Internal Revenue Bulletin 2008-6 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 200
8-6
February 11, 200
8
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
T.D. 9368, page 382.
REG–114126–07, page 410.
Final, temporary, and proposed regulations under section 904
of the Code provide transition rules regarding the reduction of
the number of separate foreign tax credit limitation categories
under section 904(d). A public hearing is scheduled for April
22, 2008.
T.D. 9369, page 394.
REG–104713–07, page 409.
Temporary and proposed regulations under section 1561 of
the Code affect component members of a controlled group
of corporations and consolidated groups filing life-nonlife fed-
eral income tax returns. The regulations also provide guidance
for calculating and apportioning between component members
any amount of additional tax and any reduction in the amount
exempted from the alternative minimum tax.
Notice 2008–20, page 406.
This notice identifies the components of the Intermediary
Transaction Tax Shelter transaction listed and described in
Notice 2001–16. The notice also identifies the persons who
are treated as participants in an Intermediary Transaction Tax
Shelter under regulations section 1.6011–4(c)(3)(i)(A). Notice
2001–16 modified.
Rev. Proc. 2008–13, page 407.
This procedure provides the maximum vehicle values for use
with the special valuation rules under regulations sections
1.61–21(d) and (e). These values are indexed for inflation and
must be adjusted annually by referring to the Consumer Price
Index.
TAX CONVENTIONS
Announcement 2008–8, page 403.
This announcement provides the tax rates for various types of
income under a new tax treaty with Belgium and new proto-
cols with Denmark, Finland, and Germany. The tables in this
announcement can be used, depending on the effective dates,
to replace the entries for these four countries in Tables 1 and
2 in Publication 515,Withholding of Tax on Nonresident Aliens
and Foreign Entities(For Withholding in 2007)andPublication
901,U.S. Tax Treaties(Rev. June 2007).
ADMINISTRATIVE
T.D. 9369, page 394.
REG–104713–07, page 409.
Temporary and proposed regulations under section 1561 of
the Code affect component members of a controlled group
of corporations and consolidated groups filing life-nonlife fed-
eral income tax returns. The regulations also provide guidance
for calculating and apportioning between component members
any amount of additional tax and any reduction in the amount
exempted from the alternative minimum tax.
Rev. Proc. 2008–13, page 407.
This procedure provides the maximum vehicle values for use
with the special valuation rules under regulations sections
1.61–21(d) and (e). These values are indexed for inflation and
must be adjusted annually by referring to the Consumer Price
Index.
Announcements of Disbarments and Suspensions begin on page 412.
Finding Lists begin on page ii.

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.
February 11, 20082008–6 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 904.—Limitation
on Credit
26 CFR 1.904–2: Carryback and carryover of unused
foreign tax.
T.D. 9368
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Reduction of Foreign Tax
Credit Limitation Categories
Under Section 904(d)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document contains final
and temporary Income Tax Regulations
regarding the reduction of the number
of separate foreign tax credit limitation
categories under section 904(d) of the
Internal Revenue Code (Code). Section
404 of the American Jobs Creation Act
of 2004 (AJCA) reduced the number of
section 904(d) separate categories from
eight to two, effective for taxable years be-
ginning after December 31, 2006. These
temporary regulations affect taxpayers
claiming foreign tax credits and provide
guidance needed to comply with the statu-
tory changes made by the AJCA. The text
of these temporary regulations also serves
as the text of the proposed regulations
(REG–114126–07) set forth in the notice
of proposed rulemaking on this subject
published elsewhere in this issue of the
Bulletin..
DATES:Effective Date:These regulations
are effective on December 21, 2007.
Applicability Dates:For dates of
applicability, see§§1.904–2T(i)(3),
1.904–4T(n), 1.904–5T(o)(3), 1.904–7T
(g)(6), and 1.904(f)–12T(h)(6). These
regulations apply to taxable years of
United States taxpayers beginning after
December 31, 2006, and ending on or after
December 21, 2007, and to taxable years
of foreign corporations which end with
or within taxable years of their domestic
corporate shareholders beginning after
December 31, 2006, and ending on or after
December 21, 2007.
FOR FURTHER INFORMATION
CONTACT: Jeffrey L. Parry, (202)
622–3850 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the regulations under section 904 relating
to the application of separate foreign tax
credit limitations tocertain categories of
income under section 904(d), as amended
by the AJCA. Prior to the effective date of
the AJCA amendments (that is, for taxable
years beginning before January 1, 2007
(“pre-2007 taxable years”)), the foreign
tax credit limitation applied separately to
the following categories of income: pas-
sive income, high withholding tax inter-
est, financial services income, shipping
income, certain dividends from a DISC
or former DISC, taxable income attribut-
able to certain foreign trade income, cer-
tain distributions from a FSC or former
FSC, and any other income not described
in this sentence (“general limitation in-
come”). Other provisions of the Code that
subject other categories of income to sepa-
rate foreign tax credit limitations were not
amended by the AJCA. See, for example,
sections 56(g)(4)(C)(iii)(IV), 245(a)(10),
865(h), 901(j), and 904(h)(10); see also
H.R. Rep. No. 108–755, at 383 (October
7, 2004).
Effective for taxable years beginning
after December 31, 2006 (“post-2006 tax-
able years”), the AJCA reduced the num-
ber of section 904(d) separate categories
to two categories for “passive category
income” and “general category income.”
New section 904(d)(2)(A) defines passive
category income as passive income and
specified passive category income, and
general category income as income other
than passive category income. In addition,
new section 904(d)(2)(C) and (D) provides
rules concerning the treatment of financial
services income and companies.
These temporary regulations modify
the regulations under section 904 to reflect
the new separate categories for passive
category income and general category
income, and provide transition rules for
the treatment of earnings and profits and
foreign income taxes of controlled foreign
corporations and noncontrolled section
902 corporations accumulated in pre-2007
taxable years, overall foreign losses and
separate limitation losses under section
904(f), and the carryover and carryback of
excess foreign taxes under section 904(c).
Explanation of Provisions
I.Carryovers and Carrybacks of Excess
Foreign Taxes under Section 904(c)
Section 904(d)(2)(K)(i), as added by
the AJCA, provides that excess taxes car-
ried from a pre-2007 taxable year to a
post-2006 taxable year shall be assigned to
the post-2006 separate categories based on
where the related income would have been
assigned had such taxes been paid or ac-
crued in a post-2006 taxable year.
Consistent with this statutory amend-
ment, §1.904–2T(i)(1)(i) provides that if a
taxpayer carries over to a post-2006 tax-
able year any excess taxes that were paid,
accrued, or deemed paid with respect to in-
come in any pre-2007 separate category,
the excess taxes are assigned to the appro-
priate post-2006 separate category as if the
taxes had been paid or accrued in a post-
2006 taxable year. For example, to the ex-
tent that any taxes were related to income
that would have been treated as high-taxed
income under section 904(d)(2)(B)(iii)(II),
such taxes will be assigned to the post-
2006 separate category for general cate-
gory income.
Because the IRS and the Treasury De-
partment recognize that taxpayers may
face difficulties in reconstructing excess
taxes accounts, §1.904–2T(i)(1)(ii) of the
temporary regulations provides a safe har-
bor. Under the safe harbor, a taxpayer may
assign excess taxes in any pre-2007 sepa-
rate category, except the passive category,
to the post-2006 separate category for
general category income. The safe harbor
provides that excess taxes in the pre-2007
passive category will be assigned to the
2008–6 I.R.B.382February 11, 2008

post-2006 separatecategory for passive
category income.
Section 904(d)(2)(K)(ii), as added by
the AJCA, authorizes the Secretary to issue
regulations for allocating carrybacks of ex-
cess taxes with respect to income from a
post-2006 taxable year to a pre-2007 tax-
able year for purposes of allocating the ex-
cess taxes among the separate categories in
effect for the taxable year to which carried.
The IRS and the Treasury Department be-
lieve that it is appropriate to allow a tax-
payer to reconstruct separate categories of
income earned and excess taxes paid or ac-
crued in its first post-2006 taxable year as
if the pre-2007 rules applied. Accordingly,
§1.904–2T(i)(2)(i) provides that if a tax-
payer carries back excess taxes paid, ac-
crued, or deemed paid with respect to in-
come in the post-2006 separate category
for passive category income or general cat-
egory income to a pre-2007 taxable year,
the excess taxes are assigned to the appro-
priate pre-2007 separate category or cate-
gories as if the taxes had been paid or ac-
crued in a pre-2007 taxable year. Section
1.904–2T(i)(2)(ii) provides that a taxpayer
may, in lieu of reconstruction, assign ex-
cess taxes in the separate category for gen-
eral category income to the pre-2007 gen-
eral category, and excess taxes in the sepa-
rate category for passive category income
to the pre-2007 passive category.
II.Definition of Passive Category Income
New section 904(d)(2)(A)(i) defines
passive category income as passive in-
come and specified passive category
income. New section 904(d)(2)(B)(i)
generally defines passive income as “any
income received or accrued by any per-
sonwhichisofakindwhichwouldbe
foreign personal holding company income
(as defined in section 954(c)).” Passive
income includes amounts includible in
gross income under section 1293, except
as provided in section 904(d)(3)(H) (pro-
viding that look-through treatment applies
to an amount included in gross income
under section 1293 if the passive for-
eign investment company is a controlled
foreign corporation (CFC) and the tax-
payer is a United States shareholder in
such CFC) and section 904(d)(2)(E)(ii)
(providing that an inclusion under section
1293 with respect to a foreign corpora-
tion that is a noncontrolled section 902
corporation with respect to the taxpayer
shall be treated as a dividend from such
corporation). See section 904(d)(2)(B)(ii).
Passive income does not include export
financing interest and high-taxed income.
See section 904(d)(2)(B)(iii). New section
904(d)(2)(B)(iv) provides that in deter-
mining whether income is of a kind which
would be foreign personal holding com-
pany income, the rules of section 864(d)(6)
applyonlyinthecaseofincomeofaCFC.
New section 904(d)(2)(B)(v) defines
specified passive category income as div-
idends from a DISC or former DISC (as
defined in section 992(a)) to the extent
such dividends are treated as income from
sources without the United States, taxable
income attributable to foreign trade in-
come (FTI) within the meaning of section
923(b), and distributions from a FSC or
former FSC out of earnings and profits
attributable to FTI (within the meaning
of section 923(b)) or interest or carrying
charges (as defined in section 927(d)(1))
derived from a transaction which results
in FTI (as defined in section 923(b)).
The temporary regulations reflect
the new definitions of passive category
income, passive income, and speci-
fied passive category income. Section
1.904–4T(b)(3) incorporates the definition
of specified passive category income in
section 904(d)(2)(B)(v), which includes
dividends from DISCs, distributions from
FSCs, and FTI. Because these types of
income constitute specified passive cat-
egory income and not passive income,
such income can never qualify as financial
services income that could be treated as
general category income.
The final regulations at §1.904–5(h)(3)
currently provide that gain from the sale
of a partnership interest is assigned to the
separate category for passive income. Sec-
tion 954(c)(4), which was enacted by the
AJCA, provides a look-through rule for
sales of 25-percent-owned partnerships.
Because the definition of passive income
in section 904(d)(2)(B) refers to section
954(c), these temporary regulations revise
§1.904–5(h)(3) to reflect that gain on the
sale of a partnership interest by a 25-per-
cent partner is assigned to the separate
category for general category income, to
the extent that, under the section 954(c)(4)
look-through rule, the gain is not classi-
fied as foreign personal holding company
income.
III.Definition of Financial Services
Income
Section 904(d)(2)(C)(i), as amended
by the AJCA, provides that financial ser-
vices income shall be treated as general
category income in the case of a mem-
ber of a financial services group and any
other person predominantly engaged in
the active conduct of a banking, insurance,
financing or similar business. New sec-
tion 904(d)(2)(C)(ii) defines a financial
services group as “any affiliated group
(as defined in section 1504(a) without re-
gard to paragraphs (2) and (3) of section
1504(b)) which is predominantly engaged
in the active conduct of a banking, in-
surance, financing or similar business.”
In determining whether a group is so en-
gaged, only the income of members of the
group that are U.S. corporations or CFCs
in which U.S. corporations own, directly
or indirectly, at least 80 percent of the vote
or value of the stock are taken into ac-
count. Section 904(d)(2)(C)(iii) provides
that the Secretary “shall by regulation
specify for purposes of this subparagraph
the treatment of financial services income
received or accrued by partnerships and
by other pass-thru entities which are not
members of a financial services group.”
Section 904(d)(2)(D), as amended by
the AJCA, generally adopts the definition
of financial services income of former
section 904(d)(2)(C)(i) and (ii), except
that it includes neither the rule providing
that financial services income includes
export financing interest that would be
high withholding tax interest, nor the ex-
ception in former section 904(d)(2)(C)(iii)
for high withholding tax interest and ex-
port financing interest that would not be
high withholding tax interest. New section
904(d)(2)(D)(i) defines financial services
income as “any income which is received
or accrued by any person predominantly
engaged in the active conduct of a banking,
insurance, financing or similar business,”
and which is either described in section
904(d)(2)(D)(ii) (which provides a general
description of financial services income)
or is passive income (determined without
regard to whether it is high-taxed). An
item of income satisfies the general de-
scription of financial services income if
such income is (1) derived in the active
conduct of a banking, financing, or similar
business; (2) derived from the investment
February 11, 20083832008–6 I.R.B.

by an insurance company of its unearned
premiums or reserves ordinary and neces-
sary for the proper conduct of its insurance
business; or (3) of a kind which would
be insurance income as defined in section
953(a) determined without regard to sec-
tion 953(a)(1)(A), which limits insurance
income to income from countries other
than the country in which the corporation
was created or organized. See section
904(d)(2)(D)(ii).
The final regulations at §1.904–4(e)
provide rules concerning the separate
category for financial services income.
Section 1.904–4(e)(1) provides a general
definition of financial services income.
Section 1.904–4(e)(2) provides an exclu-
sive list describing items of income that
are treated as active financing income.
Section 1.904–4(e)(3)(i) provides that a
person is considered to be predominantly
engaged in the active financing business
for any taxable year if for that year at
least 80 percent of its gross income is
active financing income, as defined in
§1.904–4(e)(2).
On June 26, 2007, the IRS and
the Treasury Department issued No-
tice 2007–58, 2007–29 I.R.B. 88 (see
§601.601(d)(2)(ii)(b)), in which the IRS
and the Treasury Department announced
that in light of the amendments to the
foreign tax credit rules in the AJCA, they
were reviewing the provisions relating to
financial services income, active financ-
ing income, and financial services entities
in §1.904–4(e). The notice also solicited
comments relating to these definitions.
The IRS and the Treasury Department
received several written comments and
are continuing to study this issue. Ac-
cordingly, the rules of §1.904–4(e) of the
current final regulations are not being re-
vised at this time.
IV.Pre-2007 Separate Categories
To reflect the reduction of separate
categories, §§1.904–4(d) (definition of
high withholding tax interest), 1.904–4(f)
(definition of shipping income), and
1.904–4(g) (treatment of dividends from
a noncontrolled section 902 corporation)
are reserved.
It should be noted that the separate
category for shipping income remained
effective for taxable years beginning be-
fore January 1, 2007. Section 415 of the
AJCA repealed the foreign base company
shipping income rules of section 954(f),
effective for taxable years of foreign cor-
porations beginning after December 31,
2004, and taxable years of U.S. sharehold-
ers in which or with which such taxable
years of the foreign corporations end. No-
tice 2007–13, 2007–5 I.R.B. 410, stated
that in light of the repeal of section 954(f),
§1.954–1(e)(4)(i)(A) (providing a trump
rule for income that qualifies as foreign
base company shipping income) is obso-
lete, and §1.954–6 (providing rules for
determining foreign base company ship-
ping income) is effective only for purposes
of applying the rules for the withdrawal
of previously excluded subpart F income
from qualified investments. However, a
technical correction in the Tax Increase
Prevention and Reconciliation Act of 2005
confirmed that the separate category for
shipping income is defined by reference
to shipping income as defined in section
954(f) prior to its repeal. Accordingly, the
subpart F shipping regulations continued
to apply for section 904(d) purposes, and
the separate category for shipping income
continued to exist, through the end of tax-
able years beginning before 2007. See
§601.601(d)(2)(ii)(b).
The final regulations at §§1.904–4(h)
(definition of and rules relating to
treatment of export financing inter-
est), 1.904–4(i) (concerning the inter-
action of section 907(c) and §1.904–4),
1.904–4(j) (concerning DASTM gain or
loss), 1.904–4(l) (priority rules for in-
come meeting the definitions of more
than one pre-2007 separate category), and
1.904–5 have been revised to reflect the
new separate categories for passive cate-
gory income and general category income.
V.Post-1986 Undistributed Earnings
and Post-1986 Foreign Income Taxes of
a Foreign Corporation as of the End of
the Corporation’s Last Pre-2007 Taxable
Year
A.General rule of reconstruction
If a dividend is paid, or an amount is in-
cluded in the gross income of a U.S. share-
holder under section 951, out of post-1986
undistributed earnings (or pre-1987 accu-
mulated profits) of a foreign corporation
attributable to more than one separate cat-
egory, the amount of foreign income taxes
deemed paid by the domestic shareholder
or upper-tier corporation under section 902
or 960 is computed separately with respect
to the post-1986 undistributed earnings (or
pre-1987 accumulated profits) in each sep-
arate category out of which the dividend
is paid or to which the subpart F inclu-
sion is attributable. See §§1.902–1T(d)(1);
1.960–1(i)(1). The temporary regulations
implement the reduction of separate cat-
egories under the AJCA by recharacter-
izing the foreign corporation’s pools of
post-1986 undistributed earnings and post-
1986 foreign income taxes in the pre-2007
separate categories as pools of post-1986
undistributed earnings and post-1986 for-
eign income taxes in the separate cate-
gories for passive category income and
general category income on the first day
of the foreign corporation’s first post-2006
taxable year.
Section 1.904–7T(g)(2) of the tempo-
rary regulations provides that in the case
of a CFC or noncontrolled section 902
corporation that has pools of post-1986
undistributed earnings and post-1986 for-
eign income taxes in any pre-2007 separate
category, the earnings and foreign income
taxes that exist as of the end of the foreign
corporation’s last pre-2007 taxable year
are treated as if they were accumulated and
paid during a period when the post-2006
rules applied, including the rules under
section 904(d)(3)(E). Recharacterized
amounts of earnings and taxes are taken
into account in determining the opening
balance of the post-1986 undistributed
earnings and post-1986 foreign income
taxes pools in each of the foreign corpora-
tion’s post-2006 separate categories on the
first day of the foreign corporation’s first
post-2006 taxable year.
Section 1.904–7T(g)(3)(i) of the tem-
porary regulations provides that in order
to substantiate the recharacterization of the
pools of post-1986 undistributed earnings
and post-1986 foreign income taxes in any
pre-2007 separate category, the pools must
be reconstructed for each pre-2007 tax-
able year, beginning with the first year in
which earnings were accumulated in the
pool with respect to each such pre-2007
separate category. Earnings are treated
as if they were accumulated in a period
when the post-2006 rules applied, taking
into account earnings distributed and taxes
deemed paidpro ratafrom the amounts
that were added to the pools in each sep-
2008–6 I.R.B.384February 11, 2008

