Internal Revenue Bulletin 2005-41 (PDF rendition): IRS Notices

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

Bulletin No. 200
5-41
October 11, 2005
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2005–65, page 684.
Section 355(e).Guidance is provided on whether, under the
described facts, an acquisition and a distribution are part of a
plan under section 355(e) of the Code and section 1.355–7(b)
of the regulations.
Rev. Rul. 2
005–66, page 686.
Federal ra
tes; adjusted federal rates; adjusted federal
long-term
rate and the long-term exempt rate.For pur-
poses of se
ctions 382, 642, 1274, 1288, and other sections
of the Cod
e, tables set forth the rates for October 2005.
T.D. 9224, page 688.
Final regulations under section 6654 of the Code provide infor-
mation for making payments of estimated income tax by indi-
viduals. The regulations incorporate changes made by the Tax
Reform Act of 1984 and are necessary to update, clarify, and
reorganize the rules and procedures under section 6654. The
regulations do not impose any new requirements for taxpayers.
Notice 2005–70, page 694.
Section 362(e).This notice provides guidance on how to
make an election under section 362(e)(2)(C) of the Code.
EMPLOYMENT TAX
REG–104143–05, page 708.
Proposed regulations under section 3121 of the Code amend
existing regulations as to the dollar threshold amounts and time
periods used to determine whether payments for 1) domestic
service in a private home of the employer, 2) agricultural labor,
3) service not in the course of the employer’s trade or busi-
ness, and 4) services provided by home workers described in
section 3121(d)(3)(C) are wages subject to Federal Insurance
Contributions Act (FICA) taxes.
EXCISE TAX
REG–138647–04, page 697.
Proposed regulations under section 4980G of the Code pro-
vide guidance regarding employer comparable contributions to
the Health Savings Accounts (HSAs) of employees. The regula-
tions set forth the rules for determining the applicability of the
comparability rules and for determining whether an employer’s
contributions satisfy the comparability rules.
TAX CONVENTIONS
Announcement 2005–72, page 692.
U.S.-Mexico MAP Agreement regarding eligibility of fis-
cally transparent entities to benefits.A copy of the news
release issued by the Director, International (U.S. Competent
Authority), on September 19, 2005 (IR–2005–17), is set forth.
(Continued on the next page)
Fi
nding Lists begin on page ii.

ADMINISTRATIVE
Rev. Proc. 2005–68, page 694.
This procedure provides guidelines for requesting expedited
processing of letter ruling requests for certain reorganizations
and for distributions under section 355 of the Code, and clar-
ifies the requirement that a “significant issue” be present be-
fore the Service will rule on certain transactions. Rev. Procs.
2005–1 and 2005–3 amplified.
Announcement
2005–71, page 714.
Revised optio
nal standard mileage rates for 2005.This
announcement
advises taxpayers that the Service is revising
the optional
standard mileage rates for business, medical, and
moving expen
ses. Effective September 1, 2005, the business
standard mil
eage rate is 48.5 cents per mile and the standard
mileage rate
for medical and moving expenses is 22 cents per
mile. Rev. P
roc. 2004–64 modified.
Announcement 2005–73, page 715.
This announcement contains updates and corrections to Pub-
lication 1187,Specifications for Filing Form 1042–S, Foreign
Person’s U.S. Source Income Subject to Withholding, Electron-
ically or Magnetically.
October 11, 20052005–41 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2005–41 I.R.B.October 11, 2005

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2005. See Rev.
Rul. 2005-66, page 686.
Section 355.—Distribution
of Stock and Securities of
a Controlled Corporation
26 CFR 1.355–7: Recognition of Gain on Certain
Distributions of Stock or Securities in Connection
with an Acquisition.
Section 355(e).Guidance is provided
on whether, under the described facts, an
acquisition and a distribution are part of a
plan under section 355(e) of the Code and
section 1.355–7(b) of the regulations.
Rev. Rul. 2005–65
ISSUE
Under the facts described below, is a
distribution of a controlled corporation by
a distributing corporation part of a plan
pursuant to which one or more persons
acquire stock in the distributing corpora-
tion under § 355(e) of the Internal Rev-
enue Code and § 1.355–7 of the Income
Tax Regulations?
FACTS
Distributing is a publicly traded cor-
poration that conducts a pharmaceuticals
business. Controlled, a wholly owned sub-
sidiary of Distributing, conducts a cos-
metics business. Distributing does all of
the borrowing for both Distributing and
Controlled and makes all decisions regard-
ing the allocation of capital spending be-
tween the pharmaceuticals and cosmetics
businesses. Because Distributing’s capital
spending in recent years for both the phar-
maceuticals and cosmetics businesses has
outpaced internally generated cash flow
from the businesses, it has had to limit total
expenditures to maintain its credit ratings.
Although the decisions reached by Dis-
tributing’s senior management regarding
the allocation of capital spending usually
favor the pharmaceuticals business due to
its higher rate of growth and profit margin,
the competition for capital prevents both
businesses from consistently pursuing de-
velopment strategies that the management
of each business believes are appropriate.
To eliminate this competition for cap-
ital, and in light of the unavailability of
nontaxable alternatives, Distributing de-
cides and publicly announces that it in-
tends to distribute all the stock of Con-
trolledpro ratato Distributing’s share-
holders. It is expected that both busi-
nesses will benefit in a real and substan-
tial way from the distribution. This busi-
ness purpose is a corporate business pur-
pose (within the meaning of § 1.355–2(b)).
The distribution is substantially motivated
by this business purpose, and not by a busi-
ness purpose to facilitate an acquisition.
After the announcement but before the
distribution, X, a widely held corporation
that is engaged in the pharmaceuticals
business, and Distributing begin discus-
sions regarding anacquisition. There
were no discussions between Distributing
or Controlled and X or its shareholders
regarding an acquisition or a distribution
before the announcement. In addition,
Distributing would have been able to con-
tinue the successful operation of its phar-
maceuticals business without combining
with X. During its negotiations with Dis-
tributing, X indicates that it favors the
distribution. X merges into Distributing
before the distribution but nothing in the
merger agreement requires the distribu-
tion.
As a result of the merger, X’s former
shareholders receive 55 percent of Dis-
tributing’s stock. In addition, X’s chair-
man of the board and chief executive of-
ficer become the chairman of the board
and chief executive officer, respectively, of
Distributing. Six months after the merger,
Distributing distributes the stock of Con-
trolledpro ratain a distribution to which
§ 355 applies and to which § 355(d) does
not apply. At the time of the distribution,
the distribution continues to be substan-
tially motivated by the business purpose of
eliminating the competition for capital be-
tween the pharmaceuticals and cosmetics
businesses.
LAW
Section 355(c) generally provides that
no gain or loss is recognized to the dis-
tributing corporationonadistributionof
stock in a controlled corporation to which
§ 355 (or so much of § 356 as relates to
§ 355) applies and which is not in pur-
suance of a plan of reorganization. Sec-
tion 355(e) generally denies nonrecogni-
tion treatment under § 355(c) if the distri-
bution is part of a plan(or series of related
transactions) (a plan) pursuant to which
one or more persons acquire directly or in-
directly stock representing a 50-percent or
greater interest in the distributing corpora-
tion or any controlled corporation.
Section 1.355–7(b)(1) provides that
whether a distribution and an acquisition
are part of a plan is determined based on
all the facts and circumstances, including
those set forth in § 1.355–7(b)(3) (plan
factors) and (4) (non-plan factors). The
weight to be given each of the facts and
circumstances depends on the particular
case. The determination does not depend
on the relative number of plan factors
compared to the number of non-plan fac-
tors that are present.
Section 1.355–7(b)(3)(iii) provides
that, in the case of an acquisition (other
than involving a public offering) before
a distribution, if at some time during the
two-year period ending on the date of the
acquisition there were discussions by Dis-
tributing or Controlled with the acquirer
regarding a distribution, such discussions
tend to show that the distribution and
the acquisition are part of a plan. The
weight to be accorded this fact depends
on the nature, extent, and timing of the
discussions. In addition, the fact that the
acquirer intends to cause a distribution
and, immediately afterthe acquisition, can
meaningfully participate in the decision
regarding whether to make a distribution,
tends to show that the distribution and the
acquisition are part of a plan.
2005–41 I.R.B.684October 11, 2005

Section 1.355–7(b)(4)(iii) provides
that, in the case of an acquisition (other
than involving a public offering) before
a distribution, the absence of discussions
by Distributing or Controlled with the
acquirer regarding a distribution during
the two-year period ending on the date
of the earlier to occur of the acquisition
or the first public announcement regard-
ing the distribution tends to show that
the distribution and the acquisition are
not part of a plan. However, this factor
does not apply to an acquisition where the
acquirer intends to cause a distribution
and, immediately after the acquisition, can
meaningfully participate in the decision
regarding whether to make a distribution.
Section 1.355–7(b)(4)(v) provides that
the fact that the distribution was motivated
in whole or substantial part by a corporate
business purpose (within the meaning of
§ 1.355–2(b)) other than a business pur-
pose to facilitate the acquisition or a sim-
ilar acquisition tends to show that the dis-
tribution and the acquisition are not part of
aplan.
Section 1.355–7(b)(4)(vi) provides that
the fact that the distribution would have
occurred at approximately the same time
and in similar form regardless of the ac-
quisition or a similar acquisition tends to
show that the distribution and the acquisi-
tion are not part of a plan.
Section 1.355–7(h)(6) provides that
discussions with the acquirer generally
include discussions with persons with the
implicit permission of the acquirer.
Section 1.355–7(h)(9) provides that a
corporation is treated as having the im-
plicit permission of its shareholders when
it engages in discussions.
ANALYSIS
Whether the X shareholders’ acquisi-
tion of Distributing stock and Distribut-
ing’s distribution of Controlled are part of
a plan depends on all the facts and cir-
cumstances, including those described in
§ 1.355–7(b). The fact that Distributing
discussed the distribution with X during
the two-year period ending on the date of
the acquisition tends to show that the dis-
tribution and the acquisition are part of a
plan.See§ 1.355–7(b)(3)(iii). In addi-
tion, X’s shareholders may constitute ac-
quirers who intend to cause a distribution
and who, immediately after the acquisi-
tion, can meaningfully participate (through
X’s chairman of the board and chief ex-
ecutive officer who become D’s chairman
of the board and chief executive officer)
in the decision regarding whether to dis-
tribute Controlled.See id. However, the
fact that Distributing publicly announced
the distribution before discussions with X
regarding both an acquisition and a distri-
bution began suggests that the plan factor
in § 1.355–7(b)(3)(iii) should be accorded
less weight than it would have been ac-
corded had there been such discussions be-
fore the public announcement.
With respect to those factors that tend
to show that the distribution and the acqui-
sition are not part of a plan, the absence of
discussions by Distributing or Controlled
with X or its shareholders during the two-
year period ending on the date of the pub-
lic announcement regarding the distribu-
tion would tend to show that the distri-
bution and the acquisition are not part of
a plan only if X’s shareholders are not
acquirers who intend to cause a distribu-
tion and who, immediately after the ac-
quisition, can meaningfully participate in
the decision regarding whether to distrib-
ute Controlled.See§ 1.355–7(b)(4)(iii).
Because X’s chairman of the board and
chief executive officer become the chair-
man and chief executive officer, respec-
tively, of Distributing, X’s shareholders
may have the ability to meaningfully par-
ticipate in the decision whether to distrib-
ute Controlled. Therefore, the absence of
discussions by Distributing or Controlled
with X or its shareholders during the two-
year period ending on the date of the pub-
lic announcement regarding the distribu-
tion may not tend to show that the distri-
bution and the acquisition are not part of a
plan.
Nonetheless, the fact that the distribu-
tion was substantially motivated by a cor-
porate business purpose (within the mean-
ing of § 1.355–2(b)) other than a busi-
ness purpose to facilitate the acquisition
or a similar acquisition, and the fact that
the distribution would have occurred at ap-
proximately the same time and in similar
form regardless of the acquisition or a sim-
ilar acquisition, tend to show that the dis-
tribution and the acquisition are not part of
aplan.See§ 1.355–7(b)(4)(v), (vi). The
fact that the public announcement of the
distribution preceded discussions by Dis-
tributing or Controlled with X or its share-
holders, and the factthat Distributing’s
business would have continued to operate
successfully even if the merger had not oc-
curred, evidence that the distribution orig-
inally was not substantially motivated by a
business purpose to facilitate the acquisi-
tion or a similar acquisition. Moreover, af-
ter the merger, Distributing continued to be
substantially motivated by the same corpo-
rate business purpose (within the meaning
of § 1.355–2(b)) other than a business pur-
pose to facilitate the acquisition or a simi-
lar acquisition (§ 1.355–7(b)(4)(v)). In ad-
dition, the fact that Distributing decided to
distribute Controlled and announced that
decision before it began discussions with
X regarding the combination suggests that
the distribution would have occurred at ap-
proximately the same time and in similar
form regardless of Distributing’s combina-
tion with X and the corresponding acquisi-
tion of Distributing stock by the X share-
holders.
Considering all the facts and circum-
stances, particularly the fact that the dis-
tribution was motivated by a corporate
business purpose (within the meaning
of § 1.355–2(b)) other than a business
purpose to facilitate the acquisition or a
similar acquisition, and the fact that the
distribution would have occurred at ap-
proximately the same time and in similar
form regardless of the acquisition or a
similar acquisition, the acquisition and
distribution are not part of a plan under
§ 355(e) and § 1.355–7(b).
HOLDING
Under the facts described above, the ac-
quisition and the distribution are not part of
a plan under § 355(e) and § 1.355–7(b).
DRAFTING INFORMATION
The principal author of this revenue
ruling is Ross Poulsen of the Office of
Associate Chief Counsel (Corporate). For
further information regarding this rev-
enue ruling, contact Mr. Poulsen at (202)
622–7770 (not a toll-free call).
October 11, 20056852005–41 I.R.B.

Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of October 2005. See Rev.
Rul. 2005-66, page 686.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 467.
—Certain
Payments for
the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2005. See Rev.
Rul. 2005-66, page 686.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of October 2005. See Rev.
Rul. 2005-66, page 686.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates;
adjusted federal long-term rate and the
long-term exempt rate.For purposes of
sections 382, 642, 1274, 1288, and other
sections of the Code, tables set forth the
rates for October 2005.
Rev. Rul. 2005–66
This revenue ruling provides various
prescribed rates for federal income tax
purposes for October 2005 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
low-income housing credit described in
section 42(b)(2) for buildings placed in
service during the current month. Finally,
Table 5 contains the federal rate for deter-
mining the present value of an annuity, an
interest for life or for a term of years, or
a remainder or a reversionary interest for
purposes of section 7520.
2005–41 I.R.B.686October 11, 2005

REV. RUL. 2005–
66 TABLE 1
Applicable Federal Rates (AFR) for October 2005
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR3.89%3.85%3.83%3.82%
110% AFR4.28%4.24%4.22%4.20%
120% AFR4.67%4.62%4.59%4.58%
130% AFR5.07%5.01%4.98%4.96%
Mid-term
AFR4.08%4.04%4.02%4.01%
110% AFR4.49%4.44%4.42%4.40%
120% AFR4.91%4.85%4.82%4.80%
130% AFR5.32%5.25%5.22%5.19%
150% AFR6.15%6.06%6.01%5.98%
175% AFR7.19%7.07%7.01%6.97%
Long-te
rm
AFR4.40%4.35%4.33%4.31%
110% AFR4.85%4.79%4.76%4.74%
120% AFR5.29%5.22%5.19%5.16%
130% AFR5.74%5.66%5.62%5.59%
REV. RUL. 2005–66 TABLE 2
Adjusted AFR for October 2005
Perio
d for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted
AFR
2.83%2.81%2.80%2.79%
Mid-term adjusted AFR3.27%3.24%3.23%3.22%
Long-term adjusted
AFR
4.14%4.10%4.08%4.07%
RE
V. RUL. 2005–66 TABLE 3
Rates Under Section 382 for October 2005
Adjusted federal long-term rate for the current month4.14%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)4.24%
REV. RUL. 2005–66 TABLE 4
Appropriate Percentages Under Section 42(b)(2) for October 2005
Appropriate percentage for the 70% present value low-income housing credit7.98%
Appropriate percentage for the 30% present value low-income housing credit3.42%
October 11, 20056872005–41 I.R.B.

REV. RUL. 2005–
66 TABLE 5
Rate Under Section 7520 for October 2005
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest5.0%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 6654.—Failure by
Individual to Pay Estimated
Income Tax
26 CFR 1.6654–2: Exceptions to imposition of the
addition to the tax in the case of individuals.
T.D. 9224
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Updating Estimated Income
Tax Regulations Under Section
6654
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations relating to certain changes
made to the law by the Tax Reform Act
of 1984. These final regulations are nec-
essary to update, clarify, and reorganize
the rules and procedures for making pay-
ments of estimated income tax by individ-
uals. These final regulations do not impose
any new requirements for taxpayers.
DATES:Effective Date: These final regu-
lations are effective September 2, 2005.
FOR FURTHER INFORMATION
CONTACT: Tatiana Belenkaya of the
Office of Associate Chief Counsel (Proce-
dure and Administration), (202) 622–4910
(not a toll-free number).
SUPPLE
MENTARY INFORMATION:
Background
This document contains amendments to
26 CFR part 1. Section 412 of the Tax
Reform Act of 1984, Public Law 98–369
(98 Stat. 792), repealed section 6015 of
the Internal Revenue Code (Code), which
required individuals to file declarations of
estimated income tax. Public Law 98–369
(98 Stat. 792) is effective for taxable years
beginning after December 31, 1984; how-
ever, individual taxpayers still must pay
estimated tax in quarterly installments un-
der section 6654 of the Code.
Exp
lanation of Provisions
In general, section 6654(a) of the Code
provides that in the case of any underpay-
ment of estimated tax by an individual,
there shall be added to the tax under chap-
ter 1 and the tax under chapter 2 for the tax-
able year an amount determined by apply-
ing (1) the underpayment rate established
under section 6621, (2) to the amount of
the underpayment, (3) for the period of the
underpayment. Section 6654(m) autho-
rizes the Secretary to prescribe such reg-
ulations as may be necessary to carry out
the purposes of section 6654.
Prior to its repeal in 1984, section
6015 of the Code, and §§1.6015(a)–1
through 1.6015(j)–1 of the Income Tax
Regulations, provided rules for making
declarations of estimated income tax by
individuals. Section 6015 of the Code was
repealed for taxable years beginning after
December 31, 1984. The repeal of sec-
tion 6015 rendered §§1.6015(a)–1 through
1.6015(j)–1 obsolete, except to the extent
that portions of these sections provide
guidance still relevant to the payment of
estimated tax under section 6654.
These final regulations remove
§§1.6015(a)–1 through 1.6015(j)–1, re-
vise §§1.6654–2 and 1.6654–3, and add
§§1.6654–5 and 1.6654–6. Removing the
obsolete declaration of estimated income
tax regulations and revising the current es-
timate
d income tax regulations will clarify
the es
timated income tax regulations un-
der se
ction 6654 of the Code. Removal of
§§1.6
015(a)–1 through 1.6015(j)–1 also
allev
iates any confusion under the current
sect
ion 6015 regulations, which address
reli
ef from joint and several liability for
an in
dividual who has made a joint re-
turn
. Adding §§1.6654–5 and 1.6654–6
will
provide additional instructions for
det
ermining estimated tax payments and
add
itional guidance for nonresident alien
ind
ividuals required to make estimated tax
pay
ments.
Spe
cial Analyses
Bec
ause these regulations are interpre-
tat
ive and generally re-codify, under an ex-
is
ting statute, existing rules promulgated
un
der a prior statute, notice and public
co
mment procedures are not required pur-
su
ant to 5 U.S.C. 553(b)(A) and (B), and a
de
layed effective date is not required pur-
su
ant to 5 U.S.C. 553(d)(2) and (3). Be-
c
ause no notice of proposed rulemaking
i
s required, the provisions of the Regula-
t
ory Flexibility Act, 5 U.S.C. 601 (et seq.)
d
o not apply. Further, because this Trea-
s
ury decision is not a significant regula-
tory action for purposes of Executive Or-
der 12866, a regulatory assessment is not
required. Pursuant to section 7805(f) of
the Code, these regulations were submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on their impact on small business.
Drafting Information
The principal author of these regu-
lations is Tatiana Belenkaya, Office of
Associate Chief Counsel (Procedure and
Administration), Administrative Provi-
sions and Judicial Practice Division.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
2005–41 I.R.B.688October 11, 2005

