Internal Revenue Bulletin 2010-36 (PDF rendition): IRS Announcements

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Bulletin No. 201
0-36
September 7, 201
0
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. 2010–20, page 312.
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 September 2010.
Rev. Proc. 2010–30, page 316.
This procedure describes the conditions under which the Ser-
vice will not challenge a mortgage loan held by a REMIC as
other than a ”qualified mortgage” on the grounds that the mort-
gage loan fails to be principally secured by an interest in real
property following the release of a lien on an interest in real
property that secures the mortgage loan.
TAX CONVENTIONS
Announcement 2010–52, page 315.
This is a Competent Authority Agreement entered into on
July 14, 2010, by the competent authorities of the United
States of America and Belgium with respect to the taxation of
fellowship payments made to certain researchers under the
U.S.-Belgium income tax treaty and protocol.
ADMINISTRATIVE
Rev. Proc. 2010–32, page 320.
This procedure provides that if a foreign entity makes a check
the box election to be a partnership (under the reasonable as-
sumption that it has more than one owner) but then determines
it only had one owner, the original check the box election will
be treated as an election to be a disregarded entity provided
the requirements in the revenue procedure are satisfied. Simi-
larly, it also provides that if a foreign entity makes a check the
box election to be disregarded entity (under the reasonable as-
sumption that it has only one owner) but then determines it only
had more than one owner, the original check the box election
will be treated as an election to be a partnership provided the
requirements in the revenue procedure are satisfied.
Announcements of Disbarments and Suspensions begin on page 323.
Finding Lists begin on page ii.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th 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 Secre-
tary (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.
September 7, 20102010–36 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—L
ow-Income
Housing Credi
t
The adjusted a
pplicable federal short-term, mid-
term, and long
-term rates are set forth for the month
of September 2
010. See Rev. Rul. 2010-20, page
312.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of September 2010. See
Rev. Rul. 2010-20, page 312.
Section 382.—Limitation
on Net Operating Loss
Carryforwa
rds and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of September 2010. See Rev.
Rul. 2010-20, page 312.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of September 2010. See Rev. Rul. 2010-20, page
312.
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 September 2010. See Rev. Rul. 2010-20, page
312.
Section 468.—Special
Rules for Mining and Solid
Waste
Reclamation and
Closi
ng Costs
The ad
justed applicable federal short-term, mid-
term,
and long-term rates are set forth for the month
of September 2
010. See Rev. Rul. 2010-20, page
312.
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 September 2010. See
Rev. Rul. 2010-20, page 312.
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 September 2010. See Rev. Rul. 2010-20, page
312.
Section 642.
—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of September 2010. See
Rev. Rul. 2010-20, page 312.
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 September 2010. See Rev. Rul. 2010-20, page
312.
Section 84
6.—Discounted
Unpaid Los
ses Defined
The adjust
ed applicable federal short-term, mid-
term, and l
ong-term rates are set forth for the month
of Septem
ber 2010. See Rev. Rul. 2010-20, page
312.
Section 1274.
—Determi-
nation of Issu
ePriceinthe
Case of Certai
n Debt Instru-
ments Issued
for Property
(Also Section
s 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807
, 846, 1288, 7520, 7872.)
Federal rates
; adjusted federal rates;
adjusted fed
eral long-term rate and the
long-term ex
empt rate.For purposes of
sections 382
, 642, 1274, 1288, and other
sections of t
he Code, tables set forth the
rates for Se
ptember 2010.
Rev. Rul. 20
10–20
This revenu
e ruling provides various
prescribed
rates for federal income tax
purposes fo
r September 2010 (the current
month). Ta
ble 1 contains the short-term,
mid-term,
and long-term applicable fed-
eral rates
(AFR) for the current month
for purpos
es of section 1274(d) of the
Internal R
evenue Code. Table 2 contains
the short
-term, mid-term, and long-term
adjusted
applicable federal rates (ad-
justed AF
R) for the current month for
purposes
of section 1288(b). Table 3 sets
forth the
adjusted federal long-term rate
and the l
ong-term tax-exempt rate de-
scribed
in section 382(f). Table 4 contains
the appr
opriate percentages for deter-
mining t
he low-income housing credit
describ
ed in section 42(b)(1) for build-
ings pl
aced in service during the current
month.
However, under section 42(b)(2),
the app
licable percentage for non-feder-
ally su
bsidized new buildings placed in
servic
e after July 30, 2008, and before
Decem
ber 31, 2013, shall not be less than
9%. Fi
nally, Table 5 contains the federal
rate f
or determining the present value of
an ann
uity, an interest for life or for a term
of yea
rs, or a remainder or a reversionary
inte
rest for purposes of section 7520.
2010–36 I.R.B.312September 7, 2010

REV. RUL. 2010–20 TABLE 1
Applicable Federal Rates (AFR) for September 2010
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR.46%.46%.46%.46%
110% AFR
.51%.51%.51%.51%
120% AFR
.55%.55%.55%.55%
130% AFR.60%.60%.60%.60%
Mid-term
AFR1.94%1.93%1.93%1.92%
110% AFR2.13%2.12%2.11%2.11%
120% AFR2.33%2.32%2.31%2.31%
130% AFR
2.53%2.51%2.50%2.50%
150% AFR
2.92%2.90%2.89%2.88%
175% AFR
3.41%3.38%3.37%3.36%
Long-term
AFR3.66%3.63%3.61%3.60%
110% AFR4.03%3.99%3.97%3.96%
120% AFR4.41%4.36%4.34%4.32%
130% AFR4.78%4.72%4.69%4.67%
REV. RUL. 2010–20 TABLE 2
Adjusted AFR for September 2010
Period for Compounding
Ann
ual
Sem
iannual
Qua
rterly
Mon
thly
Short-term adjusted
AFR
.43%.43%.43%.43%
Mid-term adjusted AFR1.62%1.61%1.61%1.60%
Long-term adjusted
AFR
3.86%3.82%3.80%3.79%
REV. RUL. 2010–20 TABLE 3
Rates Under Section 382 for September 2010
Adjusted federal long-term rate for the current month3.86%
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.)3.99%
REV. RUL. 2010–20 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for September 2010
Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, and before December 31, 2013, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit
7.65%
Appropriate percentage for the 30% present value low-income housing credit3.28%
September 7, 20103132010–36 I.R.B.

REV. RUL. 2010–20 TABLE 5
Rate Under Section 7520 for September 2010
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 interest2.4%
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 September 2010. See Rev. Rul. 2010-20, 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 September 2010. See Rev. Rul. 2010-20, page
312.
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 September 2010. See Rev. Rul. 2010-20, page
312.
2010–36 I.R.B.314September 7, 2010

