Internal Revenue Bulletin 2016-34 (PDF rendition): IRS Announcements

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

# INTERNAL REVENUE BULLETIN

IRS

## 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

### Announcement 2016-29 page 272.

This document contains a correction to Notice 2016-44, as
published on Monday, July 18, 2016 (I.R.B. 2016-29, 132). In
particular, this announcement corrects one administrative item.

### Rev. Proc. 2016-42 page 269.

The IRS will treat the sample provision in this revenue procedure
as a qualified contingency under section 664(f). A CRAT contain-
ing the sample provision will not be subject to the probability of
exhaustion test set forth in Rev. Rul. 70-452, 1970-2 C.B. 199,
and applied in Rev. Rul. 77-374, 1977-2 C.B. 329.

## EXEMPT ORGANIZATIONS

### Announcement 2016-28 page 272.

Revocation of IRC 501(c)(3) Organizations for failure to meet
the code section requirements. Contributions made to the
organizations by individual donors are no longer deductible
under IRC 170(b)(1)(A).

## ESTATE TAX

### Rev. Proc. 2016-42 page 269.

Bulletin No.

2016-34

August

22, 2016

## GIFT TAX

The IRS will treat the sample provision in this revenue procedure as a
qualified contingency under section 664(f). A CRAT containing the
sample provision will not be subject to the probability of exhaustion
test set forth in Rev. Rul. 70-452, 1970-2 C.B. 199, and applied in
Rev. Rul. 77-374, 1977-2 C.B. 329.

## EMPLOYMENT TAX

### Notice 2016-49 page 265.

The Treasury Department and the IRS recently issued tempo-
rary and proposed regulations under section 7705 of the
Internal Revenue Code (Code) addressing the requirements
relating to an application for and maintenance of certification
as a Certified Professional Employer Organization (CPEO), as
well as a revenue procedure setting forth detailed procedures
for applying for certification as a CPEO. In response to com-
ments that certain requirements in the regulations and revenue
procedure may inappropriately limit the ability of persons to
apply for and maintain certification as a CPEO, this notice
specifies revisions that are intended to be made to the tempo-
rary regulations and revenue procedure and provides reliance
until further guidance containing those revisions is published. In
addition, this notice provides CPEO applicants with additional
time to submit a complete and accurate application for certi-
fication in order to be eligible for an effective date of certifica-
tion of January 1, 2017.

Finding Lists begin on page ii.

## The IRS Mission

Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.

### Introduction

The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal 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, identify-
ing 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, Legisla-
tion and Related Committee Reports.

Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury's Office of the Assistant Sec-
retary (Enforcement).

#### Part IV .- Items of General Interest.

This 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 contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

### Part III. Administrative, Procedural, and Miscellaneous

#### Interim Guidance Under Section 7705 for Certified Professional Employer Organizations

Notice 2016-49

##### I. PURPOSE AND OVERVIEW

This notice provides interim guidance
on certain requirements for persons seek-
ing certification as Certified Professional
Employer Organizations (CPEOs), as de-
fined in § 301.7705-1T(b)(1). The De-
partment of the Treasury (Treasury) and
the Internal Revenue Service (IRS) re-
cently issued temporary and proposed reg-
ulations under section 7705 of the Internal
Revenue Code (Code) addressing the re-
quirements relating to applications for and
maintenance of certification as a CPEO, as
well as a revenue procedure setting forth
detailed procedures for applying for certi-
fication as a CPEO. Treasury and IRS
have received comments that certain pro-
visions of the regulations and revenue
procedure may unnecessarily limit the
ability of persons to apply for and main-
tain certification as a CPEO, including: (1)
the requirement that a CPEO applicant, as
defined in § 301.7705-1T(b)(2), or CPEO
provide a certified public accountant
(CPA) opinion that its annual audited fi-
nancial statements reflect positive work-
ing capital (or meet certain rules that per-
mit negative working capital in limited
circumstances) and that it computes its
taxable income using an accrual method
of accounting; (2) the requirement that a
CPEO applicant or CPEO submit a writ-
ten declaration of an independent CPA,
who submits opinions and attestations re-
garding the CPEO applicant's or CPEO's
annual audited financial statements and
ongoing federal employment tax compli-
ance, declaring that the CPA is authorized
to represent the CPEO applicant or CPEO
before the IRS; and (3) the requirement
that a CPEO be a business entity that is
not a disregarded entity. This notice de-
scribes modifications to these require-
ments that Treasury and IRS intend to
make when publishing final regulations
and updating the revenue procedure. Tax-
payers may rely on the guidance provided

in this notice until the final regulations
and updated revenue procedure are pub-
lished.

In addition, Treasury and IRS are
aware that, for persons submitting appli-
cations during the first year of the pro-
gram, the audited financial statements that
must be included as part of the application
for certification might not include some of
the elements required by the regulations
because the statements relate to fiscal
years that end before or shortly after the
regulations were issued. To address this
issue, this notice provides transition relief
for meeting the audited financial state-
ment requirements in the regulations and
revenue procedure.

Finally, in recognition that this notice
provides interim guidance on require-
ments applicable to persons who may al-
ready be engaged in the process of apply-
ing for certification as a CPEO, this notice
extends to September 30, 2016, the dead-
line by which a complete and accurate
application for certification must be sub-
mitted in order to be eligible for an effec-
tive date of certification of January 1,
2017.

##### II. BACKGROUND

The Stephen Beck, Jr., Achieving a
Better Life Experience (ABLE) Act of
2014, enacted on December 19, 2014, as
part of The Tax Increase Prevention Act
of 2014 (Pub. L. No. 113-295), added
new sections 3511 and 7705 to the Code
relating to the federal employment tax
consequences and certification require-
ments, respectively, of a CPEO. The
ABLE Act requires the establishment of a
voluntary program for persons to apply to
become certified as a CPEO. Temporary
and final regulations (TD 9768) describ-
ing the requirements relating to applica-
tions for and maintenance of certification
were published in the Federal Register on
May 6, 2016 (81 Fed. Reg. 27315). Pro-
posed regulations (REG-127561-15),
also published in the Federal Register on
May 6, 2016 (81 Fed. Reg. 27360), pro-
vide guidance on the federal employment
tax liabilities and other obligations of per-
sons certified by the IRS as CPEOs, pro-
pose to adopt the text of the temporary

regulations by cross-reference, and solicit
public comments on the provisions
contained in both the proposed and tem-
porary regulations. Rev. Proc. 2016-33,
2016-25 I.R.B. 1034 (released June 4,
2016), sets forth detailed procedures for
applying for certification as a CPEO. A
future revenue procedure will address re-
quirements for a CPEO to remain certified
and the procedures relating to suspension
and revocation of CPEO certification.