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* * *
§§1.6015(a)–1 through 1.6015(j)–1
[Removed]
Par. 2. Sections 1.6015(a)–1 through
1.6015(j)–1 are removed.
Par. 3. Section 1.6654–2 is amended
by:
1. Revising the last sentence of para-
graph (e)(1)(ii).
2. Adding paragraphs (e)(5), (e)(6), and
(e)(7).
The revision and additions read as fol-
lows:
§1.6654–2 Exceptions to imposition of
theadditiontothetaxinthecaseof
individuals.
*****
(e)***
(1)* * *
(ii)***Forruleswithrespecttothe
allocation of joint payments of estimated
tax, see §1.6654–2(e)(5).
*****
(5)Joint payments of estimated tax—(i)
In general. A husband and wife may make
a joint payment of estimated tax even
though they are not living together. How-
ever, a joint payment of estimated tax may
not be made if the husband and wife are
separated under a decree of divorce or of
separate maintenance. A joint payment of
estimated tax may not be made if the tax-
payer’s spouse is a nonresident alien (in-
cluding a nonresident alien who is abona
fideresident of Puerto Rico or a posses-
sion to which section 931 applies during
the entire taxable year), unless an election
is in effect for the taxable year under sec-
tion 6013(g) or (h) and the regulations. In
addition, a joint payment of estimated tax
may not be made if the taxpayer’s spouse
has a taxable year different from that of the
taxpayer. If a joint payment of estimated
tax is made, the amount estimated as the
income tax imposed by chapter 1 of the
Internal Revenue Code must be computed
on the aggregate estimated taxable income
of the spouses (see section 6013(d)(3)
and §1.2–1), whereas, if applicable, the
amount estimated as the self-employment
tax imposed by chapter 2 of the Internal
Revenue Code must be computed on the
separate estimated self-employment in-
come of each spouse. See sections 1401
and 1402 and §1.6017–1(b)(1). The lia-
bility with respect to the estimated tax, in
the case of a joint payment, shall be joint
and several.
(ii)Application to separate returns.(A)
Although a husband and wife may make a
joint payment of estimated tax, they, nev-
ertheless, can file separate returns. If they
make a joint payment of estimated tax and
file separate returns for the same taxable
year with respect to which the joint pay-
ment was made, the payment made on ac-
count of the estimated tax for that taxable
year may be treated as a payment on ac-
count of the tax liability of either the hus-
band or wife for the taxable year, or may
be divided between them in such manner
as they may agree.
(B) In the event the husband and wife
fail to agree to a division of the estimated
tax payment, such payment shall be allo-
cated between them in accordance with the
following rule. The portion of such pay-
ment to be allocated to a taxpayer shall be
that portion of the aggregate of all such
payments as the amount of tax imposed
by chapter 1 of the Internal Revenue Code
shown on the separate return of the tax-
payer (plus, if applicable, the amount of
tax imposed by chapter 2 of the Internal
Revenue Code shown on the return of the
taxpayer) bears to the sum of the taxes im-
posed by chapter 1 of the Internal Revenue
Code shown on the separate returns of the
taxpayer and the spouse (plus, if applica-
ble, the sum of the taxes imposed by chap-
ter 2 of the Internal Revenue Code shown
on the separate returns of the taxpayer and
the spouse).
(6)Example. The rule described in
paragraph (e)(5) of this section may be il-
lustrated by the following example:
Example. (i) H and W make a joint payment of
estimated tax of $19,500 for the taxable year. H and
W subsequently file separate returns for the taxable
yearshowingtaximposedbychapter1oftheInternal
Revenue Code in the amount of $11,500 and $8,000,
respectively. In addition, H’s return shows a tax im-
posed by chapter 2 of the Internal Revenue Code in
the amount of $500. H and W fail to agree to a di-
vision of the estimated tax paid. The amount of the
aggregate estimated tax payments allocated to H is
determined as follows:
(A)Chapter1taxshownonH’sreturn .............................................
$11,500
(B)Plus:Amountoftaximposedbychapter2shownonH’sreturn ......................
$500
(C)Totaltaxesimposedbychapter1andbychapter2shownonH’sreturn................
$12,000
(D)Amountoftaximposedbychapter1shownonW’sreturn ..........................
$8,000
(E)Totaltaxesimposedbychapter1andbychapter2onbothH’sandW’sreturns..........
$20,000
(F) Proportion of taxes shown on H’s return tototal amount of taxes shown on both H’s and W’s
returns ......................................................................($12,000/$20,000)60%
(G)AmountofestimatedtaxpaymentsallocatedtoH(60%of$19,500)...................$11,700
(ii) Accordingly, H’s return would show a balance
due in the amount of $300 ($12,000 taxes shown less
$11,700 estimated tax allocated).
(7)Death of spouse. (i) A joint pay-
ment of estimated tax may not be made af-
ter the death of either the husband or wife.
However, if it is reasonable for a surviving
spouse to assume that there will be filed
a joint return for himself and the deceased
spouse for his taxable year and the last tax-
able year of the deceased spouse, he may,
in making a separate payment of estimated
tax for his taxable year which includes the
period comprising such last taxable year of
his spouse, estimate the amount of the tax
imposed by chapter 1 of the Internal Rev-
enue Code on his and his spouse’s taxable
income on an aggregate basis and compute
his estimated tax with respect to chapter 1
tax in the same manner as though a joint
return had been filed.
October 11, 20056892005–41 I.R.B.

(ii)Ifahusbandandwifemakeajoint
payment of estimated tax and thereafter
one spouse dies, no further payments of
joint estimated tax liability are required
from the estate of the decedent. The sur-
viving spouse, however, shall be liable
for the payment of any subsequent install-
ments of the joint estimated tax. For the
purpose of making an amended payment
of estimated tax by the surviving spouse,
and the allocation of payments made pur-
suant to a joint payment of estimated tax
between the surviving spouse and the legal
representative of the decedent in the event
a joint return is not filed, the payment of
estimated tax may be divided between the
decedent and the surviving spouse in such
proportion as the surviving spouse and the
legal representative of the decedent may
agree.
(iii) If the surviving spouse and the
legal representative of the decedent fail
to agree to a division of a payment, such
payment shall be allocated in accordance
with the following rule. The portion of
such payment to be allocated to the sur-
viving spouse shall be that portion of the
aggregate amount of such payments as
the amount of tax imposed by chapter
1 of the Internal Revenue Code shown
on the separate return of the surviving
spouse (plus, if applicable, the amount of
tax imposed by chapter 2 of the Internal
Revenue Code shown on the return of
the surviving spouse) bears to the sum
imposed by chapter 1 of the Internal Rev-
enue Code shown on the separate returns
of the surviving spouse and of the dece-
dent (plus, if applicable, the sum of the
taxes imposed by chapter 2 of the Internal
Revenue Code shown on the returns of
the surviving spouse and of the decedent);
and the balance of such payments shall be
allocated to the decedent. This rule may
be illustrated by analogizing the surviving
spouse described in this rule to H in the
example contained in paragraph (e)(6) of
this section and the decedent in this rule to
W in that example.
Par. 4. Section 1.6654–3 is amended by
revising paragraph (a) to read as follows:
§1.6654–3 Short taxable years of
individuals.
(a)In general. The provisions of sec-
tion 6654, with certain modifications relat-
ing to the application of section 6654(d),
which are explained in paragraph (b) of
this section, are applicable in the case of
a short taxable year.
*****
§1.6654–5 [Redesignated as §1.6654–7]
Par. 5. Section 1.6654–5 is redesig-
nated as §1.6654–7.
Par. 6. New §1.6654–5 is added to read
as follows:
§1.6654–5 Payments of estimated tax.
(a)In general. A payment of estimated
tax by an individual shall be determined
on Form 1040-ES. For the purpose of de-
termining the estimated tax, the amount of
gross income which the taxpayer can rea-
sonably expect to receive or accrue, de-
pending upon the method of accounting
upon which taxable income is computed,
and the amount of the estimated allow-
able deductions and credits to be taken
into account in computing the amount of
estimated tax, shall be determined upon
the basis of the facts and circumstances
existing at the time prescribed for deter-
mining the estimated tax, as well as those
reasonably to be anticipated for the tax-
able year. If, therefore, the taxpayer is
employed at the date prescribed for mak-
ing an estimated tax payment at a given
wage or salary, the taxpayer should pre-
sume, in the absence of circumstances in-
dicating the contrary, for the purpose of the
estimated tax payment that such employ-
ment will continue to the end of the tax-
able year at the wage or salary received by
the taxpayer as of such date. In the case
of income other than wages and salary,
the regularity in the payment of income,
such as dividends, interest, rents, royal-
ties, and income arising from estates and
trusts is a factor to be taken into consider-
ation. Thus, if the taxpayer owns shares of
stock in a corporation, and dividends have
been paid regularly for several years upon
the stock, the taxpayer should, in the ab-
sence of information indicating a change
in the dividend policy, include the prospec-
tive dividends from the corporation for the
taxable year as well as those actually re-
ceived in such year prior to determining
the estimated tax. In the case of a taxpayer
engaged in business on his own account,
there shall be made an estimate of gross
income and deductions and credits in the
light of the best available information af-
fecting the trade, business, or profession.
(b)Computation of estimated tax.
In computing the estimated tax, the
taxpayer should take into account the
taxes, credits, and other amounts listed in
§1.6654–1(a)(4).
Par. 7. Section 1.6654–6 is added to
read as follows:
§1.6654–6 Nonresident alien individuals.
(a)In general. A nonresident alien in-
dividual is required to make a payment of
estimated tax if that individual’s gross in-
come meets the requirements of section
6654 and §1.6654–1. In making the deter-
mination under section 6654 as to whether
the amount of the gross income of a non-
resident alien individual is such as to re-
quire making a payment of estimated in-
come tax, only the filing status relating to
a single individual (other than a head of
household) or to a married individual not
entitled to file a joint return shall apply, un-
less an election is in effect for the taxable
year under section 6013(g) or (h) and the
regulations.
(b)Determination of gross income.To
determine the gross income of a nonresi-
dent alien individual who is not, or does
not expect to be, abona fideresident of
Puerto Rico or a possession to which sec-
tion 931 applies during the entire taxable
year, see section 872 and §§1.872–1 and
1.872–2. To determine the gross income
of a nonresident alien individual who is,
or expects to be, abona fideresident of
Puerto Rico or a possession to which sec-
tion 931 applies during the entire taxable
year, see section 876 and the regulations.
For rules for determining whether an indi-
vidual is abona fideresident of a United
States possession (including Puerto Rico),
see section 937 and the regulations.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved August 21, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on September
1, 2005, 8:45 a.m., and published in the issue of the Federal
Register for September 2, 2005, 70 F.R. 52299)
2005–41 I.R.B.690October 11, 2005

Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of October 2005. See Rev. Rul. 2005-66, page 686.
October 11, 20056912005–41 I.R.B.

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
Mexico LLC MAP Agreement
Announcement 2005–72
Following is a copy of the News Re-
lease issued by the Director, International
(U.S. Competent Authority), on Septem-
ber 19, 2005 (IR–2005–107).
U.S., Mexico Reach Mutual Agreement
Regarding Eligibility of Fiscally
Transparent Entities Benefits
IR–2005–107, Sept. 19, 2005
WASHINGTON — On Aug. 26, 2005,
the Competent Authorities of the United
States and Mexico entered into a mutual
agreement (“the Agreement”) regarding
the eligibility of entities that are treated
as fiscally transparent under the laws of
either Contracting State to benefits under
the Convention Between the United States
of America and the Government of the
United Mexican States for the Avoidance
of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on
Income, along with a Protocol, signed on
Sept. 18, 1992, and as amended by the
Additional Protocol signed on Sept. 8,
1994, and the Second Additional Protocol
signed on Nov. 26, 2002. The Agreement
specifies the cases where fiscally transpar-
ent entities are entitled to treaty benefits
and clarifies the procedure for claiming
treaty benefits from Mexico
The text of the Agreement is as follows:
COMPETENT AUTHORITY MUTUAL AGREEMENT
The Competent Authorities of the United States and Mexico hereby enter into the following mutual agreement (“the Agreement”)
regarding the eligibility of entities that are treated as fiscally transparent under the laws of either Contracting State to benefits
under the Convention Between the United States of America and the Government of the United Mexican States for the Avoidance
of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, along with a Protocol, signed on
September 18, 1992, and as amended by the Additional Protocol signed on September 8, 1994, and the Second Additional
Protocol signed on November 26, 2002. The Agreement specifies the cases where fiscally transparent entities are entitled to
treaty benefits and clarifies the procedure for claiming treaty benefits from Mexico. The Agreement is entered into under
paragraph 3 of Article 26 (Mutual Agreement Procedure).
1)Eligibility of fiscally transparent entities for treaty benefits
Paragraph 2(b) of the Protocol provides:
For purposes of paragraph 1 of Article 4 it is understood that:
*****
b) a partnership, estate, or trust is a resident of a Contracting State only to the extent that the income it derives
is subject to tax in that State as the income of a resident, either in the hands of the partnership, estate or
trust, or in the hands of its partners or beneficiaries;
The Competent Authorities agree that in applying paragraph 2(b)of the Protocol, it is understood that income from sources within
one of the Contracting States received by an entity that is treated as fiscally transparentunder the laws of either Contracting State,
will be treated as income derived by a resident of the other Contracting State to the extent that such income is subject to tax
as the income of a resident of the other Contracting State.
For example, if a resident of the United States is a member of a limited liability company (“LLC”) organized in the United States,
and the LLC is treated for U.S. federal tax purposes as a partnership, the resident of the United States would be afforded benefits
of the Treaty on the income that the resident derives from Mexico through the LLC to the extent of the resident’s share of that
income. Similar rules would apply to a resident of the United States that is a shareholder of a U.S. subchapter S Corporation, an
LLC that is disregarded as an entity separate from its owner, or a U.S. grantor trust.
It is understood that Mexican law currently does not provide for any fiscally transparent entities. However, if Mexico were to
introduce legislation that provided for the creation of fiscally transparent entities, then it is intended that income received
by such entity will be treated as income derived by a residentof Mexico to the extent that such income is subject to tax as
the income of a resident of Mexico.
Additionally, Mexico agrees to apply this Agreement with respect to amounts paid to an entity created and subject to the laws of
a third state or jurisdiction only where such third state or jurisdiction has in force a comprehensive exchange of information
agreement as provided in Mexican tax provisions and such information is effectively exchanged. The following is the current
list of countries that Mexico has a comprehensive exchange of information in force. Such a list is published under Mexican
administrative regulations and may be amended from time to time.
2005–41 I.R.B.692October 11, 2005

•Belgium
•Canada
•Korea
•Israel
•Spain
•France
•Italy
•Norway
•Netherlands
•Singapore
•Sweden
•Finland
•Chile
•Ecuador
•Romania
•Czech Republic
2)Appropriate procedures for claiming treaty benefits from Mexico
A LLC or oth
er entity organized within or without the United Statesthat is treated as a partnership for U.S. tax purposes may
claim trea
ty benefits by obtaining a certificate of residence on Form 6166 in the same manner as a partnership. A Form 6166
confirms
the filing of Form 1065, U.S. Return of Partnership Income, by the LLC and includes a list of members of the LLC that
are resid
ents of the United States for purposes of U.S. taxation. The Form 6166 will inform the withholding agent to contact the
LLC direc
tly to provide information regarding the allocation of a particular payment to a specific member.
A U.S. resident deriving income through a LLC or other entity organized within or without the United States that is disregarded as
an entity separate from its owner for U.S. tax purposes may claimbenefits by obtaining a Form 6166 that provides that the LLC is a
branch, division, or business unit of its single member owner andthat such single member owner is a resident of the United States.
A U.S. resident deriving income through a U.S. corporation thathas made an election to be treated as an S Corporation for U.S. tax
purposes may claim treaty benefits by obtaining a Form 6166 certificate of residence ina manner similar to that of a partnership.
A Form 6166 confirms the filing of an information return, Form 1120S, U.S. Income Tax Return for an S Corporation, as required
for a domestic S Corporation, and includes a list of shareholders that are residents of United Statesfor purposes of U.S. taxation.
3)Effective dates
Upon si
gnature by both competent authorities, this Agreement is effective with respect to Mexican source payments made
to Mexi
can or U.S. entities to the extent the Mexican statute of limitations is open for such payments. This Agreement is
effec
tive with respect to Mexican source payments made to entities organized in third countries or jurisdictions identified in the
Agree
ment as of January 1, 2006.
Agreed to by the undersignedCompetent Authorities:
Robert H. Green
U.S. Competent Authority
AnaBerthaThierry
Mexican Competent Authority
DateDate
October 11, 20056932005–41 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Elec
tions Under § 362(e)(2)(C)
Notice 2005–70
This notice provides guidance about
how a valid election under § 362(e)(2)(C)
of the Internal Revenue Code can be made
pending the issuance of additional guid-
ance.
BACKGROUND
Section 362(e) was enacted on October
22, 2004, as part of the American Jobs Cre-
ation Act of 2004, Pub. L. No. 108–357,
118 Stat. 1418. Section 362(e)(2)(A) of
the Code generally provides that if prop-
erty is transferred to a corporation as a
capital contribution or in an exchange to
which § 351 applies and the aggregate
basis of the transferred property exceeds
its aggregate value immediately after the
transaction, then the transferee corpora-
tion’s basis in such property shall not ex-
ceed the fair market value of such property.
Under § 362(e)(2)(C), however, the trans-
feror and transferee can make a joint elec-
tion to reduce the transferor’s basis in the
stock received to its fair market value, and
no reduction of the transferee’s basis in the
property received will be required. Section
362(e)(2)(C) providesthat the election to
reduce stock basis shall be filed with the
return of tax for the taxable year in which
the transaction occurred, shall be in such
form and manner as the Secretary may pre-
scribe, and, once made, shall be irrevo-
cable. Section 362(e)(2)(A) does not ap-
ply, and the election under § 362(e)(2)(C)
is not available, to exchanges subject to
§ 362(e)(1).
The Internal Revenue Service and Trea-
sury Department are studying the issues
raised by § 362(e), including the man-
ner in which the election provided under
§ 362(e)(2)(C) might be made. In partic-
ular, the Service and Treasury Department
are considering issuing guidance prescrib-
ing a particular form and manner for mak-
ing the election. In the interim, the Ser-
vice will treat elections as effective under
§ 362(e)(2)(C) if they are made in the form
and manner of the certification set forth
in this notice. The Service will also treat
other statements on or with returns as ef-
fective elections under § 362(e)(2)(C) if
they
disclose sufficient information to ap-
pris
e the Service that an election has been
made
with respect to a particular transac-
tion
and by particular parties.
PROC
EDURES
If th
e transferor is not a controlled
for
eign corporation (CFC) as defined in
§95
7, the transferor may make a valid
ele
ction by including a certification as
des
cribed below on or with its tax return
fil
ed by the due date (including exten-
sio
ns) for filing its original return for
th
e taxable year in which the transaction
oc
curred. If the transferor is a CFC, its
co
ntrolling U.S. shareholder(s), as defined
in
§ 1.964–1(c)(5) of the Income Tax Reg-
ul
ations, may make a valid election for
t
he CFC by including a certification as
d
escribed below on or with each of their
t
ax returns filed by the due date(s) (in-
c
luding extensions) for filing their original
r
eturns for the taxable year in which the
transaction occurred.
I
f the election is made as described be-
low, no election need be filed by the trans-
feree (or any controlling U.S. shareholder
thereof).
If the transferor is not a CFC, the trans-
feror can make the election by providing
the following certification: “[insert name
and tax identification number of the tax-
payer filing the return] certifies that [in-
sert name and tax identification number
of transferor] and [insert name and tax
identification number of transferee] make
an election under § 362(e)(2)(C) with re-
spect to a transfer of property described in
§ 362(e)(2)(A) on [insert date(s) of trans-
fer(s)].”
If the transferor is a CFC, its con-
trolling U.S. shareholder(s) can make
the election by providing the following
certification: “[insert name and tax identi-
fication number of the taxpayer filing the
return] certifies that [insert name and tax
identification number,if any, of transferor
(the CFC)], the controlling U.S. share-
holder(s) of which is (are) [insert name(s)
and tax identification number(s) of the
controlling U.S. shareholder(s)], and [in-
sert name and tax identification number, if
any, of transferee] make an election under
§ 362(e)(2)(C) with respect to a transfer
of pr
operty described in § 362(e)(2)(A) on
[ins
ert date(s) of transfer(s)].”
The c
ommon parent of a consolidated
grou
p of corporations can make the elec-
tion
on behalf of its members.
Taxp
ayers uncertain of the applica-
bili
ty of § 362(e)(2) to their transaction
may m
ake a protective election, which will
hav
e no effect in the event § 362(e)(2) does
not
apply to the transaction, but which will
oth
erwise be binding and irrevocable.
EFF
ECTIVE DATE
Thi
s notice is effective for all elections
und
er § 362(e)(2)(C) until further notice.
DRA
FTING INFORMATION
The
principal author of this notice is
Jay
Singer of the Office of Associate
Chi
ef Counsel (Corporate). Taxpayers
wi
th comments or questions about making
an
election under § 362(e)(2)(C) should
co
ntact Mr. Singer at (202) 622–7530
(n
ot a toll-free call). Taxpayers with com-
me
nts or questions about CFCs making
a
n election under § 362(e)(2)(C) should
c
ontact Christopher Trump of the Office
o
f Associate Chief Counsel (International)
a
t (202) 622–3860 (not a toll-free call).
2
6 CFR 601.201: Rulings and determination letters.
(
Also Part I, § 368.)
R
ev. Proc. 2005–68
SECTION 1. PURPOSE
This revenue procedure amplifies Rev.
Proc. 2005–1, 2005–1 I.R.B. 1, which
explains how the Service provides advice
to taxpayers on issues under the juris-
diction of the Associate Chief Counsel
(Corporate), the Associate Chief Counsel
(Financial Institutions and Products), the
Associate Chief Counsel (Income Tax and
Accounting), the Associate Chief Counsel
(International), the Associate Chief Coun-
sel (Passthroughs and Special Industries),
the Associate ChiefCounsel (Procedure
and Administration), and the Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities).
This revenue procedure also ampli-
fies Rev. Proc. 2005–3, 2005–1 I.R.B.
2005–41 I.R.B.694October 11, 2005