arate category in subsequent pre-2007 tax-
able years. As reconstructed, the pools of
earnings and taxes in a pre-2007 separate
category are assigned to the post-2006 sep-
arate categories on the first day of the for-
eign corporation’s first post-2006 taxable
year. (A hovering deficit is subject to the
same rules for purposes of identifying the
post-2006 separate categories to which the
deficit is assigned, but the hovering deficit
is not included in determining the opening
balance of the pool. See §1.367(b)–7.)
Similarrulesapplytoassigntothe
post-2006 separate categories amounts
of previously-taxed earnings and prof-
its described in section 959(c)(1)(A),
accumulated deficits, and pre-1987 ac-
cumulated profits in pre-2007 separate
categories. For example, if there is an
accumulated deficit in any pre-2007 sepa-
rate category as of the end of a CFC’s or
noncontrolled section 902 corporation’s
last pre-2007 taxable year, the deficit and
associated taxes (if any) are treated in the
same manner as if there had been posi-
tive accumulated earnings and taxes in
the separate category, that is, the deficit
and taxes are treatedas if the post-2006
rules applied in the year the deficit was
accumulated and the taxes were paid. The
earnings and deficits in earnings making
up the accumulated deficit are assigned to
the post-2006 separate categories based on
where those items of income and expenses
or losses would have been assigned had
they been incurredwhen the post-2006
rules were in effect. As reconstructed, the
deficit is taken into account in determin-
ing the opening balance of the post-1986
undistributed earnings pool in the ap-
propriate post-2006 separate category or
categories on the first day of the foreign
corporation’s first post-2006 taxable year.
The IRS and the Treasury Department
recognize that shareholders may face dif-
ficulties in reconstructing historical accu-
mulated earnings and taxes accounts of a
foreign corporation. Therefore, a reason-
able approximation of the amounts prop-
erly included in the post-2006 separate cat-
egories, based on available records ob-
tained through reasonable, good-faith ef-
forts by the taxpayer, will adequately sub-
stantiate reconstruction.
B.Safe harbors
1.In general
For pools of undistributed earnings
and foreign income taxes in the pre-2007
separate categories of CFCs and non-
controlled section 902 corporations, the
temporary regulations provide that a tax-
payer may elect to apply one of two
safe harbors in lieu of reconstructing his-
torical accumulated earnings and taxes
accounts of the foreign corporation. See
§1.904–7T(g)(3)(ii). The safe harbors
apply to allocate post-1986 undistributed
earnings (as well as deficits and previ-
ously-taxed earnings, if any) and pre-1987
accumulated profits and associated foreign
income taxes in a foreign corporation’s
pre-2007 separate categories. Amounts
allocated to the post-2006 separate cate-
gories under a safe harbor are taken into
account in computing the opening balance
of the post-1986 undistributed earnings
and post-1986 foreign income taxes pools,
as well as pre-1987 accumulated profits
and pre-1987 foreign income taxes, in each
of the foreign corporation’s post-2006
separate categories on the first day of the
foreign corporation’s first post-2006 tax-
able year.
2.General safe harbor
Under §1.904–7T(g)(3)(ii)(B)(1)of
the temporary regulations, the safe harbor
for post-1986 undistributed earnings and
post-1986 foreign income taxes (as well
as deficits and previously-taxed earnings,
and pre-1987 accumulated profits, if any)
in a CFC’s or noncontrolled section 902
corporation’s pre-2007 separate category
for passive income, certain dividends from
a DISC or former DISC, taxable income
attributable to certain foreign trade in-
come, or certain distributions from a FSC
or former FSC provides that such earnings
and taxes are allocated to the post-2006
separate category for passive category in-
come. Under §1.904–7T(g)(3)(ii)(B)(2),
the safe harbor for post-1986 undistributed
earnings and post-1986 foreign income
taxes (as well as deficits, previously-taxed
earnings, and pre-1987 accumulated prof-
its, if any) in a CFC’s or noncontrolled
section 902 corporation’s pre-2007 sepa-
rate category for financial services income,
shipping income, or general limitation
income provides that such earnings and
taxes are allocated to the post-2006 sepa-
rate category for general category income.
Under §1.904–7T(g)(3)(ii)(B)(3), the
safe harbor for post-1986 undistributed
earnings and post-1986 foreign income
taxes (as well as deficits, previously-taxed
earnings, and pre-1987 accumulated prof-
its, if any) in a CFC’s or noncontrolled sec-
tion 902 corporation’s pre-2007 separate
category for high withholding tax interest
generally provides that such earnings and
taxes are allocated to the post-2006 sepa-
rate category for passive category income.
However, §1.904–7T(g)(3)(ii) (B)(4)pro-
vides that if a CFC has positive post-1986
undistributed earnings or pre-1987 accu-
mulated profits and foreign income taxes
attributable to high-withholding tax inter-
est, such earnings and taxes are allocated
to the post-2006 separate category for gen-
eral category income if the earnings would
qualify as income subject to high foreign
taxes under section 954(b)(4) if the entire
amount of earnings in the pre-2007 pool in
the separate category for high withholding
tax interest were treated as a net item of
income subject to the rules of §1.954–1(d).
If the earnings would not qualify as in-
come subject to high foreign taxes under
section 954(b)(4), the earnings and taxes
are allocated to the post-2006 separate
category for passive category income. The
IRS and the Treasury Department believe
that, given that high withholding tax inter-
est generally constitutes subpart F income
unless it is high-taxed, this safe harbor is
an appropriate alternative to reconstruct-
ing earnings and taxes in a CFC’s separate
category for high withholding tax interest.
3.Interest apportionment safe harbor
A second safe harbor is provided un-
der §1.904–7T(g)(3)(ii)(C) which allows
taxpayers to allocate the post-1986 undis-
tributed earnings and post-1986 foreign
taxes (and deficits, previously-taxed earn-
ings, and pre-1987 accumulated profits,
if any) in a CFC’s or noncontrolled sec-
tion 902 corporation’s pre-2007 pools
following the principles of the safe harbor
method described in the transition rules
under §1.904–7T(f)(4)(ii) for post-1986
undistributed earnings and post-1986 for-
eign income taxes in the non-look-through
pool of a controlled foreign corporation or
noncontrolled section 902 corporation.
February 11, 20083852008–6 I.R.B.

4.Election of safe harbor
To allocate pools of undistributed earn-
ings (and deficits, previously-taxed earn-
ings, and pre-1987 accumulated profits,
if any) and foreign income taxes in the
pre-2007 separatecategories of a CFC
or noncontrolled section 902 corporation
to the foreign corporation’s post-2006
separate categories, the temporary reg-
ulations at §1.904–7T(g)(3)(iii) provide
that a taxpayer may elect to apply a safe
harbor in lieu of reconstruction on a sepa-
rate-category-by-separate-category basis.
If a taxpayer elects to apply a safe har-
bor to allocate pre-2007 pools of more
than one pre-2007 separate category of a
foreign corporation, the same safe harbor
(that is, the general safe harbor described
in §1.904–7T(g)(3)(ii)(B) or the interest
apportionment safe harbor described in
§1.904–7T(g)(3)(ii)(C)) shall then apply
to allocate the pre-2007 pools of all of the
foreign corporation’s pre-2007 separate
categories for which the taxpayer elects
to apply a safe harbor method in lieu of
reconstructing the pre-2007 pools.
C.Post-1986 undistributed earnings and
taxes of lower-tier foreign corporations
The transition rules described in Sec-
tions V.A. and B in this preamble apply
to post-1986 undistributed earnings and
post-1986 foreign income taxes (as well
as deficits, previously-taxed earnings, and
pre-1987 accumulated profits, if any) not
only of a first-tier foreign corporation but
also of lower-tier foreign corporations
as well. See §1.904–7T(g)(5). Accord-
ingly, to the extent a lower-tier foreign
corporation has pools of post-1986 undis-
tributed earnings (attributable to amounts
not yet included in gross income by the
U.S. shareholder) and foreign income
taxes in a pre-2007 separate category,
the rules of §1.904–7T(g) apply in treat-
ing the earnings and taxes as the open-
ing balance of the foreign corporation’s
pools of post-1986 undistributed earnings
and post-1986 foreign income taxes in
the appropriate post-2006 separate cat-
egory or categories on the first day of
the foreign corporation’s first post-2006
taxable year. Similarly, pre-1987 accumu-
lated profits and pre-1987 foreign income
taxes in a pre-2007 separate category of
a lower-tier foreign corporation are allo-
cated to the appropriatepost-2006 separate
categories in accordance with the rules of
§1.904–7T(g).
VI.Separate Limitation Losses and
Overall Foreign Losses
Because the AJCA reduced the num-
ber of section 904(d) separate categories
from eight to two for post-2006 taxable
years, the temporary regulations provide
transition rules for recapture in a post-
2006 taxable year of an overall foreign loss
(OFL) or separate limitation loss (SLL)
in a pre-2007 separate category that off-
set U.S. source income or income in an-
other pre-2007 separate category, respec-
tively, in a pre-2007 taxable year.
Section 1.904(f)–12T(h)(1) of the tem-
porary regulations provides that to the ex-
tent a taxpayer has an OFL or SLL at the
end of the taxpayer’s last pre-2007 taxable
year in the pre-2007 separate category for
passive income, certain dividends from a
DISC or former DISC, taxable income at-
tributable to certain foreign trade income,
or certain distributions from a FSC or for-
mer FSC, such OFL or SLL is allocated
on the first day of the taxpayer’s next tax-
able year to the taxpayer’s post-2006 sepa-
rate category for passive category income.
Accordingly, such OFL or SLL will be
subject to recapture in subsequent taxable
years out of the taxpayer’s passive cate-
gory income. Where a taxpayer has an
SLL in some other pre-2007 separate cat-
egory (for example, a general limitation
SLL) that offset passive income, certain
dividends from a DISC or former DISC,
taxable income attributable to certain for-
eign trade income, or certain distributions
from a FSC or former FSC, the SLL will
be recaptured in subsequent taxable years
as passive category income.
Section 1.904(f)–12T(h)(2) of the tem-
porary regulations provides that to the ex-
tent a taxpayer has an OFL or SLL at the
end of the taxpayer’s last pre-2007 tax-
able year in the pre-2007 separate cate-
gory for financial services income, ship-
ping income, or general limitation income,
such OFL or SLL is allocated on the first
day of the taxpayer’s next taxable year
to the taxpayer’s post-2006 separate cat-
egory for general category income. Ac-
cordingly, such OFL or SLL will be subject
to recapture in subsequent taxable years
out of the taxpayer’s general category in-
come. Where a taxpayer has an SLL in
some other pre-2007 separate category (for
example, a passive SLL) that offset finan-
cial services income, shipping income, or
general limitation income, the SLL will be
recaptured in subsequent taxable years as
general category income.
Section 1.904(f)–12T(h)(3) provides
that to the extent a taxpayer has an OFL
or SLL at the end of the taxpayer’s last
pre-2007 taxable year in the pre-2007
separate category for high withholding
tax interest, the allocation of such OFL
or SLL to the taxpayer’s post-2006 sepa-
rate categories depends on the taxpayer’s
allocation of excess taxes in the high
withholding tax interest loss category
for carryover purposes. Accordingly, if
the excess taxes are assigned to the ap-
propriate post-2006 separate category or
categories based on reconstruction (that is,
treating the taxes as if they had been paid
or accrued in a post-2006 taxable year
under §1.904–2T(i)(1)(i)), the OFL or
SLL is allocatedpro ratato the taxpayer’s
post-2006 separate categories based on
the proportions in which the excess high
withholding taxes are assigned to the
post-2006 separate categories. If instead
the taxpayer elects to assign the excess
taxes to the post-2006 separate category
for general category income under the safe
harbor described in §1.904–2T(i)(1)(ii),
the OFL or SLL is also allocated to the
same post-2006 general category. If there
are no excess taxes in the loss category
that are carried over to post-2006 taxable
years, an OFL or SLL in the pre-2007
separate category for high withholding tax
interest is allocated to the post-2006 sepa-
rate category for passive category income.
Similarly, where a taxpayer has an
SLL in a pre-2007 separate category that
offset high withholding tax interest, the
SLL will be recaptured in subsequent
taxable yearspro rataas income in the
post-2006 separate categories for general
category income and passive category in-
come based on how the taxpayer allocated
excess taxes in the pre-2007 separate cat-
egory for high withholding tax interest
under §1.904–2T(i)(1). If no excess taxes
in the pre-2007 separate category for high
withholding tax interest are carried over to
post-2006 taxable years, the SLL will be
recaptured in subsequent taxable years as
income in the post-2006 separate category
for passive category income.
2008–6 I.R.B.386February 11, 2008

Section 1.904(f)–12T(h)(4) provides
that after application of paragraphs (1)
through (3), any separate limitation loss
account allocated to the post-2006 sepa-
rate category for passive category income
for which income is to be recaptured as
passive category income will be elimi-
nated, since “recapture” to and from the
same category would be meaningless. For
the same reason, any separate limitation
loss accounts allocated to the post-2006
separate category for general category in-
come for which income is to be recaptured
as general category income will be elim-
inated.
Section 1.904(f)–12T(h)(5) provides
that taxpayers may in the alternative de-
termine the treatment of OFLs and SLLs
in pre-2007 separate categories following
the principles of the transition rules of
§1.904(f)–12T(g)(1) and (2) concerning
the treatment of OFLs and SLLs in the
separate category for dividends from a
noncontrolled section 902 corporation.
Effective/Applicability Date
The effective date for these regulations
is December 21, 2007. The temporary reg-
ulations apply to taxable years of United
States taxpayers beginning after December
31, 2006, and ending on or after December
21, 2007, and to taxable years of a foreign
corporation which end with or within a tax-
able year of its domestic corporate share-
holder beginning after December 31, 2006,
and ending on or afterDecember 21, 2007.
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 also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. For
the applicability of the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6), refer to the
Special Analyses section of the preamble
of the cross-referenced notice of proposed
rulemaking published in this issue of the
Bulletin. Pursuant to section 7805(f) of the
Internal Revenue Code, this regulation has
been submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
businesses.
Drafting Information
The principal author of these regula-
tions is Jeffrey L. Parry of the Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is 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 1.904–0 is amended as
follows:
1. Add the entry for §1.904–2(i).
2. Remove and reserve the entries for
§1.904–4(a), (b), (d), (f), (g), (h)(3), and
(l).
3. Remove and reserve the entry for
§1.904–5(h)(3).
4. Add and reserve the entry for
§1.904–5(o)(3).
5. Add the entry for §1.904–7(g).
6. Add the entry for §1.904(f)–12(h).
The revisions and additions read as fol-
lows:
§1.904–0 Outline of regulation provisions
for section 904.
*****
§1.904–2 Carryback and carryover of
unused foreign tax.
*****
(i) [Reserved].
*****
§1.904–4 Separate application of section
904 with respect to certain categories of
income.
(a) [Reserved].
(b) [Reserved].
*****
(d) [Reserved].
*****
(f) [Reserved].
(g) [Reserved].
*****
(h)(3) [Reserved].
*****
(l) [Reserved]
.
*****
§1.904–5 Look-through rules as applied
to controlled foreign corporations and
other entities.
*****
(h) * * *
(3) [Reserved].
*****
(o) * * *
(3) [Reserved].
§1.904–7 Transition rules.
*****
(g) [Reserved].
§1.904(f)–12 Transition rules.
*****
(h) [Reserved].
Par. 3. Section 1.904–2 is amended by
adding paragraph (i) to read as follows:
§1.904–2 Carryback and carryover of
unused foreign tax.
*****
(i) [Reserved.] For further guidance,
see §1.904–2T(i).
Par. 4. Section 1.904–2T is amended
by adding paragraph (i) to read as follows:
§1.904–2T Carryback and carryover of
unused foreign tax (temporary).
*****
(i)Transition rules for carryovers and
carrybacks of pre-2007 and post-2006
unused foreign tax—(1)Carryover of un-
used foreign tax—(i)General rule.For
purposes of this paragraph (i), the terms
post-2006 separate categoryandpre-2007
separate categoryhave the meanings set
forth in §1.904–7T(g)(1)(ii) and (iii). The
rules of this paragraph(i)(1) apply to real-
locate to the taxpayer’s post-2006 separate
categories for general category income and
passive category income any unused for-
eign taxes (as defined in §1.904–2(b)(2))
that were paid or accrued or deemed paid
under section 902 with respect to income
in a pre-2007 separate category (other than
a category described in §1.904–4(m)). To
the extent any such unused foreign taxes
February 11, 20083872008–6 I.R.B.

are carried forward to a taxable year be-
ginning after December 31, 2006, such
taxes shall be allocated to the taxpayer’s
post-2006 separatecategories to which
those taxes would have been allocated if
the taxes were paid or accrued in a taxable
year beginning after December 31, 2006.
For example, any foreign taxes paid or
accrued or deemed paid with respect to
financial services income in a taxable year
beginning before January 1, 2007, that are
carried forward to a taxable year beginning
after December 31, 2006, will be allocated
to the general category because the finan-
cial services income to which those taxes
relate would have been allocated to the
general category if it had been earned in
a taxable year beginning after December
31, 2006.
(ii)Safe harbor. In lieu of applying the
rules of paragraph (i)(1)(i) of this section,
a taxpayer may allocate all unused foreign
taxes in the pre-2007 separate category for
passive income to the post-2006 separate
category for passive category income, and
allocate all other unused foreign taxes de-
scribed in paragraph (i)(1)(i) of this section
to the post-2006 separate category for gen-
eral category income.
(2)Carryback of unused foreign
tax—(i)General rule. The rules of this
paragraph (i)(2) apply to any unused for-
eign taxes that were paid or accrued or
deemed paid under section 902 with re-
spect to income in a post-2006 separate
category (other than a category described
in §1.904–4(m)). To the extent any such
unused foreign taxes are carried back to
a taxable year beginning before January
1, 2007, a credit for such taxes shall be
allowed only to the extent of the excess
limitation in the pre-2007 separate cat-
egory, or categories, to which the taxes
would have been allocated if the taxes
were paid or accrued in a taxable year
beginning before January 1, 2007. For ex-
ample, any foreign taxes paid or accrued
or deemed paid with respect to income in
the general category in a taxable year be-
ginning after December 31, 2006, that are
carried back to a taxable year beginning
before January 1, 2007, will be allocated
to the same separate categories to which
the income would have been allocated if it
had been earned in a taxable year begin-
ning before January 1, 2007.
(ii)Safe harbor. In lieu of applying the
rules of paragraph (i)(2)(i) of this section,
a taxpayer may allocate all unused foreign
taxes in the post-2006 separate category
for passive category income to the pre-
2007 separate category for passive income,
and may allocate all other unused foreign
taxes described in paragraph (i)(2)(i) of
this section to the pre-2007 separate cate-
gory for general limitation income.
(3)Effective/applicability date.This
paragraph (i) applies to taxable years of
United States taxpayers beginning after
December 31, 2006 and ending on or after
December 21, 2007.
4)Expiration date. The applicability of
this paragraph (i) expires on December 18,
2010.
Par. 5. Section 1.904–4 is amended as
follows:
1. In the table below, for each section
listed in the left column, remove the lan-
guage in the middle column and add the
language in the right column.
2. Paragraphs (a), (b), (d), (f), (g),
(h)(3) and (l) are revised.
3. Paragraph (h)(4)Example 2is re-
moved.
4. Paragraph (h)(4)Example 3is redes-
ignated asExample 2.
5. Paragraph (h)(4)Example 4is redes-
ignated asExample 3, in the first sentence
the language “Example (3)” is removed
and the language “Example 2” is added in
its place, and in the last sentence the lan-
guage “general limitation” is removed and
the language “general category” is added
in its place.
6. Paragraphs (h)(5)(iii)Example 2and
(h)(5)(iii)Example 4are removed.
7. Paragraph (h)(5)(iii)Example 3is
redesignated asExample 2andinthelast
sentence the language“general limitation”
is removed and the language “general cat-
egory” is added in its place.
The revisions read as follows:
SectionRemoveAdd
1.904–4(c)(1), third sentencegeneral limitationgeneral category
1.904–4(c)(1), third sentencegeneral limitationgeneral category
1.904–4(c)(1), fourth sentencegeneral limitationgeneral category
1.904–4(c)(6)(iii), second sentencegeneral limitationgeneral category
1.904–4(c)(6)(iii), fifth sentencegeneral limitationgeneral category
1.904–4(c)(6)(iv)(A), first sentencegeneral limitationgeneral category
1.904–4(c)(7)(i), second sentencegeneral limitationgeneral category
1.904–4(c)(7)(iii), third sentencegeneral limitationgeneral category
1.904–4(c)(8)Example 1, last sentencegeneral limitationgeneral category
1.904–4(c)(8)Example 1, last sentencegeneral limitationgeneral category
1.904–4(c)(8)Example 2, last sentencegeneral limitationgeneral category
1.904–4(c)(8)Example 3, last sentencegeneral limitationgeneral category
1.904–4(c)(8)Example 5, last sentencegeneral limitationgeneral category
1.904–4(c)(8)Example 6, seventh
sentence
general limitationgeneral category
2008–6 I.R.B.388February 11, 2008

SectionRemoveAdd
1.904–4(c)(8)Example 8, last sentencegeneral limitationgeneral category
1.904–4(c)(8)Example 9(i), last sentence general limitationgeneral category
1.904–4(c)(8)Example 9(ii), first
sentence
general limitationgeneral category
1.904–4(c)(8)Example 9(ii), last
sentence
general limitationgeneral category
1.904–4(c)(8)Example 11, first sentence general limitationgeneral category
1.904–4(c)(8)Example 11, last sentence general limitationgeneral category
1.904–4(c)(8)Example 12, third sentence general limitationgeneral category
1.904–4(h)(2)general limitationgeneral category
1.904–4(h)(5)(i), first sentence
that is not a financial services entity
1.904–4(h)(5)(i), first sentence
general limitationgeneral category
1.904–4(h)(5)(i), last sentence
If a financial services entity receives or
accrues that income, the income shall
not be considered to be export financing
interest and, therefore, shall be treated as
financial services income
1.904–4(h)(5)(ii), first sentence
904(d)(2)(A)(iii)(II)904(d)(2)(B)(iii)(I)
1.904–4(h)(5)(ii), first sentence
general limitationgeneral category
1.904–4(h)(5)(ii), first sentence
unless the interest is received or accrued
by a financial services entity
1.904–4(h)(5)(ii), last sentence
If that interest also would be high
withholding tax interest but for section
904(d)(2)(B)(ii), then the interest shall be
treated as financial services income.
1.904–4(h)(5)(iii)Example 1,last
sentence
general limitationgeneral category
1.904–4(i), second sentenceThus, for example, if a taxpayer receives
or accrues a dividend distribution from
two separate noncontrolled section
902 corporations out or earnings and
profits attributable to income received
or accrued by the noncontrolled section
902 corporations that is income described
in section 907(c), the rules provided
in section 907 shall apply separately
to the dividends received from each
noncontrolled section 902 corporation.
1.904–4(i), third sentencedividends received or accrued by
the taxpayer from each separate
noncontrolled section 902 corporation
income in each separate category
1.904–4(j), last sentence904(d)(2)(A)(iii)(III)904(d)(2)(B)(iii)(II)
1.904–4(m)904(g)(10)904(h)(10)
1.904–4(m)and (d)(3)(F)(i)
February 11, 20083892008–6 I.R.B.

