Internal Revenue Bulletin 2006-46 (PDF rendition): IRS Revenue Rulings

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

Bulletin No. 200
6-46
November 13, 200
6
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. 2006–58, page 876.
Charitable remainder trust; real estate investment trust
(REIT).This ruling illustrates the application of section 860E of
theCodewhereacharitableremaindertrustisashareholder
of a real estate investment trust (REIT) or a partner of a part-
nership, and the REIT or the partnership has excess inclusion
income.
T.D. 9287
, page 896.
Final regu
lations under section 7702 of the Code explain how
to determ
ine the attained age of an insured for purposes of
testing w
hether a contract qualifies as a life insurance contract
for feder
al income tax purposes.
T.D. 9290, page 879.
Final regulations under section 6320 of the Code relate to a
taxpayer’s right to a hearing after the filing of a notice of federal
tax lien (NFTL). The regulations make certain clarifying changes
in the way collection due process hearings are conducted and
specify the period during which a taxpayer may request an
equivalent hearing.
T.D. 9291, page 887.
Final regulations under section 6330 of the Code relate to a
taxpayer’s right to a hearing before or after levy. The regula-
tions make certain clarifying changes in the way collection due
process hearings are conducted and specify the period during
which a taxpayer may request an equivalent hearing.
Notice 2006–96, page 902.
This notice provides transitional guidance on the new defini-
tions of “qualified appraisal” and “qualified appraiser” in sec-
tion 170(f)(11) of the Code for purposes of substantiating de-
ductions for charitable contributions of property. The notice
also provides guidance on complying with new section 6695A,
regarding penalties for appraisals that result in substantial or
gross valuation misstatements under section 6662.
Notice 2006–97, page 904.
This notice provides interim guidance (and requests comments
and suggestions for further guidance) under sections 860E(d)
and 7701(i)(3) of the Code, relating to the taxation and report-
ing of excess inclusion income of pass-through entities, includ-
ing real estate investment trusts (REITs) that own taxable mort-
gage pools or residual interests in real estate mortgage invest-
ment conduits (REMICs).
Notice 2006–99, page 907.
This notice provides guidance on withholding and information
reporting on foreign persons and includes guidance on certain
book-entry systems in foreign countries. It also announces that
the IRS and Treasury intend to issue regulations providing that
regulations section 1.871–14(e), dealing with foreign targeted
registered obligations, will not apply to obligations issued after
December 31, 2006, except in limited circumstances. Finally,
this notice announces that the IRS and Treasury intend to issue
regulations retroactively removing the rule in regulations sec-
tion 1.1441–1(b)(7)(iii) that purports to impose interest under
section 6601 when no underlying tax liability has in fact been
imposed.
(Continued on the next page)
Fi
nding Lists begin on page ii.

Announcement 2006–88, page 910.
This announcement is a ministerial update to Notice 2006–27,
2006–11 I.R.B. 626, and Notice 2006–28, 2006–11 I.R.B.
628, and announces that taxpayers may use either RESNET
Publication No. 05–001 or RESNET Publication No. 06–001 to
determine whether a dwelling unit qualifies for the new energy
efficient home credit. This announcement also provides for de-
velopers of software to submit applications to be included on a
public list of software programs that may be used in calculating
energy consumption for purposes of obtaining a section 45L
certification by using standards prescribed in either RESNET
publication. This change is effective for new energy efficient
homes acquired after December 31, 2005. Notices 2006–27
and 2006–28 modified.
EMPLOYEE PLANS
Notice 2006–98, page 906.
2007 cost-of-living adjustments; retirement plans, etc.
This notice sets forth certain cost-of-living adjustments effec-
tive January 1, 2007, applicable to the dollar limits on benefits
under qualified defined benefit pension plans and to other provi-
sions affecting (1) certain plans of deferred compensation and
(2) “control employees.” This notice restates the data in News
Release IR–2006–162 issued October 18, 2006.
EXEMPT ORGANIZATIONS
Rev. Rul. 2006–58, page 876.
Charitable remainder trust; real estate investment trust
(REIT).This ruling illustrates the application of section 860E of
theCodewhereacharitableremaindertrustisashareholder
of a real estate investment trust (REIT) or a partner of a part-
nership, and the REIT or the partnership has excess inclusion
income.
Notice 2006–97, page 904.
This notice provides interim guidance (and requests comments
and suggestions for further guidance) under sections 860E(d)
and 7701(i)(3) of the Code, relating to the taxation and report-
ing of excess inclusion income of pass-through entities, includ-
ing real estate investment trusts (REITs) that own taxable mort-
gage pools or residual interests in real estate mortgage invest-
ment conduits (REMICs).
EMPLOYMENT TAX
Rev. Rul. 2006–56, page 874.
Excessper diemallowances.This ruling provides that
where an expense allowance arrangement has no mechanism
or process to track allowances paid and routinely paysper
diemallowances in excess of the federalper diemrates
without requiring actual substantiation of all the expenses or
repayment of the excess amount, all payments made under the
arrangement will be treated as made under a nonaccountable
plan.
Notice 2006–
102, page 909.
2007 social s
ecurity contribution and benefit base; do-
mestic emplo
yee coverage threshold.The Commissioner
of the Social
Security Administration has announced (1) the
OASDI contri
bution and benefit base for remuneration paid in
2007 and sel
f-employment income earned in taxable years
beginning i
n 2007, and (2) the domestic employee coverage
threshold a
mount for 2007.
ADMINISTRATIVE
T.D. 9290, page 879.
Final regulations under section 6320 of the Code relate to a
taxpayer’s right to a hearing after the filing of a notice of federal
tax lien (NFTL). The regulations make certain clarifying changes
in the way collection due process hearings are conducted and
specify the period during which a taxpayer may request an
equivalent hearing.
T.D. 9291
,page887.
Final reg
ulations under section 6330 of the Code relate to a
taxpayer
’s right to a hearing before or after levy. The regula-
tions mak
e certain clarifying changes in the way collection due
process h
earings are conducted and specify the period during
which a ta
xpayer may request an equivalent hearing.
November 13, 20062006–46 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.
2006–46 I.R.B.November 13, 2006

Place missing child here.
November 13, 20062006–46 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 62(c).—Certain
Arrangement
sNotTreated
as Reimbursement
Arrangements
26 CFR 1.62–2(k): Reimbursements
and other
expense allowance arrangements:
Anti-abuse provi-
sion.
Excessper diemallowances.This rul-
ing provides that where an expense al-
lowance arrangement has no mechanism
or process to track allowances paid and
routinely paysper diemallowances in ex-
cess of the federalper diemrates with-
out requiring actual substantiation of all
the expenses or repayment of the excess
amount, all payments made under the ar-
rangement will be treated as made under a
nonaccountable plan.
Rev. Rul. 2006–56
ISSUE
Whether, under an expense allowance
arrangement which has no mechanism or
process to determine when an allowance
exceeds the amount that may be deemed
substantiated and which routinely pays al-
lowances in excess of the amount that may
be deemed substantiated without requiring
actual substantiation of all expenses or re-
payment of the excess amount, the failure
to treat the excess allowances as wages for
employment tax purposes causes all pay-
ments made under the expense allowance
arrangement to be treated as made under a
nonaccountable plan.
FACTS
Taxpayer is an employer of long-haul
truck drivers in the transportation industry.
Taxpayer uses a monthly payroll period
and compensates its drivers for their ser-
vices on a mileage basis. For 2006, Tax-
payer pays its drivers compensation of X
cents-per-mile driven during each month.
Taxpayer reports the compensation on the
drivers’ Forms W–2 and treats the com-
pensation as wages for Federal Insurance
Contributions Act (FICA) tax, Federal
Unemployment Tax Act (FUTA) tax, and
Federal income tax withholding purposes
(collectively, “employment taxes”).
Taxpayer also reimburses its drivers
for meal and incidental expenses (M&IE)
paid or incurred while traveling away from
home during the monthly payroll period.
Taxpayer reimburses its drivers for these
expenses through an allowance for each
day the driver is away from home for Tax-
payer’s business. For 2006, the allowance
is Y cents-per-mile driven. Taxpayer’s in-
dustry commonly used this cents-per-mile
driven method before December 12, 1989.
Taxpayer establishes the Y cents-per-
mile rate based on its expectation of the
amount of daily M&IE that will be paid or
incurred, and its expectation of the average
number of daily miles driven during the
payroll period. Taxpayer bases its expecta-
tions on reliable industry data and on Tax-
payer’s own data from recent years. Based
on Taxpayer’s specific methodology and
data, Taxpayer’s projected allowance is
reasonably calculated not to exceed the
drivers’ anticipated daily M&IE.
Taxpayer requires its drivers to provide
logs to substantiate the time, place, and
business purpose of the travel away from
home for each day (or partial day). Tax-
payer does not require its drivers to sub-
stantiate the amount of actual M&IE. In-
stead, for its drivers’ substantiation of the
amount of M&IE paid or incurred by the
drivers, Taxpayer relies on administrative
guidance published annually by the In-
ternal Revenue Service under which the
amount of ordinary and necessary busi-
ness expenses of an employee for M&IE
paid or incurred while traveling away from
home is deemed substantiated when the
employer provides aper diemallowance
to cover the expenses. The guidance ap-
plicable forper diemallowances paid to
an employee on or after October 1, 2005,
with respect to travel away from home on
or after October 1, 2005, is Rev. Proc.
2005–67, 2005–2 C.B. 729. For 2006 Tax-
payer elects to treat $52 per day as the fed-
eral M&IE rate for all localities of travel
pursuant to section 4.04 of Rev. Proc.
2005–67. Thus, for 2006, $52 or less
per day of M&IE paid or incurred by a
driver while traveling away from home
may be deemed substantiated. The al-
lowances paid by Taxpayer to many of its
drivers for M&IE incurred on travel away
from home during the monthly payroll pe-
riod routinely exceed $52 per day, even
when computed on a monthly basis pur-
suant to the periodic rule provided in sec-
tion 4.04 of Rev. Proc. 2005–67.
Taxpayer requires its drivers to return
any amounts paid to them for M&IE with
respect to days they were not away from
home on business travel. Taxpayer does
not require drivers to return the portion
of the allowance paid for days they were
away from home on business travel that
exceeds the $52 per day that may be
deemed substantiated.
Neither the policies nor actual practices
of Taxpayer’s expense allowance arrange-
ment include any process for tracking
the amount of the cents-per-mile M&IE
allowance paid to each driver on aper
diembasis, nor is there any mechanism in
place to determine when the allowances
exceed the amount of expenses that may
be deemed substantiated under Rev. Proc.
2005–67. Taxpayer does not treat the
excess allowances over $52 per day as
wages for withholding or employment tax
purposes and does not report the excess
allowances as wages on the drivers’ Forms
W–2.
LAW AND ANALYSIS
Section 62(a)(2)(A)of the Internal Rev-
enue Code provides that, for purposes of
determining adjusted gross income, an em-
ployee may deduct certain business ex-
penses paid by the employee in connection
with the performance of services as an em-
ployee of the employer under a reimburse-
ment or other expense allowance arrange-
ment.
Section 62(c) provides that, for pur-
poses of § 62(a)(2)(A), an arrangement
will not be treated as a reimbursement or
other expense allowance arrangement if
(1) the arrangement does not require the
employee to substantiate the expenses cov-
ered by the arrangement to the person pro-
viding the reimbursement, or (2) the ar-
rangement provides the employee the right
to retain any amount in excess of the sub-
stantiated expenses covered under the ar-
rangement.
2006–46 I.R.B.874November 13, 2006

Section 1.62–2(c)(1) of the Income
Tax Regulations provides that 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 substanti-
ated expenses. If an arrangement meets
these requirements, all amounts paid under
the arrangement are treated as paid under
an accountable plan.See§ 1.62–2(c)(2).
Amounts treated as paid under an ac-
countable plan are excluded from the
employee’s gross income, are not reported
as wages or other compensation on the em-
ployee’s Form W–2, and are exempt from
the withholding and payment of employ-
ment taxes.See§ 1.62–(2)(c)(4). Con-
versely, if the arrangement fails any one
of these requirements, amounts paid under
the arrangement are treated as paid under
a nonaccountable plan and are included
in the employee’s gross income, must be
reported as wages or other compensation
on the employee’s Form W–2, and are
subject to withholding and payment of
employment taxes.See§ 1.62–2(c)(3) and
(5).
With regard to the business connec-
tion requirement, under § 1.62–2(d)(3)(ii)
an arrangement providing aper diemal-
lowance that is computed on a basis similar
to that used in computing the employee’s
wages or other compensation (such as the
number of hours worked, miles traveled,
or pieces produced) meets the business
connection requirement only if, on De-
cember 12, 1989, theper diemallowance
was identified by the payor either by mak-
ing a separate payment or by specifically
identifying the amount of theper diem
allowance, or aper diemallowance com-
puted on that basis was commonly used
in the industry in which the employee is
employed.
With regard to the substantiation
requirement, pursuant to Rev. Proc.
2005–67, the amount of M&IE that is
deemed substantiated for each calendar
day is equal to the lesser of theper diem
allowance for that day or the amount
computed at the federal M&IE rate.See
section 3.01(3) of Rev. Proc. 2005–67.
Under these rules, employees must con-
tinue to actually substantiate the elements
of time, place, and business purpose re-
lating to the travel expenses.Seesection
7.01 of Rev. Proc. 2005–67. Section 4.04
of Rev. Proc. 2005–67 provides special
rules for the transportation industry under
which $52 per day may be treated as the
federal M&IE rate and the amount deemed
substantiated may be computed on a pe-
riodic basis (but not less frequently than
monthly) rather than daily.
For purposes of the return of excess
requirement, § 1.62–2(f)(2) permits the
Commissioner to prescribe rules under
which an arrangement that provides aper
diemallowance is treated as satisfying the
requirement of returning amounts in ex-
cess of expenses so long as the allowance
is reasonably calculated not to exceed the
amount of the employee’s expenses and
theemployeeisrequiredtoreturnany
portion that relates to days of travel not
substantiated. However, the portion of
the allowance that exceeds the amount
deemed substantiated will be treated as
paid under a nonaccountable plan, must be
reported as wages or other compensation,
and is subject to withholding and payment
of employment taxes.See§ 1.62–2(c)(5).
Section 1.62–2(h)(2)(i)(B)(1)pro-
vides that if a payor pays aper diem
allowance that meets the requirements
of § 1.62–2(c)(1), the portion, if any,
of the allowance that relates to days of
travel substantiated in accordance with
§ 1.62–2(e) and that exceeds the amount
of the employee’s expenses deemed sub-
stantiated for the travel pursuant to rules
prescribed under § 274(d) and the rele-
vant regulations is treated as paid under
a nonaccountable plan. Such amount is
wages subject to withholding and payment
of employment taxes.See§ 1.62–2(c)(5).
See also§§ 31.3121(a)–3(b)(1)(ii),
31.3306(b)–2(b)(1)(ii), and 31.3401(a)–
4(b)(1)(ii) of the Employment Tax Regu-
lations.
Section 1.62–2(k) provides that if a
payor’s reimbursement or other expense
allowance arrangement evidences a pat-
tern of abuse of the rules of § 62(c) and the
regulations thereunder, all payments made
under the arrangement are treated as made
under a nonaccountable plan. Thus, these
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 employment taxes.See
§ 1.62–2(c)(5), and (h)(2).
If an arrangement satisfies all three
requirements of an accountable plan, but
an allowance is paid under the arrange-
ment that exceeds the amount that may
be deemed substantiated, no actual sub-
stantiation is provided for the M&IE
covered by the allowance, and the ex-
cess allowance is not returned, the ex-
cess allowance is treated as wages.See
§ 1.62–2(h)(2)(B)(1). However, if the
facts and circumstances evidence a pattern
of abuse of the rules of § 62(c) and the
regulations thereunder, including the rule
to treat excess allowances as wages, all
payments made under the arrangement are
treated as wages.See§ 1.62–2(k).
Under the facts set forth above, the
arrangement to reimburse Taxpayer’s
drivers for M&IE paid or incurred while
traveling away from home meets the busi-
ness connection requirement. Taxpayer
is permitted to compute aper diemal-
lowance based upon the number of miles
driven during the payroll period as that
methodwascommonlyusedinTaxpayer’s
industry before December 12, 1989.
For purposes of satisfying the substanti-
ation requirements of § 1.62–2(e) for 2006,
Taxpayer relies on the deemed substantia-
tion rules provided in Rev. Proc. 2005–67,
including the special rules for the trans-
portation industry found in section 4.04 of
Rev. Proc. 2005–67.
With respect to the return of excess re-
quirement, the regulations and Rev. Proc.
2005–67 permit Taxpayer to payper diem
allowances for M&IE paid or incurred
while traveling away from home that ex-
ceed the deemed substantiated amount
without requiring return of the excess.See
§ 1.62–2(f)(2) and section 7.02 of Rev.
Proc. 2005–67. Under these rules, how-
ever, Taxpayer must take steps to ensure
that the excess allowances are tracked and
treated as wages subject to withholding
and payment of employment taxes and
reporting on Forms W–2.
In implementing its expense allowance
arrangement for 2006, Taxpayer has not
included any mechanism or process that
tracks allowances and permits it to de-
termine when the allowances paid to its
drivers, computed on aper diembasis, ex-
ceed the $52 per day that may be deemed
substantiated. Taxpayer does not receive
actual substantiation for the M&IE cov-
ered by the allowances. Taxpayer nei-
ther requires repayment of the excess al-
lowances nor treats the excess allowances
as wages for purposes of withholding and
November 13, 20068752006–46 I.R.B.

payment of employment taxes and report-
ingonFormsW–2.
As operated in 2006, Taxpayer’s ex-
pense allowance arrangement routinely
results in payment of excess allowances
that are not repaid or treated as wages.
Taxpayer’s failure to track the excess
allowances and its routine payment of
excess allowances that are not repaid or
treated as wages evidence a pattern of
abuse under § 1.62–2(k). Although the ex-
cess allowances that have not been repaid
or treated as wages may be small in com-
parison to the total allowance paid to an
individual driver, to the amount that may
be deemed substantiated for any given
period of travel away from home, and to
the aggregate allowances paid to all of
Taxpayer’s drivers, Taxpayer’s arrange-
ment is neither structured nor operated to
meet the requirements of the accountable
plan regulations forper diemallowance
arrangements. As a result, Taxpayer has
more than a failure to account for a partic-
ular driver’s excess allowance or excess
allowances paid to drivers for a particular
period of travel. Taxpayer’s arrangement
evidences a pattern of abuse of the ac-
countable plan rules.
Accordingly, even if Taxpayer’s ex-
pense allowance arrangement otherwise
meets the business connection, substantia-
tion, and return of excess requirements of
an accountable plan for the allowances
paid to Taxpayer’s drivers up to the
amount that may be deemed substantiated,
all payments made under Taxpayer’s ex-
pense allowance arrangement are treated
as paid under a nonaccountable plan. Tax-
payer must include all amounts paid under
the arrangement to reimburse drivers’
M&IE, not just the excess allowances,
in the drivers’ wages on Forms W–2 and
must treat all these amounts as wages for
the withholding and payment of employ-
ment taxes.
HOLDING
Whereanexpenseallowancearrange-
ment has no mechanism or process to
determine when an allowance exceeds the
amount that may be deemed substantiated
and the arrangement routinely pays al-
lowances in excess of the amount that may
be deemed substantiated without requiring
actual substantiation of all the expenses or
repayment of the excess amount, the fail-
ure of the arrangement to treat the excess
allowances as wages for employment tax
purposes causes all payments made under
the arrangement to be treated as made
under a nonaccountable plan.
DRAFTING INFORMATION
The principal author of this revenue rul-
ingisLigeiaM.DonisoftheOfficeof
Associate Chief Counsel (Tax Exempt &
Government Entities). For further infor-
mation regarding this revenue ruling, con-
tact Ligeia M. Donis at (202) 622–0047
(not a toll-free call).
Section 103.—Interest on
State and Local Bonds
26 CFR 5f.103–1(c): Registered form.
26 CFR 5f.103–1(e): Special rules.
A notice interprets the rules regarding obligations
held through book-entry systems. See Notice 2006-
99, page 907.
Section 163.—Interest
26 CFR 1.163–5(c)(2)(i)(D):
A notice interprets the rules regarding certain obli-
gations issued before January 1, 2007, in compliance
with TEFRA D. See Notice 2006-99, page 907.
Section 664.—Charitable
Remainder Trusts
Excess inclusion income allocated to a charitable
remainder trust is not unrelated business taxable in-
come to the charitable remainder trust and thus does
not affect the charitable remainder trust’s exemption
from tax under section 664(c) for the taxable year.
See Rev. Rul. 2006-58, page 876.
Section 860E.—Treatment
of Income in Excess
of Daily Accruals on
Residual Interests
26 CFR 1.860E–2: Tax on transfers of residual in-
terests to certain organizations.
(Also §§ 511, 664, 702; 1.664–1, 1.702–1,
1.860E–1.)
Charitable remainder trust; real es-
tate investment trust (REIT).This ruling
illustrates the application of section 860E
of the Code where a charitable remainder
trust is a shareholder of a real estate invest-
ment trust (REIT) or a partner of a partner-
ship, and the REIT or the partnership has
excess inclusion income.
Rev. Rul. 2006–58
ISSUES
If a charitable remainder annuity trust
or a charitable remainder unitrust, as de-
fined in section 664(d) of the Internal
Revenue Code (collectively, charitable
remainder trusts), is a partner in a part-
nership or a shareholder in a real estate
investment trust (REIT), and if the part-
nership or the REIT has excess inclusion
income from holding a residual interest in
a real estate mortgage investment conduit
(REMIC)—
(1) Does the charitable remainder trust
have unrelated business taxable income
(UBTI) as defined in section 512, causing
the charitable remainder trust to lose its
exemption from tax under section 664(c)
for the taxable year?
(2) Is the charitable remainder trust a
disqualified organization as defined in sec-
tion 860E(e)(5)?
(3) Is the partnership (or REIT) subject
to the pass-thru entity tax under section
860E(e)(6)?
FACTS
In the following situations, TrustTR1
and TrustTR2meet all the requirements
for exemption from tax under section
664(c) for the taxable year, except for
the possible treatment of excess inclusion
income as UBTI under section 860E(b).
Situation 1
TrustTR1, a charitable remainder trust,
holds a ten percent partnership interest
in PartnershipPRS. BecausePRSholds
a residual interest in a REMIC, section
860C(a) requiresPRSto take into account
its daily portion of the REMIC’s net in-
come or net loss. For 2004, a portion of
the REMIC net income taken into account
byPRSwas an excess inclusion, as de-
fined in section 860E(c).
Situation 2
TrustTR2, a charitable remainder trust,
holds a ten percent equity interest in Cor-
porationR, which has elected, and is qual-
ified, to be treated as a REIT under sub-
2006–46 I.R.B.876November 13, 2006

chapter M of the Code. BecauseRholds
a residual interest in a REMIC, section
860C(a) requiresRto take into account
its daily portion of the REMIC’s net in-
come or net loss. For 2004, a portion
of the REMIC net income taken into ac-
count byRwas an excess inclusion, as de-
fined in section 860E(c).R’s real estate in-
vestment trust taxable income (within the
meaning of section 857(b)(2), excluding
any net capital gain) was zero.
LAW
In general, section 702 requires each
partner to take into account separately its
distributive share of partnership items.
Section 702(a)(7) requires a partner to
take into account separately its distribu-
tive share of a partnership’s “other items
of income, gain, loss, deduction, or credit,
to the extent provided in regulations
prescribed by the Secretary.” Section
1.702–1(a)(8)(ii) provides:
Each partner must also take into ac-
count separately the partner’s dis-
tributive share of any partnership item
which, if separately taken into account
by any partner, would result in an in-
come tax liability for that partner, or
for any other person, different from
that which would result if that partner
did not take the item into account sepa-
rately.
Section 702(b) provides:
The character of any item of income,
gain, loss, deduction, or credit included
in a partner’s distributive share under
paragraphs (1) through (7) of [section
702(a)] shall be determined as if such
item were realized directly from the
source from which realized by the part-
nership, or incurred in the same manner
as incurred by the partnership.
Section 860E(d) requires REITs, regu-
lated investment companies, common trust
funds, and subchapter T cooperatives, to
allocate excess inclusion income to the
shareholders, participants, and patrons.
Section 860E(d) provides:
If a residual interest in a REMIC is
held by a [REIT], under regulations pre-
scribed by the Secretary—
(1) any excess of—
(A) the aggregate excess inclu-
sions determined with respect to
such interests, over
(B) the real estate investment
trust taxable income (within the
meaning of section 857(b)(2), ex-
cluding any net capital gain),
shall be allocated among the share-
holders of such trust in proportion
to the dividends received by such
shareholders from such trust, and
(2) any such amount allocated to
a shareholder under paragraph (1)
shall be treated as an excess inclu-
sion with respect to a residual inter-
estheldbysuchshareholder.
Rules similar to the rules of the pre-
ceding sentence shall apply also in the
case of regulated investment compa-
nies, common trust funds, and organi-
zations to which part I of subchapter T
[(sections 1381–1383)] applies.
Section 664(c) provides that a chari-
table remainder trust “shall, for any tax-
able year, not be subject to any tax im-
posed by [subtitle A], unless such trust, for
such year, has [UBTI] (within the mean-
ing of section 512, determined as if part
III of subchapter F [(unrelated business
income tax (UBIT) provisions under sec-
tions 511–515)] applied to such trust).”
Section 1.664–1(c) provides:
If a charitable remainder trust has any
[UBTI] (within the meaning of section
512 and the regulations thereunder, de-
termined as if part III, subchapter F,
chapter 1, subtitle A of the Code ap-
plied to such trust) for any taxable year,
the trust is subject to all of the taxes im-
posed by subtitle A of the Code for such
taxableyear....Thetaxesimposedby
subtitle A of the Code upon a nonex-
empt charitable remainder trust shall be
computed under the rules prescribed by
subparts A and C, part 1, subchapter
J, chapter 1, subtitle A of the Code
[(sections 641–646 and 661–664)] for
trusts which may accumulate income or
which distribute corpus.
Section 860E(b) provides, “If the
holder of any residual interest in a REMIC
is an organization subject to the tax im-
posed by section 511, the excess inclusion
of such holder for any taxable year shall
be treated as [UBTI] of such holder for
purposes of section 511.”
Section 860E(e)(6)(A) imposes a tax
on certain REITs, partnerships and other
pass-thru entities (as defined under section
860E(e)(6)(B)). Section 860E(e)(6)(A)
provides, “If, at any time during any
taxable year of a pass-thru entity, a dis-
qualified organization is the record holder
of an interest in such entity, there is hereby
imposed on such entity for such taxable
year a tax equal to the product of—(i) the
amount of excess inclusions for such tax-
able year allocable to the interest held by
such disqualified organization, multiplied
by (ii) the highest rate of tax specified in
section 11(b)(1).” For purposes of section
860E(e)(6), section 860E(e)(6)(B) defines
the term “pass-thru entity” to include
any REIT and any partnership. Section
860E(e)(5)(B) defines the term “disquali-
fied organization” to include “any organi-
zation (other than a cooperative described
in section 521) which is exempt from tax
imposed by [chapter 1] unless such organ-
ization is subject to the tax imposed by
section 511.”
Section 1.860E–2(b) of the Income Tax
Regulations contains rules relating to the
application of the pass-thru entity tax un-
der section 860E(e)(6)(A). Among other
things, § 1.860E–2(b)(4) provides, “Div-
idends paid by a RIC or by a REIT are not
preferential dividends within the meaning
of section 562(c) solely because the tax ex-
pense incurred by the RIC or REIT un-
der section 860E(e)(6) is allocated solely
to the shares held by disqualified organi-
zations.”
ANALYSIS
1.Effect of allocation of excess inclusion
income to a charitable remainder trust on
its eligibility for exemption from tax under
section 664(c) for the taxable year.
As a partner ofPRS,TR1has a dis-
tributive share of the excess inclusion in-
come ofPRS, as determined under section
702(a) and (b). If section 860E(b) char-
acterizes the excess inclusion income al-
located toTR1as UBTI,TR1will lose its
November 13, 20068772006–46 I.R.B.