118, which sets forth the areas of the
Internal Revenue Code under the juris-
diction of the Associate Chief Counsel
(Corporate), the Associate Chief Counsel
(Financial Institutions and Products), the
Associate Chief Counsel (Income Tax and
Accounting), the Associate Chief Coun-
sel (Passthroughs and Special Industries),
the Associate Chief Counsel (Procedure
and Administration), and the Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities) relating
to issues on which the Internal Revenue
Service will not issue letter rulings or de-
termination letters.
SECTION 2. BACKGROUND
.01 Current Procedures
Section 7 of Rev. Proc. 2005–1 pro-
vides general instructions for requesting
letter rulings and determination letters.
Section 7.02(4) of Rev. Proc. 2005–1
states that the Serviceordinarily processes
requests for letter rulings in order of the
date received, and that expedited handling
is granted only in rare and unusual cases.
Section 8.05(1) of Rev. Proc. 2005–1
provides that if a ruling request lacks es-
sential information, the branch representa-
tive will tell the taxpayer that the request
will be closed if the Associate does not
receive the information within 21 calen-
dar days from the date the information is
requested, unless an extension of time is
granted.
Section 3.01 of Rev. Proc. 2005–3
outlines specific questions and problems
on which the Internal Revenue Service
will not issue rulings or determination
letters. Section 3.01(31) of Rev. Proc.
2005–3 provides that the Service will
not rule on whether a transaction qual-
ifies under § 332, § 351 or § 1036 for
nonrecognition treatment, or whether it
constitutes a corporate reorganization
within the meaning of § 368(a)(1)(A) (in-
cluding a transaction that qualifies under
§ 368(a)(1)(A) by reason of § 368(a)(2)(D)
or § 368(a)(2)(E)), § 368(a)(1)(B),
§ 368(a)(1)(C), § 368(a)(1)(E), or
§ 368(a)(1)(F), and whether various con-
sequences (such as nonrecognition and
basis) result from the application of that
section, unless the Service determines that
there is a significant issue that must be
resolved to decide those matters. If the
Service determines that there is a signif-
icant issue, and to the extent the transac-
tion is not described in another no-rule
section, the Service will rule on the entire
transaction, and not just the significant
issue. Requests for rulings on whether a
transaction constitutes an acquisitive cor-
porate reorganization within the meaning
of § 368(a)(1)(D) or § 368(a)(1)(G) or
whether a transaction constitutes a cor-
porate distribution under § 355 are not
subject to the significant issue limitation.
Section 3.01(31) of Rev. Proc. 2005–3
further provides that a significant issue is
an issue of law that meets the following
tests: (1) the issue is not clearly and ade-
quately addressed by a statute, regulation,
decision of a court, tax treaty, revenue rul-
ing, revenue procedure, notice, or other au-
thority published in the Internal Revenue
Bulletin; (2) the resolution of the issue is
not essentially free from doubt; and (3) the
issue is legally significant and germane to
determining the major tax consequences of
the transaction.
.02 New Procedures
The significant issue limitation set forth
above is designed to increase the time
available to the Service for processing
letter rulings on transactions that involve
the most difficult issues. Despite this will-
ingness to rule on these transactions, the
Service understandsthat taxpayers often
execute transactions intended to qualify
as reorganizations under § 368 that in-
volve significant issues and distributions
intended to qualify under § 355 without
submitting letter ruling requests. Based
on numerous comments from taxpayers
and their representatives, the Service has
concluded that this practice is attributable,
in part, to the length of time typically as-
sociated with the letter ruling process.
The Service believes that it can bet-
ter serve taxpayers and more effectively
administer the internal revenue laws by
resolving these issues through the private
letter ruling program. Accordingly, to
encourage taxpayer participation in this
program, Section 7.02(4) of Rev. Proc.
2005–1 is amplified to provide expedited
treatment for letter rulings on transac-
tions intended to meet the requirements
of either § 368 or § 355 for which such
treatment is requested pursuant to this rev-
enue procedure, subject to the restrictions
of Section 3.01(31) of Rev. Proc. 2005–3.
Instead of the typical processing period,
the Service will endeavor to complete and
issue letter rulings on these transactions
within ten weeks from receipt of the re-
quest. It is the intention of the Service
to process on an expedited basis all let-
ter ruling requests on these transactions,
provided the requirements of this revenue
procedure are met. If these requirements
are not met, the Service will process the
letter ruling request in the usual manner.
If the transaction involves an issue or is-
sues not entirely within the jurisdiction of
the Associate Chief Counsel (Corporate),
the ruling request will be processed in the
usual manner unless each Associate Chief
Counsel having jurisdiction over the trans-
action agrees to process the ruling request
on the expedited basis provided herein.
Section 8.05(1) of Rev. Proc. 2005–1
is amplified to provide that if an expedited
ruling request lacks essential information,
the branch representative will tell the tax-
payer that the information must be submit-
ted within 10 calendar days from the date
of the request for additional information,
unless an extension of time is granted. If
the information is not submitted within 10
calendar days (with any extension) but is
submitted within 21 calendar days (with
any extension), the ruling request will be
processed in the usual manner.
This revenue procedure also clarifies
the term “significant issue,” as defined in
Section 3.01(31) of Rev. Proc. 2005–3,
for all transactions to which the significant
issue requirement applies, including trans-
actions not being considered on an expe-
dited basis.
This is a pilot program that applies
to ruling requests postmarked or, if not
mailed, received after September 14,
2005. This pilot program will be evalu-
ated by the Service periodically.
SECTION 3. REQUEST FOR
COMMENTS
The Service requests comments regard-
ing the pilot program. Comments should
refer to Rev. Proc. 2005–68, and should
be submitted to:
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Attn: CC:PA:RU
Room 5226
October 11, 20056952005–41 I.R.B.

or electronically via the Service internet
site at:
Notice.Comments@irscounsel.treas.gov
(the Service comments e-mail address).
All comments will be available for public
inspection and copying.
SECTION 4. PROCEDURE
.01 Rev. Proc. 2005–1 is amplified by
adding the following sentence to the first
paragraph of section 7.02(4):
Notwithstanding the previous sentence,
expedited handling may be available for
certain transactions intended to qualify as
reorganizations described in § 368 or dis-
tributions described in § 355 as provided
in Rev. Proc. 2005–68, Section 4.02.
.02 Rev. Proc. 2005–1 is amplified by
adding the following paragraphs to section
7.02(4):
EXPEDITED LETTER RULING
PROCESS FOR REORGANIZATIONS
AND FOR DISTRIBUTIONS UNDER
SECTION 355: If a taxpayer requests
a letter ruling on whether a transaction
constitutes a reorganization under § 368
or a distribution under § 355 and asks for
expedited handling pursuant to this pro-
vision, the Service will grant expedited
handling. If expedited handling is granted,
the Service will endeavor to complete and
issue the letter ruling subject to Section
3.01(3) of Rev. Proc. 2005–3 within ten
weeks after receiving the ruling request. If
the transaction involves an issue or issues
not entirely within the jurisdiction of the
Associate Chief Counsel (Corporate), the
letter ruling request will be processed in
the usual manner, unless each Associate
Chief Counsel having jurisdiction over an
issue in the transaction agrees to process
the letter ruling request on an expedited
basis.
To initiate this process, the taxpayer
must (i) state at the top of the first page of
the request letter: “Expedited Handling is
Requested” and (ii) provide the Associate
Chief Counsel (Corporate) with a copy of
the request letter by facsimile transmission
(fax), without attachments, when the for-
mal request is submitted. The fax copy
should be sent to (202) 622–7707, Attn:
CC:CORP (Expedite). In due course, the
taxpayer must also provide the Associate
Chief Counsel (Corporate) with a draft rul-
ing letter setting forth the relevant facts,
applicable representations, and requested
rulings in a manner consistent with the for-
mat used by the Associate Chief Counsel
(Corporate) in similar cases. See section
7.02(3) of Rev. Proc. 2005–1. In addition,
the taxpayer must ensure that the formal
submission of its letter ruling request com-
plies with all of the requirements of Rev.
Proc. 2005–1 (including the requirements
of other applicable guidelines set forth in
Appendix E of Rev. Proc. 2005–1). See
section 8.05(1) of Rev. Proc. 2005–1 for
a modified requirement regarding the sub-
mission of additional information. If the
taxpayer does not satisfy the requirements
of this paragraph, the letter ruling request
will not be processed on an expedited ba-
sis, but instead will be processed in the
usual manner.
.03 Rev. Proc. 2005–1 is also amplified
by adding the following paragraph to sec-
tion 8.05(1):
The Service will not endeavor to
process a ruling request on the expedited
basis provided by Rev. Proc. 2005–68,
Section 4.02, unless the branch represen-
tative in Associate Chief Counsel (Cor-
porate) receives all requested additional
information within10 calendar daysfrom
the date of the request for such additional
information, unless an extension of time
is granted. If the information is not pro-
vided within 10 calendar days (with any
extension) but is provided within 21 cal-
endar days (with any extension), the letter
ruling request will cease to be processed
on an expedited basis and instead will be
processed in the usual manner.
.04 Rev. Proc. 2005–3 is amplified by
adding the following sentence as the last
sentence in the paragraph entitled “Signif-
icant Issue” in section 3.01(31):
An issue of law will be considered not
clearly and adequately addressed by the
authorities above, and its resolution will
not be essentially free from doubt when,
because of concern over a legal issue (as
opposed to a factual issue), taxpayer’s
counsel is unable to render an unqualified
opinion on what the tax consequences of
the transaction will be.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 2005–1, 2005–1 I.R.B. 1
and Rev. Proc. 2005–3, 2005–1 I.R.B. 118
are amplified.
SECTION 6. EFFECTIVE DATE
This revenue procedure applies to
all ruling requests postmarked or, if not
mailed, received after September 14, 2005.
SECTION 7. PAPERWORK
REDUCTION ACT
The collections of information in this
revenue procedure have been previously
reviewed and approved by the Office of
Management and Budget (OMB) in accor-
dance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1522.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
Books or records relating to a collection
of information must be retained as long as
their contents may become material in the
administration of any internal revenue tax
law. Generally tax returns and tax return
information are confidential, as required
by § 6103.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Emidio J. Forlini, Jr. of the
Office of Associate Chief Counsel (Cor-
porate). For further information regarding
this revenue procedure, contact Mr. Forlini
at (202) 622–7930 (not a toll-free call).
2005–41 I.R.B.696October 11, 2005

Part IV. Items of General Interest
Notice of Proposed
Rulemaking
Employer Comparable
Contributions to Health
Savings Accounts Under
Section 4980G
REG–138647–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulema
king.
SUMMARY: This document contains
proposed regulations providing guidance
on employer comparable contributions to
Health Savings Accounts (HSAs) under
section 4980G. In general, these proposed
regulations would affect employers that
contribute to employees’ HSAs.
DATES: Written or electronic comments
and requests for a public hearing must be
received by November 25, 2005.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–138647–04), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–138647–04),
Courier’s Desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC. Alternatively, tax-
payers may submit comments elec-
tronically via the IRS Internet site at
www.irs.gov/regsor via the Federal eRule-
making Portal atwww.regulations.gov
(IRS - REG–138647–04).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Barbara E. Pie at (202)
622–6080; concerning submissions of
comments or a request for a public hear-
ing, Kelly Banks at (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed Pen-
sion Excise Tax Regulations (26 CFR part
54) under section 4980G of the Internal
Revenue Code (Code). Under section
4980G of the Code, an excise tax is im-
posed on an employer that fails to make
comparable contributions to the HSAs of
its employees.
Section 1201 of the Medicare Prescrip-
tion Drug, Improvement, and Modern-
ization Act of 2003 (Act), Public Law
108–173, (117 Stat. 2066, 2003) added
section 223 to the Code to permit eligible
individuals to establish HSAs for taxable
years beginning after December 31, 2003.
Section 4980G was also added to the Code
by the Act. Section 4980G(a) imposes an
excise tax on the failure of an employer
to make comparable contributions to the
HSAs of its employees for a calendar year.
Section 4980G(b) provides that rules and
requirements similar to section 4980E (the
comparability rules for Archer Medical
Savings Accounts (Archer MSAs)) apply
for purposes of section 4980G. Section
4980E(b) imposes an excise tax equal to
35% of the aggregate amount contributed
by the employer to the Archer MSAs of
employees during the calendar year if
an employer fails to make comparable
contributions to the Archer MSAs of its
employees in a calendar year. Therefore,
if an employer fails to make comparable
contributions to the HSAs of its employ-
ees during a calendar year, an excise tax
equal to 35% of the aggregate amount
contributed by the employer to the HSAs
of its employees during that calendar year
is imposed on the employer. See Sec-
tions 4980G(a) and (b) and 4980E(b). See
also Notice 2004–2, 2004–1 C.B. 269,
Q & A–32.
Explanation of Provisions
Overview
The proposed regulations clarify and
expand on the guidance regarding the
comparability rules published in Notice
2004–2 and in Notice 2004–50, 2004–2
C.B. 196, Q & A–46 through Q & A–54.
I.Comparable Contributions in General
An employer is not required to con-
tribute to the HSAs of its employees.
However, in general, if an employer makes
contributions to any employee’s HSA, the
employer must make comparable contri-
butions to the HSAs of all comparable
participating employees. Comparable
participating employees are eligible indi-
viduals (as defined in section 223(c)(1))
who have the same category of high de-
ductible health plan (HDHP) coverage.
The categories of coverage are self-only
HDHP coverage and family HDHP cover-
age.
These proposed regulations incorporate
the rule in Notice 2004–2, Q & A–32 that
contributions are comparable if they are ei-
ther the same amount or the same percent-
age of the deductible for employees who
are eligible individuals with the same cat-
egory of coverage. An employer is not
required to contribute the same amount
or the same percentage of the deductible
for employees who are eligible individu-
als with self-only HDHP coverage that it
contributes for employees who are eligible
individuals with family HDHP coverage.
An employer that satisfies the comparabil-
ity rules by contributing the same amount
to the HSAs of all employees who are
eligible individuals with self-only HDHP
coverage is not required to contribute any
amount to the HSAs of employees who
are eligible individuals with family HDHP
coverage, or to contribute the same per-
centage of the family HDHP deductible
as the amount contributed with respect to
self-only HDHP coverage. Similarly, an
employer that satisfies the comparability
rules by contributing the same amount to
the HSAs of all employees who are eligible
individuals with family HDHP coverage
is not required to contribute any amount
to the HSAs of employees who are eligi-
ble individuals with self-only HDHP cov-
erage, or to contribute the same percentage
October 11, 20056972005–41 I.R.B.

of the self-only HDHP deductible as the
amount contributed with respect to family
HDHP coverage.
II.Calculating Comparable Contributions
The proposed regulations clarify that
contributions to the HSAs of certain indi-
viduals are not taken into account in de-
termining whether an employer’s contri-
butions to the HSAs of its employees sat-
isfy the comparability rules. Specifically,
contributions to the HSAs of independent
contractors, sole proprietors, and partners
in a partnership are not taken into account
under the comparability rules. In addi-
tion, the comparability rules do not apply
to amounts rolled over from an employee’s
HSAorArcherMSAortoafter-taxem-
ployee contributions.
The proposed regulations also clar-
ify that the categories of employees for
comparability testing are current full-time
employees, current part-time employees,
and former employees(except for former
employees with coverage under the em-
ployer’s HDHP because of an election
under a COBRA continuation provision
(as defined in section 9832(d)(1)). The
proposed regulations provide that the
comparability rules apply separately to
each of the categories of employees. If
an employer contributes to the HSA of
any employee in a category of employees,
the employer must make comparable con-
tributions to the HSAs of all comparable
participating employees within that cate-
gory. Therefore, the comparability rules
apply to a category of employees only if
an employer contributes to the HSA of any
employee within the category. For exam-
ple, an employer that makes comparable
contributions to the HSAs of all full-time
employees who are eligible individuals
but does not contribute to the HSA of any
employee who is not a full-time employee,
satisfies the comparability rules.
The categories of employees set forth
in these proposed regulations are the ex-
clusive categories forcomparability test-
ing. An employer must make compara-
ble contributions to the HSAs of all com-
parable participating employees (eligible
individuals who are in the same category
of employees with the same category of
HDHP coverage) during the calendar year
without regard to any classification other
than these categories. Therefore, the com-
parability rules do not apply separately to
groups of collectively bargained employ-
ees. While the comparability rules apply
separately to part-time employees, there is
no similar rule permitting separate appli-
cation of the comparability rules to collec-
tively bargained employees. Neither sec-
tion 4980E nor section 4980G provides
an exception to the comparability rules
for collectively bargained employees. Ac-
cordingly, an employer must make com-
parable contributions to the HSAs of all
comparable participating employees, both
those who are covered under a collective
bargaining agreement and those who are
not covered. Similarly, the comparability
rules do not apply separately to manage-
ment and non-management employees.
The proposed regulations also provide
that the comparability rules apply sepa-
rately to employees who have HSAs and
employees who have Archer MSAs. How-
ever, if an employee has both an HSA and
an Archer MSA, the employer may con-
tribute to either the HSA or the Archer
MSA, but not to both.
The proposed regulations incorporate
therulesetforthinQ&A–53ofNo-
tice 2004–50, which provides that if an
employer limits HSA contributions to
employees who are eligible individuals
with coverage under an HDHP provided
by the employer, the employer is not re-
quired to make comparable contributions
to the HSAs of employees who are el-
igible individuals with coverage under
an HDHP not provided by the employer.
However, if an employer contributes to
the HSAs of employees who are eligi-
ble individuals with coverage under any
HDHP, in addition to the HDHPs provided
by the employer, the employer is required
to make comparable contributions to the
HSAs of all comparable participating em-
ployees whether or not covered under the
employer’s HDHP. The proposed regula-
tions also provide that similar rules apply
to employer contributions to the HSAs of
former employees. For example, if an em-
ployer limits HSA contributions to former
employees who are eligible individuals
with coverage under an HDHP provided
by the employer, the employer is not re-
quired to make comparable contributions
totheHSAsofformeremployeeswhoare
eligible individuals with coverage under
an HDHP not provided by the employer.
However, if an employer contributes to
the HSAs of former employees who are
eligible individuals with coverage under
the employer’s HDHP, the employer is
not required to make comparable contri-
butions to the HSAs of former employees
who are eligible individuals with cover-
age under the employer’s HDHP because
of an election under a COBRA contin-
uation provision (as defined in section
9832(d)(1)).
The proposed regulations also incor-
porate the rule set forth in Q & A–46
of Notice 2004–50, which provides that
the comparability rules will not be satis-
fied if an employer makes HSA contribu-
tions in an amount equal to an employee’s
HSA contribution or a percentage of the
employee’s HSA contribution (matching
contributions) because if all comparable
participating employees do not contribute
the same amount to their HSAs, they will
not receive comparable contributions to
their HSAs. In addition, the comparability
rules will not be satisfied if an employer
conditions contributions to an employee’s
HSA on an employee’s participation in
health assessments, disease management
programs or wellness programs because if
all comparable participating employees do
not elect to participate in all the programs,
they will not receive comparable contribu-
tions to their HSAs. See Q & A–48 of
Notice 2004–50. Similarly, the compara-
bility rules will not be satisfied if an em-
ployer makes additional contributions to
the HSAs of all comparable participating
employees who have attained a specified
age or who have worked for the employer
for a specified number of years, because
if all comparable participating employees
do not meet the age or length of service
requirement, they will not receive com-
parable contributions to their HSAs. See
Q & A–50 of Notice 2004–50.
III.Procedures for Making Comparable
Contributions
The proposed regulations provide that
in determining whether the comparability
rules are satisfied, an employer must take
into account all full-time and part-time em-
ployees who were eligible individuals for
any month during the calendar year. An
employee is an eligible individual if as of
the first day of the month the employee
meets all of the requirements set forth in
section 223(c). An employer may comply
2005–41 I.R.B.698October 11, 2005

with the comparability rules by contribut-
ing amounts at one or more times for the
calendar year to the HSAs of employees
who are eligible individuals, if contribu-
tions are the same amount or the same per-
centage of the HDHP deductible for em-
ployees who are eligible individuals with
the same category of coverage and are
made at the same time (contributions on a
pay-as-you-go basis).
An employer may also satisfy the
comparability rules by determining com-
parable contributions for the calendar year
at the end of the calendar year, taking into
account all employees who were eligible
individuals for any month during the cal-
endar year and contributing the correct
amount (a percentage of the HDHP de-
ductible or a specified dollar amount for
the same categories of coverage) to the
employees’ HSAs by April 15
th
of the fol-
lowing year (contributions on a look-back
basis).
If an employer makes comparable HSA
contributions on a pay-as-you-go basis, it
must do so for each comparable participat-
ing employee who is an employee during
the time period used to make contributions.
Forexample,ifanemployermakesHSA
contributions each pay period, it must do
so for each comparableparticipating em-
ployee who is an employee during the pay
period. If an employer makes compara-
ble contributions on a look-back basis, it
must do so for each employee who was
a comparable participating employee for
any month during the calendar year.
In addition, an employer may make all
of its contributions to the HSAs of employ-
ees who are eligible individuals at the be-
ginning of the calendar year (contributions
on a pre-funded basis). An employer that
makes comparable HSA contributions on a
pre-funded basis will not fail to satisfy the
comparabilityrules because an employee
who terminates employment prior to the
end of the calendar year has received more
HSA contributions on a monthly basis than
employees who worked the entire calendar
year. If an employer makes HSA contribu-
tions on a pre-funded basis, it must do so
for all employees who are comparable par-
ticipating employees at the beginning of
the calendar year. An employer that makes
HSA contributions on a pre-funded basis
must make comparable HSA contributions
for all employees who are comparable par-
ticipating employees for any month dur-
ing the calendar year, including employees
hired after the date of initial funding.
If an employee has not established an
HSA at the time the employer funds its
employee’s HSAs, the employer complies
with the comparability rules by contribut-
ing comparable amounts to the employee’s
HSA when the employee establishes the
HSA, taking into account each month that
the employee was a comparable participat-
ing employee. However, an employer is
not required to make comparable contribu-
tions for a calendar year to an employee’s
HSA if the employee has not established
an HSA by December 31
st
of the calendar
year.
The proposed regulations provide that
if an employer determines that the compa-
rability rules are not satisfied for a calendar
year, the employer may not recoup from
an employee’s HSA any portion of the
employer’s contribution to the employee’s
HSA because under section 223(d)(1)(E),
an account beneficiary’s interest in an
HSA is nonforfeitable. However, an em-
ployer may make additional HSA contri-
butions to satisfy the comparability rules.
An employer may contribute up until April
15
th
following the calendar year in which
the non-comparable contributions were
made. An employer that makes additional
HSA contributions to correct non-compa-
rable contributions must also contribute
reasonable interest.
IV.Exception to the Comparability Rules
for Cafeteria Plans
The legislative history of the Act states
that the comparability rules do not apply
to HSA contributions that an employer
makes through a cafeteria plan. See Conf.
Rep. No. 391, 108
th
Cong., 1
st
Sess.
843 (2003), 2004 U.S.C.C.A.N. 1808.
See also Notice 2004–2, Q & A–32. The
nondiscrimination rules in section 125
of the Code apply to HSA contributions
(including matching contributions) made
through a cafeteria plan. Generally, a cafe-
teria plan is a written plan under which
all participants are employees and partic-
ipants may choose among two or more
benefits consisting of cash and qualified
benefits. Unlike the cafeteria plan nondis-
crimination rules, the comparability rules
arenotbasedupondiscriminationinfavor
of highly compensated or key employees.
Therefore, an employer that maintains an
HDHP only for highly compensated or key
employees and makes HSA contributions
through a cafeteria plan only for those
eligible employees, does not violate the
comparability rules, but may violate the
cafeteria plan nondiscrimination rules.
V.Waiver of Excise Tax
In the case of a failure which is due to
reasonable cause and not to willful neglect,
all or a portion of the excise tax imposed
under section 4980G may be waived to the
extent that the payment of the tax would be
excessive relative to the failure involved.
See sections 4980G(b) and 4980E(c).
Proposed Effective Date
It is proposed that these regulations ap-
ply to employer contributions made on or
after the date the final regulations are pub-
lished in theFederal Register. However,
taxpayers may rely on these regulations for
guidance pending the issuance of final reg-
ulations.
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.
This notice of proposed rulemaking does
not impose a collection of information on
small entities, thus the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Code, these proposed regulations will be
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written comments (a
signed original and eight (8) copies) or
electronic comments that are submitted
timely to the IRS. The Treasury Depart-
ment and the IRS specifically request
comments on the clarity of the proposed
rules and how they can be made easier
October 11, 20056992005–41 I.R.B.