§1.904–4 Separate application of section
904 with respect to certain categories of
income.
(a) [Reserved]. For further guidance,
see §1.904–4T(a).
(b) [Reserved]. For further guidance,
see §1.904–4T(b).
*****
(d) [Reserved].
*****
(f) [Reserved]. For further guidance,
see §1.904–4T(f).
(g) [Reserved]. For further guidance,
see §1.904–4T(g).
*****
(h) * * *
(3) [Reserved]. For further guidance,
see §1.904–4T(h)(3).
*****
(l) [Reserved]. For further guidance,
see §1.904–4T(l).
*****
Par. 6. Section 1.904–4T is amended as
follows:
1. Revise paragraphs (a), (b), (c)(4)(i),
(c)(4)(ii), (c)(4)(iii), (c)(5), (c)(6), (c)(7),
(c)(8),(d),(e),(f),(g),(h),(i),(j),(k),(l),
and (m).
2. Add paragraphs (n) and (o).
The revisions and additions read as fol-
lows:
§1.904–4T Separate application of section
904 with respect to certain categories of
income (temporary).
(a)In general. A taxpayer is required to
compute a separate foreign tax credit lim-
itation for income received or accrued in
a taxable year that is described in section
904(d)(1)(A) (passive category income),
904(d)(1)(B) (general category income),
or §1.904–4(m) (additional separate cate-
gories).
(b)Passive category income—(1)In
general.Thetermpassive category in-
comemeans passive income and specified
passive category income.
(2)Passive income—(i)In general.The
termpassive incomemeans any—
(A) Income received or accrued by any
person that is of a kind that would be for-
eign personal holding company income (as
defined in section 954(c)) if the taxpayer
were a controlled foreign corporation, in-
cluding any amount of gain on the sale or
exchange of stock in excess of the amount
treated as a dividend under section 1248;
or
(B) Amount includible in gross income
under section 1293.
(ii)Exceptions. Passive income does
not include any export financing inter-
est (as defined in section 904(d)(2)(G)
and paragraph (h) of this section), any
high-taxed income (as defined in section
904(d)(2)(F) and paragraph (c) of this sec-
tion), or any active rents and royalties (as
defined in paragraph (b)(2)(iii) of this sec-
tion). In addition, passive income does not
include any income that would otherwise
be passive but is characterized as income
in another separate category under the
look-through rules of section 904(d)(3),
(d)(4), and (d)(6)(C) and the regulations
under those provisions. In determining
whether any income is of a kind that would
be foreign personal holding company in-
come, the rules of section 864(d)(5)(A)(i)
and (6) (treating related person factoring
income of a controlled foreign corpora-
tion as foreign personal holding company
income that is not eligible for the export
financing income exception to the separate
limitation for passive income) shall apply
only in the case of income of a controlled
foreign corporation (as defined in section
957). Thus, income earned directly by a
United States person that is related person
factoring income may be eligible for the
exception for export financing interest.
(iii)Active rents or royalties—(A)In
general. For rents and royalties paid or
accrued after September 20, 2004, pas-
sive income does not include any rents
or royalties that are derived in the active
conduct of a trade or business, regard-
less of whether such rents or royalties are
received from a related or an unrelated
person. Except as provided in paragraph
(b)(2)(iii)(B) of this section, the principles
of section 954(c)(2)(A) and the regulations
under that section shall apply in determin-
ing whether rents or royalties are derived
in the active conduct of a trade or business.
For this purpose, the term taxpayer shall be
substituted for the term controlled foreign
corporation if the recipient of the rents or
royalties is not a controlled foreign corpo-
ration.
(B)Active conduct of trade or busi-
ness. Rents and royalties are considered
derived in the active conduct of a trade
or business by a United States person or
by a controlled foreign corporation (or
other entity to which the look-through
rules apply) for purposes of section 904
(but not for purposes of section 954) if the
requirements of section 954(c)(2)(A) are
satisfied by one or more corporations that
are members of an affiliated group of cor-
porations (within the meaning of section
1504(a), determined without regard to sec-
tion 1504(b)(3)) of which the recipient is
a member. For purposes of this paragraph
(b)(2)(iii)(B), an affiliated group includes
only domestic corporations and foreign
corporations that are controlled foreign
corporations in which domestic members
of the affiliated group own, directly or
indirectly, at least 80 percent of the total
voting power and value of the stock. For
purposes of this paragraph (b)(2)(iii)(B),
indirect ownership shall be determined un-
der section 318 and the regulations under
that section.
(iv)Examples. The following exam-
ples illustrate the application of paragraph
(b)(2) of this section.
Example 1. P is a domestic corporation with a
branch in foreign country X. P does not have any fi-
nancial services income. For 2008, P has a net foreign
currency gain that would not constitute foreign per-
sonal holding company income if P were a controlled
foreign corporation because the gain is directly re-
lated to the business needs of P. The currency gain
is, therefore, general category income to P because it
is not income of a kind that would be foreign personal
holding company income.
Example 2. Controlled foreign corporation S is
a wholly-owned subsidiary of P, a domestic corpora-
tion. S is regularly engaged in the restaurant franchise
business. P licenses trademarks, tradenames, cer-
tain know-how, related services, and certain restau-
rant designs for which S pays P an arm’s length roy-
alty. P is regularly engaged in the development and
licensing of such property. The royalties received by
P for the use of its property are allocable under the
look-through rules of §1.904–5 to the royalties S re-
ceives from the franchisees. Some of the franchisees
are unrelated to S and P. Other franchisees are related
to S or P and use the licensed property outside of S’s
country of incorporation. S does not satisfy, but P
does satisfy, the active trade or business requirements
of section 954(c)(2)(A) and the regulations under that
section. The royalty income earned by S with regard
to both its related and unrelated franchisees is foreign
personal holding company income because S does not
satisfy the active trade or business requirements of
section 954(c)(2)(A) and, in addition, the royalty in-
come from the related franchisees does not qualify
for the same country exception of section 954(c)(3).
However, all of the royalty income earned by S is gen-
eral category income to S under §1.904–4(b)(2)(iii)
because P, a member of S’s affiliated group (as de-
fined therein), satisfies the active trade or business
test (which is applied without regard to whether the
royalties are paid by a related person). S’s royalty
2008–6 I.R.B.390February 11, 2008

income that is taxable to P under subpart F and the
royalties paid to P are general category income to P
under the look-through rules of §1.904–5(c)(1)(i) and
(c)(3), respectively.
(3)Specified passive category income
means—
(i) Dividends from a DISC or former
DISC (as defined in section 992(a)) to
the extent such dividends are treated as
income from sources without the United
States;
(ii) Taxable income attributable to for-
eign trade income (within the meaning of
section 923(b)); or
(iii) Distributions from a FSC (or a for-
mer FSC) out of earnings and profits at-
tributable to foreign trade income (within
the meaning of section 923(b)) or inter-
est or carrying charges (as defined in sec-
tion 927(d)(1)) derived from a transaction
which results in foreign trade income (as
definedinsection923(b)).
*****
(c)(4)(i) through (h)(2) [Reserved].
For further guidance, see §1.904–4(c)(i)
through (h)(2).
(3)Exception. Unless it is received or
accrued by a financial services entity, ex-
port financing interest shall be treated as
passive category income if that income is
also related person factoring income. For
this purpose, related person factoring in-
come is—
(i) Income received or accrued by a con-
trolled foreign corporation that is income
describedinsection864(d)(6)(incomeofa
controlled foreign corporation from a loan
for the purpose of financing the purchase
of inventory property of a related person);
or
(ii) Income received or accrued by any
person that is income described in section
864(d)(1) (income from a trade receivable
acquired from a related person).
(h)(4) through (k) [Reserved]. For
further guidance, see §1.904–4(h)(3)(iii)
through (k).
(l)Priority rule. Income that meets
the definitions of a separate category de-
scribed in paragraph (m) of this section
and another category of income described
in section 904(d)(2)(A)(i) and (ii) will be
subject to the separate limitation described
in paragraph (m) of this section and will
not be treated as general category income
described in section 904(d)(2)(A)(ii).
(m) [Reserved]. For further guidance,
see §1.904–4(m).
(n)Effective/applicability date. Para-
graphs (a), (b), (h)(3), and (l) of this sec-
tion shall apply to taxable years of United
States taxpayers beginning after December
31, 2006 and ending on or after December
21, 2007, and to taxable years of a foreign
corporation which end with or within tax-
able years of its domestic corporate share-
holder beginning after December 31, 2006
and ending on or after December 21, 2007.
(o)Expiration date. The applicability
of paragraphs (a), (b), (h)(3)(ii) and (l) of
this section expires on December 18, 2010.
Par. 7. Section 1.904–5 is amended
by revising paragraph (h)(3) and adding
paragraph (o)(3) to read as follows:
§1.904–5 Look-through rules as applied
to controlled foreign corporations and
other entities.
*****
(h) * * *
(3) [Reserved]. For further guidance,
see §1.904–5T(h)(3).
*****
(o) * * *
(3) [Reserved]. For further guidance,
see §1.904–5T(o)(3).
Par. 8. Section 1.904–5T is amended
by revising paragraphs(c)(4)(iv), (d), (e),
(f), (g), and (h) and adding paragraph
(o)(3) to read as follows:
§1.904–5T Look-through rules as applied
to controlled foreign corporations and
other entities (temporary).
*****
(c)(4)(iv) through (h)(2) [Re-
served]. For further guidance, see
§1.904–5(c)(4)(iv) through (h)(2).
(3)Income from the sale of a part-
nership interest—(i)In general.Tothe
extent a partner recognizes gain on the
sale of a partnership interest, that income
shall be treated as passive category in-
come to the partner, unless the income is
considered to be high-taxed under section
904(d)(2)(B)(iii)(II) and §1.904–4(c).
(ii)Exception for 25-percent owned
partnership. Inthecaseofasaleofaan
interest in a partnership by a partner that is
a 25-percent owner of the partnership un-
der the principles of section 954(c)(4)(B),
income recognized on the sale of the part-
nership interest shall be treated as general
category income to the extent that such
gain would not be classified as foreign
personal holding company income under
the look-through rule of section 954(c)(4).
*****
(o) * * *
(3)Rules for income from the sale of
a partnership interest—(i)Effective/appli-
cability date. Paragraph (h)(3) of this sec-
tion shall apply to taxable years of United
States taxpayers beginning after December
31, 2006 and ending on or after December
21, 2007, and to taxable years of a foreign
corporation which end with or within tax-
able years of its domestic corporate share-
holder beginning after December 31, 2006
and ending on or after December 21, 2007.
(ii)Expiration date. The applicability
of paragraph (h)(3) of this section expires
on December 18, 2010.
Par. 9. Section 1.904–7 is amended by
adding paragraph (g) to read as follows:
§1.904–7 Transition rules.
*****
(g) [Reserved.] For further guidance,
see §1.904–7T(g).
Par. 10. Section 1.904–7T is amended
by adding paragraph (g) to read as follows:
§1.904–7T Transition Rules (temporary).
*****
(g)Treatment of earnings and foreign
taxes of a controlled foreign corpora-
tion or a noncontrolled section 902 cor-
poration accumulated in taxable years
beginning before January 1, 2007—(1)
Definitions—(i)Pre-2007 poolsmeans
the pools in each separate category of
post-1986 undistributed earnings (as de-
fined in §1.902–1(a)(9)) that were accu-
mulated, and post-1986 foreign income
taxes (as defined in §1.902–1(a)(8)) paid,
accrued, or deemed paid, in taxable years
beginning before January 1, 2007.
(ii)Pre-2007 separate categories
means the separate categories of income
described in section 904(d) as applicable
to taxable years beginning before January
1, 2007, and any other separate category
of income described in §1.904–4(m).
(iii)Post-2006 separate categories
means the separate categories of income
described in section 904(d) as applicable
to taxable years beginning after December
31, 2006, and any other separate category
of income described in §1.904–4(m).
February 11, 20083912008–6 I.R.B.

(2)Treatment of pre-2007 pools of
a controlled foreign corporation or a
noncontrolled section 902 corporation.
Any post-1986 undistributed earnings in
a pre-2007 pool of a controlled foreign
corporation or a noncontrolled section
902 corporation shall be treated in tax-
able years beginning after December 31,
2006, as if they were accumulated during
a period in which the rules governing the
determination of post-2006 separate cate-
gories applied. Post-1986 foreign income
taxes paid, accrued, or deemed paid with
respect to such earnings shall be treated
as if they were paid, accrued, or deemed
paid during a period in which the rules
governing the determination of post-2006
separate categories (including the rules of
section 904(d)(3)(E)) applied as well. Any
such earnings and taxes in pre-2007 pools
shall constitute the opening balance of
the foreign corporation’s post-1986 undis-
tributed earnings and post-1986 foreign
income taxes on the first day of the foreign
corporation’s first taxable year beginning
after December 31, 2006, in accordance
with the rules of paragraph (g)(3) of this
section. Similar rules shall apply to char-
acterize any deficits in the pre-2007 pools
and previously-taxed earnings and profits
described in section 959(c)(1)(A) that are
attributable to earnings in the pre-2007
pools.
(3)Substantiation of post-2006 char-
acter of earnings and taxes in a pre-2007
pool—(i)Reconstruction of earnings and
taxes pools. In order to substantiate the
post-2006 characterization of post-1986
undistributed earnings (as well as deficits
and previously-taxed earnings, if any)
and post-1986 foreign income taxes in
pre-2007 pools of a controlled foreign
corporation or a noncontrolled section
902 corporation, the taxpayer shall make
a reasonable, good-faith effort to recon-
struct the pre-2007 pools of post-1986
undistributed earnings (as well as deficits
and previously-taxed earnings, if any) and
post-1986 foreign income taxes following
the rules governing the determination of
post-2006 separate categories for each
taxable year beginning before January
1, 2007, beginning with the first year in
which post-1986 undistributed earnings
were accumulated in the pre-2007 pool.
Reconstruction shall be based on rea-
sonably available books and records and
other relevant information. To the extent
any pre-2007 separate category includes
earnings that wouldbe allocated to more
than one post-2006 separate category, the
taxpayer must account for earnings dis-
tributed and taxes deemed paid in these
years for such category as if they were
distributed and deemed paidpro ratafrom
the amounts that were added to that cate-
gory during each taxable year beginning
before January 1, 2007.
(ii)Safe harbor method—(A) Ingen-
eral. Subject to the rules of paragraph
(g)(3)(iii) of this section, a taxpayer may
allocate the post-1986 undistributed earn-
ings and post-1986 foreign income taxes
in pre-2007 pools of a controlled foreign
corporation or a noncontrolled section 902
corporation (as well as deficits and pre-
viously-taxed earnings, if any) under one
of the safe harbor methods described in
paragraphs (g)(3)(ii)(B) and (g)(3)(ii)(C)
of this section.
(B)General safe harbor method—(1)
Any post-1986 undistributed earnings (as
well as deficits and previously-taxed earn-
ings, if any) and post-1986 foreign income
taxes of a noncontrolled section 902 corpo-
ration or a controlled foreign corporation
in a pre-2007 separate category for passive
income, certain dividends from a DISC or
former DISC, taxableincome attributable
to certain foreign trade income, or certain
distributions from a FSC or former FSC
shall be allocated to the post-2006 separate
category for passive category income.
(2) Any post-1986 undistributed
earnings (as well as deficits and pre-
viously-taxed earnings, if any) and
post-1986 foreign income taxes of a
noncontrolled section 902 corporation
or a controlled foreign corporation in a
pre-2007 separate category for financial
services income, shipping income or gen-
eral limitation incomeshall be allocated to
the post-2006 separate category for gen-
eral category income.
(3) Except as provided in paragraph
(g)(3)(ii)(B)(4)ofthissection, any
post-1986 undistributed earnings (as well
as deficits and previously-taxed earnings,
if any) and post-1986 foreign income taxes
of a noncontrolled section 902 corporation
or a controlled foreign corporation in a
pre-2007 separate category for high with-
holding tax interest shall be allocated to
the post-2006 separate category for pas-
sive category income.
(4) If a controlled foreign corporation
has positive post-1986 undistributed earn-
ings and post-1986 foreign income taxes
in a pre-2007 separate category for high
withholding tax interest, such earnings and
taxes shall be allocated to the post-2006
separate category for general category in-
come if the earnings would qualify as in-
come subject to high foreign taxes un-
der section 954(b)(4) if the entire amount
of post-1986 undistributed earnings were
treated as a net item of income subject
to the rules of §1.954–1(d). If the high
withholding tax interest earnings would
not qualify as income subject to high for-
eign taxes under section 954(b)(4), then
the earnings and taxes shall be allocated
to the post-2006 separate category for pas-
sive category income.
(C)Interest apportionment safe harbor.
A taxpayer may allocate the post-1986
undistributed earnings (as well as deficits
and previously-taxed earnings, if any)
and post-1986 foreign income taxes in
pre-2007 pools of a controlled foreign
corporation or a noncontrolled section 902
corporation following the principles of
paragraph (f)(4)(ii) of this section.
(iii)Consistency rule. The election to
apply a safe harbor method under para-
graph (g)(3)(ii) of this section in lieu of
the rules described in paragraph (g)(3)(i)
of this section may be made on a sep-
arate category by separate category ba-
sis. However, if a taxpayer elects to ap-
ply a safe harbor to allocate pre-2007 pools
of more than one pre-2007 separate cat-
egory of a controlled foreign corporation
or a noncontrolled section 902 corpora-
tion, such safe harbor (the general safe
harbor described in paragraph (g)(3)(ii)(B)
of this section or the interest apportion-
ment safe harbor described in paragraph
(g)(3)(ii)(C) of this section) shall apply to
allocate post-1986 undistributed earnings
(as well as deficits and previously-taxed
earnings, if any) and post-1986 foreign in-
come taxes for the pre-2007 pools in each
pre-2007 separate category of the foreign
corporation for which the taxpayer elected
to apply a safe harbor method in lieu of re-
constructing the pre-2007 pools.
(4)Treatment of pre-1987 accumulated
profits. Any pre-1987 accumulated prof-
its (as defined in §1.902–1(a)(10)) of a
noncontrolled section 902 corporation or
a controlled foreign corporation shall be
treated in taxable years beginning after De-
2008–6 I.R.B.392February 11, 2008

cember 31, 2006, as if they had been ac-
cumulated during a period in which the
rules governing the determination of post-
2006 separate categories applied. Foreign
income taxes paid, accrued, or deemed
paid with respect to such earnings shall be
treated as if they were paid, accrued, or
deemed paid during a period in which the
rules governing the determination of post-
2006 separate categories applied as well.
The taxpayer must substantiate the post-
2006 characterization of the pre-1987 ac-
cumulated profits and pre-1987 foreign in-
come taxes in accordance with the rules of
paragraph (g)(3) of this section, including
the safe harbor provisions. Similar rules
shall apply to characterize any deficits or
previously-taxed earnings and profits de-
scribed in section 959(c)(1)(A) that are at-
tributable to pre-1987accumulated profits.
(5)Treatment of earnings and foreign
taxes in pre-2007 pools of a lower-tier
controlled foreign corporation or non-
controlled section 902 corporation.The
rules of paragraphs (g)(1) through (4)
of this section apply to post-1986 undis-
tributed earnings (as well as deficits
and previously-taxed earnings, if any)
and post-1986 foreign income taxes in
pre-2007 pools, andpre-1987 accumu-
lated profits and pre-1987 foreign income
taxes, of a lower-tier controlled foreign
corporation or noncontrolled section 902
corporation.
(6)Effective/applicability date.This
paragraph (g) shall apply to taxable years
of United States taxpayers beginning after
December 31, 2006 and ending on or after
December 21, 2007, and to taxable years
of a foreign corporation which end with or
within taxable years of its domestic corpo-
rate shareholder beginning after December
31, 2006 and ending on or after December
21, 2007.
(7)Expiration date. The applicability
of this paragraph (g) expires on December
18, 2010.
Par. 11. Section 1.904(f)–12 is
amended by adding paragraph (h) to read
as follows:
§1.904(f)–12 Transition rules.
*****
(h) [Reserved.] For further guidance,
see §1.904(f)–12T(h).
Par. 12. Section 1.904(f)–12T is
amended by adding paragraph (h) to read
as follows:
§1.904(f)–12T Transition rules
(temporary).
*****
(h)Recapture in years beginning after
December 31, 2006, of separate limita-
tion losses and overall foreign losses in-
curred in years beginning before January
1, 2007—(1)Losses related to pre-2007
separate categories for passive income,
certain dividends from a DISC or for-
mer DISC, taxable income attributable
to certain foreign trade income or cer-
tain distributions from a FSC or former
FSC—(i)Recapture of separate limitation
loss or overall foreign loss incurred in a
pre-2007 separate category for passive
income, certain dividends from a DISC
or former DISC, taxable income attrib-
utable to certain foreign trade income or
certain distributions from a FSC or for-
mer FSC. To the extent that a taxpayer
has a balance in any separate limitation
loss or overall foreign loss account in a
pre-2007 separate category (as defined in
§1.904–7T(g)(1)(ii)) for passive income,
certain dividends from a DISC or for-
mer DISC, taxable income attributable
to certain foreign trade income or certain
distributions from a FSC or former FSC,
at the end of the taxpayer’s last taxable
year beginning before January 1, 2007, the
amount of such balance, or balances, shall
be allocated on the first day of the tax-
payer’s next taxable year to the taxpayer’s
post-2006 separate category (as defined in
§1.904–7T(g)(1)(iii)) for passive category
income.
(ii)Recapture of separate limitation
loss with respect to a pre-2007 separate
category for passive income, certain div-
idends from a DISC or former DISC,
taxable income attributable to certain for-
eign trade income or certain distributions
from a FSC or former FSC.Totheex-
tent that a taxpayer has a balance in any
separate limitation loss account in any
pre-2007 separate category with respect to
a pre-2007 separate category for passive
income, certain dividends from a DISC or
former DISC, taxableincome attributable
to certain foreign trade income or certain
distributions from a FSC or former FSC
at the end of the taxpayer’s last taxable
year beginning before January 1, 2007,
such loss shall be recaptured in subsequent
taxable years as income in the post-2006
separate category for passive category in-
come.
(2)Lossesrelatedtopre-2007separate
categories for shipping, financial services
income or general limitation income—(i)
Recapture of separate limitation loss or
overall foreign loss incurred in a pre-2007
separate category for shipping income, fi-
nancial services income or general limi-
tation income. To the extent that a tax-
payer has a balance in any separate limi-
tation loss or overall foreign loss account
in a pre-2007 separate category for ship-
ping income, financial services income or
general limitation income at the end of the
taxpayer’s last taxable year beginning be-
fore January 1, 2007, the amount of such
balance, or balances, shall be allocated on
the first day of the taxpayer’s next taxable
year to the taxpayer’s post-2006 separate
category for general category income.
(ii)Recapture of separate limitation
loss with respect to a pre-2007 separate
category for shipping income, financial
services income or general limitation in-
come. To the extent that a taxpayer has
a balance in any separate limitation loss
account in any pre-2007 separate cate-
gory with respect to a pre-2007 separate
category for shipping income, financial
services income or general limitation in-
come at the end of the taxpayer’s last
taxable year beginning before January
1, 2007, such loss shall be recaptured in
subsequent taxable years as income in the
post-2006 separate category for general
category income.
(3)Lossesrelatedtoapre-2007sepa-
rate category for high withholding tax in-
terest—(i)Recapture of separate limita-
tion loss or overall foreign loss incurred
in a pre-2007 separate category for high
withholding tax interest. To the extent that
a taxpayer has a balance in any separate
limitation loss or overall foreign loss ac-
count in a pre-2007 separate category for
high withholding tax interest at the end of
the taxpayer’s last taxable year beginning
before January 1, 2007, the amount of such
balance shall be allocated on the first day
of the taxpayer’s next taxable year on apro
ratabasis to the taxpayer’s post-2006 sep-
arate categories forgeneral category and
passive category income, based on the pro-
portion in which any unused foreign taxes
February 11, 20083932008–6 I.R.B.

