual retirement accounts main-
tained by that governmental unit pursuant
to section 408(q). For example, a gov-
ernmental unit need not demonstrate that
it satisfies the net worth requirements of
paragraph (e)(3)(ii) of this section if it
demonstrates instead that it possesses tax-
ing authority under applicable law. The
Commissioner, in his discretion, may ex-
empt a governmental unit from certain
other requirements upon a showing that
the governmental unit is able to administer
the deemed IRAs in the best interest of
the participants. Moreover, in determining
whether a governmental unit satisfies the
other requirements of paragraphs (e)(2)
through (e)(6) of this section, the Com-
missioner may apply the requirements in
a manner that is consistent with the appli-
cant’s status as a governmental unit.
(ii)Governmental unit. For purposes
of this special rule, the termgovernmental
unitmeans a state, political subdivision of
a state, and any agency or instrumentality
of a state or political subdivision of a state.
(iii)Additional rules.TheCommis-
sioner may in revenue rulings, notices,
or other guidance of general applicability
provide additional rules for governmen-
tal units seeking approval as nonbank
trustees.
(iv)Effective/Applicability date.This
section is applicablefor written applica-
tions made on or after June 18, 2007. The
rules in this section also may be relied on
for applications submitted on or after Au-
gust 1, 2003 (or such earlier application as
the Commissioner deems appropriate) and
before June 18, 2007.
§1.408–2T [Removed]
Par. 3. Section 1.408–2T is removed.
August 6, 20072992007–32 I.R.B.

Kevin M. Brown,
Deputy Commissioner for
Services and Enforcement.
Approved June 2, 2007.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on June 15, 2007,
8:45 a.m., and published in the issue of the Federal Register
for June 18, 2007, 72 F.R. 33387)
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2007. See Rev. Rul. 2007-50, page 311.
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 August 2007. See Rev. Rul. 2007-50, page 311.
Section 468.—Special
Rules for Mi
ning 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 August 2007. See Rev. Rul. 2007-50, page 311.
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 August 2007. See Rev.
Rul. 2007-50, page 311.
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 August 2007. See Rev. Rul. 2007-50, page 311.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of August 2007. See Rev.
Rul. 2007-50, page 311.
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 August 2007. See Rev. Rul. 2007-50, page 311.
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 August 2007. See Rev. Rul. 2007-50, page 311.
Section 883.—Exclusions
From Gross Income
26 CFR 1.883–1: Exclusion of income from the inter-
national operation of ships or aircraft.
T.D. 9332
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Exclusions From Gross Income
of Foreign Corporations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains
final and temporary regulations under sec-
tion 883(a) and (c) of the Internal Revenue
Code (Code), relating to the exclusion
from gross income of income derived by
certain foreign corporations engaged in the
international operation of ships or aircraft.
These regulations revise §1.883–3 of the
final regulations, relating to the eligibility
of controlled foreign corporations for the
exclusion under section 883, following the
repeal of section 954(a)(4) and (f) (foreign
base company shipping provisions) by
section 415 of the American Jobs Creation
Act of 2004. In addition, these regulations
provide certain additional guidance un-
der section 883(a) and (c), including for
foreign corporations that are organized in
countries providing an exemption from
taxation for certain shipping and air trans-
port income solely through an income tax
convention. The text of these temporary
regulations also serves as the text of the
proposed regulations (REG–138707–06)
set forth in this issue of the Bulletin.
DATES:Effective Date:These regulations
are effective on June 25, 2007.
Applicability Date:For dates of appli-
cability, see §1.883–5T.
FOR FURTHER INFORMATION
CONTACT: Patricia A. Bray, at (202)
622–3880 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued
without prior notice and public procedure
pursuant to the Administrative Procedure
Act (5 U.S.C. 553). For this reason, the
collections of information contained in
these regulations has been reviewed, and
pending receipt and evaluation of pub-
lic comments, approved by the Office of
Management and Budget under control
number 1545–1667. Responses to these
collections of information are mandatory.
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.
For further information concerning
these collections of information, where
to submit comments on the collections
of information and the accuracy of the
estimated burden, and suggestions for
reducing this burden, please refer to the
preamble to the cross-referencing notice
of proposed rulemaking published in this
issue of the Bulletin.
Books and records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as re-
quired by 26 U.S.C. 6103.
2007–32 I.R.B.300August 6, 2007

Background
1.Section 883 and the Final Regulations
Sections 883(a)(1) and (a)(2) of the
Code generally provide that income from
the international operation of ships or
aircraft derived by a foreign corporation
will be excluded from gross income and
exempt from U.S. taxation if the foreign
country in which the corporation is or-
ganized grants an equivalent exemption
to corporations organized in the United
States. Section 883(c)(1) provides that a
foreign corporation cannot qualify for the
section 883(a) exemption if 50 percent or
more of the value of its stock is owned
by individuals who are not residents of a
country that grants anequivalent exemp-
tion to U.S. corporations. However, under
section 883(c)(2), section 883(c)(1) does
not apply to a foreign corporation that is a
controlled foreign corporation as defined
in section 957(a) (CFC). In addition, under
section 883(c)(3), section 883(c)(1) does
not apply to a foreign corporation whose
stock is primarily and regularly traded
on an established securities market in the
United States or in a foreign country that
grants an equivalent exemption to U.S.
corporations.
On August 26, 2003, the IRS and the
Treasury Department issued final regu-
lations under section 883 in T.D. 9087,
2003–2 C.B. 781 [68 FR 51394]. The
final regulations provide, in general, that
a foreign corporation organized in a qual-
ified foreign country and engaged in the
international operation of ships or air-
craft may exclude qualified income from
gross income for purposes of U.S. Fed-
eral income taxation provided that the
corporation can satisfy certain ownership
and related substantiation and reporting
requirements. A foreign corporation that
meets these requirements is a “qualified
foreign corporation.” A foreign country
that grants U.S. corporations an equiv-
alent exemption from gross income is a
“qualified foreign country.” The final reg-
ulations also provide definitions of the
terms “qualified income” and “equivalent
exemption.” In addition, the final regula-
tions specify how a foreign corporation
can satisfy the ownership and related sub-
stantiation and reporting requirements,
and the information that the foreign cor-
poration must include on its U.S. income
tax return in order to claim an exemption.
In general, a foreign corporation must
own or lease an entire ship or aircraft,
and the ship or aircraft must carry cargo or
passengers for hire, in order for the foreign
corporation to be engaged in the opera-
tion of a ship or aircraft for this purpose.
Section 1.883–1(e). Section 1.883–1(f)
provides rules for determining whether
income is derived from the international
operation of a ship or aircraft. Section
1.883–1(g)(1) provides rules for determin-
ing whether certain activities of a foreign
corporation that is engaged in the interna-
tional operation of ships or aircraft are so
closely related to that operation as to be
considered incidentalto the international
operation of ships or aircraft. The final
regulations provide a nonexclusive list of
activities that are considered incidental
to the international operation of ships or
aircraft. Income from these incidental
activities is deemed to be income derived
from the international operation of a ship
or aircraft for purposes of the exclusion
under section 883. Section 1.883–1(g)(2)
also provides a nonexclusive list of ac-
tivities that are not incidental to the in-
ternational operation of ships or aircraft.
The final regulations reserve on whether
services, including ground services, main-
tenance, catering, and other services, are
considered incidentalto the international
operation of ships or aircraft.
Section 1.883–1(h) provides that an
equivalent exemption may exist if a for-
eign country generally imposes no tax on
income or specifically provides a domes-
tic tax law exemption for income derived
from the international operation of ships or
aircraft. Alternatively, a foreign country
may exchange a diplomatic note, or enter
into an agreement, with the United States
that provides for a reciprocal exemption
for purposes of section 883. Section
1.883–1(h)(3)(i) generally provides that
a foreign country that grants an exemp-
tion from taxation for income from the
international operation of ships or aircraft
solely through an income tax convention
with the United States is not considered
to grant an equivalent exemption. Thus,
a corporation organized in such a country
may not claim an exclusion under section
883, and can only claim available treaty
benefits to exempt income derived from
international transport.
The final regulations require that a for-
eign corporation must satisfy one of three
stock ownership tests to satisfy the own-
ership requirementsof section 883(c): a
publicly-traded test in §1.883–2(a), a CFC
stock ownership test in §1.883–3(a), or a
qualified shareholder stock ownership test
in §1.883–4(a). Under §1.883–3(a), a for-
eign corporation satisfies the CFC stock
ownership test if it meets an “income in-
clusion test” and satisfies certain substan-
tiation and reporting requirements under
§1.883–3(c) and (d). The income inclusion
test requires that more than 50 percent of
the CFC’s adjusted net foreign base com-
pany income (as defined in §1.954–1(d)
and as increased or decreased by section
952(c)) derived from the international op-
eration of ships or aircraft be includible
in the gross income of one or more U.S.
citizens, individual residents of the United
States, or domestic corporations. Section
1.883–3(b). This rule prevents individu-
als residing in foreign countries that do not
grant an equivalent exemption to U.S. cor-
porations from benefiting from the section
883 exemption by owning a CFC through
a domestic partnership, estate or trust.
Section 1.883–4 of the final regulations
provides rules for when a foreign corpo-
ration satisfies the qualified shareholder
stock ownership test. To satisfy this test,
qualified shareholders must own (apply-
ing the attribution rules of §1.883–4(c))
more than 50 percent of the value of a for-
eign corporation’s outstanding shares for
half the number of days in the corpora-
tion’s taxable year. The foreign corpora-
tion must also meet the substantiation and
reporting requirements of §1.883–4(d) and
(e). Under the reporting requirements of
§1.883–4(e), a foreign corporation must
attach a statement with certain informa-
tion to its Form 1120–F, “U.S. Income Tax
Return of a Foreign Corporation,” includ-
ing the names and addresses of individual
shareholders with large shareholdings (at
least 5 percent) in the foreign corporation.
2.Elimination of Foreign Base Company
Shipping Income
Section 415 of the American Jobs Cre-
ation Act of 2004 (Public Law 108–357
(118 Stat. 1418 ) (AJCA) repealed section
954(a)(4) and (f), eliminating foreign base
company shipping income as a type of
foreign base company income, and there-
August 6, 20073012007–32 I.R.B.

fore, as subpart F income. The repeal
is effective for taxable years of foreign
corporations beginning after December
31, 2004, and for taxable years of United
States shareholders with or within which
such taxable years of foreign corporations
end. Section 423 of AJCA also delayed
the applicability date of the final regula-
tions under section 883(a) and (c) for one
year, until taxable years beginning after
September 24, 2004.
Commentators noted that the repeal of
the foreign base company shipping pro-
visions created uncertainty about the ap-
plication of the income inclusion test for
CFCs that no longer have foreign base
company income.
On August 5, 2005, the IRS and the
Treasury Department issued T.D. 9218,
2005–2 C.B. 503 [70 FR 45529], to con-
form the applicability date of the final
regulations in light of section 423 of
AJCA. The preamble to T.D. 9218 also
acknowledged commentators’ concerns
regarding the application of the income
inclusion test after the repeal of the for-
eign base company shipping provisions.
The preamble stated that a CFC that sat-
isfied the income inclusion test prior to
the effective date of section 415 of AJCA
would continue to satisfy that test after the
effective date of the legislation, provided
the CFC is able to demonstrate that if the
foreign base company shipping provisions
had not been repealed, more than 50 per-
cent of the its current earnings and profits
derived from the international operation
of ships or aircraft would have been attrib-
utable to amounts includible in the gross
income of one or more U.S. citizens, in-
dividual residents of the United States, or
domestic corporations (pursuant to section
951(a)(1)(A) or another provision of the
Code) for the taxable years of such persons
in which the taxable year of the CFC ends.
The preamble to T.D. 9218 also stated
that the IRS and the Treasury Department
would issue regulations to clarify the ap-
plication of the income inclusion test, and
invited further comments on the most ap-
propriate way to accomplish a clarification
consistent with the principles of the exist-
ing section 883 regulations, and the repeal
of the foreign base company shipping pro-
visions.
3.Issuance of Notice 2006–43
The IRS and the Treasury Department
received a number of comments in re-
sponse to the preamble language in T.D.
9218 dealing with the income inclusion
test. Generally, commentators stated that
to require CFCs to calculate hypothetical
amounts of subpart F income as though the
foreign base company shipping provisions
had not been repealed was too complex
an approach to administer properly. Com-
mentators proposed several alternative
approaches they viewed as simpler to the
approach described in T.D. 9218.
After considering these comments, the
IRS and the Treasury Department issued
Notice 2006–43, “Interim Guidance With
Respect to the Application of Treas. Reg.
§1.883–3,” (2006–1 C.B. 921 (May 22,
2006)), which announced a new approach.
Under the notice, a CFC would satisfy the
stock ownership test of §1.883–1(c)(2) if
it met a “qualified U.S. person ownership
test” and satisfied revised substantiation
and reporting requirements. To satisfy the
qualified U.S. person ownership test, a cor-
porationwouldberequiredtobeaCFCfor
more than half the days of its taxable year,
and more than 50 percent of the total value
of the CFC’s outstanding stock would have
to be owned (within the meaning of section
958(a) as modified by the notice) by one
or more qualified U.S. persons for more
than half the days of its taxable year. See
§601.601(d)(2).
These temporary regulations incorpo-
rate the rules of Notice 2006–43, with
certain amendments, and respond to com-
ments that have been received concerning
other portions of the existing section 883
regulations.
4.Additional Comments
The following additional comments
were received regarding the final regula-
tions.
A.Ground services
The final regulations reserved on
whether the performance of a variety of
ground services should be treated as activ-
ities that are incidental to the international
operation of ships or aircraft. Section
1.883–1(g)(3). The IRS and the Treasury
Department have received a number of
comments from the air transport industry
requesting guidance under section 883 on
the treatment of ground services, includ-
ing cargo handling, maintenance services,
catering, and customer service. Com-
mentators have pointed to recent changes
in the Commentaries to Article 8 (Ship-
ping, Inland Waterways Transport and Air
Transport) of the Model Tax Convention
on Income and on Capital published by
the Organisation for Economic Co-opera-
tion and Development (the OECD Model
Convention) that clarify the circumstances
under which certain services performed
by an enterprise engaged in the operation
of ships or aircraft in international traffic
may be either ancillary or directly related
to such operations, and thereby covered
services for purposes of Article 8 of the
OECD Model Convention.
B.U.S. income tax conventions as
equivalent exemptions
Commentators have also suggested that
countries that provide an exemption to
U.S. corporations only through an income
tax convention with the United States
should be treated as granting an equivalent
exemption for purposes of section 883.
In support of their position, commenta-
tors cite the Senate Committee Report to
the Tax Reform Act of 1986 (Public Law
99–514 (100 Stat. 2085)), which states:
The committee intends that a country
which, as a result of a treaty with the
United States, exempts U.S. citizens
and domestic corporations from tax in
the country on income derived from
the operation of ships or aircraft, has
an equivalent exemption, even though
the treaty technically contains certain
additional requirements other than res-
idence, such as U.S. registration or
documentation of the ship or aircraft.
(S. Rep. No. 99–313, at 343–44 (1986))
Prior to 2001, a foreign country that
provided an exemption from taxation for
income from the international operation
of ships or aircraft through an income
tax convention wastreated as granting
an equivalent exemption for purposes of
section 883. See Rev. Rul. 89–42, 1989–1
C.B. 234; Rev. Rul. 97–31, 1997–2 C.B.
77 (supplementing Rev. Rul. 89–42). In
2001, however, the IRS and the Treasury
Department reconsidered this position,
and concluded that an exemption under an
2007–32 I.R.B.302August 6, 2007

income tax convention could not consti-
tute an equivalent exemption for purposes
of section 883(a) because the Code and
income tax conventions have different
eligibility requirements, and provide ex-
emptions that vary in scope. See Rev. Rul.
2001–48, 2001–2 C.B. 324 (modifying
and superseding Rev. Rul. 97–31). The
position taken in Rev. Rul. 2001–48 was
incorporated into §1.883–1(h)(3)(i) of the
final regulations. See §601.601(d)(2).
C.Reporting requirements related to
qualified shareholder stock ownership test
In connection with the substantia-
tion and reporting requirements for the
qualified shareholder stock ownership
test under §1.883–4(a), the IRS and the
Treasury Department have continued to
receive comments expressing concern
over the requirement that the names and
addresses of individual shareholders with
large shareholdings (at least 5 percent)
in corporations relying on this ownership
test be disclosed on Form 1120–F. Re-
cent comments have suggested that in lieu
of providing such names and addresses,
taxpayers should be permitted to submit
a sworn statement by a U.S. tax practi-
tioner subject to Circular 230 with their
return that states thatthe taxpayer satisfies
the qualified shareholder stock ownership
test, and that the names and addresses of
shareholders with large shareholdings are
available for inspection by the IRS at the
office of that such practitioner.
Explanation of Provisions
These temporary regulations incorpo-
rate the rules of Notice 2006–43 and also
address a number ofcomments that have
been received concerning other portions of
the existing section 883 regulations.
1.Modifications to the Income Inclusion
Test
These temporary regulations generally
adopt the qualified U.S. person ownership
test contained in Notice 2006–43. A CFC
meets the qualified U.S. person ownership
test in §1.883–3T(b)(1) only if more than
50 percent of the total value of all the out-
standing stock of the CFC is owned (within
the meaning of section 958(a), as modified
in §1.883–3T(b)(4)), by one or more qual-
ified U.S. persons. The termqualified U.S.
personmeans a U.S. citizen, resident alien,
domestic corporation, or domestic trust de-
scribed in section 501(a). For purposes of
applying the qualified U.S. person own-
ership test, the value of the stock of the
CFC that is owned (directly or indirectly)
through bearer shares is not taken into ac-
count in the numerator, but is taken into
account in the denominator to determine
the portion of the overall stock value that is
owned by qualified U.S. persons. Section
1.883–3T(b)(3).
For purposes of applying the qualified
U.S. person ownership test, the attribution
rules of section 958(a) will apply to deter-
mine the ownership interests of qualified
U.S. persons held through foreign entities.
In addition, the temporary regulations ex-
tend the attribution rules of section 958(a)
to domestic partnerships, domestic trusts
not described in section 501(a), and do-
mestic estates. In the case of these domes-
tic entities, stock will be treated as owned
proportionately by the partners, beneficia-
ries, grantors, or other interest holders in
such entities, respectively, applying the
rules of section 958(a) as if the domestic
partnership, estate, or trust were a foreign
partnership, estate, or trust, respectively.
The regulations also contain conforming
changes to the substantiation and report-
ing provisions in this section to reflect the
new qualified U.S. person ownership test
for CFCs. A CFC that fails this test will
not be a qualified foreign corporation un-
less it meets either the publicly-traded test
of §1.883–2(a) or the qualified shareholder
stock ownership test of §1.883–4(a).
2.Activities Incidental to the International
Operation of Ships or Aircraft
The IRS and the Treasury Department
recognize that guidance is needed on the
extent to which ground services that are
conducted by foreign corporations en-
gaged in the international operation of
ships or aircraft are so closely related to
such operation that they are considered
activities incidental to the international
operation of ships or aircraft. Section
1.883–1T(g)(1)(xi) treats the provision of
goods and services by engineers, ground
and equipment maintenance staff, cargo
handlers, catering staff, and customer ser-
vices personnel, and the provision of fa-
cilities such as passenger lounges, counter
space, ground handling equipment, and
hanger facilities as activities incidental to
the international operation of a ship or air-
craft. The regulations also make clear that
such services will be treated as incidental,
whether provided to another enterprise as
part of a pooling arrangement, alliance, or
other joint venture.
3.Countries Providing an Exemption
Only Through an Income Tax Convention
In response to comments and fur-
ther study, the IRS and the Treasury
Department believe that it is appropri-
ate to provide additional guidance on
when a country that only provides for an
exemption by means of an income tax
convention with the United States will
be considered as granting an equivalent
exemption for purposes of section 883(a).
Section 1.883–1(h)(1), which sets forth
the various bases on which equivalent ex-
emptions may be claimed, is broadened
by §1.883–1T(h)(1)(ii) to include a do-
mestic tax law exemption by income tax
convention. Section 1.883–1T(h)(3) sets
out the conditions under which an exemp-
tion under an income tax convention may
constitute an equivalent exemption.
If a foreign country provides an ex-
emption from tax under a shipping and air
transport or gains article of an income tax
convention with the United States, and it
does not otherwise provide an equivalent
exemption through a diplomatic note, do-
mestic statutory law, or by generally not
imposing income tax on foreign corpora-
tions engaged in the international opera-
tion of ships or aircraft, a corporation orga-
nized in that country may treat that income
tax convention as providing an equivalent
exemption for purposes of section 883, but
only if the foreign corporation meets all
the conditions for claiming benefits with
respect to such income under the income
tax convention, and the category of income
for which the convention grants benefits is
also described in §1.883–1(h)(2).
For example, if a foreign corporation
is seeking an exemption with respect to
non-incidental container-related income,
it may not treat an exemption provided
by an income tax convention for that type
of income as an equivalent exemption,
because that category of income is not
listed in §1.883–1(h)(2). Equivalent ex-
emptions are determined separately with
respect to each category of income listed
August 6, 20073032007–32 I.R.B.

in §1.883–1(h)(2). As a result, the foreign
corporation may treatan exemption under
an income tax convention with respect to
another category of income that is listed
in §1.883–1(h)(2) (for example, incidental
bareboat charter income) as an equivalent
exemption for purposes of section 883.
A foreign corporation that is entitled to
treat an income tax convention as provid-
ing an equivalent exemption with respect
to a particular category of income un-
der §1.883–1T(h)(1)(ii) will not always
qualify for an exclusion from gross in-
come under section 883. For example,
a corporation that is a resident of a for-
eign country for purposes of an income
tax convention because that is where it is
managed and controlled is not a qualified
foreign corporation under §1.883–1(c)(1),
and may not claim an exclusion from gross
income under section 883, if it is not also
organized in that country. Similarly, a
foreign corporation that does not meet one
of the stock ownership tests described in
§1.883–1(c)(2) is not a qualified foreign
corporation under §1.883–1(c)(1), and
may not claim an exclusion from gross
income under section 883, even though
it would satisfy the limitation on benefits
article under the relevant convention.
4.Countries that Provide an Exemption
Through an Income Tax Convention and
by Other Means
As provided in the final regulations, a
foreign corporation that qualifies for an
exemption from tax under an income tax
convention and an equivalent exemption
under section 883 through a diplomatic
note, domestic statutory law, or by gen-
erally imposing no income tax on foreign
corporations engaged in the international
operation of ships or aircraft will con-
tinue to have the choice of whether to
claim an exemptionunder the income tax
convention or undersection 883. Sec-
tion 1.883–1T(h)(3)(ii)(A). If a foreign
corporation chooses to claim an exemp-
tion under an income tax convention, it
may also choose to claim an exemption
under section 883 for any category of
income listed in §1.883–1(h)(2), to the
extent that such income is also exempt
under an income tax convention. Section
1.883–1T(h)(3)(ii)(B).
The rules provided in §1.883–
1(h)(3)(iii) of the final regulations for
certain joint ventures also continue in
modified form. A foreign corporation
resident in a country that only provides
an exemption through an income tax con-
vention with the United States, and that
participates in a joint venture entity that is
fiscally transparent for U.S. tax purposes
but not under the law of the treaty juris-
diction, will not be able to take advantage
of the new rules on equivalent exemptions
under income tax conventions, and must
rely on §1.883–1T(h)(3)(iii).
5.Reporting Requirements Related to
Qualified Shareholder Stock Ownership
Test
Upon further study and review, the
IRS and the Treasury Department have
decided to bring the disclosure required
under each of the stock ownership tests
provided in §1.883–1(c)(2) into greater
accord with the disclosure required for
comparable stock ownership tests with
similar tax policy objectives. For ex-
ample,reportinginconjunctionwiththe
stock ownership tests found in the branch
profits tax regulations and limitation on
benefits articles in U.S. income tax con-
ventions does not require the disclosure of
certain shareholder names and addresses
to the IRS. See §1.884–5 and Form 8833,
“Treaty-Based Return Position Disclosure
Under Section 6114 or 7701(b).” Conse-
quently, these regulations have eliminated
the requirement that the names and ad-
dresses of shareholders in corporations
relying on the various stock ownership
tests in §1.883–1(c)(1) (that is, under
the closely held exception to the pub-
licly-traded test, the CFC stock ownership
test, and the qualified shareholder stock
ownership test) be disclosed on Form
1120–F. See §§1.883–2T(e), 1.883–3T(c),
and 1.883–4T(d).
Foreign corporations will continue to
have to report on Form 1120–F certain
summary information regarding the share-
holdings that are relied upon to satisfy the
applicable stock ownership test (for exam-
ple, aggregate percentage of interests held
by shareholders by country of residence).
Under new §1.883–1T(c)(3)(i)(G), they
also will have to report whether any share-
holder whose stock holdings are relied
upon to meet an ownership test holds
such stock either directly or indirectly
through bearer shares. In addition, each
qualified shareholder and intermediary
(if any) must declare under penalties of
perjury that its ownership interest in the
foreign corporation or any corporate inter-
mediary is not held through bearer shares.
Conforming amendments to the substanti-
ation and documentation requirements in
§§1.883–2T(e) and 1.883–4T(d)(4) have
been made.
Commentators suggested alternative
methods for making the names and ad-
dresses of 5-percent shareholders avail-
able to the IRS. However, these methods
were not adopted due to the complexity
of the regimes proposed, and questions
as to whether such approaches would in
fact address the commentators’ concerns.
Instead, the IRS and the Treasury Depart-
ment chose to rely on procedures already
in place in §1.883–1(c)(3) and as modi-
fied by §1.883–1T(c)(3), which requires,
among other things, that a foreign cor-
poration obtain ownership statements to
document and substantiate all represen-
tations it has made on Form 1120–F, and
that it provide substantiating documen-
tation in response to a written request
from the Commissioner. Such information
must be provided to the IRS within 30
days (rather than the 60 days allowed by
§1.883–1(c)(3)) of a written request by
the Commissioner, because the names and
addresses of relevant shareholders will no
longer be provided on the Form 1120–F
by taxpayers. See §1.883–1T(c)(3).
The IRS and the Treasury Department
believe that these revised reporting rules
will simultaneously reduce disclosure con-
cerns raised by taxpayers and encourage
greater reporting of the information the
IRS needs to administer section 883. The
IRS and the Treasury Department also be-
lieve these changes, in conjunction with
the remaining reporting requirements in
§§1.883–2(f), 1.883–2T(f), 1.883–3T(d),
1.883–4(e), and 1.883–4T(e), will provide
sufficient information to ensure the sound
and efficient administration of section 883.
Effective Dates
See §1.883–5T(d) for effective date
of these temporary regulations and
§1.883–5T(e) for applicability dates that
apply to these temporary regulations.
2007–32 I.R.B.304August 6, 2007

Effect on Other Documents
The following publications are modi-
fied as of June 25, 2007:
Notice 2006–43, 2006–1 C.B. 921
(May 22, 2006).
Rev. Rul. 2001–48, 2001–2 C.B. 324.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. For appli-
cability of the Regulatory Flexibility Act
(5 U.S.C. chapter 6), please refer to the
Special Analyses section of the preamble
to the cross-reference notice of proposed
rulemaking published elsewhere in this is-
sue of the Bulletin. Pursuant to section
7805(f) of the Code, these regulations were
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on their impact on small busi-
ness.
Drafting Information
The principal author of these regula-
tions is Patricia A. Bray of the Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and the Treasury Department participated
in their development.
*****
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.883–0 is amended by:
1.Revising the entries for
§1.883–1(g)(3) and (h)(3).
2.Revising the entry for
§1.883–2(e)(2).
3. Revising the entries for §1.883–3.
4. Adding the entries for §1.883–5(d)
and (e).
The revisions and additions read as fol-
lows:
§1.883–0 Outline of major topics.
*****
§1.883–1 Exclusion of income from
the international operation of ships or
aircraft.
*****
(g) * * *
(3) [Reserved]. For further guidance,
see the entry for §1.883–1T(g)(3).
*****
(h) * * *
(3) [Reserved]. For further guidance,
see the entries for §1.883–1T(h)(3).
*****
§1.883–2 Treatment of publicly-traded
corporations.
*****
(e)(2) [Reserved]. For further guid-
ance, see the entry for §1.883–2T(e)(2).
*****
§1.883–3 Treatment of controlled foreign
corporations.
[Reserved]. For further guidance, see
the entry for §1.883–3T.
*****
§1.883–5 Effective/applicability dates.
*****
(d) [Reserved]. For further guidance,
see the entry for §1.883–5T(d).
(e) [Reserved]. For further guidance,
see the entry for §1.883–5T(e).
Par. 3. Section 1.883–0T is added to
read as follows:
§1.883–0T Outline of major topics
(temporary).
This section lists the major para-
graphs contained in §§1.883–1T through
1.883–5T.
§1.883–1T Exclusion of income from
the international operation of ships or
aircraft (temporary).
(a) through (c)(3)(i) [Reserved].
For further guidance, see entries for
§1.883–1(a) through (c)(3)(i).
(ii) Further documentation.
(A) General rule.
(B) Names and addresses of certain
shareholders.
(c)(4) through (g)(2) [Reserved].
For further guidance, see entries for
§1.883–1(c)(4) through (g)(2).
(3) Other services. [Reserved].
(g)(4) through (h)(2) [Reserved].
For further guidance, see entries for
§1.883–1(g)(4) through (h)(2).
(3) Special rules with respect to income
tax conventions.
(i) Countries with only an income tax
convention.
(ii) Countries with both an income tax
convention and an equivalent exemption.
(A) General rule.
(B) Special rule for simultaneous ben-
efits under section 883 and an income tax
convention.
(iii) Participation in certain joint ven-
tures.
(iv) Independent interpretation of in-
come tax conventions.
(h)(4) through (j) [Reserved]. For
further guidance, see entries for
§1.883–1(h)(4) through (j).
§1.883–2T Tr
eatment of publicly-traded
corporation
s(temporary).
(a) through (e)(1) [Reserved]. For fur-
ther guidance, see entries for §1.883–2(a)
through (e)(1).
(2) Availability and retention of docu-
ments for inspection.
(f) [Reserved]. For further guidance,
see entry for §1.883–2(f).
§1.883–3T Treatment of controlled foreign
corporations (temporary).
(a) General rule.
(b) Qualified U.S. person ownership
test.
(1) General rule.
(2) Qualified U.S. person.
(3) Treatment of bearer shares.
(4) Attribution of ownership through
certain domestic entities.
(5) Examples.
(c) Substantiation of CFC stock owner-
ship.
(1) In general.
(2) Ownership statements from quali-
fied U.S. persons.
(3) Ownership statements from inter-
mediaries.
(4) Three-year period of validity.
August 6, 20073052007–32 I.R.B.