to understand. In addition, comments
are requested on the application of the
comparability rules to employees who
are on leave pursuant to the Family and
Medical Leave Act of 1993, Public Law
103–3, (107 Stat. 6, 1993, 29 U.S.C. 2601
et seq.). Comments are also requested
concerning employer matching HSA con-
tributions made through a cafeteria plan.
Specifically, whether the ratio of an em-
ployer’s matching HSA contributions to
an employee’s salary reduction HSA con-
tributions should be limited, and whether
employer matching contributions exceed-
ing a specific limit should be subject to
the section 4980G comparability rules.
All comments will be available for public
inspection and copying. A public hearing
will be scheduled if requested in writing
by any person that timely submits written
comments.
Drafting Information
The principal author of these proposed
regulations is Barbara E. Pie, Office of
Division Counsel/Associate Chief Coun-
sel (Tax Exempt and Government Enti-
ties), Internal Revenue Service. However,
personnel from other offices of the IRS and
Treasury Department participated in their
development.
*****
Proposed Amendment to the
Regulations
Accordingly, 26 CFR part 54 is pro-
posedtobeamendedasfollows:
PART 54—PENSION EXCISE TAXES
Paragraph 1. The authority citation for
part 54 is amended by adding an entry in
numerical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Sections 54.4980G–0, 54.4980G–1,
54.4980G–2, 54.4980G–3, 54.4980G–4,
and 54.4980G–5 also issued under 26
U.S.C. 4980G. * * *
Paragraph 2. Sections 54.4980G–0,
54.4980G–1, 54.4980G–2, 54.4980G–3,
54.4980G–4, and 54.4980G–5 are added
to read as follows:
§54.4980G–0 Table of contents
This section contains the ques-
tions for §54.4980G–1, §54.4980G–2,
§54.4980G–3,§54.4980G–4,and
§54.4980G–5.
§54.4980G–1 Failure of employer to
make comparable health savings account
contributions.
Q–1. What are the comparability rules
that apply to employer contributions to
Health Savings Accounts (HSAs)?
Q–2. What are the categories of HDHP
coverage for purposes of applying the
comparability rules?
Q–3. What is the testing period for
making comparable contributions to em-
ployees’ HSAs?
Q–4. How is the excise tax computed if
employer contributions do not satisfy the
comparability rulesfor a calendar year?
§54.4980G–2 Employer contribution
defined.
Q–1. Do the comparability rules apply
to amounts rolled over from an employee’s
HSA or Archer Medical Savings Account
(Archer MSA)?
Q–2. If an employee requests that his
or her employer deduct after-tax amounts
from the employee’s compensation and
forward these amounts as employee con-
tributions to the employee’s HSA, do
the comparability rules apply to these
amounts?
§54.4980G–3 Definition of employee for
comparability testing.
Q–1. Do the comparability rules apply
to contributions thatan employer makes to
the HSAs of independent contractors?
Q–2. May a sole proprietor who is
an eligible individual contribute to his or
her own HSA without contributing to the
HSAs of his or her employees who are el-
igible individuals?
Q–3. Do the comparability rules apply
to contributions by a partnership to a part-
ner’s HSA?
Q–4. How are members of controlled
groups treated when applying the compa-
rability rules?
Q–5. What are the categories of em-
ployees for comparability testing?
Q–6. Is an employer permitted to
make comparable contributions only to
the HSAs of comparable participating
employees who have coverage under the
employer’s HDHP?
Q–7. If an employee and his or her
spouse are eligible individuals who work
for the same employer and one employee-
spouse has family coverage for both em-
ployees under the employer’s HDHP, must
the employer make comparable contribu-
tions to the HSAs of both employees?
Q–8. Does an employer that makes
HSA contributions only for non-manage-
ment employees who are eligible individ-
uals, but not for management employees
who are eligible individuals or that makes
HSA contributions only for management
employees who are eligible individuals but
not for non-management employees who
are eligible individuals satisfy the require-
ment that the employer make comparable
contributions?
Q–9. If an employer contributes to the
HSAs of former employees who are eligi-
ble individuals, do the comparability rules
apply to these contributions?
Q–10. Is an employer permitted to
make comparable contributions only to the
HSAs of comparable participating former
employees who have coverage under the
employer’s HDHP?
Q–11. If an employer contributes only
totheHSAsofformeremployeeswho
are eligible individuals with coverage un-
der the employer’s HDHP, must the em-
ployer make comparable contributions to
the HSAs of former employees who are
eligible individuals with coverage under
the employer’s HDHP because of an elec-
tion under a COBRA continuation provi-
sion (as defined in section 9832(d)(1))?
Q–12. How do the comparability rules
apply if some employees have HSAs and
other employees have Archer MSAs?
§54.4980G–4 Calculating comparable
contributions.
Q–1. What are comparable contribu-
tions?
Q–2. How do the comparability rules
apply to employer contributions to em-
ployees’ HSAs if some employees work
full-time during the entire calendar year,
and other employees work full-time for
less than the entire calendar year?
Q–3. How does an employer comply
with the comparability rules when some
employees who are eligible individuals do
not work for the employer during the entire
calendar year?
2005–41 I.R.B.700October 11, 2005

Q–4. May an employer make all of
its contributions to the HSAs of its em-
ployees who are eligible individuals at the
beginning of the calendar year (i.e.,ona
pre-funded basis) instead of contributing
on a pay-as-you-go or on a look-back ba-
sis?
Q–5. Must an employer use the same
contribution method as described in
Q&A–3andQ&A–4ofthissection
for all employees who were comparable
participating employees for any month
during the calendar year?
Q–6. How does an employer com-
ply with the comparability rules if an em-
ployee has not established an HSA at the
time the employer contributes to its em-
ployees’ HSAs?
Q–7. If an employer bases its contri-
butions on a percentage of the HDHP de-
ductible, how is the correct percentage or
dollar amount computed?
Q–8. Does an employer that contributes
to the HSA of each comparable partici-
patingemployeeinanamountequalto
the employee’s HSA contribution or a per-
centage of the employee’s HSA contribu-
tion (matching contributions) satisfy the
rule that all comparable participating em-
ployees receive comparable contributions?
Q–9. If an employer conditions contri-
butions by the employer to an employee’s
HSA on an employee’s participation in
health assessments, disease management
programs or wellness programs and makes
the same contributions available to all em-
ployees who participate in the programs,
do the contributions satisfy the compara-
bility rules?
Q–10. If an employer makes additional
contributions to the HSAs of all compara-
ble participating employees who have at-
tained a specified age or who have worked
for the employer for a specified number of
years, do the contributions satisfy the com-
parability rules?
Q–11. If an employer makes addi-
tional contributions to the HSAs of all
comparable participating employees who
qualify for the additional contributions
(HSA catch-up contributions) under sec-
tion 223(b)(3), do the contributions satisfy
the comparability rules?
Q–12. If an employer’s contributions
to an employee’s HSA result in non-com-
parable contributions, may the employer
recoup the excess amount from the em-
ployee’s HSA?
§54.4980G–5 HSA comparability rules
and cafeteria plans and waiver of excise
tax.
Q–1. If an employer makes contribu-
tions through a section 125 cafeteria plan
to the HSA of each employee who is an el-
igible individual are the contributions sub-
ject to the comparability rules?
Q–2. If an employer makes contribu-
tions through a cafeteria plan to the HSA
of each employee who is an eligible indi-
vidual in an amount equal to the amount of
the employee’s HSA contribution or a per-
centage of the amount of the employee’s
HSA contribution (i.e.,matching contribu-
tions), are the contributions subject to the
section 4980G comparability rules?
Q–3. If an employer provides HDHP
coverage through a cafeteria plan, but the
employer’s HSA contributions are not pro-
vided through the cafeteria plan, do the
cafeteria plan nondiscrimination rules or
the comparability rules apply to the HSA
contributions?
Q–4. If under the employer’s cafete-
ria plan, employees who are eligible indi-
viduals and who participate in health as-
sessments, disease management programs
or wellness programs receive an employer
contribution to an HSA, unless the em-
ployees elect cash, are the contributions
subject to the comparability rules?
Q–5. May all or part of the excise tax
imposed under section 4980G be waived?
§54.4980G–1 Failure of employer to
make comparable health savings account
contributions.
Q–1. What are the comparability rules
that apply to employer contributions to
Health Savings Accounts (HSAs)?
A–1. If an employer makes contri-
butions to any employee’s HSA, the
employer must make comparable con-
tributions to the HSAs of all comparable
participating employees. See Q & A–1
in §54.4980G–4 for the definition of
comparable contributions.Comparable
participating employeesare eligible indi-
viduals (as defined in section 223(c)(1))
who have the same category of high de-
ductible health plan (HDHP) coverage.
See sections 4980G(b) and 4980E(d)(3).
See section 223(c)(2) and (g) for the def-
initionofanHDHP.SeealsoQ&A–5
in §54.4980G–3 for the categories of em-
ployees and Q & A–2 in this section for
the categories of HDHP coverage.
Q–2. What are the categories of HDHP
coverage for purposes of applying the
comparability rules?
A–2. The categories of coverage are
self-only HDHP coverage and family
HDHP coverage. See sections 4980G(b)
and 4980E(d)(3)(B).
Q–3. What is the testing period for
making comparable contributions to em-
ployees’ HSAs?
A–3. To satisfy the comparability
rules, an employer must make comparable
contributions for the calendar year to the
HSAs of employees who are compara-
ble participating employees. See section
4980G(a).
Q–4. How is the excise tax computed if
employer contributions do not satisfy the
comparability rules for a calendar year?
A–4. (a)Computation of tax.Ifem-
ployer contributions do not satisfy the
comparability rules for a calendar year,
the employer is subject to an excise tax
equal to 35% of the aggregate amount
contributed by the employer to HSAs for
that period.
(b)Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–4:
Example.InthisExample, assume that the HDHP
provided by Employer A satisfies the definition of an
HDHP for the 2007 calendar year. During the 2007
calendar year, Employer A has 8 employees who are
eligible individuals with self-only coverage under an
HDHP provided by Employer A. The deductible for
the HDHP is $2,000. For the 2007 calendar year,
Employer A contributes $2,000 each to the HSAs
of two employees and $1,000 each to the HSAs of
the other six employees, for total HSA contributions
of $10,000. Employer A’s contributions do not sat-
isfy the comparability rules. Therefore, Employer
A is subject to an excise tax of $3,500 (i.e., 35% x
$10,000) for its failure to make comparable contribu-
tions to its employees’ HSAs.
§54.4980G–2 Employer contribution
defined.
Q–1. Do the comparability rules apply
to amounts rolled over from an employee’s
HSA or Archer Medical Savings Account
(Archer MSA)?
A–1. No. The comparability rules do
not apply to amounts rolled over from an
employee’s HSA or Archer MSA.
Q–2. If an employee requests that his
or her employer deduct after-tax amounts
from the employee’s compensation and
forward these amounts as employee con-
October 11, 20057012005–41 I.R.B.

tributions to the employee’s HSA, do
the comparability rules apply to these
amounts?
A–2. No. Section 106(d) provides that
amounts contributed by an employer to an
eligible employee’s HSA shall be treated
as employer-provided coverage for medi-
cal expenses and are excludible from the
employee’s gross income up to the limit in
section 223(b). After-tax employee con-
tributions to an HSA are not subject to
the comparability rules because they are
not employer contributions under section
106(d).
§54.4980G–3 Definition of employee for
comparability testing.
Q–1. Do the comparability rules apply
to contributions that an employer makes to
the HSAs of independent contractors?
A–1. No. The comparability rules ap-
ply only to contributions that an employer
makes to the HSAs of employees.
Q–2. May a sole proprietor who is
an eligible individual contribute to his or
her own HSA without contributing to the
HSAs of his or her employees who are el-
igible individuals?
A–2. (a)Sole proprietor not an em-
ployee. Yes. The comparability rules ap-
ply only to contributions made by an em-
ployer to the HSAs of employees. Because
a sole proprietor is not an employee, the
comparability rules donotapplytocon-
tributions he or she makes to his or her
own HSA. However, if a sole proprietor
contributes to any employee’s HSA, he or
she must make comparable contributions
to the HSAs of all comparable participat-
ing employees. In determining whether
the comparability rules are satisfied, con-
tributions that a sole proprietor makes to
his or her own HSA are not taken into ac-
count.
(b)Example. The following example
illustrates the rules in paragraph (a) of this
Q&A–2:
Example. In a calendar year, B, a sole proprietor
is an eligible individual and contributes $1,000 to B’s
own HSA. B also contributes $500 for the same cal-
endar year to the HSA of each employee who is an
eligible individual. The comparability rules are not
violated by B’s $1,000 contribution to B’s own HSA.
Q–3. Do the comparability rules apply
to contributions by a partnership to a part-
ner’s HSA?
A–3. (a)Partner not an employee.No.
Contributions by a partnership to abona
fidepartner’s HSA are not subject to the
comparability rulesbecause the contribu-
tions are not contributions by an employer
to the HSA of an employee. The contribu-
tions are treated as either guaranteed pay-
ments under section 707(c) or distributions
under section 731. However, if a partner-
ship contributes to the HSAs of employ-
ees who are not partners, the comparabil-
ity rules apply to those contributions.
(b)Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–3:
Example. (i) Partnership X is a limited partner-
ship with three equal individual partners, A (a gen-
eral partner), B (a limited partner), and C (a limited
partner). C is to be paid $300 annually for services
rendered to Partnership X in her capacity as a part-
ner without regard to partnership income (a section
707(c) guaranteed payment). D and E are the only
employees of Partnership X and are not partners in
PartnershipX.A,B,C,D,andEareeligibleindividu-
als and each has an HSA. During Partnership X’s Year
1 taxable year, which is also a calendar year, Partner-
ship X makes the following contributions—
(A) A $300 contribution to each of A’s and B’s
HSAs which are treated as section 731 distributions
to A and B;
(B)A$300contributiontoC’sHSAinlieuof
paying C the guaranteed payment directly; and
(C) A $200 contribution to each of D’s and E’s
HSAs, who are comparable participating employees.
(ii) Partnership X’s contributions to A’s and B’s
HSAs are section 731 distributions, which are treated
as cash distributions. Partnership X’s contribution
to C’s HSA is treated as a guaranteed payment un-
der section 707(c). The contribution is not excludible
from C’s gross income under section 106(d) because
the contribution is treated as a distributive share of
partnership income for purposes of all Code sections
other than sections 61(a) and 162(a), and a guaran-
teed payment to a partner is not treated as compensa-
tion to an employee. Thus, Partnership X’s contribu-
tions to the HSAs of A, B, and C are not subject to the
comparability rules. Partnership X’s contributions to
D’s and E’s HSAs are subject to the comparability
rules because D and E are employees of Partnership
X and are not partners in Partnership X. Partnership
X’s contributions satisfy the comparability rules.
Q–4. How are members of controlled
groups treated when applying the compa-
rability rules?
A–4. All persons or entities treated as a
single employer under section 414(b), (c),
(m), or (o) are treated as one employer. See
sections 4980G(b) and 4980E(e).
Q–5. What are the categories of em-
ployees for comparability testing?
A–5. (a)Categories. The categories of
employees for comparability testing are as
follows—
(1) Current full-time employees;
(2) Current part-time employees; and
(3) Former employees (except for for-
mer employees with coverage under the
employer’s HDHP because of an election
under a COBRA continuation provision
(as defined in section 9832(d)(1)).
(b)Part-time and full-time employ-
ees. Part-time employees are customarily
employed for fewer than 30 hours per
week and full-time employees are cus-
tomarily employed for 30 or more hours
per week. See sections 4980G(b) and
4980E(d)(4)(A) and (B).
(c)In general. The categories of em-
ployees in paragraph (a) of this Q & A–5
are the exclusive categories for compa-
rability testing. An employer must make
comparable contributions to the HSAs
of allcomparable participating employ-
ees(eligible individuals who are in the
same category of employees with the
same category of HDHP coverage) during
the calendar year without regard to any
classification other than these categories.
Thus, the comparability rules do not apply
separately to collectively bargained and
non-collectively bargained employees.
Similarly, the comparability rules do not
apply separately to groups of collectively
bargained employees.
Q–6. Is an employer permitted to
make comparable contributions only to
the HSAs of comparable participating
employees who have coverage under the
employer’s HDHP?
A–6. (a)Employer-provided HDHP
coverage. If during a calendar year, an
employer contributes to the HSA of any
employee who is an eligible individual
covered under an HDHP provided by
the employer, the employer is required
to make comparable contributions to the
HSAs of all comparable participating em-
ployees with coverage under any HDHP
provided by the employer. An employer
that contributes only to the HSAs of em-
ployees who are eligible individuals with
coverage under the employer’s HDHP is
not required to make comparable contri-
butions to HSAs of employees who are
eligible individuals but are not covered
under the employer’s HDHP. However,
an employer that contributes to the HSA
of any employee who is an eligible indi-
vidual with coverage under any HDHP, in
addition to the HDHPs provided by the
employer, must make comparable con-
tributions to the HSAs of all comparable
2005–41 I.R.B.702October 11, 2005