exemption under section 664(c) for 2004.
Section 860E(b) treats excess inclusion in-
come as UBTI to the holder of a REMIC
residual interest but only if the holder “is
an organization subject to the tax imposed
by section 511” (that is, subject to the
UBIT). In the case of a charitable remain-
der trust, section 664(c) employs the defi-
nitional rules of section 512 and the other
UBIT provisions to determine whether any
of the trust’s income is UBTI, but it does
not subject the trust to section 511. (See
the discussion below under Issue 2.)
Whether section 860E(b) characterizes
the excess inclusion income of charitable
remaindertrustsasUBTIshouldbede-
termined in light of the intent underly-
ing section 860E and other REMIC provi-
sions. A number of the REMIC provisions
are comprehensive and complementary by
design. If a tax-exempt entity holds the
REMIC residual interest, the REMIC pro-
visions ensure the taxation of excess inclu-
sion income in all events, whether or not
the tax-exempt holder of the REMIC resid-
ual interest is a disqualified organization.
A disqualified organization (as defined in
section 860E(e)(5)(B)) is a tax-exempt en-
tity that is not subject to UBIT. Thus, a dis-
qualified organization cannot be subject to
a tax on any excess inclusion income allo-
cable to it. But other tax exempt entities
are generally subject to UBIT and could
be subject to a tax on excess inclusion in-
come, subject to other requirements.
With respect to disqualified organiza-
tions, a REMIC is required to have in
place “reasonable arrangements designed
to ensure that . . . residual interests in
[the REMIC] are not [transferred to] dis-
qualified organizations . . . .” Section
860D(a)(6). If an entity nonetheless trans-
fers a REMIC residual interest to a disqual-
ified organization, section 860E(e)(1) im-
poses a tax on the transferor. Further, if a
pass-thru entity has a record equity owner
that is a disqualified organization, the pass-
thru entity must pay a tax on the amount
of excess inclusion income that is alloca-
ble to the disqualified organization. Sec-
tion 860E(e)(6)(A). With respect to other
tax-exempt entities (which are not disqual-
ified organizations), section 860E(b) gen-
erally provides that, if a tax-exempt entity
that is subject to the UBIT holds a REMIC
residual interest, the excess inclusion in-
come of that holder is UBTI.
Sections 860E(e)(6)(A) and 860E(b)
are complementary provisions that should
be interpreted consistently. If a pass-thru
entity (whose equity owners may be dis-
qualified organizations or other tax-ex-
empt entities) holds REMIC residual
interests, the two sections ensure that the
excess inclusion income is taxable ei-
ther to the pass-thru entity (under section
860E(e)(6)(A)) or to its tax-exempt eq-
uity owner that is subject to UBIT (under
section 860E(b)). Characterizing as UBTI
only the excess inclusion income that is
allocable to tax exempt entities that are
actually subject to the UBIT causes the
two sections to operate consistently.
As discussed below, a charitable re-
mainder trust can never be subject to the
UBIT. Accordingly,TR1’s distributive
share ofPRS’s excess inclusion income is
not UBTI under section 860E(b).
2.Status of a charitable remainder trust
as a disqualified organization.
TR1andTR2are charitable remainder
trusts. Under section 664(c), a charitable
remainder trust is exempt from tax under
subtitle A of the Code, including chapter
1, unless it has UBTI for the taxable year
(determined as if UBIT applied to the char-
itable remainder trust). But if a charitable
remainder trust has UBTI, it loses its sec-
tion 664(c) tax exemption for the taxable
year, and the resulting tax liability is deter-
mined under the trust tax provisions of the
Code.See§ 1.664–1(c). Thus, if a char-
itable remainder trust has UBTI, that trust
becomes an organization subject to the tax
imposedbysections1and641butnotto
the UBIT. Because a charitable remainder
trust can never be subject to the UBIT, it is
a disqualified organization, as defined in
section 860E(e)(5). As charitable remain-
der trusts,TR1andTR2are disqualified or-
ganizations.
3.Application of the pass-thru entity tax
under section 860E(e)(6)(A).
PRSandRare pass-thru entities, as
definedinsection860E(e)(6)(B).For
purposes of section 860E(e)(6)(A),PRS
is treated as having allocated excess in-
clusion income toTR1, a disqualified
organization, equal to its distributive share
of the excess inclusion income ofPRS
determined under section 702. Because
R’s real estate investment trust income is
zero, all ofR’s excess inclusion income is
allocable to its shareholders.R’s excess
inclusion income is allocable toTR2,also
a disqualified organization, in proportion
to the dividends paid toTR2(determined
without regard to any special allocation
toTR2of the expense for the tax under
section 860E(e)(6)).See§ 1.860E–2(b)(4)
(providing an exception to the preference
dividend rule in section 562(c)).
PRSandRhave record equity own-
ers that are disqualified organizations, to
which excess inclusion income is alloca-
ble. Thus,PRSandRare subject to a
tax under section 860E(e)(6)(A) on the
amount of the excess inclusion income al-
locable toTR1andTR2, respectively, at the
highest rate specifiedin section 11(b)(1).
HOLDINGS
(1) Excess inclusion income allocated
to a charitable remainder trust is not UBTI
to the charitable remainder trust and thus
does not affect the charitable remainder
trust’s exemption from tax under section
664(c) for the taxable year.
(2) A charitable remainder trust is a dis-
qualified organization for purposes of sec-
tion 860E.
(3) A pass-thru entity that has excess
inclusion income allocable to a charitable
remainder trust is subject to the pass-thru
entity tax under section 860E(e)(6)(A).
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Anna Kim of the Office of the As-
sociate Chief Counsel (Financial Institu-
tions and Products). For further informa-
tion regarding this revenue ruling, contact
Anna Kim at 202–622–3735.
Section 871.—Tax
on Nonresident Alien
Individuals
26 CFR 1.871–14: Rules relating to repeal of tax on
interest of nonresident alien individuals and foreign
corporations received from certain portfolio debt in-
struments.
A notice provides that for purposes of determin-
ing the application of the portfolio interest excep-
tion, the conditions for an obligation to be in regis-
tered form are identical to the conditions described in
2006–46 I.R.B.878November 13, 2006

Treas. Reg. § 5f.103–1. See Notice 2006-99, page
907.
Section 1441.—Withholding
of Tax on Nonresident Aliens
26 CFR 1.1441–1(b)(7)(iii): Liability for interest and
penalties.
A notice provides relief from interest and penalties
imposed when no underlying tax is imposed. See
Notice 2006-99, page 907.
Section 6320.—Notice and
Opportunity for Hearing
Upon Filing of Notice of Lien
26 CFR 301.6320–1: Notice and opportunity for
hearing upon filing of notice of Federal tax lien.
T.D. 9290
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 301
Miscellaneous Changes
to Collection Due Process
Procedures Relating to Notice
and Opportunity for Hearing
Upon Filing of Notice of
Federal Tax Lien
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final Regulations.
SUMMARY: This document contains final
regulations amending the regulations relat-
ing to a taxpayer’s right to a hearing under
section 6320 of the Internal Revenue Code
of 1986 after the filing of a notice of Fed-
eral tax lien (NFTL). The final regulations
make certain clarifying changes in the way
collection due process (CDP) hearings are
held and specify the period during which a
taxpayer may request an equivalent hear-
ing. The final regulations affect taxpayers
against whose property or rights to prop-
erty the Internal Revenue Service (IRS)
files a NFTL.
DATES:Effective Date:These regulations
are effective on November 16, 2006.
Applicability Date:These regulations
apply to requests for CDP or equivalent
hearings on or after November 16, 2006.
FOR FURTHER INFORMATION
CONTACT: Laurence K. Williams,
202–622–3600 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Regulations on Procedure and Admin-
istration (26 CFR part 301) relating to the
provision of notice under section 6320 of
the Internal Revenue Code to taxpayers of
a right to a CDP hearing (CDP Notice) af-
ter the IRS files a NFTL. Final regulations
(T.D. 8979, 2002–1 C.B. 466) were pub-
lished on January 18, 2002, in theFed-
eral Register(67 FR 2558) (the 2002 fi-
nal regulations). The 2002 final regula-
tions implemented certain changes made
by section 3401 of the Internal Revenue
Service Restructuring and Reform Act of
1998 (Public Law 105–206, 112 Stat. 685)
(RRA 1998), including the addition of sec-
tion 6320 to the Internal Revenue Code.
Section 3401 of RRA 1998 also added
section 6330 to the Internal Revenue Code.
That statute provides for notice to taxpay-
ers of a right to a hearing before or, in
limited cases, after levy. A number of
the provisions in section 6330 concerning
the conduct and judicial review of a CDP
hearing are incorporated by reference in
section 6320. On January 18, 2002, fi-
nal regulations (T.D. 8980, 2002–1 C.B.
477) under section 6330 were published in
theFederal Register(67 FR 2549) along
with the 2002 final regulations under sec-
tion 6320.
On September 16, 2005, the IRS and
the Treasury Department published in the
Federal Register(70 FR 54681) a notice
of proposed rulemaking and notice of pub-
lic hearing (REG–150088–02, 2005–43
I.R.B. 774). The IRS received one set of
written comments responding to the notice
of proposed rulemaking. Because no one
requested to speak at the public hearing,
the hearing was cancelled. After consid-
ering each of the comments, the proposed
regulations are adopted as amended by
this Treasury decision.
On August 17, 2006, the Pension Pro-
tection Act of 2006, Public Law 109–280,
120 Stat. 780 (the PPA), was enacted.
Section 855 of the PPA amended section
6330(d) of the Internal Revenue Code
to withdraw judicial review of CDP no-
tices of determination from United States
district court jurisdiction, leaving review
solely in the United States Tax Court. Sec-
tion 6330(d) is made applicable to section
6320 hearings by section 6320(c). The
amendment to section 6330(d), effective
for notices of determination issued on
or after October 17, 2006, requires the
removal of references to district court re-
view in the 2002 final regulations. This
Treasury decision removes those refer-
ences.
The IRS and the Treasury Department
have determined that a notice of proposed
rulemaking and solicitation of public com-
ments are not required to amend the reg-
ulations to implement the modification to
section 6330(d). These amendments are
made solely to conform the regulations to a
statutory change enacted by Congress. Be-
cause the amendments do not involve any
exercise of discretion or interpretation, the
notice and public comment procedures are
unnecessary.
The comments and changes to the pro-
posed regulations, and the amendments re-
quired by the Congressional modification
to section 6330(d), are discussed below.
Summary of Comments and
Explanation of Changes
The comments suggested that the IRS
be required to contact taxpayers who
timely file an incomplete request for CDP
hearing to give them the opportunity to
perfect the request within a reasonable
time period and further recommended that
such contact be in writing and identify the
infirmity requiring perfection. The com-
ments also recommended that the final
regulations establish a specific time pe-
riod during which taxpayers may, by right,
amend or perfect their previously-filed yet
incomplete CDP hearing request. The re-
quest, according to thecomments, should
be considered timely if it is perfected
within the applicable time period.
Currently, the practice of the IRS is to
contact taxpayers whose hearing requests
fail to satisfy the requirements specified
by the existing regulations and ask these
taxpayers to perfect their requests within a
specified period of time. The IRS consid-
November 13, 20068792006–46 I.R.B.

ers requests perfectedwithin the time spec-
ified to be timely. The intention of the IRS
and the Treasury Department is to incor-
porate this administrative procedure into
the proposed regulations. The final regu-
lations more clearly state that the IRS will
make a reasonable attempt to contact tax-
payers to give them a reasonable period of
time to perfect incomplete requests. How-
ever, the timeframe in which to respond to
the request, and the method of delivery of
the request (i.e., orally or in writing) are
more appropriately addressed in the Inter-
nal Revenue Manual. The final regulations
make clear that requests perfected within
the time period specified by the IRS will
be considered timely.
The final regulations do not adopt the
suggestion to establish a period of time
during which a taxpayer is allowed to per-
fect an incomplete request, without regard
to a perfection request from the IRS. The
IRS and Treasury Department believe that
the procedure incorporated into the final
regulations is sufficient to permit taxpay-
ers to ensure their requests are complete.
The comments recommended that the
IRS Office of Appeals (Appeals) be given
the discretion to permit a taxpayer to
amend an imperfect hearing request after
the period for perfecting the request has
expired, if the taxpayer can demonstrate
that such amendment furthers an alter-
native to collection. This change to the
regulations is unnecessary because Ap-
peals is already empowered to exercise
this discretion. Neither the current regula-
tions nor the proposed amendments limits
Appeals from exercising this discretion.
Accordingly, the final regulations do not
adopt this recommendation. Further clari-
fication, however, will be provided in the
Internal Revenue Manual.
The comments suggested that where a
taxpayer fails to perfect a CDP hearing re-
quest until after the time period specified
by the IRS, the perfected request should
be automatically treated as a request for an
equivalent hearing. Treating untimely per-
fected requests as equivalent hearing re-
quests may unduly prolong the process in
cases in which a taxpayer does not want
an equivalent hearing. Accordingly, the fi-
nal regulations do not adopt this sugges-
tion. The final regulations, however, pro-
vide that Appeals will determine the time-
liness of CDP hearing requests. The final
regulations also add to the proposed regu-
lations that taxpayers making an untimely
request will be provided the opportunity to
have the request for CDP hearing treated
as a request for equivalent hearing, with-
out submitting an additional request.
The comments requested that the final
regulations give taxpayers whose hearing
requests might be construed as making
a frivolous argument the right to amend
their hearing requests to raise relevant,
non-frivolous issues. The comments fur-
ther recommended that all taxpayers be
given the right to supplement the hearing
request prior to the conference conducted
by Appeals.
These comments indicate concern that
taxpayers may be unable to articulate rea-
sons for disagreeing with the collection
action that are satisfactory to Appeals. The
reasons for disagreeing with the collec-
tion action need not be detailed. To assist
taxpayers in articulating reasons, the IRS
is revising Form 12153, “Request for a
Collection Due Process Hearing,”toadd
examples of the most common reasons
taxpayers give for requesting a hearing,
including requests for collection alterna-
tives. In any event, the informal nature
of the CDP hearing permits taxpayers and
Appeals to discuss collection alternatives
and issues not listed in the hearing request
if such discussion will help resolve the
case. Accordingly, the final regulations do
not adopt these recommendations.
The comments urged that the final reg-
ulations guarantee a face-to-face confer-
ence for each taxpayer who presents a rel-
evant, non-frivolous reason for disagree-
ment with the collection action. If this
recommendation is not adopted, the com-
ments suggest that the regulations address
and provide examples of when a face-to-
face conference will not be granted. The
final regulations do not adopt the recom-
mendation to guarantee a face-to-face con-
ference for each taxpayer raising a rele-
vant, non-frivolous issue. The IRS and
the Treasury Department agree with the
comments that a face-to-face conference
can be a useful forum for resolving a tax-
payer’s issues. The final regulations rec-
ognize the importance of a face-to-face
meeting by providing that taxpayers will
ordinarily be offered an opportunity for a
face-to-face conference. There will be in-
stances, however, when a face-to-face con-
ference is not practical. The final regula-
tions identify typical situations in which
a face-to-face conference will be neither
necessary nor productive. Except for these
situations, the IRS and the Treasury De-
partment anticipate that Appeals will af-
ford a face-to-face meeting to taxpayers
who request one. Nonetheless, unantic-
ipated circumstances may arise in which
granting a face-to-faceconference will not
be appropriate. The final regulations give
Appeals the flexibility needed to respond
to unanticipated circumstances.
Adoption of the comment requesting
guidance on when a face-to-face confer-
ence will not be granted is unnecessary.
The final regulations retain descriptions of
situations in which a face-to-face confer-
ence will not be granted, as illustrated in
the proposed regulations. Further guid-
ance on granting face-to-face conferences
will be provided in the Internal Revenue
Manual.
The comments suggested that a tax-
payer who appears to be presenting only
frivolous reasons be given an opportu-
nity to provide relevant, non-frivolous
reasons in order to obtain a face-to-face
conference. Adoption of this recommen-
dation is unnecessary. Correspondence
sent by Appeals to taxpayers who make
only frivolous arguments invites them to
submit relevant, non-frivolous reasons.
Appeals offers face-to-face conferences to
taxpayers who respond by providing such
reasons.
The comments also suggested that the
regulations define relevant and frivolous.
The IRS and the Treasury Department
believe that any attempt to define these
terms is unnecessary and could result in
underinclusive definitions. For example,
the comments suggest that a frivolous is-
sue be defined as an issue that is the same
or substantially similar to an issue identi-
fied as frivolous by the IRS in published
guidance. It is not possible to anticipate or
keep pace with the evolution of frivolous
arguments through published guidance.
Instead, taxpayers are advised to consult
the lists of examples of frivolous argu-
ments in IRS Publication 2105, “Why Do I
Have to Pay Taxes” and on the IRS website
in a document entitled “The Truth about
Frivolous Tax Arguments.” The names
and web addresses of these documents,
and a toll-free number to order Publication
2105, will be added to the instructions
to Form 12153 to help taxpayers avoid
making these arguments.
2006–46 I.R.B.880November 13, 2006

The comments recommended clarifica-
tion of the proposed rule that a face-to-face
conference concerning a collection alter-
native will not be granted unless the alter-
native would be available to other taxpay-
ers in similar circumstances. According
to the comments, a taxpayer should not be
denied a face-to-face conference because
the requested collection alternative cannot
be accepted, for example, because it ap-
pears from financial information that the
taxpayer can pay the liabilities in full. This
proposed rule was not intended to deny
a face-to-face conference because the re-
quested collection alternative would not be
accepted. The intention of this rule is to
permit the denial of a face-to-face confer-
ence to discuss a collection alternative for
which the taxpayer is not eligible. A lack
of eligibility under IRS policy is tied to a
taxpayer’s compliance with the Federal tax
laws, not to the taxpayer’s financial cir-
cumstances or abilityto request the most
appropriate alternative. For example, if the
taxpayer has not filed all required tax re-
turns, the taxpayer is not eligible for an of-
fer to compromise or an installment agree-
ment.
In response to the concerns expressed
in the comments, the final regulations am-
plify the rule that a face-to-face conference
to discuss a collection alternative will not
be granted unless other taxpayers would be
eligible for the alternative in similar cir-
cumstances. The final regulations provide
in A–D8 that Appeals in its discretion may
grant a face-to-face conference if Appeals
determines that a face-to-face conference
is appropriate to explain to the taxpayer
the requirements for becoming eligible for
a collection alternative. The final regula-
tions also provide that taxpayers will be
given an opportunity to demonstrate they
are eligible for a collection alternative in
order to obtain a face-to-face conference to
discuss the alternative. Taxpayers will also
be given an opportunity to become eligi-
ble for a collection alternative in order to
obtain a face-to-faceconference. For ex-
ample, under the final regulations, if a tax-
payer appears to have failed to file all re-
quired returns (and thus appears not to be
eligible for an offer to compromise or an
installment agreement), the taxpayer will
be given an opportunity to demonstrate the
inapplicability of the filing requirements
or to file delinquent returns, in order to
obtain a face-to-faceconference. The fi-
nal regulations further provide that a tax-
payer’s eligibility for a collection alterna-
tive does not include the taxpayer’s ability
to pay the unpaid tax.
The comments expressed concern that
the amendment providing a face-to-face
conference at an Appeals office other than
an office in which all officers or employ-
ees had prior involvement could be con-
strued as giving Appeals the discretion to
deny a face-to-face conference even if the
taxpayer would have been granted a face-
to-face conference at the original location.
The relevant sentence in A–D8 in the fi-
nal regulations has been rewritten to make
clear that Appeals does not have discretion
to deny a face-to-face conference at an al-
ternate location if the taxpayer would have
been granted a face-to-face conference but
for the disqualification of the Appeals em-
ployees at the original location.
The comments suggested that the reg-
ulations permit face-to-face conferences
to be held not only at the Appeals office
closest to the taxpayer’s residence or, for a
business taxpayer, the taxpayer’s principal
place of business, but also at the Appeals
office closest to the taxpayer’s school or
place of employment, the authorized rep-
resentative’s place of business, or some
other location convenient to the taxpayer
or the taxpayer’s representative. The IRS
and Treasury Department believe the rules
for CDP hearings should be consistent
with the treatment of other proceedings
in Appeals. The long-standing practice
of Appeals in cases not docketed in the
Tax Court is to grant face-to-face confer-
ences in the Appeals office closest to the
taxpayer’s residence or principal place of
business. The practice is retained in the
final regulations. Appeals will, however,
attempt to accommodate reasonable re-
quests to hold the face-to-face conference
at an Appeals office more convenient to
the taxpayer.
The comments expressed concern that
the definition of prior involvement under
section 6320(b)(3) or 6330(b)(3) in the
proposed regulations could be construed
toonarrowlyintwoways. First,thedef-
inition of prior involvement as involve-
ment in a prior hearing or proceeding could
be read to exclude involvement in some
informal settings,e.g., the Appeals offi-
cer’s participation in a mediation session.
In order to clarify that no such limitation
is intended, the final regulations substi-
tute matter for hearing or proceeding in
A–D4 of paragraph (d)(2). Second, defin-
ing prior involvement to exist when the
Appeals officer previously considered the
same tax liability could be construed as
excluding from the definition instances in
which the Appeals officer previously con-
sidered questions bearing only on collec-
tion issues. The final regulations adopt the
suggestion in the comments to remove the
word liability in A–D4 in order to elimi-
nate the potential interpretation that there
is a distinction between liability and col-
lection issues in determining prior involve-
ment.
The comments also requested that a
mediation example be added to paragraph
(d)(3). The IRS and the Treasury De-
partment believe that the change made
to A–D4 adequately clarifies the defini-
tion of prior involvement. This example
andotherswillbeaddedtotheInternal
Revenue Manual to ensure the proper ad-
ministration of sections 6320(b)(3) and
6330(b)(3).
The comments recommended that the
regulations address the treatment ofex
partecommunications during CDP hear-
ings. The rules applicable toex parte
communications during CDP hearings and
other Appeals proceedings are provided
in Rev. Proc. 2000–43, 2000–2 C.B. 404.
Therefore, these rules are not duplicated
in the regulations under sections 6320 and
6330.
The comments recommended that the
regulations be amended to provide that
self-reported tax liabilities may be dis-
puted in a CDP hearing. The final regula-
tions adopt this recommendation. See also
Montgomery v. Commissioner,122T.C.1
(2004),acq. 2005–51 I.R.B. 1152.
The comments also requested changes
in the existing regulations’ interpreta-
tion of preclusive events under sec-
tion 6330(c)(2)(B). Under section
6330(c)(2)(B), during a CDP hearing,
a taxpayer may challenge the existence or
amount of the underlying tax liability for
any tax period if the person did not receive
any statutory notice of deficiency for such
tax liability or did not otherwise have an
opportunity to dispute such tax liability.
Section 6330(c)(2)(B) is made applica-
ble to section 6320 hearings by section
6320(c). According to the comments, the
only opportunity to dispute the tax liability
that is sufficient to prevent the taxpayer
November 13, 20068812006–46 I.R.B.