## III. REQUIREMENT FOR A CPA OPINION REGARDING THE CPEO APPLICANT'S OR CPEO'S WORKING CAPITAL AND METHOD OF ACCOUNTING

The temporary regulations and Rev.
Proc. 2016-33 provide guidance on the
statutory requirements for certification as
a CPEO, pursuant to section 7705. Spe-
cifically, section 7705(b) sets forth the
certification requirements that a person
must satisfy in order to become a CPEO.
Among other requirements, a person must
demonstrate that it meets such require-
ments as the Secretary shall establish, in-
cluding requirements relating to tax status,
background, experience, business loca-
tion, and annual financial audits; agree to
satisfy (on an ongoing basis) certain bond
and independent financial review require-
ments; and compute its taxable income
using an accrual method of accounting
unless the Secretary approves another
method. Section 7705(c) prescribes the
bond and independent financial review re-
quirements that a person must satisfy to
become and remain a CPEO. Under sec-
tion 7705(c)(3)(A), a CPEO must, as of
the most recent audit date, cause to be
prepared and provided to the Secretary (in
such manner as the Secretary may pre-
scribe) an opinion of an independent CPA
as to whether the CPEO's financial state-
ments are presented fairly in accordance
with generally accepted accounting
principles (GAAP). Section 301.7705-
2T(e)(1)(i) reiterates this statutory re-
quirement, while § 301.7705-2T(e)(2) de-
scribes how this requirement applies to
CPEO applicants.

As explained in the preamble to the
temporary regulations, Treasury and IRS
consider a CPEO with annual audited fi-

nancial statements that reflect positive
working capital (as determined in accor-
dance with GAAP) to present a materially
lower risk to the IRS's collection of fed-
eral employment taxes than a CPEO with-
out such financial statements. Accord-
ingly, pursuant to section 7705(b)(1)
and consistent with several state certifi-
cation and registration laws governing
professional employer organizations,
§ 301.7705-2T(e)(1) requires a CPEO
applicant or CPEO to cause to be prepared
and provided to the IRS, by the same date
by which it must provide its annual finan-
cial statements to the IRS, an opinion of
an independent CPA that the financial
statements reflect positive working capital
for the fiscal year or that the CPEO appli-
cant or CPEO satisfies the requirements of
§ 301.7705-2T(e)(3) (the exception to the
positive working capital requirement). In
addition, the temporary regulations re-
quire this opinion to set forth in detail a
calculation of the CPEO applicant's or
CPEO's working capital. In the case of a
CPEO applicant that is a member of a
controlled group of which other members
are CPEO applicants or CPEOs, section
2.05(6) of Rev. Proc. 2016-33 clarifies
that the CPEO applicant must submit cop-
ies of combined or consolidated annual
audited financial statements for all CPEO
applicants and CPEOs in the controlled
group and an accompanying unmodified
opinion of a CPA that such financial state-
ments are presented fairly and in accor-
dance with GAAP. The statements and
opinion must contain the name and em-
ployer identification number (EIN) of
each CPEO applicant and CPEO in the
controlled group, as well as the name and
EIN of controlled group members that are
not CPEO applicants or CPEOs, if the
statements and opinion include such
members. A CPEO applicant that is a
member of a controlled group of which
other members are CPEO applicants or
CPEOs must also submit an opinion of a
CPA that the individual CPEO applicant's
financial statements reflect positive work-
ing capital (as defined by GAAP) or that
the requirements of § 301.7705-2T(e)(3)
are satisfied, with the opinion in either
case setting forth a calculation of the in-
dividual CPEO applicant's working
capital.

Consistent with section 7705(b)(4),
§ 301.7705-2T(1) requires a CPEO to
compute its taxable income using an ac-
crual method of accounting or, if applica-
ble, another method that the Commis-
sioner provides for in further guidance.
Further, section 2.05(2)(c) of Rev. Proc.
2016-33 requires the CPA opinion ac-
companying submission of the annual au-
dited financial statements to reflect that
the CPEO applicant computes its taxable
income using an accrual method of ac-
counting.

Treasury and IRS have received com-
ments suggesting that CPAs may be pre-
vented from including statements on
working capital and the accrual method in
their opinions due to certain American
Institute of Certified Public Accountants
(AICPA) limitations on what can be in-
cluded in a CPA opinion. These comment-
ers have requested clarification that the
inclusion of these items in the financial
statements, which are covered by the CPA
opinion, rather than in the CPA opinion
itself, would satisfy the regulatory re-
quirements.

To ensure consistency with the AICPA
guidelines applicable to CPA opinion let-
ters, Treasury and IRS anticipate revising
the requirements of § 301.7705-2T(e)(1)
and section 2.05(2) of Rev. Proc.
2016-33 to require a CPEO applicant or
CPEO to submit a copy of its annual au-
dited financial statements and an unmod-
ified opinion of a CPA that the annual
audited financial statements are presented
fairly in accordance with GAAP, provided
that the audited financial statements cov-
ered by the opinion include a Note to the
Financial Statements that states that the
financial statements reflect positive work-
ing capital or that the CPEO applicant or
CPEO satisfies the requirements of
§ 301.7705-2T(e)(3). The Note described
in the previous sentence must also provide
in detail a calculation of the working
capital. In the case of a CPEO applicant
that is a member of a controlled group of
which other members are CPEO appli-
cants or CPEOs, the Note to the Financial
Statements of the combined or consoli-
dated annual audited financial statements
for the controlled group must state that the
individual financial statements of each
CPEO applicant or CPEO that is a mem-
ber of the controlled group reflect positive

working capital (as defined by GAAP)
or that the individual CPEO applicant or
CPEO satisfies the requirements of
§ 301.7705-2T(e)(3), in either case set-
ting forth in detail a calculation of each
individual CPEO applicant's or CPEO's
working capital. Similarly, Treasury and
IRS anticipate revising the requirements
of section 2.05(6) of Rev. Proc. 2016-33
to allow the name and EIN of each mem-
ber of the controlled group that is included
within the consolidated audited financial
statements of the controlled group to be
listed in either the Note to the Financial
Statements or in a separate attachment
signed by a responsible individual of the
CPEO applicant or CPEO under penalties
of perjury, rather than in the CPA opinion.