in the same pre-2007 separate category
for high withholding tax interest are allo-
cated under §1.904–2T(i)(1). If the tax-
payer has no unused foreign taxes in the
pre-2007 separate category for high with-
holding tax interest, then any loss account
balance in that category shall be allocated
to the post-2006 separate category for pas-
sive category income.
(ii)Recapture of separate limitation
loss with respect to a pre-2007 separate
category for high withholding tax interest.
To the extent that a taxpayer has a balance
in a separate limitation loss account in any
pre-2007 separate category with respect
to a pre-2007 separate category for high
withholding tax interest at the end of the
taxpayer’s last taxable year beginning be-
fore January 1, 2007, such loss shall be
recaptured in subsequent taxable years on
apro ratabasis as income in the post-2006
separate categories for general category
and passive category income, based on the
proportioninwhichanyunusedforeign
taxes in the pre-2007 separate category for
high withholding tax interest are allocated
under §1.904–2T(i)(1). If the taxpayer has
no unused foreign taxes in the pre-2007
separate category for high withholding tax
interest, then the loss account balance shall
be recaptured in subsequent taxable years
solely as income in the post-2006 separate
category for passive category income.
(4)Elimination of certain separate lim-
itation loss accounts. After application
of paragraphs (h)(1) through (h)(3) of this
section, any separate limitation loss ac-
count allocated to the post-2006 separate
category for passive category income for
which income is to be recaptured as pas-
sive category income, as determined un-
der those same provisions, shall be elimi-
nated. Similarly, after application of para-
graphs (h)(1) through (h)(3) of this section,
any separate limitation loss account allo-
cated to the post-2006 separate category
for general category income for which in-
come is to be recaptured as general cat-
egory income, as determined under those
same provisions, shall be eliminated.
(5)Alternative method.Inlieuofapply-
ing the rules of paragraphs (h)(1) through
(h)(3) of this section, a taxpayer may ap-
ply the principles of paragraphs (g)(1) and
(g)(2) of this section to determine recap-
ture in taxable years beginning after De-
cember 31, 2006, of separate limitation
losses and overall foreign losses incurred
in taxable years beginning before January
1, 2007.
(6)Effective/applicability date.This
paragraph (h) shall apply to taxable years
of United States taxpayers beginning after
December 31, 2006 and ending on or after
December 21, 2007.
(7)Expiration date. The applicability
of this paragraph (h) expires on December
18, 2010.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved December 14, 2007.
Eric Solomon,
Assistant Secretary of
the Treasury (Tax Policy).
(Filed by the Office of the Federal R
egister on December 20,
2007, 8:45 a.m., and published in the issue of the Federal
Register for December 21, 2007, 72 F.R. 72582)
Section 1561.—Limitations
on Certain Multiple Tax
Benefits in the Case
of Certain Controlled
Corporations
26 CFR 1.1561–1T: General rules regarding certain
tax benefits available to the component members of a
controlled group of corporations (temporary).
T.D. 9369
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Calculating and Apportioning
the Section 11(b)(1) Additional
Tax Under Section 1561 for
Controlled Groups
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final and temporary regula-
tions.
SUMMARY: This document removes the
final regulation for §1.1561–2, amends
§§1.1561–2T and 1.1563–1T, and adds
§1.1502–47T. These temporary regula-
tions affect component members of a
controlled group of corporations and con-
solidated groups filing life-nonlife Federal
income tax returns. These temporary
regulations provide guidance for calculat-
ing and apportioning between component
members any amount of additional tax
and any reduction in the amount exempted
from the alternative minimum tax. These
temporary regulations also update and
clarify the allocation of tax-benefit items
in the case in which a component member
has a short taxable year not including a
December 31
st
date. Finally, these tem-
porary regulations provide explanations
of two concepts: a group’s testing date
and a member’s testing period for use in
determining which members of the group
and which taxable years of those members
are subject to the controlled group rules.
The text of these temporary regulations
also serves as the text of the proposed
regulations (REG–104713–07) set forth in
the notice of proposed rulemaking in this
issue of the Bulletin.
DATES:Effective Date:These temporary
regulations are effective on December 26,
2007.
Applicability Dates:For the dates of
applicability, see §§1.1502–47T(t)(1),
1.1561–2T(f)(1) and 1.1563–1T(e)(1).
The applicability of these temporary regu-
lations will expire on December 21, 2010.
FOR FURTHER INFORMATION
CONTACT: Grid Glyer, (202) 622–7930
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
A.Summary of Limitations on Controlled
Groups of Corporations Regarding Lower
Tax Brackets and Alternative Minimum
Tax Exemption Amounts
Section 1561(a) of the Internal Rev-
enue Code (Code) provides that thecom-
ponent membersof acontrolled group of
corporations(as those terms are defined
in section 1563) are limited for their tax-
able years which include the same Decem-
ber 31
st
date to an amount of each of the
tax-benefit items listed therein to which a
corporation that is not a component mem-
ber of a controlled group is entitled. Two
of those items are the section 11(b)(1) tax-
bracket amounts and the section 55(d)(2)
2008–6 I.R.B.394February 11, 2008

exemption from the alternative minimum
tax (the “exemption amount”). See sec-
tion 1561(a)(1) and (a)(3). Each of these
two Code provisions requires reductions in
calculating the amounts of each of these
two tax-benefit items after the taxpayer
has passed certain thresholds. The “addi-
tional taxes” under section 11(b)(1) serve
to reduce a corporation’s use of the lower
tax brackets after certain specified thresh-
old levels of income are reached. Section
55(d)(3) requires reductions to the amount
exempted from the alternative minimum
tax.
B.The Additional Taxes Imposed by
Section 11(b)(1) and the Alternative
Minimum Tax Exemption Amount
In general, section 11(b)(1) provides for
a graduated income tax rate structure for
taxing the income of a corporation. The in-
come tax rates imposed on a corporation’s
income increase with each higher brack-
eted range of taxable income. The follow-
ing chart shows the various tax rates im-
posed on a corporation and the ranges of
taxable income that are subject to each of
these tax rates:
Rate of taxRange of taxable income subject to a rate of tax
15%
$50,000 (first $50,000 of corporation’s taxable income)
25%
$25,000 ($75,000 – $50,000)
34%
$9,925,000 ($10,000,000 – $75,000)
35%
> $10,000,000
Section 11(b)(1) also imposes addi-
tional tax on the corporation’s taxable
income where its income exceeds two
designated income thresholds. This ad-
ditional tax is designed to reduce the tax
benefit that a corporation derives from
having some of its income taxed at a lower
rate.
For example, if a corporation’s tax-
able income exceeds $100,000 (but is
not greater than $15 million), the total
amount of the additional tax is the lesser
of (1) the amount of 5 percent of the ex-
cess over $100,000 or (2) $11,750. This
$11,750 amount represents the maximum
tax benefit available to a corporation from
having all of the first $75,000 of its tax-
able income taxed at the 15 and 25 percent
tax rates rather than at a 34 percent tax
rate. Similarly, if a corporation’s taxable
income exceeds $15 million, there is a
further additional tax equal to the lesser of
(1) the amount of 3 percent of the excess
over $15 million, or (2) $100,000. This
$100,000 amount represents the maximum
tax benefit available to a corporation from
having all of the first $10 million of its
taxable income taxed at the 34 percent tax
rate rather than at a 35 percent tax rate.
Section 55(d)(3) provides that a tax-
payer’s exemption amount shall be phased
out (but not below zero) as the taxpayer’s
alternative minimum taxable income in-
creases.
C.The Controlled Group Rules
Under section 1561(a), the compo-
nent members of a controlled group, with
regard to taxable years containing a partic-
ular December 31
st
“testing date,” are col-
lectively limited to using one full amount
of certain tax-benefit items. As noted
above, one of the tax benefits so limited
is the benefit of the lower tax brackets.
Another is the $40,000 amount for exemp-
tion from the alternative minimum tax.
Section 1561(a) generally provides that
the lower tax brackets and the $40,000
exemption from alternative minimum tax
are divided equally among the component
members of the controlled group unless
the group adopts an apportionment plan
that provides for an unequal allocation.
Section 1563(a) defines the four types
of controlled groups. The two most com-
mon are parent-subsidiary (defined in
section 1563(a)(1)) and brother-sister (de-
finedinsection1563(a)(2)).
Under section 1563(b), a corporation is
a component member of a controlled group
for a given taxable year if it was a member
of such group on the December 31
st
date
of its taxable year for at least one-half the
number of days of its taxable year that pre-
cedes that December 31
st
date. In addition,
pursuant to section 1563(b)(3), a corpora-
tion is treated as a component member of a
controlled group if it was a member of such
group during a calendar year, although not
on December 31
st
, but was a member of
such group for at least one-half the number
of days of its taxable year that precede that
December 31
st
date (referred to as an “ad-
ditional member”). Conversely, pursuant
to section 1563(b)(2), a corporation which
is a member of a controlled group of cor-
porations on December 31
st
of any taxable
year is treated as an excluded member of
the controlled group (with regard to that
December 31
st
testing date), if such cor-
poration is a member of such group for
less than one-half the number of days in
its taxable year which precede such De-
cember 31
st
. The December 31
st
date of
a specified calendar year will be referred
to as the group’s testing date. The Decem-
ber 31
st
testing date is used for determin-
ing which taxable years of which mem-
bers will be subject to the limitation rules
imposed by, for example, section 1561(a).
Furthermore, the total number of days of a
member’s taxable year that precede a spec-
ified December 31
st
testing date will be re-
ferred to as that member’s “testing period.”
Section 1561(a) provides that in com-
puting the amount of additional tax im-
posed by section 11(b)(1), and the phase-
out of the exemption amount under section
55(d)(3), the component members shall,
as a first step, combine their taxable in-
comes. Most controlled groups will eas-
ily be able to compute the total of their
members’ taxable incomes and determine
whether this sum exceeds the applicable
income thresholds. Therefore, it is unnec-
essary to provide any regulatory guidance
with regard to such determination. How-
ever, the IRS and the Treasury Depart-
February 11, 20083952008–6 I.R.B.

ment recognize that various situations ex-
ist where a component member may en-
counter difficulties with obtaining the in-
formation needed to calculate its entitle-
ment to the benefit of a lower bracket or
its obligation to pay additional taxes. For
the benefit of taxpayers that confront such
problems, several such situations are dis-
cussed below and illustrated in the exam-
ples of the regulation, although they are
not addressed in the text of these tempo-
rary regulations.
Section 1561(a) provides that the tax-
able income of all of the component mem-
bers of a controlled group of corporations
for the taxable years which are subjected
to the same December 31
st
testing date
shall be taken into account, that is, added
together, for the purpose of determining
whether any member owes the additional
tax imposed by section 11(b)(1) as well as
for determining what portion of that addi-
tional tax is to be allocated to each mem-
ber. As in the case of the additional tax,
section 1561(a) provides that the alterna-
tive minimum taxable income of all of the
component members of a controlled group
of corporations for the taxable years that
include the same December 31
st
date shall
be taken into account, that is, added to-
gether, for the purpose of determining the
reduction (under section 55(d)(3)) to the
exemption amount as set forth in section
55(d)(2). Section 1561(a) further provides
that the additional taxes, as well as the
reduction to the exemption amount, shall
each be apportioned among those mem-
bers in the same manner that the corre-
sponding tax-benefit item is apportioned.
However, the current regulations do not
provide any guidance on how to calculate
and apportion these reductions to these two
tax-benefit items.
Explanation of Provisions
A.Allocation of the Benefit Recapture
Items
Given that the additional taxes must be
apportioned among the component mem-
bers in the same manner as the tax-bracket
amounts, these temporary regulations pro-
vide two methods for apportioning the
amount of those additional taxes among
the component members: the “propor-
tionate method” and the first-in-first-out
(“FIFO”) method. Under the proportion-
ate method, the additional tax is allocated
to any component member to whom a
tax-bracket amount was apportioned in
the same proportion as the portion of the
tax benefit from that tax bracket which
was allocated to that member bears to the
total tax-benefit amount provided to all
members from the use of that tax bracket.
These tax benefits are attributable to the
tax savings to the members of the group
resulting from having ranges of income
(tax-bracket amounts) being taxed at lower
rates, instead of the higher tax rates to
which income of the group is subject. The
text of the regulations sets out the steps
for applying this method. Under the FIFO
method, the first dollars of the additional
tax are to be allocated proportionately
to each member to whom a tax-bracket
amount was apportioned, starting with the
lowest tax bracket and continuing on suc-
cessively to each next higher tax bracket
until the entire amount of the additional
tax has been fully apportioned among the
members. For example, under the FIFO
method of apportionment, the first $9,500
of additional tax liability of a controlled
group would be apportioned entirely to the
member(s) that were apportioned the 15
percent tax bracket. Unless the component
members of a controlled group elect to use
the FIFO method, they are required to use
the proportionate method in apportioning
the additional taxes among the component
members.
These temporary regulations also pro-
vide guidance in calculating and appor-
tioning the reduction to the exemption
amount. Specifically, they provide that
any reduction to the exemption amount
shall be apportioned to the component
members in the same manner as the ex-
emption amount.
B.Apportioning Certain Tax-benefit Items
Where a Component Member Has a Short
Taxable Year Not Including a December
31
st
Date
Section 1561(b) provides that where a
corporation has a short taxable year which
does not include a December 31
st
date, but
is a component member of a controlled
group of corporations for such year (a
“short-year member”), then, for purposes
of subtitle A of the Code, the tax-benefit
items described in section 1561(b) (the
“section 1561(b) tax-benefit items”) of
such corporation for such year shall be the
amount specified in section 1561(a) for
that item, divided by the number of cor-
porations which are component members
of such group on the last day of that mem-
ber’s short taxable year. Thus, a short-year
member is not permitted to be apportioned
a different amount.
Section 1561(b) further provides that
the rules of section 1563(b) shall be ap-
plied as if the last day of the short-year
member’s short taxable year were substi-
tuted for December 31
st
. Thus, the deter-
mination of whether a short-year member
qualifies as a member of the group is de-
termined by looking to its testing period,
which begins on the first day of its taxable
year and ends on the day before the last day
of such short taxableyear. See the discus-
sionoftestingdateandtestingperiodinthe
following section of this preamble. Sec-
tion 1.1561–2(e) interprets this provision.
These temporary regulations up-
date and clarify the rules of current
§1.1561–2(e). It is not intended that any
such updating and clarification constitute
a substantive change.
C.Definitions of a Group’s Testing Date
andaMember’sTestingPeriod
Section 1.1563–1T(b) defines compo-
nent members and excluded members of
controlled groups. These definitions de-
pend upon whether a corporation was a
member of a group on the December 31
st
of its taxable year (its “testing date”) and
was a member for at least one-half the
number of days of its taxable year begin-
ning on the first day of its taxable year
and ending on December 30
th
of its taxable
year (its “testing period”).
These temporary regulations amend
§1.1563–1T(b) to provide explanations
of the concepts: testing date and testing
period.
A testing date is defined as the date
that a controlled group is required to use
in determining which of its members and
which of their taxable years will be sub-
ject to the controlled group rules. Gener-
ally, a group’s testing date is the Decem-
ber 31
st
date included within all the mem-
bers’ taxable years, whether such corpo-
rations are on a calendar or fiscal taxable
year. However, if a component member of
a controlled group has a short taxable year
that does not include a December 31
st
date,
2008–6 I.R.B.396February 11, 2008

then the last day of its short taxable year
serves as the member’s testing date.
A testing period is defined as the period
of time that a member of a controlled group
uses to determine its status as either a com-
ponent member or an excluded member.
The testing period begins on the first day
of a member’s taxable year and ends on
the day before its testing date. Thus, in
the case of a member on a fiscal taxable
year, the portion of its taxable year begin-
ning after December 31
st
andendingonthe
last day of its taxable year is not taken into
account in determining its status as a com-
ponent member or an excluded member.
D.Information Sharing among Controlled
Group Members
The IRS and the Treasury Depart-
ment wish to note certain circumstances
in which corporations may experience
complications in applying the controlled
group rules generally or with respect to
tax brackets and the alternative minimum
tax exemption amount in particular. As
noted above, no new rules are provided
with respect to these situations, although
they are illustrated in several examples in
these temporary regulations. Because the
controlled group rules apply to multiple
corporations each filing its own return, the
corporations must have access to sufficient
information regarding the other members
or potential members to comply with the
rules. Taxpayers are alerted to their re-
sponsibilities to obtain this information.
In certain situations, such information may
have to be obtained from corporations that
are no longer owned by related parties and
taxpayers will need to make arrangements
to ensure that they will have access to
information that will enable them to meet
their compliance obligations. Ideally, the
corporations and their shareholders will
take these issues into account when con-
templating transfers of interests in the
corporations to provide access to adequate
information sharing afterwards.
For example, if a corporation in a group
changes hands during or shortly after the
end of a taxable year, the formerly re-
lated corporations in the selling group will
need information from the sold corpora-
tion about its income levels under the reg-
ular and alternative minimum tax systems,
and the sold corporation will need infor-
mation about the formerly related selling
group members.
In addition, if a corporation changes
hands during a calendar year in a transac-
tion that does not close the corporation’s
taxable year, events later in the year after
the corporation is no longer related could
affect the corporation’s status as a mem-
ber of the controlled group. For example,
if the corporation changes hands early in
the calendar year, the selling group might
assume that the bulk of the testing period
will fall after the sale and the corporation
will not be a member for the year. How-
ever, if the corporation is liquidated by its
new owners during the calendar year, the
testing period for the year will be truncated
and the corporation may be included for
the taxable year in the selling controlled
group because it was there for more than
one-half of the now shorter testing period.
The selling group will need to know that
the sold corporation will now be treated as
included in its group and the relevant data
about its income for the taxable year.
Furthermore, events after the close of
the taxable year, such as amended returns,
audit adjustments or loss carrybacks,
could affect the entitlement of other group
members to tax benefits such as the lower
brackets or the alternative minimum tax
exemption amount, as well as other issues
that might affect whether the group mem-
bers will be under the regular or alternative
minimum tax. In this case, again, the var-
ious members of the controlled group in
the earlier year will need to have adequate
information sharing to comply with their
responsibilities.
E.Consolidated Return Amendment
Section 1.1502–47 provides rules for
a life-nonlife consolidated group to cal-
culate its consolidated taxable income.
Paragraph (s) of §1.1502–47 previously
required a consolidated group to clearly
indicate “by notation” on the face of its
return that it is a life-nonlife consolidated
return. This requirement presented an im-
pediment to e-filing. Accordingly, as part
of T.D. 9304, the IRS and the Treasury
Department amended §1.1502–47(s) and
published §1.1502–47T(s) to remove this
impediment by deleting the requirement
that it indicate this “by notation.” How-
ever, §1.1502–47T(s) was inadvertently
removed from the Code of Federal Regu-
lations by T.D. 9342 when other portions
of §1.1502–47T were published as final
regulations. These temporary regulations
republish §1.1502–47T(s).
Special Analyses
It has been determined that this Trea-
sury decision is not asignificant 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 to this regulation. For
the applicability of the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) refer to the
Special Analyses section of the preamble
to the cross-reference notice of proposed
rulemaking published in this issue of the
Bulletin. Pursuant to section 7805(f) of the
Internal Revenue Code, this regulation will
be submitted to the Chief Counsel for Ad-
vocacy of the Small Business Administra-
tion for comment on their impact on small
business.
Drafting Information
The principal author of this regulation
is Grid Glyer, Office of Associate Chief
Counsel (Corporate). The other author of
and principal reviewer for this regulation
is Steven J. Hankin, Office of Associate
Chief Counsel (Corporate). Other person-
nel from the IRS and the Treasury Depart-
ment, however, participated in its develop-
ment.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is 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 * * *
Section 1.1502–47T also issued under
26 U.S.C. 1502. * * *
Par. 2. Section 1.1502–47T is added to
read as follows:
§1.1502–47T Consolidated returns by
life-nonlife groups (temporary).
(a) through (r) (Reserved). For further
guidance, see §1.1502–47(a) through (r).
February 11, 20083972008–6 I.R.B.