(5) Availability and retention of docu-
ments for inspection.
(d) Reporting requirements.
§1.883–5T Effective/applicability dates
(temporary).
(a) through (c) [Reserved]. For fur-
ther guidance, see entries for §1.883–5(a)
through (c).
(d) Effective date.
(e) Applicability dates.
(f) Expiration date.
Par. 4. Section 1.883–1 is amended by:
1. Revising paragraphs (c)(3)(i)(D),
(c)(3)(ii), (g)(1)(ix), (g)(1)(x), (g)(3),
(h)(1)(ii), and (h)(3).
2. Revising paragraphs (c)(3)(i)(G) and
(c)(3)(i)(H).
3. Adding new paragraph (c)(3)(i)(I).
4. Adding paragraph (g)(1)(xi).
5. Revising paragraph (g)(3).
The revisions and additions read as fol-
lows:
§1.883–1 Exclusion of income from
the international operation of ships or
aircraft.
*****
(c) * * *
(3) * * *
(i) * * *
(D) [Reserved]. For further guidance,
see §1.883–1T(c)(3)(i)(D).
*****
(G) through (I) [Reserved]. For fur-
ther guidance, see §1.883–1T(c)(3)(i)(G)
through (I).
(ii) [Reserved]. For further guidance,
see §1.883–1T(c)(3)(ii).
*****
(g) * * *
(1) * * *
(ix) through (xi) [Reserved]. For fur-
ther guidance, see §1.883–1T(g)(1)(ix)
through (xi).
(2) * * *
(3) [Reserved]. For further guidance,
see §1.883–1T(g)(3).
*****
(h) * * *
(1) * * *
(ii) [Reserved]. For further guidance,
see §1.883–1T(h)(1)(ii).
*****
(3) [Reserved]. For further guidance,
see §1.883–1T(h)(3).
*****
Par. 5. Section 1.883–1T is added to
read as follows:
§1.883–1T Exclusion of income from
the international operation of ships or
aircraft (temporary).
(a) through (c)(3)(i)(C) [Reserved]. For
further guidance, see §1.883–1(a) through
(c)(3)(i)(C).
(D) The applicable authority for an
equivalent exemption, for example, the
citation of a statute in the country where
the corporation is organized, a diplomatic
note between the United States and such
country, or an income tax convention be-
tween the United States and such country
in the case of a corporation described in
paragraphs (h)(3)(i) through (iii) of this
section;
(c)(3)(i)(E) through (F) [Reserved]. For
further guidance, see §1.883–1(c)(3)(i)(E)
through (F).
(G) A statement that none of the for-
eign corporation’s shares or shares of any
intermediary entity,if any, that are held
by qualified shareholders and relied on to
satisfy any of the stock ownership tests
described in §1.883–1(c)(2) are issued in
bearer form;
(H) Any other information required
under §1.883–2(f),§1.883–2T(f),
§1.883–3T(d),§1.883–4(e),or
§1.883–4T(e), as applicable; and
(I) Any other relevant information spec-
ified in Form 1120–F, “U.S. Income Tax
Return of a Foreign Corporation,” and its
accompanying instructions.
(ii)Further documentation—(A)Gen-
eral rule. Except as provided in this
paragraph (c)(3)(ii)(B), if the Commis-
sioner requests in writing that the for-
eign corporation document or substan-
tiate representations made under para-
graph (c)(3)(i) of this section, or under
§1.883–2(f), §1.883–2T(f), §1.883–3T(d),
§1.883–4(e), or §1.883–4T(e), as applica-
ble, the foreign corporation must provide
the documentation or substantiation within
60 days following the written request. If
the foreign corporation does not provide
the documentation and substantiation re-
quested within the 60-day period, but
demonstrates that the failure was due to
reasonable cause and not willful neglect,
the Commissioner may grant the foreign
corporation a 30-dayextension. Whether
a failure to obtain the documentation or
substantiation in a timely manner was due
to reasonable cause and not willful neglect
shall be determined by the Commissioner
after considering all the facts and circum-
stances.
(B)Names and addresses of certain
shareholders. If the Commissioner re-
quests the names and permanent addresses
of individual qualified shareholders of
a foreign corporation, as represented on
each such individual’s ownership state-
ment, to substantiate the requirements of
the exception to the closely-held test in
the publicly-traded test in §1.883–2(e), the
qualified shareholder stock ownership test
in §1.883–4(a), or the qualified U.S. per-
son ownership test in §1.883–3T(b), the
foreign corporation must provide the doc-
umentation and substantiation within 30
days following the written request. If the
foreign corporation does not provide the
documentation and substantiation within
the 30-day period, but demonstrates that
the failure was due to reasonable cause
and not willful neglect, the Commissioner
may grant the foreigncorporationa30-day
extension. Whether a failure to obtain
the documentation or substantiation in a
timely manner was due to reasonable cause
and not willful neglect shall be determined
by the Commissioner after considering all
the facts and circumstances.
(c)(4) through (g)(1)(viii) [Reserved].
For further guidance, see §1.883–1(c)(4)
through (g)(1)(viii).
(ix) Arranging by means of a space or
slot charter for the carriage of cargo listed
on a bill of lading or airway bill or simi-
lar document issued by the foreign corpo-
ration on the ship or aircraft of another cor-
poration engaged in the international oper-
ation of ships or aircraft;
(x) The provision of containers and re-
lated equipment by the foreign corporation
in connection with the international car-
riage of cargo for use by its customers, in-
cluding short-term use within the United
States immediately preceding or following
the international carriage of cargo (and for
this purpose, a period of five days or less
shall be presumed to be short-term); and
(xi) The provision of goods and ser-
vices by engineers, ground and equipment
maintenance staff, cargo handlers, catering
staff, and customer services personnel, and
2007–32 I.R.B.306August 6, 2007

the provision of facilities such as passen-
ger lounges, counter space, ground han-
dling equipment, and hanger facilities.
(2) [Reserved]. For further guidance,
see §1.883–1(g)(2).
(3)Other services.[Reserved].
(g)(4) through (h)(1)(i) [Reserved].
For further guidance, see §1.883–1(g)(4)
through (h)(1)(i).
(ii) Specifically provides a domestic
law tax exemption for income derived
from the international operation of ships
or aircraft, either by statute, decree, in-
come tax convention, or otherwise; or
(h)(1)(iii) and (h)(2) [Reserved]. For
further guidance, see §1.883–1(h)(1)(iii)
and (h)(2).
(3)Special rules with respect to income
tax conventions—(i)Countries with only
an income tax convention. If a foreign
country only providesan exemption from
tax for profits from the operation of ships
or aircraft in international transport or in-
ternational traffic under the shipping and
air transport or gains article of an income
tax convention with the United States, a
foreign corporation organized in that coun-
try may treat that exemption as an equiva-
lent exemption for purposes of section 883,
but only if—
(A) The foreign corporation meets all
the conditions for claiming benefits with
respect to such profits under the income
tax convention; and
(B) The profits that are exempt pur-
suanttotheincometaxconventionalsofall
within a category of income described in
paragraphs (h)(2)(i) through (viii) of this
section.
(ii)Countries with both an income
tax convention and an equivalent ex-
emption—(A)General rule. If a foreign
country provides an exemption from tax
for profits from the operation of ships or
aircraft in international transport or inter-
national traffic under the shipping and air
transport or gains article of an income tax
convention, and that foreign country also
provides an equivalent exemption under
section 883 by some other means for one
or more categories of income under para-
graph (h)(2) of this section, the foreign
corporation may choose annually whether
to claim an exemption under section 883
or the income tax convention. Except as
provided in this paragraph (h)(3)(ii)(B),
any such choice will apply with respect
to all categories of qualified income of
the foreign corporation and cannot be
made separately with respect to different
categories of income. If a foreign corpo-
ration bases its claim for an exemption
on section 883, it must satisfy all of the
requirements of this section to qualify for
an exemption from U.S. income tax. If the
foreign corporation bases its claim for an
exemptiononanincome tax convention,
it must satisfy all of the requirements for
claiming benefits under the income tax
convention. See §1.883–4(b)(3) for rules
about satisfying the stock ownership test
of §1.883–1(c)(2) using shareholders res-
ident in a foreign country that offers an
exemption under an income tax conven-
tion.
(B)Special rule for simultaneous ben-
efits under section 883 and an income tax
convention. If a foreign corporation is or-
ganized in a foreign country that offers an
exemption from taxunder an income tax
convention and also by some other means,
such as by diplomatic note or domestic
statutory law, with respect to the same cat-
egory of income, and the foreign corpora-
tion chooses to claim an exemption under
an income tax convention under paragraph
(h)(3)(ii)(A) of this section, it may simulta-
neously claim an exemption under section
883 with respect to a category of income
exempt from tax by such other means if
it satisfies the requirements of paragraphs
(h)(3)(i)(A) and (B) of this section for each
category of income, satisfies one of the
stock ownership tests of paragraph (c)(2)
of this section, and complies with the sub-
stantiation and reporting requirements in
paragraph (c)(3) of this section.
(iii)Participation in certain joint ven-
tures. A foreign corporation resident in a
foreign country that provides an exemp-
tion only through an income tax conven-
tion will not be precluded from treating
that exemption as an equivalent exemption
if it derives income through a participa-
tion, directly or indirectly, in a pool,
partnership, strategic alliance, joint op-
erating agreement, code-sharing arrange-
ment, or other joint venture described in
§1.883–1(e)(2), and the foreign corpora-
tion would be ineligible to claim benefits
under the convention for that category of
income solely because the joint venture
was not fiscally transparent, within the
meaning of §1.894–1(d)(3)(iii)(A), with
respect to that category of income under
the income tax laws of the foreign corpo-
ration’s country of residence.
(iv)Independent interpretation of
income tax conventions. Nothing in
§§1.883–1 through 1.883–5, or in this sec-
tion and §§1.883–2T through1.883–5T,
affects the rights or obligations under any
income tax convention. The definitions
provided in §§1.883–1 through 1.883–5,
or in this section and §§1.883–2T through
1.883–5T, shall not give meaning to sim-
ilar terms used in any income tax con-
vention, or provide guidance regarding
the scope of any exemption provided by
such convention, unless the income tax
convention entered into force after August
26, 2003, and it, or its legislative history,
explicitly refers to section 883 and guid-
ance promulgated under that section for
its meaning.
1. Par. 6. Section 1.883–2 is amended
by revising paragraphs (e)(2), (f)(3), and
(f)(4)(ii) to read as follows:
§1.883–2 Treatment of publicly-traded
corporations.
*****
(e) * * *
(2) [Reserved]. For further guidance,
see §1.883–2T(e)(2).
(f) * * *
(3) [Reserved]. For further guidance,
see §1.883–2T(f)(3).
(4) * * *
(ii) [Reserved]. For further guidance,
see §1.883–2T(f)(4)(ii).
*****
Par. 7. Section 1.883–2T is added to
read as follows:
§1.883–2T Treatment of publicly-traded
corporations (temporary).
(a) through (e)(1) [Reserved]. For fur-
ther guidance, see §1.883–2(a) through
(e)(1).
(2)Availability and retention of doc-
uments for inspection. The documenta-
tion described in §1.883–2(e)(1) must be
retained by the corporation seeking qual-
ified foreign corporation status until the
expiration of the statute of limitations for
the taxable year of the foreign corporation
to which the documentation relates. Such
documentation must be made available for
inspection by the Commissioner at such
time and such place as the Commissioner
August 6, 20073072007–32 I.R.B.

may request in writing in accordance with
§1.883–1T(c)(3)(ii)(A) or (B), as applica-
ble.
(f) through (f)(2) [Reserved]. For fur-
ther guidance, see §1.883–2(f) through
(f)(2).
(3) A description of each class of stock
relied upon to meet the requirements of
§1.883–2(d), including whether the class
of stock is issued in registered or bearer
form, the number of issued and outstand-
ing shares in that class of stock as of the
close of the taxable year, and the value of
each class of stock in relation to the total
value of all the corporation’s shares out-
standing as of the close of the taxable year;
(4) and (4)(i) [Reserved]. For further
guidance, see §1.883–2(f)(4) and (f)(4)(i).
(ii) With respect to all qualified share-
holders who own directly, or by applica-
tion of the attribution rules in §1.883–4(c),
stock in the closely-held block of stock
upon which the corporation intends to rely
to satisfy the exception to the closely-held
test of §1.883–2(d)(3)(ii)—
(A) The total number of qualified share-
holders, as defined in §1.883–4(b)(1);
(B) The total percentage of the value
of the shares owned, directly or indi-
rectly, by such qualified shareholders by
country of residence, determined under
§1.883–4(b)(2) (residence of individual
shareholders) or §1.883–4(d)(3) (special
rules for residence of certain sharehold-
ers); and
(C) The days during the taxable year of
the corporation that such qualified share-
holders owned, directly or indirectly, their
shares in the closely held block of stock.
(5) [Reserved]. For further guidance,
see §1.883–2(f)(5).
Par. 8. Section 1.883–3 is revised to
read as follows:
§1.883–3 Treatment of controlled foreign
corporations.
[Reserved]. For further guidance, see
§1.883–3T.
Par. 9. Section 1.883–3T is added to
read as follows:
§1.883–3T Treatment of controlled foreign
corporations (temporary).
(a)General rule. A foreign corpora-
tion satisfies the stock ownership test of
§1.883–1(c)(2) if it is a controlled foreign
corporation (as definedinsection957(a)),
satisfies the qualified U.S. person own-
ership test in paragraph (b) of this sec-
tion, and satisfies the substantiation and re-
porting requirements of paragraphs (c) and
(d) of this section, respectively. A CFC
that fails the qualified U.S. person own-
ership test of paragraph (b) of this section
will not satisfy the stock ownership test of
§1.883–1(c)(2) unless it meets either the
publicly-traded test of §1.883–2(a) or the
qualified shareholder stock ownership test
of §1.883–4(a).
(b)Qualified U.S. person ownership
test—(1)General rule. A foreign corpo-
ration will satisfy the requirements of the
qualified U.S. person ownership test only
if it—
(i) Is a CFC for more that half the days
in the corporation’s taxable year; and
(ii) More than 50 percent of the total
value of its outstanding stock is owned
(within the meaning of section 958(a) and
paragraph (b)(4) of this section) by one
or more qualified U.S. persons for more
than half the days of the CFC’s taxable
year, provided such days of ownership are
concurrent with the time period during
which the foreign corporation satisfies the
requirement in paragraph (b)(1)(i) of this
section.
(2)Qualified U.S. person. For purposes
of this section, the termqualified U.S. per-
sonmeans a U.S. citizen, resident alien,
domestic corporation, or domestic trust de-
scribed in section 501(a), but only if the
person provides the CFC with an owner-
ship statement as described in paragraph
(c)(2) of this section, and the CFC meets
the reporting requirements of paragraph
(d) of this section with respect to that per-
son.
(3)Treatment of bearer shares. For pur-
poses of applying the qualified U.S. person
ownership test, the value of the stock of a
CFC that is owned (directly or indirectly)
through bearer shares by qualified U.S.
persons is not taken into account in the nu-
merator of the fraction, but is taken into
account in the denominator to determine
the portion of the value of stock owned by
qualified U.S. persons.
(4)Attribution of ownership through
certain domestic entities. For purposes
of applying the qualified U.S. person
ownership test of paragraph (b)(1) of this
section, stock owned, directly or indi-
rectly, by or for a domestic partnership,
domestic trust not described in section
501(a), or domestic estate, shall be treated
as owned proportionately by its partners,
beneficiaries, grantors, or other interest
holders, respectively,applying the rules of
section 958(a) as if such domestic entity
were a foreign entity. Stock considered
to be owned by a person by reason of the
preceding sentence shall, for purposes of
applying such sentence, be treated as ac-
tually owned by such person.
(5)Examples. The qualified U.S. per-
son ownership test of paragraph (b)(1) of
this section is illustrated in the following
examples:
Example 1. Ship Co is a CFC for more than half
the days of Ship Co’s taxable year. Ship Co is orga-
nized in a qualified foreign country. All of its shares
are owned by a domestic partnership for the entire
taxable year. All of the partners in the domestic part-
nership are citizens and residents of foreign countries.
Ship Co fails the qualified U.S. person ownership test
of paragraph (b)(1) of this section because none of the
value of Ship Co’s stock is owned, applying the attri-
bution rules of paragraph (b)(4) of this section, for
at least half the number of days of Ship Co’s taxable
year, by one or more qualified U.S. persons. There-
fore, Ship Co must satisfy the qualified shareholder
stock ownership test of §1.883–4(a) in order to sat-
isfy the stock ownership test of §1.883–1(c)(2), and
be considered a qualified foreign corporation.
Example 2. Ship Co is a CFC for more than half
the days of its taxable year. Ship Co is organized in
a qualified foreign country. Corp A, a foreign corpo-
ration whose stock is owned by a citizen and resident
of a foreign country, owns 40 percent of the value of
the stock of Ship Co for the entire taxable year. X, a
domestic partnership, owns the remaining 60 percent
of the value of the stock of Ship Co for Ship Co’s en-
tire taxable year. X is owned by 20 partners, all of
whom are U.S. citizens and each of whom has owned
a 5-percent interest in X for the entire taxable year
of Ship Co. Ship Co satisfies the qualified U.S. per-
son ownership test of paragraph (b)(1) of this section
because 60 percent of the value of the stock of Ship
Co is owned, applying the attribution of ownership
rules of paragraph (b)(4) of this section, for at least
half the number of days of Ship Co’s taxable year by
the partners of X, who are all qualified U.S. persons
as defined in paragraph (b)(2) of this section. If Ship
Co satisfies the substantiation and reporting require-
ments of paragraphs (c) and (d) of this section, it will
meet the stock ownership test of §1.883–1(c)(2).
Example 3. Ship Co is a foreign corporation or-
ganized in a qualified foreign country. Ship Co has
two classes of stock, Class A representing 60 percent
of the vote and value of all the shares outstanding of
Ship Co, and Class B representing the remaining 40
percent of the vote and value of Ship Co. A, a U.S. cit-
izen, holds for the entire taxable year all of the Class
A stock, which is issued in bearer form, and B, a non-
resident alien, owns all the Class B stock, which is in
registered form. Ship Co cannot satisfy the qualified
U.S. person ownership test of paragraph (b)(1) of this
section because A’s bearer shares cannot be taken into
account as being owned by a qualified U.S. person
in determining if the qualified U.S. person ownership
test has been met; the shares are, however, taken into
2007–32 I.R.B.308August 6, 2007

account in determining the total value of Ship Co’s
outstanding shares.
(c)Substantiation of CFC stock owner-
ship—(1)In general. A foreign corpora-
tion that relies on this CFC test to satisfy
the stock ownership test of §1.883–1(c)(2)
must establish all the facts necessary to
demonstrate to the Commissioner that it
satisfies the qualified U.S. person owner-
ship test of paragraph (b)(1) of this section.
Specifically, the CFC must obtain a written
ownership statement, signed under penal-
ties of perjury by an individual authorized
to sign that person’s Federal tax or infor-
mation return, from—
(i) Each qualified U.S. person upon
whose stock ownership it relies to meet
this test; and
(ii) Each domestic intermediary de-
scribed in paragraph (b)(4) of this section,
each foreign intermediary (including a
foreign corporation, partnership, trust, or
estate), and mere legal owners or record
holders acting as nominees standing in
the chain of ownership between each such
qualified U.S. person and the CFC, if any.
(2)Ownership statements from quali-
fied U.S. persons. A qualified U.S. person
ownership statement must contain the fol-
lowing information:
(i) The qualified U.S. person’s name,
permanent address, and taxpayer identifi-
cation number.
(ii) If the qualified U.S. person owns
shares directly in the CFC, the number of
shares of each class of stock of the CFC
owned by the qualified person, the period
of time during the taxable year of the CFC
when the person owned the stock, and a
representation that its interest in the CFC
is not held through bearer shares.
(iii) If the qualified person owns an in-
direct interest in the CFC through an inter-
mediary described in paragraph (c)(1)(ii)
of this section, the name of that intermedi-
ary, the amount and nature of the interest
in the intermediary, the period of time dur-
ing the taxable year of the CFC when the
person held such interest, and, in the case
of an interest in a foreign corporate inter-
mediary, a representation that such interest
is not held through bearer shares.
(iv) Any other information as specified
in guidance published by the Internal Rev-
enue Service (see §601.601(d)(2) of this
chapter).
(3)Ownership statements from inter-
mediaries. An intermediary ownership
statement required of an intermediary
described in paragraph (c)(1)(ii) of this
section must contain the following infor-
mation:
(i) The intermediary’s name, permanent
address, and taxpayer identification num-
ber, if any.
(ii) If the intermediary directly owns
stock in the CFC, the number of shares of
each class of stock of the CFC owned by
the intermediary, the period of time during
the taxable year of the CFC when the inter-
mediary owned the stock, and a represen-
tation that such interest is not held through
bearer shares.
(iii) If the intermediary indirectly owns
the stock of the CFC, the name and address
of each intermediary standing in the chain
of ownership between it and the CFC, the
period of time during the taxable year of
the CFC when the intermediary owned the
interest, the percentage of interest it holds
indirectly in the CFC, and, in the case of a
foreign corporate intermediary, a represen-
tation that its interest is not held through
bearer shares.
(iv) Any other information as specified
in guidance published by the Internal Rev-
enue Service (see §601.601(d)(2) of this
chapter).
(4)Three-year period of validity.The
rules of §1.883–4(d)(2)(ii) apply for pur-
poses of determining the validity of the
ownership statements required under para-
graph (c)(2) of this section.
(5)Availability and retention of docu-
ments for inspection. The documentation
described in this paragraph (c) must be re-
tained by the corporation seeking qualified
foreign corporation status (the CFC) until
the expiration of the statute of limitations
for the taxable year of the CFC to which
the documentation relates. Such documen-
tation must be made available for inspec-
tion by the Commissioner at such place as
the Commissioner may request in writing
in accordance with §1.883–1T(c)(3)(ii).
(d)Reporting requirements. A foreign
corporation that relies on the CFC test of
this section to satisfy the stock ownership
test of §1.883–1(c)(2) must provide the
followinginformationinadditiontothein-
formation required by §1.883–1(c)(3) to be
included in its Form 1120–F, “U.S. Income
Tax Return of a Foreign Corporation,” for
the taxable year. Theinformation must be
based upon the documentation received by
the foreign corporation pursuant to para-
graph (c) of this section and must be cur-
rent as of the end of the corporation’s tax-
able year—
(1) The percentage of the value of the
shares of the CFC that is owned by all qual-
ified U.S. persons identified in paragraph
(c)(2) of this section, applying the attribu-
tion of ownership rules of paragraph (b)(4)
of this section;
(2) The period during which such qual-
ified U.S. persons held such stock;
(3) The period during which the foreign
corporation was a CFC;
(4) A statement that the CFC is directly
held by qualified U.S. persons and does not
have any bearer shares outstanding or, in
the alternative, that it is not relying on di-
rect or indirect ownership of such shares to
meet the qualified U.S. person ownership
test; and
(5) Any other relevant information
specified by Form 1120–F, and its ac-
companying instructions, or in guidance
published by the Internal Revenue Service
(see §601.601(d)(2) of this chapter).
Par. 10. Section 1.883–4 is amended
by:
1. Revising paragraphs (d)(4)(i)(C) and
(d)(4)(i)(D).
2. Removing paragraph (e)(2).
3. Redesignating paragraphs (e)(3) and
(e)(4) as paragraphs (e)(2) and (e)(3), re-
spectively, and revising them.
The revisions read as follows:
§1.883–4 Qualified shareholder stock
ownership test.
*****
(d) * * *
(4) * * *
(i) * * *
(C) and (D) [Reserved]. For further
guidance, see §1.883–4T(d)(4)(i)(C) and
(D).
(e) * * *
(2) and (3) [Reserved]. For further
guidance, see §1.883–4T(e)(2) and (3).
Par. 11. Section 1.883–4T is added to
read as follows:
§1.883–4T Qualified shareholder stock
ownership test (temporary).
(a) through (d)(4)(i)(B) [Reserved]. For
further guidance, see §1.883–4(a) through
(d)(4)(i)(B).
(C) If the individual directly owns stock
in the corporation seeking qualified for-
August 6, 20073092007–32 I.R.B.

eign corporation status, the name of the
corporation, the number of shares in each
class of stock of the corporation that are so
owned, with a statement that such shares
are not issued in bearer form, and the pe-
riod of time during the taxable year of
the foreign corporation when the individ-
ual owned the stock;
(D) If the individual directly owns an
interest in a corporation, partnership, trust,
estate, or other intermediary that directly
or indirectly owns stock in the corporation
seeking qualified foreign corporation sta-
tus, the name of the intermediary, the num-
ber and class of shares or the amount and
nature of the interest of the individual in
such intermediary, and, in the case of a cor-
porate intermediary, a statement that such
shares are not held in bearer form, and the
period of time during the taxable year of
the foreign corporation seeking qualified
foreign corporation status when the indi-
vidual held such interest;
(d)(4)(i)(E) through (e)(1) [Re-
served]. For further guidance, see
§1.883–4(d)(4)(i)(E) through (e)(1).
(2) With respect to all qualified share-
holders relied upon to satisfy the 50 per-
cent ownership test of §1.883–4(a), the to-
tal number of such qualified sharehold-
ers as defined in §1.883–4(b)(1); the to-
tal percentage of the value of the outstand-
ing shares owned, applying the attribu-
tion rules of §1.883–4(c), by such quali-
fied shareholders by country of residence
or organization, whichever is applicable;
and the period during the taxable year of
the foreign corporation that such stock was
held by qualified shareholders; and
(3) Any other relevant information
specified by the Form 1120–F, “U.S. In-
come Tax Return of a Foreign Corpora-
tion,” and its accompanying instructions,
or in guidance published by the Internal
Revenue Service (see §601.601(d)(2) of
this chapter).
Par. 12. Section 1.883–5 is amended
by revising the heading and adding para-
graphs (d) and (e) to read as follows:
§1.883–5 Effective/applicability dates.
*****
(d) through (e) [Reserved]. For further
guidance, see §1.883–5T(d) through (e).
Par. 13. Section 1.883–5T is added to
read as follows:
§1.883–5T Effective/applicability dates
(temporary).
(a) through (c) [Reserved]. For further
guidance, see §1.883–5(a) through (c).
(d)Effective date. These regulations are
effective on June 25, 2007.
(e)Applicability dates.Sections
1.883–1T, 1.883–2T, 1.883–3T, and
1.883–4T are applicable to taxable years
of the foreign corporation beginning after
June 25, 2007. Taxpayers may elect to ap-
ply §1.883–3T to any open taxable years
of the foreign corporation beginning on or
after December 31, 2004.
(f)Expiration date. The applicability
of §§1.883–1T, 1.883–2T, 1.883–3T, and
1.883–4T expires on or before June 22,
2010.
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 14. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 15. In §602.101, paragraph (b)
is amended by adding entries in numerical
order to the table to read as follows:
§602.101 OMB Control numbers.
*****
(b) * * *
CFR part or section where
identified and described
Current OMB
control No.
*****
§1.883–1T........................................................... 1545–1667
§1.883–2T........................................................... 1545–1667
§1.883–3T........................................................... 1545–1667
§1.883–
4T
........................................................... 1545–16
67
§1.883–5T........................................................... 1545–1667
*****
Kevin M. Brown,
Deputy Commissioner for
Services and Enforcement.
Approved June 14, 2007.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on June 22, 2007,
8:45 a.m., and published in the issue of the Federal Register
for June 25, 2007, 72 F.R. 34600)
Section 1081.—Nonrecog-
nition of Gain or Loss
on Exchanges or Distri-
buti
ons in Obedience to
Orde
rs of S.E.C.
Fina
l regulations simplify, clarify, or eliminate tax-
paye
r reporting burdens. They also eliminate regu-
lato
ry impediments to the electronic filing of certain
stat
ements that taxpayers are required to include on or
wit
h their Federal income tax returns. See T.D. 9329,
pag
e 312.
Section 1221.—Capital
Asset Defined
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
2007–32 I.R.B.310August 6, 2007

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 August 2007.
Rev. Rul. 2007–50
This revenue ruling provides various
prescribed rates for federal income tax
purposes for August 2007 (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. 2007–50 TABLE 1
Applicable Federal Rates (AFR) for August 2007
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR5.00%4.94%4.91%4.89%
110% AFR5.50%5.43%5.39%5.37%
120% AFR6.02%5.93%5.89%5.86%
130% AFR6.52%6.42%6.37%6.34%
Mid-term
AFR5.09%5.03%5.00%4.98%
110% AFR5.61%5.53%5.49%5.47%
120% AFR6.13%6.04%6.00%5.97%
130% AFR6.65%6.54%6.49%6.45%
150% AFR7.69%7.55%7.48%7.43%
175% AFR8.99%8.80%8.71%8.64%
Long-term
AFR5.31%5.24%5.21%5.18%
110% AFR5.84%5.76%5.72%5.69%
120% AFR6.39%6.29%6.24%6.21%
130% AFR6.93%6.81%6.75%6.72%
REV. RUL. 2007–50 TABLE 2
Adjusted AFR for August 2007
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted
AFR
3.75%3.72%3.70%3.69%
Mid-term adjusted AFR3.97%3.93%3.91%3.90%
Long-term adjusted
AFR
4.50%4.45%4.43%4.41%
August 6, 20073112007–32 I.R.B.