Because GAAP requires the use of an
accrual method of accounting and the re-
quired CPA opinion must state that a
CPEO applicant's or CPEO's audited an-
nual financial statements are presented
fairly in accordance with GAAP, the sep-
arate requirement in paragraph (c) of sec-
tion 2.05(2) of Rev. Proc. 2016-33 for a
CPA opinion stating that such financial
statements "reflect that the CPEO .
computes its taxable income using an ac-
crual method of accounting" is unneces-
sary. Treasury and IRS anticipate revising
Rev. Proc. 2016-33 to eliminate para-
graph (c) of section 2.05(2).

## IV. TRANSITION RELIEF FOR CPEO APPLICANTS SUBMITTING ANNUAL AUDITED FINANCIAL STATEMENTS FOR FISCAL YEARS ENDING BEFORE SEPTEMBER 30, 2016

Section 301.7705-2T(e)(2) and section
2.05(1) of Rev. Proc. 2016-33 require a
CPEO applicant to provide to the IRS,
with its application, a copy of its annual
audited financial statements for the most
recently completed fiscal year as of the
date it applies for certification, as well as
a CPA opinion with respect to those state-
ments (as described in § 301.7705-
2T(e)(1) and section 2.05(2) of Rev. Proc.
2016-33, and further addressed in section
III of this notice). If a CPEO applicant
applies for certification before the last day
of the sixth month following its most re-
cently completed fiscal year, and the audit
of the financial statements for that fiscal
year has not been completed at the time of

application, a CPEO applicant must pro-
vide with its application the annual au-
dited financial statements and opinion for
the immediately preceding fiscal year, if
any, and must subsequently provide to the
IRS by the last day of the sixth month
after that fiscal year ends the annual au-
dited financial statements and opinion for
the most recently completed fiscal year. In
addition, for any fiscal year that ends after
the CPEO applicant submits its applica-
tion for certification and on or before the
effective date of certification, if applica-
ble, the CPEO applicant must provide the
annual audited financial statements by the
last day of the sixth month after such
fiscal year ends. The obligation of a CPEO
applicant to provide a copy of its annual
audited financial statements and an opin-
ion for the most recently completed fiscal
year as of the date it applies for certifica-
tion continues even if the CPEO applicant
is certified as a CPEO before the IRS has
received the annual audited financial
statements.

Treasury and IRS have received com-
ments expressing the concern that, for per-
sons applying for certification in the first
year of the program, the regulatory re-
quirements regarding submission of an-
nual audited financial statements and CPA
opinions with respect to those statements
apply to fiscal years predating promulga-
tion of the temporary regulations for
which the audit is already closed and
could require a CPEO applicant to under-
take the costly process of amending prior
financial statements or conducting finan-
cial audits of those years anew. In re-
sponse to this concern, this notice pro-
vides transition relief for any CPEO
applicant required to submit a copy of its
annual audited financial statements and
CPA opinion with respect to a fiscal year
ending before September 30, 2016, as a
part of its application for certification.
Specifically, a CPEO applicant will
not fail to meet the requirements of
§ 301.7705-2T(e)(2) or section 2.05(1)
and (2) of Rev. Proc. 2016-33 if the
CPEO applicant submits, together with
annual audited financial statements for a
fiscal year ending before September 30,
2016: (1) an unmodified opinion of a CPA
that the annual audited financial state-
ments are presented fairly in accordance
with GAAP; and (2) a separate statement,

signed under penalties of perjury by a
responsible individual of the CPEO appli-
cant, that the financial statements reflect
positive working capital for the fiscal year
or that the CPEO applicant satisfies the
requirements of § 301.7705-2T(e)(3), in
lieu of such information being provided in
the CPA opinion or in a Note to the Fi-
nancial Statement, as described in section
III of this notice. The statement by the
responsible individual must also provide
in detail a calculation of the CPEO appli-
cant's working capital. In the case of a
CPEO applicant that is a member of a
controlled group of which other members
are also CPEO applicants or CPEOs, the
CPEO applicant must submit its own sep-
arate statement by a responsible individ-
ual that the individual financial statements
of that CPEO applicant reflect positive
working capital (as defined by GAAP) or
that the requirements of § 301.7705-
2T(e)(3) are satisfied, in either case setting
forth in detail a calculation of the individ-
ual CPEO applicant's working capital.

Regardless of its fiscal year end date, a
CPEO applicant has until the last day of
the sixth month after the end of its fiscal
year to submit the annual audited financial
statements, accompanying CPA opinion,
and, if applicable, separate statement of
positive working capital, signed by a re-
sponsible individual, for that year. For
example, if a CPEO applicant with a fiscal
year ending September 30, 2016, submits
an application for certification on Septem-
ber 14, 2016, the CPEO applicant must
provide with its application the annual
audited financial statements and CPA
opinion for its most recently completed
fiscal year (the year ending September 30,
2015), which qualify for the transition re-
lief described in the preceding paragraph.
In addition, the CPEO applicant will have
until March 31, 2017 (the last day of the
sixth month after that fiscal year ends), to
subsequently provide to the IRS annual
audited financial statements (as well as the
accompanying CPA opinion) for the year
ending September 30, 2016, that comply
with the requirements described in
§ 301.7705-2T(e) and section 2.05 of
Rev. Proc. 2016-33 (and with the antici-
pated revisions to these requirements that
Treasury and IRS intend to make when
publishing final regulations and updating

the revenue procedure, as described in
section III of this notice).

## V. DEFINITION OF CERTIFIED PUBLIC ACCOUNTANT

In accordance with section 7705(c)
(3)(A), the temporary regulations require
the opinion regarding a CPEO's financial
statements to be provided by a CPA who
is independent of the CPEO. For this pur-
pose, § 301.7705-1T(b)(4) and section
1.01 of Rev. Proc. 2016-33 require a
CPA to be independent as prescribed by
the AICPA's Professional Standards,
Code of Professional Conduct, and its in-
terpretations and rulings. Additionally,
§ 301.7705-1T(b)(4) and section 1.01 of
Rev. Proc. 2016-33 provide that, among
other requirements, the CPA must file
with the IRS a written declaration that he
or she is currently qualified as a CPA and
authorized to represent the CPEO appli-
cant or CPEO before the IRS. A similar
written declaration must accompany the
quarterly submission of the examination
level attestation of a CPA that the CPEO
applicant's or CPEO's assertion that it has
withheld and made deposits of all federal
employment taxes for which the CPEO
applicant or CPEO is liable for the quar-
ter, as required by § 301.7705-2T(f), is
fairly stated in all material respects. See
Rev. Proc. 2016-33, § 2.06(2).