(s)Filing requirements. Nonlife con-
solidated taxable income or loss under
paragraph (h) of §1.1502–47 shall be
determined on a separate Form 1120,
“U.S. Corporation Income Tax Return”
or 1120–PC, “U.S. Property and Casualty
Insurance Company Income Tax Return”,
and consolidated partial Life Insurance
Company Taxable Income [defined in
§1.1502–47(d)(3)] under paragraph (j)
of §1.1502–47 shall be determined on a
separate Form 1120–L,“U.S. Life Insur-
ance Company Income Tax Return”.The
consolidated return shall be made on a
separate Form 1120, 1120–PC, or 1120–L
filed by the common parent (if the group
includes a life company), which shows the
set-offs under paragraphs (g), (m), and (n)
of §1.1502–47 and clearly indicates on the
face of the return that it is a life-nonlife
consolidated return (if the group includes
a life company). See also §1.1502–75(j),
relating to statements and schedules for
subsidiaries.
(t)Effective date—(1)Applicability
date. Paragraph (s) of this section ap-
plies to any consolidated Federal income
tax return due (without extensions) after
December 26, 2007. However, a consol-
idated group may apply paragraph (s) of
this section to any consolidated Federal
income tax return filed on or after Decem-
ber 26, 2007.
(2)Expiration date. The applicability
of paragraph (s) of this section will expire
on December 21, 2010.
Par. 3. Section 1.1561–0T is added to
read as follows:
§1.1561–0T Table of contents (temporary).
This section lists the table of contents
for §§1.1561–1T through 1.1561–3T.
§1.1561–1T General rules regarding
certain tax benefits available to the
component members of a controlled group
of corporations (temporary).
(a) In general.
(b) Special rules.
(c) Tax avoidance.
(d) Effective date.
(1) Applicability date.
(2) Expiration date.
§1.1561–2T Special rules for allocating
reductions to certain Section 1561(a)
tax-benefit items (temporary).
(a) Additional tax.
(1) Calculation.
(2) Apportionment.
(i) General rule.
(ii) Apportionment methods.
(A) Proportionate method.
(B) FIFO method.
(3) Examples.
(b) Reduction to the amount exempted
from the alternative minimum tax.
(1) Calculation.
(2) Apportionment.
(3) Example.
(c) Accumulated earnings credit.
(d) Reserved.
(e) Short taxable year not including a
December 31
st
date.
(1) General rule.
(2) Additional rules.
(3) Examples.
(f) Effective date.
(1) Applicability dates.
(i) Paragraphs (a) and (b) of this section.
(ii) Paragraph (c) of this section.
(iii) Paragraph (e) of this section.
(2) Expiration dates.
§1.1561–3T Allocation of the section
1561(a) tax items (temporary).
(a) Filing of form.
(1) In general.
(2) Exception for component members
that are members of consolidated group.
(b) No apportionment plan in effect.
(c) Apportionment plan in effect.
(1) Adoption of plan.
(2) Limitation on adopting a plan.
(i) Sufficient statute of limitations pe-
riod.
(ii) Insufficient statute of limitations pe-
riod.
(3) Termination of plan.
(d) Effective date.
(1) Applicability date.
(2) Expiration date.
§1.1561–2 (Removed)
Par. 4. Section 1.1561–2 is removed.
Par. 5. Section 1.1561–2T is amended
by revising the heading, adding paragraphs
(a) and (b), and revising paragraphs (e) and
(f) to read as follows:
§1.1561–2T Special rules for allocating
reductions to certain section 1561(a)
tax-benefit items (temporary).
(a)Additional tax—(1)Calcula-
tion. For the purpose of determining the
amount, if any, of the additional tax im-
posedbysection11(b)(1), the taxable
incomes of all of the component members
of a controlled group of corporations for
the taxable years that include the same
December 31
st
date shall be combined for
determining whether either of the income
thresholds for imposing an additional tax
have been attained.
(2)Apportionment—(i)General rule.
Any additional tax determined under para-
graph (a)(1) of this section shall be appor-
tioned among such members in the same
manner as the corresponding tax bracket
of section 11(b)(1) is apportioned. For
rules to apportion the section 11(b)(1) tax
brackets among the component members
of a controlled group, see §1.1561–3T(b)
or (c).
(ii)Apportionment methods.Unless
the component members of a controlled
group elect to use the first-in-first-out
(FIFO) method described in paragraph
(a)(2)(ii)(B) of this section, such mem-
bers are required to apportion the amount
of the additional tax using the propor-
tionate method described in paragraph
(a)(2)(ii)(A) of this section. These compo-
nent members can elect the FIFO method
by specifically adopting such method in
their apportionment plan.
(A)Proportionate method.Underthe
proportionate method, the additional tax is
allocated to each component member in
the same proportion as the portion of the
tax-benefit amount that inured to a mem-
ber from utilizing lower tax brackets bears
to the amount of the group’s total tax-bene-
fit amount inuring to the group from utiliz-
ing those lower tax brackets. The tax-ben-
efit amount that inures to a corporation
from using a particular tax bracket is the
tax savings that such corporation realizes
from having a portion of its taxable income
taxed at the lower rate attributed to that
tax bracket instead of the high tax rates
to which it would otherwise be subject.
The steps for applying the proportionate
method of allocation are as follows:
(1)Step 1. The regular tax (not includ-
ing the additional tax) owed by a compo-
nent member under a particular tax bracket
2008–6 I.R.B.398February 11, 2008

is divided by the total tax owed by all com-
ponent members under that tax bracket;
(2)Step 2. The percentage calculated
underStep 1is multiplied by the total tax-
benefit amount inuring to all the mem-
bers of the group from their use of this tax
bracket. This computed amount equals the
portion of the group’s tax-benefit amount
that inured to such member from using its
portion of this tax bracket;
(3)Step 3. The amount determined
underStep 2is divided by the total tax-
benefit amount, inuring to all the compo-
nent members of the group from using all
the tax brackets to which any component
member’s income was subject;
(4)Step 4. The percentage calculated
underStep 3is multiplied by the amount
of the group’s additional tax. The amount
determined under thisStep 4equals the
amount of the additional tax apportioned
to such member for that tax bracket; and
(5)Step 5. If a component member
is liable for regular tax (not including the
additional tax) under more than one tax
bracket, that member must calculate the
amount of the additional tax apportioned
to it with respect to each tax bracket. Ac-
cordingly, steps 1 through 4 must be ap-
plied for each tax bracket applicable to that
member. The sum of all the apportioned
amounts of additional tax from each tax
bracket for which the member is subject is
the total amount of the additional tax ap-
portionedtothatmember.
(B)FIFO method.UndertheFIFO
method, the first dollars of the additional
tax are to be allocated proportionately to
the members starting with the lowest tax
bracket (that is, the first tax bracket), up
to the amount of the tax benefit inuring to
those members from using that tax bracket.
Any remaining amount of additional tax
is then allocated proportionately among
the component members who use the next
higher tax bracket, and so on, until the
entire amount of the additional tax has
been fully apportioned among the mem-
bers. For example, the first $9,500 of
the additional tax liability of a controlled
group is apportioned entirely to the mem-
ber(s) that availed themselves of the bene-
fit of the 15 percent tax bracket.
(3)Examples. The provisions of this
paragraph (a) may be illustrated by the fol-
lowing examples:
Example 1.(i)Facts. A controlled group of cor-
porations consists of three members: X, Y and Z.
X owns all the stock of Y and Z. Each corporation
files its separate return on a calendar year basis. For
calendar year 2007, the component members of the
controlled group have an apportionment plan in ef-
fect. The members apportioned 80% of the 15 percent
tax-bracket amount ($40,000) to X and the remaining
10% ($10,000) to Y. The members apportioned 100%
of the 25 percent tax-bracket amount ($25,000) to Y.
However, these members have not adopted the FIFO
method for apportioning the additional taxes. There-
fore, they must follow the proportionate method. For
2007, X had taxable income (TI) of $40,000, Y had
TI of $60,000 and Z had TI of $100,000. Thus the
total TI of the group is $200,000.
(ii)Calculating the tax from the tax brackets and
the tax benefit derived from such tax.(A)Regular tax
of group subjected to a 15 percent tax rate.(1)Cal-
culating the group’s tax which resulted from applying
a15percenttaxrate. The amount of tax under the 15
percent tax bracket is $7,500 (15% x $50,000).
(2)The tax-benefit amount inuring to the group
from using the 15 percent tax bracket. A tax bene-
fit inures to those members of the group who avail
themselves of the 15 percent tax bracket. That tax
benefit results from having the first $50,000 of its in-
come taxed at the 15 percent tax rate, instead of at
the 34 percent tax rate. Thus, the tax-benefit amount
inuring to this group from using the 15 percent tax
bracket is $9,500 ($17,000 (34% x $50,000) minus
$7,500 (15% x $50,000)).
(B)Regular tax of group subjected to a 25 per-
cent tax rate.(1)Calculating the group’s tax which
resulted from applying a 25 percent tax rate.The
amount of tax under the 25 percent tax bracket is
$6,250 (25% x $25,000 ($75,000 - $50,000)).
(2)The tax-benefit amount inuring to the group
from using the 25 percent tax bracket. A tax benefit
inures to those members of the group who avail them-
selves of the 25 percent tax bracket. That tax bene-
fit results from having $25,000 of its income taxed
at the 25 percent tax rate, instead of at the 34 per-
cent tax rate. Thus, the tax-benefit amount inuring
to this group from using the 25 percent tax bracket is
$2,250 ($8,500 (34% x $25,000) minus $6,250 (25%
x $25,000)).
(C)Regular tax of group subjected to a 34 per-
cent tax rate.(1)Calculating the group’s tax which
resulted from applying a 34 percent tax rate.The
amount of tax under the 34 percent tax bracket is
$42,500 (34% x $125,000 ($200,000 (total TI) -
$75,000) (amount taxed at lower rates)).
(2)The tax-benefit amount inuring to the group
from using the 34 percent tax bracket. The group’s
total TI of $200,000 is less than the $15,000,000 in-
come threshold for imposing any 3 percent additional
tax on the group. Therefore, there is no tax benefit
inuring to the members of this group for using the 34
percent tax bracket.
(D)The computation of the additional tax.Since
the combined TI of the group exceeds $100,000, a
5 percent additional tax is imposed on the group.
That 5 percent additional tax is the lesser amount of
5 percent of the group’s taxable income exceeding
$100,000 or $11,750. Five percent of that excess
amount of taxable income is $5,000 (5% x $100,000
($200,000 - $100,000)). Since $5,000 is less than
$11,750, the group’s 5 percent additional tax is
$5,000.
(iii)Apportioning the amount of additional tax to
each applicable tax bracket.(A)The apportioned
tax under each bracket. The amount of tax owed by
each member under each tax bracket pursuant to the
apportionment plan is as follows:
Name of
Component
Member
Amount of tax owed
under the 15% tax
bracket
Amount of tax
owed under the
25% tax bracket
Amount of tax
owed under the
34% tax bracket
X
$6,000
00
Y
$1,500$6,250$8,500
Z
00
$34,000
(B)Apportioning the 5 percent additional tax
among the component members of the controlled
group. Since the group did not elect to adopt the
FIFO method of apportionment, it is required to
apportion the $5,000 of its 5 percent additional tax
pursuant to the proportionate method in the following
manner:
(1)Amount of the additional tax apportioned to
X. Pursuant to the plan, X was liable for $6,000 of
the group’s $7,500 regular tax (80%) owed under the
15 percent tax bracket (and X is not liable for any reg-
ular tax under any higher tax bracket). SeeStep 1of
paragraph (a)(2)(ii)(A) of this section. X’s portion of
the group’s tax benefit which it derived from using
the15percenttaxrateis$7,600(0.8x$9,500).See
Step 2. The tax benefit inuring to the entire group
from using the 15 percent and 25 percent tax brackets
is $11,750 ($9,500 (from the 15 percent tax bracket)
+ $2,250 (from the 25 percent tax bracket)). So, X’s
percentage portion of the group’s total tax benefit is
$7,600/$11,750 (64.68%). SeeStep 3.Thus,X’sal-
located portion of the 5 percent additional tax from
using the 15 percent tax bracket is $3,234 (0.6468 x
$5,000). SeeStep 4.
(2)Amount of the additional tax apportioned to
Y.(i)Regular tax apportioned to Y from using the 15
percent tax bracket. Pursuant to the plan, Y was liable
for the remaining $1,500 of the group’s $7,500 regu-
lar tax (20%) owed under the 15 percent tax bracket.
SeeStep 1. Y’s portion of the group’s tax benefit
February 11, 20083992008–6 I.R.B.

which it derived from using the 15 percent tax rate
is $1,900 ($9,500 - $7,600, or 0.2 x $9,500). See
Step 2. So, Y’s percentage portion of the group’s to-
tal tax benefit is $1,900/$11,750 (16.17%). SeeStep
3. Thus, Y’s allocated portion of the 5 percent ad-
ditional tax from using the 15 percent tax bracket is
$809 (0.1617 x $5,000). SeeStep 4.
(ii)Regular tax apportioned to Y from using the
25 percent tax bracket. Pursuant to the plan, Y was
liable for 100% of the group’s regular tax owed un-
der the 25 percent tax bracket, an amount of $6,250.
SeeStep 1. Y is, therefore, entitled to 100% of the
group’s tax benefit which it derived from using this
tax bracket, an amount of $2,250. SeeStep 2.So,
Y’s percentage portion of the group’s total tax ben-
efit is $2,250/$11,750 (19.15%). SeeStep 3.Thus,
Y’s allocated portion of the 5 percent additional tax
from using the 25 percent tax bracket is $957 (0.1915
x $5,000). SeeStep 4. Y’s total allocated portion of
the additional tax is $1,766 ($809 + $957). SeeStep
5.
Example 2.(i)Facts. The facts are the same as in
Example 1, except that on August 31, 2007, X of the
X-Y-Z controlled group sold all of the stock of Z to
M of the M-N controlled group, a pair of corporations
unrelated to the X-Y group. Pursuant to the terms of
the sales agreement, the members of the M-N group
properly notified the members of the X-Y group on
a timely basis that Z’s taxable income for its 2007
taxable year, as based on the group’s December 31
st
testing date, was $100,000.
(ii)Controlled group analysis. On December 31,
2007, X and Y are members of the selling controlled
group and M, N and Z are members of the buying
controlled group. However, pursuant to section
1563(b)(3), Z is treated as an additional member of
the X-Y group on December 31, 2007, since it was a
member for at least one-half the number of days (243
out of 364) during the period beginning on January
1 and ending on December 30, 2007. Conversely,
pursuant to section 1563(b)(2)(A), Z is treated as
an excluded member of the M-N controlled group.
Therefore, on December 31, 2007, X, Y and Z qual-
ify as component members of the selling group, and
only M and N qualify as component members of the
buying group.
(iii)Additional tax analysis. With regard to X
and Y’s 2007 taxable years, X and Y together owed
$5,000 of additional tax, as calculated inExample 1.
X’s allocated portion of the additional tax is $3,234,
as calculated in the manner set forth inExample 1.
Y’s allocated portion of the additional tax is $1,766,
also as calculated in the manner set forth inExample
1.
Example 3.(i)Facts. The facts are the same as
inExample 2,exceptthatin2012,pursuanttoanIRS
audit, Z’s 2007 taxable income was redetermined. It
was adjusted by an income increase of $10,000. Pur-
suant to the terms of the sales agreement, the mem-
bers of the M-N group timely notified the members
of the X-Y group of Z’s income adjustment.
(ii)Additional tax analysis. For 2007 the X-Y-Z
group owed a revised additional tax in the amount
of $5,500, allocated as follows: $3,557.40 to X and
$1,942.60 to Y. X and Y eachfiled an amended 2007
tax return to report their portions of the $500 increase
to the group’s additional tax. Pursuant to their ap-
portionment plan for allocating their regular tax, and
as a result of defaulting to the proportionate method
for allocating the group’s additional tax, X reported
$323.40 as its share of the group’s increase to its ad-
ditional tax and Y reported $176.60 as its share of the
group’s increase to its additional tax.
Example 4. The facts are the same as inExample
1, except that the members elected in their apportion-
ment plan to adopt the FIFO method for apportion-
ing the additional tax. Under the FIFO method, the
5 percent additional tax amount of $5,000 will be ap-
portioned entirely to those members who would ben-
efit from using the 15 percent tax bracket, by reason
that $5,000 of the group’s additional tax is less than
$9,500, which is the full tax-benefit amount inuring
to a controlled group from having a 15 percent tax rate
applied to the full income bracket subject to that rate.
Since X derived 80 percent of the group’s tax benefit
by its use of the 15 percent tax bracket, its share of
the group’s 5 percent additional tax is $4,000 (80% x
$5,000), and Y’s share of the group’s 5 percent addi-
tional tax is, therefore, $1,000, which is the remaining
amount of the group’s 5 percent additional tax, attrib-
utable to the 15 percent tax bracket.
(b)Reduction to the amount exempted
from the alternative minimum tax—(1)
Calculation. The alternative minimum
taxable incomes for all the taxable years
of the component members of a controlled
group of corporations subjected to the
same December 31
st
testing date shall
be taken into account in calculating the
reduction set forth in section 55(d)(3) to
the amount exempted from the alternative
minimum tax (the exemption amount).
(2)Apportionment. Any reduction to
the exemption amount shall be appor-
tioned to the component members of a
controlled group in the same manner that
the amount of the exemption (provided in
section 55(d)(2)) to the alternative min-
imum tax was allocated under section
1561(a). For rules to apportion the sec-
tion 55(d)(2) exemption amount among
the component members of a controlled
group, see §1.1561–3T(b) or (c).
(3)Example.(i)Facts. A controlled group of cor-
porations consists of three members: X, Y and Z. X
owns all of the stock of Y and Z. Each corporation
files its separate return on a calendar year basis. For
calendar year 2007, the component members of this
controlled group have an apportionment plan in ef-
fect. The group has chosen to apportion the entire
section 55(d)(2) exemption amount of $40,000 to Z.
For 2007, X had alternative minimum taxable income
(AMTI) of $40,000, Y had AMTI of $60,000 and Z
had AMTI of $100,000. Thus the total AMTI of the
group is $200,000.
(ii)Calculating the reduction to the exemption
amount. Section 55(d)(3)(A) provides that the sec-
tion 55(d)(2) exemption amount shall be reduced by
an amount equal to 25 percent of the amount by which
the AMTI of a corporation exceeds $150,000. For the
purpose of computing the group’s AMTI, the AMTI
of each of the component members, for their taxable
years that have the same December 31
st
testing date,
shall be taken into account.In accordance with these
provisions, the $40,000 exemption amount is reduced
by $12,500 (25% x $50,000 ($200,000 - $150,000)).
Pursuant to the group’s allocation plan, the entire
$12,500 reduction to the exemption amount is allo-
cated to Z. Thus, after such allocation, Z’s $40,000
exemption amount is reduced to $27,500 ($40,000 -
$12,500).
*****
(e)Short taxable years not including a
December 31
st
date—(1)General rule.
If a corporation has a short taxable year
not including a December 31
st
testing date
and, after applying the rules of section
1561(b) and paragraph (e)(2)(i) of this sec-
tion, it qualifies as a component member
of the group with respect to its short tax-
able year (short-yearmember), then, for
purposes of subtitle A of the Internal Rev-
enue Code, the amount of any tax-benefit
item described in section 1561(b) allocated
to that component member’s short taxable
year shall be the amount specified in sec-
tion 1561(a) for that item, divided by the
number of corporations which are compo-
nent members of that group on the last day
of that component member’s short taxable
year. The component members of such
group may not apportion, by their appor-
tionment plan, an amount of such tax-ben-
efit item to any short-year member that dif-
fers from an amount based on equal appor-
tionment.
(2)Additional rules. For purposes of
paragraph (e)(1) of this section—
(i) Section 1563(b) shall be applied as if
the last day of the taxable year of a short-
year member were substituted for Decem-
ber 31, and
(ii) The termshort taxable yeardoes
not include any portion of a taxable year
of a corporation for which its income is
required to be included in a consolidated
return under §1.1502–76.
(3)Examples. The provisions of this
paragraph (e) may be illustrated by the fol-
lowing examples:
Example 1.Formation of a new member of a con-
trolled group.(i)Facts. On January 2, 2007, corpo-
ration X transfers cash to newly formed corporation
Y (which begins business on that date) and receives
all of the stock of Y in return. X also owns all of the
stock of corporation Z on each day of 2006 and 2007.
X, Y and Z have an apportionment plan in effect, ap-
portioning the 15 percent tax-bracket amount as fol-
lows: 40% ($20,000) to each of X and Y and 20%
($10,000) to Z. X, Y and Z each file a separate return
with respect to the group’s December 31
st
2007 test-
ing date. X is on a calendar taxable year and Z is on
a fiscal taxable year ending on March 31. Y adopts
a fiscal year ending on June 30 and timely files a tax
2008–6 I.R.B.400February 11, 2008