from challenging the liability in a CDP
hearing is the prior opportunity to dispute
the liability in a judicial forum. The IRS
and the Treasury Department believe that
the existing regulations correctly include
an opportunity for an Appeals conference
as a preclusive prior opportunity. The text
of section 6330(c)(2)(B) does not con-
tain language limiting prior opportunities
to judicial proceedings. Moreover, it is
consistent for a taxpayer who has had an
opportunity to obtain a determination of
liability by Appeals in one administrative
hearing to be precluded from obtaining
an Appeals determination in a subsequent
CDP administrative hearing with respect
to the same liability. This interpretation of
section 6330(c)(2)(B) has been upheld by
the courts. See,e.g.,Pelliccio v. United
States, 253 F. Supp. 2d 258, 261–62
(D. Conn. 2003). Accordingly, the final
regulations do not adopt this suggestion.
Alternatively, the comments also rec-
ommended that the regulations specify that
a pre-CDP Appeals conference is not a
prior opportunity to dispute liability un-
der section 6330(c)(2)(B) if the receipt of
the conference was conditioned upon the
taxpayer’s agreement to extend the assess-
ment statute of limitations with respect to
the liability and the taxpayer declined to
extend the statute. The IRS and Trea-
sury Department believe this addition is
unnecessary. For taxes subject to defi-
ciency procedures, the relevant, pre-as-
sessment “prior opportunity” is the receipt
ofthenoticeofdeficiency. Theofferof
an Appeals conference prior to receipt of
the notice of deficiency does not consti-
tute an opportunity to dispute liability un-
der section 6330(c)(2)(B). This interpre-
tation of section 6330(c)(2)(B) has been
added to paragraph (e)(3) A–E2 to remove
any uncertainty about this matter. For li-
abilities not subject todeficiency proce-
dures, the offer of an Appeals conference
prior to assessment constitutes an oppor-
tunity to dispute the liability under sec-
tion 6330(c)(2)(B). Appeals conferences
to consider these types of liabilities are
rarely conditioned upon an extension of
the assessment statute of limitations. The
IRS generally makes conditional offers of
a conference only when a taxpayer makes
an untimely request for review of a pro-
posed Trust Fund Recovery Penalty pur-
suant to a Letter 1153 and less than one
year remains on the assessment statute of
limitations. In this circumstance, however,
the opportunity for an Appeals conference
offered in the Letter 1153 constitutes the
opportunity to dispute the liability under
section 6330(c)(2)(B). The conditional of-
fer made after the expiration of the prior
opportunity provided in the Letter 1153 is
irrelevant. For these reasons, the final reg-
ulations do not adopt this comment.
The comments objected to the addition
of a definition of administrative record to
the regulations as an attempt to overrule
the Tax Court’s decision inRobinette v.
Commissioner, 123 T.C. 85 (2004),rev’d,
439 F.3d 455 (8th Cir. 2006). The assump-
tion thatRobinetteeliminated any role for
an administrative record in CDP court pro-
ceedings is not supported by the Court’s
opinion. While the Tax Court held in
Robinettethat it was not required to limit
its abuse-of-discretion review to the ad-
ministrative record, it did not reject the
utility of an administrative record. Subse-
quent to the submission of the comments,
the United States Court of Appeals for
the Eighth Circuit reversed the Tax Court
andheldthatabuse-of-discretionreviewin
CDP cases is limited to the administrative
record.Robinette v. Commissioner,439
F.3d 455 (8th Cir. 2006). For these rea-
sons, it is important that taxpayers and the
IRS have a common understanding of the
scope of the administrative record. The
definition is retained in the final regula-
tions.
The comments suggested that the pro-
posed definition of the administrative
record permits Appeals officers and em-
ployees to exclude from the record for
judicial review issues, arguments, and ev-
idence presented orally by the taxpayer,
and to exclude written communications
and documents. The administrative record
definition is not intended to suggest that
the reviewing court is not permitted to
determine the contents of the administra-
tive record or the record’s adequacy in
an individual case. The reviewing court
has the authority to receive evidence con-
cerning what happened during the CDP
hearing. The definition is provided to
establish for the benefit of the IRS and
taxpayers a baseline description of what
each administrative record should contain
to ensure a record sufficient for judicial
review. The final regulations have not
been changed in this regard. The final
regulations, however, adopt the sugges-
tion that the description of the case file
in A–D7 and in the definition of admin-
istrative record in A–F6 of the proposed
regulations (redesignated as A–F4 in the
final regulations) be made consistent.
The comments recommended that the
final regulations require each Appeals of-
ficer to include in the notice of determi-
nation a list of the documents the Appeals
officer believes are included in the admin-
istrative record. The justification for this
proposed requirement is that the list would
assist the taxpayer in deciding whether to
seek judicial review. The list of docu-
ments, according to the comments, will
also assist the court and taxpayers seek-
ing review to more efficiently ascertain
whether there was an abuse of discretion.
The final regulations do not adopt this
recommendation. Requiring Appeals offi-
cers to prepare a list of documents consti-
tuting the administrative record in each of
the thousands of cases handled each year
would impose a heavy burden on Appeals
without a commensurate benefit to taxpay-
ers. The notice of determination issued in
each case describes the facts and reasons
supporting the Appeals officer’s determi-
nation and should provide an adequate ba-
sis for the taxpayer’s decision whether to
seek judicial review.
The IRS and the Treasury Department
acknowledge that disputes have arisen
with respect to the contents of the ad-
ministrative record in CDP cases and
that there are no special rules in place to
resolve these disputes. An appropriate
solution could involve the Tax Court’s
development of rules governing the prepa-
ration and submission of the administra-
tive record for abuse-of-discretion review,
particularly now that the recently-enacted
Pension Protection Act of 2006 requires
all CDP cases to be litigated in the Tax
Court.
The comments suggested removal of
the limitation in the existing regulations
that a taxpayer is precluded from obtaining
judicial review of an issue not raised with
Appeals during the CDP hearing. As an
alternative, the comments recommended
that a taxpayer only be prevented from
raising those issues the taxpayer could
have, but failed to raise during the CDP
hearing. The limitation in the existing reg-
ulations implements a basic principle of
administrative law that those seeking re-
view of an issue must first give the agency
2006–46 I.R.B.882November 13, 2006

the opportunity to evaluate and respond to
the issue. This limitation has been upheld
in the courts. SeeRobinette v. Com-
missioner, 123 T.C. 85, 101–102 (2004),
rev’d on other grounds, 439 F.3d 455 (8
th
Cir. 2006);Magana v. Commissioner,
118 T.C. 488, 493 (2002);Abu-Awad v.
United States, 294 F. Supp. 2d 879, 889
(S.D. Tex. 2003). Accordingly, the final
regulations do not adopt either of these
recommendations.
The comments recommended that if the
limitation on the taxpayer’s ability to raise
new issues during judicial review is re-
tained, then the amendment to A–F5 (re-
designated as A–F3 in the final regula-
tions) should clarify that a taxpayer need
not provide the evidence specified by Ap-
peals with respect to an issue in order to
present “any evidence” necessary to prop-
erly raise the issue. The IRS and the Trea-
sury Department believe this change is un-
necessary. The revision to A–F5 (redes-
ignated as A–F3) does not suggest that the
“any evidence” needed to avoid preclusion
must be the evidence specified by Appeals.
The revised language simply requires that
the taxpayer submit some evidentiary sup-
port. This suggestion is not adopted in the
final regulations.
The comments also suggested adding
that a taxpayer need not provide any evi-
dence to avoid preclusion if the case file
already contains evidence with respect to
that issue. This addition is not necessary.
If the case file contains all the information
needed for a decision on an issue, an Ap-
peals officer will not request any additional
evidence and the revised language in A–F5
(redesignated as A–F3 in the final regula-
tions) will not apply. In the unlikely event
that an Appeals officer making a determi-
nationonanissuerequestedinformation
already in the file, a reviewing court should
find the taxpayer’s failure to provide any
evidence does not prevent the issue from
being raised. The final regulations do not
adopt this recommendation.
The comments urged that the regula-
tions make clear thatthe authority of Ap-
peals officers to determine the validity,
sufficiency and timeliness of a CDP no-
tice does not alter or limit the authority
of the reviewing court to make the same
determination. The IRS and the Treasury
Department believe this clarification is un-
necessary. It is well-settled that review-
ing courts have the authority to determine
the validity, sufficiency and timeliness of
a CDP notice. See,e.g.,Kennedy v. Com-
missioner, 116 T.C. 255 (2001). This clar-
ification is not adopted in the final regula-
tions.
The comments recommended that ad-
ministrative rules similar to those devel-
oped under section 6015 be added to the
regulations. The regulations state that a
spousal defense raised under section 66 or
6015 is governed by section 66 or 6015 and
the regulations and procedures thereun-
der. See Treas. Reg. § 301.6320–1(e)(2).
To the extent it is determined that further
guidance is necessary, such guidance will
be in the form of additions to the Internal
Revenue Manual. The final regulations do
not adopt this recommendation.
The final regulations include amend-
ments to the existing regulations to remove
references to judicial review by United
States district courts. The Pension Protec-
tion Act of 2006, Public Law 109–280, 120
Stat. 780, § 855 amended section 6330(d)
to eliminate the jurisdiction of the district
courts to review notices of determination,
leaving the Tax Court with sole jurisdic-
tion. Section 6330(d) is made applicable to
section 6320 hearings by section 6320(c).
To make clear in the regulations that ju-
dicial review is available only in the Tax
Court, Q&A–F3 and Q&A–F4 in the ex-
isting regulations are removed by the final
regulations and Q&A–F5 and Q&A–F6 in
the proposed regulations are redesignated
as Q&A–F3 and Q&A–F4 in the final reg-
ulations. In addition, only the Tax Court
is now mentioned in A–E11, paragraph
(f)(1), A–F1, redesignated Q&A–F3 and
Q&A–F4,Example 1of paragraph (g)(3),
Q&A–H2 and redesignated Q–I6.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. In
particular, the IRS and the Treasury De-
partment find for good cause that a no-
tice of proposed rulemaking and solicita-
tion of public comments are unnecessary
to amend the existing regulations to imple-
ment the modification of section 6330(d)
by the Pension Protection Act of 2006,
Public Law 109–280, 120 Stat. 780. These
amendments are made solely to conform
the regulations to the statutory change en-
acted by Congress. The amendments do
not involve any exercise of discretion or
interpretation by the IRS or Treasury De-
partment and the removal of United States
district court jurisdiction would become
effective even if the amendments were not
made. Accordingly, the notice and pub-
lic comment procedures do not apply. Be-
cause the regulations do not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Internal Revenue Code, the
proposed regulations were submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting
Information
The principal author of these regula-
tions is Laurence K. Williams, Office of
Associate Chief Counsel, Procedure and
Administration (Collection, Bankruptcy
and Summonses Division).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6320–1 is amended
as follows:
1. Paragraph (c)(2) A–C1, Q&A–C6
and A–C7 are revised.
2. Paragraph (d)(2) A–D4 and A–D7
are revised.
3. Paragraph (d)(2) Q&A–D8 is added.
4. Paragraph (d)(3) is added.
5. Paragraph (e)(1) is revised.
6. Paragraph (e)(3) A–E2, A–E6, A–E7
and A–E11 are revised.
7. Paragraph (f)(1) is revised.
8. Paragraph (f)(2) A–F1 is revised.
9. Paragraph (f)(2) Q&A–F3 is re-
moved.
November 13, 20068832006–46 I.R.B.

10. Paragraph (f)(2) Q&A–F5 is re-
vised and redesignated Q&A–F3.
11. Paragraph (f)(2) Q&A–F4 is re-
vised.
12. Paragraph (g)(3)Example 1is re-
vised.
13. Paragraph (h)(2) Q&A–H2 is re-
vised.
14. Paragraph (i)(2) Q–I5 is revised and
redesignated Q–I6.
15. Paragraph (i)(2) A–I5 is redesig-
nated A–I6.
16. Paragraph (i)(2) Q&A–I1 through
Q&A–I4 are redesignated Q&A–I2
through Q&A–I5.
17. Paragraph (i)(2) Q&A–I1 and
Q&A–I7 through Q&A–I11 are added.
18. Paragraph (j) is revised.
§301.6320–1 Notice and opportunity for
hearing upon filing of notice of Federal
tax lien.
*****
(c) * * *
(2) * * *
A–C1. (i) The taxpayer must make
a request in writing for a CDP hearing.
The request for a CDP hearing shall in-
clude the information and signature spec-
ified in A–C1(ii) of this paragraph (c)(2).
See A–D7 and A–D8 of paragraph (d)(2).
(ii) The written request for a CDP hear-
ing must be dated and must include the fol-
lowing:
(A) The taxpayer’s name, address,
daytime telephone number (if any), and
taxpayer identification number (e.g.,SSN,
ITIN or EIN).
(B) The type of tax involved.
(C) The tax period at issue.
(D) A statement that the taxpayer re-
quests a hearing with Appeals concerning
the filing of the NFTL.
(E) The reason or reasons why the
taxpayer disagrees with the filing of the
NFTL.
(F) The signature of the taxpayer or the
taxpayer’s authorized representative.
(iii) If the IRS receives a timely written
request for CDP hearing that does not sat-
isfy the requirements set forth in A–C1(ii)
of this paragraph (c)(2), the IRS will make
a reasonable attempt to contact the tax-
payer and request that the taxpayer com-
ply with the unsatisfied requirements. The
taxpayer must perfect any timely written
request for a CDP hearing that does not sat-
isfy the requirements set forth in A–C1(ii)
of this paragraph (c)(2) within a reasonable
period of time after a request from the IRS.
(iv) Taxpayers are encouraged to use
Form 12153, “Request for a Collection
Due Process Hearing,” in requesting a
CDP hearing so that the request can be
readilyidentifiedandforwardedtoAp-
peals. Taxpayers may obtain a copy of
Form 12153 by contacting the IRS office
that issued the CDP Notice, by down-
loading a copy from the IRS Internet site,
www.irs.gov/pub/irs-pdf/f12153.pdf,orby
calling, toll-free, 1–800–829–3676.
(v) The taxpayer must affirm any timely
written request for a CDP hearing which
is signed or alleged to have been signed
on the taxpayer’s behalf by the taxpayer’s
spouse or other unauthorized representa-
tive by filing, within a reasonable period of
time after a request from the IRS, a signed,
written affirmation that the request was
originally submitted on the taxpayer’s be-
half. If the affirmation is filed within a rea-
sonable period of time after a request, the
timely CDP hearing request will be consid-
ered timely with respect to the non-sign-
ing taxpayer. If the affirmation is not filed
within a reasonable period of time after a
request, the CDP hearing request will be
denied with respect to the non-signing tax-
payer.
*****
Q–C6. Where must the written request
for a CDP hearing be sent?
A–C6. The written request for a CDP
hearing must be sent, or hand delivered (if
permitted), to the IRS office and address
as directed on the CDP Notice. If the ad-
dress of that office does not appear on the
CDP Notice, the taxpayer should obtain
the address of the office to which the writ-
ten request should be sent or hand deliv-
ered by calling, toll-free, 1–800–829–1040
and providing the taxpayer’s identification
number (e.g.,SSN,ITINorEIN).
*****
A–C7. If the taxpayer does not request
a CDP hearing in writing within the 30-day
period that commences on the day after
the end of the five-business-day notifica-
tion period, the taxpayer foregoes the right
to a CDP hearing under section 6320 with
respect to the unpaid tax and tax periods
shownontheCDPNotice. Awrittenre-
quest submitted within the 30-day period
that does not satisfy the requirements set
forthinA–C1(ii)(A),(B),(C),(D)or(F)of
this paragraph (c)(2) is considered timely
if the request is perfected within a reason-
able period of time pursuant to A–C1(iii)
of this paragraph (c)(2). If the request for
CDP hearing is untimely, either because
the request was not submitted within the
30-day period or not perfected within the
reasonable period provided, the taxpayer
will be notified of the untimeliness of the
request and offered an equivalent hearing.
In such cases, the taxpayer may obtain an
equivalent hearing without submitting an
additional request. See paragraph (i) of
this section.
*****
(d) * * *
(2) * * *
A–D4. Prior involvement by an Ap-
peals officer or employee includes partic-
ipation or involvement in a matter (other
than a CDP hearing held under either sec-
tion 6320 or section 6330) that the tax-
payer may have had with respect to the
tax and tax period shown on the CDP No-
tice. Prior involvement exists only when
the taxpayer, the tax and the tax period at
issue in the CDP hearing also were at is-
sue in the prior non-CDP matter, and the
Appeals officer or employee actually par-
ticipated in the prior matter.
*****
A–D7. Except as provided in A–D8
of this paragraph (d)(2), a taxpayer who
presents in the CDP hearing request rel-
evant, non-frivolous reasons for disagree-
ment with the NFTL filing will ordinarily
be offered an opportunity for a face-to-face
conference at the Appeals office closest to
taxpayer’s residence. A business taxpayer
will ordinarily be offered an opportunity
for a face-to-face conference at the Ap-
peals office closest to the taxpayer’s prin-
cipal place of business. If that is not satis-
factory to the taxpayer, the taxpayer will be
given an opportunity for a hearing by tele-
phone or by correspondence. In all cases,
the Appeals officer or employee will re-
view the case file, as described in A–F4
of paragraph (f)(2). If no face-to-face or
telephonic conference is held, or other oral
communication takes place, review of the
documents in the case file, as described in
A–F4 of paragraph (f)(2), will constitute
the CDP hearing for purposes of section
6320(b).
2006–46 I.R.B.884November 13, 2006

Q–D8. In what circumstances will
a face-to-face CDP conference not be
granted?
A–D8. A taxpayer is not entitled to
a face-to-face CDP conference at a loca-
tion other than as provided in A–D7 of this
paragraph (d)(2) and this A–D8. If all Ap-
peals officers or employees at the location
provided for in A–D7 of this paragraph
(d)(2) have had prior involvement with the
taxpayer as provided in A–D4 of this para-
graph (d)(2), the taxpayer will not be of-
fered a face-to-face conference at that lo-
cation, unless the taxpayer elects to waive
the requirement of section 6320(b)(3). The
taxpayer will be offered a face-to-face con-
ference at another Appeals office if Ap-
peals would have offered the taxpayer a
face-to-face conferenceat the location pro-
vided in A–D7 of this paragraph (d)(2),
but for the disqualification of all Appeals
officers or employees at that location. A
face-to-face CDP conference concerning a
taxpayer’s underlying liability will not be
granted if the request for a hearing or other
taxpayer communication indicates that the
taxpayer wishes only to raise irrelevant or
frivolous issues concerning that liability.
A face-to-face CDP conference concern-
ingacollectionalternative,suchasanin-
stallment agreement or an offer to compro-
mise liability, will not be granted unless
other taxpayers would be eligible for the
alternative in similar circumstances. For
example, because the IRS does not con-
sider offers to compromise from taxpay-
ers who have not filed required returns or
have not made certain required deposits
of tax, as set forth in Form 656, “Offer
in Compromise,” no face-to-face confer-
ence will be granted to a taxpayer who
wishes to make an offer to compromise
but has not fulfilled those obligations. Ap-
peals in its discretion, however, may grant
a face-to-face conference if Appeals deter-
mines that a face-to-face conference is ap-
propriate to explain to the taxpayer the re-
quirements for becoming eligible for a col-
lection alternative. In all cases, a taxpayer
will be given an opportunity to demon-
strate eligibility for a collection alternative
and to become eligible for a collection al-
ternative, in order to obtain a face-to-face
conference. For purposes of determining
whether a face-to-face conference will be
granted, the determination of a taxpayer’s
eligibility for a collection alternative is
made without regard to the taxpayer’s abil-
ity to pay the unpaid tax. A face-to-face
conference need not be granted if the tax-
payer does not provide the required infor-
mation set forth in A–C1(ii)(E) of para-
graph (c)(2). See also A–C1(iii) of para-
graph (c)(2).
(3)Examples. The following examples
illustrate the principles of this paragraph
(d):
Example 1. Individual A timely requests a CDP
hearing concerning a NFTL filed with respect to the
1998 income tax liability assessed against individ-
ual A. Appeals employee B previously conducted a
CDP hearing regarding a proposed levy for individ-
ual A’s 1998 income tax liability. Because employee
B’s only prior involvement with individual A’s 1998
income tax liability was in connection with a sec-
tion 6330 CDP hearing, employee B may conduct the
CDP hearing under section 6320 involving the NFTL
filed for the 1998 income tax liability.
Example 2. Individual C timely requests a CDP
hearing concerning a NFTL filed with respect to the
1998 income tax liability assessed against individual
C. Appeals employee D previously conducted a Col-
lection Appeals Program (CAP) hearing regarding a
NFTL filed with respect to individual C’s 1998 in-
come tax liability. Because employee D’s prior in-
volvement with individual C’s 1998 income tax li-
ability was in connection with a non-CDP hearing,
employee D may not conduct the CDP hearing under
section 6320 unless individual C waives the require-
ment that the hearing will be conducted by an Appeals
officer or employee who has had no prior involve-
ment with respect to individual C’s 1998 income tax
liability.
Example 3. Same facts as inExample 2, except
that the prior CAP hearing only involved individual
C’s 1997 income tax liability and employment tax lia-
bilities for 1998 reported on Form 941, “Employer’s
Quarterly Federal Tax Return.” Employee D would
not be considered to have prior involvement because
the prior CAP hearing in which she participated did
not involve individual C’s 1998 income tax liability.
Example 4. Appeals employee F is assigned to a
CDP hearing concerning a NFTL filed with respect
to a trust fund recovery penalty (TFRP) assessed pur-
suant to section 6672 against individual E. Appeals
employee F participated in a prior CAP hearing in-
volving individual E’s 1999 income tax liability, and
participated in a CAP hearing involving the employ-
ment taxes of business entity X, which incurred the
employment tax liability to which the TFRP assessed
against individual E relates. Appeals employee F
would not be considered to have prior involvement
because the prior CAP hearings in which he partic-
ipated did not directly involve the TFRP assessed
against individual E.
Example 5. Appeals employee G is assigned to a
CDP hearing concerning a NFTL filed with respect
to a TFRP assessed pursuant to section 6672 against
individual H. In preparing for the CDP hearing, Ap-
peals employee G reviews the Appeals case file con-
cerning the prior CAP hearing involving the TFRP
assessed pursuant to section 6672 against individual
H. Appeals employee G is not deemed to have par-
ticipated in the previous CAP hearing involving the
TFRP assessed against individual H by such review.
(e)Matters considered at CDP hear-
ing—(1)In general. Appeals will deter-
mine the timeliness of any request for a
CDP hearing that is made by a taxpayer.
Appeals has the authority to determine the
validity, sufficiency, and timeliness of any
CDP Notice given by the IRS and of any
request for a CDP hearing that is made by
a taxpayer. Prior to issuance of a determi-
nation, Appeals is required to obtain veri-
fication from the IRS office collecting the
tax that the requirements of any applica-
ble law or administrative procedure with
respect to the filing of the NFTL have been
met. The taxpayer may raise any rele-
vant issue relating to the unpaid tax at the
hearing, including appropriate spousal de-
fenses, challenges to the appropriateness
of the NFTL filing, and offers of collection
alternatives. The taxpayer also may raise
challenges to the existence or amount of
the underlying liability, including a liabil-
ity reported on a self-filed return, for any
tax period specified on the CDP Notice if
the taxpayer did not receive a statutory no-
tice of deficiency for that tax liability or
did not otherwise have an opportunity to
dispute the tax liability. Finally, the tax-
payer may not raise an issue that was raised
and considered at a previous CDP hearing
under section 6330 or in any other previ-
ous administrative or judicial proceeding
if the taxpayer participated meaningfully
in such hearing or proceeding. Taxpayers
will be expected to provide all relevant in-
formation requested by Appeals, including
financial statements, for its consideration
of the facts and issues involved in the hear-
ing.
*****
(3) * * *
A–E2. A taxpayer is entitled to chal-
lenge the existence or amount of the under-
lying liability for any tax period specified
on the CDP Notice if the taxpayer did not
receive a statutory notice of deficiency for
such liability or did not otherwise have an
opportunity to dispute such liability. Re-
ceipt of a statutory notice of deficiency for
this purpose means receipt in time to peti-
tion the Tax Court for a redetermination of
the deficiency determined in the notice of
deficiency. An opportunity to dispute the
underlying liability includes a prior oppor-
tunity for a conference with Appeals that
was offered either before or after the as-
sessment of the liability. An opportunity
November 13, 20068852006–46 I.R.B.

for a conference with Appeals prior to the
assessment of a tax subject to deficiency
procedures is not a prior opportunity for
this purpose.
*****
A–E6. Collection alternatives include,
for example, a proposal to withdraw the
NFTL in circumstances that will facilitate
the collection of the tax liability, subor-
dination of the NFTL, discharge of the
NFTL from specific property, an install-
ment agreement, an offer to compromise,
the posting of a bond, or the substitution
of other assets. A collection alternative is
not available unless the alternative would
be available to other taxpayers in similar
circumstances. See A–D8 of paragraph
(d)(2).
*****
A–E7. The taxpayer may raise appro-
priate spousal defenses, challenges to the
appropriateness of the NFTL filing, and of-
fers of collection alternatives. The exis-
tence or amount of the underlying liability
for any tax period specified in the CDP No-
tice may be challenged only if the taxpayer
did not have a prior opportunity to dispute
the tax liability. If the taxpayer previously
received a CDP Notice under section 6330
with respect to the same tax and tax period
and did not request a CDP hearing with re-
spect to that earlier CDP Notice, the tax-
payer had a prior opportunity to dispute the
existence or amount of the underlying tax
liability.
*****
A–E11. No. An Appeals officer may
consider the existence and amount of the
underlying tax liability as a part of the CDP
hearing only if the taxpayer did not receive
a statutory notice of deficiency for the tax
liability in question or otherwise have a
prior opportunity to dispute the tax liabil-
ity. Similarly, an Appeals officer may not
consider any other issue if the issue was
raised and considered at a previous hear-
ing under section 6330 or in any other pre-
vious administrative or judicial proceed-
ing in which the person seeking to raise
the issue meaningfully participated. In the
Appeals officer’s sole discretion, however,
the Appeals officer may consider the exis-
tence or amount of the underlying tax lia-
bility, or such other precluded issues, at the
same time as the CDP hearing. Any deter-
mination, however, made by the Appeals
officer with respect to such a precluded is-
sue shall not be treated as part of the Notice
of Determination issued by the Appeals of-
ficer and will not be subject to any judi-
cial review. Because any decisions made
by the Appeals officer on such precluded
issues are not properly a part of the CDP
hearing, such decisions are not required to
appear in the Notice of Determination is-
sued following the hearing. Even if a de-
cision concerning such precluded issues is
referred to in the Notice of Determination,
it is not reviewable by the Tax Court be-
cause the precluded issue is not properly
part of the CDP hearing.
*****
(f)Judicial review of Notice of De-
termination—(1)In general.Unlessthe
taxpayer provides the IRS a written with-
drawal of the request that Appeals conduct
a CDP hearing, Appeals is required to is-
sue a Notice of Determination in all cases
where a taxpayer has timely requested a
CDP hearing. The taxpayer may appeal
such determinations made by Appeals
within the 30-day period commencing the
day after the date of the Notice of Deter-
minationtotheTaxCourt.
(2) * * *
A–F1. Subject to the jurisdictional lim-
itations described in A–F2 of this para-
graph (f)(2), the taxpayer must, within the
30-day period commencing the day after
the date of the Notice of Determination,
appeal the determination by Appeals to the
Tax Court.
*****
Q–F3. What issue or issues may the
taxpayer raise before the Tax Court if the
taxpayer disagrees with the Notice of De-
termination?
A–F3. In seeking Tax Court review of a
Notice of Determination, the taxpayer can
only ask the court to consider an issue, in-
cluding a challenge to the underlying tax
liability, that was properly raised in the tax-
payer’s CDP hearing. An issue is not prop-
erly raised if the taxpayer fails to request
consideration of the issue by Appeals, or
if consideration is requested but the tax-
payer fails to present to Appeals any evi-
dence with respect to that issue after being
given a reasonable opportunity to present
such evidence.
Q–F4. What is the administrative
record for purposes of Tax Court review?
A–F4. The case file, including the
taxpayer’s request for hearing, any other
written communications and information
from the taxpayer or the taxpayer’s au-
thorized representative submitted in con-
nection with the CDP hearing, notes made
by an Appeals officer or employee of any
oral communications with the taxpayer or
the taxpayer’s authorized representative,
memoranda created by the Appeals officer
or employee in connection with the CDP
hearing, and any other documents or ma-
terials relied upon by the Appeals officer
or employee in making the determination
under section 6330(c)(3), will constitute
the record in the Tax Court review of the
Notice of Determination issued by Ap-
peals.
(g) * * *
(3) * * *
Example 1. The period of limitation under section
6502 with respect to the taxpayer’s tax period listed
in the NFTL will expire on August 1, 1999. The IRS
sent a CDP Notice to the taxpayer on April 30, 1999.
The taxpayer timely requested a CDP hearing. The
IRS received this request on May 15, 1999. Appeals
sends the taxpayer its determination on June 15, 1999.
The taxpayer timely seeks judicial review of that de-
termination. The period of limitation under section
6502 would be suspended from May 15, 1999, un-
til the determination resulting from that hearing be-
comes final by expiration of the time for seeking re-
view or reconsideration before the Tax Court, plus 90
days.
*****
(h) * * *
(2) * * *
Q–H2. Is a decision of Appeals result-
ing from a retained jurisdiction hearing ap-
pealable to the Tax Court?
A–H2. No. As discussed in A–H1, a
taxpayer is entitled to only one CDP hear-
ing under section 6320 with respect to the
tax and tax period or periods specified in
the CDP Notice. Only determinations re-
sulting from CDP hearings are appealable
to the Tax Court.
(i) * * *
(2) * * *
Q–I1. What must a taxpayer do to ob-
tain an equivalent hearing?
A–I1. (i) A request for an equivalent
hearing must be made in writing. A writ-
ten request in any form that requests an
equivalent hearing will be acceptable if it
includes the information and signature re-
quired in A–I1(ii) of this paragraph (i)(2).
(ii) The request must be dated and must
include the following:
2006–46 I.R.B.886November 13, 2006

