Internal Revenue Bulletin 2013-22 (PDF rendition): IRS Announcements

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Bulletin No. 201
3-22
May 28, 2013
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
REG–106796–12, page 1164.
These proposed regulations provide guidance on the appli-
cation of section 162(m)(6). Section 162(m)(6) limits the
allowable deduction for remuneration for services provided
by individuals to certain health insurance providers. Section
162(m)(6) was enacted as part of the Patient Protection and
Affordable Care Act (Public Law 111–148, 124 Stat. 119,
868 (2010)).
Notice 2013–33, page 1140.
Credit for Renewable Electricity Production, Refined Coal Pro-
duction, and Indian Coal Production, and Publication of Inflation
Adjustment Factors and Reference Prices for Calendar Year
2013: This notice reports for 2013 the inflation adjustment
factors and reference prices used to determine the availabil-
ity of the section 45 credit for electricity produced from quali-
fied energy resources and refined coal, and includes the credit
amounts for renewable electricity production and refined coal
production. This notice also reports the inflation adjustment
factor for Indian coal and includes the credit amounts for In-
dian coal production.
Rev. Proc. 2013–24, page 1142.
This revenue procedure provides definitions of units of prop-
erty and major components for steam or electric power gener-
ation property primarily used in the trade or business of gen-
erating or selling steam or electricity. The property definitions
provided in this revenue procedure may be used to determine
whether expenditures to maintain, replace, or improve steam
or electric power generation property must be capitalized un-
der § 263(a) of the Code. This revenue procedure also pro-
vides procedures for obtaining automatic consent to change
to a method of accounting that uses all, or some of, the unit
of property definitions provided and also provides an extrap-
olation methodology an eligible taxpayer may use in connec-
tion with a change in method of accounting for determining the
amount of a § 481(a) adjustment.
Rev. Proc. 2013–26, page 1160.
This revenue procedure provides rules by which the Internal
Revenue Service will allow a taxpayer to use the proportional
method of accounting for original issue discount (“OID”) on
pools of credit card receivables under section 1272(a)(6). The
proportional method allocates to an accrual period an amount
of unaccrued OID that is proportional to the amount of pool
principal that is paid by cardholders during the period. This
revenue procedure also describes the exclusive procedures by
which a taxpayer may obtain the Commissioner’s consent to
change to the proportional method. Rev. Proc. 2011–14 is
modified.
Announcement 2013–32, page 1192.
The IRS has revoked its determination that Grangeville Country
Club, Inc. of Grangeville, ID., and Michael Joy Fine Arts Schol-
arship Fund of Victoria, TX., qualify as organizations described
in sections 501(c)(3) and 170(c)(2) of the Code.
EMPLOYEE PLANS
REG–106796–12, page 1164.
These proposed regulations provide guidance on the appli-
cation of section 162(m)(6). Section 162(m)(6) limits the
allowable deduction for remuneration for services provided
by individuals to certain health insurance providers. Section
162(m)(6) was enacted as part of the Patient Protection and
Affordable Care Act (Public Law 111–148, 124 Stat. 119,
868 (2010)).
(Continued on the next page)
Fi
nding Lists begin on page ii.
IndexforJanuarythroughMaybeginsonpagev.

Notice 2013–32, page 1137.
This notice contains updates for the corporate bond weighted
average interest rate for plan years beginning in May 2013; the
24-month average segment rates; the funding transitional seg-
ment rates applicable for May 2013; and the minimum present
value transitional rates for April 2013. The rates in this no-
tice reflect certain changes implemented by the Moving Ahead
for Progress in the 21st Century Act, Public Law 112–141
(MAP-21).
EXEMPT ORGANIZATIONS
Announcement 2013–32, page 1192.
The IRS has revoked its determination that Grangeville Country
Club, Inc. of Grangeville, ID., and Michael Joy Fine Arts Schol-
arship Fund of Victoria, TX., qualify as organizations described
in sections 501(c)(3) and 170(c)(2) of the Code.
May 28, 20132013–22 I.R.B.

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.
It is the poli
cy of the Service to publish in the Bulletin all sub-
stantive ru
lings necessary to promote a uniform application of
the tax laws
, including all rulings that supersede, revoke, mod-
ify, or amen
d any of those previously published in the Bulletin.
All publish
ed rulings apply retroactively unless otherwise indi-
cated. Pro
cedures relating solely to matters of internal man-
agement ar
e 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.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to 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 part includes notices of proposed rulemakings, disbar-
ment and 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 cont
ents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
2013–22 I.R.B.May 28, 2013

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 162.—
Trade or
Business Expe
nses
For purposes o
f determining whether the cost of re-
placement pro
perty may be deducted under § 162 of
the Code, what
units of property and major compo-
nent definit
ions may be used by a taxpayer that has a
depreciable
interest in steam or electric power gener-
ation proper
ty primarily used in the trade or business
of generating
or selling steam or electricity. See Rev.
Proc. 2013-24
, page 1142.
Section 446.
—General Rule
for Methods o
fAccounting
What are the p
rocedural requirements for obtain-
ing automati
c consent to change to a method of ac-
counting that
uses all, or some of, the safe-harbor
unit of proper
ty definitions provided in Rev. Proc.
2013–24 for st
eam or electric power generation prop-
erty primaril
yusedinthetradeorbusinessofgener-
ating or sell
ing steam or electricity. See Rev. Proc.
2013-24, pag
e 1142.
2013–22 I.R.B.1136May 28, 2013

Part III. Administrative, Procedural, and Miscellaneous
Update for Weighted Average
Interest Rates, Yield Curves,
and Segment Rates
Notice 2013–32
This notice provides guidance on the
corporate bond monthly yield curve (and
the corresponding spot segment rates), and
the 24-month average segment rates under
§ 430(h)(2) of the Internal Revenue Code.
In addition, this notice provides guidance
as to the interest rate on 30-year Trea-
sury securities under § 417(e)(3)(A)(ii)(II)
as in effect for plan years beginning be-
fore 2008, the 30-year Treasury weighted
average rate under § 431(c)(6)(E)(ii)(I),
and the minimum present value segment
rates under § 417(e)(3)(D) as in effect for
plan years beginning after 2007. These
rates reflect certain changes implemented
by the Moving Ahead for Progress in the
21st Century Act, Public Law 112–141
(MAP–21). MAP–21 provides that for
purposes of § 430(h)(2), the segment rates
are limited by the applicable maximum
percentage or the applicable minimum per-
centage based on the average of segment
rates over a 25-year period.
YIELD CURVE AND SEGMENT
RATES
Generally, except for certain plans
under sections 104 and 105 of the Pen-
sion Protection Act of 2006, § 430 of
the Code specifies the minimum funding
requirements that apply to single em-
ployer plans pursuant to § 412. Section
430(h)(2) specifies the interest rates that
must be used to determine a plan’s target
normal cost and funding target. Under
this provision, present value is generally
determined using three 24-month average
interest rates (“segment rates”), each of
which applies to cash flows during speci-
fied periods. To the extent provided under
§ 430(h)(2)(C)(iv), these segment rates are
adjusted by the applicable percentage of
the 25-year average segment rates for the
period ending September 30 of the year
preceding the calendar year in which the
plan year begins. However, an election
may be made under § 430(h)(2)(D)(ii) to
use the monthly yield curve in place of the
segment rates.
Notice 2007–81, 2007–44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond seg-
ment rates used to compute the target nor-
mal cost and the funding target. Pursuant
to Notice 2007–81, the monthly corpo-
rate bond yield curve derived from April
2013 data is in Table I at the end of this
notice. The spot first, second, and third
segment rates for the month of April 2013
are, respectively, 0.93, 3.61, and 4.88. For
plan years beginning on or after January 1,
2012, the 24-month average segment rates
determined under § 430(h)(2)(C)(iv) must
be adjusted by the applicable percentage
of the corresponding 25-year average seg-
ment rates. The 25-year average segment
rates for plan years beginning in 2012 and
for plan years beginning in 2013 were pub-
lished in Notices 2012–55 and 2013–11,
respectively. The three 24-month average
corporate bond segment rates applicable
for May 2013 without adjustment, and the
adjusted 24-month average segment rates
taking into account the applicable percent-
ages of the corresponding 25-year average
segment rates, are as follows:
24-Month Average Segment Rates
Not Adjusted
Adjusted 24-MonthAverage Segment
Rates, Based on Applicable Percentage
of 25-Year Average Rates
For Plan
Years
Beginning
In
Applicable
Month
First
Segment
Second
Segment
Third
Segment
First
Segment
Second
Segment
Third
Segment
2012May20131.46
4.155.205.546.857.52
2013May20131.46
4.155.20
4.94
6.15
6.76
30-YEAR TREASURY SECURITIES
INTEREST RATES
Generally for plan years beginning
after 2007, § 431 specifies the mini-
mum funding requirements that apply to
multiemployer plans pursuant to § 412.
Section 431(c)(6)(B)specifies a minimum
amount for the full-funding limitation
described in section 431(c)(6)(A), based
on the plan’s current liability. Section
431(c)(6)(E)(ii)(I) provides that the inter-
est rate used to calculate current liability
for this purpose must be no more than 5
percent above and no more than 10 percent
below the weighted average of the rates
of interest on 30-year Treasury securities
during the four-year period ending on the
last day before the beginning of the plan
year. Notice 88–73, 1988–2 C.B. 383,
provides guidelines for determining the
weighted average interest rate. The rate of
interest on 30-year Treasury securities for
April 2013 is 2.93 percent. The Service
has determined this rate as the average
of the daily determinations of yield on
the 30-year Treasury bond maturing in
February 2043. The following rates were
determined for plan years beginning in the
month shown below.
May 28, 201311372013–22 I.R.B.

For Plan Years
Beginning inPermissible Ran
ge
MonthYear
30-Year
Treasury
Weighted
Average90%to105%
May20133.483.133.66
MINIMUM PRESENT
VALUE
SEGMENT RATES
In general, the
applicable interest rates
under § 417(e)(
3)(D) are segment rates
computed withou
t regard to a 24-month
average. Notic
e 2007–81 provides guide-
lines for deter
mining the minimum present
value segment r
ates. Pursuant to that no-
tice, the minim
um present value segment
rates determine
d for April 2013 are as fol-
lows:
First
Segment
Second
Segment
Third
Segment
0.933.614.88
DRAFTING INFOR
MATION
The principal a
uthor of this notice is
Tony Montanar
o of the Employee Plans,
Tax Exempt and G
overnment Entities
Division. Mr.
Montanaro may be e-mailed
atRetirement
PlanQuestions@irs.gov.
2013–22 I.R.B.1138May 28, 2013

Table I
Monthly Yield Curve for April 2013
Derived from April 2013 Data
Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield
0.5
0.27
20.54.5540.5
4.93
60.55.0680.55.13
1.00.4621.0
4.57
41.04.9361.0
5.06
81.0
5.13
1.5
0.62
21.54.5841.5
4.93
61.55.0781.55.13
2.00.7722.04.6042.04.9462.0
5.07
82.0
5.13
2.5
0.89
22.5
4.61
42.5
4.94
62.55.0782.55.13
3.01.0023.04.6343.04.9563.05.0783.05.14
3.5
1.12
23.5
4.64
43.54.9563.55.0783.55.14
4.01.2424.0
4.65
44.04.9664.0
5.08
84.0
5.14
4.5
1.38
24.5
4.66
44.5
4.96
64.55.0884.55.14
5.01.5425.0
4.68
45.0
4.97
65.05.0885.05.14
5.5
1.71
25.5
4.69
45.5
4.97
65.55.0885.55.14
6.01.8926.04.7046.04.9766.05.0886.05.14
6.5
2.08
26.5
4.71
46.5
4.98
66.55.0986.55.14
7.02.2727.04.7247.04.9867.0
5.09
87.0
5.14
7.5
2.46
27.5
4.73
47.5
4.99
67.55.0987.55.15
8.02.6428.04.7448.04.9968.0
5.09
88.0
5.15
8.5
2.82
28.54.7548.5
4.99
68.55.0988.55.15
9.02.9929.04.7649.05.0069.05.0989.05.15
9.53.1529.5
4.77
49.55.0069.55.1089.55.15
10.03.3030.04.78
50.05.00
70.0
5.10
90.0
5.15
10.5
3.44
30.5
4.79
50.55.0170.55.1090.55.15
11.0
3.57
31.04.80
51.05.01
71.0
5.10
91.0
5.15
11.5
3.68
31.5
4.81
51.55.0171.55.1091.55.15
12.03.7932.04.8252.05.0272.05.1092.05.16
12.5
3.88
32.5
4.82
52.55.0272.55.1192.55.16
13.03.9733.04.83
53.05.02
73.0
5.11
93.0
5.16
13.54.0533.5
4.84
53.55.0273.55.1193.55.16
14.04.1134.0
4.8554.05.03
74.0
5.11
94.0
5.16
14.5
4.17
34.54.8554.55.0374.55.1194.55.16
15.04.2335.04.8655.05.0375.05.1195.05.16
15.5
4.27
35.5
4.87
55.55.0475.55.1295.55.16
16.04.3236.04.87
56.05.04
76.0
5.12
96.0
5.16
16.54.3536.5
4.88
56.55.0476.55.1296.55.16
17.04.3937.04.89
57.05.04
77.0
5.12
97.0
5.16
17.5
4.42
37.5
4.89
57.55.0577.55.1297.55.17
18.04.4538.04.9058.05.0578.05.1298.05.17
18.5
4.47
38.5
4.90
58.55.0578.55.1298.55.17
19.04.4939.04.91
59.05.05
79.0
5.13
99.0
5.17
19.54.5139.5
4.91
59.55.0679.55.1399.55.17
20.0
4.53
40.04.9260.0
5.06
80.0
5.13
100.0
5.17
May 28, 201311392013–22 I.R.B.

Credit for Renewable
Electricity Production,
Refined Coal Production,
and Indian Coal Production,
and Publication of Inflation
Adjustment Factors and
Reference Prices for Calendar
Year 2013
Notice 2013–33
This notice publishes the inflation ad-
justment factors and reference prices for
calendar year 2013 for the renewable elec-
tricity production credit, the refined coal
production credit, and the Indian coal pro-
duction credit under section 45 of the In-
ternal Revenue Code. The 2013 inflation
adjustment factors and reference prices are
used in determining the availability of the
credits. The 2013 inflation adjustment fac-
tors and reference prices apply to calendar
year 2013 sales of kilowatt hours of elec-
tricity produced in the United States or a
possession thereof from qualified energy
resources and to calendar year 2013 sales
of refined coal and Indian coal produced in
the United States or a possession thereof.
BACKGROUND
Section 45(a) provides that the renew-
able electricity production credit for any
tax year is an amount equal to the prod-
uct of 1.5 cents multiplied by the kilowatt
hours of specified electricity produced by
the taxpayer and sold to an unrelated per-
son during the tax year. This electricity
must be produced from qualified energy
resources and at a qualified facility during
the 10-year period beginning on the date
the facility was originally placed in ser-
vice.
Section 45(b)(1) provides that the
amount of the credit determined under sec-
tion 45(a) is reduced by an amount which
bears the same ratio to the amount of the
credit as (A) the amount by which the ref-
erence price for the calendar year in which
the sale occurs exceeds 8 cents, bears to
(B) 3 cents. Under section 45(b)(2), the
1.5 cent amount in section 45(a), the 8 cent
amount in section 45(b)(1), the $4.375
amount in section 45(e)(8)(A), the $2.00
amount in section 45(e)(8)(D)(ii)(I), and
in section 45(e)(8)(B)(i), the reference
price of fuel used as feedstock (within
the meaning of section 45(c)(7)(A)) in
2002 are each adjusted by multiplying the
amount by the inflation adjustment factor
for the calendar year in which the sale
occurs. If any amount as increased under
the preceding sentence is not a multiple
of 0.1 cent, the amount is rounded to the
nearest multiple of 0.1 cent. In the case of
electricity produced in open-loop biomass
facilities, small irrigation power facili-
ties, landfill gas facilities, trash facilities,
qualified hydropowerfacilities, and ma-
rine and hydrokinetic renewable energy
facilities, section 45(b)(4)(A) requires the
amount in effect under section 45(a)(1)
(before rounding to the nearest 0.1 cent)
to be reduced by one-half.
Section 45(c)(1) defines qualified
energy resources as wind, closed-loop
biomass, open-loop biomass, geother-
mal energy, solar energy, small irrigation
power, municipal solid waste, qualified
hydropower production, and marine and
hydrokinetic renewable energy.
Section 45(d)(1) defines a qualified fa-
cility using wind to produce electricity as
any facility owned by the taxpayer that is
originally placed in service after Decem-
ber 31, 1993, and the construction of which
begins before January 1, 2014. See section
45(e)(7) for rules relating to the inapplica-
bility of the credit to electricity sold to util-
ities under certain contracts.
Section 45(d)(2)(A) defines a qualified
facility using closed-loop biomass to pro-
duce electricity as any facility (i) owned by
the taxpayer that is originally placed in ser-
vice after December 31, 1992, and the con-
struction of which begins before January 1,
2014; or (ii) owned by the taxpayer which
before January 1, 2014, is originally placed
in service and modified to use closed-loop
biomass to co-fire with coal, with other
biomass, or with both, but only if the mod-
ification is approved under the Biomass
Power for Rural Development Programs or
is part of a pilot project of the Commod-
ity Credit Corporation as described in 65
Fed. Reg. 63052. For purposes of section
45(d)(2)(A)(ii), a facility shall be treated
as modified before January 1, 2014, if the
construction of suchmodification begins
before such date. Section 45(d)(2)(C) pro-
vides that in the case of a qualified facility
describedinsection45(d)(2)(A)(ii),(i)the
10-year period referred to in section 45(a)
is treated as beginning no earlier than the
date of enactment of section 45(d)(2)(C)(i)
(October 22, 2004); and (ii) if the owner of
the facility is not the producer of the elec-
tricity, the person eligible for the credit al-
lowable under section 45(a) is the lessee or
the operator of the facility.
Section 45(d)(3)(A) defines a qualified
facility using open-loop biomass to pro-
duce electricity as any facility owned by
the taxpayer which (i) in the case of a
facility using agricultural livestock waste
nutrients, (I) is originally placed in ser-
vice after the date of enactment of section
45(d)(3)(A)(i)(I) (October 22, 2004) and
the construction of which begins before
January 1, 2014, and (II) the nameplate ca-
pacity rating of which is not less than 150
kilowatts; and (ii) in the case of any other
facility, the construction of which begins
before January 1, 2014. In the case of any
facility described in section 45(d)(3)(A), if
the owner of the facility is not the producer
of the electricity, section 45(d)(3)(C) pro-
vides that the person eligible for the credit
allowable under section 45(a) is the lessee
or the operator of the facility.
Section 45(d)(4) defines a qualified fa-
cility using geothermal or solar energy to
produce electricityas any facility owned
by the taxpayer which is originally placed
in service after the date of enactment of
section 45(d)(4) (October 22, 2004) and
which, (A) in the case of a facility using
solar energy, is placed in service before
January 1, 2006, or (B) in the case of a
facility using geothermal energy, the con-
struction of which begins before January 1,
2014. A qualified facility using geother-
mal or solar energy does not include any
property described in section 48(a)(3) the
basis of which is taken into account by the
taxpayer for purposes of determining the
energy credit under section 48.
Section 45(d)(5) defines a qualified fa-
cility using small irrigation power to pro-
duce electricity as any facility owned by
the taxpayer which is originally placed in
service after the date of enactment of sec-
tion 45(d)(5) (October 22, 2004) and be-
fore October 3, 2008.
Section 45(d)(6) defines a qualified fa-
cility using gas derived from the biodegra-
dation of municipal solid waste to produce
electricity as any facility owned by the tax-
payer which is originally placed in ser-
vice after the date of enactment of section
45(d)(6) (October 22, 2004) and the con-
struction of which begins before January
1, 2014.
2013–22 I.R.B.1140May 28, 2013

Section 45(d)(7) defines a qualified fa-
cility (other than a facility described in sec-
tion 45(d)(6)) that burns municipal solid
waste to produce electricity as any facil-
ity owned by the taxpayer which is origi-
nally placed in service after the date of en-
actment of section 45(d)(7) (October 22,
2004) and the construction of which be-
gins before January 1, 2014. A qualified
facility burning municipal solid waste in-
cludes a new unit placed in service in con-
nection with a facility placed in service on
or before the date of enactment of section
45(d)(7), but only to the extent of the in-
creased amount of electricity produced at
the facility by reason of such new unit.
Section 45(d)(8) provides in the case
of a facility that produces refined coal,
the term “refined coal production facility”
means (A) with respect to a facility pro-
ducing steel industry fuel, any facility (or
any modification to a facility) which is
placed in service before January 1, 2010,
and (B) with respect to any other facility
producing refined coal, any facility placed
in service after the date of the enactment
of the American Jobs Creation Act of 2004
(October 22, 2004) and before January 1,
2012.
Section 45(d)(9) defines a qualified
facility producing qualified hydroelectric
production described in section 45(c)(8)
as (i) any facility producing incremen-
tal hydropower production, but only to
the extent of its incremental hydropower
production attributable to efficiency im-
provements or additions to capacity de-
scribed in section 45(c)(8)(B) placed in
service after the date of enactment of sec-
tion 45(d)(9)(A)(i) (August 8, 2005) and
before January 1, 2014; and (ii) any other
facility placed in service after the date
of enactment of section 45(d)(9)(A)(ii)
(August 8, 2005) and the construction of
which begins before January 1, 2014. Sec-
tion 45(d)(9)(B) provides that in the case
of a qualified facility described in section
45(d)(9)(A), the 10-year period referred
to in section 45(a) is treated as beginning
on the date the efficiency improvements
or additions to capacity are placed in ser-
vice. Section 45(d)(9)(C) provides that
for purposes of section 45(d)(9)(A)(i),
an efficiency improvement or addition to
capacity is treated as placed in service
before January 1, 2014, if the construction
of such improvement or addition begins
before such date.
Section 45(d)(10) provides in the case
of a facility that produces Indian coal,
the term “Indian coal production facility”
means a facility which is placed in service
before January 1, 2009.
Section 45(d)(11) provides in the case
of a facility producing electricity from ma-
rine and hydrokinetic renewable energy,
the term “qualified facility” means any fa-
cility owned by the taxpayer which (A)
has a nameplate capacity rating of at least
150 kilowatts, and (B) which is originally
placed in service on or after the date of the
enactment of section 45(d)(11)(B) (Octo-
ber 3, 2008) and the construction of which
begins before January 1, 2014.
Section 45(e)(8)(A) provides that the
refined coal production credit is an amount
equalto$4.375pertonofqualifiedre-
fined coal (i) produced by the taxpayer at a
refined coal production facility during the
10-year period beginning on the date the
facility was originally placed in service,
and (ii) sold by the taxpayer (I) to an unre-
lated person and (II) during the 10-year pe-
riod and the tax year. Section 45(e)(8)(B)
provides that the amount of credit de-
termined under section 45(e)(8)(A) is
reduced by an amount which bears the
same ratio to the amount of the increase
as (i) the amount by which the reference
price of fuel used as feedstock (within
the meaning of section 45(c)(7)(A)) for
the calendar year in which the sale occurs
exceeds an amount equal to 1.7 mul-
tiplied by the reference price for such
fuel in 2002, bears to (ii) $8.75. Section
45(e)(8)(D)(ii)(I) provides that in the case
of a taxpayer who produces steel industry
fuel, section 45(e)(8)(A) shall be ap-
plied by substituting “$2 per barrel-of-oil
equivalent” for “$4.375 per ton.” Section
45(e)(8)(D)(ii)(II) provides that in lieu of
the 10-year period referred to in sections
45(e)(8)(A)(i) and 45(e)(8)(A)(ii)(II), the
credit period shall be the period begin-
ning on the later of the date such facility
was originally placed in service, the date
the modifications described in section
45(e)(8)(D)(iii) were placed in service,
or October 1, 2008, and ending on the
later of December 31, 2009, or the date
which is 1 year after the date such fa-
cility or the modifications described in
section 45(e)(8)(D)(iii) were placed in ser-
vice. Section 45(e)(8)(D)(ii)(III) provides
that section 45(e)(8)(B) (dealing with the
phaseout of the credit) will not apply.
Section 45(e)(10)(A) provides in the
case of a producer of Indian coal, the credit
determined under section 45 for any tax-
able year shall be increased by an amount
equal to the applicable dollar amount per
ton of Indian coal (i) produced by the tax-
payer at an Indian coal production facility
during the 8-year period beginning on Jan-
uary 1, 2006, and (ii) sold by the taxpayer
(I) to an unrelated person, and (II) during
such 8-year period and such taxable year.
Section 45(e)(10)(B)(i) defines “ap-
plicable dollar amount” for any taxable
year as (I) $1.50 in the case of calendar
years 2006 through 2009, and (II) $2.00 in
the case of calendar years beginning after
2009.
Section 45(e)(2)(A) requires the Secre-
tary to determine and publish in the Fed-
eral Register each calendar year the infla-
tion adjustment factor and the reference
price for the calendar year. The inflation
adjustment factors andthe reference prices
for the 2013 calendar year were published
in the Federal Register on April 3, 2013.
Section 45(e)(2)(B) defines the infla-
tion adjustment factor for a calendar year
as the fraction the numerator of which is
the GDP implicit price deflator for the pre-
ceding calendar year and the denominator
of which is the GDP implicit price defla-
tor for the calendar year 1992. The term
“GDP implicit price deflator” means the
most recent revision of the implicit price
deflator for the gross domestic product as
computed and published by the Depart-
ment of Commerce before March 15 of the
calendar year.
Section 45(e)(2)(C) provides that the
reference price is the Secretary’s determi-
nation of the annual average contract price
per kilowatt hour of electricity generated
from the same qualified energy resource
and sold in the previous year in the United
States. Only contracts entered into af-
ter December 31, 1989, are taken into ac-
count.
Under section 45(e)(8)(C), the deter-
mination of the reference price for fuel
used as feedstock within the meaning of
section 45(c)(7)(A) is made according to
rules similar to the rules under section
45(e)(2)(C).
Under section 45(e)(10)(B)(ii), in the
case of any calendar year after 2006,
each of the dollar amounts under section
45(e)(10)(B)(i) shall be equal to the prod-
uct of such dollar amount and the inflation
May 28, 201311412013–22 I.R.B.

adjustment factor determined under sec-
tion 45(e)(2)(B) for the calendar year,
except that section 45(e)(2)(B) shall be
applied by substituting 2005 for 1992.
INFLATION ADJUSTMENT
FACTORS AND REFERENCE
PRICES
The inflation adjustment factor for cal-
endar year 2013 for qualified energy re-
sources and refined coal is 1.5063. The in-
flation adjustment factor for Indian coal is
1.1538.
The reference price for calendar year
2013 for facilities producing electricity
from wind (based upon information pro-
vided by the Department of Energy) is
4.53 cents per kilowatt hour. The ref-
erence prices for fuel used as feedstock
within the meaning of section 45(c)(7)(A),
relating to refined coal production (based
upon information provided by the Depart-
ment of Energy) are $31.90 per ton for
calendar year 2002 and $58.23 per ton for
calendar year 2013. The reference prices
for facilities producing electricity from
closed-loop biomass, open-loop biomass,
geothermal energy, solar energy, small
irrigation power, municipal solid waste,
qualified hydropower production, and
marine and hydrokinetic energy have not
been determined for calendar year 2013.
PHASEOUT CALCULATION
Because the 2013 reference price for
electricity produced from wind (4.53 cents
per kilowatt hour) does not exceed 8 cents
multiplied by the inflation adjustment fac-
tor, the phaseout of the credit provided in
section 45(b)(1) does not apply to such
electricity sold during calendar year 2013.
Because the 2013 reference price of fuel
used as feedstock for refined coal ($58.23)
does not exceed the $31.90 reference price
of such fuel in 2002 multiplied by the
inflation adjustment factor and 1.7, the
phaseout of credit provided in section
45(e)(8)(B) does not apply to refined coal
sold during calendar year 2013. Further,
for electricity produced from closed-loop
biomass, open-loop biomass, geother-
mal energy, solar energy, small irrigation
power, municipal solid waste, qualified
hydropower production, and marine and
hydrokinetic energy, the phaseout of credit
provided in section 45(b)(1) does not ap-
ply to such electricitysold during calendar
year 2013.
CREDIT AMOUNT BY QUALIFIED
ENERGY RESOURCE AND
FACILITY, REFINED COAL, AND
INDIAN COAL
As required by section 45(b)(2), the
1.5 cent amount in section 45(a)(1), the
8 cent amount in section 45(b)(1), the
$4.375 amount in section 45(e)(8)(A) and
the $2.00 amount in section 45(e)(8)(D)
are each adjusted by multiplying such
amount by the inflation adjustment factor
for the calendar year in which the sale
occurs. If any amount as increased under
the preceding sentence is not a multiple
of 0.1 cent, such amount is rounded to
the nearest multiple of 0.1 cent. In the
case of electricity produced in open-loop
biomass facilities, small irrigation power
facilities, landfill gas facilities, trash facil-
ities, qualified hydropower facilities, and
marine and hydrokinetic renewable energy
facilities, section 45(b)(4)(A) requires the
amount in effect under section 45(a)(1)
(before rounding to the nearest 0.1 cent)
to be reduced by one-half. Under the cal-
culation required by section 45(b)(2), the
credit for renewable electricity production
for calendar year 2013under section 45(a)
is 2.3 cents per kilowatt hour on the sale
of electricity produced from the qualified
energy resources of wind, closed-loop
biomass, geothermal energy, and solar en-
ergy, and 1.1 cents per kilowatt hour on the
sale of electricity produced in open-loop
biomass facilities, small irrigation power
facilities, landfill gas facilities, trash fa-
cilities, qualified hydropower facilities,
and marine and hydrokinetic energy facil-
ities. Under the calculation required by
section 45(b)(2), the credit for refined coal
production for calendar year 2013 under
section 45(e)(8)(A) is $6.590 per ton on
the sale of qualified refined coal. The
credit for Indian coal production for calen-
dar year 2013 under section 45(e)(10)(B)
is $2.308 per ton on the sale of Indian coal.
DRAFTING AND CONTACT
INFORMATION
The principal author of this notice
is Martha M. Garcia of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries).For further
information regarding this notice contact
Martha M. Garcia on (202) 622–3110 (not
a toll-free call).
26 CFR 1.263(a)–1: Capital expenditures; in gen-
eral.
(Also: §§ 162 and 446)
Rev. Proc. 2013–24
SECTION 1. PURPOSE
This revenue procedure provides defi-
nitions of units of property and major com-
ponents taxpayers may use to determine
whether expenditures to maintain, replace,
or improve steam or electric power gen-
eration property must be capitalized un-
der § 263(a) of the Internal Revenue Code.
This revenue procedure also provides pro-
cedures for obtaining automatic consent to
change to a method of accounting that uses
all, or some of, the unit of property defini-
tions provided.
SECTION 2. BACKGROUND
.01 Taxpayers that generate steam or
electric power incur significant expendi-
tures to maintain, replace, and improve
generation property. Whether these ex-
penditures are deductible as repairs under
§ 162 or must be capitalized as improve-
ments under § 263(a) depends on whether
the expenditures materially increase the
value of the property or appreciably pro-
long its life.See§ 1.162–4 of the In-
come Tax Regulations. In general, under
§ 263(a) the cost of replacing a unit of
property or major component must be cap-
italized.
.02 A generation plant is composed
of numerous functionally interdependent
items of machinery and equipment, and
it can be difficult to identify which items
constitute discrete units of property, ma-
jor components, or something else. As a
consequence, taxpayers and the Internal
Revenue Service (Service) often disagree
about whether the cost to replace a particu-
lar item is a capital or deductible expense.
.03 To minimize disputes regarding the
deductibility or capitalization of expendi-
tures to maintain, replace, or improve gen-
eration property, this revenue procedure
provides “unit of property” and “major
2013–22 I.R.B.1142May 28, 2013

component” definitions which, if used by a
taxpayer as provided in the revenue proce-
dure, will not be challenged by the Service.
.04 A taxpayer’s method for determin-
ing whether an expenditure is deductible
or is capitalizable, including unit of prop-
erty and major component definitions, is a
method of accounting under § 446. Sec-
tion 446(e) and § 1.446–1(e) require tax-
payers to secure the consent of the Com-
missioner before changing a method of
accounting for Federal income tax pur-
poses. Section 1.446–1(e)(3)(ii) autho-
rizes the Commissioner to prescribe ad-
ministrative procedures setting forth the
limitations, terms,and conditions neces-
sary to permit a taxpayer to obtain consent
to change a method of accounting.
SECTION 3. SCOPE
.01Applicability. This revenue proce-
dure applies to a taxpayer that has a depre-
ciable interest in steam or electric power
generation property primarily used in the
trade or business of generating or selling
steam (or steam in the form of heat) or
electricity.
.02Inapplicability. This revenue pro-
cedure applies only to property defined
in Appendix A of this revenue procedure.
Specifically, this revenue procedure does
not apply to property used to produce
electricity from alternative energy sources
such as wind or photovoltaic.
.03Scope determined at entity level for
consolidated groups and passthrough enti-
ties. The determination of whether a tax-
payer is within the scope of this revenue
procedure is made by each member of a
consolidated group, by a partnership, or by
an S corporation.
SECTION 4. DEFINITIONS
The following definitions apply solely
for purposes of this revenue procedure:
.01Generation property.“Genera-
tion property” means real and personal
property that is used to generate steam or
electricity and transmit that steam or elec-
tricity to the transmission and distribution
network. Generation property excludes
the transmission and distribution network.
Examples of generation property include
coal-fired, natural gas-fired, oil-fired, hy-
droelectric, and nuclear-powered power
stations. Generation property does not in-
clude real or personal property not directly
used to generate, conduct, or control steam
or electricity at any point within a power
station. For example, generation property
does not include an accessory building
(such as an administrative, training, or
laboratory building), an office building,
an administrative office section of a power
station, or furniture and equipment used in
such buildings or offices.
.02Power station. A “power station”
is generally, at a minimum, one generating
unit — that is, the combination of a power
source (some means of providing kinetic
energy to the turbine, such as a boiler or
dam), a turbine, and agenerator. A power
station may combine multiple generating
units. However, a heat-only boiler station
for generating steam power also qualifies
as a power station for purposes of this rev-
enue procedure. Due to design variations,
an individual power station may or may
not contain all of the units of property or
major components listed in Appendix A.
SECTION 5. UNITS OF PROPERTY
AND MAJOR COMPONENTS OF
GENERATION PROPERTY
.01In general. If used in accordance
with the requirements set forth in this rev-
enue procedure, the unit of property or ma-
jor component determinations provided in
Appendix A of this revenue procedure will
not be challenged by the Service under
§ 263(a) and the regulations thereunder.
.02Universal use of units of property
not required. A taxpayer within the scope
of this revenue procedure is not required
to use all the unit of property definitions
provided in Appendix A of this revenue
procedure and, therefore, may use one or
more of the unit of property definitions
provided. However, this revenue proce-
dure does not apply to property for which
a taxpayer does not use a unit of property
definition provided in Appendix A. A tax-
payer that uses a unit of property defini-
tion provided in Appendix A must also use
the major component definition(s) listed in
Appendix A for that unit of property. Ad-
ditionally, a taxpayer may not rely on a
major component definition without using
the corresponding unit of property defini-
tion. Once used, a unit of property defi-
nition and the corresponding major com-
ponent definition(s) for that unit of prop-
erty apply to all similar assets, including
similar electric generationpropertysubse-
quently acquired in an applicable asset ac-
quisition as defined in § 1060 or in a trans-
action to which § 338(h)(10) applies.
.03Limitation. A taxpayer may not rely
on the unit of property definitions provided
in this revenue procedure for any other
purpose of the Code or Regulations, in-
cluding for determining the unit of prop-
erty under other Code sections (for exam-
ple, § 263A), or determining the asset for
depreciation purposes (including placed in
service dates, retirements, dispositions, or
classification under § 168(e) or Rev. Proc.
87–56, 1987–2 C.B. 674), for the same
or similar type of assets used in electric
power generation.
.04Example. X is an electric utility company that
files its Federal income tax return on a calendar year
basis. X operates a power plant to generate electric-
ity and uses the unit of property and major compo-
nent definitions provided by this revenue procedure
for each of the following items of property: (1) a
structure that is not a building under § 1.48–1(e)(1),
(2) four pulverizers that grind coal, (3) one boiler
that produces steam, (4) one turbine that converts
the steam into mechanical energy, and (5) one gen-
erator that converts mechanical energy into electrical
energy. In addition, the turbine contains a series of
blades that cause the turbine to rotate when affected
by the steam. Under section 5 and Appendix A, sec-
tion 2, of this revenue procedure, X treats the struc-
ture (Appendix A, section 2.02), the boiler (Appen-
dix A, section 2.03), the turbine (Appendix A, sec-
tion 2.11), the generator (Appendix A, section 2.12),
and each of the four pulverizers (Appendix A, sec-
tion 2,18) as separate units of property. X is not re-
quired to treat components, such as the turbine blades,
as separate units of property, but under Appendix A,
section 2.11(2)(c), each complete set of blades in each
section of the turbine must be treated as a major com-
ponent.
SECTION 6. CHANGE IN METHOD
OF ACCOUNTING
.01In general. A change to use the
unit of property and major component def-
initions provided by this revenue proce-
dure is a change in method of account-
ingtowhichtheprovisionsof§§446and
481, and the regulations thereunder, ap-
ply. A taxpayer that wants to change to
the method of accounting described in this
revenue procedure must use the automatic
change in method of accounting provisions
in Rev. Proc. 2011–14, 2011–4 I.R.B. 330,
or its successor, as modified by this rev-
enue procedure.
.02Extrapolation. Taxpayers apply-
ing the method of accounting provided in
this revenue procedure may extrapolate re-
May 28, 201311432013–22 I.R.B.

sults to determine the § 481(a) adjustment
amount for certain years by following the
relevant procedures provided in Appendix
B to this revenue procedure. Extrapolation
methodologies not permitted in Appendix
B to this revenue procedure are not permit-
ted under the method of accounting.
.03Automatic change.Rev.Proc.
2011–14 is modified to add new section
3.20 to the APPENDIX, to read as follows:
.20Method of accounting under Rev.
Proc. 2013–24 for taxpayers in the busi-
ness of generating steam or electric power.
(1)Description of change. This change
applies to a taxpayer that is within the
scope of Rev. Proc. 2013–24 and wants
to change its treatment of generation prop-
erty expenditures to use all, or some of, the
unit of property definitions and the corre-
sponding major component definitions de-
scribed in Rev. Proc. 2013–24.
(2)Waiver of scope limitations.The
scopelimitationsinsection4.02ofthis
revenue procedure do not apply to an eli-
gible taxpayer that changes to the method
of accounting provided in Rev. Proc.
2013–24 for its first, second, or third tax-
able year ending after December 30, 2012.
(3)Section 481(a) adjustment.
(a) A taxpayer must take the entire net
§ 481(a) adjustment into account (whether
positive or negative) in computing taxable
income in the year of change. For guid-
ance regarding the use of extrapolation in
computing a § 481(a) adjustment, see Rev.
Proc. 2013–24, section 6.02 and Appendix
B.
(b) A taxpayer changing to this method
of accounting must not include in the
§ 481(a) adjustment any amount attribut-
able to property for which the taxpayer
elected to apply the repair allowance under
§ 1.167(a)–11(d)(2) for any taxable year
in which the repair allowance election was
made.
(4)Ogden copy of Form 3115 required
in lieu of national office copy. A taxpayer
changing its methodof accounting under
section 3.20 of the APPENDIX must file
a signed copy of its completed Form 3115
with the IRS in Ogden, UT (Ogden copy),
in lieu of filing the national office copy
no earlier than the first day of the year
of change and no later than the date the
taxpayer files the original Form 3115 with
its Federal income tax return for the year
of change.Seesections 6.02(3)(a)(ii)(B)
(providing the general rules) and section
6.02(7)(b) (providing the mailing address)
of this revenue procedure.
(5)Designated automatic accounting
method change numbers. The designated
automatic accounting method change
number for a change to the method of ac-
counting provided in Rev. Proc. 2013–24
is “182.”
(6)Contact information. For further
information regarding a change under this
section, contact Alan S. Williams at (202)
622–4950 (not a toll free call).
SECTION 7. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2011–14 is modified to in-
clude the accounting method change in this
revenue procedure in section 3 of the Ap-
pendix.
SECTION 8. EFFECTIVE DATE
This revenue procedure is effective for
taxable years ending on or after December
31, 2012.
SECTION 9. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Alan S. Williams of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further information
regarding this revenue procedure contact
Alan S. Williams at 202–622–4950 (not a
toll free call).
2013–22 I.R.B.1144May 28, 2013

APPENDIX A
Unit of Property & Major Component Definitions
SECTION1. INGENERAL
.01In general. Listed throughout this Appendix are units of property and major components for specified po
wer stations. Due to
design variations, an individual power station may not contain all of the units of property or major compon
ents listed for that particular
type of power station. A power station may combine multiple generating units. A generating unit general
ly includes, at a minimum, a
power source, a turbine, and a generator. A unit of property that is shared by more than one generating uni
t is a single unit of property.
.02Fans and pumps. Unless otherwise stated, all fans and pumps include the electric motor that powers th
e fan or pump.
.03Water conveyance system. A water conveyance system includes all piping, fittings, valves, pumps, a
nd other equipment in-
cluded in the unit of property through which water or steam passes, unless identified with another major
component.
.04Instrumentation and controls. Instrumentation and controls includes both those in the control roo
m and those adjacent to the
unit of property for which they are a major component.
.05Generating unit determination. For purposes of this revenue procedure, the units of property for
a power station are determined
on a generating-unit-by-generating-unit basis.
SECTION 2. UNITS OF PROPERTY FOR COAL-FIRED POWER STATIONS
.01In general. For coal-fired power stations, the Service will not challenge any of the following unit of property or major compo-
nent determinations for purposes of the application of § 263(a) and the regulations thereunder.
.02Station property. (1) Station property serving a generating unit constitutes a single unit of property. Station property is each
structure that physically supports and/or encloses the generating unit equipment, along with the structure’s associated systems and
support facilities. It does not include accessory buildings (such as administrative, training, orlaboratory buildings) or administrative
office sections of the power station and systems that support administrative space (such as heating,air conditioning and ventilation,
plumbing, and the electrical system within the administrative space). As noted in AppendixA, section 1.01 above, if a unit of property
is shared by more than one generating unit, the unit of property is a single unit of property. However, in a power station with two
generating units, if a single structure and its associated systems solely supports generatingunit 1, another structure and its associated
systems solely supports generating unit 2, and a third structure and its associated systems supports both generating units 1 and 2, there
are three separate units of station property (the structure and its associated systems solely supporting generating unit 1, the structure
and its associated systems solely supporting generating unit 2, and the structure and its associated systems supporting both generating
units 1 and 2).
(2) Station property contains the following major components:
(a) turbine building crane,
(b) all other overhead cranes, and
(c) all compressed air systems.
.03Main boiler. (1) Each main boiler constitutes a single unit of property. The main boiler is the equipment where coal is burned
and heat is transferred to water in a process that creates steam.
(2) Each main boiler contains the following major components:
(a) primary furnace, including all tubing, baffles, and valves,
(b) economizer,
(c) steam drum,
(d) reheater,
(e) superheater,
(f) convection pass,
(g) complete burner system, and
(h) instrumentation and controls.
.04Auxiliary boiler. (1) Each auxiliary boiler constitutes a single unit of property. The auxiliary boiler is the equipment that
supplies steam from a source independent of the main boiler. The auxiliary boiler is generally used to power the turbines during the
process of starting the operation of the generating unit before the main boiler is operating.
(2) The auxiliary boiler has no major components.
.05Combustion air system. (1) Each combustion air system constitutes a single unit of property. The combustion air system is the
equipment that controls the air draft for efficient burning of coal and the discharge of flue gas.
(2) Each combustion air system contains the following major components:
(a) forced draft fan,
(b) induced draft fan,
(c) induced draft booster fan,
May 28, 201311452013–22 I.R.B.

