Internal Revenue Bulletin 2013-24 (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. 201
3-24
June 10, 2013
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. 2013–12, page 1237.
Federal rates; adjusted federalrates; adjusted federal long-
term rate and the long-term exempt rate. For purposes of
sections 382, 642, 1274, 1288, and other sections of the
Code, tables set forth the rates for June 2013.
T.D. 9619, page 1212.
Final regulations under section 336(e) of the Code provide for
an election to treat the sale, exchange, or distribution of at least
80 percent of the stock of a domestic subsidiary corporation
or a subchapter S corporation as a sale of the corporation’s
assets, rather than a sale of its stock.
REG–126633–12, page 1245.
These proposed regulations provide guidance on the interpre-
tation and application of section 833(c)(5). They guide certain
health care organizations in computing and applying the medi-
cal loss ratio added to the Code by the Patient Protection and
Affordable Care Act. A public hearing is scheduled for Septem-
ber 17, 2013.
Notice 2013–35, page 1240.
The conclusive presumption regulations (sections
1.166–2(d)(1) and (3) of the Income Tax Regulations) reflect
a policy that when there is sufficient similarity between the
standards a tax administrator uses to permit a deduction for a
bad debt and the standards a bank regulator uses to identify
a loan that should be charged off, in whole or in part, the tax
administrator should accept that determination for purposes
of § 166. There have been changes to the standards used by
bank regulators to determine bad debt. This notice therefore
seeks public comment on whether changes in these bank
regulatory standards make compliance with the conclusive
presumption regulations problematic and whether application
of the conclusive presumption regulations continues to be
consistent with the principles of section 166.
EXEMPT ORGANIZATIONS
Announcement 2013–25, page 1249.
The IRS has revoked its determination that Life Extension Foun-
dation, Inc. of Ft. Lauderdale, FL, Mustard Seed Housing, Inc.
of Petaluma, CA, and Northwest Regional Emergency Medical
Services and Trauma Care Council of Bremerton, WA, qualify
as organizations described in sections 501(c)(3) and 170(c)(2)
of the Code.
ADMINISTRATIVE
Notice 2013–36, page 1242.
This notice updates the appendix to Notice 2013–1, which lists
the Indian tribes that have settled tribal trust cases against
the United States. Notice 2012–60 originally was published
in I.R.B. 2012–41 (October 9, 2012). Notice 2012–60 was
superceded by Notice 2013–1 I.R.B. 2013–3, and the appen-
dix to Notice 2013–1 was superceded by Notice 2013–16
(I.R.B. 2013–14). However, three additional tribes have set-
tled cases against the United States since the publication of
Notice 2013–16, so this notice modifies and supersedes the
appendix to Notice 2013–16.
(Continued on the next page)
Announcement of Declaratory Judgment Proceedings Under Section 7428 begins on page 1249.
Finding Lists begin on page ii.

Rev. Proc. 2013–27, page 1243.
This proposed revenue procedure provides issuers of qualified
mortgage bonds, as defined in § 143(a) of the Code, and is-
suers of mortgage credit certificates, as defined in § 25(c),
with the United States median gross income figure most re-
cently computed by the Department of Housing and Urban De-
velopment (HUD). The proposed revenue procedure also pro-
vides these issuers with guidance concerning the area me-
dian gross incomes as computed by HUD. Issuers of quali-
fied mortgage bonds (QMB) and mortgage credit certificates
(MCC) must use these income figures in determining whether
the income limitation placed on the beneficiaries of the mort-
gages and certificates may be increased because the resi-
dences to be financed are located in high housing cost areas.
See §§ 25(c)(2)(A)(iii)(IV) and 143(f)(5). Rev. Proc. 2012–16 is
obsoleted with exceptions.
June 10, 20132013–24 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th 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.
It is the poli
cy of the Service to publish in the Bulletin all sub-
stantive ru
lings necessary to promote a uniform application of
the tax laws
, including all rulings that supersede, revoke, mod-
ify, or amen
d any of those previously published in the Bulletin.
All publish
ed rulings apply retroactively unless otherwise indi-
cated. Pro
cedures relating solely to matters of internal man-
agement ar
e 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.—1986 Code.
This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbar-
ment and 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 cont
ents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
2013–24 I.R.B.June 10, 2013

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 42.—Low-Income
Housing Credit
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 280G.—Golden
Parachute Payments
Federal short-term, mid-term, and long-term rates
are set forth for the month of June 2013. See Rev.
Rul. 2013-12, page 1237.
Section 336.—Gain or Loss
Recognized on Property
Distributed in Complete
Liquidation
T.D. 9619
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Regulations Enabling Elections
for Certain Transactions Under
Section 336(e)
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulations.
SUMMARY: This document contains fi-
nal regulations that provide guidance un-
dersection336(e)oftheInternalRev-
enue Code (Code), which authorizes the is-
suance of regulations under which an elec-
tion may be made to treat the sale, ex-
change, or distribution of at least 80 per-
cent of the voting power and value of the
stock of a corporation (target) as a sale of
all its underlying assets. These regulations
provide the terms and conditions for mak-
ingsuchanelectionandtheconsequences
of the election. These regulations affect
domestic corporate sellers (seller), S cor-
poration shareholders, and domestic tar-
gets.
DATES:Effective Date:These regulations
are effective on May 15, 2013.
Applicability Date:These regulations
apply to any qualified stock disposition for
which the disposition date is on or after
May 15, 2013.
FOR FURTHER INFORMATION
CONTACT: Mark J. Weiss, (202)
622–7930 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in these final regulations has been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)) under OMB control
number 1545–2125. The collection of
information in these final regulations is
in §§1.336–2(h) and 1.336–4(c). This in-
formation is required by the IRS to allow
certain parties to make a section 336(e)
election and for certain shareholders to
make a gain recognition election.
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
control number.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by section 6103.
Background
Section 336(e) of the Code authorizes
the issuance of regulations under which an
election may be made to treat the sale, ex-
change, or distribution of at least 80 per-
cent of the voting power and value of the
stock of a corporation (target) as a sale of
all its underlying assets. Section 336(e)
was enacted as part ofGeneral Utilities
repeal. Similar to an election under sec-
tion 338(h)(10) available with respect to
certain purchases of target stock, section
336(e) is meant to provide taxpayers relief
from a potential multiple taxation of the
same economic gain that can result when
a transfer of appreciated corporate stock is
taxed without providing a corresponding
step-up in the basis of the assets of the cor-
poration. See H.R. Conf. Rep. No. 841,
99th Cong., 2d Sess., Vol. II, 198, 204
(1986), 1986–3 C.B., Vol. 4, 198-207.
On August 25, 2008, the IRS and
Treasury Department published a notice
of proposed rulemaking in theFederal
Register(REG–143544–04, 2008–42
I.R.B. 947 [73 FR 49965–02]) (the pro-
posed regulations) that, when finalized,
would permit certain taxpayers to make an
election to treat certain sales, exchanges,
and distributions of another corporation’s
stock as taxable sales of that corporation’s
assets.
Summary of Proposed Regulations
A.In General
Under the proposed regulations, an
election under section 336(e) is available
for “qualified stock dispositions” of do-
mestic target stock by domestic corporate
sellers (seller). The proposed regulations
generally adopt the structure and princi-
ples established under section 338(h)(10)
and the underlying regulations. For ex-
ample, the proposed regulations generally
incorporate the rules of section 338 gov-
erning the allocation of consideration in
the resulting deemed sale of the target’s
assets and the determination of target’s
basis in its underlying assets resulting
from such deemed sale. The proposed
regulations alter terms or concepts to re-
flect principles and factual circumstances
relevant to section 336(e).
