us-irs-revenue-procedures-irb-2008-43-pdf•Internal Revenue Bulletin 2008-43 (PDF rendition): IRS Revenue Procedures
Internal Revenue Bulletin 2008-43 (PDF rendition): IRS Revenue Procedures
us-irs-revenue-procedures-irb-2008-43-pdfInternal Revenue Bulletin 2008-43 (PDF rendition): IRS Revenue ProceduresGuidance
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Bulletin No. 200 8-43 October 27, 2008 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 Notice 2008–72, page 998. 2008 Section 43 inflation adjustment factor.This notice announces the applicable inflation adjustment factor and phase- out amount for the enhanced oil recovery credit for the 2008 calendar year. Notice 2008–89, page 999. 2008 marginal production rates.This notice announces the applicable percentage under section 613A of the Code to be used in determining percentage depletion for marginal prop- erties for the 2008 calendar year. Notice 2008–90, page 1000. Charitable contributions of inventory property under section 170(e)(3) of the Code.This notice announces that the Service and the Treasury Department intend to issue guid- ance under section 170(e) that will allow a taxpayer making a qualified contribution to compute the deductible amount and adjustment to cost of goods sold either under the special rules applicable to qualified contributions under section 170(e)(3) or under the general rules applicable to contributions under section 170(e)(1). The notice also provides that, pending the issuance of further guidance, the Service will not challenge a taxpayer that makes the computation under either set of rules provided all other applicable requirements are met. Notice 2008–91, page 1001. This notice announces that a controlled foreign corporation (CFC) may choose to exclude certain obligations held by the CFC from the definition of the term “United States property” for purposes of section 956 of the Code. Notice 2008–92, page 1001. Insurance-dedicated money market funds.This notice provides guidance that an insurance-dedicated money market fund’s participation in Treasury’s Temporary Guarantee Pro- gram for Money Market Funds won’t result in a violation of the section 817(h) diversification requirements in the case of a segregated asset account that invests in the insurance-dedi- cated money market fund. Rev. Proc. 2008–60, page 1006. This procedure informs all taxpayers who hold a surety bond or a Treasury Direct Account (TDA) pursuant to former section 42(j)(6) of the Code how to make the election, allowed by sec- tion 3004(i)(2)B)(ii) of the Housing Assistance Tax Act of 2008, to discontinue the surety bond or TDA. EMPLOYEE PLANS Notice 2008–93, page 1002. Weighted average interest rate update; corporate bond indices; 30-year Treasury securities; segment rates. This notice contains updates for the corporate bond weighted average interest rate for plan years beginning in October 2008; the 24-month average segment rates; the funding transitional segment rates applicable for October 2008; and the minimum present value transitional rates for September 2008. (Continued on the next page) Fi nding Lists begin on page ii. Index for July through October begins on page vi. EXEMPT ORGANIZATIONS T.D. 9423, page 966. REG–142333–07, page 1008. Final, temporary, and proposed regulations under sections 170, 507, 509, 6033, and 6043 of the Code affect tax-ex- empt organizations required to file an annual return under section 6033. The regulations provide guidance relating to the computation of public support, new procedures for organizations seeking classification as public charities, and guidance regarding the reporting of other information required on the annual return. Announcement 2008–97, page 1010. The IRS has revoked its determination that Northern California Housing of Stockton, CA; 1st United Charitable Trust of Glen- dale, AZ; HarrisWelburn Company of Upper Marlboro, MD; Bond Endowment Fund, Inc., of Timonium, MD; and Northern Lights Jr. Drum & Bugle Corps Association of Vancouver, WA, qualify as organizations described in sections 501(c)(3) and 170(c)(2) of the Code. ADMINISTRATIVE Notice 2008–92, page 1001. Insurance-dedicated money market funds.This notice provides guidance that an insurance-dedicated money market fund’s participation in Treasury’s Temporary Guarantee Pro- gram for Money Market Funds won’t result in a violation of the section 817(h) diversification requirements in the case of a segregated asset account that invests in the insurance-dedi- cated money market fund. Announcement 2008–96, page 1010. This document cancels a public hearing on proposed regula- tions (REG–143453–05, 2008–32 I.R.B. 310) under section 179B of the Code relating to the deduction of qualified capital costs paid or incurred by a small business refiner to comply with the highway diesel fuel sulfur control requirements of the Environmental Protection Agency. Announcement 2008–102, page 1011. This document provides notice of a public hearing on Octo- ber 30, 2008, on proposed regulations (REG–103146–08, 2008–37 I.R.B. 701) relating to the return and information statement requirements under section 6039 of the Code. The regulations reflect changes to section 6039 made by section 403 of the Tax Relief and Health Care Act of 2006. The regula- tions affect corporations that issue statutory stock options and provide guidance to assist corporations in complying with the return and information statement requirements under section 6039. October 27, 20082008–43 I.R.B. The IRS Mission Provide Americ a’s taxpayers top quality service by helping them understand an d 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 Secre- tary (Enforcement). Part IV .—Items of General Interest. This par t includes notices of proposed rulemakings, disbar- ment an d suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The c ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402. 2008–43 I.R.B.October 27, 2008 October 27, 20082008–43 I.R.B. Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 817.— Treatment of Variable Co ntracts 26 CFR 1.817-5: Diversification requirements for variable annuity, endowment, and life insurance con- tracts. This notice provides guidance that an insur- ance-dedicated money market fund’s participation in Treasury’s Temporary Guarantee Program for Money Market Funds won’t result in a violation of the section 817(h) diversification requirements in the case of a segregated asset account that invests in the insurance-dedicated money market fund. See Notice 2008-92, page 1001. Section 6033.—Returns by Exempt Organizations 26 CFR 1.60 33–2: Returns by exempt organizations (taxable y ears beginning after December 31, 1969) and by cert ain nonexempt organizations (taxable years begi nning after December 31, 1980). T.D. 9423 Departmen toftheTreasury Internal Revenue Service 26 CFR Par ts 1 and 602 Implementation of Form 990 AGENCY: Internal Revenue Service (IRS), T reasury. ACTION: Final and temporary regula- tions. SUMMARY : This document contains fi- nal and t emporary regulations necessary to impleme nt the redesigned Form 990, “Re- turn of Organization Exempt From Income Tax.”T he final regulations contained in this do cument make only nonsubstantive revisi ons to comply withFederal Regis- terreq uirements. The temporary regula- tions make revisions to the regulations un- der se ction6033andsection6043toal- low fo r new threshold amounts for report- ing co mpensation, to require that compen- satio n be reported on a calendar year ba- sis, and to modify the scope of organiza- tion s subject to information reporting re- quir ements upon a substantial contraction. The t emporary regulations also eliminate the advance ru ling process for new orga- nizations, ch ange the public support com- putation peri od for organizations described in sections 1 70(b)(1)(A)(vi) and 509(a)(1) and in sectio n 509(a)(2) to five years, con- sistent with the revised Form 990, and clar- ify that supp ort must be reported using the organizati on’s overall method of account- ing. All tax -exempt organizations required under secti on 6033 of the Internal Revenue Code (Code) to file annual information re- turns are af fected by these temporary reg- ulations. The text of these temporary reg- ulations a lso serves as the text of the pro- posed regu lations (REG–142333–07) pub- lished in t his issue of the Bulletin. DATES:Eff ective Date:These regulations are effec tive on September 9, 2008. Applicabi lity Date:These regulations apply to t axable years beginning on or after January 1 , 2008. FOR FURTH ER INFORMATION CONTACT: TerriHarrisat(202) 622–6070 (not a toll-free number). SUPPLEME NTARY INFORMATION: Paperwor kReductionAct The colle ction of information contained in these temporary regulations has been reviewe d and approved by the Office of Managem ent and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S. C. 3507(d)) under control number 1545–21 17. An agency may not conduct or spon sor, and a person is not required to resp ond to, a collection of information unless it displays a valid control number assign ed by the Office of Management and Bud get. Books or records relating to a colle ction of information must be retained as lon g as their contents may become ma- teria l in the administration of any internal reven ue law. Generally, tax returns and tax re turn information are confidential, as requ ired by 26 U.S.C. 6103. Back ground Form 990 Unde r section 6033 of the Code, or- gani zations that are exempt from Federal income tax und er section 501(a) are gener- ally required to file an annual information return report ing gross income, receipts, disbursemen ts and such other information as the IRS req uires. Certain exceptions to this filin g requirement apply. For ex- ample, churc hes are not required to file annual info rmation returns. The Treasury regulation s direct that the annual infor- mation retu rn shall be filed on Form 990, “Return of O rganization Exempt From Income Tax” or Form 990–PF, “Return of Private Fo undation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as aPrivateF oundation.”The regulations further sp ecify certain information to be reported on the return. The IRS rev ises forms and instructions on an annu al basis to reflect changes in the law and ev olving tax administration needs. On Decemb er 20, 2007, the IRS released a redesig ned Form 990. The Form 990 had not be en significantly revised since 1979, an d both the IRS and stakeholders regarde d the form as needing major revi- sion to k eep pace with changes in the law and with the increasing size, diversity, and comple xity of the exempt sector. The new form in corporates manyrecommendations made in public comments on the discus- sion dr aft released on June 14, 2007. With the exc eption of certain smaller organiza- tions for which there is a graduated transi- tion p eriod, organizations must begin us- ing th e new form for the 2008 tax year (retu rns filed in 2009). The current Form 990 wi ll be used for tax year 2007 (returns file d in 2008) but will be replaced with the rede signed Form 990 beginning with the 2008 tax year. Earlier this year, the IRS re- leas ed draft instructions for the new form and s chedules for public comment. Thes e regulations make the revisions that must be made to the regulations under sect ions 6033 and 6043 of the Code to imp lement the Form 990 redesign. For ex- amp le, the regulation that currently gives org anizations a choice of using either the cal endar year or the organization’s an- nua l accounting period as the basis for re porting compensation of officers, direc- to rs, trustees and certain employees and co ntractors is revised to require calendar ye ar reporting. Revisions are also made 2008–43 I.R.B.966October 27, 2008 to allow for new threshold amounts for reporting compensation and to expand the scope of organizations subject to in- formation reporting requirements upon a substantial contraction. In addition, as discussed in further detail in this preamble, these regulations eliminate the advance ruling process and change the public support computation period for organizations described in sec- tions 170(b)(1)(A)(vi) and 509(a)(1) and in section 509(a)(2) to five years, consis- tent with the revised Schedule A,“Public Charity Status and Public Support”to the redesigned Form 990. These regulations also clarify that support must be reported using the organization’s overall method of accounting. Private Foundation Status and Advance Rulings Public support tests Under present law, as established in the Tax Reform Act of 1969, an organ- ization described insection 501(c)(3) of the Code is a private foundation unless it meets one of the exceptions described in sections 509(a)(1) through 509(a)(4). Organizations that are described in section 509(a)(1), (2), (3) or (4) are classified as public charities, and are not subject to var- ious excise taxes in Chapter 42 that apply to private foundations. The Code defines two major categories of organizations that are considered public charities and not pri- vate foundations because they are broadly publicly supported: (1) organizations de- scribed in section 170(b)(1)(A)(vi), which are not private foundations because they are referenced in section 509(a)(1); and (2) organizations described in section 509(a)(2). Section 170(b)(1)(A)(vi) encompasses organizations that normally receive a sub- stantial part of their support from a gov- ernmental unit or from direct or indirect contributions from the general public. The regulations under section 170 provide that an organization will be described in section 170(b)(1)(A)(vi) if itnormally receives at least 33 1 /3percent of its support from gov- ernmental units or from the general pub- lic. See §1.170A–9(f). Alternatively, an organization can meet a “facts and circum- stances” test, under which it may qualify as a section 170(b)(1)(A)(vi) organization if it normally receives at least 10 percent of its support from governmental units or the general public, and can establish that, un- der all the facts and circumstances, it nor- mally receives a substantial part of its sup- port from governmental units or the gen- eral public. Section 509(a)(2) encompasses orga- nizations that normally receive more than one-third of their support from a com- bination of gifts, grants, contributions, membership fees, and gross receipts from performing exempt function activities, and normally receive not more than one-third of their support from investment income and unrelated business taxable income. The major difference between the section 509(a)(2) and section 170(b)(1)(A)(vi) tests is that the former includes in support gross receipts from exempt function activ- ities, for example, admission proceeds for a museum or ticket sales for a symphony, while the latter does not. As noted, sec- tion 509(a)(2) also includes an investment income limitation. For ease of reference, the tests in sections 170(b)(1)(A)(vi) and 509(a)(2) will be referred to collectively as the public support tests. The statute does not define, for either provision, the meaning of “normally.” The current regulations for both public support tests generally use a rolling four-year com- putation period, with two exceptions: new organizations and organizations that expe- rience “substantial and material changes” in their sources of support for the current year are permitted to use a five-year com- putation period. For any particular taxable year, the four-year computation period is the four years immediately preceding the current taxable year. For example, for tax- able year 1998, the computation period would be taxable years 1994, 1995, 1996, and 1997. The regulations further provide that if the public support test is met for the four-year computation period, the organi- zation will be considered to meet the pub- lic support test for the taxable year being tested and the immediately succeeding tax- able year. In the example above, a section 170(b)(1)(A)(vi) organization would meet the public support test for 1998 and 1999 if the support it received from the general public and from governmental units for the years 1994 through 1997 exceeded 33 1 /3 percent of the total support it received for those years. The effect of the current rule regarding the subsequent taxable year is that an or- ganization must fail to meet a public sup- porttesttwoyearsinarowtobecomea private foundation. In the example above, the organization met the public support test for 1998 and 1999, based on support re- ceived during the four-year computation period 1994 through 1997. If the organi- zation does not meet a public support test for the 1995 through 1998 computation pe- riod, it is still a public charity in 1999 because it met a support test for taxable year 1998. However, if the organization again does not meet a public support test for the 1996 through 1999 computation pe- riod, the organization becomes a private foundation effective at the beginning of its taxable year 2000. Advance rulings In its application for recognition of tax-exempt status (Form 1023,“Applica- tion for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code”), a section 501(c)(3) organization also requests a determination of its private foundation status, that is, whether it is a private foundation and, if not, the Code provision excepting it from private foun- dation classification. Under the current statute and regulations, an organization can request either an advance ruling or a definitive ruling addressing the organiza- tion’s exemption under section 501(c)(3) and its private foundation status under section 509(a). Under the current regulations, a new or- ganization applying for exemption can re- quest a definitive ruling as to its founda- tion status only if it has completed its first tax year consisting of at least eight full months. In lieu of the general four-year computation period for public support, a new organization requesting a definitive ruling tests its public support based on the years it has been in existence. If an or- ganization qualifies as an organization de- scribed in section 509(a)(1) or (2) based on the support received in its initial year(s) of existence, the IRS issues a definitive rul- ing stating that the organization is recog- nized as exempt under section 501(c)(3) and classified as a public charity. If a new organization has not yet com- pleted its first tax year consisting of at least eight full months at the time it applies for October 27, 20089672008–43 I.R.B. recognition of tax exemption, or if the or- ganization so elects, it requests an “ad- vance ruling” regarding its private founda- tion status in its application for exemption. Current regulations provide for an advance ruling period of two or three years, depend- ing on the length of the organization’s first tax year, and an additional “extended ad- vance ruling period” of three more years if the organization requests. These current regulations have been overridden. In the conference report to the Tax Reform Act of 1984, Congress directed that the advance ruling period in all cases be five years. See H.R. Rep. No. 98–861, 98 th Cong., 2d Sess. 1 (1984), 1984–3 C.B. (Vol. 2) 1090. The advance ruling period gives new or- ganizations time to build up broad public support in the first few years of their exis- tence. In lieu of the general four-year com- putation period for public support, a new organization requesting an advance ruling tests its public support over the first five years of its existence as an organization de- scribed in section 501(c)(3). If an organi- zation demonstrates to the IRS’s satisfac- tion that it can reasonably be expected to meet a public support test during its first five years, the IRS issues an advance rul- ing stating that the organization is recog- nized as exempt under section 501(c)(3) and classified as a public charity during its first five years. With limited exceptions, donors can rely on this advance ruling as to public charity status. At the end of the initial five-year ad- vance ruling period, the organization is re- quired to file Form 8734,“Support Sched- ule for Advance Ruling Period”to estab- lish that it actually met a public support test. As noted above, for this purpose, pub- lic support is calculated over the five-year advance ruling period, rather than over a four-year period. If the organization meets a public support test for its advance rul- ing period, the IRS issues a definitive rul- ing letter classifying the organization as a public charity. If the organization does not meet a public support test for its ad- vance ruling period, or the organization fails to submit Form 8734, the IRS reclas- sifies the organization as a private founda- tion as of its first taxable year and pub- lishes notice of the change in status in the Internal Revenue Bulletin and Publi- cation 78, “Cumulative List of Organiza- tions Described in Section 170(c) of the In- ternal Revenue Code of 1986,”which can be searched atwww.irs.gov.Once notice of a change in status is published, donors can no longer automatically rely on the ad- vance ruling for charitable contribution de- duction purposes and must assume that the organization is a private foundation. See §601.601(d)(2)(ii)(b). An organization that is reclassified as a private foundation is subject to the section 4940 investment income tax and the sec- tion 507 termination tax for its five-year advance ruling period. The other Chapter 42 excise taxes applicable to private foun- dations do not apply during the five-year advance ruling period. In year six, the reclassified organization is subject to all Chapter 42 excise taxes that apply to pri- vate foundations. The advance ruling process is complex and burdensome for both taxpayers and the IRS and provides little tax administra- tion or compliance benefit. While statis- tics vary from year to year, approximately 95 percent of the organizations that receive advance rulings later receive definitive rul- ings that the organizations are public char- ities at the end of the advance ruling pe- riod. The current regulations governing advance rulings are complex, and, as dis- cussed above, were overridden in part by the Tax Reform Act of 1984. Moreover, the public support information that is re- ported on Form 8734 will be captured on Schedule A of the redesigned Form 990. For these reasons, in its 2003 report, the IRS Advisory Committee for Tax Exempt and Governmental Entities, a group that in- cludes representatives of exempt organiza- tions and practitioners, recommended that the advance ruling process be eliminated. The IRS believes that it can more effec- tively deploy its compliance resources by eliminating the advance ruling process and Form 8734 and instead monitoring public charity status based on public support in- formation reported on the revised Sched- ule A, to the redesigned Form 990. The revised Schedule A sets forth easier-to-fol- low rules for calculating public support and captures all of the information neces- sary for the IRS to monitor and verify com- pliance with the public support tests. Explanation of Provisions Private Foundation Status and Advance Rulings The temporary regulations eliminate the advance ruling process and provide in- stead that an organization will be a public charity in its first five years if it can show, in its application for exemption, that it can reasonably be expected to receive the req- uisite public support during such period. The temporary regulations also change the public support computation period for purposes of sections 170(b)(1)(A)(vi) and 509(a)(1) and section 509(a)(2) from a four-year period prior to the tested year to a five-year period that includes the current year. The temporary regulations also eliminate the substantial and material changes exception, which is made ob- solete by the establishment of a general five-year computation period. In addi- tion, §1.170A–9T(f), which corresponds to §1.170A–9(e) of the prior regulations and governs section 170(b)(1)(A)(vi) or- ganizations, has been revised throughout to simplify some of the language and to provide a better “road map” of what the provisions are designed to do. Elimination of Advance Ruling Process The temporary regulations eliminate advance rulings and the Form 8734 filing requirement for all new section 501(c)(3) organizations. Under the temporary reg- ulations, if, at the time of the initial ap- plication for exemption, an organization can establish to the satisfaction of the IRS that the organization can reasonably be ex- pected to meet a public support test during its first five years, the organization quali- fies as publicly supported for its first five years as a section 501(c)(3) organization. The IRS will issue a determination letter stating that the organization is exempt under section 501(c)(3) and is classified as a public charity. The organization will be a public charity for its first five years, regardless of the level of public support it in fact receives during this period. In addition, unlike a new organization’s pub- lic charity status under an advance ruling, which was conditioned on its ultimate sat- isfaction of a public support test on a Form 8734 filed with the IRS, under the tempo- rary regulations a new organization that can show it can reasonably be expected to 2008–43 I.R.B.968October 27, 2008 meet a public support test will be classified as a public charity for all purposes during its first five years. The organization will not owe any section 4940 tax or section 507 termination tax with respect to its first five years. Beginning with the organiza- tion’s sixth year, if the organization cannot establish that it is not a private foundation, such as a public charity or a supporting or- ganization under section 509(a)(3), it will be liable for the section 4940 excise tax and other Chapter 42 excise taxes appli- cable to private foundations for any year for which it cannot establish that it is not a private foundation. The standards for whether an organiza- tion can reasonably be expected to be pub- licly supported are drawn from the existing regulations. A new organization required to file Form 990 or Form 990–EZ,“Short Form Return of Organization Exempt From Income Tax,”will be required to report its support on Schedule A every year, but it willnotberequiredtofileForm8734after its first five years. Organizations will be required to meet a public support test using the general five-year computation period beginning in their sixth taxable years. The five-year computation period is discussed in detail in this preamble. Computation Period for Public Support The temporary regulations change the computation period for public support from a four-year period comprised of the four years prior to the tested year to a five-year period that includes the cur- rent year. Because all organizations will use a five-year computation period under the temporary regulations, the temporary regulations eliminate the substantial and material change exception, which allowed organizations to use a five-year compu- tation period rather than the four-year computation period under certain circum- stances. An organization that meets a public support test for the current taxable year is treated as publicly supported for the current taxable year and the immediately succeeding taxable year. Thus, for ex- ample, a calendar year organization that meets a public support test for taxable year 2011, based on the five-year computation period 2007 through 2011, is a public charity for taxable years 2011 and 2012. If the organization cannot meet a public support test for taxable year 2012 (based on the five-year computation period 2008 through 2012), it still will be a public charity for taxable year 2012, because it met the public support test for taxable year 2011 (based on the five-year computation period 2007 through 2011). If, however, the organization cannot meet a public sup- port test for taxable year 2013 as well, basedonthecomputationperiod2009 through 2013, the organization will be classified as a private foundation as of the beginning of taxable year 2013. Because an organization that cannot meet a public support test for the current taxable year is at risk of private foundation classification as of the first day of the subsequent taxable year, organizations may wish to carefully monitor their public support calculations. The IRS and the Treasury Department recognize that an organization may not be able to compute its public support for the current taxable yearuntil some time in the subsequent taxable year. In the example above, taxable year 2013 may have already begun by the time the calendar year or- ganization computes its public support for taxable year 2012 and realizes (perhaps for the first time) that it is at risk of be- ing classified as a private foundation as of January 1, 2013. Moreover, the organiza- tion may not know definitively that it is a private foundation for taxable year 2013 until some time in 2014, when it is able to definitively calculate its public support. Accordingly, the IRS will not assert pri- vate foundation excise taxes and/or penal- ties for all or part of the first taxable year in which an organization is reclassified as a private foundation due to failure to satisfy a public support test in cases where the im- position of such taxes would lead to unfair or inequitable results, such as where the change in the organization’s public support was unforeseeable or due to circumstances beyond the organization’s control. Orga- nizations that believe that the imposition of private foundation excise taxes and/or penalties against them for all or part of the first year in which they are reclassified as a private foundation would be unfair or in- equitable should contact the IRS, Exempt Organizations, Rulings and Agreements, Washington, DC, at (202) 283–4905. An organization will be required to provide to the IRS all of the relevant facts and circum- stances establishing that the imposition of private foundation taxes would be unfair or inequitable. Comments are requested regarding the specific circumstances that may warrant relief. The existing regulations contain numerous examples reflecting the four-year computation period.The temporary regulations update the ex- amples to reflect the new computa- tion period. These examples are in §1.170A–9T(f)(9), §1.509(a)–3T(c)(6) and §1.509(a)–3T(e)(3). Method of Accounting Previously, when a section 501(c)(3) organization computed its public support, it was required to use the cash method of accounting to report the amount of public support it received on Schedule A, even if it used the accrual method of account- ing in keeping its books under section 446, andinotherwisereportingonForm990. Under these temporary regulations, when a section 501(c)(3) organization computes its public support and reports the informa- tion on Schedule A, it must use the same accounting method that it uses in keeping its books under section 446 and that it oth- erwise uses to report on its Form 990. An organization that uses the accrual method will not be able to use the support informa- tion reported on Form 990 for prior years (because that support was reported using the cash method) to compute its public support for the current year, and instead must report all support for the computation period on the accrual method. Reliance These temporary regulations provide that donors may rely on an organization’s ruling that the organization is described in sections 170(b)(1)(A)(vi) and 509(a)(1) or in section 509(a)(2) until notice of a change in status is provided to the public (suchasbypublicationintheInternal Revenue Bulletin), unless the donor was responsible for or aware of the act or failure to act that results in the organiza- tion’s loss of public charity status. This rule is substantively the same as the rules contained in the current regulations. The regulations further provide that donors may rely on advance rulings that expire on or after June 9, 2008, until notice of a change in status is provided to the public (suchasbypublicationintheInternal Revenue Bulletin). October 27, 20089692008–43 I.R.B. Effective/Applicability Date and Transition Rules These temporary regulations are effec- tive on September 9, 2008, and apply to taxable years beginning on or after January 1, 2008. All organizations, including orga- nizations that received a definitive ruling prior to the effective date of these regula- tions, must use the new five-year computa- tion period to calculate public support for their first taxable year beginning on or af- ter January 1, 2008 and for all subsequent taxable years. These regulations provide a transition rule under which an organization that can- not meet a public support test for its first taxable year beginning on or after January 1, 2008, using the five-year computation period will continue to qualify as a public charity for its 2008 taxable year if it satis- fied a public support test for its 2007 tax- able year, based on public support received over the four-year period 2003 through 2006. These regulations also provide a transi- tion rule under which organizations that re- ceived advance rulings that expire on or af- ter June 9, 2008, are treated as new public charities under the newregulations, that is, public charities for all purposes without re- gard to public support in fact received dur- ing the first five years of their existence as section 501(c)(3) organizations. This rule effectively applies the temporary regula- tions to all organizations that are in their advance ruling period as of the effective date of these temporary regulations. As such, these organizations will not have to file Form 8734 at the end of the advance ruling period. Grantors and contributors can rely upon these organizations’ advance ruling letter as if it were a definitive rul- ing letter. The IRS plans to send follow-up letters to such organizations explaining the new rules. An organization that did not timely file Form 8734 at the expiration of its advance ruling period is not covered by the transition rule. Such an organization must file information with the IRS estab- lishing that it met a public support test dur- ing its advance ruling period in order to qualify as a public charity during its first five years. Forms 1023 filed prior to the effective date of these regulations that have not yet been processed by the IRS will be pro- cessed under the new regulations. The IRS will issue definitive rulings regarding pri- vate foundation status to such organiza- tions. Community Trust Rules Sections 1.170A–9(f)(10) through 1.170A–9(f)(14), which establish rules for when multiple trusts can be treated as a single entity for purposes of the pub- lic support tests, provide old transition rules that are obsolete, and, therefore, the transition rules are being deleted in these temporary regulations. Compensation Reporting Current §1.6033–2(a)(2)(ii)(g) requires that exempt organizations report on Form 990 the names and addresses of all of- ficers, directors, trustees, and persons having responsibilities or powers similar to those of officers, directors or trustees, of the organization. The reference to a person having responsibilities and pow- ers similar to those of officers, directors or trustees is meant to capture those per- sons who function as officers, directors or trustees of the organization, regardless of title, as well as the key employees of the organization. The redesigned Form 990 expanded the definition of key em- ployee to cover not only persons having responsibilities or powers similar to those of officers, directors or trustees, but also persons who manage a discrete segment or activity of the organization that rep- resents a substantial portion of the ac- tivities, assets, income, or expenses of the organization. The redesigned Form 990 requires reporting for only those key employees whose compensation exceeds $150,000. These temporary regulations add key employees to the list of persons in §1.6033–2T(a)(2)(ii)(g)whomaybe required to be reported on Form 990, as prescribed by publication, form or instruc- tions. Current §1.6033–2(a)(2)(ii)(g)re- quires that exempt organizations that make payments of more than $30,000 annually to employees and independent contractors report these persons’ names and addresses on Form 990. Current §1.6033–2(a)(2)(ii)(h) requires a schedule showing the compensation or other pay- ments made to the persons listed in para- graph (a)(2)(ii)(g). The redesigned Form 990 requires an organization to report, for each person listed (other than a key em- ployee or a former director or trustee of the organization), compensation and other payments totaling more than $100,000 annually paid by the organization and its related organizations to the person. For key employees, the redesigned Form 990 requiresanorganizationtoreportcom- pensation and other payments totaling more than $150,000 annually paid by the organization and its related organizations to the person. For former directors and trustees, the redesigned Form 990 requires an organization to report compensation and other payments totaling more than $10,000 annually paid by the organiza- tion and its related organizations to the person solely on account of the person’s past services as a director or trustee of the organization. As amended in these tempo- rary regulations, §1.6033–2T(a)(2)(ii)(g) gives the Commissioner discretion to re- vise the threshold amount for reporting by form and instruction. Furthermore, the current rule in §1.6033–2(a)(2)(ii)(h), which requires generally the reporting of compensation paid by an organization during its an- nual accounting period (or during the calendar year ending within such pe- riod), imposes no requirement that the compensation reported on Form 990 be consistent with what is reported on Form W–2,“Wage and Tax Statement,” or Form 1099–MISC,“Miscellaneous Income.” The current rule permits, but does not re- quire, a fiscal year organization to report paid compensation on a calendar year ba- sis. The redesigned Form 990 (Part VII and Schedule J) requires that compensa- tion reported as paid to officers and other employees be consistent with Form W–2 (box 5) and that compensation reported as paid to directors, individual trustees, and independent contractors be consis- tent with Form 1099–MISC (box 7). As amended by these temporary regulations, §1.6033–2T(a)(2)(ii)(h) requires an organ- ization to report compensation it has paid during the calendar year ending with or within the organization’s annual account- ing period, or during such other period as specified by form or form instructions. The rule in these temporary regulations will ensure consistency in compensation reporting, provide greater certainty about what compensation is to be reported, and reduce the reporting burden for most filing 2008–43 I.R.B.970October 27, 2008 organizations. A fiscal year organization will continue to be required to use fiscal year accounting when reporting aggregate compensation as an expense item (Form 990, Part IX). In addition, an organization will not be required to reconcile compen- sation for individuals reported in Part VII with compensation forsuch individuals included in its Part IX statement of ex- penses. Asset Disposition Reporting Schedule N,“Liquidation, Termina- tion, Dissolution, or Significant Disposi- tion of Assets,”of the redesigned Form 990 requires information about organiza- tions that liquidate, terminate, or dissolve, or sell, exchange, dispose of or other- wise transfer more than 25 percent of the organization’s assets. The collection of this information is authorized by sec- tion 6033, the general authorization for the collection of information on Form 990. The collection of information with respect to liquidations, dissolutions, ter- minations and substantial contractions is also authorized by section 6043(b). While section 6043(b) and its companion penalty provision section 6652(c) contemplate a separate return, since 1981 this informa- tion has been collected on Form 990. In order to eliminate the potential for inconsistency and confusion by taxpay- ers, the regulationsunder section 6043(b) have been amended so that they are consistent with section 6033 and the re- designed Schedule N. Generally, current §1.6043–3(b)(8) excuses from the infor- mation reporting requirement of section 6043(b) organizations other than former section 501(c)(3) organizations. The IRS believes that this exception is too broad, because information reporting from other exempt organizations may facilitate sound tax administration. Therefore, these tem- porary regulations amend §1.6043–3(b)(8) to provide discretion to narrow the excep- tion and require reporting from organiza- tions exempt under other Code sections by form or form instructions. In addition, these temporary regulations remove the definition of “substantial contraction” in §1.6043–3(d)(1), leaving this term to be defined by form or form instructions. Private Foundation Termination Section 1.507–2, which addresses pri- vate foundation terminations under sec- tion 507(b), contains references to the four-year computation period for pub- lic support and old transition rules re- lated to 12-month terminations that are obsolete. These temporary regulations revise §1.507–2 to delete references to the four-year computation period and the transition rules related to 12-month termi- nations. Revisions to Comply withFe d e r a l Register The final regulations make various non- substantive revisions to comply withFed- eral Registerrequirements. For exam- ple, the undesignated flush language pre- ceding prior §1.170A–9(a) was designated as paragraph (a), and all following para- graphs were redesignated accordingly. Special Analyses It has been determined that this Trea- sury decision is not a significant regula- tory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been deter- mined that section 553(b) of the Admin- istrative Procedure Act (5 U.S.C. chapter 5) does not apply. It is hereby certified that the collection of information in this regulation will not have a significant eco- nomic impact on a substantial number of small entities. This certification is based on the fact that burden on tax-exempt en- tities will be reduced by (1) eliminating the separate advance ruling process and the additional process forsubsequently seek- ing a definitive ruling, (2) clarifying rules regarding the method of accounting and period for reportingcertain items, and (3) providing discretion for the IRS to narrow or clarify circumstances under which re- porting is required. Accordingly, a Regu- latory Flexibility Analysis under the Reg- ulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advo- cacy of the Small Business Administration for comment on its impact on small busi- ness. Drafting Information The principal author of this regulation is Terri Harris, Office of Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department par- ticipated in their development. ***** Amendments to the Regulations Accordingly, 26 CFR parts 1 and 602 are amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.170A–9 is amended as follows: 1. Paragraphs (a), (b), (c), (d), (e), (f), (g), (h) and (i) are redesignated as para- graphs (b), (c), (d), (e), (f), (g), (h), (i) and (j), respectively. 