participating employees whether or not
covered under the employer’s HDHP.
(b)Examples. The following examples
illustrate the rules in paragraph (a) of this
Q&A–6:
Example 1. In a calendar year, Employer C offers
an HDHP to its full-time employees. Most full-time
employees are covered under Employer C’s HDHP
and Employer C makes comparable contributions
only to these employees’ HSAs. Employee W, a
full-time employee of Employer C and an eligible
individual, is covered under an HDHP provided by
W’s spouse’s employer and not under Employer C’s
HDHP. Employer C is not required to make compa-
rable contributions to W’s HSA.
Example 2. In a calendar year, Employer D does
not offer an HDHP. Several full-time employees, who
are eligible individuals, have HSAs. Employer D
contributes to these employees’ HSAs. Employer D
must make comparable contributions to the HSAs of
all full-time employees who are eligible individuals.
Example 3. In a calendar year, Employer E offers
an HDHP to its full-time employees. Most full-time
employees are covered under Employer E’s HDHP
and Employer E makes comparable contributions
to these employees’ HSAs and also to the HSAs of
full-time employees who are eligible individuals and
who are not covered under Employer E’s HDHP.
Employee H, a full-time employee of Employer E
and a comparable participating employee, is covered
under an HDHP provided by H’s spouse’s employer
and not under Employer E’s HDHP. Employer E
must make comparable contributions to H’s HSA.
Q–7. If an employee and his or her
spouse are eligible individuals who work
for the same employer and one employee-
spouse has family coverage for both em-
ployees under the employer’s HDHP, must
the employer make comparable contribu-
tions to the HSAs of both employees?
A–7. (a)In general. If the employer
makes contributions only to the HSAs of
employees who are eligible individuals
covered under its HDHP, the employer is
not required to contribute to the HSAs of
both employee-spouses. The employer
is required to contribute to the HSA of
the employee-spouse with coverage un-
der the employer’s HDHP, but is not
required to contribute to the HSA of the
employee-spouse covered under the em-
ployer’s HDHP by virtue of his or her
spouse’s coverage. However, if the em-
ployer contributes to the HSA of any em-
ployee who is an eligible individual with
coverage under any HDHP, the employer
must make comparable contributions to
the HSAs of both employee-spouses if
they are both eligible individuals. If an
employer is required to contribute to the
HSAs of both employee-spouses, the
employer is not required to contribute
amounts in excess of the annual contribu-
tion limits in section 223(b).
(b)Examples. The following examples
illustrate the rules in paragraph (a) of this
Q & A–7:
Example 1. In a calendar year, Employer F offers
an HDHP to its full-time employees. Most full-time
employees are covered under Employer F’s HDHP
and Employer F makes comparable contributions
only to these employees’ HSAs. Employee H, a
full-time employee of Employer F and an eligible
individual has family coverage under Employer F’s
HDHP for H and H’s spouse, Employee W, who
is also a full-time employee of Employer F and an
eligible individual. Employer F is required to make
comparable contributions to H’s HSA, but is not
required to make comparable contributions to W’s
HSA.
Example 2. In a calendar year, Employer G offers
an HDHP to its full-time employees. Most full-time
employees are covered under Employer G’s HDHP
and Employer G makes comparable contributions to
these employees’ HSAs and to the HSAs of full-time
employees who are eligible individuals but are not
covered under Employer G’s HDHP. Employee W,
a full-time employee of Employer G and an eligible
individual, has family coverage under Employer G’s
HDHP for W and W’s spouse, Employee H, who is
also a full-time employee of Employer G and an eli-
gible individual. Employer G must make comparable
contributions to W’s HSA and to H’s HSA.
Q–8. Does an employer that makes
HSA contributions only for non-manage-
ment employees who are eligible individ-
uals, but not for management employees
who are eligible individuals or that makes
HSA contributions only for management
employees who are eligible individuals but
not for non-management employees who
are eligible individuals satisfy the require-
ment that the employer make comparable
contributions?
A–8. (a)Management v. non-man-
agement. No. If management employees
and non-management employees are com-
parable participating employees, the com-
parability rules are not satisfied. How-
ever, if non-management employees are
comparable participating employees and
management employees are not compara-
ble participating employees, the compa-
rability rules may be satisfied. But see
Q & A–1 in §54.4980G–5 on contributions
made through a cafeteria plan.
(b)Examples. The following examples
illustrate the rules in paragraph (a) of this
Q & A–8:
Example 1. In a calendar year, Employer H
maintains an HDHP covering all management and
non-management employees. Employer H con-
tributes $1,000 for the calendar year to the HSA of
each non-management employee who is an eligible
individual covered under its HDHP. Employer H
does not contribute to the HSAs of any of its man-
agement employees who are eligible individuals
covered under its HDHP. The comparability rules are
not satisfied.
Example 2. In a calendar year, Employer J main-
tains an HDHP for non-management employees only.
Employer J does not maintain an HDHP for its man-
agement employees. Employer J contributes $1,000
for the calendar year to the HSA of each non-man-
agement employee who is an eligible individual with
coverage under its HDHP. Employer J does not con-
tribute to the HSAs of any of its non-management em-
ployees not covered under its HDHP or to the HSAs
of any of its management employees. The compara-
bility rules are satisfied.
Example 3. In a calendar year, Employer K
maintains an HDHP for management employees
only. Employer K does not maintain an HDHP for
its non-management employees. Employer K con-
tributes $1,000 for the calendar year to the HSA of
each management employee who is an eligible indi-
vidual with coverage under its HDHP. Employer K
does not contribute to the HSAs of any of its manage-
ment employees not covered under its HDHP or to
the HSAs of any of its non-management employees.
The comparability rules are satisfied.
Q–9. If an employer contributes to the
HSAs of former employees who are eligi-
ble individuals, do the comparability rules
apply to these contributions?
A–9. (a)Former employees.Yes.The
comparability rules apply to contributions
an employer makes to former employees’
HSAs. Therefore, if an employer con-
tributes to any former employee’s HSA,
it must make comparable contributions to
the HSAs of all comparable participating
former employees (former employees who
are eligible individuals with the same cat-
egory of HDHP coverage). However, an
employer is not required to make com-
parable contributions to the HSAs of for-
mer employees with coverage under the
employer’s HDHP because of an election
under a COBRA continuation provision
(as defined in section 9832(d)(1)). See
Q & A–5 and Q & A–11 in this section.
The comparability rules apply separately
to former employees because they are a
separate category of covered employee.
See Q & A–5 in this section.
(b)Examples. The following examples
illustrate the rules in paragraph (a) of this
Q & A–9:
Example 1. In a calendar year, Employer L con-
tributes $1,000 for the calendar year to the HSA of
each current employee who is an eligible individual
with coverage under any HDHP. Employer L does
not contribute to the HSA of any former employee
who is an eligible individual. Employer L’s contribu-
tions satisfy the comparability rules.
Example 2. In a calendar year, Employer M con-
tributes to the HSAs of current employees and former
October 11, 20057032005–41 I.R.B.

employees who are eligible individuals covered un-
der any HDHP. Employer M contributes $750 to the
HSA of each current employee with self-only HDHP
coverage and $1,000 to the HSA of each current em-
ployee with family HDHP coverage. Employer M
also contributes $300 to the HSA of each former em-
ployee with self-only HDHP coverage and $400 to
the HSA of each former employee with family HDHP
coverage. Employer M’s contributions satisfy the
comparability rules.
Q–10. Is an employer permitted to
make comparable contributions only to the
HSAs of comparable participating former
employees who have coverage under the
employer’s HDHP?
A–10. If during a calendar year, an
employer contributes to the HSA of any
former employee who is an eligible indi-
vidual covered under an HDHP provided
by the employer, the employer is required
to make comparable contributions to the
HSAs of all former employees who are
comparable participating former employ-
ees with coverage under any HDHP pro-
vided by the employer. An employer that
contributes only to the HSAs of former
employees who are eligible individu-
als with coverage under the employer’s
HDHP is not required to make compara-
ble contributions to the HSAs of former
employees who are eligible individuals
and who are not covered under the em-
ployer’s HDHP. However, an employer
that contributes to the HSA of any former
employee who is an eligible individual
with coverage under any HDHP, even if
that coverage is not the employer’s HDHP,
must make comparable contributions to
the HSAs of all former employees who
are eligible individuals whether or not
covered under an HDHP of the employer.
Q–11. If an employer contributes only
totheHSAsofformeremployeeswho
are eligible individuals with coverage un-
der the employer’s HDHP, must the em-
ployer make comparable contributions to
theHSAsofformeremployeeswhoare
eligible individuals with coverage under
the employer’s HDHP because of an elec-
tion under a COBRA continuation provi-
sion (as defined in section 9832(d)(1))?
A–11. No. An employer that con-
tributes only to the HSAs of former em-
ployees who are eligible individuals with
coverage under the employer’s HDHP is
not required to make comparable contri-
butions to the HSAs of former employees
who are eligible individuals with coverage
under the employer’s HDHP because of an
election under a COBRA continuation pro-
vision (as defined in section 9832(d)(1)).
Q–12. How do the comparability rules
apply if some employees have HSAs and
other employees have Archer MSAs?
A–12. (a)HSAs and Archer MSAs.
The comparability rules apply separately
to employees who have HSAs and employ-
ees who have Archer MSAs. However,
if an employee has both an HSA and an
Archer MSA, the employer may contribute
to either the HSA or the Archer MSA, but
not to both.
(b)Examples. The following examples
illustrate the rules in paragraph (a) of this
Q&A–12:
Example 1. In a calendar year, Employer N con-
tributes $600 to the Archer MSA of each employee
who is an eligible individual and who has an Archer
MSA. Employer N contributes $500 for the calendar
year to the HSA of each employee who is an eligi-
ble individual and who has an HSA. If an employee
hasbothanArcherMSAandanHSA,EmployerN
contributes to the employee’s Archer MSA and not
to the employee’s HSA. Employee X has an Archer
MSA and an HSA. Employer N contributes $600 for
the calendar year to X’s Archer MSA but does not
contribute to X’s HSA. Employer N’s contributions
satisfy the comparability rules.
Example 2. Same facts asExample 1, except that
if an employee has both an Archer MSA and an HSA,
Employer N contributes to the employee’s HSA and
not to the employee’s Archer MSA. Employer N con-
tributes $500 for the calendar year to X’s HSA but
does not contribute to X’s Archer MSA. Employer
N’s contributions satisfy the comparability rules.
§54.4980G–4 Calculating comparable
contributions.
Q–1. What are comparable contribu-
tions?
A–1. (a)Definition. Contributions are
comparable if they are either the same
amount or the same percentage of the de-
ductible under the HDHP for employees
who are eligible individuals with the same
category of coverage. Employees with
self-only HDHP coverage are tested sepa-
rately from employees with family HDHP
coverage. See Q & A–1 and Q & A–2
in §54.4980G–1. An employer is not re-
quired to contribute the same amount or
the same percentage of the deductible for
employees who are eligible individuals
with self-only HDHP coverage that it con-
tributes for employees who are eligible
individuals with family HDHP coverage.
An employer that satisfies the comparabil-
ity rules by contributing the same amount
to the HSAs of all employees who are
eligible individuals with self-only HDHP
coverage is not required to contribute any
amount to the HSAs of employees who
are eligible individuals with family HDHP
coverage, or to contribute the same per-
centage of the family HDHP deductible
as the amount contributed with respect to
self-only HDHP coverage. Similarly, an
employer that satisfies the comparability
rules by contributing the same amount
to the HSAs of all employees who are
eligible individuals with family HDHP
coverage is not required to contribute any
amount to the HSAs of employees who are
eligible individuals with self-only HDHP
coverage, or to contribute the same per-
centage of the self-only HDHP deductible
as the amount contributed with respect to
family HDHP coverage.
(b)Examples. Assume that the HDHPs
inExample 1throughExample 7satisfy
the definition of an HDHP for the 2007
calendar year. The following examples il-
lustrate the rules in paragraph (a) of this
Q & A–1:
Example 1. In the 2007 calendar year, Employer
A offers its full-time employees three health plans,
including an HDHP with self-only coverage and a
$2,000 deductible. Employer A contributes $1,000
for the calendar year to the HSA of each employee
who is an eligible individual electing the self-only
HDHP coverage. Employer A makes no HSA con-
tributions for employees with family HDHP cover-
age or for employees who do not elect the employer’s
self-only HDHP. Employer A’s HSA contributions
satisfy the comparability rules.
Example 2. In the 2007 calendar year, Employer
B offers its employees an HDHP with a $3,000
deductible for self-only coverage and a $4,000
deductible for family coverage. Employer B con-
tributes $1,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the self-only HDHP coverage. Employer B con-
tributes $2,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the family HDHP coverage. Employer B’s HSA
contributions satisfy the comparability rules.
Example 3. In the 2007 calendar year, Employer
C offers its employees an HDHP with a $1,500
deductible for self-only coverage and a $3,000
deductible for family coverage. Employer C con-
tributes $1,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the self-only HDHP coverage. Employer C con-
tributes $1,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the family HDHP coverage. Employer C’s HSA
contributions satisfy the comparability rules.
Example 4. In the 2007 calendar year, Employer
D offers its employees an HDHP with a $1,500
deductible for self-only coverage and a $3,000
deductible for family coverage. Employer D con-
tributes $1,500 for the calendar year to the HSA of
each employee who is an eligible individual electing
2005–41 I.R.B.704October 11, 2005

the self-only HDHP coverage. Employer D con-
tributes $1,000 for the calendar year to the HSA of
each employee who is an eligible individual electing
the family HDHP coverage. Employer D’s HSA
contributions satisfy the comparability rules.
Example 5. (i) In the 2007 calendar year, Em-
ployer E maintains two HDHPs. Plan A has a $2,000
deductible for self-only coverage and a $4,000 de-
ductible for family coverage. Plan B has a $2,500
deductible for self-only coverage and a $4,500 de-
ductible for family coverage. For the calendar year,
Employer E makes contributions to the HSA of each
full-time employee who is an eligible individual cov-
ered under Plan A of $600 for self-only coverage and
$1,000 for family coverage. Employer E satisfies the
comparability rules, if it makes either of the following
contributions for the 2007 calendar year to the HSA
of each full-time employee who is an eligible individ-
ual covered under Plan B—
(A) $600 for each full-time employee with
self-only coverage and $1,000 for each full-time
employee with family coverage; or
(B) $750 for each employee with self-only cover-
age and $1,125 for each employee with family cover-
age (the same percentage of the deductible Employer
E contributes for full-time employees covered under
Plan A, 30% of the deductible for self-only coverage
and 25% of the deductible for family coverage).
(ii) Employer E also makes contributions to the
HSA of each part-time employee who is an eligible
individual covered under Plan A of $300 for self-only
coverage and $500 for family coverage. Employer
E satisfies the comparability rules, if it makes either
of the following contributions for the 2007 calendar
year to the HSA of each part-time employee who is
an eligible individual covered under Plan B—
(A) $300 for each part-time employee with self-
only coverage and $500 for each part-time employee
with family coverage; or
(B) $375 for each part-time employee with self-
only coverage and $563 for each part-time employee
with family coverage (the same percentage of the de-
ductible Employer E contributes for part-time em-
ployees covered under Plan A, 15% of the deductible
for self-only coverage and 12.5% of the deductible
for family coverage).
Example 6. (i) In the 2007 calendar year, Em-
ployer F maintains an HDHP. The HDHP has a
$2,500 deductible for self-only coverage, and the
following family coverage options—
(A) A $3,500 deductible for self plus one depen-
dent;
(B) A $3,500 deductible for self plus spouse;
(C) A $3,500 deductible for self plus two or more
dependents;
(D) A $3,500 deductible for self plus spouse and
one dependent; and
(E) A $3,500 deductible for self plus spouse and
two or more dependents.
(ii) Employer F makes the following contribu-
tions for the calendar year to the HSA of each full-
time employee who is an eligible individual covered
under the HDHP—
(A) $750 for self-only coverage;
(B) $1,000 for self plus one dependent;
(C) $1,000 for self plus spouse;
(D) $1,000 for self plus two or more dependents;
(E) $1,000 for self plus spouse and one depen-
dent; and
(F) $1,000 for self plus spouse and two or more
dependents.
(iii) Employer F’s HSA contributions satisfy the
comparability rules.
Example 7. (i) In the 2007 calendar year, Em-
ployer G maintains an HDHP. The HDHP has a
$1,800 deductible for self-only coverage and the
following family coverage options—
(A) A $3,500 deductible for self plus one depen-
dent;
(B) A $3,800 deductible for self plus spouse;
(C) A $4,000 deductible for self plus two or more
dependents;
(D) A $4,500 deductible for self plus spouse and
one dependent; and
(E) A $5,000 deductible for self plus spouse and
two or more dependents.
(ii) Employer G makes the following contribu-
tions for the calendar year to the HSA of each full-
time employee who is an eligible individual covered
under the HDHP—
(A) $360 for self-only coverage;
(B) $875 for self plus one dependent;
(C) $950 for self plus spouse;
(D) $1,000 for self plus two or more dependents;
(E) $1,125 for self plus spouse and one depen-
dent; and
(F) $1,250 for self plus spouse and two or more
dependents.
(iii) Employer G’s HSA contributions satisfy the
comparability rules because Employer G has made
contributions that are the same percentage of the de-
ductible for eligible employees with the same cate-
gory of coverage (20% of the deductible for eligible
employees with self-only coverage and 25% of the
deductible for eligible employees with family cover-
age). Employer G could also satisfy the comparabil-
ity rules by contributing the same dollar amount for
each category of coverage.
Example 8. In a calendar year, Employer H offers
its employees an HDHP and a health flexible spend-
ing arrangement (health FSA). The health FSA reim-
burses employees for medical expenses as defined in
section 213(d). Some of Employer H’s employees
have coverage under the HDHP and the health FSA.
For the calendar year, Employer H contributes $500
to the HSA of each employee who is an eligible in-
dividual, but does not contribute to the HSAs of em-
ployees who have coverage under the health FSA or
under a spouse’s health FSA. In addition, some of
Employer H’s employees have coverage under the
HDHP and are enrolled in Medicare. Employer H
does not contribute to the HSAs of employees who
are enrolled in Medicare. The employees who have
coverage under the health FSA or under a spouse’s
health FSA are not comparable participating employ-
ees because they are not eligible individuals under
section 223(c)(1). Similarly, the employees who are
enrolled in Medicare are not comparable participat-
ing employees because they are not eligible individ-
uals under section 223(b)(7) and (c)(1). Therefore,
employees who have coverage under the health FSA
or under a spouse’s health FSA and employees who
are enrolled in Medicare are excluded from compa-
rability testing. See sections 4980G(b) and 4980E.
Employer H’s contributions satisfy the comparability
rules.
Q–2. How do the comparability rules
apply to employer contributions to em-
ployees’ HSAs if some employees work
full-time during the entire calendar year,
and other employees work full-time for
less than the entire calendar year?
A–2. Employer contributions to the
HSAs of employees who work full-time
for less than twelve months satisfy the
comparability rules if the contribution
amount is comparable when determined
on a month-to-month basis. For exam-
ple, if the employer contributes $240 to
the HSA of each full-time employee who
works the entire calendar year, the em-
ployer must contribute $60 to the HSA
of a full-time employee who works three
months of the calendar year. The rules set
forth in this Q & A–2 apply to employer
contributions made on a pay-as-you-go
basis or on a look-back basis as described
in Q & A–3 in this section. See sections
4980G(b) and 4980E(d)(2)(B).
Q–3. How does an employer comply
with the comparability rules when some
employees who are eligible individuals do
not work for the employer during the entire
calendar year?
A–3. (a)In general. In determin-
ing whether the comparability rules are
satisfied, an employer must take into ac-
count all full-time and part-time employ-
ees who were employees and eligible in-
dividuals for any month during the calen-
dar year. (Full-time and part-time employ-
ees are tested separately. See Q & A–5 in
§54.4980G–3.) There are two methods to
comply with the comparability rules when
some employees who are eligible individ-
uals do not work for the employer during
the entire calendar year; contributions may
be made on a pay-as-you-go basis or on
a look-back basis. See Q & A–9 through
Q & A–11 in §54.4980G–3 for the rules
regarding comparable contributions to the
HSAs of former employees.
(b)Contributions on a pay-as-you-go
basis. An employer may comply with
the comparability rules by contributing
amounts at one or more times for the
calendar year to the HSAs of employees
who are eligible individuals, if contribu-
tions are the same amount or the same
percentage of the HDHP deductible for
employees who are eligible individuals as
of the first day of the month with the same
category of coverage and are made at the
same time. Contributions made at the em-
ployer’s usual payroll interval for different
groups of employees are considered to be
October 11, 20057052005–41 I.R.B.