Treasury and IRS have received com-
ments raising a concern that the require-
ment that a CPA be authorized to repre-
sent the CPEO or CPEO applicant before
the IRS could conflict with CPA indepen-
dence requirements of the AICPA. To en-
sure that the CPA may be "independent"
within the meaning of the AICPA guide-
lines, Treasury and IRS anticipate revising
the definition of "certified public accoun-
tant," as set forth in § 301.7705-1T(b)(4)
and section 1.01(3) of Rev. Proc. 2016-
33, to omit the requirement that the CPA
file with the IRS a written authorization to
represent the CPEO applicant or CPEO
before the IRS. Accordingly, the revised
definition of "certified public accountant,"
to be provided in the final regulations, will
refer to a CPA who-

(i) With respect to a CPEO applicant or
CPEO, is independent of the CPEO appli-
cant or CPEO (as prescribed by the Amer-
ican Institute of Certified Public Accoun-
tants' Professional Standards, Code of

Professional Conduct, and its interpreta-
tions and rulings);

(ii) Is not currently under suspension or
disbarment from practice before the IRS;

(iii) Is duly qualified to practice as a
CPA in any state;

(iv) Files with the IRS a written decla-
ration that he or she is currently qualified
as a CPA; and

(v) Meets such other requirements as
the Commissioner may prescribe in fur-
ther guidance.

Furthermore, section 2.06(2) of Rev.
Proc. 2016-33 will be revised to require
that the written declaration accompanying
the quarterly examination level attestation
state only that the CPA is currently qual-
ified as a CPA.

## VI. REQUIREMENT THAT A CPEO BE A BUSINESS ENTITY THAT IS NOT A DISREGARDED ENTITY

The temporary regulations provide in
§ 301.7705-2T(c)(2) that a CPEO may
not be a business entity that is disregarded
as an entity separate from its owner for
federal tax purposes under §§ 301.7701-2
and 301.7701-3 (without regard to the
special rule in § 301.7701-2(c)(2)(iv) that
provides that such entities are corpora-
tions for federal employment tax pur-
poses1). Commenters have explained that
professional employer organizations are
structured in varied ways, and that it is not
uncommon for professional employer or-
ganizations to be entities disregarded as
separate from their corporate, partnership,
or individual owner. Commenters empha-
sized that professional employer organiza-
tions may choose such a structure for legit-
imate business reasons, such as to reduce
the overall compliance burden with respect
to filing of state income tax returns. Com-
menters expressed concern that precluding
disregarded entities from being certified as
CPEOs would unfairly prevent a number of
existing professional employer organiza-
tions from applying to the CPEO program
without undergoing restructuring.

To address this concern, and in recog-
nition that disregarded entities are gener-
ally treated as corporations for federal em-
ployment tax purposes, Treasury and IRS
anticipate that the final regulations under

section 7705 will not prohibit a business
entity that is disregarded as separate from
its owner under §§ 301.7701-2 and
301.7701-3 from becoming a CPEO. In-
stead, it is anticipated that the final regu-
lations will provide that a business entity
that is disregarded as an entity separate
from its owner for any purpose under
§ 301.7701-2 and that is wholly owned
directly (including through one or more
disregarded entities organized in the
United States) by a United States person
(as defined in section 7701(a)(30)) may
apply for certification as a CPEO. Trea-
sury and IRS anticipate that, consistent
with § 301.7705-2T(d)(1), the final regu-
lations will continue to require that a
CPEO applicant or CPEO must be created
or organized in the United States or under
the law of the United States or of any state.
Therefore, only domestic disregarded enti-
ties would be eligible to apply for certifica-
tion. Treasury and IRS request comments
on the appropriateness of allowing a disre-
garded entity that is domestically organized
but not wholly owned directly by a United
States person to apply for certification as a
CPEO.

In addition, Treasury and IRS antici-
pate revising the definition of "responsible
individual," as provided in § 301.7705-
1T(b)(13) and section 1.01(11) of Rev.
Proc. 2016-33, to also include: (1) in the
case of a disregarded entity owned by a
corporation or partnership, the responsible
individuals of that corporation or partner-
ship (as defined by the regulations); and
(2) in the case of a disregarded entity
owned by an individual, the individual
owner. Finally, Treasury and IRS antici-
pate providing in the final regulations that
CPEO applicants and CPEOs that, but for
their status as disregarded entities would
separately be members of a controlled
group, are treated as members of a con-
trolled group for purposes of section 7705
and related regulations.

The temporary regulations also provide
in § 301.7705-2T(c)(2) that a CPEO must
be a business entity described in
§ 301.7701-2(a). Because an individual
conducting business through a sole propri-
etorship is not a business entity described
in § 301.7701-2(a), an individual may not

be a CPEO under the temporary regula-
tions. One commenter expressed concern
that this rule precludes certification of
smaller professional employer organiza-
tions that are operated by individuals
through their sole proprietorships. In re-
sponse to this comment and to ensure par-
ity between sole proprietorships and dis-
regarded entities that are wholly owned by
individuals, Treasury and IRS anticipate
that the final regulations will expressly
allow sole proprietorships to apply for
certification as a CPEO.

## VII. EXTENSION OF APPLICATION SUBMISSION DEADLINE FOR JANUARY 1, 2017, EFFECTIVE DATE

A person seeking certification as a CPEO
must submit a properly completed and exe-
cuted application for certification as a CPEO
in the time and manner prescribed by, and
providing such information required by,
§ 301.7705-2T, Rev. Proc. 2016-33, and
instructions accompanying the application.
The IRS will issue a notice of certification to
a CPEO applicant that has been approved
for certification specifying the effective date
of certification. The first sentence of section
6.03 of Rev. Proc. 2016-33 provides the
general rule that the effective date of certi-
fication will typically be the first day of the
first calendar quarter following the date of
the notice of certification. However, the sec-
ond sentence of section 6.03 of Rev. Proc.
2016-33 provides the special rule that a
CPEO applicant that submits a complete
and accurate application before September
1, 2016, and is certified will have an effec-
tive date of certification of January 1, 2017,
even if the date of the CPEO's notice of
certification is after January 1, 2017.

