us-irs-revenue-rulings-irb-2005-51-pdf•Internal Revenue Bulletin 2005-51 (PDF rendition): IRS Revenue Rulings
Internal Revenue Bulletin 2005-51 (PDF rendition): IRS Revenue Rulings
us-irs-revenue-rulings-irb-2005-51-pdfInternal Revenue Bulletin 2005-51 (PDF rendition): IRS Revenue RulingsGuidance
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Bulletin No. 200 5-51 December 19, 200 5 HIGHLIGHTS OF THIS ISSUE These synopses are intended only as aids to the reader in identifying the subject matter covered. They may not be relied upon as authoritative interpretations. INCOME TAX Rev. Rul. 2005–74, page 1153. Employee relocation costs.This ruling addresses the tax treatment of costs an employer incurs in connection with three different home purchase programs the employer may offer to employees who are being relocated. Transactions under the three programs are analyzed to determine whether, based on the benefits and burdens of ownership of an employee’s home, the transactions are treated for tax purposes as a sale of the home by the employee to the employer followed by a separate sale by the employer to a third party buyer, or as one sale by the employee to the third party buyer facilitated by the employer. Rev. Rul. 2005–78, page 1157. Interest rates; underpayments and overpayments.The rate of in terest determined under section 6621 of the Code for the cale ndar quarter beginning January 1, 2006, will be 7 per- cent for overpayments (6 percent in the case of a corporation), 7percen t for underpayments, and 9 percent for large corpo- rate und erpayments. The rate of interest paid on the portion of acorpo rate overpayment exceeding $10,000 will be 4.5 per- cent. Notice 2005–90, page 1163. This notice announces that Treasury and the Service intend to exercise regulatory authority under section 901(1)(3) of the Code not to apply the credit disallowance rules of section 901(1) to foreign withholding taxes on royalties received in “or- dinary course” back-to-back computer software licensing ar- rangements. The notice solicits comments on the exception as well as related issues under sections 901(1) and 901(k). Notice 2005–91, page 1164. This notice informs taxpayers that guidance will be issued re- garding the election to treat members of a family as a single S corporation shareholder provided in section 1361(c)(1) of the Code, which was created by the American Jobs Creation Act of 2004. Taxpayers may rely on guidance described in the notice until actual guidance is issued. EMPLOYEE PLANS REG–124988–05, page 1186. Proposed regulations under section 412 of the Code provide guidance regarding mortality tables to be used in determining the current liability of a qualified defined benefit plan under section 412(l)(7). A public hearing is scheduled for April 19, 2006. Notice 2005–92, page 1165. Distributions; recontributions; loans; Katrina Emergency Tax Relief Act of 2005 (KETRA).This notice describes var- ious aspects of sections 101 and 103 of KETRA. The notice addresses distributions, recontributions, 3-year ratable inclu- sions, 1-year inclusions and loans. The notice contains numer- ous examples of how these provisions work in the context of eligible retirement plans. (Continued on the next page) Actions Relating to Court Decisions is on the page following the Introduction. Fi nding Lists begin on page ii. Notice 2005–95, page 1172. Plan amendments; retroactive annuity starting date; elective deferrals.This notice clarifies the interaction of the amendment timing deadlines for plans qualified under section 401(a) of the Code as set forth in Rev. Proc. 2005–66 with the deadlines set forth in various other published guidance. This notice also provides transitional relief from certain deadlines, thus giving sponsors, practitioners, and employers additional time to adopt those required amendments. Notices 2004–84 and 2005–5 modified. ADMINISTRATIVE Rev. Proc. 2005–77, page 1176. This procedure amends the final withholding foreign partner- ship and withholding foreign trust agreements contained in Rev. Proc. 2003–64 by expanding the availability of simplified doc- umentation, reporting and withholding procedures, which are currently available only if the withholding foreign partnership is a general partner of the partnership or the withholding foreign trust is a trustee of the trust. This procedure removes this relatedness requirement thus expanding the availability of the simplified procedures. This procedure also makes a conform- ing change to the portion of the Qualified Intermediary agree- ment contained in Rev. Proc. 2003–64. Rev. Proc. 2003–64 modified. Rev. Proc. 2005–78, page 1177. Optional standard mileage rates.This procedure an- nounces 44.5 cents as the optional rate for deducting or accounting for expenses for business use of an automobile, 14 cents as the optional rate for use of an automobile as a charitable contribution, and 18 cents as the optional rate for use of an automobile as a medical or moving expense for 2006. Special rates apply to the charitable use of an automo- bile for the provision of relief related to Hurricane Katrina. The procedure also provides rules for substantiating the deductible expenses of using an automobile for business, moving, medi- cal, or charitable purposes. Rev. Proc. 2004–64, as modified by Announcement 2005–71, superseded. December 19, 20052005–51 I.R.B. The IRS Mission Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. Introduction The Internal Revenue Bulletin is the authoritative instrument of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service and for publishing Treasury Decisions, Executive Orders, Tax Conven- tions, legislation, court decisions, and other items of general interest. It is published weekly and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin contents are compiled semiannually into Cumulative Bulletins, which are sold on a single-copy basis. It is the policy of the Service to publish in the Bulletin all sub- stantive rulings necessary to promote a uniform application of the tax laws, including all rulings that supersede, revoke, mod- ify, or amend any of those previously published in the Bulletin. All published rulings apply retroactively unless otherwise indi- cated. Procedures relating solely to matters of internal man- agement are not published; however, statements of internal practices and procedures that affect the rights and duties of taxpayers are published. Revenue rulings represent the conclusions of the Service on the application of the law to the pivotal facts stated in the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices, identifying details and information of a confidential nature are deleted to prevent unwarranted invasions of privacy and to comply with statutory requirements. Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents. Unpublished rulings will not be relied on, used, or cited as precedents by Service personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and procedures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances are substantially the same. The Bulletin is divided into four parts as follows: Part I.—19 86 Code. This part i ncludes rulings and decisions based on provisions of the Intern al Revenue Code of 1986. Part II.—Treaties and Tax Legislation. This part is divided into two subparts as follows: Subpart A, Tax Conventions and Other Related Items, and Subpart B, Leg- islation and Related Committee Reports. Part III.—Administrative, Procedural, and Miscellaneous. To the extent practicable, pertinent cross references to these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rul- ings. Bank Secrecy Act Administrative Rulings are issued by the Department of the Treasury’s Office of the Assistant Sec- retary (Enforcement). Part IV .—Items of General Interest. This par t includes notices of proposed rulemakings, disbar- ment an d suspension lists, and announcements. The last Bulletin for each month includes a cumulative index for the matters published during the preceding months. These monthly indexes are cumulated on a semiannual basis, and are published in the last Bulletin of each semiannual period. The c ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate. For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402. 2005–51 I.R.B.December 19, 2005 Actions Relating to Decisions of the Tax Court It is the policy of the Internal Rev- enue Service to announce at an early date whether it will follow the holdings in cer- tain cases. An Action on Decision is the document making such an announcement. An Action on Decision will be issued at the discretion of the Service only on unap- pealed issues decided adverse to the gov- ernment. Generally, an Action on Decision is issued where its guidance would be help- ful to Service personnel working with the same or similar issues. Unlike a Treasury Regulation or a Revenue Ruling, an Action on Decision is not an affirmative statement of Service position. It is not intended to serve as public guidance and may not be cited as precedent. Actions on Decisions shall be relied upon within the Service only as conclu- sions applying the law to the facts in the particular case at the time the Action on Decision was issued. Caution should be exercised in extending the recommenda- tion of the Action on Decision to similar cases where the facts are different. More- over, the recommendation in the Action on Decision may be superseded by new legis- lation, regulations, rulings, cases, or Ac- tions on Decisions. Prior to 1991, the Service published acquiescence or nonacquiescence only in certain regular Tax Court opinions. The Service has expanded its acquiescence program to include other civil tax cases where guidance is determined to be help- ful. Accordingly, the Service now may acquiesce or nonacquiesce in the holdings of memorandum Tax Court opinions, as well as those of the United States District Courts, Claims Court, and Circuit Courts of Appeal. Regardless of the court decid- ing the case, the recommendation of any Action on Decision will be published in the Internal Revenue Bulletin. The recommendation in every Action on Decision will be summarized as ac- quiescence, acquiescence in result only, or nonacquiescence. Both “acquiescence” and “acquiescence in result only” mean that the Service accepts the holding of the court in a case and that the Service will follow it in disposing of cases with the same controlling facts. However, “ac- quiescence” indicates neither approval nor disapproval of the reasons assigned by the court for its conclusions; whereas, “acquiescence in result only” indicates disagreement or concern with some or all of those reasons. “Nonacquiescence” sig- nifies that, although no further review was sought, the Service does not agree with the holding of the court and, generally, will not follow the decision in disposing of cases involving other taxpayers. In reference to an opinion of a circuit court of appeals, a “nonacquiescence” indicates that the Service willnot follow the hold- ing on a nationwide basis. However, the Service will recognize the precedential impact of the opinion on cases arising within the venue of the deciding circuit. The Actions on Decisions published in the weekly Internal Revenue Bulletin are consolidated semiannually and appear in the first Bulletin for July and the Cumula- tive Bulletin for the first half of the year. A semiannual consolidation also appears in the first Bulletin for the following January and in the Cumulative Bulletin for the last half of the year. The Commissioner ACQUIESCES in the following decision: Montgomery v. Commissioner, 1 122 T.C. 1 (2004) 1 Acquiescence relating to whether a taxpayer is barred from challenging the existence or amount of the underlying tax liability for a tax period in a collection due process hearing under I.R.C. section 6330 solely because the tax liability was reported on the taxpayer’s tax return for that period. December 19, 20052005–51 I.R.B. Part I. Rulings and Decisions Under the Internal Revenue Code of 1986 Section 61.—Gross Income Defined 26 CFR 1.61–6: Gains derived from dealings in prop- erty. (Also §§ 82, 1001; 1.82–1, 1.6045–4.) Employee relocation costs.This rul- ing addresses the tax treatment of costs an employer incurs in connection with three different home purchase programs the em- ployer may offer to employees who are being relocated. Transactions under the three programs are analyzed to determine whether, based on the benefits and burdens of ownership of an employee’s home, the transactions are treated for tax purposes as a sale of the home by the employee to the employer followed by a separate sale by the employer to a third party buyer, or as one sale by the employee to the third party buyer facilitated by the employer. Rev. Rul. 2005–74 ISSUE Whether the transactions in the follow- ing situations are, for federal tax purposes, asaleofahomebyanemployeetoanem- ployer through the employer’s agent, a re- location management company, followed by a separate sale of that home by the employer to a third party buyer, or one sale of the home from the employee to the third party buyer facilitated by the em- ployer through the relocation management company. FACTS Situation 1 CompanyXenters into a contract with Y, a relocation management company, to provide relocation assistance, including a home purchase program, to employees of XwhomXis relocating to new job sites. Under the contract,Yagrees to act asX’s agent in purchasing at fair market value the homes of employees who are being relo- cated and then selling the homes to third party buyers.Xis liable for all costs in- curred byYin purchasing and selling the homes.Xalso is liable for any losses in- curred byYon the sale of any home, and is entitled to proceeds from the sale of a home in excess of the costs of purchasing the home. In no event willX,orYasX’s agent, pay an employee any amount repre- senting gain on the subsequent sale of the employee’s home to a third party buyer.X agrees to payYa fee for performing these services onX’s behalf. Ais an employee ofXthatXis relocat- ing to another job site. Pursuant to the con- tract withX,Yoffers its services under the home purchase program toA.Achooses to useY’s services and selects two apprais- ers from a list maintained byY. Each ap- praiser prepares an appraisal ofA’s home, and the appraisals are averaged to deter- mine the fair market value price at which Ywill offer to purchase the home. The purchase price forA’s home de- termined under the appraisal process is $500x. Under a proposed contract of sale, Yoffers to purchaseA’s home for $500x. This offer remains open for 90 days. IfA acceptsY’s offer by signing the contract of sale, the contract of sale requiresAto va- cate the home and deliver possession toY within a specified period of time. If the amount ofY’s offer is less than the out- standing balance onA’s mortgage, the con- tract of sale requiresAto pay the differ- ence toYat or before the closing of the sale. The contract of sale is not contin- gent or dependent in any way uponY’s en- tering into a sales agreement with a sub- sequent third party buyer, or any other event associated withY’s subsequent sale of the home, such as the buyer’s qualifi- cation for financing or the settlement date. Under the contract of sale,Yis uncondi- tionally obligated to pay the $500xpur- chase price and may assume, take subject to, or otherwise become responsible for any outstanding mortgages, liens, and en- cumbrances. The contract provides thatY becomes unconditionally obligated for all maintenance, taxes, insurance, expenses, risks, losses, and costs associated with the home as of the “settlement date,” that is, the later of the date of the contract of sale or the dateAvacates the home and turns possession over toY.IfAfails to perform its obligations under the contract, Ymay obtain damages or specific perfor- mance as a remedy. After the settlement date,Yholds itself out as the owner of the home to the general public.Ydeals with mortgage holders, insurance compa- nies, home maintenance companies, taxing jurisdictions, utility companies, real estate brokers, and other third parties in its own name. At closing,YpaysAthe value of the eq- uity in the home ($500xpurchase price mi- nus any mortgages, liens, or encumbrances assumed), plus any property tax prorations and other customary allocations (such as homeowner association dues).Ypays the settlement costs that are typically imposed on the buyer under local law.A,asgrantor, transfers the home toYby executing a deed to the property on which the name of the grantee is left blank (a “blank deed”).Y has the option of inserting its own name as grantee and recording the deed, or insert- ing the name of a third party buyer of the home fromYat the timeYcloses the sale of the home to the third party buyer. Ydoes not insert its name as grantee and does not record the deed.Ymanages and maintains the property while listing the home for sale through a real estate bro- ker that locatesB, a third party buyer.Y sells the home toBfor $490x.Yinserts B’s name in the deed and conveys legal ti- tle to the home toB. Pursuant to the con- tract betweenXandY,XpaysY’s fee and reimbursesYfor any costs incurred and the $10xloss on the sale of the home toB. Situation 2 The facts are the same as inSituation 1except that the home purchase program provided for inX’s contract withYalso af- fords an “amended value option” to em- ployees that are being relocated. In ad- dition to receiving the appraised value of- fer fromY, an employee who exercises the amended value option may list the home with a real estate broker to market the home to other potential buyers. If the em- ployee exercises the amended value op- tion, the employee must select the broker from a list of qualifiedbrokers maintained byY. Any listing agreement entered into by the employee must include an “exclusion clause” that provides that no commission is earned by or due to the broker unless 2005–51 I.R.B.1153December 19, 2005 a sale of the home to a third party buyer closes, and that a sale of the home toYter- minates the listing agreement without any commission being earned or due. If a potential third party buyer makes an offer, the real estate broker refers the offer toY.IfYdetermines that the offer isbona fideand exceedsY’s earlier offer based on the appraisals,Yamends the contract of sale to match the third party buyer’s offer. If the employee accepts the amended of- fer by signing the contract of sale,Ythen enters into a new listing agreement with a real estate broker, customarily the bro- ker previously selected by the employee, to market the home to a third party buyer, who may or may not be the same poten- tial buyer who made the previous offer. The employee does not sign any contract, binder or other document with a third party buyer, nor does the employee accept any down payment, deposit, or earnest money from a third party buyer. Yremits toXany proceeds received on the sale of the home to a third party buyer in excess of the purchase price paid to the employee for the home. In no event doesY orXtransfer any part of the excess amount to the employee. IfthesaleofthehomebyYto the third party buyer does not close, the employee is not obligated under the contract of sale to refund any portion of the purchase price toY. Nothing related toY’s sale of the home to a third party buyer affects the em- ployee’s sale of the home toY. Cis an employee ofXwhomXis re- locating to another job site. In addition to receiving an appraised value offer fromY of $500x,Cexercises the amended value option and lists the home with a qualified real estate broker. As a result of this list- ing,Cobtains an offer for $520xfrom a third party buyer,D,andforwardstheof- fer toY.Ydetermines that the $520xoffer isbona fideand amends its proposed con- tract of sale to matchD’s offer.Caccepts Y’s offer by signing the contract of sale at the amended price of $520x. Ysubsequently pays toCthe value of the equity in the home based on the pur- chase price of $520x. Pursuant to the ex- clusion clause,C’s listing agreement with the real estate broker is terminated with- out any commission being earned or due.Y takes possession of the home and, pursuant to the contract of sale, becomes uncon- ditionally obligated for all maintenance, taxes, insurance, expenses, risks, losses, and costs associated with the home.C,as grantor, transfers the home toYby execut- ing a blank deed to the property.Yleaves the name of the grantee blank and does not record this deed. Yenters into a new listing agreement with the real estate broker and thereafterY enters into a separate sales agreement with Dfor $520x. The sales agreement is made inY’s name.Cdoes not sign any contract, binder or other document withD.Y’s sale of the home toDcloses. At closing,Dpays $520xtoY,YinsertsD’s name on the deed as grantee, and the deed is recorded inD’s name. Situation 3 The facts are the same as inSituation 2, except thatXinstead enters into a contract withZ, a relocation management company, to provide relocation assistance to employ- ees whomXis relocating to new job sites. Under the home purchase program pro- vided for inX’s contract withZ,employ- ees may select an “amended value option” that has different terms and conditions than the amended value option offered byYas described inSituation 2. Specifically,Z, acting asX’s agent, is not required to offer a higher, amended value for an employee’s home, based on an offer from a prospective third party buyer located by the employee, unless and untilZenters into a sales con- tract with that third party buyer. In addi- tion, the employee retains the right to ap- prove or reject any offer or counter-offer made in the course of negotiations between Zand the third party buyer. Finally, the proceeds representing the higher amended value are distributedto the employee, and not toXorZ, only if and when the sale to the third party buyer closes. E,anemployeeofX, receives an ap- praised value offer fromZof $500xforE’s home.EexercisesZ’s amended value op- tion and locates a prospective purchaser, F, who offers $510xforE’s home.Ein- formsZofF’s offer of $510x.Z, withE’s approval, agrees thatZwill acceptF’s of- fer and sell the home toFfor $510xonce Zpurchases the home fromE.Zsubse- quently enters into a contract to purchase thehomefromEfor $510x.Zcloses on the purchase of the home fromEfor $510x and receives a blank deed signed byE,as grantor. At the closing of the sale of the home toF,ZinsertsF’s name on the deed as grantee, and thedeed is recorded inF’s name.Zpays toEthe value of the equity in the home based on the $510xsales price. LAW Section 61(a) of the Internal Revenue Code provides that except as otherwise provided in Subtitle A, gross income means all income from whatever source derived, including (but not limited to) compensation for services, including fees, commissions, fringe benefits, and similar items, and gains derived from dealings in property.See generally§§ 1.61–1, 1.61–2, and 1.61–6 of the Income Tax Regulations. Section 82 provides that except as provided in § 132(a)(6), gross income includes (as compensation for services) any amount received or accrued, directly or indirectly, by an individual as a pay- ment for or reimbursement of expenses of moving from one residence to another residence that is attributable to employ- ment or self-employment.See generally § 1.82–1. Section 1001(a) provides that the gain from the sale or other disposition of prop- erty shall be the excess of the amount real- ized therefrom over the adjusted basis pro- vided in § 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in § 1011 for determining loss over the amount realized. The examples in § 1.6045–4(r) illus- trate the information reporting rules in § 1.6045–4 for real estate transactions. Example(2) in § 1.6045–4(r) describes a transaction in which an employee,C, who is being transferred by his employer, accepts an offer to purchaseC’s home fromY, a corporation actingonbehalfof the employer to facilitate the relocation of transferred employees.Ctransfers the home toYfor $250,000 by executing a deed to the property in blank and giving Ya power of attorney to dispose of the home.Calso immediately vacates the home, whereuponYduly pays all costs associated with the home and is entitled to all income from the home, including sales proceeds. Shortly thereafter,Ysells the residence toDand insertsD’s name in the deed previously executed byC. Thus, neitherYnor the employer ever becomes a record owner of the residence.C’s transfer of the residence toYisasaleofreportable December 19, 200511542005–51 I.R.B. real estate as defined in § 1.6045–4(b)(2) and is subject to information reporting under § 1.6045–4. However, information reporting of the subsequent sale toDis not required becauseY, as a corporation, is a transferor that is exempt from information reporting under § 1.6045–4(d)(1). The issue is whether the transactions described inSituation 1,Situation 2,and Situation 3involve two separate sales of the home, a first sale from the employee to the employer and a second sale from the employer to a third party buyer, or only one sale from the employee to the third party buyer. A sale occurs for federal tax pur- poses upon the transfer of the benefits and burdens of ownership. Whether the ben- efits and burdens of ownership have been transferred is a question of fact that must be ascertained from the intention of the parties as evidenced by their written agree- ments read in the light of attending facts and circumstances.See Grodt & McKay Realty,Inc.v.Commissioner,77T.C. 1221, 1237 (1981);see also Major Realty v. Commissioner, 749 F.2d 1483, 1486 (11th Cir. 1985). Courts consider the following factors in determining whether the benefits and burdens of ownership are transferred: (1) whether legal title passes; (2) how the par- ties treat the transaction; (3) whether an equity was acquired in the property; (4) whether the contract creates a present obli- gation on the seller to execute and deliver a deed and a present obligation on the pur- chaser to make payments; (5) whether the rightofpossessionisvestedinthepur- chaser; (6) which party pays the property taxes; (7) which party bears the risk of loss or damage to the property; and (8) which party receives the profits from the opera- tion and sale of the property.Grodt and McKay, 77 T.C. at 1237–1238. Although the passage of legal title is a significant factor, it is not determina- tive.Yelencsics v. Commissioner,74T.C. 1513, 1527 (1980);Deyoe v. Commis- sioner, 66 T.C. 904, 910 (1976). Thus, for federal tax purposes a sale occurs upon the transfer of the benefits and burdens of ownership rather than upon the satis- faction of the technical requirements for passage of legal title under state law.Derr v. Commissioner, 77 T.C. 708, 723 (1981); Yelencsics, 74 T.C. at 1527.See alsoRev. Rul. 72–252, 1972–1 C.B. 193 (sale occurs when the purchaser executes an un- conditional contract to purchase property, acquires possession, and assumes other burdens and privileges of ownership, even if the deed to the property is delivered later). Consequently, the execution of a contract to purchase real estate in the fu- ture generally is not a realization event. SeeRev. Rul. 69–93, 1969–1 C.B. 139. InAmdahl Corp. v. Commissioner, 108 T.C. 507 (1997), the court considered whether payments made by the taxpayer to relocation service companies to assist in the disposition of homes of relocated employees were deductible as ordinary ex- penses or as capital losses. The Internal Revenue Service contended that the tax- payer acquired ownership of the employ- ees’ homes, that the homes were capital as- sets when resold by the taxpayer, and that the payments were deductible only as cap- ital losses. The taxpayer argued that the payments were a form of employee ben- efits deductible as ordinary and necessary business expenses. On the facts presented inAmdahl,the court agreed with the taxpayer that it did not acquire ownership of the employees’ homes, and that the payments were de- ductible as ordinary expenses. The court found that the most significant factors of the taxpayer’s relocation service programs demonstrated that the employees retained the benefits and burdens of ownership of the homes. In particular, the court em- phasized that the relocating employees re- tained legal title to their homes through the use of blank deeds; that it was not the in- tent of the parties to transfer ownership of the homes, as evidenced by the fact the tax- payer did not generally hold itself out to the public as the purchaser or owner of the homes; that the contracts of sale did not create present obligations on the relocation service companies and the employees to effect a transfer of ownership of the homes; and that the employees received the profits from the subsequent sales of the homes by the taxpayer to third parties. ANALYSIS Pursuant to a benefits and burdens anal- ysis of the transactions inSituation 1,there are two separate sales of the home. Un- der the contract of sale betweenAandY, Ais obligated to, and does, deliver a deed tothehometoY. This delivery is accom- plished whetherAdelivers toYat closing a deed withY’s name inserted as grantee or a blank deed.See§ 1.6045–4(r),Example (2). InSituation 1, the delivery of the deed byAto convey ownership of the home toYis accompanied byY’s corresponding obligation to pay the purchase price of the home toA. On the settlement date,Yac- quires all ofA’s interest and equity in the home. AandYtreat the transaction as a sale of the home fromAtoY. In this regard, the contract provides thatAis selling, and Yis buying, the home. After purchasing the home,Ydeals with mortgage holders, insurance companies, home maintenance companies, taxing jurisdictions, utility companies, real estate brokers, and other members of the public in its own name and as if it were the owner of the home. If any sales agreement subsequently entered into byYwith a third party buyer does not close,Yremains responsible for all costs and risks attributable to ownership. After settlement,Yhas the sole right to possession of the home.Yalso agrees to pay real property and other taxes with re- spect to the home.Ywill sustain any loss or benefit from any gain if the considera- tion toA(payments and any assumed lia- bilities) is greater or less than the amount received byYfrom a sale to a third party buyer.Yhas the risk of loss due to casualty and is responsible for insuring the home and making any and all necessary repairs to the home. By virtue of the agreement betweenX andY,Yis acting asX’s agent. The ap- plication of the above factors establishes that the benefits and burdens of owner- ship of the home transfer fromAtoX, whether or not a blank deed is sufficient under local law to transfer legal title to the home toX. While the reasonXacquires the benefits and burdens of ownership of the home is to facilitateA’s relocation, this motivation is not incompatible with con- cluding thatXacquired the property.See Rev. Ruls. 72–339, 1972–2 C.B. 31, and 82–204, 1982–2 C.B. 192; § 1.6045–4(r), Example(2). Thus, inSituation 1,Asells the home toXfor $500x. Any gain on the sale of the home is realized byAunder § 1001 and § 61(a)(3), and none of this amount con- stitutes taxable compensation toAunder §61(a)(1).X, acting throughY, separately sells the home toBfor $490x. 2005–51 I.R.B.1155December 19, 2005 Applying the benefits and burdens anal- ysis to the transactions inSituation 2,the fact thatCexercises the amended value op- tion does not alter the conclusion that there are two separate sales of the home. For the reasons discussed with respect to the sale ofthehomefromAtoXinSituation 1, the benefits and burdens of ownership also transfer fromCtoXin the sale of the home inSituation 2. Furthermore, the sale ofC’s home toXis not contingent in any respect onX’s sale of the home toDor any other third party buyer.X’s agent,Y, is identified as the seller in the sales agreement withD, and under no circumstances isCentitled to any part of any gain realized if the con- sideration received byXonthesaleofthe home toDexceeds the consideration paid toCbyXon the purchase of the home. Thus, inSituation 2,Csells the home toXfor $520x. Any gain on the sale of the home is realized byCunder § 1001 and § 61(a)(3), and none of this amount con- stitutes taxable compensation toCunder § 61(a)(1).Xseparately sells the home to Dfor $520x. However, applying the benefits and burdens analysis to the transactions in Situation 3yields a different result. In Situation 3the amended value option of- fered under the contract betweenXand Z, the relocation company acting asX’s agent, differs significantly from the op- tion described inSituation 2. The sale of E’s home toZ, acting forX, at the higher amended price is contingent onZentering into a contract at that price withF,the third party buyer located byE. In addition, Eretains the right to approve any offer or counter-offer in any negotiations between ZandF. Therefore, althoughX, through its agentZ, is burdened with some costs in connection with the transaction,Eef- fectively retains the rights to negotiate the final contract and obtain the benefit of a higher price for the property.See Amdahl, 108 T.C. at 523 (employer “did not acquire beneficial ownership of the residences of its relocating employees”). Thus, inSituation 3the transaction is, for federal tax purposes, one sale of the home fromEtoFfor $510x, facilitated by Xthrough its agentZ. Any gain on the sale of the home is realized byEunder § 1001 and§61(a)(3). Anyexpenses paid byX, directly or through its agentZ,withre- spect to the home, including maintenance costs, taxes, insurance, losses, and other costs associated with the home would be considered paid on behalf ofEby virtue ofE’s employment withX. Consequently, any such amounts paid byXconstitute tax- able compensation toEunder § 61(a)(1). The conclusions in this revenue ruling with respect toSituation 1andSituation 2 apply to circumstances involving substan- tially similar relocation service programs. The Service will follow theAmdahlopin- ion in circumstances involving relocation service programs that are substantially similar to the programs described in that opinion, and in other circumstances, such as those described inSituation 3,which indicate that the benefits and burdens of ownership of the employees’ homes are not transferred to the employer. Consistent with the holdings inSituation 1andSitu- ation 2, the use of a blank deed will not, by itself, cause a program to be treated as substantially similar to the programs described inAmdahl. HOLDINGS The transactions inSituation 1andSit- uation 2are, for federal tax purposes, sales ofahomebyanemployeetoanemployer through the employer’s agent, a relocation management company, followed by a sep- arate sale of that home by the employer to a third party buyer. The transaction inSitua- tion 3is, for federal tax purposes, one sale ofahomebyanemployeetoathirdparty buyer facilitated by the employer through the relocation management company. DRAFTING INFORMATION The principal author of this revenue rul- ing is Edward C. Schwartz of the Office of Associate Chief Counsel (Income Tax and Accounting). For further informa- tion regarding this revenue ruling, contact Mr. Schwartz at (202) 622–4960 (not a toll-free call). Section 62.