Unlike an election under section
338(h)(10), which is available only if
target stock is acquired by a corporate
purchaser, the proposed regulations do
not require an acquirer of target stock to
be a corporation, or even necessarily a
purchaser. Also unlike section 338(h)(10),
which generally requires that a single pur-
chasing corporation acquire the stock of
a target, the proposed regulations permit
the aggregation of all stock of a target that
is sold, exchanged, and distributed by a
seller to different acquirers for purposes
of determining whether there has been a
qualified stock disposition of a target.
2013–24 I.R.B.1212June 10, 2013

B.Two Different Models for Deemed
Transactions
The proposed regulations provide two
different models for the deemed trans-
actions treated as occurring if a section
336(e) election is made. The first model
generally follows the same structure used
for the deemed transactions resulting from
the making of a section 338(h)(10) election
(basic model) and is applicable to all qual-
ified stock dispositions (including those
consisting of taxable distributions of target
stock) other than distributions described
in sections 355(d)(2) or 355(e)(2) (section
355(d)(2) and (e)(2) transactions). Under
the basic model, target, while owned by
the seller (old target), is treated as selling
all of its assets to an unrelated person and
new target is treated as acquiring all of its
assets from an unrelated person at the close
of the date on which the threshold amount
of target stock is disposed (deemed asset
disposition). Old target recognizes the
Federal income tax consequences from
the deemed asset disposition before the
close of the date on which its stock was
disposed. After recognizing the tax conse-
quences of the deemed asset disposition,
old target is generally treated as liquidat-
ing into the seller. In addition, to the extent
that the qualified stock disposition con-
sisted of one or more distributions (rather
than sales or exchanges) of the stock of a
target (other than in section 355(d)(2) and
(e)(2) transactions), the seller is treated
as acquiring directly from new target an
amount of new target stock equal to the
amount of target stock distributed. The
tax consequences of the purchaser(s) gen-
erally are unaffected by the section 336(e)
election.
The second model adopted by the
proposed regulationsfor the deemed trans-
actions resulting from a section 336(e)
election applies to section 355(d)(2) and
(e)(2) transactions (sale-to-self model).
Under the sale-to-self model, old target
(the controlled corporation) is deemed to
remain in existence; old target is treated
as if it sold its assets to an unrelated per-
son and then repurchased those assets.
Following the deemed asset disposition,
old target (the controlled corporation) is
not deemed to liquidate into seller (the
distributing corporation). Instead, after
old target’s deemed repurchase of its own
assets, seller is treated as distributing the
stock of old target to its shareholders,
with seller recognizing no gain or loss.
Because no liquidation of old target into
seller is deemed to occur, old target will
generally retain the tax attributes it would
have had if the section 336(e) election had
not been made, adjusted for the creation
or absorption of attributes resulting from
the election.
C.The Disallowed Loss Rule
The proposed regulations contain a rule
that disallows the recognition of losses re-
sulting from the deemed asset disposition
to the extent the qualified stock disposi-
tion consisted of one or more distributions
of target stock (disallowed loss rule). The
preamble to the proposed regulations ex-
plains that the allowance of losses pur-
suant to a deemed asset disposition may
be inconsistent with sections 311(a) and
355(c) because had the target stock been
distributed, any loss in the target stock
would not have been recognized pursuant
to these provisions.
D.Time and Manner of Making a Section
336(e) Election
The time and manner of making a
section336(e)electionprovidedinthe
proposed regulations also differed from
those for making an election under section
338(h)(10). Noting that a joint election
may be burdensome in cases with multi-
ple purchasers, the proposed regulations
provide that a section 336(e) election is
unilaterally made by a seller attaching a
statement to its timelyfiled Federal in-
come tax return for the taxable year that
includes the disposition date.
Summary of Comments and
Explanation of Provisions
Written comments were received in re-
sponse to the proposed regulations. A pub-
lic hearing was not requested and none
was held. After consideration of all the
comments, the proposed regulations are
adopted as amended by this Treasury de-
cision. In general, the final regulations
follow the approach of the proposed reg-
ulations with somemodifications. The
more significant comments and modifica-
tions are discussed in this section.
A.The Disallowed Loss Rule
The IRS and Treasury Department re-
ceived several comments that the disal-
lowed loss rule of the proposed regula-
tions was too harsh and frustrated the in-
tent of mitigating multiple levels of tax as
envisioned by section 336(e). According
to the comments, the result of the disal-
lowed loss rule was that the making of a
section 336(e) election in connection with
a stock distribution would be largely im-
practical. One commenter also noted that
the rationale for the disallowed loss rule,
namely, that asset losses should not be al-
lowed because a loss in target stock would
not be recognized under sections 311(a) or
355(c), did not extend to a seller’s distri-
bution of target stock under section 336(a).
This is because the seller generally would
recognize the loss with respect to the target
stock in such a case. The comments sug-
gested several alternatives, including that
realized losses in the deemed asset dispo-
sition should be netted against the amount
of realized gains and that to the extent re-
alized losses exceed realized gains, the net
loss should be deferred by attaching the net
loss to the basis of the assets in target’s
hands after the deemed asset disposition.
After consideration of the comments,
the IRS and Treasury Department have de-
termined that the disallowed loss rule as set
forth in the proposed regulations is broader
in scope than necessary to serve the pur-
poses of section 336(e). Accordingly, the
final regulations modify the rule of the pro-
posed regulations to generally permit tar-
get’s realized losses in the deemed asset
disposition to offset the amount of target’s
realized gains. Thus, the proposed regula-
tions disallow a net loss of target (that is,
losses realized in excess of target’s realized
gains) recognized on a deemed asset dis-
position, but only in proportion to the por-
tion of target stock that was disposed of by
seller in one or more distributions.
Thelossdisallowanceruleinthepro-
posed regulations only applied to distribu-
tions that were taken into account as part
of the qualified stock disposition on or be-
fore the disposition date. Thus, stock dis-
tributions that occurred after 80 percent of
target was disposed of were not subject to
the loss disallowance rule. The final regu-
lations modify the disallowed loss rule of
the proposed regulations to take into ac-
count (1) target stock distributed at any
June 10, 201312132013–24 I.R.B.

time within the 12-month disposition pe-
riod, not just on or before the disposition
date, and (2) target stock distributed within
the 12-month disposition period that is not
part of the qualified stock disposition, such
as stock distributed to a related person.
The IRS and Treasury Department believe
that limiting disallowed losses to stock dis-
tributed on or before the disposition date
could lead to manipulation because sell-
ers who would otherwise distribute tar-
get stock on the disposition date may de-
lay the distribution for the sole purpose of
decreasing the disallowed net loss recog-
nized by target. Further,ifstockdistribu-
tions that are not part of the qualified stock
disposition, such as distributions to a re-
lated person, were not taken into account
by the disallowed loss rule, target would
be able to recognize a greater portion of
its net loss by distributing stock to a re-
lated person than it would recognize if it
distributedthestocktoanunrelatedper-
son, a result that the IRS and Treasury De-
partment believe would be improper. Ac-
cordingly, under the disallowed loss rule
of the final regulations, if a section 336(e)
election is made and any stock of target
is distributed during the 12-month dispo-
sition period, whether or not as part of the
qualified stock disposition, any net loss at-
tributable to such stock distribution is dis-
allowed.
The final regulations do not follow the
recommendation of some commenters that
anydisallowedlossesbeappliedtoin-
crease the basis of target’s assets after the
deemed asset disposition for two reasons.