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
Belgium Research Fellowship
MAP Agreement
Announcement 2010–52
ThefollowingisacopyoftheCompe-
tent Authority Agreement entered into on
July 14, 2010, by the competent authorities
of the United States of America and Bel-
gium with respect to the taxation of fellow-
ship payments made to certain researchers
under the U.S.-Belgium income tax treaty
and protocol.
The text of the Competent Authority
Agreement is as follows:
COMPETENT AUTHORITY AGREEMENT
The competent authorities of the United States and Belgium hereby enter into the following agreement (the “Agreement”)
regarding the application of the Convention Between the Government of the United States of America and the Government of
the Kingdom of Belgium for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on
Income, and accompanying Protocol, signed at Brussels on November 27, 2006 (the “Treaty”), to fellowship payments to certain
researchers. The Agreement is entered into under paragraph 3 of Article 24 (Mutual Agreement Procedure).
It is understood that a fellowship payment to an individual who is a resident of one Contracting State (i.e., the home country) for
the purpose of carrying on research at an educational or research institution in theother Contracting State (i.e., the host country) (a
“Fellowship Payment”) may or may not be characterized ascompensation, depending on the facts and circumstances.
It is agreed that if a Fellowship Payment isproperly characterized as compensation under the domestic law of the host country, the
Fellowship Payment is covered by paragraph 2 of Article 19 (Students, Trainees, Teachers and Researchers) of the Treaty and may
be exempt from host country income tax fora period not exceeding two years if all applicable requirements are satisfied.
It also is agreed that if a Fellowship Payment is not characterized as compensation under the domestic law of the host country,
the Fellowship Payment is covered by Article 20 (Other Income) of the Treaty and may be exempt from host country income
tax if all applicable requirements are satisfied.
It is further agreed that paragraph 1(a)(iii)of Article 21(Students and Trainees) of the prior U.S.-Belgium income tax treaty, signed
at Brussels on July 9, 1970, as amended by a Protocol signed at Washington on December 31, 1987, applied to a Fellowship
Payment without regard to whether or not the Fellowship Payment was characterized as compensation.
Michael Danilack
United States Competent Authority
Sandra Knaepen
Belgian Competent Authority
Date:
Date:
September 7, 20103152010–36 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of
correct tax liability.
(Also Part I, §§ 860D, 860G, 1001; 1.860G–2,
1.1001–3.)
Rev. Proc. 2010–30
SECTION 1. PURPOSE
This revenue procedure describes the
circumstances underwhich the Internal
Revenue Service (the “Service”) will not
challenge a mortgage loan held by a real
estate mortgage investment conduit (a
“REMIC”) as other than a “qualified mort-
gage” on the grounds that the mortgage
loan fails to be principally secured by
an interest in real property for purposes
of section 860G(a)(3)(A) of the Internal
Revenue Code and § 1.860G–2(a)(8) of
the Income Tax Regulations following
a release of a lien on an interest in real
property that secures the mortgage loan.
SECTION 2.
BACKGROUND—COMMERCIAL
MORTGAGE LOANS
.01 Frequently, a single commercial
mortgage loan is secured by liens on mul-
tiple interests in real property.
.02 The terms of a commercial mort-
gage loan typically allow the borrower to
obtain a release of a lien if certain condi-
tions are satisfied. In a limited number of
cases, the borrower may obtain the release
of a lien at will. More often, a lien re-
lease is conditioned on a requirement that
the borrower pay down the principal on the
loan by a prescribed amount. If the mort-
gage loan is secured by multiple proper-
ties, the terms of the obligation may pro-
vide that certain properties may be sold
and the sale proceeds applied to pay down
the loan. In general, the payment required
must be no less than the net proceeds from
a sale of the property or no less than an
amount that is calculated by a predeter-
mined formula.
.03 In addition, the terms of the obliga-
tion may provide that, in the event of a ca-
sualty loss or a condemnation of all or a
portion of the property, the borrower may
obtain the release of the affected property
if it applies the insurance proceeds or the
condemnation award to pay down the loan.
SECTION 3. BACKGROUND —
REMICS
.01 Commercial mortgage loans are
commonly pooled andheldinREMICs,
securitization vehicles governed by sec-
tions 860A through 860G.
.02 Section 860D(a)(4) provides, in per-
tinent part, that an entity qualifies as a
REMIC only if, as of the close of the
third month beginning after the startup day
and at all times thereafter, substantially
all of the entity’s assets consist of quali-
fied mortgages and permitted investments.
This asset test is satisfied if the entity owns
no more than ade minimisamount of other
assets.See§ 1.860D–1(b)(3)(i). As a
safe harbor, the amount of assets other than
qualified mortgages and permitted invest-
ments isde minimisif the aggregate of
the adjusted bases of those assets is less
than one percent of the aggregate of the
adjusted bases of all of the entity’s assets.
Section 1.860D–1(b)(3)(ii).
.03 With limited exceptions, a mort-
gage loan is not a qualified mortgage
unless it is transferred to the REMIC on
the startup day in exchange for regular
or residual interests in the REMIC.See
section 860G(a)(3)(A)(i).
.04 The legislative history of the
REMIC provisions indicates that Congress
intended the provisions to apply only to
an entity that holds a substantially fixed
pool of real estate mortgages and related
assets and that “has no powers to vary
the composition of its mortgage assets.”
S. Rep. No. 99–313, 99
th
Cong., 2
d
Sess.
791–92, 1986–3 (Vol. 3) C.B. 791–92.
.05 Section 1.1001–3(c)(1)(i) defines a
“modification” of a debt instrument as any
alteration, including any deletion or addi-
tion, in whole or in part, of a legal right or
obligation of the issuer or holder of a debt
instrument, whether the alteration is evi-
denced by an express agreement (oral or
written), conduct of the parties, or other-
wise. Section 1.1001–3(e) governs which
modifications of debt instruments are “sig-
nificant.” Under § 1.1001–3(b), for most
federal income tax purposes, a significant
modification produces a deemed exchange
of the original debt instrument for a new
debt instrument.
.06 Under §1.860G–2(b), related rules
apply to determine REMIC qualifica-
tion. Except as specifically provided in
§1.860G–2(b)(3), if there is a significant
modification of an obligation that is held
by a REMIC, then the modified obligation
is treated as one that was newly issued in
exchange for the unmodified obligation
that it replaced.See§ 1.860G–2(b)(1).
For this purpose, the rules in § 1.1001–3(e)
determine whether a modification is “sig-
nificant.”See§ 1.860G–2(b)(2). Thus,
even if an entity initially qualifies as a
REMIC, one or more significant modifi-
cations of loans held by the entity may
terminate the entity’s qualification if the
modifications cause less than substantially
all of the entity’s assets to be qualified
mortgages.
.07 Certain loan modifications are not
significant modifications for purposes of
§ 1.860G–2(b)(1), even if the modifica-
tions are significant under § 1.1001–3.
Section 1.860G–2(b)(3) contains a list of
modifications that are expressly permitted
withoutregardtothesection1001modi-
fication rules.
SECTION 4. BACKGROUND —
PRINCIPALLY SECURED BY AN
INTEREST IN REAL PROPERTY
.01 A mortgage loan is a qualified
mortgage only if it is principally secured
by an interest in real property. Section
860G(a)(3)(A).
.02 In general, for purposes of section
860G(a)(3)(A), an obligation is principally
secured by an interest in real property
only if it satisfies the “80-percent test”
set forth in § 1.860G–2(a)(i). (Section
1.860G–2(a)(ii) contains an alternative
test.)
.03 Under the 80-percent test, an obli-
gation is principally secured by an inter-
est in real property if the fair market value
of the interest in real property securing the
obligation—
(1) Was at least equal to 80 percent of
the adjusted issue price of the obligation at
the time the obligation was originated; or
(2) Is at least equal to 80 percent of the
adjusted issue price of the obligation at the
2010–36 I.R.B.316September 7, 2010