—Adjusted Gross Income Defined 26 CFR 1.62–2: Reimbursements and other expense allowance arrangements. Rules are provided under which a reimbursement or other expense allowance arrangement for the cost of operating an automobile for business purposes will satisfy the requirements of section 62(c) of the Code as to business connection, substantiation, and return- ing amounts in excess of expenses. See Rev. Proc. 2005-78, page 1177. Section 82.—Reimburse- ment for Expenses of Moving 26 CFR 1.82–1: Payments for or reimbursements of expenses of moving from one residence to another residence attributable to employment or self-employ- ment. In the transactions addressed in the ruling, is there a sale of a home by an employee to an employer fol- lowed by a separate sale of the home by the employer to a third party buyer, or one sale of the home from the employee to the third party buyer? See Rev. Rul. 2005-74, page 1153. Section 16 2.—Trade or Business E xpenses 26 CFR 1.162–17: Reporting and substantiation of certain business expenses of employees. Rules are provided for substantiating the amount of a deduction for an expense for business use of an automobile. See Rev. Proc. 2005-78, page 1177. Section 170.—Charitable, etc., Contributions and Gifts 26 CFR 1.170A–1: Charitable, etc., contributions and gifts; allowance of deduction. Rules are provided for substantiating the amount of a deduction for an expense for charitable use of an automobile. See Rev. Proc. 2005-78, page 1177. Section 213.—Medical, Dental, etc., Expenses 26 CFR 1.213–1: Medical, dental, etc., expenses. Rules are provided for substantiating the amount of a deduction or an expense for use of an automobile to obtain medical services. See Rev. Proc. 2005-78, page 1177. Section 217.—Moving Exp enses 26 CFR 1.217–2: Moving expenses. Rules are provided for substantiating the amount of a deduction or an expense for use of an automobile as part of a move. See Rev. Proc. 2005-78, page 1177. December 19, 200511562005–51 I.R.B. Section 274.—Disallowance of Certain Entertainment, etc., Expense s 26 CFR 1.274–5: Substantiation requirements. Rules are provided for substantiating the amount of ordinary and necessary business expenses of an employee for automobile expenses when a payor pro- vides a mileage allowance for the expenses. Rules are also provided for employees and self-employed in- dividuals to use in substantiating a trade or business deduction for automobile expenses. See Rev. Proc. 2005-78, page 1177. Section 1001.—Determi- nation of Amount of and Recognition of Gain or Loss In the transactions addressed in the ruling, is there asaleofahomebyanemployeetoanemployerfol- lowed by a separate sale of the home by the employer to a third party buyer, or one sale of the home from the employee to the third party buyer? See Rev. Rul. 2005-74, page 1153. Section 1016.—Adjust- ments to Basis 26 CFR 1.1016–3: Exhaustion, wear and tear, ob- solescence, amortization, and depletion for periods since February 28, 1913. Rules are provided for reduction of basis for busi- ness use of an automobile under either the optional standard mileage rate method or a mileage allowance under a reimbursement or other expense allowance arrangement. See Rev. Proc. 2005-78, page 1177. Section 6045.—Returns of Brokers 26 CFR 1.6045–4: Information reporting on real es- tate transactions with dates of closing on or after Jan- uary 1, 1991. In the transactions addressed in the ruling, is there asaleofahomebyanemployeetoanemployerfol- lowed by a separate sale of the home by the employer to a third party buyer, or one sale of the home from the employee to the third party buyer? See Rev. Rul. 2005-74, page 1153. Section 6621.—Determina- tion of Rate of Interest 26 CFR 301.6621–1: Interest rate. Interest rates; underpayments and overpayments.The rate of interest deter- mined under section 6621 of the Code for the calendar quarter beginning January 1, 2006, will be 7 percent for overpayments (6 percent in the case of a corporation), 7 percent for underpayments, and 9 percent for large corporate underpayments. The rate of interest paid on the portion of a corporate overpayment exceeding $10,000 will be 4.5 percent. Rev. Rul. 2005–78 Section 6621 of the Internal Revenue Code establishes the rates for interest on tax overpayments and tax underpay- ments. Under section 6621(a)(1), the overpayment rate is the sum of the federal short-term rate plus 3 percentage points (2 percentage points in the case of a corpo- ration), except the rate for the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the sum of the federal short-term rate plus 0.5 of a percentage point for interest computations made after December 31, 1994. Under section 6621(a)(2), the underpayment rate is the sum of the federal short-term rate plus 3 percentage points. Section 6621(c) provides that for pur- poses of interest payable under section 6601 on any large corporate underpay- ment, the underpayment rate under section 6621(a)(2) is determined by substituting “5 percentage points” for “3 percentage points.” See section6621(c) and section 301.6621–3 of the Regulations on Proce- dure and Administration for the definition of a large corporate underpayment and for the rules for determining the appli- cable date. Section 6621(c) and section 301.6621–3 are generally effective for periods after December 31, 1990. Section 6621(b)(1) provides that the Secretary will determine the federal short-term rate for the first month in each calendar quarter. Section 6621(b)(2)(A) provides that the federal short-term rate determined under section 6621(b)(1) for any month applies during the first calendar quarter beginning after such month. Section 6621(b)(2)(B) provides that in determining the addition to tax under sec- tion 6654 for failure to pay estimated tax for any taxable year, the federal short-term rate that applies during the third month fol- lowing such taxable year also applies dur- ing the first 15 days of the fourth month following such taxable year. Section 6621(b)(3) provides that the federal short-term rate for any month is the federal short-term rate determined during such month by the Secretary in accordance with § 1274(d), rounded to the nearest full percent (or, if a multiple of 1 /2 of 1 percent, the rate is increased to the next highest full percent). Notice 88–59, 1988–1 C.B. 546, an- nounced that, in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding. Rounded to the nearest full percent, the federal short-term rate based on daily com- pounding determined during the month of October 2005 is 4 percent. Accordingly, an overpayment rate of 7 percent (6 percent in the case of a corporation) and an under- payment rate of 7 percent are established for the calendar quarter beginning January 1, 2006. The overpayment rate for the por- tion of a corporate overpayment exceeding $10,000 for the calendar quarter beginning January 1, 2006, is 4.5 percent. The un- derpayment rate for large corporate under- payments for the calendar quarter begin- ning January 1, 2006, is 9 percent. These rates apply to amounts bearing interest dur- ing that calendar quarter. The 7 percent rate also applies to esti- mated tax underpayments for the first cal- endar quarter in 2006 and for the first 15 days in April 2006. Interest factors for daily compound in- terest for annual rates of 4.5 percent, 6 per- cent, 7 percent, and 9 percent are published in Tables 14, 17, 19, and 23 of Rev. Proc. 95–17, 1995–1 C.B. 556, 568, 571, 573, and 577. Annual interest rates to be compounded daily pursuant to section 6622 that apply for prior periods are set forth in the tables accompanying this revenue ruling. DRAFTING INFORMATION The principal author of this revenue rul- ing is Crystal Foster of the Office of Asso- ciate Chief Counsel (Procedure & Admin- istration). For further information regard- ing this revenue ruling, contact Ms. Foster at (202) 622–7198 (not a toll-free call). 2005–51 I.R.B.1157December 19, 2005 TABLE OF INTEREST RATES PERIODS BEFORE JUL. 1, 1975 — PERIODS ENDING DEC. 31, 1986 OVERPAYMENTS AND UNDERPAYMENTS PERIODRATE In 1995–1 C.B. DAILY RATE TABLE Before Jul. 1, 19756%Table 2, pg. 557 Jul. 1, 1975—Jan. 31, 19769%Table 4, pg. 559 Feb. 1, 1976—Jan. 31, 19787%Table 3, pg. 558 Feb. 1, 1978—Jan. 31, 19806%Table 2, pg. 557 Feb. 1, 1980—Jan. 31, 198212%Table 5, pg. 560 Feb. 1, 1982—Dec. 31, 198220%Table 6, pg. 560 Jan. 1, 1983—Jun. 30, 198316%Table 37, pg. 591 Jul. 1, 1983—Dec. 31, 198311%Table 27, pg. 581 Jan. 1, 1984—Jun. 30, 198411%Table 75, pg. 629 Jul. 1, 1984—Dec. 31, 198411%Table 75, pg. 629 Jan. 1, 1985—Jun. 30, 198513%Table 31, pg. 585 Jul. 1, 1985—Dec. 31, 198511%Table 27, pg. 581 Jan. 1, 1986—Jun. 30, 198610%Table 25, pg. 579 Jul. 1, 1986—Dec. 31, 19869%Table 23, pg. 577 TABLE OF INTEREST RATES FROM JAN. 1, 1987 — Dec. 31, 1998 OVERPAYMENTSUNDERPAYMENTS 1995–1 C.B.1995–1 C.B. RATE TABLEPGRATE TABLEPG Jan. 1 , 1987—Mar. 31, 1987 8%215759%23577 Apr. 1, 1987—Jun. 30, 19878%215759%23577 Jul. 1, 1987—Sep. 30, 19878%215759%23577 Oct. 1 , 1987—Dec. 31, 1987 9%2357710%25579 Jan. 1, 1988—Mar. 31, 198810%7362711%75629 Apr. 1, 1988—Jun. 30, 19889%7162510%73627 Jul. 1, 1988—Sep. 30, 1988 9%7162510%73627 Oct. 1, 1988—Dec. 31, 198810%7362711%75629 Jan. 1, 1989—Mar. 31, 198910%2557911%27581 Apr . 1, 1989—Jun. 30, 1989 11%2758112%29583 Jul. 1, 1989—Sep. 30, 198911%2758112%29583 Oct. 1, 1989—Dec. 31, 198910%2557911%27581 Ja n. 1, 1990—Mar. 31, 1990 10%2557 9 11%2758 1 Apr. 1, 1990—Jun. 30, 199010%2557911%27581 Jul. 1, 1990—Sep. 30, 199010%2557911%27581 O ct. 1, 1990—Dec. 31, 1990 1 0 %2 5 5 79 1 1 %2 7 5 81 Jan. 1, 1991—Mar. 31, 199110%2557911%27581 Apr. 1, 1991—Jun. 30, 19919%2357710%25579 J ul. 1, 1991—Sep. 30, 1991 9%2 3 5 77 1 0 %2 5 5 79 Oct. 1, 1991—Dec. 31, 19919%2357710%25579 Jan. 1, 1992—Mar. 31, 19928%696239%71625 Apr. 1, 1992—Jun. 30, 19927%676218%69623 Jul. 1, 1992—Sep. 30, 19927%676218%69623 Oct. 1, 1992—Dec. 31, 19926%656197%67621 Jan. 1, 1993—Mar. 31, 19936%175717%19573 Apr. 1, 1993—Jun. 30, 19936%175717%19573 Jul. 1, 1993—Sep. 30, 19936%175717%19573 Oct. 1, 1993—Dec. 31, 19936%175717%19573 Jan. 1, 1994—Mar. 31, 19946%175717%19573 Apr. 1, 1994—Jun. 30, 19946%175717%19573 Jul. 1, 1994—Sep. 30, 19947%195738%21575 December 19, 200511582005–51 I.R.B. TABLE OF INTEREST RATES FROM JAN. 1, 1987 — Dec. 31, 1998 — Continued OVERPAYMENTSUNDERPAYMENTS 1995–1 C.B.1995–1 C.B. RATE TABLEPGRATE TABLEPG Oct. 1, 1994—Dec. 31, 19948%215759%23577 Jan. 1, 1995— Mar. 31, 1995 8%215759%23577 Apr. 1, 1995—Jun. 30, 19959%2357710%25579 Jul. 1, 1995—Sep. 30, 19958%215759%23577 Oct. 1, 1995 —Dec. 31, 1995 8%215759%23577 Jan. 1, 1996—Mar. 31, 19968%696239%71625 Apr. 1, 1996—Jun. 30, 19967%676218%69623 Jul. 1, 199 6—Sep. 30, 1996 8%696239%71625 Oct. 1, 1996—Dec. 31, 19968%696239%71625 Jan. 1, 1997—Mar. 31, 19978%215759%23577 Apr. 1, 19 97—Jun. 30, 1997 8%215759%23577 Jul. 1, 1997—Sep. 30, 19978%215759%23577 Oct. 1, 1997—Dec. 31, 19978%215759%23577 Jan. 1, 1 998—Mar. 31, 1998 8%215759%23577 Apr. 1, 1998—Jun. 30, 19987%195738%21575 Jul. 1, 1998—Sep. 30, 19987%195738%21575 Oct. 1, 1998—Dec. 31, 1998 7%195738%21575 TABLE O F INTEREST RATES FROM JANUARY 1, 1999 — PRESENT NONCORPORATE OVERPAYMENTS AND UNDERPAYMENTS 1995– 1C.B. RATETABLEPG Jan. 1, 1999—Mar. 31, 1999 7%19573 Apr. 1, 1999—Jun. 30, 19998%21575 Jul. 1, 1999—Sep. 30, 19998%21575 Oct. 1, 1999—Dec. 31, 1999 8%21575 Jan. 1, 2000—Mar. 31, 20008%69623 Apr. 1, 2000—Jun. 30, 20009%71625 Jul . 1, 2000—Sep. 30, 2000 9%71625 Oct. 1, 2000—Dec. 31, 20009%71625 Jan. 1, 2001—Mar. 31, 20019%23577 Ap r. 1, 2001—Jun. 30, 2001 8%2157 5 Jul. 1, 2001—Sep. 30, 20017%19573 Oct. 1, 2001—Dec. 31, 20017%19573 J an. 1, 2002—Mar. 31, 2002 6 % 1 7 5 71 Apr. 1, 2002—Jun. 30, 20026%17571 Jul. 1, 2002—Sep. 30, 20026%17571 Oct. 1, 2002—Dec. 31, 20026%17571 Jan. 1, 2003—Mar. 31, 20035%15569 Apr. 1, 2003—Jun. 30, 20035%15569 Jul. 1, 2003—Sep. 30, 20035%15569 Oct. 1, 2003—Dec. 31, 20034%13567 Jan. 1, 2004—Mar. 31, 20044%61615 Apr. 1, 2004—Jun. 30, 20045%63617 Jul. 1, 2004—Sep. 30, 20044%61615 Oct. 1, 2004—Dec. 31, 20045%63617 Jan. 1, 2005—Mar. 31, 20055%15569 Apr. 1, 2005—Jun. 30, 20056%17571 Jul. 1, 2005—Sep. 30, 20056%17571 Oct. 1, 2005—Dec. 31, 20057%19573 Jan. 1, 2006—Mar. 31, 20067%19573 2005–51 I.R.B.1159December 19, 2005 TABLE OF INTEREST RATES FROM JANUARY 1, 1999 — PRESENT CORPORATE OVERPAYMENTS AND UNDERPAYMENTS OVERPAYMENTSUNDERPAYMENTS 1995–1 C.B.1995–1 C.B. RATE TABLEPGRATE TABLEPG Jan. 1, 1999—Mar. 31, 19996%175717%19573 Apr. 1, 1999— Jun. 30, 1999 7%195738%21575 Jul. 1, 1999—Sep. 30, 19997%195738%21575 Oct. 1, 1999—Dec. 31, 19997%195738%21575 Jan. 1, 2000 —Mar. 31, 2000 7%676218%69623 Apr. 1, 2000—Jun. 30, 20008%696239%71625 Jul. 1, 2000—Sep. 30, 20008%696239%71625 Oct. 1, 200 0—Dec. 31, 2000 8%696239%71625 Jan. 1, 2001—Mar. 31, 20018%215759%23577 Apr. 1, 2001—Jun. 30, 20017%195738%21575 Jul. 1, 20 01—Sep. 30, 2001 6%175717%19573 Oct. 1, 2001—Dec. 31, 20016%175717%19573 Jan. 1, 2002—Mar. 31, 20025%155696%17571 Apr. 1, 2 002—Jun. 30, 2002 5%155696%17571 Jul. 1, 2002—Sep. 30, 20025%155696%17571 Oct. 1, 2002—Dec. 31, 20025%155696%17571 Jan. 1, 2003—Mar. 31, 2003 4%135675%15569 Apr. 1, 2003—Jun. 30, 20034%135675%15569 Jul. 1, 2003—Sep. 30, 20034%135675%15569 Oct. 1 , 2003—Dec. 31, 2003 3%115654%13567 Jan. 1, 2004—Mar. 31, 20043%596134%61615 Apr. 1, 2004—Jun. 30, 20044%616155%63617 Jul. 1, 2004—Sep. 30, 2004 3%596134%61615 Oct. 1, 2004—Dec. 31, 20044%616155%63617 Jan. 1, 2005—Mar. 31, 20054%135675%15569 Apr. 1, 2005—Jun. 30, 2005 5%155696%17571 Jul. 1, 2005—Sep. 30, 20055%155696%17571 Oct. 1, 2005—Dec. 31, 20056%175717%19573 Jan . 1, 2006—Mar. 31, 2006 6%175717%19573 TA BLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS FR OM JANUARY 1, 1991 — PRESENT 1995–1 C.B. R ATE T ABLE P G Jan. 1, 1991—Mar. 31, 199113%31585 Apr. 1, 1991—Jun. 30, 199112%29583 Jul. 1, 1991—Sep. 30, 199112%29583 Oct. 1, 1991—Dec. 31, 199112%29583 Jan. 1, 1992—Mar. 31, 199211%75629 Apr. 1, 1992—Jun. 30, 199210%73627 Jul. 1, 1992—Sep. 30, 199210%73627 Oct. 1, 1992—Dec. 31, 19929%71625 Jan. 1, 1993—Mar. 31, 19939%23577 Apr. 1, 1993—Jun. 30, 19939%23577 Jul. 1, 1993—Sep. 30, 19939%23577 Oct. 1, 1993—Dec. 31, 19939%23577 Jan. 1, 1994—Mar. 31, 19949%23577 Apr. 1, 1994—Jun. 30, 19949%23577 Jul. 1, 1994—Sep. 30, 199410%25579 December 19, 200511602005–51 I.R.B. TABLE OF INTEREST RATES FOR LARGE CORPORATE UNDERPAYMENTS FROM JANUARY 1, 1991 — PRESENT – Continued 1995–1 C.B. RATETABLEPG Oct. 1, 1994—Dec. 31, 199411%27581 Jan. 1, 1995—Mar. 31, 199511%27581 Apr. 1, 1995—Jun. 30, 199512%29583 Jul. 1, 1995—Sep. 30, 199511%27581 Oct. 1, 1995—Dec. 31, 199511%27581 Jan. 1, 1996—Mar. 31, 199611%75629 Apr. 1, 1996—Jun. 30, 199610%73627 Jul. 1, 1996—Sep. 30, 199611%75629 Oct. 1, 1996—Dec. 31, 199611%75629 Jan. 1, 1997—Mar. 31, 199711%27581 Apr. 1, 1997—Jun. 30, 199711%27581 Jul. 1, 1997—Sep. 30, 199711%27581 Oct. 1, 1997—Dec. 31, 199711%27581 Jan. 1, 1998—Mar. 31, 199811%27581 Apr. 1, 1998—Jun. 30, 199810%25579 Jul. 1, 1998—Sep. 30, 199810%25579 Oct. 1, 1998—Dec. 31, 199810%25579 Jan. 1, 1999—Mar. 31, 19999%23577 Apr. 1, 1999—Jun. 30, 199910%25579 Jul. 1, 1999—Sep. 30, 199910%25579 Oct. 1, 1999—Dec. 31, 199910%25579 Jan. 1, 2000—Mar. 31, 200010%73627 Apr. 1, 2000—Jun. 30, 200011%75629 Jul. 1, 2000—Sep. 30, 200011%75629 Oct. 1, 2000—Dec. 31, 200011%75629 Jan. 1, 2001—Mar. 31, 200111%27581 Apr. 1, 2001—Jun. 30, 200110%25579 Jul. 1, 2001—Sep. 30, 20019%23577 Oct. 1, 2001—Dec. 31, 20019%23577 Jan. 1, 2002—Mar. 31, 20028%21575 Apr. 1, 2002—Jun. 30, 20028%21575 Jul. 1, 2002—Sep. 30, 20028%21575 Oct. 1, 2002—Dec. 30, 20028%21575 Jan. 1, 2003—Mar. 31, 20037%19573 Apr. 1, 2003—Jun. 30, 20037%19573 Jul. 1, 2003—Sep. 30, 20037%19573 Oct. 1, 2003—Dec. 31, 20036%17571 Jan. 1, 2004—Mar. 31, 20046%65619 Apr. 1, 2004—Jun. 30, 20047%67621 Jul. 1, 2004—Sep. 30, 20046%65619 Oct. 1, 2004—Dec. 31, 20047%67621 Jan. 1, 2005—Mar. 31, 20057%19573 Apr. 1, 2005—Jun. 30, 20058%21575 Jul. 1, 2005—Sep. 30, 20058%21575 Oct. 1, 2005—Dec. 31, 20059%23577 Jan. 1, 2006—Mar. 31, 20069%23577 2005–51 I.R.B.1161December 19, 2005 TABLE OF INTEREST RATES FOR CORPORATE OVERPAYMENTS EXCEEDING $10,000 FROM JANUARY 1 , 1995 — PRESENT 1995–1 C.B. RATETABLEPG Jan. 1, 1995—Mar. 31, 19956.5%18572 Apr. 1, 1995—Jun. 30, 19957.5%20574 Jul. 1, 1995—Sep. 30, 19956.5%18572 Oct. 1, 1995—Dec. 31, 19956.5%18572 Jan. 1, 1996—Mar. 31, 19966.5%66620 Apr. 1, 1996—Jun. 30, 19965.5%64618 Jul. 1, 1996—Sep. 30, 19966.5%66620 Oct. 1, 1996—Dec. 31, 19966.5%66620 Jan. 1, 1997—Mar. 31, 19976.5%18572 Apr. 1, 1997—Jun. 30, 19976.5%18572 Jul. 1, 1997—Sep. 30, 19976.5%18572 Oct. 1, 1997—Dec. 31, 19976.5%18572 Jan. 1, 1998—Mar. 31, 19986.5%18572 Apr. 1, 1998—Jun. 30, 19985.5%16570 Jul. 1, 1998—Sep. 30, 19985.5%16570 Oct. 1, 1998—Dec. 31, 19985.5%16570 Jan. 1, 1999—Mar. 31, 19994.5%14568 Apr. 1, 1999—Jun. 30, 19995.5%16570 Jul. 1, 1999—Sep. 30, 19995.5%16570 Oct. 1, 1999—Dec. 31, 19995.5%16570 Jan. 1, 2000—Mar. 31, 20005.5%64618 Apr. 1, 2000—Jun. 30, 20006.5%66620 Jul. 1, 2000—Sep. 30, 20006.5%66620 Oct. 1, 2000—Dec. 31, 20006.5%66620 Jan. 1, 2001—Mar. 31, 20016.5%18572 Apr. 1, 2001—Jun. 30, 20015.5%16570 Jul. 1, 2001—Sep. 30, 20014.5%14568 Oct. 1, 2001—Dec. 31, 20014.5%14568 Jan. 1, 2002—Mar. 31, 20023.5%12566 Apr. 1, 2002—Jun. 30, 20023.5%12566 Jul. 1, 2002—Sep. 30, 20023.5%12566 Oct. 1, 2002—Dec. 31, 20023.5%12566 Jan. 1, 2003—Mar. 31, 20032.5%10564 Apr. 1, 2003—Jun. 30, 20032.5%10564 Jul. 1, 2003—Sep. 30, 20032.5%10564 Oct. 1, 2003—Dec. 31, 20031.5%8562 Jan. 1, 2004—Mar. 31, 20041.5%56610 Apr. 1, 2004—Jun. 30, 20042.5%58612 Jul. 1, 2004—Sep. 30, 20041.5%56610 Oct. 1, 2004—Dec. 31, 20042.5%58612 Jan. 1, 2005—Mar. 31, 20052.5%10564 Apr. 1, 2005—Jun. 30, 20053.5%12566 Jul. 1, 2005—Sep. 30, 20053.5%12566 Oct. 1, 2005—Dec. 31, 20054.5%14568 Jan. 1, 2006—Mar. 31, 20064.5%14568 December 19, 200511622005–51 I.R.B. Part III. Administrative, Procedural, and Miscellaneous Credit for Certain Foreign Withholding Taxes Notice 2005–90 PURPOSE This notice provides guidance regard- ing the application of section 901(l) of the Internal Revenue Code (Code). In par- ticular, it addresses section 901(l)(1)(B), which disallows a foreign tax credit for certain withholding taxes on items of in- come or gain to the extent the recipient of the item is under an obligation to make re- lated payments with respect to positions in substantially similar or related property. The Treasury Department and the Internal Revenue Service (IRS) expect to issue reg- ulations that incorporate the guidance pro- vided in this notice. BACKGROUND Section 832 of the American Jobs Cre- ation Act of 2004 (P.L. 108–357) (the Act) added new subsection (l) to section 901 of the Code. Section 901(l) generally disal- lows a foreign tax credit for foreign with- holding tax on any item of income (other than dividends) or gain with respect to property if (a) the recipient of the item has not held the property for more than 15 days (within a 31-day testing period), exclusive of periods during which the recipient is protected from risk of loss, or (b) the re- cipient is under an obligation (whether pur- suant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. Section 901(l)(3) provides that the Secre- tarymaybyregulationprovide that section 901(l)(1) does not apply to property where such application is not necessary to carry out the purposes of section 901(l). Sec- tion 901(l) is effective for amounts that are paid or accrued after November 21, 2004, the date which is 30 days after the date of enactment of the Act. Section 901(l) pro- vides a rule similar to section 901(k), en- acted in 1997, which disallows a foreign tax credit for certain foreign taxes paid with respect to certain dividends. DISCUSSION The Treasury Department and the IRS remain concerned about transactions that involve inappropriate foreign tax credit re- sults. In this regard, the Treasury Depart- ment and the IRS believe that the credit disallowance rules of section 901(l) are important tools in preventing transactions designed for tax purposes to separate for- eign taxes from the related foreign income. The language of section 901(l) and its leg- islative history, however, make clear that the Treasury Department and the IRS are authorized to exerciseregulatory authority to prevent application of the general rule of section 901(l) in appropriate cases. The Treasury Department and the IRS have become aware of certain business ar- rangements involving computer software licensing in which application of the credit disallowance rules of section 901(l) is not necessary to carry out the purposes of sec- tion 901(l). Under a typical business ar- rangement, a domestic corporation (X) li- censes rights to a computer program (the master license agreement) to another do- mestic corporation (Y) for use in comput- ers and similar and related equipment that Y employs in connection with its business or that it manufactures and markets to cus- tomers. Y conducts its business operations through various domestic and foreign sub- sidiaries, sublicensing rights to X’s com- puter program to the subsidiaries as per- mitted under the terms and conditions of the master license agreement. X licenses the computer program to Y rather than di- rectly to each of Y’s subsidiaries because X wishes to centralize its customer rela- tionship with Y and minimize adminis- trative burdens, minimize its exposure to the credit risk and local risk of Y’s for- eign subsidiaries, and protect its rights in the computer program. Pursuant to the master license agreement, Y makes pay- ments to X when (a) Y or Y’s subsidiaries reproduce the licensed computer program on computers and other equipment used by Y or Y’s subsidiaries or (b) Y or Y’s subsidiaries reproduce and distribute X’s computer program on computers and other equipment manufactured and marketed to customers by Y or Y’s subsidiaries. Pur- suant to the sublicense agreements, Y’s subsidiaries make payments to Y when they reproduce X’s computer program on computers and other equipment that they use or when they reproduce and distribute X’s computer program on computers and other equipment that they manufacture and market to customers.Foreign gross-basis withholding taxes may be imposed with re- spect to the payments by Y’s foreign sub- sidiaries to Y. As noted, section 901(l) generally disal- lows a foreign tax credit for foreign with- holding tax on any item of income (other than dividends) or gain with respect to property if the recipient is under an obli- gation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, and section 901(l)(3) provides that the Secretary may by regula- tion provide that section 901(l)(1) does not apply to property where such application is not necessary to carry out the purposes of section 901(l). Pursuant to section 901(l)(3), the Trea- sury Department and the IRS have deter- mined that the application of section 901(l) to foreign withholding taxes imposed on payments in a back-to-back computer pro- gram licensing arrangement in the ordi- nary course of the licensor’s and licensee’s respective trades or businesses is not nec- essary to carry out the purposes of section 901(l). For this purpose, a “back-to-back computer program licensing arrangement” is a transaction or series of transactions in which (a) a domestic corporation (the master licensor) transfers a copyright right in a computer program or a copy of the computer program (as those terms are de- fined in Treas. Reg. §1.861–18(c) and (f)) to a domestic corporation (the head li- censee), and (b) the head licensee trans- fers a copyright right in the computer pro- gram or a copy of the computer program to one or more of its affiliates, as permit- ted under the terms and conditions of the master license agreement, for use in com- puters and similar and related equipment manufactured and marketed by the affili- ate (in the case of a transfer of a copyright right) or for the affiliate’s own use (in the case of a transfer of a copy of the computer program). For this purpose, an affiliate is any member of the head licensee’s affili- ated group as definedin section 1504(a), 2005–51 I.R.B.1163December 19, 2005 except that foreign corporations and sec- tion 936 corporations meeting the owner- ship requirements ofsection 1504(a) are also included in the affiliated group. For purposes of this notice, a back- to-back computer program licensing ar- rangement will be in the ordinary course of the licensor’s and licensee’s respective trades or businesses if (1) the arrangement is consistent with normal business prac- tices of the master licensor, independent of tax considerations, such as maintaining a centralized customer relationship with its licensee and minimizing administrative burdens and commercial risks; (2) the mas- ter licensor or one or more members of its affiliated group (as defined in section 1504(a)) is regularly engaged in the busi- ness of selling, leasing, or licensing com- puter programs; and (3) in the case of each transfer of a copyright right in the com- puter program or a copy of the computer program to an affiliate of the head licensee, where the payments with respect to such transfer are subject to foreign withhold- ing taxes, the affiliate uses the copyright rights or the copy of the computer program in a trade or business within the meaning of Treas. Reg. §1.367(a)–2T(b)(2) and (b)(5). Pursuant to section 901(l)(3), the Trea- sury Department and the IRS expect to issue regulations providing that section 901(l)(1)(B) will not apply to disallow a credit for foreign gross-basis withholding taxes imposed on income or gain with respect to back-to-back computer program licensing arrangements described in the preceding two paragraphs. In addition, the Treasury Department and the IRS are con- sidering issuing regulations providing that section 901(l)(1)(B) generally will not ap- ply to payments between members of the same consolidated group. The Treasury Department and the IRS also contemplate issuing regulations under section 901(k) and (l) addressing issues on which com- ments are solicited below. EFFECTIVE DATE The exception from the application of section 901(l)(1)(B) described in this no- tice is effective for amounts that are paid or accrued after November 21, 2004 (the ef- fective date of section 901(l)). Until regu- lations incorporating the guidance set forth in this notice are issued, taxpayers may rely on the guidance contained in this no- tice. REQUEST FOR COMMENTS AND CONTACT INFORMATION The Treasury Department and the IRS request comments concerning the excep- tion to section 901(l)(1)(B) described in this notice and any additional issues that should be addressed by regulations. In particular, comments are requested on (a) whether the licensing exception should ap- ply in the case of sublicenses to related par- ties that are not corporations (and which test of “relatedness” should apply), (b) the extent to which the licensing exception should apply if the master licensor or head licensee is a foreign corporation, (c) other types of licensing arrangements and types of property that should be covered by the licensing exception, (d) what restrictions should apply as part of the ordinary course of a trade or business requirement, and (e) other types of transactions that are not within the purposes of section 901(l) and the reasons for excluding such transactions from the application of section 901(l). In addition, comments are requested on the definitions of “related payments” and “positions in substantially similar or related property” for purposes of section 901(k) and (l). In particular, comments are requested on the application of section 901(k) where the recipient of a dividend is obligated to make payments under an arrangement where such payments reflect not only the amount of the dividend but also other factors, such as changes in the value of the dividend-paying stock, dividend performance or changes in the value of a portfolio of stocks, or obliga- tions under a debt instrument, annuity, or insurance contract. Finally, comments are requested on how regulations should address the effect of hedging transactions (including hedges of risk with respect to interest rate or currency fluctuations and credit risk) on the holding period and re- lated payment rules of section 901(k) and (l). Written comments may be submitted to the Office of Associate Chief Counsel (International), Attention: Ginny Chung (Notice 2005–90), CC:INTL:3, Inter- nal Revenue Service, 1111 Constitu- tion Avenue, NW, IR–4555, Washing- ton, DC 20224. Alternatively, taxpayers may