In recognition that this notice provides
interim guidance regarding documents that
must be submitted as a part of an initial
application for CPEO certification and will
directly affect applications by persons inter-
ested in seeking CPEO certification that are
already in progress, Treasury and IRS are
extending the period in which a person must
apply in order to be eligible for an effective
date of January 1, 2017, under the second
sentence of section 6.03 of Revenue Proce-
dure 2016-33. CPEO applicants now have

1Section 301.7701-2(c)(2)(iv)(B) provides that, with certain exceptions, an entity that is disregarded as an entity separate from its owner for any purpose under § 301.7701-2 is treated as
a corporation with respect to taxes imposed under Subtitle C-Employment Taxes and Collection of Income Tax (Chapters 21, 22, 23, 23A, 24, and 25 of the Internal Revenue Code).

until before October 1, 2016, to submit an
application for certification in order to be
eligible for a January 1, 2017, effective date.
That is, the effective date of certification for
a CPEO applicant that submits a complete
and accurate application for certification on
or before September 30, 2016, and is certi-
fied will be January 1, 2017, even if the date
of its notice of certification is after January
1, 2017.

## VIII. RELIANCE

Treasury and IRS intend that the final
regulations under section 7705 and the
updated revenue procedure, when issued,
will address the issues identified in this
notice in the manner indicated in this
notice. Pending the issuance of final reg-
ulations and the updated revenue proce-
dure, taxpayers may rely on the guidance
contained in this notice.

## IX. DRAFTING INFORMATION

The principal authors of this notice are
Melissa L. Duce and Andrew K. Holu-
beck, Office of Associate Chief Counsel
(Tax Exempt and Government Entities).
For further information regarding this no-
tice, contact Ms. Duce at (202) 317-6798
or Mr. Holubeck at (202) 317-4774 (not
toll-free numbers).

26 CFR 601.201. Rulings and determination letters
(Also Part I, § 664, § 1.664-1, § 170, § 170A-1,
§ 2055, § 20.2055-2, § 2106, § 20.2106-1, § 2522,
§ 25.2522(c)-3.)

### Rev. Proc. 2016-42

#### SECTION 1. PURPOSE

This revenue procedure contains a
sample provision that may be included in
the governing instrument of a charitable
remainder annuity trust (CRAT) provid-
ing for annuity payments payable for one
or more measuring lives followed by the
distribution of trust assets to one or more
charitable remaindermen. The Internal
Revenue Service (IRS) will treat the sam-
ple provision as a qualified contingency
within the meaning of § 664(f) of the
Internal Revenue Code. Thus, inclusion of
the sample provision in the trust instru-
ment does not cause the trust to fail to
qualify as a charitable remainder trust un-
der § 664. Any CRAT containing the sam-

ple provision will not be subject to the
"probability of exhaustion" test set forth
in Rev. Rul. 70-452, 1970-2 C.B. 199,
and applied in Rev. Rul. 77-374, 1977-2
C.B. 329. The "probability of exhaustion"
test is used to determine whether a CRAT
complies with the regulatory requirement
applicable to all contingent charitable
transfers that only a negligible chance ex-
ists that the charity will receive nothing.
See § 1.170A-1(e) of the Income Tax
Regulations, § 20.2055-2(b) of the Estate
Tax Regulations, and § 25.2522(c)-
3(b)(1) of the Gift Tax Regulations.

## SECTION 2. BACKGROUND

To qualify as a charitable remainder
trust under § 664, a CRAT must satisfy all
of the following requirements of
§ 664(d)(1): (A) a sum certain (not less
than 5 percent and not more than 50 per-
cent of the initial fair market value (FMV)
of all property placed in trust) is to be paid
at least annually to one or more persons
(at least one of which is not an organiza-
tion described in § 170(c) and, in the case
of individuals, only to an individual who
is living at the time of the creation of the
trust) for a term of years (not to exceed 20
years) or for the life or lives of such
individual or individuals; (B) no amount
other than such payments and other than
qualified gratuitous transfers described in
§ 664(d)(1)(C) may be paid to or for the
use of any person other than an organiza-
tion described in § 170(c); (C) following
the termination of such payments, the re-
mainder interest in the trust is to be trans-
ferred to or for the use of an organization
described in § 170(c) or is to be retained
by the trust for such a use or, to the extent
the remainder interest is in qualified em-
ployer securities (as defined in § 664
(g)(4)), all or part of such securities are to
be transferred to an employee stock own-
ership plan (ESOP) (as defined in § 4975
(e)(7)) in a qualified gratuitous transfer (as
defined by § 664(g)); and (D) the value
(determined under § 7520) of the remain-
der interest is at least 10 percent of the
initial FMV of all trust property.

To qualify as a charitable remainder
trust under § 664, a CRAT also must
satisfy the requirements of § 1.664-
1(a)(1)(iii)(a). Section 1.664-1(a)(1)(iii)
(a) defines a charitable remainder trust as
a trust with respect to which a deduction is

allowable under § 170, § 2055, § 2106, or
§ 2522. Income or gift tax charitable de-
ductions are not allowable under § 170 or
§ 2522 if the remainder interest of an inter
vivos CRAT does not satisfy, inter alia,
the requirements of § 1.170A-1(e) or
§ 25.2522(c)-3(b)(1), respectively. Simi-
larly, an estate tax charitable deduction is
not allowable under § 2055 or § 2106 if
the remainder interest of a testamentary
CRAT does not satisfy, inter alia, the
requirements of § 1.170A-1(e) and
§ 20.2055-2(b)(1). Sections 1.170A-1(e),
20.2055-2(b)(1), and 25.2522(c)-3(b)(1)
provide that if, as of the date of a gift (or
the date of decedent's death for a testa-
mentary transfer), a transfer for charitable
purposes is dependent upon the perfor-
mance of some act or the happening of a
precedent event in order that it might be-
come effective, no charitable deduction is
allowable unless the possibility that the
charitable transfer will not become effec-
tive is so remote as to be negligible. If an
estate or interest has passed to, or is vested
in, a charity at the time of the transfer and
the estate or interest would be defeated
by the subsequent performance of some act
or the happening of some event, the possi-
bility of occurrence of which appeared at the
time of the transfer to be so remote as to be
negligible, the deduction is allowable.