First, as discussed elsewhere in this pre-
amble, Congressional intent in providing
for a section 336(e) election was to pre-
vent multiple taxation of gain. Congress
was not concerned with the preservation of
loss. Second, allowing the losses to be de-
ferred by adding the basis to target’s assets
would create administrative difficulties far
outweighing the benefits, and disallowing
losses rather than deferring losses is con-
sistent with many other provisions within
subchapter C. Accordingly, to the extent
the disallowed loss rule of the final regula-
tions applies, losses are allowed up to the
amount of gains and any excess losses are
permanently disallowed.
B.Issues Relating to the Adopted Models
1.Basic model for non-section 355(d)(2)
or (e)(2) transactions
In general, the final regulations re-
tain the rules of the proposed regulations
with respect to the deemed transactions
under the basic model. One commenter
expressed concern that in the case of a
distribution of stock as part of a qualified
stock disposition that does not consist of
section 355(d)(2) or (e)(2) transactions,
the step in the basic model in which seller
is deemed to purchase from new target the
new target stock actually distributed might
be combined with old target’s deemed sale
of its assets to new target resulting in a
section 351 transaction with boot, which
could lead to unintended consequences.
The commenter also questioned what new
target is deemed to do with the considera-
tion it is deemed to receive from seller in
the deemed stock acquisition. The com-
menter suggested resolving these issues
by having seller be deemed to purchase
new target stock from unrelated new target
shareholders with cash equal to the fair
market value of the distributed stock.
The IRS and Treasury Department
agree with the concerns of the commenter.
Accordingly, the final regulations modify
the proposed regulations by providing that
in a distribution of target stock (and also
with respect to stock in target that seller
retains after the distribution date) seller is
deemed to purchase the new target stock
that is distributed or retained not from
new target but from an unrelated person
in a taxable transaction. Seller will not
recognize any gain or loss on the deemed
distribution of new target stock and pur-
chaser will have a fair market value basis
in new target stock received without any
possible application of section 351.
2.Sale-to-self model for transactions
described in section 355(d)(2) or (e)(2)
We received several comments sug-
gesting the removal of the sale-to-self
model and the extension of the provisions
of §1.336–2(b)(1), with any necessary ad-
justments, to section 355(d)(2) or (e)(2)
transactions. Commenters stated that
the sale-to-self model added unnecessary
complexity and that existing law under
section 312(h) and §1.312–10 adequately
addresses the concern of having suffi-
cient earnings and profits to allocate to the
controlled corporation. One commenter
also suggested that to the extent that the
sale-to-self model is driven by a desire to
have the controlled corporation retain its
attributes, a special section 381 rule could
be created to reach this result.
Although the IRS and Treasury De-
partment agree with the commenters who
pointed out that even if target was treated
as a new corporation after the deemed sale
of its assets, the rules of section 312(h)
and §1.312–10 would typically result in
target having some level of earnings and
profits after the distribution of its stock,
the IRS and Treasury Department still
believe that the sale-to-self model should
be retained. While the deemed transac-
tions resulting from the making of section
336(e) elections withrespect to taxable
sales, exchanges, or distributions of target
stock could actually be undertaken in a
transaction involving the sale, exchange,
or distribution of the assets of target, a
transaction that included an actual sale
or distribution of all the assets of target
could not qualify under section 355. Be-
cause a deemed sale of assets to a new
target cannot actually be undertaken in
section 355(d)(2) or (e)(2) transactions,
and the IRS and Treasury Department be-
lieve that the predominant feature of the
section 336(e) election with respect to a
section 355(d)(2) or (e)(2) transaction is
the section 355 transaction, the regulations
adopt the sale-to-self model and treat the
transaction as the distribution of old target
stock.
Additionally, the IRS and Treasury
Department do not believe that the
sale-to-self model adds significant com-
plexity to the regulation; in fact, it may
reduce complexity. As the commenters
pointed out, if the IRS and Treasury De-
partment believe that adjustments to the
basic model would have to be made to
account for a section 355(d)(2) or (e)(2)
transaction, those adjustments, such as
satisfying the five-year active trade or
business requirement and maintaining
all section 381 attributes with target (not
solely earnings and profits), would require
that exceptions and special rules be added
to the basic model. These exceptions and
special rules would result in a regulation
that we believe would be more complex
than the sale-to-self model. Furthermore,
2013–24 I.R.B.1214June 10, 2013

because it is likely that only an insubstan-
tial number of section 336(e) elections
will be the result of transactions actually
described in section 355(d)(2) or (e)(2) (al-
though a substantial number of protective
elections may be made), we believe that
putting the exceptions and special rules
into the provisions of §1.336–2(b)(1) for
this limited number of cases would create
complexity or confusion for the majority
of taxpayers engaging in transactions that
are not described in section 355(d)(2) or
(e)(2). By separating the regulation into
two separate models, taxpayers whose
transaction does not involve a section
355(d)(2)or(e)(2)transaction may apply
the regulation’s provisions without having
to concern themselves with provisions that
do not apply to their transaction.
Commenters have suggested that if the
regulations retain the sale-to-self model,
the regulations should address the wash
sale rules of section 1091 and the anti-
churning rules of section 197(f)(9). For
example, old target’s deemed disposition
of stock or securities and subsequent repur-
chase of the same stock or securities could
be treated as a wash sale, which could then
be subject to loss disallowance under sec-
tion 1091(a) as well as the disallowed loss
rule of these regulations. Under the sec-
tion 336(e) regulations, the basis of the
stock or security deemed purchased by tar-
get should be its fair market value, while
under section 1091(d), the basis would be
the basis of the stock or security deemed
transferred plus or minus any difference in
the sale and acquisition price of the stock
or security.
The IRS and Treasury Department do
not believe that adoption of the sale-to-self
model should cause sections 197(f)(9) or
1091 to apply to a section 336(e) elec-
tion with respect to a section 355(d)(2) or
(e)(2) transaction. Because the deemed
transactions resulting from the making of
a section 336(e) election could not actu-
ally be undertaken in the context of a sec-
tion 355(d)(2) or (e)(2) transaction, we
do not believe that the regulations should
cause a section 336(e) election in the con-
text of a section 355(d)(2) or (e)(2) trans-
action to result in the application of sec-
tions 197(f)(9) or 1091 to the extent that a
section 336(e) election outside the context
of a section 355(d)(2) or (e)(2) transac-
tion would not result in the application of
such sections. Accordingly, the final regu-
lations provide that for purposes of section
197(f)(9), section 1091, and any other pro-
vision designated in the Internal Revenue
Bulletin by the IRS, old target, in its capac-
ity as seller of assets in the deemed asset
disposition, is treatedas a separate and dis-
tinct taxpayer from, and unrelated to, old
target in its capacity as acquirer of assets
in the subsequent deemed purchase and for
subsequent periods. For example, if one of
target’s assets immediately before old tar-
get’s deemed asset disposition was stock
or securities withinthe meaning of section
1091, old target, as seller of the stock or
securities in the deemed asset disposition,
is not treated for purposes of section 1091
as the same taxpayer that acquires substan-
tially identical stock or securities in the
deemed purchase of assets or that actually
acquires substantially identical stock or se-
curities in periods after the deemed asset
disposition. Therefore, section 1091 will
not disallow any of old target’s loss on the
deemed sale of the stock or securities as
a result of either old target’s deemed pur-
chase of the same stock or securities or an
actual purchase of substantially identical
stock or securities within the 30-day period
after the disposition date.