time the sponsor contributes the obligation
to the REMIC.
.04 In the absence of a lien release or
certain other transactions that alter a legal
rightorobligationeitherofaREMICorof
the issuer of a mortgage loan that is held
by the REMIC, the mortgage loan is not
retested to determine whether the current
value of its real estate collateral still satis-
fies the principally secured test.
.05 Under § 1.860G–2(a)(8), if a
REMIC releases its lien on an interest in
real property that secures a qualified mort-
gage, the mortgage ceases to be a qualified
mortgage on the date the lien is released
unless either—
(1) The mortgage is defeased in the
manner described in § 1.860G–2(a)(8)(ii);
or
(2) The lien is released in a modifica-
tion that satisfies both of the following cri-
teria:
(i) The modification either is not a
significant modification as defined in
§ 1.860G–2(b)(2) or, under one of the
exceptions in § 1.860G–2(b)(3), is not
treated as a significant modification for
purposes of § 1.860G–2(b)(1); and
(ii) Following the modification, the
obligation continues to be principally se-
cured by an interest in real property, as
determined by § 1.860G–2(b)(7).
.06Section1.860G–2(b)(7)
provides that, for purposes of
§§ 1.860G–2(a)(8)(i), 1.860G–2(b)(3)(v),
and 1.860G–2(b)(3)(vi), an obligation
continues to be principally secured by
an interest in real property following a
transaction that alters the legal rights
of the parties only if, as of the date of
the transaction, the obligation satisfies
either paragraph (b)(7)(ii) or paragraph
(b)(7)(iii) of § 1.860G–2.
.07 An obligation satisfies
§ 1.860G–2(b)(7)(ii) if the fair market
value of the interest in real property
securing the obligation, determined as of
the date of the modification, is at least
80 percent of the adjusted issue price of
the modified obligation, determined as
of the date of the modification. If, as of
the date of the modification, the servicer
reasonably believes that the obligation
satisfies the criterion in the preceding
sentence, then the obligation is deemed to
do so. A reasonable belief does not exist if
the servicer actually knows, or has reason
to know, that the criterion is not satisfied.
For purposes of § 1.860G–2(b)(7)(ii), a
servicer must base a reasonable belief
on—
(1) A current appraisal performed by
an independent appraiser;
(2) An appraisal that was obtained in
connection with the origination of the obli-
gation and, if appropriate, that has been up-
dated for the passage of time and for any
other changes that might affect the value
of the interest in real property;
(3) The sales price of the interest in
real property in the case of a substantially
contemporary sale in which the buyer as-
sumes the seller’s obligations under the
mortgage; or
(4) Some other commercially reason-
able valuation method.
.08Anobligationsatis-
fies§1.860G–2(b)(7)(iii)if
§ 1.860G–2(b)(7)(ii) is not satisfied but
the fair market value of the interest in
real property that secures the obligation
immediately after the modification equals
or exceeds the fair market value of the
interest in real property that secured the
obligation immediately before the mod-
ification. The criterion in the preceding
sentence must be established by a current
appraisal, an original (and updated)
appraisal, or some other commercially
reasonable valuation method; and the
servicer must not actually know, or have
reason to know, that the criterion in the
preceding sentence is not satisfied.
.09 Under § 1.860G–2(a)(5), obliga-
tions secured by interests in real property
include mortgage pass-through certificates
guaranteed by GNMA, FNMA, FHLMC,
or CMHC (Canada Mortgage and Housing
Corporation) and other investment trust in-
terests that represent undivided beneficial
ownership in a pool of obligations prin-
cipally secured by interests in real prop-
erty and related assets that would be con-
sidered to be permitted investments if the
investment trust were a REMIC, provided
that the investment trust is classified as a
trust under § 301.7701–4(c) of the Proce-
dure and Administration Regulations.
.10 Under § 1.860G–2(b)(6), if a
REMIC holds as a qualified mortgage a
pass-through certificate or other invest-
ment trust interest of the type described in
§ 1.860G–2(a)(5), the modification of a
mortgage loan that backs the pass-through
certificate or other interest is not a modi-
fication of the pass-through certificate or
other interest unless the investment trust
structure was createdto avoid the prohib-
ited transaction rulesof section 860F(a).
Analogously, unless a substantial purpose
of the trust structure was to avoid the re-
strictions imposed by § 1.860G–2(a)(8)
and § 1.860G–2(b), the release of a lien
on an interest in real property that secures
an obligation held by the trust does not
cause § 1.860G–2(a)(8) automatically to
disqualify the obligation.
.11 When there are significant declines
in commercial real estate property values,
properties that secure commercial loans
may fall in value to an amount below the
80 percent threshold. The borrower may
be in default on its obligation or default
may be reasonably foreseeable. In these
instances, the servicer may work with the
borrower to avoid default.
.12 In the preamble to final regulations
published September 16, 2009 (the “Fi-
nal Regulations”), the Service noted that,
although a qualified mortgage must be
principally secured by an interest in real
property, a release pursuant to the terms
of a mortgage obligation is not a release
that disqualifies the mortgage if the mort-
gage continues to be principally secured
by real property after giving effect to any
releases, substitutions, additions, or other
alterations to the collateral. In addition,
the preamble explains that a lien release
occasioned by a default or reasonably
foreseeable default would not disqualify
a mortgage if the principally secured test
continues to be satisfied.SeeT.D. 9463,
74 FR 47436–01.
SECTION 5. SCOPE
.01 This revenue procedure applies
to a release of a lien on an interest in
real property that secures a mortgage
loan held by a REMIC in circumstances
in which §§ 1.860G–2(b)(7)(ii) and
1.860G–2(b)(7)(iii)are not satisfied. A
release of a lien that is effected by either
a grandfathered transaction described in
section 5.02 of this revenue procedure
or by a qualified pay-down transaction
described in section 5.03 of this revenue
procedure qualifies for the benefits of this
revenue procedure.
.02 A grandfathered transaction is any
release of a lien on an interest in real prop-
erty that satisfies the following two crite-
ria—
September 7, 20103172010–36 I.R.B.