(A) The taxpayer’s name, address,
daytime telephone number (if any), and
taxpayer identification number (e.g.,SSN,
ITIN or EIN).
(B) The type of tax involved.
(C) The tax period at issue.
(D) A statement that the taxpayer is re-
questing an equivalent hearing with Ap-
peals concerning the filing of the NFTL.
(E) The reason or reasons why the
taxpayer disagrees with the filing of the
NFTL.
(F) The signature of the taxpayer or the
taxpayer’s authorized representative.
(iii) The taxpayer must perfect any
timely written request for an equivalent
hearing that does not satisfy the require-
ments set forth in A–I1(ii) of this para-
graph (i)(2) within a reasonable period
of time after a request from the IRS. If
the requirements are not satisfied within a
reasonable period of time, the taxpayer’s
equivalent hearing request will be denied.
(iv) The taxpayer must affirm any
timely written request for an equivalent
hearing that is signed or alleged to have
been signed on the taxpayer’s behalf by the
taxpayer’s spouse or other unauthorized
representative, and that otherwise meets
the requirements set forth in A–I1(ii) of
this paragraph (i)(2), by filing, within a
reasonable period of time after a request
from the IRS, a signed written affirmation
that the request was originally submitted
on the taxpayer’s behalf. If the affirmation
is filed within a reasonable period of time
after a request, the timely equivalent hear-
ing request will be considered timely with
respect to the non-signing taxpayer. If the
affirmation is not filed within a reason-
able period of time, the equivalent hearing
request will be denied with respect to the
non-signing taxpayer.
*****
Q–I6. Will a taxpayer be able to obtain
Tax Court review of a decision made by
Appeals with respect to an equivalent hear-
ing?
*****
Q–I7. When must a taxpayer request an
equivalent hearing with respect to a CDP
Notice issued under section 6320?
A–I7. A taxpayer must submit a written
request for an equivalent hearing within
the one-year period commencing the day
after the end of the five-business-day pe-
riod following the filing of the NFTL. This
period is slightly different from the pe-
riod for submitting a written request for an
equivalent hearing with respect to a CDP
Notice issued under section 6330. For a
CDP Notice issued under section 6330, a
taxpayer must submit a written request for
an equivalent hearing within the one-year
period commencing the day after the date
of the CDP Notice issued under section
6330.
Q–I8. How will the timeliness of a tax-
payer’s written request for an equivalent
hearing be determined?
A–I8. The rules and regulations under
section7502andsection7503willapplyto
determine the timeliness of the taxpayer’s
request for an equivalent hearing, if prop-
erly transmitted and addressed as provided
in A–I10 of this paragraph (i)(2).
Q–I9. Is the one-year period within
which a taxpayer must make a request for
an equivalent hearing extended because
the taxpayer resides outside the United
States?
A–I9. No. All taxpayers who want an
equivalent hearing concerning the filing of
the NFTL must request the hearing within
the one-year period commencing the day
after the end of the five-business-day pe-
riod following the filing of the NFTL.
Q–I10. Where must the written request
for an equivalent hearing be sent?
A–I10. The written request for an
equivalent hearing must be sent, or hand
delivered (if permitted), to the IRS office
and address as directed on the CDP Notice.
If the address of the issuing office does not
appear on the CDP Notice, the taxpayer
should obtain the address of the office to
which the written request should be sent
or hand delivered by calling, toll-free,
1–800–829–1040 and providing the tax-
payer’s identification number (e.g.,SSN,
ITIN or EIN).
Q–I11. What will happen if the tax-
payer does not request an equivalent hear-
ing in writing within the one-year period
commencing the day after the end of the
five-business-day period following the fil-
ing of the NFTL?
A–I11. If the taxpayer does not request
an equivalent hearing with Appeals within
the one-year period commencing the day
after the end of the five-business-day pe-
riod following the filing of the NFTL, the
taxpayer foregoes the right to an equiva-
lent hearing with respect to the unpaid tax
and tax periods shown on the CDP No-
tice. A written request submitted within
the one-year period that does not satisfy
the requirements set forth in A–I1(ii) of
this paragraph (i)(2) is considered timely
if the request is perfected within a reason-
able period of time pursuant to A–I1(iii)
of this paragraph (i)(2). If a request for
equivalent hearing is untimely, either be-
cause the request was not submitted within
the one-year period or not perfected within
the reasonable period provided, the equiv-
alent hearing request will be denied. The
taxpayer, however, may seek reconsidera-
tion by the IRS office collecting the tax,
assistance from the National Taxpayer Ad-
vocate, or an administrative hearing before
Appeals under its Collection Appeals Pro-
gram or any successor program.
(j)Effective date. This section is appli-
cable on or after November 16, 2006 with
respect to requests made for CDP hearings
or equivalent hearings on or after Novem-
ber 16, 2006.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved October 6, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on October 16,
2006, 8:45 a.m., and published in the issue of the Federal
Register for October 17, 2006, 71 F.R. 60835)
Section 6330.—Notice and
Opportunity for Hearing
Before Levy
26 CFR 301.6330–1: Notice and opportunity for
hearing prior to levy.
T.D. 9291
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 301
Miscellaneous Changes
to Collection Due Process
Procedures Relating to Notice
November 13, 20068872006–46 I.R.B.

and Opportunity for Hearing
Prior to Levy
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final Regulations.
SUMMARY: This document contains final
regulations amending the regulations relat-
ing to a taxpayer’s right to a hearing before
or, in limited cases, after levy under sec-
tion 6330 of the Internal Revenue Code of
1986. The final regulations make certain
clarifying changes in the way collection
due process (CDP) hearings are held and
specify the period during which a taxpayer
may request an equivalent hearing. The
final regulations affect taxpayers against
whose property or rights to property the
Internal Revenue Service (IRS) intends to
levy.
DATES:Effective Date:These regulations
are effective on November 16, 2006.
Applicability Date:These regulations
apply to requests for CDP or equivalent
hearings on or after November 16, 2006.
FOR FURTHER INFORMATION
CONTACT: Laurence K. Williams,
202–622–3600 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to
the Regulations on Procedure and Admin-
istration (26 CFR part 301) relating to the
provision of notice under section 6330 of
the Internal Revenue Code to taxpayers of
a right to a CDP hearing (CDP Notice) be-
fore or, in limited cases, after levy. Final
regulations (T.D. 8980, 2002–1 C.B. 477)
were published on January 18, 2002, in the
Federal Register(67 FR 2549) (the 2002
final regulations). The 2002 final regula-
tions implemented certain changes made
by section 3401 of the Internal Revenue
Service Restructuring and Reform Act of
1998 (Public Law 105–206, 112 Stat. 685)
(RRA 1998), including the addition of sec-
tion 6330 to the Internal Revenue Code.
Section 3401 of RRA 1998 also added
section 6320 to the Internal Revenue Code.
That statute provides for notice to taxpay-
ers of a right to a hearing after the filing
of a notice of Federal tax lien (NFTL). A
number of the provisions in section 6330
concerning the conduct and judicial review
of a CDP hearing are incorporated by refer-
ence in section 6320. On January 18, 2002,
final regulations (T.D. 8979, 2002–1 C.B.
466) under section 6320 were published in
theFederal Register(67 FR 2558) along
with the 2002 final regulations under sec-
tion 6330.
On September 16, 2005, the IRS and
the Treasury Department published in the
Federal Register(70 FR 54687) a notice
of proposed rulemaking and notice of pub-
lic hearing (REG–150091–02, 2005–43
I.R.B. 774). The IRS received one set of
written comments responding to the notice
of proposed rulemaking. Because no one
requested to speak at the public hearing,
the hearing was cancelled. After consid-
ering each of the comments, the proposed
regulations are adopted as amended by
this Treasury decision.
On August 17, 2006, the Pension Pro-
tection Act of 2006, Public Law 109–280,
120 Stat. 780 (the PPA), was enacted.
Section 855 of the PPA amended section
6330(d) of the Internal Revenue Code
to withdraw judicial review of CDP no-
tices of determination from United States
district court jurisdiction, leaving review
solely in the United States Tax Court. This
amendment to section6330(d), effective
for notices of determination issued on
or after October 17, 2006, requires the
removal of references to district court re-
view in the 2002 final regulations. This
Treasury decision removes those refer-
ences.
The IRS and the Treasury Department
have determined that a notice of proposed
rulemaking and solicitation of public com-
ments are not required to amend the reg-
ulations to implement the modification to
section 6330(d). These amendments are
made solely to conform the regulations to a
statutory change enacted by Congress. Be-
cause the amendments do not involve any
exercise of discretion or interpretation, the
notice and public comment procedures are
unnecessary.
The comments and changes to the pro-
posed regulations, and the amendments re-
quired by the Congressional modification
to section 6330(d), are discussed below.
Summary of Comments and
Explanation of Changes
The comments suggested that the IRS
be required to contact taxpayers who
timely file an incomplete request for CDP
hearing to give them the opportunity to
perfect the request within a reasonable
time period and further recommended that
such contact be in writing and identify the
infirmity requiring perfection. The com-
ments also recommended that the final
regulations establish a specific time pe-
riod during which taxpayers may, by right,
amend or perfect their previously-filed yet
incomplete CDP hearing request. The re-
quest, according to thecomments, should
be considered timely if it is perfected
within the applicable time period.
Currently, the practice of the IRS is to
contact taxpayers whose hearing requests
fail to satisfy the requirements specified
by the existing regulations and ask these
taxpayers to perfect their requests within a
specified period of time. The IRS consid-
ers requests perfected within the time spec-
ified to be timely. The intention of the IRS
and the Treasury Department is to incor-
porate this administrative procedure into
the proposed regulations. The final regu-
lations more clearly state that the IRS will
make a reasonable attempt to contact tax-
payers to give them a reasonable period of
time to perfect incomplete requests. How-
ever, the timeframe in which to respond to
the request, and the method of delivery of
the request (i.e., orally or in writing) are
more appropriately addressed in the Inter-
nal Revenue Manual. The final regulations
make clear that requests perfected within
the time period specified by the IRS will
be considered timely.
The final regulations do not adopt the
suggestion to establish a period of time
during which a taxpayer is allowed to per-
fect an incomplete request, without regard
to a perfection request from the IRS. The
IRS and Treasury Department believe that
the procedure incorporated into the final
regulations is sufficient to permit taxpay-
ers to ensure their requests are complete.
The comments recommended that the
IRS Office of Appeals (Appeals) be given
the discretion to permit a taxpayer to
amend an imperfect hearing request after
the period for perfecting the request has
expired, if the taxpayer can demonstrate
that such amendment furthers an alter-
2006–46 I.R.B.888November 13, 2006

native to collection. This change to the
regulations is unnecessary because Ap-
peals is already empowered to exercise
this discretion. Neither the current regula-
tions nor the proposed amendments limits
Appeals from exercising this discretion.
Accordingly, the final regulations do not
adopt this recommendation. Further clari-
fication, however, will be provided in the
Internal Revenue Manual.
The comments suggested that where a
taxpayer fails to perfect a CDP hearing re-
quest until after the time period specified
by the IRS, the perfected request should
be automatically treated as a request for an
equivalent hearing. Treating untimely per-
fected requests as equivalent hearing re-
quests may unduly prolong the process in
cases in which a taxpayer does not want
an equivalent hearing. Accordingly, the fi-
nal regulations do not adopt this sugges-
tion. The final regulations, however, pro-
vide that Appeals will determine the time-
liness of CDP hearing requests. The final
regulations also add to the proposed regu-
lations that taxpayers making an untimely
request will be provided the opportunity to
have the request for CDP hearing treated
as a request for equivalent hearing, with-
out submitting an additional request.
The comments requested that the final
regulations give taxpayers whose hearing
requests might be construed as making
a frivolous argument the right to amend
their hearing requests to raise relevant,
non-frivolous issues. The comments fur-
ther recommended that all taxpayers be
given the right to supplement the hearing
request prior to the conference conducted
by Appeals.
These comments indicate concern that
taxpayers may be unable to articulate rea-
sons for disagreeing with the collection
action that are satisfactory to Appeals. The
reasons for disagreeing with the collec-
tion action need not be detailed. To assist
taxpayers in articulating reasons, the IRS
is revising Form 12153, “Request for a
Collection Due Process Hearing,”toadd
examples of the most common reasons
taxpayers give for requesting a hearing,
including requests forcollection alterna-
tives. In any event, the informal nature
of the CDP hearing permits taxpayers and
Appeals to discuss collection alternatives
and issues not listed in the hearing request
if such discussion will help resolve the
case. Accordingly, the final regulations do
not adopt these recommendations.
The comments urged that the final reg-
ulations guarantee a face-to-face confer-
ence for each taxpayer who presents a rel-
evant, non-frivolous reason for disagree-
ment with the collection action. If this
recommendation is not adopted, the com-
ments suggest that the regulations address
and provide examples of when a face-to-
face conference will not be granted. The
final regulations do not adopt the recom-
mendation to guarantee a face-to-face con-
ference for each taxpayer raising a rele-
vant, non-frivolous issue. The IRS and
the Treasury Department agree with the
comments that a face-to-face conference
can be a useful forum for resolving a tax-
payer’s issues. The final regulations rec-
ognize the importance of a face-to-face
meeting by providing that taxpayers will
ordinarily be offered an opportunity for a
face-to-face conference. There will be in-
stances, however, when a face-to-face con-
ference is not practical. The final regula-
tions identify typical situations in which
a face-to-face conference will be neither
necessary nor productive. Except for these
situations, the IRS and the Treasury De-
partment anticipate that Appeals will af-
ford a face-to-face meeting to taxpayers
who request one. Nonetheless, unantic-
ipated circumstances may arise in which
granting a face-to-face conference will not
be appropriate. The final regulations give
Appeals the flexibility needed to respond
to unanticipated circumstances.
Adoption of the comment requesting
guidance on when a face-to-face confer-
ence will not be granted is unnecessary.
The final regulations retain descriptions of
situations in which a face-to-face confer-
ence will not be granted, as illustrated in
the proposed regulations. Further guid-
ance on granting face-to-face conferences
will be provided in the Internal Revenue
Manual.
The comments suggested that a tax-
payer who appears to be presenting only
frivolous reasons be given an opportu-
nity to provide relevant, non-frivolous
reasons in order to obtain a face-to-face
conference. Adoption of this recommen-
dation is unnecessary. Correspondence
sent by Appeals to taxpayers who make
only frivolous arguments invites them to
submit relevant, non-frivolous reasons.
Appeals offers face-to-face conferences to
taxpayers who respond by providing such
reasons.
The comments also suggested that the
regulations define relevant and frivolous.
The IRS and the Treasury Department
believe that any attempt to define these
terms is unnecessary and could result in
underinclusive definitions. For example,
the comments suggest that a frivolous is-
sue be defined as an issue that is the same
or substantially similar to an issue identi-
fied as frivolous by the IRS in published
guidance. It is not possible to anticipate or
keep pace with the evolution of frivolous
arguments through published guidance.
Instead, taxpayers are advised to consult
the lists of examples of frivolous argu-
ments in IRS Publication 2105, “Why Do I
Have to Pay Taxes” and on the IRS website
in a document entitled “The Truth about
Frivolous Tax Arguments.” The names
and web addresses of these documents,
and a toll-free number to order Publication
2105, will be added to the instructions
to Form 12153 to help taxpayers avoid
making these arguments.
The comments recommended clarifica-
tion of the proposed rule that a face-to-face
conference concerning a collection alter-
native will not be granted unless the alter-
native would be available to other taxpay-
ers in similar circumstances. According
to the comments, a taxpayer should not be
denied a face-to-face conference because
the requested collection alternative cannot
be accepted, for example, because it ap-
pears from financialinformation that the
taxpayer can pay the liabilities in full. This
proposed rule was not intended to deny
a face-to-face conference because the re-
quested collection alternative would not be
accepted. The intention of this rule is to
permit the denial of a face-to-face confer-
ence to discuss a collection alternative for
which the taxpayer is not eligible. A lack
of eligibility under IRS policy is tied to a
taxpayer’s compliance with the Federal tax
laws, not to the taxpayer’s financial cir-
cumstances or ability to request the most
appropriate alternative. For example, if the
taxpayer has not filed all required tax re-
turns, the taxpayer is not eligible for an of-
fer to compromise or an installment agree-
ment.
In response to the concerns expressed
in the comments, the final regulations am-
plify the rule that a face-to-face conference
to discuss a collection alternative will not
November 13, 20068892006–46 I.R.B.

be granted unless other taxpayers would be
eligible for the alternative in similar cir-
cumstances. The final regulations provide
in A–D8 that Appeals in its discretion may
grant a face-to-face conference if Appeals
determines that a face-to-face conference
is appropriate to explain to the taxpayer
the requirements for becoming eligible for
a collection alternative. The final regula-
tions also provide that taxpayers will be
given an opportunity to demonstrate they
are eligible for a collection alternative in
order to obtain a face-to-face conference to
discuss the alternative. Taxpayers will also
be given an opportunity to become eligi-
ble for a collection alternative in order to
obtain a face-to-faceconference. For ex-
ample, under the final regulations, if a tax-
payer appears to have failed to file all re-
quired returns (and thus appears not to be
eligible for an offer to compromise or an
installment agreement), the taxpayer will
be given an opportunity to demonstrate the
inapplicability of the filing requirements
or to file delinquent returns, in order to
obtain a face-to-faceconference. The fi-
nal regulations further provide that a tax-
payer’s eligibility for a collection alterna-
tive does not include the taxpayer’s ability
to pay the unpaid tax.
The comments expressed concern that
the amendment providing a face-to-face
conference at an Appeals office other than
an office in which all officers or employ-
ees had prior involvement could be con-
strued as giving Appeals the discretion to
deny a face-to-face conference even if the
taxpayer would have been granted a face-
to-face conference at the original location.
The relevant sentence in A–D8 in the fi-
nal regulations has been rewritten to make
clear that Appeals does not have discretion
to deny a face-to-face conference at an al-
ternate location if the taxpayer would have
been granted a face-to-face conference but
for the disqualification of the Appeals em-
ployees at the original location.
The comments suggested that the reg-
ulations permit face-to-face conferences
to be held not only at the Appeals office
closest to the taxpayer’s residence or, for a
business taxpayer, the taxpayer’s principal
place of business, but also at the Appeals
office closest to the taxpayer’s school or
place of employment, the authorized rep-
resentative’s place of business, or some
other location convenient to the taxpayer
or the taxpayer’s representative. The IRS
and Treasury Department believe the rules
for CDP hearings should be consistent
with the treatment of other proceedings
in Appeals. The long-standing practice
of Appeals in cases not docketed in the
Tax Court is to grant face-to-face confer-
ences in the Appeals office closest to the
taxpayer’s residence or principal place of
business. The practice is retained in the
final regulations. Appeals will, however,
attempt to accommodate reasonable re-
quests to hold the face-to-face conference
at an Appeals office more convenient to
the taxpayer.
The comments expressed concern that
the definition of prior involvement under
section 6320(b)(3) or 6330(b)(3) in the
proposed regulations could be construed
toonarrowlyintwoways. First,thedef-
inition of prior involvement as involve-
ment in a prior hearing or proceeding could
be read to exclude involvement in some
informal settings,e.g., the Appeals offi-
cer’s participation in a mediation session.
In order to clarify that no such limitation
is intended, the final regulations substi-
tute matter for hearing or proceeding in
A–D4 of paragraph (d)(2). Second, defin-
ing prior involvement to exist when the
Appeals officer previously considered the
same tax liability could be construed as
excluding from the definition instances in
which the Appeals officer previously con-
sidered questions bearing only on collec-
tion issues. The final regulations adopt the
suggestion in the comments to remove the
word liability in A–D4 in order to elimi-
nate the potential interpretation that there
is a distinction between liability and col-
lection issues in determining prior involve-
ment.
The comments also requested that a
mediation example be added to paragraph
(d)(3). The IRS and the Treasury De-
partment believe that the change made
to A–D4 adequately clarifies the defini-
tion of prior involvement. This example
and others will be added to the Internal
Revenue Manual to ensure the proper ad-
ministration of sections 6320(b)(3) and
6330(b)(3).
The comments recommended that the
regulations address the treatment ofex
partecommunications during CDP hear-
ings. The rules applicable toex parte
communications during CDP hearings and
other Appeals proceedings are provided
in Rev. Proc. 2000–43, 2000–2 C.B. 404.
Therefore, these rules are not duplicated
in the regulations under sections 6320 and
6330.
The comments recommended that the
regulations be amended to provide that
self-reported tax liabilities may be dis-
puted in a CDP hearing. The final regula-
tions adopt this recommendation. See also
Montgomery v. Commissioner,122T.C.1
(2004),acq. 2005–51 I.R.B. 1152.
The comments also requested changes
in the existing regulations’ interpreta-
tion of preclusive events under sec-
tion 6330(c)(2)(B). Under section
6330(c)(2)(B), during a CDP hearing,
a taxpayer may challenge the existence
or amount of the underlying tax liability
for any tax period if the person did not
receive any statutory notice of deficiency
for such tax liability or did not otherwise
have an opportunity to dispute such tax
liability. According to the comments, the
only opportunity to dispute the tax liability
that is sufficient to prevent the taxpayer
from challenging the liability in a CDP
hearing is the prior opportunity to dispute
the liability in a judicial forum. The IRS
and the Treasury Department believe that
the existing regulations correctly include
an opportunity for an Appeals conference
as a preclusive prior opportunity. The text
of section 6330(c)(2)(B) does not con-
tain language limiting prior opportunities
to judicial proceedings. Moreover, it is
consistent for a taxpayer who has had an
opportunity to obtain a determination of
liability by Appeals in one administrative
hearing to be precluded from obtaining
an Appeals determination in a subsequent
CDP administrative hearing with respect
to the same liability. This interpretation of
section 6330(c)(2)(B) has been upheld by
the courts. See,e.g.,Pelliccio v. United
States, 253 F. Supp. 2d 258, 261–62
(D. Conn. 2003). Accordingly, the final
regulations do not adopt this suggestion.
Alternatively, the comments recom-
mended that the regulations specify that
a pre-CDP Appeals conference is not a
prior opportunity todispute liability un-
der section 6330(c)(2)(B) if the receipt
of the conference was conditioned upon
the taxpayer’s agreement to extend the
assessment statute of limitations with
respect to the liability and the taxpayer
declined to extend the statute. The IRS
and Treasury Department believe this ad-
dition is unnecessary. For taxes subject
2006–46 I.R.B.890November 13, 2006

to deficiency procedures, the relevant,
pre-assessment “prior opportunity” is the
receipt of the notice of deficiency. The
offer of an Appeals conference prior to
receipt of the notice of deficiency does not
constitute an opportunity to dispute the
liability under section 6330(c)(2)(B). This
interpretation of section 6330(c)(2)(B) has
been added to paragraph (e)(3) A–E2 to
remove any uncertainty about this matter.
For liabilities not subject to deficiency
procedures, the offer of an Appeals con-
ference prior to assessment constitutes an
opportunity to dispute the liability under
section 6330(c)(2)(B). Appeals confer-
ences to consider these types of liabilities
arerarelyconditioneduponanextension
of the assessment statute of limitations.
The IRS generally makes conditional of-
fers of a conference only when a taxpayer
makes an untimely request for review of
a proposed Trust Fund Recovery Penalty
pursuant to a Letter 1153 and less than one
year remains on the assessment statute of
limitations. In this circumstance, however,
the opportunity for an Appeals conference
offered in the Letter 1153 constitutes the
opportunity to dispute the liability under
section 6330(c)(2)(B). The conditional
offer made after the expiration of the prior
opportunity provided in the Letter 1153
is irrelevant. For these reasons, the final
regulations do not adopt this comment.
The comments objected to the addition
of a definition of administrative record to
the regulations as an attempt to overrule
the Tax Court’s decision inRobinette v.
Commissioner, 123 T.C. 85 (2004),rev’d,
439 F.3d 455 (8th Cir. 2006). The assump-
tion thatRobinetteeliminated any role for
an administrative record in CDP court pro-
ceedings is not supported by the Court’s
opinion. While the Tax Court held in
Robinettethat it was not required to limit
its abuse-of-discretion review to the ad-
ministrative record, it did not reject the
utility of an administrative record. Subse-
quent to the submission of the comments,
the United States Court of Appeals for
the Eighth Circuit reversed the Tax Court
andheldthatabuse-of-discretionreviewin
CDP cases is limited to the administrative
record.Robinette v. Commissioner,439
F.3d 455 (8th Cir. 2006). For these rea-
sons, it is important that taxpayers and the
IRS have a common understanding of the
scope of the administrative record. The
definition is retained in the final regula-
tions.
The comments suggested that the pro-
posed definition of the administrative
record permits Appeals officers and em-
ployees to exclude from the record for
judicial review issues, arguments, and ev-
idence presented orally by the taxpayer,
and to exclude written communications
and documents. The administrative record
definition is not intended to suggest that
the reviewing court is not permitted to
determine the contents of the administra-
tive record or the record’s adequacy in
an individual case. The reviewing court
has the authority to receive evidence con-
cerning what happened during the CDP
hearing. The definition is provided to
establish for the benefit of the IRS and
taxpayers a baseline description of what
each administrative record should contain
to ensure a record sufficient for judicial
review. The final regulations have not
been changed in this regard. The final
regulations, however, adopt the sugges-
tion that the description of the case file
in A–D7 and in the definition of admin-
istrative record in A–F6 of the proposed
regulations (redesignated as A–F4 in the
final regulations) be made consistent.
The comments recommended that the
final regulations require each Appeals of-
ficer to include in the notice of determi-
nation a list of the documents the Appeals
officer believes are included in the admin-
istrative record. The justification for this
proposed requirement is that the list would
assist the taxpayer in deciding whether to
seek judicial review. The list of docu-
ments, according to the comments, will
also assist the court and taxpayers seek-
ing review to more efficiently ascertain
whether there was an abuse of discretion.
The final regulations do not adopt this
recommendation. Requiring Appeals offi-
cers to prepare a list of documents consti-
tuting the administrative record in each of
the thousands of cases handled each year
would impose a heavy burden on Appeals
without a commensurate benefit to taxpay-
ers. The notice of determination issued in
each case describes the facts and reasons
supporting the Appeals officer’s determi-
nation and should provide an adequate ba-
sis for the taxpayer’s decision whether to
seek judicial review.
The IRS and the Treasury Department
acknowledge that disputes have arisen
with respect to the contents of the ad-
ministrative record in CDP cases and
that there are no special rules in place to
resolve these disputes. An appropriate
solution could involve the Tax Court’s
development of rules governing the prepa-
ration and submission of the administra-
tive record for abuse-of-discretion review,
particularly now that the recently-enacted
Pension Protection Act of 2006 requires
all CDP cases to be litigated in the Tax
Court.
The comments suggested removal of
the limitation in the existing regulations
that a taxpayer is precluded from obtaining
judicial review of an issue not raised with
Appeals during the CDP hearing. As an
alternative, the comments recommended
that a taxpayer only be prevented from
raising those issues the taxpayer could
have, but failed to raise during the CDP
hearing. The limitation in the existing reg-
ulations implements a basic principle of
administrative law that those seeking re-
view of an issue must first give the agency
the opportunity to evaluate and respond to
the issue. This limitation has been upheld
in the courts. SeeRobinette v. Com-
missioner, 123 T.C. 85, 101–102 (2004),
rev’d on other grounds, 439 F.3d 455 (8
th
Cir. 2006);Magana v. Commissioner,
118 T.C. 488, 493 (2002);Abu-Awad v.
United States, 294 F. Supp. 2d 879, 889
(S.D. Tex. 2003). Accordingly, the final
regulations do not adopt either of these
recommendations.
The comments recommended that if the
limitation on the taxpayer’s ability to raise
new issues during judicial review is re-
tained, then the amendment to A–F5 (re-
designated as A–F3 in the final regula-
tions) should clarify that a taxpayer need
not provide the evidence specified by Ap-
peals with respect to an issue in order to
present “any evidence” necessary to prop-
erly raise the issue. The IRS and the Trea-
sury Department believe this change is un-
necessary. The revision to A–F5 (redes-
ignated as A–F3) does not suggest that the
“any evidence” needed to avoid preclusion
must be the evidence specified by Appeals.
The revised language simply requires that
the taxpayer submit some evidentiary sup-
port. This suggestion is not adopted in the
final regulations.
The comments also suggested adding
that a taxpayer need not provide any evi-
dence to avoid preclusion if the case file
November 13, 20068912006–46 I.R.B.