submit comments electronically to Notice.comments@irscounsel.treas.gov. Comments will be available for public inspection and copying. For further in- formation regarding this notice, contact Ms. Chung of the Office of Associate Chief Counsel (International) at (202) 622–3850 (not a toll-free call). S Corporation Family Shareholder Election Notice 2005–91 PURPOSE The purpose of this notice is to inform taxpayers that Treasury and the Internal Revenue Service intend to issue future guidance regarding the election under § 1361(c)(1)(D) of the Internal Revenue Code, which allows members of a family to be treated as a single S corporation shareholder (hereinafter, the election). The election was created by § 231 of the American Jobs Creation Act of 2004, Pub. L. No. 108–357, 118 Stat. 1418 (the Act), which was enacted on October 22, 2004. The guidance will provide that the election is made in a manner similar to that described in this notice. Until such guidance is issued, taxpayers may rely on this notice. BACKGROUND Section 231 of the Act allows any fam- ilymembertomakeanelectionundernew § 1361(c)(1)(D) of the Internal Revenue Code to treat all members of the family as one shareholder of an S corporation for purposes of determining the number of shareholders of the corporation. The election is relevant only to the determi- nation of whether the corporation has no more than 100 shareholders as required un- der §1361(b)(1)(A) and has no impact on any other existing requirement for qualifi- cation as an S corporation. The term “members of the family” is defined in §1361(c)(1)(B) to include (i) the common ancestor, (ii) the lineal de- scendants of the common ancestor, and (iii) the spouses (or former spouses) of the lineal descendants or of the common an- cestor. The common ancestor may not be more than six generations removed from December 19, 200511642005–51 I.R.B. the youngest generation of shareholders who would be members of the common ancestor’s family (but for the six-gener- ation limit for identifying the common ancestor). This test is applied as of the later of the effective date of § 1361(c)(1), as amended by the Act, or the time the S corporation election under § 1362(a) (the S corporation election) is made. The election may be made (except as provided in Treasury regulations) by any member of the family. The election does not affect the requirement under § 1362(a)(2) that an S corporation election must be consented to by all shareholders, whether or not "members of the family,” who are share- holders at the time of the S corporation election. The election may be made for taxable years of the S corporation beginning after December 31, 2004. The election will be effective as of the first day of the S corpo- ration’s taxable year identified in the elec- tion as the first taxable year of the corpora- tion for which the election is effective, and shall remain in effect until terminated as provided in regulations prescribed by the Secretary. FAMILY SHAREHOLDER ELECTION A member of the family who is (or is treated under § 1361 and the regulations thereunder as) a shareholder of the S cor- poration may make the election. The elec- tion is made by notifying the corporation to which the election applies. The notifica- tion shall identify by name the member of the family making the election, the “com- mon ancestor” of the family to which the election applies, and the first taxable year of the corporation for which the election is to be effective. For purposes of identifying the com- mon ancestor (who does not have to be alive at the time the election is made) any spouse or former spouse of the common ancestor will be treated as being in the same generation as the common ancestor, and any spouse or former spouse of a lineal descendant of the common ancestor will be treated as being in the same generation as the lineal descendant to whom that spouse is or was married. For purposes of the election, the estate of a deceased member of the family will be considered to be a member of the family during the period in which the estate, or a trust described in § 1361(c)(2)(A)(iii), holds stock in the S corporation. Additionally, for purposes of the elec- tion, the members of the family will in- clude: (1) Each potential current beneficiary of an electing small business trust (ESBT) who is a member of the family, (2) The income beneficiary of a quali- fied subchapter S trust (QSST) who makes the QSST election, if that income benefi- ciary is a member of the family, (3) Each beneficiary of a trust who is a member of the family, if the trust was cre- ated primarily to exercise the voting power of stock transferred to it, (4) The member of the family for whose benefit a trust described in § 1361(c)(2)(A)(vi) was created, (5) The deemed owner of a trust treated as wholly owned under subpart E of Part I of subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code, if that deemed owner is a member of the family, and (6) The owner of an entity disregarded as an entity separate from its owner un- der § 301.7701–3 of the Procedure and Ad- ministration Regulations, if that owner is a member of the family. If a corporation has two or more elec- tions in effect and the members of one fam- ily for which the election has been made (the inclusive family) include all the mem- bers of another family for which the elec- tion was also made (the subsumed family), then the members of the inclusive family will be counted as one shareholder for pur- poses of § 1361(b)(1)(A) as long as the in- clusive family’s election is in effect, and the members of the subsumed family will not be counted as a separate and additional shareholder. The election will be effective as of the first day of the corporation’s taxable year designated by the shareholder making the election. Any election will remain in effect until terminated as provided in regulations. Taxpayers may have already taken cer- tain actions in order to make this election by various forms of notification to the cor- poration or to the IRS. In order for the elec- tion to be effective for taxable years begin- ning after December 31, 2004, taxpayers will need to provide the information de- scribed in this guidance to the corporation (to the extent not already provided to the corporation). The corporation is required to keep records in accordance with § 6001 and the regulations thereunder. The principal author of this notice is Bradford R. Poston of the Office of Asso- ciate Chief Counsel (Passthroughs & Spe- cial Industries). For further information regarding this notice, contact Bradford R. Poston at (202) 622–3060 (not a toll-free call). Hurricane Katrina Relief Under Sections 101 and 103 of the Katrina Emergency Tax Relief Act of 2005 Notice 2005–92 PURPOSE This notice provides guidance relating to the application of sections 101 and 103 of the Katrina Emergency Tax Relief Act of 2005, P.L. 109–73 (KETRA) for qual- ified individuals and eligible retirement plans. KETRA was enacted on September 23, 2005. Under section 101 of KETRA, qualified individuals receive favorable tax treatment with respect to distributions from eligible retirement plans that are qualified Hurricane Katrina distributions (Katrina distributions). A Katrina distri- bution is not subject to the 10% additional tax under § 72(t) of the Code (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs), is generally includible in income over a 3-year period, and, to the extent the distribution is eligible for tax-free rollover treatment and is contributed to an eligible retirement plan (recontributed) within a 3-year period, will not be includi- ble in income. Section 103 of KETRA increases the allowable plan loan amount under § 72(p) of the Code and permits a suspension of payments for plan loans outstanding on or after August 25, 2005, that are made to qualified individuals. BACKGROUND Under § 402(c)(8) of the Code, an eligible retirement plan includes an in- dividual retirement arrangement (IRA) under § 408(a) or (b), a qualified plan under § 401(a), an annuity plan under § 403(a), a section 403(b) plan, and a 2005–51 I.R.B.1165December 19, 2005 governmental deferred compensation plan under § 457(b). Distributions from these plans are generally includible in the dis- tributee’s gross income in the year of the distribution. For example, for qualified plans, § 402(a) provides that any amount actually distributed to a distributee is tax- able to the distributee in the taxable year of the distribution under § 72. Similar rules exist for section 403(b) plans un- der § 403(b)(1), for governmental section 457(b) plans under § 457(a), and for IRAs under § 408(d)(1). Section 402(f) provides that a plan is required to provide a distributee, within a reasonable period of time before an el- igible rollover distribution is made, with a written explanation of the distributee’s rollover rights and the tax and other po- tential consequences of the distribution or rollover. Section 402(c)(4) provides that any dis- tribution of all or a portion of the balance to the credit of an employee under a qual- ified plan is an eligible rollover distribu- tion with certain exceptions. These ex- ceptions include substantially equal peri- odic payments over a specified period of at least 10 years, or for the life or the life expectancy of the employee (or the em- ployee and the employee’s designated ben- eficiary); minimum distributions required under § 401(a)(9); and any distribution that is made upon the hardship of an employee. This same definition of eligible rollover distributions applies to distributions from section 403(b) plans under § 403(b)(8) and governmental section 457(b) plans under § 457(e)(16). Generally, any distribution from an IRA is eligible for rollover except a required minimum distribution or certain distributions from inherited IRAs. Under § 401(a)(31), if a distributee elects to have an eligible rollover distribu- tion paid directly to an eligible retirement plan and specifies the eligible retirement plan to receive the distribution, a qualified plan must pay the distribution to that eli- gible retirement plan in a direct rollover. Similar rules apply to section 403(b) plans under § 403(b)(10) and governmental sec- tion 457(b) plans under § 457(d)(1). Q&A–14 of §1.401(a)(31)–1 of the Income Tax Regulations provides that if a plan accepts an invalid rollover contri- bution, the contribution will be treated, for purposes of applying the qualifica- tion requirements to the receiving plan, as if it were a valid rollover contribu- tion, if two conditions are satisfied. First, when accepting the amount from the em- ployee as a rollover contribution, the plan administrator of the receiving plan reason- ably concludes that the contribution is a valid rollover contribution. Second, if the plan administrator later determines that the rollover contribution was an invalid rollover contribution, any amount attrib- utable to the invalid rollover contribution (including earnings) must be distributed to the employee within a reasonable amount of time after the determination. Under § 402, if an eligible rollover dis- tribution is contributed to an eligible re- tirement plan in a direct rollover or within 60 days from the date of distribution as a rollover contribution, the amount rolled over is not includible in the distributee’s gross income. Section 72(t)(1) imposes an additional tax on early distributions from eligible re- tirement plans. In general, this additional tax is equal to 10% of the portion of the dis- tribution that is includible in income. For any amount distributed from a SIMPLE IRA during the 2-year period described in § 72(t)(6), the rate of the additional tax is increased from 10% to 25%. Section 72(t)(2) provides a number of exceptions to this additional tax, including, for ex- ample, exceptions for distributions made on or after the employee attains age 59 1 /2, distributions made to a beneficiary on or after the employee’s death, distributions made because of the employee’s disability, and distributions thatare a part of substan- tially equal periodic payments made over the employee’s life or life expectancy. Section 401(k)(2)(B)(i) generally pro- vides that amounts attributable to elective contributions under a qualified cash or deferred arrangement may not be dis- tributable to participants or beneficiaries earlier than severance from employment, death or disability, plan termination, or attainment of age 59 1 /2. This same restric- tion applies to any amount attributable to qualified nonelective contributions and qualified matching contributions under qualified cash or deferred arrangements. An amount equal to the dollar amount of elective contributions can generally be distributed upon hardship of the em- ployee. Parallel rules apply to custodial accounts under § 403(b)(7)(A)(ii), to an- nuity contracts under § 403(b)(11), and to governmental section 457(b) plans under § 457(d)(1)(A). Section 72(p) imposes certain require- ments relating to plan loans. Unless these requirements are satisfied, an amount re- ceived by a participant as a loan is treated as having been received as a distribu- tion from the plan (deemed distribution). Deemed distributions are includible in in- come and are subject to the 10% additional tax under § 72(t), unless an exception ap- plies. Under § 72(p)(2)(A), a plan loan (when added to the outstanding balance of all other loans outstanding) must not exceed the lesser of (1) $50,000 reduced by the excess of the highest outstanding balance of loans from the plan during the 1-year period ending on the day before the date on which the loan is made over the outstand- ing balance of loans from the plan on the date that the loan is made or (2) the greater of $10,000 or one-half of the present value of the participant’s nonforfeitable accrued benefit under the plan. Section 72(p)(2)(B) provides that a loan must be repaid within 5 years. However, an excep- tion to the 5-year repayment rule applies for loans used to acquire any dwelling unit that will be used (determined at the time the loan is made) as the participant’s principal residence. Section 72(p)(2)(C) requires substantially level amortization of a plan loan (with payments not less frequently than quarterly) over the term of the loan. Q&A–10(a) of § 1.72(p)–1 of the reg- ulations provides that the failure to make any installment payment when due, in ac- cordance with the terms of a loan, violates § 72(p)(2)(C) and, accordingly, results in a deemed distribution at the time of such failure. However, the plan administrator may allow a cure period and § 72(p)(2)(C) will not be considered to have been vio- lated if the installment payment is made not later than the end of the cure period, which period cannot continue beyond the last day of the calendar quarter following the calendar quarter in which the required installment payment was due. If there is a failure to pay the installment payments re- quired under the terms of the loan (taking into account any cure period allowed un- der Q&A–10(a)), then the amount of the deemed distribution equals the entire out- standing balance of the loan (including ac- crued interest) at the time of such failure. December 19, 200511662005–51 I.R.B. SECTION 1: QUALIFIED HURRICANE KATRINA DISTRIBUTIONS A.Special tax treatment for Qualified Hurricane Katrina distributions. Section 101 of KETRA provides for special tax treatment for a Katrina distribu- tion. Section 101 of KETRA provides an exception to the 10% additional tax under § 72(t) of the Code (including the 25% ad- ditional tax under § 72(t)(6) for certain dis- tributions from SIMPLE IRAs), allows the distribution to be included in income rat- ably over 3 years, and provides that the dis- tribution will be treated as though it were paid in a direct rollover to an eligible re- tirement plan if the distribution is eligible for tax-free rollover treatment and is re- contributedtoaneligible retirement plan within 3 years of the date of the distribu- tion. Section 101 of KETRA also permits special treatment for Katrina distributions under employer retirement plans, as de- scribedinsection2ofthisnotice. B.Definition of qualified individual. For purposes of this notice, a qualified individual is an individual whose princi- pal place of abode on August 28, 2005, is located in the Hurricane Katrina disaster area as defined in section 2(1) of KETRA and who has sustained an economic loss by reason of Hurricane Katrina. For purposes of the relief provided under KETRA, the term “Hurricane Katrina disaster area” as set forth in section 2(1) means the entire states of Louisiana,Mississippi, Alabama, and Florida. 1 C.Definition of Katrina distribution. Section 101(d)(1) of KETRA defines a Katrina distribution as any distribution from an eligible retirement plan made on or after August 25, 2005, and before January 1, 2007, to a qualified individ- ual. Section 101(b) of KETRA limits the amount of distributions that can be treated as Katrina distributions to no more than $100,000. A qualified individual is permitted to designate a distribution described above as a Katrina distribution. This designa- tion is permitted to be made with respect to any distribution that would meet the re- quirements of a Katrina distribution with- out regard to whether the distribution was on account of Hurricane Katrina. Thus, periodic payments and required minimum distributions received by a qualified indi- vidual from an eligible retirement plan on or after August 25, 2005, and before Jan- uary 1, 2007, are permitted to be treated as Katrina distributions. Similarly, any dis- tribution received by aqualified individual as a beneficiary can be treated as a Katrina distribution. In addition, a reduction or offset of a participant’s account balance in order to repay a plan loan, as described in Q&A–9(b) of § 1.402(c)–2 of the regula- tions, is permitted to be treated as a Katrina distribution. However, any amount de- scribed in Q&A–4 of §1.402(c)–2 of the regulations is not permitted to be treated as a Katrina distribution. Thus, the follow- ing amounts are not Katrina distributions: corrective distributions of excess contribu- tions under § 415, excess elective defer- rals under § 402(g), excess contributions under § 401(k), and excess aggregate con- tributions under § 401(m); loans that are treated as deemed distributions pursuant to § 72(p); dividends paid on applicable em- ployer securities under § 404(k); and the costs of current life insurance protection. See section 1.D of this notice for rules re- lating to which Katrina distributions are permitted to be recontributed to an eligi- ble retirement plan. The definition of Katrina distribution under section 101(d)(1) of KETRA does not limit the designation of a Katrina dis- tribution to amounts withdrawn solely to meet a need arising from Hurricane Katrina. Thus, even though a qualified individual is required to have sustained an economic loss, Katrina distributions are permitted without regard to the qualified individual’s need and the amount of the distribution is not required to correspond to the amount of the economic loss suf- fered by the qualified individual. As explained in section 2.C of this no- tice, an employer retirement plan is also permitted to treat a plan distribution de- scribed above as a Katrina distribution. It is possible that a qualified individual’s designation of a Katrina distribution may be different from the employer retirement plan’s treatment of the distribution. This different treatment could occur, for exam- ple, if a qualified individual has more than one plan distribution that meets the re- quirements of a Katrina distribution. This different treatment could also occur if a qualified individual has distributions from more than one eligible retirement plan. D.Certain Katrina distributions are permitted to be recontributed. Subject to certain exceptions, distri- butions from an eligible retirement plan that satisfy the requirements of a Katrina distribution under section 1.C of this no- tice are permitted tobe treated as Katrina distributions. Such distributions may be included in income ratably over 3 years and are not subject to the 10% additional tax under § 72(t) of the Code. How- ever, only a Katrina distribution that is eligible for tax-free rollover treatment un- der § 402(c) (and 402(e)(6)), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) is per- mitted to be recontributed to an eligible retirement plan, and such recontribution will be treated as having been made in a direct rollover to that eligible retirement plan. In the case of a distribution from an eligible retirement plan other than an IRA, only a Katrina distribution that is an eligible rollover distribution within the meaning of § 402(c)(4) is permitted to be recontributed to an eligible retire- ment plan. Thus, periodic payments (for a period of at least 10 years, or the life or the life expectancy of the employee (or the lives or joint life expectancies of the employee and the employee’s des- ignated beneficiary)) and required min- imum distributions are not permitted to be recontributed to an eligible retirement plan even though those distributions are permitted to be treated as Katrina distri- butions if they satisfy the requirements under section 1.C of this notice. In the case of a distribution from an IRA, only a Katrina distribution that is eligible for rollover treatment under § 408(d)(3) is permitted to be recontributed to an eligible retirement plan. Thus, required minimum distributions are not permitted to be re- contributed to an eligible retirement plan. Any Katrina distribution (whether from an 1 This definition applies solely for purposes of relief provided under KETRA and does not apply for purposes of relief under other provisions. For example, see Notice 2005–73, 2005–42 I.R.B. 723, which defines taxpayers affected by Hurricane Katrina and designates disaster areas for purposes of the relief provided under § 7508A. 2005–51 I.R.B.1167December 19, 2005 employer retirement plan or an IRA) paid to a qualified individual as a beneficiary of an employee or IRA owner (other than the surviving spouse of the employee or IRA owner) cannot be recontributed. See section 4.C of this notice for rules relating to recontributions of Katrina distributions. In general, a distribution from an em- ployer retirement plan made on account of hardship is not an eligible rollover distri- bution. However, if such a distribution sat- isfies the requirements under section 1.C of this notice, then the distribution is not treated as made on account of hardship for purposes of this notice and, thus, any portion of the distribution is permitted to be recontributed to an eligible retirement plan. See section 4.C of this notice for rules relating to recontributions. E.Definition of principal place of abode. An individual’s principal place of abode is where the individual lives un- less temporarily absent due to special circumstances. A temporary absence from the household due to special cir- cumstances, such as illness, education, business, vacation, or military service, will not change an individual’s principal place of abode. See §§ 1.2–2, 1.152–1(b), and 1.152–2(a)(2)(ii) of the regulations for information relating to a temporary absence from a principal place of abode. If an individual’s principal place of abode was in the Hurricane Katrina disaster area immediately before August 28, 2005, and the individual evacuated because of Hur- ricane Katrina, the individual’s principal place of abode will be considered to be in the Hurricane Katrina disaster area on August 28, 2005. SECTION 2. GUIDANCE FOR EMPLOYER RETIREMENT PLANS MAKING KATRINA DISTRIBUTIONS A.Katrina distributions are generally treated as satisfying certain plan distribution restrictions. Under section 101 of KETRA, a Katrina distribution designated by an em- ployer retirement plan is treated as meet- ing the distribution restrictions for quali- fied cash or deferred arrangements under § 401(k)(2)(B)(i) of the Code, for cus- todial accounts under §403(b)(7)(A)(ii), for annuity contracts under § 403(b)(11), and for governmental deferred compen- sation plans under § 457(d)(1)(A). Thus, for example, an employer is permitted to expand the distribution options under its plan to allow an amount attributable to an elective, qualified nonelective, or qualified matching contribution under a qualified cash or deferred arrangement to be distributed as a Katrina distribution even though the distribution is before an otherwise permitted distributable event, such as severance from employment, dis- ability, or attainment of age 59 1 /2. Except as described above, section 101 of KETRA does not change the require- ments for when plan distributions are per- mitted to be made from employer retire- ment plans. Thus, for example, a qualified plan that is a pension plan (e.g.amoney purchase plan) is not permitted to make in-service distributions merely because the distribution, if made, would qualify as a Katrina distribution. Further, a pension plan is not permitted to make a distribu- tion under a distribution form that is not a qualified joint and survivor annuity with- out spousal consent merely because the distribution, if made, could be treated as a Katrina distribution. B.Direct rollover and 20% withholding requirements are not applicable to Katrina distributions. If a distribution is treated as a Katrina distribution by an employer retirement plan, the rules for eligible rollover distri- butions under §§ 401(a)(31), 402(f), and 3405 of the Code are not applicable with respect to the distribution. Thus, the plan is not required to offer the qualified indi- vidual a direct rollover with respect to the distribution. In addition, the plan admin- istrator does not have to provide a § 402(f) notice. Finally, the plan administrator or payor of the Katrina distributions is notrequiredtowithholdanamountequal to 20% of the distribution, as is usually required under § 3405(c)(1). However, a Katrina distribution is subject to the voluntary withholding requirements of § 3405(b) and § 35.3405–1T of the Tem- porary Employment Tax Regulations. C.Treatment of distributions as Katrina distributions. An employer is permitted to choose whether to treat distributions under its plans as Katrina distributions. Further, the employer (or plan administrator) is permitted to develop any reasonable pro- cedures for identifying which distribu- tions are treated as Katrina distributions under its retirement plans. However, if an employer retirement plan treats any distribution of an amount subject to § 401(k)(2)(B)(i), 403(b)(7)(A)(ii), 403(b)(11) or 457(d)(1)(A) as a Katrina distribution, the plan must be consistent in its treatment. Thus, the amount of the distribution must be taken into account in determining the $100,000 limit on Katrina distribution payments made under the retirement plans maintained by the em- ployer. D.Distribution limits on Katrina distributions. The total amount of distributions treated by an employer as Katrina dis- tributions under its retirement plans with respect to a qualified individual is not per- mitted to exceed $100,000. For purposes of this rule, the term “employer” means the employer maintaining the plan and those employers required to be aggregated with the employer under § 414(b), (c), (m), or (o). However, a plan will not fail to satisfy any requirement under the Code merely because a qualified individual’s to- tal Katrina distributions exceed $100,000, taking into account distributions from IRAs or other eligible retirement plans maintained by unrelated employers. E.Reliance on reasonable representations. In making a determination that a dis- tribution is a Katrina distribution, a plan sponsor or plan administrator of an em- ployer retirement plan is permitted to rely on reasonable representations from a dis- tributee with respect to the distributee’s principal place of abode on August 28, 2005, and whether the distributee suffered an economic loss by reason of Hurricane Katrina, unless the plan sponsor or plan administrator has actual knowledge to the contrary. December 19, 200511682005–51 I.R.B. F.An employer retirement plan will be treated as operating in accordance with its terms if certain requirements are satisfied. The Internal Revenue Service will be issuing guidance in the future relating to plan amendments for KETRA. An em- ployer retirement plan will not be treated as failing to operate in accordance with its terms merely because the plan implements the provisions of sections 101 and 103 of KETRA if the plan sponsor amends its plan by the applicable dates described below. For employer retirement plans other than a governmental plan, the date by which any plan amendment to reflect KETRA is required to be made will not be earlier than the last day of the first plan year beginning on or after January 1, 2007. For governmental plans under § 414(d) of the Code, the date by which any plan amendment to reflect KETRA is required to be made will not be earlier than the last day of the first plan year beginning on or after January 1, 2009. SECTION 3. GUIDANCE FOR ELIGIBLE RETIREMENT PLANS MAKING, OR ACCEPTING RECONTRIBUTION OF, KATRINA DISTRIBUTIONS This section provides guidance for el- igible retirement plans (i.e.,employerre- tirement plans and IRAs) making, or ac- cepting recontribution of, Katrina distribu- tions. A.Tax reporting on Katrina distributions. An eligible retirement plan must report the payment of a Katrina distribution to a qualified individual on Form 1099-R,Dis- tributions From Pensions, Annuities, Re- tirement or Profit-Sharing Plans, IRAs, In- surance Contracts, etc. This reporting is required even if the qualified individual re- contributes the Katrina distribution to the same eligible retirement plan in the same year. If a payor is treating the payment as a Katrina distribution and no other appro- priate code applies, the payor is permitted to use distribution code 2 (early distribu- tion, exception applies) in box 7 of Form 1099-R. However, a payor is also permit- ted to use distribution code 1 (early distri- bution, no known exception) in box 7 of Form 1099-R. B.Reliance on representations relating to the recontribution of a Katrina distribution. In general, a qualified individual who receives a Katrina distribution that is el- igible for tax-free rollover treatment is permitted to recontribute, at any time in a 3-year period, any portion of the distri- bution to an eligible retirement plan that is permitted to accept eligible rollover contributions. The relief in Q&A–14 of § 1.401(a)(31)–1 of the regulations applies to an employer retirement plan accepting recontributions of Katrina distributions. In order to obtain the relief described in Q&A–14 of § 1.401(a)(31)–1, a plan ad- ministrator acceptingthe recontribution of a Katrina distribution must reason- ably conclude that the recontribution is eligible for direct rollover treatment un- dersection101(c)ofKETRAandthat the recontribution is made in accordance with the rules under section 4.C of this notice. In making this determination, the rule in section 2.E of this notice applies. Thus, a plan administrator may rely on the reasonable representations of a qualified individual with respect to the individual’s principal place of abode on August 28, 2005, and whether the individual suffered an economic loss by reason of Hurricane Katrina, unless the plan administrator has actual knowledge to the contrary. SECTION 4. GUIDANCE FOR INDIVIDUALS RECEIVING KATRINA DISTRIBUTIONS UNDER SECTION 101 OF KETRA This section provides guidance for qualified individuals requesting and re- ceiving Katrina distributions. A qualified individual receiving a Katrina distribution is entitled to favorable tax treatment with respect to the distribution. First, the 10% additional tax under § 72(t) of the Code (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs) does not apply to any Katrina distribution. Second, a Katrina distribution is permitted to be included in income ratably over 3 years. Third, a qual- ified individual is permitted to recontribute any portion of a Katrina distribution that is eligible for tax-free rollover treatment to an eligible retirement plan within 3 years from the day after the date of the distribu- tion, and the recontribution will be treated as if it were paid in a direct rollover to an eligible retirement plan. See section 1.D of this notice for rules relating to which Katrina distributions are permitted to be recontributed. Qualified individuals will use Form 8915 2 ,Qualified Hurricane Katrina Retirement Plan Distributions and Repayments, to report any recontri- bution made during the taxable year and to determine the amount of the Katrina distribution includible in income for the taxable year. A.Election to designate a distribution as a Katrina distribution. A qualified individual is permitted to designate any distribution described in section 1.C of this notice as a Katrina dis- tribution provided the total amount treated by the individual as Katrina distributions does not exceed $100,000. For example, if a qualified individual received a distribu- tion of $50,000 in 2005 and a distribution of $75,000 in 2006 and both distributions satisfy the definition of a Katrina distri- bution, only $100,000 of the $125,000 received by the qualified individual can be treated as a Katrina distribution. Thus, if such individual treated the 2005 distribu- tion of $50,000 as a Katrina distribution on his or her 2005 tax return, the indi- vidual can only treat $50,000 of the 2006 distribution as a Katrina distribution on his or her 2006 tax return. Assuming no § 72(t)(2) exception applies, the remain- ing $25,000 of the 2006 distribution is an early distribution. This amount will be subject to the 10% additional tax, must be included on the individual’s 2006 tax return, and will not be eligible for 3 year recontribution to an eligible retirement plan. Example. A section 401(k) plan distributes $35,000 to a qualified individual on December 1, 2005. The qualified individual also receives a distri- bution from his or her IRA on December 1, 2005 of $15,000. The individual is permitted to treat both the $35,000 from the plan and the $15,000 from the IRA as Katrina distributions on the individual’s 2005 tax return. 