(1) The lien release is not a modifica-
tion for purposes of § 1.1001–3(c) because
it occurred by operation of the terms of the
debt instrument (including a lien release
pursuant to the exercise of a unilateral op-
tion of the borrower within the meaning of
§ 1.1001–3(c)(3)); and
(2) The terms providing for the lien re-
lease are contained in a contract that was
executed no later than December 6, 2010.
.03 A “qualified pay-down transaction”
is a transaction in which a lien is released
on an interest in real property and which
includes a payment by the borrower re-
sulting in a reduction in the adjusted issue
price of the loan by a “qualified amount”
as described in section 5.04 of this revenue
procedure.
.04 A “qualified amount” is an amount
that is equal to or greater than at least one
of the following:
(1) the sum of —
(a) the net proceeds available to
the borrower from an arms-length sale of
the property to an unrelated person;
(b) the net proceeds from the re-
ceipt of a condemnation award with re-
spect to the property; and
(c) in a case to which (a) or (b)
above applies, the net proceeds from the
receipt of an insurance or tort settlement
with respect to the property;
(2) an amount that is determined under
the loan agreement and that equals or ex-
ceeds the product of —
(a) the adjusted issue price of the
obligation at the time of the lien release;
multiplied by
(b) a fraction equal to the fair mar-
ket value at origination of the released in-
terest, divided by the aggregate fair market
value at origination of all of the interests in
real property that secured the loan immedi-
ately before the lien release;
(3) the fair market value (at the time of
the transaction) of the interest in real prop-
erty the lien on which is released, plus the
amount of any tort or insurance settlement
that is expected to be, or has been, received
with respect to the property and that is not
reflected directly or indirectly in the prop-
erty’s fair market value at the time of the
transaction;
or
(4) an amount such that, immediately
after the transaction, the ratio of the ad-
justed issue price of the loan to the fair
market value of the interests in real prop-
erty securing the loan is no greater than
what that ratio was immediately before the
transaction.
.05 The term “net proceeds” for pur-
poses of section 5.04(1) of this revenue
procedure means the amount realized for
purposes of computing gain or loss under
section 1001.
.06 If, as of the date of the lien release,
the servicer reasonably believes that the
transaction satisfies one of the criteria set
forth in section 5.04(3) or 5.04(4) of this
revenue procedure, then that criterion is
deemed to be satisfied. A reasonable be-
lief does not exist, however, if the servicer
actually knows, or has reason to know, that
the criterion is not satisfied. For purposes
of this section 5.06, a reasonable belief
must be based on the information or meth-
ods described in § 1.860G–2(b)(7)(ii)(A)-
(D).
SECTION 6. APPLICATION
If a release of a lien on an interest in real
property that secures a mortgage loan held
by a REMIC satisfies the requirements of
section 5 of this revenue procedure, the
Service will not challenge the mortgage
loan’s status as a qualified mortgage on
the grounds that the loan fails to be prin-
cipally secured by an interest in real prop-
erty for purposes of section 860G(a)(3)(A)
and § 1.860G–2(a)(8)(i)(B) following the
release of the lien.
SECTION 7. EXAMPLES
The following examples illustrate the
application of this revenue procedure:
.01Example 1
(1)Facts.
(i) On a date subsequent to December 6, 2010,
BorrowerBissued a mortgage loan to lenderL.
At origination, the stated principal ofB’sloanwas
$100 million, and nine interests in real property (X
1
throughX
9
) secured the loan.Lcontributed the loan
toR, a REMIC.
(ii) At the time when the loan was originated and
the liens were created, the fair market values of these
properties were as shown in the center column below:
Real Property Interest
Fair market value at originationFair market value at lien release
X
1
$20 million
n/a
X
2
$5 million$2 million
X
3
$25 million$12.5 million
X
4
throughX
9
$60 million$39 million
(iii) Under the loan documents, in the event that
some of the real collateral suffers a casualty loss,B
may demand a release of the lien(s) on the affected
collateral but may do so only ifBpays down the loan
with the proceeds of a sale of that collateral and the
proceeds of any insurance settlement with respect to
the casualty loss.
(iv) On Date 1,Rreleased the lien onX
1
in a trans-
action that did not cause the mortgage loan issued by
Bto cease to be a qualified mortgage.
(v) Subsequent to Date 1, on Date 2, propertiesX
2
andX
3
sustained a casualty loss. Immediately prior
to the casualty, propertiesX
2
andX
3
had an aggregate
fair market value of $19.5 million. On Date 2, after
the casualty, they had a fair market value of $14.5
million.
(vi) Consistent withB’s rights under the loan doc-
uments,Bdemanded a release of the liens on proper-
tiesX
2
andX
3
to enableBto sell them. At the time the
liens on these two properties were released, the val-
ues of the various properties securing the loan were
as shown in the right-hand column in the table above.
Bdisposed of propertiesX
2
andX
3
in an arms-length
sale to an unrelated person. The net proceeds from the
sale within the meaning of section 5.05 of this rev-
enue procedure were $14 million, andBpaid down
the loan by that amount whenBreceived those pro-
ceeds. Subsequently,Breceived $5 million as an in-
surance settlement with respect to the loss suffered
by the two properties, andBpaid down the loan by
an additional $5 million when those proceeds were
received.
(2)Analysis.
(i) Under § 1.860G–2(a)(8),R’s release of the
liens on propertiesX
2
andX
3
causes the loan to
cease to be a qualified mortgage unless the release
takes place in a transaction that satisfies either para-
graph (a)(8)(i) or paragraph (a)(8)(ii) of § 1.860G–2.
The release of the liens onX
2
andX
3
does not
satisfy § 1.860G–2(a)(8)(ii) because the release
is not pursuant to a defeasance. The lien release,
however, satisfies § 1.860G–2(a)(8)(i) if the trans-
action in which it occurs meets the requirements of
§ 1.860G–2(a)(8)(i)(A) and § 1.860G–2(a)(8)(i)(B).
2010–36 I.R.B.318September 7, 2010