C.Time and Manner for Making the
Election
Commenters requested that the unilat-
eral seller election of the proposed regu-
lations be made into a joint election be-
tween seller and target (acting in a capac-
ity for the purchasers). The commenters
expressed concern that a unilateral elec-
tion by seller could result in unwanted re-
sults or unfair surprise to target or pur-
chaser. The proposed regulations were
premised on the view that a unilateral elec-
tion is supportable because in sales or ex-
changes, purchasers should be able to pro-
tect their interestsin any purchase con-
tract; in distributions, distributees’ inter-
ests should generally be protected because
of the distributing corporation’s fiduciary
responsibilities to its shareholders. How-
ever, in response to the comments, the fi-
nal regulations modify the rule of the pro-
posed regulations. Under the final regu-
lations, in order to make a section 336(e)
election, seller(s), or in the case of an S
corporation target, all of the S corporation
shareholders (see section E of this pream-
ble concerning the availability of a sec-
tion 336(e) election for an S corporation
target), and target must enter into a writ-
ten, binding agreement to make a section
336(e) election and a section 336(e) elec-
tion statement must be attached to the rele-
vant return. If seller(s) and target are mem-
bers of a consolidated group, the election
statement is filed on a timely filed con-
solidated return and the common parent
of the consolidated group must provide a
copy of the section 336(e) election state-
ment to target on or before the due date
(including extensions) of the consolidated
group’s consolidated Federal income tax
return. If target is an S corporation, the
election statement is filed on the S corpo-
ration’s timely filed return. If seller and
target are members of an affiliated group
but do not join in the filing of a consoli-
dated return, the election statement is filed
with both seller’s and target’s timely filed
returns. By (1) requiring seller(s), or all
the S corporation shareholders, and target
to enter into a written, binding agreement,
(2) in the case of a consolidated group,
requiring the common parent of the con-
solidated group to provide a copy of the
election statement to target, and (3) in the
case in which seller and target are mem-
bers of an affiliated group but do not join in
the filing of a consolidated return, requir-
ing both seller and target to file the elec-
tion statement on their respective returns,
the IRS and Treasury Department believe
that the final regulations significantly re-
duce the potential for unwanted results or
unfair surprise.
Several commenters also requested
changing the due date of the election
from the due date of the seller’s return
to the 15th day of the ninth month after
the disposition date, the same time for
making a section 338 election. The com-
menters were concerned that the due date
in the proposed regulations could result in
many instances in which target’s tax re-
turn would be due before the due date for
the election (becausetarget’s taxable year
will close upon its deemed dissolution),
and therefore target would be required to
file its return without knowing whether
a section 336(e) election was made. Af-
ter consideration of these comments, the
final regulations retain the rule that the
election must be made by the due date
of the relevant tax return. The IRS and
Treasury Department believe that a due
date of the 15th day of the ninth month
June 10, 201312152013–24 I.R.B.

after the disposition date will add admin-
istrativeburdentobothtaxpayersandthe
IRS. Such due date would generally re-
quire that the election be made prior to the
filing of the tax return, rather than on a tax
return. It is administratively beneficial for
the IRS to have the election made with the
filing of a return rather than in some man-
ner outside of the return. Additionally, an
accelerated due date would give taxpayers
less time in which to decide whether an
election is beneficial or detrimental. The
experience of the IRS in administering
section 338 has shown that some taxpay-
ers miss the due date for making a section
338 election because they wrongly believe
that the election is due with the income
tax return of the taxpayer. Further, except
with respect to the election statement filed
by seller if seller and target are members
of the same affiliated group but do not join
in the filing of a consolidated return, the
due date for filing the election statement
now coincides with the due date of the re-
turn that includes the deemed disposition
tax consequences. Accordingly, the final
regulations do not adopt this suggestion.
Because the general requirements for
who must file a section 336(e) election
statement have been modified from the
proposed regulations, these final regula-
tions provide detailed requirements to as-
sist taxpayers in making a section 336(e)
election for an eligible subsidiary of tar-
get (target subsidiary). See §1.336–2(h)(4)
and (5). Some of these requirements are
different than those for making a section
336(e) election for target subsidiaries un-
der the proposed regulations, which treated
the seller of the directly disposed of target
(ultimate seller) as the seller of the target
subsidiary for purposes of the additional
election statement to be attached to the ul-
timate seller’s return. Some of these re-
quirements also differ from those for mak-
ing a section 338 election for target sub-
sidiaries on Form 8023, which treats the
purchasing corporation(s) of the directly
purchased target as the purchasing corpo-
ration(s) of any target subsidiary for pur-
poses of completing and signing a Form
8023 for a target subsidiary that is filed
outside of any return. For example, if
seller and target are members of the seller
consolidated group but target subsidiary
is not, a section 336(e) election for tar-
get subsidiary now requires that target sub-
sidiary be a party to either the agreement
entered into by seller and target, or that tar-
get and target subsidiary enter into a sepa-
rate agreement to make such election. Be-
cause target subsidiary is not a member
of the same consolidated group as target,
the section 336(e) election for target sub-
sidiary requires that a section 336(e) elec-
tion statement be attached to both seller’s
timely filed consolidated Federal income
tax return and the timely filed Federal in-
come tax return of the target subsidiary.
The IRS intends to modify Form 8883,
which is currently entitledAsset Alloca-
tion Statement Under Section 338,orcre-
ate a new form, to include an election un-
der section 336(e). However, until Form
8883 is modified or a new form is created,
old target and new target should file Form
8883 to report the results of the deemed as-
set disposition, making appropriate adjust-
ments as necessary to account for a section
336(e) election. Examples of appropriate
adjustments include treating a reference to
Form 8023, a qualified stock purchase, the
acquisition date, the 12-month acquisition
period, or the aggregate deemed sales price
on Form 8883 or the instructions thereto as
a reference to the section 336(e) election
statement, a qualifiedstock disposition,
the disposition date, the 12-month dispo-
sition period, or the aggregate deemed as-
set disposition price, respectively. In the
case of a section 336(e) election as the re-
sult of a transaction described in section
355(d)(2) or (e)(2), old target should file
two Forms 8883 (or successor forms), one
in its capacity as the seller of assets in
the deemed asset disposition and one in
its capacity as the purchaser of assets in
the deemed purchase of assets under the
sale-to-self model.
D.Intragroup Sales, Exchanges, or
Distributions Prior to External Sales,
Exchanges, or Distributions and Section
355(f)
The proposed regulations requested
comments concerning an intragroup sale,
exchange, or distribution (an “intragroup
transaction”) prior to an external sale,
exchange, or distribution, and also con-
cerning the application of section 355(f).
Generally, if the stock of a corporation
is sold or distributed within an affiliated
group and then is transferred outside the
affiliated group, a section 336(e) elec-
tion is not available for the intragroup
transaction because the buyer and seller
in the intragroup transaction are related
persons after the disposition of target out-
side the affiliated group. While a section
336(e) election may be available for the
external transfer, the election could re-
sult in the affiliated group immediately
recognizing multiple levels of gain, both
on target’s stock from the intragroup
transaction and on target’s assets from
the deemed asset disposition. Section
1.1502–13(f)(5)(ii)(C) provides an elec-
tion (a “§1.1502–13(f)(5) election”) in the
case of section 338(h)(10) and comparable
transactions. A §1.1502–13(f)(5) election
allows taxpayers to treat the deemed liqui-
dation as the result of a section 338(h)(10)
election or an actual liquidation as a tax-
able liquidation in order to provide the
consolidated group with a stock loss to
offset some, if not all, of the intragroup
seller’s stock gain from the intragroup
transaction. One commenter asked for ei-
ther a clarification that a §1.1502–13(f)(5)
election is available for section 336(e)
elections or that a similar election be
provided in these regulations. Another
commenter believed that the problem of
multiple levels of tax could be solved by
permitting a section 336(e) election on the
intragroup transaction. With respect to
the latter comment, the IRS and Treasury
Department do not believe that allowing a
section 336(e) electionontheintragroup
transaction is practical or administrable.