REV. RUL. 2007–
50 TABLE 3
Rates Under Section 382 for August 2007
Adjusted federal long-term rate for the current month4.50%
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.)4.50%
REV. RUL. 2007–50 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for August 2007
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. RUL. 2007–50 TABLE 5
Rate Under Section 7520 for August 2007
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest6.2%
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 August 2007. See Rev. Rul. 2007-50, page 311.
Section 1502.—Regulations
26 CFR 1.1502–13: Intercompany transactions.
T.D. 9329
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301, and 602
Guidance Necessary to
Facilitate Business Electronic
Filing and Burden Reduction
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations and removal
of temporary regulations.
SUMMARY: This document contains fi-
nal regulations that affect taxpayers filing
Federal income tax returns. They simplify,
clarify, or eliminate reporting burdens and
also eliminate regulatory impediments to
the electronic filing of certain statements
that taxpayers are required to include on or
with their Federal income tax returns. This
document also makes conforming changes
to certain current regulations.
DATES:Effective Date:These regulations
are effective on June 14, 2007.
Applicability Date:For dates
of applicability, see §§1.302–2(d),
1.302–4(h), 1.331–1(f), 1.332–6(e),
1.338–10(c), 1.351–3(f), 1.355–5(e),
1.368–3(e), 1.381(b)–1(e), 1.382–8(j)(4),
1.382–11(b), 1.1081–11(f), 1.1221–2(j),
1.1502–13(m), 1.1502–31(j), 1.1502–
32(j), 1.1502–33(k), 1.1502–95(g),
1.1563–3(e) and 1.6012–2(k).
FOR FURTHER INFORMATION
CONTACT: For all sections except
§1.6012–2, Grid Glyer, (202) 622–7930;
for §1.6012–2, William T. Sullivan (202)
622–7052 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)) under control number
1545–2019.
The collection of information in
these final regulations is in §§1.302–2,
1.302–4, 1.331–1, 1.332–6, 1.338–10,
1.351–3, 1.355–5, 1.368–3, 1.381(b)–1,
1.382–8, 1.382–11, 1.1081–11, 1.1221–2,
1.1502–13, 1.1502–31, 1.1502–32,
1.1502–33, 1.1502–95, 1.1563–3 and
1.6012–2. This information is required to
enable the IRS to verify that a taxpayer
is reporting the correct amount of the fair
market value of any property (including
stock) received and the basis of any prop-
erty (including stock) surrendered in the
transaction described in such section.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless the collec-
tion of information displays a valid control
number by the Office of Management and
Budget.
Books or records relating to a collection
of information must be retained as long
as their contents might 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
On May 30, 2006, the IRS and Treasury
Department published temporary regula-
tions (T.D. 9264, 2006–1 C.B. 1150) under
2007–32 I.R.B.312August 6, 2007

26 CFR part 1 and 26 CFR part 602. See
71 FR 30591. The IRS and Treasury De-
partment issued a notice of proposed rule-
making (REG–134317–05, 2006–1 C.B.
1184) cross-referencing those temporary
regulations on the same day. See 71 FR
30640.
In general, the regulations simplify,
clarify, or eliminate reporting burdens for
corporations and shareholders for certain
transactions, including distributions, ex-
changes and reorganizations. They also
eliminate impediments to the electronic
filing of statements that taxpayers, primar-
ily large corporations that are members of
consolidated or controlled groups, are re-
quired to include on their Federal income
tax returns.
These regulations were part of a se-
ries of regulations published by the IRS
and Treasury Department that are designed
to eliminate impediments to the electronic
filing of forms and statements that taxpay-
ers are required to include on their Federal
income tax returns. See, for example, T.D.
9300, 2007–2 I.R.B. 246 [71 FR 71040],
and T.D. 9243, 2006–1 C.B. 475 [71 FR
4276].
Explanation of Provisions
Exceptasprovidedinthefollowing
paragraph, this Treasury decision adopts
the proposed regulations with no substan-
tive changes. In addition, this Treasury
decision removes the corresponding tem-
porary regulations.
This Treasury decision does
not adopt the following proposed
regulations:§1.1502–35(c)(4)(i),
§1.1502–76(b)(2)(ii)(D) and §1.1563–1
(c)(2)(i) through (iii). These proposed
regulations will be addressed as part of
other guidance projects.
The IRS and Treasury Department re-
ceived no written or electronic comments
from the public in response to the notice of
proposed rulemaking and no public hear-
ing was requested or held. However, three
questions were raised informally and are
addressed in this preamble.
Sec. 1.302–2
The first question involves a report-
ing requirement under §1.302–2 (re-
demptions not taxable as dividends).
Specifically, the question involved pro-
posed §1.302–2(b)(2), which requires
all “significant holders” receiving prop-
erty from a corporation in exchange for
the corporation’s stock (“redemption ex-
changes”) to include a brief information
statement on their return. The statement
sets forth certain information necessary
to determine the proper treatment of the
redemption exchange. Under proposed
§1.302–2(b)(3)(i), a significant holder is
any stockholder owning 5 percent or more
of the stock of a publicly traded company
and any stockholder owning 1 percent or
more of the stock of a company that is not
publicly traded.
The specific question raised was
whether the statement is necessary in
all redemption exchanges, whether the
exchange is treated as a distribution that
is essentially equivalent to a dividend
or not. Under the proposed regulations,
all redemption exchanges are subject to
this reporting requirement. The IRS and
Treasury Department determined that the
simplified information to be provided in
the statement is necessary for the identifi-
cation and evaluation of redemptions that
are essentially equivalent to dividends.
Furthermore, the required information is
information that taxpayers should already
have or be prepared to produce. Finally,
as noted in this preamble, the regulations
limit any remaining burden by imposing
the reporting requirement only on sig-
nificant holders. For all these reasons,
the IRS and Treasury Department have
concluded that the requirement does not
impose an unnecessary or inappropriate
burden on taxpayers. Accordingly, the
final regulations adopt the rule proposed
in §1.302–2(b)(2) and do not limit the
application of the reporting requirement.
Sec. 1.302–4
The second question involves a report-
ing requirement under §1.302–4 (termi-
nation of shareholder’s interest). Specifi-
cally, the question involved the statement
in proposed §1.302–4(a) regarding the
waiver of family attribution. Under this
section and section 302(c)(2), a redeeming
shareholder can avoid being treated as re-
ceiving a dividend equivalent distribution
by waiving the application of the family at-
tribution rules of section 318(a)(1). Prior
to the promulgation of §1.302–4T(a),
§1.302–4(a)(1) provided that taxpayers
were required to file family attribution
waiver agreements and §1.302–4(a)(2)
prescribed conditions under which a tax-
payer that had failed to timely file the
agreement could obtain an extension of
time to file from the appropriate district
director. Section 1.302–4T(a) removed
the requirement that an agreement be filed
as well as the instructions regarding late
filing. Instead, that regulation provided
that a statement must be filed and set forth
the information that must be included.
Section 1.302–4T(a) did not include in-
structions for late filers.
The specific question raised was
whether the change affected taxpayers’
ability to remedy latefiling. TheIRSand
Treasury Department did not intend any
change to taxpayers’ ability to remedy
late filing. However, the final regulations
do not incorporate instructions for late
filing because the statement required is
a regulatory election and the late filing
of all regulatory elections is addressed
by §301.9100–1. Accordingly, such in-
structions are not necessary and could
inadvertently imply that the general rules
would not otherwise apply.
Sec. 1.6012–2
Finally, a question was also raised
concerning the reporting requirements
applicable to foreign insurance corpora-
tions electing under section 953(d) to be
treated as domestic insurance corpora-
tions. Specifically, the question raised
was whether such corporations have a re-
porting requirement.
Section 1.6012–2(c)(1)(i) requires that
a domestic life insurance company file
with its return a copy of its annual state-
ment which shows the reserves used by
the company in computing the taxable in-
come reported on its return, and a copy of
Schedule A (real estate) and of Schedule
D (bonds and stocks), or any successor
thereto, of such annual statement. Sec-
tion 1.6012–2(c)(2) similarly requires that
a domestic nonlife insurance company
file with its return a copy of its annual
statement, includingthe underwriting
and investment exhibit (or any successor
thereto), for the year covered by such
return. Section 953(d) provides that a
foreign insurance company that satisfies
the requirements of section 953(d), in-
cluding the making of an election under
section 953(d)(1)(D), shall be treated as a
August 6, 20073132007–32 I.R.B.

domestic corporation for purposes of the
Internal Revenue Code. Thus, a foreign
insurance company that elects under sec-
tion 953(d) to be treated as a domestic
corporation generally is required under
§1.6012–2(c)(1) or (2), as appropriate, to
file with its return a copy of its annual
statement. Under §1.6012–2(c)(5), the
term “annual statement” includes apro
formaannual statement if the insurance
company is not required to file the NAIC
annual statement.
Because the reporting requirements of
electing corporations are addressed in the
current regulations, the IRS and Treasury
Department are not modifying the regula-
tions to address this point further.
Special Analysis
It has been determined that this Trea-
sury Decision is nota significant reg-
ulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. It has also
been determined thatsection 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to §§1.302–2,
1.302–4, 1.331–1, 1.332–6, 1.351–3,
1.355–5, 1.368–3, 1.381(b)–1, 1.1081–11,
1.1563–3, and 1.6012–2. With respect
to the collections of information in such
sections, and with respect to §§1.338–10,
1.382–8, 1.382–11, 1.1221–2, 1.1502–13,
1.1502–31, 1.1502–32, 1.1502–33 and
1.1502–95, it is herebycertified that these
regulations will not have a significant eco-
nomic impact on a substantial number of
small entities. This certification is based
on the fact that these regulations primarily
affect large corporations (which are mem-
bers of either controlled or consolidated
groups) and in the case of all corporations
will substantially reduce or eliminate the
existing reporting burden. Therefore, a
regulatory flexibility analysis under the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) is not required. Pursuant to section
7805(f) of the Internal Revenue Code,
these regulations were submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
their impact on small business.
Drafting Information
The principal author of these regula-
tions is Grid Glyer, Office of Associate
Chief Counsel (Corporate). However,
other personnel from the IRS and Treasury
Department participated in their develop-
ment.
*****
Adoption of Am
endments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entries
for §§1.302–2T, 1.302–4T, 1.331–1T,
1.332–6T,1.338–10T,1.351–3T,
1.355–5T, 1.368–3T, 1.381(b)–1T,
1.382–8T, 1.382–11T, 1.1081–11T,
1.1221–2T, 1.1502–13T, 1.1502–31T,
1.1502–33T, 1.1502–95T, 1.1563–3T and
1.6012–2T to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.302–2 is amended by:
1. Adding headings to paragraphs (a),
(b), (b)(1) and (c).
2. Revising paragraphs (b)(2) and (d).
3. Adding paragraphs (b)(3) and (b)(4).
The additions and revisions read as fol-
lows:
§1.302–2 Redemptions not taxable as
dividends.
(a)In general.***
(b)Redemption not essentially equiva-
lent to a dividend—(1)In general.***
(2)Statement. Unless §1.331–1(d) ap-
plies, every significant holder that trans-
fers stock to the issuing corporation in ex-
change for property from such corporation
must include on or with such holder’s re-
turn for the taxable year of such exchange
a statement entitled, “STATEMENT PUR-
SUANT TO §1.302–2(b)(2) BY [INSERT
NAME AND TAXPAYER IDENTIFI-
CATION NUMBER (IF ANY) OF TAX-
PAYER], A SIGNIFICANT HOLDER
OF THE STOCK OF [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER (IF ANY) OF ISSUING COR-
PORATION].” If a significant holder is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(i) The fair market value and basis of the
stock transferred by the significant holder
to the issuing corporation; and
(ii) A description of the property re-
ceived by the significant holder from the
issuing corporation.
(3)Definitions. For purposes of this
section:
(i)Significant holdermeans any person
that, immediately before the exchange—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock of
the issuing corporation if the stock owned
by such person is publicly traded; or
(B) Owned at least one percent (by vote
or value) of the total outstanding stock of
the issuing corporation if the stock owned
by such person is not publicly traded.
(ii)Publicly traded stockmeans stock
that is listed on—
(A) A national securities exchange reg-
istered under section 6 of the Securities
Exchange Act of 1934 (15 U.S.C. 78f); or
(B) An interdealer quotation system
sponsored by a national securities as-
sociation registered under section 15A
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3).
(iii)Issuing corporationmeans the cor-
poration that issued the shares of stock,
some or all of which were transferred by
a significant holder to such corporation in
the exchange described in paragraph (b)(2)
of this section.
(4)Cross reference. See section 6043
of the Internal Revenue Code for require-
ments relating to a return by a liquidating
corporation.
(c)Basis adjustments.***
(d)Effective/applicability date. Para-
graphs (b)(2), (b)(3) and (b)(4) of this sec-
tion apply to any taxable year beginning
on or after May 30, 2006. However, tax-
payers may apply paragraphs (b)(2), (b)(3)
and (b)(4) of this section to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such origi-
nal return) timely filed on or after May 30,
2006. For taxable years beginning before
May 30, 2006, see §1.302–2 as contained
in 26 CFR part 1 in effect on April 1, 2006.
§1.302–2T [Removed]
Par. 3. Section 1.302–2T is removed.
Par. 4. Section 1.302–4 is amended by:
1. Revising paragraphs (a) and (h).
2007–32 I.R.B.314August 6, 2007

2. Adding headings to paragraphs (b),
(c), (d), (e), (f), and (g) introductory text.
The additions and revisions read as fol-
lows:
§1.302–4 Termination of shareholder’s
interest.
(a)Statement. The agreement specified
in section 302(c)(2)(A)(iii) shall be in the
form of a statement entitled, “STATE-
MENT PURSUANT TO SECTION
302(c)(2)(A)(iii) BY [INSERT NAME
AND TAXPAYER IDENTIFICATION
NUMBER (IF ANY) OF TAXPAYER
OR RELATED PERSON, AS THE CASE
MAY BE], A DISTRIBUTEE (OR RE-
LATED PERSON) OF [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER (IF ANY) OF DISTRIBUT-
ING CORPORATION].” The distributee
must include such statement on or with
the distributee’s first return for the taxable
year in which the distribution described in
section 302(b)(3) occurs. If the distributee
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its re-
turn. The distributee must represent in the
statement—
(1) THE DISTRIBUTEE (OR RE-
LATED PERSON) HAS NOT AC-
QUIRED, OTHER THAN BY BEQUEST
OR INHERITANCE, ANY INTEREST
IN THE CORPORATION (AS DE-
SCRIBED IN SECTION 302(c)(2)(A)(i))
SINCE THE DISTRIBUTION; and
(2) THE DISTRIBUTEE (OR RE-
LATED PERSON) WILL NOTIFY THE
INTERNAL REVENUE SERVICE OF
ANY ACQUISITION, OTHER THAN
BY BEQUEST OR INHERITANCE, OF
SUCH AN INTEREST IN THE COR-
PORATION WITHIN 30 DAYS AFTER
THE ACQUISITION, IF THE ACQUI-
SITION OCCURS WITHIN 10 YEARS
FROM THE DATE OF THE DISTRIBU-
TION.
(b)Substantiation information.***
(c)Stock of parent, subsidiary or suc-
cessor corporation redeemed.***
(d)Redeemed shareholder as creditor.
***
(e)Acquisition of assets pursuant to
creditor’s rights.***
(f)Constructive ownership rules appli-
cable. ***
(g)Avoidance of Federal income tax.
***
(h)Effective/applicability date. Para-
graph (a) of this section applies to any
taxable year beginning on or after May
30, 2006. However, taxpayers may apply
paragraph (a) of this section to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such origi-
nalreturn)timelyfiledonorafterMay30,
2006. For taxable years beginning before
May 30, 2006, see §1.302–4 as contained
in 26 CFR part 1 in effect on April 1, 2006.
§1.302–4T [Removed]
Par. 5. Section 1.302–4T is removed.
Par. 6. Section 1.331–1 is amended by:
1. Adding headings to paragraphs (a),
(b), (c) and (e).
2. Revising paragraphs (d) and (f).
The additions and revisions read as fol-
lows:
§1.331–1 Corporate liquidations.
(a)In general.***
(b)Gain or loss.***
(c)Recharacterization.***
(d)Reporting requirement—(1)Gen-
eral rule. Every significant holder that
transfers stock to the issuing corporation in
exchange for property from such corpora-
tion must include on or with such holder’s
return for the year of such exchange the
statement described in paragraph (d)(2) of
this section unless—
(i) The property is part of a distribu-
tion made pursuant to a corporate resolu-
tion reciting that the distribution is made
in complete liquidation of the corporation;
and
(ii) The issuing corporation is com-
pletely liquidated and dissolved within
one year after the distribution.
(2)Statement. If required by para-
graph (d)(1) of this section, a signif-
icant holder must include on or with
such holder’s return a statement enti-
tled, “STATEMENT PURSUANT TO
§1.331–1(d) BY [INSERT NAME AND
TAXPAYER IDENTIFICATION NUM-
BER (IF ANY) OF TAXPAYER], A SIG-
NIFICANT HOLDER OF THE STOCK
OF [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF ISSUING CORPORATION].” If a
significant holder is a controlled foreign
corporation (within the meaning of sec-
tion 957), each United States shareholder
(within the meaning of section 951(b))
with respect thereto must include this
statement on or with its return. The state-
ment must include—
(i) The fair market value and basis of the
stock transferred by the significant holder
to the issuing corporation; and
(ii) A description of the property re-
ceived by the significant holder from the
issuing corporation.
(3)Definitions. For purposes of this
section:
(i)Significant holdermeans any person
that, immediately before the exchange—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock of
the issuing corporation if the stock owned
by such person is publicly traded; or
(B) Owned at least one percent (by vote
or value) of the total outstanding stock of
the issuing corporation if the stock owned
by such person is not publicly traded.
(ii)Publicly traded stockmeans stock
that is listed on—
(A) A national securities exchange reg-
istered under section 6 of the Securities
Exchange Act of 1934 (15 U.S.C. 78f); or
(B) An interdealer quotation system
sponsored by a national securities as-
sociation registered under section 15A
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3).
(iii)
Issuing corporationmeans the cor-
poration that issued the shares of stock,
some or all of which were transferred by
a significant holder to such corporation in
the exchange described in paragraph (d)(1)
of this section.
(4)Cross reference. See section 6043
of the Code for requirements relating to a
return by a liquidating corporation.
(e)Example.***
(f)Effective/applicability date. Para-
graph (d) of this section applies to any
taxable year beginning on or after May
30, 2006. However, taxpayers may apply
paragraph (d) of this section to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such origi-
nal return) timely filed on or after May 30,
2006. For taxable years beginning before
August 6, 20073152007–32 I.R.B.

May 30, 2006, see §1.331–1 as contained
in 26 CFR part 1 in effect on April 1, 2006.
§1.331–1T [Removed]
Par. 7. Section 1.331–1T is removed.
Par. 8. Section 1.332–6 is added to read
as follows:
§1.332–6 Records to be kept and
information to be filed with return.
(a)Statement filed by recipient corpora-
tion. If any recipient corporation received
a liquidating distribution from the liquidat-
ing corporation pursuant to a plan (whether
or not that recipient corporation has re-
ceived or will receive other such distribu-
tions from the liquidating corporation in
other tax years as part of the same plan)
during the current tax year, such recipi-
ent corporation must include a statement
entitled, “STATEMENT PURSUANT TO
SECTION 332 BY [INSERT NAME AND
EMPLOYER IDENTIFICATION NUM-
BER (IF ANY) OF TAXPAYER], A COR-
PORATION RECEIVING A LIQUIDAT-
ING DISTRIBUTION,” on or with its re-
turn for such year. If any recipient cor-
poration is a controlled foreign corpora-
tion (within the meaning of section 957),
each United States shareholder (within the
meaning of section 951(b)) with respect
thereto must include this statement on or
with its return. The statement must in-
clude—
(1) The name and employer identifica-
tion number (if any) of the liquidating cor-
poration;
(2) The date(s) of all distribution(s)
(whether or not pursuant to the plan) by
the liquidating corporation during the cur-
rent tax year;
(3) The aggregate fair market value and
basis, determined immediately before the
liquidation, of all of the assets of the liq-
uidating corporation that have been or will
be transferred to any recipient corporation;
(4) The date and control number of any
private letter ruling(s) issued by the Inter-
nal Revenue Service in connection with
the liquidation;
(5) The following representation: THE
PLAN OF COMPLETE LIQUIDATION
WAS ADOPTED ON [INSERT DATE
(mm/dd/yyyy)]; and
(6) A representation by such recipient
corporation either that—
(i) THE LIQUIDATION WAS
COMPLETED ON [INSERT DATE
(mm/dd/yyyy)]; or
(ii) THE LIQUIDATION IS NOT
COMPLETE AND THE TAXPAYER
HAS TIMELY FILED [INSERT EITHER
FORM 952, “Consent To Extend the Time
to Assess Tax Under Section 332(b),” OR
NUMBER AND NAME OF THE SUC-
CESSOR FORM].
(b)Filings by the liquidating corpo-
ration. The liquidating corporation must
timely file Form 966, “Corporate Disso-
lution or Liquidation,” (or its successor
form) and its final Federal corporate in-
come tax return. See also section 6043 of
the Code.
(c)Definitions. For purposes of this
section:
(1)Planmeans the plan of complete
liquidation within the meaning of section
332.
(2)Recipient corporationmeans the
corporation describedin section 332(b)(1).
(3)Liquidating corporationmeans the
corporation that makes a distribution of
property to a recipient corporation pur-
suant to the plan.
(4)Liquidating distributionmeans
a distribution of property made by the
liquidating corporation to a recipient cor-
poration pursuant to the plan.
(d)Substantiation information.Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and em-
ployees. In connection with a liquida-
tion described in this section, these records
should specifically include information re-
garding the amount, basis, and fair mar-
ket value of all distributed property, and
relevant facts regarding any liabilities as-
sumed or extinguished as part of such liq-
uidation.
(e)Effective/applicability date.This
section applies to any taxable year begin-
ning on or after May 30, 2006. How-
ever, taxpayers may apply this section to
any original Federal income tax return (in-
cluding any amended return filed on or be-
fore the due date (including extensions) of
such original return) timely filed on or af-
ter May 30, 2006. For taxable years begin-
ning before May 30, 2006, see §1.332–6
ascontainedin26CFRpart1ineffecton
April 1, 2006.
§1.332–6T [Removed]
Par. 9. Section 1.332–6T is removed.
Par. 10. Section1.338–0is
amended by revising the entries for
§§1.338–10(a)(4)(iii) and 1.338–10(c)
and removing the entry for §1.338–10T to
read as follows:
§1.338–0 Outline of topics.
*****
§1.338–10 Filing of returns.
(a) * * *
(4) * * *
(iii) Procedure for filing a combined re-
turn.
*****
(c) Effective/applicability date.
*****
Par. 11. Section 1.338–10 is amended
by revising paragraphs (a)(4)(iii) and (c) to
read as follows:
§1.338–10 Filing of returns.
(a) * * *
(4) * * *
(iii)Procedure for filing a combined re-
turn. A combined return is made by fil-
ing a single corporation income tax re-
turn in lieu of separate deemed sale re-
turns for all targets required to be included
in the combined return. The combined
return reflects the deemed asset sales of
all targets required to be included in the
combined return. If the targets included
in the combined return constitute a sin-
gle affiliated group within the meaning of
section 1504(a), theincome tax return is
signed by an officer of the common par-
ent of that group. Otherwise, the return
must be signed by an officer of each tar-
get included in the combined return. Rules
similar to the rules in §1.1502–75(j) apply
for purposes of preparing the combined re-
turn. The combined return must include a
statement entitled, “ELECTION TO FILE
A COMBINED RETURN UNDER SEC-
TION 338(h)(15).” The statement must in-
clude—
(A) The name, address, and employer
identification number of each target re-
quired to be included in the combined re-
turn; and
2007–32 I.R.B.316August 6, 2007

(B) The following declaration: EACH
TARGET IDENTIFIED IN THIS ELEC-
TION TO FILE A COMBINED RETURN
CONSENTS TO THE FILING OF A
COMBINED RETURN.
*****
(c)Effective/applicability date. Para-
graph (a)(4)(iii) of this section applies to
any taxable year beginning on or after May
30, 2006. However, taxpayers may ap-
ply paragraph (a)(4)(iii) of this section to
any original Federal income tax return (in-
cluding any amended return filed on or be-
fore the due date (including extensions) of
such original return) timely filed on or af-
ter May 30, 2006. For taxable years begin-
ning before May 30, 2006, see §1.338–10
ascontainedin26CFRpart1ineffecton
April 1, 2006.
§1.338–10T [Removed]
Par. 12. Section 1.338–10T is removed.
Par. 13. Section 1.351–3 is added to
read as follows:
§1.351–3 Records to be kept and
information to be filed.
(a)Significant transferor. Every signif-
icant transferor must include a statement
entitled, “STATEMENT PURSUANT
TO §1.351–3(a) BY [INSERT NAME
AND TAXPAYER IDENTIFICATION
NUMBER (IF ANY) OF TAXPAYER], A
SIGNIFICANT TRANSFEROR,” on or
with such transferor’s income tax return
for the taxable year of the section 351
exchange. If a significant transferor is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The name and employer identifica-
tion number (if any) of the transferee cor-
poration;
(2)Thedate(s)ofthetransfer(s)ofas-
sets;
(3) The aggregate fair market value and
basis, determined immediately before the
exchange, of the property transferred by
such transferor in the exchange; and
(4) The date and control number of any
private letter ruling(s) issued by the Inter-
nal Revenue Service in connection with
the section 351 exchange.
(b)Transferee corporation. Except as
provided in paragraph (c) of this section,
every transferee corporation must include
a statement entitled, “STATEMENT PUR-
SUANT TO §1.351–3(b) BY [INSERT
NAME AND EMPLOYER IDENTI-
FICATION NUMBER (IF ANY) OF
TAXPAYER], A TRANSFEREE COR-
PORATION,” on or with its income tax
return for the taxable year of the exchange.
If the transferee corporation is a controlled
foreign corporation (within the meaning
of section 957), each United States share-
holder (within the meaning of section
951(b)) with respect thereto must include
this statement on or with its return. The
statement must include—
(1) The name and taxpayer identifica-
tion number (if any) of every significant
transferor;
(2)Thedate(s)ofthetransfer(s)ofas-
sets;
(3) The aggregate fair market value and
basis, determined immediately before the
exchange, of all of the property received
in the exchange; and
(4) The date and control number of any
private letter ruling(s) issued by the Inter-
nal Revenue Service in connection with
the section 351 exchange.
(c)Exception for certain transferee cor-
porations. The transferee corporation is
not required to file a statement under para-
graph (b) of this section if all of the infor-
mation that would be included in the state-
ment described in paragraph (b) of this
section is included in any statement(s) de-
scribed in paragraph (a) of this section that
is attached to the same return for the same
section 351 exchange.
(d)Definitions. For purposes of this
section:
(1)Significant transferormeans a per-
son that transferred property to a corpora-
tion and received stock of the transferee
corporation in an exchange described in
section 351 if, immediately after the ex-
change, such person—
(i) Owned at least five percent (by vote
or value) of the total outstanding stock
of the transferee corporation if the stock
ownedbysuchpersonispubliclytraded,
or
(ii) Owned at least one percent (by vote
or value) of the total outstanding stock
of the transferee corporation if the stock
owned by such person is not publicly
traded.
(2)Publicly traded stockmeans stock
that is listed on—
(i) A national securities exchange regis-
tered under section 6 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78f); or
(ii) An interdealer quotation system
sponsored by a national securities as-
sociation registered under section 15A
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3).
(e)Substantiation information. Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and em-
ployees. In connection with the exchange
described in this section, these records
should specifically include information
regarding the amount, basis, and fair mar-
ket value of all transferred property, and
relevant facts regarding any liabilities
assumed or extinguished as part of such
exchange.
(f)Effective/applicability date.This
section applies to any taxable year begin-
ning on or after May 30, 2006. How-
ever, taxpayers may apply this section to
any original Federal income tax return (in-
cluding any amended return filed on or be-
fore the due date (including extensions) of
such original return) timely filed on or af-
ter May 30, 2006. For taxable years begin-
ning before May 30, 2006, see §1.351–3
as contained in 26 CFR part 1 in effect on
April 1, 2006.
§1.351–3T [Removed]
Par. 14. Section 1.351–3T is removed.
Par. 15. Section 1.355–0 is amended
by removing the entry for §1.355–5T and
adding an entry for §1.355–5.
The revision and addition read as fol-
lows:
§1.355–0 Outline of sections.
*****
§1.355–5 Records to be kept and
information to be filed.
(a) Distributing corporation.
(1) In general.
(2) Special rule when an asset transfer
precedes a stock distribution.
(b) Significant distributee.
(c) Definitions.
(1) Significant distributee.
August 6, 20073172007–32 I.R.B.