(ii) The transaction in which the lien was released
resulted from the exercise of an option that is unilat-
eral within the meaning of § 1.1001–3(c)(3). Thus,
the transaction is not a significant modification as de-
fined in § 1.860G–2(b)(2) and therefore is described
in § 1.860G–2(a)(8)(i)(A). In addition, however, to
satisfy § 1.860G–2(a)(8)(i)(B), the loan must con-
tinue to be principally secured by an interest in real
property as determined by § 1.860G–2(b)(7).
(iii) The release of the lien onX
2
andX
3
does
not satisfy the 80-percent test in § 1.860G–2(b)(7)(ii)
or the alternative test in § 1.860G–2(b)(7)(iii). The
loan, however, continues to be treated as principally
securedbyaninterestinrealpropertyifthisrelease
and the associated paydown of the loan are within the
scope of section 5 of this revenue procedure.
(iv) The release of the liens on propertiesX
2
and
X
3
is not part of a grandfathered transaction described
in section 5.02 of this revenue procedure becauseB
issued the loan after December 6, 2010.
(v) The release of the liens on propertiesX
2
and
X
3
, however, is within the scope of section 5.03 of this
revenue procedure if it is part of a “qualified paydown
transaction.” First, the transaction involved a release
ofalienonaninterestinrealpropertyandincluded
a payment by the borrower that resulted in a reduc-
tion in the adjusted issue price of the loan. Second,
the transaction meets the requirements of both section
5.03(4) and section 5.03(1) of this revenue procedure.
Third, the payment by the borrower to reduce the ad-
justed issue price of the loan is a “qualified amount”
as described in section 5.04(1) of this revenue proce-
dure. The qualified amount is $19 million, which is
the amount realized for purposes of computing gain
or loss under section 1001 of the Code. Thus, the
transaction satisfies the requirements of section 5.03
of this revenue procedure. Therefore, under Section
6 of this revenue procedure,the Service will not chal-
lenge the mortgage loan’s status as a qualified mort-
gage on the grounds that, following the release of the
liens, it fails to be principally secured by an interest in
real property for purposes of section 860G(a)(3)(A)
and § 1.860G–2(a)(8)(i)(B).
.02Example 2
(1)Facts.
(i) Assume the same facts as in (i) and (iv) of Ex-
ample 1. Assume further that the executed loan doc-
uments giveBa unilateral right to obtain a release
of any one or more of the properties that secure the
loan, but only ifBpays down 110 percent of the “al-
located loan amount” for the property or properties
the liens on which are being released. The loan docu-
ments define “allocated loan amount” as the propor-
tionate loan balance of the properties on which liens
are released, based on the relative appraised values of
the properties at origination of the loan.
(ii) At the time when the loan was originated and
the liens were created, the fair market values of the
nine properties securing the loan were as shown in
the center column below. The appraised values at that
time were the same.
Real Property Interest
Fair market value at originationFair market value at lien release
X
1
$20 million
n/a
X
2
$5 million$3.25 million
X
3
$25 million$16.25 million
X
4
throughX
9
$60 million$39 million
(iii) At a time when the fair market values ofX
2
throughX
9
had declined by 35%,Bexercised its right
to obtain a release of the liens onX
2
andX
3
. Immedi-
ately beforeRreleased the liens, the loan’s adjusted
issue price (within the meaning of § 1.1275–1(b)) for
federal income tax purposes was $79 million (as a re-
sult of amortization and prepayments on the loan).
The unpaid loan balance for purposes of computing
the allocated loan amount under the loan agreement
was $80 million. To obtain the lien release,Bpaid
$29,333,333 to reduce the unpaid principal on the
loan. This amount was determined as—
1.10 × $80,000,000 ×([$5,000,000 + $25,000,000] / [$5,000,000 + $25,000,000 + $60,000,000])
(i
v) Immediately before and after the lien release
and paydown, the values of propertiesX
2
through
X
9
were as shown in the right-hand column in the
ta
ble above. Thus, the aggregate fair market value
($39 million) of the interests in real property that se-
cured the loan immediately after the release of the lien
w
as less than 80 percent of the loan’s adjusted issue
price ($49,666,667). ($49,666,667 = $79,000,000 -
$29,333,333). ([39,000,000 / 49,666,667] = 78.5 per-
c
ent).
(2)Analysis.
(i) Under § 1.860G–2(a)(8),R’s release of the
l
iens on propertiesX
2
andX
3
causes the loan to cease
to be a qualified mortgage unless the release takes
place in a transaction that satisfies either paragraph
(
a)(8)(i) or paragraph (a)(8)(ii) of § 1.860G–2. The
release of the liens onX
2
andX
3
does not satisfy
§ 1.860G–2(a)(8)(ii) becauseit is not pursuant to a de-
feasance. The release of the liens onX
2
andX
3
, how-
ever, satisfies § 1.860G–2(a)(8)(i) if the transaction in
which the liens are released meets the requirements of
§ 1.860G–2(a)(8)(i)(A) and § 1.860G-(a)(8)(i)(B).
(ii) The transaction in which the liens were re-
leased resulted from the exercise of an option that
is unilateral within the meaning of § 1.1001–3(c)(3).
Thus, the transaction is not a significant modification
as defined in § 1.860G–2(b)(2) and therefore is de-
scribed in § 1.860G–2(a)(8)(i)(A). In addition, how-
ever, to satisfy § 1.860G–2(a)(8)(i)(B), the loan must
co
ntinue to be principally secured by an interest in
real property as determined by § 1.860G–2(b)(7).
(iii) The release of the liens onX
2
andX
3
does
no
t satisfy the 80-percent test in § 1.860G–2(b)(7)(ii)
or the alternative test in § 1.860G–2(b)(7)(iii). The
loan, however, continues to be treated as principally
se
cured by an interest in real property if the release
and the associated paydown of the loan are within the
scope of section 5 of this revenue procedure.
(
iv) The release of the liens on propertiesX
2
and
X
3
is not part of a grandfathered transaction described
in section 5.02 of this revenue procedure becauseB
i
ssued the loan on a date after December 6, 2010.
(v) The release of the liens on propertiesX
2
and
X
3
, however, satisfies section 5.03 of this revenue
p
rocedure if it is part of a “qualified paydown trans-
action.” First, the transaction involves a release of
a lien on an interest in real property and contains a
payment by the borrower that results in a reduction
in the adjusted issue price of the loan. Second, be-
cause the transaction is pursuant to the terms of the
loan document and is not a modification for purposes
of § 1.1001–3, the condition in section 5.03(1) of this
revenue procedure is satisfied. Third, the payment by
the borrower to reduce the adjusted issue price of the
loan is a “qualified amount” because it is not less than
the amount described in section 5.04(2) of this rev-
enue procedure. The $29,333,333 amount by which
the loan was paid down (the contractually determined
al
located loan amount) is greater than the minimum
amount of $26,333,333, which is required by section
5.04(2). ($26,333,333 = [79,000,000 × (30,000,000
/9
0,000,000)]). (The value ofX
1
at origination is
not included in the denominator becauseX
1
did not
secure the loan immediately before the lien release.)
T
hus, the transaction is a qualified paydown trans-
action within the meaning of section 5.03 of this rev-
enue procedure, and, therefore, under section 6 of this
r
evenue procedure, the Service will not challenge the
mortgage loan’s status as a qualified mortgage on the
grounds that, following the release of the liens, it fails
to continue to be principally secured by an interest in
real property for purposes of section 860G(a)(3)(A)
and § 1.860G–2(a)(8)(i)(B).
.03Example 3
(1)Facts.
(i) Assume that the facts are the same as (i) of
Example 2, except that at origination there was also a
tenth property (X
10
) securing the loan. PropertyX
10
was an “outparcel,” which had not been appraised at
the time of origination of the loan and to whichLhad
not assigned any value in underwriting the loan. The
loan documents at origination grantedBan uncondi-
tional right to demand a release of the lien onX
10
at
any time, without making any special payment on the
loan. Although the value of propertyX
10
was small
compared to propertiesX
1
throughX
9
, it was positive
at all times relevant to this example. Moreover, at the
September 7, 20103192010–36 I.R.B.