2. The undesignated text following the section heading is designated as paragraph (a). 3. The newly-designated paragraphs (a) and (d) are revised. 4. New paragraph (k) is added. The addition and revisions read as fol- lows: §1.170A–9 Definition of section 170(b)(1)(A) organization. (a) The termsection 170(b)(1)(A) or- ganizationas used in the regulations un- der section 170 means any organization described in paragraphs (b) through (j) of this section, effective with respect to tax- able years beginning after December 31, 1969, except as otherwise provided. Sec- tion 1.170–2(b) shall continue to be ap- plicable with respect to taxable years be- ginning prior to January 1, 1970. The termone or more organizations described in section 170(b)(1)(A) (other than clauses (vii) and (viii))as used in sections 507 and 509 of the Internal Revenue Code (Code) and the regulations means one or more organizations described in paragraphs (b) through (f) of this section, except as modi- fied by the regulations under part II of sub- chapter F of chapter 1 or under chapter 42. October 27, 20089712008–43 I.R.B. ***** (d)Hospitals and medical research or- ganizations—(1)Hospitals. An organiza- tion (other than one described in paragraph (d)(2) of this section) is described in sec- tion 170(b)(1)(A)(iii) if— (i) It is a hospital; and (ii) Its principal purpose or function is the providing of medical or hospital care or medical education or medical research. (A) The termhospitalincludes— (1) Federal hospitals; and (2) State, county, and municipal hos- pitals which are instrumentalities of gov- ernmental units referred to in section 170(c)(1) and otherwise come within the definition. A rehabilitation institution, outpatient clinic, or community mental health or drug treatment center may qual- ify as a “hospital” within the meaning of paragraph (d)(1)(i) of this section if its principal purpose or function is the pro- viding of hospital or medical care. For purposes of this paragraph (d)(1)(ii), the termmedical careshall include the treat- ment of any physical or mental disability or condition, whether on an inpatient or outpatient basis, provided the cost of such treatment is deductible under section 213 by the person treated. An organization, all the accommodations of which qualify as being part of a “skilled nursing facility” within the meaning of 42 U.S.C. 1395x(j), may qualify as a “hospital” within the meaning of paragraph(d)(1)(i) of this sec- tion if its principal purpose or function is the providing of hospital or medical care. For taxable years ending after June 28,1968,thetermhospitalalso includes cooperative hospital service organizations which meet the requirements of section 501(e) and §1.501(e)–1. (B) The termhospitaldoes not, how- ever, include convalescent homes or homes for children or the aged, nor does the term include institutions whose principal purpose or function is to train handicapped individuals to pursue some vocation. An organization whose princi- pal purpose or function is the providing of medical education or medical research will not be considered a “hospital” within the meaning of paragraph (d)(1)(i) of this section, unless it is also actively engaged in providing medical or hospital care to patients on its premises or in its facilities, on an inpatient or outpatient basis, as an integral part of its medical education or medical research functions. See, how- ever, paragraph (d)(2) of this section with respect to certain medical research organi- zations. (2)Certain medical research organi- zations—(i)Introduction. A medical re- search organization is described in section 170(b)(1)(A)(iii) if the principal purpose or functions of such organization are med- ical research and if it is directly engaged in the continuous active conduct of medical research in conjunction with a hospital. In addition, for purposes of the 50 percent limitation of section 170(b)(1)(A) with respect to a contribution, during the calen- dar year in which the contribution is made such organization must be committed to spendsuchcontribution for such research before January 1 of the fifth calendar year which begins after the date such contri- bution is made. An organization need not receive contributions deductible un- der section 170 to qualify as a medical research organization and such organi- zation need not be committed to spend amounts to which the limitation of sec- tion 170(b)(1)(A) does not apply within the 5-year period referred to in this para- graph (d)(2)(i). However, the requirement of continuous active conduct of medical research indicates that the type of organ- ization contemplated in this paragraph (d)(2) is one which is primarily engaged directly in the continuous active conduct of medical research, as compared to an in- active medical research organization or an organization primarily engaged in funding the programs of other medical research organizations. As in the case of a hospi- tal, since an organization is ordinarily not described in section 170(b)(1)(A)(iii) as a hospital unless it functions primarily as a hospital, similarly a medical research organization is not so described unless it is primarily engaged directly in the continu- ous active conduct of medical research in conjunction with a hospital. Accordingly, the rules of this paragraph (d)(2) shall only apply with respect to such medical research organizations. (ii)General rule. An organization (other than a hospital described in para- graph (d)(1) of this section) is described in section 170(b)(1)(A)(iii) only if within the meaning of this paragraph (d)(2): (A) The principal purpose or functions of such organization are to engage primar- ily in the conduct of medical research; and (B) It is primarily engaged directly in the continuous active conduct of medi- cal research in conjunction with a hospital which is— (1) Described in section 501(c)(3); (2) A Federal hospital; or (3) An instrumentality of a governmen- tal unit referred to in section 170(c)(1). (C) In order for a contribution to such organization to qualify for purposes of the 50 percent limitation of section 170(b)(1)(A), during the calendar year in which such contribution is made or treated as made, such organization must be com- mitted (within the meaning of paragraph (d)(2)(viii) of this section) to spend such contribution for such active conduct of medical research before January 1 of the fifth calendar year beginning after the date such contribution is made. For the mean- ing of the term “medical research” see paragraph (d)(2)(iii) of this section. For the meaning of the term “principal purpose or functions” see paragraph (d)(2)(iv) of this section. For the meaning of the term “primarily engaged directly in the contin- uous active conduct of medical research” see paragraph (d)(2)(v) of this section. For the meaning of the term “medical research in conjunction with a hospital” see para- graph (d)(2)(vii) of this section. (iii)Definition of medical research. Medical researchmeans the conduct of investigations, experiments, and studies to discover, develop, or verify knowledge relating to the causes, diagnosis, treat- ment, prevention, or control of physical or mental diseases and impairments of man. To qualify as a medical research organization, the organization must have or must have continuously available for its regular use the appropriate equipment and professional personnel necessary to carry out its principal function. Medical research encompasses the associated dis- ciplines spanning the biological, social and behavioral sciences. Such disciplines include chemistry (biochemistry, physi- cal chemistry, bioorganic chemistry, etc.), behavioral sciences (psychiatry, physi- ological psychology, neurophysiology, neurology, neurobiology, and social psy- chology, etc.), biomedical engineering (applied biophysics, medical physics, and medical electronics, for example, devel- oping pacemakers and other medically related electrical equipment), virology, immunology, biophysics, cell biology, 2008–43 I.R.B.972October 27, 2008 molecular biology, pharmacology, toxi- cology, genetics, pathology, physiology, microbiology, parasitology, endocrinol- ogy, bacteriology, and epidemiology. (iv)Principal purpose or functions. An organization must be organized for the principal purpose of engaging primar- ily in the conduct of medical research in order to be an organization meeting the requirements of this paragraph (d)(2). An organization will normally be considered to be so organized if it is expressly or- ganized for the purpose of conducting medical research and is actually engaged primarily in the conduct of medical re- search. Other facts and circumstances, however, may indicate that an organiza- tion does not meet the principal purpose requirement of this paragraph (d)(2)(iv) even where its governing instrument so expressly provides. An organization that otherwise meets all of the requirements of this paragraph (d)(2) (including this paragraph (d)(2)(iv)) to qualify as a med- ical research organization will not fail to so qualify solely because its governing instrument does not specifically state that its principal purpose is to conduct medical research. (v)Primarily engaged directly in the continuous active conduct of medical re- search. (A) In order for an organization to be primarily engaged directly in the continuous active conduct of medical re- search, the organization must either devote a substantial part of its assets to, or ex- pend a significant percentage of its endow- ment for, such purposes, or both. Whether an organization devotes a substantial part of its assets to, or makes significant ex- penditures for, such continuous active con- duct depends upon the facts and circum- stances existing in each specific case. An organization will be treated as devoting a substantial part of its assets to, or ex- pending a significant percentage of its en- dowment for, such purposes if it meets the appropriate test contained in paragraph (d)(2)(v)(B) of this section. If an organi- zation fails to satisfy both of such tests, in evaluating the facts and circumstances, the factor given most weight is the margin by which the organization failed to meet such tests. Some of the other facts and circum- stances to be considered in making such a determination are— (1) If the organization fails to satisfy the tests because it failed to properly value its assets or endowment, then upon determi- nation of the improper valuation it devotes additional assets to, or makes additional expenditures for, such purposes, so that it satisfies such tests on an aggregate basis for the prior year in addition to such tests for the current year; (2) The organization acquires new as- sets or has a significant increase in the value of its securities after it had developed a budget in a prior year based on the assets then owned and the then current values; (3) The organization fails to make ex- penditures in any given year because of the interrelated aspects of its budget and long-term planning requirements, for ex- ample, where an organization prematurely terminates an unsuccessful program and because of long-term planning require- ments it will not be able to establish a fully operational replacement program immedi- ately; and (4) The organization has as its objective to spend less than a significant percentage in a particular year but make up the dif- ference in the subsequent few years, or to budget a greater percentage in an earlier year and a lower percentage in a later year. (B) For purposes of this section, an or- ganization which devotes more than one half of its assets to the continuous active conduct of medical research will be con- sideredtobedevotingasubstantialpart of its assets to such conduct within the meaning of paragraph (d)(2)(v)(A) of this section. An organization which expends funds equaling 3.5 percent or more of the fair market value of its endowment for the continuous active conduct of medi- cal research will be considered to have expended a significant percentage of its endowment for such purposes within the meaning of paragraph (d)(2)(v)(A) of this section. (C) Engaging directly in the continu- ous active conduct of medical research does not include the disbursing of funds to other organizations for the conduct of re- search by them or the extending of grants or scholarships to others. Therefore, if an organization’s primary purpose is to dis- burse funds to other organizations for the conduct of research by them or to extend grants or scholarships to others, it is not primarily engaged directly in the continu- ous active conduct of medical research. (vi)Special rules. The following rules shall apply in determining whether a sub- stantial part of an organization’s assets are devoted to, or its endowment is expended for, the continuous active conduct of med- ical research activities: (A) An organization may satisfy the tests of paragraph (d)(2)(v)(B) of this sec- tion by meeting such tests either for a com- putation period consisting of the imme- diately preceding taxable year, or for the computation period consisting of the im- mediately preceding four taxable years. In addition, for taxableyears beginning in 1970, 1971, 1972, 1973, and 1974, if an organization meets such tests for the com- putation period consisting of the first four taxable years beginning after December 31, 1969, an organization will be treated as meeting such tests, not only for the tax- able year beginning in 1974, but also for the preceding four taxable years. Thus, for example, if a calendar year organization failed to satisfy such tests for a computa- tion period consisting of 1969, 1970, 1971, and 1972, but on the basis of a compu- tation period consisting of the years 1970 through 1973, it expended funds equaling 3.5 percent or more of the fair market value of its endowment for the continuous ac- tive conduct of medical research, such or- ganization will be considered to have ex- pended a significant percentage of its en- dowment for such purposes for the tax- able years 1970 through 1974. In apply- ing such tests for a four-year computa- tion period, although the organization’s ex- penditures for the entire four-year period shall be aggregated, the fair market value of its endowment for each year shall be summed, even though, in the case of an asset held throughout the four-year period, the fair market value of such an asset will be counted four times. Similarly, the fair market value of an organization’s assets for each year of a four-year computation pe- riod shall be summed. (B) Any property substantially all the use of which is “substantially re- lated” (within the meaning of section 514(b)(1)(A)) to the exercise or perfor- mance of the organization’s medical re- search activities will not be treated as part of its endowment. (C) The valuation of assets must be made with commonly accepted methods of valuation. A method of valuation made in accordance with the principles stated in the regulations under section 2031 constitutes an acceptable method of valuation. Assets October 27, 20089732008–43 I.R.B. may be valued as of any day in the organi- zation’s taxable year to which such valua- tion applies, provided the organization fol- lows a consistent practice of valuing such asset as of such date in all taxable years. For purposes of paragraph (d)(2)(v) of this section, an asset held by the organization for part of a taxable year shall be taken into account by multiplying the fair market value of such asset by a fraction, the nu- merator of which is the number of days in such taxable year that the organization held such asset and the denominator of which is the number of days in such taxable year. (vii)Medical research in conjunction with a hospital. The organization need not be formally affiliated with a hospital to be considered primarily engaged directly in the continuous active conduct of medical research in conjunction with a hospital, but in any event there must be a joint effort on the part of the research organization and the hospital pursuant to an understanding that the two organizations will maintain continuing close cooperation in the active conduct of medical research. For exam- ple, the necessary joint effort will normally be found to exist if the activities of the medical research organization are carried on in space located within or adjacent to a hospital, the organization is permitted to utilize the facilities (including equipment, case studies, etc.) of the hospital on a con- tinuing basis directly in the active conduct of medical research, and there is substan- tial evidence of the close cooperation of the members of the staff of the research organization and members of the staff of the particular hospital or hospitals. The active participation in medical research by members of the staff of the particular hos- pital or hospitals will be considered to be evidence of such close cooperation. Be- cause medical research may involve sub- stantial investigation, experimentation and study not immediately connected with hos- pital or medical care, the requisite joint effort will also normally be found to ex- ist if there is an established relationship between the research organization and the hospital which provides that the coopera- tion of appropriate personnel and the use of facilities of the particular hospital or hos- pitals will be required whenever it would aid such research. (viii)Commitment to spend contribu- tions. The organization’s commitment that the contribution will be spent within the prescribed time only for the prescribed purposes must be legally enforceable. A promise in writing to the donor in consid- eration of his making a contribution that such contribution will be so spent within the prescribed time will constitute a com- mitment. The expenditure of contributions received for plant, facilities, or equipment, used solely for medical research purposes (within the meaning of paragraph (d)(2)(ii) of this section), shall ordinarily be con- sidered to be an expenditure for medical research. If a contribution is made in other than money, it shall be considered spent for medical research if the funds from the proceeds of a disposition thereof are spent by the organization within the five-year period for medical research; or, if such property is of such a kind that it is used on a continuing basis directly in connection with such research, it shall be considered spent for medical research in the year in which it is first so used. A medical research organization will be presumed to have made the commitment required under this paragraph (d)(2)(viii) with re- spect to any contribution if its governing instrument or by-laws require that every contribution be spent for medical research before January 1 of the fifth year which begins after the date such contribution is made. (ix)Organizational period for new organizations. A newly created organ- ization, for its “organizational” period, shall be considered to be primarily en- gaged directly in the continuous active conduct of medical research in conjunc- tion with a hospital within the meaning of paragraphs (d)(2)(v) and (d)(2)(vii) of thissectionifduringsuchperiodtheor- ganization establishes to the satisfaction of the Commissioner that it reasonably can be expected to be so engaged by the end of such period. The information to be submitted shall include detailed plans showing the proposed initial medical re- search program, architectural drawings for the erection of buildings and facilities to be used for medical research in accor- dance with such plans, plans to assemble a professional staff and detailed projections showing the timetable for the expected accomplishment of the foregoing. The “organizational” period shall be that pe- riod which is appropriate to implement the proposed plans, giving effect to the proposed amounts involved and the mag- nitude and complexity of the projected medical research program, but in no event in excess of three years following organi- zation. (x)Examples. The application of this paragraph (d)(2) may be illustrated by the following examples: Example 1. N, an organization referred to in sec- tion 170(c)(2), was created to promote human knowl- edge within the field of medical research and medical education. All of N’s assets were contributed to it by A and consist of a diversified portfolio of stocks and bonds. N’s endowment earns 3.5 percent annually, which N expends in the conduct of various medical research programs in conjunction with Y hospital. N is located adjacent to Y hospital, makes substantial use of Y’s facilities, and there is close cooperation be- tween the staffs of N and Y. N is directly engaged in the continuous active conduct of medical research in conjunction with a hospital, meets the principal pur- pose test described in paragraph (d)(2)(iv) of this sec- tion, and is therefore an organization described in sec- tion 170(b)(1)(A)(iii). Example 2. O, an organization referred to in sec- tion 170(c)(2), was created to promote human knowl- edge within the field of medical research and medical education. All of O’s assets consist of a diversified portfolio of stocks and bonds. O’s endowment earns 3.5 percent annually, which O expends in the conduct of various medical research programs in conjunction with certain hospitals. However, in 1974, O receives a substantial bequest of additional stocks and bonds. O’s budget for 1974 does not take into account the bequest and as a result O expends only 3.1 percent of its endowment in 1974. However, O establishes that it will expend at least 3.5 percent of its endow- ment for the active conduct of medical research for taxable years 1975 through 1978. O is therefore di- rectly engaged in the continuous active conduct of medical research in conjunction with a hospital for taxable year 1975. Since O also meets the principal purpose test described in paragraph (d)(2)(iv) of this section, it is therefore an organization described in section 170(b)(1)(A)(iii) for taxable year 1975. Example 3. M, an organization referred to in sec- tion 170(c)(2), was created to promote human knowl- edge within the field of medical research and medi- cal education. M’s activities consist of the conduct of medical research programs in conjunction with vari- ous hospitals. Under such programs, researchers em- ployed by M engage in research at laboratories set aside for M within the various hospitals. Substan- tially all of M’s assets consists of 100 percent of the stock of X corporation, which has a fair market value of approximately 100 million dollars. X pays M ap- proximately 3.3 million dollars in dividends annually, which M expends in the conduct of its medical re- search programs. Since M expends only 3.3 percent of its endowment, which does not constitute a sig- nificant percentage, in the active conduct of medical research, M is not an organization described in sec- tion 170(b)(1)(A)(iii) because M is not engaged in the continuous active conduct of medical research. (xi)Special rule for organizations with existing ruling. This paragraph (d)(2)(xi) shall apply to an organization that prior to January 1, 1970, had received a rul- 2008–43 I.R.B.974October 27, 2008 ing or determination letter which has not been expressly revoked holding the organ- ization to be a medical research organiza- tion described in section 170(b)(1)(A)(iii) and with respect to which the facts and cir- cumstances on which the ruling was based have not substantially changed. An organ- ization to which this paragraph (d)(2)(xi) applies shall be treated as an organization described in section 170(b)(1)(A)(iii) for a period not ending prior to 90 days af- ter February 13, 1976 (or where appro- priate, for taxable years beginning before such 90th day). In addition, with respect to a grantor or contributor under sections 170, 507, 545(b)(2), 556(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522, the sta- tus of an organization to which this para- graph (d)(2)(xi) applies will not be affected until notice of change of status under sec- tion 170(b)(1)(A)(iii) is made to the pub- lic (such as by publication in the Inter- nal Revenue Bulletin). The preceding sen- tence shall not apply if the grantor or con- tributor had previously acquired knowl- edge that the Internal Revenue Service had given notice to such organization that it would be deleted from classification as a section 170(b)(1)(A)(iii) organization. ***** (k)Effective/applicability date.This section shall apply to taxable years begin- ning after December 31, 1969. The ap- plicability of paragraph (f) of this section shall be limited to taxable years beginning before January 1, 2008. Par. 3. Section 1.170A–9T is added to read as follows: §1.170A–9T Definition of section 170(b)(1)(A) organization (temporary). (a) through (e) [Reserved]. For further guidance, see §1.170A–9(a) through (e). (f)Definition of section 170(b)(1) (A)(vi) organization—(1)In general. An organization is described in section 170(b)(1)(A)(vi) if it— (i)Isreferredtoinsection170(c)(2) (other than an organization specifically de- scribed in paragraphs (b) through (e) of this section); and (ii) Normally receives a substantial part of its support from a governmental unit re- ferred to in section 170(c)(1) or from direct or indirect contributions from the general public (“publicly supported”). For pur- poses of this paragraph (f)(1)(ii), an organ- ization is publicly supported if it meets the requirements of either paragraph (f)(2) of this section (33 1 /3percent support test) or paragraph (f)(3) of this section (facts and circumstances test). Paragraph (f)(4) of this section defines normally for purposes of the 33 1 /3percent support test, the facts and circumstances test and for new orga- nizations in the first 5 years of the organ- ization’s existence as a section 501(c)(3) organization. Paragraph (f)(5) of this sec- tion provides for determinations of foun- dation classification and rules for reliance by donors and contributors. Paragraphs (f)(6), (7), and (8) of this section list the items that are included and excluded from the term support. Paragraph (f)(9) of this section provides examples of the applica- tion of this paragraph. Types of organiza- tions that, subject to the provisions of this paragraph, generally qualify under section 170(b)(1)(A)(vi) as “publicly supported” are publicly or governmentally supported museums of history, art, or science, li- braries, community centers to promote the arts, organizations providing facilities for the support of an opera, symphony orches- tra, ballet, or repertory drama or for some other direct service to the general public. (2)Determination whether an organi- zation is “publicly supported”;33 1 /3per- cent support test. An organization is pub- licly supported if the total amount of sup- port (see paragraphs (f)(6), (7), and (8) of this section) that the organization nor- mally (see paragraph (f)(4)(i) of this sec- tion) receives from governmental units re- ferred to in section 170(c)(1), from contri- butions made directly or indirectly by the general public, or from a combination of these sources, equals at least 33 1 /3percent of the total support normally received by the organization. See paragraph (f)(9)Ex- ample 1of this section. (3)Determination whether an organi- zation is “publicly supported”;facts and circumstances test. Even if an organiza- tion fails to meet the 33 1 /3percent sup- port test, it is publicly supported if it nor- mally receives a substantial part of its sup- port from governmental units, from con- tributions made directly or indirectly by the general public, or from a combination of these sources, and meets the other re- quirements of this paragraph (f)(3). In or- der to satisfy the facts and circumstances test, an organization must meet the require- ments of paragraphs (f)(3)(i) and (f)(3)(ii) of this section. In addition, the organi- zation must be in the nature of an organ- ization that is publicly supported, taking into account all relevant facts and circum- stances, including the factors listed in para- graphs (f)(3)(iii)(A) through (E) of this section. (i)Ten percent support limitation.The percentage of support (see paragraphs (f)(6), (7) and (8) of this section) nor- mally (see paragraph (f)(4) of this section) received by an organization from gov- ernmental units, from contributions made directly or indirectlyby the general public, or from a combination of these sources, must be substantial. For purposes of this paragraph (f)(3), an organization will not be treated as normally receiving a sub- stantial amount of governmental or public support unless the total amount of gov- ernmental and public support normally received equals at least 10 percent of the total support normally received by such organization. (ii)Attraction of public support.An organization must be so organized and operated as to attract new and additional public or governmental support on a con- tinuous basis. An organization will be considered to meet this requirement if it maintains a continuous andbona fide program for solicitation of funds from the general public, community, or member- ship group involved, or if it carries on activities designed to attract support from governmental units or other organiza- tions described in section 170(b)(1)(A)(i) through (vi). In determining whether an organization maintains a continuous and bona fideprogram for solicitation of funds from the general public or community, consideration will be given to whether the scope of its fundraising activities is reasonable in light of its charitable activ- ities. Consideration will also be given to the fact that an organization may, in its early years of existence, limit the scope of its solicitation to persons deemed most likely to provide seed money in an amount sufficient to enable it to commence its charitable activities and expand its solici- tation program. (iii) In addition to the requirements set forth in paragraphs (f)(3)(i) and (ii) of this section that must be satisfied, all pertinent facts and circumstances, including the fol- lowing factors, will be taken into consid- eration in determining whether an organ- October 27, 20089752008–43 I.R.B. ization is “publicly supported” within the meaning of paragraph (f)(1) of this sec- tion. However, an organization is not gen- erally required to satisfy all of the factors in paragraphs (f)(3)(iii)(A) through (E) of this section. The factors relevant to each case and the weight accorded to any one of them may differ depending upon the na- ture and purpose of the organization and the length of time it has been in existence. (A)Percentage of financial support. The percentage of support received by an organization from public or governmental sources will be taken into consideration in determining whether an organization is “publicly supported.” The higher the percentage of support above the 10 per- cent requirement of paragraph (f)(3)(i) of this section from public or governmen- tal sources, the lesser will be the burden of establishing the publicly supported nature of the organization through other factors described in this paragraph (f)(3), while the lower the percentage, the greater will be the burden. If the percentage of the organization’s support from public or governmental sources is low because it receives a high percentage of its total support from investment income on its en- dowment funds, such fact will be treated as evidence of compliance with this sub- division if such endowment funds were originally contributed by a governmental unit or by the general public. However, if such endowment funds were origi- nally contributed by a few individuals or members of their families, such fact will increase the burden on the organization of establishing compliance with the other factors described in paragraph (f)(3)(iii) of this section. (B)Sources of support. The fact that an organization meets the requirement of paragraph (f)(3)(i) of this section through support from governmental units or di- rectly or indirectly from a representative number of persons, rather than receiving almost all of its support from the mem- bers of a single family, will be taken into consideration in determining whether an organization is “publicly supported.” In determining what is a “representative number of persons,” consideration will be given to the type of organization involved, the length of time it has been in existence, and whether it limits its activities to a par- ticular community or region or to a special field which can be expected to appeal to a limited number of persons. (C)Representative governing body. The fact that an organization has a gov- erning body which represents the broad interests of the public, rather than the personal or private interests of a limited number of donors (or persons standing in a relationship to such donors which is de- scribed in section 4946(a)(1)(C) through (G)), will be taken into account in deter- mining whether an organization is “pub- licly supported.” An organization will be treated as meeting thisrequirementifit has a governing body (whether designated in the organization’s governing instrument or bylaws as a Board of Directors, Board of Trustees, etc.) which is comprised of public officials acting in their capacities as such; of individuals selected by public of- ficials acting in theircapacities as such; of persons having special knowledge or ex- pertise in the particular field or discipline in which the organization is operating; of community leaders, such as elected or appointed officials, clergymen, educators, civic leaders, or other such persons repre- senting a broad cross-section of the views and interests of the community; or, in the case of a membership organization, of individuals elected pursuant to the organ- ization’s governing instrument or bylaws by a broadly based membership. (D)Availability of public facilities or services; public participation in programs or policies.