Allowing a section 336(e) election would
require special rules for related persons
(see discussion of related party issues in
section H of this preamble); further, these
transactions could involve a significant
time lapse between the intragroup trans-
action and external disposition. However,
the IRS and Treasury Department agree
with the first commenter that a taxpayer
should be able to make a §1.1502–13(f)(5)
election to treat the deemed liquidation
of target into seller as a result of a sec-
tion 336(e) election as a taxable liqui-
dation. Although we believe that under
the general rule of §1.336–1(a) of the
proposed regulations, a §1.1502–13(f)(5)
election would be available for a section
336(e) transaction without any modifica-
tion in the final regulations, to remove
any doubt the final regulations modify
§1.1502–13(f)(5)(ii)(C) to clearly provide
that the election is available for a section
336(e) election.
2013–24 I.R.B.1216June 10, 2013

The IRS and Treasury Department also
acknowledge that an external distribu-
tion under section 355(d)(2) or (e)(2) that
is preceded by an intragroup transaction
raises the same concerns as those de-
scribed in the preceding paragraph, but a
§1.1502–13(f)(5) election would not pro-
vide relief because in a section 355(d)(2)
or (e)(2) transaction there is no deemed
liquidation of target. The IRS and Trea-
sury Department believe that the rationale
behind §1.1502–13(f)(5) to prevent multi-
ple levels of taxation exists just as much
with a section 336(e) election as a result
of a section 355(d)(2) or (e)(2) transaction
as with a non-section 355(d)(2) or (e)(2)
transaction. Therefore, the final regula-
tions provide that in the case of a section
355(d)(2) or (e)(2) transaction that is pre-
ceded by an intragrouptransaction, for
the limited purpose of a §1.1502–13(f)(5)
election, immediately after the deemed
asset disposition of target’s assets, target
is deemed to liquidate into seller, thus
providing seller with a stock loss that can
offset some or all of the group’s intercom-
pany gain with respect to the intragroup
transfer of target stock.
E.Elections for S Corporations
The proposed regulations do not pro-
vide for a section 336(e) election with re-
spect to the sale of stock of an S corpo-
ration. Commenters asked that, just as
a corporation that acquires stock of an S
corporation in a qualified stock purchase
may make a section 338(h)(10) election,
the ability to make a section 336(e) elec-
tion be extended to S corporation targets.
Commenters noted that the IRS and Trea-
sury extended the application of section
338(h)(10) to qualified stock purchases of
S corporations and that Congress intended
that “under regulations, principles simi-
lartothoseofsection338(h)(10)maybe
applied to taxable sales or distributions
of controlled corporation stock.” See H.R.
Conf. Rep. No. 841, 99th Cong., 2d Sess.,
Vol. II, 198, 204 (1986) [1986–3 C.B., Vol.
4, 198, 204].
The IRS and Treasury Department
agree with the commenters that the prin-
ciples of the regulations implementing
section 338(h)(10) should apply to the
regulations implementing section 336(e)
elections. Accordingly, these final regu-
lations permit a section 336(e) election to
be made for S corporation targets and pro-
vide additional and special rules to allow
section 336(e) elections to be made with
respect to S corporation targets.
If a section 338(h)(10) election is made
with respect to an S corporation target,
all of the S corporation shareholders, in-
cluding those who do not sell their S cor-
poration target stock, must consent to the
election. With respect to a section 336(e)
election, the final regulations provide the
same requirement for purposes of mak-
ing a section 336(e) election. While S
corporation shareholders consent to a sec-
tion 338(h)(10) election by signing Form
8023, to make a section 336(e) election,
the S corporation shareholders do not file
a section 336(e) election statement. In-
stead, consent to make a section 336(e)
election is established by all the S corpora-
tion shareholders, including those who do
not dispose of their stock in the transaction,
and target entering into a written, binding
agreement to make the election, on or be-
fore the due date (including extensions) of
the S corporation target’s income tax re-
turn. The section 336(e) election statement
for an S corporation target is filed with the
income tax return of the S corporation tar-
get.
If a section 336(e) election is made for
an S corporation target, old target’s S elec-
tion continues in effect through the close
of the disposition date (including the time
of the deemed asset disposition and the
deemed liquidation) at which time old tar-
get’s S election terminates, and old tar-
get ceases to exist. If new target qualifies
as a small business corporation within the
meaning of section 1361(b) and wants to
be an S corporation, a new election for new
target under section 1362(a) must be made.
F.Determination of AGUB and ADADP
A commenter requested that the pro-
visions in the proposed regulations for
determining the Aggregate Deemed Asset
Disposition Price (ADADP) and Adjusted
Grossed-Up Basis (AGUB) be modified
by grossing up the selling costs among
all stock of target in order to determine
ADADP and by grossing up the acquisi-
tion costs among all stock of target in order
to determine AGUB. The commenter also
requested rules that would disregard pre-
ferred stock in determining the percentage
of stock disposed of in the qualified stock
disposition, and then add back the value
of the preferred stock in determining the
grossed-up amount realized.
With regard to grossing up the selling
costs and acquisition costs over all target
stock, this issue was specifically addressed
in the preamble to the proposed section
338 regulations in 1999 (“Grossing-up the
selling shareholders’ selling costs or the
purchasing corporation’s acquisition costs
would result in costs not actually incurred
reducing old target’s amount realized for
the assets or increasing new target’s cost
basis in the assets.... [T]here is no evidence
that the purchasing corporation’s costs to
acquire an amount of target stock suffi-
cient for there to be a qualified stock pur-
chase would increase proportionately if it
acquired all of the target stock...”). See
REG–107069–97, 1999–2 C.B. 346, 353.
Accordingly, the final regulations retain
the rule of the proposed regulations.
With regard to the preferred stock is-
sue, the determination of grossed-up ba-
sis in section 338 is specifically provided
for in the Code, and Congress included
preferred stock in determining the percent-
age of stock attributable to recently pur-
chased stock. The regulations under sec-
tion 338 apply the same rule in determin-
ing grossed-up amount realized. The IRS
and the Treasury Department believe that
it is appropriate to use the same computa-
tion for purposes of a section 336(e) elec-
tion. Accordingly, the final regulations re-
tain the rule of the proposed regulations.
G.Gain Recognition Elections
Under the proposed regulations, a
holder of nonrecently disposed stock may
make a gain recognition election, simi-
lar to the gain recognition election under
section 338, which treats nonrecently
disposed stock as being sold as of the
disposition date.The gain recognition
election is mandatory if a purchaser owns
(after the application of the rules of sec-
tion 318(a), other thansection 318(a)(4)),
80-percent or more of the voting power
or value of target stock. Once made, a
gain recognition election is irrevocable.
The proposed regulations requested com-
ments on whether the rules regarding gain
recognition elections in the section 336(e)
regulations are appropriate and whether
the gain recognition election rules in reg-
June 10, 201312172013–24 I.R.B.

ulations promulgated under section 338
should continue to apply.
Only one comment was received on this
topic. The commenter was not sure why
rules relating to gain recognition elections
exist and believed they should be elimi-
nated in both section 338(h)(10) and sec-
tion 336(e). However, if this decision was
not made, the election should be preserved
for consistency in both sections. After
consideration of this comment and further
internal consideration, the IRS and Trea-
sury Department have determined that the
final regulations should retain the rule of
the proposed regulations.