time of the lien release described below, the servicer
of the loan knew or had reason to know that the fair
market value ofX
10
had been positive at origination.
(ii) At the time when the loan was originated and
the liens were created, the fair market values of the
ten properties securing the loan were as shown in the
center column below. Except for propertyX
10
>, the
appraised values at that time were the same. Immedi-
ately before and after the lien release, the fair market
values of propertiesX
2
> throughX
10
>wereasshown
in the right-hand column below. (Except for property
X
10
>, the information in this table is the same as that
in Facts (ii) of Example 2.)
Real Property Interest
Fair market value at originationFair market value at lien release
X
1
$20 million
n/a
X
2
$5 million$3.25 million
X
3
$25 million$16.25 million
X
4
throughX
9
$60 million$39 million
X
10
Greater than zeroGreater than zero
(iii) After Date 1
,
B exercised its right to demand
arele
aseofthelienonpropertyX
10
(the outparcel).B
did not make any payment on the loan in connection
with the lien release.
(2)An
alysis.
(i) Under § 1.860G–2(a)(8),R’s release of the
lien on propertyX
10
causes the loan to cease to be a
quali
fied mortgage unless the release takes place in a
transaction that satisfies either paragraph (a)(8)(i) or
paragraph (a)(8)(ii) of § 1.860G–2. The lien release
on pr
opertyX
10
does not satisfy § 1.860G–2(a)(8)(ii)
because it is not pursuant to a defeasance. The lien
release on propertyX
10
satisfies § 1.860G–2(a)(8)(i)
only
if the transaction in which it occurs meets the
requirements of both § 1.860G–2(a)(8)(i)(A) and
§ 1.860G–2(a)(8)(i)(B).
(ii)
The transaction in which the lien was released
resulted from the exercise of an option that is unilat-
eral within the meaning of § 1.1001–3(c)(3). Thus,
the
transaction is not a significant modification as de-
fined in § 1.860G–2(b)(2) and therefore is described
in § 1.860G–2(a)(8)(i)(A). In addition, however, to
sat
isfy § 1.860G–2(a)(8)(i)(B), the loan must con-
tinue to be principally secured by an interest in real
property as determined by § 1.860G–2(b)(7).
(i
ii) The release of the lien onX
10
does not satisfy
the 80-percent test in § 1.860G–2(b)(7)(ii) or the al-
ternative test in § 1.860G–2(b)(7)(iii).
(i
v) The unilateral right to release the lien on
propertyX
10
without paying down the loan is not a
grandfathered transaction described in section 5.02
of
this revenue procedure becauseBissued the loan
after December 6, 2010.
(v) The release of the lien on propertyX
10
is
wi
thin the scope of section 5.03 of this revenue
procedure only if it is pursuant to a “qualified pay-
down transaction.” Under the loan documents, the
a
llocated loan amount of propertyX
10
may be zero,
but that amount does not satisfy section 5.04(2) of
this revenue procedure. Although propertyX
10
was
a
ssigned no value for underwriting purposes, the ser-
vicer knew or had reason to know that, at origination,
it had a value greater than $0. Therefore, the amount
r
equired by section 5.04(2) of this revenue procedure
is greater than zero.
(vi) Because the transaction does not meet
the requirements either of section 5 of this rev-
enue procedure or of § 1.860G–2(b)(7)(ii)-(iii),
§ 1.860G–2(a)(8)(i)(B) is not satisfied, and
§ 1.860G-(a)(8) causes the loan to cease being a qual-
ified mortgage on the date that the lien is released.
SECTION 8. EFFECTIVE DATE
This revenue procedure applies to re-
leases of liens on interests in real property
securing mortgage loans held by REMICs
that are effected on or after September 16,
2009.
SECTION 9. DRAFTING
INFORMATION
The
principal author of this revenue
pro
cedure is Richard LaFalce of the Of-
fic
e of Associate Chief Counsel (Financial
Ins
titutions and Products). For further
inf
ormation, contact Mr. LaFalce at (202)
62
2–3930 (not a toll-free call).
26
CFR 601.105: Examination of returns and claims
fo
r refund, credit or abatement; determination of
co
rrect tax liability.
(A
lso Part I, §§ 301.7701–1, 301.7701–2,
30
1.7701–3.)
R
ev. Proc. 2010–32
SECTION 1. PURPOSE
The Treasury Department and the In-
ternal Revenue Service (IRS) have be-
come aware that taxpayers are concerned
about the validity of elections made by
certain foreign eligible entities under
§ 301.7701–3(c) of the Procedure and Ad-
ministration Regulations to be classified
for federal tax purposes as a partnership or
disregarded as an entity separate from its
owner (a disregarded entity). The Treasury
Department and IRS understand that these
concerns arise due to uncertainty regarding
the number of owners for federal tax pur-
poses of the foreign eligible entity on the
effective date of the election. To alleviate
these concerns and simplify tax adminis-
tration, this revenue procedure provides
that, if the requirements of this revenue
procedure are satisfied, the IRS will treat
an election under § 301.7701–3(c) to
classify a foreign eligible entity that is a
qualified entity (as defined in section 3.02
of this revenue procedure) as a partnership
ordisregardedentityasanelectiontobe
treated as a partnership or disregarded
entity (as appropriate) rather than as an
association taxable as a corporation.
SECTION 2. BACKGROUND
.01 Section 301.7701–1(a)(1) states that
the Internal Revenue Code (Code) pre-
scribes the classification of various organi-
zations for federal tax purposes. Whether
an organization is an entity separate from
its owners for federal tax purposes is a mat-
ter of federal tax law and does not depend
on whether the organization is recognized
as an entity under local law.
.02 Section 301.7701–1(b) provides
that the classification of organizations that
are recognized as separate entities is deter-
mined under §§ 301.7701–2, 301.7701–3,
and 301.7701–4 unless a provision of the
Code provides for special treatment of that
organization.
.03 Section 301.7701–2(a) defines the
term “business entity” as any entity recog-
nized for federal tax purposes (including
an entity with a single owner that may be
disregarded as an entity separate from its
owner under § 301.7701–3 (“a disregarded
entity”)) that is not properly classified as a
trust under § 301.7701–4 or otherwise sub-
ject to special treatment under the Code. A
business entity with two or more members
is classified for federal tax purposes as ei-
ther a corporation or a partnership. A busi-
ness entity with only one owner is classi-
2010–36 I.R.B.320September 7, 2010

fied as a corporation or is disregarded; if
the entity is disregarded, its activities are
treated in the same manner as a sole propri-
etorship, branch, or division of the owner.
.04 Section 301.7701–3(a) provides
that a business entity that is not classified
as a corporation under § 301.7701–2(b)(1),
(3), (4), (5), (6), (7), or (8) (an eligible
entity) can elect its classification for fed-
eral tax purposes. An eligible entity with
at least two members can elect to be clas-
sified as either an association (and thus a
corporation under § 301.7701–2(b)(2)) or
a partnership, and an eligible entity with a
single owner can elect to be classified as
an association or to be disregarded as an
entity separate from its owner. Elections
are necessary only if an eligible entity
does not want its default classification or
if an eligible entity chooses to change its
classification.
.05 Section 301.7701–3(b)(2)(i) pro-
vides that, except for certain existing
entities described in § 301.7701–3(b)(3),
unless a foreign eligible entity elects oth-
erwise, the entity is: (A) a partnership if it
has two or more members and at least one
member does not have limited liability;
(B) an association if all members have
limited liability; or (C) disregarded as an
entity separate from its owner if it has a
single member that does not have limited
liability.
.06 Section 301.7701–3(c)(1)(i) pro-
vides that an eligible entity may elect to
be classified other than as provided under
§ 301.7701–3(b) by filing Form 8832,
Entity Classification Election,withthe
appropriate IRS Service Center. Under
§ 301.7701–3(c)(1)(iii), this election will
be effective on the date specified by the
entity on Form 8832 or on the date filed
if no such date is specified on the elec-
tion form. The effective date specified on
Form 8832 cannot be more than 75 days
prior to the date on which the election is
filed and cannot be more than 12 months
after the date on which the election is filed.
.07 Section 301.7701–3(c)(1)(ii) pro-
vides that an eligible entity required to file
a federal tax or information return for the
taxable year for which an election is made
must attach a copy of its Form 8832 to its
federal tax or information return for that
year. If the entity is not required to file a
return for that year, a copy of its Form 8832
must be attached to the federal income tax
or information return of any direct or in-
direct owner of the entity for the taxable
year of the owner that includes the date on
which the election was effective.
.08 Section 301.7701–3(c)(1)(iv) pro-
vides in part that, if an eligible en-
tity makes an election under paragraph
(c)(1)(i) of this section to change its classi-
fication(otherthananelectionmadebyan
existing entity to change its classification
as of the effective date of this section), the
entity cannot change its classification by
election again during the 60 months suc-
ceeding the effective date of the election.
Anelectionbyanewlyformedeligible
entity that is effective on the date of for-
mation is not considered a change for
purposes of this paragraph (c)(1)(iv).
.09 Section 301.7701–3(c)(2)(i) pro-
vides that an election made under
§301.7701–3(c)(1)(i) of this section must
be signed by: (A) each member of the
electing entity who is an owner at the time
the election is filed; or (B) any officer,
manager, or member of the electing en-
tity who is authorized (under local law or
the entity’s organizational documents) to
make the election and who represents to
having such authorization under penalties
of perjury.
SECTION 3. SCOPE
.01In General. This revenue procedure
provides guidance onthe classification for
federal tax purposes of a business entity
that is a qualified entity (as defined in sec-
tion 3.02 of this revenue procedure) and is
in lieu of the letter ruling process ordinar-
ilyusedtoobtainreliefforalatechange
of entity classification election filed pur-
suant to §§ 301.7701–3(c), 301.9100–1,
and 301.9100–3. Accordingly, user fees
do not apply to corrective actions under
this revenue procedure.
.02Qualified Entity. For purpose of this
revenue procedure, a business entity is a
“qualified entity” if the following condi-
tions are satisfied:
(1) The business entity is an eligible
entity under § 301.7701–3(a);
(2) The business entity is foreign un-
der § 301.7701–5(a);
(3) The classification of the busi-
ness entity, either by default under
§ 301.7701–3(b)(2)(i)(B) for a newly
formed or newly relevant eligible entity, or
by election under § 301.7701–3(c) for an
existing relevant entity, would be or was
an association taxable as a corporation;
(4) Aspermittedunder
§301.7701–3(c), the business entity filed
an otherwise valid Form 8832 electing to
be treated for federal tax purposes,
(a) As a partnership based on the
reasonable assumption that it had two or
more owners as of the effective date of the
election; or
(b) As a disregarded entity based
on the reasonable assumption that it had a
single owner as of the effective date of the
election;
(5) For federal tax purposes, either:
(a) The business entity and its ac-
tual and purported owners (or owner) have
treated the entity consistently with the
election on the otherwise valid Form 8832
on all filed information and tax returns; or
(b) No information or tax returns
have been required to be filed since the
effective date for the election made on the
otherwise valid Form 8832; and
(6) The period of limitations on as-
sessments (as established under section
6501(a) of the Code) has not ended for
any taxable year of the business entity or
its actual and purported owners (or owner)
affected by the election made on the oth-
erwise valid Form 8832.
.03Entities That Fail to Qualify for Re-
lief Under This Revenue Procedure.
A business entity that does not qual-
ify for relief under this revenue procedure
may request relief through the letter rul-
ing process in accordance with Rev. Proc.
2010–1, 2010–1 I.R.B. 1 (or its successor).
SECTION 4. APPLICATION
.01 If a qualified entity files an other-
wise valid Form 8832 to be classified as a
partnership for federal tax purposes but it
is later determined that the qualified entity
had a single owner for federal tax purposes
as of the effective date of the election, the
IRS will treat the Form 8832 as an election
to classify the qualified entity as a disre-
garded entity for federal tax purposes pro-
vided that:
(1) The qualified entity’s actual single
owner and purported owners as of the ef-
fective date of the election file original or
amended returns consistent with the treat-
ment of the entity as a disregarded entity
for any taxable year that would have been
affected if the election had been made to
September 7, 20103212010–36 I.R.B.