(1) The fact that an organiza- tion is of the type which generally provides facilities or services directly for the benefit of the general public on a continuing basis (such as a museum or library which holds open its building or facilities to the public, a symphony orchestra which gives public performances, a conservation organization which provides educational services to the public through the distribution of educa- tional materials, or an old age home which provides domiciliary or nursing services for members of the general public) will be considered evidence that such organization is “publicly supported.” (2) The fact that an organization is an educational or research institution which regularly publishes scholarly studies that arewidelyusedbycollegesanduniversi- ties or by members of the general public will also be considered evidence that such organization is “publicly supported.” (3) Similarly, the following factors will also be considered evidence that an organ- ization is “publicly supported”: (i) The participation in, or sponsor- ship of, the programs of the organization by members of the public having special knowledge or expertise, public officials, or civic or community leaders. (ii) The maintenance of a definitive pro- gram by an organization to accomplish its charitable work in the community, such as combating community deterioration in an economically depressed area that has suf- fered a major loss of population and jobs. (iii) The receipt of a significant part of its funds from a public charity or gov- ernmental agency to which it is in some way held accountable as a condition of the grant, contract, or contribution. (E)Additional factors pertinent to membership organizations. The following are additional factors to be considered in determining whether a membership organ- ization is “publicly supported”: (1) Whether the solicitation for dues- paying members is designed to enroll a substantial number of persons in the com- munity or area, or in a particular profession or field of special interest (taking into ac- count the size of the area and the nature of the organization’s activities). (2) Whether membership dues for indi- vidual (rather than institutional) members have been fixed at rates designed to make membership available to a broad cross sec- tion of the interested public, rather than to restrict membership to a limited number of persons. (3) Whether the activities of the or- ganization will be likely to appeal to per- sons having some broad common interest or purpose, such as educational activities in the case of alumni associations, musi- cal activities in the case of symphony so- cieties, or civic affairs in the case of par- ent-teacher associations. SeeExamples 2 through5contained in paragraph (f)(9) of this section for illustrations of this para- graph (f)(3). (4)Definition of normally; general rule—(i)Normally; 33 1 /3percent support test. An organization meets the 33 1 /3per- cent support test for its current taxable year and the taxable year immediately suc- ceeding its current year, if, for the current taxable year and the 4 taxable years imme- diately preceding the current taxable year, 2008–43 I.R.B.976October 27, 2008 the organization meets the 33 1 /3percent support test on an aggregate basis. (ii)Normally;facts and circumstances test. An organization meets the facts and circumstances test for its current taxable year and the taxable year immediately succeeding its current year, if, for the cur- rent taxable year and the 4 taxable years immediately preceding the current taxable year, the organization meets the facts and circumstances test on an aggregate basis. In the case of paragraphs (f)(3)(iii)(A) and (B) of this section, facts pertinent to the 5-year period may also be taken into con- sideration. The combination of factors set forth in paragraphs (f)(3)(iii)(A) through (E) of this section that an organization “normally” must meet does not have to be the same for each 5-year period so long as there exists a sufficient combination of factors to show compliance with the facts and circumstances test. (iii)Special rule. The fact that an or- ganization has normally met the require- ments of the 33 1 /3percent support test for a current taxable year, but is unable nor- mally to meet such requirements for a suc- ceeding taxable year, will not in itself pre- vent such organization from meeting the facts and circumstances test for such suc- ceeding taxable year. (iv)Example. The application of para- graphs (f)(4)(i), (ii), and (iii) of this section may be illustrated by the following exam- ple: Example. (i) X is recognized as an organization described in section 501(c)(3). On the basis of sup- port received during taxable years 2008, 2009, 2010, 2011 and 2012, it meets the 33 1 /3percent support test for taxable year 2012 (thecurrent taxable year). X also meets the 33 1 /3support test for 2013, as the im- mediately succeeding taxable year. (ii) In taxable years 2009, 2010, 2011, 2012 and 2013, in the aggregate, X does not receive at least 33 1 /3percent of its support from governmental units referred to in section 170(c)(1), from contributions made directly or indirectly by the general public, or from a combination of these sources. X still meets the 33 1 /3percent support test for taxable year 2013 based on the aggregate support received for taxable years 2008 through 2012. (iii) In taxable years 2010, 2011, 2012, 2013 and 2014, in the aggregate, X does not receive at least 33 1 /3percent of its support from governmental units referred to in section 170(c)(1), from contributions made directly or indirectly by the general public, or from a combination of these sources. X does not meet the 33 1 /3percent support test for taxable year 2014. (iv) Based on the aggregate support and other fac- tors listed in paragraphs (f)(3)(iii)(A) through (E) of this section for taxable years 2009, 2010, 2011, 2012, and 2013, X meets the facts and circumstances test for taxable year 2013 and for taxable year 2014 (as the immediately succeeding taxable year). There- fore, X is still an organization described in section 170(b)(1)(A)(vi) for taxable year 2014, even though Xdidnotmeetthe33 1 /3percent support test for that year. (v)Normally; first five years of an organization’s existence. (A) An organi- zation meets the 33 1 /3public support test or the facts and circumstances test during itsfirstfivetaxableyearsasasection 501(c)(3) organization if the organization can reasonably be expected to meet the requirements of the 33 1 /3percent sup- port test or the facts and circumstances test during that period. With respect to such organization’s sixth taxable year, the organization shall be described in sec- tion 170(b)(1)(A)(vi) if it meets the 33 1 /3 percent support test or the facts and cir- cumstances test under the definitions of normally set forth in paragraphs (f)(4)(i) through (iii) of this section for its sixth taxable year (based on support received in its second through sixth taxable years), or for its fifth taxable year (based on support received in its first through fifth taxable years). (B)Basic consideration. In determin- ing whether an organization can reason- ably be expected (within the meaning of paragraph (f)(4)(v)(A) of this section) to meet the requirements of the 33 1 /3percent support test or the facts and circumstances test during its first five taxable years, the basic consideration is whether its organi- zational structure, current or proposed pro- grams or activities, and actual or intended method of operation are such as can rea- sonably be expected to attract the type of broadly based support from the general public, public charities, and governmental units that is necessary to meet such tests. The factors that are relevant to this deter- mination, and the weight accorded to each of them, may differ from case to case, de- pending on the nature and functions of the organization. The information to be con- sidered for this purpose shall consist of all pertinent facts and circumstances relating to the requirements set forth in paragraph (f)(3) of this section. (vi)Example. The application of para- graph (f)(4)(v) of this section may be illus- trated by the following example: Example. (i) Organization Y was formed in January 2008, and uses a December 31 taxable year. After September 9, 2008, and before De- cember 31, 2008, Organization Y filed Form 1023 requesting recognition of exemption as an organiza- tion described in section 501(c)(3) and in sections 170(b)(1)(A)(vi) and 509(a)(1). In its application, Organization Y established that it can reasonably be expected to operate as a public charity under paragraph (f)(4)(v) of this section. Subsequently, Organization Y received a ruling or determination letter that it is an organization described in sec- tion 501(c)(3) and sections 170(b)(1)(A)(vi) and 509(a)(1) effective as of the date of its formation. (ii) Organization Y is described in sections 170(b)(1)(A)(vi) and 509(a)(1) for its first 5 taxable years (the taxable years ending December 31, 2008, through December 31, 2012). (iii) Organization Y can qualify as a public char- ity beginning with the taxable year ending Decem- ber 31, 2013, if Organization Y can meet the require- ments of paragraphs (f)(2) through (3) of this section or §1.509(a)–3T(a) through (b) for the taxable years ending December 31, 2009, through December 31, 2013, or for the taxable years ending December 31, 2008, through December 31, 2012. (5)Determinations on foundation clas- sification and reliance. (i) A ruling or determination letter that an organization is described in section 170(b)(1)(A)(vi) may be issued to an organization. Such determination may be made in conjunction with the recognition of the organization’s tax-exempt status or at such other time as the organization believes it is described in section 170(b)(1)(A)(vi). The ruling or determination letter that the organization is described in section 170(b)(1)(A)(vi) may be revoked if, upon examination, the organization has not met the require- ments of paragraph (f) of this section. The ruling or determination letter that the organization is described in section 170(b)(1)(A)(vi) also may be revoked if the organization’s application for a ruling or determination contained one or more material misstatements of fact or if such application was part of a scheme or plan to avoid or evade any provision of the Internal Revenue Code. The revocation of the determination that an organization is described in section 170(b)(1)(A)(vi) does not preclude revocation of the determina- tion that the organization is described in section 501(c)(3). (ii)Status of grantors or contribu- tors. For purposes of sections 170, 507, 545(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522, grantors or contrib- utors may rely upon a determination letter or ruling that an organization is described in section 170(b)(1)(A)(vi) until the In- ternal Revenue Service publishes notice of a change of status (for example, in the Internal Revenue Bulletin or Publication October 27, 20089772008–43 I.R.B. 78, “Cumulative List of Organizations De- scribed in Section 170(c) of the Internal Revenue Code of 1986,”which can be searched atwww.irs.gov). For this pur- pose, grantors or contributors also may rely on an advance ruling that expires on or after June 9, 2008. However, a grantor or contributor may not rely on such an advance ruling or any determination letter or ruling if the grantor or contributor was responsible for, or aware of, the act or failure to act that resulted in the organiza- tion’s loss of classification under section 170(b)(1)(A)(vi) or acquired knowledge that the Internal Revenue Service had given notice to such organization that it would be deleted from such classification. (6)Definition of support;meaning of general public—(i)In general. In deter- mining whether the 33 1 /3percent support test or the 10 percent support limitation de- scribed in paragraph (f)(3)(i) of this sec- tion is met, contributions by an individ- ual, trust, or corporation shall be taken into account assupportfrom direct or indirect contributions from the general public only totheextentthatthetotalamountofthe contributions by any such individual, trust, or corporation during the period described in paragraphs (f)(4)(i) or (ii) of this sec- tion does not exceed 2 percent of the or- ganization’s total support for such period, except as provided in paragraph (f)(6)(ii) of this section. Therefore, any contribu- tion by one individual will be included in full in the denominator of the fraction de- termining the 33 1 /3percent support or the 10 percent support limitation, but will be includible in the numerator of such frac- tion only to the extent that such amount does not exceed 2 percent of the denom- inator. In applying the 2 percent limita- tion, all contributions made by a donor and by any person or persons standing in a relationship to the donor that is de- scribed in section 4946(a)(1)(C) through (G) and the regulations relating to sec- tion 4946(a)(1)(C) through (G) shall be treated as made by one person. The 2 percent limitation shall not apply to sup- port received from governmental units re- ferred to in section 170(c)(1) or to con- tributions from organizations described in section 170(b)(1)(A)(vi), except as pro- vided in paragraph (f)(6)(v) of this sec- tion. For purposes of paragraphs (f)(2), (f)(3)(i) and (f)(7)(iii)(A)(2) of this sec- tion, the termindirect contributions from the general publicincludes contributions received by the organization from organi- zations (such as section 170(b)(1)(A)(vi) organizations) that normally receive a sub- stantial part of their support from direct contributions from the general public, ex- cept as provided in paragraph (f)(6)(v) of this section. See the examples in para- graph (f)(9) of this section for the appli- cation of this paragraph (f)(6)(i). For pur- poses of this paragraph (f), the termcon- tributionsincludes qualified sponsorship payments (as defined in §1.513–4) in the form of money or property (but not ser- vices). (ii)Exclusion of unusual grants.(A) For purposes of applying the 2 percent lim- itation described in paragraph (f)(6)(i) of this section to determine whether the 33 1 /3 percent support test or the 10 percent sup- port limitation in paragraph (f)(3)(i) of this section is satisfied, one or more contribu- tions may be excluded from both the nu- merator and the denominator of the ap- plicable support fraction if such contribu- tions meet the requirements of paragraph (f)(6)(iii) of this section. The exclusion provided by this paragraph (f)(6)(ii) is gen- erally intended to apply to substantial con- tributions or bequests from disinterested parties, which contributions or bequests— (1) Are attracted by reason of the pub- licly supported nature of the organization; (2) Are unusual or unexpected with re- spect to the amount thereof; and (3) Would, by reason of their size, ad- versely affect the status of the organiza- tion as normally being publicly supported for the applicable period described in para- graph (f)(4) of this section. (B) In the case of a grant (as defined in §1.509(a)–3(g)) that meets the require- ments of this paragraph (f)(6)(ii), if the terms of the granting instrument (whether executed before or after 1969) require that the funds be paid to the recipient organi- zation over a period of years, the amount received by the organization each year pur- suant to the terms of such grant may be ex- cluded for such year. However, no item of gross investment income may be excluded under this paragraph (f)(6). The provisions of this paragraph (f)(6) shall apply to ex- clude unusual grants made during any of the applicable periods described in para- graph(f)(4)or(f)(6)ofthissection. See paragraph (f)(6)(iv) of this section as to re- liance by a grantee organization upon an unusual grant ruling under this paragraph (f)(6). (iii)Determining factors. In determin- ing whether a particular contribution may be excluded under paragraph (f)(6)(ii) of this section all pertinent facts and circum- stances will be taken into consideration. No single factor will necessarily be deter- minative. For some of the factors sim- ilar to the factors to be considered, see §1.509(a)–3T(c)(4). (iv)Grantors and contributors.Prior to the making of any grant or contribution that will allegedly meet the requirements for exclusion under paragraph (f)(6)(ii) of this section, a potential grantee organiza- tion may request a determination whether such grant or contribution may be so ex- cluded. Requests for such determination may be filed by the grantee organization. The issuance of such determination will be at the sole discretion of the Commis- sioner. The organization must submit all information necessary to make a determi- nation on the factors referred to in para- graph (f)(6)(iii) of this section. If a favor- able ruling is issued, such ruling may be re- lied upon by the grantor or contributor of the particular contribution in question for purposes of sections 170, 507, 545(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522 and by the grantee organization for purposes of paragraph (f)(6)(ii) of this sec- tion. (v)Grants from public charities.Pur- suant to paragraph (f)(6)(i) of this section, contributions received from a governmen- tal unit or from a section 170(b)(1)(A)(vi) organization are not subject to the 2 percent limitation described in para- graph (f)(6)(i) of this section unless such contributions represent amounts which have been expressly or impliedly ear- marked by a donor to such governmental unit or section 170(b)(1)(A)(vi) organ- ization as being for, or for the benefit of, the particular organization claim- ing section 170(b)(1)(A)(vi) status. See §1.509(a)–3(j)(3) for examples illustrating the rules of this paragraph (f)(6)(v). (7)Definition of support; special rules and meaning of terms—(i)Definition of support. For purposes of this paragraph (f)(7), the term “support” shall be as de- fined in section 509(d) (without regard to section 509(d)(2)). The term “support” does not include— 2008–43 I.R.B.978October 27, 2008 (A) Any amounts received from the ex- ercise or performance by an organization of its charitable, educational, or other pur- pose or function constituting the basis for its exemption under section 501(a). In general, such amounts include amounts re- ceived from any activity the conduct of which is substantially related to the fur- therance of such purpose or function (other than through the production of income); or (B) Contributions of services for which a deduction is not allowable. (ii) For purposes of the 33 1 /3percent support test and the 10 percent support limitation in paragraph (f)(3)(i) of this section, all amounts received that are de- scribed in paragraphs (f)(7)(i)(A) or (B) of this section are to be excluded from both the numerator and the denominator of the fractions determining compliance with such tests, except as provided in paragraph (f)(7)(iii) of this section. (iii)Organizations dependent primar- ily on gross receipts from related activi- ties. (A) Notwithstanding the provisions of paragraph (f)(7)(i) of this section, an organization will not be treated as satis- fying the 33 1 /3percent support test or the 10 percent support limitation in paragraph (f)(3)(i) of this section if it receives— (1) Almost all of its support (as defined in section 509(d)) from gross receipts from related activities; and (2) An insignificant amount of its sup- port from governmental units (without re- gard to amounts referred to in paragraph (f)(7)(i)(A) of this section) and contribu- tions made directly or indirectly by the general public. (B)Example. The application of this paragraph (f)(7)(iii) may be illustrated by the following example: Example. Z, an organization described in section 501(c)(3), is controlled by A, its president. Z received $500,000 during the period consisting of the current taxable year and the fourimmediately preceding taxable years under a contract with the Department of Transportation, pursuant to which Z has engaged in research to improve a particular vehicle used pri- marily by the Federal government. During this same period, the only other support received by Z consisted of $5,000 in small contributions primarily from Z’s employees and business associates. The $500,000 amount constitutes support under sections 509(d)(2) and 509(a)(2)(A). Underthese circumstances, Z meets the conditions of paragraphs (f)(7)(iii)(A)(1) and (2) of this section and will not be treated as meeting the requirements of either the 33 1 /3percent support test or the facts and circumstances test. As to the rules applicable to organizations that fail to qualify under section 170(b)(1)(A)(vi) because of the provisions of this paragraph (f)(7)(ii), see section 509(a)(2) and the accompanying regulations. For the distinction between gross receipts (as referred to in section 509(d)(2)) and gross investment income (as referred to in section 509(d)(4)), see §1.509(a)–3(m). (iv)Membership fees. For purposes of this paragraph (f)(7), the termsupport shall include “membership fees” within the meaning of §1.509(a)–3(h) (that is, if the basic purpose for making a payment is to provide support for the organization rather than to purchase admissions, mer- chandise, services, or the use of facilities). (8)Support from a governmental unit. (i) For purposes of the 33 1 /3percent sup- port test and the 10 percent support limita- tion described in paragraph (f)(3)(i) of this section, the termsupport from a govern- mental unitincludes any amounts received from a governmental unit, including do- nations or contributions and amounts re- ceived in connection with a contract en- tered into with a governmental unit for the performance of services or in connection with a government research grant. How- ever, such amounts will not constitute sup- port from a governmental unit for such pur- poses if they constitute amounts received from the exercise or performance of the or- ganization’s exempt functions as provided in paragraph (f)(7)(i)(A) of this section. (ii) For purposes of paragraph (f)(8)(i) of this section, any amount paid by a gov- ernmental unit to an organization is not to be treated as received from the exer- cise or performance of its charitable, edu- cational, or other purpose or function con- stituting the basis for its exemption un- der section 501(a) (within the meaning of paragraph (f)(7)(i)(A) of this section) if the purpose of the payment is primarily to en- able the organizationtoprovideaservice to, or maintain a facility for, the direct ben- efit of the public (regardless of whether part of the expense of providing such ser- vice or facility is paid for by the public), rather than to serve the direct and immedi- ate needs of the payor. For example— (A) Amounts paid for the maintenance of library facilities which are open to the public; (B) Amounts paid under government programs to nursing homes or homes for the aged in order to provide health care or domiciliary services to residents of such facilities; and (C) Amounts paid to child placement or child guidance organizations under gov- ernment programs for services rendered to children in the community, are consid- ered payments the purpose of which is pri- marily to enable the recipient organiza- tion to provide a service or maintain a fa- cility for the direct benefit of the public, rather than to serve the direct and immedi- ate needs of the payor. Furthermore, any amount received from a governmental unit under circumstances such that the amount would be treated as a “grant” within the meaning of §1.509(a)–3(g) will generally constitute “support from a governmental unit” described in this paragraph (f)(8), rather than an amount described in para- graph (f)(7)(i)(A) of this section. (9)Examples. The application of para- graphs (f)(1) through (8) of this section maybeillustratedbythefollowingexam- ples: Example 1. (i) M is recognized as an organization described in section 501(c)(3). For the years 2008 through 2012 (the applicable period with respect to the taxable year 2012 under paragraph (f)(4) of this section), M received support (as defined in para- graphs (f)(6) through (8) of this section) of $600,000 from the following sources: October 27, 20089792008–43 I.R.B. Investment income $ 300,000 City R (a governmental unit described in section 170(c)(1))40,000 United Fund (an organization described in section 170(b)(1)(A)(vi))40,000 Contributions220,000 Total support $ 600,000 (ii) With respect to the taxable year 2012, M’s public support is computed as follows: Support from a governmental unit described in section 170(c)(1)40,000 Indirect contributions from the general public (United Fund)40,000 Contributions by various donors (no one having made contributions that total in excess of $12,000 – 2 percent of total support)50,000 Six contributions (each in excess of $12,000 — 2 percenttotal support) 6 x $12,000 72,000 202,000 (iii) M’s support from governmental units re- ferred to in section 170(c)(1) and from direct and indirect contributions from the general public (as defined in paragraph (f)(6) of this section) with re- spect to the taxable year 2012 normally exceeds 33 1 /3 percent of M’s total support ($202,000/$600,000 = 33.67 percent) for the applicable period (2008 through 2012). M meets the 33 1 /3percent support test with respect to 2012 and is therefore publicly supported for the taxable years 2012 and 2013. Example 2. N is recognized as an organization de- scribed in section 501(c)(3). It was created to main- tain public gardens containing botanical specimens and displaying statuary and other art objects. The fa- cilities, works of art, and a large endowment were all contributed by a single contributor. The members of the governing body of the organization are unrelated to its creator. The gardens are open to the public with- out charge and attract a substantial number of visi- tors each year. For the current taxable year and the four taxable years immediately preceding the current taxable year, 95 percent of the organization’s total support was received from investment income from its original endowment. N also maintains a mem- bership society that is supported by members of the general public who wish to contribute to the upkeep of the gardens by paying a small annual member- ship fee. Over the 5-year period in question, these fees from the general public constituted the remain- ing 5 percent of the organization’s total support for such period. Under these circumstances, N does not meet the 33 1 /3percent support test for its current tax- able year. Furthermore, because only 5 percent of its total support is, with respect to the current tax- able year, normally received from the general pub- lic, N does not satisfy the 10 percent support limi- tation described in paragraph (f)(3)(i) of this section and therefore does not qualify as publicly supported under the facts and circumstances test. Because N has failed to satisfy the 10 percent support limitation under paragraph (f)(3)(i) of this section, none of the other requirements or factors set forth in paragraphs (f)(3)(iii)(A) through (E) of this section can be con- sidered in determining whether N qualifies as a pub- licly supported organization. For its current taxable year, N therefore is not an organization described in section 170(b)(1)(A)(vi). Example 3. (i) O, an art museum, is recognized as an organization described in section 501(c)(3). In 1930, O was founded in S City by the members of a single family to collect, preserve, interpret, and display to the public important works of art. O is governed by a Board of Trustees that originally consisted almost entirely of members of the found- ing family. However, since 1945, members of the founding family or persons standing in a relationship to the members of such family described in section 4946(a)(1)(C) through (G) have annually constituted less than one-fifth of the Board of Trustees. The remaining board members are citizens of S City from a variety of professions and occupations who represent the interests and views of the people of S City in the activities carried on by the organization rather than the personal or private interests of the founding family. O solicits contributions from the general public and for the current taxable year and each of the four taxable years immediately preceding the current taxable year, O has received total con- tributions (in small sums of less than $100, none of which exceeds 2 percent of O’s total support for such period) in excess of $10,000. These contributions from the general public (as defined in paragraph (f)(6) of this section) represent 25 percent of the or- ganization’s total support for such 5-year period. For this same period, investment income from several large endowment funds has constituted 75 percent of O’s total support. O expends substantially all of its annual income for its exempt purposes and thus depends upon the funds it annually solicits from the public as well as its investment income in order to carry out its activities on a normal and continuing basis and to acquire new works of art. O has, for the entire period of its existence, been open to the public and more than 300,000 people (from S City and elsewhere) have visited the museum in each of the current taxable year and the four most recent taxable years. (ii) Under these circumstances, O does not meet the 33 1 /3percent support test for its current year be- cause it has received only 25 percent of its total sup- port for the applicable 5-year period from the general public. However, under the facts set forth above, O has met the 10 percent support limitation under para- graph (f)(3)(i) of this section, as well as the require- ments of paragraph (f)(3)(ii) of this section. Under all of the facts set forth in this example, O is consid- ered as meeting the requirements of the facts and cir- cumstances test on the basis of satisfying paragraphs (f)(3)(i) and (ii) of this section and the factors set forth in paragraphs (f)(3)(iii)(A) through (D) of this sec- tion. O is therefore publicly supported for its current taxable year and the immediately succeeding taxable year. Example 4. (i) In 1960, the P Philharmonic Or- chestra was organized in T City through the combined efforts of a local music society and a local women’s club to present to the public a wide variety of musi- cal programs intended to foster music appreciation in the community. P is recognized as an organization described in section 501(c)(3). The orchestra is com- posed of professional musicians who are paid by the association. Twelve performances open to the pub- lic are scheduled each year. A small admission fee is charged for each of these performances. In addi- tion, several performances are staged annually with- out charge. During the current taxable year and the four taxable years immediately preceding the current taxable year, P has received separate contributions of $200,000 each from A and B (not members of a single family) and support of $120,000 from the T Commu- nity Chest, a public federated fundraising organiza- tion operating in T City. P depends on these funds in order to carry out its activities and will continue to depend on contributions of this type to be made in the future. P has also begun a fundraising campaign in an attempt to expand its activities for the coming years. P is governed by a Board of Directors comprised of 5 individuals. A faculty member of a local college, the president of a local music society, the head of a local banking institution, a prominent doctor, and a member of the governing body of the local chamber of commerce currently serve on P’s Board and repre- sent the interests and views of the community in the activities carried on by P. (ii) With respect to P’s current taxable year, P’s sources of support are computed on the basis of the current taxable year and the four taxable years imme- diately preceding the current taxable year, as follows: 2008–43 I.R.B.980October 27, 2008 Contributions $520,000 Receipts from performances100,000 Total support $ 620,000 Less: Receipts from performances (excluded under paragraph (f)(7)(i)(A) ofthis section)100,000 Total support for purposes of paragraphs (f)(2) and (f)(3)(i) of this section $ 520,000 (iii) For purposes of paragraphs (f)(2) and (f)(3)(i) of this section, P’s support is computed as follows: T Community Chest (indirect support from the general public) $ 120,000 Two contributions (each in excess of $10,400 — 2 percent of total support) 2 x $10,400 20,800 Total $ 140,800 (iv) P’s support from the direct and indirect con- tributions from the general public does not meet the 33 1 /3percent support test ($140,800/$520,000 = 27 percent of total support). However, because P re- ceives 27 percent of its total support from the gen- eral public, it meets the 10 percent support limita- tion under paragraph (f)(3)(i) of this section. P also meets the requirements of paragraph (f)(3)(ii) of this section. As a result of satisfying these requirements and the factors set forth in paragraphs (f)(3)(iii)(A) through (D) of this section, P is considered to meet the facts and circumstances test and therefore quali- fies as a publicly supported organization under para- graph (f)(1) of this section for its current taxable year and the immediately succeeding taxable year. Example 5. (i) Q is recognized as an organization described in section 501(c)(3). It is a philanthropic organization founded in 1965 by C for the purpose of making annual contributions to worthy charities. C created Q as a charitable trust by the transfer of ap- preciated securities worth $500,000 to Q. Pursuant to the trust agreement, C and two other members of his family are the sole trustees of Q and are vested with the right to appoint successor trustees. In each of the current taxable year and the four taxable years im- mediately preceding the current taxable year, Q re- ceived $15,000 in investment income from its orig- inal endowment. Each year Q makes a solicitation for funds by operating a charity ball at C’s residence. Guests are invited and requested to make contribu- tions of $100 per couple. During the 5-year period at issue, $15,000 was received from the proceeds of these events. C and his family have also made con- tributions to Q of $25,000 over the 5-year period at issue. Q makes disbursements each year of substan- tially all of its net income to the public charities cho- sen by the trustees. (ii) Q’s sources of support for the current taxable year and the four taxable years immediately preced- ing the current taxable year as follows: Investment income $ 60,000 Contributions40,000 Total support $ 100,000 (iii) For purposes of paragraphs (f)(2) and (f)(3)(i) of this section, Q’s support is computed as follows: Contributions from the general public $ 15,000 One contribution (in excess of $ 2,000 —2 percent of total support) 1 X $2,000 2,000 Total $ 17,000 ( iv) Q’s support from the general public does not meet the 33 1 /3percent support test ($17,000/$100,000 = 17 percent of total support). Thus, Q’s classifica- t ion as a “publicly supported” organization depends on whether it meets the requirements of the facts and circumstances test. Even though it satisfies the 10 percent support limitation under paragraph (f)(3)(i) of this section, its method of solicitation makes it ques- tionable whether Q satisfies the requirements of para- graph (f)(3)(ii) of this section. Because of its method of operating, Q also has a greater burden of estab- lishing its publicly supported nature under paragraph (f)(3)(iii)(A) of this section. Based upon the forego- ing and upon Q’s failure to receive favorable consid- eration under the remaining factors set forth in para- graphs (f)(3)(iii)(B), (C) and (D) of this section, Q does not satisfy the facts and circumstances test. (10)Community trust; introduction. Community trusts have often been estab- lished to attract large contributions of a capital or endowment nature for the benefit of a particular community or area, and of- ten such contributions have come initially f rom a small number of donors. While the c ommunity trust generally has a governing b ody comprised of representatives of the p articular community or area, its contri- b utions are often received and maintained in the form of separate trusts or funds, which are subject to varying degrees of control by the governing body. To qualify as a “publicly supported” organization, a community trust must meet the 33 1 /3per- cent support test, or,if it cannot meet that test, be organized and operated so as to attract new and additional public or gov- ernmental support on a continuous basis sufficient to meet the facts and circum- stances test. Such facts and circumstances test includes a requirement of attraction of public support in paragraph (f)(3)(ii) of this section which, as applied to com- munity trusts, generally will be satisfied if t hey seek gifts and bequests from a wide r ange of potential donors in the commu- n ity or area served, through banks or trust c ompanies, through attorneys or other pro- f essional persons, or in other appropriate ways that call attention to the commu- nity trust as a potential recipient of gifts and bequests made for the benefit of the community or area served. A community trust is not required to engage in periodic, community-wide, fundraising campaigns directed toward attracting a large num- ber of small contributions in a manner similar to campaigns conducted by a com- munity chest or united fund. Paragraph (f)(11) of this section provides rules for determining the extent to which separate trusts or funds may be treated as compo- nent parts of a community trust, fund or foundation (herein collectively referred to October 27, 20089812008–43 I.R.B. as a “community trust”, and sometimes referred to as an “organization”) for pur- poses of meeting the requirements of this paragraph for classification as a publicly supported organization. Paragraph (f)(12) of this section contains rules for trusts or funds that are prevented from qualifying as component parts of a community trust by paragraph (f)(11) of this section. (11) Community trusts; requirements for treatment as a single entity—(i)Gen- eral rule. For purposes of sections 170, 501, 507, 508, 509, and Chapter 42, any organization that meets the require- ments contained in paragraphs (f)(11)(iii) through (iv) of this section will be treated as a single entity, rather than as an aggre- gation of separate funds, and except as otherwise provided, all funds associated with such organization (whether a trust, not-for-profit corporation, unincorporated association, or a combination thereof) which meet the requirements of paragraph (f)(11)(ii) of this section will be treated as component parts of such organization. (ii)Componentpartofacommunity trust. In order to be treated as a compo- nent part of a community trust referred to in this paragraph (f)(11) (rather than as a separate trust or not-for-profit corporation or association), a trust or fund: (A) Must be created by a gift, bequest, legacy, devise, or other transfer to a com- munity trust which is treated as a single en- tity under this paragraph (f)(11); and (B) May not be directly or indirectly subjected by the transferor to any material restriction or condition (within the mean- ing of §1.507–2T(a)(7)) with respect to the transferred assets. For purposes of this paragraph (f)(11)(ii)(B), if the transferor is not a private foundation, the provisions of §1.507–2T(a)(7) shall be applied to the trust or fund as if the transferor were a private foundation established and funded by the person establishing the trust or fund and such foundation transferred all its assets to the trust or fund. Any transfer made to a fund or trust which is treated as a component part of a community trust under this paragraph (f)(11)(ii) will be treated as a transfer made “to” a “publicly supported” community trust for purposes of section 170(b)(1)(A) and 507(b)(1)(A) if such community trust meets the require- ments of section 170(b)(1)(A)(vi) as a “publicly supported” organization at the time of the transfer, except as provided in paragraph (f)(4)(v)(B) of this section or §1.508–1(b)(4) and (6) (relating, gener- ally, to reliance by grantors and contribu- tors). See also paragraphs (f)(12)(ii) and (iii) of this section for special provisions relating to split-interest trusts and certain private foundations described in section 170(b)(1)(F)(iii). (iii)Name. The organization must be commonly known as a community trust, fund, foundation or other similar name conveying the concept of a capital or endowment fund to support charitable activities (within the meaning of section 170(c)(1) or (2)(B)) in the community or area it serves. (iv)Common instrument. All funds of the organization must be subject to a com- mon governing instrument or a master trust or agency agreement (herein referred to as the “governing instrument”), which may be embodied in a single document or sev- eral documents containing common lan- guage. Language in an instrument of trans- fer to the community trust making a fund subject to the community trust’s govern- ing instrument or master trust or agency agreement will satisfythe requirements of this paragraph (f)(11)(iv). In addition, if a community trust adopts a new govern- ing instrument (or creates a corporation) to put into effect new provisions (apply- ing to future transfers to the community trust), the adoption of such new govern- ing instrument (or creation of a corporation with a governing instrument) which con- tains common language with the existing governing instrument shall not preclude the community trust from meeting the re- quirements of this paragraph (f)(11)(iv). (v)Common governing body.