(d) ductwork, including the combustion air ductwork, the flue gas ductwork, and all related expansion joints,
(e) air preheater, and
(f) instrumentation and controls.
.06Flue-gas desulfurization (FGD) scrubber (SO
x
removal) system. (1) Each Flue-gas desulfurization (FGD) scrubber (SO
x
re-
moval) system constitutes a single unit of property. The FGD scrubber system is the equipment that removes forms of sulfur oxide
(SO
x
)fromfluegas.
(2) FGD scrubber system contains the following major components:
(a) FGD sorbent handling system, which receives, stores, and transports the sorbent,
(b) sorbent delivery system, which includes the crushing and slicing equipment,
(c) FGD vessel,
(d) scrubber circulating pumps,
(e) scrubber wastewater removal system, and
(f) instrumentation and controls.
.07NO
x
removal system. (1) Each NO
x
removal system constitutes a single unit of property. The NO
x
removal system is the
equipment that removesnitrogen oxides (NO
x
) from the flue gas.
(2) The NO
x
removal system contains the following major components:
(a) selective catalytic reducer box, and
(b) ammonia/urea transport system, includingthe transport and injection equipment, and
(c) instrumentation and controls.
.08Activated carbon handling and injection system. (1) Each activated carbon handling and injection system constitutes a single
unit of property. The activated carbon handling and injection system is the equipment that removes mercury (Hg) by the injection of
carbon into the flue gas.
(2) The activated carbon handling and injection system contains one major component: the instrumentation and controls.
.09Continuous emissions monitoring system. (1) Each continuous emissions monitoringsystem constitutes a single unit of prop-
erty. The continuous emissions monitoring system isthe equipment that monitors emissions at all times.
(2) The continuous emissions monitoring system containsone major component: the instrumentation and controls.
.10Condensate/feedwater system. (1) Each condensate/feedwater system constitutes a single unit of property. The condensate/feed-
water system is the equipment that forms a closed loop through which the treated feedwater circulates from the condenser to the steam
drum within the boiler, through the turbines, and back to the condenser.
(2) The condensate/feedwater system contains the following major components, the number of which will vary depending on the
number of boiler feed pumps, boiler feed pump turbines, and condensate pumps in the system:
(a) each boiler feed pump turbine, if the boiler feed pump is powered by a steam turbine,
(b) each boiler feed pump,
(c) the deaerater system,
(d) the primary condensate pump,
(e) the water conveyance system,
(f) the evaporator system, and
(g) instrumentation and controls.
.11Turbine. (1) Each turbine constitutes a single unit of property. The turbine is the equipment that extracts thermal power from
pressurized steam and converts the energy into a rotary motion, which motion is used to power the generator.
(2) The turbine contains the following major components, the number of which will vary, depending on the number of pressure
sections in the turbine:
(a) shell and casing,
(b) instrumentation and controls,
(c) complete set of blades in each section of the turbine (e.g., if turbine has high, medium, and low-pressure sections, there are
three major components: one set of blades for each section of the turbine), and
(d) shaft section in each section of the turbine (e.g., if turbine has high, medium, and low-pressure sections, there are three major
components, one shaft for eachsection of the turbine).
.12Generator. (1) Each generator constitutes a single unit of property.The generator is the equipment that converts the mechanical
energy produced by the turbine to electrical energy.
(2) The generator contains the following major components:
(a) stator, including the windings, shell, and casing,
(b) rotor, including core and windings, and
(c) instrumentation and controls.
.13Condenser and cooling water system. (1) Each condenser and cooling water system constitutes a single unit of property. The
condenser and cooling water system is the equipment that converts the steam in the condensate/feedwater system back to water as it
passes into the condenser.
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(2) The condenser and cooling water systemcontains the following majorcomponents, the number of which will vary, depending
on the number of circulating water pumps used to draw water from a lake, river, or ocean or to feed one or more cooling water towers:
(a) condenser,
(b) cooling tower,
(c) water conveyance system,
(d) the primary circulating water pump that draws from a unique water source (such as a lake, river, or ocean) for a once-through
system, or which feeds one or more cooling water towers, and
(e) instrumentation and controls.
.14Water treatment system. (1) Each water treatment system constitutes a single unit of property. The water treatment system is
generally the equipment that removes minerals and other impuritiesin the water, which is used in the condensate/feedwater system
and the condenser and cooling water system.
(2) The water treatment system contains the following major components:
(a) filtration system,
(b) desalinization system,
(c) demineralization system,
(d) disinfection system, including chlorination,
(e) sedimentation system, and
(f) instrumentation and controls.
.15Water supply system. (1) Each water supply system constitutes a single unit of property. The water supply system is the
equipment that supplies water to a generating unit.
(2) The water supply system contains the following major components:
(a) each storage tank,
(b) water conveyance system, and
(c) instrumentation and controls.
.16Wastewater system. (1) Each wastewater system constitutes a single unit of property. A wastewater system that integrates
multiple treatment processes into one system is a single unit of property. Wholly separate and discrete wastewater systems are treated
as separate units of property. The wastewater system is the equipment that treats anddisposes of wastewater.
(2) The wastewater system containsthe following major components:
(a) each treatment tank,
(b) wastewater conveyance system, and
(c) instrumentation and controls.
.17Fuel storage and handling system. (1) Each fuel storage and handling system constitutes a single unit of property. The fuel
storage and handling system is the equipment that receives the coal, stores it, and delivers it to the boiler.
(2) The fuel storage and handling system contains the following major components:
(a) coal handling systems,
(b) coal conveyors,
(c) each silo,
(d) coal handling stations, and
(e) instrumentation and controls.
.18Pulverizer. (1) Each pulverizer constitutes a separate unit of property. The pulverizer is the equipment that grinds the coal into
a finer substance to improve combustion.
(2) The pulverizer has no major components.
.19Ash handling system. (1) Each ash handling system constitutes a single unit of property. The ash handling system is the
equipment that captures, removes, transports, and stores bottom ash and fly ash, which areparticulates created bythe burning of coal.
(2) The ash handling system contains the following major components:
(a) each fly ash pond,
(b) bottom ash handling system,
(c) electrostatic precipitator,
(d) bag house, including bags,
(e) fly ash handling system, and
(f) instrumentation and controls.
.20Auxiliary power system. (1) Each auxiliary power system constitutes a single unit of property. The auxiliary power system
is the equipment that provides back-up electrical power for a generating unit, which is needed to restart the generating unit after a
shutdown.
(2) The auxiliary power system contains onemajor component: each auxiliary generator.
.21Simulator. (1) Each simulator constitutes a single unit of property. The simulator is the equipment that is used to train plant
personnel in the operations (including safety and rescue) of the power plant.
(2) The simulator has no major components.
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.22Main step-up transformer. (1) Each main step-up transformer constitutes a single unit of property. The main step-up transformer
is equipment that increases the voltage of the electricity generated at the generation plant to a voltage level needed for the transmission
of the electricity.
(2) The main step-up transformer has no major components.
.23Ventilation system. (1) Each ventilation system serving a unit of station property, as defined in subsection 2.02 above, constitutes
a single unit of property. The ventilation system is the equipmentthatcirculatesandfiltersthe air in the station property.
(2) No special rule is provided under this revenue procedure for the major components of the ventilation system. The major com-
ponents of the ventilation system are determined under the general principles of § 263(a).
.24Station electrical delivery system. (1) A power station’s electrical delivery system constitutes a single unit of property. The
station electrical delivery systemis the equipment that distributeselectrical power in the power plant.
(2) No special rule is provided under this revenue procedure for the major componentsof the station electrical system. The major
components of the station electricaldelivery system are determined under the general principles of § 263(a).
.25Safety system. (1) A power station’s safety equipment constitutes a single unit of property. The safety system is the equipment
that alerts power plant personnel to potentially hazardous conditions (including sirens, alarms, and evacuation systems).
(2) No special rule is provided under this revenue procedure for the major components of the safety system. The major components
of the safety system are determined under the general principles of § 263(a).
.26Fire protection system. (1) A power station’s fire protection system constitutes a single unit of property. The fire protection
system is the equipment that detects,suppresses, and extinguishes fires.
(2) No special rule is provided under this revenue procedure forthe major components of the fire protection system. The major
components of the fire protection system are determined under the general principles of § 263(a).
.27Accessory Buildings. (1) Each accessory building constitutes a singleunit of property. An accessory building is a building
located at a power plant that is not station property as defined in subsection 2.02 above. For example, laboratory buildings, training
buildings, warehouses, administrative buildings, pre-admittance buildings, and maintenance shops are accessory buildings.
(2) No special rule is providedunder this revenue procedure for the major components of the accessory buildings. The major
components or substantial structural parts of an accessory building are determined under the general principles of § 263(a).
SECTION 3. UNITS OF PROPERTY FOR NATURAL GAS OR OIL FIRED POWER STATIONS
.01In general. For natural gas or oil fired power stations, the Service will not challenge any of the following unit of property or
major component determinations for purposes of the application of § 263(a) and the regulations thereunder.
.02Station property. (1) Station property serving a natural gas or oil fired generating unit constitutes a single unit of property.
Station property is each structure that physically supports and/or encloses the generating unit equipment, and associated systems and
support facilities. It does not include accessory buildings (such as administrative, training, orlaboratory buildings) or administrative
office sections of the power station and systems that support administrative space (such as heating,air conditioning and ventilation,
plumbing, and the electrical system within the administrative space). As noted in AppendixA, section 1.01 above, if a unit of property
is shared by more than one generating unit, the unit of property is a single unit of property. However, in a power station with two
generating units, if a single structure and its associated systems solely supports generatingunit 1, another structure and its associated
systems solely supports generating unit 2, and a third structure and its associated systems supports bothgeneratingunits1and2,there
are three separate units of station property (the structure and its associated systems solely supporting generating unit 1, the structure
and its associated systems solely supporting generating unit 2, and the structure and its associated systems supporting both generating
units 1 and 2).
(2) Station property contains the following major components:
(a) turbine building crane,
(b) all other overhead cranes, and
(c) all compressed air systems.
.03Main Boiler. (1) Each main boiler constitutes a single unit of property. The main boiler is the equipment where natural gas or oil
is burned and heat is transferred to water in a process that creates steam. This unit of property is not included with either single-cycle
or combined-cycle power stations.
(2) Each main boiler contains the following major components:
(a) primary furnace, including all tubing, baffles, and valves,
(b) economizer,
(c) steam drum,
(d) reheater,
(e) superheater,
(f) convection pass,
(g) complete burner system, and
(h) instrumentation and controls.
2013–22 I.R.B.1148May 28, 2013

.04Auxiliary boiler. (1) Each auxiliary boiler constitutes a single unit of property. The auxiliary boiler is the equipment that
supplies steam from a source independent of the main boiler. The auxiliary boiler is generally used to power the turbines during the
process of starting the operation of the generation plant before the main boiler is operating.
(2) The auxiliary boiler has no major components.
.05Combustion air system. (1) Each combustion air system constitutes a single unit of property. The combustion air system is the
equipment that controls the air draft for efficient burning of natural gas or oil and the discharge of flue gas.
(2) The combustion air system contains the following major components:
(a) forced draft fan,
(b) induced draft fan,
(c) ductwork, including the combustionair ductwork, the flue gas ductwork, and all related expansion joints,
(d) air preheater, and
(e) instrumentation and controls.
.06NO
x
removal system. (1) Each NOx removal system constitutes a single unit of property. The NO
x
removal system is the
equipment that removesnitrogen oxides (NO
x
) from the flue gas.
(2) The NO
x
removal system contains the following major components:
(a) selective catalytic reducer box,
(b) ammonia/urea transport system, includingthe transport and injection equipment, and
(c) instrumentation and controls.
.07Continuous emissions monitoring System. (1) Each continuous emissions monitoring system constitutes a single unit of prop-
erty. The continuous emissions monitoring system isthe equipment that monitors emissions at all times.
(2) The continuous emissions monitoring system containsone major component: the instrumentation and controls.
.08Condensate/feedwater system. (1) Each condensate/feedwater system constitutes a single unit of property. The condensate/feed-
water system is the equipment that forms a closed loop through which the treated feedwater circulates from the condenser to the steam
drum within the boiler, through the turbines, and back to the condenser.
(2) The condensate/feedwater system contains the following major components, the number of which will vary depending on the
number of boiler feed pumps, boiler feed pump turbines, and condensate pumps in the system:
(a) each boiler feed pump turbine, if the boiler feed pump is powered by a steam turbine,
(b) each boiler feed pump,
(c) the deaerater system,
(d) the primary condensate pump,
(e) the water conveyance system,
(f) the evaporator system, and
(g) the instrumentation and controls.
.09Turbine. (1) Each turbine constitutes a single unit of property. The turbine is the equipment that extracts thermal power from
pressurized steam and converts the energy into a rotary motion, which motion is used to power the generator.
(2) The turbine contains the following major components, the number of which will vary, depending on the number of pressure
sections in the turbine:
(a) shell and casing,
(b) instrumentation and controls,
(c) complete set of blades in each section of the turbine (e.g., if the turbine has high, medium, and low-pressure sections, there are
three major components: one set of blades for each section of the turbine),
(d) shaft section in each section of the turbine (e.g., if the turbine has high, medium, and low-pressure sections, there are three
major components: one shaft section for each section of the turbine).
.10Generator. (1) Each generator constitutes a single unit of property.The generator is the equipment that converts the mechanical
energy produced by the turbine to electrical energy.
(2) The generator contains the following major components:
(a) stator, including the windings, shell, and casing,
(b) rotor, including core and windings, and
(c) instrumentation and controls.
.11Condenser and cooling water system. (1) Each condenser and cooling water system constitutes a single unit of property. The
condenser and cooling water system is the equipment that converts the steam in the condensate/feedwater system back to water as it
passes into the condenser.
(2) The condenser and cooling water systemcontains the following majorcomponents, the number of which will vary, depending
on the number of circulating water pumps used to draw water from a lake, river, or ocean or to feed one or more cooling water towers:
(a) condenser,
(b) cooling tower,
(c) water conveyance system,
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(d) each primary circulating water pump thatdraws from a unique water source (such as a lake, river, or ocean) for a once-through
system, or which feeds one or more cooling water towers, and
(e) instrumentation and controls.
.12Water treatment system. (1) Each water treatment system constitutes a single unit of property. The water treatment system is
generally the equipment that removes minerals and other impuritiesin the water, which is used in the condensate/feedwater system
and the condenser and cooling water system.
(2) The water treatment system contains the following major components:
(a) filtration system,
(b) desalinization system,
(c) demineralization system,
(d) disinfection system, including chlorination,
(e) sedimentation system, and
(f) instrumentation and controls.
.13Water supply system. (1) Each water supply system constitutes a single unit of property. The water supply system is the
equipment that supplies water to a generating unit.
(2) The water supply system contains the following major components:
(a) each storage tank,
(b) water conveyance system, and
(c) instrumentation and controls.
.14Wastewater system. (1) Each wastewater system constitutes a single unit of property. A wastewater system that integrates
multiple treatment processes into one system is a single unit of property. Wholly separate and discrete wastewater systems are treated
as separate units of property. The wastewater system is the equipment that treats anddisposes of wastewater.
(2) The wastewater system containsthe following major components:
(a) each treatment tank,
(b) wastewater conveyance system, and
(c) instrumentation and controls.
.15Fuel storage and handling system. (1) Each fuel storage and handling system constitutes a single unit of property. The fuel
storage and handling system isthe equipment that receives the natural gas oroil, stores it, and delivers it to the boiler.
(2) The fuel storage and handling system contains the following major components:
(a) each fuel storage tank,
(b) fuel transport system, and
(c) instrumentation and controls.
.16Auxiliary power system. (1) Each auxiliary power system constitutes a single unit of property. The auxiliary power system
is the equipment that provides back-up electrical power for a generating unit, which is needed to restart the generating unit after a
shutdown.
(2) The auxiliary power system contains onemajor component: each auxiliary generator.
.17Simulator. (1) Each simulator constitutes a single unit of property.The simulator is the equipment that is used to train plant
personnel in the operations (including safety and rescue) of the power plant.
(2) The simulator has no major components.
.18Main step-up transformer. (1) Each main step-up transformer constitutes a single unit of property. The main step-up transformer
is equipment that increases the voltage of the electricity generated at the generation plant to a voltage level needed for the transmission
of the electricity.
(2) The main step-up transformer has no major components.
.19Ventilation system. (1) Each ventilation system serving a unit of station property, as defined in subsection 3.02 above, constitutes
a single unit of property. The ventilation system is the equipmentthatcirculatesandfiltersthe air in the station property.
(2) No special rule is provided under this revenue procedure for the major components of the ventilation system. The major com-
ponents of the ventilation system are determined under the general principles of § 263(a).
.20Station electrical delivery system. (1) A power station’s electrical delivery system constitutes a single unit of property. The
station electrical delivery system is the equipment that distributes electrical power in the generation plant.
(2) No special rule is provided under this revenue procedure for the major componentsof the station electrical system. The major
components of the station electrical system are determined under the general principles of § 263(a).
.21Safety system. (1) A power station’s safety equipment constitutes a single unit of property. The safety system is the equipment
that alerts generation plant personnel to potentially hazardous conditions (including sirens, alarms, and evacuation systems).
(2) No special rule is provided under this revenue procedure for the major components of the safety system. The major components
of the safety system are determined under the general principles of § 263(a).
.22Fire protection system. (1) A power station’s fire protection system constitutes a single unit of property. The fire protection
system is the equipment that detects,suppresses and extinguishes fires.
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(2) No special rule is provided under this revenue procedure forthe major components of the fire protection system. The major
components of the fire protection system are determined under the general principles of § 263(a).
.23Combustion turbine. (1) Each combustion turbine constitutes a single unit of property. The combustion turbine is the equipment
that draws in air, compresses it, mixes it with fuel, ignites it to produce hot gases, and converts the energy into a rotary motion, which
motion is used to power the generator.
(2) The combustion turbine contains the following major components:
(a) compressor section,
(b) combustor section,
(c) drive section,
(d) shaft,
(e) shell and casing, and
(f) instrumentation and controls.
.24Heat recovery steam generator. (1) Each heat recovery steam generator is a unitof property. The heat recovery steam generator
is the equipment that uses heat exhaust from a combustion turbine and produces steam that can be used on a steam turbine. A heat
recovery steam generator is used in a combined-cycle power station.
(2) The heat recovery steam generator has six major components:
(a) ductwork, including the combustionair ductwork, the flue gas ductwork, and all related expansion joints,
(b) deaerator,
(c) economizer,
(d) evaporator,
(e) superheater, and
(f) instrumentation and controls.
.25Accessory buildings. (1) Each accessory building constitutes a single unit of property.An accessory building is a building
located at a power plant that is not station property as defined in subsection 3.02 above. For example, laboratory buildings, training
buildings, warehouses, administrative buildings, pre-admittance buildings, and maintenance shops are accessory buildings.
(2) No special rule is providedunder this revenue procedure for the major components of the accessory buildings. The major
components or substantial structural parts of an accessory building are determined under the general principles of § 263(a).
SECTION 4. UNITS OF PROPERTY FOR HYDROELECTRIC POWER STATIONS
.01In general. For hydroelectric power stations, the Service will not challenge any of the following unit of property or major
component determinations for purposes of the application of § 263(a) and the regulations thereunder.
.02Station Property. (1) Station property serving a hydroelectric generating unit constitutes a single unit of property. Station
property is each structure that physically supports and/or encloses the generating unit equipment, and associated systems and support
facilities. It does not include accessory buildings (such as administrative, training, orlaboratory buildings) or administrative office
sections of the power station and systems that support administrative space (such as heating, air conditioning and ventilation, plumb-
ing, and the electrical system within the administrative space). As noted in Appendix A,section 1.01 above, if a unit of property
is shared by more than one generating unit, the unit of property is a single unit of property. However, in a power station with two
generating units, if a single structure and its associated systems solely supports generatingunit 1, another structure and its associated
systems solely supports generating unit 2, and a third structure and its associated systems supports both generating units 1 and 2, there
are three separate units of station property (the structure and its associated systems solely supporting generating unit 1, the structure
and its associated systems solely supporting generating unit 2, and the structure and its associated systems supporting both generating
units 1 and 2).
(2) Station property contains the following major components:
(a) turbine room crane,
(b) all other overhead cranes, and
(c) all compressed air systems.
.03Dam. (1) Each dam constitutes a single unit of property. The dam is the equipment that forms a barrier that impounds water
and manages its flow.
(2) The dam contains the following major components:
(a) spillway,
(b) each spillway gate,
(c) intakes, including trash racks and rakes,
(d) fish passage system (e.g., fish ladders, elevators, and similar items), and
(e) instrumentation and controls.
.04Water control system. (1) Each water control system constitutes an individual unit of property. The water control system is the
equipment that controls the flow of water through the dam and to a water turbine. Within the water control system, a penstock carries
May 28, 201311512013–22 I.R.B.

water from a starting point, such as a reservoir intake, to a subsequent location, such as a turbine or a point of branching to multiple
turbines or other penstocks. If the latter point is a branch, then that is the point of beginning of another penstock.
(2) The water control system contains the following major components:
(a) each penstock, includingtunnels, flumes, and canals,
(b) each primary shut-off gate,
(c) surge shafts, tanks, and chambers associated with each penstock,
(d) navigation locks, and
(e) instrumentation and controls.
.05Water turbine. (1) Each water turbine constitutes an individual unit of property. The water turbine is the equipment that converts
the kinetic energy of moving water into a rotary motion, which motion is used to power the generator.
(2) The water turbine contains the following major components:
(a) nozzles,
(b) each complete water wheel or runner,
(c) turbine shaft,
(d) turbine shell and casing,
(e) each wicket gate set, and
(f) instrumentation and control.
.06Generator. (1) Each generator constitutes a single unit of property.The generator is the equipment that converts the mechanical
energy produced by the water turbine to electrical energy.
(2) The generator contains the following major components:
(a) stator, including the windings, shell, and casing,
(b) rotor, including core and windings, and
(c) instrumentation and controls.
.07Water treatment system (e.g., at pumped storage facility). (1) Each water treatment system constitutes a single unit of property.
The water treatment system is generally theequipment that removes minerals and other impurities in the water to produce higher
purity water for industrial cooling, which, if present, is used for cooling the turbines and generators.
(2) The water treatment system contains the following major components:
(a) filtration system,
(b) demineralization system, and
(c) instrumentation and controls.
.08Cooling and utility water system. (1) Each cooling and utility water system constitutes a single unit of property. The cooling
and utility water system is the equipment that supplies cooling water or utility water to a generating unit.
(2) The cooling and utility water system contains the following major components:
(a) tanks,
(b) piping system, and
(c) instrumentation and controls.
.09Auxiliary power system. (1) Each auxiliary power system constitutes a single unit of property. The auxiliary power system is
the equipment that provides back-up electrical power for the generation plant.
(2) The auxiliary power system contains onemajor component: each auxiliary generator.
.10Main step-up transformer. (1) Each main step-up transformer constitutes a single unit of property. The main step-up transformer
is equipment that increases the voltage of the electricity generated at the generation plant to a voltage level needed for the transmission
of the electricity.
(2) The main step-up transformer has no major components.
.11Ventilation System. (1) Each ventilation system serving a unit of station property, as defined in subsection 4.02 above, consti-
tutes a single unit of property. The ventilation system is the equipment that circulates and filters the air in the station property.
(2) No special rule is provided under this revenue procedure for the major components of the ventilation system. The major com-
ponents of the ventilation system are determined under the general principles of § 263(a).
.12Station electrical delivery system. (1) A power station’s electrical delivery system constitutes a single unit of property. The
station electrical delivery systemis the equipment that distributeselectrical power in the power plant.
(2) No special rule is provided under this revenue procedure for the major componentsof the station electrical system. The major
components of the station electrical system are determined under the general principles of § 263(a).
.13Safety system. (1) A power station’s safety equipment constitutes a single unit of property. The safety system is the equipment
that alerts generation plant personnel to potentially hazardous conditions (including sirens, alarms, and evacuation systems).
(2) No special rule is provided under this revenue procedure for the major components of the safety system. The major components
of the safety system are determined under the general principles of § 263(a).
.14Fire Protection System. (1) A power station’s fire protection system constitutes a single unit of property. The fire protection
system is the equipment that detects,suppresses, and extinguishes fires.
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(2) No special rule is provided under this revenue procedure forthe major components of the fire protection system. The major
components of the fire protection system are determined under the general principles of § 263(a).
.15Accessory Buildings. (1) Each accessory building constitutes a singleunit of property. An accessory building is a building
located at a hydroelectric power plant that is notstation property. For example, laboratorybuildings, training buildings, warehouses,
administrative buildings, pre-admittance buildings, and maintenance shops are accessory buildings.
(2) No special rule is provided under this revenue procedure for the major components of the accessory buildings, The major
components or substantial structural parts of an accessory building are determined under the general principles of § 263(a).
SECTION 5. UNITS OF PROPERTY FOR NUCLEAR-POWERED POWER STATIONS
.01In general. A nuclear-powered power station uses either a boiling water reactor (BWR)or a pressurized water reactor (PWR)
to generate steam, but not both. Therefore, an individual nuclear-powered power station will not contain all of the units of property
or major components listed below. For nuclear-powered power stations, the Service will not challenge any of the following unit of
property or major component determinations for purposes ofthe application of § 263(a) and the regulations thereunder.
.02Station property. (1) Station property serving a generating unit constitutes a single unit of property. Station property is each
structure that physically supports and/or encloses the generating unit equipment, and associatedsystems and support facilities. It does
not include accessory buildings (such as administrative, training, or laboratory buildings) or administrative office sections of the power
station and systems that support administrative space (such as heating, air conditioning and ventilation, plumbing, and the electrical
system within the administrative space). As noted in Appendix A,section 1.01 above, if a unit ofproperty is shared by more than
one generating unit, the unit of property is a single unit of property. However, in a power station with two generating units, if a single
structure and its associated systems solely supports generating unit 1, another structure and its associated systems solely supports
generating unit 2, and a third structure and itsassociated systems supports both generating units 1 and 2, there are three separate units
of station property (the structure and its associated systems solely supporting generating unit 1, the structure and its associated systems
solely supporting generating unit 2, and the structure and itsassociated systems supporting both generating units 1 and 2).
(2) Station property contains the following major components:
(a) turbine building crane,
(b) reactor building crane,
(c) all other overhead cranes, and
(d) all compressed air systems.
.03Containment Building. (1) Each containment building constitutes a single unit of property. The containment building is the
structure enclosing a nuclear reactor.
(2) The containment building contains one major component: the containment building access doors.
.04Reactor emergency poison system. (1) Each emergency poison system for an individual reactor constitutes a single unit of
property. The reactor emergency poison system is the equipment used to inject soluble neutron poison into the reactor coolant in the
event of an emergency to terminate the heat generating nuclear reaction.
(2) The reactor emergency poison system contains the following major components:
(a) storage tank, and
(b) injection equipment.
.05Reactor vessel. (1) Each reactor vessel constitutes a single unit of property. The reactor vessel is the pressurized vessel con-
taining the reactor coolant and the reactor core where the heat produced by nuclear fission is transferred to water in a process that
creates steam.
(2) The reactor vessel contains thefollowing major components:
(a) reactor vessel head,
(b) steam separator (BWR),
(c) steam dryer (BWR),
(d) reactor core plate assembly, and
(e) instrumentation and controls.
.06Nuclear fuel system. (1) Each nuclear fuel system constitutes a single unit of property. The nuclear fuel system is the equipment
that monitors and controls thenuclear fuel in a reactor vessel.
(2) The nuclear fuel system contains one major component: instrumentation and controls.
.07Reactor recirculation system (BWR). (1) Each reactor recirculation system constitutes a single unit of property. The reactor
recirculation system is the equipment in a boiling water reactor that returns condensed water to the reactor core to be heated into steam.
(2) The reactor recirculation system contains the following major components:
(a) each recirculating pump,
(b) each jet pump, and
(c) instrumentation and controls.
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.08Reactor coolant system (PWR). (1) Each reactor coolant system constitutes a single unit of property. The reactor coolant system
is the equipment in a pressurized water reactor that circulates liquid coolant through the reactor core, the pressurizer, and the steam
generator.
(2) The reactor coolant system contains the following major components:
(a) each steam generator,
(b) pressurizer,
(c) each reactor cooling water pump,
(d) each loop of the water conveyance system,
(e) each safety injection tank, and
(f) instrumentation and controls.
.09Feed and steam cycle. (1) Each feed and steam cycle serving an individual reactor constitutes a single unit of property. The
feed and steam cycle is the equipment that forms a closed loop through which the treated water circulates from the condenser to the
reactor or steam generator, through the turbines, and back to the condenser.
(2) The feed and steam cycle contains the following major components, the number of which will vary depending on the reactor
technology used:
(a) each reactor feed pump (BWR),
(b) each feedwater pump (PWR),
(c) each loop of the water conveyance system,
(d) each condenser,
(e) each condensate pump,
(f) each demineralizer,
(g) each heat exchanger or feedwater heater,
(h) each moisture separator, and
(i) instrumentation and controls.
.10Cooling water system. (1) Each cooling water system constitutes a single unit of property. The cooling water system is the
equipment that removes heat from the feed and steam cycle. The removal of heat is accomplished by bringing in water from an outside
source and using a cooling tower or other cooling device to remove heat.
(2) The cooling water system contains the following major components:
(a) each cooling water pump,
(b) each cooling tower,
(c) each loop of the water conveyance system,
(d) screens, and
(e) instrumentation and controls.
.11High pressure core safety system (BWR). (1) Each high pressure core safety systemconstitutes a single unit of property. The
high pressure core safety system is the equipment that injects pressurizedcoolant into a boiling water reactor vessel in the event of an
emergency.
(2) The high pressure core safety system contains the following major components:
(a) each tank,
(b) each high pressure core injection pump,
(c) each loop of the water conveyance system, and
(d) instrumentation and controls.
.12Automatic depressurization system (BWR). (1) Each automatic depressurization system constitutes a single unit of property.
The automatic depressurization system is the equipment that depressurizes a boiling water reactor vessel and allows lower pressure
coolant injection systems to function.
(2) The automatic depressurization system contains the following major components:
(a) each loop of the water conveyance system, and
(b) instrumentation and controls.
.13Low pressure coolant injection system (BWR). (1) Each low pressure coolant injection system constitutes a single unit of prop-
erty. The low pressure coolant injection system is the equipment that injects coolant into a depressurized boiling water reactor vessel
in the event of an emergency. This unit of property may not be in place where a low pressure core spray system is used.
(2) The low pressure injection system contains the following major components:
(a) each residual heat removal exchanger,
(b) each low pressure coolant injection pump,
(c) each tank,
(d) each loop of the water conveyance system, and
(e) instrumentation and controls.
2013–22 I.R.B.1154May 28, 2013

.14Low pressure core spray system (BWR). (1) Each low pressure core spray system constitutes a single unit of property. The low
pressure core spray system is the equipment that sprays water onto the nuclear fuel in a depressurized boiling water reactor vessel in
the event of an emergency. This unit of property may not be inplace where a low pressure coolant injection system is used.
(2) The low pressure core spray system contains the following major components:
(a) each low pressure core spray pump,
(b) each tank,
(c) each loop of the water conveyance system, and
(d) instrumentation and controls.
.15Core flood system (PWR). (1) Each core flood system constitutes a single unit of property. The core flood system is the equip-
ment used to flood the reactor vessel in a pressurized water reactor in the event of an emergency.
(2) The core flood system contains the following major components:
(a) each core flood tank,
(b) each loop of the water conveyance system, and
(c) instrumentation and controls.
.16Turbine. (1) Each turbine constitutes a single unit of property. The turbine is the equipment that extracts thermal power from
pressurized steam and converts the energy into a rotary motion, which motion is used to power the generator.
(2) The turbine contains the following major components:
(a) complete set of turbine high-pressure section blades,
(b) complete set of turbine mid-pressure section blades,
(c) complete set of turbine low-pressure section blades,
(d) shaft section in each section of the turbine (i.e., since the turbine has high, medium, and low-pressure sections, there are three
major components: one shaft for each section of the turbine),
(e) shell and casing, and
(f) instrumentation and controls.
.17Generator. (1) Each generator constitutes a single unit of property.The generator is the equipment that converts the mechanical
energy produced by the water turbine to electrical energy.
(2) The generator contains the following major components:
(a) stator, including the windings, shell, and casing,
(b) rotor, including core and windings, and
(c) instrumentation and controls.
.18Water treatment system. (1) Each water treatment system constitutes a single unit of property. The water treatment system
is generally the equipment that removes minerals and other impurities in the water, which is used in the reactor vessel, the reactor
recirculation system (BWR), the reactor coolant system (PWR), the feed and steam cycle, the cooling water system, the high pressure
core safety system (BWR), the automatic depressurization system (BWR), the low pressure coolant injection system (BWR), the low
pressure core spray system (BWR), and the core flood system (PWR).
(2) The water treatment system contains the following major components:
(a) filtration system,
(b) desalinization system,
(c) evaporator,
(d) demineralization system,
(e) disinfection system,
(f) sedimentation system, and
(g) instrumentation and controls.
.19Water supply system. (1) Each water supply system constitutes a single unit of property. The water supply system is the
equipment that supplies waterto the generation plant.
(2) The water supply system contains the following major components:
(a) each storage tank,
(b) water conveyance system, and
(c) instrumentation and controls.
.20Wastewater system. (1) Each wastewater system constitutes a single unit of property. A wastewater system that integrates
multiple treatment processes into one system is a single unit of property. Wholly separate and discrete wastewater systems are treated
as separate units of property. The wastewater system is the equipment that treats anddisposes of wastewater.
(2) The wastewater system containsthe following major components:
(a) each treatment tank,
(b) wastewater conveyance system, and
(c) instrumentation and controls.
May 28, 201311552013–22 I.R.B.

.21Radioactive liquid treatment and disposal system. (1) Each radioactive liquid treatment and disposal system constitutes a single
unit of property. The radioactive liquid treatment and disposal system is the equipment that decontaminates liquid radioactive waste
prior to the release or recycling of the decontaminated liquid.
(2) The radioactive liquid treatment and disposal system contains the following major components:
(a) each tank,
(b) liquid conveyance system,
(c) liquid concentrator, and
(d) instrumentation and controls.
.22Radioactive gas treatment and disposal system. (1) Each radioactive gas treatment and disposal system constitutes a single unit
of property. The radioactive gastreatment and disposal system is the equipment that decontaminates gaseous radioactive waste prior
to the release of the decontaminated gas.
(2) The radioactive gas treatment and disposal system contains the following major components:
(a) each tank,
(b) gas conveyance system,
(c) condenser,
(d) each stack, and
(e) instrumentation and controls.
.23Radioactive solid treatment and disposal system. (1) Each radioactive solid treatment and disposal system constitutes a single
unit of property. The radioactive solid treatment and disposal system is the equipment that compacts or incinerates radioactive solids
prior to storage or disposal.
(2) The radioactive solid treatment and disposal system contains one major component: the instrumentation and controls.
.24Fuel storage and handling system. (1) Each fuel storage and handling system constitutes a single unit of property. The fuel
storage and handling system is theequipment that receives fresh nuclear fuel, stores fresh fuel, delivers it to the reactor, removes spent
fuel from the reactor, and stores the spent fuel prior to dry cask storage.
(2) The fuel storage and handling system contains the following major components:
(a) fuel pool,
(b) fuel storage rack system,
(c) fuel cranes, and
(d) instrumentation and controls.
.25Dry cask facility. (1) Each dry cask facility constitutes a single unit of property. The dry cask facility is the equipment that
temporarily stores spent nuclear fuel, where applicable.
(2) The dry cask facility contains the following major components:
(a) each spent fuel cask prior to being filled,
(b) each dry cask transfer vehicle, and
(c) instrumentation and controls.
.26Auxiliary power system. (1) Each auxiliary power system constitutes a single unit of property. The auxiliary power system is
the equipment that provides back-up electricalpower for the generation plant, which is needed to restart the generating unit after a
shutdown.
(2) The auxiliary power system contains onemajor component: each auxiliary generator.
.27Simulator. (1) Each simulator constitutes a single unit of property.The simulator is the equipment that is used to train plant
personnel in the operations (including safety and rescue) of the power plant.
(2) The simulator has no major components.
.28Main step-up transformer. (1) Each main step-up transformer constitutes a single unit of property. The main step-up transformer
is equipment that increases the voltage of the electricity generated at the generation plant to a voltage level needed for the transmission
of the electricity.
(2) The main step-up transformer has no major components.
.29Heating, ventilation, and air conditioning (HVAC) system. (1) Each heating, ventilation, and air conditioning (HVAC) system
serving a unit of station property, as defined in subsection 5.02 above, constitutes a single unit of property. The HVAC system is the
equipment that conditions, circulates, and filters the air in the station property.
(2) No special rule is provided under this revenue procedure for the major componentsof the station electrical system. The major
components of the HVAC system are determined under the general principles of § 263(a).
.30Station electrical delivery system. (1) A power station’s electrical delivery system constitutes a single unit of property. The
station electrical delivery systemis the equipment that distributeselectrical power in the power plant.
(2) No special rule is provided under this revenue procedure for the major componentsof the station electrical system. The major
components of the station electrical system are determined under the general principles of § 263(a).
.31Safety system. (1) A power station’s safety system constitutes a single unit of property. The safety system is the equipment that
alerts power plant personnel to potentially hazardous conditions (including sirens, alarms, and evacuation systems).
(2) The safety system contains the following major components:
2013–22 I.R.B.1156May 28, 2013

(a) emergency evacuation system, and
(b) radiological hygiene station.
.32Environmental radiation monitoring system. (1) A power station’s environmental radiation monitoring system constitutes a
single unit of property. The environmental radiation monitoring system is the equipment that continuously monitors the environmental
radiation levels inside and outside the generation plant.
(2) The environmental radiation monitoring system contains the following major components:
(a) the water monitoring system, and
(b) the air monitoring system.
.33Security system. (1) The security system at a power plant constitutesa single unit of property. The security system is the
equipment used to provide security at the generation plant.
(2) The security system contains the following major components:
(a) the explosive detection system, and
(b) each guard tower.
.34Fire Protection System. (1) A power station’s fire protection system constitutes a single unit of property. The fire protection
system is the equipment that detects,suppresses, and extinguishes fires.
(2) No special rule is provided under this revenue procedure forthe major components of the fire protection system. The major
components of the fire protection system are determined under the general principles of § 263(a).
.35Accessory Buildings. (1) Each accessory building constitutes a singleunit of property. An accessory building is a building
located at a nuclear-powered power station that is not station property as defined in subsection 5.02 above. For example, laboratory
buildings, training buildings, warehouses,administrative buildings, pre-admittance buildings, and maintenance shops are accessory
buildings.
(2) No special rule is providedunder this revenue procedure for the major components of the accessory buildings. The major
components or substantial structural parts of an accessory building are determined under the general principles of § 263(a).
May 28, 201311572013–22 I.R.B.