return for its short taxable year beginning on January
2, 2007, and ending on June 30, 2007.
(ii)Y’s short taxable year. On June 30, 2007, Y
is a component member of a parent-subsidiary con-
trolled group of corporations composed of X, Y and
Z. Pursuant to paragraph (e)(1) of this section, the
group may not apportion any amount of the 15 per-
cent tax bracket to Y’s short taxable year ending on
June 30, 2007. Rather, Y is entitled to exactly
1
/3of
such bracket amount, or $16,667.
(iii)The members’ subsequent taxable years.On
December 31, 2007, X, Y and Z are component mem-
bers of a parent-subsidiary controlled group of corpo-
rations. For their taxable years that include Decem-
ber 31, 2007 (X’s calendar year ending December 31,
2007, Z’s fiscal year ending March 31, 2008 and Y’s
fiscal year ending June 30, 2008), X, Y and Z ap-
portion among themselves the full amount of all of
the applicable tax brackets pursuant to their appor-
tionment plan. For example, 40% of the 15 percent
tax-bracket amount, or $20,000, was apportioned to
each of X and Y, and the remaining 10%, or $10,000,
was apportioned to Z.
Example 2.Allocation of tax bracket to a liqui-
dated member of a controlled group having a short
taxable year.(i)Facts. On January 1, 2007, corpo-
ration P owns all of the stock of corporations S
1
,S
2
and S
3
(the P group). Each of these four component
members of the P group, with respect to the group’s
December 31, 2007 testing date, files its separate re-
turn on a calendar year basis. These members have an
apportionment plan in effect (the P group plan) under
which S
1
and S
2
are each entitled to 40% of the 15
percent tax-bracket amount ($20,000), and P and S
3
are each entitled to 10% of the 15 percent tax-bracket
amount ($5,000). On May 31, 2007, S
1
liquidates and
therefore files a return for the short taxable year be-
ginning on January 1, 2007, and ending on May 31,
2007. On July 31, 2007, S
2
liquidates and therefore
files a return for the short taxable year beginning on
January 1, 2007 and ending on July 31, 2007. P and
S
3
each file a return for their 2007 calendar taxable
years.
(ii)Apportionment of the 15 percent tax bracket
to S
1
for its short taxable year. On May 31, 2007, S
1
is a component member of the P group composed of
P, S
1
,S
2
and S
3
. Pursuant to paragraph (e)(1) of this
section, the group may not apportion any amount of
the 15 percent tax bracket to S
1
’s short taxable year
ending on June 30, 2007. Rather, S
1
is entitled to
exactly
1
/4of such bracket amount, or $12,500.
(iii)Apportionment of the 15 percent tax bracket
to S
2
for its short taxable year. On July 31, 2007,
S
2
is a component member of the P group composed
of P, S
2
and S
3
. Pursuant to paragraph (e)(1) of this
section, the group may not apportion any amount of
the 15 percent tax bracket to S
2
’s short taxable year
ending on June 30, 2007. Rather, S
2
is entitled to
exactly
1
/3of such bracket amount, or $16,667.
(iv)Apportionment of the 15 percent tax bracket
to P and S
3
for each of their calendar taxable years.
On December 31, 2007, P and S
3
are component
members of the P group. Accordingly, for P and S
3
’s
2007 calendar taxable year, they are each apportioned
$25,000 of the 15 percent tax bracket, pursuant to the
applicable P group plan.
Example 3.Liquidation of member after its trans-
fer to another controlled group.(i)Facts. The facts
are the same as inExample 2, except that P, on April
30, 2007, sold all of the stock of S
2
to the M-N con-
trolled group. At the time of the sale, M and N are
both unrelated to any members of the P group. As
inExample 2,S
2
liquidates on July 31, 2007, and
therefore files a tax return for its short taxable year
beginning on January 1, 2007, and ending on July
31, 2007. Pursuant to the sales agreement, the N-M
group timely notified P that S
2
had liquidated.
(ii)Controlled group analysis. On April 30, 2007,
the date of the sale of S
2
, the P group reasonably ex-
pected that S
2
would be treated as an excluded mem-
ber with respect to its December 31, 2007 testing date.
On that April 30
th
date, S
2
had been a member of the
P group for less than one-half the number of days of
what it expected would be a full 2007 calendar tax-
able year preceding December 31, 2007 (120 days
(January 1-April 30) out of 364 days (January 1-De-
cember 30)). Yet, as a result of S
2
’s subsequent liqui-
dation by the M-N group prior to December 31, 2007,
S
2
became a component member of the P group with
respect to the P group’s December 31, 2007 testing
date. With respect to that December 31
st
testing date,
S
2
thus was a member of the P group for more than
one-half of the number of days of its taxable year end-
ing on July 31, 2007, which days proceeded Decem-
ber 31
st
2007 (120 days (January 1-April 30 of 2007)
out of 211 days (January 1-July 30 of 2007)). The al-
location of the 15 percent tax-bracket amount to the P
group members is determined in the same manner as
inExample 2and, therefore, the bracket amounts al-
located to P, S
1
,S
2
and S
3
are the same as determined
inExample 2. The allocation of the bracket amounts
would be the same if, at the time P sold all of the S
2
stock, the parties had made a section 338(h)(10) elec-
tion.
Example 4.Short taxable year including a De-
cember 31
st
date. Corporation X owns all of the stock
of corporations Y and Z. X, Y and Z each file sepa-
rate returns. X and Y are on a calendar taxable year
and Z is on a fiscal taxable year beginning October
1 and ending September 30. On January 2, 2007,
Z liquidates. Because Z’s final taxable year (begin-
ning on October 1, 2006 and ending on January 2,
2007) includes a December 31
st
date, that is, Decem-
ber 31, 2006, it is not subject to the short taxable
year rule of section 1561(b) and paragraph (e) of this
section. Accordingly, Z is a component member of
the X-Y-Z group, for the group’s December 31, 2006
testing date. Thus, the rules of this paragraph (e) do
not limit the amount of any of the tax-benefit items
of section 1561(a) available to Z or to this controlled
group.
(f)Effective date—(1)Applicability
dates—(i)Paragraphs (a) and (b) of this
section. Paragraphs (a) and (b) of this
section apply to any taxable year begin-
ning after December 31, 2007. However,
taxpayers may apply paragraphs (a) and
(b) of this section to any Federal income
tax return filed on or after December 26,
2007, provided that all of the component
members of a controlled group of corpo-
rations apply such paragraphs (a) and (b).
(ii)Paragraph (c) of this section. Para-
graph (c) of this section applies to any tax-
able year beginning on or after December
22, 2006. However, taxpayers may apply
paragraph (c) of this section to any Federal
income tax return filed on or after Decem-
ber 22, 2006, provided that all of the com-
ponent members of a controlled group of
corporations apply such paragraph (c).
(iii)Paragraph (e) of this section. Para-
graph (e) of this section applies to any tax-
able year beginning on or after December
26, 2007. However, taxpayers may apply
paragraph (e) of this section to any Federal
income tax return filed on or after Decem-
ber 26, 2007.
(2)Expiration dates. The applicability
of paragraph (c) of this section will expire
on December 21, 2009. The applicability
of paragraphs (a), (b) and (e) of this section
will expire on December 21, 2010.
Par. 6. Section 1.1563–1T is amended
by revising the heading and paragraphs
(b)(1), 2(i), (2)(ii) introductory text, (b)(3),
and (e) to read as follows:
§1.1563–1T Definition of controlled group
of corporations and component members
and related concepts (temporary).
*****
(b)Component members—(1)In gen-
eral—(i)Definition. For purposes of sec-
tions 1561 through 1563, a corporation is
with respect to its taxable year a compo-
nent member of a controlled group of cor-
porations for the group’s testing date if
such corporation—
(A) Is a member of such controlled
group on such testing date and is not
treated as an excluded member under para-
graph (b)(2) of this section; or
(B) Is not a member of such controlled
group on such testing date but is treated
as an additional member under paragraph
(b)(3) of this section.
(ii)Member of a controlled group of
corporations. For purposes of sections
1561 through 1563, a member of a con-
trolled group is a corporation connected
with other member(s) of a controlled group
under the stock ownership rules and the
stock qualification rules set forth in section
1563. Under the above rules, for a corpo-
ration to qualify as a component member
of the group with respect to a group’s De-
cember 31
st
testing date (or the short-year
testing date for a short-year member), that
corporation does not have to be a member
of that group on that group’s testing date.
In addition, a corporation that is a member
February 11, 20084012008–6 I.R.B.

of a controlled group on the group’s testing
date does not necessarily qualify as a com-
ponent member of that group with respect
to that testing date.
(iii)Additional concepts used in apply-
ing the controlled group rules—
(A)Testing dateis the date used for
determining the status of controlled group
members as either component members or
excluded members. That testing date is
then also used to determine which tax-
able years of those component members
are to be subjected to the controlled group
rules. Generally, a member’s testing date
is the December 31
st
date included within
that member’s taxable year, whether such
member is on a calendar or fiscal taxable
year. However, if a component member of
a controlled group has a short taxable year
that does not include a December 31
st
date,
then the last day of that short taxable year
becomes that member’s testing date; and
(B)Testing periodis the time period
used for determining the status of con-
trolled group members as either compo-
nent members or excluded members. The
testing period begins on the first day of
a member’s taxable year and ends on the
day before its testing date (Generally, the
testing date is December 31
st
, but for a
component member having a short taxable
year not ending on December 31
st
,thetest-
ing date for the short taxable year of that
member (and only that member) becomes
the last day of that member’s short taxable
year). Thus, for a member on a fiscal tax-
able year, the portion of its taxable year be-
ginning after December 31
st
andendingon
the last day of its taxable year is not taken
into account for determining its status as a
component member or an excluded mem-
ber.
(2)Excluded members— (i) A corpo-
ration, which is a member of a controlled
group of corporations on the group’s test-
ing date, a date included within that mem-
ber’s taxable year, but who was a member
of such group for less than one-half of the
number of days of its testing period, shall
be treated as an excluded member of such
group for that group’s testing date.
(ii) A corporation which is a member
of a controlled group of corporations on a
testing date shall be treated as an excluded
member of such group on such date if, for
its taxable year including such date, such
corporation is—
*****
(3)Additional members. A corporation
shall be treated as an additional member of
a controlled group of corporations, that is,
an additional component member, on the
group’s testing date if it—
(i) Is not a member of such group on
such date;
(ii) Is not described, with respect
to such taxable year, in paragraph
(b)(2)(ii)(A), (B), (C), (D), or (E) of this
section; and
(iii)Wasamemberofsuchgroupfor
one-half (or more) of the number of days
in its testing period.
*****
(e)Effective date—(1)Applicability
date. Paragraph (b) of this section applies
to any taxable year beginning on or after
December 26, 2007. However, taxpayers
may apply paragraph (b) of this section to
any Federal income tax return filed on or
after December 26, 2007. Paragraphs (a)
and (b) (as contained in 26 CFR part 1 in
effect on April 1, 2007), and paragraphs
(c)(1), (c)(2)(iv) and (d) of this section ap-
ply to taxable years beginning on or af-
ter December 22, 2006. However, taxpay-
ers may apply the paragraphs described in
the preceding sentence to any Federal in-
come tax return filed on or after Decem-
ber 22, 2006. Paragraphs (c)(2)(i) through
(iii) of this section apply to any original
Federal income tax return (including any
amended return filed on or before the due
date (including extensions) of such origi-
nal return) timely filed on or after May 30,
2006.
(2)Expiration date. The applicability
of paragraph (b) of this section will expire
on December 21, 2010. The applicability
of paragraphs (a) and (b) (as contained in
26 CFR part 1 in effect on April 1, 2007),
and paragraphs (c)(1), (c)(2)(iv) and (d)
of this section will expire on December
21, 2009. The applicability of paragraphs
(c)(2)(i) through (iii) of this section will
expire on May 26, 2009.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved December 17, 2007.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on December 21,
2007, 8:45 a.m., and published in the issue of the Federal
Register for December 26, 2007, 72 F.R. 72929)
2008–6 I.R.B.402February 11, 2008

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
Supplemental Tables of
Income Tax Rates Under New
Income Tax Conventions
Announcement 2008–8
The United States recently exchanged
instruments of ratification for a new in-
come tax treaty with Belgium and new pro-
tocols for the income tax treaties with Den-
mark, Finland, and Germany. The effec-
tive dates are as follows:
Belgium.The provisions relating to
withholding tax at source are effective for
amounts paid or credited on or after Feb-
ruary 1, 2008. For other taxes, the treaty
is effective for tax periods beginning on or
after January 1, 2008.
A person entitled to benefits under the
previous treaty can elect to have that treaty
apply in its entirety for a twelve-month
period following the date the new treaty
would otherwise apply.
Denmark.The provisions relating to
withholding tax at source are effective for
amounts paid or credited on or after Feb-
ruary 1, 2008. For all other taxes, the pro-
tocol is effective for tax periods beginning
on or after January 1, 2008.
Finland.The provisions relating to
withholding tax at source are effective for
amounts paid or credited on or after Feb-
ruary 1, 2008. However, the provisions for
dividends covered by footnotesdandfin
Table 1, are effective January 1, 2007. For
all other taxes, the protocol is effective for
tax years beginning on or after January 1,
2008.
Germany.The provisions relating to
withholding tax at source are effective for
amounts paid or credited on or after Jan-
uary 1, 2007. For all other taxes, the treaty
is effective for tax years beginning on or
after January 1, 2008.
A person entitled to benefits under the
treaty before modificationbythisprotocol
can elect to have the unmodified treaty ap-
plyinitsentiretyforatwelve-monthpe-
riod following the date the protocol would
otherwise apply.
Tables 1 and 2.The following tables
can be used to supplement Tables 1 and
2 in Publication 515,Withholding of Tax
on Nonresident Aliens and Foreign Enti-
ties (For Withholding in 2007), and Pub-
lication 901, U.S. Tax Treaties.The foot-
notes in those publications that relate to the
column headings in these tables generally
apply to these entries. The protocols for
Denmark and Finland did not change the
entries shown in Table 2 of the publica-
tions. These tables are intended only as a
summary, and the full text of the relevant
income tax treaty and protocol should be
consulted.
The complete text of the Belgium treaty
and the Denmark, Finland, and Germany
protocols are available on the IRS website
atwww.irs.gov.
Table 1. Withholding Tax Rates on Income Other Than Personal Service Income
Income code number
1236
7
9 101112131421
Country/Code
BelgiumBE0
a,b
0
a,b,c
0
a,b
15
a,d,e
5
a,d,e,f
0
a
0
a
0
a
0
a
30 0
g,h
30
DenmarkDA0
a,i
0
a,c,i
0
a,i
15
a,d,e,
5
a,d,e,f
0
a
0
a
0
a
0
a
30 30
g,j,k
30
FinlandFI0
a,i
0
a,c,i
0
a,i
15
a,d,e,
5
a,d,e,f
0
a
0
a
0
a
0
a
30 0
g,h
30
GermanyGM0
a,b
0
a,b,c
0
a,b
15
a,d,e
5
a,d,e,f
0
a
0
a
0
a,l
0
a
30 0
g,h
0
IncomeCodes
1 Interest paid by U.S. obligors —General10 Industrial royalties
2 Interest on real property mortgages11 Copyright royalties — Motion pictures and Television
3 Interest paid to controlling foreign corporations12 Copyright royalties — Other
6 Dividends paid by U.S. corporations — General13 Real property income and Natural resources royalties
7 Dividends qualifying for direct dividend rate14 Pensions and annuities
9 Capital gains21 Social security payments
February 11, 20084032008–6 I.R.B.

Footnotes
aThe exemption or reduction in rate does not apply if the recipient has a permanent establishment in the United States
and the income paid is attributable to this permanent establishment. For Denmark and Finland, the exemption or
reduction in rate also does not apply if the income is attributable to the performance of independent personal
services from a fixed base in the United States.
b
The rate is 15% (30% for Germany) for contingent interest that does not qualify as portfolio interest. Generally, this
is interest based on receipts, sales, income, or changes in the value of property.
cThe exemption o
r reduced rate does not apply to an excess inclusionfor a residual interest in a real estate mortgage
investment co
nduit (REMIC).
dAmounts paid to a pension fund that are not derived from the carrying on of a business by the pension fund (or
an associated enterprise for Belgium, Denmark, and Finland) are exempt.
eTherateincol
umn 6 (or 0% for payments to pension funds described in footnote d) applies to dividends paid by a
regulated inv
estment company (RIC) or real estate investment trust (REIT). However, that rate (including 0% for
pension funds
) applies to dividends paid by a REIT only if the beneficial owner of the dividends is (a) an individual
or a pension f
und holding not more than a 10% interest in the REIT, (b) a person holding not more than 5% of any
class of the R
EIT’s stock and the dividends are paid on stock that is publicly traded, or (c) a person holding not more
than a 10% int
erest in the REIT and the REIT is diversified.
fDividends paid by an 80%-owned corporate subsidiary are exempt if certain conditions are met.
gA 30% rate applies to U.S. government pensions (federal,state, or local); however, pensions paid to an individual
who is both a resident and national of thetreaty country are exempt from U.S. tax.
hIncludes alimony.
i
The rate is 15% for interest determined with reference to (a) receipts, sales, income, profits or other cash flow of the
debtor or related person, (b) any change in the value of any property of the debtor or a related person, or (c) any
dividend, partnership distribution or similar payment made by the debtor to a related person.
jGenerally, if the person was receivingpension distributions before March 31, 2000, the distributionscontinue to
be exempt from U.S. tax.
kAnnuities are exempt.
lThe exemption does not apply to cinematographic items, or works on film, tape, or other means of reproduction
for use in radio or television broadcasting.
Table 2. Compensation for Personal Services Performed in United States Exempt from Withholding and U.S. Income Tax
Under Income Tax Treaties
Category of personal
services
Maximum
presence in
U.S.
Required Employer
or Payer
Maximum
Amount of
Compensation
Article
No.
CountryCodePurpose
Belgium16Independent personal
services
1
17Dependent personal
services
4,5
183 daysAny foreign resident No limit14
20Public entertainmentNo limitAny U.S. or foreign
resident
$20,000 p.a.
6
16
18Teaching
2
2 yearsU.S. educational or
research institution
No limit19(2)
19Studying and training:
11
Remittances
or
allowances
No limit
3
Any foreign resident No limit19(1)(a)
Compensation
during study
or training
No limit
3
Any U.S. or foreign
resident
$9,000 p.a.
19(1)(b)
2008–6 I.R.B.404February 11, 2008