(2) Publicly traded stock.
(d) Substantiation information.
(e) Effective/applicability date.
*****
Par. 16. Section 1.355–5 is added to
read as follows:
§1.355–5 Records to be kept and
information to be filed.
(a)Distributing corporation—(1)In
general. Every corporation that makes
a distribution (the distributing corpora-
tion) of stock or securities of a controlled
corporation, as described in section 355
(orsomuchofsection356asrelatesto
section 355), must include a statement
entitled, “STATEMENT PURSUANT
TO §1.355–5(a) BY [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER (IF ANY) OF TAXPAYER], A
DISTRIBUTING CORPORATION,” on
or with its return for the year of the dis-
tribution. If the distributing corporation
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(i) The name and employer identifica-
tion number (if any) of the controlled cor-
poration;
(ii) The name and taxpayer identifica-
tion number (if any) of every significant
distributee;
(iii) The date of the distribution of the
stock or securities of the controlled corpo-
ration;
(iv) The aggregate fair market value
and basis, determined immediately before
the distribution or exchange, of the stock,
securities, or otherproperty (including
money) distributed by the distributing cor-
poration in the transaction; and
(v) The date and control number of any
private letter ruling(s) issued by the Inter-
nal Revenue Service in connection with
the transaction.
(2)Special rule when an asset transfer
precedes a stock distribution. If the dis-
tributing corporation transferred property
to the controlled corporation in a transac-
tion described in section 351 or 368, as
partofaplantothendistributethestockor
securities of the controlled corporation in
a transaction described in section 355 (or
so much of section 356 as relates to sec-
tion 355), then, unless paragraph (a)(1)(v)
of this section applies, the distributing
corporation must also include on or with
its return for the year of the distribution
the statement required by §1.351–3(a) or
1.368–3(a). If the distributing corporation
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning
of section 951(b)) with respect thereto
must include the statement required by
§1.351–3(a) or 1.368–3(a) on or with its
return.
(b)Significant distributee.Every
significant distributee must include a
statement entitled, “STATEMENT PUR-
SUANT TO §1.355–5(b) BY [INSERT
NAME AND TAXPAYER IDENTIFI-
CATION NUMBER (IF ANY) OF TAX-
PAYER], A SIGNIFICANT DISTRIBU-
TEE,” on or with such distributee’s return
for the year in which such distribution
is received. If a significant distributee is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The names and employer identifi-
cation numbers (if any) of the distributing
and controlled corporations;
(2) The date of the distribution of the
stock or securities of the controlled corpo-
ration; and
(3) The aggregate basis, determined
immediately before the exchange, of any
stock or securities transferred by the sig-
nificant distributee in the exchange, and
the aggregate fair market value, deter-
mined immediately before the distribution
or exchange, of the stock, securities or
other property (including money) received
by the significant distributee in the distri-
bution or exchange.
(c)Definitions. For purposes of this
section:
(1)Significant distributeemeans—
(i) A holder of stock of a distributing
corporation that receives, in a transaction
described in section 355 (or so much of
section 356 as relates to section 355), stock
of a corporation controlled by the distribut-
ing corporation if, immediately before the
distribution or exchange, such holder—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock
of the distributing corporation if the stock
owned by such holder is publicly traded;
or
(B) Owned at least one percent (by vote
or value) of the stock of the distributing
corporation if thestock owned by such
holder is not publicly traded; or
(ii) A holder of securities of a distribut-
ing corporation that receives, in a transac-
tion described in section 355 (or so much
of section 356 as relates to section 355),
stock or securities of a corporation con-
trolled by the distributing corporation if,
immediately before the distribution or ex-
change, such holder owned securities in
such distributing corporation with a basis
of $1,000,000 or more.
(2)Publicly traded stockmeans stock
that is listed on—
(i) A national securities exchange regis-
tered under section 6 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78f); or
(ii) An interdealer quotation system
sponsored by a national securities as-
sociation registered under section 15A
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3).
(d)Substantiation information. Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and em-
ployees. In connection with the distribu-
tion or exchange described in this section,
these records should specifically include
information regarding the amount, basis,
and fair market value of all property dis-
tributed or exchanged, and relevant facts
regarding any liabilities assumed or extin-
guished as part of such distribution or ex-
change.
(e)Effective/applicability date.This
section applies to any taxable year begin-
ning on or after May 30, 2006. How-
ever, taxpayers may apply this section to
any original Federal income tax return (in-
cluding any amended return filed on or be-
fore the due date (including extensions) of
such original return) timely filed on or af-
ter May 30, 2006. For taxable years begin-
ning before May 30, 2006, see §1.355–5
as contained in 26 CFR part 1 in effect on
April 1, 2006.
§1.355–5T [Removed]
Par. 17. Section 1.355–5T is removed.
Par. 18. Section 1.368–3 is added to
read as follows:
2007–32 I.R.B.318August 6, 2007

§1.368–3 Records to be kept and
information to be filed with returns.
(a)Parties to the reorganization.The
plan of reorganization must be adopted
by each of the corporations that are par-
ties thereto. Each such corporation must
include a statement entitled, “STATE-
MENT PURSUANT TO §1.368–3(a)
BY [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF TAXPAYER], A CORPORATION A
PARTYTOAREORGANIZATION,”on
or with its return for the taxable year of
the exchange. If any such corporation is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its re-
turn. However, it is not necessary for any
taxpayer to include more than one such
statement on or with the same return for
the same reorganization. The statement
must include—
(1) The names and employer identifica-
tion numbers (if any) of all such parties;
(2) The date of the reorganization;
(3) The aggregate fair market value and
basis, determined immediately before the
exchange, of the assets, stock or securities
of the target corporation transferred in the
transaction; and
(4) The date and control number of any
private letter ruling(s) issued by the Inter-
nal Revenue Service in connection with
this reorganization.
(b)Significant holders.Everysignif-
icant holder, other than a corporation a
party to the reorganization, must include a
statement entitled, “STATEMENT PUR-
SUANT TO §1.368–3(b) BY [INSERT
NAME AND TAXPAYER IDENTIFI-
CATION NUMBER (IF ANY) OF TAX-
PAYER], A SIGNIFICANT HOLDER,”
on or with such holder’s return for the tax-
able year of the exchange. If a significant
holder is a controlled foreign corpora-
tion (within the meaning of section 957),
each United States shareholder (within the
meaning of section 951(b)) with respect
thereto must include this statement on or
with its return. The statement must in-
clude—
(1) The names and employer identifica-
tion numbers (if any) of all of the parties to
the reorganization;
(2) The date of the reorganization; and
(3) The fair market value, determined
immediately before the exchange, of all the
stock or securities of the target corporation
held by the significant holder that is trans-
ferred in the transaction and such holder’s
basis, determined immediately before the
exchange, in the stock or securities of such
target corporation.
(c)Definitions. For purposes of this
section:
(1)Significant holdermeans—
(i) A holder of stock of the target cor-
poration that receives stock or securities in
an exchange described in section 354 (or
so much of section 356 as relates to section
354) if, immediately before the exchange,
such holder—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock of
the target corporation if the stock owned
by such holder is publicly traded; or
(B) Owned at least one percent (by vote
or value) of the total outstanding stock of
the target corporation if the stock owned
by such holder is not publicly traded; or
(ii) A holder of securities of the tar-
get corporation that receives stock or se-
curities in an exchange described in sec-
tion 354 (or so much of section 356 as re-
lates to section 354) if, immediately before
the exchange, such holder owned securi-
ties in such target corporation with a basis
of $1,000,000 or more.
(2)Publicly traded stockmeans stock
that is listed on—
(i) A national securities exchange regis-
tered under section 6 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78f); or
(ii) An interdealer quotation system
sponsored by a national securities as-
sociation registered under section 15A
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3).
(d)Substantiation information.Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and em-
ployees. In connection with the reorga-
nization described in this section, these
records should specifically include infor-
mation regarding the amount, basis, and
fair market value of all transferred prop-
erty, and relevant facts regarding any lia-
bilities assumed or extinguished as part of
such reorganization.
(e)Effective/applicability date.This
section applies to any taxable year begin-
ning on or after May 30, 2006. How-
ever, taxpayers may apply this section to
any original Federal income tax return (in-
cluding any amended return filed on or be-
fore the due date (including extensions) of
such original return) timely filed on or af-
ter May 30, 2006. For taxable years begin-
ning before May 30, 2006, see §1.368–3
as contained in 26 CFR part 1 in effect on
April 1, 2006.
§1.368–3T [Removed]
Par. 19. Section 1.368–3T is removed.
Par. 20. Section 1.381(b)–1 is amended
by revising paragraphs (b)(3) and (e) to
read as follows:
§1.381(b)–1 Operating rules applicable
to carryovers in certain corporate
acquisitions.
*****
(b) * * *
(3)Election—(i)Content of state-
ments. The statements referred to in
paragraph (b)(2) of this section must
be entitled, “ELECTION OF DATE OF
DISTRIBUTION OR TRANSFER PUR-
SUANT TO §1.381(b)–1(b)(2),” and
must include: [INSERT NAME AND
EMPLOYER IDENTIFICATION NUM-
BER (IF ANY) OF DISTRIBUTOR OR
TRANSFEROR CORPORATION] AND
[INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF ACQUIRING CORPORATION]
ELECT TO DETERMINE THE DATE
OF DISTRIBUTION OR TRANSFER
UNDER §1.381(b)–1(b)(2). SUCH DATE
IS [INSERT DATE (mm/dd/yyyy)].
(ii)Filing of statements. One statement
must be included on or with the timely
filed Federal income tax return of the dis-
tributor or transferorcorporation for its
taxable year ending with the date of distri-
bution or transfer. Anidentical statement
must be included on or with the timely
filed Federal income tax return of the ac-
quiring corporation for its first taxable year
ending after that date. If the distributor
or transferor corporation, or the acquiring
corporation, is a controlled foreign corpo-
ration (within the meaning of section 957),
each United States shareholder (within the
meaning of section 951(b)) with respect
thereto must include this statement on or
with its return.
August 6, 20073192007–32 I.R.B.

*****
(e)Effective/applicability date. Para-
graph (b)(3) of this section applies to any
taxable year beginning on or after May
30, 2006. However, taxpayers may ap-
ply paragraph (b)(3) of this section to any
original Federal income tax return (includ-
ing any amended return filed on or before
the due date (including extensions) of such
original return) timely filed on or after
May 30, 2006. For taxable years beginning
before May 30, 2006, see §1.381(b)–1 as
containedin26CFRpart1ineffecton
April 1, 2006.
§1.381(b)–1T [Removed]
Par. 21. Section 1.381(b)–1T is re-
moved.
Par. 22. Section 1.382–1 is amended
by:
1.Revising the entry for
§1.382–8(c)(2).
2.Revising the entry for
§1.382–8(e)(4).
3. Revising the entry for §1.382–8(h).
4.Revising the entry for
§1.382–8(j)(4).
5. Removing the entry for §1.382–8T.
6. Adding the entry for §1.382–11.
7. Removing the entry for §1.382–11T.
The additions and revisions read as fol-
lows:
§1.382–1 Table of contents.
*****
§1.382–8 Controlled groups.
*****
(c) * * *
(2) Restoration of value.
*****
(e) * * *
(4) Foreign component member.
(i) In general.
(ii) Exception.
*****
(h) Time and manner of filing election
to restore.
(1) Statements required.
(i) Filing by loss corporation.
(ii) Filing by electing member.
(iii) Agreement.
(2) Special rule for foreign component
members.
(i) Deemed election to restore full
value.
(ii) Election not to restore full value.
(iii) Agreement.
(3) Revocation of election.
*****
(j) * * *
(4) Effective/applicability date.
*****
§1.382–11 Reporting requirements.
(a) Information statement required.
(b) Effective/applicability date.
Par. 23. Section 1.382–8 is amended by
revising paragraphs (c)(2), (e)(4), (h) and
(j)(4) to read as follows:
§1.382–8 Controlled groups.
*****
(c) * * *
(2)Restoration of value. After the value
of the stock of each component member
is reduced pursuant to paragraph (c)(1) of
this section, the value of the stock of each
component member is increased by the
amount of value, if any, restored to the
component member by another component
member (the electing member) pursuant to
this paragraph (c)(2). The electing mem-
ber may elect (or may be deemed to elect
under paragraph (h)(2)(i) of this section
in the case of a foreign component mem-
ber) to restore value to another component
member in an amount that does not exceed
the lesser of—
(i) The sum of—
(A) The value, determined immediately
before the ownership change, of the elect-
ing member’s stock (after adjustment un-
der paragraph (c)(1) of this section and
before any restoration of value under this
paragraph (c)(2)); plus
(B) Any amount of value restored to
the electing member by another compo-
nent member under this paragraph (c)(2);
or
(ii) The value, determined immediately
before any ownership change, of the elect-
ing member’s stock (without regard to
any adjustment under this section) that is
directly owned by the other component
member immediately after the ownership
change.
*****
(e) * * *
(4)Foreign component member—(i)In
general. Except as provided in paragraph
(e)(4)(ii) of this section, foreign compo-
nent member means a component member
that is a foreign corporation.
(ii)Exception. A foreign component
member shall not include a foreign corpo-
ration that has items treated as connected
with the conduct of a trade or business in
the United States that it takes into account
in determining its value pursuant to section
382(e)(3).
*****
(h)Time and manner of filing election
to restore—(1)Statements required—(i)
Filing by loss corporation. The election to
restore value described in paragraph (c)(2)
of this section must be in the form set
forth in this paragraph (h)(1)(i). It must
befiledbythelosscorporationbyin-
cluding a statement on or with its income
tax return for the taxable year in which
the ownership change occurs (or with an
amended return for that year filed on or
before the due date (including extensions)
of the income tax return of any component
member with respect tothe taxable year in
which the ownership change occurs). The
common parent of a consolidated group
must make the election on behalf of the
group. The election is made in the form of
a statement entitled, “STATEMENT PUR-
SUANT TO §1.382–8(h)(1) TO ELECT
TO RESTORE ALL OR PART OF THE
VALUE OF [INSERT NAME AND EM-
PLOYER IDENTIFICATION NUMBER
(IF ANY) OF THE ELECTING MEM-
BER] TO [INSERT NAME AND EM-
PLOYER IDENTIFICATION NUMBER
(IF ANY) OF THE CORPORATION TO
WHICH VALUE IS RESTORED].” The
statement must include the amount of the
value being restored and must also indi-
cate that an agreement signed and dated
by both parties, as described in paragraph
(h)(1)(iii) of this section, has been entered
into. Each such party must retain either
the original or a copy of this agreement as
part of its records. See §1.6001–1(e).
(ii)Filing by electing member.An
electing member must include a statement
identical to the one described in paragraph
(h)(1)(i)ofthissectiononorwithits
income tax return (or with an amended re-
turn for that year filed on or before the due
2007–32 I.R.B.320August 6, 2007

date (including extensions) of the income
tax return of any component member with
respect to the taxable year in which the
ownership change occurs) (if any) for the
taxable year which includes the change
date in connection with which the elec-
tion described in paragraph (c)(2) of this
section is made. If the electing member
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
It is not necessary for the electing member
(or the United States shareholder, as the
case may be) to include this statement on
or with its return if the loss corporation
includes an identicalstatement on or with
the same return for the same election.
(iii)Agreement. Both the electing
member and the corporation to which
value is restored must sign and date an
agreement. The agreement must—
(A) Identify the change date for the loss
corporation in connection with which the
election is made;
(B) State the value of the electing mem-
ber’s stock (without regard to any adjust-
ment under paragraph (c) of this section)
immediately before the ownership change;
(C) State the amount of any reduction
required under paragraph (c)(1) of this sec-
tion with respect to stock of the electing
member that is owned directly or indirectly
by the corporation to which value is re-
stored;
(D) State the amount of value that the
electing member elects to restore to the
corporation; and
(E)Statewhetherthevalueofeither
component member’s stock was adjusted
pursuant to paragraph (c)(4) of this section.
(2)Special rule for foreign component
members—(i)Deemed election to restore
full value. Unless the election described
in paragraph (h)(2)(ii) of this section is
made for a foreign component member,
each foreign component member of the
controlled group is deemed to have elected
to restore to each other component mem-
ber the maximum value allowable under
paragraph (c)(2) of this section, taking into
account the limitations of this section.
(ii)Election not to restore full value.
(A) A loss corporation may elect to reduce
the amount of value restored from a for-
eign component member (the electing for-
eign component member) to another com-
ponent member under paragraph (h)(2)(i)
of this section in the form set forth in this
paragraph (h)(2)(ii). It must be filed by
the loss corporation by including a state-
ment on or with its income tax return for
the taxable year in which the ownership
change occurs (or with an amended return
for that year filed on or before the due
date (including extensions) of the income
tax return of any component member with
respect to the taxable year in which the
ownership change occurs). The common
parent of a consolidated group must make
the election on behalf of the group. The
election is made in the form of a statement
entitled, “STATEMENT PURSUANT
TO §1.382–8(h)(2)(ii) TO ELECT NOT
TO RESTORE FULL VALUE OF [IN-
SERT NAME AND EMPLOYER IDEN-
TIFICATION NUMBER (IF ANY) OF
ELECTING FOREIGN COMPONENT
MEMBER] TO [INSERT NAME AND
EMPLOYER IDENTIFICATION NUM-
BER (IF ANY) OF THE CORPORATION
TO WHICH SUCH VALUE IS NOT TO
BE RESTORED].” The statement must
include the amount of the value not being
restored and must also indicate that an
agreement signed and dated by both par-
ties, as described in paragraph (h)(2)(iii)
of this section, has been entered into. Each
such party must retain either the original
or a copy of the agreement as part of its
records. See §1.6001–1(e).
(B)Anelectingforeign component
member must include a statement iden-
tical to the one described in paragraph
(h)(2)(ii)(A) of this section on or with its
income tax return (or with an amended
return for that year filed on or before
the due date (including extensions) of
the income tax return of any component
member with respect to the taxable year
in which the ownership change occurs)
(if any) for the taxable year which in-
cludes the change date in connection with
which the election described in paragraph
(h)(2)(ii)(A) of this section is made. If
the electing foreign component member
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning
of section 951(b)) with respect thereto
must include this statement on or with its
return. It is not necessary for the electing
foreign component member (or United
States shareholder, as the case may be) to
include this statement on or with its return
if the loss corporationincludes an identical
statement on or with the same return for
the same election.
(iii)Agreement. Both the electing for-
eign component member and the corpora-
tion to which full value is not restored must
sign and date an agreement. The agree-
ment must—
(A) Identify the change date for the loss
corporation in connection with which the
election is made;
(B) State the value of the electing for-
eign component member’s stock (without
regard to any adjustment under paragraph
(c) of this section) immediately before the
ownership change;
(C) State the amount of any reduction
required under paragraph (c)(1) of this sec-
tion with respect to stock of the electing
foreign component member that is owned
directly or indirectly by the corporation to
which value is not restored;
(D) State the amount of value that the
electing foreign component member elects
not to restore to the corporation; and
(E) State whether the value of either
component member’s stock was adjusted
pursuant to paragraph (c)(4) of this section.
(3)Revocation of election. An election
(other than the deemedelection described
in paragraph (h)(2)(i) of this section) made
under this section is revocable only with
the consent of the Commissioner.
*****
(j) * * *
(4)Effective/applicability date. Para-
graphs (c)(2), (e)(4) and (h) of this section
apply to any taxable year beginning on or
after May 30, 2006. However, taxpayers
may apply paragraphs (c)(2), (e)(4) and (h)
of this section to any original Federal in-
come tax return (including any amended
return filed on or before the due date (in-
cluding extensions) of such original re-
turn) timely filed on or after May 30, 2006.
For taxable years beginning before May
30, 2006, see §1.382–8 as contained in
26 CFR part 1 in effect on April 1, 2006.
§1.382–8T [Removed]
Par. 24. Section 1.382–8T is removed.
Par. 25. Section 1.382–11 is added to
read as follows:
August 6, 20073212007–32 I.R.B.

§1.382–11 Reporting requirements.
(a)Information statement required.A
loss corporation must include a statement
entitled, “STATEMENT PURSUANT
TO §1.382–11(a) BY [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER OF TAXPAYER], A LOSS
CORPORATION,” on or with its income
tax return for each taxable year that it is a
loss corporation in which an owner shift,
equity structure shift or other transaction
described in §1.382–2T(a)(2)(i) occurs.
The statement must include the date(s)
of any owner shifts, equity structure
shifts, or other transactions described in
§1.382–2T(a)(2)(i), the date(s) on which
any ownership change(s) occurred, and
the amount of any attributes described in
§1.382–2(a)(1)(i) that caused the corpo-
ration to be a loss corporation. A loss
corporation may also be required to in-
clude certain elections on this statement,
including—
(1) An election made under
§1.382–2T(h)(4)(vi)(B) to disregard
the deemed exercise of an option if the
actual exercise of that option occurred
within 120 days of the ownership change;
and
(2) An election made under
§1.382–6(b)(2) to close the books of
the loss corporation for purposes of allo-
cating income and loss to periods before
and after the change date for purposes of
section 382.
(b)Effective/applicability date.This
section applies to any taxable year begin-
ning on or after May 30, 2006. How-
ever, taxpayers may apply this section to
any original Federal income tax return (in-
cluding any amended return filed on or be-
fore the due date (including extensions) of
such original return) timely filed on or af-
ter May 30, 2006. For taxable years begin-
ning before May 30, 2006, see §1.382–2T
ascontainedin26CFRpart1ineffecton
April 1, 2006.
§1.382–11T [Removed]
Par. 26. Section 1.382–11T is removed.
Par. 27. Section 1.1081–11 is added to
read as follows:
§1.1081–11 Records to be kept and
information to be filed with returns.
(a)Distributions and exchanges; signif-
icant holders of stock or securities.Every
significant holder must include a statement
entitled, “STATEMENT PURSUANT
TO §1.1081–11(a) BY [INSERT NAME
AND TAXPAYER IDENTIFICATION
NUMBER (IF ANY) OF TAXPAYER],
A SIGNIFICANT HOLDER,” on or with
such holder’s income tax return for the
taxable year in which the distribution or
exchange occurs. If a significant holder
is a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The name and employer identifi-
cation number (if any) of the corporation
from which the stock, securities, or other
property (includingmoney) was received
by such significant holder;
(2) The aggregate basis, determined
immediately before the exchange, of any
stock or securities transferred by the sig-
nificant holder in the exchange, and the
aggregate fair market value, determined
immediately before the distribution or ex-
change, of the stock, securities or other
property (including money) received by
the significant holder in the distribution or
exchange; and
(3) The date of the distribution or ex-
change.
(b)Distributions and exchanges; cor-
porations subject to Commission orders.
Each corporation which is a party to a dis-
tribution or exchange made pursuant to an
order of the Commission must include on
or with its income tax return for its taxable
year in which the distribution or exchange
takes place a statement entitled, “STATE-
MENT PURSUANT TO §1.1081–11(b)
BY [INSERT NAME AND EMPLOYER
IDENTIFICATION NUMBER (IF ANY)
OF TAXPAYER], A DISTRIBUTING OR
EXCHANGING CORPORATION.” If the
distributing or exchanging corporation is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The date and control number of the
Commission order, pursuant to which the
distribution or exchange was made;
(2) The names and taxpayer identifi-
cation numbers (if any) of the significant
holders;
(3) The aggregate fair market value
and basis, determined immediately before
the distribution or exchange, of the stock,
securities, or otherproperty (including
money) transferred in the distribution or
exchange; and
(4) The date of the distribution or ex-
change.
(c)Sales by members of system groups.
Each system group member must include
a statement entitled, “STATEMENT PUR-
SUANT TO §1.1081–11(c) BY [INSERT
NAME AND EMPLOYER IDENTIFI-
CATION NUMBER (IF ANY) OF TAX-
PAYER], A SYSTEM GROUP MEM-
BER,” on or with its income tax return
for the taxable year in which the sale is
made. If any system group member is
a controlled foreign corporation (within
the meaning of section 957), each United
States shareholder (within the meaning of
section 951(b)) with respect thereto must
include this statement on or with its return.
The statement must include—
(1) The dates and control numbers of all
relevant Commission orders;
(2) The aggregate fair market value and
basis, determined immediately before the
sale, of all stock or securities sold; and
(3) The date of the sale.
(d)Definitions. (1) For purposes of this
section,Commissionmeans the Securities
and Exchange Commission.
(2) For purposes of this section,signif-
icant holdermeans a person that receives
stock or securities from a corporation (the
distributing corporation) pursuant to an or-
der of the Commission, if, immediately be-
fore the transaction, such person—
(i) In the case of stock—
(A) Owned at least five percent (by vote
or value) of the total outstanding stock
of the distributing corporation if the stock
owned by such person is publicly traded,
or
(B) Owned at least one percent (by vote
or value) of the total outstanding stock of
the distributing corporation if the stock
owned by such person is not publicly
traded; or
2007–32 I.R.B.322August 6, 2007

(ii) In the case of securities, owned se-
curities of the distributing corporation with
a basis of $1,000,000 or more.
(3)Publicly traded stockmeans stock
that is listed on—
(i) A national securities exchange regis-
tered under section 6 of the Securities Ex-
change Act of 1934 (15 U.S.C. 78f); or
(ii) An interdealer quotation system
sponsored by a national securities as-
sociation registered under section 15A
of the Securities Exchange Act of 1934
(15 U.S.C. 78o–3).
(4) For purposes of paragraph (b) of this
section,exchangemeans exchange, expen-
diture, or investment.
(5) For purposes of paragraph (c) of this
section,system group membermeans each
corporation which is a member of a system
group and which, pursuant to an order of
the Commission, sells stock or securities
received upon an exchange (pursuant to an
order of the Commission) and applies the
proceeds derived therefrom in retirement
or cancellation of its own stock or securi-
ties.
(e)Substantiation information.Under
§1.6001–1(e), taxpayers are required to
retain their permanent records and make
such records available to any authorized
Internal Revenue Service officers and em-
ployees. In connection with the distribu-
tion or exchange described in this section,
these records should specifically include
information regarding the amount, basis,
and fair market value of all property dis-
tributed or exchanged, and relevant facts
regarding any liabilities assumed or extin-
guished as part of such distribution or ex-
change.
(f)Effective/applicability date.This
section applies to any taxable year begin-
ning on or after May 30, 2006. How-
ever, taxpayers may apply this section to
any original Federal income tax return (in-
cluding any amended return filed on or be-
fore the due date (including extensions) of
such original return) timely filed on or af-
ter May 30, 2006. For taxable years begin-
ning before May 30, 2006, see §1.1081–11
ascontainedin26CFRpart1ineffecton
April 1, 2006.
§1.1081–11T [Removed]
Par. 28. Section 1.1081–11T is re-
moved.
Par. 29. Section 1.1221–2 is amended
by revising paragraphs (e)(2)(iv) and (j) to
read as follows:
§1.1221–2 Hedging transactions.
*****
(e) * * *
(2) * * *
(iv)Making and revoking the elec-
tion. Unless the Commissioner otherwise
prescribes, the election described in para-
graph (e)(2) of this section must be made
in a separate statement that provides, “[IN-
SERT NAME AND EMPLOYER IDEN-
TIFICATION NUMBER OF COMMON
PARENT] HEREBY ELECTS THE AP-
PLICATION OF §1.1221–2(e)(2) (THE
SEPARATE-ENTITY APPROACH).”
The statement must also indicate the date
as of which the election is to be effective.
The election must be filed by including
the statement on or with the consolidated
group’s income tax return for the taxable
year that includes the first date for which
the election is to apply. The election ap-
plies to all transactions entered into on or
after the date so indicated. The election
may only be revoked with the consent of
the Commissioner.
*****
(j)Effective/applicability date. Para-
graph (e)(2)(iv) of this section applies to
any original consolidated Federal income
tax return due (without extensions) after
June 14, 2007. For original consolidated
Federal income tax returns due (without
extensions) after May 30, 2006, and on or
before June 14, 2007, see §1.1221–2T as
contained in 26 CFR part 1 in effect on
April 1, 2007. For original consolidated
Federal income tax returns due (without
extensions) on or before May 30, 2006, see
§1.1221–2 as contained in 26 CFR part 1
in effect on April 1, 2006.
§1.1221–2T [Removed]
Par. 30. Section 1.1221–2T is removed.
Par. 31. Section 1.1502–13 is amended
by revising paragraphs (f)(5)(ii)(E),
(f)(6)(i)(C)(2) and (m) to read as follows:
§1.1502–13 Intercompany transactions.
*****
(f) * * *
(5) * * *
(ii) * * *
(E)Election. An election to apply para-
graph (f)(5)(ii) of this section is made in
a separate statement entitled, “[INSERT
NAME AND EMPLOYER IDENTI-
FICATION NUMBER OF COMMON
PARENT] HEREBY ELECTS THE AP-
PLICATION OF §1.1502–13(f)(5)(ii)
FOR AN INTERCOMPANY TRANS-
ACTION INVOLVING [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER OF S] AND [INSERT NAME
AND EMPLOYER IDENTIFICATION
NUMBER OF T].” A separate election
must be made for each such application.
The election must be filed by including
the statement on or with the consolidated
group’s income tax return for the year of
T’s liquidation (or other transaction). The
Commissioner may impose reasonable
terms and conditions to the application
of paragraph (f)(5)(ii) of this section that
are consistent with the purposes of such
section. The statement must—
(1) Identify S’s intercompany transac-
tion and T’s liquidation (or other transac-
tion); and
(2) Specify which provision of para-
graph (f)(5)(ii) of this section applies and
how it alters the otherwise applicable re-
sults under this section (including, for ex-
ample, the amount of S’s intercompany
items and the amount deferred or offset as
a result of paragraph (f)(5)(ii) of this sec-
tion).
(6) * * *
(i) * * *
(C) * * *
(2)Election. The election described
in paragraph (f)(6)(i)(C)(1)ofthissection
must be made in a separate statement en-
titled, “ELECTION TO REDUCE BASIS
OF P STOCK UNDER §1.1502–13(f)(6)
HELD BY [INSERT NAME AND EM-
PLOYER IDENTIFICATION NUMBER
OF MEMBER WHOSE BASIS IN P
STOCK IS REDUCED].” The election
must be filed by including the statement
on or with the consolidated group’s in-
come tax return for the year in which
the nonmember becomes a member. The
statement must identify the member’s ba-
sis in the P stock (taking into account the
effect of this election) and the number of
shares of P stock held by the member.
*****
August 6, 20073232007–32 I.R.B.

(m)Effective/applicability date. Para-
graphs (f)(5)(ii)(E) and (f)(6)(i)(C)(2)of
this section apply to any original consoli-
dated Federal income tax return due (with-
out extensions) after June 14, 2007. For
original consolidated Federal income tax
returns due (without extensions) after May
30, 2006, and on or before June 14, 2007,
see §1.1502–13T as contained in 26 CFR
part 1 in effect on April 1, 2007. For orig-
inal consolidated Federal income tax re-
turns due (without extensions) on or be-
fore May 30, 2006, see §1.1502–13 as con-
tained in 26 CFR part 1 in effect on April
1, 2006.
§1.1502–13T [Removed]
Par. 32. Section 1.1502–13T is re-
moved.
Par. 33. Section 1.1502–31 is amended
by revising paragraphs (e)(2) and (j) to
read as follows:
§1.1502–31 Stock basis after a group
structure change.
*****
(e) * * *
(2)Election. The election described
in paragraph (e)(1) of this section must
be made in a separate statement enti-
tled, “ELECTION TO TREAT LOSS
CARRYOVER AS EXPIRING UNDER
§1.1502–31(e).” The election must be
filed by including the statement on or with
the consolidated group’s income tax re-
turn for the year that includes the group
structure change. The statement must
identify the amount of each loss carryover
deemed to expire (or the amount of each
loss carryover deemed not to expire, with
any balance of any loss carryovers being
deemed to expire).
*****
(j)Effective/applicability date. Para-
graph (e)(2) of this section applies to any
original consolidated Federal income tax
return due (without extensions) after June
14, 2007. For original consolidated Fed-
eral income tax returns due (without exten-
sions) after May 30, 2006, and on or before
June 14, 2007, see §1.1502–31T as con-
tained in 26 CFR part 1 in effect on April
1, 2007. For original consolidated Fed-
eral income tax returns due (without ex-
tensions) on or before May 30, 2006, see
§1.1502–31 as contained in 26 CFR part 1
in effect on April 1, 2006.
§1.1502–31T [Removed]
Par. 34. Section 1.1502–31T is re-
moved.
Par. 35. Section 1.1502–32 is amended
by revising paragraphs (b)(4)(iv) and (j) to
read as follows:
§1.1502–32 Investment adjustments.
*****
(b) * * *
(4) * * *
(iv)Election. The election described
in paragraph (b)(4) of this section must
be made in a separate statement entitled,
“ELECTION TO TREAT LOSS CAR-
RYOVER OF [INSERT NAME AND
EMPLOYER IDENTIFICATION NUM-
BER OF S] AS EXPIRING UNDER
§1.1502–32(b)(4).” The election must be
filed by including a statement on or with
the consolidated group’s income tax re-
turn for the year S becomes a member.
A separate statement must be made for
each member whose loss carryover is
deemed to expire. The statement must
identify the amount of each loss carryover
deemed to expire (or the amount of each
loss carryover deemed not to expire, with
any balance of any loss carryovers being
deemed to expire) and the basis of any
stock reduced as a result of the deemed
expiration.
*****
(j)Effective/applicability date. Para-
graph (b)(4)(iv) of this section applies to
any original consolidated Federal income
tax return due (without extensions) after
June 14, 2007. For original consolidated
Federal income tax returns due (without
extensions) after May 30, 2006, and on or
before June 14, 2007, see §1.1502–32T as
contained in 26 CFR part 1 in effect on
April 1, 2007. For original consolidated
Federal income tax returns due (without
extensions) on or before May 30, 2006, see
§1.1502–32 as contained in 26 CFR part 1
in effect on April 1, 2006.
§1.1502–32T [Amended]
Par. 36. Section 1.1502–32T is
amended by removing and reserving para-
graphs (b)(4)(iv) and (j).
Par. 37. Section 1.1502–33 is amended
by revising paragraphs (d)(5)(i)(D) and (k)
to read as follows:
§1.1502–33 Earnings and profits.
*****
(d) * * *
(5) * * *
(i) * * *
(D) If a method is permitted under para-
graph (d)(4) of this section, provide the
date and control number of the private let-
ter ruling issued by the Internal Revenue
Service approving such method.
*****
(k)Effective/applicability date. Para-
graph (d)(5)(i)(D) of this section applies to
any original consolidated Federal income
tax return due (without extensions) after
June 14, 2007. For original consolidated
Federal income tax returns due (without
extensions) after May 30, 2006, and on or
before June 14, 2007, see §1.1502–33T as
contained in 26 CFR part 1 in effect on
April 1, 2007. For original consolidated
Federal income tax returns due (without
extensions) on or before May 30, 2006, see
§1.1502–33 as contained in 26 CFR part 1
in effect on April 1, 2006.
§1.1502–33T [Removed]
Par. 38. Section 1.1502–33T is re-
moved.
Par. 39. Section 1.1502–90 is amended
by:
1.Revising the entry for
§1.1502–95(e)(8).
2.Revising the entry for
§1.1502–95(f).
3.Revising the entry for
§1.1502–95(g).
4.Removing the entry for
§1.1502–95T.
The revisions read as follows:
§1.1502–90 Table of contents.
*****
§1.1502–95 Rules on ceasing to be a
member of a consolidated group (or loss
subgroup).
*****
(e) * * *
(8) Reporting requirements.
2007–32 I.R.B.324August 6, 2007