APPENDIX B
Extrapolation Guidance
SECTION 1. INTRODUCTION
.01In general. This appendix provides an extrapolation methodology an eligible taxpayer may use in connection with a change in
method of accounting to use the unit of property and major component definitions provided by this revenue procedure. The extrapola-
tion methodology described in this Appendix B provides the exclusive extrapolation methodology that is permitted under the method
of accounting provided in this revenue procedure for determining the amount of a § 481(a) adjustment.
.02Scope.This revenue procedure, including this Appendix B, does not apply to property for which a taxpayer does not use a unit
of property determination provided in Appendix A to this revenue procedure.
SECTION 2. EXTRAPOLATION METHODOLOGY
.01In general. A taxpayer making a change to apply the method of accounting provided by this revenue procedure may use the
extrapolation procedures provided in this Appendix B to determine the § 481(a) adjustment resulting from the change in method
of accounting. Generally, the taxpayer first applies the method toa testing period of recent, representative years, and derives an
average repair deduction under the method ofaccounting, as a percentage of total capital additions (for financial accounting purposes).
This percentage, adjusted by a reduction percentage that varies based on time, is then applied to the adjusted capital additions (for
financial accounting purposes) for prior years for which extrapolation is used to derive a deemed § 481(a) adjustment amount for each
year. These extrapolated § 481(a) adjustment amounts are then combined with the actual adjustment amounts for years in which the
§ 481(a) adjustment is calculated in the normal manner to arrive at the total § 481(a) adjustment attributable to the change in method
of accounting.
.02Calculation methodology. In order to determine the amount of the § 481(a) adjustment when extrapolation is applied, the
following calculation methodology must be used:
(1)Testing period. First, a testing period is determined as follows:
(a)In general. The taxpayer must use as the testing period a minimum of three consecutive taxable years (“testing years”), except
as described in paragraph 2.02(1)(b)(ii) of this Appendix B. Generally, the final year of the testing period is the taxable year preceding
the year of change. Alternatively, a taxpayer may choosethe year of change as the final year of the testing period.
(b)Representative years required. The testing years must be representative of all years included in the § 481(a) adjustment.
(i) In determining whether a year is representative, a taxpayer must take into account restructuring transactions, including acquisi-
tions and dispositions, as well as any other events, that may have triggered large capital additions.
(ii) If one of the taxable years in the testing period described in section 2.02(1)(a) of this Appendix B is not representative, the
taxpayer must exclude data from the non-representative year from the testing period and use data from the fourth most recent taxable
year to establish a testing period (with such fourth most recent taxable year being a testing year).If the fourth most recent taxable
year is not representative either, the taxpayer must consult withits examining agent or team to determine whether extrapolation is
appropriate in the taxpayer’s situation.
(c)Additional years. Under the extrapolation calculation methodology, if thetaxpayer has sufficient data to calculate the repair
deduction percentage for more than three years, the taxpayer may include those years in the testing period. The additional testing years
must be consecutive years that immediately precede the original three-year testing period, except that a year that is not representative,
as described in section 2.02(1)(b) of this Appendix B, should beexcluded. A taxpayer may not use, as an additional testing year, a
year that is separated from the rest of the testingperiod by more than one non-representative year.
(2)Repair deduction percentage. Second, a repair deduction percentage for each yearfor which extrapolation is used (“extrapola-
tion year”) is computed as follows,using data from the testing period.
(a)Repair deductions during the testing period under the proposed method. For each testing year, the amount of repair expenses
that would be deductible under the methodof accounting provided in this revenue procedure, beforetaking into account book-tax
basis adjustments, is determined.
(b)
Tentative repair deduction percentage. The sum of the deductible repair expenses for all testing years in the testing period, as
determined under section 2.02(2)(a) of this Appendix B, is then divided by the sum of all capital additions during the testing period.
For this purpose, a taxpayer must use capital additions for financial statement purposes (“book capital additions”). The resulting ratio
represents the average percentage of capitalized additions that are properly treated as deductible repair expenses under the taxpayer’s
proposed method of accounting (“tentative repair deduction percentage”), before taking into account book-tax basis adjustments.
(c)Repair deduction percentage for an extrapolation year. The tentative repair deduction percentage is then multiplied by a reduc-
tion percentage for each extrapolation year. For each extrapolation year, the reduction percentage is determined by using the formula
(1- (0.10*(X/Y))), whereXequals the number of years the extrapolation yearprecedes the final year of the testing period andYequals
the total of number of taxable years in the testing period. The reduction percentage for an extrapolation year multiplied by the tentative
repair deduction percentage equals the repair deduction percentage for the extrapolation year.
2013–22 I.R.B.1158May 28, 2013

(3)Extrapolation year tentative repair deduction amount. Third, a tentative repair deduction amount under the proposed method
is calculated for each extrapolation year.
(a) The repair deduction amount for an extrapolation year is calculated by multiplying the repair deduction percentage for the
extrapolation year (determined in section 2.02(2) of this Appendix B) by the book capital additions for the extrapolation year.
(b) In determining the repair deduction amount for an extrapolation year, a taxpayer must account for any book-tax basis ad-
justments for property placed in service in the extrapolation year. Book-tax basis adjustments for property placed in service in the
extrapolation year may be accountedfor by multiplying the tentative repair deduction amount for an extrapolation year by the tax-
payer’s book-to-tax adjustment percentagefor the extrapolation year. Tax adjustments that must be accounted for include, among
other things, the following types of adjustments:
(i) adjustments resulting from a change in method of accounting permitted under Rev. Rul. 2000–7, 2000–1 C.B.712, involving
the treatment of the costs incurred in removing retired assets;
(ii) adjustments resulting from a change in the treatment of capitalized amounts determined under § 263A, including reductions for
additional mixed service costs allocated to inventory and adjustments to account for changes to interest capitalization amounts;
(iii) adjustments arising from casualty loss deductions recognized under § 165; and
(iv) adjustments resulting from research and experimental expenditures deducted under § 174.
(4)Repair allowance adjustment and repair deduction amount. Fourth, for each extrapolation year in which the repair allowance
election under § 1.167(a)–11(d)(2) (ADR repair allowance) was made, the tentative repair deduction amount must be reduced by the
cost of repairs to generation property attributable to ADR repair allowance property. To determine the reduction where a prior ADR
repair allowance election was made for generation property, taxpayers must use a method comparable to the method actually used to
allocate qualified repair expenditures to repair allowance property for that year. For example, if in applying § 1.167(a)–11(d)(2) for
the 1997 taxable year a taxpayer determined that 73 percent of its 1997 qualified repair expendituresfor generation property were
attributable to repair allowance property, then that same percentage (73%) must be applied to determine the reduction to the repair
deduction amount otherwise calculated under section 2.02(3) of this Appendix B. The amount determined after reducing the tentative
repair deduction amount by the cost of repairs attributable to ADR repair allowance property is the repair deduction amount for the
extrapolation year.
(5)Tentative § 481(a) adjustment amount. Fifth, the tentative § 481(a) adjustment amount for each extrapolation year is determined.
The tentative § 481(a) adjustment amount foreach extrapolation year is calculated by subtracting the repair deduction amount for the
extrapolation year, as determined in sections 2.02(1) through 2.02(4) of this Appendix B, from the amount of repair expenses the
taxpayer deducted for that year under its prior method of accounting (including § 481(a) adjustments resulting from any prior method
change). The difference, whether positive or negative, is the tentative § 481(a) adjustment amount for the extrapolation year.
(6)Extrapolation year § 481(a) adjustment amount. Sixth, the tentative § 481(a) adjustment amount for each extrapolation year
must be adjusted to account for any differences in depreciation, credits, or any other cumulative differences in deductions between
the extrapolation year and the year of change resulting from the taxpayer’s proposed method of accounting. For instance, if under
the proposed method a taxpayer’s repair deduction for an extrapolation year would be tentatively increased by $1,000, such that the
unadjusted basis of the property placed in service would be correspondingly decreased by $1,000, the $1,000 tentative repair deduction
increase for the extrapolation year must be reduced by the portion of the $1,000 in unadjusted basis that the taxpayer had recovered
prior to the year of change.
(7)Total § 481(a) adjustment. Finally, the total § 481(a) adjustment attributable to the change to the taxpayer’s proposed method
of accounting is determined. The total § 481(a) adjustment for the year of change is calculated by combining the § 481(a) adjustment
amounts for all extrapolation years, as described in this section 2.02, with the adjustment amounts, after taking into account book-tax
basis adjustments, for years determined under § 481(a) in the normal manner.
.03Example. In 2012, W, a calendar year taxpayer, changes its method of accounting for all of W’s electric generation property to use the unit of property and
major component definitions provided in Appendix A of this revenue procedure. W uses the extrapolation methodology provided in section 2 of this Appendix B to
determine the amount of its § 481(a) adjustment attributable to taxable years 1992 through 2008.
Following the general rule in section 2.02(1) of this Appendix B, W uses as its testing period 2009, 2010, and 2011, the three consecutive taxable yearsending with
2011, the year preceding the year of change. Assume that each of 2009, 2010, and 2011 are representative of all years included in W’s § 481(a) adjustment.
W’s book capital additions for 2009, 2010, and 2011 are $3,000, $3,000, and $4,000, respectively, for a total of $10,000. Of these amounts, the portionsthat
are properly treated as deductible repair expenses resulting from the application of W’s proposed method of accounting for 2009, 2010, and 2011, before taking into
account book-tax basis adjustments, are $300, $400, and $300, respectively, for a total of $1,000.
For 2003, W’s book capital additions are $3,333. W’s book-to-tax adjustment percentage for 2003 is 90%. In 2003, W elected to apply the ADR repair allowance
under § 1.167(a)–11(d)(2), which applied to 25% of W’s generation property. Under W’s prior method of accounting (prior to application of the method of accounting
provided by this revenue procedure), W deducted $150 in repair expenses in 2003.
W determines its section 481(a) adjustment for 2003 as follows:
Step 1. W determines that it will use taxable years 2009, 2010, and 2011 as the testing years in its testing period.
Step 2. W calculates its repair deduction percentage for 2003. First, a tentative repair deduction percentage is calculated using data from the testing period (taxable
years 2009, 2010, and 2011). Book capital additions that are properly treated as deductible repair expenses resulting from the application of the proposed method of
accounting, before taking into account book-tax basis adjusments, for 2009, 2010, and 2011, the testing years that comprise the testing period, equal $1,000 ($300 +
$400 + $300). Total book capital additions for the testing period are $10,000 ($3,000 + $3,000 + $4,000). W’s tentative repair deduction percentage is10% ($1,000 /
$10,000).
May 28, 201311592013–22 I.R.B.

Next, W calculates the reduction percentage for eachextrapolation year using the formula (1 - 0.10 * (X/Y)), whereXequals the number of years the extrapolation
year precedes 2011, the final year of the testing period, andYequals 3, the number of years in the testing period. The reduction percentage for each extrapolation year
is calculated as follows:
Taxable YearReduction Percentage Calculation
(Step A)
Reduction Percentage Calculation
(Step B)
20080.10 * (3/3) = 0.101 - 0.10 = 0.90 = 90.0%
20070.10 * (4/3) = 0.1331 - 0.133 = 0.867 = 86.7%
2006
0.10 * (5/3) = 0.167
1-0.167=0.833=83.3%
2005
0.10 * (6/3) = 0.201 - 0.20 = 0.80 = 80.0%
20040.10 * (7/3) = 0.2331 - 0.233 = 0.767 = 76.7%
20030.10 * (8/3) = 0.2671 - 0.267 = 0.733 = 73.3%
20020.10 * (9/3) = 0.301 - 0.30 = 0.70 = 70.0%
20010.10 * (10/3) = .3331 - 0.333 = 0.667 = 66.7%
20000.10 * (11/3) = .3671 - 0.367 = 0.633 = 63.3%
19990.10 * (12/3) = .401 - 0.40 = 0.60 = 60.0%
19980.10 * (13/3) = .433
1-0.433=0.567=56.7%
19970.10 * (14/3) = .467
1-0.467=0.533=53.3%
1996
0.10 * (15/3) = .501 - .50 = 0.50 = 50.0%
19950.10 * (16/3) = .5331 - 0.533 = 0.467 = 46.7%
1994
0.10 * (17/3) = .5671 - 0.567 = 0.433 = 43.3%
19930.10 * (18/3) = .601 - 0.60 = 0.40 = 40.0%
19920.10 * (19/3) = .6331 - 0.633 = 0.367 = 36.7%
Finally, W’s calculates the repair deduction percentage for 2003 (7.33%) by multiplying the tentative repair deduction percentage (10%) by the reduction percentage
for 2003 (73.3%).
Step 3. W calculates a tentative repair deduction amount for 2003. First W multiplies its book capital additions fo
r 2003 ($3,333) by its repair deduction percentage
(7.33%), resulting in an initital tentative repair deduction amount of $244. Next, W accounts for any book-tax basis adjustments for property placedin service in 2003
by multiplying the initial tentative repair deduction amount ($244) for 2003 by the taxpayer’s book-to-tax adjustment percentage for 2003 (90%), resulting in a tentative
repair deduction amount of $220.
Step 4. W must reduce its tentative repair deduction amount for 2003 to exclude repairs attributable to generation property for which the taxpayer elected toapply
the ADR repair allowance. In 2003, W determined that 25 percent of its 2003 qualified repair expenditures for generation property were attributable to repair allowance
property. Therefore, W reduces the repair deduction amount for 2003 ($220) by 25% ($55), yielding a repair dedu
ction amount for 2003 of $165.
Step 5. W determines its tentative § 481(a) adjustment amount for 2003. W subtracts the adjusted gross repair deduction amount for 2003 ($165) from the amount
of repair expenses W deducted for 2003 under its prior method of accounting (as adjustedfor purposes of computing any prior § 481(a) adjustment) ($150). Therefore,
W’s § 481(a) adjustment amount for 2003 is negative $15.
Step 6. To determine its § 481(a) adjustment amount for 2003, W must account for its decreased depreciation deductions resulting from the additional $15 of
deductible repair expenditures permitted under the proposed method of accounting. Assuming that the additional $15.00 of deductible repair expenditures for 2003
results in a $4.50 of reduction in cumulative depreciation expense through the year of change that is attribu
table to the assets placed in service in 2003, W’s § 481(a)
adjustment amount for the increased repair deductions that would have been permitted in 2003 under the proposed method of accounting is negative $10.50 (-$15.00
+ $4.50).
Step 7. To determine its total § 481(a) adjustment, W combines the adjustments attributable to 1992 through 2
008, computed using the extrapolation method in
this Appendix B (as described above for 2003), with the § 481(a) adjustments attributable to 2009 through 2011, determined using the actual data from those years and
taking into account book-tax basis adjustments. W must take the entire § 481(a) adjustment (whether positive or negative) into account in 2012, W’s year of change.
26 CFR 601.601: Rules and regulations.
(Also Part I, § 1272(a)(6))
Rev. Proc. 2013–26
SECTION 1. PURPOSE
This revenue procedure allows a tax-
payer to use a safe harbor method of
accounting for original issue discount
(“OID”) on a pool of credit card receiv-
ables for purposes of § 1272(a)(6) of the
Internal Revenue Code (“Code”)—the
“proportional method.” The proportional
method generally allocates to an accrual
period an amount of unaccrued OID that
is proportional to the amount of the stated
redemption price at maturity (“principal”)
of the pool that is paid by cardholders dur-
ing the period. The proportional method
described in this revenue procedure gen-
erally produces the same results as the
method described in § 1272(a)(6). The
revenue procedure also describes the ex-
clusive procedures by which a taxpayer
may obtain the Commissioner’s consent
to change to the proportional method.
Notice 2011–99, 2011–50 I.R.B. 847
(Dec. 12, 2011), contained a proposed
revenue procedure that described the pro-
portional method of accounting. Notice
2011–99 invited public comments regard-
2013–22 I.R.B.1160May 28, 2013

ing the proposed revenue procedure. The
Department of the Treasury and the Inter-
nal Revenue Service (“IRS”) considered
all comments received, and modified the
proposed revenue procedure in response to
the comments. The significant changes in
this revenue procedure from the proposed
revenue procedure are as follows:
(1) The revenue procedure applies to
any taxpayer that holds a pool of credit
card receivables and is not limited to credit
card issuers;
(2) A taxpayer may use the proportional
method for amounts treated by the revenue
procedure as OID (for example, amounts
that otherwise are market discount);
(3) When individual accounts are trans-
ferred out of a pool or written off, a tax-
payer may attribute to those accounts a
portion of a pool’s unaccrued OID that is
proportional to their outstanding balances;
and
(4) A taxpayer may adopt the propor-
tional method, or change to the propor-
tional method under the automatic consent
procedures, for a taxable year that ends on
or after December 31, 2012.
SECTION 2. BACKGROUND
.01 A debt instrument is issued with
OID if the instrument’s issue price is less
than its stated redemption price at matu-
rity (“SRPM”). Section 1273(a)(1). Un-
der § 1.1273–1(b) of the Income Tax Reg-
ulations, the SRPM of a debt instrument
is the sum of all payments provided by
the debt instrument other than payments of
qualified stated interest. In general, qual-
ified stated interest is stated interest that
is unconditionally payable in cash, or that
is constructively received under § 451, at
least annually at a single fixed rate. Sec-
tion 1.1273–1(c).
.02 Accruals of OID generally are taken
into account over the term of a debt instru-
ment using the constant yield method. See
§ 1272(a)(3) and § 1.1272–1. The Code
provides special rules, however, for certain
debt instruments for which the principal is
subject to acceleration. See § 1272(a)(6).
Under § 1272(a)(6), OID accruals are de-
termined based on a prepayment assump-
tion and a formula involving the present
value of all remaining payments under the
debt instrument as of the close of the ac-
crual period, payments during the accrual
period of amounts included in the SRPM
of the debt instrument, and the adjusted is-
sue price of the debt instrument at the be-
ginning of the accrual period (“statutory
method”).
.03 The Taxpayer Relief Act of 1997
extended the rules of § 1272(a)(6) to OID
on any pool of debt instruments the yield
on which may be affected by reason of
prepayments, including a pool of credit
card receivables. See Pub. L. 105–34,
§ 1004(a), 1997–4 C.B. 1, 125. How-
ever, unlike the debt instruments previ-
ouslysubjectto§1272(a)(6), the balance
of a pool of credit card receivables can
be increased as well as decreased from
one accrual period to the next, which
adds complexity in applying the rules of
§ 1272(a)(6).
.04 The IRS has challenged the methods
of accounting for OID on pools of credit
card receivables adopted by some taxpay-
ers as not clearly reflecting income. See,
for example,Capital One Financial Corp.
v. Commissioner, 133 T.C. 136 (2009)
(holding, in relevant part, that the model
used by the taxpayer for computing OID
accruals under § 1272(a)(6) was a reason-
able method after some modifications by
the court).
.05 The proportional method of ac-
counting described in this revenue proce-
dure is intended to reduce administrative
burdens and controversy for taxpayers
and the IRS in computing OID accruals
on a pool of credit card receivables under
§ 1272(a)(6). The proportional method
is a simplified method of calculation that
generally produces the same results as the
statutory method.
.06 Certain credit card fees are treated
as creating or increasing the amount of
OID on the pool of credit card receivables
to which the fees relate. See, for exam-
ple, Rev. Proc. 2004–33, 2004–1 C.B.
989 (Commissioner will allow a taxpayer
to treat late fees as OID). Other fees, how-
ever, do not create or increase the amount
of OID on the pool of credit card receiv-
ables to which the fees relate. See, for ex-
ample, Rev. Rul. 2004–52, 2004–1 C.B.
973 (credit card annual fees do not result
in OID).
SECTION 3. SCOPE
This revenue procedure applies to a tax-
payer if—
.01 The taxpayer holdsreceivables aris-
ing from credit cards that allow cardhold-
ers to access a revolving line of credit to
purchase goods and services, or to obtain
cash advances;
.02 For federal income tax purposes,
the credit card purchase transactions of the
cardholders do not create debt that is given
in consideration for the sale or exchange of
property;
.03 The taxpayer maintains one or more
pools of receivables with respect to such
credit cards (or one or more pools of re-
ceivables with respect to such credit cards
are maintained on the taxpayer’s behalf);
and
.04 In the case of a taxpayer that main-
tains (or on whose behalf are maintained)
more than one pool of credit card receiv-
ables, the manner in which pools are es-
tablished and maintained does not achieve
a result that is unreasonable in light of the
purposes of §§ 1271 through 1275.
SECTION 4. APPLICATION
.01 The proportional method of ac-
counting described in section 5 of this
revenue procedure is a permissible method
for use by a taxpayer within the scope
of this revenue procedure to account for
OID on a pool of credit card receivables
described in section 3 of this revenue pro-
cedure. If the proportional method is used
by a taxpayer to account for any pool of
credit card receivables, the method must
be used for every pool of credit card re-
ceivables described in section 3 of this
revenue procedure and held by that tax-
payer. If the proportional method is used
for more than one such pool, separate data
for each pool must be kept, and the com-
putations must be made separately based
on the data for each pool.
.02 For purposes of this revenue proce-
dure, a taxpayer within the scope of this
revenue procedure that acquires a pool of
credit card receivables (or an interest in
such a pool) may treat the difference be-
tween the aggregate balance (or the tax-
payer’s share of the balance) owed on all
credit card receivables included in the pool
other than amounts representing charges or
fees that are not properly treated as OID
(such as finance charges that are qualified
stated interest) and the taxpayer’s basis as
OID. As a result, a taxpayer may use the
proportional method for certain amounts
May 28, 201311612013–22 I.R.B.

that would not otherwise be treated as OID,
for example, market discount or bond pre-
mium.
.03 A taxpayer that wants to change
its method of accounting to the propor-
tional method must use the automatic
change in method procedures of Rev.
Proc. 2011–14, 2011–4 I.R.B. 330, or its
successor, to make the change. See section
8 of this revenue procedure. If a taxpayer
changes to the proportional method, the
unaccrued OID for the pool as of the be-
ginning of the first period in the year of
change is equal to the unaccrued OID for
the pool as of the end of the preceding
year under the taxpayer’s previous method
of accounting for the pool. See section
5.02(2) of this revenue procedure. If a
taxpayer does not already have a method
of accounting for OID (or an amount
treated as OID under section 4.02 of this
revenue procedure) on any pool of credit
card receivables, the taxpayer may adopt
the proportional method by using it on a
timely filed (including extensions) origi-
nal federal income tax return for the first
taxable year the taxpayer must account
for OID on a pool of credit card receiv-
ables. A taxpayer may adopt or change its
method of accounting to the proportional
method for a taxable year that ends on or
after December 31, 2012.
SECTION 5. PROPORTIONAL
METHOD OF ACCOUNTING
This section 5 describes the propor-
tional method of accounting for OID on a
pool of credit card receivables. Under the
method—
.01 The required computations must be
made monthly. Thus, the computation pe-
riod referred to below is a calendar month
(or that portion of a month that falls within
a short taxable year). A taxpayer that
changes its method of accounting to the
proportional method must make the re-
quired computations for each month in the
year of change by the due date for the tax-
payer’s timely filed (including extensions)
original federal income tax return imple-
menting the change in method of account-
ing for the year of change.
.02 At the beginning of each computa-
tion period, the taxpayer must determine
the following information for each pool of
credit card receivables:
(1) The SRPM as of the beginning of
the period (“Beginning SRPM”), which is
equal to the aggregate balance owed on
all credit card receivables included in the
pool at the beginning of such period, other
than amounts representing charges or fees
that are not properlytreated as OID (such
as finance charges that are qualified stated
interest).
(2) The unaccrued OID as of the be-
ginning of the period (“Beginning OID”),
which is equal to the OID with respect to
the pool at the beginning of such period
that has not previously been taken into in-
come.
.03 During each computation period,
the taxpayer must determine for each pool
of credit card receivables the sum of the
payments during the period of amounts
that reduce the Beginning SRPM for the
period (“SRPM Payments”) (equivalently,
total payments less amounts that are not in-
cluded in SRPM, such as charges or fees
that are not properly treated as OID).
.04 For each computation period, the
taxpayer must compute the OID allocated
to the period (“Monthly OID”) and in-
clude this amount in income for the period.
Monthly OID is the product of (1) the Be-
ginning OID multiplied by (2) the quotient
of the SRPM Payments divided by the Be-
ginning SRPM.
.05 The formula in section 5.04 of this
revenue procedure can be restated as fol-
lows:
M_OID = BEG_OID * (SRPM_P / BEG_SRPM),
where
M_OID= Monthly OID;
BEG_OID= Beginning OID;
SRPM_P= SRPM Payments; and
BEG_SRPM= Beginning SRPM.
.06 For purposes of determining the Be-
ginning SRPM and Beginning OID for a
period, the taxpayer should take into ac-
count the following items:
(1) The charges and fees relating to the
pool for the preceding period that are prop-
erly treated as OID;
(2) Credit card accounts transferred into
the pool during the preceding period, in-
cluding any unaccrued OID attributable to
the accounts;
(3) Credit card accounts transferred out
of the pool during the preceding period,
including any unaccrued OID attributable
to the accounts; and
(4) Credit card accounts written off dur-
ing the preceding period, including any un-
accrued OID attributable to the accounts.
.07 For purposes of sections 5.06(3) and
5.06(4) of this revenueprocedure, the tax-
payer may determine the unaccrued OID
attributable to an account in a pool as the
portion of the unaccrued OID attributable
to the pool as of the beginning of the pre-
ceding period that is proportional to the
SRPM of the account as of the beginning
of the preceding period.
.08 If the taxpayer transfers credit card
accounts from one of its pools into another
one of its pools, the unaccrued OID trans-
ferred out of the first pool must be equal
to the unaccrued OID transferred into the
second pool.
.09 In the case of a pool wholly owned
by two or more members of an affiliated
group of corporations that file a consol-
idated return for federal income tax pur-
poses, the members of the group may ap-
ply the proportional method to the entire
pool and then allocate the OID among the
owners, provided that the OID is allocated
using a reasonable method. For example,
an allocation in proportion to the SRPM at-
tributable to the members’ interests in the
pool is reasonable.
2013–22 I.R.B.1162May 28, 2013

.10 Section 1.6001–1(a) of the Proce-
dure and Administration Regulations pro-
vides that any person subject to tax under
subtitle A of the Code shall keep such per-
manent books of account or records to es-
tablish the amount of gross income, deduc-
tions, credits, or other matters required to
beshownbysuchpersoninanyreturnof
such tax. To satisfy the recordkeeping re-
quirements of § 6001 and the regulations
thereunder, a taxpayer that uses the propor-
tional method of accounting should main-
tain records supporting all aspects of its
method, including, but not limited to, the
computations described in section 5 of this
revenue procedure.
SECTION 6. EXAMPLES
.01 Example 1. (1) On December 1,
for the taxpayer’s single pool of credit
card receivables, the Beginning SRPM
is $100,000,000, and the Beginning OID
is $1,000,000. During December, the
taxpayer receives SRPM payments of
$11,000,000 with respect to the pool.
(2) For December, the taxpayer com-
putes Monthly OID for the pool in
the amount of $110,000 ($1,000,000 *
($11,000,000 / $100,000,000)).
.02 Example 2. The facts are the
same as in Example 1. In addition,
during December, credit card activity,
charges, and fees relating to the pool add
$14,000,000 to the SRPM and $300,000
to the unaccrued OID, and the taxpayer
writes off credit card accounts whose
aggregate balance at the beginning of
December is $50,000. The taxpayer de-
termines that the unaccrued OID attrib-
utable to the written-off accounts is $500
($1,000,000 * ($50,000 / $100,000,000)).
As a result, on January 1, the Beginning
SRPM is $102,950,000 ($100,000,000 -
$11,000,000 + $14,000,000 - $50,000),
and the Beginning OID is $1,189,500
($1,000,000 - $110,000 + $300,000 -
$500).
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for
taxable years that end on or after Decem-
ber 31, 2012.
SECTION 8. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2011–14 is modified by
revising section 31.02 to the APPENDIX
to read as follows:
SECTION 31.02. Proportional method
of accounting for OID on a pool of credit
card receivables
(1)Description of change. This change
applies to a taxpayer that wants to change
to the proportional method of accounting
for OID on a pool of credit card receiv-
ables as described in Rev. Proc. 2013–26,
2013–22 I.R.B. 1160. Under Rev. Proc.
2013–26, a taxpayer may use the propor-
tional method of accounting for a taxable
year that ends on or after December 31,
2012.
(2)Manner of making change.This
change is made on a cut-off basis. Accord-
ingly, a § 481(a) adjustment is neither re-
quired nor permitted. The unaccrued OID
for the pool as of the beginning of the first
period in the year of change is equal to
the unaccrued OID for the pool as of the
end of the preceding year under the tax-
payer’s previous method of accounting for
the pool. See section 2.06 of this revenue
procedure for more information regarding
a cut-off basis.
(3)Waiver of 5-year restriction.The
scope limitation in section 4.02(7) of this
revenue procedure does not apply to a
change to the proportional method of ac-
counting for OID on a pool of credit card
receivables, as described in section 5 of
Rev. Proc. 2013–26, for the taxpayer’s
first or second taxable year ending on or
after December 31, 2012.
(4)Designated automatic accounting
method change number. The designated
automatic accounting method change
number for a change under section 31.02
of this APPENDIX is “183.” See section
6.02(4) of this revenue procedure.
(5)Contact information.Forfur-
ther information regarding this section,
please contact Charles W. Culmer at (202)
622–3950 (not a toll-free call).
SECTION 9. DRAFTING
INFORMATION
The principal author of this rev-
enue procedure is Charles W. Culmer of
the Office of Associate Chief Counsel
(Financial Institutions & Products). For
further information regarding this revenue
procedure contact Charles W. Culmer on
(202) 622–3950 (not a toll-free call).
May 28, 201311632013–22 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Proposed
Rulemaking
The $500,000 Deduction
Limitation for Remuneration
Provided by Certain Health
Insurance Providers
REG–106796–12
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations on the application of the
$500,000 deduction limitation for remu-
neration provided by certain health insur-
ance providers undersection 162(m)(6)
of the Internal Revenue Code (Code).
These regulations affect health insurance
providers that pay such remuneration.
DATES: Written or electronic comments
and requests for a hearing must be received
by July 1, 2013.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–106796–12), In-
ternal Revenue Service, PO Box 7604, Ben
Franklin Station, Washington DC 20044.
Submissions may be hand-delivered Mon-
day through Friday between the hours of
8a.m. and4p.m. toCC:PA:LPD:PR
(REG–106796–12), Courier’s Desk In-
ternal Revenue Service, 1111 Constitu-
tion Avenue, N.W., Washington, DC,
or sent electronically via the IRS In-
ternet site via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–106796–12).
FOR FURTHER INFORMATION
CONTACT: Concerning these proposed
regulations, Ilya Enkishev at (202)
622–6030; concerning the submission of
comments or to request a public hearing,
Oluwafunmilayo (Funmi) Taylor at (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains a proposed
amendment to 26 CFR part 1 under section
162(m)(6) of the Code. Section 162(m)(6)
limits the allowable deduction for remu-
neration attributable to services provided
by applicable individuals to certain health
insurance providers that receive premiums
from providing health insurance coverage.
Section 162(m)(6) was added to the Code
by section 9014 of the Patient Protection
and Affordable Care Act (ACA) (Public
Law 111–148, 124 Stat. 119, 868 (2010)).
On December 23, 2010, the Treasury
Department and the IRS released Notice
2011–2, 2011–2 I.R.B. 260, which pro-
vides guidance on certain issues under sec-
tion 162(m)(6). Specifically, the notice
provides guidance on the application of the
$500,000 deduction limitation to deferred
deduction remuneration that is earned dur-
ing taxable years beginning after Decem-
ber 31, 2009 and before January 1, 2013
and deductible in a taxable year begin-
ning after December 31, 2012. The notice
also provides ade minimisexception under
which a covered health insurance provider
is exempt from the deduction limitation if
the health insurance premiums received by
it and all other entities with which it must
be aggregated under section 162(m)(6) are
less than two percent of their combined
gross revenues. In addition, the notice pro-
vides that remuneration subject to section
162(m)(6) does not include remuneration
earned by independent contractors who are
not subject to section 409A (meaning gen-
erally that the independent contractor pro-
vides substantial services to multiple unre-
lated customers). Finally, the notice pro-
vides that premiums under a reinsurance
contract are not treated as premiums for
providing health insurance coverage for
purposes of section 162(m)(6).
Notice 2011–2 requested comments on
the following issues:
•Application of the termcovered health
insurance provider, including thede
minimisexception set forth in the no-
tice and possible alternativede minimis
exceptions;
•How deferred deduction remuneration
should be attributed to a taxable year
of an employer;
•Application of the termcovered health
insurance providerin the case of a cor-
porate event such as a merger, acquisi-
tion, or reorganization; and
•Application of the deduction limitation
to remuneration for services performed
for insurers who are captive insurance
companies or that provide reinsurance
or stop loss insurance.
In drafting these proposed regulations,
the Treasury Department and the IRS have
considered all comments received, many
ofwhicharediscussedinthispreamble.
See §601.601(d)(2)(ii)(b).
Explanation of Provisions
For taxable years beginning after De-
cember 31, 2012, section 162(m)(6) lim-
its to $500,000 the allowable deduction
for the aggregate applicable individual re-
muneration and deferred deduction remu-
neration attributable to services performed
by an applicable individual for a covered
health insurance provider in a disqualified
taxable year beginning after December 31,
2012 that (but for section 162(m)(6)) is
otherwise deductible under chapter 1 of the
Code (referred to in this preamble as re-
muneration that is otherwise deductible).
Deferred deduction remuneration attribut-
able to services performed in a disquali-
fied taxable year beginning after Decem-
ber 31, 2009 and before January 1, 2013
that becomes otherwise deductible in tax-
able years beginning after December 31,
2012 is also subject to the $500,000 deduc-
tion limitation, determined as if the deduc-
tion limitation applied to disqualified tax-
able years beginning after December 31,
2009.
Accordingly, if applicable individual
remuneration, deferred deduction remu-
neration, or a combination of applicable
individual remuneration and deferred de-
duction remuneration that is attributable
to services performed by an applicable
individual for a covered health insurance
provider in a disqualified taxable year
exceeds $500,000, the amount of the re-
muneration that exceeds $500,000 is not
allowable as a deduction in any taxable
year. To the extent that the aggregate ap-
plicable individual remuneration and de-
ferred deduction remuneration attributable
to services performed by an applicable
individual for a covered health insurance
provider in a disqualified taxable year
is less than $500,000, the remuneration
2013–22 I.R.B.1164May 28, 2013

generally may be deducted by the covered
health insurance provider in the taxable
year or years in which the amount is oth-
erwise deductible.
The following example illustrates the
application of the section 162(m)(6) de-
duction limitation. In Year 1, a covered
health insurance provider pays $400,000
in salary (applicable individual remunera-
tion) to an applicable individual and also
credits $300,000 to an account for the
applicable individual under a nonquali-
fied deferred compensation plan, which
is payable in Year 5 (deferred deduction
remuneration). The $300,000 credit is
fully vested in Year 1 and is attributable to
services provided by the applicable indi-
vidual in that year. In Year 1, the covered
health insurance provider may deduct the
$400,000 of applicable individual remu-
neration paid to the applicable individual
for services provided during that year be-
cause the amount of this payment is less
than the $500,000 deduction limit. In Year
5, the covered health insurance provider
pays the $300,000 that was credited under
the nonqualified deferred compensation
plan for services provided by the appli-
cable individual in Year 1. Because the
aggregated applicableindividual remuner-
ation and deferred deduction remuneration
attributable to services performed by the
applicable individual in Year 1 exceeds
the $500,000 deduction limit by $200,000
($400,000 + $300,000 = $700,000), the
covered health insurance provider can
deduct only $100,000 of the $300,000
payment in year 5, and the remaining
$200,000 is not deductible by the covered
health insurance provider in any year.
I.Covered Health Insurance Provider
A.In General
Section 162(m)(6)(C) provides that a
covered health insurance provider is any
health insurance issuer described in sec-
tion 162(m)(6)(C)(i) and certain persons
that are treated as a single employer with
that health insurance issuer, as described in
section 162(m)(6)(C)(ii). These proposed
regulations include rules for determining
whether a health insurance issuer is a cov-
ered health insurance provider for any tax-
able year and whether a person is treated
as a single employer with a health insur-
ance issuer that is a covered health insur-
ance provider for any taxable year. A per-
son may be treated as a covered health in-
surance provider for one taxable year, but
not be treated as a covered health insur-
ance provider for another taxable year, de-
pending on whether that person meets the
requirements to be a covered health insur-
ance provider under section 162(m)(6)(C)
for a particular taxable year.
B.Health Insurance Issuers
For taxable years beginning after De-
cember 31, 2009 and before January 1,
2013, section 162(m)(6)(C)(i)(I) provides
that a health insurance issuer (as defined
in section 9832(b)(2)) is a covered health
insurance provider for a taxable year if that
health insurance issuer receives premiums
from providing health insurance coverage
(as defined in section 9832(b)(1)) during
the taxable year. For taxable years be-
ginning after December 31, 2012, section
162(m)(6)(C)(i)(II) provides that a health
insurance issuer (as defined in section
9832(b)(2)) is a covered health insurance
provider for a taxable year if not less than
25 percent of the gross premiums that the
provider receives from providing health
insurance coverage (as defined in section
9832(b)(1)) during the taxable year are
from minimum essential coverage (as de-
fined in section 5000A(f)).
C.Persons Treated as a Single Employer
with a Health Insurance Issuer
Section 162(m)(6)(C)(ii) provides that
two or more persons that are treated as a
single employer under sections 414(b), (c),
(m), or (o) are treated as a single employer
for purposes of determining whether a per-
son is a covered health insurance provider,
except that in applying section 1563(a) for
purposes of these subsections of section
414, sections 1563(a)(2) and (3) (which
provide for brother-sister groups and com-
bined groups) are disregarded. Accord-
ingly, these proposed regulations provide
that each member of an aggregated group
(as described in the final sentence of this
paragraph) that includes a health insurance
issuer described in section 162(m)(6)(C)(i)
at any time during a taxable year is also a
covered health insurance provider for pur-
poses of section 162(m)(6), even if the
member is not a health insurance issuer
and does not provide health insurance cov-
erage. (An exception for certain corpo-
rate transactions is provided in the transi-
tion rules described in section IX of this
preamble.) For this purpose, these pro-
posed regulations define the termaggre-
gated groupas a health insurance issuer (as
defined in section 9832(b)(2)) and all per-
sons that are treated as a single employer
with the health insurance issuer under sec-
tions 414(b), (c), (m) or (o), disregarding
sections 1563(a)(2) and (3) (with respect
to controlled groups of corporations) and
§1.414(c)–(2)(c) (with respect to trades or
businesses under common control).
For members of an aggregated group
that have different taxable years, these pro-
posed regulations provide rules to deter-
mine whether a member of an aggregated
group that is not a health insurance issuer
is a covered health insurance provider for a
particular taxable year. Under these rules,
the parent entity (as defined in the fol-
lowing paragraph of this preamble) of an
aggregated group is a covered health in-
surance provider for its taxable year with
which, or in which, ends the taxable year
of the health insurance issuer that is a cov-
ered health insurance provider in the ag-
gregated group of which the parent entity
is a member. Each other member of an ag-
gregated group is a covered health insur-
ance provider for its taxable year that ends
with, or within, the taxable year of the par-
ent entity during which the parent entity is
a covered health insurance provider. For
purposes of these proposed regulations, the
termparent entityrefers to the common
parent of an aggregated group that is a
parent-subsidiary controlled group of cor-
porations (within the meaning of section
414(b)) or a parent-subsidiary group of
trades or businesses under common con-
trol (within the meaning of section 414(c)).
With respect to an aggregated group that
is an affiliated service group within the
meaning of section 414(m)orothergroup
within the meaning of section 414(o), the
parent entity is the health insurance issuer
in the aggregated group if the aggregated
group includes only one health insurance
issuer. If an aggregated group that is an af-
filiated service group within the meaning
of section 414(m) or other group within the
meaning of section 414(o) includes more
than one health insurance issuer, the par-
ent entity is any health insurance issuer in
the aggregated group that is designated in
writing by the other members of the group
as the parent entity for purposes of sec-
May 28, 201311652013–22 I.R.B.