made at the same time. For example, if
salaried employees are paid monthly and
hourly employees are paid bi-weekly, an
employer may contribute to the HSAs of
hourly employees on a bi-weekly basis
and to the HSAs of salaried employees on
a monthly basis. An employer may change
theamountthatitcontributestotheHSAs
of employees at any point. However, the
changed contribution amounts must sat-
isfy the comparability rules.
(c)Examples. The following examples
illustrate the rules in paragraph (b) of this
Q&A–3:
Example 1. (i) Beginning on January 1
st
,Em-
ployer J contributes $50 per month on the first day of
each month to the HSA of each employee who is an
eligible individual. Employer J does not contribute
to the HSAs of former employees. In mid-March of
the same year, Employee X, an eligible individual,
terminates employment after Employer J has con-
tributed $150 to X’s HSA. After X terminates em-
ployment, Employer J does not contribute additional
amounts to X’s HSA. In mid-April of the same year,
Employer J hires Employee Y, an eligible individual,
and contributes $50 to Y’s HSA in May and $50 in
June. Effective in July of the same year, Employer J
stops contributing to the HSAs of all employees and
makes no contributions to the HSA of any employee
for the months of July through December. In August,
Employer J hires Employee Z, an eligible individual.
Employer J does not contribute to Z’s HSA. After Z
is hired, Employer J does not hire additional employ-
ees. As of the end of the calendar year, Employer J
has made the following HSA contributions to its em-
ployees’ HSAs—
(A) Employer J contributed $150 to X’s HSA;
(B) Employer J contributed $100 to Y’s HSA;
(C) Employer J did not contribute to Z’s HSA;
and
(D) Employer J contributed $300 to the HSA of
each employee who was an eligible individual and
employed by Employer J from January through June.
(ii) Employer J’s contributions satisfy the compa-
rability rules.
Example 2. In a calendar year, Employer K of-
fers its employees an HDHP and contributes on a
monthly pay-as-you-go basis to the HSAs of employ-
ees who are eligible individuals with coverage under
Employer K’s HDHP. In the calendar year, Employer
K contributes $50 per month to the HSA of each of
employee with self-only HDHP coverage and $100
per month to the HSA of each employee with family
HDHP coverage. From January 1
st
through March
30
th
of the calendar year, Employee X is an eligi-
ble individual with self-only HDHP coverage. From
April 1
st
through December 30
th
of the calendar year,
X is an eligible individual with family HDHP cover-
age. For the months of January, February and March
of the calendar year, Employer K contributes $50
per month to X’s HSA. For the remaining months of
the calendar year, Employer K contributes $100 per
month to X’s HSA. Employer K’s contributions to
X’s HSA satisfy the comparability rules.
(d)Contributions on a look-back ba-
sis. An employer may also satisfy the
comparability rulesby determining com-
parable contributions for the calendar year
at the end of the calendar year, taking
into account all employees who were eli-
gible individuals for any month during the
calendar year and contributing the correct
amount (a percentage of the HDHP de-
ductible or a specified dollar amount for
the same categories of coverage) to the em-
ployees’ HSAs.
(e)Example. The following example
illustrates the rules in paragraph (d) of this
Q & A–3:
Example. In a calendar year, Employer L of-
fers its employees an HDHP and contributes on a
look-back basis to the HSAs of employees who are el-
igible individuals with coverage under Employer L’s
HDHP. Employer L contributes $600 (i.e.$50 per
month) for the calendar year to the HSA of each of
employee with self-only HDHP coverage and $1,200
(i.e., $100 per month) for the calendar year to the
HSA of each employee with family HDHP coverage.
From January 1
st
through June 30
th
of the calendar
year, Employee Y is an eligible individual with fam-
ily HDHP coverage. From July 1
st
through December
31, Y is an eligible individual with self-only HDHP
coverage. Employer L contributes $900 on a look-
back basis for the calendar year to Y’s HSA ($100
per month for the months of January through June and
$50 per month for the months of July through Decem-
ber). Employer L’s contributions to Y’s HSA satisfy
the comparability rules.
Q–4. May an employer make all of
its contributions to the HSAs of its em-
ployees who are eligible individuals at the
beginning of the calendar year (i.e.,ona
pre-funded basis) instead of contributing
on a pay-as-you-go or on a look-back ba-
sis?
A–4. (a)Contributions on a pre-funded
basis. Yes. An employer may make all
of its contributions to the HSAs of its em-
ployees who are eligible individuals at the
beginning of the calendar year. An em-
ployer that pre-fundsthe HSAs of its em-
ployees will not fail to satisfy the compara-
bility rules because an employee who ter-
minates employment prior to the end of
the calendar year has received more con-
tributions on a monthly basis than em-
ployees who have worked the entire cal-
endar year. See Q & A–12 in this sec-
tion. Under section 223(d)(1)(E), an ac-
count beneficiary’s interest in an HSA is
nonforfeitable. An employer must make
comparable contributions for all employ-
ees who are comparable participating em-
ployees for any month during the calen-
dar year, including employees who are el-
igible individuals hired after the date of
initial funding. An employer that makes
HSA contributions on a pre-funded basis
may also contribute on a pre-funded basis
to the HSAs of employees who are eligi-
ble individuals hired after the date of initial
funding. Alternatively, an employer that
has pre-funded the HSAs of comparable
participating employees may contribute to
the HSAs of employees who are eligible
individuals hired after the date of initial
funding on a pay-as-you-go basis or on a
look-back basis. An employer that makes
HSA contributions on a pre-funded basis
must use the same contribution method for
all employees who are eligible individuals
hired after the date of initial funding.
(b)Example. The following example
illustrates the rules in paragraph (a) of this
Q & A–4:
Example. (i) On January 1, Employer M con-
tributes $1,200 for the calendar year on a pre-funded
basis to the HSA of each of employee who is an el-
igible individual. In mid-May, Employer M hires
Employee B, an eligible individual. Therefore, Em-
ployer M is required to make comparable contribu-
tions to B’s HSA beginning in June. Employer M
satisfies the comparability rules with respect to con-
tributions to B’s HSA if it makes HSA contributions
in any one of the following ways—
(A) Pre-funding B’s HSA by contributing $700 to
B’s HSA;
(B) Contributing $100 per month on a pay-as-
you-go basis to B’s HSA; or
(C) Contributing to B’s HSA at the end of the
calendar year taking into account each month that B
was an eligible individual and employed by Employer
M.
(ii) If Employer M hires additional employees
who are eligible individuals after initial funding, it
must use the same contribution method for these em-
ployees that it used to contribute to B’s HSA.
Q–5. Must an employer use the same
contribution method as described in
Q&A–3andQ&A–4ofthissection
for all employees who were comparable
participating employees for any month
during the calendar year?
A–5. Yes. If an employer makes com-
parable HSA contributions on a pay-as-
you-go basis, it must do so for each em-
ployee who is a comparable participating
employee during the pay period. If an em-
ployer makes comparable contributions on
a look-back basis, it must do so for each
employee who was a comparable partici-
pating employee for any month during the
calendar year. If an employer makes HSA
contributions on a pre-funded basis, it must
do so for all employees who are compara-
ble participating employees at the begin-
ning of the calendar year. An employer
that contributes on a pre-funded basis must
2005–41 I.R.B.706October 11, 2005

make comparable HSA contributions for
all employees who are comparable partici-
pating employees for any month during the
calendar year, including employees who
are eligible individuals hired after the date
of initial funding. See Q & A–4 in this sec-
tion for rules regarding contributions for
employees hired after initial funding.
Q–6. How does an employer com-
ply with the comparability rules if an em-
ployee has not established an HSA at the
time the employer contributes to its em-
ployees’ HSAs?
A–6. (a)Employee has not established
an HSA. If an employee has not established
an HSA at the time the employer funds its
employees’ HSAs, the employer complies
with the comparability rules by contribut-
ing comparable amounts to the employee’s
HSA when the employee establishes the
HSA, taking into account each month that
the employee was a comparable participat-
ing employee. However, an employer is
not required to make comparable contribu-
tions for a calendar year to an employee’s
HSA if the employee has not established
an HSA by December 31
st
of the calendar
year.
(b)Example. The following example
illustrates the rules in paragraph (a) of this
Q&A–6:
Example. Beginning on January 1
st
, Employer
N contributes $500 per calendar year on a pay-as-
you-go basis to the HSA of each employee who is
an eligible individual. Employee C is an eligible
individual during the entire calendar year but does
not establish an HSA until March. Notwithstanding
C’s delay in establishing an HSA, Employer N must
make up the missed HSA contributions for January
and February by April 15
th
of the following calendar
year.
Q–7. If an employer bases its contri-
butions on a percentage of the HDHP de-
ductible, how is the correct percentage or
dollar amount computed?
A–7. (a)Computing HSA contribu-
tions. The correct percentage is deter-
minedbyroundingtothenearest1/100
th
of a percentage point and the dollar amount
is determined by rounding to the nearest
whole dollar.
(b)Example. The following example
illustrates the rules in paragraph (a) of this
Q&A–7:
Example. In thisExample, assume that the HDHP
provided by Employer P satisfies the definition of an
HDHP for the 2007 calendar year. In the 2007 cal-
endar year, Employer P maintains two HDHPs. Plan
A has a deductible of $3,000 for self-only coverage.
Employer P contributes $1,000 for the calendar year
to the HSA of each employee covered under Plan A.
Plan B has a deductible of $3,500 for self-only cov-
erage. Employer P satisfies the comparability rules
if it makes either of the following contributions for
the 2007 calendar year to the HSA of each employee
who is an eligible individual with self-only coverage
under Plan B—
(i) $1,000; or
(ii) $1,167 (33.33% of the deductible rounded to
the nearest whole dollar amount).
Q–8. Does an employer that contributes
to the HSA of each comparable partici-
pating employee in an amount equal to
the employee’s HSA contribution or a per-
centage of the employee’s HSA contribu-
tion (matching contributions) satisfy the
rule that all comparable participating em-
ployees receive comparable contributions?
A–8. No. If all comparable participat-
ing employees do not contribute the same
amount to their HSAs and, consequently,
do not receive comparable contributions
to their HSAs, the comparability rules are
not satisfied, notwithstanding that the em-
ployer offers to make available the same
contribution amountto each comparable
participating employee. But see Q & A–1
in §54.4980G–5 on contributions to HSAs
made through a cafeteria plan.
Q–9. If an employer conditions contri-
butions by the employer to an employee’s
HSA on an employee’s participation in
health assessments, disease management
programs or wellness programs and makes
the same contributions available to all em-
ployees who participate in the programs,
do the contributions satisfy the compara-
bility rules?
A–9. No. If all comparable participat-
ing employees do not elect to participate
in all the programs and consequently, all
comparable participating employees do
not receive comparable contributions to
their HSAs, the employer contributions
fail to satisfy the comparability rules. But
see Q & A–1 in §54.4980G–5 on contri-
butions made to HSAs through a cafeteria
plan.
Q–10. If an employer makes additional
contributions to the HSAs of all compara-
ble participating employees who have at-
tained a specified age or who have worked
for the employer for a specified number of
years, do the contributions satisfy the com-
parability rules?
A–10. No. If all comparable partici-
pating employees do not meet the age or
length of service requirement, all compara-
ble participating employees do not receive
comparable contributions to their HSAs
and the employer contributions fail to sat-
isfy the comparability rules.
Q–11. If an employer makes addi-
tional contributions to the HSAs of all
comparable participating employees who
qualify for the additional contributions
(HSA catch-up contributions) under sec-
tion 223(b)(3), do the contributions satisfy
the comparability rules?
A–11. No. If all comparable partic-
ipating employees do not qualify for the
additional HSA contributions under sec-
tion 223(b)(3), all comparable participat-
ing employees do not receive comparable
contributions to their HSAs, and the em-
ployer contributions fail to satisfy the com-
parability rules.
Q–12. If an employer’s contributions
to an employee’s HSA result in non-com-
parable contributions, may the employer
recoup the excess amount from the em-
ployee’s HSA?
A–12. No. An employer may not
recoup from an employee’s HSA any
portion of the employer’s contribution
to the employee’s HSA. Under section
223(d)(1)(E), an account beneficiary’s in-
terest in an HSA is nonforfeitable. How-
ever, an employer may make additional
HSA contributions to satisfy the compara-
bility rules. An employer may contribute
up until April 15
th
following the calen-
dar year in which thenon-comparable
contributions were made. An employer
that makes additional HSA contributions
to correct non-comparable contributions
must also contribute reasonable interest.
However, an employer is not required to
contribute amounts in excess of the annual
contribution limits in section 223(b).
§54.4980G–5 HSA comparability rules
and cafeteria plans and waiver of excise
tax.
Q–1. If an employer makes contribu-
tions through a section 125 cafeteria plan
to the HSA of each employee who is an eli-
gible individual, are the contributions sub-
ject to the comparability rules?
A–1. No. The comparability rules do
not apply to HSA contributions that an em-
ployer makes through a section 125 cafe-
teria plan. However, contributions to an
HSA made under a cafeteria plan are sub-
ject to the section 125 nondiscrimination
rules (eligibility rules, contributions and
October 11, 20057072005–41 I.R.B.

benefits tests and key employee concen-
tration tests). See section 125(b), (c) and
(g) and Prop. Treas. Reg. §1.125–1,
Q & A–19, (49 FR 19321).
Q–2. If an employer makes contribu-
tions through a cafeteria plan to the HSA
of each employee who is an eligible indi-
vidual in an amount equal to the amount of
the employee’s HSA contribution or a per-
centage of the amount of the employee’s
HSA contribution (i.e.,matching contribu-
tions), are the contributions subject to the
section 4980G comparability rules?
A–2. No. The comparability rules do
not apply to HSA contributions that an em-
ployer makes through a section 125 cafe-
teria plan. Thus, where matching contri-
butions are made by an employer through
a cafeteria plan, thecontributions are not
subject to the comparability rules of sec-
tion 4980G. However, contributions, in-
cluding matching contributions, to an HSA
made under a cafeteria plan are subject
to the section 125 nondiscrimination rules
(eligibility rules, contributions and bene-
fits tests and key employee concentration
tests). See Q & A–1 in this section.
Q–3. If an employer provides HDHP
coverage through a cafeteria plan, but the
employer’s HSA contributions are not pro-
vided through the cafeteria plan, do the
cafeteria plan nondiscrimination rules or
the comparability rules apply to the HSA
contributions?
A–3. (a)HDHP provided through cafe-
teria plan. The comparability rules in sec-
tion 4980G apply to the HSA contribu-
tions. The cafeteriaplan nondiscrimina-
tion rules apply only to HSA contributions
made through a cafeteria plan irrespective
of whether the HDHP is provided through
a cafeteria plan.
(b)Example. The following example
illustrates the rules in paragraph (a) of this
Q&A–3:
Example. Employer A provides HDHP coverage
through its cafeteria plan. Employer A automatically
contributes to the HSA of each employee who is an
eligible individual with HDHP coverage through the
cafeteria plan. Employees make no election with re-
spect to Employer A’s HSA contributions and have no
right to receive cash or other taxable benefits in lieu of
the HSA contributions. Employer A contributes only
to the HSAs of employees who have elected HDHP
coverage through the cafeteria plan. The compara-
bility rules apply to Employer A’s HSA contributions
because the HSA contributions are not made through
the cafeteria plan.
Q–4. If under the employer’s cafete-
ria plan, employees who are eligible indi-
viduals and who participate in health as-
sessments, disease management programs
or wellness programs receive an employer
contribution to an HSA, unless the em-
ployees elect cash, are the contributions
subject to the comparability rules?
A–4. No. The comparability rules do
not apply to employer contributions to an
HSA made through a cafeteria plan. See
Q&A–1inthissection.
Q–5. May all or part of the excise tax
imposed under section 4980G be waived?
A–5. In the case of a failure which is
due to reasonable cause and not to will-
ful neglect, all or a portion of the excise
tax imposed under section 4980G may be
waived to the extent that the payment of
the tax would be excessive relative to the
failure involved. See sections 4980G(b)
and 4980E(c).
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 25,
2005, 8:45 a.m., and published in the issue of the Federal
Register for August 26, 2005, 70 F.R. 50233)
Notice of Proposed
Rulemaking
Application of the Federal
Insurance Contributions Act
to Payments Made for Certain
Services
REG–104143–05
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains
proposed amendments to regulations re-
lating to payments made for service not
in the course of the employer’s trade
or business, for domestic service in a
private home of the employer, for agri-
cultural labor, and for service performed
as a home worker within the meaning
of section 3121(d)(3)(C) of the Internal
Revenue Code (Code). These proposed
amendments would provide guidance con-
cerning the application of the Federal
Insurance Contributions Act (FICA) to
these payments. These proposed amend-
ments would affect employers that make
these payments and employees that re-
ceive these payments. These proposed
amendments would provide guidance to
assist these taxpayers in complying with
the law.
DATES: Written or electronic comments
and requests for a public hearing must be
received by November 25, 2005.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–104143–05), room
5203, Internal Revenue Service, POB
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may be
hand delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to: CC:PA:LPD:PR (REG–104143–05),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Wash-
ington, DC, or sent electronically, via
the IRS Internet site atwww.irs.gov/regs
or via the Federal eRulemaking Por-
tal athttp://www.regulations.gov/(IRS
REG–104143–05).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, please contact Paul Carlino
of the Office of Division Counsel/As-
sociate Chief Counsel (Tax Exempt and
Government Entities), (202) 622–0047;
concerning submissions of comments or
to request a public hearing, please contact
LaNita Van Dyke, (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Employment Tax Reg-
ulations (26 CFR part 31) under sections
3102, 3121(a), 3121(a)(7), 3121(a)(8),
3121(a)(10), and 3121(i) of the Code.
The Federal Insurance Contributions Act
(FICA) generally imposes tax on each em-
ployer and employee. Under section 3111,
FICA tax is imposed on the employer in
an amount equal to a percentage of the
wages paid by that employer. Under sec-
tion 3101, FICA tax is also imposed on the
employee in an amount equal to a percent-
age of the wages received by the employee
with respect to employment. Section 3102
requires the employer to collect the tax im-
posed under section 3101 by deducting and
2005–41 I.R.B.708October 11, 2005

withholding the amount of the tax from the
wages as and when paid. Section 3121(a)
defines wages for FICA tax purposes as
all remuneration for employment unless
otherwise excepted. Sections 3121(a)(7)
(relating to domestic service in a private
home of the employer and to service not in
the course of the employer’s trade or busi-
ness), 3121(a)(8) (relating to agricultural
labor) and 3121(a)(10) (relating to service
performed as a home worker within the
meaning of section 3121(d)(3)(C)) pro-
vide exceptions to the definition of wages
for FICA tax purposes. Section 3121(i)(1)
provides that in the case of domestic ser-
vice described in section 3121(a)(7)(B),
any payment of cash remuneration for
such service which is more or less than
a whole-dollar amount, to the extent pre-
scribed by regulations, may be computed
to the nearest dollar.
Section 3102(a) provides that an em-
ployer may deduct an amount equivalent
to the FICA tax imposed by section 3101
from any payment of cash remunera-
tion to which sections 3121(a)(7)(B),
3121(a)(7)(C),3121(a)(8)(B)and
3121(a)(10) apply, even though at the
time of payment the total amount of such
remuneration paid to the employee by the
employer in the calendar year is less than
the dollar threshold amount used to deter-
mine whether the remuneration is wages
for FICA tax purposes. An employer that
chooses to withhold FICA taxes imposed
by section 3101 prior to reaching the dol-
lar threshold amount used to determine
whether the remuneration is wages for
FICA tax purposes must repay the em-
ployee the withheld amount if the dollar
threshold is not met in the calendar year. If
the withheld amount has been deposited,
the employer must repay or reimburse the
employee the withheld amount in accor-
dance with the rules under §31.6413(a)–1
of the regulations.
Changes to sections 3102(a) and
3121(a)(7)(B) were made by section
2(a)(1) of the Social Security Domes-
tic Employment Reform Act of 1994,
(SSDERA), Public Law 103–387 (108
Stat. 4071). The SSDERA also added sec-
tion 3121(x). Changes to section 3102(a)
were made by section 424(b) of the Social
Security Protection Act of 2004 (SSPA),
Public Law 108–203 (118 Stat. 493,
536). Changes to section 3121(a)(8)(B)
were made by section 8017(b) of the
Technical and Miscellaneous Revenue
Act of 1988 (the 1988 Act), Public Law
100–647 (102 Stat. 3342, 3793) and sec-
tion 9002(b) of the Omnibus Budget Rec-
onciliation Act of 1987 (the 1987 Act),
Public Law 100–203 (101 Stat. 1330,
1330–287). Changes to sections 3102(a),
3121(a)(7)(C) and 3121(a)(10) were made
by sections 355(a) and 356(a) of the So-
cial Security Amendments of 1977 (the
1977 Act), Public Law 95–216 (91 Stat.
1509, 1555). These statutory changes
are not reflected in the existing regu-
lations of §§31.3102–1, 31.3121(a)–2,
31.3121(a)(7)–1,31.3121(a)(8)–1,
31.3121(a)(10)–1, and 31.3121(i)–1.
These proposed regulations would amend
these existing regulations to reflect the
statutory changes.
Domestic Service in a Private Home of
the Employer
Section 3121(a)(7)(B) provides an ex-
clusion from wages for FICA tax purposes
of certain cash remuneration paid by an
employer to an employee for domestic
service in a private home of the em-
ployer. The SSDERA amended the dollar
threshold amount and time period used
to determine the exclusion under section
3121(a)(7)(B). The SSDERA also added
section 3121(x).
PriortoSSDERA,section
3121(a)(7)(B) provided that cash re-
muneration paid by an employer in any
calendar quarter to an employee for
domestic service in a private home of the
employer was excluded from wages for
FICA tax purposes if the cash remunera-
tion paid in such quarter by the employer
to the employee for such service was
less than $50. The SSDERA amended
section 3121(a)(7)(B)to provide that cash
remunerationpaidbyanemployerinany
calendar year to an employee for domestic
service in a private home of the employer
is excluded from wages for FICA tax
purposes if the cash remuneration paid
in such year by the employer to the
employee for such service is less than the
applicable dollar threshold (as defined in
section 3121(x)) for such year. SSDERA
is effective for cash remuneration paid
after December 31, 1993.
The applicable dollar threshold (as
defined in section 3121(x)) is $1,000
for calendar year 1995. The applica-
ble dollar threshold is adjusted annually
under the formula described in section
215(a)(1)(B)(ii) of the Social Security
Act, Public Law 74–271 (49 Stat. 620).
Under section 3121(x), if any amount as
adjusted under section 215(a)(1)(B)(ii) is
not a multiple of $100, such amount is
rounded to the next lowest multiple of
$100. For calendar year 2005, the appli-
cable dollar threshold is $1,400.
Section 3121(i)(1) provides that in the
case of domestic service described in sec-
tion 3121(a)(7)(B), any payment of cash
remuneration for such service which is
more or less than a whole-dollar amount,
to the extent prescribed by regulations,
may be computed to the nearest dollar.
The amendment to section 3121(a)(7)(B)
made by the SSDERA requires changes to
the regulations under §31.3121(i)–1.
Agricultural Labor
Section 3121(a)(8)(B) provides an
exclusion from wages for FICA tax pur-
poses of certain cash remuneration paid
by an employer in any calendar year to
an employee for agricultural labor. The
1987 Act and 1988 Act amended section
3121(a)(8)(B) to change the test for deter-
mining whether cash remuneration paid
by an employer to an employee for such
service is wages for FICA tax purposes.
Prior to the 1987 Act, section
3121(a)(8)(B) provided that cash remuner-
ation paid by an employer in any calendar
year to an employee for agricultural labor
was excluded from wages for FICA tax
purposes unless thecash remuneration was
$150 or more, or the employee performed
agricultural labor for the employer on 20
or more days during such year for cash re-
muneration computed on a time basis. The
1987 Act amended section 3121(a)(8)(B)
to provide that cash remuneration paid by
an employer in any calendar year to an em-
ployee for agricultural labor is excluded
from wages for FICA tax purposes unless
the cash remuneration paid in such year
by the employer to the employee for such
labor is $150 or more, or the employer’s
expenditures for agricultural labor in such
year equals or exceeds $2,500.
The 1988 Act added language to
3121(a)(8)(B) to provide that the test
of whether the employer’s expenditures
for agricultural labor in any calendar year
equal or exceed $2,500 has no effect in de-
October 11, 20057092005–41 I.R.B.