H.Related Party Rule
The proposed regulations provide that a
transaction is not a disposition (and there-
fore is ineligible to count towards a qual-
ified stock disposition) if target stock is
sold, exchanged, or distributed to a re-
lated person. The proposed regulations,
like the section 338 regulations, treat per-
sons as related if stock in a corporation
owned by one of the persons would be at-
tributed to the other person under section
318(a), other than section 318(a)(4). Com-
ments were requested regarding disposi-
tions to related persons, including special
rules needed to prevent the use of net op-
erating losses to offset liquidation gains,
manipulation of earnings and profits, and
changes of accounting methods.
The IRS and Treasury Department re-
ceived a wide range of comments, most
of which believed some type of prohibi-
tion against section 336(e) elections in the
case of related party transactions should
be maintained. However, the commenters
also stated that they believe that the def-
inition of related person in the proposed
regulations is too restrictive and should
deviate from the section 338 definition.
Commenters stated that unlike section 338,
there is no statutory definition of the term
purchase, and the decision to import the
section 338 definition restricts the abil-
ity of a section 336(e) election to miti-
gate against multiple levels of tax. Com-
menters point to the fact that the legisla-
tive history does not prohibit related party
transactions, but simply states that special
rules may be needed to police certain situ-
ations (for example, rules prohibiting net
operating loss refreshing, avoiding sepa-
rate return limitation year rules, and trig-
gering built-in gains to offset net oper-
ating losses otherwise limited by section
382). Suggestions made to modify the re-
lated party definition included (a) use of
the existing section 338(h)(3)(A)(iii) def-
inition, but limiting upstream and down-
stream partnership attribution to partners
owning a specified percentage of the part-
nership and then only if the partnership
bears some economic relationship to the
transaction; (b) defining related persons
by reference to whether the transaction
that would be deemed to occur constitutes
a nondivisive D reorganization or certain
types of triangular C reorganizations using
section 304(c) control; (c) defining related
persons using section 267 principles; or
(d) implementing some type of anti-abuse
rule.
The IRS and Treasury Department
reviewed the comments received and
continue to have concerns about the ad-
ministrability and complexity of rules
that would be needed to permit related
party transactions. However, the IRS and
Treasury Department do agree that the at-
tribution rules with respect to partnerships
are more inclusive than is necessary for
the purpose of these regulations. Because
the attribution rules in section 318(a)
with respect to partnerships do not have
a minimum ownership threshold, a situ-
ation in which one partner holds a very
small ownership in two different part-
nerships that own purchaser and seller,
respectively, could, under the proposed
regulations, prevent the making of a sec-
tion 336(e) election on the sale of the
stock of target to purchaser. Although
some of the same concerns exist with
respect to a section 338(h)(10) election,
in such case, the statute clearly prohibits
a section 338(h)(10) election. With re-
spect to a section 336(e) election, there
is no statutory prohibition, and the IRS
and Treasury Department agree with the
comments received that deemed asset
disposition treatment should not be pro-
hibited if cross ownership is minimal.
While each of the suggested approaches
for modifying the attribution rules have
merit, the IRS and Treasury Department
believe that the best manner for addressing
the commenters’ concerns is to modify the
definition of related persons as pertaining
to partnerships by providing that, solely
for purposes of determining whether pur-
chaser and seller are related for purposes
of section 336(e), the attribution rules of
sections 318(a)(2)(A) and 318(a)(3)(A)
will not apply to attribute stock ownership
from a partnership to a partner, or from
a partner to a partnership if such partner
owns, directly or indirectly, less than five
percent of the value of the partnership.
A five-percent threshold is within the
range suggested by comments for limit-
ing upstream and downstream attribution
under section 318(a) between partners
and partnerships, and is consistent with
the five-percent threshold of constructive
ownership rules under sections 267(e)(3)
and 1563(e)(2) relevant to partners and
partnerships. The IRS and Treasury De-
partment will continue to study whether
related party transactions should qualify
for a section 336(e) election.
I.Scope of Regulations
The proposed regulations look to and
build upon section 338(h)(10) principles
and guidelines that address taxable sales
and exchanges of target stock. The pro-
posed regulations expanded the section
338(h)(10) model to include fully taxable
distributions and section 355(d)(2) and
(e)(2) distributions. All of these transac-
tions involve a basic taxable event relating
to target’s stock that is disregarded and
in its place a sale of target’s assets takes
place.
Commenters asked the IRS and Trea-
sury Department to extend a section 336(e)
election to transactions in which the cor-
porate level of tax is duplicated by other
transactions, for example section 351
exchanges or certain tax-free reorganiza-
tions, so that the section 336(e) election
can be used to turn two potential levels of
tax into one. Commenters cited language
from the legislative history to section
336(e), which discusses a section 336(e)
election in both the context ofGeneral
Utilitiesrepeal and the desire to avoid
multiple levels of corporate tax. “This
provision offers taxpayers relief from a
potential multiple taxation at the corporate
level of the same economic gain, which
may result when a transfer of appreciated
corporate stock is taxed without provid-
ing a corresponding step-up in basis of
the assets of the corporation.” H.R. Conf.
Rep. No. 841, 99th Cong., 2d Sess., Vol.
II, 198, 204 (1986) [1986–3 C.B., Vol. 4,
198, 204].
2013–24 I.R.B.1218June 10, 2013

The IRS and Treasury Department be-
lieve that the commenters have raised
some valid concernsand have consid-
ered whether the scope of the regulations
should be broadened to include certain
non-taxable transactions and if so, how the
regulations would address those transac-
tions. The issues involved are very com-
plex. The IRS and Treasury Department
believe that addressing these concerns in
these final regulations would significantly
delay the finalization of these regulations,
thus preventing taxpayers whose transac-
tions are within the scope of the proposed
regulations from making a section 336(e)
election until the rules and regulations, if
any, for non-taxable transactions are also
promulgated. Such delay would not be in
the best interests of taxpayers as a whole.
Accordingly, these final regulations do not
permit an election to be made in non-tax-
able transfers of target stock. However,
the IRS and Treasury Department will
continue to study this issue and may ad-
dress the issue in future guidance. We
welcome any comments concerning this
issue, including recommendations not just
on the scope of the regulations, but on spe-
cific means and models for implementing
such suggestions.
J.International Provisions
1.Application to foreign targets
The proposed regulations do not ap-
ply to transactions in which either seller
or target is a foreign corporation. Com-
ments were requested regarding how the
proposed regulations should be modified
to take into account the policies of interna-
tional tax provisions if the proposed reg-
ulations were extended to apply to for-
eign sellers and/or foreign targets. The
IRS and the Treasury Department received
comments in response to this request. For
reasons similar to those discussed concern-
ing extending the scope of these regula-
tions to non-taxable transactions, these fi-
nal regulations retain the requirements in
the proposed regulations that seller and tar-
get must be domestic corporations. How-
ever, the IRS and the Treasury Department
will continue to study the application of
section 336(e) to transactions in which ei-
ther seller or target is a foreign corpora-
tion and may consider expanding the scope
of the regulations to address these transac-
tions in future guidance.