treat the qualified entity as a disregarded
entity for federal tax purposes;
(2) All required amended returns are
filed before the close of the period of limi-
tations on assessments under § 6501(a) for
any relevant taxable year; and
(3) A corrected Form 8832 is filed
with the appropriate Internal Revenue
Service Center and a copy of the cor-
rected Form 8832 is attached to the
single owner’s amended return for the
taxable year during which the original
election was made as required under
§ 301.7701–3(c)(1)(ii). The statement
“FILED PURSUANT TO REVENUE
PROCEDURE 2010–32” must be in-
cluded across the top of the corrected
Form 8832. Additionally, the corrected
Form 8832 must satisfy the requirements
of § 301.7701–3(c)(2)(i).
.02 If a qualified entity files an other-
wise valid Form 8832 electing to be clas-
sified as a disregarded entity for federal tax
purposes but it is later determined that the
qualified entity had two or more owners
for federal tax purposes as of the effective
date of the election, the IRS will treat the
Form 8832 as an election to classify the
qualified entity as a partnership for federal
tax purposes provided that:
(1) The qualified entity files informa-
tion returns and its actual owners file orig-
inal or amended returns consistent with
the treatment of the entity as a partnership
for any taxable year that would have been
affected if the original election had been
made to treat the qualified entity as a part-
nership for federal tax purposes;
(2) All required information and
amended returns are filed before the close
of the period of limitations on assessments
under § 6501(a) for the relevant taxable
year; and
(3) A corrected Form 8832 is filed
with the appropriate Internal Revenue Ser-
vice Center and a copy of the corrected
Form 8832 is attached to the owners’
amended returns for the taxable year dur-
ing which the original election was made
as required under § 301.7701–3(c)(1)(ii).
The statement “FILED PURSUANT TO
REVENUE PROCEDURE 2010–32”
must be included across the top of the
corrected Form 8832. Additionally, the
corrected Form 8832 must satisfy the re-
quirements of § 301.7701–3(c)(2)(i).
SECTION 5. EFFECTIVE DATE
This revenue procedure is effective on
September 7, 2010. Any qualified entity
that meets the requirements of this revenue
procedure as of September 7, 2010, may
seek relief under this revenue procedure.
SECTION 6. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Bryan A. Rimmke of the
Office of the Associate Chief Counsel
(Passthroughs and Special Industries). For
further information regarding this revenue
procedure, contact Mr. Rimmke at (202)
622–3050 (not a toll-free call).
2010–36 I.R.B.322September 7, 2010

Part IV. Items o
fGeneralInterest
Announcement of Disciplinary Sanctions From the Office
of Professional Responsibility
Announcement 2010-53
TheOfficeofProfessionalResponsi-
bility (OPR) announcesrecent disciplinary
sanctions involving attorneys, certified
public accountants, enrolled agents, en-
rolled actuaries, enrolled retirement plan
agents, and appraisers. These individuals
are subject to the regulations governing
practice before the Internal Revenue Ser-
vice (IRS), which are set out in Title 31,
Code of Federal Regulations, Part 10, and
which are published in pamphlet form as
Treasury Department Circular No. 230.
The regulations prescribe the duties and
restrictions relating to such practice and
prescribe the disciplinary sanctions for
violating the regulations.
The disciplinary sanctions to be im-
posed for violation of the regulations are:
Disbarred from practice before the
IRS—An individual who is disbarred is
not eligible to represent taxpayers before
the IRS.
Suspended from practice before the
IRS—An individual who is suspended is
not eligible to represent taxpayers before
the IRS during the term of the suspension.
Censured in practice before the
IRS—Censure is a public reprimand. Un-
like disbarment or suspension, censure
does not affect an individual’s eligibility
to represent taxpayers before the IRS, but
OPR may subject the individual’s future
representations to conditions designed to
promote high standards of conduct.
Monetary penalty—A monetary
penalty may be imposed on an individual
who engages in conduct subject to sanc-
tion or on an employer, firm, or entity
if the individual was acting on its behalf
and if it knew, or reasonably should have
known, of the individual’s conduct.
Disqualification of appraiser—An
appraiser who is disqualified is barred
from presenting evidence or testimony in
any administrative proceeding before the
Department of the Treasury or the IRS.
Under the regulations, attorneys, cer-
tified public accountants, enrolled agents,
enrolled actuaries, and enrolled retirement
plan agents may not assist, or accept assis-
tance from, individuals who are suspended
or disbarred with respect to matters consti-
tuting practice (i.e., representation) before
the IRS, and they may not aid or abet sus-
pended or disbarred individuals to practice
before the IRS.
Disciplinary sanctions are described in
these terms:
Disbarred by decision after hearing,
Suspended by decision after hearing,
Censured by decision after hearing,
Monetary penalty imposed after hear-
ing, and Disqualified after hearing—An
administrative law judge (ALJ) conducted
an evidentiary hearing upon OPR’s com-
plaint alleging violation of the regulations
and issued a decision imposing one of
these sanctions. After 30 days from the
issuance of the decision, in the absence of
an appeal, the ALJ’s decision became the
final agency decision.
Disbarred by default decision, Sus-
pended by default decision, Censured by
default decision, Monetary penalty im-
posed by default decision, and Disqual-
ified by default decision—An ALJ, after
findingthatnoanswertoOPR’scomplaint
had been filed, granted OPR’s motion for a
default judgment and issued a decision im-
posing one of these sanctions.
Disbarment by decision on appeal,
Suspended by decision on appeal, Cen-
sured by decision on appeal, Monetary
penalty imposed by decision on ap-
peal, and Disqualified by decision on
appeal—The decision of the ALJ was
appealed to the agency appeal authority,
acting as the delegate of the Secretary
of the Treasury, and the appeal authority
issued a decision imposing one of these
sanctions.
Disbarred by consent, Suspended by
consent, Censured by consent, Mone-
tary penalty imposed by consent, and
Disqualified by consent—In lieu of a
disciplinary proceeding being instituted
or continued, an individual offered a con-
sent to one of these sanctions and OPR
accepted the offer. Typically, an offer
of consent will provide for: suspension
for an indefinite term; conditions that the
individual must observe during the sus-
pension; and the individual’s opportunity,
after a stated number of months, to file
with OPR a petition for reinstatement af-
firming compliance with the terms of the
consent and affirming current eligibility
to practice (i.e., an active professional
license or active enrollment status). An
enrolled agent or an enrolled retirement
plan agent may also offer to resign in order
to avoid a disciplinary proceeding.
Suspended by decision in expedited
proceeding, Suspended by default de-
cision in expedited proceeding, Sus-
pended by consent in expedited pro-
ceeding—OPR instituted an expedited
proceeding for suspension (based on cer-
tain limited grounds, including loss of a
professional license and criminal convic-
tions).
OPR has authority to disclose the
grounds for disciplinary sanctions in these
situations: (1) an ALJ or the Secretary’s
delegate on appeal has issued a decision
on or after September 26, 2007, which was
theeffectivedateofamendmentstothe
regulations that permit making such deci-
sions publicly available; (2) the individual
has settled a disciplinary case by signing
OPR’s “consent to sanction” form, which
requires consenting individuals to admit to
one or more violations of the regulations
and to consent to the disclosure of the in-
dividual’s own return information related
to the admitted violations (for example,
failure to file Federal income tax returns);
or (3) OPR has issued a decision in an
expedited proceeding for suspension.
Announcements of disciplinary sanc-
tions appear in the Internal Revenue Bul-
letin at the earliest practicable date. The
sanctions announced below are alphabet-
ized first by the names of states and sec-
ond by the last names of individuals. Un-
less otherwise indicated, section numbers
(e.g., § 10.51) refer to the regulations.
September 7, 20103232010–36 I.R.B.