already contains evidence with respect to
that issue. This addition is not necessary.
If the case file contains all the information
needed for a decision on an issue, an Ap-
peals officer will not request any additional
evidence and the revised language in A–F5
(redesignated as A–F3 in the final regula-
tions) will not apply. In the unlikely event
that an Appeals officer making a determi-
nationonanissuerequestedinformation
already in the file, a reviewing court should
find the taxpayer’s failure to provide any
evidence does not prevent the issue from
being raised. The final regulations do not
adopt this recommendation.
The comments urged that the regula-
tions make clear thatthe authority of Ap-
peals officers to determine the validity,
sufficiency and timeliness of a CDP no-
tice does not alter or limit the authority
of the reviewing court to make the same
determination. The IRS and the Treasury
Department believe this clarification is un-
necessary. It is well-settled that review-
ing courts have the authority to determine
the validity, sufficiency and timeliness of
a CDP notice. See,e.g.,Kennedy v. Com-
missioner, 116 T.C. 255 (2001). This clar-
ification is not adopted in the final regula-
tions.
The comments recommended that ad-
ministrative rules similar to those devel-
oped under section 6015 be added to the
regulations. The regulations state that a
spousal defense raised under section 66 or
6015 is governed by section 66 or 6015 and
the regulations and procedures thereun-
der. See Treas. Reg. § 301.6330–1(e)(2).
To the extent it is determined that further
guidance is necessary, such guidance will
be in the form of additions to the Internal
Revenue Manual. The final regulations do
not adopt this recommendation.
The final regulations include amend-
ments to the existing regulations to remove
references to judicial review by United
States district courts. The Pension Pro-
tection Act of 2006, Public Law 109–280,
120 Stat. 780, § 855 amended section
6330(d) to eliminate the jurisdiction of the
district courts to review notices of deter-
mination, leaving the Tax Court with sole
jurisdiction. For this reason, Q&A–F3
and Q&A–F4 in the existing regulations
are removed by the final regulations and
Q&A–F5andQ&A–F6intheproposed
regulations are redesignated as Q&A–F3
and Q&A–F4 in the final regulations. In
addition, only the Tax Court is now men-
tioned in A–E11, paragraph (f)(1), A–F1,
redesignated Q&A–F3 and Q&A–F4,Ex-
ample 1of paragraph (g)(3), Q&A–H2 and
redesignated Q–I6.
Special Analy
ses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations. In
particular, the IRS and the Treasury De-
partment find for good cause that a no-
tice of proposed rulemaking and solicita-
tion of public comments are unnecessary
to amend the existing regulations to imple-
ment the modification of section 6330(d)
by the Pension Protection Act of 2006,
Public Law 109–280, 120 Stat. 780. These
amendments are made solely to conform
the regulations to the statutory change en-
acted by Congress. The amendments do
not involve any exercise of discretion or
interpretation by the IRS or Treasury De-
partment and the removal of United States
district court jurisdiction would become
effective even if the amendments were not
made. Accordingly, the notice and pub-
lic comment procedures do not apply. Be-
cause the regulations do not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Internal Revenue Code, the
proposed regulations were submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment on
its impact on small business.
Drafting Information
The principal author of these regula-
tions is Laurence K. Williams, Office of
Associate Chief Counsel, Procedure and
Administration (Collection, Bankruptcy
and Summonses Division).
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read, in part, as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.6330–1 is amended
as follows:
1. Paragraph (c)(2) A–C1, Q&A–C6
and A–C7 are revised.
2. Paragraph (d)(2) A–D4 and A–D7
are revised.
3. Paragraph (d)(2) Q&A–D8 is added.
4. Paragraph (d)(3) is added.
5. Paragraph (e)(1) is revised.
6. Paragraph (e)(3) A–E2, A–E6, A–E7
and A–E11 are revised.
7. Paragraph (f)(1) is revised.
8. Paragraph (f)(2) A–F1 is revised.
9. Paragraph (f)(2) Q&A–F3 is re-
moved.
10. Paragraph (f)(2) Q&A–F5 is re-
vised and redesignated Q&A–F3.
11. Paragraph (f)(2) Q&A–F4 is re-
vised.
12. Paragraph (g)(3)Example 1is re-
vised.
13. Paragraph (h)(2) Q&A–H2 is re-
vised.
14. Paragraph (i)(2) Q–I5 is revised and
redesignated Q–I6.
15. Paragraph (i)(2) A–I5 is redesig-
nated A–I6.
16. Paragraph (i)(2) Q&A–I1 through
Q&A–I4 are redesignated Q&A–I2
through Q&A–I5
17. Paragraph (i)(2) Q&A–I1 and
Q&A–I7 through Q&A–I11 are added.
18. Paragraph (j) is revised.
§301.6330–1 Notice and opportunity for
hearing prior to levy.
*****
(c) * * *
(2) * * *
A–C1. (i) The taxpayer must make
a request in writing for a CDP hearing.
The request for a CDP hearing shall in-
clude the information and signature spec-
ified in A–C1(ii) of this paragraph (c)(2).
See A–D7 and A–D8 of paragraph (d)(2).
(ii) The written request for a CDP hear-
ing must be dated and must include the fol-
lowing:
(A) The taxpayer’s name, address,
daytime telephone number (if any), and
2006–46 I.R.B.892November 13, 2006

taxpayer identification number (e.g.,SSN,
ITIN or EIN).
(B) The type of tax involved.
(C) The tax period at issue.
(D) A statement that the taxpayer re-
quests a hearing with Appeals concerning
the proposed levy.
(E) The reason or reasons why the tax-
payer disagrees with the proposed levy.
(F) The signature of the taxpayer or the
taxpayer’s authorized representative.
(iii) If the IRS receives a timely written
request for CDP hearing that does not sat-
isfy the requirements set forth in A–C1(ii)
of this paragraph (c)(2), the IRS will make
a reasonable attempt to contact the tax-
payer and request that the taxpayer com-
ply with the unsatisfied requirements. The
taxpayer must perfect any timely written
request for a CDP hearing that does not sat-
isfy the requirements set forth in A–C1(ii)
of this paragraph (c)(2) within a reasonable
period of time after a request from the IRS.
(iv) Taxpayers are encouraged to use
Form 12153, “Request for a Collection
Due Process Hearing,” in requesting a
CDP hearing so that the request can be
readilyidentifiedandforwardedtoAp-
peals. Taxpayers may obtain a copy of
Form 12153 by contacting the IRS office
that issued the CDP Notice, by down-
loading a copy from the IRS Internet site,
www.irs.gov/pub/irs-pdf/f12153.pdf,orby
calling, toll-free, 1–800–829–3676.
(v) The taxpayer must affirm any timely
written request for a CDP hearing which
is signed or alleged to have been signed
on the taxpayer’s behalf by the taxpayer’s
spouse or other unauthorized representa-
tive by filing, within a reasonable period of
time after a request from the IRS, a signed,
written affirmation that the request was
originally submitted on the taxpayer’s be-
half. If the affirmation is filed within a rea-
sonable period of time after a request, the
timely CDP hearing request will be consid-
ered timely with respect to the non-sign-
ing taxpayer. If the affirmation is not filed
within a reasonable period of time after a
request, the CDP hearing request will be
denied with respect to the non-signing tax-
payer.
*****
Q–C6. Where must the written request
for a CDP hearing be sent?
A–C6. The written request for a CDP
hearing must be sent, or hand delivered (if
permitted), to the IRS office and address
as directed on the CDP Notice. If the ad-
dress of that office does not appear on the
CDP Notice, the taxpayer should obtain
the address of the office to which the writ-
ten request should be sent or hand deliv-
ered by calling, toll-free, 1–800–829–1040
and providing the taxpayer’s identification
number (e.g.,SSN,ITINorEIN).
*****
A–C7. If the taxpayer does not request
a CDP hearing in writing within the 30-day
period that commences on the day after the
date of the CDP Notice, the taxpayer fore-
goes the right to a CDP hearing under sec-
tion 6330 with respect to the unpaid tax
and tax periods shown on the CDP No-
tice. A written request submitted within
the 30-day period that does not satisfy the
requirements set forth in A–C1(ii)(A), (B),
(C), (D) or (F) of this paragraph (c)(2)
is considered timely if the request is per-
fected within a reasonable period of time
pursuant to A–C1(iii) of this paragraph
(c)(2). If the request for CDP hearing is
untimely, either because the request was
not submitted within the 30-day period or
not perfected within the reasonable period
provided, the taxpayer will be notified of
the untimeliness of the request and offered
an equivalent hearing. In such cases, the
taxpayer may obtain an equivalent hearing
without submitting an additional request.
See paragraph (i) of this section.
*****
(d) * * *
(2) * * *
A–D4. Prior involvement by an Ap-
peals officer or employee includes partic-
ipation or involvement in a matter (other
than a CDP hearing held under either sec-
tion 6320 or section 6330) that the tax-
payer may have had with respect to the
tax and tax period shown on the CDP No-
tice. Prior involvement exists only when
the taxpayer, the tax and the tax period at
issueintheCDPhearingalsowereatis-
sue in the prior non-CDP matter, and the
Appeals officer or employee actually par-
ticipatedinthepriormatter.
*****
A–D7. Except as provided in A–D8
of this paragraph (d)(2), a taxpayer who
presents in the CDP hearing request rel-
evant, non-frivolous reasons for disagree-
ment with the proposed levy will ordinar-
ily be offered an opportunity for a face-to-
face conference at the Appeals office clos-
est to taxpayer’s residence. A business
taxpayer will ordinarily be offered an op-
portunity for a face-to-face conference at
the Appeals office closest to the taxpayer’s
principal place of business. If that is not
satisfactory to the taxpayer, the taxpayer
will be given an opportunity for a hearing
by telephone or by correspondence. In all
cases, the Appeals officer or employee will
review the case file, as described in A–F4
of paragraph (f)(2). If no face-to-face or
telephonic conference is held, or other oral
communication takes place, review of the
documents in the case file, as described in
A–F4 of paragraph (f)(2), will constitute
the CDP hearing for purposes of section
6330(b).
Q–D8. In what circumstances will
a face-to-face CDP conference not be
granted?
A–D8. A taxpayer is not entitled to
a face-to-face CDP conference at a loca-
tion other than as provided in A–D7 of this
paragraph (d)(2) and this A–D8. If all Ap-
peals officers or employees at the location
provided for in A–D7 of this paragraph
(d)(2) have had prior involvement with the
taxpayer as provided in A–D4 of this para-
graph (d)(2), the taxpayer will not be of-
fered a face-to-face conference at that lo-
cation, unless the taxpayer elects to waive
the requirement of section 6330(b)(3). The
taxpayer will be offered a face-to-face con-
ference at another Appeals office if Ap-
peals would have offered the taxpayer a
face-to-face conferenceat the location pro-
vided in A–D7 of this paragraph (d)(2),
but for the disqualification of all Appeals
officers or employees at that location. A
face-to-face CDP conference concerning a
taxpayer’s underlying liability will not be
granted if the request for a hearing or other
taxpayer communication indicates that the
taxpayer wishes only to raise irrelevant or
frivolous issues concerning that liability.
A face-to-face CDP conference concern-
ing a collection alternative, such as an in-
stallment agreement or an offer to compro-
mise liability, will not be granted unless
other taxpayers would be eligible for the
alternative in similar circumstances. For
example, because the IRS does not con-
sider offers to compromise from taxpay-
ers who have not filed required returns or
have not made certain required deposits
of tax, as set forth in Form 656, “Offer
in Compromise,” no face-to-face confer-
November 13, 20068932006–46 I.R.B.

ence will be granted to a taxpayer who
wishes to make an offer to compromise
but has not fulfilled those obligations. Ap-
peals in its discretion, however, may grant
a face-to-face conference if Appeals deter-
mines that a face-to-face conference is ap-
propriate to explain to the taxpayer the re-
quirements for becoming eligible for a col-
lection alternative. In all cases, a taxpayer
will be given an opportunity to demon-
strate eligibility for a collection alternative
and to become eligible for a collection al-
ternative, in order to obtain a face-to-face
conference. For purposes of determining
whether a face-to-face conference will be
granted, the determination of a taxpayer’s
eligibility for a collection alternative is
made without regard to the taxpayer’s abil-
ity to pay the unpaid tax. A face-to-face
conference need not be granted if the tax-
payer does not provide the required infor-
mation set forth in A–C1(ii)(E) of para-
graph (c)(2). See also A–C1(iii) of para-
graph (c)(2).
(3)Examples. The following examples
illustrate the principles of this paragraph
(d):
Example 1. Individual A timely requests a CDP
hearing concerning a proposed levy for the 1998 in-
come tax liability assessed against individual A. Ap-
peals employee B previously conducted a CDP hear-
ing regarding a NFTL filed with respect to individ-
ual A’s 1998 income tax liability. Because employee
B’s only prior involvement with individual A’s 1998
income tax liability was in connection with a sec-
tion 6320 CDP hearing, employee B may conduct the
CDP hearing under section 6330 involving the pro-
posed levy for the 1998 income tax liability.
Example 2. Individual C timely requests a CDP
hearing concerning a proposed levy for the 1998 in-
come tax liability assessed against individual C. Ap-
peals employee D previously conducted a Collection
Appeals Program (CAP) hearing regarding a NFTL
filed with respect to individual C’s 1998 income tax
liability. Because employee D’s prior involvement
with individual C’s 1998 income tax liability was
in connection with a non-CDP hearing, employee D
may not conduct the CDP hearing under section 6330
unless individual C waives the requirement that the
hearingwillbeconductedbyanAppealsofficeror
employee who has had no prior involvement with re-
spect to individual C’s 1998 income tax liability.
Example 3. Same facts as inExample 2, except
that the prior CAP hearing only involved individual
C’s 1997 income tax liability and employment tax lia-
bilities for 1998 reported on Form 941, “Employer’s
Quarterly Federal Tax Return.” Employee D would
not be considered to have prior involvement because
the prior CAP hearing in which she participated did
not involve individual C’s 1998 income tax liability.
Example 4. Appeals employee F is assigned to a
CDP hearing concerning a proposed levy for a trust
fund recovery penalty (TFRP) assessed pursuant to
section 6672 against individual E. Appeals employee
F participated in a prior CAP hearing involving indi-
vidual E’s 1999 income tax liability, and participated
in a CAP hearing involvingthe employment taxes of
business entity X, which incurred the employment tax
liability to which the TFRP assessed against individ-
ual E relates. Appeals employee F would not be con-
sidered to have prior involvement because the prior
CAP hearings in which he participated did not di-
rectly involve the TFRP assessed against individual
E.
Example 5. Appeals employee G is assigned to a
CDP hearing concerning a proposed levy for a TFRP
assessed pursuant to section 6672 against individual
H. In preparing for the CDP hearing, Appeals em-
ployee G reviews the Appeals case file concerning the
prior CAP hearing involving the TFRP assessed pur-
suant to section 6672 against individual H. Appeals
employee G is not deemed to have participated in the
previous CAP hearing involving the TFRP assessed
against individual H by such review.
(e)Matters considered at CDP hear-
ing—(1)In general. Appeals will deter-
mine the timeliness of any request for a
CDP hearing that is made by a taxpayer.
Appeals has the authority to determine the
validity, sufficiency, and timeliness of any
CDP Notice given by the IRS and of any
request for a CDP hearing that is made by
a taxpayer. Prior to issuance of a determi-
nation, Appeals is required to obtain veri-
fication from the IRS office collecting the
tax that the requirements of any applica-
ble law or administrative procedure with
respect to the proposed levy have been
met. The taxpayer may raise any rele-
vant issue relating to the unpaid tax at the
hearing, including appropriate spousal de-
fenses, challenges to the appropriateness
of the proposed levy, and offers of collec-
tion alternatives. The taxpayer also may
raise challenges to the existence or amount
of the underlying liability, including a li-
ability reported on a self-filed return, for
any tax period specified on the CDP Notice
if the taxpayer did not receive a statutory
notice of deficiency for that tax liability or
did not otherwise have an opportunity to
dispute the tax liability. Finally, the tax-
payer may not raise an issue that was raised
and considered at a previous CDP hearing
under section 6320 or in any other previ-
ous administrative or judicial proceeding
if the taxpayer participated meaningfully
in such hearing or proceeding. Taxpayers
will be expected to provide all relevant in-
formation requested by Appeals, including
financial statements, for its consideration
of the facts and issues involved in the hear-
ing.
*****
(3) * * *
A–E2. A taxpayer is entitled to chal-
lenge the existence or amount of the under-
lying liability for any tax period specified
on the CDP Notice if the taxpayer did not
receive a statutory notice of deficiency for
such liability or did not otherwise have an
opportunity to dispute such liability. Re-
ceipt of a statutory notice of deficiency for
this purpose means receipt in time to peti-
tion the Tax Court for a redetermination of
the deficiency determined in the notice of
deficiency. An opportunity to dispute the
underlying liability includes a prior oppor-
tunity for a conference with Appeals that
was offered either before or after the as-
sessment of the liability. An opportunity
for a conference with Appeals prior to the
assessment of a tax subject to deficiency
procedures is not a prior opportunity for
this purpose.
*****
A–E6. Collection alternatives include,
for example, a proposal to withhold the
proposed levy or future collection action
in circumstances that will facilitate the col-
lection of the tax liability, an installment
agreement, an offer to compromise, the
posting of a bond, or the substitution of
other assets. A collection alternative is
not available unless the alternative would
be available to other taxpayers in similar
circumstances. See A–D8 of paragraph
(d)(2).
*****
A–E7. The taxpayer may raise appro-
priate spousal defenses, challenges to the
appropriateness of the proposed collection
action, and offers of collection alterna-
tives. The existence or amount of the un-
derlying liability for any tax period speci-
fied in the CDP Notice may be challenged
only if the taxpayer did not have a prior op-
portunity to dispute the tax liability. If the
taxpayer previously received a CDP No-
tice under section 6320 with respect to the
same tax and tax period and did not re-
quest a CDP hearing with respect to that
earlier CDP Notice, the taxpayer had a
prior opportunity to dispute the existence
or amount of the underlying tax liability.
*****
A–E11. No. An Appeals officer may
consider the existence and amount of the
underlying tax liability as a part of the CDP
hearing only if the taxpayer did not receive
a statutory notice of deficiency for the tax
liability in question or otherwise have a
2006–46 I.R.B.894November 13, 2006

prior opportunity to dispute the tax liabil-
ity. Similarly, an Appeals officer may not
consider any other issue if the issue was
raised and considered at a previous hear-
ing under section 6320 or in any other pre-
vious administrative or judicial proceed-
ing in which the person seeking to raise
the issue meaningfully participated. In the
Appeals officer’s sole discretion, however,
the Appeals officer may consider the exis-
tence or amount of the underlying tax lia-
bility, or such other precluded issues, at the
same time as the CDP hearing. Any deter-
mination, however, made by the Appeals
officer with respect to such a precluded is-
sue shall not be treated as part of the Notice
ofDeterminationissuedbytheAppealsof-
ficer and will not be subject to any judi-
cial review. Because any decisions made
by the Appeals officer on such precluded
issues are not properly a part of the CDP
hearing, such decisions are not required to
appear in the Notice of Determination is-
sued following the hearing. Even if a de-
cision concerning such precluded issues is
referred to in the Notice of Determination,
it is not reviewable by the Tax Court be-
cause the precluded issue is not properly
part of the CDP hearing.
*****
(f)Judicial review of Notice of De-
termination—(1)In general. Unless the
taxpayer provides the IRS a written with-
drawal of the request that Appeals conduct
a CDP hearing, Appeals is required to is-
sue a Notice of Determination in all cases
where a taxpayer has timely requested a
CDP hearing. The taxpayer may appeal
such determinations made by Appeals
within the 30-day period commencing the
day after the date of the Notice of Deter-
minationtotheTaxCourt.
(2) * * *
A–F1. Subject to the jurisdictional lim-
itations described in A–F2 of this para-
graph (f)(2), the taxpayer must, within the
30-day period commencing the day after
thedateoftheNoticeofDetermination,
appeal the determination by Appeals to the
Tax Court.
*****
Q–F3. What issue or issues may the
taxpayer raise before the Tax Court if the
taxpayer disagrees with the Notice of De-
termination?
A–F3. In seeking Tax Court review of a
Notice of Determination, the taxpayer can
only ask the court to consider an issue, in-
cluding a challenge to the underlying tax
liability, that was properly raised in the tax-
payer’s CDP hearing. An issue is not prop-
erly raised if the taxpayer fails to request
consideration of the issue by Appeals, or
if consideration is requested but the tax-
payer fails to present to Appeals any evi-
dence with respect to that issue after being
given a reasonable opportunity to present
such evidence.
Q–F4. What is the administrative
record for purposes of Tax Court review?
A–F4. The case file, including the
taxpayer’s request for hearing, any other
written communications and information
from the taxpayer or the taxpayer’s au-
thorized representative submitted in con-
nection with the CDP hearing, notes made
by an Appeals officer or employee of any
oral communications with the taxpayer or
the taxpayer’s authorized representative,
memoranda created by the Appeals officer
or employee in connection with the CDP
hearing, and any other documents or ma-
terials relied upon by the Appeals officer
or employee in making the determination
under section 6330(c)(3), will constitute
the record in the Tax Court review of the
Notice of Determination issued by Ap-
peals.
(g) * * *
(3) * * *
Example 1. The period of limitation under section
6502 with respect to the taxpayer’s tax period listed
in the CDP Notice will expire on August 1, 1999. The
IRS sent a CDP Notice to the taxpayer on April 30,
1999. The taxpayer timely requested a CDP hear-
ing. The IRS received this request on May 15, 1999.
Appeals sends the taxpayer its determination on June
15, 1999. The taxpayer timely seeks judicial review
of that determination. The period of limitation under
section 6502 would be suspended from May 15, 1999,
until the determination resulting from that hearing be-
comes final by expiration of the time for seeking re-
view or reconsideration before the Tax Court, plus 90
days.
*****
(h) * * *
(2) * * *
Q–H2. Is a decision of Appeals result-
ing from a retained jurisdiction hearing ap-
pealable to the Tax Court?
A–H2. No. As discussed in A–H1, a
taxpayerisentitledtoonlyoneCDPhear-
ing under section 6330 with respect to the
tax and tax period or periods specified in
the CDP Notice. Only determinations re-
sulting from CDP hearings are appealable
to the Tax Court.
(i) * * *
(2) * * *
Q–I1. What must a taxpayer do to ob-
tain an equivalent hearing?
A–I1. (i) A request for an equivalent
hearing must be made in writing. A writ-
ten request in any form that requests an
equivalent hearing will be acceptable if it
includes the information and signature re-
quired in A–I1(ii) of this paragraph (i)(2).
(ii) The request must be dated and must
include the following:
(A) The taxpayer’s name, address,
daytime telephone number (if any), and
taxpayer identification number (e.g.,SSN,
ITIN or EIN).
(B) The type of tax involved.
(C) The tax period at issue.
(D) A statement that the taxpayer is re-
questing an equivalent hearing with Ap-
peals concerning the levy.
(E) The reason or reasons why the tax-
payer disagrees with the proposed levy.
(F) The signature of the taxpayer or the
taxpayer’s authorized representative.
(iii) The taxpayer must perfect any
timely written request for an equivalent
hearing that does not satisfy the require-
ments set forth in A–I1(ii) of this para-
graph (i)(2) within a reasonable period
of time after a request from the IRS. If
the requirements are not satisfied within a
reasonable period of time, the taxpayer’s
equivalent hearing request will be denied.
(iv) The taxpayer must affirm any
timely written request for an equivalent
hearing that is signed or alleged to have
been signed on the taxpayer’s behalf by the
taxpayer’s spouse or other unauthorized
representative, and that otherwise meets
the requirements set forth in A–I1(ii) of
this paragraph (i)(2), by filing, within a
reasonable period of time after a request
from the IRS, a signed written affirmation
that the request was originally submitted
on the taxpayer’s behalf. If the affirmation
is filed within a reasonable period of time
after a request, the timely equivalent hear-
ing request will be considered timely with
respect to the non-signing taxpayer. If the
affirmation is not filed within a reason-
able period of time, the equivalent hearing
request will be denied with respect to the
non-signing taxpayer.
*****
Q–I6. Will a taxpayer be able to obtain
Tax Court review of a decision made by
November 13, 20068952006–46 I.R.B.