Rev. Rul. 70-452 applies these rules
to a split-interest charitable remainder
trust. Rev. Rul. 70-452 holds that, if there
is a greater than 5 percent probability that
payment of the annuity will defeat the
charity's interest by exhausting the trust
assets by the end of the trust term, then the
possibility that the charitable transfer will
not become effective is not so remote as to
be negligible. This determination is re-
ferred to as the "probability of exhaustion
test." Rev. Rul. 77-374 applies the prob-
ability of exhaustion test to a CRAT. The
probability of exhaustion is calculated
first by applying the § 7520 assumed rate
of return on CRAT assets (§ 7250 rate)
against the amount of the annuity payment
to determine when the CRAT assets will be
exhausted. Then, a mortality table (Mortal-
ity Table 2000CM, found in § 2031-
7(d)(7)) is used to determine the probability
that the income beneficiary or beneficiaries
will survive exhaustion of the CRAT assets.
If the probability that the life beneficiary or
beneficiaries will survive exhaustion of the

CRAT assets is greater than 5 percent, then
the charitable remainder interest of the
CRAT does not qualify for an income, gift,
or estate tax charitable deduction and the
CRAT is not exempt from income tax under
§ 664(c). If the § 7520 rate at creation of a
trust providing an annual annuity payment
at the end of each year is equal to or greater
than the percentage used to determine the
annuity payment, then exhaustion will never
occur under this test.

Low interest rates in recent years have
greatly limited use of a CRAT as an effec-
tive charitable-giving vehicle. For example,
in May of 2016, the § 7520 rate was 1.8
percent. At this interest rate, the sole life
beneficiary of a CRAT that provides for an
annual end-of-the-year payment of the min-
imum allowable annuity (equal to 5 percent
of the initial FMV of the trust assets) must
be at least 72 years old at the creation of the
trust for the trust to satisfy the probability of
exhaustion test. The § 7520 rate has not
exceeded the minimum 5 percent annuity
payout rate since December of 2007, which
has necessitated testing for the probability of
exhaustion for every CRAT created since
that time.

Section 664(f)(1) provides in general
that, if a trust would, but for a qualified
contingency, meet the requirements of
§ 664(d)(1)(A) (relating to CRATs) or
§ 664(d)(2)(A) (relating to charitable re-
mainder unitrusts), the trust is treated as
meeting these requirements. Section 664(f)
(2) provides that, for purposes of determin-
ing the amount of any charitable contribu-
tion (or the actuarial value of any interest), a
qualified contingency is not taken into ac-
count. Section 664(f)(3) defines a qualified
contingency for purposes of § 664(f) as any
provision of a trust which provides that,
upon the happening of a contingency, the
payments described in § 664(d)(1)(A) or
(d)(2)(A) (as the case may be) will terminate
not later than these payments otherwise
would terminate under the trust.

### SECTION 3. SCOPE

.01 This revenue procedure applies to
trusts created after the effective date of
this revenue procedure that-

(1) Meet the requirements of
§ 664(d)(1);

(2) Provide for annuity payments
payable for one or more measuring lives;
and

(3) Contain in their governing instru-
ment the precise language of the sample
provision in section 5 of this revenue pro-
cedure.

.02 A CRAT that contains a substan-
tive provision similar but not identical to
that provided in section 5 of this revenue
procedure will not necessarily be disqual-
ified, but neither will such a provision be
assured of treatment as a qualified contin-
gency under § 664(f).

## SECTION 4. APPLICATION

.01 The IRS will treat the sample provi-
sion contained in section 5 of this revenue
procedure as a qualified contingency under
§ 664(f). Thus, the presence of this provi-
sion will not cause the trust to fail to qualify
as a charitable remainder trust under § 664.

.02 The sample provision provides an
alternative to satisfying the probability of
exhaustion test for those CRATs to which
this revenue procedure applies. The sample
provision causes the early termination of the
CRAT, followed by an immediate distribu-
tion of the remaining trust assets to the char-
itable remainder beneficiary. Specifically,
this provision provides for early termination
of the trust (and thus the end of the ability to
make any more annuity payments) on the
date immediately before the date on which
any annuity payment would be made, if the
payment of that annuity amount would re-
sult in the value of the trust corpus, when
multiplied by a specified discount factor,
being less than 10 percent of the value of the
initial trust corpus.

.03 The sample provision is designed
to ensure that the benefit from the creation
of the CRAT will be available only where
there is a significant benefit to charity. See
Staff of the Joint Comm. on Taxation,
105th Cong., General Explanation of Tax
Legislation Enacted in the 105th Con-
gress, JCS-23-97 at 289-290 (1997). This
provision also is designed to ensure that
the charitable remainder beneficiary will
receive an amount that accords with the
charitable deduction allowed to the donor
on creation of the trust. See H.R. Rep. No.

91-413, pt. 1, at 59 (1969), 1969-3 C.B.
200, 238, and S. Rep. No. 91-552, 88 and
90 (1969), 1969-3 C.B. 423, 480-81.
Finally, this provision is designed to ex-
pose the charitable remainderman to
some, but not all, of the investment per-
formance risk of the CRAT assets.

## SECTION 5. SAMPLE PROVISION

.01 The following language is the sam-
ple provision designed to be used in an
inter vivos CRAT for one measuring life:

"The first day of the annuity period
shall be the date the property is trans-
ferred to the trust and the last day of the
annuity period shall be the date of the
Recipient's death or, if earlier, the date of
the contingent termination. The date of the
contingent termination is the date imme-
diately preceding the payment date of any
annuity payment if, after making that pay-
ment, the value of the trust corpus, when
multiplied by the specified discount fac-
tor, would be less than 10 percent of the
value of the initial trust corpus. The spec-
ified discount factor is equal to [1 / (1 +
i)]', where t is the time from inception of
the trust to the date of the annuity pay-
ment, expressed in years and fractions of a
year, and i is the interest rate determined
by the Internal Revenue Service for pur-
poses of section 7520 of the Internal Rev-
enue Code of 1986, as amended (section
7250 rate), that was used to determine the
value of the charitable remainder at the
inception of the trust. The section 7520
rate used to determine the value of the
charitable remainder at the inception of
the trust is the section 7520 rate in effect
for [insert the month and year], which is
[insert the applicable section 7520 rate]."

.02 In a testamentary CRAT, the
phrase "the property is transferred to the
trust" (the first underlined phrase) in this
sample language must be replaced with
"of my death".

.03 If the inter vivos or testamentary
CRAT is created using the sample form
provided in Rev. Proc. 2003-53, 2003-2
C.B. 230, or Rev. Proc. 2003-57, 2003-2
C.B. 257, respectively, the insertion of
this sample provision in place of the sec-
ond sentence of paragraph 2 of that sam-
ple inter vivos form, or in place of the
second sentence of paragraph 1 of the
sample testamentary form, respectively,
will satisfy the requirements of a qualified
contingency as described in section 6.03
of each revenue procedure.