(A)The organization must have a common govern- ing body or distribution committee (herein referred to as the “governing body”) which either directs or, in the case of a fund desig- nated for specified beneficiaries, monitors the distribution of all of the funds exclu- sively for charitable purposes (within the meaning of section 170(c)(1) or (2)(B)). For purposes of this paragraph (f)(11)(v), a fund is designated for specified beneficia- ries only if no person is left with the discre- tion to direct the distribution of the fund. (B)Powers of modification and re- moval. The fact that the exercise of any power described in this paragraph (f)(11)(v)(B) is reviewable by an appro- priate State authority will not preclude the community trust from meeting the require- ments of this paragraph (f)(11)(v)(B). Ex- cept as provided in paragraph (f)(11)(v)(C) of this section, the governing body must have the power in the governing instru- ment, the instrument of transfer, the reso- lutions or by-laws of the governing body, a written agreement, or otherwise— (1) To modify any restriction or condi- tion on the distribution of funds for any specified charitable purposes or to speci- fied organizations if in the sole judgment of the governing body (without the neces- sity of the approval of any participating trustee, custodian, oragent), such restric- tion or condition becomes, in effect, un- necessary, incapable of fulfillment, or in- consistent with the charitable needs of the community or area served; (2) To replace any participating trustee, custodian, or agent for breach of fiduciary duty under State law; and (3) To replace any participating trustee, custodian, or agent for failure to produce a reasonable (as determined by the govern- ing body) return of net income (within the meaning of paragraph (f)(11)(v)(F) of this section) over a reasonable period of time (as determined by the governing body). (C)Transitional rule—(1)Notwith- standing paragraph (f)(11)(v)(B) of this section, if a community trust meets the re- quirements of paragraph (f)(11)(v)(C)(3) of this section, then in the case of any instrument of transfer which is executed before July 19, 1977, and is not revoked or amended thereafter (with respect to any dispositive provision affecting the transfer to the community trust), and in the case of any instrument of transfer which is irrevo- cable on January 19, 1982, the governing body must have the power to cause pro- ceedings to be instituted (by request to the appropriate State authority): (i) To modify any restriction or condi- tion on the distribution of funds for any specified charitable purposes or to speci- fied organizations if in the judgment of the governing body such restriction or condi- tion becomes, in effect, unnecessary, inca- pable of fulfillment, or inconsistent with the charitable needs of the community or area served; and (ii) To remove any participating trustee, custodian, or agent for breach of fiduciary duty under State law. (2) The necessity for the governing body to obtain the approval of a partic- 2008–43 I.R.B.982October 27, 2008 ipating trustee to exercise the powers described in paragraph (f)(11)(v)(C)(1)of this section shall be treated as not prevent- ingthegoverningbodyfromhavingsuch power, unless (and until) such approval has been (or is) requested by the governing body and has been (or is) denied. (3) Paragraph (f)(11)(v)(C)(1)ofthis section shall not apply unless the com- munity trust meets the requirements of paragraph (f)(11)(v)(B) of this section, with respect to funds other than those under instruments of transfer described in the first sentence of such paragraph (f)(11)(v)(C)(1) of this section, by January 19, 1978, or such later date as the Commis- sioner may provide for such community trust, and unless the community trust does not, once it so complies, thereafter solicit for funds that will not qualify under the requirements of paragraph (f)(11)(v)(B) of this section. (D)Inconsistent State law—(1)For purposes of paragraphs (f)(11)(v)(B)(1), (2), or (3), (f)(11)(v)(C)(1)(i) or (ii) or (f)(11)(v)(E) of this section, if a power de- scribed in such a provision is inconsistent with State law even if such power were expressly granted to the governing body by the governing instrument and were accepted without limitation under an in- strument of transfer, then the community trust will be treated as meeting the require- ments of such a provision if it meets such requirements to the fullest extent possible consistent with State law (if such power is or had been so expressly granted). (2) For example, if, under the condi- tions of paragraph (f)(11)(v)(D)(1)ofthis section, the power to modify is inconsis- tent with State law, but the power to insti- tute proceedings to modify, if so expressly granted, would be consistent with State law, the community trust will be treated as meeting such requirements to the fullest extent possible if the governing body has the power (in the governing instrument or otherwise) to institute proceedings to mod- ify a condition or restriction. On the other hand, if in such a case the community trust has only the power to cause proceedings to be instituted to modify a condition or re- striction, it will not be treated as meeting such requirements to the fullest extent pos- sible. (3) In addition, if, for example, under the conditions of paragraph (f)(11)(v)(D)(1) of this section, the power to modify and the power to institute pro- ceedings to modify a condition or restric- tion is inconsistent with State law, but the power to cause such proceedings to be instituted would be consistent with State law, if it were expressly granted in the governing instrument and if the ap- proval of the State Attorney General were obtained, then the community trust will be treated as meeting such requirements to the fullest extent possible if it has the power (in the governing instrument or otherwise) to cause such proceedings to be instituted, even ifsuch proceedings can be instituted only with the approval of the State Attorney General. (E)Exercise of powers. The govern- ingbodyshall(byresolutionorotherwise) commit itself to exercise the powers de- scribed in paragraphs (f)(11)(v) (B), (C) and (D) of this section in the best inter- ests of the community trust. The govern- ing body will be considered not to be so committed where it has grounds to exer- cise such a power and fails to exercise it by taking appropriate action. Such appropri- ate action may include, for example, con- sulting with the appropriate State authority prior to taking action to replace a partici- pating trustee. (F)Reasonable return. In addi- tion to the requirements of paragraphs (f)(11)(v)(B), (C), (D) or (E) of this sec- tion, the governing body shall (by resolu- tion or otherwise) commit itself to obtain information and take other appropriate steps with the view to seeing that each par- ticipating trustee, custodian, or agent, with respect to each restricted trust or fund that is, and with respect to the aggregate of the unrestricted trusts or funds that are, a com- ponent part of the community trust, ad- ministers such trust or fund in accordance with the terms of its governing instrument and accepted standards of fiduciary con- duct to produce a reasonable return of net income (or appreciation where not incon- sistent with the community trust’s need for current income), with due regard to safety of principal, in furtherance of the exempt purposes of the community trust (except for assets held for the active conduct of the community trust’s exempt activities). In the case of a low return of net income (and, where appropriate, appreciation), the Internal Revenue Service will exam- ine carefully whether the governing body has, in fact, committed itself to take the appropriate steps. For purposes of this paragraph (f)(11)(v)(F), any income that has been designated by the donor of the gift or bequest to which such income is attributable as being available only for the use or benefit of a broad charitable pur- pose, such as the encouragement of higher education or the promotion of better health care in the community, will be treated as unrestricted. However, any income that has been designated for the use or ben- efit of a named charitable organization or agency or for the use or benefit of a particular class of charitable organizations or agencies, the members of which are readily ascertainable and are less than five in number, will be treated as restricted. (vi)Common reports. The organiza- tion must prepare periodic financial re- ports treating all of the funds which are held by the community trust, either directly or in component parts, as funds of the or- ganization. (12)Community trusts; treatment of trusts and not-for-profit corporations and associations not included as components. (i) For purposes of sections 170, 501, 507, 508, 509 and Chapter 42, any trust or not-for-profit corporation or association that is alleged to be a component part of a community trust, but that fails to meet the requirements of paragraph (f)(11)(ii) of this section, shall not be treated as a component part of a community trust and, if a trust, shall be treated as a separate trust and be subject to the provisions of section 501 or section 4947(a)(1) or (2), as the case may be. If such organization is a not-for-profit corporation or association, it will be treated as a separate entity, and, if it is described in section 501(c)(3), it will be treated as a private foundation unless it is described in section 509(a)(1), (2), (3), or (4). In the case of a fund that is ulti- mately treated as not being a component part of a community trust pursuant to this paragraph (f)(12), if the Forms 990 filed annually by the community trust included financial information with respect to such fund and treated such fund in the same manner as other component parts thereof, such returns filed by the community trust prior to the taxable year in which the Commissioner notifies such fund that it will not be treated as a component part will be treated as its separate return for purpose of Subchapter A of Chapter 61 of Subtitle F, and the first such return filed by October 27, 20089832008–43 I.R.B. the community trust will be treated as the notification required of the separate entity for purposes of section 508(a). (ii) If a transfer is made in trust to a community trust to make income or other payments for a period of a life or lives in being or a term of years to any individual or for any noncharitable purpose, followed by payments to or for the use of the com- munity trust (such as in the case of a char- itable remainder annuity trust or a chari- table remainder unitrust described in sec- tion 664 or a pooled income fund described in section 642(c)(5)), such trust will be treated as a component part of the commu- nity trust upon the termination of all inter- vening noncharitable interests and rights to the actual possession or enjoyment of the property if such trust satisfies the require- ments of paragraph (f)(11) of this section at such time. Until such time, the trust will be treated as a separate trust. If a transfer is made in trust to a community trust to make income or other payments to or for the use of the community trust, followed by pay- ments to any individual or for any nonchar- itable purpose, such trust will be treated as a separate trust rather than as a compo- nent part of the community trust. See sec- tion 4947(a)(2) and the regulations relat- ing to section 4947(a)(2) for the treatment of such split-interesttrusts. The provisions of this paragraph (f)(12)(ii) provide rules only for determining when a charitable re- mainder trust or pooled income fund may be treated as a component part of a com- munity trust and are not intended to pre- clude a community trust from maintaining a charitable remainder trust or pooled in- come fund. For purposes of grantors and contributors, a pooled income fund of a publicly supported community trust shall be treated no differently than a pooled in- come fund of any other publicly supported organization. (iii) An organization described in sec- tion 170(b)(1)(F)(iii) will not ordinarily satisfy the requirements of paragraph (f)(11)(ii) of this section because of the unqualified right of the donor to designate the recipients of the income and principal of the trust. Such organization will there- fore ordinarily be treated as other than a component part of a community trust under paragraph (f)(12)(i) of this section. However, see section 170(b)(1)(F)(iii) and the regulations relating to section 170(b)(1)(F)(iii) with respect to the treat- ment of contributions to such organiza- tions. (13)Method of accounting. For pur- poses of section 170(b)(1)(A)(vi), an organization’s support will be determined under the method of accounting on the basis of which the organization regularly computes its income in keeping its books under section 446. For example, if a grantor makes a grant to an organization payable over a term of years, such grant will be includible in the support fraction of the grantee organization under the method of accounting on the basis of which the grantee organization regularly computes its income in keeping its books under sec- tion 446. (14)Transition rules. (i) An organiza- tion that received an advance ruling, that expires on or after June 9, 2008, that it will be treated as an organization described in sections 170(b)(1)(A)(vi) and 509(a)(1) or in section 509(a)(2) will be treated as meeting the requirements of paragraph (f)(4)(v) of this section for the first five taxable years of its existence as a section 501(c)(3) organization unless the Internal Revenue Service issued the organization a proposed determination prior to Septem- ber 9, 2008, that the organization is not described in sections 170(b)(1)(A)(vi) and 509(a)(1) or in section 509(a)(2). (ii) Paragraph (f)(4)(v) of this section shall not apply to an organization that re- ceived an advance ruling that expired prior to June 9, 2008, and that did not timely file with the Internal Revenue Service the required information to establish that it is an organization described in sections 170(b)(1)(A)(vi) and 509(a)(1) or in sec- tion 509(a)(2). (iii) An organization that fails to meet a public support test for its first taxable year beginning on or after Jan- uary 1, 2008, under the regulations in this section may use the prior test set forth in §1.170A–9(e)(4)(i) and (ii) or §1.509(a)–3(c)(1) as in effect before September 9, 2008, (as contained in 26 CFR part 1 revised April 1, 2008) to determine whether the organization may be publicly supported for its 2008 taxable year based on its satisfaction of a public support test for taxable year 2007, computed over the period 2003 through 2006. (iv)Examples. The application of this paragraph(f)(14)maybeillustratedbythe following examples: Example 1. (i) Organization X was formed in January 2004 and uses a June 30 taxable year. Or- ganization X received an advance ruling letter that it is recognized as an organization described in sec- tion 501(c)(3) effective as of the date of its formation and that it is treated as a public charity under sections 170(b)(1)(A)(vi) and 509(a)(1) during the five-year advance ruling period that will end on June 30, 2008. This date is within 90 days before September 9, 2008. (ii) Under the transition rule, Organization X is a public charity described in sections 170(b)(1)(A)(vi) and 509(a)(1) for the taxable years ending June 30, 2004, through June 30, 2008. Organization X does not need to establish within 90 days after June 30, 2008, that it met a public support test under §1.170A–9(e) or §1.509(a)–3, as in effect prior to September 9, 2008, (as contained in 26 CFR part 1 revised April 1, 2008), for its advance ruling period. (iii) Organization X can qualify as a public charity beginning with the taxable year ending June 30, 2009, if Organization X can meet the require- ments of paragraphs (f)(4)(i) or (ii) of this section or §1.509(a)–3T(c)(1) for the taxable years ending June 30, 2005, through June 30, 2009, or for the taxable years ending June 30, 2004, through June 30, 2008. In addition, for its taxable year ending June 30, 2009, Organization X may qualify as a public charity by availing itself of the transition rule contained in paragraph (f)(14)(iii) of this section, which looks to support received by X in the taxable years ending June 30, 2004, through June 30, 2007. Example 2.(i)OrganizationYwasformedinJan- uary 2000, and uses a December 31 taxable year. Or- ganization Y received a final determination that it was recognized as tax-exemptunder section 501(c)(3) and as a public charity prior to September 9, 2008. (ii) For taxable year 2008, Organization Y will qualify as publicly supported if it meets the require- ments under either paragraphs (f)(4)(i) or (ii) of this section or §1.509(a)–3T(c)(1) for the five-year period January 1, 2004, through December 31, 2008. Organ- ization Y will also qualify as publicly supported for taxable year 2008 if it meets the requirements under either §1.170A–9(e)(4)(i) or (ii) or §1.509(a)–3(c)(1) as in effect prior to September 9, 2008, (as contained in 26 CFR part 1 revised April 1, 2008) for taxable year 2007, using the four-year period from January 1, 2003, through December 31, 2006. (g)through(j)[Reserved]. Forfurther guidance, see §1.170A–9(g) through (j). (k)Effective/applicability date—(1)Ef- fective date. These regulations are effec- tive on September 9, 2008. (2)Applicability date. The regulations in paragraph (f) of this section shall apply to tax years beginning on or after January 1, 2008. (3)Expiration date. The applicability of this section expires on September 8, 2011. Par. 4. Section 1.507–2 is amended by adding new paragraph (h) to read as follows: 2008–43 I.R.B.984October 27, 2008 §1.507–2 Special rules; transfer to, or operation as, public charity. ***** (h)Effective/applicability date.This section shall apply to tax years beginning before January 1, 2008. Par. 5. Section 1.507–2T is added to read as follows: §1.507–2T Special rules; transfer to, or operation as, public charity (temporary). (a)Transfer to public charities—(1) General rule. Under section 507(b)(1)(A) a private foundation, with respect to which there have not been either willful repeated acts (or failures to act) or a willful and flagrant act (or failure to act) giving rise to liability for tax under chapter 42, may terminate its private foundation status by distributing all of its net assets to one or more organizations described in section 170(b)(1)(A) (other than in clauses (vii) and (viii)) each of which has been in ex- istence and so described for a continuous period of at least 60 calendar months im- mediately preceding such distribution. Because section 507(a) does not apply to such a termination, a private foundation which makes such a termination is not required to give the notification described in section 507(a)(1). A private founda- tion that terminates its private foundation status under section 507(b)(1)(A) does not incur tax under section 507(c) and, therefore, no abatement of such tax under section 507(g) is required. (2)Effect of current ruling.Aprivate foundation seeking to terminate its pri- vate foundation status pursuant to section 507(b)(1)(A) may rely on a ruling or de- termination letter issued to a potential dis- tributee organization that such distributee organization is an organization described in section 170(b)(1)(A)(i), (ii), (iii), (iv), (v) or (vi) in accordance with the provi- sions of §1.509(a)–7. (3)Organizations described in more than one clause of section 170(b)(1)(A). For purposes of this paragraph and section 507(b)(1)(A), the parenthetical term “other than in clauses (vii) and (viii)” shall refer only to an organization that is described only in section 170(b)(1)(A)(vii) or (viii). Thus, an organization described in section 170(b)(1)(A)(i), (ii), (iii), (iv), (v), or (vi) will not be precluded from being a dis- tributee described in section 507(b)(1)(A) merely because it also appears to meet the description of an organization described in section 170(b)(1)(A)(vii) or (viii). (4)Applicability of chapter 42 to foundations terminating under section 507(b)(1)(A). An organization that termi- nates its private foundation status pursuant to section 507(b)(1)(A) will remain sub- ject to the provisions of chapter 42 until the distribution of all of its net assets to distributee organizations described in sec- tion 507(b)(1)(A) has been completed. (5)Return required from organizations terminating private foundation status un- der section 507(b)(1)(A). (i) An organization that terminates its private foundation status under section 507(b)(1)(A) is required to file a return under the provisions of section 6043(b), rather than under the provisions of section 6050. (ii) An organization that terminates its private foundation status under section 507(b)(1)(A) is not required to comply with section 6104(d) for the taxable year in which such termination occurs. (6)Distribution of net assets.Aprivate foundation will meet the requirement that it “distribute all of its net assets” within the meaning of section 507(b)(1)(A) only if it transfers all of its right, title, and interest in and to all of its net assets to one or more organizations referred to in section 507(b)(1)(A). (7)Effect of restrictions and conditions upon distributions of net assets—(i)In general. In order to effectuate a transfer of “all of its right, title, and interest in and to all of its net assets” within the mean- ing of paragraph (a)(6) of this section, a transferor private foundation may not im- pose any material restriction or condition that prevents the transferee organiza- tion referred to in section 507(b)(1)(A) (herein sometimes referred to as the “pub- lic charity”) from freely and effectively employing the transferred assets, or the income derived therefrom, in furtherance of its exempt purposes. Whether or not a particular condition or restriction imposed upon a transfer of assets is material (within the meaning of this paragraph (a)(7)) must be determined from all of the facts and circumstances of the transfer. Some of the more significant facts and circumstances to be considered in making such a deter- mination are— (A) Whether the public charity (includ- ing a participating trustee, custodian, or agent in the case of a community trust) is the owner in fee of the assets it receives from the private foundation; (B) Whether such assets are to be held and administered by the public charity in a manner consistent with one or more of its exempt purposes; (C) Whether the governing body of the public charity has the ultimate authority and control over such assets, and the in- come derived therefrom; and (D) Whether, and to what extent, the governing body of the public charity is or- ganized and operated so as to be indepen- dent from the transferor. (ii)Independent governing body.As provided in paragraph (a)(7)(i)(D) of this section, one of the more significant facts and circumstances to be considered in making the determination whether a par- ticular condition or restriction imposed upon a transfer of assets is material within the meaning of this paragraph (a)(7) is whether, and the extent to which, the gov- erning body is organized and operated so as to be independent from the transferor. In turn, the determination as to such factor must be determined from all of the facts and circumstances. Some of the more significant facts and circumstances to be considered in making such a determina- tion are— (A) Whether, and to what extent, mem- bers of the governing body are comprised of persons selected by the transferor pri- vate foundation or disqualified persons with respect thereto, or are themselves such disqualified persons; (B) Whether, and to what extent, mem- bers of the governing body are selected by public officials acting in their capacities as such; and (C) How long a period of time each member of the governing body may serve as such. In the case of a transfer that is to a community trust, the community trust shall meet this paragraph (a)(7)(ii)(C) if, with respect to terms of office beginning after the date of transfer: (1) its governing body is comprised of members who may serve a period of not more than ten consecutive years; and (2) Upon completion of a period of ser- vice (beginning before or after the date of transfer), no member may serve again within a period consisting of the lesser of October 27, 20089852008–43 I.R.B. 5 years or the number of consecutive years the member has immediately completed serving. (iii)Factors not adversely affecting de- termination. The presence of some or all of the following factors will not be con- sidered as preventing the transferee “from freely and effectively employing the trans- ferred assets, or the income derived there- from, in furtherance of its exempt pur- poses” (within the meaning of paragraph (a)(7)(i) of this section): (A)Name. The fund is given a name or other designation which is the same as or similar to that of the transferor private foundation or otherwise memorializes the creator of the foundation or his family. (B)Purpose. The income and assets of the fund are to be used for a designated purpose or for one or more particular sec- tion 509(a)(1), (2), or (3) organizations, and such use is consistent with the char- itable, educational, or other basis for the exempt status of the public charity under section 501(c)(3). (C)Administration. The transferred as- sets are administered in an identifiable or separate fund, some or all of the princi- pal of which is not to be distributed for a specified period, if thepublic charity (in- cluding a participating trustee, custodian, or agent in the case of a community trust) is the legal and equitable owner of the fund and the governing bodyexercises ultimate and direct authority and control over such fund, as, for example, a fund to endow a chair at a university or a medical research fund at a hospital. In the case of a com- munity trust, the transferred assets must be administered in or as a component part of the community trust within the meaning of §1.170A–9T(f)(11). (D)Restrictions on disposition.The transferor private foundation transfers property the continued retention of which by the transferee is required by the trans- feror if such retention is important to the achievement of charitable or other similar purposes in the community because of the peculiar features of such property, as, for example, where a private foundation transfers a woodlandpreserve which is to be maintained by the public charity as an arboretum for the benefit of the commu- nity. Such a restriction does not include a restrictiononthedispositionofaninvest- ment asset or the distribution of income. (iv)Adverse factors. The presence of any of the following factors will be con- sidered as preventing the transferee “from freely and effectively employing the trans- ferred assets, or the income derived there- from, in furtherance of its exempt pur- poses” (within the meaning of paragraph (a)(7)(i) of this section): (A)Distributions.(1) With respect to distributions made after April 19, 1977, the transferor private foundation, a disquali- fied person with respect thereto, or any person or committee designated by, or pur- suant to the terms of an agreement with, such a person (hereinafter referred to as donor), reserves the right, directly or in- directly, to name (other than by designa- tion in the instrument of transfer of partic- ular section 509(a)(1), (2), or (3) organiza- tions) the persons to which the transferee public charity must distribute, or to direct the timing of such distributions (other than bydirectionintheinstrument of transfer that some or all of the principal, as op- posed to specific assets, not be distributed for a specified period) as, for example, by a power of appointment. The Inter- nal Revenue Service will examine care- fully whether the seeking of advice by the transferee from, or the giving of advice by, any donor after the assets have been trans- ferred to the transferee constitutes an in- direct reservation of a right to direct such distributions. In any such case, the reser- vation of such a right will be considered to exist where the only criterion consid- ered by the public charity in making a distribution of income or principal from a donor’s fund is advice offered by the donor. Whether there is a reservation of such a right will be determined from all of the facts and circumstances, including, but not limited to, the factors contained in paragraphs (a)(7)(iv)(A)(2)and(3)ofthis section. (2) The presence of some or all of the following factors will indicate that the reservation of such a right does not exist: (i) There has been an independent in- vestigation by the staff of the public char- ity evaluating whether the donor’s advice is consistent with specific charitable needs most deserving of support by the public charity (as determined by the public char- ity). (ii) The public charity has promulgated guidelines enumerating specific charitable needs consistent with the charitable pur- poses of the public charity and the donor’s advice is consistent with such guidelines. (iii) The public charity has instituted an educational program publicizing to donors and other persons the guidelines enumer- ating specific charitable needs consistent with the charitable purposes of the public charity. (iv) The public charity distributes funds in excess of amounts distributed from the donor’s fund to the same or similar types of organizations or charitable needs as those recommended by the donor. (v) The public charity’s solicitations (written or oral) for funds specifically state that such public charity will not be bound by advice offered by the donor. (3) The presence of some or all of the following factors will indicate the reserva- tion of such a right does exist: (i) The solicitations (written or oral) of funds by the public charity state or imply, or a pattern of conduct on the part of the public charity createsan expectation, that the donor’s advice will be followed. (ii) The advice of a donor (whether or not restricted to a distribution of income or principal from the donor’s trust or fund) is limited to distributions of amounts from the donor’s fund, and the factors described in paragraph (a)(7)(iv)(A)(2)(i)or(ii)of this section are not present. (iii) Only the advice of the donor as to distributions of such donor’s fund is so- licited by the public charity and no pro- cedure is provided for considering advice from persons other than the donor with re- spect to such fund. (iv) For the taxable year and all prior taxable years the public charity follows the advice of all donors with respect to their funds substantially all of the time. (B) Other action or withholding of ac- tion. The terms of the transfer agreement, or any expressed or implied understanding, required the public charity to take or with- hold action with respect to the transferred assets which is not designed to further one or more of the exempt purposes of the pub- lic charity, and such action or withhold- ing of action would, if performed by the transferor private foundation with respect to such assets, have subjected the trans- feror to tax under chapter 42 (other than with respect to the minimum investment return requirement of section 4942(e)). (C)Assumption of leases, contractual obligations, or liabilities. The public char- 2008–43 I.R.B.986October 27, 2008 ity assumes leases, contractual obligations, or liabilities of the transferor private foun- dation, or takes the assets thereof subject to such liabilities (including obligations un- der commitments or pledges to donees of the transferor private foundation), for pur- poses inconsistent with the purposes or best interests of the public charity, other than the payment of the transferor’s chap- ter 42 taxes incurred prior to the transfer to the public charity to the extent of the value of the assets transferred. (D)Retention of investment assets.The transferee public charity is required by any restriction or agreement (other than a re- striction or agreement imposed or required by law or regulatory authority), express or implied, to retain any securities or other investment assets transferred to it by the private foundation. In a case where such transferred assets consistently produce a low annual return of income, the Internal Revenue Service will examine carefully whether the transferee is required by any such restriction or agreement to retain such assets. (E)Right of first refusal. An agreement is entered into in connection with the trans- fer of securities or other property which grants directly or indirectly to the trans- feror private foundation or any disquali- fied person with respect thereto a right of first refusal with respect to the transferred securities or other property when and if disposed of by the public charity, unless such securities or other property was ac- quired by the transferor private foundation subject to such right of first refusal prior to October 9, 1969. (F)Relationships. An agreement is en- tered into between the transferor private foundation and the transferee public char- ity which establishes irrevocable relation- ships with respect to the maintenance or management of assets transferred to the public charity, such as continuing relation- ships with banks, brokerage firms, invest- ment counselors, or other advisors with re- gard to the investments or other property transferred to the public charity (other than a relationship with a trustee, custodian, or agent for a community trust acting as such). The transfer of property to a public charity subject to contractual obligations which were established prior to November 11, 1976, between the transferor private foundation and persons other than disqual- ified persons with respect to such founda- tion will not be treated as prohibited un- der the preceding sentence, but only if such contractual obligations were not entered into pursuant to a plan to terminate the pri- vate foundation status of the transferor un- der section 507(b)(1)(A) and if the contin- uation of such contractual obligations is in the best interests of the public charity. (G)Other conditions. Any other con- dition is imposed on action by the public charity which prevents it from exercising ultimate control over the assets received from the transferor private foundation for purposes consistent with its exempt pur- poses. (v)Examples. The provisions of this paragraph (a)(7) may be illustrated by the following examples: Example 1. The M Private Foundation transferred all of its net assets to the V Cancer Institute, a public charity described in section 170(b)(1)(A)(iii). Prior to the transfer, M’s activities consisted of making grants to hospitals and universities to further research into the causes of cancer. Under the terms of the transfer, V is required to keep M’s assets in a separate fund and use the income and principal to further can- cer research. Although the assets may be used only for a limited purpose, this purpose is consistent with and in furtherance of V’s exempt purposes, and does not prevent the transfer from being a distribution for purposes of section 507(b)(1)(A). Example 2. The N Private Foundation transferred all of its net assets to W University, a public char- ity described in section 170(b)(1)(A)(ii). Under the terms of the transfer, W is required to use the income and principal to endow a chair at the university to be known as the “John J. Doe Memorial Professorship”, named after N’s creator. Although the transferred as- sets are to be used for a specified purpose by W, this purpose is in furtherance of W’s exempt educational purposes, and there are no conditions on investment or reinvestment of the principal or income. The use of the name of the foundation’s creator for the chair is not a restriction which would prevent the trans- fer from being a distribution for purposes of section 507(b)(1)(A). Example 3. The O Private Foundation transferred all of its net assets to X Bank as trustee for the Q Com- munity Trust, a community trust that is a public char- ity described in section 170(b)(1)(A)(vi). Under the terms of the transfer, X is to hold the assets in trust for Q and is directed to distribute the income annu- ally to the Y Church, a public charity described in section 170(b)(1)(A)(i). The distribution of income to Y Church is consistent with Q’s exempt purposes. If the trust created by this transfer otherwise meets the requirements of §1.170A–9T(f)(11) as a compo- nent part of the Q Community Trust, the assets trans- ferred by O to X will be treated as distributed to one or more public charities within the meaning of sec- tion 507(b)(1)(A). The direction to distribute the in- come to Y Church meets the conditions of paragraph (a)(7)(iii)(B) of this section and will therefore not dis- qualify the transfer under section 507(b)(1)(A). Example 4. (i) The P Private Foundation trans- ferred all of its net assets to Z Bank as trustee for the R Community Trust, a community trust that is a public charity described in section 170(b)(1)(A)(vi). Under the terms of the transfer, Z is to hold the assets in trust for R and distribute the income to those public chari- ties described in section 170(b)(1)(A)(i) through (vi) that are designated by B, the creator of P. R’s gov- erning body has no authority during B’s lifetime to vary B’s direction. Under the terms of the transfer, it is intended that Z retain the transferred assets in their present form for a period of 20 years, or until the date of B’s death if it occurs before the expiration of such period. Upon the death of B, R will have the power to distribute the income to such public charities as it selects and may dispose of the corpus as it sees fit. (ii) Under paragraph (a)(7)(iv)(A) or (D) of this section, as a result of the restrictions imposed with respect to the transferred assets, there has been no distribution of all P’s net assets within the meaning of section 507(b)(1)(A) at the time of the transfer. In addition, P has not transferred its net assets to a component part of R Community Trust, but rather to a separate trust described in §1.170A–9T(f)(12). (b)Operation as a public charity—(1) In general. Under section 507(b)(1)(B), an organization can terminate its private foundation status if the organization— (i) Meets the requirements of section 509(a)(1), (2) or (3) for a continuous pe- riod of 60 calendar months beginning with the first day of any taxable year that begins after December 31, 1969; (ii) In compliance with section 507(b)(1)(B)(ii) and paragraph (b)(3) of this section, properly notifies the Internal Revenue Service, in such manner as may be provided by published guidance, pub- lication, form or instructions, before the commencement of such 60-month period, that it is terminating its private foundation status; and (iii) Properly establishes immediately after the expiration of such 60-month pe- riod that such organization has complied with the requirements of section 509(a)(1), (2) or (3) during the 60-month period, in the manner described in paragraph (b)(4) of this section. (2)Relationship of section 507(b)(1)(B) to section 507(a), (c), and (g). Because section 507(a) does not apply to a termi- nation described in section 507(b)(1)(B), a private foundation’s notification that it is commencing a termination pursuant to section 507(b)(1)(B) will not be treated as a notification described in section 507(a) even if the private foundation does not suc- cessfully terminate its private foundation status pursuant to section 507(b)(1)(B). A private foundation that terminates its private foundation status under section 507(b)(1)(B) does not incur tax under sec- October 27, 20089872008–43 I.R.B. tion 507(c) and, therefore, no abatement of such tax under section 507(g) is required. (3)Notification of termination.In order to comply with the requirements under section 507(b)(1)(B)(ii), an organ- ization shall before the commencement of the 60-month period under section 507(b)(1)(B)(i) notify the Internal Rev- enue Service, in such manner as may be provided by published guidance, publica- tion, form or instructions, of its intention to terminate its private foundation status. Such notification shall contain the follow- ing information: (i) The name and address of the private foundation. (ii) Its intention to terminate its private foundation status. (iii) The Code section under which it seeks classification (section 509(a)(1), (2) or (3)). (iv) If section 509(a)(1) is applicable, the clause of section 170(b)(1)(A) in- volved. (v) The date its regular taxable year be- gins. (vi) The date of commencement of the 60-month period. (4)Establishment of termination.Inor- der to comply with the requirements un- der section 507(b)(1)(B)(iii), an organiza- tion shall within 90 days after the expira- tion of the 60-month period file such infor- mation with the Internal Revenue Service, in such manner as may be provided by pub- lished guidance, publication, form or in- structions, as is necessary to make a de- termination as to the organization’s status as an organization described under section 509(a)(1), (2) or (3) and the accompany- ing regulations. See paragraph (c) of this sectionastotheinformationrequiredtobe submitted under this paragraph (b)(4). (5)Incomplete information.Thefail- ure to supply, within the required time, all oftheinformationrequiredbyparagraph (b)(3) or (4) of this section is not alone suf- ficient to constitute a failure to satisfy the requirements of section 507(b)(1)(B). If the information that is submitted within the required time is incomplete and the organi- zation supplies the necessary additional in- formation at the request of the Commis- sioner within the additional time period al- lowed by him, the original submission will be considered timely. (6)Application of special rules and fil- ing requirements. An organization that has terminated its private foundation status un- der section 507(b)(1)(B) is not required to comply with the special rules set forth in section 508(a) and (b). Such organization is also not required to file a return under the provisions of section 6043(b) or 6050 by reason of termination of its private founda- tion status under the provisions of section 507(b)(1)(B). (7)Extension of time to assess defi- ciencies. If a private foundation files a notification (defined in paragraph (b)(3) of this section) that it intends to begin a 60-month termination pursuant to section 507(b)(1)(B) and does not file a request for an advance ruling pursuant to paragraph (d) of this section, such private foundation may file with the notification described in paragraph (b)(3) of this section a con- sent under section 6501(c)(4) to the effect that the period of limitation upon assess- ment under section 4940 for any taxable year within the 60-month termination pe- riod shall not expire prior to one year af- ter the date of expiration of the time pre- scribed by law for the assessment of a de- ficiency for the last taxable year within the 60-month period. Such consents, if filed, will ordinarily be accepted by the Com- missioner. See paragraph (e)(3) of this sec- tion for an illustration of the procedure re- quired to obtain a refund of the tax im- posed by section 4940 in a case where such a consent is not in effect. (c)Sixty-month terminations—(1) Method of determining normal sources of support. (i) In order to meet the re- quirements of section 507(b)(1)(B) for the 60-month termination period as a section 509(a)(1) or (2) organization, an organiza- tion must meet the requirements of section 509(a)(1) or (2), as the case may be, for a continuous period of at least 60 calen- dar months. In determining whether an organization seeking status under section 509(a)(1) as an organization described in section170(b)(1)(A)(iv)or(vi)orunder section 509(a)(2) normally meets the re- quirements set forth under such sections, support received in taxable years prior to the commencement of the 60-month pe- riod shall not be taken into consideration, except as otherwise provided in this sec- tion. (ii) For purposes of section 507(b)(1)(B), an organization will be con- sideredtobeasection509(a)(1)organiza- tion described in section 170(b)(1)(A)(vi) for a continuous period of 60 calendar months only if the organization satisfies the provisions of §1.170A–9T(f), other than §1.170A–9T(f)(4)(v), based upon aggregate data for such entire period. The calculation of public support shall be made over the period beginning with the date of the commencement of the 60-month period, and ending with the last day of the 60-month period. (iii) For purposes of section 507(b)(1)(B), an organization will be considered to be a section 509(a)(2) organization only if such organization meets the support requirements set forth in section 509(a)(2)(A) and (B) and the accompanying regulations, other than §1.509(a)–3T(d), for the continuous period of 60 calendar months prescribed under section 507(b)(1)(B). The calcu- lation of public support shall be made over the period beginning with the date of the commencement of the 60-month period, and ending with the last day of the 60-month period. (2)Organizational and operational tests. In order to meet the requirements of section 507(b)(1)(B) for the 60-month termination period as an organization described in section 170(b)(1)(A)(i), (ii), (iii), (iv), or (v) or section 509(a)(3), as the case may be, an organization must meet the requirements of the applicable provi- sions for a continuous period of at least 60 calendar months.For purposes of section 507(b)(1)(B), an organization will be con- sideredtobesuchanorganizationonlyif it satisfies the requirements of the appli- cable provision (including with respect to section 509(a)(3), the organizational and operational test set forth in subparagraph (A) thereof) at the commencement of such 60-month period and continuously there- after during such period. (d)Advance rulings for 60-month terminations—(1)In general.Anor- ganization that files the notification re- quired by section 507(b)(1)(B)(ii) that it is commencing a 60-month termination may obtain an advance ruling from the Commissioner that it can be expected to satisfy the requirements of section 507(b)(1)(B)(i) during the 60-month pe- riod. Such an advance ruling may be is- sued if the organization can reasonably be expected to meet the requirements of sec- tion 507(b)(1)(B)(i) during the 60-month 2008–43 I.R.B.988October 27, 2008 period. The issuance of a ruling will be discretionary with the Commissioner. (2)Basic consideration. In determining whether an organization can reasonably be expected (within the meaning of paragraph (d)(1) of this section) to meet the require- ments of section 507(b)(1)(B)(i) for the 60-month period, the basic consideration is whether its organizational structure (tak- ing into account any revisions made prior to the beginning of the 60-month period), current or proposed programs or activities, actual or intended method of operation, and current or projected sources of support are such as to indicate that the organization is likely to satisfy the requirements of sec- tion 509(a)(1), (2), or (3) and paragraph (d) of this section during the 60-month period. In making such a determination, all perti- nent facts and circumstances shall be con- sidered. (3)Reliance by grantors and con- tributors. For purposes of sections 170, 545(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522, grants or contribu- tions to an organization which has obtained a ruling referred to in this paragraph will be treated as made to an organization de- scribed in section 509(a)(1), (2), or (3), as the case may be, until the Internal Revenue Service publishes notice that such advance ruling is being revoked (such as by pub- lication in the Internal Revenue Bulletin). However, a grantor or contributor may notrelyonsuchanadvancerulingifthe grantor or contributor was responsible for, or aware of, the act or failure to act that re- sulted in the organization’s failure to meet the requirements of section 509(a)(1), (2), or (3), or acquired knowledge that the Internal Revenue Service had given no- tice to such organization that its advance ruling would be revoked. Prior to the making of any grant or contribution which allegedly will not result in the grantee’s failure to meet the requirements of section 509(a)(1), (2), or (3), a potential grantee organization may request a ruling whether such grant or contribution may be made without such failure. A request for such ruling may be filed by the grantee organi- zation with the Internal Revenue Service. The issuance of such ruling will be at the sole discretion of the Commissioner. The organization must submit all information necessary to make a determination on the factors referred to in paragraph (d)(2) of this section. If a favorable ruling is is- sued, such ruling may be relied upon by the grantor or contributor of the particu- lar contribution in question for purposes of sections 170, 507, 545(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522. (4)Reliance by organization.Anor- ganization obtaining an advance ruling pursuant to this paragraph cannot rely on such a ruling. Consequently, if the or- ganization does not pay the tax imposed by section 4940 for any taxable year or years during the 60-month period, and it is subsequently determined that such tax is due for such year or years (because the organization did not in fact complete a successful termination pursuant to section 507(b)(1)(B) and was not treated as an or- ganization described in section 509(a)(1), (2), or (3) for such year or years), the organization is liable for interest in accor- dance with section 6601 if any amount of tax under section 4940 has not been paid on or before the last date prescribed for payment. However, because any failure to pay such tax during the 60-month period (or prior to the revocation of such ruling) is due to reasonable cause, the penalty under section 6651 with respect to the tax imposed by section 4940 shall not apply. (5)Extension of time to assess deficien- cies. The advance ruling described in para- graph (d)(1) of this section shall be issued only if such organization’s request for an advance ruling is filed with a consent un- der section 6501(c)(4) to the effect that the period of limitation upon assessment under section 4940 for any taxable year within the advance ruling period shall not expire prior to 1 year after the date of the expira- tion of the time prescribed by law for the assessment of a deficiency for the last tax- able year within the 60-month period. (e)Effect on grantors or contributors and on the organization itself—(1)Effect of satisfaction of requirements for termi- nation; treatment during the termination period. In the event that an organiza- tion satisfies the requirements of section 507(b)(1)(B) for termination of its private foundation status during the continuous 60-month period, such organization shall be treated for such entire 60-month period in the same manner as an organization described in section 509(a)(1), (2) or (3), as the case may be. (2)Failure to meet termination re- quirements—(i)In general. Except as otherwise provided in paragraphs (e)(2)(ii) and (d) of this section, any organization that fails to satisfy the requirements of section 507(b)(1)(B) for termination of its private foundation status during the con- tinuous 60-month period shall be treated as a private foundation for the entire 60-month period, for purposes of sec- tions 507 through 509 and chapter 42, and grants or contributions to such an organi- zation shall be treated as made to a private foundation for purposes of sections 170, 507(b)(1)(A), 4942, and 4945. (ii)Certain 60-month terminations. Notwithstanding paragraph (e)(2)(i) of this section, if an organization fails to satisfy the requirements of section 509(a)(1), (2) or (3) for the continuous 60-month period but does satisfy the requirements of section 509(a)(1), (2) or (3), as the case may be, for any taxable year or years during such 60-month period, the organization shall be treated as a section 509(a)(1), (2) or (3) organization for such taxable year or years and grants or contributions made during such taxable year or years shall be treated as made to an organization described in section 509(a)(1), (2) or (3). In addition, sections 507 through 509 and chapter 42 shall not apply to such organization for any taxable year within such 60-month period for which it does meet such requirements. For purposes of determining whether an organization satisfies the requirements of section 509(a)(1), (2) or (3) for any taxable year in the 60-month period, the calcula- tion of public support shall be made over the period beginning with the date of the commencement of the 60-month period, and ending with the last day of the taxable year being tested. The organization shall not be treated as a section 509(a)(1) or (2) organization for any taxable year dur- ing the 60-month period solely by reason of having met a public support test for the preceding year. In addition, the tran- sition rules in §1.170–9T(f)(14)(iii) and §1.509(a)–3T(n)(iii) shall not apply. (iii)Aggregate tax benefit. For purposes of section 507(d), the organization’s aggre- gate tax benefit resulting from the organi- zation’s section 501(c)(3) status shall con- tinue to be computed from the date from which such computation would have been made, but for the notice filed under sec- tion 507(b)(1)(B)(ii), except that any tax- able year within such 60-month period for which such organization meets the require- October 27, 20089892008–43 I.R.B. ments of section 509(a)(1), (2), or (3) shall be excluded from such computations. (iv)Excess business holdings.See section 4943 and the accompanying reg- ulations for rules relating to decreases in a private foundation’s holdings in a business enterprise which are caused by the foundation’s failure to terminate its private foundation status after giving the notification for termination under section 507(b)(1)(B)(ii). (3)Example. The provisions of this paragraph (e) may be illustrated by the fol- lowing example: Example. Y, a calendar year private foundation, notifies the Internal Revenue Service that it intends to terminate its private foundation status by convert- ing into a publicly supported organization described in section 170(b)(1)(A)(vi) and that its 60-month ter- mination period will commence on January 1, 2010. Y does not obtain a ruling described in paragraph (d) of this section. Based upon its support for 2010, Y does not qualify as a publicly supported organization within the meaning of §1.170A–9T(f) and this para- graph for 2010. Consequently, in order to avoid the risks of penalties and interest if Y fails to terminate within the 60-month period, Y files its 2010 return as a private foundation and pays the tax imposed by section 4940. Because a consent (described in para- graph (b)(7) of this section), which would prevent the period of limitations for all years in the 60-month pe- riod from expiring, is not in effect, in order to be able to file a claim for refund, Y and the Internal Rev- enue Service must agree to extend the period of limi- tation for all taxes imposed under chapter 42 for 2010. Based on the aggregate data for the entire 60-month period (2010 through 2014), Y does qualify as a pub- licly-supported organization for the entire 60-month period. Consequently, Y is treated as a publicly-sup- ported organization for the entire 60-month period. Y files a claim for refund for the taxes paid under sec- tion 4940 for 2010, and such taxes are refunded. (f)Effective/applicability date—(1)Ef- fective date. These regulations are effec- tive on September 9, 2008. (2)Applicability date. The regulations in this section shall apply to taxable years beginning on or after January 1, 2008. (3)Expiration date. The applicability of this section expires on September 8, 2011. Par. 6. Section 1.509(a)–3 is amended by adding new paragraph (n) to read as follows: §1.509(a)–3 Broadly, publicly supported organizations. ***** (n)Effective/applicability date.This section shall apply to taxable years begin- ning after December 31, 1969. The appli- cability of paragraphs (a)(2), (a)(3)(i), (c), (d), (e) and (k) of this section shall be lim- ited to taxable years beginning before Jan- uary 1, 2008. Par. 7. Section 1.509(a)–3T is added to read as follows: §1.509(a)–3T Broadly, publicly supported organizations (temporary). (a)(1) [Reserved]. For further guid- ance, see §1.509(a)–3(a)(1). (2)One-third support test.Anorgani- zation will meet the one-third support test if it normally (within the meaning of para- graph (c) or (d) of this section) receives more than one-third of its support in each taxable year from any combination of— (i) Gifts, grants, contributions, or mem- bership fees; and (ii) Gross receipts from admissions, sales of merchandise, performance of ser- vices, or furnishing of facilities, in an activity that is not an unrelated trade or business (within the meaning of section 513), subject to certain limitations de- scribed in paragraph (b) of this section, from permitted sources. For purposes of this section, governmental units, organi- zations described in section 509(a)(1) and persons other than disqualified persons with respect to the organization shall be referred to as permitted sources. For pur- poses of this section, the amount of sup- port received from the sources described in paragraph (a)(2)(i) of this section and this paragraph (a)(2)(ii) (subject to the limitations referred to in this paragraph (a)(2)) will be referred to as the numera- tor of the one-third support fraction, and the total amount of support received (as defined in section 509(d)) will be referred to as the denominator of the one-third support fraction. For purposes of section 509(a)(2), §1.509(a)–3(f) distinguishes gifts and contributions from gross re- ceipts; §1.509(a)–3(g) distinguishes grants from gross receipts; §1.509(a)–3(h) de- fines membership fees; §1.509(a)–3(i) defines “any bureau or similar agency of a governmental unit”; §1.509(a)–3(j) describes the treatment of certain indirect forms of support; paragraph (k) of this section describes the method of account- ing for support; §1.509(a)–3(l) describes the treatment of gross receipts from sec- tion 513(a)(1), (2), or (3) activities; and §1.509(a)–3(m) distinguishes gross re- ceipts from gross investment income. (3)Not-more-than-one-third support test—(i)In general. An organization will meet the not-more-than-one-third support testundersection509(a)(2)(B)ifitnor- mally (within the meaning of paragraph (c) or (d) of this section) receives not more than one-third of its support in each taxable year from the sum of its gross investment income (as defined in section 509(e)) and the excess (if any) of the amount of its unrelated business taxable income (as defined in section 512) derived from trades or businesses that were ac- quired by the organization after June 30, 1975, over the amount of tax imposed on such income by section 511. For purposes of this section the amount of support re- ceivedfromitemsdescribedinsection 509(a)(2)(B) will be referred to as the numerator of the not-more-than-one-third support fraction, and the total amount of support (as defined in section 509(d)) will be referred to as the denominator of the not-more-than-one-third support fraction. For purposes of section 509(a)(2), para- graph (m) of this section distinguishes gross receipts from gross investment in- come. For purposes of section 509(e), gross investment income includes the items of investment income described in §1.512(b)–1(a). (a)(3)(ii) through (b) [Reserved]. For further guidance, see §1.509(a)–3(a)(3)(ii) through (b). (c)Normally—(1)In general—(i)Def- inition. The support tests set forth in sec- tion 509(a)(2) are to be computed on the basis of the nature of the organization’s normal sources of support. An organi- zation will be considered as normally re- ceiving one third of its support from any combination of gifts, grants, contributions, membership fees, and gross receipts from permitted sources (subject to the limita- tions described in §1.509(a)–3(b)) and not more than one third of its support from items described in section 509(a)(2)(B) for its current taxable year and the taxable year immediately succeeding its current year, if, for the current taxable year and the four taxable years immediately preceding the current taxable year, the aggregate amount of the support received during the applica- ble period from gifts, grants, contributions, membership fees, and gross receipts from permitted sources (subject to the limita- tions described in §1.509(a)–3(b)) is more than one third, and the aggregate amount of 2008–43 I.R.B.990October 27, 2008 the support received from items described in section 509(a)(2)(B) is not more than one third, of the total support of the organ- ization for such 5-year period. (ii)First five years of an organization’s existence. See paragraph (d)(1) of this sec- tion for the definition of “normally” for or- ganizations in the first five years of their existence. (2)Terminations under section 507(b)(1)(B). For the special rules appli- cable to the term normally as applied to private foundations that elect to terminate their private foundation status pursuant to the 60-month procedure provided in section 507(b)(1)(B), see the regulations under such section. (3)Exclusion of unusual grants.For purposes of applying the 5-year aggrega- tion test for support set forth in paragraph (c)(1) of this section, one or more contribu- tions may be excluded from the numerator of the one-third support fraction and from the denominator of both the one-third sup- port and not-more-than-one-third support fractions only if such a contribution meets the requirements of this paragraph (c)(3). The exclusion provided by this paragraph (c)(3) is generally intended to apply to sub- stantial contributions and bequests from disinterested parties, which contributions or bequests— (i) Are attracted by reason of the pub- licly supported nature of the organization; (ii) Are unusual or unexpected with re- spect to the amount thereof; and (iii) Would by reason of their size, ad- versely affect the status of the organization as normally meeting the one-third support test for any of the applicable periods de- scribed in this paragraph (c) or paragraph (d) of this section. In the case of a grant (as defined in §1.509(a)–3(g)) that meets the requirements of this paragraph (c)(3), if the terms of the granting instrument (whether executed before or after 1969) require that the funds be paid to the recipient organi- zation over a period of years, the amount received by the organization each year pur- suant to the terms of such grant may be ex- cluded for such year. However, no item described in section 509(a)(2)(B) may be excluded under this paragraph (c)(3). The provisions of this paragraph (c)(3) shall apply to exclude unusual grants made dur- ing any of the applicable periods described in this paragraph (c) or paragraph (d) of this section. See paragraph (c)(5)(ii) of this section as to reliance by a grantee or- ganization upon an unusual grant ruling under this paragraph (c)(3). (4)Determining factors. In determin- ing whether a particular contribution may be excluded under paragraph (c)(3) of this section, all pertinent facts and circum- stances will be taken into consideration. No single factor will necessarily be de- terminative. Among the factors to be considered are— (i) Whether the contribution was made by any person (or persons standing in a relationship to such person which is de- scribed in section 4946(a)(1)(C) through (G)) who created the organization, previ- ously contributed a substantial part of its support or endowment, or stood in a po- sition of authority, such as a foundation manager (within the meaning of section 4946(b)), with respect to the organization. A contribution made by a person other than those persons described in this paragraph (c)(4)(i) will ordinarily be given more fa- vorable consideration than a contribution made by a person described in this para- graph (c)(4)(i); (ii) Whether the contribution was a be- quest or aninter vivostransfer. A bequest will ordinarily be given more favorable consideration than aninter vivostransfer; (iii) Whether the contribution was in the form of cash, readily marketable secu- rities, or assets which further the exempt purposes of the organization, such as a gift ofapaintingtoamuseum; (iv) Except in the case of a new or- ganization, whether, prior to the receipt of the particular contribution, the organ- ization has carried on an actual program of public solicitation and exempt activities and has been able to attract a significant amount of public support; (v) Whether the organization may rea- sonably be expected to attract a significant amount of public support subsequent to the particular contribution. In this connec- tion, continued reliance on unusual grants to fund an organization’s current operat- ing expenses (as opposed to providing new endowment funds) may be evidence that the organization cannot reasonably be ex- pected to attract future support from the general public; (vi) Whether, prior to the year in which the particular contribution was received, the organization met the one-third support test described in paragraph (c)(1) of this section without the benefit of any exclu- sions of unusual grants pursuant to para- graph (c)(3) of this section; (vii) Whether neither the contributor nor any person standing in a relationship to such contributor which is described in section 4946(a)(1)(C) through (G) con- tinues directly or indirectly to exercise control over the organization; (viii) Whether the organization has a representative governing body as de- scribed in §1.509(a)–3(d)(3)(i); and (ix) Whether material restrictions or conditions (within the meaning of §1.507–2T(a)(7)) have been imposed by the transferor upon the transferee in con- nection with such transfer. (5)Grantors and contributors.Priorto the making of any grant or contribution expected to meet the requirements for ex- clusion under paragraph (c)(3) of this sec- tion, a potential grantee organization may request a ruling whether such grant or con- tribution may be so excluded. Requests forsuchrulingmaybefiledbythegrantee organization. The issuance of such de- termination will be at the sole discretion of the Commissioner. The organization must submit all information necessary to make a determination of the applicability of paragraph (c)(3) of this section, includ- ing all information relating to the factors described in paragraph (c)(4) of this sec- tion. If a favorable ruling is issued, such ruling may be relied upon by the grantor or contributor of the particular contribution in question for purposes of sections 170, 507, 545(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522 and by the grantee or- ganization for purposes of paragraph (c)(3) of this section. (6)Examples. The application of the principles set forth in this paragraph are illustrated by the examples as follows. For purposes of these examples, the termgen- eral publicis defined as persons other than disqualified persons and other than per- sons from whom the foundation received gross receipts in excess of the greater of $5,000 or 1 percent of its support in any taxable year, the termgross investment incomeis as defined in section 509(e), and the termgross receiptsis limited to receipts from activities which are not un- related trades or businesses (within the meaning of section 513). Example 1. (i) For the years 2008 through 2012, X, an organization exempt under section 501(c)(3) October 27, 20089912008–43 I.R.B. that makes scholarship grants to needy students of a particular city, received support from the following sources: 2008 Gross receipts (general public) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,000 Contributions(substantialcontributors) ....................................................................................36,000 Grossinvestmentincome ...............................................................................................29,000 Totalsupport ...................................................................................................100,000 2009 Gross receipts (general public) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34,000 Contributions(substantialcontributors) .................................................................................... 35,000 Gross inve stmentincome ............................................................................................... 31,000 Totalsupport ...................................................................................................100,000 2010 Gross receipts (general public) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000 Contributions(substantialcontributors) ....................................................................................30,000 Grossinvestmentincome ............................................................................................... 35,000 Total su pport ................................................................................................... 100,000 2011 Gross re ceipts(generalpublic) ........................................................................................... 33,000 Contributions(substantialcontributors) ....................................................................................32,000 Grossinvestmentincome ............................................................................................... 35,000 Totalsupport ...................................................................................................100,000 2012 Gross receipts (general public) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31,000 Contributions(substantialcontributors) ....................................................................................39,000 Grossinvestmentincome ...............................................................................................30,000 Totalsupport ...................................................................................................100,000 (ii) In applying section 509(a)(2) to the taxable yea r 2012, on the basis of paragraph (c)(1)(i) of this section, the total amount of support from gross re- ceipts from the general public ($168,000) for the pe- ri od 2008 through 2012, was more than one third, and the total amount of support from gross investment in- come ($160,000) was less than one third, of X’s to- ta l support for the same period ($500,000). For the taxable years 2012 and 2013, X is therefore consid- ered normally to receive more than one third of its su pport from the public sources described in section 509(a)(2)(A) and less than one third of its support fromitemsdescribedinsection509(a)(2)(B).The f act that X received less than one third of its support from section 509(a)(2)(A) sources in 2012 and more than one third of its support from items described in s ection 509(a)(2)(B) in 2011 does not affect its status because it met the normally test over a 5-year period. Example 2. Assume the same facts as inExam- p le 1except that in 2012, X also received an unex- pected bequest of $50,000 from A, an elderly widow who was interested in encouraging the work of X, but had no other relationship to it. Solely by reason of the bequest, A became a disqualified person. X used the bequest to create 5 new scholarships. Its op- erations otherwise remained the same. Under these circumstances X could not meet the 5-year support test because the total amount received from gross re- ceipts from the general public ($168,000) would not be more than one-third of its total support for the 5-year period ($550,000). Because A is a disqual- ified person, her bequest cannot be included in the numerator of the one-third support test under section 509(a)(2)(A). However, based on the factors set forth in p aragraph (c)(4) of this section, A’s bequest may be excluded as an unusual grant under paragraph (c)(3) of this section. Therefore, X will be considered to ha ve met the support test for the taxable years 2012 and 2013. Example 3. Y, an organization described in sec- ti on 501(c)(3), was created by A, the holder of all the common stock in M corporation, B, A’s wife, and C, A’s business associate. The purpose of Y was to sp onsor and equip athletic teams for underprivileged children in the community. Each of the three creators makes small cash contributions to Y. A, B, and C have b een active participants in the affairs of Y since its creation. Y regularly raises small amounts of contri- butions through fundraising drives and selling admis- s ion to some of the sponsored sporting events. The operations of Y are carried out on a small scale, usu- ally being restricted to the sponsorship of two to four b aseball teams of underprivileged children. In 2009, M recapitalizes and creates a first and second class of 6 percent nonvoting preferred stock, most of which is held by A and B. In 2010, A contributes 49 per- cent of his common stock in M to Y. A’s contribution of M’s common stock was substantial and constitutes 90 percent of Y’s total support for 2010. A combina- tion of the facts and circumstances described in para- graph (c)(4) of this section preclude A’s contribution of M’s common stock in 2010 from being excluded as an unusual grant under paragraph (c)(3) of this sec- tion for purposes of determining whether Y meets the one-third support test under section 509(a)(2). Example 4. (i) M is organized in 2009 to promote the appreciation of ballet in a particular region of the United States. Its principal activities consist of erect- ing a theater for the performance of ballet and the or- ga nization and operation of a ballet company. M re- ceives a determination letter that it is an organization described in section 501(c)(3) and that it is a public ch arity described in section 509(a)(2). The governing body of M consists of 9 prominent unrelated citizens residing in the region who have either an expertise in ba llet or a strong interest in encouraging appreciation of the art form. (ii) In 2010, Z, a private foundation, proposes to m ake a grant of $500,000 in cash to M to provide suf- ficient capital for M to commence its activities. Al- though A, the creator of Z, is one of the nine mem- b ers of M’s governing body, was one of M’s original founders, and continues to lend his prestige to M’s ac- tivities and fund raising efforts, A does not, directly o r indirectly, exercise any control over M. M also re- ceives a significant amount of support from a num- ber of smaller contributions and pledges from other members of the general public. M charges admission to the ballet performances to the general public. (iii) Although the support received in 2010 will not impact M’s status as a public charity for its first 5 taxable years, it will be relevant to the determination of whether M meets the one-third support test under section 509(a)(2) for the 2014 taxable year, using the computation period 2010 through 2014. Within the appropriate timeframe, M may submit a request for a private letter ruling that the $500,000 contribution from Z qualifies as an unusual grant. 