Category of personal
services
Maximum
presence in
U.S.
Required Employer
or Payer
Maximum
Amount of
Compensation
Article
No.
CountryCodePurpose
Germany
15
Scholarship or fellowship
grant
No limitAny U.S. or foreign
resident
7
No limit20(3)
16Independent personal
services
1
17Dependent personal
services
4,5
183 daysAny foreign resident No limit
15
20Public entertainmentNo limitAny U.S. or foreign
resident
$20,000 p.a.
6
17
18Teaching
2,8
2 yearsU.S. educational or
research institution
No limit20(1)
19Studying and training:
11
Remittances
or
allowances
No limitAny foreign resident No limit20(2)
Compensation
during study
or training
4 yearsAny U.S. or foreign
resident
$9,000 p.a.
20(4)
Compensation
while gaining
experience 9
1 yearAny foreign resident
$10,000
10
20(5)
Footnotes
1Treated as business profits under Article 7 of the treaty.
2Does not apply to
income from research work primarily for private benefit.
3Two years in the case of a business trainee.
4Fees paid to a resident of the treaty country for services performed in the United States as a director of a U.S. corporation
are subject to U.S. tax.
5
The exemption does not apply if the employee’s compensation is borne by a permanent establishment that the employer
has in the United States.
6The exemption does not apply if grossreceipts (including reimbursements) exceed this amount during the year. For
Germany, income is fully exempt if visit is substantially supported by public funds of Germany or its political subdivisions
or local authorities.
7Grant must be from a nonprofit organization.
8The exemption does not apply if during the immediately preceding period, the individual claimed the benefit of Article
20(2), (3), or (4).
9Applies only if training or experience is received from a person other than the individual’s employer.
10 The exemptio
n does not apply if compensation exceeds this amount.
11 Applies only to full-time student or trainee.
February 11, 20084052008–6 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Intermediary Transaction Tax
Shelter
Notice 2008–20
SECTION 1. PURPOSE
Notice 2001–16, 2001–1 C.B. 730,
identified the Intermediary Transaction
Tax Shelter as a listed transaction under
§ 1.6011–4(b)(2) of the Income Tax Reg-
ulations. Since that notice was published,
the Internal Revenue Service (Service)
has received disclosure statements with
respect to Notice 2001–16 transactions
pursuant to § 1.6011–4 and other infor-
mation pursuant to §§ 6111 and 6112 of
the Internal Revenue Code and through
promoter audits. After reviewing the dis-
closure statements and other information,
the Service and Treasury Department have
decided to identify the components of
an Intermediary Transaction Tax Shelter.
A transaction that does not have all of
the components identified herein is not
the same as or substantially similar to
the listed transaction described in Notice
2001–16. The Service and Treasury De-
partment also are identifying the persons
who are treated as participants in an In-
termediary Transaction Tax Shelter under
§ 1.6011–4(c)(3)(i)(A). This notice should
not otherwise be construed as limiting the
scope or application of Notice 2001–16
and should not otherwise create any in-
ference as to whether or not a transaction
was required to be disclosed or registered
under § 6011 or § 6111 prior to January
17, 2008.
SECTION 2. BACKGROUND
An Intermediary Transaction Tax Shel-
ter attempts to avoid the corporate income
tax from a sale of assets. Generally it in-
volves transactions in which shareholders
of a corporation dispose of their shares of
stock of the corporation, one or more per-
sons purchase the corporation’s assets in
one or more taxable transactions, and all
or a portion of the gain or tax that would
otherwise result to the corporation from a
sale of the assets is avoided.
SECTION 3. DISCUSSION
.01 Components of an Intermediary
Transaction Tax Shelter
An Intermediary Transaction Tax Shel-
ter involves the use of an intermediary (M)
(which can be one or more persons) in fa-
cilitating the transaction. However, the
Service has received information and com-
ments from taxpayers suggesting that iden-
tifying the transaction based on the role of
an entity that appears to be an intermediary
may result in over-disclosure or under-dis-
closure of the transaction depending on the
circumstances of the transaction. To ad-
dress these concerns, this notice identifies
the four necessary components in an In-
termediary Transaction Tax Shelter from
the perspective of the target corporation,
its shareholders, and the purchasers of the
target corporation’s assets.
1. A corporation (T) directly or indi-
rectly (e.g.,through a pass-through entity
or a member of a consolidated group of
which T is a member) owns assets the sale
of which would result in taxable gain and,
as of the time of the stock disposition de-
scribed in component two, T (or the con-
solidated group of which T is a member)
has insufficient tax benefits to eliminate
or offset such taxable gain (or the tax) in
whole or in part. The tax that would re-
sult from such sale is hereinafter referred
to as T’s Built-in Tax. In determining
whether T’s (or the consolidated group’s)
tax benefits are insufficient for purposes of
the first sentence, the following tax ben-
efits shall be excluded: (i) any tax bene-
fits attributable to a listed transaction un-
der § 1.6011–4(b)(2), and (ii) any tax bene-
fits attributable to built-in loss property ac-
quired within 12 months before the stock
disposition described in component two,
to the extent such built-in losses exceed
built-in gains in property acquired in the
same transaction(s). All references to T in
this notice include successors to T.
2. At least 50 percent of the T stock
(by vote or value) is disposed of by T’s
shareholder(s) (X), other than in liquida-
tion of T, in one or more related transac-
tions within a 12 month period.
3. Either within 12 months before, si-
multaneously, or within 12 months after
the date on which X has disposed of at
least 50 percent of the T stock (by vote or
value) (excluding any time T is protected
or hedged against price fluctuations), all or
most of T’s assets are disposed of (Sold T
Assets) to one or more buyers (Y) in one
or more transactions in which gain is rec-
ognized with respect to the Sold T Assets.
Where a disposition of Sold T Assets is an
intercompany transaction between mem-
bers of a consolidated group, the dispo-
sition will not be a “transaction in which
gain is recognized with respect to the Sold
T Assets” for purposes of the preceding
sentence until such gain must be taken into
account under the rules of § 1.1502–13.
4. All or most of T’s Built-in Tax
described in component one that would
otherwise result from the disposition of
the Sold T Assets described in component
three is purportedly offset or avoided or not
paid.
.02 Participation in the Listed Transaction
A transaction must have all four of
the components identified herein to be
the same as or substantially similar to
the listed transaction identified in Notice
2001–16 as the Intermediary Transaction
Tax Shelter. In determining whether a
person is a participant in a transaction
identified in Notice 2001–16, the general
rule in § 1.6011–4(c)(3)(i)(A) applies, ex-
cept the following rules apply with respect
to persons in the position of X or Y as
described below:
•In no event will any X be
treated as a participant under
§ 1.6011–4(c)(3)(i)(A) if the only T
stock X disposes of is traded on an
established securities market (within
the meaning of § 1.453–3(d)(4)) and
prior to the disposition X (including
related persons described in section
267(b) or 707(b)) did not hold five
percent (or more) by vote or value of
any class of T stock disposed of by X.
•In no event will any Y be
treated as a participant under
§ 1.6011–4(c)(3)(i)(A) if the only
Sold T Assets acquired by Y are
either (i) securities (as defined in
section 475(c)(2)) that are traded on an
established securities market (within
2008–6 I.R.B.406February 11, 2008

the meaning of § 1.453–3(d)(4)) and
represent a less-than-five-percent
interest in that class of security, or
(ii) assets that are not securities and
do not include a trade or business as
described in § 1.1060–1(b)(2).
.03 Disclosure, List Maintenance, and
Registration Requirements; Penalties;
Other Considerations
Independent of their classification as
“listed transactions,” transactions that are
the same as, or substantially similar to, the
transaction described in Notice 2001–16
may already be subject to the requirements
of § 6011, § 6111, or § 6112, or the regu-
lations thereunder.
Persons involved with these transac-
tions are alerted to certain responsibilities
that may arise from their involvement with
these transactions. Persons required to dis-
close these transactions under § 1.6011–4
and who fail to do so may be subject to the
penalty under § 6707A. Persons required
to disclose or register these transactions
under§6111whohavefailedtodosomay
be subject to the penalty under § 6707(a).
Persons required to maintain lists of in-
vestors under § 6112 who fail to provide
such lists when requested by the Ser-
vice may be subject to the penalty under
§ 6708(a). A person that is a tax-exempt
entity within the meaning of § 4965(c),
or an entity manager within the meaning
of § 4965(d), may be subject to excise
tax, disclosure, filing or payment obliga-
tions under § 4965, § 6033(a)(2), § 6011,
and § 6071. Some taxable entities may
be subject to disclosure obligations un-
der § 6011(g) that apply to “prohibited
tax shelter transactions” as defined by
§ 4965(e) (including listed transactions).
In addition, the Service may impose
other penalties on persons involved in this
transaction or substantially similar trans-
actions (including an accuracy-related
penalty under § 6662 or 6662A) and, as
applicable, on persons who participate in
the promotion or reporting of this transac-
tion or substantially similar transactions
(including the return preparer penalty un-
der § 6694, the promoter penalty under
§ 6700, and the aiding and abetting penalty
under § 6701).
Further, under § 6501(c)(10), the pe-
riod of limitations on assessment may be
extended beyond the general three-year
period of limitations for persons required
to disclose transactions under § 1.6011–4
who fail to do so. See Rev. Proc. 2005–26,
2005–1 C.B. 965.
The Service and the Treasury Depart-
ment recognize that some taxpayers may
have filed tax returns taking the position
that they were entitled to the purported tax
benefits of the types of transactions de-
scribed in Notice 2001–16. These taxpay-
ers should consult with a tax advisor to
ensure that their transactions are disclosed
properly and to take appropriate corrective
action.
SECTION 4. EFFECTIVE DATE
This notice is effective as of January 17,
2008. This notice is applicable to returns
and statements due under § 6011 or § 6111
after January 17, 2008.
SECTION 5. EFFECT ON OTHER
DOCUMENTS
Notice 2001–16 is modified with re-
spect to the types of persons who may
be treated as participants in an Inter-
mediary Transaction Tax Shelter under
§ 1.6011–4(c)(3)(i)(A).
DRAFTING INFORMATION
The principal author of this notice is
T. Ian Russell of the Office of Associate
Chief Counsel (Corporate). For further
information regarding this notice, contact
Mr. Russell at (202) 622–7550 (not a
toll-free call).
26 CFR 1.61–21: Taxation of fringe benefits.
(Also: §§ 61, 280F.)
Rev. Proc. 2008–13
SECTION 1. PURPOSE
.01 This revenue procedure provides:
(1) the maximum value of employer-pro-
vided vehicles first made available to em-
ployees for personal use in calendar year
2008 for which the vehicle cents-per-mile
valuation rule provided under section
1.61–21(e) of the Income Tax Regula-
tions may be applicable is $15,400 for a
passenger automobile and $16,700 for a
truck or van; (2) the maximum value of
employer-provided vehicles first made
available to employees for personal use in
calendar year 2008 for which the fleet-av-
erage valuation rule provided under sec-
tion 1.61–21(d) of the regulations may
be applicable is $19,900 for a passenger
automobile and $20,800 for a truck or van.
SECTION 2. BACKGROUND
.01 If an employer provides an em-
ployee with a vehicle that is available
to the employee for personal use, the
value of the personal use must generally
be included in the employee’s income
and wages. Internal Revenue Code § 61;
Treas. Reg. § 1.61–21.
.02 For employer-provided passen-
ger automobiles (including trucks and
vans) made available to employees for
personal use that meet the requirements
of section 1.61–21(e)(1) of the regula-
tions, generally the value of the personal
use may be determined under the vehicle
cents-per-mile valuation rule of section
1.61–21(e). However, regulations section
1.61–21(e)(1)(iii)(A) provides that for a
passenger automobile first made avail-
able after 1988 to any employee of the
employer for personal use, the value of
the personal use may not be determined
under the vehicle cents-per-mile valuation
rule for a calendar year if the fair market
value of the passenger automobile (de-
termined pursuant to regulations section
1.61–21(d)(5)(i) through (iv)) on the first
date the passenger automobile is made
available to the employee exceeds a spec-
ified dollar limit.
.03 For employer-provided vehicles
available to employees for personal use for
an entire year, generally the value of the
personal use may be determined under the
automobile lease valuation rule of section
1.61–21(d) of the regulations. Under this
valuation rule, the value of the personal
use is the Annual Lease Value. Provided
the requirements of regulations section
1.61–21(d)(5)(v) are met, an employer
with a fleet of 20 or more automobiles
may use a fleet-average value for purposes
of calculating the Annual Lease Values of
the automobiles in the employer’s fleet.
The fleet-average value is the average
of the fair market values of all the auto-
mobiles in the fleet. However, section
1.61–21(d)(5)(v)(D) of the regulations
provides that for an automobile first made
available after 1988 to an employee of the
February 11, 20084072008–6 I.R.B.

employer for personal use, the value of the
personal use may not be determined under
the fleet-average valuation rule for a cal-
endar year if the fair market value of the
automobile (determined pursuant to reg-
ulations section 1.61–21(d)(5)(i) through
(v)) on the first date the passenger auto-
mobile is made available to the employee
exceeds a specified dollar limit.
.04 The maximum passenger automo-
bile values for applying the vehicle cents-
per-mile and the fleet-average value rules
reflect the automobile price inflation ad-
justment of Code section 280F(d)(7). The
method of calculating this price inflation
amount for automobiles other than trucks
and vans uses the “new car” component
of the Consumer Price Index (CPI) “au-
tomobile component”. When calculating
this price inflation adjustment for trucks
and vans, the “new trucks” component of
the CPI is used. This results in some-
what higher maximum values for trucks
and vans. This change reflects the higher
rate of price inflation that trucks and vans
have been subject to since 1988, and is
consistent the change announced in Rev.
Proc. 2003–75, 2003–2 C.B. 1018, for
purposes of calculating depreciation de-
ductions.See alsoRev. Proc. 2007–30,
2007–18 I.R.B. 1104. For purposes of this
revenue procedure, the term “trucks and
vans” refers to passenger automobiles that
are built on a truck chassis, including mini-
vans and sport utility vehicles (SUVs) that
are built on a truck chassis.
SECTION 3. PROCEDURE
.01 Maximum Automobile Value for
Using the Cents-per-mile Valuation Rule.
An employer providing a passenger auto-
mobile for the first time in calendar year
2008 for the personal use of any employee
may determine the value of the personal
use by using the vehicle cents-per-mile
valuation rule in section 1.61–21(e) of the
regulations if its fair market value on the
date it is first made available does not
exceed $15,400 for a passenger automo-
bile other than a tuck or van, or $16,700
foratruckorvan. Ifthefairmarket
value of the passenger automobile exceeds
this amount, the employer may determine
the value of the personal use under the
general valuation rules of regulations sec-
tion 1.61–21(b) or under the special valua-
tion rules of section 1.61–21(d) (Automo-
bile lease valuation) or section 1.61–21(f)
(Commuting valuation) if the applicable
requirements are met. See Rev. Proc.
2006–15, 2006–1 C.B. 387, for guidance
on determining the maximum value of pas-
senger automobiles first made available
during calendar year 2006, and Rev. Proc.
2007–11, 2007–2 I.R.B. 261, for guidance
on determining the maximum value of pas-
senger automobiles first made available
during calendar year 2007.
.02 Maximum Automobile Value for
Using the Fleet-Average Valuation Rule.
An employer with a fleet of 20 or more
automobiles providing an automobile for
the first time in calendar year 2008 for
the personal use of any employee for an
entire year may determine the value of
the personal use by using the fleet-aver-
age valuation rule in regulations section
1.61–21(d)(5)(v) to calculate the Annual
Lease Values of the automobiles in the
fleet. The fleet-average valuation rule may
not be used to determine the Annual Lease
Value of any automobile if its fair market
value on the date it is first made available
exceeds $19,900 for a passenger automo-
bile other than a truck or van, or $20,800
for a truck or van. If all other appli-
cable requirements are met, an employer
with a fleet of 20 or more vehicles consist-
ing of passenger automobiles other than
trucks or vans as well as trucks and vans
may use the fleet-average valuation rule
as long as none of the vehicles exceed
their respective maximum allowable val-
ues. If the fair market value of any passen-
ger automobile in the fleet exceeds these
amounts, the employer may determine the
value of the personal use under regulations
section 1.61–21(f) (Commuting valuation)
or the general valuation rules of section
1.61–21(b) or may determine the Annual
Lease Value of such automobile separately
under the automobile lease valuation rule
of section 1.61–21(d)(2) if the applicable
requirements are met.
SECTION 4. EFFECTIVE DATE
This revenue procedure applies to em-
ployer-provided passenger automobiles
first made available to employees for per-
sonal use in calendar year 2008.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Don M. Parkinson of the
Office of the Division Counsel/Associate
Chief Counsel (Tax Exempt & Govern-
ment Entities). For further information
regarding the maximum automobile value
for applying the valuation rules of regu-
lations section 1.61–21(e)(1)(iii)(A) (the
vehicle cents-per-mile valuation rule),
and section 1.61–21(d)(5)(v)(D) (the
fleet average valuation rule), contact
Don M. Parkinson at (202) 622–6040 (not
a toll-free call).
2008–6 I.R.B.408February 11, 2008

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking by
Cross-Refere
nce to
Temporary Re
gulations
Calculating
and Apportioning
the Section 1
1(b)(1) Additional
Tax Under Se
ction 1561 for
Controlled
Groups
REG–104713
–07
AGENCY: In
ternal Revenue Service
(IRS), Tre
asury.
ACTION: No
tice of proposed rulemaking
by cross-r
eference to temporary regula-
tions.
SUMMARY: I
n this issue of the Bulletin,
the IRS is i
ssuing temporary regulations
that affe
ct component members of a con-
trolled g
roup of corporations and consol-
idated gr
oups filing life-nonlife Federal
income ta
x returns. These temporary
regulati
ons provide guidance for calculat-
ing and a
pportioning between component
members
any amount of additional tax
and any r
eduction in the amount exempted
from the
alternative minimum tax. These
tempora
ry regulations also update and
clarif
y the allocation of tax-benefit items
in the c
ase in which a component member
has a sh
ort taxable year not including a
Decemb
er 31
st
date. Finally, these tem-
porary
regulations provide explanations
of two
concepts: a group’s testing date
and a m
ember’s testing period for use in
deter
mining which members of the group
and wh
ich taxable years of those members
are su
bject to the controlled group rules.
The t
ext of those regulations (T.D. 9369)
also
serves as the text of these proposed
regu
lations.
DATE
S: Written or electronic comments
and a
request for a public hearing must be
rece
ived by March 25, 2008.
ADDR
ESSES: Send submissions to:
CC:P
A:LPD:PR (REG–104713–07), room
520
3, Internal Revenue Service, PO Box
760
4, Ben Franklin Station, Washing-
ton
, DC 20044. Submissions may be
han
d-delivered Monday through Friday
between the ho
urs of 8 a.m. and 4 p.m.
to CC:PA:LPD:
PR (REG–104713–07),
Courier’s Des
k, Internal Revenue Ser-
vice, 1111 Con
stitution Avenue, NW,
Washington, D
C, or sent electroni-
cally via the
Federal eRulemaking Por-
tal athttp:/
/www.regulations.gov(IRS
REG–104713–
07).
FOR FURTHER I
NFORMATION
CONTACT: Co
ncerning the proposed
regulation
, Grid Glyer, (202) 622–7930,
concerning
submissions of comments
and request
s for public hearings,
Richard A.
Hurst (202) 622–7180 (not
toll-free
numbers).
SUPPLEMEN
TARY INFORMATION:
Backgroun
d and Explanation of
Provision
s
Temporary
regulations in this issue of
the Bullet
inamend26CFRPart1toadd
§§1.1502
–47T and 1.1561–0T, remove
§1.1561–
2, and amend §§1.1561–2T and
1.1563–1
T. The text of those regulations
also serv
es as the text of these proposed
regulat
ions. The preamble to the final
and temp
orary regulations explains these
propose
d regulations.
Special
Analyses
It has be
en determined that this notice
of propo
sed rulemaking is not a signifi-
cant reg
ulatory action as defined in Exec-
utive O
rder 12866. Therefore, a regula-
tory as
sessment is not required. It has also
been de
termined that section 553(b) of the
Admini
strative Procedure Act (5 U.S.C.
chapte
r 5) does not apply to these regu-
latio
ns. With respect to §1.1502–47, it
is her
eby certified that these regulations
will n
ot have a significant economic im-
pact o
n a substantial number of small en-
titie
s. This certification is based on the
fact
that these regulations primarily af-
fect
affiliated groups ofcorporations that
have
elected to file consolidated returns,
whic
h tend to be larger businesses. Fur-
ther
, these regulations do not require any
addi
tional collection of information under
§1.
1502–47 because these regulations sim-
ply
add a section that had been inadver-
ten
tly removed from the Code of Federal
Regulations.
Therefore, a regulatory flex-
ibility analy
sisisnotrequired. Pursuant
to section 780
5(f) of the Internal Revenue
Code, these re
gulations have been submit-
tedtotheChie
f Counsel for Advocacy
of the Small B
usiness Administration for
comment on th
eir impact on small busi-
ness.
Comments and
Requests for a Public
Hearing
Before these
proposed regulations are
adopted as f
inal regulations, consideration
will be give
ntoanywrittencomments
(a signed or
iginal and eight (8) copies)
or electron
ic comments that are submitted
timely to t
he IRS. The IRS and the Trea-
sury Depar
tment specifically request com-
ments on th
e clarity of the proposed reg-
ulations a
nd how they can be made eas-
ier to und
erstand. All comments will be
availabl
e for public inspection and copy-
ing. A pub
lic hearing may be scheduled
if reques
tedinwritingbyanypersonthat
timely su
bmits written or electronic com-
ments. If
a public hearing is scheduled, no-
tice of t
he date, time and place for the pub-
lic hear
ing will be published in theFederal
Registe
r.
Draftin
g Information
The prin
cipal author of these regula-
tions is
Grid Glyer of the Office of As-
sociat
e Chief Counsel (Corporate). Other
person
nel from the Treasury Department
and the
IRS participated in their develop-
ment.
*****
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 1.1561–0 is added to
read as follows:
February 11, 20084092008–6 I.R.B.