2 Form 8915 is expected to be available soon. 2005–51 I.R.B.1169December 19, 2005 B.Income inclusion for Katrina distributions There are two methods for a quali- fied individual to include in income the taxable portion of a Katrina distribution. First, a qualified individual who receives a Katrina distribution is permitted to in- clude the taxable portion of the amount of the distribution in income ratably over a 3-year period that begins in the year of the distribution. Second, a qualified individ- ual is permitted to elect out of the 3-year ratable income inclusion and include the entire amount of the taxable portion of the Katrina distribution in income in the year of the distribution. All Katrina dis- tributions received in a taxable year must be treated consistently (either all distribu- tions are included in income over a 3-year period or all distributions are included in income in the current year). If a qualified individual uses the 3-year ratable income inclusion method, such method cannot be changed after the timely filing of the indi- vidual’s tax return (including extensions) for the year of the distribution. Example. Taxpayer A receives a $30,000 dis- tribution from his or her IRA on October 1, 2005. Taxpayer A is a qualified individual and elects to treat the distribution as a Katrina distribution. Tax- payer A uses the 3-year ratable income inclusion for the $30,000 distribution. Taxpayer A should include $10,000 in income with respect to the Katrina distri- bution on each of his or her 2005, 2006, and 2007 tax returns. C.Tax treatment of recontributions of Katrina distributions. If a Katrina distribution is eligible for tax-free rollover treatment (taking into ac- count section 1.D of this notice), a quali- fied individual is permitted, at any time in the 3-year period beginning the day after the date of a Katrina distribution, to recon- tribute any portion of the distribution, but not in excess of the amount of the distribu- tion, to an eligible retirement plan. A re- contribution of a Katrina distribution will not be treated as a rollover contribution for purposes of the one-rollover-per-year lim- itation under § 408(d)(3)(B). D.Tax treatment of recontributions of a Katrina distribution using the 1-year income inclusion method. If a qualified individual elects to in- clude all Katrina distributions received in a year in gross income for that year and re- contributes any portion of the Katrina dis- tributions to an eligible retirement plan at any time during the 3-year recontribution period, then the amount of the recontribu- tion will reduce the amount of the Katrina distribution included in gross income for the year of the distribution. The qualified individual will report the amount of the re- contribution on Form 8915, which will be filed with the individual’s income tax re- turn. If a qualified individual includes a Katrina distribution in gross income in the year of the distribution and recontributes the distribution to an eligible retirement plan after the timely filing of the individ- ual’s tax return for the year of the distri- bution (i.e., after the due date, including extensions), the individual will need to file an amended tax return. The qualified individual will need to file a revised Form 8915 with his or her amended return to report the amount of the recontribution and should reduce his or her gross income by the amount of the recontribution, but not to exceed the amount of the Katrina distribution. Example 1. Taxpayer B receives a $45,000 dis- tribution from a section 403(b) plan on November 1, 2005. Taxpayer B is a qualified individual and treats the distribution as a Katrina distribution. Taxpayer B receives no other Katrina distribution from any eli- gible retirement plan in 2005. After receiving reim- bursement from his or her insurance company for a casualty loss, Taxpayer B recontributes $45,000 to an IRA on March 31, 2006. Taxpayer B reports the re- contribution on Form 8915 and files the 2005 tax re- turn on April 10, 2006. For Taxpayer B, no portion of the Katrina distribution is includible as income for the 2005 tax year. Example 2. The facts are the same asExample 1 of this section 4.D, except that Taxpayer B timely re- quests an extension of time to file the 2005 tax return and makes a recontribution on August 2, 2006, before he or she files the 2005 tax return. Taxpayer B files the 2005 tax return on August 10, 2006. As inExam- ple 1, no portion of the Katrina distribution is includi- ble in income for the 2005 year because Taxpayer B made the recontribution before the timely filing of the 2005 return. Example 3. Taxpayer C receives a $15,000 dis- tribution from a section 457(b) plan on January 10, 2006. Taxpayer C is a qualified individual and treats the distribution as a Katrina distribution. Taxpayer C elects out of the 3-year ratable income inclusion on Form 8915 and includes the entire $15,000 in gross income for the 2006 taxable year. On December 31, 2008, Taxpayer C recontributes $15,000 to the sec- tion 457(b) plan. Taxpayer C will need to file an amended return for the 2006 tax year to report the amount of the recontribution and reduce Taxpayer C’s gross income by $15,000 with respect to the Katrina distribution on the 2006 original tax return. E.Tax treatment of recontributions of a Katrina distribution using the 3-year ratable income inclusion method. As explained above, a qualified individ- ual is permitted to include a Katrina dis- tribution in income ratably over a 3-year period. If a qualified individual includes a Katrina distribution ratably over a 3-year period and the individual recontributes any portion of the Katrina distribution to an el- igible retirement plan at any date before the timely filing of the individual’s tax re- turn (i.e., by the due date, including ex- tensions), the amount of the recontribu- tion will reduce the ratable portion of the Katrina distribution that is includible in gross income for the tax year of the filed return. Example 1. Taxpayer D receives $75,000 from a section 401(k) plan on December 1, 2005. Taxpayer D is a qualified individual and treats the $75,000 dis- tribution as a Katrina distribution. Taxpayer D uses the 3-year ratable income inclusion method for the distribution. Taxpayer D makes one recontribution of $25,000 to the section 401(k) plan on April 10, 2007. Taxpayer D files the 2006 tax return on April 15, 2007. Without the recontribution, Taxpayer D should include $25,000 in income with respect to the Katrina distribution on each of D’s 2005, 2006, and 2007 tax returns. However, as a result of the re- contribution to the section 401(k) plan, Taxpayer D should include $25,000 in income with respect to the Katrina distribution on the 2005 tax return, $0 in in- come with respect to the Katrina distribution on the 2006 tax return, and $25,000 in income with respect to the Katrina distribution on the 2007 tax return. Example 2. The facts are the same asExample 1of this section 4.E, except that Taxpayer D recon- tributes $25,000 to the section 401(k) plan on August 10, 2007. Taxpayer D files the 2006 tax return on April 15, 2007, and does not request an extension of time to file the return. As a result of the recontribution to the section 401(k) plan, Taxpayer D should include $25,000 in income with respect to the Katrina distri- bution on the 2005 tax return, $25,000 in income with respect to the Katrina distribution on the 2006 tax re- turn, and $0 in income with respect to the Katrina dis- tribution on the 2007 tax return. F.Recontributions of a Katrina distribution may be carried back or forward when using the 3-year ratable income inclusion. If a qualified individual using the 3-year ratable income inclusion method recon- tributes an amount of a Katrina distribution for a taxable year that exceeds the amount which is otherwise includible in gross in- come for the tax year of the filed return, as described in section 4.E of this notice, the excess amount of the recontribution is per- December 19, 200511702005–51 I.R.B. mitted to be carried forward to reduce the amount of the Katrina distribution that is includible in gross income in the next tax- able year. Alternatively, the qualified indi- vidual is permitted tocarry back the excess amount of the recontribution to a prior tax- able year or years in which the individual included income attributable to a Katrina distribution. The individual will need to file an amended return for the prior taxable year or years to report the amount of the re- contribution on Form 8915 and reduce his or her gross income by the excess amount of the recontribution. Example. Taxpayer E receives a distribution of $90,000 from his or her IRA on November 15, 2005. Taxpayer E is a qualified individual and treats the dis- tribution as a Katrina distribution. Taxpayer E rat- ably includes the $90,000 distribution over a 3-year period. Without any recontribution, Taxpayer E will include $30,000 in income with respect to the Katrina distribution on each of the 2005, 2006, and 2007 tax returns. Taxpayer E includes $30,000 in income with respect to the Katrina distribution on the 2005 tax re- turn. Taxpayer E then recontributes $45,000 to an IRA on November 10, 2006 (and made no other re- contribution in the 3-year period). Taxpayer E is per- mitted to do either of the following: Option1. Taxpayer E includes $0 in income with respect to the Katrina distribution on the 2006 tax re- turn. Taxpayer E carries forward the excess recon- tribution of $15,000 to 2007 and includes $15,000 in income with respect to the Katrina distribution on E’s 2007 tax return. Option2. Taxpayer E includes $0 in income with respect to the Katrina distribution on the 2006 tax return and $30,000 in income on the 2007 tax return. Taxpayer E then files an amended return for 2005 to reduce the amount included in income as a result of the Katrina distribution to $15,000. G.Special rule for 3-year ratable income inclusion method for Katrina distributions. If a qualified individual dies before the full taxable amount of the Katrina distri- bution has been included in gross income, then the remainder must be included in gross income for the taxable year that in- cludes the individual’s death. H.Katrina distributions will not be treated as a change in substantially equal periodic payments. In the case of an individual receiv- ing substantially equal periodic payments from an eligible retirement plan, the re- ceipt of a Katrina distribution from that plan will not be treated as a change in substantially equal payments as described in § 72(t)(4) merely because of the Katrina distribution. SECTION 5. APPLICATION OF SECTION 103 OF KETRA TO PLAN LOANS This section provides guidance re- garding the application of section 103 of KETRA to plan loans, including a safe harbor that is treated as satisfying section 103(b) of KETRA. A.Increase in the allowable loan amount. Special rules apply to a loan made from a qualified employer plan (as defined in § 1.72(p)–1, Q&A–2) to a qualified in- dividual on or after September 24, 2005 (the day after the date of enactment of KETRA) and before January 1, 2007. For these loans, section 103(a) of KETRA changes the limits under § 72(p)(2)(A) of the Code. In applying § 72(p) to a plan loan, the $50,000 aggregate limit in § 72(p)(2)(A)(i) is increased to $100,000 and the rule in § 72(p)(2)(A)(ii) limiting the aggregate amount of loans to one half of the employee’s vested accrued benefit is increased to 100 percent of the employee’s vested accrued benefit. 3 B.Suspension of payments and extension of term of loan. A special rule applies if a qualified indi- vidual has an outstanding loan from a qual- ified employer plan on or after August 25, 2005. Section 103(b) of KETRA provides that, for purposes of § 72(p), in the case of a qualified individual with a loan from a qualified employer plan outstanding on or after August 25, 2005, if the due date for any repayment with respect to the loan occurs during the period beginning on Au- gust 25, 2005, and ending on December 31, 2006, such due date shall be delayed for one year. In addition, any subsequent repayments for the loan shall be appropri- ately adjusted to reflect the delay and any interest accruing for such delay, and the pe- riod of delay shall be disregarded in deter- mining the 5-year period and the term of the loan under § 72(p)(2)(B) and (C). Thus, an employer is permitted to choose to al- low this delay in loan repayments under its plan with respect to a qualified individual, and, as a result, there will not be a deemed distribution to the individual under § 72(p). This notice provides the following safe harbor for satisfying section 103(b) of KETRA. Under this safe harbor, a qual- ified employer plan will be treated as satisfying the requirements of § 72(p) pur- suant to section 103(b) of KETRA if a qualified individual’s obligation to repay a plan loan is suspended under the plan for any period beginning not earlier than August 25, 2005, and ending not later than December 31, 2006 (suspension period). The loan repayments must resume upon the end of the suspension period, and the term of the loan may be extended by the duration of such suspension period. If a qualified employer plan suspends loan repayments during the suspension period, the suspension will not cause the loan to be deemed distributed even if, due solely to the suspension, the term of the loan is extended beyond five years. Interest ac- cruing during the suspension period must be added to the remaining principal of the loan. A plan satisfies these rules if the loan is repaid thereafter by amortization in substantially level installments over the remaining period of the loan (i.e.,five years from the date of the loan, assuming that the loan is not a principal residence loan, plus the suspension period). If an employer, under its plan, chooses to per- mit a suspension period that is less than the suspension period described above, theemployerispermittedtoextendsub- sequently the suspension period, but not beyond December 31, 2006. Example. On March 31, 2005, a participant with a nonforfeitable account balance of $40,000 borrowed $20,000 to be repaid in level monthly installments of $394 each over 5 years, with the repayments to be made by payroll withholding. The participant makes 8 monthly payments until December 1, 2005. The participant’s home is in the Hurricane Katrina dis- aster area and the participant sustained an economic loss. The participant’s employer takes action to sus- pend payroll withholding repayments, for the period from December 1, 2005, through the end of 2006, for loans to qualified individuals that are outstand- ing on or after August 25, 2005, but only for its em- ployees who have a principal place of abode in the Hurricane Katrina disasterarea and sustained an eco- nomic loss. Because the participant is an employee 3 The Department of Labor has advised the Department of the Treasury and the Service that it will not treat any person as having violated the provisions ofTitle I of the Employee Retirement Income Security Act (ERISA), including the adequate security and reasonably equivalent basis requirements in ERISA section 408(b)(1) and 29 CFR 2550.408b–1, solely because the person made a plan loan to a qualified individual in compliance with KETRA section 103, Code § 72(p), and the provisions of this notice. 2005–51 I.R.B.1171December 19, 2005 of the employer who has a principal place of abode in the Hurricane Katrina disaster area and notifies the employer that he or she has sustained an economic loss, no further repayments are made on the partici- pant’s loan until January 1, 2007 (when the balance is $19,045). At that time, repayments on the loan re- sume, with the amount of each monthly installment increased to $423 in order to repay the loan by April 30, 2011 (which is the date the loan originally would have been fully repaid, plus the 13-month loan sus- pension period that resulted from Hurricane Katrina). C.Qualified employer plan may rely on reasonable representations. A qualified employer plan is permitted to rely on a participant’s reasonable repre- sentations that such participant is a quali- fied individual and therefore qualifies for the special treatment for loans under sec- tion 103 of KETRA, unless the plan ad- ministrator (or other responsible person) with respect to the qualified employer plan has actual knowledge to the contrary. DRAFTING INFORMATION The principal authors of this notice are Pamela R. Kinard and Vernon Carter of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Govern- ment Entities). For further information re- garding this notice, please contact the Em- ployee Plans taxpayer assistance telephone service at (877) 829–5500 (a toll-free num- ber) between the hours of 8:00 a.m. and 6:30 p.m. Eastern Time, Monday through Friday. Transitional Relief Provided for Certain Plan Amendment Deadlines Notice 2005–95 I. Purpose This notice clarifies the interaction of the amendment timing deadlines for plans qualified under § 401(a) as set forth in Rev. Proc. 2005–66, 2005–37 I.R.B. 509, with the deadlines set forth in various other published guidance. This notice also provides transitional relief from certain of those deadlines, thus giving sponsors, practitioners, and employers additional time to adopt required amendments. Pur- suant to this relief, sponsors, practitioners, and employers maintaining plans quali- fied under § 401(a) will have an extension of the otherwise applicable deadline for adopting certain plan amendments reflect- ing the final retroactive annuity starting date regulations, the automatic rollover requirements under § 401(a)(31)(B) of the Internal Revenue Code, and the final §§ 401(k) and 401(m) regulations. This notice also provides relief with re- spect to the satisfaction of the safe harbor notice requirement of § 401(k)(12) for plan years beginning before 2007. In addition, this notice provides relief, under the head- ing “Required Minimum Distributions for Defined Benefit Plans,” to sponsors of pro- totype individual retirement arrangements. II. Overview The Service has received inquiries with respect to the impact, if any, that Rev. Proc. 2005–66 has on the deadline for plan sponsors maintaining qualified plans to adopt plan amendments reflecting cer- tain published guidance. Section 5.05 of Rev. Proc. 2005–66 provides a general rule for the deadline for the timely adop- tion of an interim or discretionary amend- ment. When there are statutory or regula- tory changes with respect to plan qualifi- cation requirements that will impact pro- visions of the written plan document, the adoption of an interim amendment will generally be required by the deadline un- der Rev. Proc. 2005–66, as described be- low. Under Rev. Proc. 2005–66, the dead- line is different for a discretionary amend- ment than for an amendment with respect to a disqualifying provision. For a disqual- ifying provision 1 or a provision that is in- tegral to a disqualifying provision, an in- terim amendment must be adopted by the later of (1) the due date (including exten- sions) for filing the income tax return for the employer’s taxable year that includes the date on which the remedial amend- ment period begins 2 or (2) the last day of the plan year that includes the date on which the remedial amendment period be- gins. A plan maintained by more than one employer need not be amended for a disqualifying provision until the last day of the tenth month following the last day of the plan year in which the remedial amendment period begins. A discretionary amendment must be adopted by the end of the plan year in which the plan amendment is effective. The deadlines set forth by Rev. Proc. 2005–66 have generated concern among the practitioner community as to when plan amendments must be adopted to reflect changes in various qualification requirements. This notice re-affirms the applicability of the timing rules under Rev. Proc. 2005–66, while giving transitional relief to plan sponsors and employers that will, in some cases, provide additional time to adopt plan amendments related to the final retroactive annuity starting date regulations, automatic rollover guidance under Notice 2005–5, and final §§ 401(k) and 401(m) regulations as set forth in sec- tion IV and summarized in the Appendix to this notice. III. General Timing Rules for Plan Amendments In general, the deadlines set forth under section 5.05 of Rev. Proc. 2005–66 apply except in the following circumstances: (1) A statutory provision or guidance issued by the Service sets forth an ear- lier deadline to timely adopt an amend- ment. For example, an amendment gener- ally cannot be adopted retroactively when to do so would violate the anti-cutback rules of § 411(d)(6). Also, an amendment to add a qualified cash or deferred arrange- ment to a profit sharing plan or to change a § 401(k) plan to become a safe harbor plan cannot be adopted retroactively. (2) A statutory provision or guidance issued by the Servicesets forth a specific deadline for the adoption of an amendment that is earlier or later than the deadlines set forth under section 5.05 of Rev. Proc. 2005–66. See section V for a list of those deadlines. 1 A plan provision under an existing plan is designated as a disqualifying provision under § 1.401(b)–1(b)(3) if the provision either (1) results in thefailure of the plan to satisfy the qualification requirements of the Code by reason of a change in those requirements that is effective after December 31, 2001; or (2) is integral to a qualification requirement of the Code that has been changed effective after December 31, 2001, but only if the provision is integral to a plan provision that is a disqualifying provision under (1) above with respect to the plan. A disqualifying provision under § 1.401(b)–1(b)(1) is a provision of, or absence of a provision from, a new plan and the plan was intended, in good faith, to be qualified. 2 The remedial amendment period begins on the date on which the change becomeseffective with respect to the plan or, in the case of a provision that is integral to a qualification requirement that has been changed, the first day on which the plan isoperated in accordance with the provisions as amended. December 19, 200511722005–51 I.R.B. IV. Amendment Timing Issues for Provisions Modified in this Notice Retroactive Annuity Starting Date Final regulations for plans providing a retroactive annuity starting date (RASD) under § 1.417(e)–1 were issued on July 16, 2003. The final regulations apply to plan years beginning on or after January 1, 2004. In Notice 2004–84, 2004–2 C.B. 1030, the Service provided that a defined benefit plan with a provision that does not satisfy the RASD regulations has a dis- qualifying provision. Section 5.05 of Rev. Proc. 2005–66 stated that the deadline to adopt an in- terim amendment depends on whether or not the plan amendment is required or dis- cretionary. For example, a plan spon- sor who maintains a single employer de- fined benefit plan with a calendar plan year that already provides for RASD but which did not comply with the final regulations has a disqualifying provision and under Rev. Proc. 2005–66 must adopt an in- terim amendment by the due date (includ- ing extensions) for filing the income tax re- turn for the employer’s taxable year that contains January 1, 2004 or if later, De- cember 31, 2004. By contrast, where a single employer defined benefit plan does not provide for RASD and the employer wishes to provide for RASD, under Rev. Proc. 2005–66 a discretionary amendment providing for RASD must be adopted by the end of the plan year in which the plan amendment is effective. Pursuant to this notice, the deadline to adopt an interim amendment to comply with the final RASD regulations will be the later of the deadline under Rev. Proc. 2005–66 that would otherwise apply to the plan sponsor or employer or December 31, 2005. Automatic Rollover Section 657 of the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub. L. 107–16 (EGTRRA) amended § 401(a)(31)(B) of the Code and directed the Department of Labor (DOL) to issue regulations for the direct rollover of cer- tain mandatory distributions. DOL issued final regulations on September 28, 2004 (29 CFR § 2550.404a–2) which were effective for any rollover of mandatory distributions made on or after March 28, 2005. Notice 2001–42, 2001–2 C.B. 70 set forth amendment timing rules for all amendments adopted pursuant to EGTRRA and provided that if a plan sponsor implements an EGTRRA provi- sion for a plan year, then the plan sponsor must adopt the good faith amendment by the end of the plan year. Notice 2001–42 provided that the EGTRRA remedial amendment period would end no earlier than the last day of the first plan year be- ginning on or after January 1, 2005. With respect to the automatic rollover require- ments of § 401(a)(31)(B) of the Code, Notice 2005–5, 2005–3 I.R.B. 337, pro- vided guidance effective for mandatory distributions made on or after March 28, 2005. In accordance with the effective date of the automatic rollover rules and Notice 2001–42, Notice 2005–5 required qualified plans (other than governmen- tal and non-electing church plans) to be amendedtocomplywiththeautomatic rollover rules by the end of the first plan year ending on or after March 28, 2005. If the amendment timing rules under Rev. Proc. 2005–66 were applied to an amendment to comply with the manda- tory rollover requirements, a plan spon- sor would be required to correct the dis- qualifying provision by adopting an in- terim amendment by the later of (1) the due date (including extensions) for filing the income tax return for the employer’s taxable year that includes March 28, 2005 or (2) the last day of the plan year that in- cludes March 28, 2005. Pursuant to this notice, the Service is clarifying that the deadline under Rev. Proc. 2005–66 ap- plies to the amendments to reflect the auto- matic rollover requirements under Notice 2005–5, and under the transitional relief provided, the deadline will be the later of the deadline under Rev. Proc. 2005–66 or December 31, 2005. Final §§ 401(k) and 401(m) Regulations Final Regulations under §§ 401(k) and 401(m) were published on December 29, 2004 (Final § 401(k) regulations). The Fi- nal § 401(k) regulations generally apply to plan years beginning on or after January 1, 2006. In the case of a plan maintained pur- suant to one or more collectively bargained agreements between employee representa- tives and one or more employers in effect on January 1, 2006, the Final § 401(k) reg- ulations apply to the later of the first plan year beginning after the termination of the last such agreement or the first plan year beginning on or after January 1, 2006. Plan sponsors are permitted to apply the Final § 401(k) regulations to any plan year that ends after December 29, 2004. An amendment that implements the Final § 401(k) regulations for a plan year before the effective date with respect to that plan is a discretionary amendment. Under Rev. Proc. 2005–66, the deadline to adopt a discretionary amendment is the end of the plan year in which the plan amendment is effective. Pursuant to this notice, the deadline to adopt a discretionary amendment for the Final § 401(k) regulations prior to the ef- fective date is extended to the later of De- cember 31, 2005 or the otherwise appli- cable deadline (i.e., the end of the plan year in which the regulations are imple- mented). However, this transitional relief does not otherwise override other existing rules regarding the deadline to adopt a plan amendment prior to the beginning of the plan year (e.g., adding a qualified cash or deferred arrangement to a profit sharing plan or adding a safe harbor feature to a § 401(k) plan). In addition, for plan years beginning before 2007, a safe harbor § 401(k) plan described in § 401(k)(12) will not fail to satisfy the notice requirement of § 401(k)(12)(D) merely because the notice cross-references the plan’s summary plan description in accordance with Q&A–8 in Notice 2000–3, 2000–1 C.B. 413. V. Other Delays in Amendment Timing Issues In the situations set forth in this section V, the deadlines for plan amendments de- scribed below apply in lieu of the deadlines set forth in Rev. Proc. 2005–66. Required Minimum Distributions for Defined Benefit Plans Rev. Proc. 2002–29, 2002–1 C.B. 1176, provided, in part, that defined ben- efit plans must be amended by the end of the first plan year beginning on or af- ter January 1, 2003, to the extent neces- sary to comply with the Final and Tem- 2005–51 I.R.B.1173December 19, 2005 porary regulations under § 401(a)(9), re- lating to required minimum distributions. However, Rev. Proc. 2003–10, 2003–1 C.B. 259, postponed the time by which de- fined benefit plans must be amended to comply with the requirements set forth in the Final and Temporary Regulations un- der § 401(a)(9) to the end of the EGTRRA remedial amendment period as set forth in Notice 2001–42. Notice 2001–42 pro- vided that the EGTRRA remedial amend- ment period would end no earlier than the last day of the first plan year beginning on or after January 1, 2005. Sections 12 and 18 of Rev. Proc. 2005–66 modified Notice 2001–42 by extending the EGTRRA remedial amend- ment period for individually designed plans to the end of the initial five-year remedial amendment cycle and for pre-ap- proved plans to the end of the initial six-year remedial amendment cycle. Thus, defined benefit plans must be amended for the final regulations under § 401(a)(9) by the end of the initial five or six-year reme- dial amendment cycle described in Rev. Proc. 2005–66, whichever is applicable. Sponsors of prototype individual re- tirement arrangements (IRAs), including Roth IRAs and SIMPLE IRAs, that ref- erence the temporary regulations under § 401(a)(9) are not required to amend their documents merely to reference the final regulations under § 401(a)(9) or to make other conforming changes that are expected to have no effect on plan oper- ation. However, if an IRA sponsor does make such changes, no application to the Service is required for continued reliance on an Opinion Letter. Suspension of Benefits Plan Amendments Heinz v. Central Laborers’ Pension Fundwas decided on June 7, 2004. The Supreme Court held that § 204(g) of the Employee Retirement Income Security Act of 1974 (ERISA) prohibits a plan amendment from expanding the cate- gories of post-retirement employment that results in suspension of the payment of early retirement benefits already accrued. The Service subsequently published Rev. Proc. 2005–23, 2005–18 I.R.B. 991, on April 18, 2005. Rev. Proc. 2005–23 gave § 7805(b)(8) relief for plans that adopted an amendment before June 7, 2004 which violated § 411(d)(6) of the Code (the coun- terpart to § 204(g) of ERISA). Under Rev. Proc. 2005–23, a plan sponsor has until the last day of the EGTRRA remedial amendment period to adopt an amendment correcting the disqualifying provision. As noted above, Rev. Proc. 2005–66 ex- tended the EGTRRA remedial amendment period for individually designed plans to the end of the initial five-year remedial amendment cycle and for pre-approved plans to the end of the initial six-year re- medial amendment cycle. Rev. Proc. 2005–76, 2005–50 I.R.B. 1139 (Dec. 12, 2005), provides extensions to the time periods for taking corrective action to be eligible for § 7805(b) relief. Professional Employer Organizations In Rev. Proc. 2002–21, 2002–1 C.B. 911, the Service provided transitional re- lief for certain defined contribution plans maintained by professional employer orga- nizations (PEO). In order to remain quali- fied under § 401(a), the plan sponsor had the option to either terminate the PEO plan or convert the PEO plan into a multiple employer plan by the 120th day after the first day of the first plan year beginning on or after January 1, 2003. For a cal- endar year plan, the deadline was May 2, 2003. The Service published Rev. Proc. 2003–86, 2003–2 C.B. 1211, to provide additional guidancerelating to PEOs. Rev. Proc. 2003–86 provided that plan sponsors have until the end of the EGTRRA reme- dial amendment period as set forth in No- tice 2001–42 to adopt transitional amend- ments for technical corrections. As noted above, Rev. Proc. 2005–66 extended the EGTRRA remedial amendment period for individually designed plans to the end of the initial five-year remedial amendment cycle and for pre-approved plans to the end of the initial six-yearremedial amendment cycle. Pension Funding Equity Act of 2004 The Pension Funding Equity Act of 2004, Pub. L. 108–218 (PFEA) was en- acted on April 10, 2004. PFEA amended § 415(b)(2)(E)(ii) applicable for the plan years beginning in 2004 and 2005. Un- der § 101(c) of PFEA, the deadline to amend plans to comply with the changes to § 415(b)(2)(E)(ii) is the last day of the first plan year beginning on or after Jan- uary 1, 2006. Hurricane Katrina Relief The Katrina Emergency Tax Relief Act of 2005, P. L. 109–73 (KETRA) was en- acted on September 23, 2005 to provide that qualified individuals receive favorable tax treatment with respect to distributions from eligible retirement plans that are qualified Hurricane Katrina distributions. Under § 104 of KETRA, for an employer plan other than a governmental plan, the date by which any plan amendment to reflect KETRA is required to be made will not be earlier than the last day of the first plan year beginning on or after January 1, 2007. For a governmental plan described in § 414(d) of the Code, the date by which any plan amendment to reflect KETRA is required to be made will not be earlier than the last day of the first plan year beginning on or after January 1, 2009. Announcement 2005–70, 2005–40 I.R.B. 682, provides relief for taxpayers adversely affected by Hurricane Katrina for hardship distribution and loans. A plan that does not provide for loans or hardship distributions as described in An- nouncement 2005–70 must be amended to provide for loans or such emergency distributions no later than the end of the first plan year beginning after December 31, 2005. VI. Other Amendment Issues Designated Roth Contributions Section 402A of the Code was added by EGTRRA to allow the optional treat- ment of elective deferrals as designated Roth elective deferrals to defined contri- bution plans. Proposedamendments to the Final § 401(k) Regulations related to des- ignated Roth contributions were published on March 2, 2005. The regulatory effec- tive date is proposed to be the same as the effective date for the Final § 401(k) Regu- lations described above. The statutory ef- fective date for designated Roth contribu- tions is for taxable years beginning after December 31, 2005. An employer can implement desig- nated Roth contributions beginning with the statutory effective date, even if it is prior to the regulatory effective date of the Final § 401(k) Regulations. As a dis- cretionary amendment, the deadline to adopt an amendment implementing desig- nated Roth contributions under Rev. Proc. December 19, 200511742005–51 I.R.B. 2005–66 is the end of the plan year in which the plan amendment is effective. For example, for a plan where the plan year ends March 31st, designated Roth contributions can be implemented as early as January 1, 2006 but in such cases, the plan sponsor must amend the plan by March 31, 2006. In order to facilitate the timely adop- tion of the discretionary amendment, the Serviceintendstoissueasampleamend- ment for designated Roth contributions af- ter publication of the final § 401(k) regula- tions as amended for designated Roth con- tributions. Good Faith Amendments Notice 2005–5 includes a sample amendment that can be used to implement the automatic rollover rules. However, the Service does not currently intend to issue a model or sample amendment for the final RASD regulations, final § 401(k) regulations, final § 401(a)(9) regulations for the required minimum distribution for defined benefit plans, the suspension of benefits underHeinz v. Central Labor- ers’ Pension Fund, the Pension Funding Equity Act of 2004, and certain defined contribution plans maintained by profes- sional employer organizations. Therefore, plan sponsors must adopt good faith plan amendments reflecting these qualifica- tion changes. The Service will consider whether to issue a sample amendment re- lated to Hurricane Katrina Relief. Maintaining the Pre-approved Status of a Pre-approved Plan The Service will not treat the adoption of good faith plan amendments that re- flect the qualification changes listed in sec- tions 4 and 5 of this notice as affecting the pre-approved status of a master and pro- totype (M&P) or volume submitter plan. That is, M&P plans may be amended by the M&P sponsor (and, if applicable, the adopting employer) without causing the plans to fail to be M&P plans. Similarly, volume submitter plans may be amended by the sponsoring employer or the prac- titioner, if authorized under the terms of the plans, without causing the plans to fail to be volume submitter plans. In ei- ther case, the amendment will not result in the loss of reliance on a favorable opin- ion, advisory, or determination letter, if the amendment causes the plan to fail to sat- isfy § 401(a) and a retroactive remedial amendment is adopted within the applica- ble five or six-year remedial amendment cycle. VII. Effect on other Documents Notice 2004–84 and Notice 2005–5 are modified. DRAFTING INFORMATION The principal author of this notice is Dana Barry of the Employee Plans, Tax Exempt and Government Entities Divi- sion. For further information regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone ser- vice at 1–877–829–5500 (a toll-free num- ber) between the hours of 8:00 a.m. and 6:30 p.m. Eastern Time, Monday through Friday (a toll-free call). Ms. Barry may be reached at (202) 283–9888 (not a toll-free call). 2005–51 I.R.B.1175December 19, 2005 Appendix GuidanceDate of Publication Effective Date of Published Guidance Deadline to Adopt Plan Amendment under Rev. Proc. 2005–66 (or Notice 2005–5) Deadline to Adopt Plan Amendment under this Notice Retroactive Annuity Starting Date If discretionary — end of the plan year in whichplanamendment is put into effect. §1.417(e)–1 July 17, 2003Plan years beginning on or after January 1, 2004. If required — later of the end of the employer’s tax filing date for the taxable year that contains January 1, 2004 or the last day of the first plan year beginning on or after January 1, 2004. Later of (1) the deadline under Rev. Proc. 2005-66 or (2) December 31, 2005. Automatic Rollover § 401(a)(31)(B) December 28, 2004Mandatory distributions made on or after March 28, 2005. Notice 2001-42 and Notice 2005–5 required the amendment to be adoptedbytheendof the plan year ending on or after March 28, 2005. Latest of (1) December 31, 2005, (2) the end of the plan year that contains March 28, 2005, or (3) the tax filing deadline for the employer’s tax year containing March 28, 2005. Final §§ 401(k) and 401(m) Regulations If discretionary — end of plan year in which plan amendment is put into effect. §§ 1.401(k)–1 through –6 and 1.401(m)–1 through –5 December 29, 2004Generally, plan years beginning on or after January 1, 2006. Plan sponsors are permitted to apply final regulations to any plan year that ends after December 29, 2004. (Amendment is discretionary if it is adopted prior to the effective date.) Later of (1) December 31, 2005 or (2) the end of the plan year in which the §§ 401(k) and 401(m) regulations are implemented. 26 CFR 1.1441–5: Withholding on payments to part- nerships, trusts and estates. Rev. Proc. 2005–77 SECTION 1. PURPOSE This revenue procedure modifies the final withholding foreign partnership (“WP”) and withholding foreign trust (“WT”) agreements, contained in Rev. Proc. 2003–64, 2003–2 C.B. 306, by expanding the availability of certain doc- umentation, reporting, and withholding procedures. This revenue procedure also makes a conforming change to the portion of the Qualified Intermediary (“QI”) with- holding agreement (the “QI agreement”) contained in Rev. Proc. 2003–64. SECTION 2. BACKGROUND Rev. Proc. 2003–64 contains the WP and WT agreements described in Trea- sury Regulation § 1.1441–5(c)(2)(ii) and (e)(5)(v) and sets forth the application procedures for entering into such agree- ments. Rev. Proc. 2003–64 also amended the QI agreement, contained in Rev. Proc. 2000–12, 2000–1 C.B. 387, to add new Section 4A. In Rev. Proc. 2004–21, 2004–1 C.B. 702, the Internal Revenue Service (IRS) and the Treasury Depart- ment amended Section 10.01 of the WP and WT agreements and new Section 4A.01 of the QI agreement to eliminate a $200,000 cap that restricted the applica- tion of those provisions. Section 10.02 of the WP and WT agree- ments and new Section 4A.02 of the QI agreement provide generally that a QI, WP, or WT may apply simplified documen- tation, reporting, and withholding proce- dures to a foreign trust or foreign part- nership if certain conditions are met (the “Agency Provision”). Currently a QI, WP, December 19, 200511762005–51 I.R.B. or WT may apply the Agency Provision only if, among other things, the QI (or an affiliate), WP or WT is a general partner of the partnership or a trustee of the trust (the “relatedness requirement”). Upon consid- eration of comments received, the IRS and the Treasury Department have concluded that the relatedness requirement is unnec- essary and that its elimination will facili- tate compliance consistent with the objec- tives of the underlying reporting and with- holding regimes. SECTION 3. EXP ANSION OF AGENCY PROVISION Appendices 1, 2, and 3 of Rev. Proc. 2003–64, containing the WP and WT agreements and new Section 4A of the QI agreement, respectively, are amended as follows. In Appendices 1 and 2, the first paragraph of Section 10.02 of the WP and WT agreements is amended by inserting “and” before “(2)”, by replacing the semicolon before “(3)” with a period, and by deleting “and (3) the [WP/WT] is a general partner of the partnership or a trustee of the trust.” In Appendix 3, the first paragraph of Section 4A.02 of the QI agreement is amended by inserting “and” before “(2)”, by replacing the semicolon before “(3)” with a period, and by deleting “and (3) the QI, or an affiliate of the QI, is a general partner of the partnership or a trustee of the trust.” SECTION 4. EFFECTIVE DATE The modifications to Rev. Proc 2003–64 made by this revenue proce- dure are effective as of July 10, 2003, the effective date of Rev. Proc. 2003–64. Pursuant to Section 12.02 of the QI agree- ment, and Section 11.02 of the WP and WT agreements, these amendments apply to all existing QI, WP, and WT agreements. These amendments will be incorporated into the text of all QI, WP, and WT agree- ments entered into on or after the date this revenue procedure is released. SECTION 5. EFFECT ON OTHER DOCUMENTS Rev. Proc. 2003–64, 2003–2 C.B. 306, is modified. SECTION 6. CONTACT INFORMATION For further information regard- ing this revenue procedure, contact Kathryn T. Holman at (202) 622–3840 (not a toll-free call). 26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability. (Also Part I, §§ 62, 162, 170, 213, 217, 274, 1016; 1.62–2, 1.162–17, 1.170A–1, 1.213–1, 1.217–2, 1.274–5, 1.1016–3.) Rev. Proc. 2005–78 SECTION 1. PURPOSE This revenue procedure updates Rev. Proc. 2004–64, 2004–2 C.B. 898, as modi- fied by Announcement 2005–71, 2005–41 I.R.B. 714, and provides optional stan- dard mileage rates for employees, self- employed individuals, or other taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. In addition, this revenue pro- cedure provides optional standard mileage rates for computing the deductible costs of operating an automobile in providing do- nated services to charity for the provision of relief related to Hurricane Katrina and for determining the amount that may be excluded from income by taxpayers who are reimbursed for such use. This rev- enue procedure also provides rules under which the amount of ordinary and neces- sary expenses of local travel or transporta- tion away from home that are paid or in- curred by an employee will be deemed substantiated under § 1.274–5 of the In- come Tax Regulations if a payor (the em- ployer, its agent, or a third party) pro- vides a mileage allowance under a reim- bursement or other expense allowance ar- rangement to pay for the expenses. Use of a method of substantiation described in this revenue procedure is not manda- tory and a taxpayer may use actual allow- able expenses if the taxpayer maintains adequate records or other sufficient evi- dence for proper substantiation. The Inter- nal Revenue Service prospectively adjusts the business, medical, and moving stan- dard mileage rates annually (to the extent warranted). SECTION 2. SUMMARY OF STANDARD MILEAGE RATES .01Standard mileage rates (1) Business (section 5 below)44.5 cents per mile (2) Charitable contribution (section 7 below) (a) General14 cents per mile (b) Hurricane Katrina deduction32 cents per mile (c) Hurricane Katrina reimbursement44.5 cents per mile (3) Medical and moving (section 7 below)18 cents per mile .02Determination of standard mileage rates. The business, medical, and moving standard mileage rates reflected in this revenue procedure are based on an annual study of the fixed and variable costs of op- erating an automobile conducted on behalf of the Service by an independent contrac- tor. The charitable contribution standard mileage rate is provided in § 170(i) of the Internal Revenue Code. The Hurricane Katrina charitable contribution deduction standard mileage rate is established by § 303 of the Katrina Emergency Tax Re- lief Act of 2005, Pub. L. No. 109–73, 119 Stat. 2016 (KETRA). The Hurricane Katrina charitable contribution reimburse- ment standard mileage rate is established by § 304 of KETRA. 2005–51 I.R.B.1177December 19, 2005 SECTION 3. BACKGROUND AND CHANGES .01 Section 162(a) allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Un- der that provision, an employee or self-em- ployed individual may deduct the cost of operating an automobile to the extent that it is used in a trade or business. However, under § 262, no portion of the cost of op- erating an automobile that is attributable to personal use is deductible. .02 Section 274(d) provides, in part, that no deduction is allowed under § 162 with respect to any listed property (as de- finedin§280F(d)(4)toincludepassen- ger automobiles and any other property used as a means of transportation) unless the taxpayer complies with certain sub- stantiation requirements. Section 274(d) further provides that regulations may pre- scribe that some or all of the substantiation requirements do not apply to an expense that does not exceed an amount prescribed by the regulations. .03 Section 1.274–5(j), in part, grants the Commissioner of Internal Revenue the authority to establish a method under which a taxpayer may use mileage rates to substantiate, for purposes of § 274(d), the amount of the ordinary and necessary expenses of using a vehicle for local trans- portation and transportation to, from, and at the destination while traveling away from home. .04 Section 1.274–5(g), in part, grants the Commissioner the authority to pre- scribe rules relating to mileage allowances for ordinary and necessary expenses of using a vehicle for local transportation and transportation to, from, and at the destination while traveling away from home. Pursuant to this grant of authority, the Commissioner may prescribe rules under which the allowances, if in accor- dance with reasonable business practice, will be regarded as (1) equivalent to sub- stantiation, by adequate records or other sufficient evidence, of the amount of the travel and transportation expenses for pur- poses of § 1.274–5(c), and (2) satisfying the requirements of an adequate account- ing to the employer of the amount of the expenses for purposes of § 1.274–5(f). .05 Section 62(a)(2)(A) allows an em- ployee, in determining adjusted gross in- come, a deduction for the expenses al- lowedbyPartVI(§161andfollowing), subchapter B, chapter 1 of the Code, paid or incurred by the employee in connection with the performance of services as an em- ployee under a reimbursement or other ex- pense allowance arrangement with a payor. .06 Section 62(c) provides that an ar- rangement will not be treated as a reim- bursement or other expense allowance ar- rangement for purposes of § 62(a)(2)(A) if it— (1) does not require the employee to substantiate the expenses covered by the arrangement to the payor, or (2) provides the employee with the right to retain any amount in excess of the sub- stantiated expenses covered under the ar- rangement. Section 62(c) further provides that the sub- stantiation requirements described therein do not apply to any expense to the extent that, under the grant of regulatory author- ity in § 274(d), the Commissioner has pro- vided that substantiation is not required for the expense. .07 Under § 1.62–2(c)(1), a reim- bursement or other expense allowance arrangement satisfies the requirements of § 62(c) if it meets the requirements of business connection, substantiation, and returning amounts in excess of ex- penses as specified in the regulations. Section 1.62–2(e)(2) specifically provides that substantiation of certain business ex- penses in accordance with rules prescribed under the authority of § 1.274–5(g) will be treated as substantiation of the amount of the expenses for purposes of § 1.62–2. Under § 1.62–2(f)(2), the Commissioner may prescribe rules under which an ar- rangement providing mileage allowances will be treated as satisfying the require- ment of returning amounts in excess of expenses, even though the arrangement does not require the employee to return the portion of the allowance that relates to miles of travel substantiated and that exceeds the amount of the employee’s ex- penses deemed substantiated pursuant to rules prescribed under § 274(d), provided the allowance is reasonably calculated not to exceed the amount of the employee’s expenses or anticipated expenses and the employee is required to return any portion of the allowance that relates to miles of travel not substantiated. .08 Section 1.62–2(h)(2)(i)(B) provides that if a payor pays a mileage allowance under an arrangement that meets the re- quirements of § 1.62–2(c)(1), the portion, if any, of the allowance that relates to miles of travel substantiated in accordance with § 1.62–2(e), that exceeds the amount of the employee’s expenses deemed substan- tiated for the travel pursuant to rules pre- scribed under § 274(d) and § 1.274–5(g), and that the employee is not required to return, is subject to withholding and payment of employment taxes.See §§ 31.3121(a)–3, 31.3231(e)–1(a)(5), 31.3306(b)–2, and 31.3401(a)–4 of the Employment Tax Regulations. Because the employee is not required to return this excess portion, the reasonable period of time provisions of § 1.62–2(g) (relating to the return of excess amounts) do not apply to this excess portion. .09 Under § 1.62–2(h)(2)(i)(B)(4), the Commissioner may provide special rules regarding the timing of withholding and payment of employment taxes on mileage allowances. .10 Section 303 of KETRA provides that the standard mileage rate for purposes of computing the amount allowable as a charitable contribution deduction for the cost of operating an automobile for the provision of relief related to Hurricane Katrina during the period beginning on August 25, 2005, and ending on Decem- ber 31, 2006, shall be 70 percent of the business standard mileage rate in effect. Section 304 of KETRA provides that taxpayers may exclude from income an amount computed at the business standard mileage rate received from a charity as reimbursement for the cost of operating an automobile for the provision of relief related to Hurricane Katrina during the period beginning on August 25, 2005, and ending on December 31, 2006. Sections 2.01 and 7.01 of this revenue procedure are revised to include these special chari- table contribution standard mileage rates for 2006. For the period beginning on August 25, 2005, and ending on August 31, 2005, the charitable contribution stan- dard mileage rate is 29 cents for deduction purposes and 40.5 cents for reimburse- ment purposes. For the period beginning on September 1, 2005, and ending on December 31, 2005, the charitable contri- bution standard mileage rate is 34 cents December 19, 200511782005–51 I.R.B. for deduction purposes and 48.5 cents for reimbursement purposes. .11 Section 5.06(3) of this revenue procedure clarifies the limitation on use of the business standard mileage rate by a taxpayer that has claimed the special depreciation allowance under § 168(k). Section 8.04(1) clarifies the limitation on use of a fixed and variable rate (FAVR) allowance with respect to an automo- bile for which an employee has claimed the special depreciation allowance under § 168(k). Section 8.05(4) clarifies the requirement that an employer’s FAVR al- lowance or allowances must cover at least five or more employees. Section 8.05(5) clarifies the requirement that an employee may not participate in a FAVR allowance unless the cost of the employee’s automo- bile was at least 90 percent of the standard automobile cost. SECTION 4. DEFINITIONS .01Standard mileage rate.Theterm “standard mileage rate” means the applica- ble amount provided by the Service for op- tional use by employees or self-employed individuals in computing the deductible costs of operating automobiles (including vans, pickups, or panel trucks) they own or lease for business purposes, or by taxpay- ers in computing the deductible costs of operating automobiles for charitable, med- ical, or moving expense purposes. .02Transportation expenses.Theterm “transportation expenses” means the ex- penses of operating an automobile for local travel or transportation away from home. .03Mileage allowance.Theterm “mileage allowance” means a payment under a reimbursement or other expense allowance arrangement that meets the re- quirements specified in § 1.62–2(c)(1) and that is: (1) paid with respect to the ordinary and necessary business expenses incurred, or that the payor reasonably anticipates will be incurred, by an employee for transporta- tion expenses in connection with the per- formance of services as an employee of the employer, (2) reasonably calculated not to exceed the amount of the expenses or the antici- pated expenses, and (3) paid at the applicable standard mileage rate, a flat rate or stated schedule, or in accordance with any other Ser- vice-specified rate or schedule. .04Flat rate or stated schedule.A mileage allowance is paid at a flat rate or stated schedule if it is provided on a uni- form and objective basis with respect to the expenses described in section 4.03 of this revenue procedure. The allowance may be paid periodically at a fixed rate, at a cents-per-mile rate, at a variable rate based on a stated schedule, at a rate that com- bines any of these rates, or on any other basis that is consistently applied and in ac- cordance with reasonable business prac- tice. Thus, for example, a periodic pay- ment at a fixed rate to cover the fixed costs (including depreciation (or lease pay- ments), insurance, registration and license fees, and personal property taxes) of driv- ing an automobile in connection with the performance of services as an employee of the employer, coupled with a periodic pay- ment at a cents-per-mile rate to cover the operating costs (including gasoline and all taxes thereon, oil, tires, and routine main- tenance and repairs) of using an automo- bile for those purposes, is an allowance paid at a flat rate or stated schedule. Like- wise, a periodic payment at a variable rate based on a stated schedule for different lo- cales to cover the costs of driving an auto- mobile in connection with the performance of services as an employee is an allowance paid at a flat rate or stated schedule. SECTION 5. BUSINESS STANDARD MILEAGE RATE .01In general. The standard mileage rate for transportation expenses is 44.5 cents per mile for all miles of use for busi- ness purposes. .02Use of the business standard mileage rate. A taxpayer may use the business standard mileage rate with re- spect to an automobile that is either owned or leased by the taxpayer. A taxpayer generally may deduct an amount equal to either the business standard mileage rate times the number of business miles trav- eled or the actual costs (both operating and fixed) paid or incurred by the taxpayer that are allocable to traveling those business miles. .03Business standard mileage rate in lieu of operating and fixed costs.Ade- duction using the standard mileage rate for business miles is computed on a yearly ba- sis and is in lieu of all operating and fixed costs of the automobile allocable to busi- ness purposes (except as provided in sec- tion 9.06 of this revenue procedure). Items such as depreciation (or lease payments), maintenance and repairs, tires, gasoline (including all taxes thereon), oil, insur- ance, and license and registration fees are included in operating and fixed costs for this purpose. .04Parking fees, tolls, interest, and taxes. Parking fees and tolls attributable to use of the automobile for business pur- poses may be deducted as separate items. Likewise, interest relating to the purchase of the automobile as well as state and local personal property taxes may be deducted as separate items, but only to the extent al- lowable under § 163 or § 164, respectively. Section 163(h)(2)(A) expressly provides that interest is nondeductible personal interest if it is paid or accrued on indebt- edness properly allocable to the trade or business of performing services as an em- ployee. Section 164 expressly provides that state and local taxes that are paid or accrued by a taxpayer in connection with an acquisition or disposition of property will be treated as part of the cost of the acquiredpropertyorasareductioninthe amount realized on the disposition of the property. If the automobile is operated less than 100 percent for business purposes, an allocation is required to determine the business and nonbusiness portion of the taxes and interest deduction allowable. .05Depreciation. For owned automo- biles placed in service for business pur- poses, and for which the business standard mileage rate has been used for any year, depreciation will be considered to have been allowed at the rate of 15 cents per mile for 2002, 16 cents per mile for 2003 and 2004, and 17 cents per mile for 2005 and 2006, for those years in which the busi- ness standard mileage rate was used. If actual costs were used for one or more of those years, the rates above do not apply to any year in which actual costs were used. The depreciation described above will re- duce the basis of the automobile (but not below zero) in determining adjusted basis as required by § 1016. .06Limitations. (1) The business standard mileage rate may not be used to compute the deductible expenses of (a) automobiles used for hire, such as taxicabs, or (b) five or more auto- 2005–51 I.R.B.1179December 19, 2005 mobiles owned or leased by a taxpayer and used simultaneously (such as in fleet oper- ations). (2) The business standard mileage rate may not be used to compute the deductible business expenses of an automobile leased by a taxpayer unless the taxpayer uses ei- ther the business standard mileage rate or a FAVR allowance (as provided in section 8 of this revenue procedure) to compute the deductible business expenses of the auto- mobile for the entire lease period (includ- ing renewals). For a lease commencing on or before December 31, 1997, the “en- tire lease period” means the portion of the lease period (including renewals) remain- ing after that date. (3) The business standard mileage rate may not be used to compute the deductible expenses of an automobile for which the taxpayer has (a) claimed depreciation us- ing a method other than straight-line for its estimated useful life, (b) claimed a § 179 deduction, (c) claimed the special depre- ciation allowance under § 168(k), or (d) used the Accelerated Cost Recovery Sys- tem (ACRS) under former § 168 or the Modified Accelerated Cost Recovery Sys- tem (MACRS) under current § 168. By us- ing the business standard mileage rate, the taxpayer has elected to exclude the auto- mobile (if owned) from MACRS pursuant to § 168(f)(1). If, after using the busi- ness standard mileage rate, the taxpayer uses actual costs, the taxpayer must use straight-line depreciation for the automo- bile’s remaining estimated useful life (sub- ject to the applicable depreciation deduc- tion limitations under § 280F). (4) The business standard mileage rate and this revenue procedure may not be used to compute the amount of the de- ductible automobile expenses of an em- ployee of the United States Postal Service incurred in performing services involving the collection and delivery of mail on a ru- ral route if the employee receives qualified reimbursements (as defined in § 162(o)) for the expenses.See§162(o)forthe rules that apply to these qualified reim- bursements. SECTION 6. RESERVED SECTION 7. CHARITABLE, MEDICAL, AND MOVING STANDARD MILEAGE RATES .01Charitable. Section 170(i) provides a standard mileage rate of 14 cents per mile for purposes of computing the charitable contribution deduction for use of an auto- mobile in connection with rendering