2008–43 I.R.B.992October 27, 2008 (iv) Under the above circumstances, even though A was a founder and member of the governing body of M, M may exclude Z’s contribution of $500,000 in 2010 as an unusual grant under paragraph (c)(3) of this section for purposes of determining whether M meets the one-third support test under section 509(a)(2) for 2014. Example 5. (i) Assume the same facts asExample 4. In 2013, B, a widow, passes away and bequeaths $4 million to M. During 2009 through 2013, B made small contributions to M, none exceeding $10,000 in any year. During 2009 through 2013, M received approximately $550,000 from receipts for admissions and contributions from the general public. At the time ofB’sdeath,nopersonstandinginarelationshiptoB described in section 4946(a)(1)(C) through (G) was a member of M’s governing body. B’s bequest was in the form of cash and readily marketable securities. The only condition placed upon the bequest was that it be used by M to advance the art of ballet. (ii) Although the support received in 2013 will not impact M’s status as a public charity for its first five taxable years, it will be relevant to the determination of whether M meets the one-third support test under section 509(a)(2) for future years. Within the appro- priate timeframe, M may submit a request for a pri- vate letter ruling that the $4 million bequest from B qualifies as an unusual grant. (iii) Under the above circumstances, M may ex- clude B’s bequest of $4 million in 2013 as an unusual grant under paragraph (c)(3) of this section for pur- poses of determining whether M meets the one-third support test under section 509(a)(2) for 2014 and sub- sequent years. Example 6. (i) N is a research organization that was created by A in 2009 for the purpose of carrying on economic studies primarily through persons re- ceivinggrantsfromNandengaginginthesaleofeco- nomic publications. N received a determination letter that it is described in section 501(c)(3) and that it is a public charity described in section 509(a)(2). N’s five-member governing body consists of A, A’s sons, B and C, and two unrelated economists. In 2009, A made a contribution to N of $100,000 to help estab- lish the organization. During 2009 through 2013, A made annual contributions to N averaging $20,000 a year. During the same period, N received annual con- tributions from members of the general public aver- aging $15,000 per year and receipts from the sale of its publications averaging $50,000 per year. In 2013, Bmadeaninter vivoscontribution to N of $600,000 in cash and readily marketable securities. (ii) Although the support received in 2013 will not impact N’s status as a public charity for its first 5 taxable years, it will be relevant to the determina- tion of whether N meets the one-third support test un- der section 509(a)(2) for future years. In determining whether B’s contribution of $600,000 in 2013 may be excluded as an unusual grant, the support N received in 2009 through 2013 is relevant in considering the factor described in paragraph (c)(4)(vi) of this sec- tion, notwithstanding that N received a determination letter that it is described in section 509(a)(2). (iii) Based on the application of the factors in paragraphs (c)(4)(i) through (ix) of this section to N’s circumstances, in particular the facts that B is a dis- qualified person described in section 4946(a)(1)(D) and N does not have a representative governing body as described in paragraphs (c)(4)(viii) and (d)(3)(i) of this section, N cannot exclude B’s contribution of $600,000 in 2013 as an unusual grant under para- graph (c)(3) of this section for purposes of determin- ing whether N meets the one-third support test under section 509(a)(2) for 2014 and future years. Example 7. (i) O is an educational organization created in 2009. O received a determination letter that it is described in section 501(c)(3) and that it is a public charity described in section 509(a)(2). The governing body of O has 9 members, consisting of A, a prominent civic leader and 8 other unrelated civic leaders and educators in the community, all of whom participated in the creation of O. During 2009 through 2013, the principal source of income for O has been receipts from the sale of its educational periodicals. These sales have amounted to $200,000 for this pe- riod. Small contributions amounting to $50,000 have also been received during the same period from mem- bers of the governing body, including A, as well as other members of the general public. (ii) In 2013, A contributed $750,000 of the non- voting stock of S, a closely held corporation, to O. A retained a substantial portion of the voting stock of S. By a majority vote, the governing body of O decided to retain the S stock for a period of at least 5 years. (iii) Although the support received in 2013 will not impact O’s status as a public charity for its first 5 taxable years, it will be relevant to the determina- tion of whether O meets the one-third support test un- der section 509(a)(2) for future years. In determining whether A’s contribution of the S stock in 2013 may be excluded as an unusual grant, the support O re- ceived in 2009 through 2013 is relevant in consider- ing the factor described in paragraph (c)(4)(vi) of this section, notwithstanding that O received a determina- tion letter that it is described in section 509(a)(2). (iv) Based on the application of the factors in paragraphs (c)(4)(i) through (ix) of this section to O’s circumstances, in particular the facts that A is a foundation manager within the meaning of section 4946(b) and A’s contribution is in the form of closely held stock, O cannot exclude A’s contribution of the S stock in 2013 as an unusual grant under paragraph (c)(3) of this section for purposes of determining whether O meets the one-third support test under section 509(a)(2) for 2014 and future years. (d)Definition of normally—first five years of an organization’s exis- tence—(1)In general. An organization meets the one-third support test and the not-more-than-one-third support test dur- ing its first five taxable years as a section 501(c)(3) organization if the organization can reasonably be expected to meet the requirements of the one-third support test and the not-more-than-one-third support test during that period. With respect to such organization’s sixth taxable year, the organization shall be described in section 509(a)(2) if it meets the one-third support test and the not-more-than-one-third sup- port test under the definition of normally set forth in paragraph (c)(1)(i) of this sec- tion for its sixth taxable year (based on support received in its second through sixth taxable years), or for its fifth taxable year (based on support received in its first through fifth taxable years). (2)Basic consideration. In deter- mining whether an organization can reasonably be expected (within the meaning of paragraph (c)(1)(i) of this section) to meet the one-third support test under section 509(a)(2)(A) and the not-more-than-one-third support test un- der section 509(a)(2)(B) described in paragraph (c) of this section during its first 5 taxable years, the basic consideration is whether its organizational structure, current or proposed programs or activ- ities, and actual or intended method of operation are such as to attract the type of broadly based support from the general public, public charities, and governmen- tal units that is necessary to meet such tests. The factors that are relevant to this determination, and the weight ac- corded to each of them, may differ from case to case, depending on the nature and functions of the organization. An organ- ization cannot reasonably be expected to meet the one-third support test and the not-more-than-one-third support test where the facts indicate that an organiza- tion is likely during its first five taxable years to receive less than one-third of its support from permitted sources (subject to the limitations of paragraph (b) of this sec- tion) or to receive more than one-third of its support from items described in section 509(a)(2)(B). (3)Factors taken into account.All pertinent facts and circumstances shall be taken into account under paragraph (d)(2) of this section in determining whether the organizational structure, programs or ac- tivities, and method of operation of an or- ganization are such as to enable it to meet the tests under section 509(a)(2) during its first five taxable years. Some of the perti- nent factors are: (i) Whether the organization has or will have a governing body which is comprised of public officials, or individuals chosen by public officials acting in their capacity as such, of persons having special knowl- edge in the particular field or discipline in which the organization is operating, of community leaders, such as elected offi- cials, clergymen, and educators, or, in the case of a membership organization, of in- dividuals elected pursuant to the organiza- tion’s governing instrument or bylaws by October 27, 20089932008–43 I.R.B. a broadly based membership. This charac- teristic does not exist if the membership of the organization’s governing body is such as to indicate that it represents the personal or private interests of disqualified persons, rather than the interests of the community or the general public. (ii) Whether a substantial portion of the organization’s initial funding is to be pro- vided by the general public, by public char- ities, or by government grants, rather than by a limited number of grantors or contrib- utors who are disqualified persons with re- spect to the organization. The fact that the organization plans to limit its activities to a particular community or region or to a special field which can be expected to ap- peal to a limited number of persons will be taken into consideration in determining whether those persons providing the initial support for the organization are represen- tative of the general public. On the other hand, the subsequent sources of funding which the organization can reasonably ex- pect to receive after it has become estab- lished and fully operational will also be taken into account. (iii) Whether a substantial proportion of the organization’s initial funds are placed, or will remain, in an endowment, and whether the investment of such funds is unlikely to result in more than one third of its total support being received from items describedinsection509(a)(2)(B). (iv) In the case of an organization that carries on fundraising activities, whether the organization has developed a concrete plan for solicitation of funds from the gen- eral public on a community or area-wide basis; whether any steps have been taken to implement such plan; whether any firm commitments of financial or other sup- port have been made to the organization by civic, religious, charitable, or simi- lar groups within the community; and whether the organization has made any commitments to, or established any work- ing relationships with, those organizations or classes of persons intended as the future recipients of its funds. (v) In the case of an organization that carries on community services, such as combating community deterioration in an economically depressed area that has suf- fered a major loss of population and jobs, whether the organization has a concrete program to carry out its work in the com- munity; whether any steps have been taken to implement that program; whether it will receive any part of its funds from a public charity or governmental agency to which it is in some way held accountable as a condition of the grant or contribution; and whether it has enlisted the sponsorship or support of other civic or community lead- ers involved in community service pro- grams similar to those of the organization. (vi) In the case of an organization that carries on educational or other exempt activities for, or on behalf of, members, whether the solicitation for dues-paying members is designed to enroll a substan- tial number of persons in the community, area, profession, or field of special interest (depending on the size of the area and the nature of the organization’s activities); whether membership dues for individual (rather than institutional) members have been fixed at rates designed to make mem- bership available to a broad cross-section of the public rather than to restrict mem- bershiptoalimitednumberofpersons; and whether the activities of the organi- zation will be likely to appeal to persons having some broad common interest or purpose, such as educational activities in the case of alumni associations, mu- sical activities in the case of symphony societies, or civic affairs in the case of parent-teacher associations. (vii) In the case of an organization that provides goods, services, or facili- ties, whether the organization is or will be required to make its services, facili- ties, performances, or products available (regardless of whether a fee is charged) to the general public, public charities, or governmental units, rather than to a lim- ited number of persons or organizations; whether the organization will avoid exe- cuting contracts to perform services for a limited number of firms or governmental agencies or bureaus; and whether the ser- vice to be provided is one which can be expected to meet a special or general need among a substantial portion of the general public. (4)Example. The application of this paragraph (d) may be illustrated by the fol- lowing example: Example. (i) Organization X was formed in Jan- uary 2008 and uses a December 31 taxable year. After September 9, 2008, and before December 31, 2008, Organization X filed Form 1023 requesting recogni- tion of exemption as an organization described in sec- tion 501(c)(3) and in section 509(a)(2). In its appli- cation, Organization X established that it can reason- ably be expected to operate as a public charity un- der this paragraph (d). Subsequently, Organization X received a ruling or determination letter that it is an organization described in sections 501(c)(3) and 509(a)(2) effective as of the date of its formation. (ii) Organization X is described in section 509(a)(2) for its first 5 taxable years (for the taxable years ending December 31, 2008, through December 31, 2012). (iii) Organization X can qualify as a public charity beginning with the taxableyear ending December 31, 2013, if Organization X can meet the requirements of §1.170A–9T(f)(4)(i) through (iii) or paragraphs (a) through (b) of this section for the taxable years end- ing December 31, 2009, through December 31, 2013, or for the taxable years ending December 31, 2008, through December 31, 2012. (e)Determinations on foundation clas- sification and reliance. (1) A ruling or de- termination letter that an organization is described in section 509(a)(2) may be is- sued to an organization. Such determina- tion may be made in conjunction with the recognition of the organization’s tax-ex- empt status or at such other time as the or- ganization believes it is described in sec- tion 509(a)(2). The ruling or determi- nation letter that the organization is de- scribedinsection509(a)(2)maybere- voked if, upon examination, the organiza- tion has not met the requirements of this section. The ruling or determination letter that the organization is described in section 509(a)(2) also may be revoked if the organ- ization’s application for a ruling or deter- mination contained one or more material misstatements of fact or such application was part of a scheme or plan to avoid or evade any provision of the Internal Rev- enue Code. The revocation of the determi- nation that an organization is described in section 509(a)(2) does not preclude revo- cation of the determination that the organ- ization is described insection 501(c)(3). (2)Status of grantors or contribu- tors.For purposes of sections 170, 507, 545(b)(2), 642(c), 4942, 4945, 2055, 2106(a)(2), and 2522, grantors and con- tributors may rely upon a determination letter or ruling that an organization is described in section 509(a)(2) until the Internal Revenue Service publishes notice of a change of status (for example, in the Internal Revenue Bulletin or Publication 78, “Cumulative List of Organizations De- scribed in Section 170(c) of the Internal Revenue Code of 1986,” which can be searched atwww.irs.gov).For this pur- pose, grantors or contributors may also rely on an advance ruling that expires on 2008–43 I.R.B.994October 27, 2008 or after June 9, 2008. However, a grantor or contributor may not rely on such an advance ruling or any determination letter or ruling if the grantor or contributor was responsible for, or aware of, the act or failure to act that resulted in the organiza- tion’s loss of classification under section 509(a)(2) or acquired knowledge that the Internal Revenue Service had given no- tice to such organization that it would be deleted from such classification. (3)Examples. The provisions of this paragraph (e) may be illustrated by the fol- lowing examples: Example 1. Y, a calendar year organization de- scribed in section 501(c)(3), is created in February 2008 for the purpose of displaying African art. On its exemption application Y shows, under penalties of perjury, that it can reasonably, in accordance with the requirements of paragraph (d) of this section, expect to receive support from the public in 2008 through 2012 that will satisfy the one-third support and not-more-than-one-third support tests described in section 509(a)(2) for its first 5 taxable years, 2008 through 2012. Y may therefore receive a determina- tion that it meets the requirements of paragraph (a) of this section. Pursuant to such determination, Y will be a public charity for its first five taxable years (2008, 2009, 2010, 2011, and 2012), regardless of the public support Y in fact receives during this period. Example 2. Z, a calendar year organization de- scribed in section 501(c)(3), is created in July 2008. On its exemption application Z shows, under penal- ties of perjury, that it canreasonably, in accordance with the requirements of paragraph (d) of this sec- tion, expect to receive support from the public in 2008 through 2012 that will satisfy the one-third support and not-more-than-one-third support tests described in section 509(a)(2) for its first 5 taxable years, 2008 through 2012. Z receives a determination that it is described in section 509(a)(2). However, the support actually received from the public over Z’s first 5 tax- able years (2008 through 2012) does not satisfy the one-third support and not-more-than-one-third sup- port tests described in section 509(a)(2), nor does the support Z receives from 2009 through and includ- ing its sixth taxable year, 2013, meet the one-third support and not-more-than-one-third support tests de- scribed in section 509(a)(2). Z is described in section 509(a)(2) during its first five years for all purposes. But, because Z has not met the requirements of para- graph (a) of this section either for 2008 through 2012 or 2009 through 2013, Z is not described in section 509(a)(2) for its taxable year 2013. If Z is not de- scribed in section 509(a)(1), (3), or (4), then Z is a private foundation as of 2013, and Z will be treated as a private foundation for all purposes (except as pro- vided in paragraph (e)(2) of this section with respect to grantors and contributors). (f) through (j) [Reserved]. For further guidance, see §1.509(a)–3(f) through (j). (k)Method of accounting. For purposes of section 509(a)(2), an organization’s sup- port will be determined under the method of accounting on the basis of which the or- ganization regularly computes its income in keeping its books under section 446. For example, if a grantor makes a grant to an organization payable over a term of years, such grant will be includible in the support fraction of the grantee organization under the method of accounting on the basis of which it regularly computes its income in keeping its books under section 446. (l) and (m) [Reserved]. For further guidance, see §1.509(a)–3(l) and (m). (n)Transition rules. (i) An organization that received an advance ruling, that ex- pires on or after June 9, 2008, that it will be treated as an organization described in sec- tions 170(b)(1)(A)(vi) and 509(a)(1) or in section 509(a)(2) will be treated as meet- ing the requirements of paragraph (d)(1) of this section for the first five taxable years of its existence as a section 501(c)(3) organization unless the Internal Revenue Service issued to the organization a pro- posed determination prior to September 9, 2008, that the organization is not described in sections 170(b)(1)(A)(vi) and 509(a)(1) or in section 509(a)(2). (ii) Paragraph (d)(1) of this section shall not apply to an organization that re- ceived an advance ruling that expired prior to June 9, 2008, and that did not timely file with the Internal Revenue Service the required information to establish that it is an organization described in sections 170(b)(1)(A)(vi) and 509(a)(1) or in sec- tion 509(a)(2). (iii) An organization that fails to meet a public support test for its first taxable year beginning on or after January 1, 2008, un- der the regulations in this section may use the prior test set forth in §1.509(a)–3(c)(1) or §1.170A–9(e)(4)(i) or (ii) as in effect before September 9, 2008, (as contained in 26 CFR part 1 revised April 1, 2008) to determine whether the organization may be publicly supported for its 2008 taxable year based on its satisfaction of a public support test for taxable year 2007, com- puted over the period 2003 through 2006. (iv)Examples. The application of this paragraph (n) may be illustrated by the fol- lowing examples: Example 1.(i) Organization M was formed in January 2004, and uses a June 30 taxable year. Or- ganization M received an advance ruling letter that it is recognized as an organization described in sec- tion 501(c)(3) effective as of the date of its formation and that it is treated as a public charity under section 509(a)(2) during the five-year advance ruling period that will end on June 30, 2008. This date is within 90 days before September 9, 2008. (ii) Under the transition rule, Organization M is a public charity described in section 509(a)(2) for the taxable years ending June 30, 2004, through June 30, 2008. Organization M does not need to establish within 90 days after June 30, 2008, that it met a pub- lic support test under §1.170A–9(e) or §1.509(a)–3, as in effect prior to September 9, 2008, (as contained in 26 CFR part 1 revised April 1, 2008) for its ad- vance ruling period. (iii) Organization M can qualify as a public char- ity beginning with the taxable year ending June 30, 2009, if Organization M can meet the requirements of §1.170A–9T(f)(4)(i) or (ii) or paragraph (c)(1) of this section for the taxable years ending June 30, 2005, through June 30, 2009, or for the taxable years ending June 30, 2004, through June 30, 2008. In addition, for its taxable year ending June 30, 2009, Organization M may qualify as a public charity by availing itself of the transition rule contained in paragraph (n)(iii) of this section, which looks to support received by M in the taxable years ending June 30, 2004, through June 30, 2007. Example 2.(i)OrganizationNwasformedinJan- uary 2000 and uses a December 31 taxable year. Or- ganization N received a final determination that it was recognized as tax-exemptunder section 501(c)(3) and as a public charity prior to September 9, 2008. (ii) For taxable year 2008, Organization N will qualify as publicly supported if it meets the require- ments under either §1.170A–9T(f)(4)(i) or (ii) or paragraph (c)(1) of this section for the five-year period January 1, 2004, through December 31, 2008. Organization N will also qualify as publicly supported for taxable year 2008 if it meets the re- quirements under either §1.170A–9(e)(4)(i) or (ii) or §1.509(a)–3(c)(1) as in effect prior to September 9, 2008, (as contained in 26 CFR part 1 revised April 1, 2008) for taxable year 2007, using the four-year period from January 1, 2003, through December 31, 2006. (o)Effective/applicability date—(1)Ef- fective date. These regulations are effec- tive on September 9, 2008. (2)Applicability date. The regulations in paragraphs (a)(2), (a)(3)(i),(c),(d),(e) and (k) of this section shall apply to tax- able years beginning on or after January 1, 2008. (3)Expiration date. The applicability of this section expires on September 8, 2011. Par. 8. Section 1.6033–2 is amended by revising paragraph (k) to read as follows: §1.6033–2 Returns by exempt organizations (taxable years beginning after December 31, 1969) and returns by certain nonexempt organizations (taxable years beginning after December 31, 1980). ***** October 27, 20089952008–43 I.R.B. (k)Effective/applicability date.The provisions of this section shall apply with respect to returns filed for taxable years beginning after December 31, 1969. The applicability of paragraphs (a)(2)(ii)(g) and (a)(2)(ii)(h) of this section shall be limited to taxable years beginning before January 1, 2008. Par. 9. Section 1.6033–2T is added to read as follows: §1.6033–2T Returns by exempt organizations (taxable years beginning after December 31, 1969) and returns by certain nonexempt organizations (taxable years beginning after December 31, 1980) (temporary). (a)(1) through (a)(2)(ii)(f)[Reserved]. For further guidance, see §1.6033–2(a)(1) through (a)(2)(ii)(f). (g) The names and addresses of all offi- cers, directors, or trustees (or any person having responsibilities or powers similar to those of officers, directors or trustees) of the organization, and, in the case of a private foundation, all persons who are foundation managers, within the meaning of section 4946(b)(1). Organizations must also attach a schedule showing the names and addresses and/or total numbers of key employees, highly compensated employ- ees and independent contractors as pre- scribed by publication, form or instruc- tions. (h) A schedule showing the compensa- tion and other payments made to each per- sonwhosenameisrequiredtobelistedin paragraph (a)(2)(ii)(g) of this section dur- ing the calendar year ending within the or- ganization’s annual accounting period, or during such other period as prescribed by publication, form or instructions (a)(2)(ii)(i) through (j) [Re- served]. For further guidance, see §1.6033–2(a)(2)(ii)(i) through (j). (k)Effective/applicability date—(1)Ef- fective date. These regulations are effec- tive on September 9, 2008. (2)Applicability date. The regulations in paragraphs (a)(2)(ii)(g) and (a)(2)(ii)(h) of this section shall apply to taxable years beginning on or after January 1, 2008. (3)Expiration date. The applicability of this section expires September 8, 2011. Par. 10. Section 1.6043–3 is amended as follows: 1. The undesignated text following paragraph (b)(8) is designated as para- graph (b)(9). 2. Paragraph (d)(3) is revised. 3. New paragraph (e) is added. The addition and revision read as fol- lows: §1.6043–3 Returns regarding liquidation, dissolution, termination, or substantial contraction of organizations exempt from taxation under section 501(a). ***** (d)(3) For the definition of the term “in- tegrated auxiliaries” as used in paragraph (b)(1) of this section, see §1.6033–2(h). (e)Effective/applicability date.The provisions of this section shall apply with respect to returns filed for taxable years beginning after December 31, 1969. The applicability of paragraphs (b)(8) and (d) of this section shall be limited to returns filed for taxable years beginning before January 1, 2008. Par. 11. Section 1.6043–3T is added to read as follows: §1.6043–3T Returns regarding liquidation, dissolution, termination, or substantial contraction of organizations exempt from taxation under section 501(a) (temporary). (a) through (b)(7) [Reserved]. For fur- ther guidance, see §1.6043–3(a) through (b)(7). (b)(8) Any organization no longer ex- empt from taxation under section 501(a) and that during the period of its exemp- tion under such section was not an organ- ization described in section 501(c)(3), a corporation described in section 501(c)(2) that held title to property for an organiza- tion described in section 501(c)(3), or an organization described in such other sec- tion as prescribed by publication, form or instructions. (b)(9) and (c) [Reserved]. For further guidance, see §1.6043–3(b)(9) and (c). (d)Definitions. (1) For the definition of the term “normally” as used in paragraph (b)(2) of this section, see §1.6033–2(g)(3). (2) For the definition of the term “in- tegrated auxiliaries” as used in paragraph (b)(1) of this section, see §1.6033–2(h). (e)Effective/applicability date —(1)Ef- fective date. The regulations in this section are effective on September 9, 2008. (2)Applicability date. Paragraphs (b)(8) and (d) of this section shall apply to returns filed for taxable years beginning on or after January 1, 2008. (3)Expiration date. The applicability of this section expires on September 8, 2011. PART 602—OMB CONTROL NUMBER UNDER THE PAPERWORK REDUCTION ACT Par. 12. The authority citation for part 602 continues to read as follows: Authority: 26 U.S.C. 7805 * * * Par. 13. In §602.101, paragraph (b) is amended by adding the following entry in numerical order to the table to read as follows: §602.101 OMB Control numbers. ***** (b) * * * 2008–43 I.R.B.996October 27, 2008 CFR part or section where identified and described Current OMB control No. ***** 1.6033–2T........................................................... 1545–2117 ***** Linda E. Stiff, Deputy Commissioner for Services and Enforcement. Approved August 21, 2008. Eric Solomon, Assistant Secretary of the Treasury (Tax Policy). (Filed by the Office of the Federal Register on September 8, 2008, 8:45 a.m., and published in the issue of the Federal Register for Se ptember 9, 2008, 73 F.R. 52527) October 27, 20089972008–43 I.R.B. Part III. Administrative, Procedural, and Miscellaneous 2008 Section 43 Inflation Adjustment Notice 2008–72 Section 43(b)(3)(B) of the Internal Revenue Code requires the Secretary to publish an inflation adjustment factor. The enhanced oil recovery credit under § 43 for any taxable year is reduced if the “reference price,” determined under § 45K(d)(2)(C), for the calendar year preceding the calendar year in which the taxable year begins is greater than $28 multiplied by the inflation adjustment fac- tor for that year. The credit is phased out in any taxable year in which the reference price for the preceding calendar year ex- ceeds $28 (as adjusted) by at least $6. The term “inflation adjustment factor” means, with respect to any calendar year, a fraction the numerator of which is the GNP implicit price deflator for the preced- ing calendar year and the denominator of which is the GNP implicit price deflator for 1990. Because the reference price for the 2007 calendar year ($66.52) exceeds $28 mul- tiplied by the inflation adjustment factor for the 2007 calendar year ($41.06) by $25.45, the enhanced oil recovery credit for qualified costs paid or incurred in 2008 is phased out completely. Table 1 contains the GNP implicit price deflator used for the 2008 calendar year, as well as the previously published GNP implicit price deflators used for the 1991 through 2007 calendar years. Notice 2008–72 TABLE 1 GNP IMPLICIT PRICE DEFLATORS Calendar YearGNP Implicit Price Deflator 1990112.9 (used for 1991) 1991117.0 (used for 1992) 1992120.9 (used for 1993) 1993124.1 (used for 1994) 1994126.0 (used for 1995)* 1995107.5 (used for 1996) 1996109.7 (used for 1997)** 1997 112.35 (used for 1998) 1998112.64 (used for 1999)*** 1999 104.59 (used for 2000) 2000106.89 (used for 2001) 2001109.31 (used for 2002) 2002110.63 (used for 2003) 2003 105.67 (used for 2004)**** 2004108.23 (used for 2005) 2005 112.129 (used for 2006) 2006116.036 (used for 2007) 2007 119.656 (used for 2008) * Beginning in 1995, the GNP implicit pricedeflator was rebased relative to 1992. The 1990 GNP implicit price deflator used to compute the 1996 § 43 inflation adjustment factor is 93.6. ** Beginning in 1997, two digits follow the decimal point in the GNPimplicit price deflator. The 1990 GNP price deflator used to compute the 1998 § 43 inflation adjustment factor is 93.63. *** Beginning in 1999, the GNP implicit price deflator was rebased relative to 1996. The 1990 GNP implicit price deflator used to compute the 2000 § 43 inflation adjustment factor is 86.53. **** Beginning in 2003, the GNP implicit price deflator was rebased, and the 1990 GNP implicit price deflator used to compute the 2004 § 43 inflation adjustment factor is 81.589. Table 2 contains the inflation adjust- ment factor and the phase-out amount for taxable years beginning in the 2008 calendar year as well as the previously published inflation adjustment factors and phase-out amounts for taxable years be- ginning in the 1991 through 2007 calendar years. 2008–43 I.R.B.998October 27, 2008 Notice 2008–72 TABLE 2 INFLATION ADJUSTMENT FACTORS AND PHASE-OUT AMOUNTS Calendar Year Inflation Adjustment Factor Phase-out Amount 19911.00000 19921.03630 19931.07080 19941.09920 1995 1.11600 1996 1.1485 0 19971.17200 19981.19990 19991.20300 20001.20870 2001 1.2353 0 20021.26330 2003 1.2785 0 2004 1.2952 0 2005 1.32660 20061.3743100 percent 20071.4222100 percent 20081.4666100 percent The principal author of this notice is Julie V. Skeen of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information re- garding this notice, contact Ms. Skeen at (202) 622–3110 (not a toll-free call). 2008 Marginal Production Rates Notice 2008–89 This notice announces the applicable percentage under § 613A of the Internal Revenue Code to be used in determining percentage depletion for marginal proper- ties for the 2008 calendar year. Section 613A(c)(6)(C) defines the term “applicable percentage” for purposes of determining percentage depletion for oil and gas produced from marginal proper- ties. The applicable percentage is the per- centage (not greater than 25 percent) equal to the sum of 15 percent, plus one per- centage point for each whole dollar by which $20 exceeds the reference price (de- termined under § 45K(d)(2)(C)) for crude oil for the calendar year preceding the cal- endar year in which the taxable year be- gins. The reference price determined un- der § 45K(d)(2)(C) for the 2007 calendar year is $66.52. Table 1 contains the applicable percent- ages for marginal production for taxable years beginning in calendar years 1991 through 2008. October 27, 20089992008–43 I.R.B. Notice 2008–89 Table 1 APPLICABLE PERCENTAGE FOR MARGINAL PRODUCTION Calendar YearApplicable Percentage 1991 15 percent 199218 percent 199319 percent 199420 percent 1995 21 percent 199620 percent 199716 percent 199817 percent 199924 percent 200019 percent 2001 15 percent 2002 15 percent 2003 15 percent 2004 15 percent 200515 percent 2006 15 percent 2007 15 percent 2008 15 percent The principal author of this notice is Julie V. Skeen of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information re- garding this notice, contact Ms. Skeen at (202) 622–3110 (not a toll-free call). Charitable Contributions of Inventory Property Under § 170(e)(3) Notice 2008–90 SECTION 1. OVERVIEW This notice announces that the Internal Revenue Service (Service) and the Trea- sury Department are studying the compu- tation of the deductible amount and ad- justment to cost of goods sold for chari- table contributions of inventory property that constitute qualified contributions as defined in § 170(e)(3)(A) of the Internal Revenue Code. The Service and the Treasury Depart- ment are aware that some taxpayers mak- ing qualified contributions may, because of the income limitation of § 170(b)(2), pre- fer to apply the provisions of § 170(e)(1) and § 1.170A–1(c) of the Income Tax Regulations rather than the provisions of § 170(e)(3) and § 1.170A–4A(c). SECTION 2. GUIDANCE UNDER SECTION 170(e) For a particular qualified contribution of inventory property under § 170(e)(3) that otherwise satisfies the requirements of § 170 and the relevant regulations, the Service will not challenge a taxpayer’s computation of the deductible amount and the required adjustment to cost of goods sold under either (1) § 170(e)(3) and § 1.170A–4A(c), or (2) § 170(e)(1) and § 1.170A–1(c). SECTION 3. RELIANCE ON NOTICE Taxpayers may rely on this notice un- less and until further guidance is issued. SECTION 4. COMMENTS REQUESTED The Service and the Treasury Depart- ment request comments regarding the computation of the deductible amount and the required adjustment to cost of goods sold for charitable contributions of inven- tory property under § 170(e)(3) as well as any other issues related to inventory contributions that should be addressed in future guidance. Comments should be submitted in writing on or before January 26, 2009, and should include a reference to No- tice 2008–90. Send submissions to: CC:PA:LPD:PR (Notice 2008–90), Room 5203, Internal Revenue Service, P.O. Box 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 (Notice 2008–90), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Wash- ington, DC. Alternatively, comments may be submitted electronically directly to the Service via the following e-mail address: Notice.comments@irscounsel.treas.gov. Please include “Notice 2008–90” in the subject line of any electronic communi- cation. All materials submitted will be available for public inspection and copy- ing. SECTION 5. DRAFTING INFORMATION The principal author of this notice is Susan J. Kassell of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Ms. Kassell at (202) 622–5020 (not a toll-free call). 2008–43 I.R.B.1000October 27, 2008 Treatment of Certain Obligations Under Section 956(c) Notice 2008–91 SECTION 1. OVERVIEW Section 956(c) defines United States property generally to include an obligation of a United States person. On September 16, 1988, the Internal Revenue Service and the Treasury Department published Notice 88–108, 1988–2 C.B. 445, which announced that final regulations issued under section 956 will exclude from the definition of the term “obligation” an obli- gation that would constitute an investment in United States property if held at the end of the controlled foreign corporation’s taxable year, so long as the obligation is collected within 30 days from the time it is incurred. This exclusion shall not apply, however, if the controlled foreign corporation holds for 60 or more calendar days during such taxable year obliga- tions which, without regard to the 30 day rule described in the preceding sentence, would constitute an investment in United States property if held at the end of the controlled foreign corporation’s taxable year.SeeS. Rep. No. 103–37, at 178 (1993) (“The bill is not intended to change the measurement of U.S. property that may apply, for example, in the case of short-term obligations, as provided in IRS Notice 88–108”). SECTION 2. TREATMENT OF CERTAIN OBLIGATIONS UNDER SECTION 956(c) Recently, circumstances affecting liq- uidity have made it difficult for taxpay- ers to fund their operations. To facili- tate liquidity in the near term, this notice announces that the Internal Revenue Ser- vice and the Treasury Department will is- sue regulations under section 956(e) that, for purposes of section 956, a controlled foreign corporation (within the meaning of section 957(a)) may choose to exclude from the definition of the term “obliga- tion” an obligation held by the controlled foreign corporation that would constitute an investment in United States property provided the obligation is collected within 60 days from the time it is incurred. This exclusion shall not apply, however, if the controlled foreign corporation holds for 180 or more calendar days during its tax- able year obligationsthat, without regard to the 60 day rule described in the preced- ing sentence, would constitute an invest- ment in United States property. This notice does not otherwise affect the application of Notice 88–108. A con- trolled foreign corporation may apply this notice or Notice 88–108, but not both. SECTION 3. RELIANCE ON NOTICE This notice shall only apply for the first two taxable years of aforeign corporation ending after October 3, 2008. However, this notice shall not apply to taxable years of a foreign corporation beginning after December 31, 2009. Thus, if a foreign corporation has a calendar tax year, this notice shall apply for the foreign corpora- tion’s taxable years ending December 31, 2008, and December 31, 2009. SECTION 4. DRAFTING INFORMATION The principal author of this notice is Ethan A. Atticks of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Mr. Atticks at (202) 622–3840 (not a toll- free call). Insurance-Dedicated Money Market Funds — Temporary Guarantee Program for Money Market Funds — Government Not the “Issuer” for Purposes of Testing Diversification Notice 2008–92 SECTION 1. PURPOSE This notice relates to the Temporary Guarantee Program for Money Market Funds (the “Program”), which is pro- vided by the Treasury Department in response to the credit market instability to make available certain funds from its Exchange Stabilization Fund, upon pre- scribed terms and conditions, to money market funds that are regulated under the Security and Exchange Commission’s Rule 2a–7, 17 C.F.R. 270.2a–7, under the Investment Company Act of 1940 (“Rule 2a–7”). Some practitioners have expressed concern that participation in the Program may raise certain potential tax issues for money market funds whose beneficial interests are held exclusively by one or more segregated asset accounts of one or more insurance companies (or other investors permitted under § 1.817–5(f)(3) of the Income Tax Regulations) (“Insurance-Dedicated Money Market Funds”). This notice provides certainty with respect to those issues, as described below. SECTION 2. BACKGROUND .01The Program. In general, under the Program, the Treasury Department is making available its Exchange Stabiliza- tion Fund on a temporary basis to assist participating money market funds in re- paying shareholders upon liquidation of their shares. The Program is limited to as- sets in money market funds as of the close of business on September 19, 2008, and to investors of record as of that date. The Pro- gram is available to both Insurance-Ded- icated Money Market Funds and money market funds that are available to the gen- eral public. Participating money market funds are required to make premium pay- ments to participate in the Program. Pay- ments to a money market fund under the Program are tied to the per share net as- set value of the money market fund itself. Payments to a money market fund under the Program are not tied to the terms or per- formance of any particular assets held by the money market fund. The general de- scription of certain aspects of the Program herein is subject fully to the specific terms, conditions, maximum size limitations, and other limitations set forth in the operative legal documents for the Program. .02Diversification requirement for variable contracts. Section 817(h) of the Internal Revenue Code provides that a variable life insurance or annuity contract that is based on a segregated asset account is not treated as a life insurance or annuity contract for any period (and any subse- quent period) for which the investments of the account are not adequately diversified. For purposes of determining whether a segregated asset account is adequately di- versified, each United States government agency or instrumentality is treated as a October 27, 200810012008–43 I.R.B. separate issuer. In addition, to the extent that a segregated asset account with re- spect to a variable life insurance contract invests in securities issued by the United States Treasury, the investments made by the account are treated as adequately diver- sified. The rule in the previous sentence does not apply with respect to a variable annuity contract. Section 1.817–5(h)(1) defines “government security” to mean any security that is issued, guaranteed or insured by the United States or any instru- mentality. .03Investor control. The holder of a variable contract may be treated as an owner of the assets of a segregated asset account funding that contract if (1) the holder exercises sufficient control over the assets to be deemed the owner; or (2) the assets are not available exclusively through the purchase of a life insurance or annuity contract.SeeRev. Rul. 2003–92, 2003–2 C.B. 350; Rev. Rul. 2003–91, 2003–2 C.B. 347; Rev. Rul. 81–225, 1981–2 C.B. 13; Rev. Rul. 80–274, 1980–2 C.B. 27; Rev. Rul. 77–85, 1977–1 C.B. 12. SECTION 3. SCOPE AND APPLICATION .01No Violation of Diversification Requirements; No Assertion of Investor Control. The Treasury Department and the Internal Revenue Service (“IRS”) will not assert that participation in the Program by an Insurance-Dedicated Money Market Fund causes a violation of the diversifica- tion requirements of § 817(h) in the case of a segregated asset account that invests in the Insurance-Dedicated Money Market Fund. In addition, the Treasury Depart- ment and the IRS will not assert that such a fund’s participation in the Program causes the holder of a variable contract supported by a segregated asset account that invests in the fund to be treated as an owner of the fund. .02No Inferences on Law. This no- tice provides administrative relief in fur- therance of public policy to promote stabil- ity in the market for money market funds. Except with respect to the administrative relief expressly provided in this notice, no inference should be drawn from this notice regarding any other Federal tax issues af- fecting variable contracts, money market funds, or any other security. In addition, this notice is not intended to address any other Federal tax issue implicated in the described transactions under the Program. DRAFTING INFORMATION The principal author of this notice is Sheryl B. Flum of the Office of Asso- ciate Chief Counsel (Financial Institutions & Products). For further information re- garding this notice, contact Ms. Flum at (202) 622–3970 (not a toll-free call). Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates Notice 2008–93 This notice provides guidance as to the corporate bond weighted average interest rate and the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue Code as in ef- fect for plan years beginning before 2008. It also provides guidance on the corpo- rate bond monthly yield curve (and the corresponding spot segment rates), the 24-month average segment rates, and the funding transitional segment rates under § 430(h)(2). In addition, this no- tice provides guidance as to the interest rate on 30-year Treasury securities un- der § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the min- imum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007. CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE Sections 412(b)(5)(B)(ii) and 412(l)(7) (C)(i), as amended by the Pension Funding Equity Act of 2004 and by the Pension Protection Act of 2006 (PPA), provide that the interest rates usedto calculate current liability and to determine the required contribution under § 412(l) for plan years beginning in 2004 through 2007 must be within a permissible range based on the weighted average of the rates of interest on amounts invested conservatively in long term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year. Notice 2004–34, 2004–1 C.B. 848, pro- vides guidelines for determining the cor- porate bond weighted average interest rate and the resulting permissible range of in- terest rates used to calculate current liabil- ity. That notice establishes that the corpo- rate bond weighted average is based on the monthly composite corporate bond rate de- rived from designated corporate bond in- dices. The methodology for determining the monthly composite corporate bond rate as set forth in Notice 2004–34 continues to apply in determining that rate. See Notice 2006–75, 2006–2 C.B. 366. The composite corporate bond rate for September 2008 is 6.98 percent. Pursuant to Notice 2004–34, the Service has de- termined this rate as the average of the monthly yields for the included corporate bond indices for that month. The following corporate bond weighted average interest rate was determined for plan years beginning in the month shown below. For Plan Years Beginning inPermissible Range MonthYear Corporate Bond Weighted Average90%to100% October20086.14 5.52 6.14 2008–43 I.R.B.1002October 27, 2008 YIELD CURVE AND SEGMENT RATES Generally for plan years beginning after 2007 (except for delayed effective dates for certain plans under sections 104, 105, and 106 of PPA), § 430 of the Code specifies the minimum funding require- ments that apply to single employer plans pursuant to § 412. Section 430(h)(2) spec- ifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined us- ing three 24-month average interest rates (“segment rates”), each of which applies to cash flows during specified periods. However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates. For plan years beginning in 2008 and 2009, a transitional rule under § 430(h)(2)(G) pro- vides that the segment rates are blended with the corporate bond weighted average as specified above. An election may be made under § 430(h)(2)(G)(iv) to use the segment rates without applying the transi- tional rule. Notice 2007–81, 2007–44 I.R.B. 899, provides guidelines for determining the monthly corporate bond yield curve, the 24-month average corporate bond segment rates, and the funding transitional segment rates used to compute the target normal cost and the funding target. Pursuant to Notice 2007–81, the monthly corporate bond yield curve derived from September 2008 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of Septem- ber 2008 are, respectively, 5.86, 7.35, and 6.88. The three 24-month average corporate bond segment rates applicable for October 2008 under the election of § 430(h)(2)(G)(iv) are as follows: First Segment Second Segment Third Segment 5.09 6.16 6.58 The transitional segment rates under § 430(h)(2)(G) applicable for October 2008, taking into account the corporate bond weighted average of 6.14 stated above, are as follows: For Plan Years Beginning in First Segment Second Segment Third Segment 2008 5.796.15 6.29 2009 5.446.15 6.43 30-YEAR TREASURY SECURITIES INTEREST RATES Section 417(e)(3)(A)(ii)(II) (prior to amendment by PPA) defines the appli- cable interest rate, which must be used for purposes of determining the minimum present value of a participant’s benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury se- curities for the month before the date of distribution or such other time as the Secretary may by regulations prescribe. Section 1.417(e)–1(d)(3) of the Income Tax Regulations provides that the applica- ble interest rate for a month is the annual rate of interest on 30-year Treasury secu- rities as specified by the Commissioner for that month in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin. The rate of interest on 30-year Treasury securities for September 2008 is 4.27 per- cent. The Service has determined this rate as the monthly average of the daily deter- mination of yield on the 30-year Treasury bond maturing in May 2038. Generally for plan years beginning after 2007, § 431 specifies the mini- mum funding requirements that apply to multiemployer plans pursuant to § 412. Section 431(c)(6)(B)specifies a minimum amount for the full-funding limitation described in section 431(c)(6)(A), based on the plan’s current liability. Section 431(c)(6)(E)(ii)(I) provides that the inter- est rate used to calculate current liability for this purpose must be no more than 5 percent above and no more than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities dur- ing the four-year period ending on the last day before the beginning of the plan year. Notice 88–73, 1988–2 C.B. 383, provides guidelines for determining the weighted average interest rate. The following rates were determined for plan years beginning in the month shown below. For Plan Y ears Beginnin gin Permissi ble Range MonthYear 30-Year Treasury Weighted Average 90%to 105% October20084.704.234.93 October 27, 200810032008–43 I.R.B. MINIMUM PRESENT VALUE SEGMENT RATES Generally for plan years beginning after December 31, 2007, the applicable interest rates under § 417(e)(3)(D) are segment rates computed without regard to a 24-month average. For plan years beginning in 2008 through 2011, the ap- plicable interest rate is the monthly spot segment rate blended with the applica- ble rate under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning in 2007. Notice 2007–81 provides guidelines for determining the minimum present value segment rates. Pursuant to that notice, the minimum present value transitional segment rates determined for September 2008, taking into account the September 2008 30-year Treasury rate of 4.27 stated above, are as follows: For Plan Years Beginning in First Segment Second Segment Third Segment 2008 4.59 4.894.79 20094.91 5.505.31 DRAFTING INFORMATION The principal author of this notice is Tony Montanaro of the Employee Plans, Tax Exempt and Government Entities Di- vision. Mr. Montanaro may be e-mailed at RetirementPlanQuestions@irs.gov. 2008–43 I.R.B.1004October 27, 2008 Table I Monthly Yield Curve for September 2008 Maturity YieldMaturity YieldMaturity YieldMaturity YieldMaturity Yield 0.5 4.38 20.5 7.26 40.5 6.83 60.5 6.70 80.5 6.64 1.0 4.90 21.07.2341.06.8361.06.7081.06.64 1.55.3521.57.2141.56.8261.56.7081.56.64 2.0 5.71 22.07.1942.06.8262.06.7082.06.64 2.5 5.99 22.5 7.17 42.5 6.82 62.5 6.70 82.5 6.63 3.06.1823.0 7.15 43.06.8163.0 6.69 83.06.63 3.5 6.34 23.5 7.14 43.5 6.81 63.5 6.69 83.5 6.63 4.06.4624.07.1244.06.8064.0 6.69 84.06.63 4.56.5824.57.1044.56.8064.5 6.69 84.56.63 5.0 6.68 25.0 7.09 45.0 6.79 65.0 6.69 85.0 6.63 5.5 6.78 25.5 7.07 45.5 6.79 65.5 6.68 85.5 6.63 6.06.8826.07.0646.0 6.79 66.06.6886.06.63 6.5 6.97 26.5 7.04 46.5 6.78 66.5 6.68 86.5 6.63 7.07.0627.07.0347.06.7867.06.6887.06.62 7.57.1427.57.0247.56.7867.56.6887.56.62 8.07.2128.07.0148.06.7768.06.6888.06.62 8.5 7.28 28.5 7.00 48.5 6.77 68.5 6.67 88.5 6.62 9.0 7.34 29.06.9949.0 6.77 69.0 6.67 89.0 6.62 9.5 7.39 29.5 6.98 49.56.7669.56.6789.56.62 10.07.4330.0 6.97 50.0 6.7670.06.67 90.0 6.62 10.57.4730.5 6.96 50.56.7670.56.6790.56.62 11.0 7.50 31.06.95 51.06.75 71.06.6791.06.62 11.57.5231.5 6.95 51.56.7571.5 6.6691.56.62 12.0 7.53 32.0 6.94 52.06.75 72.06.66 92.0 6.61 12.57.5432.5 6.93 52.5 6.74 72.5 6.6692.56.61 13.0 7.54 33.0 6.92 53.0 6.7473.06.66 93.0 6.61 13.57.5433.5 6.92 53.56.7473.56.6693.56.61 14.0 7.53 34.06.91 54.0 6.7474.06.6694.06.61 14.57.5234.5 6.90 54.5 6.73 74.56.65 94.56.61 15.07.5035.0 6.90 55.0 6.73 75.06.65 95.06.61 15.5 7.49 35.5 6.89 55.5 6.73 75.56.65 95.56.61 16.07.4736.06.88 56.0 6.7376.0 6.65 96.0 6.61 16.57.4436.56.8856.56.7276.56.6596.56.61 17.07.4237.06.87 57.0 6.7277.0 6.65 97.06.61 17.5 7.40 37.5 6.87 57.5 6.72 77.56.65 97.56.60 18.07.3738.06.86 58.0 6.7278.0 6.65 98.0 6.60 18.57.3538.56.8558.5 6.71 78.5 6.6498.56.60 19.0 7.33 39.0 6.85 59.06.71 79.0 6.64 99.0 6.60 19.57.3039.56.8459.56.7179.56.6499.56.60 20.07.2840.06.8460.06.7180.06.64100.06.60 October 27, 200810052008–43 I.R.B. 26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. (Also Part I, § 42.) Rev. Proc. 2008–60 SECTION 1. PURPOSE This revenue procedure affects taxpay- ers who are maintaining a surety bond or a Treasury Direct Account (TDA) to satisfy the low-income housing tax credit recap- ture exception in § 42(j)(6) of the Internal Revenue Code (the Code), as in effect on or before July 30, 2008. This revenue pro- cedure provides the procedures for taxpay- ers to follow when making the election un- der section 3004(i)(2)(B)(ii) of the Hous- ing Assistance Tax Act of 2008 (Pub. L. 110–289) (the Act) to no longer maintain a surety bond or a TDA to avoid recapture. SECTION 2. BACKGROUND .01 Section 42 of the Code allows a 10-year tax credit for investment in qual- ified low-income buildings placed in ser- vice after December 31, 1986. If, as of the close of any taxable year in the compliance period, the amount of the qualified basis of any building with respect to the taxpayer is less than the amount of such basis as of the close of the preceding taxable year, § 42(j)(1) provides that the taxpayer’s tax for the taxable year shall be increased by the credit recapture amount. .02 Prior to the Act, § 42(j)(6) of the Code provided that in the case of a disposi- tion of a building or an interest therein the taxpayer would be discharged from liabil- ity for any additional tax by reason of such disposition if (A) the taxpayer furnished to the Secretary a bond in an amount satisfac- tory to the Secretary and for the period re- quired, and (B) it was reasonably expected that such building would continue to be op- erated as a qualified low-income building for the remainder of the building’s compli- ance period. A building’s compliance pe- riod is defined in § 42(i)(1). .03 Form 8693,Low-Income Housing Credit Disposition Bond, was developed by the Service for use as a “surety bond” for taxpayers to use to avoid or defer re- capture of low-incomehousing tax cred- its under § 42(j)(6) of the Code follow- ing a disposition of a building (or interest therein). Rev. Rul. 90–60, 1990–2 C.B. 3, provides guidance to taxpayers on the amount of “surety bond” considered satis- factory by the Secretary and the period of the bond required by the Secretary under § 42(j)(6). .04 Rev. Proc. 99–11, 1999–1 C.B. 275, establishes a collateral program as an alternative to providing a surety bond to avoid or defer recapture of low-income housing tax credits under § 42(j)(6) of the Code. Under this program, taxpayers may establish a TDA and pledge certain United States Treasury securities to the Internal Revenue Service as security for the tax- payer’s recapture liability. .05 Taxpayers must use Form 8693 in posting a surety bond and in establishing a TDA. The Internal Revenue Service must approve Form 8693 before it will take ef- fect. .06 Section 42(j)(6)(A) of the Code, as amended by section 3004(c) of the Act, provides that, in general, the increase in tax under § 42(j)(1) shall not apply solely by reason of the disposition of a building (or an interest therein) if it is reasonably expected that such building will continue to be operated as a qualified low-income building for the remainder of the building’s compliance period. .07 Section 42(j)(6)(B) of the Code, as amended by section 3004(c) of the Act, provides that if a building (or interest therein) is disposed of during any taxable year and there is any reduction in the qual- ified basis of such building which results in an increase in tax for such taxable or any subsequent taxable year, then (i) the statutory period for the assessment of any deficiency with respect to such increase in tax shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may prescribe) of such reduction in qualified basis, and (ii) such deficiency may be assessed before the expiration of such 3-year period notwith- standing the provisions of any other law or rule of law which would otherwise prevent such assessment. .08 Under section 3004(i) of the Act, the amendments made to § 42(j)(6) of the Code by section 3004(c) of the Act apply to interests in buildings disposed of after July 30, 2008, the date of enactment of the Act. In addition, the amendments also apply to interests in buildings disposed of on or before July 30, 2008, if (i) it is reasonably expected that such building(s) will continue to be operated as qualified low-income building(s) (within the mean- ing of § 42) for the remainder of the com- pliance period with respect to such build- ing(s), and (ii) the taxpayer elects the ap- plication of these rules to such disposition. SECTION 3. SCOPE .01 Except as provided in section 3.02 of this revenue procedure, this revenue procedure applies to all taxpayers that dis- posed of a qualified low-income building (or an interest therein) on or before July 30, 2008, for which the Internal Revenue Service has approved a Form 8693. Un- der this revenue procedure, these taxpay- ers may elect to have section 3004(c) of the Act apply to the disposition if at the time of the election the building covered by a surety bond or TDA is reasonably ex- pected to continue to be operated as a qual- ified low-income building for the remain- der of the building’s compliance period. .02 This revenue procedure does not ap- plytoanytaxpayerwhooptedtosatisfythe bond posting exception to recapture un- der § 42(j)(6) of the Code by setting up a TDA, and who received a Form 8693 that was approved by the Internal Revenue Ser- vice before January 1, 2008, but who did not fund the TDA within the period for funding the TDA prescribed by Rev. Proc. 99–11. SECTION 4. PROCEDURE FOR MAKING ELECTION .01 A taxpayer who seeks to make the election provided by section 3004(i)(2)(B)(ii) of the Act must submit a letter to the Internal Revenue Service containing the following information: (1) The taxpayer’s name, address, and taxpayer identification number; (2) A statement affirming that the tax- payer reasonably expects that the building will continue to be operated as a qualified low-income building (within the meaning of § 42) for the remainder of the building’s compliance period; (3) A declaration stating: “Under penal- ties of perjury, I declare that I have ex- amined this letter and the representations made therein, and to the best of my knowl- 2008–43 I.R.B.1006October 27, 2008 edge and belief, they are true, correct, and complete.” .02 The taxpayer must attach to the let- terrequiredbySection4.01ofthisrevenue procedure a copy of the Form 8693 that was approved by the Internal Revenue Ser- vice for the building, signature page only, and mail the letter and attached page to: Internal Revenue Service Box 331 Attn: LIHC Unit, DP 607 South Philadelphia Campus Bensalem, PA 19020 SECTION 5. EFFECT OF ELECTION If a taxpayer makes the election under this revenue procedure, section 3004(c) of the Act applies to a disposition of a build- ing (or interest therein) on or before July 30, 2008. Thus, the disposition is treated as if § 42(j)(6) of the Code, as in effect on or before July 30, 2008, contained no pro- vision for the posting of a bond to avoid or defer recapture and the taxpayer is treated as if no surety bond or TDA had been es- tablished for that disposition. SECTION 6. PAPERWORK REDUCTION ACT The collection of information con- tained in this revenue procedure has been reviewed and approved by the Office of Management and budget in accor- dance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545–2120. 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. The reporting requirement is contained in section 4 of this revenue procedure. The information is required so that taxpayers may elect to terminate surety bonds or TDA accounts furnished or established un- der former § 42(j)(6). The likely respondents are taxpayers who have currently in effect a surety bond or TDA to avoid or defer recapture of low-income housing tax credits arising from a disposition of a building (or interest therein) on or before July 30, 2008. The estimated total annual reporting burden is 7,800 hours. The estimated annual burden per respondent is 1 hour, depending on the individual circumstances. The estimated total number of respondents is 7,800. 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 law. Generally tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. SECTION 7. EFFECTIVE DATE This revenue procedure is effective for elections under section 3004(i)(2)(B)(ii) of the Act made on or after October 2, 2008. An election request submitted by a tax- payer to the Internal Revenue Service af- ter July 30, 2008, but prior to October 2, 2008, that does not satisfy all of the proce- dures required by Section 4 of this revenue procedure will be deemed valid as of the date originally submitted if the taxpayer corrects the election to comply with these procedures by the close of December 31, 2008. SECTION 8. DRAFTING INFORMATION The principal author of this revenue procedure is Julie Hanlon Bolton of the Office of Associate Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue procedure, contact Ms. Hanlon Bolton at (202) 622–3040 (not a toll-free call). October 27, 200810072008–43 I.R.B. Part IV. Items o fGeneralInterest Notice of Prop osed Rulemaking by Cross-Refere nce to Temporary Re gulations Implementat ion of Form 990 REG–142333– 07 AGENCY: Inte rnal Revenue Service (IRS), Treas ury. ACTION: Noti ce of proposed rulemaking by cross-re ference to temporary regula- tions. SUMMARY: In this issue of the Bulletin, the IRS and t he Treasury Department are issuing tem porary regulations (T.D. 9423) necessary t o implement the redesigned Form 990,“ Return of Organization Ex- empt From I ncome Tax.”The temporary regulatio ns make revisions to the regula- tions unde r section 6033 and section 6043 to allow f or new threshold amounts for reportin g compensation, to require that compensa tion be reported on a calendar year basi s, and to modify the scope of orga- nization s subject to information reporting require ments upon a substantial contrac- tion. Th e temporary regulations also elimina te the advance ruling process for new orga nizations, change the public sup- port com putation period for organizations descri bed in sections 170(b)(1)(A)(vi) and 509(a) (1) and in section 509(a)(2) to five years, consistent with the revised Form 990, an dclarifythatsupportmustbere- ported using the organization’s overall metho d of accounting. All tax exempt or- ganiz ations required under section 6033 of the In ternal Revenue Code (Code) to file annua l information returns are affected by the te mporary regulations. The text of the temp orary regulations also serves as the text of these proposed regulations. DATE S: Written or electronic comments and r equests for a public hearing must be rece ived by November 10, 2008. ADDR ESSES: Send submissions to: CC:P A:LPD:PR (REG–142333–07), room 5203 , Internal Revenue Service, PO Box 760 4, Ben Franklin Station, Washing- ton , DC 20044. Submissions may be hand-deliver ed Monday through Friday between the ho urs of 8 a.m. and 4 p.m. to: CC:PA:LPD :PR (REG–142333–07), Courier’s Des k, Internal Revenue Ser- vice, 1111 Con stitution Avenue, N.W., Washington, DC, or sent electroni- cally, via th e Federal eRulemaking Por- tal athttp:/ /www.regulations.gov(IRS REG–142333– 07). FOR FURTHER I NFORMATION CONTACT: Co ncerning the proposed regulation s, Terri Harris, at (202) 622–6070; c oncerning submissions of comments or requests for a hear- ing, Oluwa funmilayo Taylor, at (202) 622–3401 ( not toll-free numbers). SUPPLEMEN TARY INFORMATION: Paperwork Reduction Act The collec tion of information contained in this not ice of proposed rulemaking has been revie wed and approved by the Office of Manage ment and Budget in accordance with the P aperwork Reduction Act of 1995 (44 U.S.C . 3507(d)) under control num- ber 1545– 2117. Comments on the collec- tion of in formation should be sent to the Office o f Management and Budget, Attn: Desk Off icer for the Department of the Treasur y, Office of Information and Reg- ulatory Affairs, Washington, DC 20503, with cop ies to the Internal Revenue Ser- vice, A ttn: IRS Reports Clearance Officer, SE:W:C AR:MP:T:T:SP, Washington, DC 20224. Comments on the collection of in- format ion should be received by Novem- ber 10, 2008. Comments are specifically reque sted concerning: Whethe r the proposed collection of in- forma tion is necessary for the proper per- forma nce of the functions of the Internal Reven ue Service, including whether the infor mation will have practical utility; The ac curacy of the estimated burden assoc iated with the proposed collection of infor mation; How th e quality, utility and clarity of the in formation to be collected may be en- hanc ed; How t he burden of complying with the prop osed collection of information may be mini mized, including through the appli- cati on of automated collection techniques or other forms of information technology; and Estimates of c apital or start-up costs and costs of op eration, maintenance and purchase of se rvice to provide information. The collectio n of information in this proposed regu lation is in §1.6033–2T. The information collected under §1.6033–2T relates to co mpensation reporting by tax exempt organ izations. The information that is requi red to be collected for purposes of §1.6033–2 Tisrequiredtobesubmit- tedonForm99 0,“Return of Organization Exempt From Income Tax.”The estimated number of re cordkeepers that will submit Form 990 is a pproximately 105,000. Estimated t otal annual reporting bur- den: one hou r. An agency ma y not conduct or sponsor, and a person is not required to respond to, a collectio n of information unless it displays a valid con trol number assigned by the Of- fice of Man agement and Budget. Books or re cords relating to a collection of informa tion must be retained as long as their co ntents may become material in the admin istration of any internal revenue law. Gene rally, tax returns and tax return informat ion are confidential, as required by 26 U.S. C. 6103. Backgrou nd and Explanation of Provisio n Temporar y regulations in this issue of the Bull etin amend the Income Tax Regu- lations (26 CFR part 1) relating to sections 170(b), 507, 509(a), 6033, and 6043. The amendme nts to §§1.170A–9, 1.507–2 and 1.509(a )–3 eliminate the advance ruling proces s,clarifythatsupportmustbere- ported using the organization’s overall method of accounting, eliminate the ex- ceptio n for material changes in sources of supp ort, and change the public sup- port co mputation period for organizations descr ibed in sections 170(b)(1)(A)(vi) and 50 9(a)(1) and in section 509(a)(2) to fiv e years, consistent with the re- vised Schedule A to the redesigned Form 990,“ Return of Organization Exempt From Income Tax.”The amendments to §§1. 6033–2(a)(2)(ii)(g)and(h)allowfor new t hreshold amounts for reporting com- pens ation and require that organizations use a calendar year basis or a basis that is 2008–43 I.R.B.1008October 27, 2008 prescribed by publication, form or instruc- tion when reporting listed officer, director, trustee, key employee and independent contractor compensation. The amend- ments to §§1.6043–3(b)(8) and (d) expand the scope of organizations subject to in- formation reporting requirements upon a substantial contraction. The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations ex- plains the temporary regulations and these proposed regulations. Special Analyses It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory as- sessment is not required. It has also been determined that section 553(b) of the Ad- ministrative Procedure Act (5 U.S.C. chap- ter 5) does not apply. It is hereby certi- fied that the collection of information in this regulation will not have a significant economic impact on a substantial number of small entities. Thiscertification is based on the fact that burden on tax-exempt en- tities will be reduced by (1) eliminating the separate advance ruling process and the additional process for subsequently seek- ing a definitive ruling, (2) clarifying rules regarding the method of accounting and period for reporting certain items, and (3) providing discretion for the IRS to narrow or clarify circumstances under which re- porting is required. Accordingly, a Regu- latory Flexibility Analysis under the Reg- ulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advo- cacy of the Small Business Administration for comment on their 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. Comments are requested on all aspects of the proposed regulations. The IRS and the Treasury Department re- quest comments on the clarity of the pro- posed rules and how they can be made eas- ier to understand. All comments will be available for public inspection and copy- ing. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in theFederal Register. Drafting Information The principal author of this regulation is Terri Harris of the Office of Division Counsel/Associate Chief Counsel (Tax Ex- empt and Government Entities). However, other personnel from the IRS and the Trea- sury Department participated in their de- velopment. ***** Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.170A–9 is amended by revising paragraphs (f) and (k) to read as follows: §1.170A–9 Definition of section 170(b)(1)(A) organization. ***** (f)[Thetextofthisproposedamend- ment to §1.170A–9(f) is the same as the text of §1.170A–9T(f) published else- whereinthisissueoftheBulletin]. ***** (k) [The text of this proposed amend- ment to §1.170A–9(k) is the same as the text of §1.170A–9T(k)(1) and (k)(2) pub- lished elsewhere in this issue of the Bul- letin]. Par. 3. Section 1.507–2 is revised to read as follows: §1.507–2 Special rules; transfer to, or operation as, public charity. [The text of this proposed amendment to §1.507–2 is the same as the text of §1.507–2T(a) through (f)(2) published elsewhere in this issue of the Bulletin]. Par. 4. Section 1.509(a)–3 is amended by revising paragraphs (a)(2), (a)(3)(i), (c), (d), (e), (k), and (n) and adding paragraph (o) to read as follows: §1.509(a)–3 Broadly, publicly supported organizations. (a) * * * (2) [The text of this proposed amend- ment to §1.509(a)–3(a)(2) is the same as the text of §1.509(a)–3T(a)(2) published elsewhere in this issue of the Bulletin]. (3) * * * (i) [The text of this proposed amend- ment to §1.509(a)–3(a)(3)(i) is the same as the text of §1.509(a)–3T(a)(3)(i) published elsewhere in this issue of the Bulletin]. ***** (c) [The text of this proposed amend- ment to §1.509(a)–3(c) is the same as the text of §1.509(a)–3T(c) published else- whereinthisissueoftheBulletin]. (d) [The text of this proposed amend- ment to §1.509(a)–3(d) is the same as the text of §1.509(a)–3T(d) published else- whereinthisissueoftheBulletin]. (e) [The text of this proposed amend- ment to §1.509(a)–3(e) is the same as the text of §1.509(a)–3T(e) published else- whereinthisissueoftheBulletin]. ***** (k) [The text of this proposed amend- ment to §1.509(a)–3(k) is the same as the text of §1.509(a)–3T(k) published else- whereinthisissueoftheBulletin]. ***** (n) [The text of this proposed amend- ment to §1.509(a)–3(n) is the same as the text of §1.509(a)–3T(n) published else- whereinthisissueoftheBulletin]. (o) [The text of this proposed §1.509(a)–3(o) is the same as the text of §1.509(a)–3T(o)(1) and (o)(2) published elsewhere in this issue of the Bulletin]. Par. 5. Section 1.6033–2 is amended by revising paragraphs (a)(2)(ii)(g), (a)(2)(ii)(h) and (k) to read as follows: §1.6033–2 Returns by exempt organizations (taxable years beginning after December 31, 1969) and returns by certain nonexempt organizations (taxable October 27, 200810092008–43 I.R.B. years beginning after December 31, 1980). (a) * * * (2) * * * (ii) * * * (g) [The text of this proposed amend- ment to §1.6033–2(a)(2)(ii)(g)isthesame as the text of §1.6033–2T(a)(2)(ii)(g) pub- lished elsewhere in this issue of the Bul- letin]. (h) [The text of this proposed amend- ment to §1.6033–2(a)(2)(ii)(h)isthesame as the text of §1.6033–2T(a)(2)(ii)(h) pub- lished elsewhere in this issue of the Bul- letin]. ***** (k) [The text of this proposed amend- ment to §1.6033–2(k) is the same as the text of §1.6033–2T(k)(1) and (k)(2) pub- lished elsewhere in this issue of the Bul- letin]. Par. 6. Section 1.6043–3 is amended by revising paragraphs (b)(8) and (d) and adding paragraph (e) to read as follows: §1.6043–3 Returns regarding liquidation, dissolution, termination, or substantial contraction of organizations exempt from taxation under section 501(a). ***** (b) * * * (8) [The text of this proposed amend- ment to §1.6043–3(b)(8) is the same as the text of §1.6043–3T(b)(8) published else- where in this issue of the Bulletin]. ***** (d) [The text of this proposed amend- ment to §1.6043–3(d) is the same as the text of §1.6043–3T(d) published else- where in this issue of the Bulletin]. (e) [The text of this proposed amend- ment to §1.6043–3(e) is the same as the text of §1.6043–3T(e)(1) and (e)(2) pub- lished elsewhere in this issue of the Bul- letin]. Linda E. Stiff, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on September 8, 2008, 8:45 a.m., and published in the issue of the Federal Register for September 9, 2008, 73 F.R. 52218) Capital Costs Incurred to Comply With EPA Sulfur Regulations; Hearing Cancellation Announcement 2008–96 AGENCY: Internal Revenue Service (IRS), Treasury ACTION: Cancellation of notice of public hearing on proposed rulemaking. SUMMARY: This document cancels a public hearing on proposed regulations (REG–143453–05, 2008–32 I.R.B. 310) under section 179B of the Internal Rev- enue Code (Code) relating to the deduction of qualified capital costs paid or incurred by a small business refiner to comply with the highway diesel fuel sulfur control requirements of the Environmental Pro- tection Agency. DATES: The public hearing, originally scheduled for October 28, 2008 at 10 a.m. is cancelled. FOR FURTHER INFORMATION CONTACT: Funmi Taylor of the Publica- tions and Regulations Branch, Legal Pro- cessing Division, Associate Chief Counsel (Procedure and Administration) at (202) 622–3628 (not a toll-free number). SUPPLEMENTARY INFORMATION: A notice of proposed rulemaking by cross-reference to temporary regulations and a notice of public hearing that ap- peared in theFederal Registeron Friday, June 27, 2008 (73 FR 36475) announced that a public hearing was scheduled for October 28, 2008, at 10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washing- ton, DC. The subject of the public hearing is under the section 179B of the Internal Revenue Code. The public comment period for these regulations expired on September 25, 2008. The notice of proposed rulemaking by cross-reference to temporary regu- lations and notice of public hearing in- structed those interested in testifying at the public hearing to submit a request to speak and an outline of the topics to be addressed. As of Tuesday, September 28, 2008, no one has requested to speak. Therefore, the public hearing scheduled for October 28, 2008, is cancelled. Guy Traynor, Federal Register Liaison, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration). (Filed by the Office of the Federal Register on October 6, 2008, 8:45 a.m., and published in the issue of the Federal Register for October 7, 2008, 73 F.R. 58514) Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code Announcement 2008–97 The Internal Revenue Service has re- voked its determination that the organi- zations listed below qualify as organiza- tions described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986. Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletinthatanorganizationnolonger qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an or- ganization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation. If on the other hand a suit for declara- tory judgment has been timely filed, con- tributions from individuals and organiza- tions described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on October 27, 2008, and would end on the date the court first determines that the organization is not de- scribed in section 170(c)(2) as more partic- ularly set forth in section 7428(c)(1). For 2008–43 I.R.B.1010October 27, 2008 individual contributors, the maximum de- duction protected is $1,000, with a hus- band and wife treated as one contributor. This benefit is not extended to any indi- vidual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation. Northern California Housing Stockton, CA 1 st United Charitable Trust Glendale, AZ HarrisWelburn Company Upper Marlboro, MD Bond Endowment Fund, Inc. Timonium, MD Northern Lights Jr. Drum & Bugle Corps Association Vancouver, WA Information Reporting Requirements Under Internal Revenue Code Section 6039; Hearing Announcement 2008–102 AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of public hearing on pro- posed rulemaking. SUMMARY: This document provides notice of public hearing on a notice of proposed rulemaking (REG–103146–08, 2008–37 I.R.B. 701) relating to the return and information statement requirements under section 6039 of the Internal Revenue Code. These regulations reflect changes to section 6039 made by section 403 of the Tax Relief and Health Care Act of 2006. These proposed regulations affect corpo- rations that issue statutory stock options and provide guidance to assist corpora- tions in complying with the return and information statement requirements under section 6039. DATES: The public hearing is being held on October 30, 2008, at 10 a.m. The IRS must receive outlines of the topics to be discussed at the hearing by October 23, 2008. ADDRESSES: The public hearing is be- ing held in room 2116, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Send submissions to: CC:PA:LPD:PR (REG–103146–08), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washing- ton, DC 20044. Submissions may be hand-delivered Monday through Friday betweenthehoursof8a.m. and4p.m. to CC:PA:LPD:PR (REG–103146–08), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Wash- ington, DC. Alternatively, taxpayers may submit electronic outlines of oral com- ments via the Federal eRulemaking Portal athttp://www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Thomas Scholz at (202) 622–6030 (not a toll-free number); concerning submis- sions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Richard A. Hurst at Richard.A.Hurst@irscounsel.treas.gov. SUPPLEMENTARY INFORMATION: The subject of the public hearing is the notice of proposed rulemaking (REG–103146–08) that was published in theFederal Registeron Thursday, July 17, 2008 (73 FR 40999). Persons,whowishtopresentoralcom- ments at the hearing that submitted writ- ten comments, must submit an outline of the topics to be discussed and the amount of time to be devoted to each topic (signed original and eight (8) copies) by October 23, 2008. A period of 10 minutes is allotted to each person for presenting oral comments. After the deadline for receiving out- lines has passed, the IRS will prepare an agenda containing the schedule of speak- ers. Copies of the agenda will be made available, free of charge, at the hearing or in the Freedom of Information Reading Room (FOIA RR) (Room 1621) which is located at the 11 th and Pennsylvania Avenue, NW, entrance, 1111 Constitution Avenue, NW, Washington, DC. Because of access restrictions, the IRS will not admit visitors beyond the imme- diateentranceareamorethan30minutes before the hearing starts. For informa- tion about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this document. Cynthia Grigsby, Acting Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration). (Filed by the Office of the Federal Register on October 16, 2008, 8:45 a.m., and published in the issue of the Federal Register for October 17, 2008, 73 F.R. 61770) October 27, 200810112008–43 I.R.B. Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the ef- fect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is be- ingextendedtoapplytoavariationofthe fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare withmodi- fied,below). Clarifiedis used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare withamplifiedandclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is beingstatedinanewruling. Supersededdescribes a situation where the new ruling does nothing more than re- state the substance and situation of a previ- ously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same po- sition published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single rul- ing a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new rul- ing does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsu- persededdescribes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case, the previously pub- lished ruling is first modified and then, as modified, is superseded. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original rul- ing has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the ad- ditions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rulings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The fol lowing abbreviations in current use and for merly used will appear in material publis hedintheBulletin. A—Individual. Acq.—A cquiescence. B—Individual. BE—Beneficiary. BK—Bank . B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cu mulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Coo perative. Ct.D.