§1.1561–0 Table of contents.
[The text of the proposed §1.1561–0 is
the same as the text for §1.1561–0T pub-
lished elsewhere in this issue of the Bul-
letin].
Par. 3. Section 1.1561–2 is added to
read as follows:
§1.1561–2 Special rules for allocating
reductions to certain section 1561(a)
tax-benefit items.
[The text of the proposed §1.1561–2
is the same as the text for §1.1561–2T(a)
through (f)(1) published elsewhere in this
issue of the Bulletin].
Par. 4. Section 1.1563–1 is amended to
read as follows:
§1.1563–1 Definition of controlled group
of corporations and component members
and related concepts.
[The text of the proposed §1.1563–1 is
the same as the text for §1.1563–1T 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 December 21,
2007, 8:45 a.m., and published in the issue of the Federal
Register for December 26, 2007, 72 F.R. 72970)
Notice of Proposed
Rulemaking by
Cross-Reference to
Temporary Regulations
Reduction of Foreign Tax
Credit Limitation Categories
Under Section 904(d)
REG–114126–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary regula-
tions and notice of public hearing.
SUMMARY: In this issue of the Bulletin,
the IRS is issuing temporary regulations
that provide guidance relating to the re-
duction of the number of separate foreign
tax credit limitationcategories under sec-
tion 904(d) of the Internal Revenue Code.
Changes to the applicable law were made
by the American Jobs Creation Act of 2004
(AJCA) reducing the number of section
904(d) separate categories from eight to
two, effective for taxable years beginning
after December 31, 2006. The tempo-
rary regulations provide guidance needed
to comply with these changes and affect
individuals and corporations claiming for-
eign tax credits. The text of those tempo-
rary regulations (T.D. 9368) published in
this issue of the Bulletin also serves as the
text of these proposed regulations. This
document also provides a notice of public
hearing on these proposed regulations.
DATES: Written or electronic comments
must be received by March 20, 2008. Out-
lines of topics to be discussed at the pub-
lic hearing scheduled for April 22, 2008,
at 10:00 a.m. must be received by April 1,
2008.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–114126–07), room
5203, Internal Revenue Service, PO 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–114126–07),
Courier’s desk, Internal Revenue Ser-
vice, 1111 Constitution Avenue, NW,
Washington, DC 20044, or sent elec-
tronically, via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–114126–07). The public hearing
will be held in the IRS Auditorium, Inter-
nal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT:Concerning the regulations,
Jeffrey L. Parry, (202) 622–3850; concern-
ing submissions of comments, the hearing,
and/or to be placed on the building access
list to attend the hearing, Kelly Banks,
(202) 622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in this issue of
the Bulletin contain amendments to the In-
come Tax Regulations (26 CFR Part 1)
which provide rules relating to the reduc-
tion of the number of separate foreign tax
credit limitation categories under section
904(d). The text of those regulations also
serves as the text of these proposed regula-
tions. The preamble to the temporary regu-
lations explains the temporary regulations
and these proposed regulations. The regu-
lations affect individuals and corporations
claiming foreign tax credits.
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
assessment is not required. It has also
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these reg-
ulations, and because the regulations do
not impose a collection of information
on small entities, the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f), these
regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any electronic or writ-
ten comments (a signed original and eight
(8) copies) that are submitted timely to the
IRS. The Treasury Department and the IRS
specifically request comments on the clar-
ity of the proposed regulations and how
they may be made easier to understand, as
well as comments on additional guidance
that may be needed to implement changes
made by the AJCA. All comments will be
available for public inspection and copy-
ing.
A public hearing has been scheduled for
April 22, 2008, in the auditorium, Inter-
nal Revenue Building, 1111 Constitution
Avenue, NW, Washington, DC. Due to
building security procedures, visitors must
enter at the Constitution Avenue entrance.
In addition, all visitors must present photo
identification to enter the building. Be-
cause of access restrictions, visitors will
not be admitted beyond the immediate
entrance more than 30 minutes before
the hearing starts. For information about
2008–6 I.R.B.410February 11, 2008

having your name placed on the build-
ing access list to attend the hearing, see
theFOR FURTHER INFORMATION
CONTACTsection of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit electronic or written comments by
March 20, 2008, and an outline of the top-
icstobediscussedandthetimetobede-
voted to each topic (signed original and
eight (8) copies) by April 1, 2008. A pe-
riod of 10 minutes will be allotted to each
person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Jeffrey L. Parry of the Office of
Chief Counsel (International). However,
other personnel from the Treasury Depart-
ment and the IRS participated in their de-
velopment.
*****
Proposed Amendments to the
Regulations
According
ly,26CFRpart1isproposed
to be amend
ed 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 1.904–2(i) is added to
read as follows:
§1.904–2 Carryback and carryover of
unused foreign tax.
*****
(i) [The text of proposed §1.904–2(i)
is the same as the text of §1.904–2T(i)(1)
through (3) published elsewhere in this is-
sue of the Bulletin.]
Par. 3. In §1.904–4, paragraphs (a), (b),
(h)(3), and (l) are revised and paragraph (n)
is added to read as follows:
§1.904–4 Separate application of section
904 with respect to certain categories of
income.
(a) [The text of the proposed amend-
ment to §1.904–4(a) is the same as the
text of §1.904–4T(a) published elsewhere
in this issue of the Bulletin.]
(b) [The text of the proposed amend-
ment to §1.904–4(b) is the same as the
text of §1.904–4T(b) published elsewhere
in this issue of the Bulletin.]
*****
(h) * * *
(3) [The text of the proposed amend-
ment to §1.904–4(h)(3) is the same as the
text of §1.904–4T(h)(3) published else-
whereinthisissueoftheBulletin.]
*****
(l) [The text of the proposed amend-
ment to §1.904–4(l) is the same as the
text of §1.904–4T(l) published elsewhere
in this issue of the Bulletin.]
*****
(n) [The text of proposed §1.904–4(n)
is the same as the text of §1.904–4T(n)
published elsewhere in this issue of the
Bulletin.]
Par. 4. In §1.904–5, paragraph (h)(3)
is revised and paragraph (o)(3) is added to
read as follows:
§1.904–5 Look-through rules as applied
to controlled foreign corporations and
other entities.
*****
(h) * * *
(3) [The text of the proposed amend-
ment to §1.904–5(h)(3) is the same as the
text of §1.904–5T(h)(3) published else-
where in this issue of the Bulletin.]
*****
(o) * * *
(3) [The text of proposed
§1.904–5(o)(3) is the same as the text of
§1.904–5T(o)(3) published elsewhere in
this issue of the Bulletin.]
Par. 5. Section 1.904–7(g) is added to
read as follows:
§1.904–7 Transition rules.
*****
(g) [The text of proposed §1.904–7(g)
is the same as the text of §1.904–7T(g)(1)
through (6) published elsewhere in this is-
sue of the Bulletin.]
Par. 6. §1.904(f)–12(h) is added to read
as follows:
§1.904(f)–12 Transition rules.
*****
(h) [The text of proposed §1.904–12(h)
is the same as the text of §1.904–12T(h)(1)
through (h)(6) published elsewhere in this
issue of the Bulletin.]
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on December 20,
2007, 8:45 a.m., and published in the issue of the Federal
Register for December 21, 2007, 72 F.R. 72645)
February 11, 20084112008–6 I.R.B.

Announcement of Disciplinary Actions Involving
Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Reinstatements, Suspensions,
Censures, Disbarments, and Resignations
Announcement 2008-5
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before
the Internal Revenue Service if the assis-
tance relates to a matter constituting prac-
tice before the Internal Revenue Service
and may not knowingly aid or abet another
person to practice before the Internal Rev-
enue Service during a period of suspen-
sion, disbarment, or ineligibility of such
other person.
To enable attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries to identify persons to whom
these restrictions apply, the Director, Of-
fice of Professional Responsibility, will
announce in the Internal Revenue Bulletin
their names, their city and state, their pro-
fessional designation, the effective date
of disciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
continue to appear in the weekly Bulletins
for five successive weeks.
Reinstatement To Practice Before the Internal Revenue
Service
Under Title 31, Code of Federal Reg-
ulations, Part 10, The Director, Office of
Professional Responsibility, may entertain
a petition for reinstatement for any attor-
ney, certified public accountant, enrolled
agent, or enrolled actuary censured, sus-
pended, or disbarred, from practice before
the Internal Revenue Service.
The following individuals’ eligibility to
practice before the Internal Revenue Ser-
vice has been restored:
NameAddressDesignationDate of Reinstatement
Cohen, PeterEdison, NJCPAJune 01, 2004
Brunelle, Roswell J.Queensbury, NYCPAJune 10, 2004
Cohick, Jeffrey S.Newville, PAEnrolled AgentOctober 30, 2004
Cotroneo, NicholasMcLean, VACPAFebruary 28, 2007
Layson, David A.Corydon, INAttorneyOctober 06, 2007
Tomasulo, Maria V.Wantagh, NYCPAOctober 16, 2007
Emeziem, Kelechi C.Antioch, CAAttorneyOctober 17, 2007
Johnston, Gregory A.Muscatine, IAAttorneyOctober 17, 2007
Shapiro, Sidney C.West Palm Beach, FLCPAOctober 29, 2007
Hubbard, Cynthia A.Geneva, ILAttorneyOctober 31, 2007
Moss, Steve E.Henderson, NCCPANovember 29, 2007
Schaffer, Robert J.Baiting Hollow, NYCPADecember 04, 2007
Woods, Dalton C.Carrollton, TXEnrolled AgentDecember 04, 2007
Brown, Arthur I.Miami, FLCPADecember 14, 2007
2008–6 I.R.B.412February 11, 2008

Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid the institution
or conclusion of a proceeding for his or
her disbarment or suspension from prac-
tice before the Internal Revenue Service,
may offer his or her consent to suspension
from such practice. The Director, Office
of Professional Responsibility, in his dis-
cretion, may suspend an attorney, certified
public accountant, enrolled agent, or en-
rolled actuary in accordance with the con-
sent offered.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
NameAddressDesignationDate of Suspension
Bauman, John J.Battle Creek, MICPAIndefinite
from
October 1, 2007
Montgomery, Dwight M.Redlands, CAAttorneyIndefinite
from
October 1, 2007
Deku, John V.Toledo, OHAttorneyIndefinite
from
October 8, 2007
Ying, William F.Beverly Hills, CACPAIndefinite
from
October 9, 2007
Brill, Ann M.Sheboygan, WICPAIndefinite
from
October 10, 2007
Benvin, Anne C.Phoenix, AZEnrolled AgentIndefinite
from
October 22, 2007
Kingman, William B.San Antonio, TXAttorneyIndefinite
from
October 22, 2007
Nurney, J. ChristopherHatboro, PACPAIndefinite
from
October 22, 2007
Wren, Gary M.Redding, CAEnrolled AgentIndefinite
from
October 29, 2007
Beck, Brian S.Boston, MACPAIndefinite
from
November 1, 2007
Draper, Jeffrey L.Olathe, KSCPAIndefinite
from
November 1, 2007
Ehrlich, Gary P.Chevy Chase, MDCPAIndefinite
from
November 1, 2007
February 11, 20084132008–6 I.R.B.

NameAddressDesignationDate of Suspension
Garrison, John C.Prairie Village, KSCPAIndefinite
from
November 1, 2007
Greenslit, WayneKeene, NHCPAIndefinite
from
November 1, 2007
Moran, Philip D.Salem, MAAttorneyIndefinite
from
November 1, 2007
Wright, CoryReno, NVCPAIndefinite
from
November 1, 2007
Turbeville, Mary A.Geyserville, CAEnrolled AgentIndefinite
from
November 16, 2007
Saffold, Rodger P.Cleveland, OHCPAIndefinite
from
December 1, 2007
Voss, Patrick W.Metairie, LACPAIndefinite
from
December 1, 2007
Rosner, Ronald I.Manahawkin, NJCPAIndefinite
from
December 13, 2007
Johnson, Jr., StanleyMiami, FLAttorneyIndefinite
from
December 14, 2007
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice before
the Internal RevenueService any practi-
tioner who, within five years from the date
the expedited proceeding is instituted (1)
has had a license to practice as an attor-
ney, certified public accountant, or actuary
suspended or revoked for cause or (2) has
been convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Crotts, William P.Phoenix, AZAttorneyIndefinite
from
October 16, 2007
Daugherty, Troy L.Olathe, KSAttorneyIndefinite
from
October 16, 2007
2008–6 I.R.B.414February 11, 2008

NameAddressDesignationDate of Suspension
Driscoll, Jr., Wilfred C.Somerset, MAAttorneyIndefinite
from
October 16, 2007
Shah, Ashok S.Manalapan, NJCPAIndefinite
from
October 16, 2007
Sheline, Calvin L.Camp Verde, AZCPAIndefinite
from
October 16, 2007
Bosse, Leigh D.Hillsborough, NHAttorneyIndefinite
from
October 24, 2007
Webb, James E.Nashville, TNCPAIndefinite
from
October 25, 2007
Gottschalk, Don E.Cedar Falls, IAAttorneyIndefinite
from
October 31, 2007
Joy, Steven B.Paton, IAAttorneyIndefinite
from
October 31, 2007
Smallwood, Teresa L.Durham, NCAttorneyIndefinite
from
November 2, 2007
Donaldson, James F.Denver, COAttorneyIndefinite
from
November 15, 2007
Roux, Johnathan M.Fair Oaks, CACPAIndefinite
from
November 20, 2007
Linville, Wiley T.Denver, COAttorneyIndefinite
from
December 4, 2007
Andrade, Sergio R.Inver Grove Hghts, MNAttorneyIndefinite
from
December 13, 2007
Arzani, Mitzi H.Charlotte, NCCPAIndefinite
from
December 13, 2007
Catron, Stephen B.Knoxville, TNAttorneyIndefinite
from
December 13, 2007
Coulagouri, Louis A.Moorestown, NJAttorneyIndefinite
from
December 13, 2007
February 11, 20084152008–6 I.R.B.

NameAddressDesignationDate of Suspension
Crown, Charles K.Blakeslee, PACPAIndefinite
from
December 13, 2007
George, Philip J.Great Falls, VAAttorneyIndefinite
from
December 13, 2007
Heitz, John P.Oneill, NEAttorneyIndefinite
from
December 13, 2007
Jones, William F.Park Rapids, MNAttorneyIndefinite
from
December 13, 2007
Khoury, Arthur M.Lawrence, MAAttorneyIndefinite
from
December 13, 2007
McGree, Charles A.Fort Payne, ALAttorneyIndefinite
from
December 13, 2007
Nason, George H.Franklin, TNAttorneyIndefinite
from
December 13, 2007
Owen, Thomas A.Arlington, TXAttorneyIndefinite
from
December 13, 2007
Ozulumba, MichaelBoston, MAAttorneyIndefinite
from
December 13, 2007
Phillips, Mark A.Elm Grove, WIAttorneyIndefinite
from
December 13, 2007
Simpson, Joseph H.Amite, LAAttorneyIndefinite
from
December 13, 2007
Sipes, Laura A.St. Charles, MOAttorneyIndefinite
from
December 13, 2007
Sullivan, Joseph O.Warwick, NYAttorneyIndefinite
from
December 13, 2007
Szegda, Michael A.Old Tappan, NJAttorneyIndefinite
from
December 13, 2007
Misch, Paul M.Akron, OHAttorneyIndefinite
from
December 17, 2007
2008–6 I.R.B.416February 11, 2008

NameAddressDesignationDate of Suspension
Brenner, Allen L.Long Beach, NYAttorneyIndefinite
from
December 20, 2007
Cook, Rirchard B.Cockeysville, MDAttorneyIndefinite
from
December 20, 2007
Shang, Wade V.S. San Francisco, CACPAIndefinite
from
December 20, 2007
Suspensions From Practice Before the Internal Revenue
Service After Appeal
Under Title 31, Code of Federal Regu-
lations, Part 10, after a decision is issued
by an Administrative Law Judge, either
party may appeal to the Secretary of the
Treasury. The following individuals have
been placed under suspension from prac-
tice before the Internal Revenue Service
AFTERan appeal:
NameAddressDesignationEffective Date
Andrews, Ted E.Avon, INCPAIndefinite
from
October 19, 2007
Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an adminis-
trative law judge, the following individu-
als have been disbarred from practice be-
fore the Internal Revenue Service:
NameAddressDesignationEffective Date
Ruocchio, RaymondHavertown, PACPAApril 30, 2007
Roseman, Eric W.Scottsdale, AZCPAAugust 20, 2007
Solomon, StanleyBrooklyn,NYCPASeptember 04, 2007
Marks, RobertMedfield, MAAttorneyOctober 15, 2007
February 11, 20084172008–6 I.R.B.

Censure Issued by Consent
Under Title 31, Code of Federal Reg-
ulations, Part 10, in lieu of a proceeding
being instituted or continued, an attorney,
certified public accountant, enrolled agent,
or enrolled actuary, may offer his or her
consent to the issuance of a censure. Cen-
sure is a public reprimand.
The following individuals have con-
sented to the issuance of a Censure:
NameAddressDesignationDate of Censure
Villarreal, RicardoHouston, TXEASeptember 24, 2007
Meisgeier, Deborah K.Richmond, TXEAOctober 16, 2007
O’Brien, Colleen D.Winter Park, FLCPAOctober 24, 2007
Staver, Peter J.Southgate, MIAttorneyNovember 06, 2007
Weiss, IraPittsburgh, PAAttorneyNovember 29, 2007
Orr, William S.Kerrville, TXCPADecember 04, 2007
Whitsitt, RichardPanama City, FLCPADecember 04, 2007
2008–6 I.R.B.418February 11, 2008

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.
February 11, 2008i2008–6 I.R.B.

Numerical Finding List
1
Bulletins 2008–1 through 2008–6
Announcements:
2008-1, 2008-1 I.R.B.246
2008-2, 2008-3 I.R.B.307
2008-3, 2008-2 I.R.B.269
2008-4, 2008-2 I.R.B.269
2008-5, 2008-4 I.R.B.333
2008-6, 2008-5 I.R.B.378
2008-7, 2008-5 I.R.B.379
2008-8, 2008-6 I.R.B.403
Notices:
2008-1, 2008-2 I.R.B.251
2008-2, 2008-2 I.R.B.252
2008-3, 2008-2 I.R.B.253
2008-4, 2008-2 I.R.B.253
2008-5, 2008-2 I.R.B.256
2008-6, 2008-3 I.R.B.275
2008-7, 2008-3 I.R.B.276
2008-8, 2008-3 I.R.B.276
2008-9, 2008-3 I.R.B.277
2008-10, 2008-3 I.R.B.277
2008-11, 2008-3 I.R.B.279
2008-12, 2008-3 I.R.B.280
2008-13, 2008-3 I.R.B.282
2008-14, 2008-4 I.R.B.310
2008-15, 2008-4 I.R.B.313
2008-16, 2008-4 I.R.B.315
2008-17, 2008-4 I.R.B.316
2008-18, 2008-5 I.R.B.363
2008-19, 2008-5 I.R.B.366
2008-20, 2008-6 I.R.B.406
Proposed Regulations:
REG-104713-07, 2008-6 I.R.B.409
REG-111583-07, 2008-4 I.R.B.319
REG-114126-07, 2008-6 I.R.B.410
Revenue Procedures:
2008-1, 2008-1 I.R.B.1
2008-2, 2008-1 I.R.B.90
2008-3, 2008-1 I.R.B.110
2008-4, 2008-1 I.R.B.121
2008-5, 2008-1 I.R.B.164
2008-6, 2008-1 I.R.B.192
2008-7, 2008-1 I.R.B.229
2008-8, 2008-1 I.R.B.233
2008-9, 2008-2 I.R.B.258
2008-10, 2008-3 I.R.B.290
2008-11, 2008-3 I.R.B.301
2008-12, 2008-5 I.R.B.368
2008-13, 2008-6 I.R.B.407
Revenue Rulings:
2008-1, 2008-2 I.R.B.248
2008-2, 2008-2 I.R.B.247
2008-3, 2008-2 I.R.B.249
2008-4, 2008-3 I.R.B.272
2008-5, 2008-3 I.R.B.271
2008-6, 2008-3 I.R.B.271
2008-8, 2008-5 I.R.B.340
2008-9, 2008-5 I.R.B.342
Tax Conventions:
2008-8, 2008-6 I.R.B.403
Treasury Decisions:
9368, 2008-6 I.R.B.382
9369, 2008-6 I.R.B.394
9375, 2008-5 I.R.B.344
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin
2007–52, dated December 26, 2007.
2008–6 I.R.B.iiFebruary 11, 2008

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–1 through 2008–6
Notices:
2001-16
Modified by
Notice 2008-20, 2008-6 I.R.B.406
2006-107
Modified by
Notice 2008-7, 2008-3 I.R.B.276
2007-30
Modified and superseded by
Notice 2008-14, 2008-4 I.R.B.310
2007-54
Clarified by
Notice 2008-11, 2008-3 I.R.B.279
Proposed Regulations:
REG-113891-07
Hearing scheduled by
Ann. 2008-4, 2008-2 I.R.B.269
Revenue Procedures:
2007-1
Superseded by
Rev. Proc. 2008-1, 2008-1 I.R.B.1
2007-2
Superseded by
Rev. Proc. 2008-2, 2008-1 I.R.B.90
2007-3
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-4
Superseded by
Rev. Proc. 2008-4, 2008-1 I.R.B.121
2007-5
Superseded by
Rev. Proc. 2008-5, 2008-1 I.R.B.164
2007-6
Superseded by
Rev. Proc. 2008-6, 2008-1 I.R.B.192
2007-7
Superseded by
Rev. Proc. 2008-7, 2008-1 I.R.B.229
2007-8
Superseded by
Rev. Proc. 2008-8, 2008-1 I.R.B.233
2007-39
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
Revenue Procedures— Continued:
2007-52
Superseded by
Rev. Proc. 2008-9, 2008-2 I.R.B.258
Revenue Rulings:
2007-4
Supplemented and superseded by
Rev. Rul. 2008-3, 2008-2 I.R.B.249
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26,
2007.
February 11, 2008iii2008–6 I.R.B.

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