tion 162(m)(6), provided that the members
of the group treat the health insurance is-
suer as the parent entity consistently for
all taxable years. If the members of an
aggregated group that is an affiliated ser-
vice group or other group fail to desig-
nate a parent entity in writing (or fail to
apply the designation consistently for all
taxable years), the members of the group
are deemed to have a parent entity with a
taxable year that is the calendar year. A
health insurance issuer that has been desig-
nated as the parent entity of an aggregated
group may leave that group as a result of
a merger, disposition, or other corporate
transaction; the Treasury Department and
the IRS request comments on the circum-
stances under which a successor parent en-
tity may be designated and any transition
rules that may be necessary in this situa-
tion.
D.Self-insurers
In response to a request for comments
in Notice 2011–2, commenters suggested
that an employer that sponsors a self-in-
sured medical reimbursement plan should
not be treated as a covered health insurance
provider because benefits under this type
of plan should not be treated as health in-
surance coverage for purposes of section
162(m)(6) if the employer assumes the fi-
nancial risk of providing health benefits to
its employees and limits the availability of
benefits only to employees (which may in-
clude former employees). The Treasury
Department and the IRS agree that an em-
ployer should not be treated as a covered
health insurance provider under these cir-
cumstances. Accordingly, these proposed
regulations provide that an employer is not
a covered health insurance provider solely
because it maintains a self-insured medi-
cal reimbursement plan. For this purpose,
the termself-insured medical reimburse-
ment planmeans a separate written plan
for the benefit of employees (which may
include former employees) that provides
for reimbursement of employee medical
expenses referred toin section 105(b) and
that does not provide for reimbursement
under an individual or group policy of ac-
cident or health insurance issued by a li-
censed insurance company or under an ar-
rangement in the nature of a prepaid health
care plan that is regulated under federal or
state law in a manner similar to the reg-
ulation of insurance companies. An ar-
rangement described in the prior sentence
mayincludeaplanmaintainedbyanem-
ployee organization described in section
501(c)(9). A captive insurance company,
however, is treated as a covered health
insurance provider under these proposed
regulations if it is a health insurance is-
suer that is otherwise described in section
162(m)(6)(C).
E.De Minimis Exception
1.In General
After section 162(m)(6) was enacted,
some commenters observed that the ag-
gregation rule in section 162(m)(6)(C)(ii)
could result in unintended consequences
in situations in which a health insurance
issuer’s activities and revenue constitute
an insignificant portion of the activities
and revenue of persons that are treated as a
single employer with the health insurance
issuer under the aggregation rules. Com-
menters also suggested that employers that
maintain only legacy policies (policies
that are no longer sold but for which cur-
rent policyholders have automatic renewal
rights) should not be considered covered
health insurance providers because those
employers are no longer accepting new
policyholders and may find it difficult to
transfer the legacy policies for regulatory
and other reasons.
In response to these concerns, Notice
2011–2 provides ade minimisexception
under which a person that would otherwise
be a covered health insurance provider un-
der section 162(m)(6)(C)(i)(I) for a taxable
year beginning after December 31, 2009
and before January 1, 2013 is not treated
as a covered health insurance provider for
that taxable year if the premiums received
by that person and all other members of
its aggregated group from providing health
insurance coverage are less than two per-
cent of the gross revenue of that person and
all other members of its aggregated group
for that taxable year. For taxable years
beginning after December 31, 2012, the
notice provides that a person that would
otherwise be a covered health insurance
provider under section 162(m)(6)(C)(i)(II)
for a taxable year is not treated as a cov-
ered health insurance provider for that tax-
able year if the premiums received by that
person and all other members of its aggre-
gated group from providing health insur-
ance coverage that constitutes minimum
essential coverage are less than two per-
cent of the gross revenue of that person and
all other members of its aggregated group
for that taxable year.
Commenters generally reacted fa-
vorablytothede minimisexception set
forth in Notice 2011–2. One commenter,
however, suggested that thede minimis
exception should be based on compensa-
tion instead of revenues. The commenter
suggested that a health insurance issuer
and the persons that are treated as a sin-
gle employer with the health insurance
issuer under the aggregation rule should
not be treated as covered health insurance
providers if the compensation paid by the
health insurance issuer is less than two
percent of the total compensation paid
by all members of the aggregated group.
The commenter reasoned that comparing
compensation rather than gross revenue
and premiums would be a better method
to measure the importance of the health
insurance business to an aggregated group
because basing ade minimisexception
on gross revenue could overemphasize
the importance of health insurance ac-
tivities, which may generate relatively
higher revenues but operate on slimmer
profit margins. These proposed regula-
tions do not adopt this suggestion. The
Treasury Department and the IRS do not
agree that comparing compensation paid
by the health insurance issuer with the
overall compensation paid by the aggre-
gated group would be a better method of
measuring the importance of the health
insurance business to an aggregated group
than comparing premiums with gross rev-
enues. The Treasury Department and the
IRS are also concerned that ade minimis
exception based on compensation would
be inadministrable because it would re-
quire taxpayers and the IRS to allocate
compensation between members of an ag-
gregated group if an individual performs
services for more than one member of the
aggregated group.
The commenter also suggested that if an
individual providesservices for a member
of an aggregated group, but does not pro-
vide any services to the health insurance
issuer within the group, then the remu-
neration for those services should not be
subject to the section 162(m)(6) deduction
limitation. These proposed regulations
2013–22 I.R.B.1166May 28, 2013

do not adopt this suggestion because that
rule would be inconsistent with section
162(m)(6)(C)(ii), which treats all mem-
bers of an aggregated group that includes
a health insurance issuer described in sec-
tion 162(m)(6)(C)(i) as covered health
insurance providers subject to the section
162(m)(6) deduction limitation.
One commenter requested that the
two-percent threshold for thede min-
imisexception be increased slightly to an
unspecified percentage to avoid treating
certain aggregatedgroups of employers
that utilize captive insurance companies
as covered health insurance providers.
Several other commenters, however, re-
quested that the two-percent threshold
not be increased because a higher thresh-
old could allow health insurance issuers
that sell significant amounts of health in-
surance coverage to be exempt from the
deduction limitation, and thereby provide
them with a competitive advantage. After
carefully considering these comments, the
Treasury Department and the IRS have
concluded that the two-percent threshold
remains appropriate. Accordingly, these
proposed regulations adopt ade minimis
exception that is substantially similar to
thede minimisexception set forth in No-
tice 2011–2.
To accommodate unexpected changes
in the revenue sources of an aggregated
group and other events that could affect
application of thede minimisexception,
and also to provide a reasonable period
for employers that have not previously
been treated as covered health insurance
providers to adjust their compensation
programs, these proposed regulations pro-
vide that if a person is not treated as a
covered health insurance provider for one
or more taxable years solely by reason of
thede minimisexception, and then fails to
meet the requirements for thede minimis
exception for one or more taxable years,
the person will not be treated as a cov-
ered health insurance provider for the first
taxable year in which it fails to meet the
requirements for thede minimisexception
after previously not being treated as a cov-
ered health insurance provider solely by
reason of thede minimisexception.
2.Application of the De Minimis
Exception to Aggregated Groups the
Members of Which Have Different Taxable
Years
Commenters asked how thede min-
imisexception would apply in situations
in which the members of the aggregated
group have different taxable years. These
proposed regulations provide that thede
minimisexception applies based on the
premiums and gross revenues received
for the taxable year of the health insur-
ance issuer and the taxable years of the
other members of the aggregated group
for which they would otherwise be treated
as covered health insurance providers in
the absence of thede minimisexception.
In other words, thede minimisexception
applies based on the premiums and gross
revenues of (i) the health insurance issuer
for its taxable year, (ii) the parent entity for
its taxable year with which, or in which,
ends the taxable year of the health insur-
ance issuer, and (iii) each other member of
the aggregated group for its taxable year
that ends with, or within, the taxable year
of the parent entity.
II.Premiums
A.In General
Section 162(m)(6)(C)(i) provides that
ahealthinsuranceissuerisacovered
health insurance provider for a taxable
year only if it receives premiums from
providing health insurance coverage (as
defined in section 9832(b)(1)). These pro-
posed regulations include rules specifying
that amounts received under an indemnity
reinsurance contract and amounts that are
direct service payments are not treated
as premiums from providing health in-
surance coverage for purposes of section
162(m)(6)(C)(i).
B.Amounts Received under an Indemnity
Reinsurance Contract
Health insurance issuers may reinsure
a portion of their risks by entering into
an indemnity reinsurance contract with a
reinsurer. After Congress enacted section
162(m)(6), commenters suggested that
premiums received under an indemnity
reinsurance contract should not be treated
as premiums from providing health insur-
ance coverage. An indemnity reinsurance
contract is a contract between a health
insurance issuer and a reinsurer under
which a reinsurance claim is payable only
after the health insurance issuer has paid
an amount for health benefits under its
own insurance agreement with the policy
holder. Thus, commenters reasoned, pre-
miums for reinsurance coverage should
not be treated as premiums from providing
health insurance coverage for purposes of
section 162(m)(6). In response to these
comments, Notice 2011–2 provides that,
solely for purposes of determining whether
a taxpayer is a covered health insurance
provider, premiums received under an
indemnity reinsurance contract are not
treated as premiums from providing health
insurance coverage.
Consistent with Notice 2011–2, these
proposed regulations provide that, solely
for purposes of determining whether a per-
son is a covered health insurance provider,
premiums received under an indemnity
reinsurance contract are not treated as pre-
miums from providing health insurance
coverage, provided that under the reinsur-
ance contract (1) the reinsuring company
agrees to indemnify the health insurance
issuer for all or part of the risk of loss
under policies specified in the agreement,
and (2) the health insurance issuer retains
its liability to, and itscontractual relation-
ship with, the individual insured.
C.Direct Service Payments
A health insurance issuer or other per-
son that receives premiums from providing
health insurance coverage may enter into
an arrangement with a third party to pro-
vide, manage, or arrange for the provision
of services by physicians, hospitals, or
other healthcare providers. In connection
with this arrangement, the health insur-
ance issuer or other person that receives
premiums from providing health insurance
coverage may pay compensation to the
third party in the form of capitated, pre-
paid, periodic, or other payments, and the
third party may bear some or all of the risk
that the compensation is insufficient to pay
the full cost of providing, managing, or
arranging for the provision of services by
physicians, hospitals, or other healthcare
providers as required under the arrange-
ment. In addition, the third party may
be subject to healthcare provider, health
insurance, licensing, financial solvency,
or other regulation under state insurance
May 28, 201311672013–22 I.R.B.

law. Commenters suggested that com-
pensation payments tothese third parties
under these types of arrangements should
not be treated as premiums from providing
health insurance coverage for purposes
of section 162(m)(6)because, while the
third party bears some risk in connection
with providing, managing, or arranging
for the provision of healthcare services,
a health insurance issuer or other entity
that receives premiums from providing
health insurance coverage is ultimately
responsible for providing health insurance
coverage to the insureds. The commenters
explained that these risk shifting arrange-
ments are simply methods by which health
insurance issuers and other entities that
provide health insurance coverage diver-
sify and manage their risk, in a manner
similar to reinsurance. The Treasury
Department and the IRS agree with this
comment. Accordingly, these proposed
regulations provide that capitated, pre-
paid, periodic, or other payments (referred
to as direct service payments) made by a
health insurance issuer or other person that
receives premiums from providing health
insurance coverage to a third party as
compensation for providing, managing, or
arranging for the provision of healthcare
services by physicians, hospitals, or other
healthcare providers are not treated as pre-
miums for purposes of section 162(m)(6),
regardless of whether the third party is
subject to healthcare provider, health in-
surance, licensing, financial solvency, or
other similar regulatory requirements un-
der state law.
The Treasury Department and the IRS
also understand that certain government
entities may make similar capitated, pre-
paid, or periodic payments to third parties
to provide, manage, or arrange for the pro-
vision of services by physicians, hospitals,
or other healthcare providers and that these
third parties may also bear some or all of
the risk that the payments are insufficient
to pay the full cost of providing, managing,
or arranging for the provision of services
subject to the arrangement. Under cer-
tain circumstances, it may be inappropri-
ate to treat these payments made by gov-
ernment entities as premiums for purposes
of section 162(m)(6). However, because
these payments are not made by an en-
tity that has received premiums from pro-
viding health insurance, it may be diffi-
cult to distinguish between payments made
to third parties that should be treated as
premiums from providing health insurance
and payments that should not be treated
as premiums from providing health insur-
ance. The Treasury Department and the
IRS request comments on when such pay-
ments should be treated as premiums from
providing health insurance coverage for
purposes of section 162(m)(6) and when
they should not be treated as premiums for
these purposes.
III.Disqualified Taxable Year
Section 162(m)(6)(B) provides that a
disqualified taxable year is, with respect to
any employer, any taxable year for which
the employer is a covered health insurance
provider. Consistent with the statutory lan-
guage, these proposed regulations provide
that a disqualified taxable year is, with re-
spect to any person, any taxable year for
which that person is a covered health in-
surance provider.
IV.Applicable Individual
Section 162(m)(6)(F) provides that
with respect to a covered health insurance
provider for a disqualified taxable year, an
applicable individual is any individual (i)
who is an officer, director, or employee
in such taxable year, or (ii) who provides
services for, or on behalf of, the covered
health insurance provider during the tax-
able year. As noted in the Background
section of this preamble, Notice 2011–2
provides that the termapplicable individ-
ualfor a taxable year does not include
an independent contractor with respect to
whom a compensation arrangement would
not be subject to section 409A pursuant to
§1.409A–1(f)(2). Section 1.409A–1(f)(2)
generally provides an exception from sec-
tion 409A for arrangements that are made
with independent contractors that provide
substantial services to multiple unrelated
service recipients. Commenters suggested
that future guidance adopt this rule for
purposes of section 162(m)(6).
These proposed regulations adopt this
rule. The proposed regulations provide
that remuneration for services provided
by an independent contractor to a cov-
ered health insurance provider will not be
subject to the deduction limitation under
section 162(m)(6) if each of the following
conditions are met. First, the indepen-
dent contractor is actively engaged in the
trade or business of providing services
to recipients, other than as an employee
or as a member of the board of directors
of a corporation (or in a similar posi-
tion with respect to an entity that is not
a corporation). Second, the independent
contractor providessignificant services
(as defined in §1.409A–1(f)(2)(iii)) to
two or more persons to which the inde-
pendent contractor is not related and that
are not related to one another (as defined
in §1.409A–1(f)(2)(ii)). Third, the inde-
pendent contractor is not related to the
covered health insurance provider or any
member of its aggregated group, applying
the definition of related person contained
in §1.409A–1(f)(2)(ii), except that for
purposes of applyingthe references to sec-
tions 267(b) and 707(b)(1), the language
“20 percent” is not substituted for “50 per-
cent” in each place “50 percent” appears
in sections 267(b) and 707(b)(1).
Commenters also suggested that future
guidance clarify that the section 162(m)(6)
deduction limitation applies to services
provided by individuals that are natural
persons and not services provided pur-
suant to a contract or arrangement with a
corporation or partnership. For example,
commenters were concerned that remuner-
ation paid to doctors working for practice
groups that provide services to a covered
health insurance provider would be subject
to the deduction limitation under section
162(m)(6). In general, a corporation or
a partnership (for federal tax purposes)
would not be treated as an applicable
individual. However, the Treasury Depart-
ment and the IRS remain concerned that
covered health insurance providers may
attempt to avoid the application of the de-
duction limitation under section 162(m)(6)
by encouraging employees and indepen-
dent contractors who are natural persons
to form small or single-member personal
service corporations or other similar enti-
ties to provide services that are historically
provided by natural persons. The Treasury
Department and the IRS invite comments
regarding how the final regulations might
address this potential abuse.
V.Applicable Individual Remuneration
Section 162(m)(6)(D) and these pro-
posed regulations provide that applicable
individual remuneration is the aggregate
amount that is allowable as a deduction
2013–22 I.R.B.1168May 28, 2013

with respect to an applicable individual
for a disqualified taxable year (deter-
minedwithoutregardtosection162(m))
for remuneration forservices performed
by that individual (whether or not during
the taxable year), except that applicable
individual remuneration does not include
any amount that is deferred deduction
remuneration. Unlike the definition of
remuneration in section 162(m)(1), the
definition of applicable individual remu-
neration in section 162(m)(6)(D) includes
remuneration that is performance-based
compensation, remuneration payable on
a commission basis, and remuneration
payable under existing binding contracts.
Whether remuneration is applicable indi-
vidual remuneration is determined without
regard to when the services for the remu-
neration are performed. For example, a
discretionary bonus first granted and paid
to an applicable individual in a disqualified
taxable year solely in recognition of ser-
vices provided in prior years is applicable
individual remuneration for the disquali-
fied taxable year even though the bonus
does not relate to services provided in the
disqualified taxable year. In addition, a
grant of restricted stock in a disqualified
taxable year for which an applicable in-
dividual makes an election under section
83(b) is applicable individual remunera-
tion for the disqualified taxable year of
the covered health insurance provider in
which the grant of the restricted stock is
made.
VI.Deferred Deduction Remuneration
Section 162(m)(6)(E) and these reg-
ulations provide that deferred deduction
remuneration is remuneration that would
be applicable individual remuneration for
services that an applicable individual per-
forms during a disqualified taxable year,
but for the fact that it is not deductible
until a later taxable year (such as generally
occurs, for example, with nonqualified de-
ferred compensation). Whether remuner-
ation is deferred deduction remuneration
isdeterminedbasedonwhentheremu-
neration is deductible, regardless of when
the remuneration is paid. For example,
a bonus that is paid within 2
1
/2months
after the end of a covered health insurance
provider’s taxable year in which an ap-
plicable individual first obtains a right to
the remuneration is deductible in the cov-
ered health insurance provider’s taxable
year in which the applicable individual
obtains the right and, therefore, is appli-
cable individual remuneration, rather than
deferred deduction remuneration. See sec-
tion 404(a)(5); §1.404(b)–1T Q&A–2.
VII.Attribution of Applicable Individual
Remuneration and Deferred Deduction
Remuneration to Services Performed in
Taxable Years
The $500,000 deduction limitation
under section 162(m)(6) applies to the
applicable individual remuneration and
deferred deduction remuneration that is
attributable to services performed by an
applicable individual for a covered health
insurance provider in a disqualified tax-
able year. Accordingly, at the time that an
amount of applicable individual remuner-
ation or deferred deduction remuneration
for an applicable individual becomes oth-
erwise deductible (and not before that
time), the remuneration must be attributed
to services provided by the applicable in-
dividual during a particular taxable year
or years of a covered health insurance
provider.
In response to a request for comments
in Notice 2011–2, some commenters asked
that taxpayers be permitted to use any
reasonable method to attribute remunera-
tion to taxable years of a covered health
insurance provider, as long as the method
is applied consistently. Commenters ob-
served that the allocation methods for
purposes of section 162(m)(5) set forth in
Notice 2008–94 (relating to recipients of
payments under the Troubled Asset Re-
lief Program) may not be appropriate for
purposes of section162(m)(6) because the
methods in Notice 2008–94 were devel-
oped for employers expected to be subject
to the deduction limitation under section
162(m)(5) only temporarily, and thus nec-
essarily provided less flexibility than may
be appropriate for purposes of section
162(m)(6). Permitting taxpayers to use
any reasonable method to attribute remu-
neration to a taxable year of a covered
health insurance provider, however, may
lead to results that are inconsistent with
section 162(m)(6) and the legislative intent
underlying the statute. Accordingly, these
proposed regulations provide rules for
attributing applicable individual remuner-
ation and deferred deduction remuneration
to services performed by an applicable
individual during a taxable year or years
of a covered health insurance provider.
Nonetheless, the Treasury Department and
the IRS remain concerned about imposing
undue burdens on taxpayers and request
comments regarding the ease or difficulty
of applying the attribution rules described
in these proposed regulations and regard-
ing specific alternatives for attributing
applicable individual remuneration and
deferred deduction remuneration to ser-
vices performed during taxable years of
a covered health insurance provider that
would be less burdensome or otherwise
more appropriate.
A.In General
These proposed regulations provide
that remuneration is attributable to ser-
vices performed by an applicable indi-
vidual in the taxable year of the covered
health insurance provider in which the
applicable individual obtains a legally
binding right to the remuneration, unless
the remuneration is attributable to a differ-
ent taxable year under another provision
of these regulations.
In addition, these proposed regulations
provide that deferred deduction remuner-
ation is not attributable to a taxable year
ending before the later of the date that
(i) an applicable individual begins provid-
ing services to a covered health insurance
provider, or (ii) an applicable individual
obtains a legally binding right to the re-
muneration. If any amount of remuner-
ation that becomes otherwise deductible
would be attributable under the rules pro-
vided in these proposed regulations to a
taxable year ending before the applicable
individual begins providing services to a
covered health insurance provider or ob-
tains a legally binding right to the remu-
neration, these proposed regulations pro-
vide that this remuneration is attributed to
services performed by the applicable indi-
vidual in the taxable year in which the lat-
ter of these two dates occurs.
These proposed regulations further pro-
vide that remuneration is not attributable
to periods when an applicable individual is
not a service provider. Solely for purposes
of these proposed regulations, an individ-
ual is treated as a service provider for any
period during which the individual is an of-
ficer, director, or employee of, or provid-
May 28, 201311692013–22 I.R.B.

ing services for, or on behalf of, a covered
health insurance provider or any member
of its aggregated group. An amount of re-
muneration that otherwise would be attrib-
utable under the rules set forth in these pro-
posedregulationstoaperiodwhenanap-
plicable individual is not a service provider
must be reattributed to a period during
which the applicable individual is a ser-
vice provider in accordance with the rules
set forth in these proposed regulations.
1
Accordingly, for example, compensation
such as earnings on an account balance af-
ter termination of employment but before
payment, or appreciation of a share’s fair
market value after termination of employ-
ment but before the exercise of a stock op-
tion or stock appreciation right, must be at-
tributed to the period during which the ap-
plicable individual isa service provider.
If an amount of remuneration that
becomes otherwise deductible may be
attributed to services performed by an
applicable individual in two or more tax-
able years of a covered health insurance
provider in accordance with the rules for
attributing remuneration set forth in the
immediately following sections of this
preamble for attributing remuneration
under an account balance plan or a nonac-
count balance plan, the amount must be
attributed first to services performed by
the applicable individual in the earliest
taxable year to which the amount could
be attributed under the applicable attribu-
tion rules, and then to the next subsequent
taxable year to which the amount could
be attributed under those attribution rules,
until the entire amount has been attributed
to one or more taxable years of the covered
health insurance provider.
B.Account Balance Plans
To minimize the administrative burden
on taxpayers in applying the remuneration
attribution rules foraccount balance plans
(as described in §1.409A–1(c)(2)(i)(A)
and (B)), these proposed regulations pro-
vide that remuneration for an account
balance plan may be attributed to a tax-
able year based on the increase in the
account balance during the taxable year,
taking into account adjustments for the
amount of any payments from that account
during the taxable year. This method of
attributing remunerationisreferredtoin
the proposed regulations as the standard
attribution method. Under the standard
attribution method, the amount of remu-
neration attributable to services performed
in a taxable year of a covered health in-
surance provider is equal to the excess of
the account balance as of the last day of
the taxable year, plus any payments made
from that account during the taxable year,
over the account balance as of the last day
of the immediately preceding taxable year.
Any net decrease in an account balance
during a taxable year (again after adding
back payments made under the plan during
the taxable year) is treated as a reduction
to deferred deduction remuneration for
that taxable year and may offset other
deferred deduction remuneration (but not
applicable individual remuneration) at-
tributable to services performed by the
applicable individual in that year. If there
is not sufficient other deferred deduction
remuneration for that taxable year to offset
the entire reduction, the excess may offset
deferred deduction remuneration in the
first subsequent taxable year or years in
which the applicable individual has de-
ferred deduction remuneration to be offset
by the loss.
Under the standard attribution method,
any increases or decreases in an account
balance that occur in taxable years in
which an applicable individual is not a
service provider must be attributed to tax-
able years of the covered health insurance
provider (i) during which the applica-
ble individual is a service provider, and
(ii) on one or more days of which the
applicable individual retains an account
balance under the plan. The Treasury De-
partment and the IRS request comments
on the appropriate method for attributing
this remuneration to these taxable years.
For taxable years beginning in 2013, and
thereafter until the Treasury Department
and the IRS issue further guidance pre-
scribing the method for attributing this
remuneration to these taxable years, this
remuneration may be attributed using any
reasonable method to taxable years of the
covered health insurance provider (i) dur-
ing which the applicable individual is a
service provider, and (ii) on one or more
days of which the applicable individual
retains an account balance under the plan.
For this purpose, a method is reasonable
only if it is consistent with a reason-
able, good faith interpretation of section
162(m)(6) and is applied consistently for
all remuneration provided by the covered
health insurance provider under substan-
tially similar plans or arrangements.
These proposed regulations provide
an alternative method for attributing in-
creases and decreases in account balance
plans to services performed during a tax-
able year of a covered health insurance
provider. Under the alternative attribution
method, earnings and losses on a principal
addition (including earnings and losses
that occur in taxable years during which
an applicable individual is not a service
provider) are attributed to the taxable
year in which an applicable individual is
credited with the principal addition under
the plan. For example, if a principal ad-
dition is credited to the account balance
of an applicable individual for the 2014
taxable year, earnings (or losses) on that
principal addition in 2028 are treated as
additional deferred deduction remunera-
tion (or reductions to deferred deduction
remuneration) for the 2014 taxable year,
and not the 2028 taxable year.
After an amount of remuneration has
been attributed to a taxable year under a
particular attribution method (for exam-
ple, because a payment has been made
and the amount of the payment becomes
otherwise deductible), it is administra-
tively difficult for the attribution method
to be changed for future years. In addi-
tion, the Treasury Department and the IRS
are concerned that the ability to change
attribution methods may lead to selective
use of methods to maximize deductions.
Therefore, these proposed regulations
provide that a covered health insurance
provider must use the method chosen to
attribute remuneration under all of its ac-
count balance plans consistently for all
taxable years. However, the Treasury
Department and the IRS understand that
there may be valid business reasons for
changing attribution methods, such as a
1
These proposed regulations apply solely for purposes of section 162(m)(6),and therefore have no effect on the determination whether an amount is remuneration attributable to a particular
taxable year for employment tax purposes, and thus wages subject to federal employment taxation (including the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, the
Railroad Retirement Tax Act, and the Collection of Income Tax at Source on Wages (chapters 21, 22, 23, and 24 of the Code)), or the timing or amount of any applicable federal employment
taxation.
2013–22 I.R.B.1170May 28, 2013

merger or acquisition,change in compen-
sation structure, or change in accounting
method. Accordingly, the Treasury De-
partment and the IRS request comments on
the standards that should be applied to de-
termine whether and when a method may
be changed, and how that change would
apply if deductions for some portion of
the deferred deduction remuneration have
already been taken.
C.Nonaccount Balance Plans
These proposed regulations pro-
vide that remuneration under a nonac-
count balance plan (as described in
§1.409A–1(c)(2)(i)(C)) is attributable to
servicesperformedbyanapplicablein-
dividual in a taxable year based on the
increase (or decrease) in the present value
of the applicable individual’s benefit un-
der the plan during the taxable year. Under
this method, the amount of remuneration
attributable to services performed in a
taxable year of a covered health insurance
provider is equal to the increase (or de-
crease) in the present value of the future
payment or payments due under the plan
as of the last day of the taxable year of
the covered health insurance provider,
increased by any payments made during
that year, over (or under) the present value
of the future payment or payments as of
the last day of the covered health insur-
ance provider’s preceding taxable year.
For purposes of determining the increase
(or decrease) in the present value of a
future payment or payments, the rules
of §31.3121(v)(2)–1(c)(2) apply. Like
losses under account balance plans, losses
attributable to any taxable year under
a nonaccount balance plan may offset
other deferred deduction remuneration
attributable to services performed by the
applicable individual in that year (or, if
there is not sufficient other deferred de-
duction remuneration for that taxable year
to offset the entire reduction, the excess
may offset deferred deduction remunera-
tion in the first subsequent taxable year or
years in which the applicable individual
has deferred deduction remuneration to be
offset by the loss).
Any increase (or decrease) in the
present value of a future payment or pay-
ments under a nonaccount balance plan
that occurs in a taxable year when an appli-
cable individual is not a service provider
must be attributed to taxable years of
the covered health insurance provider
during which the applicable individual
(i) is a service provider and (ii) has a
legally binding right to a future payment
or payments under the nonaccount bal-
ance plan. The Treasury Department and
IRS request comments on the appropriate
method for attributing this remuneration
to these taxable years. For taxable years
beginning in 2013, and thereafter until the
Treasury Department and the IRS issue
further guidance prescribing the method
for attributing this remuneration to these
taxable years, this remuneration may be
attributed using any reasonable method
to taxable years during which the appli-
cable individual (i) is a service provider
and (ii) has a legally binding right to the
future payment or payments. For this pur-
pose, a method is reasonable only if it is
consistent with a reasonable, good faith
interpretation of section 162(m)(6) and is
applied consistently for all remuneration
provided by the covered health insurance
provider under substantially similar plans
or arrangements.
D.Equity-Based Remuneration
These proposed regulations provide
specific rules for the attribution of eq-
uity-based remuneration to services per-
formed in specific taxable years. They
provide that remuneration resulting from
the exercise of stock options and stock
appreciation rights (SARs) generally is
attributable, on a dailypro ratabasis, to
services performed by the applicable in-
dividual over the period beginning on the
date of grant of the stock option or SAR
and ending on the date that the stock right
is exercised, excluding any days on which
an applicable individual is not a service
provider.
These proposed regulations further pro-
vide that remuneration resulting from the
vesting or transfer (or transferability) of re-
stricted stock for which an election under
section 83(b) has notbeen made generally
is attributable, on a dailypro ratabasis,
to services performed by the applicable in-
dividual over the period beginning on the
grant date of the restricted stock and end-
ing on the earliest of the date on which (i)
the substantial risk of forfeiture lapses or
(ii) the restricted stock is transferred (or
becomes transferable), excluding any days
on which an applicable individual is not a
service provider.
These proposed regulations provide
that remuneration resulting from restricted
stock units (RSUs) is generally attribut-
able, on a dailypro ratabasis, to services
performed over the period beginning on
the date the applicable individual obtains
the legally binding right to the RSU and
ending on the date the remuneration is
paid or made available such that it is in-
cludible in gross income, excluding any
days on which an applicable individual is
not a service provider.
E.Involuntary Separation Pay
These proposed regulations provide
that involuntary separation pay is attrib-
utable to services performed by an appli-
cable individual during the taxable year
of the covered health insurance provider
in which the involuntary separation from
service occurs. Alternatively, involuntary
separation pay may be attributable, on a
dailypro ratabasis, to services performed
by the applicable individual beginning
on the date that the applicable individ-
ual obtains a legally binding right to the
involuntary separation pay and ending
on the date of the applicable individual’s
involuntary separation from service with
the covered health insurance provider
and all members of its aggregated group.
Involuntary separation pay to different
individuals may be attributed using dif-
ferent methods; however, if involuntary
separation payments are made to the same
individual over multiple taxable years, all
the payments must be attributed using the
same method. These regulations define in-
voluntary separation pay as remuneration
to which an applicable individual obtains
a right to payment solely as a result of an
involuntary separation from service. For
these purposes, an involuntary separation
from service means an involuntary sepa-
ration from service under §1.409A–1(n).
F.Substantial Risk of Forfeiture
An applicable individual’s right to
remuneration may be subject to a sub-
stantial risk of forfeiture. In response to
Notice 2011–2, commenters suggested
that remuneration be attributed to services
performed over the period during which
amounts are subject to a substantial risk
May 28, 201311712013–22 I.R.B.

of forfeiture (the vesting period). Consis-
tent with this suggestion, these proposed
regulations provide that in the case of re-
muneration that is subject to a substantial
risk of forfeiture and that would otherwise
be attributed to taxable years of a covered
health insurance provider in accordance
with (i) the general rule that attributes
remuneration to the taxable year in which
an applicable individual obtains a legally
binding right to the remuneration, (ii) the
attribution rules applicable to account bal-
ance plans, or (iii) theattribution rules ap-
plicable to nonaccount balance plans, the
remuneration is attributed to taxable years
of the covered health insurance provider
using a two-step process. First, the re-
muneration is attributed to taxable years
of the covered health insurance provider
pursuant to the legally-binding-right rule
or the rules applicable to account balance
or nonaccount balance plans, as applica-
ble. Second, the remuneration that was
subject to a substantial risk of forfeiture
is reattributed on a dailypro ratabasis
over the period that the remuneration was
subject to a substantial risk of forfeiture
(in other words, reattributed evenly over
the vesting period).
If a vesting period ends on a day other
than the last day of the covered health
insurance provider’s taxable year, the re-
muneration attributable to that taxable
year under the first step of the attribution
process is divided between the portion of
the taxable year thatincludes the vesting
period and the portion of the taxable year
that does not include the vesting period.
The amount attributed to the portion of
the taxable year thatincludes the vesting
period is equal to the total amount of re-
muneration that would be attributable to
the taxable year under the first step of the
attribution process, multiplied by a frac-
tion, the numerator of which is the number
of days during the taxable year that the
amount is subject to a substantial risk of
forfeiture and the denominator of which is
the number of days in such taxable year.
The remaining amount is attributed to the
portion of the taxable year that does not
include the vesting period and, therefore,
is not reattributed over the vesting period
under the second step of the attribution
process.
For purposes of these proposed reg-
ulations, a substantial risk of forfeiture
means a substantial risk of forfeiture under
§1.409A–1(d). If an individual makes an
election pursuant to section 83(b), then the
remuneration included in the individual’s
gross income is applicable individual re-
muneration that is attributed to the year in
which the transfer of the property occurs.
VIII.Application of the $500,000
Deduction Limitation
A.In General
The section 162(m)(6) deduction limi-
tation applies to the aggregate applicable
individual remuneration and deferred de-
duction remuneration attributable to ser-
vices performed by an applicable individ-
ual for a covered health insurance provider
in a disqualified taxable year. Accord-
ingly, if the applicable individual remuner-
ation and deferred deduction remuneration
attributable to services performed by an
applicable individual for a covered health
insurance provider in a disqualified tax-
able year exceed $500,000, the amount of
the remuneration that exceeds $500,000 is
not allowable as a deduction in any taxable
year.
B.Timing of Application of the Deduction
Limitation
The $500,000 deduction limitation with
respect to the applicable individual remu-
neration and deferred deduction remuner-
ation attributable to services performed by
an applicable individual in a disqualified
taxable year is applied to that remunera-
tion at the time that the remuneration oth-
erwise becomes deductible. The deduction
limitation with respect to an applicable in-
dividual for any particular disqualified tax-
able year is applied first to any applicable
individual remuneration attributable to ser-
vices performed by the applicable individ-
ual in that disqualified taxable year. If the
amount of the applicable individual remu-
neration is less than the $500,000 deduc-
tion limitation, all of the applicable indi-
vidual remuneration is deductible by the
covered health insurance provider in that
disqualified taxable year. To the extent
the applicable individual remuneration ex-
ceeds the $500,000 deduction limitation,
the covered health insurance provider’s de-
duction for the applicable individual remu-
neration is limited to $500,000, and the
amount of the applicable individual remu-
neration that exceeds $500,000 and, if ap-
plicable, any deferred deduction remuner-
ation attributable to services performed by
the applicable individual in that disqual-
ified taxable year, cannot be deducted in
any taxable year.
When the $500,000 deduction limita-
tion is applied to an amount of applicable
individual remuneration attributable to
services performed by an applicable indi-
vidual in a disqualified taxable year, the
deduction limitation with respect to that
applicable individualfor that disqualified
taxable year is reduced by the amount of
the applicable individual remuneration
against which it is applied, but not below
zero. If the applicable individual also has
an amount of deferred deduction remuner-
ation attributable to services performed in
that disqualified taxable year that becomes
otherwise deductible in a subsequent tax-
able year, the deduction limitation, as
reduced, is applied to that amount of de-
ferred deduction remuneration in the first
taxable year in which it becomes otherwise
deductible. If the amount of the deferred
deduction remuneration that becomes oth-
erwise deductible is less than the reduced
deduction limitation, then the full amount
of the deferred deduction remuneration
is deductible in that taxable year. To the
extent that the amount of the deferred de-
duction remuneration exceeds the reduced
deduction limitation, the covered health
insurance provider’s deduction for the de-
ferred deduction remuneration is limited
to the amount of the reduced deduction
limitation and the amount of the deferred
deduction remuneration that exceeds the
deduction limitation cannot be deducted
in any taxable year.
After the deduction limitation with re-
spect to an applicableindividual for a dis-
qualified taxable year (the original dis-
qualified taxable year) is applied to an
amount of deferred deduction remunera-
tion, the deduction limitation with respect
to that applicable individual for the origi-
nal disqualified taxable year is further re-
duced by the amount of the deferred de-
duction remuneration against which it is
applied, but not below zero. If the appli-
cable individual has an additional amount
of deferred deduction remuneration attrib-
utable to services performed in the origi-
nal disqualified taxable year that becomes
otherwise deductible in a subsequent tax-
able year, the deduction limitation, as fur-
ther reduced, is applied to that amount
2013–22 I.R.B.1172May 28, 2013

of deferred deduction remuneration in the
taxable year in which it is otherwise de-
ductible. This process continues for future
taxable years in which deferred deduction
remuneration attributable to services per-
formed by the applicable individual in the
original disqualified taxable year is other-
wise deductible. No deduction is allowed
for any applicable individual remuneration
or deferred deduction remuneration to the
extent that remuneration exceeds the de-
duction limitation in effect at the time it is
applied to the remuneration.
C.Application of Deduction Limitation
to Payments of Deferred Deduction
Remuneration
Any payment of deferred deduction re-
muneration may include remuneration that
is attributable to services performed by an
applicable individual in one or more tax-
able years of a covered health insurance
provider under the rules set out in these
proposed regulations. For example, remu-
neration resulting from the vesting of re-
stricted stock that is subject to a substantial
risk of forfeiture for three full taxable years
of a covered health insurance provider is
attributable to services performed in each
of the three years during which the re-
stricted stock was subject to a substantial
risk of forfeiture. In that case, a separate
deduction limitation applies to each por-
tion of the payment that is attributed to ser-
vices performed in a different disqualified
taxable year of the covered health insur-
ance provider. Any portion of the payment
that is attributed to a disqualified taxable
year will be deductible only to the extent
that it does not exceed the deduction limit
that applies to the applicable individual for
that disqualified taxable year, as that de-
duction limit may have been previously re-
duced by the amount of any applicable in-
dividual remuneration or deferred deduc-
tion remuneration attributable to services
performed in that disqualified taxable year
that was previously deductible. If pay-
ments of deferred deduction remuneration
under an account balance plan or a nonac-
count balance plan are paid in installments
(rather than a single lump-sum), the pay-
ments are deemed to be made from the
deferred deduction remuneration to which
they are attributable under the applicable
attribution rules, with payments deemed to
be made first with respect to the earliest
taxable years to which they could be at-
tributed. The proposed regulations con-
tain numerous examples to illustrate how
these rules apply to services performed and
compensation payments made over multi-
ple taxable years.
D.Application of the Deduction Limitation
to an Aggregated Group
For purposes of applying the section
162(m)(6) deduction limitation, all mem-
bers of an aggregated group are treated
as a single employer. Accordingly, one
$500,000 deduction limitation applies to
the aggregate applicable individual remu-
neration and deferred deduction remuner-
ation attributable to services performed by
an applicable individual during a disqual-
ified taxable year for any member of the
aggregated group. Each time this deduc-
tion limitation is applied to an amount of
applicable individual remuneration or de-
ferred deduction remuneration otherwise
deductible by any member of the aggre-
gated group, the deduction limitation is
reduced by the amount of the remunera-
tion against which it is applied, and the re-
duced deduction limitation is then applied
to other remuneration attributable to ser-
vices performed by the applicable individ-
ual in the original disqualified taxable year
that is otherwise deductible by any mem-
ber of the aggregated group, in the manner
previously described.
In the case of two or more members of
an aggregated group that are otherwise en-
titled to deduct in any taxable year appli-
cable individual remuneration or deferred
deduction remuneration attributable to ser-
vices performed by an applicable individ-
ual in a disqualified taxable year that ex-
ceeds the applicable deduction limitation
for that disqualified taxable year, the de-
duction limitation is prorated and allocated
to the members of the aggregated group
in proportion to the applicable individual
remuneration or deferred deduction remu-
neration that each otherwise would be en-
titled to deduct in the taxable year (but for
section 162(m)(6)).
IX.Corporate Transactions
A corporation or other person may be-
come a covered health insurance provider
as a result of a merger, acquisition of as-
sets or stock, disposition, reorganization,
consolidation, or separation, or any other
transaction (including a purchase or sale
of stock or other equity interest) resulting
in a change in the composition of its ag-
gregated group (generally referred to in
these proposed regulations as a corporate
transaction). For example, as a result of
the aggregation rules, members of a con-
trolled group of corporations may become
covered health insurance providers if a
health insurance issuer that is a covered
health insurance provider becomes a mem-
ber of the controlled group. In response
to Notice 2011–2, commenters suggested
that if a person becomes a covered health
insurance provider as a result of a cor-
porate transaction,the person should not
be treated as a covered health insurance
provider for the taxable year in which
the corporate transaction occurs. These
proposed regulations adopt this sugges-
tion by providing transition period relief
to ease the administrative burden on per-
sons that become covered health insurance
providers solely as a result of a corporate
transaction. Specifically, these proposed
regulations provide that if a person that is
not otherwise a covered health insurance
provider would become a covered health
insurance provider solely as a result of a
corporate transaction, the person generally
is not treated as a covered health insurance
provider for the taxable year in which the
transaction occurs (referred to as the tran-
sition period). The corporation or other
person, however, is treated as a covered
health insurance provider for any subse-
quent taxable year for which it qualifies as
a covered health insurance provider under
the general rules for determining whether
a person is a covered health insurance
provider. A person that was a covered
health insurance provider immediately be-
fore a corporate transaction is not eligible
for this transition period relief because the
person did not become a covered health
insurance provider solely as a result of a
corporate transaction.
However, these proposed regulations
provide that in certain circumstances
the deduction limitation under section
162(m)(6) may apply to a person that
is not treated as a covered health insur-
ance provider during the transition period.
Specifically, these proposed regulations
provide that transition period relief does
not extend to remuneration provided to ap-
plicable individuals of a health insurance
issuer that is a covered health insurance
May 28, 201311732013–22 I.R.B.