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Florida
SarasotaSwaney, Natalie M.CPASuspended by default
decision in expedited
proceeding under § 10.82
(permanently enjoined
by U.S. District Court
from acting as a Federal
taxreturnpreparer,
representing anyone
before the Internal
Revenue Service,
engaging in conduct
subject to penalty under
§ 6700, engaging in
activity subject to penalty
under § 6701, and other
tax-related activities.
Indefinite from
July 27, 2010
LutzKaskey, Tim W.CPADisbarred by decision on
appeal for violations of
§ 10.51(d) (1994) (failure
to timely file Federal
income tax returns for five
years), § 10.22(a) (1994)
(failure to exercise due
diligence in preparing,
approving, and filing tax
returns for clients and
failure to determine the
correctness of oral or
written representations
made to the Department
of the Treasury), and
§ 10.34(b) (1994) (failure
to inform clients of any
penalties reasonably
likely to apply, as well
as the opportunities to
avoid such penalties with
respect to the tax position
submitted to the IRS on
clients’ behalf)
Indefinite from
May 28, 2010
Ohio
AkronHoff, George L.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(suspension of attorney
license)
Indefinite from
July 30, 2010
2010–36 I.R.B.324September 7, 2010

City & StateNameProfessionalDisciplinary SanctionEffective Date(s)
Designation
Ohio (Continued)
Cuyahoga FallsRidenbaugh, Aaron A. AttorneySuspended by decision
in expedited proceeding
under § 10.82 (suspension
of attorney license)
Indefinite from
July 30, 2010
Oklahoma
OklahomaMcMurrain, LisaCPASuspended by decision
in expedited proceeding
under § 10.82 (revocation
of CPA license)
Indefinite from
July 30, 2010
Texas
AustinBender, John P.AttorneySuspended by default
decision in expedited
proceeding under § 10.82
(suspension of attorney
license)
Indefinite from
July 30, 2010
Virginia
RoanokeMiller, Jr., Walter P.CPAReinstated
July 20, 2010
West Virginia
KennaPeterson, Stacey A.CPASuspended by decision
in expedited proceeding
under § 10.82 (revocation
of CPA license)
Indefinite from
July 27, 2010
BeckleyWallen, David G.CPAReinstated
July 13, 2010
September 7, 20103252010–36 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 rulings
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.
2010–36 I.R.B.iSeptember 7, 2010

Numerical Finding List
1
Bulletins 2010–27 through 2010–36
Announcements:
2010-43, 2010-27 I.R.B.42
2010-44, 2010-28 I.R.B.54
2010-45, 2010-29 I.R.B.87
2010-46, 2010-29 I.R.B.87
2010-47, 2010-30 I.R.B.173
2010-48, 2010-32 I.R.B.234
2010-49, 2010-34 I.R.B.272
2010-50, 2010-33 I.R.B.260
2010-51, 2010-33 I.R.B.261
2010-52, 2010-36 I.R.B.315
2010-53, 2010-36 I.R.B.323
Notices:
2010-48, 2010-27 I.R.B.9
2010-49, 2010-27 I.R.B.10
2010-50, 2010-27 I.R.B.12
2010-51, 2010-29 I.R.B.83
2010-52, 2010-30 I.R.B.88
2010-53, 2010-31 I.R.B.182
2010-55, 2010-33 I.R.B.253
2010-56, 2010-33 I.R.B.254
2010-57, 2010-34 I.R.B.267
Proposed Regulations:
REG-139343-08, 2010-33 I.R.B.256
REG-151605-09, 2010-31 I.R.B.184
REG-112841-10, 2010-27 I.R.B.41
REG-118412-10, 2010-29 I.R.B.85
REG-120391-10, 2010-35 I.R.B.310
REG-120399-10, 2010-32 I.R.B.239
Revenue Procedures:
2010-25, 2010-27 I.R.B.16
2010-26, 2010-30 I.R.B.91
2010-27, 2010-31 I.R.B.183
2010-28, 2010-34 I.R.B.270
2010-29, 2010-35 I.R.B.309
2010-30, 2010-36 I.R.B.316
2010-32, 2010-36 I.R.B.320
Revenue Rulings:
2010-18, 2010-27 I.R.B.1
2010-19, 2010-31 I.R.B.174
2010-20, 2010-36 I.R.B.312
Tax Conventions:
2010-48, 2010-32 I.R.B.234
2010-52, 2010-36 I.R.B.315
Treasury Decisions:
9486, 2010-27 I.R.B.3
Treasury Decisions— Continued:
9487, 2010-28 I.R.B.48
9488, 2010-28 I.R.B.51
9489, 2010-29 I.R.B.55
9490, 2010-31 I.R.B.176
9491, 2010-32 I.R.B.186
9492, 2010-33 I.R.B.242
9493, 2010-35 I.R.B.273
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin
2010–26, dated June 28, 2010.
September 7, 2010ii2010–36 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2010–27 through 2010–36
Notices:
2003-19
Revoked by
Notice 2010-53, 2010-31 I.R.B.182
2009-47
Obsoleted by
Rev. Proc. 2010-28, 2010-34 I.R.B.270
Revenue Procedures:
81-18
Obsoleted by
Rev. Proc. 2010-27, 2010-31 I.R.B.183
2007-44
Modified by
Notice 2010-48, 2010-27 I.R.B.9
2009-18
Obsoleted in part by
Rev. Proc. 2010-25, 2010-27 I.R.B.16
2009-30
Superseded by
Rev. Proc. 2010-26, 2010-30 I.R.B.91
Treasury Decisions:
9487
Corrected by
Ann. 2010-50, 2010-33 I.R.B.260
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin 2010–26, dated June 28, 2010.
2010–36 I.R.B.iiiSeptember 7, 2010

September 7, 20102010–36 I.R.B.

2010–36 I.R.B.September 7, 2010

September 7, 20102010–36 I.R.B.

INTERNAL REVENUE BULLETIN
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