2.Allocation of foreign taxes paid
The proposed regulations provide that
if a section 336(e) election is made and
target’s taxable year under foreign law (if
any) does not close at the end of the dis-
position date, foreign income taxes paid
by new target attributable to the foreign
taxable income earned by target during
such foreign taxable year are allocated to
old target and new target under the prin-
ciples of §1.1502–76(b). The proposed
rule is consistent with a similar rule in
§1.338–9(d) for allocating foreign tax paid
by a target that is acquired in a transac-
tion that is treated as an asset acquisi-
tion pursuant to an election under section
338 if the foreign taxable year of target
does not close at the end of the acquisition
date. In addition, regulations under section
901, which were published on February
14, 2012, provide foreign tax allocation
rules, consistent with §1.338–9(d), for cer-
tain changes in ownership of a partnership
or disregarded entity during the entity’s
foreign taxable year. See §1.901–2(f)(4).
The final regulations at §1.336–2(g)(3)(ii)
reflect modifications made to achieve con-
sistency with §1.901–2(f)(4). The regula-
tions also provide that if target holds an
interest in a disregarded entity or partner-
ship, the rules of §1.901–2(f)(4) apply with
respect to foreign tax imposed at the entity
level on the income of such entities. The
IRS and Treasury Department intend to is-
sue future guidance that will make similar
modifications to §1.338–9(d).
Section 212 of the legislation com-
monly referred to as the Education Jobs
and Medicaid Assistance Act of 2010,
enacted on August 10, 2010 (Public Law
111–226), added section 901(m) to the
Code. Section 901(m)(1) provides, in
part, that in the case of a covered asset
acquisition, the disqualified portion of any
foreign income taxes determined with re-
specttotheincomeorgainattributableto
a relevant foreign asset shall not be taken
into account in determining the foreign
tax credit allowed under section 901(a).
Section 901(m)(2)(B) defines a covered
asset acquisition to include any transac-
tion that is treatedas an acquisition of
assets for U.S. income tax purposes and
as the acquisition of stock of a corpora-
tion (or is disregarded) for purposes of
a foreign income tax. Because a section
336(e) election for target is treated as an
acquisition of assets for U.S. income tax
purposes, and is treated as the acquisition
of stock of a corporation (or is disregarded
in the case of tiered section 336(e) elec-
tions) for foreign tax purposes, a section
336(e) election for a target corporation is a
covered asset acquisition. See Staff of the
Joint Committee on Taxation, Technical
Explanation of the Revenue Provisions
of the Senate Amendment to the House
Amendment to the Senate Amendment to
H.R. 1586, Scheduled for Consideration
by the House of Representatives on Au-
gust 10, 2010, at 13, footnote 55 (August
10, 2010). Accordingly, the final regula-
tions contain a cross-reference to the rules
under section 901(m), which, for example,
could apply if target has foreign branch
operations.
K.Retained Stock
The proposed regulations provide that
if seller retains any stock in target after
the 12-month disposition period, seller is
treated as purchasing the stock so retained
on the day after the disposition date. The
proposed regulations provide the holding
period and purchase price (and thus the ba-
sis) of the retained stock. The regulations
under §1.338(h)(10)–1 provide a similar
rule concerning retained stock, with the ex-
ception that the §1.338(h)(10)–1 rule only
requires that the stock be retained after the
acquisition date. Under the proposed reg-
ulations, if seller sells, exchanges, or dis-
tributes less than all of its stock prior to
the disposition date, but sells, exchanges,
or distributes additional stock after the dis-
position date but before the end of the
12-month disposition period, the regula-
tions are silent as to holding period and
purchase price (and thus the basis) of such
stock. If the later transaction is part of
the qualified stock disposition, the basis
and holding period may not be relevant,
because no gain or loss is recognized on
that transaction. However, if the stock is
transferred in a transaction not part of the
qualified stock disposition, such as a sale
to a related person, the basis and holding
period will be relevant. After consider-
ing this matter, the IRS and Treasury De-
partment have determined that the rule in
the §1.338(h)(10)–1 regulations, provid-
June 10, 201312192013–24 I.R.B.

ing that stock is retained if seller owns the
stock after the acquisition date, should be
adopted by the regulations under section
336(e). Accordingly, the final regulations
modify the rule of the proposed regula-
tions, so that stock is retained if owned by
seller after the disposition date.
L.Consistency Rules
The proposed regulations generally fol-
low the structure and policies of section
338(h)(10), including the application of
the consistency rules of §1.338–8. In gen-
eral, §1.338–8 provides that if (1) a pur-
chasing corporation (or an affiliate) ac-
quires an asset meeting certain require-
ments from target (or a subsidiary of tar-
get) in a sale during the target consistency
period, (2) gain from the sale is reflected in
the basis of target stock as of the target ac-
quisition date, and (3) the purchasing cor-
poration acquires stock of target in a qual-
ified stock purchase (but does not make a
section 338 election), then the purchasing
corporation is required to take a carryover
basis in the acquired asset.
Commenters have asked how the con-
sistency rules apply to qualified stock dis-
positions. Commenters expressed concern
that although §1.338–8(b)(1)(iii) requires
that the same corporate purchaser (or an
affiliate) acquire both stock of target and
an asset of target (or a subsidiary of tar-
get), because, unlike section 338, section
336(e) does not require a single corporate
purchaserof80percentofthestockoftar-
get, the consistency rules could apply to
any purchase of an asset of target (or a sub-
sidiary of target) if there was also a quali-
fied stock disposition of target, regardless
of whether the purchaser of the asset was
also the purchaser of target stock. That
is, the regulations would be unnecessarily
broad. Alternatively, the regulations could
be viewed as too narrow because the con-
sistency rules of §1.338–8, by their terms,
only apply to corporate purchasers.
The IRS and Treasury Department
agree with the commenters’ concerns
about the potential breadth of the consis-
tency rules as applied to section 336(e).
We do not believe that the purposes of
the consistency rules mandate a carryover
basis for an asset unless the same person
(or a related person) acquires both the
asset of the target (or subsidiary of target)
and more than a minimal amount of the
stock of target. In addition, it would be
inappropriate to limit the consistency rules
for purposes of section 336(e) to corpo-
rate purchasers. Accordingly, the final
regulations provide that the consistency
rules apply to an asset only if the asset is
owned, immediately after its acquisition
and on the disposition date, by a person (or
by a related person to such a person) that
acquires five percent or more, by value,
of the stock of target in a qualified stock
disposition.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Order
12866, as supplemented by Executive Or-
der 13563. Therefore, a regulatory assess-
ment is not required. Further, it is hereby
certified that these final regulations will
not have a significant economic impact on
a substantial number of small entities. This
certification is based on the fact that these
regulations do not have a substantial eco-
nomic impact because they merely provide
for an election in the context of certain
sales, exchanges, and distributions of stock
of corporations. The collections of infor-
mation may affect small businesses if the
stock of a corporation that is a small entity
is disposed of in a qualified stock dispo-
sition. The regulations permit an election
to be filed in order to treat a stock sale as
an asset sale, and impose the same type of
requirements on small businesses as sec-
tion 338(h)(10). The professional skills
that would be necessary to make the elec-
tion would be the same as those required to
prepare a return for the small business. Ac-
cordingly, a Regulatory Flexibility Analy-
sis under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant
to section 7805(f) of the Code, these final
regulations, as well as the proposed reg-
ulations preceding these final regulations,
were submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business, and no comments were received.
Drafting Information
The principal author of these regu-
lations is Mark J. Weiss of the Office
of Associate Chief Counsel (Corporate).
Other personnel from the IRS and Treasury
Department participated in their develop-
ment.