Appeals with respect to an equivalent hear-
ing?
*****
Q–I7. When must a taxpayer request an
equivalent hearing with respect to a CDP
Notice issued under section 6330?
A–I7. A taxpayer must submit a written
request for an equivalent hearing within
the one-year period commencing the day
after the date of the CDP Notice issued un-
der section 6330. This period is slightly
different from the period for submitting a
written request for an equivalent hearing
with respect to a CDP Notice issued under
section 6320. For a CDP Notice issued un-
der section 6320, a taxpayer must submit
a written request for an equivalent hear-
ing within the one-year period commenc-
ing the day after the end of the five-busi-
ness-day period following the filing of the
NFTL.
Q–I8. How will the timeliness of a tax-
payer’s written request for an equivalent
hearing be determined?
A–I8. The rules and regulations under
section 7502 and section 7503 will apply to
determine the timeliness of the taxpayer’s
request for an equivalent hearing, if prop-
erly transmitted and addressed as provided
in A–I10 of this paragraph (i)(2).
Q–I9. Is the one-year period within
which a taxpayer must make a request for
an equivalent hearing extended because
the taxpayer resides outside the United
States?
A–I9. No. All taxpayers who want an
equivalent hearing must request the hear-
ing within the one-year period commenc-
ing the day after the date of the CDP Notice
issued under section 6330.
Q–I10. Where must the written request
for an equivalent hearing be sent?
A–I10. The written request for an
equivalent hearing must be sent, or hand
delivered (if permitted), to the IRS office
and address as directed on the CDP Notice.
Iftheaddressoftheissuingofficedoesnot
appear on the CDP Notice, the taxpayer
should obtain the address of the office to
which the written request should be sent
or hand delivered by calling, toll-free,
1–800–829–1040 and providing the tax-
payer’s identification number (e.g.,SSN,
ITIN or EIN).
Q–I11. What will happen if the tax-
payer does not request an equivalent hear-
ing in writing within the one-year period
commencing the day after the date of the
CDP Notice issued under section 6330?
A–I11. If the taxpayer does not request
an equivalent hearing with Appeals within
the one-year period commencing the day
after the date of the CDP Notice issued un-
der section 6330, the taxpayer foregoes the
right to an equivalent hearing with respect
to the unpaid tax and tax periods shown
on the CDP Notice. A written request
submitted within the one-year period that
does not satisfy the requirements set forth
in A–I1(ii) of this paragraph (i)(2) is con-
sidered timely if the request is perfected
within a reasonable period of time pur-
suant to A–I1(iii) of this paragraph (i)(2).
If a request for equivalent hearing is un-
timely, either because the request was not
submitted within the one-year period or
not perfected within the reasonable period
provided, the equivalent hearing request
will be denied. The taxpayer, however,
may seek reconsideration by the IRS of-
fice collecting the tax, assistance from the
National Taxpayer Advocate, or an admin-
istrative hearing before Appeals under its
Collection Appeals Program or any suc-
cessor program.
(j)Effective date.Thissectionisappli-
cable on or after November 16, 2006 with
respect to requests made for CDP hearings
or equivalent hearings on or after Novem-
ber 16, 2006.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
Approved October 6, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on October 16,
2006, 8:45 a.m., and published in the issue of the Federal
Register for October 17, 2006, 71 F.R. 60827)
Section 7702.—Life
Insurance Contract Defined
26 CFR 1.7702–2: Attained age of the insured under
a life insurance contract.
T.D. 9287
DEPARTMENT OF
THE TREASURY
Internal Revenue Service
26 CFR Part 1
Attained Age of the Insured
Under Section 7702
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulation.
SUMMARY: This document contains final
regulations explaining how to determine
the attained age of an insured for purposes
of testing whether a contract qualifies as a
life insurance contract for Federal income
tax purposes.
DATES:Effective Date:These regulations
are effective September 13, 2006.
Applicability Dates:For dates of appli-
cability, see §1.7702–2(f).
FOR FURTHER INFORMATION
CONTACT:AnnH.Logan,
202–622–3970 (not a toll-free num-
ber).
SUPPLEMENTARY INFORMATION:
Background
Section 7702(a) of the Internal Revenue
Code (Code) provides that, for a contract
to qualify as a life insurance contract for
Federal income tax purposes, the contract
must be a life insurance contract under the
applicable law and must either (1) satisfy
the cash value accumulation test of section
7702(b), or (2) both meet the guideline pre-
mium requirements of section 7702(c) and
fall within the cash value corridor of sec-
tion 7702(d). To determine whether a con-
tract satisfies the cash value accumulation
test, or meets the guideline premium re-
quirements and fallswithin the cash value
corridor, it is necessary to determine the at-
tained age of the insured.
A contract meets the cash value accu-
mulation test of section 7702(b) if, by the
2006–46 I.R.B.896November 13, 2006

terms of the contract, the cash surrender
value of the contract may not at any time
exceed the net single premium that would
have to be paid at that time to fund future
benefits under the contract. Under sec-
tion 7702(e)(1)(B), the maturity date of the
contract is deemed to be no earlier than the
day on which the insured attains age 95,
and no later than the day on which the in-
sured attains age 100, for purposes of ap-
plying the cash value accumulation test.
A contract meets the guideline premium
requirements of section 7702(c) if the sum
of the premiums paid under the contract
does not at any time exceed the greater of
the guideline single premium or the sum
of the guideline level premiums as of such
time. The guideline single premium is the
premium that is needed at the time the pol-
icy is issued to fund the future benefits
under the contract based on the follow-
ing three elements enumerated in section
7702(c)(3)(B):
(i) Reasonable mortality charges that
meet the requirements (if any) prescribed
in regulations and that (except as provided
in regulations) do not exceed the mortal-
ity charges specified in the prevailing com-
missioners’ standard tables (as defined in
section 807(d)(5)) as of the time the con-
tract is issued;
(ii) Any reasonable charges (other than
mortality charges) that (on the basis of
the company’s experience, if any, with re-
spect to similar contracts) are reasonably
expected to be actually paid; and
(iii) Interest at the greater of an annual
effective rate of six percent or the rate or
rates guaranteed on issuance of the con-
tract.
The guideline level premium is the level
annual amount, payable over a period not
ending before the insured attains age 95,
computed on the same basis as the guide-
line single premium but using a minimum
interest rate of four percent, rather than six
percent. Like the cash value accumulation
test, the guideline premium requirements
are applied by deeming the maturity date
of the contract to be no earlier than the
day on which the insured attains age 95,
and no later than the day on which the in-
sured attains age 100. The deemed ma-
turity date generally is the determination
date set forth in the contract or the end of
the mortality table (which, when section
7702 was enacted in 1984, was age 100).
A contract falls within the cash value
corridor if the death benefit of the con-
tract at any time is not less than the ap-
plicable percentage of the cash surrender
value. The applicable percentage is deter-
mined based on the attained age of the in-
sured as of the beginning of the contract
year, as follows:
APPLICABLE PERCENTAGE
In the case of an insured with an attained age as of the beginning
of the contract year of:
The applicable percentage shall decrease by a ratable portion
for each full year:
More than:But not more than:From:To:
040250250
4045250215
4550215185
5055185150
5560150130
6065130120
6570120115
7075115105
7590105105
9095105100
The Code does not define the attained
age of the insured for purposes of apply-
ing the cash value corridor, the guideline
premium limitations, or the computational
rules of section 7702(e). The Senate
Finance Committee explanation of the
Deficit Reduction Act of 1984, Public
Law 98–369 (98 Stat. 494), however,
states that the attained age of the insured
means the insured’s age determined by
reference to contract anniversaries (rather
than the individual’s actual birthdays), so
long as the age assumed under the contract
is within 12 months of the actual age. See
S. Prt. No. 98–169, Vol. 1, at 576 (1984).
Section 7702A defines a modified en-
dowment contract (MEC) as a contract that
meets the requirements of section 7702
(that is, a contract that is a life insurance
contract), but that fails to meet the 7-pay
test set forth in section 7702A(b). A con-
tract fails to meet the 7-pay test if the
accumulated amount paid under the con-
tract at any time during the first 7 contract
years exceeds the sum of the net level pre-
miums that would have been paid on or
before that time if the contract provided
for paid-up future benefits after the pay-
ment of 7 level annual premiums. Sec-
tion 7702A(c)(1)(B) provides that, for pur-
poses of this test, the computational rules
of section 7702(e) generally apply, includ-
ing the contract’s deemed maturity no ear-
lier than the day on which the insured at-
tains age 95, and no later than the day on
which the insured attains age 100.
In sum, the attained age of an insured
under a contract that is a life insurance con-
tract under the applicable law must be de-
termined to test whether the contract com-
plies with the guideline premium require-
November 13, 20068972006–46 I.R.B.

ments of section 7702(c), the cash value
corridor of section 7702(d), and (by rea-
son of the computational rules of section
7702(e)) the cash value accumulation test
of section 7702(b) and the 7-pay test of
section 7702A(b), as applicable.
On May 24, 2005, the IRS and Trea-
sury Department published a notice of
proposed rulemaking (REG–168892–03,
2005–25 I.R.B. 1293, June 20, 2005)
in theFederal Register(70 FR 29671)
(the proposed regulations). The proposed
regulations provide guidance on how to
determine the attained age of an individ-
ual insured under a contract that is a life
insurance contract under the applicable
law, for purposes of testing whether the
contract qualifies as a life insurance con-
tract under section 7702 and is a modified
endowment contract under section 7702A.
Under the proposed regulations, the at-
tained age of the insured is either (i) the
insured’s age determined by reference to
the individual’s actual birthday as of the
date of determination (actual age) or (ii)
the insured’s age determined by reference
to contract anniversary (rather than the
individual’s actual birthday), so long as
the age assumed under the contract (con-
tract age) is within 12 months of the actual
age. The proposed regulations provide
that the attained age of the insured un-
der a contract insuring multiple lives on
a last-to-die basis is the attained age of
the youngest insured, and the attained age
of the insured under a contract insuring
multiple lives on a first-to-die basis is the
attained age of the oldest insured.
Thesolepartyrequestingapublichear-
ing timely withdrew its request. One writ-
ten comment regarding the notice of pro-
posed rulemaking was received.
Explanation of Provisions
After consideration of the written com-
ment received, this Treasury decision
adopts the regulations as proposed, with
the modifications noted below.
A.Identity of the Insured Individual
The proposed regulations provide that,
in the case of a last-to-die contract, the at-
tained age of the insured means the age
of the youngest individual insured under
the contract. The comment letter pointed
out that, in the case of such a contract,
the death of the youngest insured raises
a question whether the attained age under
the contract should continue to be deter-
mined based on the attained age of the de-
ceased insured, or should instead be based
on the attained age of the youngestsurviv-
inginsured. Some last-to-die life insur-
ance contracts undergo a change in both
cash value and future mortality charges as
a result of the death of an insured. These
changes take into account the identity of
the surviving insured or insureds. Other
last-to-die life insurance contracts treat the
death of an insured as a non-event for
purposes of measuring cash value and fu-
ture mortality charges under the contract.
The comment letter suggested a rule for
last-to-die contracts that would take into
account the age of the youngest surviving
insured if the contract undergoes modifica-
tions to both the cash value and future mor-
tality charges under the contract, so that the
attained age assumptions used for Federal
income tax purposes are consistent with
those used under the terms of the contract.
The final regulations include such a rule in
§1.7702–2(c)(2).
B.Changes in Benefits Between Policy
Anniversaries
The proposed regulations provide that
the age of an individual insured under a
life insurance contract is either (i) the in-
sured’s age determined by reference to the
individual’s actual birthday as of the date
of determination (actual age), or (ii) the
insured’s age determined by reference to
contract anniversary (rather than the indi-
vidual’s actual birthday), so long as the age
assumed under the contract (contract age)
is within 12 months of the actual age. The
proposed regulations do not, however, de-
fine the attained age to be used if there is an
increase in death benefits between policy
anniversary dates. Specifically, should the
attained age as of the beginning of the con-
tract year continue to be used at the time
of the benefit increase, even if the date of
change is closer to the next contract an-
niversary? The comment letter requests
flexibility to use the attained age as of ei-
ther the previous or subsequent policy an-
niversary, or any age between those two
ages. The final regulations address this is-
sue by clarifying that the attained age of
the insured under a contract, once deter-
mined, changes annually. This rule is set
forth in §1.7702–2(b)(2).
C.Use of Derived Ages for Multiple Life
Contracts
Under the proposed regulations, the at-
tained age of the insured under a contract
insuring multiple lives is either the attained
age of the youngest insured (in the case
of a last-to-die contract) or the attained
age of the oldest insured (in the case of a
first-to-die contract). Some issuers, how-
ever, determine mortality charges under
such contracts using a single, derived age
that does not correspond to the attained age
of any single insured under the contract.
In addition, in some cases issuers currently
account for substandard risks by determin-
ingmortalitychargesbasedonanagethat
is older than the actual attained age of the
insured under the contract. The comment
letter requested a rule that would permit
the use of the same derived age as theat-
tained ageof the insured in these circum-
stances, to avoid whatever administrative
complexities could result from the use of
different ages for different purposes in the
course of testing compliance of the con-
tracts with sections 7702 and 7702A.
The final regulations do not make this
change. The manner in which age is used
to determinereasonable mortality charges
under section 7702(c)(3)(B)(i) is inde-
pendent of the age that is treated as the
attained ageof the insured for purposes of
determining the guideline level premium
under section 7702(c)(4), or applying the
cash value corridor of section 7702(d) or
the computational rules of section 7702(e).
The final regulations do not, nor are
they intended to, endorse or prohibit any
methodology for determining reasonable
mortality charges under section 7702(c).
Reasonable mortality charges were the
subject of regulations proposed July 5,
1991, (FI–069–89, 1991–2 C.B. 963) in
theFederal Register(56 FR 30718), and
also were addressed in Notice 88–128,
1988–2 C.B. 540, and Notice 2004–61,
2004–2 C.B. 596. See §601.601(d)(2)(ii).
This prior guidance is not modified, clari-
fied, or in any other way affected by these
final regulations.
D.. Contract Anniversary
The comment letter requested that the
regulations include a definition ofcontract
anniversaryother than the issue date of
the contract and subsequent anniversaries
2006–46 I.R.B.898November 13, 2006

of that date. The final regulations do not
include such a definition because the terms
issue dateandcontract yearhave broad
application, and it would be inappropriate
to address the matter for the first time in
these final regulations.
E.Effective Date
The proposed regulations were pro-
posed to apply to contracts issued on or
after the date that is one year after the
regulations are published as final regula-
tions in theFederal Register. A taxpayer
would be permitted, however, to apply
these final regulations retroactively for
contracts issued before that date provided
the taxpayer does not later determine qual-
ification of those contracts in a manner
that is inconsistent with these regulations.
The comment letter requested that the
final regulations conform more closely
to the adoption dates for the 2001 Com-
missioners’ Standard Ordinary mortality
and morbidity tables (2001 CSO tables).
These tables are now prevailing within
the meaning of section 807(d)(5) and have
a mandatory effective date of January 1,
2009. In some States, insurers have the
option to use either the 1980 CSO tables or
the 2001 CSO tables for contracts issued
before January 1, 2009. Either changing
from the 1980 CSO mortality tables to the
2001 CSO tables or adopting changes to
the determination of the insured’s attained
age under this regulation (or both) may
require filing new contract forms with the
relevant state insurance commissioners
and may require changes to existing com-
pliance systems. Accordingly, the effec-
tive date of this final regulation has been
adjusted to take into account the transition
period for adoption of the new mortality
tables. Specifically, the final regulations
apply to life insurance contracts that are
either (1) issued after December 31, 2008,
or (2) issued on or after October 1, 2007,
and based upon the 2001 CSO tables.
This modification will enable issuers to
make any changes required by this final
regulation concurrently with the changes
required by the adoption of the 2001 CSO
mortality tables. In addition, taxpayers
may apply the regulations for contracts
issued before October 1, 2007, provided
they do not later determine qualification
of those contracts under section 7702 in a
manner inconsistent with the regulations.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It also has been determined
that section 553(b) and (d) of the Adminis-
trative Procedure Act(5 U.S.C. chapter 5)
does not apply to these regulations, and be-
cause the regulations do not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Code, the notice of proposed
rulemaking preceding this Treasury deci-
sion was submitted to the Chief Counsel
for Advocacy of the Small Business Ad-
ministration for comment on its impact on
small business.
Drafting Information
The principal author of these final regu-
lations is Ann H. Logan, Office of the As-
sociate Chief Counsel (Financial Institu-
tions and Products), Office of Chief Coun-
sel, Internal Revenue Service. However,
personnel from other offices of the IRS
and the Treasury Department participated
in their development.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part1isamendedbyaddingentriesinnu-
merical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.7702–2 also issued under 26
U.S.C. 7702(k). * * *
Par. 2. Section 1.7702–0 is added to
read as follows:
§1.7702–0 Table of contents.
This section lists the captions that
appear in §§1.7702–1, 1.7702–2, and
1.7702–3.
§1.7702–1 Mortality charges.
(a) General rule.
(b) Reasonable mortality charges.
(1) Actually expected to be imposed.
(2) Limit on charges.
(c) Safe harbors.
(1) 1980 C.S.O. Basic Mortality Tables.
(2) Unisex tables and smoker/non-
smoker tables.
(3) Certain contracts based on 1958
C.S.O. table.
(d) Definitions.
(1) Prevailing commissioners’ standard
tables.
(2) Substandard risk.
(3) Nonparticipating contract.
(4) Charge reduction mechanism.
(5) Plan of insurance.
(e) Effective date.
§1.7702–2 Attained age of the insured
under a life insurance contract.
(a) In general.
(b) Contract insuring a single life.
(c) Contract insuring multiple lives on
a last-to-die basis.
(1) In general.
(2) Modifications to cash value and fu-
ture mortality charges upon the death of in-
sured.
(d) Contract insuring multiple lives on
a first-to-die basis.
(e) Examples.
(f) Effective dates.
(1) In general.
(2) Contracts issued before the general
effective date.
§1.7702–3 Definitions.
(a) In general.
(b) Cash value.
(1) In general.
(2) Amounts excluded from cash value.
(c) Death benefit.
(1) In general.
(2) Qualified accelerated death benefit
treated as death benefit.
(d) Qualified accelerated death benefit.
(1) In general.
(2) Determination of present value of
the reduction in death benefit.
(3) Examples.
(e) Terminally ill defined.
(f) Certain other additional benefits.
(1) In general.
(2) Examples.
(g) Adjustments under section
7702(f)(7).
(h) Cash surrender value.
(1) In general.
(2) For purposes of section 7702(f)(7).
November 13, 20068992006–46 I.R.B.

(i) Net surrender value.
(j) Effective date and special rules.
(1) In general.
(2) Provision of certain benefits before
July 1, 1993.
(i) Not treated as cash value.
(ii) No effect on date of issuance.
(iii) Special rule for addition of benefit
or loan provision after December 15, 1992.
(3) Addition of qualified accelerated
death benefit.
(4) Addition of other additional bene-
fits.
Par. 3. Section 1.7702–2 is added to
read as follows:
§1.7702–2 Attained age of the insured
under a life insurance contract.
(a)In general. This section provides
guidance on determining the attained age
of an insured undera contract that is a
life insurance contract under the applicable
law, for purposes of determining the guide-
line level premium of the contract under
section 7702(c)(4), applying the cash value
corridor of section 7702(d) or applying the
computational rules of section 7702(e), as
applicable.
(b)Contract insuring a single life.(1)
If a contract insures the life of a single
individual, either of the following two ages
may be treated as the attained age of the
insured with respect to that contract—
(i) The insured’s age determined by ref-
erence to the individual’s actual birthday
as of the date of determination (actual age);
or
(ii) The insured’s age determined by
reference to contract anniversary (rather
than the individual’s actual birthday), so
long as the age assumed under the contract
(contract age) is within 12 months of the
actual age as of that date.
(2) Once determined under paragraph
(b)(1) of this section, the attained age with
respect to an individual insured under
a contract changes annually. Moreover,
the same attained age must be used for
purposes of applying sections 7702(c)(4),
7702(d), and 7702(e), as applicable.
(c)Contract insuring multiple lives on
a last-to-die basis—(1)In general.Ex-
cept as provided in paragraph (c)(2) of this
section, if a contract insures the lives of
more than one individual on a last-to-die
basis, the attained age of the insured is de-
termined by applying paragraph (b) of this
section as if the youngest individual were
the only insured under the contract for pur-
poses of sections 7702(c)(4), 7702(d), and
7702(e), as applicable.
(2)Modifications to cash value and fu-
ture mortality charges upon the death of
insured. If both the cash value and future
mortality charges under a contract change
by reason of the death of one or more in-
sureds to no longer take into account the
attained age of the deceased insured or
insureds, the youngest surviving insured
shall thereafter be treated as the only in-
sured under the contract.
(d)Contract insuring multiple lives on
a first-to-die basis. If a contract insures
the lives of more than one individual on a
first-to-die basis, the attained age of the in-
sured is determined by applying paragraph
(b) of this section as if the oldest individ-
ual were the only insured under the con-
tract for purposes of sections 7702(c)(4),
7702(d), and 7702(e), as applicable.
(e)Examples. The following examples
illustrate the determination of the attained
age of the insured for purposes of sections
7702(c)(4), 7702(d), and 7702(e), as appli-
cable. The examples are as follows:
Example 1. (i) X was born on May 1, 1947. X
became 60 years old on May 1, 2007. On January 1,
2008, X purchases from IC a contract insuring X’s
life. January 1 is the contract anniversary date for all
future years. IC determines X’s annual premiums on
an age-last-birthday basis. Based on the method used
by IC to determine age, X has an attained age of 60
for the first contract year, 61 for the second contract
year, and so on.
(ii) Section 1.7702–2(b)(1) permits the determi-
nation of attained age under either of two alternative
approaches. Section 1.7702–2(b)(1)(i) provides that,
if a contract insures the life of a single insured indi-
vidual, the attained age may be determined by ref-
erence to the individual’s actual birthday as of the
date of determination. Under this provision, X has
an attained age of 60 for the first contract year, 61 for
the second contract year, and so on. Alternatively,
§1.7702–2(b)(1)(ii) provides that the insured’s age
may be determined by reference to contract anniver-
sary (rather than the individual’s actual birthday), so
long as the age assumed under the contract is within
12 months of the actual age as of that date. If IC deter-
mines X’s attained age under §1.7702–2(b)(1)(ii), X
likewise has an attained age of 60 for the first con-
tract year, 61 for the second contract year, and so
on. Whichever provision IC uses to determine X’s
attained age must be used consistently from year to
year for purposes of sections 7702(c)(4), 7702(d), and
7702(e), as applicable.
Example 2. (i)ThefactsarethesameasinEx-
ample 1except that, under the contract, X’s annual
premiums are determined onan age-nearest-birthday
basis. X’s nearest birthday to January 1, 2008, is May
1, 2008, when X will become 61 years old. Based on
the method used by IC to determine age, X has an at-
tained age of 61 for the firstcontract year, 62 for the
second contract year, and so on.
(ii) Section 1.7702–2(b)(1) permits the determi-
nation of attained age under either of two alternative
approaches. Section 1.7702–2(b)(1)(i) provides that,
if a contract insures the life of a single insured indi-
vidual, the attained age may be determined by ref-
erence to the individual’s actual birthday as of the
date of determination. Under this provision, X has
an attained age of 60 for the first contract year, 61 for
the second contract year, and so on. Alternatively,
§1.7702–2(b)(1)(ii) provides that the insured’s age
may be determined by reference to contract anniver-
sary (rather than the individual’s actual birthday), so
long as the age assumed under the contract is within
12 months of the actual age as of that date. If IC de-
termines X’s attained age under §1.7702–2(b)(1)(ii),
X has an attained age of 61 for the first contract year,
62 for the second contract year, and so on. Whichever
provision IC uses to determine X’s attained age must
be used consistently from year to year for purposes
of sections 7702(c)(4), 7702(d), and 7702(e), as ap-
plicable.
Example 3. (i) The facts are the same as inEx-
ample 1except that the face amount of the contract
is increased on May 15, 2011. During the contract
year beginning January 1, 2011, the age assumed un-
der the contract on an age-last-birthday basis is 63
years. However, X has an actual age of 64 as of the
date the face amount of the contract is increased.
(ii) Section 1.7702–2(b)(1)(ii) provides that the
insured’s age may be determined by reference to con-
tract anniversary (rather than the individual’s actual
birthday), so long as the age assumed under the con-
tract is within 12 months of the actual age. Section
1.7702–2(b)(2) provides that, once determined un-
der paragraph (b)(1) of this section, the attained age
with respect to an individual insured under a contract
changes annually. Accordingly, X continues to be
63 years old throughout the contract year beginning
January 1, 2011, for purposes of sections 7702(c)(4),
7702(d), and 7702(e), as applicable.
Example 4. (i) The facts are the same as inEx-
ample 1except that in addition to X (born in 1947),
the insurance contract alsoinsures the life of Y, born
on September 1, 1942. The death benefit will be paid
when the second of the two insureds dies.
(ii) Section 1.7702–2(c)(1) provides that if a life
insurance contract insures the lives of more than one
individual on a last-to-die basis, the attained age of
the insured is determined by applying §1.7702–2(b)
as if the youngest individual were the only insured
under the contract. Because X is younger than Y, the
attained age of X must be used for purposes of sec-
tions 7702(c)(4), 7702(d), and 7702(e), as applicable.
Example 5.(i)ThefactsarethesameasExample
4except that X (the younger of the two insureds) dies
in 2012. After X’s death, both the cash value and
mortality charges of the life insurance contract are
adjusted to take into account only the life of Y.
(ii) Section 1.7702–2(c)(1) provides that if a life
insurance contract insures the lives of more than one
individual on a last-to-die basis, the attained age of
the insured is determined by applying §1.7702–2(b)
as if the youngest individual were the only insured
under the contract. Paragraph (c)(2) of this section
provides that if both the cash value and future mor-
tality charges under a contract change by reason of
the death of an insured to no longer take into account
2006–46 I.R.B.900November 13, 2006

the attained age of the deceased insured, the youngest
surviving insuredis thereafter treated as the only in-
sured under the contract. Because both the cash value
and mortality charges are adjusted after X’s death to
take into account only the life of Y, only the attained
age of Y is taken into account after X’s death for pur-
poses of sections 7702(c)(4), 7702(d), and 7702(e),
as applicable.
Example 6. (i)ThefactsarethesameasExam-
ple 1except that in addition to X (born in 1947), the
insurance contract also insures the life of Z, born on
September 1, 1952. The death benefit will be paid
when the first of the two insureds dies.
(ii) Section 1.7702–2(d) provides that if a life in-
surance contract insures the lives of more than one
individual on a first-to-die basis, the attained age of
the insured is determined by applying §1.7702–2(b)
as if the oldest individual were the only insured un-
der the contract. Because X is older than Z, the at-
tained age of X must be used for purposes of sections
7702(c)(4), 7702(d), and 7702(e), as applicable.
(f)Effective dates—(1)In general.Ex-
cept as provided in paragraph (f)(2) of this
section, these regulations apply to all life
insurance contracts that are either—
(i) Issued after December 31, 2008; or
(ii) Issued on or after October 1, 2007,
and based upon the 2001 CSO tables.
(2)Contracts issued before the gen-
eral effective date. Pursuant to section
7805(b)(7), a taxpayer may apply these
regulations retroactively for contracts is-
sued before October 1, 2007, provided that
the taxpayer does not later determine qual-
ification of those contracts in a manner
that is inconsistent with these regulations.
Deborah M. Nolan,
Acting Deputy Commissioner
for Services and Enforcement.
Approved September 6, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on September
12, 2006, 8:45 a.m., and published in the issue of the Federal
Register for September 13, 2006, 71 F.R. 53967)
November 13, 20069012006–46 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Guidance Regarding Appraisal
Requirements for Noncash
Charitable Contributions
Notice 2006–96
SECTION 1. PURPOSE
This notice provides transitional guid-
ance relating to the new definitions of
“qualified appraisal” and “qualified ap-
praiser” in § 170(f)(11) of the Internal
Revenue Code, and new § 6695A of the
Code regarding substantial or gross valu-
ation misstatements, as added by § 1219
of the Pension Protection Act of 2006,
Pub. L. No. 109–280, 120 Stat. 780
(2006) (the “PPA”).
The Service and the Treasury Depart-
ment expect to issue regulations under
§ 170(f)(11). Until those regulations are
effective, taxpayers may rely on this notice
to comply with the new provisions added
by§1219ofthePPA.
SECTION 2. BACKGROUND
A deduction for charitable contribu-
tions is generally permitted under § 170(a),
subject to certain limitations depending on
thetypeoftaxpayer,thenatureofthe
property contributed, and the type of
donee organization. Section 170(f)(11), as
added by § 883 of the American Jobs Cre-
ation Act of 2004, Pub. L. No. 108–357,
118 Stat. 1418 (2004), contains reporting
and substantiation requirements relating to
the allowance of deductions for noncash
charitable contributions. In particular,
under § 170(f)(11)(C), taxpayers are re-
quired to obtain a qualified appraisal for
donated property for which a deduction
of more than $5,000 is claimed. Under
§ 170(f)(11)(D), in certain cases the qual-
ified appraisal must be attached to the tax
return. For appraisals prepared with re-
spect to returns filed on or before August
17, 2006, existing Treasury Regulations
provide a definition of the terms “quali-
fied appraisal” and “qualified appraiser”
for purposes of § 170(f)(11).
Section1219ofthePPAamends
§ 170(f)(11)(E) and provides statutory
definitions of a qualified appraisal and
qualified appraiser for appraisals prepared
with respect to returns filed after August
17, 2006.
Section 170(f)(11)(E)(i) provides that
the term “qualified appraisal” means an
appraisal that is (1) treated as a quali-
fied appraisal under regulations or other
guidance prescribedby the Secretary, and
(2) conducted by a qualified appraiser in
accordance with generally accepted ap-
praisal standards and any regulations or
other guidance prescribed by the Secre-
tary.
Section 170(f)(11)(E)(ii) provides that
the term “qualified appraiser” means an
individual who (1) has earned an ap-
praisal designation from a recognized
professional appraiser organization or has
otherwise met minimum education and
experience requirements set forth in reg-
ulations prescribedby the Secretary, (2)
regularly performs appraisals for which
the individual receives compensation,
and (3) meets such other requirements
as may be prescribed by the Secretary in
regulations or other guidance. Section
170(f)(11)(E)(iii) further provides that an
individual will not be treated as a qual-
ified appraiser unless that individual (1)
demonstrates verifiable education and ex-
perience in valuing the type of property
subject to the appraisal, and (2) has not
been prohibited from practicing before the
Internal Revenue Service by the Secretary
under § 330(c) of Title 31 of the United
States Code at any time during the 3-year
period ending on the date of the appraisal.
Section1219ofthePPAalsoaddsa
new penalty provision. If the claimed
value of property based on an appraisal
results in a substantial or gross valuation
misstatement under § 6662, a penalty is
imposed by new § 6695A on any person
who prepared the appraisal and who knew,
or reasonably should have known, the ap-
praisal would be used in connection with
a return or claim for refund.
SECTION 3. TRANSITIONAL
GUIDANCE
.01In general
The Service and the Treasury Depart-
ment expect to issue regulations under
§170(f)(11),asamendedbythePPA.The
termsinsection3ofthisnoticeapplyto
contributions of property (other than read-
ilyvaluedpropertywithinthemeaning
of § 170(f)(11)(A)(ii)(I)) by individuals,
partnerships, or corporations for which a
deduction of more than $5,000 is claimed
on returns filed after August 17, 2006,
and before the effective date of the regu-
lations that the Service and the Treasury
Department expect to issue. Until regu-
lations are effective under § 170(f)(11),
as amended by the PPA, an appraisal that
meets the requirements of this notice shall
be treated as a qualified appraisal for pur-
poses of § 170(f)(11). The determination
of whether an appraiser is qualified under
section 3.03 of this notice must be based
on the appraiser’s qualifications as of the
date the appraisal is made.
.02Transitional terms-qualified ap-
praisal
(1)Qualified appraisal.Anappraisal
will be treated as a qualified appraisal
within the meaning of § 170(f)(11)(E)
if the appraisal complies with all of the
requirements of § 1.170A–13(c) of the
existing regulations (except to the ex-
tent the regulations are inconsistent with
§ 170(f)(11)), and is conducted by a quali-
fied appraiser in accordance with generally
accepted appraisal standards. See sections
3.02(2) and 3.03 of this notice.
(2)Generally accepted appraisal
standards. An appraisal will be treated
as having been conducted in accor-
dance with generally accepted ap-
praisal standards within the meaning of
§ 170(f)(11)(E)(i)(II) if, for example,
the appraisal is consistent with the sub-
stance and principles of the Uniform Stan-
dards of ProfessionalAppraisal Practice
(“USPAP”), as developed by the Appraisal
Standards Board of the Appraisal Founda-
tion. Additional information is available
athttp://www.appraisalfoundation.org.
.03Transitional terms-qualified ap-
praiser
(1)Appraisal designation.Anap-
praiser will be treated as having earned an
appraisal designation from a recognized
professional appraiser organization within
the meaning of § 170(f)(11)(E)(ii)(I) if
the appraisal designation is awarded on
the basis of demonstrated competency in
valuing the type of property for which the
appraisal is performed.
2006–46 I.R.B.902November 13, 2006