.04 If the CRAT annuity is payable
consecutively for two measuring lives, the
phrase "the Recipient's death" (the second
underlined phrase) in the sample provi-
sion must be replaced with "the death of

the survivor of the Initial Recipient and
the Successor Recipient(s)". See Rev.
Proc. 2003-55, 2003-2 C.B. 242, and
Rev. Proc. 2003-59, 2003-2 C.B. 268. If
the CRAT annuity instead is payable con-
currently and consecutively for two mea-
suring lives, the second underlined phrase
in the sample provision must be replaced
with "the Survivor Recipient's death". See
Rev. Proc. 2003-56, 2003-2 C.B. 249,
and Rev. Proc. 2003-60, 2003-2 C.B.
274.

## SECTION 6. EXAMPLE

On January 1, Year 1, Donor transfers
property valued at $1,000,000 to Trust, an
inter vivos trust providing for an annuity
payment of $50,000 (5 percent of the
value of the initial trust corpus) on De-
cember 31 of each year to S for S's life
followed by the distribution of trust assets
to Charity. Trust includes the precise lan-
guage of the sample provision in section 5
of this revenue procedure providing for an
early termination contingency and speci-
fies the § 7520 rate in effect for January,
Year 1, which is 3 percent. But for the
early termination provision, Trust meets
all of the requirements of § 664(d)(1). In
accordance with this revenue procedure,
the IRS will treat the early termination
contingency as a qualified contingency
under § 664(f). Therefore, the early termi-
nation provision does not cause Trust to
fail to qualify as a CRAT under § 664. In
addition, Trust qualifies as a CRAT regard-
less of whether it passes the probability of
exhaustion test on January 1, Year 1.

Each year, prior to payment of the annu-
ity to S, the trustee performs the calculations
required to determine if Trust will terminate
early in accordance with the terms of the
qualified contingency. In each year from
Year 1 through Year 17, the trustee deter-
mines that the value of the trust corpus,
minus the $50,000 annual payment, and
then multiplied by the specified discount
factor, is greater than 10 percent of the ini-
tial trust corpus. The value of the trust cor-
pus as of December 30 in Year 18 is
$210,000. Only in Year 18 does the value of
the trust corpus as of December 30, when
reduced by the annuity payment and multi-
plied by the specified discount factor, fall
below 10 percent of the value of the initial
trust corpus. The calculations required to

determine if Trust will terminate early in
Year 18 are as follows:

1\. $1,000,000 × 10 percent =$100,000
2\. ($210,000 - 50,000) × [1 /(1 + .03)]18
$160,000 × (1/1.03)18
$160,000 X 0.97087418

$160,000 × 0.587397= $93,984.

Because the value of the trust corpus
($210,000), when reduced by the annuity
payment ($50,000) and then multiplied by
the specified discount factor (0.587397),
is less than 10 percent of the value of the
initial trust corpus ($100,000), Trust ter-
minates on December 30, Year 18, and the
principal and income remaining in Trust
(including the annuity payment for Year 18
that otherwise would have been payable to
S) then must be distributed to Charity.

## SECTION 7. EFFECT ON OTHER DOCUMENTS

Rev. Rul. 70-452 and Rev. Rul. 77-
374 are modified to provide an exception
for CRATs that conform to this revenue
procedure.

Rev. Proc. 2003-53, Rev. Proc. 2003-
55, Rev. Proc. 2003-56, Rev. Proc. 2003-
57, Rev. Proc. 2003-59 and Rev. Proc.
2003-60 are amplified.

## SECTION 8. EFFECTIVE DATE

This revenue procedure is effective
August 8, 2016 and applies to trusts cre-
ated on or after that date.

## SECTION 9. DRAFTING INFORMATION

The principal author of this revenue
procedure is Donna Douglas of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries). However, other
personnel from the Treasury Department
and the IRS participated in its develop-
ment. For further information regarding
this revenue procedure, please contact
Donna Douglas at (202) 317-6859 (not a
toll-free number).

## Section 170 .- Charitable, etc., Contributions and Gifts.

26 CFR 1.170A-1: Charitable, etc., contributions
and gifts, allowance of deduction. The IRS will treat
the sample provision in this revenue procedure as a
qualified contingency under section 664(f). A CRAT

containing the sample provision will not be subject to
the probability of exhaustion test set forth in Rev. Rul.
70-452, 1970-2 C.B.199, and applied in Rev. Rul.
77-374, 1977-2 C.B. 329. See Rev. Proc. 2016-42,
page 269.

## Section 664 .- Charitable Remainder Trusts

26 C.F.R. 1.664-1: Charitable remainder trusts.
The IRS will treat the sample provision in this rev-
enue procedure as a qualified contingency under
section 664(f). A CRAT containing the sample pro-
vision will not be subject to the probability of ex-
haustion test set forth in Rev. Rul. 70-452, 1970-2
C.B.199, and applied in Rev. Rul. 77-374, 1977-2
C.B. 329. See Rev. Proc. 2016-42, page 269.

## Section 2055 .- Transfers for Public, Charitable, and Religious Uses

26 C.F.R. 20.2055-2: Transfers not exclusively for
charitable purposes. The IRS will treat the sample
provision in this revenue procedure as a qualified con-
tingency under section 664(f). A CRAT containing the
sample provision will not be subject to the probability
of exhaustion test set forth in Rev. Rul. 70-452, 1970-2
C.B.199, and applied in Rev. Rul. 77-374, 1977-2 C.B.
329. See Rev. Proc. 2016-42, page 269.

## Section 2106 .- Taxable Estate

26 C.F.R. 20.2106-1: Estates of nonresidents not
citizens; taxable estate; deductions in general. The
IRS will treat the sample provision in this revenue
procedure as a qualified contingency under section
664(f). A CRAT containing the sample provision
will not be subject to the probability of exhaustion
test set forth in Rev. Rul. 70-452, 1970-2 C.B.199,
and applied in Rev. Rul. 77-374, 1977-2 C.B. 329.
See Rev. Proc. 2016-42, page 269.

## Section 2522 .- Charitable and Similar Gifts

26 C.F.R. 2522(c)-3: Transfers not exclusively for
charitable, etc., purposes in the case of gifts made after
July 31, 1969. The IRS will treat the sample provision
in this revenue procedure as a qualified contingency
under section 664(f). A CRAT containing the sample
provision will not be subject to the probability of ex-
haustion test set forth in Rev. Rul. 70-452, 1970-2
C.B.199, and applied in Rev. Rul. 77-374, 1977-2 C.B.
329. See Rev. Proc. 2016-42, page 269.