gratu- itous services to a charitable organization under § 170. The standard mileage rate is 32 cents per mile for purposes of comput- ing the charitable contribution deduction for use of an automobile in providing do- nated services to charity for the provision of relief related to Hurricane Katrina. The standard mileage rate is 44.5 cents per mile for purposes of determining the amount that may be excluded from income by tax- payers who are reimbursed for the use of an automobile in providing donated ser- vices to charity for the provision of relief related to Hurricane Katrina. .02Medical and moving. The standard mileage rate is 18 cents per mile for use of an automobile (a) to obtain medical care described in § 213, or (b) as part of a move for which the expenses are deductible un- der § 217. .03Charitable, medical, or moving ex- pense standard mileage rates in lieu of op- erating expenses. A deduction computed using the applicable standard mileage rate for charitable, medical, or moving expense miles is in lieu of all operating expenses (including gasoline and oil) of the automo- bile allocable to those purposes. Costs for items such as depreciation (or lease pay- ments), insurance, and license and regis- tration fees are not deductible, and are not included in the standard mileage rates. .04Parking fees, tolls, interest, and taxes. Parking fees and tolls attributable to the use of the automobile for charitable, medical, or moving expense purposes may be deducted as separate items. Interest relating to the purchase of the automobile and state and local personal property taxes are not deductible as charitable, medical, or moving expenses, but they may be deducted as separate items to the extent allowable under § 163 or § 164, respec- tively. SECTION 8. FIXED AND VARIABLE RATE ALLOWANCE .01In general. (1) The ordinary and necessary ex- penses paid or incurred by an employee in driving an automobile owned or leased by the employee in connection with the performance of services as an employee of the employer will be deemed substan- tiated (in an amount determined under section 9 of this revenue procedure) when a payor reimburses those expenses with amileageallowanceusingaflatrateor stated schedule that combines periodic fixed and variable rate payments that meet all the requirements of section 8 of this revenue procedure (a FAVR allowance). (2) The amount of a FAVR allowance must be based on data that (a) is derived from the base locality, (b) reflects retail prices paid by consumers, and (c) is rea- sonable and statistically defensible in ap- proximating the actual expenses employ- ees receiving the allowance would incur as owners of the standard automobile. .02Computation of FAVR allowance. (1)FAVR allowance.AFAVRal- lowance includes periodic fixed payments and periodic variable payments. A payor may maintain more than one FAVR al- lowance. A FAVR allowance that uses the same payor, standard automobile (or an au- tomobileofthesamemakeandmodelthat is comparably equipped), retention period, and business use percentage is considered one FAVR allowance,even though other features of the allowance may vary. A FAVR allowance also includes any op- tional high mileage payments; however, optional high mileage payments are in- cluded in the employee’s gross income, are reported as wages or other compen- sation on the employee’s Form W–2, and are subject to withholding and payment of employment taxes when paid.Seesec- tion 9.05 of this revenue procedure. An optional high mileage payment covers the additional depreciation for a standard automobile attributable to business miles driven and substantiated by the employee for a calendar year in excess of the annual business mileage for that year. If an em- ployee is covered by the FAVR allowance for less than the entire calendar year, the annual business mileage may be prorated on a monthly basis for purposes of the preceding sentence. December 19, 200511802005–51 I.R.B. (2)Periodic fixed payment.Aperiodic fixed payment covers the projected fixed costs (including depreciation (or lease pay- ments), insurance, registration and license fees, and personal property taxes) of driv- ing the standard automobile in connection with the performance of services as an em- ployee of the employer in a base locality, and must be paid at least quarterly. A pe- riodic fixed payment may be computed by (a) dividing the total projected fixed costs of the standard automobile for all years of the retention period, determined at the beginning of the retention period, by the number of periodic fixed payments in the retention period, and (b) multiplying the resulting amount by the business use per- centage. (3)Periodic variable payment.Aperi- odic variable payment covers the projected operating costs (including gasoline and all taxes thereon, oil, tires, and routine main- tenance and repairs) of driving a standard automobile in connection with the perfor- mance of services as an employee of the employer in a base locality, and must be paid at least quarterly. The rate of a pe- riodic variable payment for a computation period may be computed by dividing the total projected operating costs for the stan- dard automobile for the computation pe- riod, determined at the beginning of the computation period, by the computation period mileage. A computation period can be any period of a year or less. Compu- tation period mileage is the total mileage (business and personal) a payor reason- ably projects a standard automobile will be driven during a computation period and equals the retention mileage divided by the number of computation periods in the re- tention period. For each business mile sub- stantiated by the employee for the com- putation period, the periodic variable pay- ment must be paid at a rate that does not ex- ceed the rate for that computation period. (4)Base locality. A base locality is the particular geographic locality or re- gion of the United States in which the costs of driving an automobile in connec- tion with the performance of services as an employee of the employer are generally paid or incurred by the employee. Thus, for purposes of determining the amount of fixed costs, the base locality is gener- ally the geographic locality or region in which the employee resides. For purposes of determining the amount of operating costs, the base locality is generally the geo- graphic locality or region in which the em- ployee drives the automobile in connection with the performance of services as an em- ployee of the employer. (5)Standard automobile. A standard automobile is the automobile selected by the payor on which a specific FAVR al- lowance is based. (6)Standard automobile cost.Thestan- dard automobile cost for a calendar year may not exceed 95 percent of the sum of (a) the retail dealer invoice cost of the stan- dard automobile in the base locality, and (b) state and local sales or use taxes appli- cable on the purchase of the automobile. Further, the standard automobile cost may not exceed $27,400. (7)Annual mileage. Annual mileage is the total mileage (business and personal) a payor reasonably projects a standard au- tomobile will be driven during a calendar year. Annual mileage equals the annual business mileage divided by the business use percentage. (8)Annual business mileage. Annual business mileage is the mileage a payor reasonably projects a standard automobile will be driven by an employee in connec- tion with the performance of services as an employee of the employer during the cal- endar year, but may not be less than 6,250 miles for a calendar year. Annual business mileage equals the annual mileage multi- plied by the business use percentage. (9)Business use percentage. A busi- ness use percentage is determined by dividing the annual business mileage by the annual mileage. The business use percentage may not exceed 75 percent. In lieu of demonstrating the reasonable- ness of the business use percentage based on records of total mileage and business mileage driven by theemployees annually, a payor may use a business use percentage that is less than or equal to the following percentages for a FAVR allowance that is paid for the following annual business mileage: Annual business mileageBusiness use percentage 6,250 or more but less than 10,00045 percent 10,000 or more but less than 15,000 55 perc ent 15,000 or more but less than 20,00065 percent 20,000 or more75 percent (10) Retention period. A retention pe- riod is the period in calendar years selected by th e payor during which the payor ex- pec ts an employee to drive a standard auto- mob ile in connection with the performance of s ervices as an employee of the employer bef ore the automobile is replaced. The per iod may not be less than two calendar yea rs. (11) Retention mileage. Retention mile age is the annual mileage multiplied by th e number of calendar years in the ret ention period. (12) Residual value. The residual value of a standard automobile is the projected amo unt for which it could be sold at the end of the retention period after being dri ven the retention mileage. The Ser- vice will accept the following safe harbor resi dual values for a standard automobile comp uted as a percentage of the standard aut omobile cost: 2005–51 I.R.B.1181December 19, 2005 Retention periodResidual value 2-year70 percent 3-year60 percent 4-year50 percent .03FAVR allowance in lieu of operating and fixed costs. (1) A reimbursement computed using a FAVR allowance is in lieu of the em- ployee’s deduction of all the operating and fixed costs paid or incurred by an em- ployee in driving the automobile in con- nection with the performance of services as an employee of the employer, except as provided in section 9.06 of this rev- enue procedure. Items such as deprecia- tion (or lease payments), maintenance and repairs, tires, gasoline (including all taxes thereon), oil, insurance, license and reg- istration fees, and personal property taxes areincludedinoperatingandfixedcosts for this purpose. (2) Parking fees and tolls attributable to an employee driving the standard au- tomobile in connection with the perfor- mance of services as an employee of the employer are not included in fixed and op- erating costs and may be deducted as sep- arate items. Similarly, interest relating to the purchase of the standard automobile maybedeductedasaseparateitem,but only to the extent that the interest is an al- lowable deduction under § 163. .04Depreciation. (1) A FAVR allowance may not be paid with respect to an automobile for which the employee has (a) claimed depreciation us- ing a method other than straight-line for its estimated useful life, (b) claimed a § 179 deduction, (c) claimed the special depreci- ation allowance under§ 168(k), or (d) used ACRS under former § 168 or MACRS un- der current § 168. If an employee uses actual costs for an owned automobile that has been covered by a FAVR allowance, theemployeemustusestraight-linedepre- ciation for the automobile’s remaining es- timated useful life (subject to the applica- ble depreciation deduction limitations un- der § 280F). (2) Except as provided in section 8.04(3) of this revenueprocedure, the total amount of the depreciation component for the retention period taken into account in computing the periodic fixed payments for that retention period may not exceed the excess of the standard automobile cost over the residual value of the standard automobile. In addition, the total amount of the depreciation component may not exceed the sum of the annual § 280F lim- itations on depreciation (in effect at the beginning of the retention period) that ap- ply to the standard automobile during the retention period. (3) If the depreciation component of pe- riodic fixed payments exceeds the limi- tations in section 8.04(2) of this revenue procedure, that section will be treated as satisfied in any year during which the to- tal annual amount of the periodic fixed payments and the periodic variable pay- ments made to an employee driving 80 per- cent of the annual business mileage of the standard automobile does not exceed the amount obtained by multiplying 80 per- cent of the annual business mileage of the standard automobile by the business stan- dard mileage rate for that year (under sec- tion 5.01 of the applicable revenue proce- dure). (4) The depreciation included in each periodic fixed payment portion of a FAVR allowance paid with respect to an automo- bile will reduce the basis of the automo- bile (but not below zero) in determining adjusted basis as required by § 1016.See section 8.07(2) of this revenue procedure for the requirement that the employer re- port the depreciation component of a peri- odic fixed payment to the employee. .05FAVR allowance limitations. (1) A FAVR allowance may be paid only to an employee who substantiates to the payor for a calendar year at least 5,000 miles driven in connection with the perfor- mance of services as an employee of the employer or, if greater, 80 percent of the annual business mileage of that FAVR al- lowance. If the employee is covered by the FAVR allowance for less than the en- tire calendar year, these limits may be pro- ratedonamonthlybasis. (2) A FAVR allowance may not be paid to a control employee (as defined in § 1.61–21(f)(5) and (6), excluding the $100,000 limitation in paragraph (f)(5)(iii)). (3)AnemployermaynotpayaFAVR allowance if at any time during a calendar year a majority of the employees covered by the FAVR allowance are management employees. (4)AnemployermaynotpayaFAVR allowance to any employee unless at all times during a calendar year at least five employees in total are covered by FAVR allowances provided by the employer. (5) A FAVR allowance may be paid only with respect to an automobile (a) owned or leased by the employee receiv- ing the payment, (b) the cost of which, as a new vehicle (whether or not purchased new by the employee), was at least 90 per- cent of the standard automobile cost taken into account for purposes of determining the FAVR allowance for the first calendar year the employee receives the allowance with respect to that automobile, and (c) the model year of which does not differ from the current calendar year by more than the number of years in the retention period. (6) A FAVR allowance may not be paid with respect to an automobile leased by an employee for which the employee has used actual expenses to compute the de- ductible business expenses of the automo- bile for any year duringtheentireleasepe- riod. For a lease commencing on or before December 31, 1997, the “entire lease pe- riod” means the portion of the lease period (including renewals) remaining after that date. (7) The insurance cost component of a FAVR allowance must be based on the rates charged in the base locality for in- surance coverage on the standard automo- bile during the current calendar year with- out taking into account rate-increasing fac- tors such as poor driving records or young drivers. (8) A FAVR allowance may be paid only to an employee whose insurance cov- erage limits on the automobile with respect to which the FAVR allowance is paid are at least equal to the insurance coverage lim- December 19, 200511822005–51 I.R.B. its used to compute the periodic fixed pay- ment under that FAVR allowance. .06Employee reporting.Within30 days after an employee’s automobile is initially covered by a FAVR allowance, or is again covered by a FAVR allowance if coverage has lapsed, the employee by written declaration must provide the payor with the following information: (a) the make, model, and year of the employee’s automobile, (b) written proof of the insur- ance coverage limits on the automobile, (c) the odometer reading of the automo- bile, (d) if owned, the purchase price of the automobile or, if leased, the price at which the automobile is ordinarily sold by retailers (the gross capitalized cost of the automobile), and (e) if owned, whether the employee has claimed depreciation with respect to the automobile using any of the depreciation methods prohibited by section 8.04(1) of this revenue procedure or, if leased, whether the employee has computed deductible business expenses with respect to the automobile using actual expenses. The information described in (a), (b), and (c) of the preceding sentence also must be supplied by the employee to the payor within 30 days after the be- ginning of each calendar year that the employee’s automobile is covered by a FAVR allowance. .07Payor recordkeeping and reporting. (1)Thepayororitsagentmustmain- tain written records setting forth (a) the sta- tistical data and projections on which the FAVR allowance payments are based, and (b) the information provided by the em- ployees pursuant to section 8.06 of this revenue procedure. (2) Within 30 days of the end of each calendar year, the employer must pro- vide each employee covered by a FAVR allowance during that year with a state- ment that, for automobile owners, lists the amount of depreciation included in each periodic fixed payment portion of the FAVR allowance paid during that calen- dar year and explains that by receiving a FAVR allowance the employee has elected to exclude the automobile from the Mod- ified Accelerated Cost Recovery System pursuant to § 168(f)(1). For automobile lessees, the statement must explain that by receiving the FAVR allowance the em- ployee may not compute the deductible business expenses of the automobile using actual expenses for the entire lease period (including renewals). For a lease com- mencing on or before December 31, 1997, the “entire lease period” means the portion of the lease period (including renewals) remaining after that date. .08Failure to meet section 8 require- ments. If an employee receives a mileage allowance that fails to meet one or more of the requirements of section 8 of this revenue procedure, the employee may not be treated as covered by any FAVR al- lowance of the payor during the period of the failure. Nevertheless, the expenses to which that mileage allowance relates may be deemed substantiated using the method described in sections 5, 9.01(1), and 9.02 of this revenue procedure to the extent the requirements of those sections are met SECTION 9. APPLICATION .01 If a payor pays a mileage allowance in lieu of reimbursing actual transportation expenses incurred or to be incurred by an employee, the amount of the expenses that is deemed substantiated to the payor is ei- ther: (1) for any mileage allowance other than a FAVR allowance, the lesser of the amount paid under the mileage allowance or the applicable standard mileage rate in section 5.01 of this revenue procedure multiplied by the number of business miles substantiated by the employee; or (2) for a FAVR allowance, the amount paid under the FAVR allowance less the sum of (a) any periodic variable rate pay- ment that relates to miles in excess of the business miles substantiated by the em- ployee and that the employee fails to re- turn to the payor although required to do so, (b) any portion of a periodic fixed pay- ment that relates to a period during which the employee is treated as not covered by the FAVR allowance and that the employee fails to return to the payor although re- quired to do so, and (c) any optional high mileage payments. .02 If the amount of transportation ex- penses is deemed substantiated under the rulesprovidedinsection9.01ofthisrev- enue procedure, and the employee actually substantiates to the payor the elements of time, place (or use), and business purpose of the transportation expenses in accor- dance with paragraphs (b)(2) (travel away from home) and (b)(6) (listed property, which includes passenger automobiles andanyotherpropertyusedasameansof transportation) of § 1.274–5T, and para- graph (c) of § 1.274–5, the employee is deemed to satisfy the adequate account- ing requirements of § 1.274–5(f) as well as the requirement to substantiate by adequate records or other sufficient evi- dence for purposes of § 1.274–5(c).See § 1.62–2(e)(1) for the rule that an arrange- ment must require business expenses to be substantiated to the payor within a reason- able period of time. .03 An arrangement providing mileage allowances will be treated as satisfying the requirement of § 1.62–2(f)(2) with respect to returning amounts in excess of expenses as follows: (1) For a mileage allowance other than a FAVR allowance, the requirement to return excess amounts will be treated as satisfied if the employee is required to return within a reasonable period of time (as defined in § 1.62–2(g)) any portion of the allowance that relates to miles of travel not substantiated by the employee, even though the arrangement does not require the employee to return the portion of the allowance that relates to the miles of travel substantiated and that exceeds the amount of the employee’s expenses deemed sub- stantiated. For example, assume a payor provides an employee an advance mileage allowance of $97 based on an anticipated 200 business miles at 48.5 cents per mile (at a time when the business standard mileage rate is 44.5 cents per mile), and the employee substantiates 120 business miles. The requirement to return excess amounts will be treated as satisfied if the employee is required to return the portion of the allowance that relates to the 80 unsubstantiated business miles ($38.80) even though the employee is not required to return the portion of the allowance ($4.80) that exceeds the amount of the em- ployee’s expenses deemed substantiated under section 9.01 of this revenue pro- cedure ($53.40) for the 120 substantiated business miles. However, the $4.80 excess portion of the allowance is treated as paid under a nonaccountable plan as discussed in section 9.05. (2) For a FAVR allowance, the require- ment to return excess amounts will be treated as satisfied if the employee is re- quired to return within a reasonable period of time (as defined in § 1.62–2(g)), (a) the portion (if any) of the periodic variable 2005–51 I.R.B.1183December 19, 2005 payment received that relates to miles in excess of the business miles substanti- ated by the employee, and (b) the portion (if any) of a periodic fixed payment that relates to a period during which the em- ployee was not covered by the FAVR allowance. .04 An employee is not required to in- clude in gross income the portion of a mileage allowance received from a payor that is less than or equal to the amount deemed substantiated under section 9.01 of this revenue procedure, provided the employee substantiates in accordance with section 9.02.See§ 1.274–5T(f)(2)(i). In addition, that portion of the allowance is treated as paid under an accountable plan, is not reported as wages or other compen- sation on the employee’s Form W–2, and is exempt from withholding and payment of employment taxes.See§ 1.62–2(c)(2) and (c)(4). .05 An employee is required to include in gross income the portion of a mileage allowance received from a payor that ex- ceeds the amount deemed substantiated under section 9.01 of this revenue proce- dure, provided the employee substantiates in accordance with section 9.02 of this rev- enue procedure.See§ 1.274–5T(f)(2)(ii). In addition, the excess portion of the al- lowance is treated as paid under a nonac- countable plan, is reported as wages or other compensation on the employee’s Form W–2, and is subject to withholding and payment of employment taxes.See § 1.62–2(c)(3)(ii), (c)(5), and (h)(2)(i)(B). .06 If an employee’s substantiated ex- penses are less than the employee’s actual expenses, the following rules apply: (1) Except as otherwise provided in section 9.06(2) of this revenue procedure with respect to leased automobiles, if the amount of the expenses deemed substan- tiated under the rules provided in section 9.01 of this revenue procedure is less than the amount of the employee’s business transportation expenses, the employee may claim an itemized deduction for the amount by which the business trans- portation expenses exceed the amount that is deemed substantiated, provided the employee substantiates all the busi- ness transportation expenses, includes on Form 2106,Employee Business Ex- penses, the deemed substantiated portion of the mileage allowance received from the payor, and includes in gross income the portion (if any) of the mileage al- lowance received from the payor that exceeds the amount deemed substantiated. See§ 1.274–5T(f)(2)(iii). However, for purposes of claiming this itemized deduc- tion, substantiation of the amount of the expenses is not required if the employee is claiming a deduction that is equal to or less than the applicable standard mileage rate multiplied by the number of business miles substantiated by the employee minus the amount deemed substantiated under section 9.01 of this revenue procedure. The itemized deduction is subject to the 2-percent floor on miscellaneous itemized deductions provided in § 67. (2) An employee whose business trans- portation expenses with respect to a leased automobile are deemed substantiated un- der section 9.01(1) of this revenue proce- dure (relating to an allowance other than a FAVR allowance) may not claim a deduc- tion based on actual expenses under sec- tion 9.06(1) unless the employee does so consistently beginning with the first busi- ness use of the automobile after December 31, 1997. An employee whose business transportation expenses with respect to a leased automobile are deemed substanti- ated under section 9.01(2) of this revenue procedure (relating to a FAVR allowance) may not claim a deduction based on actual expenses. .07 An employee may deduct an amount computed pursuant to section 5.01 of this revenue procedure only as an itemized deduction. This itemized deduc- tion is subject to the 2-percent floor on miscellaneous itemized deductions pro- videdin§67. .08 A self-employed individual may deduct an amount computed pursuant to section 5.01 of this revenue procedure in determining adjusted gross income under § 62(a)(1). .09 If a payor’s reimbursement or other expense allowance arrangement ev- idences a pattern of abuse of the rules of § 62(c) and the regulations thereunder, all payments under the arrangement will be treated as made under a nonaccountable plan. Thus, the payments are included in the employee’s gross income, are reported as wages or other compensation on the employee’s Form W–2, and are subject to withholding and payment of employ- ment taxes.See§ 1.62–2(c)(3), (c)(5), and (h)(2). SECTION 10. WITHHOLDING AND PAYMENT OF EMPLOYMENT TAXES .01 The portion of a mileage allowance (other than a FAVR allowance), if any, that relates to the miles of business travel substantiated and that exceeds the amount deemed substantiated for those miles under section 9.01(1) of this rev- enue procedure is subject to withholding and payment of employment taxes.See § 1.62–2(h)(2)(i)(B). (1) In the case of a mileage allowance paid as a reimbursement, the excess de- scribedinsection10.01ofthisrevenue procedure is subject to withholding and payment of employment taxes in the pay- roll period in which the payor reimburses the expenses for the business miles sub- stantiated.See§ 1.62–2(h)(2)(i)(B)(2). (2) In the case of a mileage allowance paid as an advance, the excess described in section 10.01 of this revenue procedure is subject to withholding and payment of em- ployment taxes no later than the first pay- roll period following the payroll period in which the business miles with respect to which the advance was paid are substanti- ated.See§ 1.62–2(h)(2)(i)(B)(3). If some or all of the business miles with respect to which the advance was paid are not substantiated within a reasonable period of time and the employee does not return the portion of the allowance that relates to those miles within a reasonable period of time, the portion of the allowance that re- lates to those miles is subject to withhold- ing and payment of employment taxes no later than the first payroll period follow- ing the end of the reasonable period.See § 1.62–2(h)(2)(i)(A). (3) In the case of a mileage allowance that is not computed on the basis of a fixed amount per mile of travel (for ex- ample, a mileage allowance that combines periodic fixed and variable rate payments, but that does not satisfy the requirements of section 8 of this revenue procedure), the payor must compute periodically (no less frequently than quarterly) the amount, if any, that exceeds the amount deemed substantiated under section 9.01(1) of this revenue procedure by comparing the total mileage allowance paid for the period to the standard mileage rate in section 5.01 of this revenue procedure multiplied by the number of business miles substantiated by the employee for the period. Any excess December 19, 200511842005–51 I.R.B. is subject to withholding and payment of employment taxes no later than the first payroll period following the payroll pe- riod in which the excess is computed.See § 1.62–2(h)(2)(i)(B)(4). (4) For example, assume an employer pays its employees a mileage allowance at a rate of 48.5 cents per mile (when the busi- ness standard mileage rate is 44.5 cents per mile). The employer does not require the return of the portion of the allowance that exceeds the business standard mileage rate for the business miles substantiated (4 cents). In June, the employer advances an employee $242.50 for 500 miles to be trav- eled during the month. In July, the em- ployee substantiates to the employer 400 business miles traveled in June and re- turns $48.50 to the employer for the 100 business miles not traveled. The amount deemed substantiated for the 400 miles traveled is $178 and the employee is not re- quired to return $16. No later than the first payroll period following the payroll period in which the 400 business miles traveled are substantiated, the employer must with- hold and pay employment taxes on $16. .02 The portion of a FAVR allowance, if any, that exceeds the amount deemed substantiated for those miles under section 9.01(2) of this revenue procedure is sub- ject to withholding and payment of em- ployment taxes.See§ 1.62–2(h)(2)(i)(B). (1) Any periodic variable rate payment that relates to miles in excess of the busi- ness miles substantiated by the employee and that the employee fails to return within a reasonable period, or any portion of a pe- riodic fixed payment that relates to a pe- riod during which the employee is treated as not covered by the FAVR allowance and that the employee fails to return within a reasonable period, is subject to withhold- ing and payment of employment taxes no later than the first payroll period follow- ing the end of the reasonable period.See § 1.62–2(h)(2)(i)(A). (2) Any optional high mileage payment is subject to withholding and payment of employment taxes when paid. SECTION 11. EFFECTIVE DATE This revenue procedure is effective for (1) deductible transportation expenses paid or incurred on or after January 1, 2006, and (2) mileage allowances or re- imbursements paid to an employee or to a charitable volunteer (a) on or after January 1, 2006, and (b) with respect to transportation expenses paid or incurred by the employee or charitable volunteer on or after January 1, 2006. SECTION 12. EFFECT ON OTHER DOCUMENTS Rev. Proc. 2004–64, as modified by Announcement 2005–71, is superseded. DRAFTING INFORMATION The principal author of this revenue procedure is John Roman Faron of the Of- fice of Associate Chief Counsel (Income Tax and Accounting). For further infor- mation regarding this revenue procedure, contact Mr. Faron at (202) 622–4930 (not a toll-free call). 