provider (which is not eligible for the tran-
sition period because it does not become
a covered health insurance provider solely
as a result of a corporate transaction) by
other members of the acquiring aggre-
gated group that are otherwise eligible for
the transition period relief. For example,
if a health insurance issuer that is a cov-
ered health insurance provider becomes a
member of an acquiringaggregated group
that is a consolidated group described
in §1.1502–1(h), the other members of
which are not treated as covered health
insurance providers in the year in which
the corporate transaction occurs because
of the transition period relief, then any
applicable individual remuneration and
deferred deduction remuneration attribut-
able to services provided by an applicable
individual of the health insurance issuer
for the health insurance issuer or for the
other members of the acquiring aggre-
gated group during the transition period
are subject to the deduction limitation of
section 162(m)(6).
These proposed regulations also pro-
vide rules for covered health insurance
providers that have short taxable years as
a result of a corporate transaction. See
proposed §1.162–31(f).
X.Grandfathered Amounts Attributable
to Services Performed Before January 1,
2010
The section 162(m)(6) deduction limi-
tation only applies to applicable individual
remuneration attributable to services per-
formed by an applicable individual dur-
ing taxable years beginning after Decem-
ber 31, 2012 and to deferred deduction
remuneration attributable to services per-
formed by an applicable individual dur-
ing taxable years beginning after Decem-
ber 31, 2009. It does not apply to remu-
neration attributable to services performed
during taxable years beginning before Jan-
uary 1, 2010. These proposed regulations
provide rules for determining whether re-
muneration is attributable to services per-
formed in taxable years beginning before
January 1, 2010 that are in some ways dif-
ferent from the generalattribution rules.
Commenters suggested that deferred
deduction remuneration earned or granted
in taxable years beginning before Jan-
uary 1, 2010, be attributed to services
performed before that time, regardless of
whether the remuneration was subject to
a substantial risk of forfeiture after that
time. Commenters reasoned that Congress
did not intend for the deduction limitation
to apply to remuneration attributable to
taxable years starting before January 1,
2010 (even if such remuneration was not
vested as of the first day of the taxable year
beginning after December 31, 2009), be-
cause Congress enacted section 162(m)(6)
to encourage the use of health insurance
coverage premiums to lower insurance
rates for taxable years beginning after
December 31, 2012 (when health insur-
ance issuers would begin to benefit from
a substantial increase in new customers).
Commenters also asserted that the statute
should not apply to arrangements that
existed before the statute was enacted be-
cause covered health insurance providers
could not change those arrangements uni-
laterally in response to the statute.
In response to these comments, these
proposed regulations provide that the sec-
tion 162(m)(6) deduction limitation does
not apply to deferred deduction remuner-
ation attributable to services performed
during taxable years beginning before Jan-
uary 1, 2010, regardless of whether the
remuneration was subject to a substantial
risk of forfeiture after that time. These
proposed regulations provide special rules
for determining the amount of remunera-
tion attributable to services performed in
taxable years beginning before January
1, 2010 with respect to account balance
plans, nonaccount balance plans, and eq-
uity-based remuneration. For account
balance plans and nonaccount balance
plans, these proposed regulations pro-
vide that amounts are attributed based
on the general attribution rules, except
that any substantial risk of forfeiture is
disregarded. For equity-based compen-
sation, any remuneration resulting from
equity-based compensation granted in a
taxable year beginning before January 1,
2010, is not subject to the deduction lim-
itation. Earnings on these grandfathered
amounts, includingearnings accruing in
taxable years beginning after December
31, 2009, are also generally treated as
remuneration attributable to services per-
formed in taxable years beginning before
January 1, 2010.
XI.Transition Rules for Certain Deferred
Deduction Remuneration
Section 162(m)(6) applies to deferred
deduction remuneration attributable to
services performed in a disqualified tax-
able year beginning after December 31,
2009 that is otherwise deductible in a
taxable year beginning after December
31, 2012. As described in section I.B of
this preamble, for taxable years beginning
before January 1, 2013, a covered health
insurance provider is any health insurance
issuer (as defined in section 9832(b)(2))
that receives premiums from providing
health insurance coverage (as defined in
section 9832(b)(1)) (a pre-2013 covered
health insurance provider). For taxable
years beginning after December 31, 2012,
a covered health insurance provider is
any health insurance issuer (as defined in
section 9832(b)(2))that receives at least
25 percent of its gross premiums from
providing minimum essential coverage (as
defined in section 5000A(f)) (a post-2012
covered health insurance provider). Thus,
the definition of the termcovered health
insurance provideris narrower for taxable
years beginning after December 31, 2012,
than it is for taxableyears beginning be-
fore January 1, 2013.
After the enactment of section
162(m)(6), commenters suggested that
if a pre-2013 covered health insurance
provider does not qualify as a post-2012
covered health insurance provider, the
section 162(m)(6) deduction limitation
shouldnotapplytodeferreddeduction
remuneration attributable to services per-
formed during taxable years when the
health insurance issuer was a pre-2013
covered health insurance provider. These
commenters cited legislative history sug-
gesting that section 162(m)(6) was enacted
to encourage health insurance issuers to
use premiums from new customers to
lower health insurance rates. 155 Cong.
Rec. S12,540 (Dec. 6, 2009) (statement
of Sen. Lincoln). These commenters rea-
soned that if a pre-2013 covered health
insurance provider is not also a post-2012
covered health insurance provider, the
health insurance issuer is not benefiting
from new customers who are paying pre-
miums for minimum essential coverage,
and the health insurance issuer should not
be subject to the deduction limitation.
2013–22 I.R.B.1174May 28, 2013

In response to these comments, No-
tice 2011–2 provides that the section
162(m)(6) deduction limitation applies to
deferred deduction remuneration attribut-
able to services performed in a taxable year
beginning after December 31, 2009 and
before January 1, 2013 only if the covered
health insurance provider is a pre-2013
covered health insurance provider for
the taxable year to which the deferred
deduction remuneration is attributable
and a post-2012 covered health insurance
provider for the taxable year in which
that deferred deduction remuneration is
otherwise deductible. These proposed
regulations adopt this transition rule.
In response to Notice 2011–2, some
commenters requestedthat the transition
rule be applied more broadly, so that the
section 162(m)(6) deduction limitation
would not apply to deferred deduction
remuneration for services attributable to
taxable years beginning before January
1, 2013 if the employer is not a covered
health insurance provider in 2013, regard-
less of whether the employer is a covered
health insurance provider for the year the
deferred deduction remuneration becomes
otherwise deductible. The Treasury De-
partment and the IRS have concluded that
the standard set forth in Notice 2011–2
appropriately limits the transition rule
to circumstances in which the deferred
deduction remuneration is otherwise de-
ductible in a taxable year for which the
covered health insurance provider is not
a post-2013 covered health insurance
provider, and therefore these proposed
regulations do not adopt this suggestion.
Effect on Other Documents
These proposed regulations do not af-
fect the applicability of Notice 2011–2,
2011–2 I.R.B. 260. However, upon the
effective date of the final regulations, the
Treasury Department and the IRS antici-
pate that Notice 2011–2 will become ob-
solete for periods after the effective date of
the final regulations.
Proposed Effective Date
These proposed regulations are pro-
posed to be effective upon publication
in theFederal Registerof a Treasury
decision adopting these rules as final reg-
ulations, and applicable to taxable years
that begin after December 31, 2012, and
end on or after April 2, 2013. Taxpayers
may rely on these proposed regulations
until the issuance of final regulations.
The Treasury Department and the IRS
anticipate that the final regulations will be
issued before a covered health insurance
provider is required to file an income tax
return reflecting application of the section
162(m)(6) deduction limitation. However,
to the extent the final regulations contain
rules more restrictive than the rules con-
tained in these proposed regulations, a
covered health insurance provider will be
able to rely on these proposed regulations
for the purposes of the application of the
section 162(m)(6) to its first taxable year
beginning after December 31, 2012. Al-
though these regulations will not apply to
taxable years beginning after December
31, 2012 and ending before April 2, 2013,
taxpayers may rely on these proposed reg-
ulations with respect tothose taxable years
to the same extent as taxpayers may rely
with respect to taxable years to which the
regulations will apply.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations,
and because the regulations do not im-
pose a collection of information on small
entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant
to section 7805(f) of the Code, this regula-
tion has been submitted to the Chief Coun-
sel for Advocacy of the Small Business
Administration for comment on its impact
on small business.
Comments and Requests for 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 timely submitted to the IRS.
Treasury and the IRS request comments on
all aspects of the proposed rules. All com-
ments will be available for public inspec-
tion and copying. A public hearing will be
scheduled if requested in writing by any
person that timely submits written com-
ments. If a public hearing is scheduled, no-
tice of the date, time,and place for the pub-
lic hearing will be published in theFederal
Register.
Drafting Information
The principal author of these proposed
regulations is Ilya Enkishev, Office of
the Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel
from Treasury Department and the IRS
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 1.162–31 is added to
read as follows:
§1.162–31 The $500,000 deduction
limitation for remuneration provided by
certain health insurance providers.
(a)Scope. This §1.162–31 provides
rules regarding the deduction limitation
under section 162(m)(6), which provides
that a covered health insurance provider’s
deduction for applicable individual remu-
neration and deferred deduction remuner-
ation attributable to services performed
by an applicable individual in a disqual-
ified taxable year is limited to $500,000.
Paragraph (b) of this section provides
definitions of the terms used in this sec-
tion. Paragraph (c) of this section states
the general limitation on deductions un-
der section 162(m)(6). Paragraph (d) of
this section provides rules on the attribu-
tion of applicable individual remuneration
and deferred deduction remuneration to
services provided in one or more tax-
able years of a covered health insurance
provider. Paragraph (e) of this section
provides rules on the application of the
deduction limitation to applicable individ-
ual remuneration and deferred deduction
remuneration that is otherwise deductible
May 28, 201311752013–22 I.R.B.

under chapter 1 of the Internal Revenue
Code (Code) but for the deduction limita-
tion under section 162(m)(6) (referred to
in these regulations as remuneration that
is otherwise deductible). Paragraph (f) of
this section provides rules for persons par-
ticipating in certain corporate transactions.
Paragraph (g) of this section provides rules
on the coordination of section 162(m)(6)
with sections 162(m)(1) and 280G. Para-
graph (h) of this section provides rules
for determining the amount of remuner-
ation that is not subject to the deduction
limitation under section 162(m)(6) due
to application of the statutory effective
date (referred to in these regulations as
grandfathered amounts). Paragraph (i) of
this section provides transition rules for
deferred deduction remuneration that is at-
tributable to servicesperformedintaxable
years beginning after December 31, 2009
and before January 1, 2013. Paragraph
(j) of this section provides the effective
and applicability dates of the rules in this
section.
(b)Definitions—(1)Health insur-
ance issuer. For purposes of this sec-
tion, ahealth insurance issueris a health
insurance issuer as defined in section
9832(b)(2).
(2)Aggregated group. For purposes
of this section, anaggregated groupis
a health insurance issuer and each other
person that is treated as a single employer
with the health insurance issuer at any
time during the taxable year of the health
insurance issuer under sections 414(b)
(controlled groups of corporations), 414(c)
(partnerships, proprietorships, etc. under
common control), 414(m) (affiliated ser-
vice groups), or 414(o), except that the
rules in section 1563(a)(2) and (a)(3) (with
respect to corporations) and the rules in
§1.414(c)–2(c) (with respect to trades or
businesses under common control) for
brother-sister groups and combined groups
are disregarded.
(3)Parent entity—(i)In general.For
purposes of this section, aparent entityis
either—
(A) the common parent of a parent-sub-
sidiary controlled group of corporations
(withinthemeaningofsection414(b))ora
parent-subsidiary group of trades or busi-
nesses under common control (within the
meaning of section 414(c)) that includes a
health insurance issuer, or
(B) the health insurance issuer in an
aggregated group that is an affiliated ser-
vice group (within the meaning of section
414(m)) or a group described in section
414(o).
(ii)Certain aggregated groups with
multiple health insurance issuers.Iftwo
or more health insurance issuers are mem-
bers of an aggregated group that is an
affiliated service group (within the mean-
ing of section 414(m)) or group described
in section 414(o), the parent entity is the
health insurance issuer in the aggregated
group that is designated in writing by the
other members of the group to act as the
parent entity, provided the group treats
that health insurance issuer as the parent
entity consistently forall taxable years. If
the members of a group that are required
to designate in writing a health insurance
issuer to act as a parent entity fail to do
so, or if the members of the group fail
to treat the health insurance issuer that
they have designated as the parent entity
consistently as such for all taxable years,
the parent entity of the group is deemed to
be an entity with a taxable year that is the
calendar year (without regard to whether
the aggregated group includes an entity
with a calendar year taxable year) for all
purposes under this section for which a
parent entity’s taxable year is relevant.
(4)Covered health insurance
provider—(i)In general. For purposes of
this section and except as otherwise pro-
vided in this paragraph (b)(4), acovered
health insurance provideris—
(A) a health insurance issuer for any of
its taxable years beginning after Decem-
ber 31, 2009 and before January 1, 2013 in
which it receives premiums from provid-
ing health insurance coverage (as defined
in section 9832(b)(1)),
(B) a health insurance issuer for any of
its taxable years beginning after December
31, 2012 in which at least 25 percent of the
gross premiums it receives from provid-
ing health insurance coverage (as defined
in section 9832(b)(1)) are from providing
minimum essential coverage (as defined in
section 5000A(f)),
(C) the parent entity of an aggregated
group of which one or more health in-
surance issuers described in paragraphs
(b)(4)(i)(A) or (B) of this section are mem-
bers for the taxable year of the parent
entity with which, or in which, ends the
taxable year of any such health insurance
issuer, and
(D) each other member of an aggre-
gated group of which one or more health
insurance issuers described in paragraphs
(b)(4)(i)(A) or (B) of this section are mem-
bers for the taxable year of the other mem-
ber ending with, or within, the parent en-
tity’s taxable year.
(ii)Self-insured plans. For purposes
of this section, a person is not a covered
health insurance provider solely because
it maintains a self-insured medical reim-
bursement plan. For this purpose, a self-in-
sured medical reimbursement plan is a sep-
arate written plan for the benefit of em-
ployees (including former employees) that
provides for reimbursement of medical ex-
penses referred to in section 105(b) and
does not provide for reimbursement under
an individual or group policy of accident or
health insurance issued by a licensed insur-
ance company or under an arrangement in
the nature of a prepaid health care plan that
is regulated under federal or state law in a
manner similar to the regulation of insur-
ance companies, and may include a plan
maintained by an employee organization
described in section 501(c)(9).
(iii)De minimis exception—(A)In gen-
eral. A health insurance issuer and any
member of its aggregated group that would
otherwise be a covered health insurance
provider under paragraph (b)(4)(i) of this
section for a taxable year beginning after
December 31, 2009 and before January 1,
2013 is not treated as a covered health in-
surance provider for purposes of this sec-
tion for that taxable year if the premiums
received by the health insurance issuer and
any other health insurance issuers in its
aggregated group from providing health
insurance coverage (as defined in section
9832(b)(1)) are less than two percent of the
gross revenues of the health insurance is-
suer and all other members of its aggre-
gated group for the taxable year that the
health insurance issuer and the other mem-
bers of its aggregated group would oth-
erwise be treated as covered health insur-
ance providers under paragraph (b)(4)(i) of
this section. A health insurance issuer and
any member of its aggregated group that
would otherwise be a covered health in-
surance provider under paragraph (b)(4)(i)
of this section for a taxable year begin-
ning after December 31, 2012 is not treated
as a covered health insurance provider un-
2013–22 I.R.B.1176May 28, 2013

der this section for that taxable year if the
premiums received by the health insurance
issuer and any other health insurance is-
suers in its aggregated group for providing
health insurance coverage (as defined in
section 9832(b)(1)) that constitutes mini-
mum essential coverage (as defined in sec-
tion 5000A(f)) are less than two percent of
the gross revenues of the health insurance
issuer and all other members of its aggre-
gated group for the taxable year that the
health insurance issuer and the other mem-
bers of its aggregated group would oth-
erwise be treated as covered health insur-
ance providers under paragraph (b)(4)(i) of
this section. In determining whether pre-
miums constitute less than two percent of
gross revenues, the amount of premiums
and gross revenues must be determined
in accordance with generally accepted ac-
counting principles.
(B)One-year grace period. If a health
insurance issuer or a member of an ag-
gregated group is not treated as a covered
health insurance provider for a taxable
year solely by reason of thede min-
imisexception described in paragraph
(b)(4)(iii)(A) of this section, but fails
to meet the requirements of thede min-
imisexception described in paragraph
(b)(4)(iii)(A) of this section for the im-
mediately following taxable year, that
health insurance issuer or member of an
aggregated group will not be treated as a
covered health insurance provider for that
immediately following taxable year.
(C)Examples. The following examples
illustrate the principles of this paragraph
(b)(4). For purposes of these examples,
each corporation has a taxable year that
is the calendar year, unless the example
provides otherwise.
Example 1. (i) Corporations Y and Z are mem-
bers of an aggregated group under paragraph (b)(2)
of this section. Y is a health insurance issuer that is
a covered health insurance provider pursuant to para-
graph (b)(4)(i)(B) of this section and receives premi-
ums from providing health insurance coverage that is
minimum essential coverage during its 2015 taxable
year in an amount that is less than two percent of the
combined gross revenues of Y and Z for their 2015
taxable years. Z is not a health insurance issuer.
(ii) Y and Z are not treated as covered health in-
surance providers within the meaning of paragraph
(b)(4) of this section for their 2015 taxable years be-
cause they meet the requirements of thede minimis
exception under paragraph (b)(4)(iii)(A) of this sec-
tion.
Example 2. (i) Corporations V, W, and X are
members of an aggregated group under paragraph
(b)(2) of this section. V is a health insurance issuer
that is a covered health insurance provider pursuant to
paragraph (b)(4)(i)(B) of this section, but neither W
nor X is a health insurance issuer. W is the parent en-
tity of the aggregated group. V’s taxable year ends on
December 31, W’s taxable year ends on June 30, and
X’s taxable year ends on September 30. For its tax-
able year ending December 31, 2016, V receives $3x
of premiums from providing minimum essential cov-
erage and has no other revenue. For its taxable year
ending June 30, 2017, W has $100x in gross revenue.
For its taxable year ending September 30, 2016, X
has $60x in gross revenue.
(ii) In the absence of thede minimisexception,
V (the health insurance issuer) would be a covered
health insurance provider for its taxable year ending
December 31, 2016. W (the parent entity) would be a
covered health insurance provider for its taxable year
ending June 30, 2017 (its taxable year with which,
or within which, ends the taxable year of the health
insurance issuer), and X (the other member of the
aggregated group) would be a covered health insur-
ance provider for its taxable year ending on Septem-
ber 30, 2016 (its taxable year ending with, or within,
the taxable year of the parent entity). However, the
premiums received by V (the health insurance issuer)
from providing minimum essential coverage during
the taxable year that it would otherwise be treated as
a covered health insurance provider under paragraph
(b)(4)(i)(B) of this section are less than two percent
of the combined gross revenues of V, W, and X for
the related taxable yearsthat they would otherwise
be treated as covered health insurance providers un-
der paragraph (b)(4)(i) of this section ($3x is less than
two percent of $163x). Therefore, thede minimis
exception of paragraph (b)(4)(iii)(A) of this section
applies, and V, W, and X are not treated as covered
health insurance providers for these taxable years.
Example 3. (i) The facts are the same asExample
2, except that V receives $4x of premiums for provid-
ing minimum essential coverage for its taxable year
ending June 30, 2016. In addition, the members of
the V, W, and X aggregated group were not treated as
covered health insurance providers for their taxable
years ending December 31, 2015, June 30, 2016, and
September 30, 2015, respectively (their immediately
preceding taxable years)solely by reason of thede
minimisexception of paragraph (b)(4)(iii)(A) of this
section.
(ii) Although the premiums received by the
members of the aggregated group from providing
minimum essential coverage are more than two per-
cent of the gross revenues of the aggregated group for
the taxable years during which the members would
otherwise be treated as covered health insurance
providers under paragraph (b)(4)(i) of this section
($4x is greater than two percent of $164x), they were
not treated as covered health insurance providers
for their immediately preceding taxable years solely
by reason of thede minimisexception of paragraph
(b)(4)(iii)(A) of this section. Therefore, V, W, and X
are not treated as covered health insurance providers
for their taxable years ending in December 31, 2016,
June 30, 2017, and September 30, 2016, respec-
tively, because of the one-year grace period under
paragraph (b)(4)(iii)(B) of this section. However,
the members of the V, W, and X aggregated group
will be covered health insurance providers for their
subsequent taxable years if they would otherwise be
covered health insurance providers for those taxable
years under paragraph (b)(4) of this section.
(5)Premiums—(i) For purposes of
paragraph (b)(4) of this section, the term
premiumsmeans amounts received by a
health insurance issuer from providing
health insurance coverage (as defined in
section 9832(b)(1)), except that premiums
do not include—
(A) amounts received under an in-
demnity reinsurance contract described in
paragraph (b)(5)(ii) of this section, or
(B) direct service payments described
in paragraph (b)(5)(iii) of this section.
(ii)Indemnity reinsurance contract.
For purposes of this paragraph (b)(5),
the termindemnity reinsurance contract
means an agreement between a health in-
surance issuer and a reinsuring company
under which—
(A) The reinsuring company agrees to
indemnify the health insurance issuer for
all or part of the risk of loss under policies
specified in the agreement, and
(B) The health insurance issuer re-
tains its liability to provide health in-
surance coverage (as defined in section
9832(b)(1)) to, and its contractual rela-
tionship with, the insured.
(iii)Direct service payments.Forpur-
poses of this paragraph (b)(5), the term
direct service paymentmeans a capitated,
prepaid, periodic, or other payment made
by a health insurance issuer or another
entity that receives premiums from provid-
ing health insurance coverage (as defined
in section 9832(b)(1)) to another organ-
ization as compensation for providing,
managing, or arranging for the provi-
sion of healthcare services by physicians,
hospitals, or other healthcare providers,
regardless of whether the organization
that receives the compensation is subject
to healthcare provider, health insurance,
health plan licensing, financial solvency,
or other similar regulatory requirements
under state insurance law.
(6)Disqualified taxable year.Forpur-
poses of this section, the termdisqualified
taxable yearmeans, with respect to any
person, any taxable year for which the per-
son is a covered health insurance provider.
(7)Applicable individual—(i)In gen-
eral. For purposes of this section, ex-
cept as provided in paragraph (b)(7)(ii) of
this section, the termapplicable individ-
ualmeans, with respect to any covered
May 28, 201311772013–22 I.R.B.

health insurance provider for any disqual-
ified taxable year, any individual—
(A) who is an officer, director, or em-
ployee in that taxable year, or
(B) who provides services for or on
behalf of the covered health insurance
provider during that taxable year.
(ii)Independent contractors—
Remuneration for services provided by
an independent contractor to a covered
health insurance provider is subject to
the deduction limitation under section
162(m)(6). However, an independent
contractor will not be treated as an
applicable individual with respect to a
covered health insurance provider for a
disqualified taxable year if each of the
following requirements is satisfied:
(A) The independent contractor is ac-
tively engaged in the trade or business of
providing services to recipients, other than
as an employee or as a member of the
board of directors of a corporation (or sim-
ilar position with respect to an entity that is
not a corporation);
(B) The independent contractor pro-
vides significant services (as defined
in §1.409A–1(f)(2)(iii)) to two or more
persons to which the independent con-
tractor is not related and that are not
related to one another (as defined in
§1.409A–1(f)(2)(ii)); and
(C) The independent contractor is not
related to the covered health insurance
provider or any member of its aggregated
group, applying the definition of related
person contained in §1.409A–1(f)(2)(ii),
subject to the modification that for pur-
poses of applying the references to sec-
tions 267(b) and 707(b)(1), the language
“20 percent” is not used instead of “50
percent” each place “50 percent” appears
in sections 267(b) and 707(b)(1).
(8)Service provider. For purposes of
this section, the termservice provider
means, with respect to a covered health
insurance provider for any period, an in-
dividual who is an officer, director, or
employee, or who provides services for, or
on behalf of, the covered health insurance
provider or any member of its aggregated
group.
(9)Remuneration—(i)In general.For
purposes of this section, except as pro-
vided in paragraph (b)(9)(ii) of this sec-
tion, the termremunerationhas the same
meaning as applicable employee remu-
neration, as defined insection 162(m)(4),
but without regard to the exceptions un-
der section 162(m)(4)(B) (remuneration
payable on a commission basis), sec-
tion 162(m)(4)(C) (performance-based
compensation), and section 162(m)(4)(D)
(existing binding contracts), and the regu-
lations under those sections.
(ii)Exceptions. For purposes of this
section, remuneration does not include—
(A) A payment made to, or for the ben-
efit of, an applicable individual from or to
atrustdescribedinsection401(a)within
the meaning of section 3121(a)(5)(A),
(B) A payment made under an annuity
plan described in section 403(a) within the
meaning of section 3121(a)(5)(B),
(C) A payment made under a simplified
employee pension plan described in sec-
tion 408(k)(1) within the meaning of sec-
tion 3121(a)(5)(C),
(D) A payment made under an annuity
contract described in section 403(b) within
the meaning of section 3121(a)(5)(D),
(E) Salary reduction contributions de-
scribed in section 3121(v)(1), and
(F) Remuneration consisting of any
benefit provided to, or on behalf of, an
employee if, at the time the benefit is pro-
vided, it is reasonable to believe that the
employee will be able to exclude the value
of the benefit from gross income.
(10)Applicable individual remuner-
ation. For purposes of this section, the
termapplicable individual remuneration
means, with respect to any applicable
individual for any disqualified taxable
year, the aggregate amount allowable as
a deduction under this chapter for that
taxable year (determined without regard
to section 162(m)) for remuneration for
services performed by that applicable in-
dividual (whether or not in that taxable
year), except that applicable individual re-
muneration does not include any deferred
deduction remuneration with respect to
services performed during any taxable
year. Applicable individual remuneration
for a disqualified taxable year may include
remuneration for services performed in
a taxable year beforethe taxable year in
which the deduction for the remuneration
is allowable. For example, a discretionary
bonus granted and paid to an applicable
individual in a disqualified taxable year
in recognition of services performed in
prior taxable years is applicable individual
remuneration for that disqualified taxable
year. In addition, a grant of restricted
stock in a disqualified taxable year with
respect to which an applicable individual
makes an election under section 83(b) is
applicable individual remuneration for the
disqualified taxable year of the covered
health insurance provider in which the
grant of the restricted stock is made. See
paragraphs (d)(1)(iv) and (d)(5)(v) of this
section for certain remuneration that is not
treated as applicable individual remunera-
tion for purposes of this section.
(11)Deferred deduction remuneration.
For purposes of this section, the term
deferred deduction remunerationmeans
remuneration that would be applicable
individual remuneration for services per-
formed in a disqualified taxable year but
for the fact that the deduction (determined
without regard to section 162(m)(6)) for
the remuneration is allowable in a subse-
quent taxable year. Whether remuneration
is deferred deduction remuneration is de-
termined without regard to when the remu-
neration is paid, except to the extent that
the timing of the payment affects the tax-
able year in which the remuneration is oth-
erwise deductible. For example, payments
that are otherwise deductible by a cov-
ered health insurance providerinaninitial
taxable year, but are paid to an applicable
individual by the 15th day of the third
month of the immediately subsequent tax-
able year of the covered health insurance
provider (as described in §1.404(b)–1T,
Q&A–2(b)(1)), are applicable individual
remuneration for the initial taxable year
(and not deferred deduction remuneration)
because the deductionfor the payments is
allowable in the initial taxable year, and
not a subsequent taxable year. Except
as otherwise provided in paragraph (i) of
this section (regarding transition rules for
certain deferred deduction remuneration
attributable to services performed in tax-
able years beginning before January 1,
2013), deferred deduction remuneration
that is attributable to services performed
in a disqualified taxable year of a covered
health insurance provider is subject to the
section 162(m)(6) deduction limitation
even if the taxable year in which the re-
muneration is otherwise deductible is not
a disqualified taxable year. Similarly, de-
ferred deduction remuneration is subject
to the section 162(m)(6) deduction limi-
tation regardless of whether an applicable
individual is a service provider of the
covered health insurance provider in the
2013–22 I.R.B.1178May 28, 2013

taxable year in which the deferred deduc-
tion remuneration is otherwise deductible.
However, remuneration that is attributable
to services performed in a taxable year
that is not a disqualified taxable year is not
deferred deduction remuneration even if
the remuneration is otherwise deductible
in a disqualified taxable year. See also
paragraphs (d)(1)(iv) and (d)(5)(v) of this
section for certain remuneration that is not
treated as deferred deduction remunera-
tion for purposes of this section.
(12)Substantial risk of forfeiture.For
purposes of this section, the termsubstan-
tial risk of forfeiturehas the same meaning
as provided in §1.409A–1(d).
(c)Deduction Limitation—(1)Applica-
ble individual remuneration.Foranydis-
qualified taxable yearbeginning after De-
cember 31, 2012, no deduction is allowed
under this chapter for applicable individ-
ual remuneration that is attributable to ser-
vices performed by an applicable individ-
ual in that taxable year to the extent that
the amount of that remuneration exceeds
$500,000.
(2)Deferred deduction remuneration.
For any taxable year beginning after De-
cember 31, 2012, no deduction is allowed
under this chapter for deferred deduc-
tion remuneration that is attributable to
servicesperformedbyanapplicablein-
dividual in any disqualified taxable year
beginning after December 31, 2009, to the
extent that the amount of such remuner-
ation exceeds $500,000 reduced (but not
below zero) by the sum of:
(i) the applicable individual remunera-
tion for that applicable individual for that
disqualified taxable year; and
(ii) the portion of the deferred deduction
remuneration for those services that was
deductible under section 162(m)(6)(A)(ii)
and this paragraph (c)(2) in a preceding
taxable year, or would have been de-
ductible under section 162(m)(6)(A)(ii)
and this paragraph (c)(2) in a preceding
taxable year if section 162(m)(6) was ef-
fective for taxable years beginning after
December 31, 2009 and before January 1,
2013.
(d)Services to which remuneration is
attributable—(1)Attribution to a taxable
year—(i)In general. The deduction lim-
itation under section 162(m)(6) applies
to applicable individual remuneration
and deferred deduction remuneration at-
tributable to services performed by an
applicable individual in a disqualified tax-
able year of a covered health insurance
provider. When an amount of applica-
ble individual remuneration or deferred
deduction remuneration becomes other-
wise deductible (and not before that time),
that remuneration must be attributed to
services performed by an applicable in-
dividual in a taxable year of the covered
health insurance provider in accordance
with the rules of this paragraph (d). After
the remuneration has been attributed to
services performed by an applicable indi-
vidual in a taxable year of a covered health
insurance provider, the rules of paragraph
(e) of this section are then applied to deter-
mine whether the deduction with respect
to the remuneration is limited by section
162(m)(6).
(ii)Attribution of deferred deduction
remuneration to earliest years first.Ifan
amount of deferred deduction remuner-
ation that becomes otherwise deductible
may be attributed to services performed
by an applicable individual in two or
more taxable years of a covered health
insurance provider in accordance with
paragraphs (d)(3) (providing for the at-
tribution of amounts credited under an
account balance plan) or (d)(4) (providing
for the attribution of amounts credited
under a nonaccount balance plan) of this
section, the amount must be attributed first
to services performed by the applicable
individual in the earliest year to which
the amount could be attributable under
paragraphs (d)(3) or (4) of this section, as
applicable, and then to the next subsequent
taxable year or years to which the amount
could be attributable under paragraphs
(d)(3) or (4) of this section, as applicable,
until the entire amount has been attributed
to one or more taxable years of the covered
health insurance provider.
(iii)Example. The following exam-
ple illustrates the principles of paragraph
(d)(1)(ii) of this section.
Example. (i) A is an employee of corporation Z,
which has a taxable year that is the calendar year and
is a covered health insurance provider for all rele-
vant taxable years. A participates in a nonqualified
deferred compensation plan that is an account bal-
ance plan maintained by Z. A’s account balances un-
der the plan on the last day of all relevant taxable
years are as follows: $10,000 for 2014, $13,000 for
2015, $17,000 for 2016, and $24,000 for 2017. A’s
account balance is fully vested at all times. In accor-
dance with the terms of the plan, Z pays $15,000 to A
in 2018 and $9,000 to A in 2019. These amounts are
otherwise deductible by Z in the year in which they
are paid.
(ii) Because the nonqualified deferred compen-
sation plan is an account balance plan, deferred
deduction remuneration provided under the plan is
attributable to services provided by A in accordance
with paragraph (d)(3)(i) of this section. Z does
not use the alternate method of allocating earnings
and losses permitted under paragraph (d)(3)(ii) of
this section. Accordingly, the deferred deduction
remuneration under the plan attributable to services
provided by A in a taxable year is generally equal
to the increase in the account balance on the last
day of each taxable year over the account balance
on the last day of the immediately preceding taxable
year, increased by the amount of any payments made
during the taxable year. The increases in A’s account
balances are $10,000 for 2014, $3,000 for 2015,
$4,000 for 2016, and $7,000 for 2017. Therefore,
pursuant to paragraph (d)(1)(ii), Z must attribute
$10,000 of the $15,000 payment to services per-
formed by A in 2014, $3,000 of the $15,000 payment
to services performed by A in 2015, and $2,000 of
the $15,000 payment to services performed by A
in 2016 (leaving $2,000 remaining to be attributed
to 2016). Similarly, Z must attribute $2,000 of the
$9,000 payment to services performed by A in 2016,
and the remaining $7,000 of the $9,000 payment to
services performed by A in 2017.
(iv)No attribution to taxable years dur-
ing which no services are performed or be-
fore a legally binding right arises—(A)In
general. For purposes of this section, re-
muneration is not attributable—
(1) to a taxable year of a covered health
insurance provider ending before the later
of the date the applicable individual begins
providing services to the covered health in-
surance provider (or any member of its ag-
gregated group) and the date the applicable
individual obtains a legally binding right to
the remuneration, or
(2) to any other taxable year of a cov-
ered health insurance provider during
which the applicable individual is not a
service provider.
(B)Attribution of remuneration before
commencement of services or legally bind-
ing right. To the extent that remunera-
tion would otherwise be attributed to a tax-
able year ending before the later of the
date the applicable individual begins pro-
viding services to the covered health insur-
ance provider (or any member of its aggre-
gated group) and the date the applicable in-
dividual obtains a legally binding right to
the remuneration in accordance with para-
graphs (d)(2) through (d)(8) or paragraph
(d)(10) of this section, the remuneration
is attributable to services provided in the
taxable year in which the latter of these
dates occurs. For example, if an applica-
May 28, 201311792013–22 I.R.B.

ble individual obtains a contractual right
to remuneration in a taxable year of a cov-
ered health insurance provider and the re-
muneration would otherwise be attribut-
able to that taxable year pursuant to para-
graph (d)(2) of this section, but the ap-
plicable individual does not begin provid-
ing services to the covered health insur-
ance provider until the next taxable year,
the remuneration is attributable to the tax-
able year in which theapplicable individ-
ual begins providing services.
(v)Attribution to 12-month periods.To
the extent that a covered health insurance
provider is required to attribute remuner-
ationonadailypro ratabasis under this
paragraph (d), it may assume that any
12-month period has 365 days (and so may
ignore the extra day in leap years).
(vi)Remuneration subject to nonlapse
restriction or similar formula. For pur-
poses of this section, if stock or other eq-
uity is subject to a nonlapse restriction (as
defined in §1.83–3(h)), or if the remuner-
ation payable to an applicable individual
is determined under a formula that, if ap-
plied to stock or other equity, would be a
nonlapse restriction, the amount of the re-
muneration and the attribution of that re-
muneration to taxable years must be deter-
mined based upon application of the non-
lapse restriction or formula. For example,
if the earnings or losses on an account un-
der an account balance plan are determined
based upon the performance of company
stock, the valuation of which is based on a
formula that if applied to the stock would
be a nonlapse restriction, then that formula
must be used consistently for purposes of
determining the amount of the remunera-
tion credited to that account balance to tax-
able years and the attribution of that remu-
neration to taxable years.
(2)Legally binding right. Unless re-
muneration is attributable to services per-
formed in a different taxable year pursuant
to paragraphs (d)(3) through (d)(8) or para-
graph (d)(10) of this section, the remuner-
ation is attributable to services performed
in the taxable year of a covered health in-
surance provider in which an applicable in-
dividual obtains a legally binding right to
the remuneration. An applicable individ-
ual does not have a legally binding right to
remuneration if the remuneration may be
reduced unilaterally or eliminated by the
covered health insurance provider or other
person after the services creating the right
to the remuneration have been performed.
However, if the facts and circumstances in-
dicate that the discretion to reduce or elim-
inate the remuneration is available or exer-
cisable only upon a condition, or the dis-
cretiontoreduceoreliminate the remu-
neration lacks substantive significance, the
applicable individualwill be considered to
have a legally binding right to the remu-
neration. For this purpose, remuneration
is not considered to be subject to unilateral
reduction or elimination merely because it
may be reduced or eliminated by operation
of the objective terms of a plan, such as
the application of a nondiscretionary, ob-
jective provision creating a substantial risk
of forfeiture.
(3)Account balance plans—(i)Stan-
dard attribution method—(A)In gen-
eral. Except as provided in paragraphs
(d)(3)(i)(B) and (d)(3)(ii) of this section,
the increase (or decrease) in the account
balance of an applicable individual under
a plan described in §1.409A–1(c)(2)(i)(A)
or (B) (an account balance plan) as of the
last day of a taxable year of the covered
health insurance provider (the measure-
ment date), over (or under) the account
balance as of the last day of the immedi-
ately preceding taxableyear, is attributable
to services provided by the applicable in-
dividual in the taxable year that includes
the measurement date. For purposes of
determining the increase (or decrease) in
an account balance in any taxable year,
the applicable individual’s account bal-
ance as of the last dayof the taxable year
that includes the measurement date is in-
creased by any payments made during
that taxable year that reduce the account
balance. If an account balance plan credits
income or earnings based on a method or
formula that is neither a predetermined
actual investment within the meaning of
§31.3121(v)(2)–1(d)(2)(i)(B) nor a rate
of interest that is reasonable within the
meaning of §31.3121(v)(2)–1(d)(2)(i)(B),
the excess of the amount that would be
credited as income or earnings under the
terms of the plan over the amount that
would be credited as income or earnings
under a reasonable rate of interest (as
described in §31.3121(v)(2)–1(d)(2)(iii))
must be included in the account balance.
Increases in the applicable individual’s ac-
count balance with respect to any taxable
year are treated as remuneration attrib-
utable to services performed during that
taxable year. Decreases in the applicable
individual’s account balance with respect
to any taxable year are treated as reduc-
tions to deferred deduction remuneration
for that taxable year and may offset other
deferred deduction remuneration (but not
applicable individual remuneration) at-
tributable to services performed by the
applicable individual during that taxable
year under any plan or arrangement (or if
there is not sufficient deferred deduction
remuneration for that taxable year to off-
set the reduction entirely, the excess may
offset deferred deduction remuneration in
first subsequent taxable year or years in
which the applicable individual has de-
ferred deduction remuneration to be offset
by the loss).
(B)Attribution of increases (or de-
creases) in an account balance in taxable
years during which an applicable individ-
ual is not a service provider. [Reserved].
(ii)Alternativeattribution
method—(A)Attribution of principal
additions—(1)In general. Except as
provided in paragraph (d)(3)(ii)(A)(2),
any increase in the account balance of
an applicable individual in an account
balance plan as of the last day of a
taxable year, increased by any payments
made during the taxable year, over the
account balance as of the last day of the
immediately preceding taxable year that is
not due to earnings or losses (as described
in paragraph (d)(3)(ii)(C) of this section)
is treated as a principal addition and
is remuneration attributable to services
performed during that taxable year.
(2)Attribution of principal additions in
taxable years during which an applicable
individual is not a service provider.[Re-
served].
(B)Attribution of earnings or losses.
Earnings or losses on a principal addition
(including earnings and losses arising af-
ter an applicable individual ceases to be a
service provider) are attributable to the ser-
vices provided by the applicable individ-
ual in the same disqualified taxable year
of the covered health insurance provider to
which the principal addition is attributed
in accordance with paragraph (d)(3)(ii)(A)
of this section. Earnings are treated as re-
muneration for the taxable year to which
they are attributed, and losses are treated
as reductions to deferred deduction remu-
neration for that taxable year and may off-
set other deferred deduction remuneration
2013–22 I.R.B.1180May 28, 2013