## Part IV. Items of General Interest

Deletions From Cumulative
List of Organizations,
Contributions to Which are
Deductible Under Section
170 of the Code

Announcement 2016-28

Table of Contents

The Internal Revenue Service has re-
voked its determination that the organiza-
tions listed below qualify as organizations
described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.

Generally, the IRS will not disallow
deductions for contributions made to a
listed organization on or before the date of
announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the IRS is not pre-
cluded from disallowing a deduction for
any contributions made after an organiza-
tion ceases to qualify under section
170(c)(2) if the organization has not
timely filed a suit for declaratory judg-
ment under section 7428 and if the con-
tributor (1) had knowledge of the revoca-
tion 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 omis-
sions 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 August 22, 2016
and would end on the date the court first
determines the organization is not de-
scribed in section 170(c)(2) as more par-
ticularly set for in section 7428(c)(1). For
individual contributors, the maximum de-
duction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.

NAME OF ORGANIZATION

Effective Date of Revocation

LOCATION

Workshops Unlimited, Inc.

July 1, 2012

West Palm Beach, FL

Samaritan Housing Foundation, IV, Inc.

July 1, 2012

Atlanta, GA

Women in Architecture

June 17, 2014

Salt Lake City, UT

CSRA Happy Tails Rescue Inc.

January 1, 2013

Appling, GA

Armenian Charitable Foundation

January 1, 2012

Fresno, CA

## Correction to Notice 2016- 44, I.R.B. 2016-29

### Announcement 2016-29

This document contains corrections to
Notice 2016-44, as published on Mon-
day, July 18, 2016 (I.R.B. 2016-29, 132).

In particular, this announcement corrects
the following administrative item.

### Correction 1:

$46.01 is incorrect. The calculation
should instead state that $28 multiplied
by 1.6464 = $46.10.

In the third paragraph, the calculation
providing that $28 multiplied by 1.6464 =

# 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
effect:

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the 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 with
modified, below).

Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.

Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.

Modified is 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
with amplified and clarified, above).

Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used 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.

Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.

Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-

stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes 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
published ruling is first modified and then,
as modified, is superseded.

Supplemented is 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
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is 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 following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

F.R .- Federal Register.

FUTA-Federal Unemployment Tax Act.

FX-Foreign corporation.

G.C.M .- Chief Counsel's Memorandum.

GE-Grantee.

GP-General Partner.

GR-Grantor.

COOP-Cooperative.

IC-Insurance Company.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

CY-County.

LE-Lessee.

D-Decedent.

LP-Limited Partner.

LR-Lessor.

M-Minor.

Nonacq .- Nonacquiescence.

O Organization.

P-Parent Corporation.

PHC-Personal Holding Company.

PO-Possession of the U.S.

PR-Partner.

PRS-Partnership.

PTE-Prohibited Transaction Exemption.
Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S-Subsidiary.

S.P.R .- Statement of Procedural Rules.

Stat .- Statutes at Large.

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

CI-City.

T.I.R .- Technical Information Release.

TP-Taxpayer.
TR-Trust.

TT-Trustee.

U.S.C .- United States Code.

DE-Donee.

Del. Order-Delegation Order.

DISC-Domestic International Sales Corporation.
DR-Donor.

E-Estate.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.
EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

FPH-Foreign Personal Holding Company.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

DC-Dummy Corporation.

X-Corporation.

Y-Corporation.

Z-Corporation.

## Numerical Finding List1

Bulletin 2016-27 through 2016-34

### Action on Decision:

2016-01, 2016-16 I.R.B. 580
2016-02, 2016-31 I.R.B. 193

### Announcements:

2016-21, 2016-27 I.R.B. 8
2016-23, 2016-27 I.R.B. 10

2016-24, 2016-30 I.R.B. 170

2016-25, 2016-31 I.R.B. 205

2016-27, 2016-33 I.R.B. 238

2016-28, 2016-34 I.R.B. 272

2016-29, 2016-34 I.R.B. 272

Notices:

2016-40, 2016-27 I.R.B. 4

2016-41, 2016-27 I.R.B. 5
2016-42, 2016-29 I.R.B. 67
2016-43, 2016-29 I.R.B. 132

2016-44, 2016-29 I.R.B. 132
2016-45, 2016-29 I.R.B. 135
2016-46, 2016-31 I.R.B. 202
2016-48, 2016-33 I.R.B. 235
2016-49, 2016-34 I.R.B. 265

#### Proposed Regulations:

REG-102516-15, 2016-32 I.R.B. 231
REG-103058-16, 2016-33 I.R.B. 238
REG-109086-15, 2016-30 I.R.B. 171
REG-101689-16, 2016-30 I.R.B. 170
REG-123854-12, 2016-28 I.R.B. 15
REG-134016-15, 2016-31 I.R.B. 205
REG-131418-14, 2016-33 I.R.B. 248
REG-147196-07, 2016-29 I.R.B. 32

### Revenue Procedures:

2016-37, 2016-29 I.R.B. 136

2016-39, 2016-30 I.R.B. 164

2016-40, 2016-32 I.R.B. 228

2016-41, 2016-30 I.R.B. 165

2016-42, 2016-34 I.R.B. 269

### Revenue Rulings:

2016-17, 2016-27 I.R.B. 1
2016-18, 2016-31 I.R.B. 194

Treasury Decisions:

9773, 2016-29 I.R.B. 56
9774, 2016-30 I.R.B. 151

9775, 2016-30 I.R.B. 159
9776, 2016-32 I.R.B. 222
9778, 2016-31 I.R.B. 196
9779, 2016-33 I.R.B. 233

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016-01 through 2016-26 is in Internal Revenue Bulletin
2016-26, dated June 27, 2016.

## Finding List of Current Actions on Previously Published Items1

Bulletin 2016-27 through 2016-34

Notices:

2013-1
Modified by
Notice 2016-41, 2016-27 I.R.B. 5

2013-1
Superseded by
Notice 2016-41, 2016-27 I.R.B. 5

### Revenue Procedures:

2007-44
Clarified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44
Modified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44
Superseded by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2015-36
Modified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2016-3
Modified by
Rev. Proc. 2016-40, 2016-32 I.R.B. 228
2016-29
Modified by
Rev. Proc. 2016-39, 2016-30 I.R.B. 164

### Treasury Decisions:

2014-12
Modified by
T.D. 9776 2016-32 I.R.B. 222

# Internal Revenue Service Washington, DC 20224

Official Business
Penalty for Private Use, $300

# INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.

# We Welcome Comments About the Internal Revenue Bulletin

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would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page
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Internal Revenue Bulletin 2016-34 (PDF rendition): IRS Announcements

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