(2)Education and experience in valu-
ing the type of property.Anappraiser
will be treated as having demonstrated
verifiable education and experience in
valuing the type of property subject
to the appraisal within the meaning of
§ 170(f)(11)(E)(iii)(I) if the appraiser
makes a declaration in the appraisal that,
because of the appraiser’s background,
experience, education, and membership
in professional associations, the appraiser
is qualified to make appraisals of the
type of property being valued.See also
§ 1.170A–13(c)(5).
(3)Minimum education and experi-
ence. An appraiser will be treated as
having met minimum education and expe-
rience requirements within the meaning of
§ 170(f)(11)(E)(ii)(I) if —
(a)For real property
(i) For returns filed on or before Octo-
ber 19, 2006, the appraiser is qualified as
a “qualified appraiser” within the meaning
of § 1.170A–13(c)(5) to make appraisals of
the type of property being valued.
(ii) For returns filed after October 19,
2006, the appraiser islicensed or certified
for the type of property being appraised in
the state in which the appraised real prop-
erty is located.
(b)For property other than real prop-
erty—
(i) For returns filed on or before Febru-
ary 16, 2007, the appraiser is qualified as
a “qualified appraiser” within the meaning
of § 1.170A–13(c)(5) to make appraisals of
the type of property being valued.
(ii) For returns filed after February 16,
2007, the appraiser has (A) successfully
completed college or professional-level
coursework that is relevant to the property
being valued, (B) obtained at least two
years of experience in the trade or busi-
ness of buying, selling, or valuing the type
of property being valued, and (C) fully
described in the appraisal the appraiser’s
education and experience that qualify the
appraiser to value the type of property
being valued.
.04Applicability of reporting and sub-
stantiation regulations
(1)In general
The requirements of § 1.170A–13(c) of
the existing regulations concerning qual-
ified appraisals and qualified appraisers
continue to apply to all taxpayers, includ-
ing those to whom the transitional guid-
ance in this section may apply, except to
the extent the regulations are inconsistent
with the provisions of § 170(f)(11). In par-
ticular, all taxpayers are required to com-
ply with §§ 1.170A–13(c)(3), (c)(5), (c)(6)
and (c)(7).
(2)Revision to appraiser declaration
For returns filed after February 16,
2007, the declaration required under
§ 1.170A–13(c)(5)(i) must include an
additional statementthattheappraiser
understands that a substantial or gross
valuation misstatement resulting from an
appraisal of the value of property that the
appraiser knows, or reasonably should
have known, would be used in connection
with a return or claim for refund, may sub-
ject the appraiser to a civil penalty under
§ 6695A.See also§ 1.170A–13(c)(3)(iii).
SECTION 4. REQUEST FOR
COMMENTS
The Service and the Treasury De-
partment invite comments containing
suggestions for future guidance under
§ 170(f)(11), including regulations. In
particular, comments are requested con-
cerning the definition of the following
terms: (1) “generally accepted appraisal
standards” in § 170(f)(11)(E)(i)(II); (2)
“appraisal designation from a recognized
professional appraisal organization” in
§ 170(f)(11)(E)(ii)(I); (3) “minimum ed-
ucation and experience requirements” in
§ 170(f)(11)(E)(ii)(I); and (4) “verifiable
education and experience in valuing the
type of property subject to the appraisal”
in § 170(f)(11)(E)(iii)(I). Comments also
are requested on the potential impact any
guidance under § 170(f)(11) may have on
small businesses. Comments should refer
to Notice 2006–96 and be submitted by
January 17, 2007, to:
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044
Attn: CC:PA:LPD:PR
Room 5203
Alternatively,commentsmay
be submitted electronically via
e-mail to the following address:
Notice.Comments@irscounsel.treas.gov.
All comments will be available for public
inspection and copying.
SECTION 5. PAPERWORK
REDUCTION ACT
The collections of information in this
notice have been reviewed and approved
by the Office of Management and Bud-
get (OMB) in accordance with the Paper-
work Reduction Act (44 U.S.C. 3507) un-
der control number 1545–1953.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collections of information in this
notice are in section 3 of this notice. The
collections of information are required
from donors to satisfy the substantiation
requirements of § 170(f)(11). The col-
lections of information are required from
donors to obtain a benefit. The likely
respondents are individuals, partnerships,
and corporations.
The estimated total annual reporting
burden is 161,571 hours.
The estimated annual burden per re-
spondent varies from 5 minutes to 5 hours,
with an estimated average of approxi-
mately 3.5 hours. The estimated number
of respondents is 46,285.
The estimated annual frequency of re-
sponses (used for reporting requirements
only) is once per year.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and return in-
formation are confidential, as required by
§ 6103.
SECTION 6. DRAFTING
INFORMATION
The principal author of this notice is
Susan J. Kassell of the Office of Asso-
ciate Chief Counsel (Income Tax & Ac-
counting). For further information regard-
ing this notice, contact Susan J. Kassell at
(202) 622–5020 (not a toll-free call).
November 13, 20069032006–46 I.R.B.

Taxation and Reporting of
Excess Inclusion Income
by REITs, RICs, and Other
Pass-Through Entities
Notice 2006–97
SECTION 1. PURPOSE
This notice provides interim guidance
relating to excess inclusion income of
pass-through entities, particularly real es-
tate investment trusts (REITs). A growing
number of REITs are generating excess
inclusionincomebyengaginginmortgage
securitization transactions that cause the
REIT to be a taxable mortgage pool (TMP)
or have a qualified REIT subsidiary that
is a TMP. The interim guidance applies
to excess inclusion income both from
REMIC residual interests and from REIT
TMPs, whether received directly or allo-
cated from another pass-through entity.
This notice also requests comments
and suggestions for further guidance, es-
pecially guidance regarding the tax and
reporting obligations of regulated invest-
ment companies (RICs) and other entities
that hold stock of REIT TMPs or that
receive excess inclusion income in other
ways.
SECTION 2. BACKGROUND
Enacted by the Tax Reform Act of 1986
(the 1986 Act), the real estate mortgage
investment conduit (REMIC) provisions
of the Internal Revenue Code permit a
qualifying entity or arrangement, which
finances mortgages by issuing multiple
classes of interests, to elect REMIC status.
In general, a REMIC is not treated as a
taxable entity. Instead, the holders of the
residual interests in a REMIC take into
account the REMIC’s net income or net
loss.
A REMIC issues regular interests and
a single class of residual interests. Reg-
ular interests in a REMIC are treated as
debt, and holders of these interests must
include interest income from the regular
interests under an accrual method. The
REMIC deducts interest accruals on the
regular interests in computing its net in-
come or net loss. The holders of the resid-
ual interests in a REMIC take into account
the net income or net loss of the REMIC. A
portion of the net income allocated to the
residual interest holders may be an excess
inclusion within the meaning of section
860E(c). An excess inclusion may not be
offset by net operating losses, is treated as
unrelated business taxable income (UBTI)
by certain tax-exempt organizations, and is
not eligible for any reduction in withhold-
ing tax (by treaty or otherwise) in the case
of a nonresident.
In addition, the REMIC provisions
seek to ensure that excess inclusion in-
come does not escape current taxation.
Some of these provisions are designed to
prevent certain tax-exempt entities (dis-
qualified organizations) from being direct
holders of a REMIC residual interest.
Others impose tax on certain pass-through
entities that have excess inclusion income
allocable to a record owner that is a dis-
qualified organization. For this purpose,
pass-through entities (as defined in sec-
tion 860E(e)(6)(B)) include REITs, RICs,
and nominees; and disqualified organiza-
tions (as defined in section 860E(e)(5)(B))
include tax exempt entities that are not
subject to unrelated business income tax
under section 511. For example, a REIT
that owns REMIC residual interests must
pay any tax imposed by section 860E(e)(6)
with respect to excess inclusion income
allocable to a shareholder that is a disqual-
ified organization. Rev. Rul. 2006–58,
2006–46 I.R.B. 876 (November 13, 2006),
illustrates the application of these provi-
sions to a REIT (or a partnership) that has
a charitable remainder trust as a share-
holder (or a partner).
Section 860E(d) addresses the tax con-
sequences to a REIT’s shareholders when
theREITholdsaREMICresidualinter-
est. The section provides that, if a REIT
holds one or more REMIC residual in-
terests, then, under regulations prescribed
by the Secretary, the excess of the aggre-
gate excess inclusions determined with re-
spect to those interests over the REIT’s
taxable income shall be allocated among
the shareholders of the REIT in proportion
to the dividends received from the REIT.
Any such amounts allocated to a share-
holder shall be treated as an excess in-
clusion with respect to a residual interest
held by the shareholder. Section 860E(d)
further provides that similar rules apply
to RICs, common trust funds, and cer-
tain cooperative organizations. Regula-
tions issued under section 860E reserve
the portion of the regulations dealing with
the application of section 860E(d).See
§ 1.860E–1(b).
Congress intended the REMIC regime
to be the exclusive vehicle for securitiza-
tions issuing multiple-maturity mortgage-
backed debt securities. Accordingly, the
1986 Act also enacted TMP provisions,
which require an entity that issues such se-
curities without making the REMIC elec-
tion to be taxed as a separate corporation.
Section 7701(i) defines a taxable mort-
gage pool as any entity (other than a
REMIC) if—
(i) Substantially all of the assets of the
entity consist of debt obligations or in-
terests in debt obligations, and more than
50% of these debt obligations or interests
are real estate mortgages or interests in real
estate mortgages;
(ii) The entity is the obligor under debt
obligations that have two or more maturi-
ties; and
(iii) The required payments on the debt
obligations that the entity issued bear a re-
lationship to the payments to be received
by the entity on the debt obligations that it
holds as assets.
A portion of an entity may also be a
TMP under this definition.
Section 7701(i)(3)provides a special
rule for a REIT that is a TMP. Congress
generally intended for equity interests in
REIT TMPs to be subject to rules similar
to those that apply to residual interests in
REMICs. Accordingly,section 7701(i)(3)
provides that if a REIT, or a qualified
REIT subsidiary, is a TMP, then, under
regulations prescribed by the Secretary,
adjustments similar to the adjustments
provided in section 860E(d) are to apply
to the shareholders of the REIT. Regu-
lations under section 7701(i) have been
issued, but these regulations specifically
reserve on the treatment of REIT TMPs.
See§ 1.7701(i)–4(b).
The Treasury Department and the Ser-
vice have been advised that a growing
number of REITs have recently begun
securitizing mortgages by issuing debt
obligations that cause the REITs to be
TMPs. These securitizations may be ef-
fected through a qualified REIT subsidiary
or a disregarded entity, such as a securiti-
zation trust. In these arrangements, not all
of the REIT’s income is attributable to a
TMP.
The Treasury Department and the Ser-
vice have also been advised that, in the
2006–46 I.R.B.904November 13, 2006

absence of regulations or other guid-
ance under section 7701(i)(3), taxpayers
are uncertain about how to apply sec-
tion 7701(i)(3) to REIT TMPs and to
shareholders of REIT TMPs. Taxpayers
are similarly uncertain about how to ap-
plysection860E(d)toRICs(andother
pass-through entities) that receive excess
inclusion income (for example, a RIC
holding shares of a REIT that is required
by sections 7701(i)(3) and 860E(d) to
allocate excess inclusion income to its
shareholders).
SECTION 3. REQUESTS FOR
GUIDANCE AND RELIEF
Representatives of REITs and RICs
have requested guidance on the tax treat-
ment of excess inclusion income of a
REIT that either is a TMP or has a quali-
fied REIT subsidiary that is a TMP. Some
of the questions and issues they have
raised are:
•The proper computation of excess in-
clusion income of a REIT (or qualified
REIT subsidiary) that is a TMP under
section 7701(i)(3);
•The proper method for allocating ex-
cess inclusion income among the divi-
dends paid by REITs and RICs during
the taxable year;
•The reporting obligations of REITs,
RICs, and their shareholders with re-
spect to excess inclusion income;
•If excess inclusion income is allocated
to, or otherwise recognized by, an or-
ganization that is subject to tax under
section 511, whether the $1,000 deduc-
tion provided by section 512(b)(12) is
available;
•Whether there is or will be, ade min-
imisexception that applies to REITs,
RICs, and other pass-through entities
that have only small amounts of excess
inclusion income.
Taxpayers have requested the Trea-
sury Department and the Service to issue
an announcement providing that sections
860E(d) and 7701(i)(3) do not apply be-
fore the issuance of the regulations autho-
rized by those sections. Taxpayers have
also requested that any such regulations
apply only to REIT distributions made
some period after the issuance of regula-
tions or other guidance.
SECTION 4. REQUEST FOR
COMMENTS
The Treasury Department and the Ser-
vice are concerned that the purposes of the
REMIC excess inclusion provisions may
be avoided through the use of REIT TMPs
if the resulting excess inclusion income is
not properly reported to, and accounted for
by, direct and indirect shareholders of the
REITs that create TMPs. At the same time,
the Treasury Department and the Service
are mindful that many RICs and other in-
vestors hold stock in REITs that do not own
REMIC residual interests or create TMPs.
Accordingly, in developing further
guidance dealing with the excess inclusion
income of pass-through entities (especially
that of REIT TMPs), it is appropriate to
weigh the potential administrative burden
and complexity for all direct and indirect
investors in these entities. The Trea-
sury Department and the Service invite
comments and suggestions on the issues
summarized in Section 3 above and on
any other matters that may be relevant
in achieving the purposes of the REMIC
provisions without imposing undesirable
administrative burdens on investors.
SECTION 5. INTERIM GUIDANCE
The Treasury Department and the Ser-
vice have concluded that, although the is-
suance of regulations may be appropri-
ate to provide detailed guidance on cer-
tain issues identified by concerned par-
ties, sections 860E(d) and 7701(i)(3) es-
tablish basic principles that are applicable
even in the absence of regulations. Pend-
ing the issuance of further guidance, in ad-
ministering sections 860E(d), 860E(e)(6),
and 7701(i), the IRS will apply the fol-
lowing principles, which are applicable to
all excess inclusion income, whether from
TMPs or from REMIC residual interests:
•AREITmust—
•Determine whether it or its qual-
ified REIT subsidiary (or a por-
tion of either) is a TMP, and if so,
calculate the excess inclusion in-
come of the TMP under a reason-
able method.
•Allocate its excess inclusion in-
come to its shareholders in propor-
tion to dividends paid (determined
without regard to any special al-
location of the expense for any
tax paid under section 860E(e)(6))
and inform the shareholders that
are not disqualified organizations
of the amount and character of the
excess inclusion income allocated
to them.
•Pay the tax imposed by section
860E(e)(6) on the excess inclu-
sion income that is allocable to its
shareholders that are disqualified
organizations.
•As provided by section
860G(b)(2), apply the withholding
tax provisions with respect to
the excess inclusion portion of
dividends paid to foreign persons
without regard to any treaty excep-
tion or reduction in tax rate.
•With respect to its excess inclusion in-
come, a pass-through entity, other than
a REIT, RIC, or nominee, must—
•Allocate its excess inclusion in-
come to its partners, participants,
beneficiaries, or patrons (collec-
tively, “owners”) in accordance
with applicable provisions (section
702, section 584, subchapter J, or
partIofsubchapterT)andinform
any owners that are not disquali-
fied organizations of the amount
and character of the excess inclu-
sion income that has been allocated
to them.
•Pay the tax imposed by section
860E(e)(6) on excess inclusion in-
come that is allocable to disquali-
fied organizations.
•As provided by section
860G(b)(2), apply the withholding
tax provisions with respect to the
excess inclusion portion of the
payments made to foreign persons
without regard to any treaty excep-
tion or reduction in tax rate.
•With respect to excess inclusion in-
come, a nominee must—
November 13, 20069052006–46 I.R.B.

•Inform the beneficial owners that
are not disqualified organizations
of the amount and character of their
excess inclusion income.
•Pay the tax imposed by section
860E(e)(6) on the excess inclusion
income of beneficial owners that
are disqualified organizations.
•As provided by section
860G(b)(2), apply the withhold-
ing tax provisions to the excess
inclusion portion of the payments
made to foreign persons without
regard to any treaty exemption or
reductionintaxrate.
•With respect to its excess inclusion in-
come, a RIC must—
•Allocate its excess inclusion in-
come to its shareholders in propor-
tion to dividends paid (determined
without regard to any special allo-
cation of the expense for any tax
paid under section 860E(e)(6)).
•Inform shareholders who are nom-
inees of the amount and character
of the excess inclusion income that
has been allocated to them.
•Pay the tax imposed by section
860E(e)(6) on excess inclusion in-
come that is allocable to record
shareholders that are disqualified
organizations.
•As provided by section
860G(b)(2), apply the with-
holding tax provisions to the
excess inclusion portion of divi-
dends paid to foreign shareholders
without regard to any exemption
or reduction in tax rate.
•Pending the issuance of further guid-
ance, except as provided in this para-
graph, a RIC is not required to report
the amount and character of the excess
inclusion income allocated to its share-
holders who are not nominees. For
RIC taxable years beginning on or af-
ter January 1, 2007—
•A RIC must inform all of its share-
holders that are not nominees re-
garding the amount and character
of the excess inclusion income al-
located to those shareholders if the
excess inclusion income received
by the RIC from all sources (in-
cluding investments in REMIC
residual interests) exceeds one per-
cent of the gross income of the
RIC.
•A RIC that is not subject to the
reporting requirement in the pre-
ceding bullet must inform all of its
shareholders that are not nominees
regarding the amount and charac-
ter of excess inclusion income al-
located to those shareholders, tak-
ing into account only excess inclu-
sion income allocated to the RIC
from REITs described in the fol-
lowing sentence. A REIT is de-
scribedinthissentenceifitre-
ported to its shareholders for the
most recent REIT taxable year end-
ing not later than nine months be-
fore the first day of the RIC’s tax-
able year that—
1. A portion of the REIT’s divi-
dends for the year was excess
inclusion income, and
2. This excess inclusion income
exceeded three percent of the
REIT’s total dividends for the
year.
As an example, the reporting obligation
described in this bullet applies to a fis-
cal year RIC for its taxable year begin-
ning February 1, 2007, with respect to
excess inclusion income allocated to the
RIC by that REIT for the REIT’s tax-
able year ending December 31, 2007,
if the REIT had reported for its taxable
year ending December 31, 2005, that its
excess inclusion income exceeded three
percent of its total dividends for that
year.
SECTION 6. PAPERWORK
REDUCTION ACT
The collection of information contained
in this notice has been reviewed and ap-
proved by the Office of Management and
Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. 3507) under
control number 1545–2036.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information in this no-
tice is in sections 860E(d) and 7701(i)(3).
This information is required to allow the
recipients of the information to properly
report and pay taxes on excess inclusion
income allocable to them. The collection
of information is mandatory. The likely re-
spondents are business or other for-profit
institutions.
The estimated total annual reporting
and/or recordkeeping burden is two hours.
The estimated annual burden per respon-
dent/recordkeeper varies from one to three
hours, depending on individual circum-
stances, with an estimated average of two
hours. The estimated number of respon-
dents and/or recordkeepers is 50.
The estimated annual frequency of re-
sponses (used for reporting requirements
only) is once.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Anna Kim of the Office of the As-
sociate Chief Counsel (Financial Institu-
tions and Products). For further informa-
tion regarding this revenue ruling, contact
Anna Kim at (202) 622–3735.
2007 Limitations Adjusted As
Provided in Section 415(d),
etc.
1
Notice 2006–98
Section 415 of the Internal Revenue
Code (the Code) provides for dollar lim-
itations on benefits and contributions un-
der qualified retirement plans. Section 415
also requires that the Commissioner annu-
1
Based on News Release IR–2006–162 dated October 18, 2006.
2006–46 I.R.B.906November 13, 2006

ally adjust these limits for cost-of-living
increases. Other limitations applicable to
deferred compensation plans are also af-
fected by these adjustments. Many of the
limitations will change for 2007. For most
of the limitations, the increase in the cost-
of-living index met the statutory thresh-
olds that trigger their adjustment. For ex-
ample, the limitation under § 402(g)(1)
on the exclusion for elective deferrals de-
scribed in § 402(g)(3) is increased from
$15,000 to $15,500. This limitation affects
elective deferrals to section 401(k) plans
and to the Federal Government’s Thrift
Savings Plan, among other plans.
Cost-of-Living limits for 2007
Effective January 1, 2007, the limita-
tion on the annual benefit under a defined
benefit plan under § 415(b)(1)(A) is in-
creased from $175,000 to $180,000. For
participants who separated from service
before January 1, 2007, the limitation for
defined benefit plans under § 415(b)(1)(B)
is computed by multiplying the partic-
ipant’s compensation limitation, as ad-
justed through 2006, by 1.0334.
The limitation for defined contribution
plans under § 415(c)(1)(A) is increased
from $44,000 to $45,000.
The Code provides that various other
dollar amounts are to be adjusted at the
same time and in the same manner as the
dollar limitation of § 415(b)(1)(A). These
dollar amounts and the adjusted amounts
are as follows:
The limitation under § 402(g)(1) on
the exclusion for elective deferrals de-
scribed in § 402(g)(3) is increased from
$15,000 to $15,500.
The annual compensation limit under
§§ 401(a)(17), 404(l), 408(k)(3)(C),
and 408(k)(6)(D)(ii) is increased from
$220,000 to $225,000.
The dollar limitation under
§ 416(i)(1)(A)(i) concerning the
definition of key employee in a
top-heavy plan is increased from
$140,000 to $145,000.
Thedollaramountunder
§ 409(o)(1)(C)(ii) for determining
the maximum account balance in an
employee stock ownership plan sub-
ject to a 5-year distribution period is
increased from $885,000 to $915,000,
while the dollar amount used to de-
termine the lengthening of the 5-year
distribution period is increased from
$175,000 to $180,000.
The limitation used in the definition
of highly compensated employee under
§ 414(q)(1)(B) remains unchanged at
$100,000.
The dollar limitation under
§ 414(v)(2)(B)(i) for catch-up con-
tributions to an applicable employer
plan other than a plan described in
§ 401(k)(11) or 408(p) for individuals
aged 50 or over remains unchanged at
$5,000. The dollar limitation under
§ 414(v)(2)(B)(ii) for catch-up contri-
butions to an applicable employer plan
described in § 401(k)(11) or 408(p) for
individuals aged 50 or over remains
unchanged at $2,500.
The annual compensation limitation
under § 401(a)(17) for eligible partic-
ipants in certain governmental plans
that, under the plan as in effect on July
1, 1993, allowed cost-of-living adjust-
ments to the compensation limitation
under the plan under § 401(a)(17) to be
taken into account, is increased from
$325,000 to $335,000.
The compensation amount under
§ 408(k)(2)(C) regarding simplified
employee pensions (SEPs) is increased
from $450 to $500.
The limitation on deferrals under
§ 457(e)(15) concerning deferred com-
pensation plans of state and local gov-
ernments and tax-exempt organizations
is increased from $15,000 to $15,500.
The compensation amounts under
§ 1.61–21(f)(5)(i) of the Income Tax
Regulations concerning the definition
of “control employee” for fringe bene-
fit valuation purposes is increased from
$85,000 to $90,000. The compensation
amount under § 1.61–21(f)(5)(iii) is
increased from $175,000 to $180,000.
The limitation under § 408(p)(2)(E) re-
garding SIMPLE retirement accounts is
increased from $10,000 to $10,500.
Administrators of defined benefit or de-
fined contribution plans that have received
favorable determination letters should not
request new determination letters solely
because of yearly amendments to adjust
maximum limitations in the plans.
Drafting Information
The principal author of this notice is
John Heil of the Employee Plans, Tax
Exempt and Government Entities Divi-
sion. For further information regarding
the data in this notice, please contact
the Employee Plans’ taxpayer assistance
telephone service at 1–877–829–5500
(a toll-free call) between the hours of
8:30 a.m. and 4:30 p.m. Eastern time
Monday through Friday. For informa-
tion regarding the methodology used in
arriving at the data in this notice, please
contact Mr. Heil at 1–202–283–9888 (not
a toll-free call).
Guidance on Withholding and
Information Reporting on
Foreign Persons, Including
Guidance on Certain
Book-Entry Systems
Notice 2006–99
SECTION 1. PURPOSE
This notice provides guidance on with-
holding and information reporting on for-
eign persons and includes guidance on cer-
tain book-entry systems in foreign coun-
tries.
This notice provides clarification
on whether bonds held through certain
book-entry systems are treated as in reg-
istered or in bearer form under Treas.
Reg. §§ 5f.103–1(c) and 1.871–14. It
concludes that a dematerialized bond that
can be held and transferred only through
a book-entry system is in registered form,
when a holder may only obtain a physical
certificate in bearer form if the clearing
organization that maintains the book-entry
system goes out of business without a suc-
cessor. Notwithstanding the clarification
set forth in this notice, obligations that
are outstanding prior to January 1, 2007,
and that were issued in compliance Treas.
Reg. § 1.163–5(c)(2)(i)(D) (TEFRA D)
November 13, 20069072006–46 I.R.B.