termining whether remuneration paid to an
employee in such year constitutes wages
under this section if such employee 1) is
employed in agriculture as a hand-harvest
laborer and is paid on a piece rate basis
in an operation which has been, and is
customarily and generally recognized as
having been, paid on a piece rate basis in
the region of employment, 2) commutes
daily from his permanent residence to the
farm on which he is employed, and 3) has
been employed in agriculture less than 13
weeks during the preceding calendar year.
Nonetheless, amounts paid to these sea-
sonal workers count towards the $2,500
test when applying section 3121(a)(8)(B)
to other agricultural workers. The 1987
and 1988 Acts are effective for cash remu-
neration paid after December 31, 1987.
Home Workers
Section 3121(a)(10) provides an exclu-
sion from wages for FICA tax purposes
of certain cash remuneration paid by an
employer to an employee for service de-
scribed in section 3121(d)(3)(C) (relating
to home workers). The 1977 Act amended
the dollar threshold amount and time pe-
riod used to determine the exclusion under
section 3121(a)(10).
Prior to the 1977 Act, section
3121(a)(10) provided that cash remunera-
tion paid by an employer in any calendar
quartertoanemployeeforservicede-
scribed in 3121(d)(3)(C) (relating to home
workers) was excluded from wages for
FICA tax purposes if the cash remunera-
tion paid in such quarter by the employer
totheemployeeforsuchservicewasless
than $50. The 1977 Act amended section
3121(a)(10) to provide that remuneration
paid by an employer in any calendar year
to an employee for service described in
section 3121(d)(3)(C) (relating to home
workers) is excluded from wages for FICA
tax purposes if the cash remuneration paid
in such year by the employer to the em-
ployee for such service is less than $100.
The 1977 Act is effective for cash remu-
neration paid after December 31, 1977.
ServiceNotintheCourseofthe
Employer’s Trade or Business
Section 3121(a)(7)(C) provides an ex-
clusion from wages for FICA tax purposes
of certain cash remuneration paid by an
employer to an employee for service not
in the course of the employer’s trade or
business. The 1977 Act amended the dol-
lar threshold amount and time period used
to determine the exclusion under section
3121(a)(7)(C).
Prior to the 1977 Act, section
3121(a)(7)(C) provided that cash remuner-
ation paid by an employer in any calendar
quarter to an employee for service not
in the course of the employer’s trade or
business was excluded from wages for
FICA tax purposes if the cash remunera-
tion paid in such quarter by the employer
to the employee for such service was less
than $50. The 1977 Act amended sec-
tion 3121(a)(7)(C) to provide that cash
remunerationpaidbyanemployerinany
calendar year to an employee for service
not in the course of the employer’s trade
or business is excluded from wages for
FICA tax purposes if the cash remuner-
ation paid in such year by the employer
totheemployeeforsuchserviceisless
than $100. The 1977 Act is effective for
cash remuneration paid after December
31, 1977.
Explanation of Provisions
These proposed regulations would
amend the existing regulations to reflect
current law.
The proposed regulations relating to do-
mesticserviceinaprivatehomeofthe
employer would amend existing regula-
tions §§31.3102–1, 31.3121(a)–2(c), and
31.3121(a)(7)–1 to reflect changes imple-
mented by the SSDERA and to be appli-
cable as of that date. For cash remuner-
ationpaidpriortoJanuary1,1994(the
effective date of the SSDERA), taxpayers
should rely on the regulations applicable at
the time such cash remuneration was paid.
The proposed regulations relating to
agricultural labor would amend existing
regulations §§31.3102–1, 31.3121(a)–2(c)
and 31.3121(a)(8)–1 to reflect changes
implemented by the SSPA, the 1987 Act
and the 1988 Act and to be applicable as of
that date. For cash remuneration paid prior
to January 1, 1988 (the effective date of
the 1987 Act and the 1988 Act), taxpayers
should rely on the regulations applicable
at the time such cash remuneration was
paid.
The proposed regulations relating to
home workers and/or to service not in
the course of the employer’s trade or
business would amend existing regu-
lations §§31.3102–1, 31.3121(a)–2(c),
31.3121(a)(7)–1 and 31.3121(a)(10)–1
to reflect changes implemented by the
1977 Act and to be applicable as of that
date. For cash remuneration paid prior
to January 1, 1978 (the effective date of
the 1977 Act), taxpayers should rely on
the regulations applicable at the time such
cash remuneration was paid.
The proposed regulations relating to
computation to the nearest dollar of cash
remuneration for domestic service would
amend the existing regulations under
§31.3121(i)–1 to reflect changes imple-
mented by the SSDERA and to be applica-
ble as of that date. For cash remuneration
paid prior to January 1, 1994 (the effective
date of the SSDERA), taxpayers should
rely on the regulations applicable at the
time such cash remuneration was paid.
Proposed Effective Date
These proposed regulations would be
applicable on the date of publication of the
Treasury Decision adopting these regula-
tions as final regulations in theFederal
Register. The regulations relating to do-
mestic service in a private home of the em-
ployer would apply to cash remuneration
paid on or after January 1, 1994. The regu-
lations relating to agricultural labor would
apply to cash remuneration paid on or af-
ter January 1, 1988. The regulations re-
lating to home workers and/or service not
in the course of the employer’s trade or
business would apply to cash remuneration
paid on or after January 1, 1978. The regu-
lations relating to computation to the near-
est dollar of cash remuneration for domes-
tic service would apply to cash remunera-
tion paid on or after January 1, 1994.
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) and the Regulatory Flexibility Act
(5 U.S.C. chapter 6) do not apply to these
regulations, and therefore, a Regulatory
Flexibility Analysis is not required. Pur-
suant to section 7805(f) of the Code, this
2005–41 I.R.B.710October 11, 2005

notice of proposed rulemaking will be sub-
mitted to the Chief Counsel for Advocacy
of the Small BusinessAdministration 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 submitted timely to the IRS.
The IRS and Treasury Department specif-
ically request comments on the clarity of
proposed regulations and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A public hearing may be sched-
uled if requested by any person who timely
submits comments. If a public hearing
is scheduled, notice of the date, time and
place for the hearing will be published in
theFederal Register.
Drafting Information
The principal authors of these pro-
posed regulations are Paul J. Carlino and
Michael A. Swim, Office of the Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities). How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 31 is pro-
posedtobeamendedasfollows:
PART 31—EMPLOYMENT TAXES
AND COLLECTION OF INCOME TAX
AT SOURCE
Paragraph 1. The authority citation for
part 31 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3102–1 is amended
by:
1. Revising paragraph (b).
2. Redesignating paragraph (c) as para-
graph (d).
3. Adding new paragraph (c).
4. Adding paragraph (e).
The additions and revision read as fol-
lows:
§31.3102–1 Collection of, and liability
for, employee tax; in general.
*****
(b) The employer is permitted, but not
required, to deduct amounts equivalent to
employee tax from payments to an em-
ployee of cash remuneration to which the
sections referred to in this paragraph (b)
are applicable prior to the time that the sum
of such payments equals—
(1) $100 in the calendar year, for service
not in the course of the employer’s trade
or business, to which §31.3121(a)(7)–1 is
applicable;
(2) The applicable dollar threshold
(as defined in section 3121(x)) in the
calendar year, for domestic service in a
private home of the employer, to which
§31.3121(a)(7)–1 is applicable;
(3) $150 in the calendar year,
for agricultural labor, to which
§31.3121(a)(8)–1(c)(1)(i) is applicable;
or
(4) $100 in the calendar year, for ser-
vice performed as a home worker, to which
§31.3121(a)(10)–1 is applicable.
(c)Atsuchtimeasthesumofthecash
payments in the calendar year for a type
of service referred to in paragraph (b)(1),
(b)(2), (b)(3) or (b)(4) of this section
equals or exceeds the amount specified,
the employer is required to collect from
the employee any amount of employee tax
not previously deducted. If an employer
pays cash remuneration to an employee
for two or more of the types of service re-
ferred to in paragraph (b)(1), (b)(2), (b)(3)
or (b)(4) of this section, the provisions
of paragraph (b) of this section and this
paragraph (c) are to be applied separately
to the amount of remuneration attributable
to each type of service. For provisions
relating to the repayment to an employee,
or other disposition, of amounts deducted
from an employee’s remuneration in ex-
cess of the correct amount of employee
tax, see §31.6413(a)–1.
*****
(e)(1) The provisions of paragraphs (a)
and (d) of this section apply to any pay-
ment made on or after January 1, 1955.
(2) The provisions of paragraphs (b)
and (c) of this section that apply to any
payment made for service not in the
course of the employer’s trade or busi-
ness or for service performed as a home
worker within the meaning of section
3121(d)(3)(C) apply to any such payment
made on or after January 1, 1978. The
provisions of paragraphs (b) and (c) of this
section that apply to any payment made
for domestic service in a private home of
the employer apply to any such payment
made on or after January 1, 1994. The
provisions of paragraphs (b) and (c) of
this section that apply to any payment
made for agricultural labor apply to any
such payment made on or after January
1, 1988. For rules applicable to any pay-
ment for these services made prior to the
dates set forth in this paragraph (e)(2), see
§31.3102–1 in effect at such time (see 26
CFR part 31 revised as of April 1, 2005).
Par. 3. Section 31.3121(a)–2 is
amended by:
1. Revising paragraph (c)(1).
2. Redesignating paragraphs (c)(2) and
(c)(3) as paragraphs (c)(3) and (c)(4), re-
spectively.
3. Adding new paragraph (c)(2).
4. Revising newly designated para-
graph (c)(3).
5. Adding paragraph (d).
The additions and revisions read as fol-
lows:
§31.3121(a)–2 Wages; when paid and
received.
*****
(c)(1) The first $100 of cash remunera-
tion paid, either actually or constructively,
by an employer in any calendar year to an
employee for—
(i) Service not in the course of the
employer’s trade or business, to which
§31.3121(a)(7)–1 is applicable, shall be
deemed to be paid by the employer to the
employee at the first moment of time in
such calendar year that the sum of such
cash payments made within such year is at
least $100; or
(ii) Service performed as a
home worker within the meaning
of section 3121(d)(3)(C), to which
§31.3121(a)(10)–1 is applicable, shall be
deemed to be paid by the employer to the
employee at the first moment of time in
such calendar year that the sum of such
cash payments made within such year is
at least $100.
October 11, 20057112005–41 I.R.B.

(2) Cash remuneration paid, either ac-
tually or constructively, by an employer in
any calendar year to an employee for do-
mestic service in a private home of the em-
ployer to which §31.3121(a)(7)–1 is ap-
plicable, and before the sum of the pay-
ments of such cash remuneration equals
or exceeds the applicable dollar threshold
(as defined in section 3121(x)) for such
year, shall be deemed to be paid by the
employer to the employee at the first mo-
ment of time in such calendar year that the
sum of such cash payments made within
such year equals or exceeds the applica-
ble dollar threshold (as defined in section
3121(x)) for such year.
(3) Cash remuneration paid, either ac-
tually or constructively, by an employer in
any calendar year to an employee for agri-
cultural labor to which §31.3121(a)(8)–1
is applicable, and before either of the
events described in paragraphs (c)(3)(i)
and (c)(3)(ii) of this section has occurred,
shall be deemed to be paid by the em-
ployer to the employee at the first moment
of time in such calendar year that—
(i) The sum of the payments of such
remuneration is $150 or more; or
(ii) The employer’s expenditures for
agricultural labor in such calendar year
equals or exceeds $2,500, except that
this paragraph (c)(3)(ii) shall not apply in
determiningwhensuchremunerationis
deemed to be paid under this paragraph if
such employee—
(A) Is employed as a hand-harvest la-
borer and is paid on a piece rate basis in
an operation which has been, and is cus-
tomarily and generally recognized as hav-
ing been, paid on a piece rate basis in the
region of employment;
(B) Commutes daily from his perma-
nent residence to the farm on which he is
so employed; and
(C) Has been employed in agriculture
less than 13 weeks during the preceding
calendar year.
*****
(d)(1) The provisions of paragraphs (a)
and (b) of this section apply to any pay-
ment of wages made on or after January 1,
1955.
(2) The provisions of paragraph (c) of
this section that apply to any payment of
wages made for service not in the course of
the employer’s trade or business or for ser-
vice performed as a home worker within
the meaning of section 3121(d)(3)(C) ap-
ply to any such payment made on or after
January 1, 1978. The provisions of para-
graph (c) of this section that apply to any
payment of wages made for domestic ser-
vice in a private home of the employer ap-
ply to any such payment made on or after
January 1, 1994. The provisions of para-
graph (c) of this section that apply to any
payment of wages made for agricultural la-
bor apply to any such payment made on or
after January 1, 1988. For rules applica-
ble to any payment of wages for these ser-
vices made prior to the dates set forth in
this paragraph (d)(2), see §31.3121(a)–2 in
effect at such time (see 26 CFR part 31 re-
vised as of April 1, 2005).
Par. 4. Section 31.3121(a)(7)–1 is
amended by:
1. Revising paragraphs (c)(1) and
(c)(2).
2. Adding paragraphs (c)(3), (d) and
(e).
The additions and revisions read as fol-
lows:
§31.3121(a)(7)–1 Payments for services
not in the course of employer’s trade or
business or for domestic service.
*****
(c)Cash payments.(1)Thetermwages
does not include cash remuneration paid
by an employer in any calendar year to an
employee for—
(i) Domestic service in a private home
of the employer, unless the cash remuner-
ation paid in such year by the employer
to the employee for such service equals or
exceeds the applicable dollar threshold (as
defined in section 3121(x)) for such year;
or
(ii) Service not in the course of the em-
ployer’s trade or business, unless the cash
remunerationpaidinsuchyearbytheem-
ployer to the employee for such service
equals or exceeds $100.
(2) The tests relating to cash remuner-
ation are based on the remuneration paid
in a calendar year rather than on the re-
muneration earned during a calendar year.
The following exampleillustrates this pro-
vision:
Example. On March 31, 2004, employer X pays
employee A cash remuneration of $100 for service
not in the course of X’s trade or business. Such remu-
neration constitutes wages subject to the taxes even
though $10 thereof represents payment for such ser-
vice performed by A for X in December 2003.
(3) In determining whether wages have
been paid either for domestic service in a
private home of the employer or for service
not in the course of the employer’s trade or
business, only cash remuneration for such
service shall be taken into account. Cash
remuneration includes checks and other
monetary media of exchange. Remuner-
ation paid in any other medium, such as
lodging, food, clothing, car tokens, trans-
portation passes or tickets, or other goods
or commodities, is disregarded in deter-
mining whether the cash-remuneration test
is met. If an employee receives cash re-
muneration from an employer in a calen-
dar year for both types of services the per-
tinent cash-remuneration test is to be ap-
plied separately to each type of service. If
an employee receives cash remuneration
from more than one employer in a calen-
dar year for domestic service in a private
home of the employer or for service not in
the course of the employer’s trade or busi-
ness, the pertinent cash-remuneration test
is to be applied separately to the remuner-
ation received from each employer.
(d)Cross references. (1) For provisions
relating to deduction of employee tax or
amounts equivalent to the tax from cash
payments for the services described in this
section, see §31.3102–1;
(2) For provisions relating to time of
payment of wages for such services, see
§31.3121(a)–2;
(3) For provisions relating to compu-
tations to the nearest dollar of any pay-
ment of cash remuneration for domestic
service in a private home of the employer,
see §31.3121(i)–1.
(e)Effective dates. (1) The provisions
of this section apply to any cash payment
for service not in the course of the em-
ployer’s trade or business made on or after
January 1, 1978 and for domestic service
in a private home of the employer made on
or after January 1, 1994.
(2) For rules applicable to any cash pay-
ment made prior to the dates set forth in
paragraph (e)(1), see §31.3121(a)(7)–1 in
effect at such time (see 26 CFR part 31 re-
vised as of April 1, 2005).
Par. 5. Section 31.3121(a)(8)–1 is
amended by:
1. Revising paragraphs (c), (d), and (e).
2. Adding paragraph (h).
The addition and revisions read as fol-
lows:
2005–41 I.R.B.712October 11, 2005

§31.3121(a)(8)–1 Payments for
agricultural labor.
*****
(c)Cash payments.(1)Thetermwages
does not include cash remuneration paid
by an employer in any calendar year to an
employee for agricultural labor unless—
(i) The cash remuneration paid in such
year by the employer to the employee for
such labor is $150 or more; or
(ii) The employer’s expenditures for
agricultural labor in such year equal or
exceed $2,500, except that this paragraph
(c)(1)(ii) shall not apply in determining
whetherremunerationpaidtoanemployee
constitutes wages for agricultural labor if
such employee—
(A) Is employed as a hand-harvest la-
borer and is paid on a piece rate basis in
an operation which has been, and is cus-
tomarily and generally recognized as hav-
ing been, paid on a piece rate basis in the
region of employment;
(B) Commutes daily from his perma-
nent residence to the farm on which he is
so employed; and
(C) Has been employed in agriculture
less than 13 weeks during the preceding
calendar year.
(2) The application of the provisions of
paragraph (c)(1) of this section may be il-
lustrated by the following example:
Example. Employer X pays A $140 in cash for
agricultural labor in calendar year 2004. X makes no
other payments to A during the year and makes no
other payment for agricultural labor to any other em-
ployee. Employee A is not employed as a hand-har-
vest laborer. Neither the $150-cash-remuneration test
nor the $2,500-employer’s-expenditures-for-agricul-
tural-labor test is met. Accordingly, the remunera-
tion paid by X to A is not subject to the taxes. If
in 2004 X had paid A $140 in cash for agricultural
labor and had made expenditures of $2,360 or more
to other employees for agricultural labor, the $140
paid by X to A would have been subject to tax be-
cause the $2,500-employer’s-expenditures-for-agri-
cultural-labor test would have been met. Or, if X had
paid A $150 in cash in 2004 and made no other pay-
ments to any other employee for agricultural labor,
the $150 paid by X to A would have been subject to
tax because the $150-cash-remuneration test would
have been met.
(d)Application of cash-remuneration
test. (1) If an employee receives cash re-
muneration from an employer both for ser-
vices which constitute agricultural labor
and for services which do not constitute
agricultural labor, only the amount of such
remuneration which is attributable to agri-
cultural labor shall be included in deter-
mining whether cash remuneration of $150
or more has been paid in the calendar year
by the employer to the employee for agri-
cultural labor. The following example il-
lustrates this paragraph (d)(1):
Example. Employer X operates a store and also
is engaged in farming operations. Employee A, who
regularly performs services for X in connection with
the operation of the store, works on X’s farm when
additional help is required for the farm activities. In
the calendar year 2004, X pays A $140 in cash for
services performed in agricultural labor, and $4,000
for services performed in connection with the oper-
ation of the store. X has no additional expenditures
for agricultural labor in 2004. Since the cash remu-
neration paid by X to A in the calendar year 2004 for
agricultural labor is less than $150, the $150-cash-re-
muneration test is not met. The $140 paid by X to
A in 2004 for agricultural labor does not constitute
wages and is not subject to the taxes.
(2) The test relating to cash remunera-
tion of $150 or more is based on the cash
remuneration paid in a calendar year rather
than on the remuneration earned during a
calendar year. It is immaterial if such cash
remuneration is paid in a calendar year
other than the year in which the agricul-
tural labor is performed. The following ex-
ample illustrates this paragraph (d)(2):
Example. Employer X pays cash remuneration
of $150 in the calendar year 2004 to employee A
for agricultural labor. Such remuneration constitutes
wages even though $10 of such amount represents
payment for agricultural labor performed by A for X
in December 2003.
(3) In determining whether $150 or
more has been paid to an employee for
agricultural labor,only cash remuneration
for such labor shall be taken into account.
If an employee receives cash remunera-
tion in any one calendar year from more
than one employer for agricultural labor,
the cash-remuneration test is to be applied
with respect to the remuneration received
by the employee from each employer in
such calendar year for such labor.
(e)Application of employer’s-expen-
ditures-for-agricultural-labor test.(1)If
an employer has expenditures in a cal-
endar year for agricultural labor and for
non-agricultural labor, only the amount of
such expenditures foragricultural labor
shall be included in determining whether
the employer’s expenditures for agricul-
tural labor in such year equal or exceed
$2,500. The following example illustrates
this paragraph (e)(1):
Example. Employer X operates a store and also
is engaged in farming operations. Employee A, who
regularly performs services for X in connection with
the operation of the store, works on X’s farm when
additional help is required for the farm activities. In
calendar year 2004, X pays A $140 in cash for ser-
vices performed in agricultural labor, and $4,000 for
services performed in connection with the operation
of the store. X has no additional expenditures for
agricultural labor in 2004. Since X’s expenditures
for agricultural labor in 2004 are less than $2,500,
the employer’s-expenditures-for-agricultural-labor
test is not met. The $140 paid by X to A in 2004 for
agricultural labor does not constitute wages and is
not subject to the taxes.
(2) The test relating to an employer’s
expenditures of $2,500 or more for agri-
cultural labor is based on the expenditures
paid by the employer in a calendar year
rather than on the expenses incurred by
the employer during a calendar year. It is
immaterial if the expenditures are paid in a
calendar year other than the year in which
the agricultural labor is performed. The
following example illustrates this para-
graph (e)(2):
Example. Employer X employs A to construct
fences on a farm owned by X. The work constitutes
agricultural labor and is performed over the course of
November and December 2003. A is not employed
by X at any other time, however X does have other
employees to whom X pays remuneration of $2,000
for agricultural labor in 2003. X pays A $140 in cash
in November 2003 and $140 in cash in January 2004,
in full payment for the work. The $140 payment to
A made in November is not wages for calendar year
2003 because the $150-cash-remuneration test is not
met and X’s total expenditures for agricultural labor
for such year are not equal to or in excess of $2,500.
The $140 payment to A made in January is not wages
for 2004 because the $150 cash-remuneration test is
not met. However, if X pays additional remuneration
to employees for agricultural labor in 2004 that equals
or exceeds $2,360, the employer’s-expenditures-for-
agricultural-labor test will be met and the $140 paid
by X to A in 2004 will be considered wages. It is
immaterial that the work was performed in 2003.
*****
(h)Effective dates. The provisions of
this section apply to any payment for agri-
cultural labor made on or after January 1,
1988. For rules applicable to any payment
for agricultural labor made prior to January
1, 1988, see §31.3121(a)(8)–1 in effect at
such time (see 26 CFR part 31 revised as
of April 1, 2005).
Par. 6. Section 31.3121(a)(10)–1 is
revised to read as follows:
§31.3121(a)(10)–1 Payments to certain
home workers.
(a) The termwagesdoes not include
remuneration paid by an employer in any
calendar year to an employee for ser-
vice performed as a home worker who
is an employee by reason of the pro-
visions of section 3121(d)(3)(C) (see
October 11, 20057132005–41 I.R.B.