2005–51 I.R.B.1185December 19, 2005 Part IV. Items of General Interest Notice of Proposed Rulemaking and Notice of Public Hearing Updated Mortality Tables for Determining Current Liability REG–124988–05 AGENCY: Internal Revenue Service (IRS), Treasury ACTION: Notice of proposed rulemaking and notice of public hearing. SUMMARY: This document contains proposed regulations under section 412(l)(7)(C)(ii) of the Internal Revenue Code (Code) and section 302(d)(7)(C)(ii) of the Employee Retirement Income Se- curity Act of 1974 (ERISA) (Public Law 93–406, 88 Stat. 829). These regulations provide the public with guidance regarding mortality tables to be used in determining current liability undersection 412(l)(7) of the Code and section 302(d)(7) of ERISA. These regulations affect plan sponsors and administrators, and participants in and beneficiaries of, certain retirement plans. DATES: Written or electronic comments and requests to speak and outlines of topics to be discussed at the public hearing sched- uled for April 19, 2006, at 10 a.m., must be received by March 29, 2006. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–124988–05), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washing- ton, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG–124988–05), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Wash- ington, DC. Alternatively, taxpayers may submit comments electronically directly to the IRS Internet site atwww.irs.gov/regs. ThepublichearingwillbeheldintheAu- ditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Bruce Perlin or Linda Marshall at (202) 622–6090 (not a toll-free number); con- cerning submissions and the hearing and/or to be placed on the building ac- cess list to attend the hearing, Treena Garrett at (202) 622–7180 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background Section 412 of the Internal Revenue Code provides minimum funding require- ments with respect to certain defined bene- fit pension plans. 1 Section 412(l) provides additional funding requirements for cer- tain of these plans, based in part on a plan’s unfunded current liability, as defined in section 412(l)(8). Pursuant to section 412(c)(6), if the otherwise applicable minimum fund- ing requirement exceeds the plan’s full funding limitation (defined in section 412(c)(7) as the excess of a specified mea- sure of plan liability over the plan assets), then the minimum funding for the year is reduced by that excess. Under section 412(c)(7)(E), the full funding limitation cannot be less than the excess of 90% of the plan’s current liability (including the expected increase in current liability due to benefits accruing during the plan year) over the value of the plan’s assets. For this purpose, the termcurrent liabilitygener- ally has the same meaning given that term under section 412(l)(7). Section 412(l)(7)(C)(ii) provides that, for purposes of determining current lia- bility in plan years beginning on or af- ter January 1, 1995, the mortality table used is the table prescribed by the Sec- retary. Under section 412(l)(7)(C)(ii)(I), the initial mortality table used in determin- ing current liability under section 412(l)(7) must be based on the prevailing commis- sioners’ standard table (described in sec- tion 807(d)(5)(A)) used to determine re- serves for group annuity contracts issued on January 1, 1993. For purposes of sec- tion 807(d)(5), Rev. Rul. 92–19, 1992–1 C.B. 227, specifies the prevailing commis- sioners’ standard table used to determine reserves for group annuity contracts issued on January 1, 1993, as the 1983 Group An- nuity Mortality Table (1983 GAM). Ac- cordingly, Rev. Rul. 95–28, 1995–1 C.B. 74, sets forth two gender-specific mortality tables — based on 1983 GAM — for pur- poses of determining current liability for participants who are not entitled to disabil- ity benefits. 2 Section 412(l)(7)(C)(iii)(I) specifies that the Secretary is to establish different mortalitytablestobeusedtodetermine current liability for individuals who are entitled to benefits under the plan on ac- count of disability. One such set of tables is to apply to individuals whose disabili- ties occur in plan years beginning before January 1, 1995, and a second set of tables for individuals whose disabilities occur in plan years beginning on or after such date. Under section 412(l)(7)(C)(iii)(II), the separate tables for disabilities that occur in plan years beginning after De- cember 31, 1994, apply only with respect to individuals who are disabled within the meaning of title II of the Social Security Act and the regulations thereunder. Rev. Rul. 96–7, 1996–1 C.B. 59, sets forth the mortality tables established under section 412(l)(7)(C)(iii). Under section 412(l)(7)(C)(ii)(III), the Secretary of the Treasury is required to periodically (at least every 5 years) 1 Section 302 of ERISA sets forth funding rules that are parallel to those in section 412 of the Code. Under section 101of Reorganization Plan No. 4 of 1978(43 FR 47713) and section 302 o f ERISA, the Secretary of the Treasury has interpretive jurisdiction overthe subject matter addressed in these proposed regulations for purposes ofERISA, as well as the Code. Thus, these proposed Treasury regulations issued under section 412 ofthe Code apply as well for purposes of section 302 of ERISA. 2 Section 417(e)(3)(A)(ii)(I) requires the present value of certain distributions to be determined using a table prescribed by the Secretary based onthe prevailing commissioners’ standard table (described in section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date as of which present value is being determined. Thus, in contrast to the mortality table initially prescribed for determining current liability under section 412(l)(7)(C)(ii)(I), the mortality table used to determine present value under section 417(e)(3)(A)(ii)(I) is not fixed as of a specified date but, rather, must be updated when the prevailing commissioners’ standard table changes. Rev. Rul. 95–6, 1995–1 C.B. 80, set forth tables under section 417(e)(3)(A)(ii)(I) based on 1983 GAM, which was the prevailing commissioners’ standard tableat that time. The 1994 Group Annuity Reserving Table became the prevailing commissioners’ standard table under section 807(d)(5)(A) for annuities issuedon or after January 1, 1999. See Rev. Rul. 2001–38, 2001–2 C.B. 124. Accordingly, Rev. Rul. 2001–62, 2001–2 C.B. 632, required plans to adopt a new mortality table (based on the 1994 Group Annuity Reserving Table) for calculating the minimum present value of distributions pursuant to section 417(e). December 19, 200511862005–51 I.R.B. review any tables in effect under that sub- section and, to the extent necessary, by regulation update the tables to reflect the actual experience of pension plans and projected trends in such experience. Sec- tion 412(l)(7)(C)(ii)(II) provides that the updated tables are to take into account the results of available independent stud- ies of mortality of individuals covered by pension plans. Pursuant to section 412(l)(7)(C)(ii)(II), any new mortality tables prescribed by regulation can be ef- fective no earlier than the first plan year beginning after December 31, 1999. Un- der section 412(l)(10),increases in current liability arising from the adoption of such a new mortality table generally are required to be amortized over a 10-year period. In order to facilitate the review of the applicable mortality tables pursuant to sec- tion 412(l)(7)(C)(ii)(III), Rev. Rul. 95–28 requested comments concerning the mor- tality table to be used for determining cur- rent liability for plan years beginning af- ter December 31, 1999, and information on existing or upcoming independent stud- ies of mortality of individuals covered by pension plans. In Announcement 2000–7, 2000–1 C.B. 586, the IRS and the Trea- sury Department also requested comments regarding mortality tables to be used for determining current liability for plan years beginning after December 31, 1999, but in- dicated that it was anticipated that in no event would there be any change in the mortality tables for plan years beginning before January 1, 2001. Notice 2003–62, 2003–2 C.B. 576, was issued as part of the periodic review by the IRS and the Treasury Department of the mortality tables used in determining cur- rent liability under section 412(l)(7). At the time the Notice 2003–62 was issued, the IRS and the Treasury Department were aware of two reviews of mortality expe- rience for retirement plan participants un- dertaken by the Retirement Plans Experi- ence Committee of the Society of Actu- aries (the UP–94 Study and the RP–2000 Mortality Tables Report), 3 and commen- tators were invited to submit any other in- dependent studies of pension plan mortal- ity experience. Notice 2003–62 also re- quested the submission of studies regard- ing projected trendsin mortality experi- ence. With respect to projecting mortality improvements, the IRS and the Treasury Department requested comments regard- ing the advantages and disadvantages of reflecting these trends on an ongoing basis through the use of generational, modified generational, or sequentially static mortal- ity tables. In addition, Notice 2003–62 requested comments on whether certain risk factors should be taken into account in predicting an individual’s mortality. Comments were requested as to the extent that separate mortality tables should be prescribed that take into account these factors, with par- ticular attention paid to the administrative issues in applying such distinctions. In this regard, comments were specifically requested as to how it would be determined which category an individual fits into, the extent to which an individual, once cate- gorized, remains in that same category, the classification of individuals for whom ad- equate information is unavailable, whether distinctions are applicable to beneficiaries, and the extent to which distinctions may overlap or work at cross purposes. Some examples of factors that were listed in Notice 2003–62 are the following: gender, tobacco use, job classification, annuity size, and income. Comments were also requested as to whether classification sys- tems, if permitted, should be mandatory or optional. A number of comments were submitted regarding the issues identified in Notice 2003–62. The IRS and the Treasury Department have reviewed the mortality tables that are used for purposes of determining current liability for participants and beneficiaries (other than disabled participants). The existing mortality table for determining current liability (1983 GAM) was com- pared to independent studies of mortality of individuals covered by pension plans, after reflecting projected trends for mor- tality improvement through 2007. The comparison indicates that the 1983 GAM is no longer appropriate for determining current liability. For example, comparing the RP–2000 Combined Healthy Mortality Table for males projected to 2007 (when this proposed regulation would take ef- fect) with the 1983 GAM shows that a current mortality table reflects a 52% de- crease in the number of expected deaths at age 50, a 26% decrease at 65, and a 19% decrease at age 80. Comparing annuity values derived under these updated mor- tality rates with annuity values determined under the 1983 GAM shows an increase in present value of 12% for a 35-year-old male with a deferred annuity payable at age 65, a 5% increase for a 55-year-old male with an immediate annuity, and a 7% increase for a 75-year-old male with an immediate annuity (all calculated at a 6% interest rate). Female mortality rates also changed, although with a different pat- tern. For females, the number of expected deaths decreased by 10% at age 50, but increased by 33% at age 65 and increased by 2% at age 80. 4 Comparing annuity values derived under these updated mor- tality rates with annuity values determined under the 1983 GAM shows a decrease in present value of 3% for a 35-year-old female with a deferred annuity payable at age 65, a 2% decrease for a 55-year-old female with an immediate annuity, and a 2% decrease for a 75-year-old female with an immediate annuity (all calculated at a 6% interest rate). Based on this review of the 1983 GAM compared to more recent mortality expe- rience, the IRS and Treasury Department have determined that updated mortality ta- bles should be used to determine current liability for participants and beneficiaries (other than disabled participants). 5 Explanation of Provisions The proposed regulations would set forth the methodology the IRS and Trea- sury would use to establish mortality tables to be used under section 412(l)(7)(C)(ii) to determine current liability for participants and beneficiaries (other than disabled par- 3 The UP–94 Study, prepared by the UP–94 Task Force of the Society of Actuaries, was published in the Transactions of the Society of Actuaries, Vol. XLVII(1995), p. 819. The RP–2000 Mortality Table Report was released in July, 2000. Society of Actuaries, RP–2000 Mortality Tables Report, athttp://www.soa.org/ccm/content/research-publications/experience-studies- tools/the-rp–2000-mortality-tables/. 4 The developers of the 1983 GAM table acknowledged that the number of female lives used to develop the table had been relatively small and they recommended an age setback to the male table be used rather than a separate female table. See Development of the 1983 Group Annuity Mortality Table, Transaction of the Society of Actuaries,Vol. XXXV (1983), pp. 859, 883–84. 5 The IRS and Treasury are in the process of reviewing recent mortality experience andexpected trends for disabled participants to determine whether updated mortality tables under section 412(l)(7)(C)(iii) are needed. 2005–51 I.R.B.1187December 19, 2005 ticipants). The mortality tables that would apply for the 2007 plan year are set forth in the proposed regulations. The mortality tables that would be used for subsequent plan years would be published in the In- ternal Revenue Bulletin. Comments are requested regarding whether it would be desirable to publish a series of tables for each of a number of years (such as five years) along with final regulations, with tables for subsequent years to be published in the Internal Revenue Bulletin. These new mortality tables would be based on the tables contained in the RP–2000 Mortality Tables Report. Com- mentators generally recommended that the RP–2000 mortality tables be the ba- sis for the mortality tables used under section 412(l)(7)(C)(ii) (although one commentator urged that large employers be permitted to use mortality tables tai- lored to their actual mortality experience). The IRS and the Treasury Department have reviewed the RP–2000 mortality tables and the accompanying report pub- lished by the Society of Actuaries, and have determined that the RP–2000 mor- tality tables form the best available basis for predicting mortality of pension plan participants and beneficiaries (other than disabled participants) based on pension plan experience and expected trends. Ac- cordingly, the proposed regulations would change the mortality tables used to deter- mine current liability from tables based on 1983 GAM to updated tables based on the RP–2000 mortality tables. As under the currently applicable mortality tables, the mortality tables set forth in these proposed regulations are gender-distinct because of significant differences between expected male mortality and expected female mor- tality. The proposed regulations would pro- vide for separate sets of tables for annui- tants and nonannuitants. This distinction has been made because the RP–2000 Mor- tality Tables Report indicates that these two groups have significantly different mortality experience. This is particu- larly true at typical ages for early retirees, where the number of health-induced early retirements results in a population that has higher mortality rates than the population of currently employedindividuals. Under the proposed regulations, the annuitant mortality table would be applied to deter- mine the present value of benefits for each annuitant. The annuitant mortality table is also used for each nonannuitant (i.e., an active employee or a terminated vested participant) for the period after which the nonannuitant is projected to commence receiving benefits, while the nonannuitant mortality table is applied for the period before the nonannuitant is projected to commence receiving benefits. Thus, for example, with respect to a 45-year-old active participant who is projected to com- mence receiving an annuity at age 55, current liability would be determined us- ing the nonannuitant mortality table for the period before the participant attains age 55 (i.e., so that the probability of an active male participant living from age 45 to the age of 55 using the mortality table that would apply in 2007 is 98.59%) and the annuitant mortality table after the participant attains age 55. Similarly, if a 45-year-old terminated vested participant is projected to commence an annuity at age 65, current liability would be determined using the nonannuitant mortality table for the period before the participant attains age 65 and the annuitant mortality table for ages 65 and above. The mortality tables that would be established pursuant to this regulation would be based on mortality improve- ments through the year of the actuarial valuation and would reflect the impact of further expected improvements in mortal- ity. Commentators generally stated that the projection of mortality improvement is desirable because it reflects expected mortality more accurately than using mortality tables that do not reflect such projection. The IRS and Treasury agree with these comments, and believe that failing to project mortality improvement in determining current liability would tend to leave plans underfunded. The regula- tions would specify the projection factors that are to be used to calculate expected mortality improvement. These projec- tion factors are from Mortality Projection Scale AA, which was also recommended for use in the UP–94 Study and RP–2000 Mortality Tables Report. The mortality tables for annuitants are generally based on a future projection period of 7 years, and the mortality tables for nonannuitants are generally based on a future projection period of 15 years. These projection peri- ods were selected as the expected average duration of liabilities and are consistent with projection periods suggested by com- mentators. The RP–2000 Mortality Tables Report did not develop mortality rates for annu- itants younger than 50 years of age or for nonannuitants older than 70 years of age. The mortality tables for annuitants use the values that apply for the nonan- nuitant mortality tables at younger ages, with a smoothed transition to the annuitant mortality tables by age 50. Similarly, the mortality tables for both male and female nonannuitants use the values that apply for the annuitant mortality tables at older ages (i.e., ages above 70), with a smoothed tran- sition to the nonannuitant mortality tables by age 70. The mortality tables for annuitants ap- plicable for the 2007 plan year would use the values that apply for the nonannuitant mortality tables at ages 40 and younger for males and at ages 44 and younger for fe- males with a smoothed transition to the an- nuitant mortality tables between the ages of 41 and 49 for males and between 45 and 49 for females. Similarly, the mortal- ity tables for both male and female nonan- nuitants applicable for the 2007 plan year use the values that apply for the annuitant mortality tables at ages 80 and older, with a smoothed transition to the nonannuitant mortality tables between the ages of 71 and 79. The proposed regulations would pro- vide an option for smaller plans (i.e.,plans where the total of active and inactive par- ticipants is less than 500) to use a single blended table for all healthy participants — in lieu of the separate tables for annui- tants and nonannuitants — in order to sim- plify the actuarial valuation for these plans. This blended table would be constructed from the separate nonannuitant and annu- itant tables using the nonannuitant/annu- itant weighting factors published in the RP–2000 Mortality Tables Report. How- ever, because the RP–2000 Mortality Ta- bles Report does not provide weighting factors before age 50 or after age 70, the IRS and the Treasury Department would extend the table of weighting factors for ages 41 through 50 (ages 45–50 for fe- males) and for ages 70 through 79 in order to develop the blended table. The proposed regulations do not pro- vide for the use of generational mortal- ity tables to compute a plan’s current lia- bility. Although commentators generally December 19, 200511882005–51 I.R.B. stated that the use of generational mortality tables provides a moreaccurate prediction of participant mortality, they urged against requiring the use of generational mortality tables, arguing that many actuarial valua- tion systems are not currently capable of using a generational approach to mortal- ity improvement. However, several com- mentators requested that the use of gen- erational mortality tables be permitted on an optional basis. The IRS and the Trea- sury Department agree that the use of gen- erational mortality tables would be prefer- able, but believe that the approach taken in the proposed regulations (i.e., projecting liabilities for annuitants and nonannuitants to average expected duration) is appropri- ate because it reasonably approximates the use of generational tables without being overly complex to apply. In light of sev- eral comments requesting that the use of generational tables be optional, the IRS and the Treasury Department are consider- ingadoptingsucharuleandrequestcom- ments regarding any issues that might arise in implementing an optional use of a gen- erational table. In addition, comments are requested regarding how much lead time would be appropriate if generational mor- talitytablesweretoberequiredinthefu- ture. The RP–2000 mortality tables and the accompanying report analyze differences in expected mortality based on a number of factors, including job classification, an- nuity size, employment status (i.e., active or retired), and industry. The IRS and the Treasury Department have considered whether separate mortality tables should be provided based on any of these distinc- tions, or on other distinctions cited in No- tice 2003–62, such as tobacco use or in- come level. The IRS and the Treasury De- partment have concluded that it is inap- propriate to apply distinctions other than the annuitant and nonannuitant distinction described above. In general, these other distinctions were not made because of the complexity involved in the process. For example, no distinction was made for to- bacco use because of the difficulty in ob- taining, maintaining, and documenting ac- curate data on the extent of tobacco use. Although several commentators rec- ommended that separate mortality tables apply to plans that are determined to be “white collar” or “blue collar” in nature, the IRS and Treasury have not adopted this recommendation because of serious administrability concerns. Commentators recognized that it may be difficult to iden- tify whether a specific individual falls into the category of blue collar or white collar (especially if an individual has shifted job classifications during his or her career), and suggested that the classification be basedonwhethertheplanisprimarily composed of blue collar employees or white collar employees or whether a plan covers a mixed population of blue collar and white collar employees. While the plan-wide classification may avoid the difficulties of categorizing those individu- als who are hard to classify as either blue collar or white collar, it would create addi- tional problems if a plan shifted between these categories. More importantly, the RP–2000 Mor- tality Tables Report indicates that plans that are primarily blue collar in nature, but that provide large annuities, tend to have significantly better mortality experi- ence than the average mortality for indi- viduals in the RP–2000 Mortality Tables Report. As a result, classifying such a plan as blue collar and allowing the plan to use a weaker mortality table will lead to sys- tematic underfunding of the plan. 6 Other concerns weighing against the use of sep- arate tables for blue collar and white collar plans include the risk of anti-selection by plans in the absence of mandatory adjust- ments and the lack of research showing the extent to which any mortality differences attributable to blue collar or white collar status extend to beneficiaries of the plan. As noted above, the mortality experi- ence is significantly different for annui- tants and nonannuitants. While the use of separate mortality rates for these groups of individuals will likely entail changes in programming of actuarial software, the IRS and Treasury believe that the improve- ment in accuracy resulting from the use of separate mortality tables for annuitants and nonannuitants more than offsets the added complexity. Furthermore, the an- nuitant/nonannuitant distinction does not have the same difficult administrative is- sues as separate tables based on collar type, annuity size, or tobacco. This is because it is usually a straightforward process to cat- egorize an individual as an annuitant or a nonannuitant, and once an indvidual is cat- egorized as an annuitant, the individual’s status usually does not change again. Proposed Effective Date These regulations are proposed to apply to plan years beginning on or after January 1, 2007. Special Analyses It has been determined that this notice of proposed rulemaking is not a signifi- cant regulatory action as defined in Ex- ecutive Order 12866. Therefore, a reg- ulatory assessment is not required. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that these regulations provide for special rules to simplify the application of these regu- lations by actuaries who provide services for small entities. Therefore, a Regulatory Flexibility Analysisunder the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, this notice of proposed rulemak- ing will be submitted to the Chief Counsel for Advocacy of the Small Business Ad- ministration for comment on its impact on small business. Comments and Public Hearing Before these proposed regulations are adopted as final regulations, considera- tion will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department specifically request comments on the clar- ity of the proposed regulations and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing has been scheduled for April 19, 2006, at 10 a.m. in the auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Wash- ington, DC. Due to building security procedures, visitors must use the main 6 Although some commentators suggested addressing this problem by treating some highly compensated union employees as if they were white collar workers, the developers of the RP–2000 Mortality Tables Report (and the researchers they hired to apply a multivariate analysis of the data) were unable to find a practical model to apply thecombined effect of collar and annuity amount on mortality. 2005–51 I.R.B.1189December 19, 2005 building entrance on Constitution Avenue. 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 area more than 30 minutes before the hearing starts. For more informa- tion about having your name placed on the list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section 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 written (signed original and eight (8) copies) or electronic comments and an outline of the topics to be discussed and the time to be devoted to each topic by March 29, 2006. A period of 10 minutes will be allotted to each person for making com- ments. 