may continue to be treated as obligations
in bearer form until the obligations mature.
Further, this notice announces that the
IRS and Treasury intend to issue regula-
tions providing that section 1.871–14(e) of
the regulations, dealing with foreign tar-
geted registered obligations, will not ap-
ply to obligations issued after December
31, 2006, except in limited circumstances.
The regulations will provide that the rules
of section 1.871–14(e) will apply to obli-
gations issued after December 31, 2006,
and before January 1, 2009, but only if
those obligations have a stated maturity of
no more than 10 years from the date of is-
suance. Obligations issued under the rules
of Treas. Reg. § 1.871–14(e) prior to Jan-
uary 1, 2009, will continue to be subject to
those rules until those obligations mature.
Finally, this notice announces that the
IRS and Treasury intend to issue regu-
lations retroactively removing the rule in
Treas. Reg. § 1.1441–1(b)(7)(iii) that
would impose interest under section 6601
when no underlying tax liability has in fact
been imposed. These regulations would
also clarify that, like interest, penalties that
are computed based on underpayments of
tax will not be imposed when no tax has in
fact been imposed.
SECTION 2. BACKGROUND
.01 Development of dematerialized
book-entry systems
IRS and Treasury are aware of the
development of dematerialized book-en-
try systems for holding and transferring
bonds. In such systems, bonds are required
to be represented only by book entries, and
no physical certificates are issued or trans-
ferred. Such dematerialized book-entry
systems offer significant efficiencies for
securities markets, and in order to capture
those efficiencies, markets in certain for-
eign countries have adopted such systems.
For example, Foreign Country law re-
quires that, beginning on a certain date,
bonds issued in that country must be held
through the book-entry system operated by
Foreign Country Clearing Organization.
Foreign Country Clearing Organization is
an entity which is in the business of hold-
ing obligations for member organizations
and transferring obligations among such
members by credit or debit to the account
of a member without the necessity of phys-
ical delivery of the obligation. Within the
book-entry system, bonds are not repre-
sented by any physical certificates, but are
represented only by book entries. Hold-
ers do not have the ability to withdraw
bonds from the book-entry system and
obtain physical certificates representing
the bonds. Holders may obtain physical
certificates in bearer form only if For-
eign Country Clearing Organization goes
out of business without a successor that
will continue to operate the book-entry
system. Bonds that were issued before
the book-entry system became mandatory
must be transferred into the system by a
specified date.
.02 Obligations in registered form
Section 5f.103–1(c)(1) provides that
an obligation is in registered form if
the obligation is registered as to both
principal and interest and the obligation
may be transferred only by surrender and
re-issuance of the physical certificate or
through a book-entry system. Section
5f.103–1(c)(2) provides that an obliga-
tion is considered transferable through a
book-entry system if the ownership of an
interest in the obligation is required to be
reflected in a book entry that identifies
the owner of an interest in the obligation.
Section 5f.103–1(e) provides that an obli-
gation that is not in registered form is con-
sideredtobeinbearerform.Anobligation
in registered form thatis convertible into
bearer form is considered to be in bearer
form. Treas. Reg. § 1.871–14(c) provides
that for purposes of determining the appli-
cation of the portfolio interest exception,
the conditions for an obligation to be in
registered form are identical to the condi-
tions described in Treas. Reg. § 5f.103–1.
SECTION 3. TREATMENT OF
OBLIGATIONS HELD THROUGH A
DEMATERIALIZED BOOK-ENTRY
SYSTEM
.01 Obligations subject to a book-entry
requirementdescribedinsection2.01
An obligation subject to a book-entry
requirement described in section 2.01 of
this notice, and held through the book-en-
try system operated by Foreign Country
Clearing Organization, is an obligation in
registered form because, within the book-
entry system, it may be transferred only by
book entries and the holder of the obliga-
tion does not have the ability to withdraw
the obligation from the book-entry system
and obtain a physical certificate in bearer
form.
The cessation of operation of the book-
entry system would be an extraordinary
event. Holding through the book-entry
system is mandatory for obligations in For-
eign Country’s market while the book-en-
try system is in existence and while For-
eign Country’s legal requirements remain
in place. The provision for the issuance
of physical certificates in bearer form in
the event that the book entry system goes
out of existence is not the equivalent of
a provision conferring on the holder the
ability to convert an obligation from regis-
tered form into bearer form in the ordinary
course of business.
Notwithstanding that such obligations
areinregisteredform,section3.02ofthis
notice, below, provides a transition rule for
certain obligations issued prior to January
1, 2007.
.02 Obligations issued before January 1,
2007
An obligation in bearer form that was
issued before January 1, 2007, and that
was issued in compliance with section
1.163–5(c)(2)(i)(D) (TEFRA D) may con-
tinue to be treated as an obligation in
bearer form until its maturity, whether
or not it is held within Foreign Coun-
try Clearing Organization’s book-entry
system described in section 2.01 of this
notice.
SECTION 4. SUNSET OF FOREIGN
TARGETED REGISTERED RULES
The IRS and Treasury intend to issue
regulations providing that the rules of
section 1.871–14(e) of the regulations,
dealing with foreigntargeted registered
obligations, will not apply to obligations
issued after December 31, 2006, except in
the limited circumstances described in the
next sentence. The regulations will pro-
vide that the rules of section 1.871–14(e)
will apply to obligations issued after De-
cember 31, 2006, and before January 1,
2009, but only if those obligations have a
stated maturity of no more than 10 years
fromthedateofissuance. Obligations
issued under the rules of Treas. Reg.
§ 1.871–14(e) prior to January 1, 2009,
will continue to be subject to those rules
until those obligations mature.
2006–46 I.R.B.908November 13, 2006

SECTION 5. INTEREST IMPOSED
WHEN NO TAX DUE
Treas. Reg. § 1.1441–1(b)(7)(iii) pro-
vides that a withholding agent that has
failed to withhold tax other than based on
reliance on the appropriate presumptions is
not relieved from liability for interest un-
der section 6601. It further provides that
such liability exists even when there is no
underlying tax that is ultimately shown to
be due. That is, the regulation imposes
an interest charge under section 6601 on a
withholding agent for an amount of tax that
has not in fact been imposed. Treas. Reg.
§ 1.1441–1(b)(7)(v) sets forth two exam-
ples that illustrate the operation of this rule.
TheIRSandTreasuryintendtois-
sue regulations retroactive to January 1,
2001, removing the rule in Treas. Reg.
§ 1.1441–1(b)(7)(iii), and the accompany-
ing examples illustrating the rule in Treas.
Reg. § 1.1441–1(b)(7)(v), that imposes
interest under section 6601 when no un-
derlying tax liability is imposed. Further,
the IRS and Treasury intend, in the new
regulations, to clarify also that, like inter-
est, penalties that are computed based on
underpayments of tax will not be imposed
when no tax has in fact been imposed.
Taxpayers may rely on this notice until the
regulations removing the rule are final-
ized.
SECTION 6. COMMENTS
Comments are requested regarding the
regulations to be issued under Section 4 of
this notice. Specifically, comments are re-
questedonthetransitionperiodtobepro-
vided for such rules.
SECTION 7. CONTACT
INFORMATION
The principal author of this notice is
Kay Holman of the Office of Associate
Chief Counsel (International). For further
information regarding this notice, contact
Kay Holman at (202) 622–3840 (not a toll-
free call).
Social Security Contribution
and Benefit Base for 2007
Notice 2006–102
Under authority contained in the So-
cial Security Act (“the Act”), the Commis-
sioner, Social Security Administration, has
determined and announced (71 F.R. 62636,
dated October 26, 2006) that the contri-
bution and benefit base for remuneration
paid in 2007, and self-employment income
earned in taxable years beginning in 2007
is $97,500.
“Old-Law” Contribution and Benefit
Base
General
The “old-law” contribution and bene-
fit base for 2007 is $72,600. This is the
base that would have been effective under
the Act without the enactment of the 1977
amendments.
The “old-law” contribution and benefit
base is used by:
(a) The Railroad Retirement program
to determine certain tax liabilities and tier
II benefits payable under that program to
supplement the tier I payments which cor-
respond to basic Social Security benefits,
(b) the Pension Benefit Guaranty
Corporation to determine the maximum
amount of pension guaranteed under the
Employee Retirement Income Security
Act (as stated in section 230(d) of the
Social Security Act),
(c) Social Security to determine a year
of coverage in computing the special min-
imum benefit, as described earlier, and
(d) Social Security to determine a year
of coverage (acquired whenever earnings
equal or exceed 25 percent of the “old-
law” base for this purpose only) in comput-
ing benefits for persons who are also eligi-
ble to receive pensions based on employ-
ment not covered under section 210 of the
Act.
Domestic Employee Coverage
Threshold
General
The minimum amount a domestic
worker must earn so that such earnings are
covered under Social Security or Medicare
is the domestic employee coverage thresh-
old. For 2007, this threshold is $1,500.
Section 3121(x) of the Internal Revenue
Code provides the formula for increasing
the threshold.
Computation
Under the formula, the domestic em-
ployee coverage threshold amount for
2007 shall be equal to the 1995 amount
of $1,000 multiplied by the ratio of the
national average wage index for 2005 to
that for 1993. If the resulting amount is
not a multiple of $100, it shall be rounded
to the next lower multiple of $100.
Domestic Employee Coverage Threshold
Amount
Multiplying the 1995 domestic em-
ployee coverage threshold amount
($1,000) by the ratio of the national av-
erage wage index for 2005 ($36,952.94)
to that for 1993 ($23,132.67) produces
the amount of $1,597.44. We then round
this amount to $1,500. Accordingly, the
domestic employee coverage threshold
amount is $1,500 for 2007.
(Filed by the Office of the Federal Register on October 25,
2006, 8:45 a.m., and published in the issue of the Federal
Register for October 26, 2006, 71 F.R. 62636)
November 13, 20069092006–46 I.R.B.

Part IV. Items of General Interest
Standards for Calculating
Energy Savings for the New
Energy Efficient Home Credit;
Internal Revenue Code 45L
Announcement 2006–88
This announcement informs taxpayers
that either Residential Services Network
(RESNET) Publication No. 05–001 or
RESNET Publication No. 06–001 may be
used in determining whether a dwelling
unit qualifies for the New Energy Efficient
Home Credit. Thus, a taxpayer may cal-
culate heating and cooling energy and cost
savings using the procedures contained in
either RESNET publication. Similarly, an
application to haveasoftwareprogram
included on the public list of software
programs that may be used to calculate
energy consumption may be based on
a declaration by the developer that the
program satisfies the tests required to con-
form to the software accreditation process
prescribed in either RESNET publication.
This change is effective for new energy
efficient homes acquired after December
31, 2005.
Notice 2006–27, 2006–11 I.R.B. 626,
February 21, 2006, and Notice 2006–28,
2006–11 I.R.B. 628, February 21, 2006,
provided guidance regarding the calcu-
lationofheatingandcoolingenergyand
cost savings for purposes of determining
the eligibility of dwelling units for the
New Energy Efficient Home Credit under
Internal Revenue Code § 45L. Those no-
tices provided that calculations of heating
and cooling energy and cost savings be
done in accordance with the procedures
contained in RESNET Publication No.
05–001. The noticesalso provided that
software would be included on the public
list of software programs that may be used
to calculate energy consumption only if
the software developer certified that the
program satisfied all tests required to con-
form to the software accreditation process
prescribed in RESNET Publication No.
05–001. Shortly after the publication of
the notices, RESNET updated Publica-
tion No. 05–001 by issuing Publication
No. 06–001. Publication No. 06–001
is intended to provide more appropriate
regional standards for calculating energy
and cost savings. This announcement
modifies the guidance in the previously
issued notices by permitting taxpayers to
use either the prior RESNET standards
in Publication No. 05–001 or the current
RESNET standards in Publication No.
06–001.
The principal author of this announce-
ment is Jennifer C. Bernardini of the Office
of Associate Chief Counsel (Passthroughs
& Special Industries). For further informa-
tion regarding this announcement, contact
Jennifer C. Bernardini at (202) 622–3120
(not a toll-free call).
2006–46 I.R.B.910November 13, 2006

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.
November 13, 2006i2006–46 I.R.B.

Numerical Finding List
1
Bulletins 2006–27 through 2006–46
Announcements:
2006-42, 2006-27 I.R.B.48
2006-43, 2006-27 I.R.B.48
2006-44, 2006-27 I.R.B.49
2006-45, 2006-31 I.R.B.121
2006-46, 2006-28 I.R.B.76
2006-47, 2006-28 I.R.B.78
2006-48, 2006-31 I.R.B.135
2006-49, 2006-29 I.R.B.89
2006-50, 2006-34 I.R.B.321
2006-51, 2006-32 I.R.B.222
2006-52, 2006-33 I.R.B.254
2006-53, 2006-33 I.R.B.254
2006-54, 2006-33 I.R.B.254
2006-55, 2006-35 I.R.B.342
2006-56, 2006-35 I.R.B.342
2006-57, 2006-35 I.R.B.343
2006-58, 2006-36 I.R.B.388
2006-59, 2006-36 I.R.B.388
2006-60, 2006-36 I.R.B.389
2006-61, 2006-36 I.R.B.390
2006-62, 2006-37 I.R.B.444
2006-63, 2006-37 I.R.B.445
2006-64, 2006-37 I.R.B.447
2006-65, 2006-37 I.R.B.447
2006-66, 2006-37 I.R.B.448
2006-67, 2006-38 I.R.B.509
2006-68, 2006-38 I.R.B.510
2006-69, 2006-37 I.R.B.449
2006-70, 2006-40 I.R.B.629
2006-71, 2006-40 I.R.B.630
2006-72, 2006-40 I.R.B.630
2006-73, 2006-42 I.R.B.745
2006-74, 2006-42 I.R.B.746
2006-75, 2006-42 I.R.B.746
2006-76, 2006-42 I.R.B.746
2006-77, 2006-42 I.R.B.748
2006-78, 2006-42 I.R.B.748
2006-79, 2006-43 I.R.B.792
2006-80, 2006-45 I.R.B.840
2006-81, 2006-44 I.R.B.821
2006-82, 2006-44 I.R.B.821
2006-83, 2006-44 I.R.B.822
2006-84, 2006-45 I.R.B.873
2006-85, 2006-45 I.R.B.873
2006-86, 2006-45 I.R.B.842
2006-87, 2006-44 I.R.B.822
2006-88, 2006-46 I.R.B.910
2006-89, 2006-44 I.R.B.826
Notices:
2006-56, 2006-28 I.R.B.58
Notices— Continued:
2006-57, 2006-27 I.R.B.13
2006-58, 2006-28 I.R.B.59
2006-59, 2006-28 I.R.B.60
2006-60, 2006-29 I.R.B.82
2006-61, 2006-29 I.R.B.85
2006-62, 2006-29 I.R.B.86
2006-63, 2006-29 I.R.B.87
2006-64, 2006-29 I.R.B.88
2006-65, 2006-31 I.R.B.102
2006-66, 2006-30 I.R.B.99
2006-67, 2006-33 I.R.B.248
2006-68, 2006-31 I.R.B.105
2006-69, 2006-31 I.R.B.107
2006-70, 2006-33 I.R.B.252
2006-71, 2006-34 I.R.B.316
2006-72, 2006-36 I.R.B.363
2006-73, 2006-35 I.R.B.339
2006-74, 2006-35 I.R.B.339
2006-75, 2006-36 I.R.B.366
2006-76, 2006-38 I.R.B.459
2006-77, 2006-40 I.R.B.590
2006-78, 2006-41 I.R.B.675
2006-79, 2006-43 I.R.B.763
2006-80, 2006-40 I.R.B.594
2006-81, 2006-40 I.R.B.595
2006-82, 2006-39 I.R.B.529
2006-83, 2006-40 I.R.B.596
2006-84, 2006-41 I.R.B.677
2006-85, 2006-41 I.R.B.677
2006-86, 2006-41 I.R.B.680
2006-87, 2006-43 I.R.B.766
2006-88, 2006-42 I.R.B.686
2006-89, 2006-43 I.R.B.772
2006-90, 2006-42 I.R.B.688
2006-91, 2006-42 I.R.B.688
2006-92, 2006-43 I.R.B.774
2006-93, 2006-44 I.R.B.798
2006-94, 2006-43 I.R.B.777
2006-95, 2006-45 I.R.B.848
2006-96, 2006-46 I.R.B.902
2006-97, 2006-46 I.R.B.904
2006-98, 2006-46 I.R.B.906
2006-99, 2006-46 I.R.B.907
2006-102, 2006-46 I.R.B.909
Proposed Regulations:
REG-208270-86, 2006-42 I.R.B.698
REG-121509-00, 2006-40 I.R.B.602
REG-135866-02, 2006-27 I.R.B.34
REG-140379-02, 2006-44 I.R.B.808
REG-142599-02, 2006-44 I.R.B.808
REG-146893-02, 2006-34 I.R.B.317
REG-159929-02, 2006-35 I.R.B.341
REG-148864-03, 2006-34 I.R.B.320
REG-168745-03, 2006-39 I.R.B.532
Proposed Regulations— Continued:
REG-105248-04, 2006-43 I.R.B.787
REG-109512-05, 2006-30 I.R.B.100
REG-142270-05, 2006-43 I.R.B.791
REG-145154-05, 2006-39 I.R.B.567
REG-148576-05, 2006-40 I.R.B.627
REG-109367-06, 2006-41 I.R.B.683
REG-112994-06, 2006-27 I.R.B.47
REG-118775-06, 2006-28 I.R.B.73
REG-118897-06, 2006-31 I.R.B.120
REG-120509-06, 2006-39 I.R.B.570
REG-124152-06, 2006-36 I.R.B.368
REG-125071-06, 2006-36 I.R.B.375
Revenue Procedures:
2006-29, 2006-27 I.R.B.13
2006-30, 2006-31 I.R.B.110
2006-31, 2006-27 I.R.B.32
2006-32, 2006-28 I.R.B.61
2006-33, 2006-32 I.R.B.140
2006-34, 2006-38 I.R.B.460
2006-35, 2006-37 I.R.B.434
2006-36, 2006-38 I.R.B.498
2006-37, 2006-38 I.R.B.499
2006-38, 2006-39 I.R.B.530
2006-39, 2006-40 I.R.B.600
2006-40, 2006-42 I.R.B.694
2006-41, 2006-43 I.R.B.777
2006-43, 2006-45 I.R.B.849
2006-44, 2006-44 I.R.B.800
2006-45, 2006-45 I.R.B.851
2006-46, 2006-45 I.R.B.859
2006-47, 2006-45 I.R.B.869
Revenue Rulings:
2006-35, 2006-28 I.R.B.50
2006-36, 2006-36 I.R.B.353
2006-37, 2006-30 I.R.B.91
2006-38, 2006-29 I.R.B.80
2006-39, 2006-32 I.R.B.137
2006-40, 2006-32 I.R.B.136
2006-41, 2006-35 I.R.B.331
2006-42, 2006-35 I.R.B.337
2006-43, 2006-35 I.R.B.329
2006-44, 2006-36 I.R.B.361
2006-45, 2006-37 I.R.B.423
2006-46, 2006-39 I.R.B.511
2006-47, 2006-39 I.R.B.511
2006-48, 2006-39 I.R.B.516
2006-49, 2006-40 I.R.B.584
2006-50, 2006-41 I.R.B.672
2006-51, 2006-41 I.R.B.632
2006-52, 2006-43 I.R.B.761
2006-53, 2006-44 I.R.B.796
2006-54, 2006-45 I.R.B.834
2006-55, 2006-45 I.R.B.837
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2006–1 through 2006–26 is in Internal Revenue Bulletin
2006–26, dated June 26, 2006.
2006–46 I.R.B.iiNovember 13, 2006

Revenue Rulings— Continued:
2006-56, 2006-46 I.R.B.874
2006-58, 2006-46 I.R.B.876
Social Security Contribution and Benefit
Base; Domestic Employee Coverage
Threshold:
2006-102, 2006-46 I.R.B.909
Tax Conventions:
2006-80, 2006-45 I.R.B.840
2006-86, 2006-45 I.R.B.842
Treasury Decisions:
9265, 2006-27 I.R.B.1
9266, 2006-28 I.R.B.52
9267, 2006-34 I.R.B.313
9268, 2006-30 I.R.B.94
9269, 2006-30 I.R.B.92
9270, 2006-33 I.R.B.237
9271, 2006-33 I.R.B.224
9272, 2006-35 I.R.B.332
9273, 2006-37 I.R.B.394
9274, 2006-33 I.R.B.244
9275, 2006-35 I.R.B.327
9276, 2006-37 I.R.B.424
9277, 2006-33 I.R.B.226
9278, 2006-34 I.R.B.256
9279, 2006-36 I.R.B.355
9280, 2006-38 I.R.B.450
9281, 2006-39 I.R.B.517
9282, 2006-39 I.R.B.512
9283, 2006-41 I.R.B.633
9284, 2006-40 I.R.B.582
9285, 2006-41 I.R.B.656
9286, 2006-43 I.R.B.750
9287, 2006-46 I.R.B.896
9288, 2006-44 I.R.B.794
9289, 2006-45 I.R.B.827
9290, 2006-46 I.R.B.879
9291, 2006-46 I.R.B.887
November 13, 2006iii2006–46 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2006–27 through 2006–46
Announcements:
2005-59
Updated and superseded by
Ann. 2006-45, 2006-31 I.R.B.121
Notices:
88-128
Supplemented by
Notice 2006-95, 2006-45 I.R.B.848
2002-45
Amplified by
Rev. Rul. 2006-36, 2006-36 I.R.B.353
2004-61
Modified and superseded by
Notice 2006-95, 2006-45 I.R.B.848
2006-20
Supplemented and modified by
Notice 2006-56, 2006-28 I.R.B.58
2006-27
Modified by
Ann. 2006-88, 2006-46 I.R.B.910
2006-28
Modified by
Ann. 2006-88, 2006-46 I.R.B.910
2006-53
Modified by
Notice 2006-71, 2006-34 I.R.B.316
2006-67
Modified and superseded by
Notice 2006-77, 2006-40 I.R.B.590
Proposed Regulations:
REG-135866-02
Corrected by
Ann. 2006-64, 2006-37 I.R.B.447
Ann. 2006-65, 2006-37 I.R.B.447
REG-134317-05
Corrected by
Ann. 2006-47, 2006-28 I.R.B.78
REG-112994-06
Corrected by
Ann. 2006-79, 2006-43 I.R.B.792
REG-118775-06
Corrected by
Ann. 2006-71, 2006-40 I.R.B.630
Revenue Procedures:
99-35
Modified and superseded by
Rev. Proc. 2006-40, 2006-42 I.R.B.694
2002-9
Modified and amplified by
Notice 2006-67, 2006-33 I.R.B.248
Notice 2006-77, 2006-40 I.R.B.590
Rev. Proc. 2006-43, 2006-45 I.R.B.849
2002-37
Clarified, modified, amplified, and superseded by
Rev. Proc. 2006-45, 2006-45 I.R.B.851
2002-38
Clarified, modified, amplified, and superseded by
Rev. Proc. 2006-46, 2006-45 I.R.B.859
2004-63
Superseded by
Rev. Proc. 2006-34, 2006-38 I.R.B.460
2005-41
Superseded by
Rev. Proc. 2006-29, 2006-27 I.R.B.13
2005-49
Superseded by
Rev. Proc. 2006-33, 2006-32 I.R.B.140
2005-67
Superseded by
Rev. Proc. 2006-41, 2006-43 I.R.B.777
2006-12
Modified by
Rev. Proc. 2006-37, 2006-38 I.R.B.499
2006-33
Updated and clarified by
Ann. 2006-73, 2006-42 I.R.B.745
2006-35
Modified by
Notice 2006-90, 2006-42 I.R.B.688
Revenue Rulings:
72-238
Obsoleted by
REG-109367-06, 2006-41 I.R.B.683
73-558
Obsoleted by
REG-109367-06, 2006-41 I.R.B.683
75-296
Distinguished by
Rev. Rul. 2006-52, 2006-43 I.R.B.761
80-31
Distinguished by
Rev. Rul. 2006-52, 2006-43 I.R.B.761
Revenue Rulings— Continued:
81-35
Amplified and modified by
Rev. Rul. 2006-43, 2006-35 I.R.B.329
81-36
Amplified and modified by
Rev. Rul. 2006-43, 2006-35 I.R.B.329
87-10
Amplified and modified by
Rev. Rul. 2006-43, 2006-35 I.R.B.329
2002-41
Amplified by
Rev. Rul. 2006-36, 2006-36 I.R.B.353
2003-43
Amplified by
Notice 2006-69, 2006-31 I.R.B.107
2005-24
Amplified by
Rev. Rul. 2006-36, 2006-36 I.R.B.353
Treasury Decisions:
9254
Corrected by
Ann. 2006-44, 2006-27 I.R.B.49
Ann. 2006-66, 2006-37 I.R.B.448
9258
Corrected by
Ann. 2006-46, 2006-28 I.R.B.76
9260
Corrected by
Ann. 2006-67, 2006-38 I.R.B.509
9262
Corrected by
Ann. 2006-56, 2006-35 I.R.B.342
9264
Corrected by
Ann. 2006-46, 2006-28 I.R.B.76
9272
Corrected by
Ann. 2006-68, 2006-38 I.R.B.510
9274
Corrected by
Ann. 2006-89, 2006-44 I.R.B.826
9276
Corrected by
Ann. 2006-83, 2006-44 I.R.B.822
Ann. 2006-85, 2006-45 I.R.B.873
9277
Corrected by
Ann. 2006-72, 2006-40 I.R.B.630
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2006–1 through 2006–26 is in Internal Revenue Bulletin 2006–26, dated June 26, 2006.
2006–46 I.R.B.ivNovember 13, 2006

Treasury Decisions— Continued:
9280
Corrected by
Ann. 2006-78, 2006-42 I.R.B.748
9281
Corrected by
Ann. 2006-82, 2006-44 I.R.B.821
Ann. 2006-84, 2006-45 I.R.B.873
November 13, 2006v2006–46 I.R.B.

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