§31.3121(d)–1(d)), unless the cash remu-
neration paid in such calendar year by
the employer to the employee for such
services is $100 or more. The test re-
lating to cash remuneration of $100 or
more is based on remuneration paid in a
calendar year rather than on remuneration
earned during a calendar year. If cash
remuneration of $100 or more is paid in
a particular calendar year, it is immaterial
whether such remuneration is in payment
for services performed during the year of
payment or during any other year.
(b) The application of paragraph (a) of
this section may be illustrated by the fol-
lowing example:
Example. A, a home worker, performs services
for X, a manufacturer, in 2003 and 2004. In the per-
formance of the home work A is an employee by rea-
son of section 3121(d)(3)(C). In March 2004, A re-
turns to X articles made by A at home from materials
received by A from X in 2003. X pays A cash re-
muneration of $100 for such work when the finished
articles are delivered. The $100 includes $10 which
represents remuneration for home work performed by
A in 2003. The entire $100 is subject to the taxes.
Any additional cash remuneration paid by X to A in
2004 for such services is also subject to the taxes.
(c) In the event an employee receives
remuneration in any one calendar year
from more than one employer for services
performed as a home worker of the char-
acter described in paragraph (a) of this
section, the regulations in this section are
to be applied with respect to the remuner-
ation received by the employee from each
employer in such calendar year for such
services. This exclusion from wages has
no application to remuneration paid for
services performed as a home worker who
is an employee under section 3121(d)(2)
(see §31.3121(d)–1(c)) relating to com-
mon law employees.
(d) Cash remuneration includes checks
and other monetary media of exchange.
Remuneration paid in any other medium,
such as clothing, car tokens, transporta-
tion passes or tickets, or other goods or
commodities, is disregarded in determin-
ing whether the $100 cash-remuneration
test is met. If the cash remuneration paid
in any calendar year by an employer to
an employee for services performed as a
home worker of the character described in
paragraph (a) of this section is $100 or
more, then no remuneration, whether in
cash or in any medium other than cash,
paid by the employer to the employee in
such calendar year for such services is ex-
cluded from wages under this exception.
(e)(1) For provisions relating to deduc-
tions of employee tax or amounts equiva-
lent to the tax from cash payments for ser-
vices performed as a home worker within
the meaning of section 3121(d)(3)(C), see
§31.3102–1.
(2) For provisions relating to the time of
payment of wages for services performed
as a home worker within the meaning of
section 3121(d)(3)(C), see §31.3121(a)–2.
(3) For provisions relating to records
to be kept with respect to payment of
wages for services performed as a home
worker within the meaning of section
3121(d)(3)(C), see §31.6001–2.
(f) The provisions of this section ap-
ply to any payment for services performed
as a home worker within the meaning of
section 3121(d)(3)(C) made on or after
January 1, 1978. For rules applicable to
any payment for services performed as a
home worker within the meaning of sec-
tion 3121(d)(3)(C) made prior to January
1, 1978, see §31.3121(a)(10)–1 in effect at
such time (see 26 CFR part 31 revised as
of April 1, 2005).
Par. 7. Section 31.3121(i)–1 is
amended as follows:
1. Redesignating the undesignated text
as paragraph (a).
2. Remove the language “quarter” each
place it appears and add “year” in its place
in newly designated paragraph (a).
3. Adding new paragraph (b).
The addition reads as follows:
§31.3121(i)–1 Computation to nearest
dollar of cash remuneration for domestic
service.
*****
(b) The provisions of this section apply
to any cash payment for domestic service
in a private home of the employer made
on or after January 1, 1994. For rules ap-
plicable to any cash payment for domes-
tic service in a private home of the em-
ployer made prior to January 1, 1994, see
§31.3121(i)–1 in effect at such time (see 26
CFR part 31 revised as of April 1, 2005).
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on August 25,
2005, 8:45 a.m., and published in the issue of the Federal
Register for August 26, 2005, 70 F.R. 50228)
Optional Standard Mileage
Rates
Announcement 2005–71
This announcement informs taxpay-
ers that the Internal Revenue Service is
modifying Rev. Proc. 2004–64, 2004–49
I.R.B. 898, by revising the optional stan-
dard mileage rates for computing the de-
ductible costs of operating an automobile
for business, medical, or moving expense
purposes and for determining the reim-
bursed amount of these expenses that is
deemed substantiated. This modification
results from recent increases in the price
of fuel.
The revised standard mileage rates are:
(1) Business48.5 cents per mile
(2) Medical and moving22 cents per mile
The mileage rate that applies to the
deduction for charitable contributions is
fixed under § 170(i) of the Internal Rev-
enue Code at 14 cents per mile.
The revised standard mileage rates set
forth in this announcement apply to de-
ductible transportation expenses paid or
incurred for business, medical, or moving
expense purposes on or after September 1,
2005, and to mileage allowances that are
paid both (1) to an employee on or after
September 1, 2005, and (2) with respect
to transportation expenses paid or incurred
by the employee on or after September 1,
2005.
The standard mileage rates set forth in
Rev. Proc. 2004–64 continue to apply
to deductible transportation expenses paid
2005–41 I.R.B.714October 11, 2005

or incurred for business, medical, or mov-
ing expense purposes before September 1,
2005,andtomileageallowances paid both
(1) to an employee before September 1,
2005, and (2) with respect to transportation
expenses paid or incurred by the employee
before September 1, 2005. All other pro-
visions of Rev. Proc. 2004–64 remain in
effect.
EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2004–64 is modified.
DRAFTING INFORMATION
The principal author of this announce-
ment is John Roman Faron of the Office
of Associate Chief Counsel (Income Tax
and Accounting). For further informa-
tion regarding this announcement, contact
Mr. Faron at (202) 622–4930 (not a toll-
free call).
Updated Information
for Publication 1187,
Specifications for Filing Form
1042-S, Foreign Person’s U.S.
Source Income Subject to
Withholding, Electronically or
Magnetically
Announcement 2005–73
This announcement provides updated
information to Publication 1187,Specifi-
cations for Filing Form 1042-S, Foreign
Person’s U.S. Source Income Subject to
Withholding, Electronically or Magneti-
cally. This information is general in na-
ture. There are no legislative or format
changes. Information provided in Rev.
Proc. 2004–63, 2004–45 I.R.B. 795 (dated
November 8, 2004), is still valid with the
exception of the following items:
1. The Martinsburg Computing Center
was renamed the Enterprise Comput-
ing Center-Martinsburg (ECC-MTB).
2. IRS/ECC-MTB now offers an Inter-
net connection athttp://fire.irs.gov
for electronic filing. The FIRE Sys-
tem will be down from December 23,
2005, through January 3, 2006, for
upgrading. It is not operational dur-
ing this time for submissions.
3. Beginning in Tax Year 2006, process-
ing year 2007, IRS/ECC-MTB will no
longer accept 3
1
/2-inch diskettes for
filing 1042-S information returns.
4. Additional special characters were
added (e.g., period, apostrophe, pound
sign and forward slash). The spe-
cial characters can be used in the
“W” record, fields 14–133 Withhold-
ing Agent’s Name Line 1–3; fields
134–213 Withholding Agent’s Street
Line 1 & 2; “Q” record, fields 94–213
Recipient’s Name Line 1–3; and,
fields 214–293 Recipient’s Street
Line 1 & 2.
5. IRS/ECC-MTB strongly encourages
all electronic or magnetic media filers
to submit a test. Testing dates will be
November 1, 2005 through December
15, 2005.
6. The following change was made to
the Withholding Agent “W” Record,
field position 13, field title Withhold-
ing Agent’s EIN Indicator:
a. Note: Use EIN indicator1only if
the Withholding Agent’s EIN be-
gins with “98”andthe Withhold-
ing Agent’s City, State and Coun-
try Code fields indicate that the
Withholding Agent isnotaU.S.
Withholding Agent.
Publication 1187 is available through
the IRS Websitewww.irs.gov.
October 11, 20057152005–41 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2005–41 I.R.B.iOctober 11, 2005

Numerical Finding List
1
Bulletins 2005–27 through 2005–41
Announcements:
2005-46, 2005-27 I.R.B.63
2005-47, 2005-28 I.R.B.71
2005-48, 2005-29 I.R.B.111
2005-49, 2005-29 I.R.B.119
2005-50, 2005-30 I.R.B.152
2005-51, 2005-32 I.R.B.283
2005-52, 2005-31 I.R.B.257
2005-53, 2005-31 I.R.B.258
2005-54, 2005-32 I.R.B.283
2005-55, 2005-33 I.R.B.317
2005-56, 2005-33 I.R.B.318
2005-57, 2005-33 I.R.B.318
2005-58, 2005-33 I.R.B.319
2005-59, 2005-37 I.R.B.524
2005-60, 2005-35 I.R.B.455
2005-61, 2005-36 I.R.B.495
2005-62, 2005-36 I.R.B.495
2005-63, 2005-36 I.R.B.496
2005-64, 2005-37 I.R.B.537
2005-65, 2005-38 I.R.B.587
2005-66, 2005-39 I.R.B.613
2005-67, 2005-40 I.R.B.678
2005-68, 2005-39 I.R.B.613
2005-69, 2005-40 I.R.B.681
2005-70, 2005-40 I.R.B.682
2005-71, 2005-41 I.R.B.714
2005-72, 2005-41 I.R.B.692
2005-73, 2005-41 I.R.B.715
Notices:
2005-48, 2005-27 I.R.B.9
2005-49, 2005-27 I.R.B.14
2005-50, 2005-27 I.R.B.14
2005-51, 2005-28 I.R.B.74
2005-52, 2005-28 I.R.B.75
2005-53, 2005-32 I.R.B.263
2005-54, 2005-30 I.R.B.127
2005-55, 2005-32 I.R.B.265
2005-56, 2005-32 I.R.B.266
2005-57, 2005-32 I.R.B.267
2005-58, 2005-33 I.R.B.295
2005-59, 2005-35 I.R.B.443
2005-60, 2005-39 I.R.B.606
2005-61, 2005-39 I.R.B.607
2005-62, 2005-35 I.R.B.443
2005-63, 2005-35 I.R.B.448
2005-64, 2005-36 I.R.B.471
2005-65, 2005-39 I.R.B.607
2005-66, 2005-40 I.R.B.620
2005-67, 2005-40 I.R.B.621
2005-68, 2005-40 I.R.B.622
Notices— Continued:
2005-69, 2005-40 I.R.B.622
2005-70, 2005-41 I.R.B.694
Proposed Regulations:
REG-144615-02, 2005-40 I.R.B.625
REG-131739-03, 2005-36 I.R.B.494
REG-130241-04, 2005-27 I.R.B.18
REG-138362-04, 2005-33 I.R.B.299
REG-138647-04, 2005-41 I.R.B.697
REG-149436-04, 2005-35 I.R.B.454
REG-156518-04, 2005-38 I.R.B.582
REG-104143-05, 2005-41 I.R.B.708
REG-121584-05, 2005-37 I.R.B.523
REG-122857-05, 2005-39 I.R.B.609
REG-129782-05, 2005-40 I.R.B.675
REG-133578-05, 2005-39 I.R.B.610
Revenue Procedures:
2005-35, 2005-28 I.R.B.76
2005-36, 2005-28 I.R.B.78
2005-37, 2005-28 I.R.B.79
2005-38, 2005-28 I.R.B.81
2005-39, 2005-28 I.R.B.82
2005-40, 2005-28 I.R.B.83
2005-41, 2005-29 I.R.B.90
2005-42, 2005-30 I.R.B.128
2005-43, 2005-29 I.R.B.107
2005-44, 2005-29 I.R.B.110
2005-45, 2005-30 I.R.B.141
2005-46, 2005-30 I.R.B.142
2005-47, 2005-32 I.R.B.269
2005-48, 2005-32 I.R.B.271
2005-49, 2005-31 I.R.B.165
2005-50, 2005-32 I.R.B.272
2005-51, 2005-33 I.R.B.296
2005-52, 2005-34 I.R.B.326
2005-53, 2005-34 I.R.B.339
2005-54, 2005-34 I.R.B.353
2005-55, 2005-34 I.R.B.367
2005-56, 2005-34 I.R.B.383
2005-57, 2005-34 I.R.B.392
2005-58, 2005-34 I.R.B.402
2005-59, 2005-34 I.R.B.412
2005-60, 2005-35 I.R.B.449
2005-61, 2005-37 I.R.B.507
2005-62, 2005-37 I.R.B.507
2005-63, 2005-36 I.R.B.491
2005-64, 2005-36 I.R.B.492
2005-65, 2005-38 I.R.B.564
2005-66, 2005-37 I.R.B.509
2005-68, 2005-41 I.R.B.694
Revenue Rulings:
2005-38, 2005-27 I.R.B.6
2005-39, 2005-27 I.R.B.1
Revenue Rulings— Continued:
2005-40, 2005-27 I.R.B.4
2005-41, 2005-28 I.R.B.69
2005-42, 2005-28 I.R.B.67
2005-43, 2005-29 I.R.B.88
2005-44, 2005-29 I.R.B.87
2005-45, 2005-30 I.R.B.123
2005-46, 2005-30 I.R.B.120
2005-47, 2005-32 I.R.B.261
2005-48, 2005-32 I.R.B.259
2005-49, 2005-30 I.R.B.125
2005-50, 2005-30 I.R.B.124
2005-51, 2005-31 I.R.B.163
2005-52, 2005-35 I.R.B.423
2005-53, 2005-35 I.R.B.425
2005-54, 2005-33 I.R.B.289
2005-55, 2005-33 I.R.B.284
2005-56, 2005-35 I.R.B.427
2005-57, 2005-36 I.R.B.466
2005-58, 2005-36 I.R.B.465
2005-59, 2005-37 I.R.B.505
2005-60, 2005-37 I.R.B.502
2005-61, 2005-38 I.R.B.538
2005-62, 2005-38 I.R.B.557
2005-63, 2005-39 I.R.B.603
2005-64, 2005-39 I.R.B.600
2005-65, 2005-41 I.R.B.684
2005-66, 2005-41 I.R.B.686
Tax Conventions:
2005-47, 2005-28 I.R.B.71
2005-72, 2005-41 I.R.B.692
Treasury Decisions:
9208, 2005-31 I.R.B.157
9209, 2005-31 I.R.B.153
9210, 2005-33 I.R.B.290
9211, 2005-33 I.R.B.287
9212, 2005-35 I.R.B.429
9213, 2005-35 I.R.B.440
9214, 2005-35 I.R.B.435
9215, 2005-36 I.R.B.468
9216, 2005-36 I.R.B.461
9217, 2005-37 I.R.B.498
9218, 2005-37 I.R.B.503
9219, 2005-38 I.R.B.538
9220, 2005-39 I.R.B.596
9221, 2005-39 I.R.B.604
9222, 2005-40 I.R.B.614
9223, 2005-39 I.R.B.591
9224, 2005-41 I.R.B.688
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2005–1 through 2005–26 is in Internal Revenue Bulletin
2005–26, dated June 27, 2005.
October 11, 2005ii2005–41 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2005–27 through 2005–41
Announcements:
84-26
Obsoleted by
REG-149436-04, 2005-35 I.R.B.454
2004-72
Updated and superseded by
Ann. 2005-59, 2005-37 I.R.B.524
2005-36
Modified by
Rev. Proc. 2005-66, 2005-37 I.R.B.509
2005-53
Corrected by
Ann. 2005-61, 2005-36 I.R.B.495
Notices:
89-111
Amplified by
Notice 2005-61, 2005-39 I.R.B.607
2001-42
Modified by
Rev. Proc. 2005-66, 2005-37 I.R.B.509
2005-4
Modified by
Notice 2005-62, 2005-35 I.R.B.443
2005-10
Clarified by
Notice 2005-64, 2005-36 I.R.B.471
2005-38
Modified by
Notice 2005-64, 2005-36 I.R.B.471
2005-51
Modified and superseded by
Notice 2005-57, 2005-32 I.R.B.267
Proposed Regulations:
REG-108524-00
Corrected by
Ann. 2005-68, 2005-39 I.R.B.613
REG-142686-01
Withdrawn by
Ann. 2005-55, 2005-33 I.R.B.317
REG-100420-03
Corrected by
Ann. 2005-57, 2005-33 I.R.B.318
REG-102144-04
Corrected by
Ann. 2005-56, 2005-33 I.R.B.318
Revenue Procedures:
64-54
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B.88
66-33
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B.88
69-13
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B.88
70-8
Modified by
Rev. Proc. 2005-46, 2005-30 I.R.B.142
71-1
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B.88
72-22
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B.88
83-77
Superseded by
Rev. Proc. 2005-63, 2005-36 I.R.B.491
87-8
Obsoleted by
Rev. Proc. 2005-44, 2005-29 I.R.B.110
87-9
Obsoleted by
Rev. Proc. 2005-44, 2005-29 I.R.B.110
89-20
Superseded by
Rev. Proc. 2005-52, 2005-34 I.R.B.326
90–11
Modified by
Rev. Proc. 2005-40, 2005-28 I.R.B.83
90-30
Section4supersededby
Rev. Proc. 2005-54, 2005-34 I.R.B.353
Section5supersededby
Rev. Proc. 2005-55, 2005-34 I.R.B.367
Section6supersededby
Rev. Proc. 2005-56, 2005-34 I.R.B.383
Section7supersededby
Rev. Proc. 2005-58, 2005-34 I.R.B.402
Section8supersededby
Rev. Proc. 2005-59, 2005-34 I.R.B.412
90-31
Section4supersededby
Rev. Proc. 2005-52, 2005-34 I.R.B.326
Section5supersededby
Rev. Proc. 2005-54, 2005-34 I.R.B.353
Section6supersededby
Rev. Proc. 2005-55, 2005-34 I.R.B.367
Revenue Procedures— Continued:
Section7supersededby
Rev. Proc. 2005-56, 2005-34 I.R.B.383
Section8supersededby
Rev. Proc. 2005-58, 2005-34 I.R.B.402
Section9supersededby
Rev. Proc. 2005-59, 2005-34 I.R.B.412
93-22
Obsoleted by
Rev. Proc. 2005-44, 2005-29 I.R.B.110
98-18
Obsoleted by
Rev. Proc. 2005-45, 2005-30 I.R.B.141
99-39
Superseded by
Rev. Proc. 2005-60, 2005-35 I.R.B.449
2000-27
Modified and superseded by
Rev. Proc. 2005-66, 2005-37 I.R.B.509
2000-31
Superseded by
Rev. Proc. 2005-60, 2005-35 I.R.B.449
2000-49
Superseded by
Rev. Proc. 2005-41, 2005-29 I.R.B.90
2001-9
Superseded by
Rev. Proc. 2005-60, 2005-35 I.R.B.449
2001-16
Superseded by
Rev. Proc. 2005-42, 2005-30 I.R.B.128
2002-9
Modified and amplified by
Rev. Rul. 2005-42, 2005-28 I.R.B.67
Rev. Proc. 2005-35, 2005-28 I.R.B.76
Rev. Proc. 2005-43, 2005-29 I.R.B.107
Rev. Proc. 2005-47, 2005-32 I.R.B.269
2002-49
Modified, amplified, and superseded by
Rev. Proc. 2005-62, 2005-37 I.R.B.507
2004-50
Superseded by
Rev. Proc. 2005-49, 2005-31 I.R.B.165
2004-54
Superseded by
Rev. Proc. 2005-65, 2005-38 I.R.B.564
2004-64
Modified by
Ann. 2005-71, 2005-41 I.R.B.714
2005-1
Amplified by
Rev. Proc. 2005-68, 2005-41 I.R.B.694
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–1 through 2005–26 is in Internal Revenue Bulletin 2005–26, dated June 27, 2005.
2005–41 I.R.B.iiiOctober 11, 2005

Revenue Procedures— Continued:
2005-3
Amplified by
Rev. Proc. 2005-61, 2005-37 I.R.B.507
Rev. Proc. 2005-68, 2005-41 I.R.B.694
2005-6
Modified by
Rev. Proc. 2005-66, 2005-37 I.R.B.509
2005-16
Modified by
Rev. Proc. 2005-66, 2005-37 I.R.B.509
Revenue Rulings:
65-109
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B.88
68-549
Obsoleted by
Rev. Rul. 2005-43, 2005-29 I.R.B.88
74-203
Revoked by
Rev. Rul. 2005-59, 2005-37 I.R.B.505
82-29
Modified and clarified by
Rev. Proc. 2005-39, 2005-28 I.R.B.82
2005-41
Corrected by
Ann. 2005-50, 2005-30 I.R.B.152
Treasury Decisions:
9149
Removed by
T.D. 9221, 2005-39 I.R.B.604
9186
Corrected by
Ann. 2005-53, 2005-31 I.R.B.258
9193
Corrected by
Ann. 2005-62, 2005-36 I.R.B.495
9205
Corrected by
Ann. 2005-63, 2005-36 I.R.B.496
9206
Corrected by
Ann. 2005-49, 2005-29 I.R.B.119
9207
Corrected by
Ann. 2005-52, 2005-31 I.R.B.257
9210
Corrected by
Ann. 2005-64, 2005-37 I.R.B.537
October 11, 2005iv2005–41 I.R.B.
*U.S.Government PrintingOffice:2005—310–365/20026