(i) Common Parent.
(ii) Former Member.
(iii) Exception.
(f) Filing the election to apportion the
section 382 limitation and net unrealized
built-in gain.
(1) Form of the election to apportion.
(i) Statement.
(ii) Agreement.
(2) Signing the agreement.
(3) Filing the election.
(i) Filing by the common parent.
(ii) Filing by the former member.
(4) Revocation of election.
(g) Effective/applicability date.
*****
Par. 40. Section 1.1502–95 is amended
by revising paragraphs (e)(8), (f) and (g) to
read as follows:
§1.1502–95 Rules on ceasing to be a
member of a consolidated group (or loss
subgroup).
*****
(e) * * *
(8)Reporting requirements—(i)Com-
mon Parent. Except as provided in para-
graph (e)(8)(iii) of this section, if a net
unrealized built-in loss is allocated under
paragraph (e) of this section, the common
parent must include a statement entitled,
“STATEMENT OF NET UNREALIZED
BUILT-IN LOSS ALLOCATION PUR-
SUANT TO §1.1502–95(e),” on or with
its income tax return for the taxable year
in which the former member(s) (or a new
loss subgroup that includes that member)
ceases to be a member. The statement
must include—
(A) The name and employer identifica-
tion number of the departing member;
(B) The amount of the remaining
NUBIL balance for the taxable year in
which the member departs;
(C) The amount of the net unrealized
built-in loss allocated to the departing
member; and
(D) A representation that the common
parent has delivered a copy of the state-
ment to the former member (or the com-
mon parent of the group of which the for-
mermemberisamember)onorbeforethe
day the group files its income tax return for
the consolidated return year that the former
member ceases to be a member.
(ii)Former Member. Except as pro-
vided in paragraph (e)(8)(iii) of this sec-
tion, the former member must include a
statement on or with its first income tax re-
turn (or the first return in which the former
member joins) that is filed after the close of
the consolidated return year of the group
of which the former member (or a new
loss subgroup that includes that member)
ceases to be a member. The statement will
be identical to the statement filed by the
common parent under paragraph (e)(8)(i)
of this section except that instead of in-
cluding the information described in para-
graph (e)(8)(i)(A) of this section the for-
mer member must provide the name, em-
ployer identification number and tax year
of the former common parent, and instead
of the representation described in para-
graph (e)(8)(i)(D) of this section the for-
mer member must represent that it has re-
ceived and retained the copy of the state-
ment delivered by the common parent as
part of its records. See §1.6001–1(e).
(iii)Exception. This paragraph (e)(8)
does not apply if the required information
(other than the amount of the remaining
NUBIL balance) is included in a statement
of election under paragraph (f) of this sec-
tion (relating to apportioning a section 382
limitation).
(f)Filingtheelectiontoapportionthe
section 382 limitation and net unrealized
built-in gain—(1)Form of the election
to apportion—(i)Statement. An elec-
tion under paragraph (c) of this section
must be made in the form set forth in this
paragraph (f)(1)(i). The election must
be made by the common parent and the
party described in paragraph (f)(2) of this
section. It must be filed in accordance
with paragraph (f)(3) of this section and
be entitled, “THIS IS AN ELECTION
UNDER §1.1502–95 TO APPORTION
ALLORPARTOFTHE[INSERTTHE
CONSOLIDATED SECTION 382 LIM-
ITATION, THE SUBGROUP SECTION
382 LIMITATION, THE LOSS GROUP’S
NET UNREALIZED BUILT-IN GAIN,
OR THE LOSS SUBGROUP’S NET
UNREALIZED BUILT-IN GAIN, AS
APPROPRIATE] IN THE AMOUNT
OF [INSERT THE AMOUNT OF THE
LOSS LIMITATION OR NET UNRE-
ALIZED BUILT-IN GAIN] TO [INSERT
NAME(S) AND EMPLOYER IDENTI-
FICATION NUMBER(S) OF THE COR-
PORATION (OR THE CORPORATIONS
THAT COMPOSE A NEW LOSS SUB-
GROUP) TO WHICH ALLOCATION IS
MADE].” The statement must also indi-
cate that an agreement, as described in
paragraph (f)(1)(ii) of this section, has
been entered into.
(ii)Agreement. Both the common par-
ent and the party described in paragraph
(f)(2) of this section must sign and date the
agreement. The agreement must include,
as appropriate—
(A) The date of the ownership change
that resulted in the consolidated section
382 limitation (or subgroup section 382
limitation) or the loss group’s (or loss sub-
group’s) net unrealized built-in gain;
(B) The amount of the departing mem-
ber’s (or loss subgroup’s) pre-change net
operating loss carryovers and the taxable
years in which they arose that will be sub-
ject to the limitation that is being appor-
tioned to that member (or loss subgroup);
(C) The amount of any net unrealized
built-in loss allocated to the departing
member (or loss subgroup) under para-
graph (e) of this section, which, if recog-
nized, can be a pre-change attribute subject
to the limitation that is being apportioned;
(D) If a consolidated section 382 limita-
tion (or subgroup section 382 limitation) is
being apportioned, the amount of the con-
solidated section 382 limitation (or sub-
group section 382 limitation) for the tax-
able year during which the former member
(or new loss subgroup) ceases to be a mem-
ber of the consolidated group (determined
without regard to any apportionment under
this section);
(E) If any net unrealized built-in gain is
being apportioned, the amount of the loss
group’s (or loss subgroup’s) net unrealized
built-in gain (as determined under para-
graph (c)(2)(ii) of this section) that may
be apportioned to members that ceased to
be members during the consolidated return
year;
(F) The amount of the value element
and adjustment element of the consoli-
dated section 382 limitation (or subgroup
section 382 limitation) that is apportioned
to the former member (or new loss sub-
group) pursuant to paragraph (c) of this
section;
(G) The amount of the loss group’s (or
loss subgroup’s) net unrealized built-in
gain that is apportioned to the former
member (or new loss subgroup) pursuant
to paragraph (c) of this section;
(H) If the former member is allocated
any net unrealized built-in loss under para-
August 6, 20073252007–32 I.R.B.

graph (e) of this section, the amount of any
adjustment element apportioned to the for-
mer member that is attributable to recog-
nized built-in gains (determined in a man-
ner that will enable both the group and the
former member to apply the principles of
§1.1502–93(c)); and
(I) The name and employer identifica-
tion number of the common parent making
the apportionment.
(2)Signing the agreement. The agree-
ment must be signed by both the common
parent and the former member (or, in the
case of a loss subgroup, the common par-
ent and the loss subgroup parent) by per-
sons authorized to sign their respective in-
come tax returns. If the allocation is made
to a loss subgroup for which an election
under §1.1502–91(d)(4) is made, and not
separately to its members, the agreement
under this paragraph (f) must be signed
by the common parent and any member of
the new loss subgroup by persons autho-
rized to sign their respective income tax
returns. Each party signing the agreement
must retain either the original or a copy of
the agreement as part of its records. See
§1.6001–1(e).
(3)Filing of the election—(i)Filing by
the common parent. The election must be
filed by the common parent of the group
that is apportioning the consolidated sec-
tion 382 limitation (or the subgroup sec-
tion 382 limitation) or the loss group’s net
unrealized built-in gain (or loss subgroup’s
net unrealized built-in gain) by including
the statement on or with its income tax re-
turn for the taxable year in which the for-
mer member (or new loss subgroup) ceases
tobeamember.
(ii)Filing by the former member.An
identical statement must be included on or
with the first return of the former mem-
ber (or the first return in which the former
member, or the members of a new loss sub-
group, join) that is filed after the close of
the consolidated return year of the group
of which the former member (or the mem-
bers of a new loss subgroup) ceases to be
amember.
(4)Revocation of election. An election
statement made under paragraph (c) of this
section is revocable only with the consent
of the Commissioner.
(g)Effective/applicability date. Para-
graphs (e)(8) and (f) of this section apply to
any original consolidated Federal income
tax return due (without extensions) after
June 14, 2007. For original consolidated
Federal income tax returns due (without
extensions) after May 30, 2006, and on or
before June 14, 2007, see §1.1502–95T as
contained in 26 CFR part 1 in effect on
April 1, 2007. For original consolidated
Federal income tax returns due (without
extensions) on or before May 30, 2006, see
§1.1502–95 as contained in 26 CFR part 1
in effect on April 1, 2006.
§1.1502–95T [Removed]
Par. 41. Section 1.1502–95T is re-
moved.
Par. 42. Section 1.1563–3 is amended
by revising paragraph (d)(2)(iv), adding
paragraph (d)(2)(v) and revising (e) to read
as follows:
§1.1563–3 Rules for determining stock
ownership.
*****
(d) * * *
(2) * * *
(iv)Statement. If the application of
paragraph (d)(2)(ii) or (iii) of this sec-
tion does not result in a corporation being
treated as a component member of only
one controlled group of corporations on
a December 31, then such corporation
will be treated as a component member
of only one such group on such date.
Such corporation may elect the group in
whichitistobeincludedbyincluding
on or with its income tax return a state-
ment entitled, “STATEMENT TO ELECT
CONTROLLED GROUP PURSUANT
TO §1.1563–3(d)(2)(iv).” The statement
must include—
(A) A description of each of the con-
trolled groups in which the corporation
could be included. The description must
include the name and employer identifica-
tion number of each component member of
each such group and the stock ownership
of the component members of each such
group; and
(B) The following representation: [IN-
SERT NAME AND EMPLOYER IDEN-
TIFICATION NUMBER OF CORPORA-
TION] ELECTS TO BE TREATED AS A
COMPONENT MEMBER OF THE [IN-
SERT DESIGNATION OF GROUP].
(v)Election—(A)Election filed.An
election filed under paragraph (d)(2)(iv) of
this section is irrevocable and effective un-
til paragraph (d)(2)(ii) or (iii) of this sec-
tion applies or until a change in the stock
ownership of the corporation results in ter-
mination of membership in the controlled
group in which such corporation has been
included.
(B)Election not filed. In the event no
election is filed in accordance with the
provisions of paragraph (d)(2)(iv) of this
section, then the Internal Revenue Service
will determine the group in which such
corporation is to be included. Such de-
termination will be binding for all subse-
quent years unless the corporation files a
valid election with respect to any such sub-
sequent year or until a change in the stock
ownership of the corporation results in ter-
mination of membership in the controlled
group in which such corporation has been
included.
*****
(e)Effective/applicability date. Para-
graph (d)(2)(iv) and (v) of this section ap-
ply to any taxable year beginning on or
after May 30, 2006. However, taxpayers
may apply paragraph (d)(2)(iv) and (v) of
this section to any original Federal income
tax return (including any amended return
filed on or before the due date (including
extensions) of such original return) timely
filed on or after May 30, 2006. For taxable
years beginning before May 30, 2006, see
§1.1563–3 as contained in 26 CFR part 1
in effect on April 1, 2006.
§1.1563–3T [Removed]
Par. 43. Section 1.1563–3T is removed.
Par. 44. Section 1.6012–2 is amended
by revising paragraphs (c) and (k) to read
as follows:
§1.6012–2 Corporations required to make
returns of income.
*****
(c)Insurance companies—(1)Domes-
tic life insurance companies—(i)In gen-
eral. A life insurance company subject
to tax under section 801 shall make a re-
turn on Form 1120–L, “U.S. Life Insurance
Company Income Tax Return.” Except as
provided in paragraph (c)(4) of this sec-
tion, such company shall file with its re-
turn—
(A) A copy of its annual statement
whichshowsthereservesusedbythe
company in computing the taxable income
reported on its return; and
2007–32 I.R.B.326August 6, 2007

(B) A copy of Schedule A (real estate)
and of Schedule D (bonds and stocks), or
any successor thereto, of such annual state-
ment.
(ii)Mutual savings banks. Mutual
savings banks conducting life insurance
business and meeting the requirements of
section 594 are subject to partial tax com-
puted on Form 1120, “U.S. Corporation
Income Tax Return,” and partial tax com-
puted on Form 1120–L. The Form 1120–L
is attached as a schedule to Form 1120,
together with the annual statement and
schedules required to be filed with Form
1120–L.
(2)Domestic nonlife insurance com-
panies. Every domestic insurance com-
pany other than a life insurance company
shall make a return on Form 1120–PC,
“U.S. Property and Casualty Insurance
Company Income Tax Return.” This in-
cludes organizations described in section
501(m)(1) that provide commercial-type
insurance and organizations described in
section 833. Except as provided in para-
graph (c)(4) of this section, such company
shall file with its return a copy of its an-
nual statement (or apro forma annual
statement), including the underwriting
and investment exhibit (or any successor
thereto) for the year covered by such re-
turn.
(3)Foreign insurance companies.The
provisions of paragraphs (c)(1) and (c)(2)
of this section concerning the returns and
statements of insurance companies subject
to tax under section 801 or section 831 also
apply to foreign insurance companies sub-
ject to tax under those sections, except that
the copy of the annual statement required
to be submitted with the return shall, in the
case of a foreign insurance company that
is not required to file an annual statement,
be a copy of thepro formaannual state-
ment relating to the United States business
of such company.
(4)Exception for insurance companies
filing their Federal income tax returns
electronically. If an insurance company
described in paragraph (c)(1), (c)(2), or
(c)(3) of this section files its Federal in-
come tax return electronically, it should
not include on or with such return its
annual statement (orpro formaannual
statement), or any portion thereof. Such
statement must be available at all times for
inspection by authorized Internal Revenue
Service officers or employees and retained
for so long as such statements may be ma-
terial in the administration of any internal
revenue law. See §1.6001–1(e).
(5)Definition. For purposes of this sec-
tion, the termannual statementmeans the
annual statement, the form of which is ap-
proved by the National Association of In-
surance Commissioners (NAIC), which is
filed by an insurance company for the year
with the insurance departments of States,
Territories, and the District of Columbia.
The term annual statement also includes
apro formaannual statement if the insur-
ance company is not required to file the
NAIC annual statement.
*****
(k)Effective/applicability date. Para-
graph (c) of this section applies to any
taxable year beginning on or after May
30, 2006. However, taxpayers may apply
paragraph (c) of this section to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such origi-
nal return) timely filed on or after May 30,
2006. For taxable years beginning before
May 30, 2006, see §1.6012–2 as contained
in 26 CFR part 1 in effect on April 1, 2006.
§1.6012–2T [Removed]
Par. 45. Section 1.6012–2T is removed.
§§1.302–4, 1.338(h)(10)–1, 1.382–2T,
1.382–6, 1.382–8, 1.1502–13, 1.1502–32,
1.1502–92, 1.1502–94, 1.1502–95,
1.1563–3, and 1.6043–2 [Amended]
Par. 46. For each entry in the “Lo-
cation” column of the following table, re-
move the language in the “Remove” col-
umn and add the language in the “Add”
column in its place:
LocationRemoveAdd
The last sentence of the introductory text
to §1.302–4
The rules described in paragraph (a) of
§1.302–4T and in paragraphs (b) through
(g) of this section apply in determining
whether the specific requirements of
section 302(c)(2) are met.
The following rules shall be applicable
in determining whether the specific
requirements of section 302(c)(2) are
met:
§1.338(h)(10)–1(f)§1.331–1T(d) and §1.332–6T§1.331–1(d), and §1.332–6
§1.382–2T(a)(2)(ii)§1.382–11T§1.382–11
The last sentence of
§1.382–2T(h)(4)(vi)(B)
paragraph (a) of §1.382–11T§1.382–11(a)
The first sentence of §1.382–6(b)(2)(i)§1.382–11T(a)§1.382–11(a)
The second sentence of §1.382–8(a)paragraphs (c)(1), (c)(3), (c)(4) and (c)(5)
of this section and paragraph (c)(2) of
§1.382–8T
paragraph (c) of this section
The third sentence of §1.382–8(a)paragraphs (c)(1), (c)(3), (c)(4) and (c)(5)
of this section and paragraph (c)(2) of
§1.382–8T
paragraph (c) of this section
§1.382–8(c)(3)paragraph (c)(2) of §1.382–8Tparagraph (c)(2) of this section
August 6, 20073272007–32 I.R.B.

LocationRemoveAdd
The first sentence of §1.382–8(c)(4)paragraphs (c)(1) and (c)(3) of this section
and paragraph (c)(2) of §1.382–8T
paragraphs (c)(1), (2), and (3) of this
section
§1.382–8(c)(5)paragraphs (c)(1), (c)(3), (c)(4), and
(c)(5) of this section, and paragraph (c)(2)
of §1.382–8T
this paragraph (c)
The fifth sentence of §1.382–8(f)paragraphs (c)(1), (c)(3), (c)(4), and
(c)(5) of this section, and paragraph (c)(2)
of §1.382–8T
paragraph (c) of this section
§1.382–8(g),Example(1)(b)(2)paragraphs (c)(1), (c)(3), (c)(4), and
(c)(5) of this section, and paragraph (c)(2)
of §1.382–8T
paragraph (c) of this section
The second sentence of §1.382–8(g),
Example(1)(c)
paragraphs (c)(1), (c)(3), (c)(4), and
(c)(5) of this section, and paragraph (c)(2)
of §1.382–8T
paragraph (c) of this section
§1.382–8(g),Example(2)(c)paragraph (c)(2) of §1.382–8Tparagraph (c)(2) of this section
The first sentence of §1.382–8(g),
Example(2)(e)
paragraph (c)(2) of §1.382–8Tparagraph (c)(2) of this section
§1.382–8(g),Example(3)(b)paragraph (c)(2) of §1.382–8Tparagraph (c)(2) of this section
§1.382–8(g),Example(3)(c)(1)(B)paragraph (c)(1) of this section and
paragraph (c)(2) of §1.382–8T
paragraphs (c)(1) and (2) of this section
The second sentence of §1.382–8(g),
Example(4)(c)
paragraph (c)(2) of §1.382–8Tparagraph (c)(2) of this section
The second sentence of §1.382–8(g),
Example(5)(c)
paragraph (c)(2) of §1.382–8Tparagraph (c)(2) of this section
§1.1502–13(a)(6)(ii),Matching rule,
Example 13.
Manufacturer incentive payments.[Reserved]
The first sentence of
§1.1502–32(b)(4)(v)(A)
paragraph (b)(4)(iv) of §1.1502–32Tparagraph (b)(4)(iv) of this section
The first sentence of
§1.1502–32(b)(4)(v)(B)
paragraph (b)(4)(iv) of §1.1502–32Tparagraph (b)(4)(iv) of this section
§1.1502–92(e)(1)§1.382–11T(a)§1.382–11(a)
The first sentence of §1.1502–92(e)(2)§1.382–11T(a)§1.382–11(a)
The first sentence of §1.1502–94(d)§1.382–11T(a)§1.382–11(a)
The second sentence of §1.1502–94(d)§1.382–11T(a)§1.382–11(a)
The last sentence of §1.1502–95(b)(3)paragraph (f) of §1.1502–95Tparagraph (f) of this section
The second sentence of
§1.1563–3(d)(2)(i)
paragraphs (d)(2)(ii) and (iii) of this
section, and paragraph (d)(2)(iv) of
§1.1563–3T
paragraphs (d)(2)(ii), (iii) and (iv) of this
section
The first sentence of §1.6043–2(a)§1.332–6T(a), §1.368–3T(a), or
§1.1081–11T
§1.332–6(b), 1.368–3(a), or 1.1081–11
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 46a. The authority citation for part
300 continues to read in part as follows:
Authority: 26 U.S.C. 7805* * *
Section 301.6011–5T also issued under
26 U.S.C. 6011.
§301.6011–5T [Amended]
Par. 46b. In the following table, re-
move the language in the “remove” col-
umn and add the text from the “add” col-
umn in its place.
2007–32 I.R.B.328August 6, 2007

LocationRemoveAdd
The first sentence of §301.6011–5T(a)
(twice)
paragraphs (a), (b) and (d) through (j)
of §1.6012–2, and paragraph (c) of
§1.6012–2T
§1.6012–2
PART 602—OMB CONTROL
NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 47. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
§602.101 [Amended]
Par. 48.
1. In §602.101(b), the following entries
to the table are removed:
1.302–2T .................................................................................. 1545–2019
1.302–4T .................................................................................. 1545–2019
1.331–1T .................................................................................. 1545–2019
1.332–6T .................................................................................. 1545–2019
1.338–10T ................................................................................. 1545–2019
1.351–3T .................................................................................. 1545–2019
1.355–5T .................................................................................. 1545–2019
1.368–3T .................................................................................. 1545–2019
1.381(b)–1T................................................................................ 1545–2019
1.382–8T .................................................................................. 1545–2019
1.382–11T ................................................................................. 1545–2019
1.1081–11T ................................................................................ 1545–2019
1.1221–2T ................................................................................. 1545–2019
1.1502–13T ................................................................................ 1545–2019
1.1502–31T ................................................................................ 1545–2019
1.1502–32T ................................................................................ 1545–2019
1.1502–33T ................................................................................ 1545–2019
1.1502–95T ................................................................................ 1545–2019
1.1563–3T ................................................................................. 1545–2019
1.6012–2T ................................................................................. 1545–2019
2. In §602.101(b), the followin
gentries
to the table are added:
1.332–6.................................................................................... 1545–2019
1.351–3.................................................................................... 1545–2019
1.355–5.................................................................................... 1545–2019
1.368–3.................................................................................... 1545–2019
1.382–11................................................................................... 1545–2019
1.1081–11 ................................................................................. 1545–2019
Kevin M. Brown,
Deputy Commissioner for
Services and Enforcement.
Approved June 4, 2007.
Eric Solomon,
Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on June 13, 2007,
8:45 a.m., and published in the issue of the Federal Register
for June 14, 2007, 72 F.R. 32794)
Section 1563.—Definitions
and Special Rules
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
with their Federal income tax returns. See T.D. 9329,
page 312.
Section 6012.—Persons
Required to Make Returns
of Income
Final regulations simplify, clarify, or eliminate tax-
payer reporting burdens. They also eliminate regu-
latory impediments to the electronic filing of certain
statements that taxpayers are required to include on or
August 6, 20073292007–32 I.R.B.

with their Federal income tax returns. See T.D. 9329,
page 312.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of August 2007. See Rev. Rul. 2007-50, page 311.
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 August 2007. See Rev. Rul. 2007-50, page 311.
2007–32 I.R.B.330August 6, 2007

Part III. Administrative, Procedural, and Miscellaneous
Excluded Bona Fide
Severance Pay Plans Under
§ 457(e)(11) and Amounts
Subject to a Substantial Risk
of Forfeiture Under § 457(f)
Notice 2007–62
I. PURPOSE
This notice announces the intent of the
Treasury Department (Treasury) and the
Internal Revenue Service (Service) to is-
sue guidance under § 457, which applies to
nonqualified deferred compensation plans
of state and local governments and tax-ex-
empt entities, concerning the definitions
of abona fideseverance pay plan under
§ 457(e)(11) and concerning the defini-
tion of substantial risk of forfeiture under
§ 457(f)(1)(B). This notice also describes
the guidance that the Treasury and the Ser-
vice anticipate issuing, which in many re-
spects would be similar to the rules in the
recent final regulations under § 409A, and
requests comments on the issues intended
to be addressed by such guidance.
II. BACKGROUND
Section 457 applies to nonqualified de-
ferred compensation plans established by
state and local government and tax-exempt
employers. Three types of nonqualified
deferred compensation plans are subject to
§ 457: (1) an eligible § 457(b) plan estab-
lished by a state or local government em-
ployer; (2) an eligible § 457(b) plan es-
tablished by any other tax-exempt entity
that is not a governmental entity; and (3)
any other deferred compensation plan es-
tablished by either type of employer (an
ineligible nonqualified deferred compen-
sation plan). An ineligible nonqualified
deferred compensation plan is subject to
§ 457(f). Section 457(f)(3)(A) provides
that the term plan includes any agreement
or arrangement.
Section 457(e)(11) states that § 457
does not apply to certain types of plans,
including abona fideseverance pay plan.
Section 457(f)(2) provides that the rules
of § 457(f) do not apply to a qualified plan
under § 401(a) or § 403(a), a § 403(b)
annuity, a nonqualified annuity described
in § 403(c), that portion of any plan which
consists of a transfer of property described
in § 83, that portion of any plan which con-
sists of a trust to which § 402(b) applies,
a qualified governmental excess benefit
arrangement described in § 415(m), or
that portion of any applicable employment
retention plan described in § 457(f)(4).
Section 457(f)(1) provides that com-
pensation under a nonqualified deferred
compensation plan subject to § 457(f) is
included in the gross income of the par-
ticipant or beneficiary for the first taxable
year in which there is no substantial risk
of forfeiture of the rights to such com-
pensation. Section 457(f)(3)(B) provides
that the rights of a person to compensation
are subject to a substantial risk of forfei-
ture if such person’s rights to such com-
pensation are conditioned upon the future
performance of substantial services by any
individual. Any amount deferred under
a § 457(f) plan that is not subject to a
substantial risk of forfeiture (i.e.,avested
amount) is currently included in gross in-
come (even if not actually or construc-
tively received), and the amount subse-
quently paid or made available is taxed un-
der § 72. See § 1.457–11(c).
Section 409A applies to ineligible non-
qualified deferred compensation plans
maintained by tax-exempt and govern-
mental employers, as well as to non-
qualified deferred compensation plans
maintained by taxable employers. Sec-
tion 409A generally provides that, unless
certain requirements are met, amounts
deferred under a nonqualified deferred
compensation plan forall taxable years
are currently includible in gross income to
the extent not subject to a substantial risk
of forfeiture and not previously included
in gross income. Section 409A(d)(4)
provides that the rights of a person to
compensation are subject to a substantial
risk of forfeiture if such person’s rights to
such compensation are conditioned upon
the future performance of substantial ser-
vices by any individual.
Section 409A does not apply to quali-
fied plans (as defined under § 219(g)(5),
without regard to subparagraph (A)(iii)
thereof), eligible deferred compensa-
tion plans under § 457(b), or quali-
fied governmental excess benefit ar-
rangements described in § 415(m). See
§ 1.409A–1(a)(2). However, § 409A ap-
plies to nonqualified (ineligible) deferred
compensation plans to which § 457(f)
applies, separately and in addition to the
requirements applicable to such plans
under § 457(f). See § 1.409A–1(a)(4).
Section 409A(c) provides that nothing in
§ 409A prevents the inclusion of amounts
in gross income under any other provision
of the Code or any other rule of law earlier
than the time provided in § 409A. Section
409A(c) further provides that any amount
included in gross income under § 409A
is not required to be included in gross
income under any other Code provision or
any other rule of law later than the time
provided in § 409A.
Final regulations under § 409A were
published on April 10, 2007 (72 FR 19234)
and generally become applicable January
1, 2008.
1
Those regulations provide guid-
ance on when a separation pay plan (as
defined in § 1.409A–1(m)) is treated
as not providing for a deferral of com-
pensation for purposes of § 409A. See
§ 1.409A–1(b)(9). The regulations also
define a substantial risk of forfeiture for
purposes of § 409A. See § 1.409A–1(d).
III. BONA FIDE SEVERANCE PAY
PLANS UNDER § 457(e)(11)
The Treasury and the Service antici-
pate issuing guidance providing that an ar-
rangement is abona fideseverance pay
plan under § 457(e)(11), and thus is not
subject to the requirements of § 457, if: (1)
the benefit is payable only upon involun-
tary severance from employment, (2) the
amount payable doesnot exceed two times
the employee’s annual rate of pay (taking
into account only pay that does not exceed
the maximum amount that may be taken
into account under a qualified plan pur-
suant to § 401(a)(17) for the year in which
the employee has a severance from em-
1
For general and transition guidance regarding the application of § 409A, see Notice 2005–1, 2005–2 C.B. 274, and Notice 2006–79, 2006–43 I.R.B. 763. See also Notice 2006–100, 2006–51
I.R.B. 1109, which provides guidance to employers and payers on their reporting and wage withholding for calendar years 2005 and 2006 with respect to deferrals of compensation and amounts
includible in gross income under § 409A.
August 6, 20073312007–32 I.R.B.