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 authors of these regulations are Bruce Perlin and Linda S. F. Marshall, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). How- ever, other personnel from the IRS and Treasury participated in the development of these regulations. ***** 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 1.412(l)(7)–1 is added to read as follows: §1.412(l)(7)–1 Mortality tables used to determine current liability. (a)General rules. This section sets forththebasisusedtogeneratemortality tables to be used in connection with com- putations under section 412(l)(7)(C)(ii) for determining current liability for par- ticipants and beneficiaries (other than disabled participants). The mortality ta- bles, which reflect the probability of death at each age, that are to be used for plan years beginning during 2007, are provided in paragraph (e) of this section. The mor- tality tables to be used for later plan years are to be provided in guidance published in the Internal Revenue Bulletin. See §601.601(d) of this chapter. (b)Use of the tables—(1)Separate tables for annuitants and nonannuitants. Separate tables are provided for use by annuitants and nonannuitants. The annui- tant mortality table is applied to determine the present value of benefits for each annuitant, and to eachnonannuitant for the period after which the nonannuitant is projected to commence receiving ben- efits. For purposes of this section, an annuitant means a plan participant who is currently receiving benefits and a nonan- nuitant means a plan participant who is not currently receiving benefits (e.g.,an active employee or a terminated vested participant). A participant whose benefit has partially commenced is treated as an annuitant with respect to the portion of the benefit which has commenced and a nonannuitant with respect to the balance of the benefit. The nonannuitant mortal- ity table is applied to each nonannuitant for the period before the nonannuitant is projected to commence receiving bene- fits. Thus, for example, with respect to a 45-year-old active participant who is pro- jected to commence receiving an annuity at age 55, current liability would be de- termined using the nonannuitant mortality tablefortheperiodbeforetheparticipant attains age 55 (i.e., so that the probability of an active male participant living from age 45 to the age of 55 for the table that applies in plan years beginning in 2007 is 98.59%) and the annuitant mortality table for the period ages 55 and above. Simi- larly, if a 45-year-old terminated vested participant is projected to commence an annuity at age 65, current liability would be determined using the nonannuitant mortality table for the period before the participant attains age 65 and the annuitant mortality table for ages 65 and above. (2)Small plan tables.Asanalterna- tive to the separate tables specified for an- nuitants and nonannuitants, a small plan can use a combined table that applies the same mortality rates to both annuitants and nonannuitants. For this purpose, a small plan is defined as a plan with fewer than 500 participants (including both active and inactive participants). (c)Construction of the tables—(1) Source of basic data. The mortality ta- bles are based on the separate mortality tables for employees and healthy annui- tants under the RP–2000 Mortality Tables Report (http://www.soa.org/ccm/content/ research-publications/experience-studies- tools/the-rp–2000-mortality-tables/),as set forth in paragraph (d) of this section. (2)Projected mortality improvements. The mortality rates under the basic mor- tality tables are projected to improve using Projection Scale AA, as set forth in para- graph (d) of this section. The annuitant mortality rates for a plan year are based on applying the improvement factors from 2000 until 7 years after the plan year. The nonannuitant mortality rates for a plan year are based on applying the improvement factors from 2000 until 15 years after the plan year. The projection scale is applied using the following equation: Projected mortality rate = basemortality rate * [(1 - projection factor)^(number of years pro- jected)]. (3)Treatment of young annuitants and older nonannuitants. The mortality ta- bles for annuitants use the values that ap- ply for the nonannuitant mortality tables at younger ages, with a smoothed transi- tion to the annuitant mortality tables by age 50. Similarly, the mortality tables for both male and female nonannuitants use the val- ues that apply for the annuitant mortality tables at older ages (i.e., ages above 70), with a smoothed transition to the nonan- nuitant mortality tables by age 70. (4)Construction of the combined table for small plans. The combined table for small plans is constructed from the sepa- rate nonannuitant and annuitant tables us- ing the nonannuitant weighting factors as set forth in paragraph (d) of this section. The weighting factors are applied to de- velop this table using the following equa- tion: Combined mortality rate = [non-an- nuitant rate * (1- weighting factor)] + [an- nuitant rate * weighting factor]. (d)Tables. As set forth in paragraph (c) of this section, the following values are used to develop the mortality tables that are used for determining current liability December 19, 200511902005–51 I.R.B. under section 412(l)(7)(C)(ii) and this sec- tion. MALEMALEMALEMALEFEMALE FEMALE FEMALE FEMALE Age Non- Annuitant Table (Year 2000) Annuitant Table (Year 2000) Projection Scale AA Weighting factors for small plans Non- Annuitant Table (Year 2000) Annuitant Table (Year 2000) Projection Scale AA Weighting factors for small plans 10.000637-0.020-0.000571-0.020- 20.000430-0.020-0.000372-0.020- 30.000357-0.020-0.000278-0.020- 40.000278-0.020-0.000208-0.020- 50.000255-0.020-0.000188-0.020- 60.000244-0.020-0.000176-0.020- 70.000234-0.020-0.000165-0.020- 80.000216-0.020-0.000147-0.020- 90.000209-0.020-0.000140-0.020- 100.000212-0.020-0.000141-0.020- 110.000219-0.020-0.000143-0.020- 120.000228-0.020-0.000148-0.020- 130.000240-0.020-0.000155-0.020- 140.000254-0.019-0.000162-0.018- 150.000269-0.019-0.000170-0.016- 160.0002 84 -0.019-0.0001 77 -0.015- 170.000301-0.019-0.000184-0.014- 180.000316-0.019-0.000188-0.014- 190.000331-0.019-0.000190-0.015- 200.000345-0.019-0.000191-0.016- 210.000357-0.018-0.000192-0.017- 220.0 00366 -0.0 17 -0.0 00194 -0.0 17 - 230.000373-0.015-0.000197-0.016- 240.000376-0.013-0.000201-0.015- 250.000376-0.010-0.000207-0.014- 260.000378-0.006-0.000214-0.012- 270.000382-0.005-0.000223-0.012- 2 8 0 .000393 -0 .005 -0 .000235 -0 .012 - 290.000412-0.005-0.000248-0.012- 300.000444-0.005-0.000264-0.010- 310.000499-0.005-0.000307-0.008- 320.000562-0.005-0.000350-0.008- 330.000631-0.005-0.000394-0.009- 340.000702-0.005-0.000435-0.010- 350.000773-0.005-0.000475-0.011- 360.000841-0.005-0.000514-0.012- 370.000904-0.005-0.000554-0.013- 380.000964-0.006-0.000598-0.014- 390.001021-0.007-0.000648-0.015- 400.001079-0.008-0.000706-0.015- 410.001142-0.0090.00450.000774-0.015- 420.001215-0.0100.00910.000852-0.015- 430.001299-0.0110.01360.000937-0.015- 440.001397-0.0120.01810.001029-0.015- 450.001508-0.0130.02260.001124-0.0160.0084 460.001616-0.0140.02720.001223-0.0170.0167 2005–51 I.R.B.1191December 19, 2005 MALEMALEMALEMALEFEMALE FEMALE FEMALE FEMALE Age Non- Annuitant Table (Year 2000) Annuitant Table (Year 2000) Projection Scale AA Weighting factors for small plans Non- Annuitant Table (Year 2000) Annuitant Table (Year 2000) Projection Scale AA Weighting factors for small plans 470.001734-0.0150.03170.001326-0.0180.0251 480.001860-0.0160.03620.001434-0.0180.0335 490.001995-0.0170.04070.001550-0.0180.0419 500.002138 0.0053470.0180.04530.001676 0.0023440.0170.0502 510.002288 0.0055280.0190.04980.001814 0.0024590.0160.0586 520.002448 0.0056440.0200.06860.001967 0.0026470.0140.0744 530.002621 0.0057220.0200.09530.002135 0.0028950.0120.0947 540.002812 0.0057970.0200.12880.002321 0.0031900.0100.1189 550.003029 0.0059050.0190.20660.002526 0.0035310.0080.1897 560.003306 0.0061240.0180.31730.002756 0.0039250.0060.2857 570.003628 0.0064440.0170.37800.003010 0.0043850.0050.3403 580.003997 0.0068950.0160.44010.003291 0.0049210.0050.3878 590.004414 0.0074850.0160.49860.003599 0.0055310.0050.4360 600.004878 0.0081960.0160.56330.003931 0.0062000.0050.4954 610.005382 0.0090010.0150.63380.004285 0.0069190.0050.5805 620.005918 0.0099150.0150.71030.004656 0.0076890.0050.6598 630.006472 0.0109510.0140.79020.005039 0.0085090.0050.7520 640.007 028 0.012 117 0.0140.835 5 0.005 429 0.009 395 0.0050.804 3 650.007573 0.0134190.0140.88320.005821 0.0103640.0050.8552 660.008099 0.0148680.0130.93210.0062070.0114130.0050.9118 670.008598 0.0164600.0130.95100.006583 0.0125400.0050.9367 680.009069 0.0182000.0140.96390.006945 0.0137710.0050.9523 690.009510 0.0201050.0140.97140.007289 0.0151530.0050.9627 700.0 09922 0.0 22206 0.0 15 0.9 740 0.0 07613 0.0 16742 0.0 05 0.9 661 71-0.0245700.0150.9766-0.0185790.0060.9695 72-0.0272810.0150.9792-0.0206650.0060.9729 73-0.0303870.0150.9818-0.0229700.0070.9763 74-0.0339000.0150.9844-0.0254580.0070.9797 75-0.0378340.0140.9870-0.0281060.0080.9830 7 6 -0 .042169 0 .014 0 .9896 -0 .030966 0 .008 0 .9864 77-0.0469060.0130.9922-0.0341050.0070.9898 78-0.0521230.0120.9948-0.0375950.0070.9932 79-0.0579270.0110.9974-0.0415060.0070.9966 80-0.0643680.0101.0000-0.0458790.0071.0000 81-0.0720410.0091.0000-0.0507800.0071.0000 82-0.0804860.0081.0000-0.0562940.0071.0000 83-0.0897180.0081.0000-0.0625060.0071.0000 84-0.0997790.0071.0000-0.0695170.0071.0000 85-0.1107570.0071.0000-0.0774460.0061.0000 86-0.1227970.0071.0000-0.0863760.0051.0000 87-0.1360430.0061.0000-0.0963370.0041.0000 88-0.1505900.0051.0000-0.1073030.0041.0000 89-0.1664200.0051.0000-0.1191540.0031.0000 90-0.1834080.0041.0000-0.1316820.0031.0000 91-0.1997690.0041.0000-0.1446040.0031.0000 92-0.2166050.0031.0000-0.1576180.0031.0000 93-0.2336620.0031.0000-0.1704330.0021.0000 94-0.2506930.0031.0000-0.1827990.0021.0000 95-0.2674910.0021.0000-0.1945090.0021.0000 96-0.2839050.0021.0000-0.2053790.0021.0000 December 19, 200511922005–51 I.R.B. MALEMALEMALEMALEFEMALE FEMALE FEMALE FEMALE Age Non- Annuitant Table (Year 2000) Annuitant Table (Year 2000) Projection Scale AA Weighting factors for small plans Non- Annuitant Table (Year 2000) Annuitant Table (Year 2000) Projection Scale AA Weighting factors for small plans 97-0.2998520.0021.0000-0.2152400.0011.0000 98-0.3152960.0011.0000-0.2239470.0011.0000 99-0.3302070.0011.0000-0.2313870.0011.0000 100-0.3445560.0011.0000-0.2374670.0011.0000 101-0.3586280.0001.0000-0.2448340.0001.0000 102-0.3716850.0001.0000-0.2544980.0001.0000 103-0.3830400.0001.0000-0.2660440.0001.0000 104-0.3920030.0001.0000-0.2790550.0001.0000 105-0.3978860.0001.0000-0.2931160.0001.0000 106-0.4000000.0001.0000-0.3078110.0001.0000 107-0.4000000.0001.0000-0.3227250.0001.0000 108-0.4000000.0001.0000-0.3374410.0001.0000 109-0.4000000.0001.0000-0.3515440.0001.0000 110-0.4000000.0001.0000-0.3646170.0001.0000 111-0.4000000.0001.0000-0.3762460.0001.0000 112-0.4000000.0001.0000-0.3860150.0001.0000 113-0.4000000.0001.0000-0.3935070.0001.0000 114-0.400 000 0.0001.000 0 -0.398 308 0.0001.000 0 115-0.4000000.0001.0000-0.4000000.0001.0000 116-0.4000000.0001.0000-0.4000000.0001.0000 117-0.4000000.0001.0000-0.4000000.0001.0000 118-0.4000000.0001.0000-0.4000000.0001.0000 119-0.4000000.0001.0000-0.4000000.0001.0000 120-1.0 00000 0.0 00 1.0 000 -1.0 00000 0.0 00 1.0 000 (e)Tables for plan years beginning dur- ing 2007. The following tables are to be used for determining current liability un- der section 412(l)(7)(C)(ii) for plan years beginning during 2007. MALEMALEMALEFEMALEFEMALEFEMALE Age Non- Annuitant Table Annuitant Table Optional Combined Table for Small Plans Non- Annuitant Table Annuitant Table Optional Combined Table for Small Plans 10.00 0408 0.00 0408 0.00 0408 0.00 0366 0.00 0366 0.00 0366 20.0002760.0002760.0002760.0002390.0002390.000239 30.0002290.0002290.0002290.0001780.0001780.000178 40.0001780.0001780.0001780.0001330.0001330.000133 50.0001630.0001630.0001630.0001210.0001210.000121 60.0001560.0001560.0001560.0001130.0001130.000113 70 .000150 0 .000150 0 .000150 0 .000106 0 .000106 0 .000106 80.0001380.0001380.0001380.0000940.0000940.000094 90.0001340.0001340.0001340.0000900.0000900.000090 100.0001360.0001360.0001360.0000900.0000900.000090 110.0001400.0001400.0001400.0000920.0000920.000092 120.0001460.0001460.0001460.0000950.0000950.000095 130.0001540.0001540.0001540.0000990.0000990.000099 140.0001670.0001670.0001670.0001090.0001090.000109 150.0001760.0001760.0001760.0001190.0001190.000119 2005–51 I.R.B.1193December 19, 2005 MALEMALEMALEFEMALEFEMALEFEMALE Age Non- Annuitant Table Annuitant Table Optional Combined Table for Small Plans Non- Annuitant Table Annuitant Table Optional Combined Table for Small Plans 160.0001860.0001860.0001860.0001270.0001270.000127 170.0001970.0001970.0001970.0001350.0001350.000135 180.0002070.0002070.0002070.0001380.0001380.000138 190.0002170.0002170.0002170.0001360.0001360.000136 200.0002260.0002260.0002260.0001340.0001340.000134 210.0002390.0002390.0002390.0001320.0001320.000132 220.0002510.0002510.0002510.0001330.0001330.000133 230.0002670.0002670.0002670.0001380.0001380.000138 240.0002820.0002820.0002820.0001440.0001440.000144 250.0003010.0003010.0003010.0001520.0001520.000152 260.0003310.0003310.0003310.0001640.0001640.000164 270.0003420.0003420.0003420.0001710.0001710.000171 280.0003520.0003520.0003520.0001800.0001800.000180 290.0003690.0003690.0003690.0001900.0001900.000190 300.0003980.0003980.0003980.0002120.0002120.000212 310.0004470.0004470.0004470.0002570.0002570.000257 320.0005030.0005030.0005030.0002930.0002930.000293 330.0005 65 0.0005 65 0.0005 65 0.0003 23 0.0003 23 0.0003 23 340.0006290.0006290.0006290.0003490.0003490.000349 350.0006920.0006920.0006920.0003720.0003720.000372 360.0007530.0007530.0007530.0003940.0003940.000394 370.0008100.0008100.0008100.0004150.0004150.000415 380.0008440.0008440.0008440.0004390.0004390.000439 390.00 0875 0.00 0875 0.00 0875 0.00 0465 0.00 0465 0.00 0465 400.0009040.0009040.0009040.0005060.0005060.000506 410.0009360.0009630.0009360.0005550.0005550.000555 420.0009740.0010810.0009750.0006110.0006110.000611 430.0010180.0012580.0010210.0006720.0006720.000672 440.0010710.0014930.0010790.0007380.0007380.000738 450.0011310.0017880.0011460.0007880.0007910.000788 4 6 0 .001185 0 .002142 0 .001211 0 .000839 0 .000896 0 .000840 470.0012440.0025540.0012860.0008890.0010540.000893 480.0013040.0030260.0013660.0009620.0012650.000972 490.0013680.0035570.0014570.0010390.0015280.001059 500.0014340.0041460.0015570.0011490.0018440.001184 510.0015000.0042260.0016360.0012720.0019620.001312 520.0015700.0042540.0017540.0014420.0021730.001496 530.0016810.0043120.0019320.0016370.0024450.001714 540.0018030.0043690.0021340.0018610.0027710.001969 550.0019860.0045140.0025080.0021170.0031550.002314 560.0022170.0047490.0030200.0024140.0036080.002755 570.0024880.0050690.0034640.0026960.0040880.003170 580.0028030.0055010.0039900.0029470.0045880.003583 590.0030950.0059720.0045290.0032230.0051560.004066 600.0034210.0065390.0051770.0035210.0057800.004640 610.0038600.0072840.0060300.0038380.0064500.005354 620.0042440.0080240.0069290.0041700.0071680.006148 630.0047460.0089890.0080990.0045130.0079320.007084 640.0051540.0099470.0091590.0048620.0087580.007996 December 19, 200511942005–51 I.R.B. MALEMALEMALEFEMALEFEMALEFEMALE Age Non- Annuitant Table Annuitant Table Optional Combined Table for Small Plans Non- Annuitant Table Annuitant Table Optional Combined Table for Small Plans 650.0055530.0110150.0103770.0052130.0096620.009018 660.0060730.0123790.0119510.0055590.0106400.010192 670.0064470.0137050.0133490.0058960.0116900.011323 680.0066500.0149400.0146410.0062200.0128380.012522 690.0069740.0165040.0162310.0065280.0141260.013843 700.0071150.0179710.0176890.0068180.0156070.015309 710.0080020.0198840.0196060.0074500.0170780.016784 720.0097770.0220780.0218220.0087140.0189950.018716 730.0124390.0245920.0243710.0106100.0208190.020577 740.0159880.0274350.0272560.0131390.0230740.022872 750.0204250.0310570.0309190.0162990.0251170.024967 760.0257490.0346150.0345230.0200920.0276730.027570 770.0319610.0390540.0389990.0245160.0309110.030846 780.0390590.0440180.0439920.0295730.0340740.034043 790.0470460.0496170.0496100.0352610.0376180.037610 800.0559190.0559190.0559190.0415820.0415820.041582 810.0634760.0634760.0634760.0460240.0460240.046024 820.0719 26 0.0719 26 0.0719 26 0.0510 21 0.0510 21 0.0510 21 830.0801760.0801760.0801760.0566510.0566510.056651 840.0904330.0904330.0904330.0630060.0630060.063006 850.1003830.1003830.1003830.0711880.0711880.071188 860.1112950.1112950.1112950.0805220.0805220.080522 870.1250510.1250510.1250510.0910800.0910800.091080 880.1403850.1403850.1403850.1014480.1014480.101448 890.1 55142 0.1 55142 0.1 55142 0.1 14246 0.1 14246 0.1 14246 900.1734000.1734000.1734000.1262580.1262580.126258 910.1888680.1888680.1888680.1386480.1386480.138648 920.2076830.2076830.2076830.1511260.1511260.151126 930.2240370.2240370.2240370.1657220.1657220.165722 940.2403670.2403670.2403670.1777470.1777470.177747 9 5 0 .260098 0 .260098 0 .260098 0 .189133 0 .189133 0 .189133 960.2760580.2760580.2760580.1997030.1997030.199703 970.2915640.2915640.2915640.2122460.2122460.212246 980.3109100.3109100.3109100.2208320.2208320.220832 990.3256140.3256140.3256140.2281690.2281690.228169 1000.3397630.3397630.3397630.2341640.2341640.234164 1010.3586280.3586280.3586280.2448340.2448340.244834 1020.3716850.3716850.3716850.2544980.2544980.254498 1030.3830400.3830400.3830400.2660440.2660440.266044 1040.3920030.3920030.3920030.2790550.2790550.279055 1050.3978860.3978860.3978860.2931160.2931160.293116 1060.4000000.4000000.4000000.3078110.3078110.307811 1070.4000000.4000000.4000000.3227250.3227250.322725 1080.4000000.4000000.4000000.3374410.3374410.337441 1090.4000000.4000000.4000000.3515440.3515440.351544 1100.4000000.4000000.4000000.3646170.3646170.364617 1110.4000000.4000000.4000000.3762460.3762460.376246 1120.4000000.4000000.4000000.3860150.3860150.386015 1130.4000000.4000000.4000000.3935070.3935070.393507 2005–51 I.R.B.1195December 19, 2005 MALEMALEMALEFEMALEFEMALEFEMALE Age Non- Annuitant Table Annuitant Table Optional Combined Table for Small Plans Non- Annuitant Table Annuitant Table Optional Combined Table for Small Plans 1140.4000000.4000000.4000000.3983080.3983080.398308 1150.4000000.4000000.4000000.4000000.4000000.400000 1160.4000000.4000000.4000000.4000000.4000000.400000 1170.4000000.4000000.4000000.4000000.4000000.400000 1180.4000000.4000000.4000000.4000000.4000000.400000 1190.4000000.4000000.4000000.4000000.4000000.400000 1201.0000001.0000001.0000001.0000001.0000001.000000 (f)Effective date. The mortality ta- bles described in this section apply for plan years beginning on or after January 1, 2007. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. (Filed by the Office of the Federal Register on December 1, 2005, 8:45 a.m., and published in the issue of the Federal Register for December 2, 2005, 70 F.R. 72260) December 19, 200511962005–51 I.R.B. Definition of Terms Revenue rulings and revenue procedures (hereinafter referred to as “rulings”) that have an effect on previous rulings use the following defined terms to describe the ef- fect: Amplifieddescribes a situation where no change is being made in a prior pub- lished position, but the prior position is be- ingextendedtoapplytoavariationofthe fact situation set forth therein. Thus, if an earlier ruling held that a principle ap- plied to A, and the new ruling holds that the same principle also applies to B, the earlier ruling is amplified. (Compare withmodi- fied,below). Clarifiedis used in those instances where the language in a prior ruling is be- ing made clear because the language has caused, or may cause, some confusion. It is not used where a position in a prior ruling is being changed. Distinguisheddescribes a situation where a ruling mentions a previously pub- lished ruling and points out an essential difference between them. Modifiedis used where the substance of a previously published position is being changed. Thus, if a prior ruling held that a principle applied to A but not to B, and the new ruling holds that it applies to both A and B, the prior ruling is modified because it corrects a published position. (Compare withamplifiedandclarified, above). Obsoleteddescribes a previously pub- lished ruling that is not considered deter- minative with respect to future transac- tions. This term is most commonly used in a ruling that lists previously published rul- ings that are obsoleted because of changes in laws or regulations. A ruling may also be obsoleted because the substance has been included in regulations subsequently adopted. Revokeddescribes situations where the position in the previously published ruling is not correct and the correct position is beingstatedinanewruling. Supersededdescribes a situation where the new ruling does nothing more than re- state the substance and situation of a previ- ously published ruling (or rulings). Thus, the term is used to republish under the 1986 Code and regulations the same po- sition published under the 1939 Code and regulations. The term is also used when it is desired to republish in a single rul- ing a series of situations, names, etc., that were previously published over a period of time in separate rulings. If the new rul- ing does more than restate the substance of a prior ruling, a combination of terms is used. For example,modifiedandsu- persededdescribes a situation where the substance of a previously published ruling is being changed in part and is continued without change in part and it is desired to restate the valid portion of the previously published ruling in a new ruling that is self contained. In this case, the previously pub- lished ruling is first modified and then, as modified, is superseded. Supplementedis used in situations in which a list, such as a list of the names of countries, is published in a ruling and that list is expanded by adding further names in subsequent rulings. After the original rul- ing has been supplemented several times, a new ruling may be published that includes the list in the original ruling and the ad- ditions, and supersedes all prior rulings in the series. Suspendedis used in rare situations to show that the previous published rul- ings will not be applied pending some future action such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study. Abbreviations The fol lowing abbreviations in current use and for merly used will appear in material publis hedintheBulletin. A—Individual. Acq.—A cquiescence. B—Individual. BE—Beneficiary. BK—Bank . B.T.A.—Board of Tax Appeals. C—Individual. C.B.—Cu mulative Bulletin. CFR—Code of Federal Regulations. CI—City. COOP—Coo perative. Ct.D.—Court Decision. CY—County. D—Decede nt. DC—Dummy Corporation. DE—Donee. Del. Order —Delegation Order. DISC—Domestic International Sales Corporation. DR—Donor. E—Estate. EE—Employee. E.O.—Executive Order. ER—Emp loyer. ERISA—Employee Retirement Income Security Act. EX—Executor. F—Fiduc iary. FC—Foreign Country. FICA—Federal Insurance Contributions Act. FISC—Fo reign International Sales Company. FPH—Foreign Personal Holding Company. F.R.—Federal Register. FUTA—Fed eral Unemployment Tax Act. FX—Foreign corporation. G.C.M.—Chief Counsel’s Memorandum. GE—Grante e. GP—General Partner. GR—Grantor. IC—Insura nce Company. I.R.B.—Internal Revenue Bulletin. LE—Lessee. LP—Limited Partner. LR—Lessor. M—Minor. Nonacq.—No nacquiescence. O—Organization. P—Parent Corporation. PHC—Persona l Holding Company. PO—Possession of the U.S. PR—Partner. PRS—Pa rtnership. PTE—Prohibited Transaction Exemption. Pub. L.—Public Law. REIT—Re al Estate Investment Trust. Rev. Proc.—Revenue Procedure. Rev. Rul.—Revenue Ruling. S—Subsi diary. S.P.R.—Statement of Procedural Rules. Stat.—Statutes at Large. T—Target Corporation. T.C.—Tax Court. T.D.—Treasury Decision. TFE—Trans feree. TFR—Transferor. T.I.R.—Technical Information Release. TP—Taxpay er. TR—Trust. TT—Trustee. U.S.C.—Uni ted States Code. X—Corporation. Y—Corporation. Z—Corporat ion. 2005–51 I.R.B.iDecember 19, 2005 Numerical Finding List 1 Bulletins 2005–27 through 2005–51 Announcements: 2005-46, 2005-27 I.R.B.63 2005-47, 2005-28 I.R.B.71 2005-48, 2005-29 I.R.B.111 2005-49, 2005-29 I.R.B.119 2005-50, 2005-30 I.R.B.152 2005-51, 2005-32 I.R.B.283 2005-52, 2005-31 I.R.B.257 2005-53, 2005-31 I.R.B.258 2005-54, 2005-32 I.R.B.283 2005-55, 2005-33 I.R.B.317 2005-56, 2005-33 I.R.B.318 2005-57, 2005-33 I.R.B.318 2005-58, 2005-33 I.R.B.319 2005-59, 2005-37 I.R.B.524 2005-60, 2005-35 I.R.B.455 2005-61, 2005-36 I.R.B.495 2005-62, 2005-36 I.R.B.495 2005-63, 2005-36 I.R.B.496 2005-64, 2005-37 I.R.B.537 2005-65, 2005-38 I.R.B.587 2005-66, 2005-39 I.R.B.613 2005-67, 2005-40 I.R.B.678 2005-68, 2005-39 I.R.B.613 2005-69, 2005-40 I.R.B.681 2005-70, 2005-40 I.R.B.682 2005-71, 2005-41 I.R.B.714 2005-72, 2005-41 I.R.B.692 2005-73, 2005-41 I.R.B.715 2005-74, 2005-42 I.R.B.764 2005-75, 2005-42 I.R.B.764 2005-76, 2005-42 I.R.B.765 2005-77, 2005-44 I.R.B.855 2005-78, 2005-44 I.R.B.918 2005-79, 2005-45 I.R.B.941 2005-80, 2005-46 I.R.B.967 2005-81, 2005-45 I.R.B.941 2005-82, 2005-45 I.R.B.941 2005-83, 2005-45 I.R.B.941 2005-84, 2005-48 I.R.B.1064 2005-85, 2005-48 I.R.B.1065 2005-86, 2005-48 I.R.B.1069 2005-87, 2005-50 I.R.B.1144 2005-88, 2005-50 I.R.B.1145 2005-89, 2005-50 I.R.B.1149 Notices: 2005-48, 2005-27 I.R.B.9 2005-49, 2005-27 I.R.B.14 2005-50, 2005-27 I.R.B.14 2005-51, 2005-28 I.R.B.74 2005-52, 2005-28 I.R.B.75 2005-53, 2005-32 I.R.B.263 Notices— Continued: 2005-54, 2005-30 I.R.B.127 2005-55, 2005-32 I.R.B.265 2005-56, 2005-32 I.R.B.266 2005-57, 2005-32 I.R.B.267 2005-58, 2005-33 I.R.B.295 2005-59, 2005-35 I.R.B.443 2005-60, 2005-39 I.R.B.606 2005-61, 2005-39 I.R.B.607 2005-62, 2005-35 I.R.B.443 2005-63, 2005-35 I.R.B.448 2005-64, 2005-36 I.R.B.471 2005-65, 2005-39 I.R.B.607 2005-66, 2005-40 I.R.B.620 2005-67, 2005-40 I.R.B.621 2005-68, 2005-40 I.R.B.622 2005-69, 2005-40 I.R.B.622 2005-70, 2005-41 I.R.B.694 2005-71, 2005-44 I.R.B.863 2005-72, 2005-47 I.R.B.976 2005-73, 2005-42 I.R.B.723 2005-74, 2005-42 I.R.B.726 2005-75, 2005-45 I.R.B.929 2005-76, 2005-46 I.R.B.947 2005-77, 2005-46 I.R.B.951 2005-78, 2005-46 I.R.B.952 2005-79, 2005-46 I.R.B.952 2005-80, 2005-46 I.R.B.953 2005-81, 2005-47 I.R.B.977 2005-82, 2005-47 I.R.B.978 2005-83, 2005-49 I.R.B.1075 2005-84, 2005-46 I.R.B.959 2005-85, 2005-46 I.R.B.961 2005-86, 2005-49 I.R.B.1075 2005-87, 2005-50 I.R.B.1097 2005-88, 2005-48 I.R.B.1060 2005-89, 2005-49 I.R.B.1077 2005-90, 2005-51 I.R.B.1163 2005-91, 2005-51 I.R.B.1164 2005-92, 2005-51 I.R.B.1165 2005-95, 2005-51 I.R.B.1172 Proposed Regulations: REG-106030-98, 2005-42 I.R.B.739 REG-144615-02, 2005-40 I.R.B.625 REG-150088-02, 2005-43 I.R.B.774 REG-150091-02, 2005-43 I.R.B.780 REG-131739-03, 2005-36 I.R.B.494 REG-130241-04, 2005-27 I.R.B.18 REG-138362-04, 2005-33 I.R.B.299 REG-138647-04, 2005-41 I.R.B.697 REG-144620-04, 2005-50 I.R.B.1141 REG-144898-04, 2005-48 I.R.B.1062 REG-149436-04, 2005-35 I.R.B.454 REG-156518-04, 2005-38 I.R.B.582 REG-158080-04, 2005-43 I.R.B.786 REG-104143-05, 2005-41 I.R.B.708 Proposed Regulations— Continued: REG-105847-05, 2005-47 I.R.B.987 REG-111257-05, 2005-42 I.R.B.759 REG-114371-05, 2005-45 I.R.B.930 REG-114444-05, 2005-45 I.R.B.934 REG-121584-05, 2005-37 I.R.B.523 REG-122857-05, 2005-39 I.R.B.609 REG-124988-05, 2005-51 I.R.B.1186 REG-129782-05, 2005-40 I.R.B.675 REG-133578-05, 2005-39 I.R.B.610 Revenue Procedures: 2005-35, 2005-28 I.R.B.76 2005-36, 2005-28 I.R.B.78 2005-37, 2005-28 I.R.B.79 2005-38, 2005-28 I.R.B.81 2005-39, 2005-28 I.R.B.82 2005-40, 2005-28 I.R.B.83 2005-41, 2005-29 I.R.B.90 2005-42, 2005-30 I.R.B.128 2005-43, 2005-29 I.R.B.107 2005-44, 2005-29 I.R.B.110 2005-45, 2005-30 I.R.B.141 2005-46, 2005-30 I.R.B.142 2005-47, 2005-32 I.R.B.269 2005-48, 2005-32 I.R.B.271 2005-49, 2005-31 I.R.B.165 2005-50, 2005-32 I.R.B.272 2005-51, 2005-33 I.R.B.296 2005-52, 2005-34 I.R.B.326 2005-53, 2005-34 I.R.B.339 2005-54, 2005-34 I.R.B.353 2005-55, 2005-34 I.R.B.367 2005-56, 2005-34 I.R.B.383 2005-57, 2005-34 I.R.B.392 2005-58, 2005-34 I.R.B.402 2005-59, 2005-34 I.R.B.412 2005-60, 2005-35 I.R.B.449 2005-61, 2005-37 I.R.B.507 2005-62, 2005-37 I.R.B.507 2005-63, 2005-36 I.R.B.491 2005-64, 2005-36 I.R.B.492 2005-65, 2005-38 I.R.B.564 2005-66, 2005-37 I.R.B.509 2005-67, 2005-42 I.R.B.729 2005-68, 2005-41 I.R.B.694 2005-69, 2005-44 I.R.B.864 2005-70, 2005-47 I.R.B.979 2005-71, 2005-47 I.R.B.985 2005-72, 2005-49 I.R.B.1078 2005-73, 2005-49 I.R.B.1090 2005-74, 2005-50 I.R.B.1098 2005-75, 2005-50 I.R.B.1137 2005-76, 2005-50 I.R.B.1139 2005-77, 2005-51 I.R.B.1176 2005-78, 2005-51 I.R.B.1177 1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2005–1 through 2005–26 is in Internal Revenue Bulletin 2005–26, dated June 27, 2005. December 19, 2005ii2005–51 I.R.B. Revenue Rulings: 2005-38, 2005-27 I.R.B.6 2005-39, 2005-27 I.R.B.1 2005-40, 2005-27 I.R.B.4 2005-41, 2005-28 I.R.B.69 2005-42, 2005-28 I.R.B.67 2005-43, 2005-29 I.R.B.88 2005-44, 2005-29 I.R.B.87 2005-45, 2005-30 I.R.B.123 2005-46, 2005-30 I.R.B.120 2005-47, 2005-32 I.R.B.261 2005-48, 2005-32 I.R.B.259 2005-49, 2005-30 I.R.B.125 2005-50, 2005-30 I.R.B.124 2005-51, 2005-31 I.R.B.163 2005-52, 2005-35 I.R.B.423 2005-53, 2005-35 I.R.B.425 2005-54, 2005-33 I.R.B.289 2005-55, 2005-33 I.R.B.284 2005-56, 2005-35 I.R.B.427 2005-57, 2005-36 I.R.B.466 2005-58, 2005-36 I.R.B.465 2005-59, 2005-37 I.R.B.505 2005-60, 2005-37 I.R.B.502 2005-61, 2005-38 I.R.B.538 2005-62, 2005-38 I.R.B.557 2005-63, 2005-39 I.R.B.603 2005-64, 2005-39 I.R.B.600 2005-65, 2005-41 I.R.B.684 2005-66, 2005-41 I.R.B.686 2005-67, 2005-43 I.R.B.771 2005-68, 2005-44 I.R.B.853 2005-69, 2005-44 I.R.B.852 2005-70, 2005-45 I.R.B.919 2005-71, 2005-45 I.R.B.923 2005-72, 2005-46 I.R.B.944 2005-73, 2005-48 I.R.B.1050 2005-74, 2005-51 I.R.B.1153 2005-75, 2005-49 I.R.B.1073 2005-76, 2005-49 I.R.B.1072 2005-77, 2005-49 I.R.B.1071 2005-78, 2005-51 I.R.B.1157 Social Security Contribution and Benefit Base; Domestic Employee Coverage Threshold: 2005-85, 2005-46 I.R.B.961 Tax Conventions: 2005-47, 2005-28 I.R.B.71 2005-72, 2005-41 I.R.B.692 2005-77, 2005-44 I.R.B.855 Treasury Decisions: 9208, 2005-31 I.R.B.157 9209, 2005-31 I.R.B.153 9210, 2005-33 I.R.B.290 9211, 2005-33 I.R.B.287 Treasury Decisions— Continued: 9212, 2005-35 I.R.B.429 9213, 2005-35 I.R.B.440 9214, 2005-35 I.R.B.435 9215, 2005-36 I.R.B.468 9216, 2005-36 I.R.B.461 9217, 2005-37 I.R.B.498 9218, 2005-37 I.R.B.503 9219, 2005-38 I.R.B.538 9220, 2005-39 I.R.B.596 9221, 2005-39 I.R.B.604 9222, 2005-40 I.R.B.614 9223, 2005-39 I.R.B.591 9224, 2005-41 I.R.B.688 9225, 2005-42 I.R.B.716 9226, 2005-43 I.R.B.772 9227, 2005-45 I.R.B.924 9228, 2005-47 I.R.B.972 9229, 2005-48 I.R.B.1051 2005–51 I.R.B.iiiDecember 19, 2005 Finding List of Current Actions on Previously Published Items 1 Bulletins 2005–27 through 2005–51 Announcements: 84-26 Obsoleted by REG-149436-04, 2005-35 I.R.B.454 2004-72 Updated and superseded by Ann. 2005-59, 2005-37 I.R.B.524 2005-36 Modified by Rev. Proc. 2005-66, 2005-37 I.R.B.509 2005-53 Corrected by Ann. 2005-61, 2005-36 I.R.B.495 Notices: 89-111 Amplified by Notice 2005-61, 2005-39 I.R.B.607 2001-42 Modified by Rev. Proc. 2005-66, 2005-37 I.R.B.509 2004-43 Amplified by Notice 2005-83, 2005-49 I.R.B.1075 2004-57 Superseded by Notice 2005-79, 2005-46 I.R.B.952 2004-84 Modified by Notice 2005-95, 2005-51 I.R.B.1172 2005-4 Modified by Notice 2005-62, 2005-35 I.R.B.443 Notice 2005-80, 2005-46 I.R.B.953 2005-5 Modified by Notice 2005-95, 2005-51 I.R.B.1172 2005-10 Clarified by Notice 2005-64, 2005-36 I.R.B.471 2005-38 Modified by Notice 2005-64, 2005-36 I.R.B.471 2005-42 Amplified by Notice 2005-86, 2005-49 I.R.B.1075 Notices— Continued: 2005-51 Modified and superseded by Notice 2005-57, 2005-32 I.R.B.267 2005-60 Superseded by Notice 2005-84, 2005-46 I.R.B.959 2005-66 Supplemented by Notice 2005-81, 2005-47 I.R.B.977 Proposed Regulations: REG-108524-00 Corrected by Ann. 2005-68, 2005-39 I.R.B.613 REG-142686-01 Withdrawn by Ann. 2005-55, 2005-33 I.R.B.317 REG-100420-03 Corrected by Ann. 2005-57, 2005-33 I.R.B.318 REG-102144-04 Corrected by Ann. 2005-56, 2005-33 I.R.B.318 Revenue Procedures: 64-54 Obsoleted by Rev. Rul. 2005-43, 2005-29 I.R.B.88 66-33 Obsoleted by Rev. Rul. 2005-43, 2005-29 I.R.B.88 69-13 Obsoleted by Rev. Rul. 2005-43, 2005-29 I.R.B.88 70-8 Modified by Rev. Proc. 2005-46, 2005-30 I.R.B.142 71-1 Obsoleted by Rev. Rul. 2005-43, 2005-29 I.R.B.88 72-22 Obsoleted by Rev. Rul. 2005-43, 2005-29 I.R.B.88 83-77 Superseded by Rev. Proc. 2005-63, 2005-36 I.R.B.491 87-8 Obsoleted by Rev. Proc. 2005-44, 2005-29 I.R.B.110 Revenue Procedures— Continued: 87-9 Obsoleted by Rev. Proc. 2005-44, 2005-29 I.R.B.110 89-20 Superseded by Rev. Proc. 2005-52, 2005-34 I.R.B.326 90–11 Modified by Rev. Proc. 2005-40, 2005-28 I.R.B.83 90-30 Section4supersededby Rev. Proc. 2005-54, 2005-34 I.R.B.353 Section5supersededby Rev. Proc. 2005-55, 2005-34 I.R.B.367 Section6supersededby Rev. Proc. 2005-56, 2005-34 I.R.B.383 Section7supersededby Rev. Proc. 2005-58, 2005-34 I.R.B.402 Section8supersededby Rev. Proc. 2005-59, 2005-34 I.R.B.412 90-31 Section4supersededby Rev. Proc. 2005-52, 2005-34 I.R.B.326 Section5supersededby Rev. Proc. 2005-54, 2005-34 I.R.B.353 Section6supersededby Rev. Proc. 2005-55, 2005-34 I.R.B.367 Section7supersededby Rev. Proc. 2005-56, 2005-34 I.R.B.383 Section8supersededby Rev. Proc. 2005-58, 2005-34 I.R.B.402 Section9supersededby Rev. Proc. 2005-59, 2005-34 I.R.B.412 93-22 Obsoleted by Rev. Proc. 2005-44, 2005-29 I.R.B.110 98-18 Obsoleted by Rev. Proc. 2005-45, 2005-30 I.R.B.141 99-39 Superseded by Rev. Proc. 2005-60, 2005-35 I.R.B.449 2000-27 Modified and superseded by Rev. Proc. 2005-66, 2005-37 I.R.B.509 2000-31 Superseded by Rev. Proc. 2005-60, 2005-35 I.R.B.449 2000-49 Superseded by Rev. Proc. 2005-41, 2005-29 I.R.B.90 1 A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2005–1 through 2005–26 is in Internal Revenue Bulletin 2005–26, dated June 27, 2005. December 19, 2005iv2005–51 I.R.B. Revenue Procedures— Continued: 2001-9 Superseded by Rev. Proc. 2005-60, 2005-35 I.R.B.449 2001-16 Superseded by Rev. Proc. 2005-42, 2005-30 I.R.B.128 2002-9 Modified and amplified by Rev. Rul. 2005-42, 2005-28 I.R.B.67 Rev. Proc. 2005-35, 2005-28 I.R.B.76 Rev. Proc. 2005-43, 2005-29 I.R.B.107 Rev. Proc. 2005-47, 2005-32 I.R.B.269 2002-49 Modified, amplified, and superseded by Rev. Proc. 2005-62, 2005-37 I.R.B.507 2003-64 Modified by Rev. Proc. 2005-77, 2005-51 I.R.B.1176 2004-50 Superseded by Rev. Proc. 2005-49, 2005-31 I.R.B.165 2004-54 Superseded by Rev. Proc. 2005-65, 2005-38 I.R.B.564 2004-58 Superseded by Rev. Proc. 2005-69, 2005-44 I.R.B.864 2004-59 Modified by Rev. Proc. 2005-71, 2005-47 I.R.B.985 2004-62 Superseded by Rev. Proc. 2005-74, 2005-50 I.R.B.1098 2004-64 Modified by Ann. 2005-71, 2005-41 I.R.B.714 As modified by Announcement 2005-71, superseded by Rev. Proc. 2005-78, 2005-51 I.R.B.1177 2004-73 Updated by Rev. Proc. 2005-75, 2005-50 I.R.B.1137 2005-1 Amplified by Rev. Proc. 2005-68, 2005-41 I.R.B.694 2005-3 Amplified by Rev. Proc. 2005-61, 2005-37 I.R.B.507 Rev. Proc. 2005-68, 2005-41 I.R.B.694 2005-6 Modified by Rev. Proc. 2005-66, 2005-37 I.R.B.509 Revenue Procedures— Continued: 2005-10 Superseded by Rev. Proc. 2005-67, 2005-42 I.R.B.729 2005-16 Modified by Rev. Proc. 2005-66, 2005-37 I.R.B.509 2005-23 Modified by Rev. Proc. 2005-76, 2005-50 I.R.B.1139 2005-65 Corrected by Ann. 2005-78, 2005-44 I.R.B.918 Revenue Rulings: 65-109 Obsoleted by Rev. Rul. 2005-43, 2005-29 I.R.B.88 68-549 Obsoleted by Rev. Rul. 2005-43, 2005-29 I.R.B.88 74-203 Revoked by Rev. Rul. 2005-59, 2005-37 I.R.B.505 82-29 Modified and clarified by Rev. Proc. 2005-39, 2005-28 I.R.B.82 2004-45 Amplified by Notice 2005-86, 2005-49 I.R.B.1075 2004-107 Supplemented and superseded by Rev. Rul. 2005-76, 2005-49 I.R.B.1072 2004-108 Supplemented and superseded by Rev. Rul. 2005-75, 2005-49 I.R.B.1073 2005-41 Corrected by Ann. 2005-50, 2005-30 I.R.B.152 Treasury Decisions: 9149 Removed by T.D. 9221, 2005-39 I.R.B.604 9186 Corrected by Ann. 2005-53, 2005-31 I.R.B.258 9193 Corrected by Ann. 2005-62, 2005-36 I.R.B.495 9205 Corrected by Ann. 2005-63, 2005-36 I.R.B.496 Treasury Decisions— Continued: 9206 Corrected by Ann. 2005-49, 2005-29 I.R.B.119 9207 Corrected by Ann. 2005-52, 2005-31 I.R.B.257 9210 Corrected by Ann. 2005-64, 2005-37 I.R.B.537 2005–51 I.R.B.vDecember 19, 2005 U.S. GPO: 2005—320–797/20036
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