(but not applicable individual remunera-
tion) attributable to services performed by
the applicable individual during that tax-
able year (or if there is not sufficient de-
ferred deduction remuneration to offset the
reduction entirely during that taxable year,
the first subsequent taxable year or years
in which the applicable individual has de-
ferred deduction remuneration to be offset
by the loss, if applicable).
(C)Earnings. Whether remunera-
tion constitutes earnings on a principal
addition is determined under the prin-
ciples defining income attributable to
an amount taken into account under
§31.3121(v)(2)–1(d)(2). Therefore, for
an account balance plan (as defined in
§31.3121(v)(2)–1(c)(1)(ii)(A)), earnings
on an amount deferred generally include
an amount credited on behalf of the appli-
cable individual under the terms of the ar-
rangement that reflects a rate of return that
does not exceed either the rate of return
on a predetermined actual investment (as
defined in §31.3121(v)(2)–1(d)(2)(i)(B)),
or, if the income does not reflect the rate
of return on a predetermined actual in-
vestment, a reasonable rate of interest.
For purposes of this section, the use of an
unreasonable rate of return generally will
result in the treatment of some or all of
the remuneration as a principal addition
that is attributable to services provided by
an applicable individual in a taxable year
of a covered health insurance provider in
accordance with paragraph (d)(3)(ii)(A)
of this section. For purposes of determin-
ing whether an account balance plan has
areasonablerateofreturn, the rules of
§31.3121(v)(2)–1(d)(2)(iii)(A) apply.
(D)Consistency requirement.Ifacov-
ered health insurance provider applies
a method described in either paragraph
(d)(3)(i) or paragraph (d)(3)(ii) of this sec-
tion, the covered health insurance provider
must apply that method consistently for all
taxable years for all plans of the covered
health insurance provider that would be
aggregated and treated as a single account
balance plan under §1.409A–1(c)(2) if
one hypothetical applicable individual had
deferrals of compensation under all of the
plans described in this paragraph.
(4)Nonaccount balance plans—(i)In
general. The increase (or decrease) in the
present value of the future payment or pay-
ments to which an applicable individual
has a legally binding right under a plan de-
scribed in §1.409A–1(c)(2)(i)(C) (nonac-
count balance plan) as of a measurement
date (as defined in paragraph (d)(3)(i)),
over (or under) the present value of the
future payment or payments as of the last
day of the immediately preceding taxable
year is attributableto services provided
by the applicable individual in the tax-
able year of the covered health insurance
provider that includes the measurement
date. For purposes of determining the
increase (or decrease) in the present value
of a future payment or payments under
a nonaccount balance plan, the rules of
§31.3121(v)(2)–1(c)(2) apply (including
the requirement that reasonable actuarial
assumptions and methods be used). For
purposes of determining the increase (or
decrease) in the present value of a future
payment or paymentsunder a nonaccount
balance plan attributable to any taxable
year, the present value of the future pay-
ment or payments as of the last day of the
taxable year is increased by the amount
of any payments made during that taxable
year. Increases in the present value of the
future payment or payments to which an
applicable individual has a legally binding
right under a nonaccount balance plan
with respect to any taxable year are treated
as remuneration attributable to services
performed in that taxable year. Decreases
in the present value of the future payment
or payments to which an applicable indi-
vidual has a legally binding right under
a nonaccount balance plan with respect
to any taxable year are treated as reduc-
tions to deferred deduction remuneration
for that taxable year and may offset other
deferred deduction remuneration (but not
applicable individual remuneration) at-
tributable to services performed by the
applicable individual during that taxable
year under any plan or arrangement (or if
there is not sufficient deferred deduction
remuneration for that taxable year to off-
set the reduction entirely, the excess may
offset deferred deduction remuneration in
the first subsequent taxable year or years
in which the applicable individual has de-
ferred deduction remuneration to be offset
by the loss).
(ii)Attribution of increases (or de-
creases) in the present value of a future
payment or payments in taxable years
during which an applicable individual is
not a service provider. [Reserved].
(5)Equity-based remuneration—(i)
Stock options and stock appreciation
rights. Remuneration resulting from the
exercise of a stock option (including an
incentive stock option described in sec-
tion 422 and an option under an employee
stock purchase plan described in section
423) or a stock appreciation right (SAR)
is attributable to services performed by an
applicable individual for a covered health
insurance provider, and it must be allo-
cated on a dailypro ratabasis over the pe-
riod beginning on the date of grant (within
the meaning of §1.409A–1(b)(5)(vi)(B))
of the stock option or SAR and ending on
the date that the stock right is exercised,
excluding any days on which the applica-
ble individual is not a service provider.
(ii)Restricted stock. Remuneration re-
sulting from the vesting or transfer of re-
strictedstockforwhichanelectionunder
section 83(b) has not been made is attrib-
utable on a dailypro ratabasis to services
performed by an applicable individual for
a covered health insurance provider over
the period, excluding any days on which
the applicable individual is not a service
provider, beginning on the date the appli-
cable individual obtains a legally binding
right to the restricted stock and ending on
the earliest of—
(A) the date the substantial risk of for-
feiture lapses with respect to the restricted
stock, or
(B) the date the restricted stock is
transferred by the applicable individual
(or becomes transferable as defined in
§1.83–3(d)).
(iii)Restricted stock units. Remunera-
tion resulting from a restricted stock unit
(RSU) is attributable to services performed
by an applicable individual for a covered
health insurance provider, and must be al-
located on a dailypro ratabasis, over the
period beginning on the date the applicable
individual obtains a legally binding right to
the RSU and ending on the date the remu-
neration is paid or made available such that
it is includible in gross income, excluding
any days on which the applicable individ-
ual is not a service provider.
(iv)Partnership interests and other eq-
uity. The rules provided in this paragraph
(d)(5) may be applied by analogy to grants
of equity-based compensation in situations
in which the compensation is determined
by reference to equity in an entity treated
as a partnership for federal tax purposes, or
May 28, 201311812013–22 I.R.B.

where compensation is determined by ref-
erence to equity interests in an entity de-
scribed in §1.409A–1(b)(5)(iii) (for exam-
ple, a mutual company).
(6)Involuntary separation pay. Invol-
untary separation pay is attributable to ser-
vices performed by an applicable individ-
ual for a covered health insurance provider
in the taxable year in which the involun-
tary separation from service occurs. Al-
ternatively, the covered health insurance
provider may attribute involuntary separa-
tionpaytoservicesperformedbyanap-
plicable individual on a dailypro rataba-
sis beginning on the date that the appli-
cable individual obtains a legally binding
right to the involuntary separation pay and
ending on the date of the involuntary sep-
aration from service. Involuntary separa-
tion pay to different individuals may be
attributed using different methods; how-
ever, if involuntary separation payments
are made to the same individual over mul-
tiple taxable years, all the payments must
be attributed using the same method. For
purposes of this section, the terminvolun-
tary separation paymeans remuneration to
which an applicable individual has a right
to payment solely as a result of the individ-
ual’s involuntary separation from service
(within the meaning of §1.409A–1(n)).
(7)Reimbursements. Remuneration
that is provided in the form of a reim-
bursement or benefit provided in-kind
(other than cash) is attributable to services
performed by an applicable individual in
the taxable year of the covered health in-
surance provider in which the applicable
individual makes a payment for which the
applicable individual has a right to reim-
bursement or receives the in-kind benefit,
except that remuneration provided in the
form of a reimbursement or in-kind benefit
during a taxable year of the covered health
insurance provider in which an applica-
ble individual is not a service provider
is attributable to services provided in the
first preceding taxable year of the covered
health insurance provider in which the
applicable individual is a service provider.
(8)Split-dollar life insurance.Re-
muneration resulting from a split-dollar
life insurance arrangement (as defined
in §1.61–22(b)) under which an appli-
cable individual has a legally binding
right to economic benefits described in
§1.61–22(d)(2)(ii) (policy cash value to
which the non-owner has current access
within the meaning of §1.61–22(d)(4)(ii))
or §1.61–22(d)(2)(iii) (any other economic
benefits provided to the non-owner) is at-
tributable to services performed in the tax-
able year of the covered health insurance
provider in which the legally binding right
arises. Split-dollar life insurance arrange-
ments under which payments are treated as
split-dollar loans under §1.7872–15 gener-
ally will not give rise todeferred deduction
remuneration within the meaning of para-
graph (b)(11) of this section, although
they may give rise to applicable individual
remuneration. However, in certain situa-
tions, this type of arrangement may give
rise to deferred deduction remuneration
for purposes of section 162(m)(6), for ex-
ample, if amounts on a split-dollar loan
are waived, cancelled, or forgiven.
(9)Examples. The following exam-
ples illustrate the principles of paragraphs
(d)(1) through (8) of this section. For pur-
poses of these examples, each corporation
has a taxable year that is the calendar year
and is a covered health insurance provider
for all relevant taxable years; deferred
deduction remuneration is otherwise de-
ductible in the taxable year in which it is
paid, and amounts payable under nonac-
count balance plans are not forfeitable
upon the death of the applicable individ-
ual.
Example 1 (Account balance plan with earnings
using the standard attribution method).(i)Bisan
applicable individual of corporation Y for all rele-
vant taxable years. On January 1, 2016, B begins
participating in a nonqualified deferred compensation
plan of Y that is an account balance plan. Under the
terms of the plan, all amounts are fully vested at all
times, and Y will pay B’s entire account balance on
January 1, 2019. Y credits $10,000 to B under the
plan annually on January 1 for three years beginning
on January 1, 2016. The account earns interest at a
fixed rate of five percent per year, compounded an-
nually under the terms of the plan, which solely for
purposes of this example, is assumed to be a reason-
able rate of interest. Thus, B’s account balance is
$10,500 ($10,000 + ($10,000 x 5%)) on December
31, 2016; $21,525 ($10,500 + $10,000 + ($20,500 x
5%)) on December 31, 2017; and $33,101 ($21,525 +
$10,000 + ($31,525 x 5%)) on December 31, 2018. Y
attributes increases and decreases in account balances
under the plan using the standard allocation method
described in paragraph (d)(3)(i) of this section.
(ii) Under the standard attribution method for ac-
count balance plans described in paragraph (d)(3)(i)
of this section, any increase in B’s account balance
as of the last day of Y’s taxable year over the ac-
count balance as of the last day of the immediately
preceding taxable year, increased by any payments
made during the taxable year, is remuneration that is
attributable to services provided by B in that taxable
year. Accordingly, $10,500 of deferred deduction re-
muneration is attributable to services performed by
B in Y’s 2016 taxable year (the difference between
the $10,500 account balance on December 31, 2016
and the zero account balanceon December 31, 2015);
$11,025 of deferred deduction remuneration is attrib-
utable to services performed in Y’s 2017 taxable year
(the difference between the $21,525 account balance
on December 31, 2017 and the $10,500 account bal-
ance on December 31, 2016); and $11,576 of deferred
deduction remuneration is attributable services per-
formed in Y’s 2018 taxable year (the difference be-
tween the $33,101 account balance on December 31,
2018 and the $21,525 account balance on December
31, 2017).
Example 2 (Account balance plan with earnings
using the alternate attribution method). (i) The facts
are the same as inExample 1, except that Y allocates
earnings and losses based on the alternative attribu-
tion method described in paragraph (d)(3)(ii) of this
section.
(ii) Under the alternative attribution method de-
scribed in paragraph (d)(3)(ii) of this section, each
principal addition of $10,000 is attributed to the tax-
able year of Y as of which the addition is credited,
and earnings and losses on each principal addition
are attributed to the same taxable year to which the
principal addition is attributed. Therefore, $1,576
of earnings are attributable to Y’s 2016 taxable year
(interest on the 2016 $10,000 principal addition at
five percent for three years compounded annually);
$1,025 of earnings are attributable to Y’s 2017 tax-
able year (interest on the 2017 $10,000 principal ad-
dition at five percent for two years compounded an-
nually); and $500 of earnings are attributable to Y’s
2018 taxable year (interest on the 2018 $10,000 prin-
cipal addition at five percent for one year).
Example 3 (Account balance plan with earnings
and losses using the standard attribution method).(i)
The facts are the same as inExample 1, except that
the earnings under the terms of the plan are based on a
notional investment in a predetermined actual invest-
ment (as defined in §31.3121(v)(2)–1(e)(2)(i)(B)),
which results in B’s account balance increasing by
five percent in the 2016 taxable year, decreasing by
five percent in the 2017 taxable year, and increasing
again by five percent in the 2018 taxable year. There-
fore, on December 31, 2016, B’s account balance is
$10,500 ($10,000 + ($10,000 x 5%)); on December
31, 2017, B’s account balance is $19,475 ($10,500
+ $10,000 - ($20,500 x 5%)); and on December 31,
2018, B’s account balance is $30,479 ($19,475 +
$10,000 + ($29,475 x 5%)).
(ii) Under the standard attribution method for ac-
count balance plans described in paragraph (d)(3)(i)
of this section, increases (or decreases) in B’s account
balance as of the last day of Y’s taxable year over (or
under) the account balance as of the last day of the
immediately preceding taxable year, increased by any
payments made during the taxable year, are attribut-
able to services provided by B in that taxable year.
(iii) Accordingly, $10,500 of deferred deduction
remuneration is attributable to services performed by
B in Y’s 2016 taxable year (the difference between
the $10,500 account balance on December 31, 2016
and the zero account balanceon December 31, 2015);
$8,975 of deferred deduction remuneration is attrib-
utable to services performed in Y’s 2017 taxable year
(the difference between the $19,475 account balance
on December 31, 2017 and the $10,500 account bal-
2013–22 I.R.B.1182May 28, 2013

ance on December 31, 2016); and $11,474 of deferred
deduction remuneration is attributable to services per-
formed in Y’s 2018 taxable year (the difference be-
tween the $30,949 account balance on December 31,
2018 and the $19,475 account balance on December
31, 2017).
Example 4 (Account balance plan with earnings
and losses using the alternative attribution method).
(i) The facts are the same as inExample 3, except that
Y attributes earnings and losses based on the method
described in paragraph (d)(3)(ii) of this section.
(ii) Under the alternative attribution method
for account balance plans described in paragraph
(d)(3)(ii) of this section, each $10,000 principal addi-
tion is attributed to the taxable year of Y as of which
the addition is made, and earnings and losses on each
principal addition are attributed to the same taxable
year of Y to which the principal addition is attributed.
With respect to the $10,000 principal addition to B’s
account for 2016, the account balance is $10,500
on December 1, 2016 ($500 of earnings), $9,975 on
December 31, 2017 ($525of losses), and $10,474
on December 31, 2018 ($499 of earnings). Accord-
ingly, $474 ($500 - $525 + $499) of net earnings is
attributable to Y’s 2016 taxable year. With respect
to the $10,000 principal addition to B’s account for
2017, the account balance is $9,500 on December
31, 2017 ($500 of losses), and $9,975 on December
31, 2018 ($475 of earnings). Accordingly, $25 in
net losses are attributable to Y’s 2017 taxable year
($500 losses for 2017 and $475 earnings for 2018).
Because losses attributable to a taxable year may
reduce deferred deduction remuneration attributable
to that taxable year (but not applicable individual
remuneration), the $25 loss reduces the $10,000 prin-
cipal addition to B’s account in 2017 for purposes of
applying the section 162(m)(6) deduction limitation.
With respect to the $10,000 principal addition to B’s
account in 2018, the account balance is $10,500 on
December 31, 2018. Therefore, the $500 of earnings
is attributable to Y’s 2018 taxable year.
Example 5 (Nonaccount balance plan).(i)Cis
an applicable individual of corporation X for all rel-
evant taxable years. On January 1, 2015, X grants C
a vested right to a $100,000 payment on January 1,
2020.
(ii) Under the attribution method for nonaccount
balance plans described in paragraph (d)(4) of this
section, any increase (or decrease) in the present
value of the future payment that C is entitled to
receive under the nonaccount balance plan as of
the last day of X’s taxable year, over (or under) the
present value of the future payment as of the last
day of the preceding taxableyear, increased by any
payments made during the taxable year, is attribut-
able to services provided by C in that taxable year.
X determines the present value of the payment using
an interest rate of five percent for all years, which,
solely for purposes of this example, is assumed to be
a reasonable actuarial assumption. The present value
of $100,000 payable on January 1, 2020, determined
using a five percent interest rate, is $82,300 as of
December 31, 2015; $86,400 as of December 31,
2016; $90,700 as of December 31, 2017; and $95,200
as of December 31, 2018. Accordingly, $82,300 of
deferred deduction remuneration is attributable to
services performed by C in X’s 2015 taxable year;
$4,100 ($86,400 - $82,300) of deferred deduction re-
muneration is attributable to services performed by C
in X’s 2016 taxable year; $4,300 ($90,700 - $86,400)
of deferred deduction remuneration is attributable to
services performed by C in X’s 2017 taxable year;
$4,500 ($95,200 - $90,700) of deferred deduction
remuneration is attributable to services performed by
C in X’s 2018 taxable year; and $4,800 ($100,000 -
$95,200) of remuneration is attributable to services
performed by C in X’s 2019 taxable year.
Example 6 (Nonaccount balance plan).(i)Dis
an applicable individual of corporation W for all rel-
evant taxable years. D begins employment with W on
January 1, 2016. On December 31, 2020, D obtains
the right to a payment from W equal to 10 percent of
D’s highest annual salary multiplied by D’s years of
servicecommencingonJanuary1oftheyearfollow-
ing D’s separation from service. In 2020, D has an an-
nual salary of $375,000, which increases by $25,000
on January 1 of each subsequent calendar year. D sep-
arates from service with W on December 31, 2023,
and W pays $360,000 to D on January 1, 2024. W
determines the present value of amounts to be paid
under the plan using an interest rate of five percent for
all years, which, solely for purposes of this example,
is assumed to be a reasonable actuarial assumption.
(ii) Under the attribution method for nonaccount
balance plans described in paragraph (d)(4) of this
section, the increase (or decrease) in the present value
of the future payment to which D is entitled under
the nonaccount balance plan as of the last day of W’s
taxable year, over (or under) the present value of the
future payment as of the last day of the preceding
taxable year, increased by any payments made during
the taxable year, is attributable to services provided
by D in that taxable year. W determines the present
value of this payment using an interest rate of five
percent for all years, which solely for purposes of
this example, is assumed to be a reasonable actuarial
assumption. As of December 31, 2021, D has the
right to a payment of $240,000 on January 1, 2024
($400,000 x 10% x 6 years of service). The present
value as of December 31, 2021 of $240,000 payable
on January 1, 2024 is $217,687. Therefore, $217,687
of deferred deduction remuneration is attributable to
services performed by D in W’s 2021 taxable year.
(iii) As of December 31, 2022, D has the right to
a payment of $297,500 on January 1, 2023 ($425,000
x 10% x 7 years of service). The present value as of
December 31, 2022 of $297,500 payable on January
1, 2023 is $283,333. Therefore, the deferred deduc-
tion remuneration attributable to services performed
by D in W’s 2022 taxable year is $65,546 ($283,333
- $217,680).
(iv) As of December 31, 2023, D has the right to
a payment of $360,000 on January 1, 2024 ($450,000
x 10% x 8 years of service). The present value as of
December 31, 2023 of $360,000 payable on January
1, 2024 is $360,000. Therefore, the deferred deduc-
tion remuneration attributable to services performed
by D in W’s 2023 taxable year is $76,767 ($360,000
- $283,333).
Example 7 (Stock option). (i) E is an applicable
individual of corporation V for all relevant taxable
years. On January 1, 2016, V grants E an option to
purchase 100 shares of V common stock at an exer-
cise price of $50 per share (the fair market value of
V common stock on the date of grant). On December
31, 2017, E ceases to be a service provider of V or
any member of V’s aggregated group. On January 1,
2019, E resumes providing services for V and again
becomes both a service provider and an applicable in-
dividual of V. On December 31, 2020, when the fair
market value of V common stock is $196 per share, E
exercises the stock option.The remuneration result-
ing from the stock option exercise is $14,600 (($196
- $50) x 100).
(ii) Pursuant to paragraph (d)(5)(i) of this sec-
tion, the remuneration resulting from the exercise of a
stock option is attributable to services performed by
E over the period beginning on the date of grant of
the stock option and ending on the date that the stock
right is exercised, excluding any days on which E is
not a service provider of V. Therefore, the $14,600
is attributedpro rataover the 1,460 days from Jan-
uary 1, 2016 to December 31, 2017 and from January
1, 2019 to December 31, 2020 (365 days per year
for the 2016, 2017, 2019, and 2020 taxable years),
so that $10 ($14,600 divided by 1,460) is attributed
to each calendar day in this period, and $3,650 (365
days x $10) of remuneration is attributed to services
performed by E in each of V’s 2016, 2017, 2019, and
2020 taxable years.
Example 8 (Restricted stock).(i)Fisanapplica-
ble individual of corporation U for all relevant taxable
years. On January 1, 2017, U grants F 100 shares of
restricted U common stock. Under the terms of the
grant, the shares will be forfeited if F voluntarily ter-
minates employment before December 31, 2019 (so
that the shares are subject to a substantial risk of for-
feiture through that date) and are nontransferable un-
til the substantial risk of forfeiture lapses. F does not
make an election under section 83(b) and continues
in employment with U through December 31, 2019,
at which time F’s rights in the stock become substan-
tially vested within the meaning of §1.83–3(b) and the
fair market value of a share of the stock is $109.50.
The deferred deduction remuneration resulting from
the vesting of the restricted stock is $10,950 ($109.50
x 100).
(ii) Pursuant to paragraph (d)(5)(ii) of this sec-
tion, the remuneration resulting from the vesting of
restricted stock is attributable to services performed
by F on a dailypro ratabasis over the period, ex-
cluding any days on which F is not a service provider
of U, beginning on the date F is granted the restricted
stock and ending on the earliest of the date the sub-
stantial risk of forfeiture lapses or the date the re-
stricted stock is transferred (or becomes transferable
as defined in §1.83–3(d)). Therefore, the $10,950 of
remuneration is attributed to services performed by
F over the 1,095 days between January 1, 2017 and
December 31, 2019 (365 days per year for the 2017,
2018, and 2019 taxable years), so that $10 ($10,950
divided by 1,095) is attributed to each calendar day in
this period, and remuneration of $3,650 (365 days x
$10) is attributed to services performed by F in each
of U’s 2017, 2018, and 2019 taxable years.
Example 9 (Restricted stock units (RSUs)).(i)G
is an applicable individual of corporation T for all rel-
evant taxable years. On January 1, 2018, T grants G
100 RSUs. Under the terms of the grant, T will pay
G an amount on December 31, 2020 equal to the fair
market value of 100 shares of T common stock on that
date, but only if G continues to provide substantial
services to T (so that the RSU is subject to a substan-
tial risk of forfeiture) through December 31, 2020. G
remains employed by T through December 31, 2020,
at which time the fair market value of a share of the
stock is $219, and T pays G $21,900 ($219 x 100).
May 28, 201311832013–22 I.R.B.

(ii) Pursuant to paragraph (d)(5)(iii) of this sec-
tion, remuneration from the payment under the RSUs
is attributed on a dailypro ratabasis to services per-
formed by G over the period beginning on the date the
RSUs are granted and ending on the date the remuner-
ation is paid or made available, excluding any days on
which G is not a service provider of T. Therefore, the
$21,900 in remuneration is attributed over the 1,095
days beginning on January 1, 2018 and ending on
December 31, 2020 (365 days per year for the 2018,
2019, and 2020 taxable years), so that $20 ($21,900
divided by 1,095) is attributed to each calendar day in
this period, and $7,300 (365 days x $20) is attributed
to service performed by G in each of T’s 2018, 2019,
and 2020 taxable years.
Example 10 (Involuntary separation pay).(i)His
an applicable individual of corporation S. On January
1, 2015, H and S enter into an employment contract
providing that S will make two payments of $150,000
each to H if H has an involuntary separation from ser-
vice. Under the terms of the contract, the first pay-
ment is due on January 1 following the involuntary
separation from service, and the second payment is
due on January 1 of the following year. On Decem-
ber 31, 2016, H has an involuntary separation from
service. S pays H $150,000 on January 1, 2017 and
$150,000 on January 1, 2018.
(ii) Pursuant to paragraph (d)(6) of this section,
involuntary separation pay may be attributed to ser-
vices performed by H in the taxable year of S in
which the involuntary separation from service occurs.
Alternatively, involuntary separation pay may be at-
tributed to services performed by H on a dailypro
ratabasis beginning on the date H obtains a right to
the involuntary separation pay and ending on the date
of the involuntary separation from service. The en-
tire $300,000 amount, including both $150,000 pay-
ments, must be attributed using the same method.
Therefore, the entire $300,000 amount (comprised of
two $150,000 payments) may be attributed to services
performed by H in S’s 2016 taxable year, which is
the taxable year in which the involuntary separation
from service occurs. Alternatively, the two $150,000
payments may be attributable to the period beginning
on January 1, 2015 and ending December 31, 2016,
so that $410.96 ($300,000 / (365 x 2)) is attributed
to each day of S’s 2015 and 2016 taxable years, and
$150,000 ($410.96 x 365) is attributed to services per-
formed by H in each of S’s 2015 and 2016 taxable
years.
Example 11 (Reimbursement after termination of
services). (i) I is an applicable individual of corpora-
tion R. On January 1, 2018, I enters into an agreement
with R under which R will reimburse I’s country club
dues for two years following I’s separation from ser-
vice. On December 31, 2020, I ceases to be a service
provider of R. I pays $50,000 in country club dues
on January 1, 2021 and $50,000 on January 2, 2022.
Pursuant to the agreement, R reimburses I $50,000 for
the country club dues in 2021 and $50,000 in 2022.
(ii) Pursuant to paragraph (d)(7) of this section,
remuneration provided in the form of a reimburse-
ment or in-kind benefit after I ceases to be a service
provider of R is attributed to services provided by I
in R’s taxable year in which I ceases to be an officer,
director, or employee of R and ceases performing ser-
vices for, or on behalf of, R. Therefore, $100,000 is
attributed to services performed in R’s 2020 taxable
year.
(10)Certain deferred deduction re-
muneration subject to a substantial risk
of forfeiture. If remuneration is attribut-
able in accordance withparagraph (d)(2)
(legally binding right), (d)(3) (account bal-
ance plan), or (d)(4)(nonaccount balance
plan) of this section to services performed
in a period that includes two or more tax-
able years of a covered health insurance
provider during which the remuneration is
subject to a substantial risk of forfeiture,
that remuneration must be attributed using
a two-step process. First, the remuneration
must be attributed to the taxable years of
the covered health insurance provider in
accordance with paragraph (d)(2), (3), or
(4) of this section, as applicable. Second,
the remuneration attributed to the period
during which the remuneration is subject
to a substantial risk of forfeiture (the vest-
ing period) must be reattributed on a daily
pro ratabasis over that period beginning
on the date that the applicable individual
obtains a legally binding right to the re-
muneration and ending on the date that
the substantial risk of forfeiture lapses.
If a vesting period ends on a day other
than the last day of the covered health
insurance provider’s taxable year, the re-
muneration attributable to that taxable
year under the first step of the attribution
process is divided between the portion of
the taxable year that includes the vesting
period and the portion of the taxable year
that does not include the vesting period.
The amount attributed to the portion of
the taxable year that includes the vesting
period is equal to the total amount of re-
muneration that would be attributable to
the taxable year under the first step of the
attribution process, multiplied by a frac-
tion, the numerator of which is the number
of days during the taxable year that the
amount is subject to a substantial risk of
forfeiture and the denominator of which is
the number of days in such taxable year.
The remaining amount is attributed to the
portion of the taxable year that does not
include the vesting period and, therefore,
is not reattributed under the second step
of the attribution process. For purposes
of this section, the date on which a sub-
stantial risk of forfeiture lapses is the date
on which the substantial risk of forfeiture
lapses for any reason, including the death,
disability, or involuntary termination of
employment of the applicable individual,
or the discretionary action of a covered
health insurance provider or any other
person.
(11)Examples. The following exam-
ples illustrate the principles of paragraph
(d)(10) of this section. For purposes of
these examples, each corporation has a tax-
able year that is the calendar year and is
a covered health insurance provider for
all relevant taxable years; deferred deduc-
tion remuneration is otherwise deductible
in the taxable year in which it is paid, and
amounts payable under nonaccount bal-
ance plans are not forfeitable upon the
death of the applicable individual.
Example 1 (Account balance plan subject to a
substantial risk of forfeiture using the standard attri-
bution method). (i) J is an applicable individual of
corporation Q for all relevant taxable years. On Jan-
uary 1, 2016, J begins participating in a nonqualified
deferred compensation plan that is an account balance
plan. Under the terms of the plan, Q will pay J’s ac-
count balance on January 1, 2021, but only if J contin-
ues to provide substantial services to Q through De-
cember 31, 2018 (so that the amount credited to J’s
account is subject to a substantial risk of forfeiture
through that date). Q credits $10,000 to J’s account
annually for five years on January 1 of each year be-
ginning on January 1, 2016. The account earns in-
terest at a fixed rate of five percent per year, com-
pounded annually, which solely for the purposes of
this example, is assumed to be a reasonable rate of
interest. Therefore, J’s account balance is $10,500
($10,000 + ($10,000 x 5%)) on December 31, 2016;
$21,525 ($10,500 + $10,000 + ($20,500 x 5%)) on
December 31, 2017; $33,101 ($21,525 + $10,000 +
($31,525 x 5%)) on December 31, 2018; $45,256
($33,101 + $10,000 + ($43,101 x 5%)) on Decem-
ber 31, 2019; and $58,019 ($45,256 + $10,000 +
($55,256 x 5%)) on December 31, 2020. Q attributes
increases and decreases inaccount balances under the
plan using the standard attribution method described
in paragraph (d)(3)(i) of this section.
(ii) Under the standard attribution method for ac-
count balance plans described in paragraph (d)(3)(i)
of this section, any increases in J’s account balance
as of the last day of Q’s taxable year over the account
balance as of the last day of the immediately preced-
ing taxable year, increased by any payments made
during the taxable year, is attributable to services pro-
vided by J in that taxable year. Accordingly, $10,500
of deferred deduction remuneration is initially attrib-
utable to services performedbyJinQ’s2016taxable
year (the difference between the $10,500 account bal-
ance on December 31, 2016 and the zero account bal-
ance on December 31, 2015); $11,025 of deferred de-
duction remuneration is initially attributable to ser-
vices performed by J in Q’s 2017 taxable year (the
difference between the $21,525 account balance on
December 31, 2017 and the$10,500 account balance
on December 31, 2016); $11,576 of deferred deduc-
tion remuneration is initially attributable to services
performed by J in Q’s 2018 taxable year (the differ-
ence between the $33,101 account balance on De-
cember 31, 2018 and the $21,525 account balance on
December 31, 2017); $12,155 of deferred deduction
remuneration is attributable to services performed by
2013–22 I.R.B.1184May 28, 2013

J in Q’s 2019 taxable year (the difference between the
$45,256 account balance on December 31, 2019 and
the $33,101 account balance on December 31, 2018);
and $12,763 of deferred deduction remuneration is
attributable to services performed by J in Q’s 2020
taxable year (the difference between the $58,019 ac-
count balance on December 31, 2020 and the $45,256
account balance on December 31, 2018).
(iii) Under the attribution method described in
paragraph (d)(10) of this section, deferred deduction
remuneration that is attributable to services per-
formed in a period that includes two or more taxable
years of Q during which the deferred deduction
remuneration is subject to a substantial risk of for-
feiture must be reattributed on a dailypro ratabasis
over the period beginning on the date that J obtains a
legally binding right to the remuneration and ending
on the date that the substantial risk of forfeiture
lapses. Therefore, $33,101 ($10,500 + $11,025 +
$11,576) is reattributed on a dailypro ratabasis over
the period beginning on January 1, 2016, and ending
on December 31, 2018, and $11,034 is attributed to
each of Q’s 2016, 2017, and 2018 taxable years.
Example 2(Account balance plan subject to a
substantial risk of forfeiture using the alternative at-
tribution method). (i) The facts are the same as inEx-
ample 1, except that Q allocates earnings and losses
using the alternative attribution method described in
paragraph (d)(3)(ii) of this section.
(ii) Under the alternative attribution method
for account balance plans described in paragraph
(d)(3)(ii) of this section, earnings and losses on a
principal addition are attributed to the same disquali-
fied taxable year of Q to which the principal addition
is attributed. Therefore, the amount initially attribut-
able to Q’s 2016 taxable year is $12,763 (the $10,000
principal addition in 2016 at five percent interest for
five years); the amount initially attributable to Q’s
2017 taxable year is $12,155 (the $10,000 principal
addition in 2017 at five percent interest for four
years); the amount initially attributable to Q’s 2018
taxable year is $11,576 (the $10,000 principal addi-
tion in 2018 at five percent interest for three years);
the amount attributable to Q’s 2019 taxable year is
$11,025 (the $10,000 principal addition in 2019 at
five percent interest for two years), and the amount
attributable to Q’s 2020 taxable year is $10,500 (the
$10,000 principal addition in 2020 at five percent
interest for one year).
(iii) Under the attribution method described in
paragraph (d)(10) of this section, deferred deduction
remuneration that is attributable to two or more tax-
able years of Q during which the deferred deduction
remuneration is subject to a substantial risk of for-
feiture must be reattributed on a dailypro rataba-
sis to that period beginning on the date that J ob-
tains a legally binding right to the remuneration and
ending on the date that the substantial risk of forfei-
ture lapses. Therefore, $36,494 ($12,763 + $12,155 +
$11,576) is reattributed on a dailypro ratabasis over
the period beginning on January 1, 2016, and ending
on December 31, 2018, and$12,165 is attributed to
each of Q’s 2016, 2017, and 2018 taxable years.
Example 3 (Nonaccount balance plan subject to
a substantial risk of forfeiture).(i) K is an applica-
ble individual of corporation J for all relevant tax-
able years. K begins employment with J on January
1, 2016 and begins participating in a nonqualified
deferred compensation plan that is a defined bene-
fit plan. Under the terms of the plan, J will pay K
an amount equal to ten percent of K’s highest annual
salary multiplied by K’s years of service as of K’s sep-
aration from service, but only if K remains employed
through December 31, 2020(so that the right to the
remuneration is subject to a substantial risk of forfei-
ture through that date). In 2016, K has annual salary
of $275,000, which increases by $25,000 on January
1 of each subsequent calendar year. K has a separa-
tion from service from J on December 31, 2025, and
J pays $500,000 to K on January 1, 2026 pursuant to
the terms of the plan. J determines the present value
of amounts to be paid under the plan using an inter-
est rate of five percent for all years, which, solely for
purposes of this example, is assumed to be a reason-
able actuarial assumption.
(ii) As of December 31, 2016, K has a right to a
payment of $27,500 on January 1, 2026 ($275,000 x
10% x 1 years of service). The present value as of De-
cember 31, 2021, of a $27,500 payment to be made on
January 1, 2026, is $17,727. Therefore, the remuner-
ation initially attributable to services performed by K
in J’s 2021 taxable year is $17,727 ($17,727 - $0).
(iii) As of December 31, 2017, K has a right to
a payment of $60,000 on January 1, 2026 ($300,000
x 10% x 2 years of service). The present value as of
December 31, 2021, of a $60,000 payment to be made
on January 1, 2026, is $40,610. Therefore, the remu-
neration initially attributable to services performed
by K in J’s 2021 taxable year is $22,884 ($40,610 -
$17,727).
(iv) As of December 31, 2018, K has a right to
a payment of $97,500 on January 1, 2026 ($325,000
x 10% x 3 years of service). The present value as of
December 31, 2021, of a $97,500 payment to be made
on January 1, 2026, is $69,291. Therefore, the remu-
neration initially attributable to services performed
by K in J’s 2021 taxable year is $28,681 ($69,291 -
$40,610).
(v) As of December 31, 2019, K has a right to a
payment of $140,000 on January 1, 2026 ($350,000
x 10% x 4 years of service). The present value as
of December 31, 2021, of a $140,000 payment to be
made on January 1, 2026, is $104,470. Therefore,
the remuneration initially attributable to services
performed by K in J’s 2021 taxable year is $35,179
($104,470 - $69,291).
(vi) As of December 31,2020, K has a right to a
payment of $187,500 on January 1, 2026 ($375,000 x
10% x 5 years of service). The present value as of De-
cember 31, 2021, of a $187,500 payment to be made
on January 1, 2026, is $146,911. Therefore, the remu-
neration initially attributable to services performed
by K in J’s 2021 taxable year is $42,441 ($146,911
- $104,470).
(vii) As of December 31, 2021, K has a right to a
payment of $240,000 on January 1, 2026 ($400,000
x 10% x 6 years of service). The present value as
of December 31, 2021, of a $240,000 payment to be
made on January 1, 2026, is $197,449. Therefore,
the remuneration attributable to services performed
by K in J’s 2021 taxable year is $50,537 ($197,449 -
$146,911).
(viii) As of December 31,2022, K has a right to
a $297,500 payment on January 1, 2026 ($425,000
x 10% x 7 years of service). The present value as
of December 31, 2022, of a $297,500 payment to be
made on January 1, 2026, is $256,992. Therefore,
the remuneration attributable to services performed
by K in J’s 2022 taxable year is $59,543 ($256,992 -
$197,449).
(ix) As of December 31, 2023, K has a right to
a $360,000 payment on January 1, 2026 ($450,000
x 10% x 8 years of service). The present value as
of December 31, 2023 of a $360,000 payment to be
made on January 1, 2026 is $326,532. Therefore,
the remuneration attributable to services performed
by K in J’s 2023 taxable year is $69,539 ($326,531 -
$256,992).
(x) As of December 31, 2024, K has a right to
a $427,500 payment on January 1, 2026 ($475,000
x 10% x 9 years of service). The present value as
of December 31, 2024 of a $427,500 payment to be
made on January 1, 2026 is $407,143. Therefore,
the remuneration attributable to services performed
by K in J’s 2024 taxable year is $80,612 ($407,143 -
$326,531).
(xi) As of December 31, 2025, K has a right to
a $500,000 payment on January 1, 2026 ($500,000
x 10% x 10 years of service). The present value as
of December 31, 2025 of a $500,000 payment to be
made on January 1, 2026 is $500,000. Therefore,
the applicable individual remuneration attributable to
services performed by K in J’s 2025 taxable year is
$92,857 ($500,000 - $407,143).
(xii) Under the attribution method described in
paragraph (d)(10) of this section, deferred deduction
remuneration that is attributable to two or more
taxable years of a covered health insurance provider
during which the deferred deduction remuneration
is subject to a substantial risk of forfeiture must be
reattributed on a dailypro ratabasis to that period
beginning on the date that the applicable individual
obtains a legally binding right to the remuneration
and ending on the date that the substantial risk of
forfeiture lapses. Therefore, $146,911 ($17,727 +
$22,884 + $28,681 + $35,179 + $42,441) is reat-
tributed on a dailypro ratabasis over the period
beginning on January 1,2016, and ending on Decem-
ber 31, 2020, and, accordingly, $29,382 (($146,911 /
(5 x 365)) x 365) is attributed to services performed
by K in each of L’s 2016, 2017, 2018, 2019, and
2020 taxable years.
(e)Application of the deduction lim-
itation—(1)To aggregate amounts.The
$500,000 deduction limitation is applied
to the aggregate amount of applicable in-
dividual remuneration and deferred deduc-
tion remuneration attributable to services
performed by an applicable individual in
a disqualified taxableyear. The aggregate
amount of applicable individual remuner-
ation and deferred deduction remuneration
attributable to services performed by an
applicable individual in a disqualified
taxable year that exceeds the $500,000
deduction limitation is not allowed as a de-
duction in any taxable year. Therefore, for
example, if an applicable individual has
$500,000 or more of applicable individ-
ual remuneration attributable to services
provided to a covered health insurance
provider in a disqualified taxable year,
the amount of that applicable individual
May 28, 201311852013–22 I.R.B.