ployment), and (3) the plan provides that
the payments must be completed by the
end of the employee’s second taxable year
following the year in which the employee
separates from service. With respect to
the requirement that benefits be payable
only upon involuntary severance from em-
ployment, it is anticipated that the guid-
ance would include exceptions for window
programs, collectively bargained separa-
tion pay plans, and certain reimbursement
or in-kind benefit arrangements (similar
to the exceptions in § 1.409A–1(b)(9)(ii),
(iv), and (v)).
IV. SUBSTANTIAL RISK OF
FORFEITURE UNDER § 457(f)
The Treasury and the Service further
anticipate issuing guidance regarding a
substantial risk of forfeiture for purposes
of § 457(f)(3)(B) under rules similar to
those set forth under § 1.409A–1(d).
Section 1.409A–1(d) provides that a
right to an amount of compensation is
subject to a substantial risk of forfeiture if
entitlement to the amount is conditioned
on the performance of substantial future
services or the occurrence of a condition
that is related to a purpose of the com-
pensation and the possibility of forfeiture
is substantial. For this purpose, if a ser-
vice provider’s entitlement to the amount
is conditioned on the occurrence of the
service provider’s involuntary separation
from service without cause, the right is
subject to a substantial risk of forfeiture if
the possibility of forfeiture is substantial.
An amount is not subject to a substantial
risk of forfeiture merely because the right
to the amount is conditioned, directly or
indirectly, upon refraining from the perfor-
mance of services. Further, as described in
§ 1.409A–1(d)(1), the addition of any risk
of forfeiture after the right to the compen-
sation arises, or any extension of a period
during which compensation is subject to a
risk of forfeiture (sometimes referred to as
a “rolling risk of forfeiture”), is generally
disregarded for purposes of determining
whether such compensation is subject to a
substantial risk of forfeiture under § 409A.
Section 1.409A–1(d)(1) provides that
an amount is not considered subject to
a substantial risk of forfeiture beyond
the date or time at which the recipient
otherwise could have elected to receive
the amount of compensation, unless the
present value of the amount made subject
to a risk of forfeiture is materially greater
than the present value of the amount the
recipient otherwise could have elected to
receive absent such risk of forfeiture. This
is because, absent tax considerations, a
rational participant normally would not
agree to subject a right to amounts that
may be earned and payable as current
compensation, such as salary payments,
to a condition that subjects the right to
the same payments to a real possibility of
forfeiture. Accordingly, in this situation,
agreement to subject the amount to a sub-
stantial risk of forfeiture indicates that the
recipient of the compensation is confident
that there is not a real risk of forfeiture
and is only subjecting the amount to the
purported risk of forfeiture as a means of
avoiding taxation. Thus, amounts that an
individual could have elected to receive
under a salary deferral election generally
cannot be made subject to a substantial
risk of forfeiture under the rules of § 409A
beyond the date or time the salary would
otherwise have been received.
The Service and Treasury anticipate
that upcoming guidance under § 457(f)
will generally adopt the rules relating to
substantial risk of forfeiture that are con-
tained in § 1.409A–1(d).
As noted above, § 1.409A–1(d) pro-
vides that an amount of compensation is
subject to a substantial risk of forfeiture
if the entitlement to the amount is con-
ditioned upon the occurrence of a con-
dition related to a purpose of the com-
pensation, and the possibility of forfeiture
is substantial. Section 1.409A–1(d) fur-
ther provides that a condition related to a
purpose of the compensation must relate
to the service provider’s performance for
the service recipient or the service recip-
ient’s business activities or organizational
goals (for example, the attainment of a pre-
scribed level of earnings or equity value
of completion of an initial public offer-
ing). Comments are requested on whether
any special rules should apply for purposes
of § 457(f) with respect to this aspect of
the definition of a substantial risk of for-
feiture, taking into account that state and
local government and tax-exempt entities
to which § 457(f) applies generally do not
have business activities or organizational
goals that are comparable to profit-making
entities.
V. INTERACTION OF §§ 409A
AND 457(f) UNDER ANTICIPATED
STANDARDS
Under the rules at § 1.409A–1(b)(4)(i)
relating to short-term deferrals, a deferral
of compensation for purposes of § 409A
does not occur if the plan under which a
payment is made does not provide for a
deferred payment and the service provider
actually or constructively receives such
payment on or before the first day of
the applicable 2½ month period. Under
§ 1.409A–1(a)(4), the inclusion in income
of an amount under § 457(f) is treated as
a payment of the amount for purposes of
the short-term deferral rule contained in
§ 1.409A–1(b)(4).
If the standard for a substantial risk
of forfeiture for purposes of § 409A de-
scribed in Part IV of this notice is adopted,
a substantial risk of forfeiture under
§ 457(f)(1)(B) could not lapse later than
the date the substantial risk of forfeiture
lapsed under § 409A and § 1.409A–1(d).
Accordingly, if a participant under an
ineligible plan under § 457(f) included
an amount of deferred compensation in
gross income when it ceased to be subject
to a substantial risk of forfeiture under
§ 457(f), the amount generally would not
be subject to § 409A because the right
to the amount and the payment would
qualify as a short-term deferral under
§ 1.409A–1(a)(4). However, the right to
earnings on amounts that have previously
been included under § 457(f) would be
deferred compensation for purposes of
§ 409A unless the right to the earnings in-
dependently satisfied the requirements for
an exclusion from coverage under § 409A.
VI. EFFECTIVE DATE AND
RELIANCE
The Treasury and the Service anticipate
that the guidance described in this notice
would be prospective. With respect to pe-
riods before such guidance is issued, no
inference should be made from the antic-
ipated guidance described in this notice
regarding either the definition of abona
fideseverance pay plan for purposes of
§ 457(e)(11)(A)(i) or the determination of
substantial risk of forfeiture for purposes
of § 457(f). However, pending the is-
suance of further guidance, taxpayers may
rely on the definition of abona fidesev-
2007–32 I.R.B.332August 6, 2007

erance pay plan in the anticipated guid-
ance described in section III of this notice
for purposes of § 457(e)(11)(A)(i) and the
rules regarding a substantial risk of forfei-
ture in the anticipated guidance described
in the first two paragraphs of section IV of
this notice for purposes of § 457(f). Com-
ments are specifically requested as to the
extent to which transition guidance regard-
ing the application of § 457(f) would be
necessary and appropriate, and what such
transition guidance would provide.
This notice does not affect the applica-
tion of § 409A or the guidance thereunder,
including the determination of whether a
plan is subject to § 409A and the applica-
tion of the transition guidance issued under
§409A.
VII. REQUEST FOR COMMENTS
Treasury and the Service intend to is-
sue guidance reflecting the definitions of a
bona fideseverance pay plan for purposes
of § 457(e) and substantial risk of forfei-
ture for purposes of § 457(f), as described
in Parts III and IV of this notice. Com-
ments regarding these definitions, and any
related issues that should be addressed un-
der § 457, are requested.
Written comments should be submitted
by October 15, 2007. Send submissions to
CC:PA:LPD:PR, (Notice 2007–62), Room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washing-
ton, D.C. 20044. Comments may also
be hand delivered Monday through Fri-
day between the hours of 8:30 a.m. and
4:00 p.m. to: Internal Revenue Ser-
vice, CC:PA:LPD:PR, (Notice 2007–62),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, N.W.,
Washington, D.C. Alternatively, com-
ments may be submitted via the Internet
atnotice.comments@irscounsel.treas.gov
(Notice 2007–62). All comments will be
available for public inspection.
VIII. DRAFTING INFORMATION
The principal author of this notice is
Cheryl Press of theOffice of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). How-
ever, other personnel from the Treasury
and the Service participated in its devel-
opment. For further information regarding
this notice, contact Ms. Press at (202)
622–6060 (not a toll-free call).
August 6, 20073332007–32 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Deductions for Entertainment
Use of Business Aircraft
REG–147171–05
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains pro-
posed regulations relating to the use of
business aircraft for entertainment. These
proposed regulations affect taxpayers that
deduct expenses for entertainment, amuse-
ment, or recreation provided to specified
individuals. This document also provides
notice of a public hearing on these pro-
posed regulations. The proposed regula-
tions reflect amendments under the Ameri-
can Jobs Creation Act of 2004 (AJCA) and
the Gulf Opportunity Zone Act of 2005
(GOZA).
DATES: Written comments must be re-
ceived by September 13, 2007. Requests
to speak and outlines of topics to be dis-
cussed at the public hearing scheduled for
October 25, 2007, at 10 a.m., must be re-
ceived by October 4, 2007.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–147171–05),
room 5203, Internal Revenue Ser-
vice, PO Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Sub-
missions may be hand delivered be-
tween the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–147171–05),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, taxpay-
ers may submit electronic comments
via the internet at the Federal eRule-
making Portal atwww.regulations.gov
(IRS-REG–147171–05). The public hear-
ing will be held in the auditorium, Internal
Revenue Building, 1111 Constitution Av-
enue, NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations
under section 274, Michael A. Nixon
of the Office of Associate Chief Coun-
sel (Income Tax & Accounting), (202)
622–4930; concerning the regulations un-
der section 61, Lynne A. Camillo of the
Office of Division Counsel/Associate
Chief Counsel (Tax Exempt & Gov-
ernment Entities), (202) 622–6040 (not
toll-free numbers); concerning submis-
sions of comments, the hearing, and/or
to be placed on the building access list
to attend the hearing, Richard Hurst at
Richard.A.Hurst@irscounsel.treas.gov.
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed reg-
ulations under section 274(e)(2) of the
Internal Revenue Code (Code). Section
274(e)(2) was amended by section 907
of the AJCA, Public Law 108–357, and
by section 403(mm) of the GOZA, Pub-
lic Law 109–135. Both amendments are
effective for certain expenses incurred af-
ter October 22, 2004. On May 27, 2005,
the IRS and Treasury Department is-
sued Notice 2005–45, 2005–1 C.B. 1228,
providing interim guidance on amended
section 274(e)(2) and inviting comments.
Notice 2005–45 is effective for expenses
incurred after June 30, 2005. Commen-
tators submitted written and electronic
comments responding to Notice 2005–45.
The IRS and Treasury Department have
reviewed and considered all the comments
in the process of preparing these proposed
regulations. See §601.601(d)(2)(ii)(b)of
this chapter.
Generally, section 162(a) allows as
a deduction all the ordinary and neces-
sary expenses paid or incurred during the
taxable year in carrying on any trade or
business. Under section 274(a)(1)(A),
no deduction is allowed for an activity
generally considered to be entertain-
ment, amusement, or recreation, unless
the taxpayer establishes that the activity
is directly related to or (in certain cases)
associated with the active conduct of the
taxpayer’s trade or business.
Section 1.274–2(b)(1) of the Income
Tax Regulations provides that entertain-
ment means any activity of a type gen-
erally considered to constitute entertain-
ment, amusement, or recreation, such
as entertaining at night clubs, cocktail
lounges, theaters, country clubs, golf and
athletic clubs, sporting events, and on
hunting, fishing, vacation and similar
trips. Similar activities relating solely to
the taxpayer’s family also may constitute
entertainment. Entertainment may include
an activity that satisfies the personal, liv-
ing, or family needs of an individual,
such as providing food and beverages or
a hotel suite to a business customer or the
customer’s family. Entertainment does
not include activities, however, that are
clearly not regarded as constituting enter-
tainment, such as the provision of supper
moneybyanemployertoanemployee
working overtime, the maintenance of a
hotel room by an employer for lodging
of an employee while in business travel
status, or the use of an automobile in the
active conduct of a trade or business even
though also used for routine personal pur-
poses such as commuting to and from
work. Under §1.274–2(b)(1)(ii), an objec-
tive test is used to determine whether an
activity is of a type generally considered
to constitute entertainment.
Section 274(e) provides exceptions to
the general disallowance provisions of
section 274(a). Prior to amendment by
the AJCA, section 274(e)(2) excepted ex-
penses from section 274(a) “to the extent
that the expenses are treated by the tax-
payer” as compensation to the employee.
Under prior law, section 274(e)(9) simi-
larly excepted expenses to the extent that
the expenses are treated by the taxpayer as
income to persons who are not employees.
Section 274(o) provides that the Secre-
tary shall prescribe regulations necessary
to carry out the purposes of the section.
Generally, §1.61–21(b)(1) requires an
employee to include in gross income the
fair market value of a fringe benefit, such
as an entertainment flight, after subtract-
ing amounts paid, by or on behalf of the
employee, for the fringe benefit, as well as
amounts excluded from income by another
section of the Code. If an employee takes
a personal flight on an employer’s aircraft,
and the employer also provides a pilot, the
general rule under §1.61–21(b)(6) is that
2007–32 I.R.B.334August 6, 2007

the fair market value of the flight is equal
to the amount that an individual would
have to pay in an arm’s-length transaction
to charter the same or a comparable piloted
aircraft for that period for the same or a
comparable flight. If the employer does
not provide a pilot, the general rule un-
der §1.61–21(b)(7) is that the fair market
value of the flight is equal to the amount
that an individual would have to pay in
an arm’s-length transaction to rent a com-
parable aircraft for that period in the geo-
graphic area in which the aircraft is used.
The regulations do not permit valuation
of a flight by reference to the employer’s
costs.
As an alternative to the general val-
uation rules just described, §1.61–21(g)
provides that an employee’s personal
flights on an employer’s aircraft may be
valued using an optional special valuation
rule, the non-commercial flight valuation
rule. In order to use the non-commercial
flight valuation rule, applying the applica-
ble aircraft multiple from §1.61–21(g)(7),
it is necessary to know the weight of the
employer’s aircraft, the number of miles
for the flight being valued, and whether
the employee receiving the benefit is a
control employee within the meaning of
§1.61–21(g)(8) or (9). The value of an
employee’s personal use of a company
aircraft is computed by multiplying the
Standard Industry Fare Level (SIFL) by
the terminal charge to arrive at the value
of the flight (the SIFL formula). SIFL is a
cents-per-mile factor that, taken with the
aircraft multiple and the terminal charge,
is intended to approximate coach and first
class fares on commercial aircraft.
The consistency rule set forth in
§1.61–21(g)(14)(i) provides that a tax-
payer who uses the SIFL formula in a
calendar year to value any flight provided
to an employee must use the SIFL formula
to value all flights provided to employ-
ees during that calendar year. Notice
2005–45 advised taxpayers that the con-
sistency rule in the regulations would be
amended to permit taxpayers to value the
entertainment use of aircraft by specified
individuals (within the meaning of sec-
tion 274(e)(2)(B)) under the fair market
value rules of §1.61–21(b) but continue
to value flights for other employees and
for specified individuals not traveling for
entertainment purposes using the SIFL
formula.
InSutherland Lumber-Southwest, Inc.
v. Comm’r, 114 T.C. 197 (2000),aff’d
255 F.3d 495 (8th Cir. 2001),acq.2002–1
C.B. xvii, the Tax Court held that the
amount a taxpayer may deduct for the cost
of entertainment-related flights under the
section 274(e)(2) exception is not limited
to the amount included in the income of
the employees and corporate officers who
took the flights. Rather, the court held
that a taxpayer may deduct the full cost of
an employee’s or officer’s non-business
flight on the taxpayer’s aircraft if the tax-
payer includes in the recipient’s income
the value of the flights computed under the
non-commercial flight valuation rule of
§1.61–21. As a result, a deduction greater
than the amount included in the recipient’s
income was allowable.
Section 907 of the AJCA was intended
to overturnSutherland Lumberin certain
cases. H.R. Conf. Rep. No. 108–755, at
798 (2004). Specifically, as amended by
the AJCA, the section 274(e)(2) and (9) ex-
ceptions to the section 274(a) disallowance
apply in the case of a specified individual
only “to the extent that the expenses do
not exceed the amount of expenses” that
are treated as compensation to the speci-
fied individual. A specified individual is
any individual who is subject to the re-
quirements of section 16(a) of the Securi-
ties Exchange Act of 1934 (15 U.S.C. sec-
tion 78p(a)) with respect to the taxpayer,
or who would be subject to those require-
ments if the taxpayer were an issuer of eq-
uity securities referred to in that section.
Section 274(e)(2)(B).
Thus, in the case of a specified indi-
vidual, the section 274(e)(2) and (9) dis-
allowance exceptions apply only to the ex-
tent that a taxpayer treats as compensation
to the specified individual an amount equal
to or greater than the amount of deductible
entertainment expenses allocable to enter-
tainment provided to the specified individ-
ual. Expenses allocable to entertainment
provided to the specified individual that
the taxpayer does not treat as compensa-
tion to the specified individual are disal-
lowed.
Explanation of Provisions and
Summary of Comments
1.Definition of Entertainment
a.Distinction between entertainment and
other personal use
Notice2005–45references
§1.274–2(b)(1) in defining entertain-
ment. Commentators suggested that
the proposed regulations should provide
additional guidance on the meaning of
“entertainment” in order to assist taxpay-
ers in delineating between entertainment
use and “nonentertainment” personal use.
The proposed regulations do not adopt
these comments because these rules are
addressed in the existing regulations at
§1.274–2(b)(1). Consistent with those
regulations, entertainment does not in-
clude travel for reasons such as attending
to business other than that of the employer,
medical purposes, attending funerals, and
participating in charitable activities.
b.Primary purpose test
Several commentators recommended
that the proposed regulations adopt a
purpose of the flight test that would char-
acterize a flight as a business flight for
all purposes if the primary purpose of the
flight is business. Thus, under the rec-
ommendation, if the primary purpose of
the flight were business, no amount would
be disallowed for entertainment provided
to specified individuals who are traveling
for entertainment purposes. Conversely,
if the primary purpose of the flight were
entertainment, no amount would be al-
lowed as an expense deduction with re-
spect to individuals traveling for business.
The proposed regulations do not adopt
these comments. The IRS and Treasury
Department believe that disregarding en-
tertainment use by a specified individual
wouldbecontrarytoCongressionalintent
in amending section 274(e)(2) to disallow
expenses allocable to entertainment use of
aircraft by specified individuals. Section
274(e)(2)(B) focuses on the recipient of
the entertainment, amusement, or recre-
ation, not the purpose of the employer
providing the entertainment or the overall
use of the aircraft.
August 6, 20073352007–32 I.R.B.

c.Use of aircraft for bona fide security
purposes
Several commentators suggested that
entertainment use by a specified individ-
ual of an aircraft should not be treated as
entertainment within the meaning of sec-
tion 274 or subject to section 274(e)(2)(B)
if there is a business need to use the
aircraft to provide security, pursuant
to §1.132–5(m). The proposed regula-
tions do not adopt this comment. Section
1.132–5(m) merely computes the income
inclusion for a fringe benefit. It reduces
the income inclusion amount rather than
eliminates it. It does notconvert entertain-
ment flights into business flights.
2.Definition of Expenses
a.Fixed costs
To calculate the amount of expenses
for entertainment use of an aircraft, No-
tice 2005–45 provides that taxpayers must
take into account all of the expenses of
maintaining and operating the aircraft.
Commentators recommended that enter-
tainment expenses should not include
fixed costs such as depreciation. Com-
mentators noted that the legislative history
refers to “aircraft operating costs” and
“actual cost” and interpreted this language
to mean that costs should be limited to
variable costs. H. Conf. Rept. 108–755 at
798. Some commentators have suggested
that incremental costs are the only costs
that should be disallowed.
The proposed regulations do not adopt
these comments. Industry use of the term
“operating costs” generally refers to all
costs, fixed and variable, including de-
preciation claimed on the taxpayer’s tax
return. Therefore, the IRS and Treasury
Department believe that the use of the
term “operating costs” in the legislative
history does not reflect Congressional in-
tent to apply section 274(e)(2) to variable
costs only. Moreover, the term “aircraft
operating costs” in the legislative his-
tory is consistent with use of that term in
Sutherland Lumber, in which it referred
to fixed and variable costs for purposes of
section 274(e)(2).
b.Depreciation
Commentators suggested that disallow-
ing accelerated depreciation (including the
additional first-year depreciation under,
for example, sections 168(k), 1400L(b),
and 1400N(d)) would result in excessive
amounts disallowed in early years and
is inconsistent with Congressional intent
to provide incentives for purchasing air-
craft. In response to these comments, the
proposed regulations permit a taxpayer
to elect to calculate depreciation on a
straight-line basis over the class life of an
aircraft for all of the taxpayer’s aircraft for
the current year and all future years when
calculating the amount of disallowed ex-
penses.
c.Aggregation of aircraft
Notice 2005–45 permits taxpayers to
calculate expenses separately for each air-
craft or to aggregate the expenses of air-
craft of similar cost profiles. For exam-
ple, the expenses of turboprop aircraft may
be aggregated (but may not be aggregated
with the expenses of a jet aircraft) and the
expenses of a two-engine jet aircraft may
be aggregated (but may not be aggregated
with the expenses of a four-engine jet air-
craft).
Commentators requested that the pro-
posed regulations provide more details on
the definition of cost profile. In response
to these comments, the proposed regu-
lations provide additional characteristics
that define similar cost profiles. Specific
comments are requested on the appropri-
ateness of these characteristics in defining
similar cost profiles and on other charac-
teristics that may be useful in determining
criteria for aggregating aircraft.
3.Allocation Methods
Notice 2005–45 provides an occupied
seat hour or mile formula to allocate ex-
penses to entertainment flights provided to
specified individuals. The formula multi-
plies the hours or miles flown by an aircraft
by the number of occupied seats. Then a
taxpayer aggregates all fixed and variable
expenses to determine the total expenses
paid or incurred during the taxable year
with respect to an aircraft (or aggregated
aircraft) and divides the amount of total
expenses by total occupied seat hours or
miles to determine the cost per occupied
seat hour or mile. Once a taxpayer deter-
mines this cost, the taxpayer uses the cost
to determine the expenses allocable to each
specified individual’s entertainment flight.
Commentators expressed concern that
this formula may not produce accurate re-
sults and is administratively burdensome.
The proposed regulations retain the occu-
pied seat hour or mile formula, which al-
lows averaging of fixed and variable costs
and yields a simple formula for determin-
ing the cost of one occupied seat hour or
mile. It does not require a determination
of whether a flight is for entertainment of
specified individuals or other uses or an al-
location of entertainment and other costs
for a particular flight. Once the taxpayer
determines the cost per occupied seat hour
or mile, the disallowance calculation is rel-
atively easy and results in a cost for each
occupied seat hour or mile allocable to
each entertainment flight taken by a speci-
fied individual.
Nevertheless, in response to commen-
tators’ concerns, the proposed regulations
provide the option of allocating expenses
on a flight-by-flight basis as an alternative
to using the occupied seat mile or hour for-
mula. Under the flight-by-flight method,
a taxpayer may aggregate all expenses for
the taxable year and divide the amount
of total expenses by the number of flight
hours or miles for the taxable year to de-
terminethecostperhourormile.Thetax-
payer allocates expenses to each flight by
multiplying the number of miles or hours
for the flight by the expense per hour or
mile and allocates expenses for the flight
to the passengers on the flight per capita.
4.Specified Individuals
Notice 2005–45 applies to entertain-
mentuseofanaircraftprovidedtoa
specified individual of a taxpayer by a
party related to the taxpayer within the
meaning of sections 267(b) or 707(b). The
notice also defines a specified individual
as the recipient of entertainment provided
to a spouse or family member of the
specified individual or to another person
because of the person’s relationship to the
specified individual, cf. §1.61–21(a)(4),
and includes those entertainment flights
within the potential disallowance of costs
to the taxpayer. Commentators expressed
concern that these provisions defined spec-
ified individual too broadly, exceeding the
authority of the IRS and Treasury Depart-
ment, and suggested that the definition be
narrowed.
2007–32 I.R.B.336August 6, 2007

The proposed regulations do not adopt
thesecomments. IntheGOZA,Con-
gress enacted technical corrections that
clarify that the related party rules of sec-
tions 267(b) and 707(b) apply to section
274(e)(2). The IRS and Treasury Depart-
ment conclude that Congress intended all
entertainment flights to be subject to the
section 274(e)(2) requirements. How-
ever, comments on how the regulations
could define passengers aboard by virtue
of a relationship with a specified individ-
ual are welcome. Finally, the proposed
regulations defineofficerby reference to
regulations at 17 CFR §240.16a–1(f) that
implement section 16(a) of the Securities
Exchange Act of 1934.
5.Other
a.Determination of basis
The proposed regulations provide that,
if an amount disallowed is allocable to de-
preciation, §1.274–7 applies and the basis
of the aircraft is not reduced for the amount
of depreciation disallowed.
b.Allocation of expenses pro rata
Numerous commentators inquired how
taxpayers should allocate disallowed ex-
penses between fixed and variable ex-
penses. In response to these comments,
the proposed regulations provide that the
expense disallowance provisions apply to
expenses on apro ratabasis.
c.Deadhead flights
Notice 2005–45 provides that an air-
craft returning empty from a flight after
discharging passengers or traveling empty
to pick up passengers (deadheading) is
treated as having the same number and
character of occupied seat hours or miles
as the leg or legs of the trip on which
passengers are aboard.
Commentators, citing confusion on
the treatment of deadhead flights, have
requested additional guidance, including
safe harbors such as treating the empty
flight as if it had the same composition as
the prior or subsequent flight. The pro-
posed regulations adopt these comments
by providing more detail on how taxpayers
should treat deadhead flights.
d.Leasing of taxpayer aircraft
Commentators requested guidance on
the leasing of aircraft to unrelated third
parties. In response to these requests, the
proposed regulations provide guidance on
the treatment of expenses allocable to tax-
payers that charter their aircraft.
e.Aircraft as entertainment facilities
Notice 2005–45 addressed the treat-
ment of expenses for the entertainment
use of aircraft and did not address the ef-
fect of the amendment to section 274(e)(2)
on the treatment of aircraft as entertain-
ment facilities. Commentators asked how
the entertainment facility disallowance
under section 274(a)(1)(B) interacts with
rules on aircraft used to provide specified
individuals with entertainment.
Section 274(a)(1)(B) disallows all the
expenses, direct and indirect, associated
with the ownership and operation of an air-
craft that is an entertainment facility, ex-
cept for expenses for business travel and
expenses that meet the exceptions of sec-
tion 274(e). Thus, expenses for personal,
nonentertainment travel (such as for medi-
cal purposes or attending funerals), as well
as for entertainment travel, are disallowed,
unless an exception such as 274(e)(2) ap-
plies.
The IRS and Treasury Department
believe that Congress, in adding section
274(e)(2)(B), contemplated entertain-
ment use of aircraft by specified indi-
viduals without specifically consider-
ing circumstances in which aircraft may
be regarded as entertainment facilities.
Therefore, these proposed regulations
are limited to use of taxpayer-provided
aircraft in entertainment activities under
section 274(a)(1)(A), and do not pro-
vide rules relating to the application of
section 274(e)(2)(B) in circumstances
under which aircraft may be regarded
as entertainment facilities under section
274(a)(1)(B). Comments are requested on
whether the IRS and Treasury Department
should issue guidance on aircraft as enter-
tainment facilities and the content of the
guidance.
f.Fringe benefit consistency rules
The proposed regulations relax the
consistency rule of §1.61–21(g)(14)(i) to
permit taxpayers to value the entertain-
ment use of aircraft by specified individ-
uals under the fair market value rules of
§1.61–21(b), but continue to value flights
for other employees and for specified
individuals not traveling for entertain-
ment using either the SIFL formula of
§1.61–21(g) or the general (fair market
value) rule of §1.61–21(b).
The proposed regulations preserve the
consistency rule of §1.61–21(g)(14)(i)
with respect to particular groups of em-
ployees (specified and non-specified indi-
viduals) and with respect to non-entertain-
ment flights. Thus, if an employer values
the entertainment use of aircraft by one
specified individual under the fair market
value rules of §1.61–21(b) in a calendar
year, the employer must use the fair mar-
ket value rules to value the entertainment
use of aircraft by all specified individuals
during that calendar year.
The existing consistency rules of
§1.61–21(g)(14)(i) continue to apply for
valuing the entertainment use of aircraft
for other employees (non-specified in-
dividuals) and for valuing the personal
use of aircraft by specified individuals
not traveling for entertainment purposes.
Thus, if an employer values the personal
use of aircraft by any other employee
or the non-entertainment personal use of
aircraft by any specified individual us-
ing the SIFL formula of §1.61–21(g) in a
calendar year, the employer must use the
SIFL formula to value the personal use
of aircraft by all other employees and the
non-entertainment personal use of aircraft
by all specified individuals during that
calendar year. Similarly, if the employer
values the personal use of aircraft by any
other employee or the non-entertainment
personal use of aircraft by any specified
individual using the fair market value
rules of §1.61–21(b) in a calendar year,
the employer must use the fair market
value rules to value the personal use of
aircraft by all other employees and the
non-entertainment personal use of aircraft
by all specified individuals during that
calendar year.
g.Treatment as compensation to
non-specified individuals
The proposed regulations clarify that in
order for a taxpayer to meet the require-
ments of section 274(e)(2) for expenses
August 6, 20073372007–32 I.R.B.

treated as compensation, the taxpayer must
include the proper amount as compensa-
tion to an employee on the taxpayer’s re-
turn.
h.Section 162(m)
Notice 2005–45 provides that any
amount for the entertainment use of an
aircraft that is treated by the taxpayer as
compensation to a specified individual
who is also a covered employee is subject
to section 162(m). Commentators dis-
agreed with this conclusion. They opined
that the deduction disallowance of section
274 relates to the expenses of the aircraft,
not amounts treated as income to the em-
ployee, and that, under §1.162–25T, the
expenses associated with providing the
aircraft are not deducted by the employer
as compensation. Thus, according to the
commentators, expenses treated as com-
pensation for purposes of section 274(e)(2)
should not be subject to the deduction lim-
itation of section 162(m). However, the
IRS and Treasury Department believe that
the deduction limitation of section 162(m)
applies to amounts treated as compen-
sation for purposes of section 274(e)(2).
The legislative history of section 162(m)
provides that the deduction limitation of
section 162(m) applies to all remuneration
for services, including cash and the cash
value of all remuneration (including ben-
efits) paid in a medium other than cash
regardless of whether the remuneration
is deducted as compensation. H.R. Conf.
Rep. No. 103–213 (1993) at 585 (1993–3
C.B. 463). Any amount included in an em-
ployee’s income for entertainment flights
is remuneration for services and therefore
is subject to section 162(m).
i.Entertainment sold to customers
Commentators requested clarification
on whether section 274(e)(8), the excep-
tion to section 274(a) for entertainment
sold to customers, applies to a taxpayer’s
expenses for providing an aircraft for the
entertainment use ofspecified individu-
als. A commentator asserted that section
274(e)(8) excepts expenses of a flight
from the section 274(a) disallowance to
the extent a passenger pays full and fair
consideration. The commentator sug-
gested that expenses are excepted from the
section 274(a) disallowance under section
274(e)(8) in three circumstances common
in business aviation: (1) a lease of an
aircraft without a pilot at a fair market
value lease rate; (2) payment of a fair mar-
ket value charter rate for an aircraft the
taxpayer has enrolled under a charter cer-
tificate held by a charter company; and (3)
payment of expenses allowed to be reim-
bursed in a time-sharing agreement under
Federal Aviation Regulation 91.501(d),
14 CFR 91.501(d).
The proposed regulations do not ad-
dress these issues, as rules implement-
ing the section 274(e)(8) exception are
provided in §1.274–2(f)(2)(ix). There-
fore, it is outside the scope of these pro-
posed regulations on the exceptions under
section 274(e)(2) and (9). As stated in
§1.274–2(f)(2)(ix), section 274(e)(8) ap-
plies only to taxpayers that are in the trade
or business of providing entertainment
to customers, and only to entertainment
sold to customers. Therefore, the excep-
tion does not apply to expenses paid or
incurred for entertainment provided to in-
dividuals by taxpayers that are not in the
trade or business of providing entertain-
ment.
j.Charter Rate Safe Harbor
As an alternative to determining actual
expenses, the IRS and Treasury Depart-
ment are considering whether the regu-
lations should permit taxpayers to deter-
mine the amount of their expenses paid
or incurred for entertainment flights by
reference to charter rates. Under such a
safe harbor, taxpayers could elect to treat
as the amount of expenses for entertain-
ment flights an undiscounted charter rate
for each flight in lieu of calculating the ac-
tual expenses of each entertainment flight
provided to specifiedindividuals. Under
the safe harbor, the undiscounted charter
rate for the flight would be allocated to
the individuals on the flight in lieu of the
occupied seat or flight-by-flight allocation
methods.
Under the charter rate method being
considered, an undiscounted charter rate
would be based on the amount that a per-
son would pay in an arms-length transac-
tion to charter the same or comparable air-
craft for the same or comparable flight. A
taxpayer would have to show that a char-
ter rate used to value flights is a substanti-
ated actual, published,undiscounted char-
ter rate charged to the general public within
10 days before or after the taxpayer’s flight
by a qualified chartering company. A qual-
ified chartering company would be a char-
tering company unrelated to the taxpayer
(within the meaning of section 267(b) or
707(b)) that is in the trade or business of
chartering aircraft and that operates and
charters 10 or more aircraft to the general
public during the taxable year. Leaseback
arrangements or rates charged for off-peak
usage, aircraft downtime, or by employers
to their employees would not qualify un-
der the safe harbor. A qualified chartering
company would not include a chartering
company that charters any aircraft to or for
the use of a person (or an employee of the
person) that owns any aircraft used by the
chartering company. If a taxpayer elects
the safe harbor, the taxpayer would have to
use it for all entertainment flights on all of
the taxpayer’s aircraft for the current and
all subsequent taxable years unless the tax-
payer makes a proper revocation.
The proposed regulations do not in-
clude the safe harbor. Nonetheless, com-
ments are requested on whether such a
safe harbor, or other safe harbors, should
be adopted. Comments are also requested
on the availability of substantiated ac-
tual, published, undiscounted charter rates
charged to the general public by com-
panies that meet the requirements of a
qualified chartering company.
Taxpayers may not use a charter rate
to determine expenses allocable to enter-
tainment flights unless and until a rule is
adopted in final regulations.
Proposed Effective Date
The regulations, as proposed, apply to
any taxable year beginning on or after the
date of publication of a Treasury decision
adopting these rules as final regulations
in theFederal Register. However, tax-
payers may rely on the rules in these pro-
posed regulations or those provided in No-
tice 2005–45 for taxable years beginning
before the publication of the Treasury deci-
sion. If Notice 2005–45 and the proposed
regulations include different rules for the
same particular issue, then the taxpayer
mayrelyoneithertherulesetforthinNo-
tice 2005–45 or the rule set forth in the
proposed regulations. However, if the pro-
posed regulations include a rule that was
not included in Notice 2005–45, taxpayers
may not rely on the absence of a rule in
2007–32 I.R.B.338August 6, 2007