—Court Decision. CY—County. D—Decede nt. DC—Dummy Corporation. DE—Donee. Del. Order —Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Emp loyer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduc iary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Fo reign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Fed eral Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grante e. GP—General Partner. GR—Grantor. IC—Insura nce Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—No nacquiescence. O—Organization. P—Parent Corporation. PHC—Persona l Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Pa rtnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Re al Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsi diary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Trans feree. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpay er. TR—Trust. TT—Trustee. U.S.C.—Uni ted States Code. X—Corporation. Y—Corporation. Z—Corporat ion. 2008–43 I.R.B.iOctober 27, 2008 Numerical Finding List 1 Bulletins 2008–27 through 2008–43 Announcements: 2008-62, 2008-27 I.R.B.74 2008-63, 2008-28 I.R.B.114 2008-64, 2008-28 I.R.B.114 2008-65, 2008-31 I.R.B.279 2008-66, 2008-29 I.R.B.164 2008-67, 2008-29 I.R.B.164 2008-68, 2008-30 I.R.B.244 2008-69, 2008-32 I.R.B.318 2008-70, 2008-32 I.R.B.318 2008-71, 2008-32 I.R.B.321 2008-72, 2008-32 I.R.B.321 2008-73, 2008-33 I.R.B.391 2008-74, 2008-33 I.R.B.392 2008-75, 2008-33 I.R.B.392 2008-76, 2008-33 I.R.B.393 2008-77, 2008-33 I.R.B.394 2008-78, 2008-34 I.R.B.453 2008-79, 2008-35 I.R.B.568 2008-80, 2008-37 I.R.B.706 2008-81, 2008-37 I.R.B.706 2008-82, 2008-37 I.R.B.708 2008-83, 2008-37 I.R.B.709 2008-84, 2008-38 I.R.B.748 2008-85, 2008-38 I.R.B.749 2008-86, 2008-40 I.R.B.843 2008-87, 2008-40 I.R.B.843 2008-88, 2008-40 I.R.B.843 2008-89, 2008-40 I.R.B.844 2008-90, 2008-41 I.R.B.896 2008-91, 2008-42 I.R.B.963 2008-92, 2008-42 I.R.B.963 2008-93, 2008-41 I.R.B.896 2008-94, 2008-42 I.R.B.964 2008-95, 2008-42 I.R.B.964 2008-96, 2008-43 I.R.B.1010 2008-97, 2008-43 I.R.B.1010 2008-102, 2008-43 I.R.B.1011 Court Decisions: 2087, 2008-41 I.R.B.845 Notices: 2008-55, 2008-27 I.R.B.11 2008-56, 2008-28 I.R.B.79 2008-57, 2008-28 I.R.B.80 2008-58, 2008-28 I.R.B.81 2008-59, 2008-29 I.R.B.123 2008-60, 2008-30 I.R.B.178 2008-61, 2008-30 I.R.B.180 2008-62, 2008-29 I.R.B.130 2008-63, 2008-31 I.R.B.261 2008-64, 2008-31 I.R.B.268 Notices— Continued: 2008-65, 2008-30 I.R.B.182 2008-66, 2008-31 I.R.B.270 2008-67, 2008-32 I.R.B.307 2008-68, 2008-34 I.R.B.418 2008-69, 2008-34 I.R.B.419 2008-70, 2008-36 I.R.B.575 2008-71, 2008-35 I.R.B.462 2008-72, 2008-43 I.R.B.998 2008-73, 2008-38 I.R.B.717 2008-74, 2008-38 I.R.B.718 2008-75, 2008-38 I.R.B.719 2008-76, 2008-39 I.R.B.768 2008-77, 2008-40 I.R.B.814 2008-78, 2008-41 I.R.B.851 2008-79, 2008-40 I.R.B.815 2008-80, 2008-40 I.R.B.820 2008-81, 2008-41 I.R.B.852 2008-82, 2008-41 I.R.B.853 2008-83, 2008-42 I.R.B.905 2008-84, 2008-41 I.R.B.855 2008-85, 2008-42 I.R.B.905 2008-86, 2008-42 I.R.B.925 2008-87, 2008-42 I.R.B.930 2008-88, 2008-42 I.R.B.933 2008-89, 2008-43 I.R.B.999 2008-90, 2008-43 I.R.B.1000 2008-91, 2008-43 I.R.B.1001 2008-92, 2008-43 I.R.B.1001 2008-93, 2008-43 I.R.B.1002 Proposed Regulations: REG-209006-89, 2008-41 I.R.B.867 REG-143544-04, 2008-42 I.R.B.947 REG-161695-04, 2008-37 I.R.B.699 REG-164965-04, 2008-34 I.R.B.450 REG-143453-05, 2008-32 I.R.B.310 REG-146895-05, 2008-37 I.R.B.700 REG-155087-05, 2008-38 I.R.B.726 REG-142680-06, 2008-35 I.R.B.565 REG-120476-07, 2008-36 I.R.B.679 REG-120844-07, 2008-39 I.R.B.770 REG-129243-07, 2008-27 I.R.B.32 REG-138355-07, 2008-32 I.R.B.311 REG-140029-07, 2008-40 I.R.B.828 REG-142040-07, 2008-34 I.R.B.451 REG-142333-07, 2008-43 I.R.B.1008 REG-149404-07, 2008-40 I.R.B.839 REG-149405-07, 2008-27 I.R.B.73 REG-100464-08, 2008-32 I.R.B.313 REG-101258-08, 2008-28 I.R.B.111 REG-102122-08, 2008-31 I.R.B.278 REG-102822-08, 2008-38 I.R.B.744 REG-103146-08, 2008-37 I.R.B.701 REG-106251-08, 2008-39 I.R.B.774 REG-115457-08, 2008-33 I.R.B.390 Proposed Regulations— Continued: REG-121698-08, 2008-29 I.R.B.163 Revenue Procedures: 2008-32, 2008-28 I.R.B.82 2008-33, 2008-28 I.R.B.93 2008-34, 2008-27 I.R.B.13 2008-35, 2008-29 I.R.B.132 2008-36, 2008-33 I.R.B.340 2008-37, 2008-29 I.R.B.137 2008-38, 2008-29 I.R.B.139 2008-39, 2008-29 I.R.B.143 2008-40, 2008-29 I.R.B.151 2008-41, 2008-29 I.R.B.155 2008-42, 2008-29 I.R.B.160 2008-43, 2008-30 I.R.B.186 2008-44, 2008-30 I.R.B.187 2008-45, 2008-30 I.R.B.224 2008-46, 2008-30 I.R.B.238 2008-47, 2008-31 I.R.B.272 2008-48, 2008-36 I.R.B.586 2008-49, 2008-34 I.R.B.423 2008-50, 2008-35 I.R.B.464 2008-51, 2008-35 I.R.B.562 2008-52, 2008-36 I.R.B.587 2008-53, 2008-36 I.R.B.678 2008-54, 2008-38 I.R.B.722 2008-55, 2008-39 I.R.B.768 2008-56, 2008-40 I.R.B.826 2008-57, 2008-41 I.R.B.855 2008-58, 2008-41 I.R.B.856 2008-59, 2008-41 I.R.B.857 2008-60, 2008-43 I.R.B.1006 2008-61, 2008-42 I.R.B.934 2008-62, 2008-42 I.R.B.935 2008-63, 2008-42 I.R.B.946 Revenue Rulings: 2008-32, 2008-27 I.R.B.6 2008-33, 2008-27 I.R.B.8 2008-34, 2008-28 I.R.B.76 2008-35, 2008-29 I.R.B.116 2008-36, 2008-30 I.R.B.165 2008-37, 2008-28 I.R.B.77 2008-38, 2008-31 I.R.B.249 2008-39, 2008-31 I.R.B.252 2008-40, 2008-30 I.R.B.166 2008-41, 2008-30 I.R.B.170 2008-42, 2008-30 I.R.B.175 2008-43, 2008-31 I.R.B.258 2008-44, 2008-32 I.R.B.292 2008-45, 2008-34 I.R.B.403 2008-46, 2008-36 I.R.B.572 2008-47, 2008-39 I.R.B.760 2008-48, 2008-38 I.R.B.713 2008-49, 2008-40 I.R.B.811 1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin 2008–26, dated June 30, 2008. October 27, 2008ii2008–43 I.R.B. Treasury Decisions: 9401, 2008-27 I.R.B.1 9402, 2008-31 I.R.B.254 9403, 2008-32 I.R.B.285 9404, 2008-32 I.R.B.280 9405, 2008-32 I.R.B.293 9406, 2008-32 I.R.B.287 9407, 2008-33 I.R.B.330 9408, 2008-33 I.R.B.323 9409, 2008-29 I.R.B.118 9410, 2008-34 I.R.B.414 9411, 2008-34 I.R.B.398 9412, 2008-37 I.R.B.687 9413, 2008-34 I.R.B.404 9414, 2008-35 I.R.B.454 9415, 2008-36 I.R.B.570 9417, 2008-37 I.R.B.693 9418, 2008-38 I.R.B.713 9419, 2008-40 I.R.B.790 9420, 2008-39 I.R.B.750 9421, 2008-39 I.R.B.755 9422, 2008-42 I.R.B.898 9423, 2008-43 I.R.B.966 2008–43 I.R.B.iiiOctober 27, 2008 Finding List of Current Actions on Previously Published Items 1 Bulletins 2008–27 through 2008–43 Announcements: 2008-19 Superseded by Ann. 2008-95, 2008-42 I.R.B.964 2008-64 Corrected by Ann. 2008-71, 2008-32 I.R.B.321 2008-72 Corrected by Ann. 2008-78, 2008-34 I.R.B.453 Notices: 88-80 Modified by Notice 2008-79, 2008-40 I.R.B.815 99-48 Superseded by Rev. Proc. 2008-40, 2008-29 I.R.B.151 2000-9 Obsoleted by Rev. Proc. 2008-41, 2008-29 I.R.B.155 2004-2 Amplified by Notice 2008-59, 2008-29 I.R.B.123 2004-50 Amplified by Notice 2008-59, 2008-29 I.R.B.123 2005-91 Obsoleted by T.D. 9422, 2008-42 I.R.B.898 2006-88 Modified and superseded by Notice 2008-60, 2008-30 I.R.B.178 2007-22 Amplified by Notice 2008-59, 2008-29 I.R.B.123 2007-36 Clarified, modified, and amplified by Rev. Proc. 2008-54, 2008-38 I.R.B.722 2008-41 Amended and supplemented by Notice 2008-88, 2008-42 I.R.B.933 Proposed Regulations: REG-161695-04 Corrected by Ann. 2008-92, 2008-42 I.R.B.963 Proposed Regulations— Continued: REG-143453-05 Hearing cancelled by Ann. 2008-96, 2008-43 I.R.B.1010 REG-129243-07 Corrected by Ann. 2008-75, 2008-33 I.R.B.392 REG-151135-07 Hearing scheduled by Ann. 2008-64, 2008-28 I.R.B.114 REG-101258-08 Corrected by Ann. 2008-73, 2008-33 I.R.B.391 REG-103146-08 Hearing scheduled by Ann. 2008-102, 2008-43 I.R.B.1011 Revenue Procedures: 92-25 Superseded by Rev. Proc. 2008-41, 2008-29 I.R.B.155 92-83 Obsoleted by Rev. Proc. 2008-37, 2008-29 I.R.B.137 2001-10 Section 6.02(1)(a) modified and amplified by Rev. Proc. 2008-52, 2008-36 I.R.B.587 2001-42 Superseded by Rev. Proc. 2008-39, 2008-29 I.R.B.143 2002-9 Clarified, modified, amplified, and superseded by Rev. Proc. 2008-52, 2008-36 I.R.B.587 Modified and amplified by Rev. Proc. 2008-43, 2008-30 I.R.B.186 2002-28 Section 7.02(1)(a) modified and amplified by Rev. Proc. 2008-52, 2008-36 I.R.B.587 2002-64 Superseded by Rev. Proc. 2008-55, 2008-39 I.R.B.768 2005-29 Superseded by Rev. Proc. 2008-49, 2008-34 I.R.B.423 2006-27 Modified and superseded by Rev. Proc. 2008-50, 2008-35 I.R.B.464 2006-29 Superseded by Rev. Proc. 2008-34, 2008-27 I.R.B.13 Revenue Procedures— Continued: 2006-34 Superseded by Rev. Proc. 2008-44, 2008-30 I.R.B.187 2007-14 Superseded by Rev. Proc. 2008-52, 2008-36 I.R.B.587 2007-19 Superseded by Rev. Proc. 2008-39, 2008-29 I.R.B.143 2007-37 Updated by Rev. Proc. 2008-62, 2008-42 I.R.B.935 2007-42 Superseded by Rev. Proc. 2008-32, 2008-28 I.R.B.82 2007-43 Superseded by Rev. Proc. 2008-33, 2008-28 I.R.B.93 2007-44 Modified by Rev. Proc. 2008-56, 2008-40 I.R.B.826 2007-49 Section 3 modified and superseded by Rev. Proc. 2008-50, 2008-35 I.R.B.464 2007-50 Superseded by Rev. Proc. 2008-36, 2008-33 I.R.B.340 2007-63 Superseded by Rev. Proc. 2008-59, 2008-41 I.R.B.857 2007-66 Modified and superseded by Rev. Proc. 2008-54, 2008-38 I.R.B.722 2007-70 Modified by Ann. 2008-63, 2008-28 I.R.B.114 2007-72 Amplified and superseded by Rev. Proc. 2008-47, 2008-31 I.R.B.272 2008-3 Modified and amplified by Rev. Proc. 2008-61, 2008-42 I.R.B.934 2008-12 Modified and superseded by Rev. Proc. 2008-35, 2008-29 I.R.B.132 2008-43 Modified by Rev. Proc. 2008-52, 2008-36 I.R.B.587 2008-52 Modified by Ann. 2008-84, 2008-38 I.R.B.748 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2008–1 through 2008–26 is in Internal Revenue Bulletin 2008–26, dated June 30, 2008. October 27, 2008iv2008–43 I.R.B. Revenue Rulings: 67-213 Amplified by Rev. Rul. 2008-40, 2008-30 I.R.B.166 71-234 Modified by Rev. Proc. 2008-43, 2008-30 I.R.B.186 76-273 Obsoleted by T.D. 9414, 2008-35 I.R.B.454 77-480 Modified by Rev. Proc. 2008-43, 2008-30 I.R.B.186 82-105 Obsoleted by T.D. 9414, 2008-35 I.R.B.454 91-17 Amplified by Rev. Proc. 2008-41, 2008-29 I.R.B.155 Rev. Proc. 2008-42, 2008-29 I.R.B.160 Superseded in part by Rev. Proc. 2008-40, 2008-29 I.R.B.151 2005-6 Amplified by Rev. Proc. 2008-38, 2008-29 I.R.B.139 2006-57 Modified by Notice 2008-74, 2008-38 I.R.B.718 2008-12 Amplified by Rev. Rul. 2008-38, 2008-31 I.R.B.249 Clarified by Ann. 2008-65, 2008-31 I.R.B.279 Treasury Decisions: 9391 Corrected by Ann. 2008-74, 2008-33 I.R.B.392 9417 Corrected by Ann. 2008-91, 2008-42 I.R.B.963 2008–43 I.R.B.vOctober 27, 2008 INDEX Internal Revenue Bulletins 2008–27 through 2008–43 The abbreviation and number in parenthesis following the index entry refer to the specific item; numbers in roman and italic type following the parenthesis refers to the Internal Revenue Bulletin in which the item may be found and the page number on which it appears. Key to Abbreviations: AnnAnnouncement CDCourt Decision DODelegation Order EOExecutive Order PLPublic Law PTEProhibited Transaction Exemption RPRevenue Procedure RRRevenue Ruling SPRStatement of Procedural Rules TCTax Convention TDTreasury Decision TDOTreasury Department Order EMPLOYEE PLANS Accrual rule for defined benefit plans under section 411(b)(1)(B), application (REG–100464–08) 32,313 Application of section 457(f) tocertain arrangements regarding part-year compensation (Notice 62) 29,130 Closing agreements, Employee Plans Compliance Resolution System (EPCRS) (RP 50) 35,464 Definition of “outside director” (RR 32) 27,6 Determination letters, staggered remedial amendment period (RP 56) 40,826 Disaster relief, Hurricane Ike (Notice 87) 42,930 Employee stock purchase plans, rules (REG–106251–08) 39, 774 Full funding limitations, weighted average interest rates, seg- ment rates for: July 2008 (Notice 65) 30,182 August 2008 (Notice 69) 34,419 September 2008 (Notice 75) 38,719 October 2008 (Notice 93) 43,1002 Individual Retirement Accounts (IRAs), converting amounts to Roth IRAs (TD 9418) 38,713 Letter rulings, nonqualified deferred compensation, no-rule areas (RP 61) 42,934 Mortality tables: Determining present value (TD 9419) 40,790 Procedures for obtaining approval to use plan-specific substi- tute mortality tables (RP 62) 42,935 Updated static mortality tables for the years 2009 through 2013 (Notice 85) 42,905 Multiemployer plan funding guidance, hearing scheduled for REG–151135–07 (Ann 64) 28,114;correction(Ann71)32, 321 EMPLOYEE PLANS—Cont. Proposed Regulations: 26 CFR 1.401(a)(9)–1, –6, amended; 1.403(b)–6, amended; reasonable good faith interpretation of re- quired minimum distribution rules by governmental plans (REG–142040–07) 34,451 26 CFR 1.411(b)–1, amended; accrual rules for defined ben- efit plans (REG–100464–08) 32,313 26 CFR 1.421–1, amended; 1.422–2, –5, amended; 1.423–1, –2, revised; employee stock purchase plans under section 423 (REG–106251–08) 39,774 26 CFR 1.432; multiemployer plan funding guidance, hearing scheduled for REG–151135–07 (Ann 64) 28,114; correc- tion (Ann 71) 32,321 26 CFR 1.6039–1, revised; 1.6039–2, added; infor- mation reporting requirements under section 6039 (REG–103146–08) 37,701; hearing scheduled (Ann 102) 43,1011 26 CFR 1.6060–1, amended; 1.6107–1, revised; 1.6109–2, amended; 1.6694–0, –1, –2, revised; 1.6694–3, –4, amended; 1.6695–1, revised; 1.6695–2, amended; 1.6696–1, revised; 301.7701–15, amended; tax re- turn preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 Qualified retirement plans, qualification, plan sponsorship (RR 45) 34,403 Reasonable good faith interpretation of required minimum dis- tribution rules by governmental plans (REG–142040–07) 34, 451 Regulations: 26 CFR 1.408A–4, amended; 1.408–4T, removed; converting an IRA annuity to a Roth IRA (TD 9418) 38,713 26 CFR 1.430(h)(3)–1, –2, added; 1.431(c)(6)–1, added; mor- tality tables for determiningpresent value (TD 9419) 40, 790 Stocks, information reporting requirements for statutory stock options (REG–103146–08) 37,701; hearing scheduled (Ann 102) 43,1011 Tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 Transition relief, funding, expanding availability (Notice 73) 38, 717 Trusts, qualification, Puerto Rico (RR 40) 30,166 EMPLOYMENT TAX Interest-free adjustments and claims for refund of employment taxes (TD 9405) 32,293 Proposed Regulations: 26 CFR 31.6060–1, added; 31.6107–1, added; 31.6109–2, added; 31.6694–1 thru –4, added; 31.6695–1, added; 31.6696–1, added; 31.7701–1, added; tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 October 27, 2008vi2008–43 I.R.B. EMPLOYMENT TAX—Cont. Publications: 1141, General Rules and Specifications for Substitute Forms W-2 and W-3, revised (RP 33) 28,93 4436, General Rules and Specifications for Substitute Form 941 and Schedule B (Form 941), revised (RP 32) 28,82 Regulations: 26 CFR 31.6011(a)–1, –4, –5, amended; 31.6205–1, amended; 31.6302–0, –1, amended; 31.6402(a)–1, –2, amended; 31.6413(a)–1, –2, amended; 31.6414–1, amended; 602.101, amended; employment tax adjustments (TD 9405) 32,293 Substitute forms: W-2 and W-3, general rules and specifications (RP 33) 28,93 941 and Schedule B (Form 941), general rules and specifica- tions (RP 32) 28,82 Tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 ESTATE TAX Charitable lead unitrust (CLUT): Inter vivos, sample forms (RP 45) 30,225 Testamentary, sample form (RP 46) 30,238 Interest rates for 2008, farm real property, special use value (RR 44) 32,292 Proposed Regulations: 26 CFR 20.6060–1, added; 20.6107–1, added; 20.6109–1, added; 20.6694–1 thru –4, added; 20.6695–1, added; 20.6696–1, added; 20.7701–1, added; tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 Regulations: 26 CFR 20.2036–1, amended; 20.2039–1, amended; grantor retained interest trusts, application of sections 2036 and 2039 (TD 9414) 35,454 26 CFR 26.2600–1, amended; 26.2642–6, amended; 26.2654–1, amended; severance of a trust for genera- tion-skipping transfer (GST) tax purposes (TD 9421) 39, 755 Tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 Transfer tax valuation of interest in a restricted management ac- count (RMA) (RR 35) 29,116 Trusts: Grantor retained interest trusts, application of sections 2036 and 2039 (TD 9414) 35,454 Private trust company (Notice 63) 31,261 Severance of a trust for GST tax purposes (TD 9421) 39,755 EXCISE TAX Charitable remainder trusts (CRTs), division into two or more separate and equal CRTs (RR 41) 30,170 Credits, alcohol fuel, biodiesel, alternative fuel (REG–155087–05) 38,726 EXCISE TAX—Cont. Health Savings Accounts (HSAs), employer comparable contri- butions to HSAs under section 4980G and excise tax under sec- tions 4980B, 4980D, 4980E, and 4980G (REG–120476–07) 36,680 Proposed Regulations: 26 CFR 1.40–1, revised; 1.40–2, added; 1.40A–1, added; 40.0–1, amended; 40.6302(c)–1, amended; 48.0–1, amended; 48.0–4, added; 48.4041–0, amended; 48.4041–18, –20, removed and reserved; 48.4041–19, revised; 48.4081–1, –2, –3, amended; 48.4081–6, re- moved and reserved; 48.4082–4, amended; 48.4101–1, amended; 48.6426–1 thru –7, added; 48.6427–8, amended; 48.6427–12, added; alcohol fuel and biodiesel, renewable diesel, alternative fuel, diesel-water fuel emulsion, taxable fuel definitions, excise tax returns (REG–155087–05) 38, 726 26 CFR 40.6060–1, added; 40.6107–1, added; 40.6109–1, added; 40.6694–1 thru –4, added; 40.6695–1, added; 40.6696–1, added; 40.7701–1, added; 41.6060–1, added; 41.6107–1, added; 41.6109–2, added; 41.6694–1 thru –4, added; 41.6695–1, added; 41.6696–1, added; 41.7701–1, added; 44.6060–1, added; 44.6107–1, added; 44.6109–1, added; 44.6694–1 thru –4, added; 44.6695–1, added; 44.6696–1, added; 44.7701–1, added; 53.6060–1, added; 53.6107–1, added; 53.6109–1, added; 53.6694–1 thru –4, added; 53.6695–1, added; 53.6696–1, added; 53.7701–1, added; 54.6060–1, added; 54.6107–1, added; 54.6109–1, added; 54.6694–1 thru –4, added; 54.6695–1, added; 54.6696–1, added; 54.7701–1, added; 55.6060–1, added; 55.6107–1, added; 55.6109–1, added; 55.6694–1 thru –4, added; 55.6695–1, added; 55.6696–1, added; 55.7701–1, added; 56.6060–1, added; 56.6107–1, added; 56.6109–1, added; 56.6694–1 thru –4, added; 56.6695–1, added; 56.6696–1, added; 56.7701–1, added; 156.6060–1, added; 156.6107–1, added; 156.6109–1, added; 156.6694–1 thru –4, added; 156.6695–1, added; 156.6696–1, added; 156.7701–1, added; 157.6060–1, added; 157.6107–1, added; 157.6109–1, added; 157.6694–1 thru –4, added; 157.6695–1, added; 157.6696–1, added; 157.7701–1, added; 301.7701–15, amended; tax return preparer penal- ties under sections 6694 and 6695 (REG–129243–07) 27, 32 26 CFR 54.4980B–0, B–2, G–1, G–3, G–4, amended; 54.4980D–1, E–1, G–6, G–7, added; employer com- parable contributions to health savings accounts under section 4980G, and requirement of return for filing the excise tax under section 4980B, 4980D, 4980E or 4980G (REG–120476–07) 36,680 Tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 EXEMPT ORGANIZATIONS Declaratory judgment suits (Ann 67)29, 164;(Ann72)32,321; correction (Ann 78) 34,453; (Ann 82) 37,708; (Ann 85) 38, 749; (Ann 89) 40,844;(Ann93)41,896 2008–43 I.R.B.viiOctober 27, 2008 EXEMPT ORGANIZATIONS—Cont. Form 990, implementation of redesigned form (TD 9423) 43, 966; (REG–142333–07) 43,1008 Indian tribal governments treated as states (RP 55) 39,768 List of organizations classifiedas private foundations (Ann 70) 32,318; (Ann 81) 37,706 Proposed Regulations: 26 CFR 1.170A–9, amended; 1.507–2, revised; 1.509(a)–3, amended; 1.6033–2, amended; 1.6043–3, amended; imple- mentation of redesigned Form 990 (REG–142333–07) 43, 1008 26 CFR 1.6060–1, amended; 1.6107–1, revised; 1.6109–2, amended; 1.6694–0, –1, –2, revised; 1.6694–3, –4, amended; 1.6695–1, revised; 1.6695–2, amended; 1.6696–1, revised; 301.7701–15, amended; tax re- turn preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 Regulations 26 CFR 1.170A–9, amended; 1.170A–9T, added; 1.507–2, amended; 1.507–2T, added; 1.509(a)–3, amended; 1.509(a)–3T, added; 1.6033–2, amended; 1.6033–2T, added; 1.6043–3, amended; 1.6043–3T, added; 602.101, amended; implementation of redesigned Form 990 (TD 9423) 43,966 26 CFR 1.664–1, amended; 602.101, amended; guidance un- der section 664 regarding the effect of unrelated business taxable income on charitable remainder trusts (TD 9403) 32,285 Revocations (Ann 62) 27,74; (Ann 66) 29,164; (Ann 69) 32, 318; (Ann 76) 33,393;(Ann79)35,568;(Ann80)37,706; (Ann 86) 40,843; (Ann 88) 40,843; (Ann 90) 41,896;(Ann 97) 43,1010 Tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 Trusts: Charitable remainder trusts (CRTs): Calculation of excise tax on unrelated business taxable in- come (UBTI) (TD 9403) 32,285 Division into two or more separate and equal CRTs (RR 41) 30,170 GIFT TAX Charitable lead unitrust (CLUT),inter vivos, sample forms (RP 45) 30,225 Proposed Regulations: 26 CFR 25.6060–1, added; 25.6107–1, added; 25.6109–1, added; 25.6694–1 thru –4, added; 25.6695–1, added; 25.6696–1, added; 25.7701–1, added; 26.6060–1, added; 26.6107–1, added; 26.6109–1, added; 26.6694–1 thru –4, added; 26.6695–1, added; 26.6696–1, added; 26.7701–1, added; tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 Tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32 GIFT TAX—Cont. Transfer tax valuation of interest in a restricted management ac- count (RMA) (RR 35) 29,116 Trust, private trust company (Notice 63) 31,261 INCOME TAX Accounting methods: Automatic changes in methods of accounting (RP 52) 36,587 Consent procedures, changesin method of accounting (Ann 84) 38,748 Rolling average inventory (RP 43) 30,186 Acquisitions, application of section 382 in the case of certain ac- quisitions made pursuant to the Housing and Economic Recov- ery Act of 2008 (Notice 76) 39,768 Bonds: Election involving repeal of bonding requirement under sec- tion 42(j)(6) (RP 60) 43,1006 Expanded temporary rule allowing governmental issuers to purchase their own tax-exempt bonds (Notice 88) 42,933 Procedures for requesting a refund of arbitrage rebate and sim- ilar payments on tax-exempt bonds (RP 37) 29,137 Solicitation of applications from qualified issuers for alloca- tion of qualified forestry conservation bonds (QFCBs) lim- itation and application requirements (Notice 70) 36,575 Tax-exempt bonds: Federal guarantee, money market funds (Notice 81) 41, 852 Volume cap, mortgage creditcertificates (Notice 79) 40, 815 Bonus depreciation for the Kansas disaster area (Notice 67) 32, 307 Capital costs incurred to comply with EPA sulfur regulations (TD 9404) 32,280; (REG–143453–05) 32,310; hearing cancelled (Ann 96) 43,1010 Certain financing commitments and applicable high yield dis- count obligations (RP 51) 35,562 Change to office to which notices of nonjudicial sale and re- quests for return of wrongfully levied property must be sent (TD 9410) 34,414 Charitable contributions: Cash and noncash, substantiation and reporting requirements under section 170 (REG–140029–07) 40,828 Computation of deduction for inventory contributions (Notice 90) 43,1000 Charitable lead unitrust (CLUT): Inter vivos, sample forms (RP 45) 30,225 Testamentary, sample form (RP 46) 30,238 Charitable remainder trusts (CRTs), division into two or more separate and equal CRTs (RR 41) 30,170 Child of parents who are divorced, separated or living apart as the dependent of both parents (RP 48) 36,586 Corporations: Accumulated adjustments account (AAA) and key-man life insurance (RR 42) 30,175 October 27, 2008viii2008–43 I.R.B. INCOME TAX—Cont. Enabling elections for certaintransactions under section 336(e) (REG–143544–04) 42,947 S corporation rules, updates (TD 9422) 42,898 Section 108 reduction of tax attributes for S corporations (REG–102822–08) 38,744 Transfers by domestic corporations to foreign corporations under section 361(a) or (b) (REG–209006–89) 41,867 Credits: Alcohol fuel, biodiesel, alternative fuel (REG–155087–05) 38,726 Amendments to new markets tax credit regulations (REG–149404–07) 40,839 Electricity produced from certain renewable resources, sec- tion 45 tax credit (Notice 60) 30,178 Enhanced oil recovery credit, 2008 inflation adjustment (No- tice 72) 43,998 Increasing research activities (TD 9401) 27,1; (REG–149405–07) 27,73 Low-income housing credit: Carryovers to qualified states, 2008 National Pool (RP 57) 41,855 Emergency housing relief, Wisconsin severe storms, tor- nadoes, and flooding (Notice 61) 30,180 Indiana severe storms and flooding (Notice 56) 28,79 Iowa severe storms, tornadoes, and flooding (Notice 58) 28,81 Missouri severe storms and flooding, disaster relief (Notice 66) 31,270 Satisfactory bond, “bond factor” amounts for the period: January through September 2008 (RR 36) 30,165 Utility allowance, new options for estimating (TD 9420) 39,750 Section 48 tax credit for qualifying fuel cell property and qual- ifying microturbine property (Notice 68) 34,418 Declaratory judgment suits (Ann 67)29, 164;(Ann72)32,321; correction (Ann 78) 34,453; (Ann 82) 37,708; (Ann 85) 38, 749; (Ann 89) 40,844; (Ann 93) 41,896 Definition of “outside director” (RR 32) 27,6 Dependent child of divorced or separated parents or parents who live apart (TD 9408) 33,323 Disaster relief, China earthquake, qualified disaster (Notice 57) 28,80 Disciplinary actions involving attorneys, certified public accoun- tants, enrolled agents, and enrolled actuaries (Ann 68) 30,245; (Ann 77) 33,394; (Ann 83) 37,709 Disclosure of taxpayer groupings for purposes of the passive ac- tivity loss provisions under section 469 (Notice 64) 31,268 Disclosure or use of information by preparers of returns (TD 9409) 29,118; (REG–121698–08) 29,163 Economic Stimulus Act of 2008, bonus depreciation, section 179 expensing (RP 54) 38,722 Election to expense certain refineries (TD 9412) 37,687; (REG–146895–05) 37,700 Employee stock purchase plans, rules (REG–106251–08) 39, 774 Escrow accounts used in like-kind exchanges (TD 9413) 34,404 INCOME TAX—Cont. Expenses: Elections regarding start-up expenditures, corporation orga- nizational expenditures, and partnership organizational ex- penses (TD 9411) 34,398; (REG–164965–04) 34,450 Optional standard mileage rates, update (Ann 63) 28,114 Extension of replacement period for livestock sold on account of drought in specified counties (Notice 86) 42,925 Extension of time for filing returns (TD 9407) 33,330; (REG–115457–08) 33,390 Farmer and fisherman income averaging (TD 9417) 37,693;cor- rection(Ann91)42,963; (REG–161695–04) 37,699; correc- tion (Ann 92) 42,963 Forms: 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, specifications for filing electronically (RP 44) 30,187; update of Publication 1187 (Ann 95) 42,964 1096, 1098, 1099, 5498, W-2G, and 1042-S, substitute form specifications (RP 36) 33,340 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, specifications for filing electronically (RP 34) 27,13 8596, Information Return for Federal Contracts, specifica- tions for filing electronically (RP 49) 34,423 Guidance to tax return preparers: Consents to disclose and consents to use tax return in- formation in the Form 1040 series (TD 9409) 29,118; (REG–121698–08) 29,163 Consents to disclose and consents to use tax return informa- tion in the Form 1040 series, update to Rev. Proc. 2008-12 (RP 35) 29,132 Guidance under section 956 for determining the basis of property acquired in certain nonrecognition transactions (TD 9402) 31, 254; (REG–102122–08) 31,278 Health Flexible Spending Arrangement (FSA), distributions of unused amounts to reservists called up to active duty (Notice 82) 41,853 Health Savings Accounts (HSAs), additional guidance (Notice 59) 29,123 Institute on Current Issues in International Taxation (Ann 94) 42, 964 Insurance companies: Effectively connected income (RP 53) 36,678 Life insurance contracts: Automatic waiver (RP 42) 29,160 Closing agreement (RP 40) 29,151 Modified endowment contracts (MECs), closing agree- ments (RP 39) 29,143 Qualified additional benefits (QABs), closing agreement (RP 38) 29,139 Variable contracts, closing agreement (RP 41) 29,155 Segregated asset accounts, diversification (Notice 92) 43, 1001 Interest: Characterization of management fees paid by an upper tier investment partnership and lower tier trader partnerships (RR 39) 31,252 2008–43 I.R.B.ixOctober 27, 2008 INCOME TAX—Cont. Investment: Federal short-term, mid-term, and long-term rates for: July 2008 (RR 33) 27,8 August 2008 (RR 43) 31,258 September 2008 (RR 46) 36,572 October 2008 (RR 49) 40,811 Of earnings in United States property (Notice 91) 43,1001 Rates: Underpayments and overpayments, quarter beginning: October 1, 2008 (RR 47) 39,760 Treatment of interest expense attributable to indebtedness al- locable to property held for investment described in section 163(d)(5)(A)(ii): Investment interest deduction (RR 38) 31,249 Trader partnership (Ann 65) 31,279 Law school Loan Repayment Assistance Program (LRAP), ex- clusion from gross income (RR 34) 28,76 Legislative Cumulative Bulletins, discontinuation of publication (Ann 87) 40,843 Letter rulings, nonqualified deferred compensation, no-rule areas (RP 61) 42,934 Liens, return of wrongfully levied property and discharge of liens, special rules (TD 9410) 34,414 Life insurance: Premiums by S corporation, effect on accumulated adjust- ments account (AAA) (RR 42) 30,175 Statutory reserves, meaning formulti-state taxpayers (RR 37) 28,77 Marginal production rates, 2008 (Notice 89) 43,999 Partnerships, election that enables partners of tax-exempt bond partnership to take into account monthly the inclusions re- quired under sections 702 and 707(c) (Notice 80) 40,820 Per diem allowances (RP 59) 41,857 Presidentially declared disaster or terroristic or military actions, postponement of certain tax-related deadlines (REG–142680–06) 35,565 Private foundations, organizations now classified as (Ann 70) 32, 318; (Ann 81) 37,706 Proposed Regulations: 26 CFR 1.40–1, revised; 1.40–2, added; 1.40A–1, added; 40.0–1, amended; 40.6302(c)–1, amended; 48.0–1, amended; 48.0–4, added; 48.4041–0, amended; 48.4041–18, –20, removed and reserved; 48.4041–19, revised; 48.4081–1, –2, –3, amended; 48.4081–6, re- moved and reserved; 48.4082–4, amended; 48.4101–1, amended; 48.6426–1 thru –7, added; 48.6427–8, amended; 48.6427–12, added; alcohol fuel and biodiesel, renewable diesel, alternative fuel, diesel-water fuel emulsion, taxable fuel definitions, excise tax returns (REG–155087–05) 38, 726 26 CFR 1.41–6, –8, amended; 1.41–9, added; alternative sim- plified credit under section 41(c)(5) (REG–149405–07) 27, 73 26 CFR 1.45D–1, amended; amendments to new markets tax credit regulations (REG–149404–07) 40,839 INCOME TAX—Cont. 26 CFR 1.108–7, amended; section 108 reduction of tax at- tributes for S corporations (REG–102822–08) 38,744 26 CFR 1.170–0, –2, removed; 1.170A–13, amended; 1.170A–15 thru –18, added; substantiation and reporting requirements for cash and noncash charitable contribution deductions (REG–140029–07) 40,828 26 CFR 1.179B–1, added; capital costs incurred to comply with EPA sulfur regulations (REG–143453–05) 32,310; hearing cancelled (Ann 96) 43,1010 26 CFR 1.179C–1, added; election to expense certain refiner- ies (REG–146895–05) 37,700 26 CFR 1.195–1, revised; 1.248–1, amended; 1.709–1, amended; elections regarding start-up expenditures, cor- poration organizational expenditures, and partnership organizational expenses (REG–164965–04) 34,450 26 CFR 1.336–0 thru –5, added; 1.338–0, –1, –5, amended; regulations enabling elections for certain transactions under section 336(e) (REG–143544–04) 42,947 26 CFR 1.358–6, amended; 1.367(a)–1T, (a)–3, (b)–4, (b)–6, amended; 1.367(a)–7, added; 1.1248–1, –6, –8, amended; 1.1248(f)–1, –2, –3, added; 1.6038B–1, amended; trans- fers by domestic corporations that are subject to section 367(a)(5), distributions by domestic corporations that are subject to section 1248(f) (REG–209006–89) 41,867 26 CFR 1.367(a)–2, –4, –5, added; 1.954–2(c), revised; 1.956–2(b), –2(e), revised, modifications to subpart F treatment of aircraft and vessel leasing income (REG–138355–07) 32,311 26 CFR 1.401(a)(9)–1, –6, amended; 1.403(b)–6, amended; reasonable good faith interpretation of re- quired minimum distribution rules by governmental plans (REG–142040–07) 34,451 26 CFR 1.421–1, amended; 1.422–2, –5, amended; 1.423–1, –2, revised; employee stock purchase plans under section 423 (REG–106251–08) 39,774 26 CFR 1.460–3 thru –6, amended; rules for home construc- tion contracts (REG–120844–07) 39,770 26 CFR 1.642(c)–3, amended; 1.643(a)–5, amended; guid- ance under sections 642 and 643 (income ordering rules) (REG–101258–08) 28,111; correction (Ann 73) 33,391 26 CFR 1.956–1, amended; guidance under section 956 for determining the basis of property acquired in certain non- recognition transactions (REG–102122–08) 31,278 26 CFR 1.1301–1, amended; farmer and fisherman income averaging (REG–161695–04) 37,699; correction (Ann 92) 42,963 26 CFR 1.6039–1, revised; 1.6039–2, added; infor- mation reporting requirements under section 6039 (REG–103146–08) 37,701; hearing scheduled (Ann 102) 43,1011 26 CFR 1.6060–1, amended; 1.6107–1, revised; 1.6109–2, amended; 1.6694–0, –1, –2, revised; 1.6694–3, –4, amended; 1.6695–1, revised; 1.6695–2, amended; 1.6696–1, revised; 301.7701–15, amended; tax re- turn preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32; corrections (Ann 75) 33,392 October 27, 2008x2008–43 I.R.B. INCOME TAX—Cont. 26 CFR 1.6081–2, –6, added; 54.6081–1, added; extension of time for filing returns (REG–115457–08) 33,390 26 CFR 301.7216–3, amended; disclosure or use of informa- tion by preparers of returns (REG–121698–08) 29,163 26 CFR 301.7508A–1, amended; postponement of certain tax-related deadlines by reasonof Presidentially declared disaster or terroristic or military actions (REG–142680–06) 35,565 Publications: 1141, General Rules and Specifications for Substitute Forms W-2 and W-3, revised (RP 33) 28,93 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S, update (RP 36) 33,340 1187, Specifications for Filing Form 1042-S, Foreign Per- son’s U.S. Source Income Subject to Withholding, Elec- tronically, revised (RP 44) 30,187; update (Ann 95) 42, 964 1239, Specifications for Filing Form 8027, Employer’s An- nual Information Return of Tip Income and Allocated Tips, Electronically (RP 34) 27,13 1516, Specifications for Filing Form 8596, Information Re- turn for Federal Contracts,Electronically (RP 49) 34,423 4436, General Rules and Specifications for Substitute Form 941 and Schedule B (Form 941), revised (RP 32) 28,82 Real Estate Mortgage Investment Conduit (REMIC), allocation of income to foreign persons by certain entites (TD 9415) 36, 570 Reasonable good faith interpretation of required minimum dis- tribution rules by governmental plans (REG–142040–07) 34, 451 Refund of taxes unlawfully assessed, administrative claim (CD 2087) 41,845 Regulations: 26 CFR 1.41–0, –1, –6, –8, amended; 1.41–0T, –6T, –8T, –9, –9T added; alternative simplified credit under section 41(c)(5) (TD 9401) 27,1 26 CFR 1.42–10, –12, amended; section 42 utility allowance regulations update (TD 9420) 39,750 26 CFR 1.152–4, revised; 1.152–4T, removed; dependent child of divorced or separated parents or parents who live apart (TD 9408) 33,323 26 CFR 1.179B–1T, added; 602.101, amended; capital costs incurred to comply with EPA sulfur regulations (TD 9404) 32,280 26 CFR 1.179C–1T, added; 602.101, amended; election to expense certain refineries (TD 9412) 37,687 26 CFR 1.195–1, revised; 1.195–1T, added; 1.248–1, amended; 1.248–1T, added; 1.709–1, amended; 1.709–1T, added; elections regarding start-up expenditures, cor- poration organizational expenditures, and partnership organizational expenses (TD 9411) 34,398 26 CFR 1.367(a)–2T, –4T, –5T, amended; 1.954–2, amended; 1.954–2T, added; 1.956–2, –2T, amended; modifications to subpart F treatment of aircraft and vessel leasing income (TD 9406) 32,287 INCOME TAX—Cont. 26 CFR 1.468B–0, amended; 1.468B–6, added; 1.1031(k)–1, amended; 1.7872–5, –16, added; escrow accounts, trusts, and other funds used during deferred exchanges of like-kind property (TD 9413) 34,404 26 CFR 1.664–1, amended; 602.101, amended; guidance un- der section 664 regarding the effect of unrelated business taxable income on charitable remainder trusts (TD 9403) 32,285 26 CFR 1.860A–0, –1, amended; 1.860A–1T, removed; 1.860G–3, amended; 1.860G–3T, removed; 1.863–0, –1, amended; 1.863–1T, removed; 1.1441–0, –2, amended; 1.1441–2T, removed; REMIC residual interests–ac- counting for REMIC net income (including any excess inclusions) (foreign holders) (TD 9415) 36,570 26 CFR 1.881–5T, removed; correction to TD 9391 (Ann 74) 33,392 26 CFR 1.911–7, amended; 1.6081–1, –3, –5, amended; 1.6081–2T, –6T, revised; 1.6081–3T, –4T, –5T, –7T, –10T, –11T, removed; 1.6081–4, –7, –10, –11, added; 25.6081–1, added; 25.6081–1T, removed; 26.6081–1, added; 26.6081–1T, removed; 53.6081–1, added; 53.6081–1T, removed; 55.6081–1, added; 55.6081–1T, removed; 156.6081–1, added; 156.6081–1T, removed; 157.6081–1, added; 157.6081–1T, removed; 301.6081–2, added; 301.6081–2T, removed; extension of time for filing returns (TD 9407) 33,330 26 CFR 1.956–1, –1T, amended; guidance under section 956 for determining the basis ofproperty acquired in certain nonrecognition transactions (TD 9402) 31,254 26 CFR 1.1301–1, amended; 1.1301–1T, added; farmer and fisherman income averaging (TD 9417) 37,693; correction (Ann 91) 42,963 26 CFR 1.1361–0, –1, –4, –6, amended; 1.1362–0, –4, amended; 1.1366–0, –2, –5, amended; 602.101, amended; S corporation guidance under AJCA of 2004 and GOZA of 2005 (TD 9422) 42,898 26 CFR 301.6343–2, amended; 301.6343–2T, removed; 301.7425–3, amended; 301.7425–3T, removed; change to office to which notices of nonjudicial sale and requests for return of wrongfully levied property must be sent (TD 9410) 34,414 26 CFR 301.7216–3, amended; 301.7216–3T, added; disclo- sure or use of information by preparers of returns (TD 9409) 29,118 Revocations, exempt organizations (Ann 62) 27,74; (Ann 66) 29,164;(Ann69)32,318; (Ann 76) 33,393;(Ann79)35, 568;(Ann80)37,706; (Ann 86) 40,843; (Ann 88) 40,843; (Ann 90) 41,896;(Ann97)43,1010 Rules for certain long-term construction contracts (REG–120844–07) 39,770 Section 382 limitation: Application of section 382(h) to banks, ownership changes, pre-change losses (Notice 83) 42,905 Capital contributions, ownership changes, pre-change losses (Notice 78) 41,851 Ownership changes, pre-change losses (Notice 84) 41,855 2008–43 I.R.B.xiOctober 27, 2008 INCOME TAX—Cont. Securities loans and bankruptcy of borrower (RP 63) 42,946 Settlement offers, auction rate securities (RP 58) 41,856 Smartcards, debit cards, etc., used to provide qualified trans- portation fringes under section 132(f), delayed effective date of Rev. Rul. 2006–57 (Notice 74) 38,718 Standard Industry Fare Level (SIFL) formula (RR 48) 38,713 Stocks: Auction rate preferred stock, regulated investment companies RICs), debt instruments (Notice 55) 27,11 Information reporting requirements for statutory stock options (REG–103146–08) 37,701; hearing scheduled (Ann 102) 43,1011 Subprime mortgage loans, modifications held by certain securi- tization vehicles (RP 47) 31,272 Substitute forms: W-2 and W-3, general rules and specifications (RP 33) 28,93 941 and Schedule B (Form 941), general rules and specifica- tions (RP 32) 28,82 1096, 1098, 1099, 5498, W-2G, and 1042-S, rules and speci- fications (RP 36) 33,340 Tax return preparer penalties under sections 6694 and 6695 (REG–129243–07) 27,32; corrections (Ann 75) 33,392 Treatment of aircraft and vessel leasing income (TD 9406) 32, 287; (REG–138355–07) 32,311 Trusts: Charitable remainder trust, calculation of excise tax on unre- lated business taxable income (UBTI) (TD 9403) 32,285 Guidance regarding reportingfor widely held fixed invest- ment trusts (WHFITs) (Notice 77) 40,814 Ordering of distributions from charitable lead trusts (REG–101258–08) 28,111; correction (Ann 73) 33,391 Private trust company (Notice 63) 31,261 U.S. territories, American Samoa, Guam, The Northern Mariana Islands, Puerto Rico, U.S. Virgin Islands, source of income, filing requirements; correction to TD 9391 (Ann 74) 33,392 Valuation safe harbor under section 475 (Notice 71) 35,462 October 27, 2008xii2008–43 I.R.B. 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