remuneration that exceeds $500,000 is
not deductible in any taxable year, and
no deferred deduction remuneration at-
tributable to services performed by the
applicable individual in that disqualified
taxable year is deductible in any taxable
year. However, if an applicable individual
has applicable individual remuneration for
a disqualified taxable year that is less than
$500,000 and deferred deduction remu-
neration attributable to services performed
in the same disqualified taxable year that,
when combined with the applicable indi-
vidual remuneration for the year, is greater
than $500,000, all of the applicable indi-
vidual remuneration is deductible in that
disqualified taxable year, but the amount
of deferred deduction remuneration that
is deductible in future taxable years is
limited to the excess of $500,000 over
the amount of the applicable individual
remuneration for that year.
(2)Order of application and calcula-
tion of deduction limitation—(i)In gen-
eral. The deduction limitation with respect
to any applicable individual for any dis-
qualified taxable year is applied to applica-
ble individual remuneration and deferred
deduction remuneration attributable to ser-
vices performed by that applicable individ-
ual in that disqualified taxable year at the
time that the remuneration becomes other-
wise deductible, and each time the deduc-
tion limitation is applied to an amount that
is otherwise deductible, the deduction lim-
itation is reduced (but not below zero) by
the amount against which it is applied. Ac-
cordingly, the deduction limitation is ap-
plied first to an applicable individual’s ap-
plicable individual remuneration attribut-
able to services performed in a disqualified
taxable year and is reduced (but not below
zero) by the amount of the applicable indi-
vidual remuneration against which it is ap-
plied. If the applicable individual also has
an amount of deferred deduction remuner-
ation attributable to services performed in
that disqualified taxable year that becomes
otherwise deductible in a subsequent tax-
able year, the deduction limitation, as re-
duced, is applied to that amount of deferred
deduction remuneration in the first taxable
year in which it becomes otherwise de-
ductible. The deduction limitation is then
further reduced (but not below zero) by
the amount of the deferred deduction re-
muneration against which it is applied. If
the applicable individual has an additional
amount of deferred deduction remunera-
tion attributable to services performed in
the original disqualified taxable year that
becomes otherwise deductible in a subse-
quent taxable year, the deduction limita-
tion, as further reduced, is applied to that
amount of deferred deduction remunera-
tion in the taxable year in which it is oth-
erwise deductible. This process continues
for future taxable years in which deferred
deduction remuneration attributable to ser-
vices performed by the applicable individ-
ual in the original disqualified taxable year
is otherwise deductible. No deduction is
allowed in any taxable year for any appli-
cable individual remuneration or deferred
deduction remuneration attributable to ser-
vices performed by an applicable individ-
ual in a disqualified taxable year to the ex-
tent that it exceeds the deduction limitation
(as reduced, if applicable) for that disqual-
ified taxable year at the time the deduction
limitation is applied to the remuneration.
(ii)Application to payments—(A)In
general. Any payment of deferred deduc-
tion remuneration may include remuner-
ation that is attributable to services per-
formed by an applicable individual in one
or more earlier taxable years of a covered
health insurance provider pursuant to para-
graphs (d)(2) through (d)(8) and paragraph
(d)(10) of this section. In that case, a sep-
arate deduction limitation applies to each
portion of the payment that is attributed to
services performed in a different disqual-
ified taxable year. Any portion of a pay-
ment that is attributedto a taxable year that
is a disqualified taxable year is deductible
only to the extent that it does not exceed
the deduction limit that applies with re-
spect to the applicable individual for that
disqualified taxable year, as reduced by the
amount, if any, of applicable individual re-
muneration and deferred deduction remu-
neration attributable to services performed
in that disqualified taxable year that was
deductible in an earlier taxable year.
(B)Application to series of payments.
Under the rule described in paragraph
(d)(1)(ii) of this section, amounts attribut-
able to services performed by an applica-
ble individual pursuant to paragraph (d)(3)
or(4)ofthissectionmustbeattributedto
services performed bythe applicable indi-
vidual in the earliest year that the amount
could be attributable under paragraph
(d)(3) of (4) of this section, as applicable.
Any portion of a payment that is attributed
to services performed in a taxable year
is treated as paid for all purposes under
this section, including the calculation of
future earnings and the attribution of other
remuneration.
(3)Examples. The following exam-
ples illustrate the rules of paragraphs (e)(1)
and (e)(2) of this section. For purposes
of these examples, each corporation has a
taxable year that is the calendar year and
is a covered health insurance provider for
all relevant taxable years; deferred deduc-
tion remuneration is otherwise deductible
in the taxable year in which it is paid, and
amounts payable under nonaccount bal-
ance plans are not forfeitable upon the
death of the applicable individual.
Example 1 (Lump-sum payment of deferred de-
duction remuneration attributable to a single taxable
year). (i) L is an applicable individual of corporation
O. During O’s 2015 taxable year, O pays L $550,000
in salary, which is applicable individual remuner-
ation, and grants L a right to $50,000 of deferred
deduction remuneration payable upon L’s separation
from service from O. L has a separation from ser-
vice in 2020, at which time O pays L the $50,000
of deferred deduction remuneration attributable to
services performed by L in O’s 2015 taxable year.
(ii) The $500,000 deduction limitation for 2015 is
applied first to L’s $550,000 of applicable individual
remuneration for 2015. Because the $550,000 oth-
erwise deductible by O in 2015 is greater than the
deduction limitation, O may deduct only $500,000
of the applicable individual remuneration for 2015,
and $50,000 of the $550,000 of applicable individual
remuneration is not deductible for any taxable year.
The deduction limitation for remuneration attribut-
able to services provided by L in O’s 2015 taxable
year is then reduced to zero. Because the $50,000 in
deferred deduction remuneration attributable to ser-
vices performed by L in 2015 exceeds the reduced
deduction limitation of zero, that $50,000 is not de-
ductible for any taxable year.
Example 2 (Installment payments of deferred de-
duction remuneration attributable to a single taxable
year). (i) M is an applicable individual of corporation
N. During N’s 2016 taxable year, N pays M $300,000
in salary, which is applicable individual remunera-
tion, and grants M a right to $220,000 of deferred
deduction remuneration payable on a fixed schedule
beginning upon M’s separation from service. The
$220,000 is attributable to services provided by M in
N’s 2016 taxable year. M has a separation from ser-
vice in 2020. In 2020, N pays M $400,000 in salary,
which is applicable individual remuneration, and also
pays M $120,000 of deferred deduction remunera-
tion that is attributable to services performed in N’s
2016 taxable year. In 2021, N pays M the remaining
$100,000 of deferred deduction remuneration attrib-
utable to services performed by M in N’s 2016 taxable
year.
(ii) The $500,000 deduction limitation for 2016
is applied first to M’s $300,000 of applicable indi-
vidual remuneration for 2016. Because the deduc-
tion limitation is greater than the applicable individ-
ual remuneration, N may deduct the entire $300,000
2013–22 I.R.B.1186May 28, 2013

of applicable individual remuneration paid in 2016.
The $500,000 deduction limitation is then reduced to
$200,000 by the amount of the applicable individual
remuneration ($500,000 - $300,000). The reduced
deduction limitation is applied to M’s $120,000 of de-
ferred deduction remuneration attributable to services
performed by M in N’s 2016 taxable year that is paid
in 2020. Because the reduced deduction limitation
of $200,000 is greater than the $120,000 of deferred
deduction remuneration, for N’s 2020 taxable year,
N may deduct the entire $120,000 of deferred deduc-
tion remuneration paid in 2020. The $200,000 deduc-
tion limitation is reduced to $80,000 by the $120,000
in deferred deduction remuneration against which it
was applied ($200,000 - $120,000). The reduced de-
duction limitation of $80,000 is then applied to the
remaining $100,000 payment of deferred deduction
remuneration attributable to services performed by M
in N’s 2016 taxable year. Because the $100,000 in de-
ferred deduction remuneration otherwise deductible
by N for 2021 exceeds the reduced deduction limi-
tation of $80,000, N may deduct only $80,000 of the
deferred deduction remuneration for the 2021 taxable
year, and $20,000 of the $100,000 payment is not de-
ductible by N for any taxable year.
Example 3 (Lump-sum payment attributable to
multiple years from an account balance plan using
the standard attribution method). (i) N is an applica-
ble individual of corporation M for all relevant tax-
able years. On January 1, 2013, N begins partici-
pating in a nonqualified deferred compensation plan
sponsored by M that is an account balance plan. Un-
der the plan, all amounts are fully vested at all times.
The balances in N’s account (including principal ad-
ditions and earnings) are$50,000 on December 31,
2013, $100,000 on December 31, 2014, and $200,000
on December 2015. N’s applicable individual remu-
neration from M is $425,000 for 2013, $450,000 for
2014, and $500,000 for 2015. On January 1, 2016, in
accordance with the plan terms, M pays $200,000 to
N, which is a payment of N’s entire account balance
under the plan.
(ii) To determine the extent to which M is enti-
tled to a deduction for any portion of the $200,000
payment under the plan, the payment must first be
attributed to services performed by N in M’s tax-
able years in accordance with the attribution rules
set forth in paragraph (d) of this section. Under
the standard attribution method for account balance
plans in paragraph (d)(3)(i) of this section, remu-
neration under an account balance plan is attributed
to services performed by N in M’s taxable years in
an amount equal to the increase (or decrease) in the
account balance as of the last day of M’s taxable
year over the account balance as of the last day of
the immediately preceding taxable year, increased
by any payments made during that year. Therefore,
N’s remuneration under the account balance plan is
attributed to services performed by N in M’s taxable
years as follows: $50,000 ($50,000 - $0) in 2013,
$50,000 ($100,000 - $50,000) in 2014, and $100,000
($200,000 - $100,000) in 2015.
(iii) Under the rules in paragraphs (d)(1)(ii) and
(e)(2)(ii)(B) of this section, the January 1, 2016 pay-
ment of $200,000 is deemed a payment of remuner-
ation attributed to services performed by N in the
earliest year that the amount could be attributed un-
der paragraph (d)(3)(i) of this section. M’s first tax-
able year to which any portion of the payment could
be attributed is M’s 2013 taxable year. Accordingly,
$50,000 of the $200,000 payment is attributed to ser-
vices performed by N in M’s 2013 taxable year. M’s
next earliest taxable year to which any portion of the
payment could be attributed is M’s 2014 taxable year.
Accordingly, $50,000 of the $200,000 payment is at-
tributed to services performed by N in M’s 2014 tax-
able year. M’s next earliest disqualified taxable year
to which any portion of the payment could be at-
tributed is M’s 2015 taxable year. Accordingly, the
remaining $100,000 of the $200,000 payment is at-
tributed to services performed by N in M’s 2015 tax-
able year.
(iv) The portion of the deferred deduction remu-
neration attributed to services performed in a disqual-
ified taxable year under paragraph (d) of this section
that exceeds the deduction limitation for that disqual-
ified taxable year, as reduced through the date of pay-
ment, is not deductible in any taxable year. For M’s
2013 taxable year, the deduction limitation is reduced
to $75,000 by the $425,000 of applicable individual
remuneration for that year. Because $50,000 does not
exceed that reduced deduction limitation, all $50,000
of the deferred deduction remuneration attributed to
services performed by N in M’s 2013 taxable year is
deductible for 2016, the year of payment. The deduc-
tion limitation for remuneration attributable to ser-
vices performed by N that are attributable to 2013 is
then reduced to $25,000, and this reduced limitation
is applied to any future payment of deferred deduc-
tion remuneration attributable to services performed
by N in 2013. For M’s 2014 taxable year, the deduc-
tion limitation is reduced to $50,000 by N’s $450,000
of applicable individual remuneration for that year.
Because $50,000 does not exceed that reduced de-
duction limitation, all $50,000 of the deferred deduc-
tionremunerationattributedtoM’s2014taxableyear
is deductible for 2016, the year of payment. The
deduction limitation for remuneration attributable to
services performed by N in 2014 is then reduced to
zero, and this reduced limitation is applied to any fu-
ture payment of deferred deduction remuneration at-
tributable to services performed by N in 2014. For
M’s 2015 taxable year, the deduction limitation is re-
duced to zero during 2015 by N’s $500,000 of ap-
plicable individual remuneration for that year. Be-
cause $100,000 exceeds the reduced limit of zero, the
$100,000 of the deferred deduction remuneration at-
tributed to services performed by N in M’s 2015 tax-
able year is not deductible for the year of payment
(or any other taxable year). As a result, $100,000 of
the $200,000 payment ($50,000 + $50,000 + $0) is
deductible by M for M’s 2016 taxable year, and the
remaining $100,000 is not deductible by M for any
taxable year.
Example 4 (Installment payments attributable
to multiple taxable years from an account balance
plan using the standard attribution method).(i)O
is an applicable individual of corporation L for all
relevant taxable years. On January 1, 2016, O begins
participating in a nonqualified deferred compensa-
tion plan sponsored by L that is an account balance
plan. Under the plan, all amounts are fully vested
at all times. L credits principal additions to O’s
account each year, and credits earnings based on a
predetermined actual investment within the meaning
of §31.3121(v)(2)–1(d)(2)(i)(B). The balances in O’s
account (including principal additions and earnings)
are $100,000 on December 31, 2016, $250,000 on
December 31, 2017, and $450,000 on December
2018. O’s applicable individual remuneration from
L is $500,000 for 2016, $300,000 for 2017, and
$450,000 for 2018. On January 1, 2019, L pays O
$400,000 in accordance with the plan terms. As a
result of the payment, O’s remaining account balance
is $50,000 ($450,000 - $400,000). On December 31,
2019, O’s account balance is increased to $200,000
by additional credits made during the year. O’s appli-
cable remuneration from L is $200,000 for 2019. On
January 1, 2020, L pays O $200,000 in accordance
with the plan terms.
(ii) To determine the extent to which L is entitled
to a deduction for any portion of either of the pay-
ments under the plan, O’s payments under the plan
must first be attributed to services performed by O in
L’s taxable years in accordance with the attribution
rules set forth in paragraph (d) of this section. Under
the standard attribution method for account balance
plans described in paragraph (d)(3)(i) of this section,
remuneration is attributed to services performed by
O in L’s taxable years in an amount equal to the
increase in O’s account balance as of the last day of
L’s taxable year over theaccount balance as of the
last day of the immediately preceding taxable year,
increased by any payments made during that year.
Therefore, O’s deferred deduction remuneration
under the plan is attributed to L’s taxable years as
follows: $100,000 ($100,000 - $0) in 2016, $150,000
($250,000 - $100,000) in 2017, $200,000 ($450,000
- $250,000) in 2018, and $150,000 ($200,000 -
$450,000 + $400,000) in 2019.
(iii) Under the rules in paragraphs (d)(1)(ii) and
(e)(2)(ii)(B) of this section, the January 1, 2019 pay-
ment of $400,000 is deemed a payment of remunera-
tion attributed to services performed by O in the ear-
liest taxable year that the amount could be attributed
under paragraph (d)(3)(i) of this section. L’s first tax-
able year to which any portion of the payment could
be attributed is L’s 2016 taxable year. Accordingly,
$100,000 of the $400,000 payment is attributed to
services performed by O in L’s 2016 taxable year.
L’s next earliest taxable year to which any portion of
the payment could be attributed is L’s 2017 taxable
year. Accordingly, $150,000 of the $400,000 pay-
ment is attributed to services performed by O in L’s
2017 taxable year. L’s next earliest taxable year to
which any portion of the payment could be attributed
is L’s 2018 taxable year. Accordingly, the remaining
$150,000 of the $400,000 payment is attributed to ser-
vices performed by O in L’s 2018 taxable year. Be-
cause the portion of the $400,000 payment attributed
to L’s 2018 taxable year is less than the total deferred
deduction remuneration attributed to L’s 2018 tax-
able year, the excess deferred deduction remuneration
($50,000) is treated as paid in a subsequent taxable
year.
(iv) The portion of the deferred deduction remu-
neration attributed to services performed in a disqual-
ified taxable year under paragraph (d) of this section
that exceeds the deduction limitation for that disquali-
fied taxable year, as reduced, is not deductible for any
taxable year. For L’s 2016 taxable year, the deduc-
tion limitation is reduced to zero by the $500,000 of
applicable individual remuneration for that year. Be-
cause $100,000 exceeds the reduced deduction lim-
itation of zero, the $100,000 of the deferred deduc-
tion remuneration is not deductible for L’s 2019 tax-
able year, the year of payment, or any other taxable
May 28, 201311872013–22 I.R.B.

year. For L’s 2017 taxable year, the deduction limi-
tation is reduced to $200,000 by the $300,000 of ap-
plicable individual remuneration for that year. Be-
cause $150,000 does not exceed that reduced deduc-
tion limitation, the $150,000 of the deferred deduc-
tion remuneration is deductible for 2019, the year of
payment. The deduction limitation for remuneration
attributable to services performed by O in 2017 is
then reduced to $50,000, and this reduced limitation
is applied to any future payment of deferred deduc-
tion remuneration attributable to services performed
by O in 2017. For L’s 2018 taxable year, the deduc-
tion limitation is reduced to $50,000 by the $450,000
of applicable individual remuneration for that year.
Because the $150,000 of deferred deduction remu-
neration exceeds the reduced deduction limitation of
$50,000, $100,000 of the $150,000 attributable to ser-
vices performed by O in L’s 2018 taxable year is not
deductible for L’s 2019 taxable year, the year of pay-
ment, or any other taxable year. As a result, $200,000
of the $400,000 payment ($0 + $150,000 + $50,000)
is deductible by L for L’s 2019 taxable year, and the
remaining $200,000 is not deductible by L for any
taxable year.
(v) Applying the rules in paragraphs (d)(1)(ii) and
(e)(2)(ii)(B) of this section to the January 1, 2020
payment of $200,000, the payment is deemed a pay-
ment of deferred deduction remuneration attributed to
services performed by O in the earliest taxable year
that the amount could be attributed under paragraph
(d)(3)(i) of this section. L’s first taxable year to which
any portion of the payment could be attributed is L’s
2018 taxable year because all of the deferred deduc-
tion remuneration attributed to earlier taxable years
was deemed paid as part of the January 1, 2019 pay-
ment. Accordingly, $50,000 of the $200,000 pay-
ment is attributed to services performed by O in L’s
2018 taxable year (becausethe remaining portion of
the deferred deduction remuneration under the plan
originally attributed to services performed by O in L’s
2018 taxable year was deemed paid as part of the Jan-
uary 1, 2019 payment). L’s next earliest taxable year
to which any portion of the payment is attributed is
L’s 2019 taxable year. Accordingly, $150,000 of the
$200,000 payment is attributed to services performed
by O in L’s 2019 taxable year.
(vi) The portion of the deferred deduction remu-
neration attributed to a disqualified taxable year un-
der paragraph (d) of this section that exceeds the de-
duction limitation for that disqualified taxable year,
as reduced, is not deductible for any taxable year. For
L’s 2018 taxable year, the deductible limitation is re-
duced to zero by the $450,000 of applicable individ-
ual remuneration for that year and the $50,000 of de-
ferred deduction remuneration deducted in 2019. Be-
cause $50,000 exceeds the reduced deduction limita-
tion of zero, $50,000 of the deferred deduction remu-
neration is not deductible for L’s 2020 taxable year,
the year of payment, or any other taxable year. For
L’s 2019 taxable year, the deduction limitation is not
reduced because there is no applicable individual re-
muneration for that year. Because $150,000 does
not exceed the unreduced $500,000 limitation, the
$150,000 of the deferred deduction remuneration is
deductible for L’s 2020 taxable year, the year of pay-
ment. As a result, $150,000 of the $200,000 payment
($0 + $150,000) is deductible by L for L’s 2020 tax-
able year, and the remaining $50,000 is not deductible
by L for any taxable year.
Example 5 (Installment payments attributable to
multiple taxable years from an account balance plan
using the alternative attribution method for account
balance plans). (i) The facts are the same as set
forth inExample 4, paragraph (i), except as set forth
in this paragraph (i). L uses the alternative method
for attributing remuneration from an account balance
plan. Principal additions under the plan are $50,000
in 2016 and 2017, $100,000 in 2018, and $125,000 in
2019. As of the January 1, 2019 initial payment date,
earnings on the 2016, 2017, and 2018 are $125,000,
$75,000, and $50,000 respectively.
(ii) To determine the extent to which L is entitled
to a deduction for any portion of either payment under
the plan, the payments to O under the plan must first
be attributed to services performed by O in F’s tax-
able years in accordance withthe attribution rules set
forth in paragraph (d) of this section. Under the alter-
native attribution method for account balance plans in
paragraph (d)(3)(ii) of this section, the amount of re-
muneration under an account balance plan attributed
to services performed in a taxable year is equal to
the sum of the principal additions credited to the plan
for that taxable year plus (or minus) the earnings (or
losses) credited on those principal additions.
(iii) Under the rule in paragraphs (d)(1)(ii) and
(e)(2)(ii)(B) of this section, the $400,000 payment on
January 1, 2019, is deemed to constitute a payment of
remuneration attributed to services performed by O in
the earliest taxable year that the amount could be at-
tributed under paragraph (d)(3)(ii) of this section. L’s
first taxable year to which any portion of the payment
could be attributed is L’s 2016 taxable year. Accord-
ingly, $175,000 of the $400,000 payment is attributed
to services performed by O in L’s 2016 taxable year.
The next earliest taxable year of L to which any por-
tion of the payment could be attributed is L’s 2017
taxable year. Accordingly, $125,000 of the $400,000
payment is attributed to services performed by O in
L’s 2017 taxable year. L’s next earliest taxable year to
which any portion of the payment could be attributed
is L’s 2018 taxable year. Accordingly, the remaining
$100,000 of the $400,000 payment is attributed to ser-
vices performed by O in L’s 2018 taxable year. Be-
cause the portion of the $400,000 payment attributed
to L’s 2018 taxable year is less than the total deferred
deduction remuneration attributable to services per-
formed by O in L’s 2018 taxable year, the excess de-
ferred deduction remuneration ($50,000) is treated as
paid in a subsequent taxable year.
(iv) The portion of the deferred deduction re-
muneration attributable to services performed in
a disqualified taxable yearunder paragraph (d) of
this section that exceeds the deduction limitation
for that disqualified taxable year, as reduced, is not
deductible for any taxable year. For L’s 2016 taxable
year, the deduction limitation is reduced to zero by
the $500,000 of applicable individual remuneration
for that year. Because $175,000 exceeds the reduced
deduction limitation of zero, the $175,000 is not
deductible for L’s 2019 taxable year, the year of
payment, or any other taxable year. For L’s 2017
taxable year, the deduction limitation is reduced to
$200,000 by the $300,000 of applicable individual
remuneration for that year. Because $125,000 does
not exceed the reduced deduction limitation, the
$125,000 payment is deductible for 2019. For L’s
2018 taxable year, the deduction limitation is reduced
to $50,000 by the $450,000 of applicable individual
remuneration for that year. Because $100,000 ex-
ceeds the reduced limitation of $50,000, $50,000 of
the $100,000 attributable to L’s 2018 taxable year
is not deductible for 2019, the year of payment, or
any other taxable year. As a result, $175,000 of the
$400,000 payment ($0 + $125,000 + $50,000) is
deductible by L for L’s 2019 taxable year, and the
remaining $225,000 is not deductible by L for any
taxable year.
(v) Earnings through January 1, 2020 on the
excess deferred deduction remuneration attributable
to L’s 2018 taxable year ($50,000) that was not paid
as part of the January 1, 2019 payment are $10,000.
Earnings through January 1, 2020 on the $100,000
in principal credited to O’s account on January 1,
2019 are $15,000. Therefore, as of January 1, 2020,
O’s remaining deferred deduction remuneration
under the plan is attributed to L’s taxable years as
follows: $60,000 ($50,000 + $10,000) to 2018 and
$140,000 ($125,000 + $15,000) to 2019. Applying
the rules in paragraphs (d)(1)(ii) and (e)(2)(ii)(B)
to the January 1, 2020 payment of $200,000, the
payment is deemed a payment of deferred deduction
remuneration attributed to services performed by O
in the earliest taxable year that the amount could be
attributed under paragraph (d)(3)(ii) of this section.
L’s first taxable year to which any portion of the
payment could be attributed is L’s 2018 taxable year
because all of the deferred deduction remuneration
attributed to earlier taxable years was deemed paid
as part of the January 1, 2019 payment. Accordingly,
$60,000 of the $200,000 payment is attributed to
services performed by O in L’s 2018 taxable year.
L’s next taxable earliest taxable year to which any
portion of the payment could be attributed is F’s 2019
taxable year. Accordingly, $140,000 of the $200,000
payment is attributed to services performed by O in
L’s 2019 taxable year.
(vi) The portion of the deferred deduction re-
muneration attributed to a disqualified taxable year
under paragraph (d) of this section that exceeds the
deduction limitation for that disqualified taxable
year, as reduced, is not deductible for any taxable
year. For L’s 2018 taxable year, the deductible limita-
tion is reduced to zero by the $450,000 of applicable
individual remuneration for that year and the pay-
ment of $50,000 of deferred deduction remuneration
attributable to that year. Because $60,000 exceeds
the reduced deduction limitation of zero, the $60,000
is not deductible for the year of payment (or any
other taxable year). For L’s 2019 taxable year, the
deduction limitation is not reduced because there is
no applicable individual remuneration for that year.
Because $140,000 does not exceed the unreduced
$500,000 limitation, the $140,000 is deductible for
2020, the year of payment. As a result, $140,000 of
the $200,000 payment ($0 + $140,000) is deductible
for L’s 2020 taxable year, and the remaining $60,000
is not deductible by L for any taxable year.
(4)Application of deduction limitation
to aggregated groups of covered health in-
surance providers—(i)In general.The
total combined deduction for applicable
individual remuneration and deferred de-
duction remuneration attributable to ser-
vices performed by an applicable individ-
ual in a disqualified taxable year allowed
2013–22 I.R.B.1188May 28, 2013

for all members of an aggregated group
that are treated as covered health insurance
providers for any taxable year is limited to
$500,000. Therefore, if two or more mem-
bers of an aggregated group that are treated
as covered health insurance providers may
otherwise deduct applicable individual re-
muneration or deferred deduction remu-
neration attributable to services provided
by an applicable individual in a disqual-
ified taxable year, the applicable individ-
ual remuneration and deferred deduction
remuneration otherwise deductible by all
members of the aggregated group is com-
bined, and the deduction limitation is ap-
plied to the total amount.
(ii)Proration of deduction limitation.
If the total amount of applicable individ-
ual remuneration or deferred deduction
remuneration attributable to services per-
formed by an applicable individual in a
disqualified taxable year that is otherwise
deductible by two or more members of
an aggregated group in any taxable year
exceeds the $500,000 deduction limita-
tion (as reduced by previous applications
to applicable individual remuneration
or deferred deduction remuneration, if
applicable), the deduction limitation is
prorated based on the applicable individ-
ual remuneration and deferred deduction
remuneration otherwise deductible by the
members of the aggregated group in the
taxable year and allocated to each member
of the aggregated group. The deduction
limitation allocated to each member of
the aggregated group is determined by
multiplying the deduction limitation for
the disqualified taxable year (as previ-
ously reduced, if applicable) by a ratio, the
numerator of which is the applicable indi-
vidual remuneration and deferred deduc-
tion remuneration otherwise deductible
by that member in that taxable year that
is attributable to services performed by
the applicable individual in the disqual-
ified taxable year, and the denominator
of which is the total applicable individ-
ual remuneration and deferred deduction
remuneration otherwise deductible by all
members of the aggregated group in that
taxable year that is attributable to services
performed by the applicable individual in
the disqualified taxable year. The amount
of applicable individual remuneration or
deferred deduction remuneration other-
wise deductible by a member of the ag-
gregated group in excess of the portion of
the deduction limitation allocated to that
member is not deductible in any taxable
year.
(5)Examples. The following examples
illustrate the rules of paragraph (e)(4) of
this section. For purposes of these exam-
ples, each corporation has a taxable year
that is the calendar year and is a covered
health insurance provider for all relevant
taxable years, and deferred deduction re-
muneration is otherwise deductible by the
covered health insurance provider in the
taxable year in which it is paid.
Example 1. (i) Corporations I, J, and K are mem-
bers of the same aggregated group under paragraph
(b)(3) of this section. In 2016, C is an employee of,
and performs services for, I, J, and K. C’s total appli-
cable individual remuneration for 2016 is $1,500,000,
which consists of $750,000 of applicable individual
remuneration for services provided to K; $450,000 of
applicable individual remuneration for services pro-
vided to J; and $300,000 of applicable individual re-
muneration for services to I.
(ii) Because I, J, and K are members of the same
aggregated group, the applicable individual remu-
neration otherwise deductible by them is aggregated
for purposes of applying the deduction limitation.
Further, because the aggregate applicable individual
remuneration otherwise deductible by I, J, and K for
2016 exceeds the deduction limitation for C for that
taxable year, the deduction limitation is prorated and
allocated to the members of the aggregated group
in proportion to the applicable individual remuner-
ation otherwise deductible by each member of the
aggregated group for that taxable year. Therefore,
the deduction limitation that applies to the applicable
individual remuneration otherwise deductible by K
is $250,000 ($500,000 x ($750,000 / $1,500,000));
the deduction limitation that applies to the applicable
individual remuneration otherwise deductible by J is
$150,000 ($500,000 x ($450,000 / $1,500,000)); and
the deduction limitation that applies to applicable
individual remuneration otherwise deductible by I
is $100,000 ($500,000 x ($300,000 / $1,500,000)).
Therefore, for the 2016 taxable year, K may not
deduct $500,000 of the $750,000 of applicable indi-
vidual remuneration paid to C ($750,000 - $250,000);
J may not deduct $300,000 of the $450,000 of appli-
cable individual remuneration paid to C ($450,000
- $150,000); and I may not deduct $200,000 of the
$300,000 of applicable individual remuneration paid
to C ($300,000 - $100,000).
Example 2.(i) The facts are the same asExample
1, except that C’s total applicable individual remuner-
ation for 2016 is $400,000, which consists of $75,000
for services provided to K; $150,000 for services pro-
vided to J; and $175,000 for services provided to I. In
addition, C becomes entitled to $60,000 of deferred
deduction remuneration attributable to services pro-
vided to K in 2016, which is payable on April 1, 2018,
and $75,000 of deferred deduction remuneration at-
tributable to services provided to J in 2016, which is
payable on April 1, 2019.
(ii) Because C’s total applicable individual remu-
neration of $400,000 for 2016 for services provided
to K, J, and I does not exceed the $500,000 limi-
tation, K, J, and I may deduct $75,000, $150,000,
and $175,000, respectively, for 2016. The deduc-
tion limitation is then reduced to $100,000 by the
total applicable individual remuneration deductible
by all members of the aggregated group ($500,000
- $400,000). The deduction limitation, as reduced,
is then applied to any deferred deduction remunera-
tion attributable to services provided by C in 2016
in the first subsequent taxable year that it becomes
deductible, which is the $60,000 payment made on
April 1, 2018. Because the $60,000 of deferred de-
duction remuneration otherwise deductible by K does
not exceed the $100,000 deduction limitation, K may
deduct the entire $60,000 for its 2018 taxable year.
The $100,000 deduction limitation is then reduced by
the $60,000 of deferred deduction remuneration de-
ductible by K for 2018, and the reduced deduction
limitation of $40,000 ($100,000 - $60,000) is applied
to the $75,000 of deferred deduction remuneration
that is otherwise deductible for 2019. Because the de-
ferred deduction remuneration of $75,000 otherwise
deductible by J exceeds the reduced deduction lim-
itation of $40,000, J may deduct only $40,000, and
the remaining $35,000 ($75,000 - $40,000) is not de-
ductible by J for that taxable year or any other taxable
year.
Example 3.(i)ThefactsarethesameasExample
2, except that C’s deferred deduction remuneration of
$75,000 attributable to services performed by C in J’s
2016 taxable year is payable on July 1, 2018.
(ii) The results are the same asExample 2, except
that the reduced deduction limitation of $100,000 is
prorated between K and J in proportion to the de-
ferred deduction remuneration otherwise deductible
by them for 2018. Accordingly, $44,444 of the
remaining deduction limitation is allocated to K
($100,000 x ($60,000 / $135,000)), and $55,556
of the remaining deduction limitation is allocated
to J ($100,000 x ($75,000 / $135,000)). Because
the $60,000 of deferred deduction remuneration
otherwise deductible by K exceeds the $44,444 de-
duction limitation applied to that remuneration, K
may deduct only $44,444 of the $60,000 payment,
and $15,556 may not be deducted by K for any tax-
able year. Similarly, because the $75,000 of deferred
deduction remuneration otherwise deductible by J
exceeds the $55,556 deduction limitation applied to
that remuneration, J may deduct only $55,556 of the
$75,000 payment, and $19,444 may not be deducted
by J for that taxable year or any other taxable year.
(f)Corporate transactions—(1)Treat-
ment as a covered health insurance
provider in connection with a corporate
transaction—(i)In general. Except as
otherwise provided in this paragraph (f),
a person that participates in a corporate
transaction is a covered health insurance
provider for the taxable year in which the
corporate transaction occurs and any sub-
sequent taxable year if it would otherwise
be a covered health insurance provider un-
der paragraph (b)(4) of this section for that
taxable year. For example, if a member
of an aggregated group purchases a health
insurance issuer that is a covered health
insurance provider (so that the health in-
surance issuer becomes a member of the
May 28, 201311892013–22 I.R.B.

aggregated group), each member of the
acquiring aggregatedgroup generally will
be a covered health insurance provider for
the taxable year in which the corporate
transaction occurs and each subsequent
taxable year in which the health insurance
issuer continues to be a member of the
group, unless thede minimisexception
applies. For purposes of this paragraph
(f), the termcorporate transactionmeans
a merger, acquisition of assets or stock,
disposition, reorganization, consolidation,
or separation, or any other transaction (in-
cluding a purchase or sale of stock or other
equity interest) resulting in a change in the
composition of an aggregated group.
(ii)Transition period relief for per-
sons becoming covered health insurance
providers solely as a result of a corpo-
rate transaction—(A)In general. Except
as provided in paragraph (f)(1)(ii)(B) of
this section, a person that is not a cov-
ered health insurance provider before
a corporate transaction, but would (ex-
cept for application of this paragraph
(f)(1)(ii)(A)) become a covered health
insurance provider solely as a result of
the corporate transaction, is not treated
as a covered health insurance provider
subject to the deduction limitation of sec-
tion 162(m)(6) in the taxable year of that
person in which the corporate transaction
occurs (the transition period).
(B)Certain applicable individuals.
The transition period relief described in
paragraph (f)(1)(ii)(A) of this section does
not apply with respect to the remuneration
of any individual who is an applicable
individual of a health insurance issuer
that is a covered health insurance provider
during its taxable year in which the corpo-
rate transaction occurs, even with respect
to remuneration attributable to services
performed by the applicable individual
for a person that is eligible for the transi-
tion period relief described in paragraph
(f)(1)(ii)(A) of this section. Therefore,
each member of an acquiring aggregated
group that would become a covered health
insurance provider solely as a result of a
corporate transaction, but is not treated as
a covered health insurance provider under
the transition period relief described in
paragraph (f)(1)(ii)(A) of this section, is
still subject to the deduction limitation
of section 162(m)(6) for a taxable year
during the transition period with respect
to applicable individual remuneration and
deferred deduction remuneration attribut-
able to services performed by anyone who
is an applicable individual of the acquired
health insurance issuer that is a covered
health insurance provider.
(iii)Short taxable years—(A)Taxable
year ending as a result of a corporate
transaction. As a result of a corporate
transaction, a covered health insurance
provider’s taxable year may end, resulting
in a short taxable year. For example, the
taxable year of the covered health insur-
ance provider ends if it becomes, or ceases
to be, a member of a consolidated group by
reason of §1.1502–76(b)(1)(ii)(A)(1). A
covered health insurance provider whose
taxable year ends as a result of a corpo-
rate transaction is treated as a covered
health insurance provider for that short
taxable year if the covered health insur-
ance provider is a covered health insurance
provider within the meaning of paragraph
(b)(4) of this section for the short taxable
year that ends as a result of the corporate
transaction, provided that, for purposes
of this paragraph (f)(1)(iii)(A), thede
minimisexception set forth in paragraph
(b)(4)(iii)(A) of this section is available
for that short taxable year only if it applied
to the covered health insurance provider
for the preceding taxable year.
(B)Taxable year beginning as a result
of a corporate transaction.Asaresultof
a corporate transaction, a covered health
insurance provider may begin a new tax-
able year. For example, if as a result of
a corporate transaction, a health insurance
issuer that is a covered health insurance
provider joins a consolidated group within
the meaning of §1.1502–1(h), or a cov-
ered health insurance provider ceases to
be a member of an aggregated group as
a result of a distribution to which section
355 applies, the covered health insurance
provider begins a short taxable year. A
health insurance issuer that is a covered
health insurance provider whose taxable
year begins as a result of a corporate trans-
action is treated as a covered health insur-
ance provider for the taxable year that be-
gins as a result of the corporate transaction
if the covered health insurance provider
is otherwise a covered health insurance
provider within the meaning of paragraph
(b)(4) of this section for the taxable year
that begins as a result of a corporate trans-
action, even if it becomes a member of an
acquiring aggregate group the other mem-
bers of which are not treated as covered
health insurance providers during that tax-
able year by reason of the transition period
relief under paragraph (f)(1)(ii)(A) of this
section, provided that, for purposes of this
paragraph (f)(1)(iii)(B), the one-year grace
period set forth in paragraph (b)(4)(ii)(B)
of this section is available for that short
taxable year.
(C)Deduction limitation not prorated
for short taxable years. If a corporate
transaction results in a short taxable year
for a covered health insurance provider,
the $500,000 deduction limitation for the
short taxable year is neither prorated nor
reduced. For example, if a corporate trans-
action results in a short taxable year of
three months, the deduction limitation un-
der section 162(m)(6) for that short tax-
able year is $500,000 (and is not reduced
to $125,000).
(2)Application to partnerships.The
rules in paragraph (f) of this section apply
by analogy to transactions involving enti-
ties treated as partnerships for purposes of
federal taxation.
(3)Examples. The following exam-
ples illustrate the principles of this para-
graph (f). For purposes of these examples,
each corporation has a taxable year that is
the calendar year unless stated otherwise,
and none of the corporations qualify for
thede minimisexception under paragraph
(b)(4)(iii) of this section.
Example 1. (i) Corporation J merges with and into
corporation H on June 30, 2015, such that H is the
surviving entity. As a result of the merger, J’s tax-
able year ends on June 30, 2015. For its taxable year
ending June 30, 2015, J is a covered health insurance
provider. For all taxable years before the taxable year
of the merger, H is not a covered health insurance
provider. However, solely as a result of the merger,
H becomes a covered health insurance provider for its
2015 taxable year.
(ii) Corporation J is a covered health insurance
provider for its short taxable year ending June 30,
2015. Corporation H is not treated as a covered
health insurance provider for its 2015 taxable year
by reason of the transition period relief in paragraph
(d)(1)(ii)(A) of this section. However, H will be
a covered health insurance provider for its 2016
taxable year and all subsequent taxable years for
which it is a covered health insurance provider under
paragraph (b)(4) of this section.
Example 2. (i) On January 1, 2016, corpora-
tions D, E, and F are members of a controlled group
within the meaning of section 414(b). F is a health
insurance issuer that is a covered health insurance
provider under paragraph (b)(4)(i)(B) of this section.
D and E are not health insurance issuers (but are
treated as covered health insurance providers pur-
suant to paragraph (b)(4)(i)(C) and (D) of this sec-
2013–22 I.R.B.1190May 28, 2013

tion). F’s taxable year is a fiscal year ending on
September 30. P is an applicable individual of F for
all taxable years. On May 1, 2016, a controlled group
within the meaning of section 414(b) consisting of
corporations C and B purchases all of the stock of
corporation F, resulting in a controlled group within
themeaningofsection414(b)consistingofcorpora-
tions C, B, and F. C and B are not health insurance
issuers. The C, B, and F controlled group is a con-
solidated group within the meaning of §1.1502–1(h).
Thus, F’s taxable year ends on May 1, 2016 by reason
of §1.1502–76(b)(1)(ii)(A)(1), and F becomes part of
the C, B, and F consolidated group for the taxable
year ending December 31, 2016.
(ii) D and E are covered health insurance
providers for the taxable year ending December 31,
2016 because they were in an aggregated group with
F for a portion of their taxable year. Accordingly, D
and E are subject to the deduction limitation under
section 162(m)(6) for their taxable years ending
December 31, 2016. C and B are not treated as cov-
ered health insurance providers for their taxable year
ending December 31, 2016, by reason of the transi-
tion period relief of paragraph (d)(1)(ii)(A) of this
section. F, however, is a covered health insurance
provider for its taxable year ending May 1, 2016, and
for its taxable year ending December 31, 2016.
(iii) P is an applicable individual whose remuner-
ation is subject to the deduction limitation under sec-
tion 162(m)(6) for F’s short taxable year ending May
1, 2016. In addition, remuneration for services by P
for C, B or F after May 1, 2016, during the taxable
year of the consolidatedgroup ending December 31,
2016, is subject to the deduction limitation under sec-
tion 162(m)(6), even though C and B are not treated
as covered health insurance providers for their tax-
able year ending December 31, 2016 by reason of the
transition period relief of paragraph (d)(1)(ii)(A) of
this section.
Example 3. (i) The same facts asExample 2,ex-
cept that E is a health insurance issuer that is a cov-
ered health insurance provider under paragraph (b)(4)
of this section, and F is not a health insurance issuer.
(ii) F is a covered health insurance provider for
its short taxable year ending May 1, 2016. However,
because F is not a health insurance issuer that is a
covered health insurance provider, F is not treated
as a covered health insurance provider for its short,
post-acquisition taxable year ending December 31,
2016, during which it is a member of the consolidated
group comprised of C, B, and F.
(iii) P is an applicable individual whose remuner-
ation is subject to the deduction limitation under sec-
tion 162(m)(6) and paragraph (c) of this section for
F’s short taxable year ending May 1, 2016. However,
because F is not a health insurance issuer, remunera-
tion for P’s services for C, B or F after May 1, 2016,
during the taxable year of the consolidated group end-
ing December 31, 2016, are not subject to the deduc-
tion limitation under section 162(m)(6).
(g)Coordination—(1)Coordina-
tion with section 162(m)(1). If section
162(m)(1) and section 162(m)(6) would
both otherwise apply with respect to the
remuneration of an applicable individual,
the deduction limitation under section
162(m)(6) applies without regard to sec-
tion 162(m)(1). For example, if an applica-
ble individual is both a covered employee
of a publicly held corporation (see sections
162(m)(2) and (3); §1.162–27) and an ap-
plicable individual within the meaning of
paragraph (b)(7) of this section, remuner-
ation earned by the applicable individual
that is attributable to a disqualified tax-
able year of a covered health insurance
provider is subject to the $500,000 deduc-
tion limitation under section 162(m)(6)
with respect to such disqualified taxable
year, without regard to section 162(m)(1).
(2)Coordination with disallowed ex-
cess parachute payments—(i)In general.
The $500,000 deduction limitation of sec-
tion 162(m)(6) is reduced (but not below
zero) by the amount (if any) that would
have been included in the applicable indi-
vidual remuneration or deferred deduction
remuneration of the applicable individual
for a taxable year but for being disallowed
by reason of section 280G.
(ii)Example. The following example
illustrates the rule of this paragraph (g)(2).
Example. Corporation A, a covered health
insurance provider, pays $750,000 of applicable in-
dividual remuneration to P, an applicable individual,
during A’s disqualified taxable year ending Decem-
ber 31, 2016. Of the $750,000, $300,000 is an excess
parachute payment as defined in section 280G(b)(1),
the deduction for which is disallowed by reason
of that section. The excess parachute payment re-
duces the $500,000 deduction limitation to $200,000
($500,000 - $300,000). Therefore, A may deduct
only $200,000 of the $750,000 in applicable individ-
ual remuneration, and $250,000 of the payment is
not deductible by reason of section 162(m)(6).
(h)Grandfathered amounts attributable
to services performed in taxable years be-
ginning before January 1, 2010—(1)In
general. The section 162(m)(6) deduc-
tion limitation does not apply to remuner-
ation attributable to services performed in
taxable years of a covered health insur-
ance provider beginning before January 1,
2010. For purposes of this paragraph (h),
whether remuneration is attributable to ser-
vices performed in a taxable year begin-
ning before January 1, 2010, is determined
by applying an attributionmethodinpara-
graph (h)(2) of this section.
(2)Identification of services performed
in taxable years beginning before January
1, 2010—(i)Account balance plans.De-
ferred deduction remuneration provided
under an account balance plan (as de-
fined in §1.409A–1(c)(2)(i)(A) and (B))
is attributable to services performed in a
taxable year beginning before January 1,
2010 if it is attributable to services per-
formed before that date under paragraph
(d)(3) of this section, without regard to
whether that remuneration is subject to a
substantial risk of forfeiture on or after
that date.
(ii)Nonaccount balance plans.The
amount of remuneration attributable to
services performed in taxable years be-
ginning before January 1, 2010 under a
nonqualified deferred compensation plan
that is a nonaccount balance plan (as de-
fined in §1.409A–1(c)(2)(i)(C)), equals
the present value of the remuneration to
which the applicable individual would
have been entitled under the plan if the ap-
plicable individual voluntarily terminated
services without cause on the last day of
the first taxable year of the covered health
insurance provider beginning before Jan-
uary 1, 2010 and received a payment of
the benefit available from the plan on
the earliest possible date allowed under
the plan to receive a payment of benefits
following the termination of service, and
received the benefit in the form with the
maximum value. Notwithstanding the
foregoing, for any subsequent taxable year
of the covered health insurance provider,
this amount may increase to equal the
present value of the benefit the applicable
individual actually becomes entitled to re-
ceive, in the form and at the time actually
paid, determined under the terms of the
plan (including applicable limits under the
Code) as in effect on the last day of the
first taxable year beginning before Jan-
uary 1, 2010 without regard to any further
services rendered by the individual after
that date or any other events affecting the
amount of, or the entitlement to, bene-
fits (other than the applicable individual’s
election with respect to the time or form of
an available benefit). For purposes of cal-
culating the present value of remuneration
under this paragraph (h)(2)(ii), reason-
able actuarial assumptions and methods,
determined as of the date the remunera-
tion is valued, must be used. The present
value as of the last day of the first taxable
year beginning before January 1, 2010
is determined without regard to whether
the remuneration under the nonaccount
balance is subject to a substantial risk of
forfeiture on or after that date.
(iii)Equity-based remuneration.For
purposes of this section, all remunera-
tion resulting from a stock option, stock
May 28, 201311912013–22 I.R.B.