Notice 2005–45 to apply a rule contrary to
the proposed regulations.
Special Analyses
This notice of proposed rulemaking is
not a significant regulatory action as de-
fined in Executive Order 12866. There-
fore, a regulatory assessment is not re-
quired. It has also been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these regulations and, because
the regulations do not impose a collec-
tion of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Code, this notice of pro-
posed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any electronic or written
comments (a signed original and eight (8)
copies) that are submitted timely to the
IRS. The IRS and Treasury Department
specifically request comments on the clar-
ity of the proposed regulations and how
they may be made easier to understand.
A public hearing has been scheduled
for October 25, 2007, at 10 a.m., in the au-
ditorium, Internal Revenue Building, 1111
Constitution Avenue, NW, Washington,
DC. Due to building security procedures,
visitors must enter through the Consti-
tution Avenue entrance. In addition, all
visitors must presentphoto identification
to enter the building. Because of access
restrictions, visitors will not be admit-
ted beyond the immediate entrance more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER IN-
FORMATION CONTACT” section of this
preamble.
Drafting Information
The principal authors of these pro-
posed regulations are Michael A. Nixon
and Christian T. Wood of the Office of
Associate Chief Counsel (Income Tax &
Accounting) and Lynne A. Camillo of the
Office of the Division Counsel/Associate
Chief Counsel (Tax Exempt & Govern-
ment Entities). However, other personnel
from the IRS and Treasury Department
participated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, under the authority of 26
U.S.C. 7805, 26 CFR Part 1 is proposed to
be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part1isamendedbyaddingentriesinnu-
merical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.274–9 also issued under
26 U.S.C. 274(o).* * *
Section1.274–10alsoissuedunder
26 U.S.C. 274(o).* * *
Par. 2. Section 1.61–21 is amended
by revising paragraphs (g)(14)(i) and (ii)
and adding paragraph (g)(14)(iii) to read as
follows:
§1.61–21 Taxation of fringe benefits.
*****
(g) * * *
(14) * * *
(i)Usebyemployer. Except as oth-
erwise provided in paragraph (g)(13) or
paragraph (g)(14)(iii) of this section or in
§1.132–5(m)(4), if the non-commercial
flight valuation rule of this paragraph (g)
is used by an employer to value any flight
provided in a calendar year, the rule must
be used to value all flights provided to all
employees in the calendar year.
(ii)Usebyemployee. Except as oth-
erwise provided in paragraph (g)(13)
or (g)(14)(iii) of this section or in
§1.132–5(m)(4), if the non-commercial
flight valuation rule of this paragraph (g)
is used by an employee to value a flight
provided by an employer in a calendar
year, the rule must be used to value all
flights provided to the employee by that
employer in the calendar year.
(iii)Exception for entertainment flights
provided to specified individuals after Oc-
tober 22, 2004. Notwithstanding the pro-
visions of paragraph (g)(14)(i) of this sec-
tion, an employer may use the general val-
uation rules of §1.61–21(b) to value the en-
tertainment use of an aircraft by a spec-
ified individual. An employer who uses
the general valuation rules of §1.61–21(b)
to value any entertainment use of an air-
craft by a specified individual in a calendar
year must use the general valuation rules
of §1.61–21(b) to value all entertainment
use of aircraft provided to all specified in-
dividuals during that calendar year.
(A)Specified individuals defined.For
purposes of paragraph (g)(14)(iii) of this
section,specified individualis defined in
section 274(e)(2)(B) and §1.274–9(b).
(B)Entertainment defined.Forpur-
poses of paragraph (g)(14)(iii) of this
section,entertainmentis defined in
§1.274–2(b)(1).
*****
Par. 3. Section 1.274–9 is added to read
as follows:
§1.274–9 Entertainment provided to
specified individuals.
(a)In general.Nodeductionisallowed
for expenses for entertainment provided to
a specified individual (as defined in para-
graph (b) of this section) except to the ex-
tent that the expenses do not exceed the
amount of the expenses treated as compen-
sation to the specifiedindividual, as pro-
vided in section 274(e)(2)(B) and (9) and
§1.274–10. The amount disallowed is re-
duced by any amount that the specified in-
dividual reimburses a taxpayer for the en-
tertainment.
(b)Specified individual defined.(1)A
specified individual is an individual who
is subject to section 16(a) of the Securities
Act of 1934 with respect to the taxpayer, or
an individual who would be subject to sec-
tion 16(a) if the taxpayer were an issuer of
equity securities referred to in that section.
Thus, for example, a specified individual
is an officer, director, or more than 10 per-
cent owner of a corporation taxed under
subchapter C or subchapter S, or a personal
service corporation. A specified individ-
ual includes every individual who—
(i) Is the direct or indirect beneficial
owner of more than 10 percent of any class
of any registered equity (other than an ex-
empted security);
(ii) Is a director or officer of the issuer
of the security;
(iii) Would be the direct or indirect ben-
eficial owner of more than 10 percent of
any class of a registered security if the tax-
August 6, 20073392007–32 I.R.B.

payer were an issuer of equity securities;
or
(iv) Is comparable to an officer or direc-
tor of an issuer of equity securities.
(2) For partnership purposes, a speci-
fied individual includes any partner that
holds more than a 10 percent equity inter-
est in the partnership, or any general part-
ner, officer, or managing partner of a part-
nership.
(3) For purposes of this section,offi-
cerhas the same meaning as in 17 C.F.R.
§240.16a–1(f).
(4) A specified individual includes a di-
rector or officer of a tax-exempt entity.
(5) A specified individual of a taxpayer
includes a specified individual of a party
related to the taxpayer within the meaning
of section 267(b) or section 707(b).
(6) For purposes of section 274(a), a
specified individualis treated as the recip-
ient of entertainment provided to a spouse
or family member of the specified individ-
ual or to another individual because of the
relationship of the spouse, family mem-
ber or other individual to the specified in-
dividual. Thus, expenses allocable to en-
tertainment provided to the spouse, family
member, or other individual are attributed
to the specified individual for purposes of
determining the amount of disallowed ex-
penses.
(c)Entertainment use of aircraft by
specified individuals. For rules relating to
entertainment use of aircraft by specified
individuals, see §1.274–10.
(d)Effective/applicability date.This
section applies to taxable years beginning
after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Par. 4. Section 1.274–10 is added to
read as follows:
§1.274–10 Special rules for aircraft used
for entertainment.
(a)Use of an aircraft for entertain-
ment—(1)In general. Under section
274(a) and this section, no deduction
otherwise allowable under chapter 1 is
allowed for expenses for the use of a tax-
payer-provided aircraft for entertainment,
except as provided in paragraph (a)(2) of
this section.
(2)Exceptions—(i)In general. Para-
graph (a)(1) of this section does not apply
to deductions for expenses for business en-
tertainment air travel or to deductions for
expenses that meet the exceptions of sec-
tion 274(e), §1.274–2(f), and this section.
(ii)Expenses treated as compensa-
tion—(A)Employees. Section 274(a),
paragraphs (a) through (d) of §1.274–2,
and paragraph (a)(1) of this section, in
accordance with section 274(e)(2), do not
apply (in the case of specified individuals,
as provided in paragraph (a)(2)(ii)(C) of
this section), to expenses for entertain-
ment air travel provided to employees to
the extent that a taxpayer—
(1) Properly treats the expenses with re-
spect to the recipient of entertainment as
compensation to an employee under chap-
ter 1 and as wages to the employee for pur-
poses of chapter 24; and
(2) Includes the proper amount in the
employee’s income under §1.61–21.
(B)Persons who are not employees.
Section 274(a), paragraphs (a) through
(e) of §1.274–2, and paragraph (a)(1)
of this section, in accordance with sec-
tion 274(e)(9), do not apply (in the case
of specified individuals, as provided in
paragraph (a)(2)(ii)(C) of this section), to
expenses for entertainment air travel pro-
vided to persons who are not employees
to the extent the expenses are includible in
the income of those persons. This excep-
tion does not apply to any amount paid or
incurred by the taxpayer that is required to
be included in any information return filed
by the taxpayer under part III of subchap-
ter A of chapter 61 and is not so included.
(C)Specified individuals. Section
274(a) and paragraphs (a) through (d)
of §1.274–2, in accordance with section
274(e)(2)(B),donotapplytoexpenses
for entertainment air travel of a specified
individual to the extent that the expenses
do not exceed the sum of—
(1) The amount treatedas compensation
under paragraph (a)(2)(ii)(A) of this sec-
tion or reported as income under paragraph
(a)(2)(ii)(B) of this section to the specified
individual; and
(2) Any amount the specified individual
reimburses the taxpayer.
(b)Definitions. The definitions in this
paragraph (b) apply for purposes of this
section.
(1)Entertainment. For the definition
of entertainment for purposes of this sec-
tion, see §1.274–2(b)(1). Entertainment
does not include personal travel that is not
for entertainment purposes. For example,
travel to attend a family member’s funeral
is not entertainment.
(2)
Entertainment air travel.Entertain-
ment air travel is any travel aboard a tax-
payer-provided aircraft for entertainment
purposes.
(3)Business entertainment air travel.
Business entertainment air travel is any
entertainment air travel aboard a tax-
payer-provided aircraft that is directly
related to the active conduct of the tax-
payer’s trade or business or related to an
expenditure directly preceding or follow-
ing a substantial andbona fidebusiness
discussion and associated with the active
conduct of the taxpayer’s trade or busi-
ness. See §1.274–2(a)(1)(i) and (ii). Air
travel is not business entertainment air
travel merely because a taxpayer-provided
aircraft is used for the travel as a result
of abona fidesecurity concern under
§1.132–5(m).
(4)Taxpayer-provided aircraft.Atax-
payer-provided aircraft is any aircraft
owned by, leased to, or chartered to, a tax-
payer or any party related to the taxpayer
(within the meaning of section 267(b) or
section 707(b)).
(5)Specified individual. For rules relat-
ing to the definition of a specified individ-
ual, see §1.274–9.
(c)Amount disallowed. The amount
disallowed under this section for an enter-
tainment flight by a specified individual
is the amount of expenses allocable to
the entertainment flight of the specified
individual under paragraph (e)(2)(ii)(D),
(e)(3)(ii), or (f)(3) of this section, reduced
(but not below zero) by the amount the
taxpayer treats as compensation under
paragraph (a)(2)(ii)(A) of this section
or reports as income under paragraph
(a)(2)(ii)(B) of this section to the specified
individual, plus any amount the specified
individual reimburses the taxpayer.
(d)Expenses taken into account under
this section—(1)Definition of expenses.In
determining the amount of expenses taken
into account under this section, a taxpayer
must take into account all of the expenses
of operating the aircraft, including all fixed
and variable expenses the taxpayer deducts
in the taxable year. These expenses in-
clude, but are not limited to, salaries for
pilots, maintenance personnel, and other
personnel assigned to the aircraft; meal
and lodging expenses of flight personnel;
take-off and landing fees; costs for main-
2007–32 I.R.B.340August 6, 2007

tenance flights; costs of on-board refresh-
ments, amenities and gifts; hangar fees (at
home or away); management fees; costs of
fuel, tires, maintenance, insurance, regis-
tration, certificate of title, inspection, and
depreciation; and all costs paid or incurred
for aircraft leased, or chartered, to or by the
taxpayer.
(2)Leases or charters to third parties.
Expenses allocable to a lease or charter of
a taxpayer’s aircraft to an unrelated third-
party in abona-fidebusiness transaction
for adequate and full consideration are not
taken into account for purposes of the def-
inition of expenses in paragraph (d)(1) of
this section. Only expenses allocable to
the charter period are not taken into ac-
count under this paragraph (d)(2).
(3)Straight-line method permitted for
determining depreciation disallowance
underthissection—(i)In general.Inlieu
of the amount of depreciation deducted
in the taxable year, solely for purposes
of paragraph (d)(1) of this section, a tax-
payer may elect to treat as its depreciation
deduction the amount that would result
from using the straight-line method of
depreciation over the class life (as de-
fined by section 168(g)(2) and taking
into account the applicable convention
under section 168(d)) of an aircraft, al-
though the taxpayer uses another method-
ology to calculate depreciation for the
aircraft under other sections of the Inter-
nal Revenue Code (for example, section
168). If the property is qualified property
or 50-percent bonus depreciation prop-
erty under section 168(k), qualified New
York Liberty Zone property under section
1400L(b), or qualified Gulf Opportunity
Zone property under section 1400N(d), de-
preciation for purposes of this straight-line
election is determined on the unadjusted
depreciable basis of the property. For pur-
poses of this section, a taxpayer that elects
to use the straight-line method and class
life under this paragraph (d)(3) for any
aircraft it operates must use that method
for all taxpayer-provided aircraft it oper-
ates and must continue to use the method
for the entire period the taxpayer uses any
taxpayer-provided aircraft.
(ii)Aircraft placed in service in earlier
taxable years. If the taxpayer elects to use
this paragraph (d)(3) with respect to air-
craft placed in service in taxable years be-
fore the current taxable year, the amount
of depreciation is determined by apply-
ing the straight-line method of deprecia-
tion to the original cost (or, for property
acquired in an exchange to which section
1031 applies, the basis of the aircraft as de-
termined under section 1031(d)) and over
the class life (taking into account the ap-
plicable convention under section 168(d))
of the aircraft as though the taxpayer used
that methodology from the year the aircraft
was placed in service.
(iii)Manner of making and revoking
election. A taxpayer makes the election
under this paragraph (d)(3) by filing an
income tax return for the taxable year
that determines the taxpayer’s expenses
for purposes of paragraph (d)(1) of this
section by including depreciation as de-
termined under this paragraph (d)(3). An
election may be revoked only for com-
pelling circumstances upon consent of the
Commissioner by private letter ruling.
(4)Aggregation of aircraft—(i)In gen-
eral. A taxpayer may aggregate the ex-
penses of aircraft of similar cost profiles
for purposes of calculating disallowed ex-
penses under paragraph (c) of this section.
(ii)Similar cost profiles. Aircraft are of
similar cost profiles if their operating costs
per mile or per hour of flight are compara-
ble. Aircraft must have the same engine
type (jet or propeller) and the same num-
ber of engines to have similar cost profiles.
Other factors to be considered in determin-
ing whether aircraft have similar cost pro-
files include, but are not limited to, pay-
load, passenger capacity, fuel consumption
rate, age, maintenance costs, and deprecia-
ble basis.
(e)Allocation of expenses—(1)Gen-
eral rule. For purposes of determining
the expenses allocated to entertainment
air travel of a specified individual under
paragraph (a)(2)(ii)(C) of this section, a
taxpayer must use either the occupied
seat hours or miles method of paragraph
(e)(2) of this section or the flight-by-flight
method of paragraph (e)(3) of this section.
A taxpayer must use the chosen method
for all flights of all aircraft for the taxable
year.
(2)Occupied seat hours or miles
method—(i)In general. The occupied
seat hours or miles method determines
the amount of expenses allocated to a
particular entertainment flight of a speci-
fied individual based on the occupied seat
hours or miles for an aircraft for the tax-
able year. Under this method, a taxpayer
may choose to use either occupied seat
hours or miles for the taxable year to de-
termine the amount of expenses allocated
to entertainment flights of specified indi-
viduals, but must use occupied seat hours
or miles consistently for all flights for the
taxable year.
(ii)Computation of the occupied seat
hours or miles method. The amount of ex-
penses allocated to an entertainment flight
taken by a specified individual is deter-
mined under the occupied seat hours or
miles method by—
(A) Determining the total expenses for
the year under paragraph (d)(1) of this sec-
tion for the aircraft or group of aircraft (as
determined under paragraph (d)(4) of this
section), as applicable;
(B) Determining the total number of oc-
cupied seat hours or miles for the taxable
year for the aircraft or group of aircraft by
totaling the occupied seat hours or miles
of all flights in the taxable year flown by
the aircraft or group ofaircraft, as applica-
ble. The occupied seat hours or miles for a
flight is the number of hours or miles flown
for the flight multiplied by the number of
seats occupied on that flight. For example,
a flight of six hours with three passengers
results in 18 occupied seat hours;
(C) Determining the cost per occupied
seat hour or mile for the aircraft or group
of aircraft, as applicable, by dividing the
total expenses in paragraph (e)(2)(ii)(A)
of this section by the total number of oc-
cupied seat hours or miles determined in
paragraph (e)(2)(ii)(B) of this section; and
(D) Determining the amount of ex-
penses allocated to an entertainment flight
taken by a specified individual by mul-
tiplying the number of hours or miles of
the flight by the cost per occupied hour or
mile for that aircraft or group of aircraft,
as applicable, as determined in paragraph
(e)(2)(ii)(C) of this section.
(iii)Allocation of expenses of multi-
leg trips involving both business and en-
tertainment legs. A taxpayer that uses
the occupied seat hours or miles alloca-
tion method must allocate the expenses of
a trip by a specified individual that in-
volves at least one segment for business
and one segment for entertainment pur-
poses between the business travel and the
entertainment travel unless none of the ex-
penses for the entertainment segment are
disallowed. The entertainment cost of a
multi-leg trip is the total cost of the flights
August 6, 20073412007–32 I.R.B.

(by occupied seat hours or miles) over the
cost of the flights that would have been
taken without the entertainment segment
or segments.
(iv)Examples. The following examples
illustrate the provisions of this paragraph
(e)(2):
Example 1. (i) A taxpayer-provided aircraft is
used for Flights 1, 2, and 3, of 5 hours, 5 hours, and
4 hours, respectively, during the Taxpayer’s taxable
year. On Flight 1, there are four passengers, none of
whom are specified individuals. On Flight 2, passen-
gers A and B are specified individuals traveling for
entertainment purposes and passengers C and D are
not specified individuals. Taxpayer treats $1,200 as
compensation to A, and B reimburses Taxpayer $500.
On Flight 3, all four passengers (A, B, E, and F) are
specified individuals traveling for entertainment pur-
poses. The Taxpayer treats $1,300 each as compensa-
tion to A, B, E, and F. Taxpayer incurs $56,000 in ex-
penses for the operation of the aircraft for the taxable
year. The aircraft is operated for 56 occupied seat
hours for the period (four passengers times 5 hours
or 20 occupied seat hours for Flight 1, plus four pas-
sengers times 5 hours or 20 occupied seat hours for
Flight 2, plus four passengers times 4 hours or 16 oc-
cupied seat hours for Flight 3). The cost per occupied
seat hour is $1,000 ($56,000/56 hours).
(ii) For purposes of determining the amount dis-
allowed (to the extent not treated as compensation or
reimbursed), $5,000 ($1,000 X 5 hours) each is allo-
cable with respect to A and B for Flight 2, and $4,000
($1,000 X 4 hours) each is allocable with respect to
A, B, E, and F for Flight 3.
(iii) For Flight 2, because Taxpayer treats $1,200
as compensation to A, and B reimburses Taxpayer
$500, Taxpayer may deduct $1,700 of the cost of
Flight 2 allocable to A and B. The deduction for the
remaining $8,300 cost allocable to entertainment pro-
vided to A and B on Flight 2 is disallowed (with re-
spect to A, $5,000 less the $1,200 treated as compen-
sation, and with respect to B, $5,000 less the $500
reimbursed).
(iv) For Flight 3, because Taxpayer treats $1,300
each as compensation to A, B, E, and F, Taxpayer may
deduct $5,200 of the cost of Flight 3. The deduction
for the remaining $10,800 cost allocable to entertain-
ment provided to A, B, E, and F on Flight 3 is disal-
lowed ($4,000 less the $1,300 treated as compensa-
tion to each specified individual).
Example 2. (i) G, a specified individual, is the
sole passenger on an aircraft on a two-hour flight
from City A to City B for business purposes. G then
travels on a three-hour flight from City B to City C
for entertainment purposes, and returns from City C
to City A on a four-hour flight. G’s flights have re-
sulted in nine occupied seat hours (two for the first
segment, plus three for the second segment, plus four
for the third segment). If G had returned directly to
City A from City B, the flights would have resulted
in four occupied seat hours.
(ii) Under paragraph (e)(2)(iii) of this section, five
occupied seat hours are allocable with respect to G’s
entertainment (nine total occupied seat hours minus
the four occupied seat miles that would have resulted
if the travel had been a roundtrip business trip with-
out the entertainment segment). If Taxpayer’s cost
per occupied seat hour for the year is $1,000, $5,000
is allocated with respect to G’s entertainment use of
the aircraft ($1,000 X five occupied seat hours). The
amount disallowed is $5,000 minus any amount the
Taxpayer treats as compensation to G or that G reim-
burses Taxpayer.
(3)Flight-by-flight method—(i)In gen-
eral. The flight-by-flight method deter-
mines the amount of expenses allocated to
a particular entertainment flight of a spec-
ified individual on a flight-by-flight basis
by allocating expenses toindividual flights
and then to a specified individual traveling
for entertainment purposes on that flight.
(ii)Allocation of expenses. A taxpayer
using the flight-by-flight method must ag-
gregate all expenses (as defined in para-
graph (d)(1) of this section) for the taxable
year for the aircraft or group of aircraft
(as determined under paragraph (d)(4) of
this section), as applicable, and divide the
total amount of expenses by the number
of flight hours or miles for the taxable
year for that aircraft or group of aircraft,
as applicable, to determine the cost per
hour or mile. Expenses are allocated to
each flight by multiplying the number of
miles or hours for the flight by the cost
perhourormile. Theexpensesforthe
flight are then allocated to the passengers
on the flight per capita. Thus, if three of
five passengers are traveling for business
and two passengers are specified individ-
uals traveling for entertainment purposes,
and the total expense allocated to the flight
is $10,000, the expense allocable to each
specified individual is $2,000.
(f)Special rules—(1)Determination of
basis. If an amount disallowed is alloca-
ble to depreciation under paragraph (f)(2)
of this section, the rules of §1.274–7 ap-
ply. In that case, the basis of an aircraft is
not reduced for the amount of depreciation
disallowed under this section.
(2)Pro rata disallowance. The expense
disallowance provisions of this section are
applied on apro ratabasis to all of the
expenses disallowed by this section.
(3)Deadhead flights. (i) For purposes
of this section, an aircraft returning with-
out passengers after discharging passen-
gers or flying without passengers to pick
up passengers (deadheading) is treated as
having the same number and character of
passengers as the leg of the trip on which
passengers are aboard for purposes of the
allocation of expenses under paragraphs
(e)(2) or (e)(3) of this section. For exam-
ple, when an aircraft travels from point A
to point B and then back to point A, and
one of the legs is a deadhead flight, for
determination of disallowed expenses, the
aircraft is treated as having made both legs
of the trip with the same passengers aboard
for the same purposes.
(ii) When a deadhead flight does not
occur within a roundtrip flight, but oc-
curs between two unrelated flights involv-
ing more than two destinations (such as an
occupied flight from point A to point B,
followed by a deadhead flight from point
BtopointC,andthenanoccupiedflight
from point C to point A), the allocation of
passengers and expenses to the deadhead
flight occurring between the two occupied
trips is based on the number of passengers
on board for the two occupied legs of the
flight, the character of the passengers on
board (entertainment or nonentertainment
purpose) and the length in hours or miles
of the two occupied legs of the flight.
(g)Effective/applicability date.This
section applies to taxable years beginning
after the date these regulations are pub-
lished as final regulations in theFederal
Register.
Kevin M. Brown,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on June 14, 2007,
8:45 a.m., and published in the issue of the Federal Register
for June 15, 2007, 72 F.R. 33169)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
and Notice of Public Hearing
Exclusions From Gross Income
of Foreign Corporations
REG–138707–06
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions and notice of public hearing.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
(T.D. 9332) that modify final regulations
issued under section 883(a) and (c) of the
2007–32 I.R.B.342August 6, 2007

Internal Revenue Code (Code), relating
to income derived by foreign corpora-
tions from the international operation of
ships or aircraft. Those regulations revise
§1.883–3 of the final regulations, relating
to the treatment of controlled foreign cor-
porations, following the repeal of section
954(a)(4) and (f) (foreign base company
shipping provisions) by section 415 of the
American Jobs Creation Act of 2004. In
addition, those regulations provide guid-
ance for foreign corporations organized in
countries that provide an exemption from
taxation solely through an income tax con-
vention, and amend certain provisions in
the current section 883 regulations. The
text of those regulations serves as the text
of these proposed regulations. This doc-
ument also provides notice of a public
hearing on these proposed regulations.
DATES: Written and electronic comments
must be received by September 24, 2007.
Outlines of topics to be discussed at the
public hearing scheduled for Wednesday,
October 24, 2007, at 10 a.m. must be re-
ceived by Monday, September 24, 2007.
ADDRESSES: Send submissions to
CC:PA:LPD:PR(REG–138707–06),
room 5203, Internal Revenue Ser-
vice, PO Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Submis-
sions may be hand-delivered Monday
through Friday between the hours of
8a.m. and4p.m.toCC:PA:LPD:PR
(REG–138707–06), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC, or sent
electronically via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–138707–06).
FOR FURTHER INFORMATION
CONTACT: Concerning the regulations,
Patricia A. Bray, at (202) 622–3880; con-
cerning submissions of comments and/or
requests for a hearing, Kelly Banks, at
(202) 622–0392 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this notice of proposed rulemak-
ing have been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduc-
tion Act of 1995 (44 U.S.C. 3507(d)), and
pending receipt and evaluation of pub-
lic comments, approved by the Office of
Management and Budget under control
number 1545–1667.
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 collection of
information should be received by August
24, 2007.
Comments are specifically requested
concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of theInternal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden 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 start-up costs and costs of
operation, maintenance, and purchase of
service to provide information.
The collections of information in this
proposed regulation are in §§1.883–2(f),
1.883–3(c) and (d), and 1.883–4(e). This
information is required to enable a foreign
corporation to determine if it is eligible to
exclude its income from the international
operation of ships or aircraft from gross
income on its U.S. Federal income tax re-
turn. This information will also enable the
IRS to monitor compliance with the provi-
sions of the proposed regulations with re-
spect to the stock ownership requirements
of §1.883–1(c)(2), and to make a prelimi-
nary determination of whether the foreign
corporation is eligible to claim such an
exemption and is accurately reporting in-
come.
The collections of information are
mandatory. The likely respondents are
foreign corporations engaged in the in-
ternational operation of ships or aircraft
that wish to claim an exemption from
U.S. tax under section 883, and certain
of their shareholders owning (directly or
indirectly) a majority of the value of the
shares of such corporations.
Estimated total annual report-
ing/recordkeeping burden on foreign cor-
porations: 1200 hours.
The estimated annual burden per re-
spondent varies from 0 minutes to 3 hours,
depending on the circumstances of the for-
eign corporation, with an estimated aver-
age of one hour.
Estimated number of respondents:
1,200.
Estimated annual frequency of re-
sponses: once.
Estimated total annual reporting burden
on shareholders: 925 hours.
The estimated annual burden per re-
spondent varies from 1 minute to one
hour, depending on the circumstances of
the shareholder or intermediary, with an
estimated average of 30 minutes.
Estimated number of respondents:
1850.
Estimated annual frequency of share-
holder or intermediary responses: once ev-
ery three years if no information changes
andonceayearifachangeinownership
information occurs.
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 and records relating to a collec-
tion of information must be retained as
long as their contents may become mate-
rial in the administration of any internal
revenue law. Generally, tax returns and tax
return information are confidential, as re-
quired by 26 U.S.C. 6103.
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin amend 26 CFR part 1. Those
regulations amend theincome inclusion
test in §1.883–3 of the final regulations
issued in T.D. 9087, 2003–2 C.B. 781
[68 FR 51394]. Those regulations also
address a number of comments that have
August 6, 20073432007–32 I.R.B.

been received concerning other portions
of the final section 883 regulations. The
text of those regulations serves as the
text of these regulations. The preamble
to the temporary regulations explains the
temporary regulations and these proposed
regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. 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 regulations. Therefore,
a regulatory assessment is not required.
It is hereby certifiedthat the collection
of information in these regulations will
not have a significant economic impact on
a significant number of U.S. small enti-
ties. This certification is based on the fact
that these regulations apply solely to for-
eign corporations, and impose only a lim-
ited collection of information burden on
shareholders of such corporations, which
in some cases may include U.S. small en-
tities. Therefore, a Regulatory Flexibility
Analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Code,
this regulation has been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and 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 specif-
ically request comments on the clarity of
the proposed regulations and how they can
be made easier to understand. All com-
ments will be available for public inspec-
tion and copying.
A public hearing has been scheduled for
October 24, 2007, beginning at 10 a.m. in
the IRS Auditorium of the Internal Rev-
enue Building, 1111 Constitution Avenue,
NW, Washington, DC. Due to building se-
curity procedures, visitors must enter at the
Constitution Avenue entrance. In addition,
all visitors must present photo identifica-
tion to enter the building. Because of ac-
cess restrictions, visitors will not be ad-
mitted beyond the immediate entrance area
more than 30 minutes before the hearing
starts. For information about having your
name placed on the building access list to
attend the hearing, see the “FOR FUR-
THER INFORMATION CONTACT” sec-
tion of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written or electronic comments by
September 24, 2007, and an outline of the
topics to be discussed and the time devoted
to each topic (a signed original and eight
(8) copies) by September 24, 2007. A pe-
riod of 10 minutes will be allocated to each
person for making comments. An agenda
showing the scheduling of the speakers
will be prepared after the deadline for re-
ceiving outlines has passed. Copies of the
agenda will be available free of charge at
the hearing.
Drafting Information
The principal author of these proposed
regulations is Patricia A. Bray of the Of-
fice of Associate Chief Counsel (Interna-
tional). However, other personnel from the
IRS and Treasury Department participated
in their development.
*****
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 citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.883–0 is amended
by revising the entries for §§1.883–1(g)(3)
and (h)(3), 1.883–2(e)(2), 1.883–3, and
1.883–5(d) and (e) to read as follows:
§1.883–0 Outline of major topics.
*****
§1.883–1 Exclusion of income from
the international operation of ships or
aircraft.
*****
(g) * * *
(3) [The text of the proposed entry for
§1.883–1(g)(3) is the same as the text of
the entry for §1.883–1T(g)(3) published
elsewhere in this issue of the Bulletin].
*****
(h) * * *
(3) * * *
(i) through (iv) [The text of the
proposed entries for §1.883–1(h)(3)(i)
through (iv) is the same as the text of the
entries for §1.883–1T(h)(3)(i) through (iv)
published elsewhere in this issue of the
Bulletin].
*****
§1.883–2 Treatment of publicly traded
corporations.
*****
(e) * * *
(2) [The text of the proposed entry for
§1.883–2(e)(2) is the same as the text of
the entry for §1.883–2T(e)(2) published
elsewhere in this issue of the Bulletin].
*****
§1.883–3 Treatment of controlled foreign
corporations.
*****
[The text of the proposed entry for
§1.883–3 is the same as the entry for
§1.883–3T published elsewhere in this
issue of the Bulletin].
§1.883–5 Effective/applicability dates.
*****
(d) and (e) [The text of the proposed
entries for §1.883–5(d) and (e) is the same
as the text of the entries for §1.883–5T(d)
and (e) published elsewhere in this issue of
the Bulletin].
Par. 3. Section 1.883–1 is amended
by revising paragraphs (c)(3)(i)(D),
(c)(3)(i)(G), (c)(3)(i)(H), (c)(3)(i)(I),
(c)(3)(ii), (g)(1)(ix), (g)(1)(x), (g)(1)(xi),
(g)(3), (h)(1)(ii), and (h)(3) to read as fol-
lows:
§1.883–1 Exclusion of income from
the international operation of ships or
aircraft.
*****
(c) * * *
(3) * * *
(i) * * *
2007–32 I.R.B.344August 6, 2007