appreciation right, restricted stock, or re-
stricted stock unit and the right to any
associated dividends or dividend equiva-
lents (together, referred to asequity-based
remuneration) granted before the first day
of the taxable year of the covered health
insurance provider beginning on or after
January 1, 2010, is attributable to services
performed in taxable years beginning be-
fore January 1, 2010, regardless of the date
on which the equity-based remuneration is
exercised (in the case of a stock option or
SAR), the date on which the amounts due
under the equity-based remuneration are
paid or includible in income, or whether
the equity-based remuneration is subject
to a substantial risk of forfeiture on or
after the first day of the taxable year of
the covered health insurance provider be-
ginning on or after January 1, 2010. For
example, appreciation in the value of re-
stricted shares granted before the first day
of the taxable year beginning on or after
January 1, 2010 is treated as remuneration
that is attributable to services performed
in taxable years beginning before January
1, 2010, regardless of whether the shares
are vested at that time.
(i)Transition rules for certain deferred
deduction remuneration—(1)Transition
rule for deferred deduction remuneration
attributable to services performed in tax-
able years of the covered health insurance
provider beginning after December 31,
2009 and before January 1, 2013.Thede-
duction limitation under section 162(m)(6)
applies to deferred deduction remuner-
ation attributable to services performed
in a disqualified taxable year of a cov-
ered health insurance provider beginning
after December 31, 2009 and before Jan-
uary 1, 2013, only if that remuneration is
otherwise deductible in a disqualified tax-
able year of the covered health insurance
provider beginning after December 31,
2012. However, if the deduction limitation
applies to deferred deduction remunera-
tion attributable to services performed by
an applicable individual in a disqualified
taxable year of a covered health insur-
ance provider beginning after December
31, 2009 and before January 1, 2013, the
deduction limitation is calculated as if it
had been applied to the applicable individ-
ual’s applicable individual remuneration
and deferred deduction remuneration de-
ductible in those taxable years.
(2)Example. The following examples
illustrate the principles of this paragraph
(i). For purposes of these examples, each
corporation has a taxable year that is the
calendar year, and deferred deduction re-
muneration is otherwise deductible by the
covered health insurance provider in the
taxable year in which it is paid.
Example 1. (i) Q is an applicable individual
of corporation Z. Z’s 2010, 2011, and 2012 tax-
able years are disqualified taxable years. Z’s 2013,
2014, and 2015 taxable years are not disqualified
taxable years. However, Z’s 2016 taxable year and
all subsequent taxable years are disqualified taxable
years. Q receives $200,000 of applicable individual
remuneration from Z for 2012, and becomes entitled
to $800,000 of deferred deduction remuneration that
is attributable to services performed by Q in 2012.
Z pays Q $350,000 of the deferred deduction re-
muneration in 2015, and the remaining $450,000 of
the deferred deduction remuneration in 2016. These
payments are otherwise deductible by Z in 2015 and
2016, respectively.
(ii) Deferred deduction remuneration attributable
to services performed by Q in Z’s 2010, 2011, and
2012 taxable years that is otherwise deductible in Z’s
2013, 2014, or 2015 taxable years is not subject to
the deduction limitation under section 162(m)(6) by
reason of the transition rule under paragraph (i)(1) of
this section. However, deferred deduction remunera-
tion attributable to services performed in Z’s 2010,
2011, and 2012 taxable yearsthatisotherwisede-
ductible in a later taxable year that is a disqualified
taxable year (in this case, Z’s 2016 and subsequent
taxable years) is subject to the deduction limitation
under section 162(m)(6). Accordingly, the deduction
limitation with respect to applicable individual remu-
neration and deferred deduction remuneration attrib-
utable to services performed by Q in 2012 is deter-
mined by reducing the $500,000 deduction limitation
by the $200,000 of applicable individual remunera-
tion paid to Q by Z for 2012 ($500,000 - $200,000).
Under the transition rule of paragraph (i)(1) of this
section, no portion of the reduced deduction limita-
tion of $300,000 for the 2012 taxable year is applied
against the $350,000 payment made in 2015, and ac-
cordingly, the deduction limitation is not reduced by
the amount of that payment. The reduced deduc-
tion limitation is then applied to Q’s $450,000 of de-
ferred deduction remuneration attributable to services
performed by Q in 2012 that is paid to Q and be-
comes otherwise deductible in 2016. Because the re-
duced deduction limitation of $300,000 is less than
the $450,000 otherwise deductible by Z in 2016, Z
may deduct only $300,000 of the deferred deduction
remuneration, and $150,000 of the $450,000 payment
is not deductible by Z in that taxable year or any tax-
able year.
Example 2. (i) R is an applicable individual of
corporation Y, which is a covered health insurance
provider for all relevant taxable years. During 2010,
Y pays R $400,000 in salary and grants R a right to
$200,000 in deferred deduction remuneration payable
on a fixed schedule in 2011, 2012, and 2013. Pur-
suant to the fixed schedule, Y pays R $50,000 of de-
ferred deduction remuneration in 2011, $50,000 of
deferred deduction remuneration in 2012, and the re-
maining $100,000 of deferred deduction remunera-
tion in 2013.
(ii) Because the deduction limitation for de-
ferred deduction remuneration under section
162(m)(6)(A)(ii) is effective for deferred deduc-
tion remuneration that is attributable to services
performed by an applicable individual during any
disqualified taxable year beginning after December
31, 2009 that would otherwise be deductible in a tax-
able year beginning after December 31, 2012, only
the deferred deduction remuneration paid by Y in
2013 is subject to the deduction limitation. However,
the limitation is applied as if section 162(m)(6) and
paragraph (c)(2) of this section were effective for
taxable years beginning after December 31, 2009 and
before January 1, 2013. Accordingly, the deduction
limitation with respect to remuneration for services
performed by R in 2010 is determined by reducing
the $500,000 deduction limitation by the $400,000
of applicable individual remuneration paid to R for
2010 ($500,000 - $400,000). The reduced deduction
limitation of $100,000 is further reduced to zero
by the $50,000 of deferred deduction remuneration
attributable to services performed by R in Y’s 2010
taxable year that is deductible in each of 2011 and
2012 (($100,000 - $50,000 - $50,000). Because
the deduction limitation is reduced to zero, none of
the $100,000 of deferred deduction remuneration
attributable to services performed by R in Y’s 2010
taxable year and paid to R in 2013 is deductible.
(j)Effective/Applicability dates.These
regulations apply to taxable years that be-
gin after December 31, 2012, and end on
or after April 2, 2013. These regulations
are effective on publication of final regu-
lations in theFederal Register.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on April 1, 2013,
8:45 a.m., and published in the issue of the Federal Register
for April 2, 2013, 78 FR 19950)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2013–32
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
2013–22 I.R.B.1192May 28, 2013

of announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on May 28, 2013, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
Grangeville Country Club, Inc.
Grangeville, ID
Michael Joy Fine Arts Scholarship Fund
Victoria, TX
May 28, 201311932013–22 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.
2013–22 I.R.B.iMay 28, 2013

Numerical Finding List
1
Bulletins 2013–1 through 2013–22
Announcements:
2013-1, 2013-1 I.R.B.251
2013-2, 2013-2 I.R.B.271
2013-3, 2013-2 I.R.B.271
2013-4, 2013-4 I.R.B.440
2013-5, 2013-3 I.R.B.306
2013-6, 2013-3 I.R.B.307
2013-7, 2013-3 I.R.B.308
2013-8, 2013-4 I.R.B.440
2013-9, 2013-4 I.R.B.441
2013-10, 2013-3 I.R.B.311
2013-11, 2013-6 I.R.B.483
2013-12, 2013-11 I.R.B.651
2013-13, 2013-9 I.R.B.532
2013-14, 2013-11 I.R.B.651
2013-15, 2013-11 I.R.B.652
2013-16, 2013-14 I.R.B.738
2013-17, 2013-16 I.R.B.911
2013-19, 2013-14 I.R.B.760
2013-20, 2013-14 I.R.B.761
2013-21, 2013-17 I.R.B.980
2013-22, 2013-17 I.R.B.981
2013-23, 2013-16 I.R.B.940
2013-26, 2013-16 I.R.B.940
2013-27, 2013-17 I.R.B.981
2013-28, 2013-17 I.R.B.982
2013-29, 2013-18 I.R.B.1024
2013-30, 2013-21 I.R.B.1134
2013-31, 2013-21 I.R.B.1135
2013-32, 2013-22 I.R.B.1192
2013-33, 2013-20 I.R.B.1098
Notices:
2013-1, 2013-3 I.R.B.281
2013-2, 2013-6 I.R.B.473
2013-3, 2013-7 I.R.B.484
2013-4, 2013-9 I.R.B.527
2013-5, 2013-9 I.R.B.529
2013-6, 2013-10 I.R.B.540
2013-7, 2013-6 I.R.B.477
2013-8, 2013-7 I.R.B.486
2013-9, 2013-9 I.R.B.529
2013-10, 2013-8 I.R.B.503
2013-11, 2013-11 I.R.B.610
2013-12, 2013-10 I.R.B.543
2013-13, 2013-12 I.R.B.659
2013-14, 2013-13 I.R.B.712
2013-15, 2013-14 I.R.B.739
2013-16, 2013-14 I.R.B.740
2013-17, 2013-20 I.R.B.1082
2013-18, 2013-14 I.R.B.742
2013-19, 2013-14 I.R.B.743
Notices— Continued:
2013-20, 2013-15 I.R.B.902
2013-21, 2013-15 I.R.B.903
2013-22, 2013-15 I.R.B.904
2013-23, 2013-16 I.R.B.906
2013-24, 2013-16 I.R.B.909
2013-25, 2013-17 I.R.B.978
2013-26, 2013-18 I.R.B.984
2013-27, 2013-18 I.R.B.985
2013-28, 2013-19 I.R.B.1039
2013-29, 2013-20 I.R.B.1085
2013-30, 2013-21 I.R.B.1099
2013-31, 2013-21 I.R.B.1099
2013-32, 2013-22 I.R.B.1137
2013-33, 2013-22 I.R.B.1140
Proposed Regulations:
REG-160873-04, 2013-20 I.R.B.1089
REG-155929-06, 2013-11 I.R.B.650
REG-106918-08, 2013-13 I.R.B.714
REG-141066-09, 2013-3 I.R.B.289
REG-148873-09, 2013-7 I.R.B.494
REG-102966-10, 2013-10 I.R.B.579
REG-120391-10, 2013-18 I.R.B.1005
REG-132702-10, 2013-19 I.R.B.1042
REG-140649-11, 2013-12 I.R.B.666
REG-106499-12, 2013-21 I.R.B.1111
REG-106796-12, 2013-22 I.R.B.1164
REG-118315-12, 2013-14 I.R.B.746
REG-122706-12, 2013-19 I.R.B.1043
REG-122707-12, 2013-5 I.R.B.450
REG-148500-12, 2013-13 I.R.B.716
REG-154563-12, 2013-20 I.R.B.1097
Revenue Procedures:
2013-1, 2013-1 I.R.B.1
2013-2, 2013-1 I.R.B.92
2013-3, 2013-1 I.R.B.113
2013-4, 2013-1 I.R.B.126
2013-5, 2013-1 I.R.B.170
2013-6, 2013-1 I.R.B.198
2013-7, 2013-1 I.R.B.233
2013-8, 2013-1 I.R.B.237
2013-9, 2013-2 I.R.B.255
2013-10, 2013-2 I.R.B.267
2013-11, 2013-2 I.R.B.269
2013-12, 2013-4 I.R.B.313
2013-13, 2013-6 I.R.B.478
2013-14, 2013-3 I.R.B.283
2013-15, 2013-5 I.R.B.444
2013-16, 2013-7 I.R.B.488
2013-17, 2013-11 I.R.B.612
2013-18, 2013-8 I.R.B.503
2013-19, 2013-11 I.R.B.648
2013-20, 2013-14 I.R.B.744
2013-21, 2013-12 I.R.B.660
Revenue Procedures— Continued:
2013-22, 2013-18 I.R.B.985
2013-23, 2013-17 I.R.B.978
2013-24, 2013-22 I.R.B.1142
2013-25, 2013-21 I.R.B.1110
2013-26, 2013-22 I.R.B.1160
Revenue Rulings:
2013-1, 2013-2 I.R.B.252
2013-2, 2013-10 I.R.B.533
2013-3, 2013-8 I.R.B.500
2013-4, 2013-9 I.R.B.520
2013-5, 2013-9 I.R.B.525
2013-6, 2013-13 I.R.B.701
2013-7, 2013-11 I.R.B.608
2013-8, 2013-15 I.R.B.763
2013-9, 2013-15 I.R.B.764
2013-11, 2013-20 I.R.B.1059
Tax Conventions:
2013-16, 2013-14 I.R.B.738
Treasury Decisions:
9601, 2013-10 I.R.B.535
9603, 2013-3 I.R.B.273
9605, 2013-11 I.R.B.587
9606, 2013-11 I.R.B.586
9607, 2013-6 I.R.B.469
9608, 2013-3 I.R.B.274
9609, 2013-12 I.R.B.655
9610, 2013-15 I.R.B.765
9611, 2013-13 I.R.B.699
9612, 2013-13 I.R.B.678
9613, 2013-15 I.R.B.900
9614, 2013-17 I.R.B.947
9615, 2013-19 I.R.B.1026
9616, 2013-20 I.R.B.1061
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin
2012–52, dated December 27, 2012.
May 28, 2013ii2013–22 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2013–1 through 2013–22
Announcements:
2012-42
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2013-12
Supplemented by
Ann. 2013-22, 2013-17 I.R.B.981
Notices:
87-64
Obsoleted by
T.D. 9614, 2013-17 I.R.B.947
2000-45
Modified and superseded by
Notice 2013-18, 2013-14 I.R.B.742
2006-87
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2007-25
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2007-77
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2008-10
Obsoleted by
T.D. 9615, 2013-19 I.R.B.1026
2008-107
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2010-27
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2010-60
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2011-8
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2011-14
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
2011-34
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
Notices— Continued:
2011-38
Obsoleted by
REG-148873-09, 2013-7 I.R.B.494
2011-53
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2012-19
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2012-60
Superseded by
Notice 2013-1, 2013-3 I.R.B.281
2013-1
Modified and superseded by
Notice 2013-16, 2013-14 I.R.B.740
Proposed Regulations:
REG-140668-07
Corrected by
Ann. 2013-6, 2013-3 I.R.B.307
Revenue Procedures:
87-57
Modified by
Rev. Proc. 2013-13, 2013-6 I.R.B.478
2004-66
Modified and superseded by
Rev. Proc. 2013-11, 2013-2 I.R.B.269
2008-35
Modified and superseded by
Rev. Proc. 2013-14, 2013-3 I.R.B.283
2008-50
Modified and superseded by
Rev. Proc. 2013-12, 2013-4 I.R.B.313
2011-14
Modified by
Rev. Proc. 2013-26, 2013-22 I.R.B.1160
Rev. Proc. 2013-24, 2013-22 I.R.B.1142
Rev. Proc. 2013-20, 2013-14 I.R.B.744
2011-49
Modified by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
2011-52
Modified and partly superseded by
Rev. Proc. 2013-15, 2013-5 I.R.B.444
2011-55
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
2011-61
Superseded by
Rev. Proc. 2013-17, 2013-11 I.R.B.612
Revenue Procedures— Continued:
2011-62
Superseded by
Rev. Proc. 2013-18, 2013-8 I.R.B.503
2012-1
Superseded by
Rev. Proc. 2013-1, 2013-1 I.R.B.1
2012-2
Superseded by
Rev. Proc. 2013-2, 2013-1 I.R.B.92
2012-3
Superseded by
Rev. Proc. 2013-3, 2013-1 I.R.B.113
2012-4
Superseded by
Rev. Proc. 2013-4, 2013-1 I.R.B.126
2012-5
Superseded by
Rev. Proc. 2013-5, 2013-1 I.R.B.170
2012-6
Superseded by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
2012-7
Superseded by
Rev. Proc. 2013-7, 2013-1 I.R.B.233
2012-8
Superseded by
Rev. Proc. 2013-8, 2013-1 I.R.B.237
2012-9
Superseded by
Rev. Proc. 2013-9, 2013-2 I.R.B.255
2012-10
Superseded by
Rev. Proc. 2013-10, 2013-2 I.R.B.267
2012-30
Corrected and clarified by
Ann. 2013-3, 2013-2 I.R.B.271
Updated by
Ann. 2013-10, 2013-3 I.R.B.311
2012-46
Corrected by
Ann. 2013-11, 2013-6 I.R.B.483
2013-1
Corrected by
Ann. 2013-9, 2013-4 I.R.B.441
2013-4
Modified by
Rev. Proc. 2013-22, 2013-18 I.R.B.985
2013-6
Revised by
Ann. 2013-15, 2013-11 I.R.B.652
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin 2012–52, dated December 27,
2012.
2013–22 I.R.B.iiiMay 28, 2013

Revenue Procedures— Continued:
Corrected by
Ann. 2013-13, 2013-9 I.R.B.532
2013-8
Modified by
Rev. Proc. 2013-22, 2013-18 I.R.B.985
2013-14
Modified by
Rev. Proc. 2013-19, 2013-11 I.R.B.648
Revenue Rulings:
92-19
Supplemented in part by
Rev. Rul. 2013-4, 2013-9 I.R.B.520
Treasury Decisions:
9564
Corrected by
Ann. 2013-4, 2013-4 I.R.B.440
Amended by
Ann. 2013-7, 2013-3 I.R.B.308
9604
Corrected by
Ann. 2013-19, 2013-14 I.R.B.760
May 28, 2013iv2013–22 I.R.B.

INDEX
Internal Revenue Bulletins 2013–1 to 2013–22
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parentheses refer to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Closing agreements (RP 12) 4,313; (Ann 21) 17,980
Defined benefit plans, funding (Notice 11) 11,610
Determination letters, issuing procedure (RP 6) 1,1; correction
(Ann 13) 9,532
Elimination of single-sum distribution option (or other acceler-
ated benefits) under defined benefit plan of plan sponsor in
bankruptcy (TD 9601) 10,535
Employee stock ownership plans, diversification requirements
(Notice 17) 20,1082
$500,000 deduction limitation for remuneration provided by cer-
tain health insurance providers (REG–106796–12) 22,1164
Full funding limitations, weighted average interest rates, seg-
ment rates for:
January 1, 2013 (Notice 2) 6,473
March 1, 2013 (Notice 23) 16,906
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,113
Associate Chief Counsel (International ) (RP 7) 1,233
And general information letters, procedures (RP 4) 1,126
User fees, request for letter rulings (RP 8) 1,237
Pre-Approved Plans
Opinion and Advisory Letters (RP 22) 18,985
Proposed regulation:
26 CFR 54.9815–2705, added; 54.9802–1, revised; rules
relating to incentives for nondiscriminatory wellness pro-
grams (REG–122707–12) 5,450
Public comment invited on recommendations for 2013-2014
Guidance Priority List (Notice 22) 15,904
Qualified plans, determination letters (Ann 15) 11,652
EMPLOYEE PLANS—Cont.
Qualified retirement plans, covered compensation, permitted dis-
parity (RR 2) 10,533
Regulation:
26 CFR 1.1411(d)–4, amended; elimination of single-sum dis-
tribution option (or other accelerated benefits) under de-
fined benefit plan of plan sponsor in bankruptcy (TD 9601)
10,535
Rules relating to incentives for nondiscriminatory wellness pro-
grams (REG–122707–12) 5,450
Rules relating to 90-day waiting period limitation
(REG–122706–12) 19,1043
Technical advice to IRS employees (RP 5) 1,170
Weighted average interest rates:
Segments rates for:
January 2013 (Notice 2) 6,473
February 2013 (Notice 6) 10,540
March 2013 (Notice 23) 16,906
April 2013 (Notice 28) 19,1039
May 2013 (Notice 32) 22,1137
EMPLOYMENT TAX
Employment tax obligations of a third party that enters into a
service agreement with an employer to take on the employer’s
employment tax responsibilities (REG–102966–10) 10,579
IRS request for comments on voluntary tip compliance agree-
ments (Ann 29) 18,1024; correction (Ann 33) 20,1098
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1;correction(Ann9)4,441
Proposed regulation:
26 CFR 31.3504–2, added; employment tax obligations of a
third party that enter into a service agreement with an em-
ployer to take on the employer’s employment tax responsi-
bilities (REG–102966–10) 10,579
Public comment invited on recommendations for 2013-2014
Guidance Priority List (Notice 22) 15,904
Technical Advice Memoranda (TAMs) (RP 2) 1,92
Transit benefit adjustment for 2012 (Notice 8) 7,486
ESTATE TAX
Cost-of-living adjustments for inflation for 2013 (RP 15) 5,444
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1;correction(Ann9)4,441
Public comment invited on recommendations for 2013-2014
Guidance Priority List (Notice 22) 15,904
Technical Advice Memoranda (TAMs) (RP 2) 1,92
EXCISE TAX
Biodiesel claims, alternative fuel claims, section 34 claims, sec-
tion 6426, section 6427 (Notice 26) 18,984
Health insurance providers fee (REG–118315–12) 14,746
2013–22 I.R.B.vMay 28, 2013

EXCISE TAX—Cont.
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1;correction(Ann9)4,441
Payout requirementsfor Type III supporting organizations
that are not functionally integrated (TD 9605) 11,587;
(REG–155929–06) 11,650
Proposed regulations:
26 CFR 1.509(a)–4, amended; payout requirements for Type
III supporting organizations that are not functionally inte-
grated (REG–155929–06) 11,650
Public comment invited on recommendations for 2013-2014
Guidance Priority List (Notice 22) 15,904
Regulations:
26 CFR 1.509(a)–4, amended; 1.509(a)–4T, added;
53.4943–11, amended; payout requirements for Type III
supporting organizations that are not functionally inte-
grated (REG–155929–06) 11,650
Taxable medical devices (Ann 19) 14,760
Technical Advice Memoranda (TAMs) (RP 2) 1,92
EXEMPT ORGANIZATIONS
Community health needs assessments for charitable hospitals
(REG–106499–12) 21,1111
Letter rulings:
And determination letters:
And general information letters, procedures (RP 4) 1,126
Areas which will not be issued from Associates Chief
Counsel and Division Counsel (TE/GE) (RP 3) 1,113
Exemption application determination letter rulings under
sections 501, 509, 4940, 4942, and 4947 (RP 10) 2,267
Exemption application determination letter rulings under
sections 501 and 521 (RP 9) 2,255
User fees, request for letter rulings (RP 8) 1,237
Payout requirementsfor Type III supporting organizations
that are not functionally integrated (TD 9605) 11,587;
(REG–155929–06) 11,650
Proposed regulations:
26 CFR 1.509(a)–4, amended; payout requirements for Type
III supporting organizations that are not functionally inte-
grated (REG–155929–06) 11,650
Public comment invited on recommendations for 2013-2014
Guidance Priority List (Notice 22) 15,904
Revocations, exempt organizations (Ann 31) 21,980,(Ann32)
22,1192
Technical Advice Memoranda (TAMs) (RP 2) 1,92
GIFT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1;correction(Ann9)4,441
Public comment invited on recommendations for 2013-2014
Guidance Priority List (Notice 22) 15,904
Technical Advice Memoranda (TAMs) (RP 2) 1,92
INCOME TAX
Adjusted applicable Federal rates under section 1288, changes in
method of determination (Notice 4) 9,527
Advance pricing and mutual agreement program (Ann 17) 16,
911
Allocation of research credit to members of controlled groups
(Notice 20) 15,902
American Jobs Creation Act modifications to section 6708,
failure to maintain lists of advisees with respect to reportable
transactions (REG–160873–04) 20,1089
Applicability of de minimis partner rule (TD 9607) 6,469
Application of section 172(h) including consolidated groups,
correction (Ann 6) 3,307
Awards for information relating to detecting underpay-
ments of tax or violations of the Internal Revenue laws
(REG–141066–09) 3,289; hearing (Ann 20) 14,761
Beginning of construction forpurposes of the renewable elec-
tricity production tax credit and energy investment tax credit
(Notice 29) 20,1085
Biodiesel claims, alternative fuel claims, section 34 claims, sec-
tion 6426, section 6427 (Notice 26) 18,984
Bonds:
Premium carryforwards (REG–140437–12) 12,676
Qualified exempt facility bonds and qualified residential
rental projects (Notice 9) 9,529
Qualified Zone Academy Bondslimitation for year 2012 and
2013 (Notice 3) 7,484
Broker basis reporting for debt instruments and options; report-
ing from premium (TD 9616) 20,1061
Business use of home, optional safe harbor method for expenses
(RP 13) 6,478
Capitalization of electric utility generation property, unit of prop-
erty definitions (RP 24) 22,1142
Capitalization of plants with a preproductive period in excess of
2 years (Notice 18) 14,742; (RP 20) 14,744
Corporations:
Certain outbound property transfers by domestic corpora-
tions; certain stock distributions by domestic corporations
(TD 9614) 17,947
Indirect stock transfers and the coordination rule exceptions;
transfers of stock or securities in outbound asset reorgani-
zations (TD 9615); 19,1026; (REG–132702–10) 19,1042
Cost-of-living adjustments for inflation for 2013 (RP 15) 5,444
Coverage of certain preventive services under the ACA
(REG–120391–10) 18,1005
Credits:
Low-income housing (Notice 15) 14,739
Qualifying Advanced Energy Project Credit Program – Phase
II Program (Notice 12) 10,543
Deductions for qualified film and television production costs (TD
9603) 3,273
Depreciation deduction, 2013 automobile inflation adjustments
(RP 21) 12,660
Disciplinary actionsinvolving attorneys,certified public accoun-
tants, enrolled agents, and enrolled actuaries (Ann 26) 16,940
Dual-Use property request for comments (Notice 13) 12,659
May 28, 2013vi2013–22 I.R.B.

INCOME TAX—Cont.
Elimination of the Cumulative Bulletin after volume 2008–2
(Ann 12) 11,651
E-signature standards (Ann 8) 4,440
Estimated tax penalty relief for farmers and fishermen (Notice 5)
9,529
Examination of returns and claimsfor return, credit, or abate-
ments, determination of correct tax liability (RP 16) 7,488
Exceptions to loss transaction filter (RP 11) 2,269
Extension of the effective date of Rev. Proc. 2013–14 (RP 19)
11,648
Failure to file gain agreement and other required filings
(REG–140649–11) 12,676
Filing and payment extension for individuals affected by the
Boston Marathon explosions (Notice 30) 21,1099
$500,000 deduction limitation for remuneration provided by cer-
tain health insurance providers (REG–106796–12) 22,1164
Foreign housing cost amount eligible for exclusion or deduction
(Notice 31) 21, 1099
Forms:
W-2 and W-3 (RP 18) 8,503
1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G, re-
quirements for filing electronically, correction (Ann 3) 2,
271
Gross income, per capita payments from proceeds of settlements
of Indian tribal trust cases (Notice 1) 3,281;(Notice16)14,
740
Guidance to tax return preparersconsents to disclose and con-
sents to use tax return information in the Form 1040 series,
update to Rev. Proc. 2008–35 (TD 9608) 3,275;(RP14)3,
283
HSA deduction, limitations on (RP 25) 21,1110
Inflation adjustment factor and phase-out amount for the noncon-
ventional source fuel credit (Notice 25) 17,978
Inflation adjustment factors (Notice 33) 22,1140
Information reporting:
By domestic entities under section 6083D (Notice 10) 8,503
By foreign financial institutions and withholding on payments
to foreign financial institutions and other foreign entities
(TD 9610) 15,765
Mortgage assistance program (Notice 7) 6,477
Insurance companies:
Interest rate tables (RR 4) 9,520
Interest:
Investment:
Federal short-term, mid-term, and long-term rates for:
January 2013 (RR 1) 2,252
February 2013 (RR 3) 8,500
March 2013 (RR 7) 11,608
April 2013 (RR 9) 15,764
May2013(RR11)20,1059
Rates:
Underpayments and overpayments, quarter beginning:
April 1, 2013 (RR 6) 13,701
Internal Revenue Bulletin: proposal to eliminate the Index Sys-
tem (Ann 22) 17,981
INCOME TAX—Cont.
Letter rulings:
And determination letters, areas which will not be issued
from:
Associates Chief Counsel and Division Counsel (TE/GE)
(RP 3) 1,113
Associate Chief Counsel (International ) (RP 7) 1,233
And information letters issued byAssociate Offices, determi-
nation letters issued by Operating Divisions (RP 1) 1,1;
correction (Ann 9) 3,441
Maximum vehicle values for which the special valuation rules of
Reg. 1.61–21(d) and (e) may be used in 2013 (Notice 27) 18,
985
Mortgage assistance programs, income exclusion, safe harbor
deduction method (Notice 7) 6,477
Noncompensatory partnership options (TD 9612) 13,678;cor-
rection (Ann 28) 17,982
Paper copies of the Internal Revenue Bulletin, elimination of the
Cumulative Bulletin (Ann 12) 11,651
Penalty relief for delayed 2012 Forms (Notice 24) 16,909
Per capita payments from proceeds or settlements of Indian tribal
trust cases (Notice 1) 3,281; (Notice 16) 14,740
Postponement of deadlinefor section 165(i) election for Hurri-
cane Sandy losses (Notice 21) 15,903
Proportional method for accruing original issue discount on pools
of credit card receivables (RP 26) 22,1160
Proposed regulations:
26 CFR 1.162–31, added (REG–106796–12) 22,1164
26 CFR 1.171–2, amended; bond premiums carryforwards
(REG–140437–12) 12,676
26 CFR 1.367(a)–3T revised; 1.367(a)–6T re-
vised; 1.1248(f)–3T added; 1.6038B-1T revised
(REG–132702–10) 19,1042
26 CFR 1.501(r)–0, amended; 1.501(r)–1 amended;
1.501(r)–2 added; 1.501(r)–3added; 1.501(r)–7 amended;
1.6012–2, amended; 1.6012–3, amended; 1.6033–2,
amended; 53.4959–1, added;community health needs
assessments for charitable hospitals (REG–106499–12) 21,
1111
26 CFR 1.761–3, amended; 1.1234–3, amended; treat-
ment of grantor of an option on a partnership interest
(REG–106918–08) 13,714
26 CFR 1.5000A–0 thru –5, added; shared responsibility
payment for not maintaining minimum essential coverage
(REG–148500–12) 13,716
26 CFR 1.6042–4, amended; 1.6043–4, amended; 1.6044–5,
amended; 1.6045–2 thru 5, amended; 1.6049–6, amended;
1.6050A–1, amended; 1.6050E–1, amended; 1.6050N–1,
amended; 1.6050P–1, amended; 1.6050S–1, –3, amended;
301.6109–4, added; truncated taxpayer identification num-
bers (REG–148873–09) 7,494
26 CFR 301.7623–1, revised; 301.7623–2 thru –4, added;
301.6103(h)(4)–1, added; awards for information relating
to detecting underpayments of tax or violations of the In-
ternal Revenue laws (REG–141066–09) 3,289
2013–22 I.R.B.viiMay 28, 2013

INCOME TAX—Cont.
26 CFR 54.9815–2713 amended; 54.9801–2 amended; 16
CFR 54.9815–2713A added; coverage of certain preven-
tive services under the ACA (REG–120391–10) 18,1005
26 CFR 54.9815–2705, added; 26 CFR 54.9801–1 as
amended; 26 CFR 54.9802–1 as amended; 26 CFR
54.9801–3 as amended; 26CFR 54.9801–4 as amended;
26 CFR 54.9801–5 as amended; 26 CFR 54.9801–6
as amended; 26 CRF 54.9802–1 as amended; 26 CFR
54.9815–2719T as amended; 26 CFR 54.9831–1 as
amended (REG–122706–12) 19,1043
Proposal to eliminate the Index System (Ann 22) 17,981
Public comment invited on recommendations for 2013-2014
Guidance Priority List (Notice 22) 15,904
Publications:
1141, General Rules and Specifications for Form W-2 and
W-3 (RP 18) 8,503
1167, General Rules and Specifications for Forms and Sched-
ules (RP 17) 11,612
1220, Specifications for Filing Forms 1097, 1098, 1099,
3921, 3922, 5498, 8935, and W-2G Electronically, correc-
tion (Ann 3) 2,271
4436, General Rules and Specifications for Substitute Form
941 and Schedule B (Form 941), and Schedule R (Form
941), correction (Ann 11) 6,483
Qualified board or exchange (RR 5) 9,525
Qualifying advanced coalproject program (Ann 2) 2,271
Reduced 2009 estimated income tax payments for individuals
with small business income (TD 9613) 15,900
Regulations:
26 CFR 1.36B–2, amended; shared responsibility payment for
not maintaining minimum essential coverage (TD 9611) 13,
699
26 CFR 1.171–1, amended; 1.704–1, –3, amended; 1.1721–2,
added; 1.761–3, added; 1.1272–1, amended; 1.1273–2,
amended; 1.1275–4, amended; noncompensatory partner-
ship options (TD 9612) 13,678
26 CFR 1.181–0, amended; 1.181–0T, removed; 1.181–1,
amended; 1.181–1T, amended; 1.181–6, amended;
1.181–6T, removed; deductions for qualified film and
television production costs (TD 9603) 3,273
26 CFR 1.304–4, revised; 1.304–4T, removed; use of con-
trolled corporations to avoid the application of section 304
(TD 9606) 11,586
26 CFR 1.367(a)–1, –3, amended; 1.367(a)–7, added;
1.367–8, amended; 1.367(b)–0, amended; 1.367–4,
amended; 1.367(e)–1, amended; 1.1248–1 revised;
1.1248–6, amended; 1.1248(f)–1, added; 1.1248(f)–2,
added; 1.1248(f)–3, added; 1.6038B–1, revised;
1.1602–101, added; corporations, certain outbound prop-
erty transfers by domestic corporations; certain stock
distributions by domestic corporations (TD 9614) 17,947
26 CFR 1.367(a)–3T revised; 1.367(a)–6T revised;
1.1248(f)–3T added; 1.6038B–1T revised; corporations,
indirect stock transfers and the coordination rule excep-
tions; transfers of stock or securities in outbound asset
reorganizations (TD 9615) 19,1026
INCOME TAX—Cont.
26 CFR 1.1471–1, removed; 1.1471–0, added, 1.1471–1,
added; 1.1471–2, added; 1.1471–3, added; 1.1471–4,
added; 1.1471–5, added; 1.1474–6, added; 1.1472–1,
added; 1.1473–1, added; 1.1474–1, added; 1.1474–2,
added; 1.1474–3, added; 1.1474–5, added; 1.1474–5,
added; 1.1474–6, added; 1.1471–7, added; 301–1474–1,
added; by foreign financial institutions and withholding on
payments to foreign financial institutions and other foreign
entities (TD 9610) 15,765
26 CFR 1.6045–1 amended; 26 CFR 1.6045A–1 amended;
26 CFR 1.6045B–1 amended; 26 CFR 1.1275–3 amended;
broker basis reporting for debt instruments and options (TD
9616) 20,1097; (REG–154563–12) 20,1097
26 CFR 1.6654–2, revised; 1.6654–2T, removed; reduced
2009 estimated income tax payments for individuals with
small business income (TD 9613) 15,900
26 CFR 301.7216–0, amended; 301.7216–0T, removed;
301.7216–2, amended; 301.7216–2T, removed; guidance
to tax return preparers, consents to disclose and consents to
use tax returns information in the Form 1040 series, update
to Rev. Proc. 2008–35 (TD 9608) 3,275
Revocations, exempt organizations (Ann 31) 21,1135, (Ann 32)
22,1192
Rules for certain reserves (Notice 19) 14,743
Section 1446 tax for fiscal year partnerships in 2013 (Ann 30)
21,1134
Shared responsibility payment for not maintaining minimum es-
sential coverage (TD 9611) 13,699; (REG–148500–12) 13,
716;correction(Ann27)17,981
Standard Industry Fare Level (SIFL) (RR 8) 15,763
Substitute forms, W-2 (Copy A) and W-3 (RP 18) 8,503
Tangible property, guidance regarding deduction and capitaliza-
tion of expenditures related to, corrections (Ann 7) 3,308;
(Ann 4) 4,440
Taxable medical devices; correction (Ann 23) 16,940
Tax conventions:
U.S.-Norway agreements:
Regarding fiscally transparent entities (Ann 14) 11,651
Regarding offshore activities (Ann 16) 14,738
Regarding the sourcing of remuneration for government
services and social security payments (Ann 5) 3,306
Technical Advice Memoranda (TAMs) (RP 2) 1,92
Transition relief for submitting Form 8850 as a result of the
American Taxpayer Relief Act (Notice 14) 13,712
Treasury inflation-protected securities issued at a premium, bond
premium carryforward (TD 9609) 12,655; (REG–140437–12)
12,676
Treatment of grantor of an optiononapartnershipinterest
(REG–106918–08) 13,714
Truncated taxpayer identification numbers (REG–148873–09) 7,
494
Use of controlled corporations to avoid the application of section
304 (TD 9606) 11,586
May 28, 2013viii2013–22 I.R.B.

SELF-EMPLOYMENT TAX
Letter rulings and information letters issued by Associate Of-
fices, determination letters issued by Operating Divisions (RP
1) 1,1;correction(Ann9)4,441
Public comment invited on recommendations for 2013-2014
Guidance Priority List (Notice 22) 15,904
Technical Advice Memoranda (TAMs) (RP 2) 1,92
2013–22 I.R.B.ixMay 28, 2013

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