(D) [The text of the proposed amend-
ment to §1.883–1(c)(3)(i)(D) is the same
as the text of §1.883–1T(c)(3)(i)(D) pub-
lished elsewhere in this issue of the Bul-
letin].
*****
(G) through (I) [The text of
theproposedamendmentsto
§1.883–1(c)(3)(i)(G) through (I) is the
same as the text of §1.883–1T(c)(3)(i)(G)
through (I) published elsewhere in this
issue of the Bulletin].
(ii) [The text of the proposed amend-
ment to §1.883–1(c)(3)(ii) is the same as
the text of §1.883–1T(c)(3)(ii) published
elsewhere in this issue of the Bulletin].
*****
(g) * * *
(1) * * *
(ix) through (xi) [The text of the pro-
posed amendments to §1.883–1(g)(1)(ix)
through (xi) is the same as the text of
§1.883–1T(g)(1)(ix) through (xi) pub-
lished elsewhere in this issue of the Bul-
letin].
*****
(3) [The text of the proposed amend-
ment to §1.883–1(g)(3) is the same as the
text of §1.883–1T(g)(3) published else-
where in this issue of the Bulletin].
*****
(h) * * *
(1) * * *
(ii) [The text of the proposed amend-
ment to §1.883–1(h)(1)(ii) is the same as
the text of §1.883–1T(h)(1)(ii) published
elsewhere in this issue of the Bulletin].
(2) * * *
(3) [The text of the proposed amend-
ment to §1.883–1(h)(3) is the same as the
text of §1.883–1T(h)(3) published else-
where in this issue of the Bulletin].
*****
Par. 4. Section 1.883–2 is amended
by revising paragraphs (e)(2), (f)(3), and
(f)(4)(ii) to read as follows:
§1.883–2 Treatment of publicly–traded
corporations.
*****
(e) * * *
(2) [The text of the proposed amend-
ment to §1.883–2(e)(2) is the same as the
text of §1.883–2T(e)(2) published else-
where in this issue of the Bulletin].
(f) * * *
(3) [The text of the proposed amend-
ment to §1.883–2(f)(3) is the same as the
text of §1.883–2T(f)(3) published else-
whereinthisissueoftheBulletin].
(4) * * *
(ii) [The text of the proposed amend-
ment to §1.883–2(f)(4)(ii) is the same as
the text of §1.883–2T(f)(4)(ii) published
elsewhere in this issue of the Bulletin].
*****
Par. 5. Section 1.883–3 is revised to
read as follows:
§1.883–3 Treatment of controlled foreign
corporations.
[The text of this proposed section is the
same as the text of §1.883–3T published
elsewhere in this issue of the Bulletin].
Par. 6. Section 1.883–4 is amended
by revising paragraphs (d)(4)(i)(C),
(d)(4)(i)(D), (e)(2), and (e)(3) to read
as follows:
§1.883–4 Qualified shareholder stock
ownership test.
*****
(d) * * *
(4) * * *
(i) * * *
(C) and (D) [The text of the proposed
amendments to §1.883–4(d)(4)(i)(C)
and (D) is the same as the text of
§1.883–4T(d)(4)(i)(C) and (D) published
elsewhere in this issue of the Bulletin].
*****
(e) * * *
(2) and (3) [The text of the proposed
amendments to §1.883–4(e)(2) and (3) is
the same as the text of §1.883–4T(e)(2)
and (3) published elsewhere in this issue
of the Bulletin].
Par. 7. Section 1.883–5 is amended by
revising paragraphs (d) and (e) to read as
follows:
§1.883–5 Effective/applicability dates.
*****
(d) [The text of the proposed amend-
ment to §1.883–5(d) is the same as the
text of §1.883–5T(d) published elsewhere
in this issue of the Bulletin].
(e) [The text of the proposed amend-
ment to §1.883–5(e) is the same as the
text of §1.883–5T(e) published elsewhere
in this issue of the Bulletin].
Kevin M. Brown,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on June 22, 2007,
8:45 a.m., and published in the issue of the Federal Register
for June 25, 2007, 72 F.R. 34650)
Foundations Status of Certain
Organizations
Announcement 2007–67
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 maynot, 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 that are not private foun-
dations described in section 509(a) of the
Code) are now classified as private foun-
dations:
30815 Community Development
Corporation, Inc., Hephzibah, GA
Abdur Rahim Memorial Community
Project, Inc., Baltimore, MD
Abundance Ministries, Baton Rouge, LA
Acction, Inc., Baltimore, MD
Affordable Homes of Hampton Roads,
Inc., Chesapeake, VA
Affordable Housing Real Estate Company,
Shafter, CA
A G A P E Enterprises, Inc., Orlando, FL
Agroforestry Council International,
Galveston, TX
All About Animals, Inc., San Angelo, TX
Allan D. Wapner Community Foundation,
Ontario, CA
Allegany Council for the Arts, Inc.,
Belmont, NY
Amber Alert Foundation of Louisiana,
Baton Rouge, LA
American Bosnian Center, Hayward, CA
August 6, 20073452007–32 I.R.B.

American Children Across the Pacific,
Gardena, CA
American Southeast Asian Literary
& Educational Counseling, Inc.,
Lowell, MA
American Vietnamese Writers Artists
Association, Inc., Sacramento, CA
Americans for Child Care Fighting
Poverty a Not for Profit,
Miami Beach, FL
Angels Touch Outreach Parental Services,
San Jose, CA
Anointed Hands Ministries,
Greensboro, NC
Aparem Foundation Corporation,
Downey, CA
APEX Educational Institute, Inc.,
Rancho Cucamonga, CA
Ashley Foundation, Chicago, IL
Begin Again Ministry, Inc.,
Lynchburg, VA
Bethlehem Community Development
Center, Woodbury, NJ
Big Fun in the Son Social Service Center,
Parma, OH
Both Parents Matter, Inc., Pittsboro, NC
Boys & Girls Club of Hillsboro Texas,
Inc., Hillsboro, TX
Brookshire Health Care, Inc., Atlanta, GA
California School Employees Association
Institute for Public Education,
San Jose, CA
Campus Community Services, Inc.,
Huntington Beach, CA
Careervision, Inc., Santa Barbara, CA
CEDI, St. Louis, MO
Center for Research in Vocational
Education, Fremont, CA
Center of Excellence in Rural and
Minority Health, Inc., Columbia, SC
Changing Faces Community CFC,
Sauk Rapids, MN
Chinese-American Foundation for Youth
Enrichment, Mineola, NY
Christian Medical College Alumni
Association, Inc., Shreveport, LA
Christian Stewardship Ministries, Inc.,
Mitchellville, MD
Church of Jesus Christ Ministries,
West Mifflin, PA
Cleveland Performing Arts Ministries,
Inc., Chesterland, OH
Community Based Learning Solutions,
Coronado, CA
Community Health Initiatives Center,
Inc., Brooklyn, NY
Community Housing and Empowerment
Connection, Inc., Newark, DE
Community Resources for Growth,
Erie, PA
Community Services Enterprise,
Spanaway, WA
Community Wellness Institute, Inc.,
Pittsburgh, PA
Conscious Action, Larkspur, CA
Crying in the Wilderness Church
Ministries, Palmetto, GA
Crystal City Housing Education and
Training Corporation, Crystal City, TX
Cuda One, Harlingen, TX
Cultural Connections International, Inc.,
Bellvale, NY
Daviess County Rural Housing Finance
Corporation, Washington, IN
Delissa Development Corporation,
Natchez, MS
Deliverance Tabernacle Economic
Development, Inc., Pensacola, FL
Digital Volunteers, Inc., Washington, DC
Dolomite Royal Towers, Inc.,
Dolomite, AL
Dove Connection Ministries,
San Diego, CA
Downtown Overland Park Foundation,
Inc., Overland Park, KS
Eartha M M White Historical Museum,
Inc., Jacksonville, FL
ED4U2, Little Rock, AZ
Empowerment Services, Inc.,
New Rochelle, NY
Endless Imagination Production
Company, Incorporated,
Los Angeles, CA
Extreme Sports Philanthropy
Organization, Flint, MI
Ezras Chaveirim, Spring Valley, NY
Faith Visionary Services, Oakland, CA
Faiths Place Foundation, Chicago, IL
Family Education & Spiritual Center, Inc.,
St. Louis, MO
FCT Broken Wings, Inc.,
Oakland Park, FL
First Preferred Care, Inc., Jacksonville, FL
Foster City Reserve Police Officers
Association, Foster City, CA
Foundation for Responsible Citizenry,
Edmond, OK
Foundation for Sustainable Development
With Human Values, Inc.,
Washington, DC
Foundation to Empower Marriage, Inc.,
Winter Springs, FL
Friends Enrichment Programs, Inc.,
Huntsville, AL
Friends of Justice in Hampshire County,
Inc., Leeds, MA
Friends of the Homeless, Chicago, IL
Gberaga Community Development
Corporation, Dallas, TX
Genesis Addiction Prevention Programs,
Inc., Auburn, CA
George Washington Leadership
Foundation, Columbia, SC
Global Friendship Mission, Inc.,
Everett, WA
Global Intercultural Guide-GIG,
Olympia, WA
Good Faith Network, Inc., El Paso, TX
Good Start, Irving, TX
Gospel Music Hall of Fame Museum
Foundation, Philadelphia, PA
Gospel Testimonial Ministries, Inc.,
Birmingham, AL
Greater Faith Housing Corporation,
Buffalo, NY
Greenville Dream Center, Pelzer, SC
Grog Show, Inc., North Las Vegas, NV
Growing Season Ranch, Lyle, WA
Habakkuk Outreach Center, Inc.,
Franklin, VA
Harmony Homes, Inc.,
Bowling Green, OH
Healthy Images Producing Hope
Opportunity and Prosperity, Inc.,
Cleveland, OH
Healthyliving Foundation, Inc.,
Jupiter, FL
Help The Blind American Fund,
Incorporated, Centerport, NY
Helping Out Poverty Environments
(H.O.P.E.) Community Development
Corporation, Stockton, CA
Holy Tabernacle of Deliverance CDC,
Inc., Columbus, OH
Housing for Appalachia People, Inc.,
Jonesville, VA
In Good Hands Ministry for Creative
Arts and Spiritual Growth, Inc.,
Glen Cove, NY
Ineglect, Inc., Dickinson, TX
Inner City Excel Community Learning
Center, Leavenworth, KS
International All-Ukrainian Charitable
Foundation, Inc., Bronx, NY
International Basketball Association,
Washington, DC
International Creole & Cajun Cultural
Association, Church Point, LA
International Fibrosis Foundation, Inc.,
Little Rock, AR
International University Bremen
Foundation of America, Inc.,
Boston, MA
2007–32 I.R.B.346August 6, 2007

International Womens Fellowship,
Cary, NC
Invision Foundation, Inc., Clarkston, GA
Iry D. & Gwendolyn Herbert Life
Enrichment Center, Incorporated,
Riviera Beach, FL
Izzy Moving Dance Theatre,
Covington, LA
Jail Ministries and Outreaches, Inc.,
Palatka, FL
JC Community Services, Incorporated,
Mebane, NC
Jefferson County Junior Golf Association,
Dandridge, TN
Joy of the Lord Community, Canton, MI
JTA Community Project, Inc.,
College Park, GA
Kingdom Work Enterprise, Inc.,
Canton, OH
Kingston Regional Senior Living Corp.,
Lake Katrine, NY
Laney-Walker Safe Haven Foundation,
Inc.,Augusta,GA
LCL Reintegration Institute,
Midwest City, OK
L D M Wings of Eagles Ministries,
Graham, NC
Le Collectif Trait D Union, Inc.,
Lanham, MD
Lewis Ministries, Inc., Columbus, GA
Liberty Community Development
Corporation, Inc., Canton, MS
Life Stage Theatrical Troupe, Inc.,
Bowling Green, OH
Life Work Community Development
Center, Detroit, MI
Living Faith Outreach, Inc., Norfolk, VA
Living Running Wells of Life International
Outreach Ministries, Whittier, CA
Lofty Ideals, Inc., Florence, MS
Los Angeles Latino Diabetes Coalition,
Los Angeles, CA
L O S T Lifeline Organized Search Teams,
Clyde, OH
Low Income Family Training, Inc.,
Culver City, CA
MAC Resource & Transitional Center,
Inc.,Euclid,OH
Mahoney Research Library, Minden, LA
Marine Watch International,
San Francisco, CA
Mars Exploration Learning Center,
Isabella, PA
Medication Compliance Institute,
Lakeside, CA
Miami Dade Community Services, Inc.,
Miami, FL
Michigan City Economic Development
Foundation, Inc., Michigan City, IN
Midway Community Development
Corporation, Midway, FL
Millennium Minds, Inc., Queens, NY
Mission of Hope 2000, Inc.,
New Hyde Park, NY
M & M Education and Training Center,
Inc., Las Vegas, NV
Mount Moriah Outreach Ministries, Inc.,
Jackson, TN
Name Above All, Inc., Moncks Corner, SC
National Endowment for the Christian
Arts,Inc.,FortWashington,MD
Naturopathic Medical Association of
California, Anaheim, CA
New Beginning Group Home, Inc.,
Houston, TX
New Birth Ministries, Inc., Norfolk, VA
New Covenant Community Center, Inc.,
Bath, SC
New Foundation, Corona, CA
New Foundation Outreach Ministries,
Inc., Thibodaux, LA
Next Step Mentoring Agency,
Oklahoma City, OK
North Coast Humanities Council,
Bayside, CA
Northside Women Outreach Center,
Lake Charles, LA
Northwest Hereditary Disease Foundation,
Everett, WA
Novasia, Inc., Memphis, TN
Nu Yu Enterprises, Inc., Brookline, MA
OIC Community Revitalization,
Incorporated, Philadelphia, PA
One Hope, Fort Worth, TX
O T Transportation, Inc., Atco, NJ
Pamaque Clan of Coahuila Y Tejas
Spanish Colonial Indian Missions,
San Antonio, TX
Peace Education, Arlington, TX
People With Pride of Michigan, Inc.,
Riverside, CA
Phoenix Rising Tarot, Inc.,
Los Angeles, CA
Pilgrim House Productions, Inc.,
Los Angeles, CA
Polar Bear Communications Corporation,
Dillingham, AK
Polk County Chamber of Commerce
Foundation, Livingston, TX
Pony Angels, Inc., Carmel, CA
Power House Outreach Ministries, Inc.,
Horn Lake, MS
Prashanti Bhavan, Inc., Lake Mary, FL
Programs for Girls, Inc.,
Middleborough, MA
Project Outreach Unlimited, Inc.,
Omaha, NE
Project Youth, Inc., Lawndale, CA
Rainbow Children’s Truss, Inc.,
Jonesboro, GA
Refuge & Educational Measures
for Success & Publishing, Inc.,
Houston, TX
Renaissance Educational Services, Inc.,
San Bernardino, CA
Reproductive Counseling for Youth, Inc.,
Benowa Waters, Australia
Resistance International, Washington, DC
Retirement Clubs of New Jersey, Inc.,
Elizabeth, NJ
Rivers of Faith Ministries,
Holly Springs, MS
Rocky Boy Health Board, Box Elder, MT
Rosewood Center for Wholeness,
Columbia, SC
Sabine Community Health Center, Inc.,
Many, LA
Saginaw County Fatherhood Initiative
Organization, Saginaw, MI
Salt of the Earth Outreach Ministries,
East Hazel Crest, IL
San Diego Urban Economic Corporation,
San Diego, CA
San Jose-Silicon Valley Center for
Entrepreneurial Development,
San Jose, CA
Saphires House, Ypsilanti, MI
Savy Education Services, Inc.,
Atlanta, GA
Send Home a Reading Experience, Inc.,
Windsor, VT
S F Pickwick, Baytown, TX
Sheila’s Wish Foundation,
Daytona Beach, FL
Show Them We Care STWC,
Potomac, MD
Skills Building Training Centers of
America, New Orleans, LA
Smile Foundation, Inc., Weatherford, TX
Southeastern Housing and Development
Corporation, Miami, FL
Southern Wis. Mounted Search and
Rescue, Mineral Point, WI
Southside Christian Charities, Inc.,
Jacksonville, FL
Street Light Ministries, Melrose, FL
Sunny Jordan Foundation, Shawnee, KS
Supporters of the Fleming County Public
Library, Flemingsburg, KY
Sword of the Spirit Drug Outreach Center,
Inc., New Orleans, LA
Tallapoosa Cornerstone, Inc.,
Tallapoosa, GA
August 6, 20073472007–32 I.R.B.

Team Verox Group, Inc., Wilmington, DE
Thompson Land Development Nonprofit
Housing Corporation, Detroit, MI
Top Hat Dancers, Inc.,
Canyon Country, CA
Trinity Liquidation Corporation, Inc.,
Cedartown, GA
Trinity Outreach, Decatur, GA
Trinity Village Foundation, Inc.,
Daphne, AL
True Fact Ministry, Altadena, CA
Trumpbours Corners Farm Museum,
Saugerties, NY
Twisted Sister, Inc., Norman, OK
Unity Foundation International,
Dayton, OH
Unity Housing Development Fund
Corporation, Rochester, NY
Universal Research Publishing &
Marketing, Inc., Southfield, MI
Uplift, Inc., Washington, DC
Upper Savannah Community Economic
Development Corp., Greenwood, SC
Valley Mission Aviation, Inc.,
Broadway, VA
Veteran Connection, Akron, OH
Vidalia Choice Childcare, Inc.,
Vidalia, LA
Village Project, Sacramento, CA
Vine City Community Outreach
Community Development Corporation,
Atlanta, GA
Vision is Now, Inc., Cincinnati, OH
Vision Properties, Bolingbrook, IL
Wayne County Enrichment & Fitness
Center, Goldsboro, NC
We Do Our Best At Recovery, Inc., 12
Steps, Baltimore, MD
Wesley Community Development
Corporation, Houston, TX
West African Health Initiatives,
Evanston, IL
White Star Horse Rescue & Rehabilitation,
Mayfield, KY
Whitestone Village Revitalization Local
Development Corp., Whitestone, NY
Woptura Medicine Society, Austin, TX
Wu-Kah-Ki Theatre Workshop,
Newark, NJ
Zero2 Foundation, Matthews, NC
Zorya, Incorporated, Cos Cob, CT
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.
Application of Section 409A
to Nonqualified Deferred
Compensation Plans;
Correction
Announcement 2007–68
AGENCY: Internal Revenue Service
(IRS), Treasury.
SUMMARY: This document contains cor-
rections to final regulations (T.D. 9321,
2007–19 I.R.B. 1123) that were published
in theFederal Registeron Tuesday, April
17, 2007 (73 FR 19234), relating to section
409A.
DATES: This correction is effective April
17, 2007.
FOR FURTHER INFORMATION
CONTACT: Stephen Tackney, (202)
622–9639 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The final regulations that are subject to
these corrections are under section 409A
of the Internal Revenue Code.
Need for Correction
As published, final regulations (T.D.
9321) contain errors that may prove mis-
leading and are in need of correction.
Correction of Publication
Accordingly, the publication of the final
regulations (T.D. 9321), which were the
subject of FR Doc. 07–1820, is corrected
as follows:
1. On page 19235, column 3, in the
preamble the paragraph heading III. the
language “Definition of Nonqualified De-
ferred Compensation Plan”, is corrected to
read “Definition of Deferral of Compensa-
tion”.
2. On page 19243, column 1, in the pre-
amble, paragraph E., the last sentence in
thefirstparagraph,thelanguage“Thefinal
regulations adopt this suggestion, so long
as the risk of forfeiture to which the stock
is subject constitutes a substantial risk of
forfeiture for purposes of section 409A.”
is corrected to read “The final regulations
adopt this suggestion.”.
3. On page 19243, column 2, paragraph
G., line 2 from the bottom of the para-
graph, the language “Q&A–7 and section
II.E. of the preamble” is corrected to read
“Q&A–7 and sections II.E. and VI.E. of
the preamble.”.
4. On page 19247, column 2, in the pre-
amble, lines 3 and 4 from the bottom of
the last paragraph, the language “limited
period of time not to exceed one year fol-
lowing the initial existence of” is corrected
to read “limited period of time not to ex-
ceed two years following the initial exis-
tence of”.
5. On page 19258, column 2, in the
preamble the tenth line from the bottom
of the column, the language “average level
ofbona fideservice” is corrected to read
“average level ofbona fideservices”.
6. On page 19264, column 1, in the pre-
amble, paragraph D., line 9 from the bot-
tom of the first paragraph, the language
“with section 409A if the service” is cor-
rected to read “with section 409A only if
the service”.
7. On page 19264, column 2, in the
preamble, paragraph D., the last sentence
of the top paragraph, the language “For a
discussion of the ability to provide for dif-
ferent times and forms of payment due to
different types of separations from service,
including separations from service due to
certain disabilities, see section VII.C. 4 of
this preamble.” is removed.
8. On page 19265, column 1, in the pre-
amble under paragraph G., the third sen-
tence of the paragraph, the language “The
final regulations clarify that for these pur-
poses, the availability of payments due
to the unforeseeable emergency under any
other nonqualified deferred compensation
plan as defined for purposes of section
409A, including plans that would be non-
qualified deferred compensation plans for
purposes of section 409A except due to the
effective date of the statute, or under any
qualified plan (including any assets avail-
able by obtaining a loan under a qualified
plan), need not be considered in determin-
2007–32 I.R.B.348August 6, 2007

ing whether an emergency is or may be re-
lieved through other means.” is corrected
to read “The final regulations clarify that
for these purposes, the availability of pay-
ments under any qualified plan (including
any amount available by obtaining a loan
under a qualified plan), or under any other
nonqualified deferred compensation plan
due to the unforeseeable emergency, in-
cluding plans that would be nonqualified
deferred compensation plans for purposes
of section 409A except due to the effective
date of the statute, need not be considered
in determining whether an emergency is or
may be relieved through other means.”.
9. On page 19265, column 1, in the pre-
amble under paragraph G., lines 1 through
5 from the bottom of the first paragraph,
the language “qualified plan, from a grand-
fathered nonqualifieddeferred compensa-
tion plan, or from another nonqualified de-
ferred compensation plan that is subject to
section 409A.” is corrected to read “qual-
ified plan, or from another nonqualified
deferred compensation plan (including a
grandfathered plan) due to the unforesee-
able emergency.”.
10. On page 19267, column 2, in the
preamble under paragraph B., lines 4 and
5 from the bottom of the column, the lan-
guage “Where the change in control event
consists of an asset purchase, the” is cor-
rected to read “Solely for purposes of this
rule, the”.
11. On page 19270, column 2, in the
preamble under paragraph A., lines 2, 3,
and 4 from the top of the paragraph, the
language “contributions, each up to the
section 402(g) dollar limit on elective de-
ferrals, are separate, additive limits and are
not” is corrected to read “contributions is
subject to two separate,additive limits and
not”.
12. On page 19272, column 1, in the
preamble, the paragraph heading of para-
graph XII., the language “Effective Date
of Final Regulations” is corrected to read
“Applicability Date of Final Regulations”.
13. On page 19272, column 2, in the
preamble under paragraph B., line 2, the
language “effective January 1, 2008. For
periods” is corrected to read “applicable
January 1, 2008. For periods”.
14. On page 19272, column 2, in the
preamble, paragraph B., line 7 from the
top of the first paragraph, the language “re-
lief for periods before the effective” is cor-
rected to read “relief for periods before the
applicability”.
15. On page 19272, column 2, in the
preamble, paragraph B., line 3 from the
top of the second paragraph, the language
“becoming effective January 1, 2008, on”
is corrected to read “becoming applicable
January 1, 2008, on”.
16. On page 19272, column 2, in the
preamble, paragraph C., line 5 from the top
of the paragraph, the language “rights is-
sued before the effective date of” is cor-
rected to read “rights issued before the ap-
plicability date of”.
17. On page 19273, column 1, in the
preamble, paragraph C., line 13 from the
top of the second paragraph, the language
“2005) or on or before the effective date”
is corrected to read “2005) or on or before
the applicability date”.
18. On page 19273, column 1, in the
preamble, paragraph C., line 16 from the
bottom of the paragraph, the language “ef-
fective date of the regulations. In” is cor-
rected to read “applicability date of the
regulations. In”.
19. On page 19273, column 2, in the
preamble, paragraph D., line 4 of the sec-
ond paragraph, the language “established
before the effective date of” is corrected to
read “established before the applicability
date of”.
20. On page 19273, column 2, in the
preamble, paragraph E., line 7 of the first
paragraph, the language “the time such
regulations were effective.” is corrected to
read “the time such regulations were appli-
cable.”.
Guy R. Traynor,
Federal Register Liaison,
Publications & Regulations Branch,
Legal Processing Division,
Associate Chief Counsel
Procedure & Administration).
(Filed by the Office of the Federal Register on July 12, 2007,
8:45 a.m., and published in the issue of the Federal Register
for July 13, 2007, 72 F.R. 38477)
August 6, 20073492007–32 I.R.B.

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.
2007–32 I.R.B.iAugust 6, 2007

Numerical Finding List
1
Bulletins 2007–27 through 2007–32
Announcements:
2007-61, 2007-28 I.R.B.84
2007-62, 2007-29 I.R.B.115
2007-63, 2007-30 I.R.B.236
2007-64, 2007-29 I.R.B.125
2007-65, 2007-30 I.R.B.236
2007-66, 2007-31 I.R.B.296
2007-67, 2007-32 I.R.B.345
2007-68, 2007-32 I.R.B.348
Notices:
2007-54, 2007-27 I.R.B.12
2007-55, 2007-27 I.R.B.13
2007-56, 2007-27 I.R.B.15
2007-57, 2007-29 I.R.B.87
2007-58, 2007-29 I.R.B.88
2007-59, 2007-30 I.R.B.135
2007-61, 2007-30 I.R.B.140
2007-62, 2007-32 I.R.B.331
Proposed Regulations:
REG-119097-05, 2007-28 I.R.B.74
REG-147171-05, 2007-32 I.R.B.334
REG-138707-06, 2007-32 I.R.B.342
REG-144540-06, 2007-31 I.R.B.296
REG-103842-07, 2007-28 I.R.B.79
Revenue Procedures:
2007-42, 2007-27 I.R.B.15
2007-43, 2007-27 I.R.B.26
2007-44, 2007-28 I.R.B.54
2007-45, 2007-29 I.R.B.89
2007-46, 2007-29 I.R.B.102
2007-47, 2007-29 I.R.B.108
2007-48, 2007-29 I.R.B.110
2007-49, 2007-30 I.R.B.141
2007-50, 2007-31 I.R.B.244
2007-51, 2007-30 I.R.B.143
2007-52, 2007-30 I.R.B.222
2007-53, 2007-30 I.R.B.233
2007-54, 2007-31 I.R.B.293
Revenue Rulings:
2007-42, 2007-28 I.R.B.44
2007-43, 2007-28 I.R.B.45
2007-44, 2007-28 I.R.B.47
2007-45, 2007-28 I.R.B.49
2007-46, 2007-30 I.R.B.126
2007-47, 2007-30 I.R.B.127
2007-48, 2007-30 I.R.B.129
2007-49, 2007-31 I.R.B.237
2007-50, 2007-32 I.R.B.311
Treasury Decisions:
9326, 2007-31 I.R.B.242
9327, 2007-28 I.R.B.50
9328, 2007-27 I.R.B.1
9329, 2007-32 I.R.B.312
9330, 2007-31 I.R.B.239
9331, 2007-32 I.R.B.298
9332, 2007-32 I.R.B.300
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin
2007–26, dated June 25, 2007.
August 6, 2007ii2007–32 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2007–27 through 2007–32
Notices:
2006-43
Modified by
T.D. 9332, 2007-32 I.R.B.300
2007-26
Modified by
Notice 2007-56, 2007-27 I.R.B.15
Proposed Regulations:
REG-109367-06
Hearing scheduled by
Ann. 2007-66, 2007-31 I.R.B.296
Revenue Procedures:
90-27
Superseded by
Rev. Proc. 2007-52, 2007-30 I.R.B.222
95-28
Superseded by
Rev. Proc. 2007-54, 2007-31 I.R.B.293
97-14
Modified and superseded by
Rev. Proc. 2007-47, 2007-29 I.R.B.108
2002-9
Modified and amplified by
Rev. Proc. 2007-48, 2007-29 I.R.B.110
Rev. Proc. 2007-53, 2007-30 I.R.B.233
2004-42
Superseded by
Notice 2007-59, 2007-30 I.R.B.135
2005-16
Modified by
Rev. Proc. 2007-44, 2007-28 I.R.B.54
2005-66
Clarified, modified, and superseded by
Rev. Proc. 2007-44, 2007-28 I.R.B.54
2006-25
Superseded by
Rev. Proc. 2007-42, 2007-27 I.R.B.15
2006-27
Modified by
Rev. Proc. 2007-49, 2007-30 I.R.B.141
2006-33
Superseded by
Rev. Proc. 2007-51, 2007-30 I.R.B.143
2006-55
Superseded by
Rev. Proc. 2007-43, 2007-27 I.R.B.26
Revenue Procedures— Continued:
2007-15
Superseded by
Rev. Proc. 2007-50, 2007-31 I.R.B.244
Revenue Rulings:
74-299
Amplified by
Rev. Rul. 2007-48, 2007-30 I.R.B.129
89-96
Amplified by
Rev. Rul. 2007-47, 2007-30 I.R.B.127
92-17
Modified by
Rev. Rul. 2007-42, 2007-28 I.R.B.44
2001-48
Modified by
T.D. 9332, 2007-32 I.R.B.300
Treasury Decisions:
9321
Corrected by
Ann. 2007-68, 2007-32 I.R.B.348
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin 2007–26, dated June 25, 2007.
2007–32 I.R.B.iiiAugust 6, 2007

August 6, 20072007–32 I.R.B.

2007–32 I.R.B.August 6, 2007

August 6, 20072007–32 I.R.B.

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