*****
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
part 1 is amended by adding entries in nu-
merical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.336–1 is also issued under 26
U.S.C. 336. * * *
Section 1.336–2 is also issued under 26
U.S.C. 336. * * *
Section 1.336–3 is also issued under 26
U.S.C. 336. * * *
Section 1.336–4 is also issued under 26
U.S.C. 336. * * *
Section 1.336–5 is also issued under 26
U.S.C. 336. * * *
Par. 2. Sections 1.336–0 through
1.336–5 are added to read as follows:
§1.336–0 Table of contents.
This section lists captions contained in
§§1.336–1, 1.336–2, 1.336–3, 1.336–4,
and 1.336–5.
§1.336–1 General principles,
nomenclature, and definitions for a
section 336(e) election.
(a) Overview.
(1) In general.
(2) Consistency rules.
(b) Definitions.
(1) Seller.
(2) Purchaser.
(3) Target; S corporation target; old tar-
get; new target.
(4) S corporation shareholders.
(5) Disposed of; disposition.
(i) In general.
(ii) Exception for disposition of stock in
certain section 355 transactions.
(iii) Transactions with related persons.
(iv) No consideration paid.
(v) Disposed of stock reacquired by cer-
tain persons.
(6) Qualified stock disposition.
2013–24 I.R.B.1220June 10, 2013

(i) In general.
(ii) Overlap with qualified stock pur-
chase.
(A) In general.
(B) Exception.
(7) 12-month disposition period.
(8) Disposition date.
(9) Disposition date assets.
(10) Domestic corporation.
(11) Section 336(e) election.
(12) Related persons.
(13) Liquidation.
(14) Deemed asset disposition.
(15) Deemed disposition tax conse-
quences.
(16) 80-percent purchaser.
(17) Recently disposed stock.
(18) Nonrecently disposed stock.
(c) Nomenclature.
§1.336–2 Availability, mechanics, and
consequences of section 336(e) election.
(a) Availability of election.
(b) Deemed transaction.
(1) Dispositions not described in sec-
tion 355(d)(2) or (e)(2).
(i) Old target—deemed asset disposi-
tion.
(A) In general.
(B) Gains and losses.
(1)Gains.
(2) Losses.
(i) In general.
(ii) Stock distributions.
(iii) Amount and allocation of disal-
lowed loss.
(iv) Tiered targets.
(3)Examples.
(C) Tiered targets.
(ii) New target—deemed purchase.
(iii) Old target and seller—deemed liq-
uidation.
(A) In general.
(B) Tiered targets.
(iv) Seller—distribution of target stock.
(v) Seller—retention of target stock.
(2) Dispositions described in section
355(d)(2) or (e)(2).
(i) Old target—deemed asset disposi-
tion.
(A) In general.
(1) Old target not deemed to liquidate.
(2) Exception.
(B) Gains and losses.
(1)Gains.
(2) Losses.
(i) In general.
(ii) Stock distributions.
(iii) Amount and allocation of disal-
lowed loss.
(iv) Tiered targets.
(3) Examples.
(C) Tiered targets.
(ii) Old target—deemed purchase.
(A) In general.
(B) Tiered targets.
(C) Application of section 197(f)(9),
section 1091, and other provisions to old
target.
(iii) Seller—distribution of target stock.
(A) In general.
(B) Tiered targets.
(iv) Seller—retention of target stock.
(v) Qualification under section 355.
(vi) Earnings and profits.
(c) Purchaser.
(d) Minority shareholders.
(1) In general.
(2) Sale, exchange, or distribution of
targetstockbyaminorityshareholder.
(3) Retention of target stock by a minor-
ity shareholder.
(e) Treatment consistent with an actual
asset disposition.
(f) Treatment of target under other pro-
visions of the Internal Revenue Code.
(g) Special rules.
(1) Target as two corporations.
(2) Treatment of members of a consoli-
dated group.
(3) International provisions.
(i) Source and foreign tax credit.
(ii) Allocation of foreign taxes.
(A) General rule.
(B) Taxes imposed on partnerships and
disregarded entities.
(iii) Disallowance of foreign tax credits
under section 901(m).
(h) Making the section 336(e) election.
(1) Consolidated group.
(2) Non-consolidated/non-S corpora-
tion target.
(3) S corporation target.
(4) Tiered targets.
(5) Section 336(e) election statement.
(i) In general.
(ii) Target subsidiaries.
(6) Contents of section 336(e) election
statement.
(7) Asset Allocation Statement.
(8) Examples.
(i) [Reserved].
(j) Protective section 336(e) election.
(k) Examples.
§1.336–3 Aggregate deemed asset
disposition price; various aspects of
taxation of the deemed asset disposition.
(a) Scope.
(b) Determination of ADADP.
(1) General rule.
(2) Time and amount of ADADP.
(i) Original determination.
(ii) Redetermination of ADADP.
(c) Grossed-up amount realized on the
disposition of recently disposed stock of
target.
(1) Determination of amount.
(2) Example.
(d) Liabilities of old target.
(1) In general.
(2) Time and amount of liabilities.
(e) Deemed disposition tax conse-
quences.
(f) Other rules apply in determining
ADADP.
(g) Examples.
§1.336–4 Adjusted grossed-up basis.
(a) Scope.
(b) Modifications to the principles in
§1.338–5.
(1) Purchasing corporation; purchaser.
(2) Acquisition date; disposition date.
(3) Section 338 election; section
338(h)(10) election; section 336(e) elec-
tion.
(4) New target; old target.
(5) Recently purchased stock; recently
disposed stock.
(6) Nonrecently purchased stock; non-
recently disposed stock.
(c) Gain recognition election.
(1) In general.
(2) 80-percent purchaser.
(3) Non–80-percent purchaser.
(4) Gain recognition election statement.
(d) Examples.
§1.336–5 Effective/applicability date.
§1.336–1 General principles,
nomenclature, and definitions for a
section 336(e) election.
(a)Overview—(1)In general. Sec-
tion 336(e) authorizes the promulgation
of regulations under which, in certain
circumstances, a sale, exchange, or distri-
bution of the stock of a corporation may
be treated as an asset sale. This section
and §§1.336–2 through 1.336–5 provide
June 10, 201312212013–24 I.R.B.

the rules for and consequences of making
such election. This section provides the
definitions and nomenclature. Generally,
except to the extent inconsistent with sec-
tion 336(e), the results of section 336(e)
should coincide with those of section
338(h)(10). Accordingly, to the extent
not inconsistent with section 336(e) or
these regulations, the principles of section
338 and the regulations under section 338
apply for purposes of these regulations.
For example, §1.338(h)(10)–1(d)(8), con-
cerning the availability of the section 453
installment method, may apply with re-
spect to section 336(e).
(2)Consistency rules. In general, the
principles of §1.338–8, concerning asset
and stock consistency, apply with respect
to section 336(e). However, for this pur-
pose, the application of §1.338–8(b)(1) is
modified such that §1.338–8(b)(1)(iii) ap-
plies to an asset if the asset is owned, im-
mediately after its acquisition and on the
disposition date, by a person or by a related
person (as defined in §1.336–1(b)(12)) to
a person that acquires, by sale, exchange,
distribution, or any combination thereof,
five percent or more, by value, of the stock
of target in the qualified stock disposition.
(b)Definitions. For purposes of
§§1.336–1 through 1.336–5 (except as
otherwise provided):
(1)Seller.Thetermsellermeans any
domestic corporation that makes a quali-
fied stock disposition of stock of another
corporation. Seller includes both a trans-
feror and a distributor of target stock. Gen-
erally, all members of a consolidated group
that dispose of target stock are treated as a
single seller. See §1.336–2(g)(2).
(2)Purchaser.Thetermpurchaser
means one or more persons that acquire or
receive the stock of another corporation in
a qualified stock disposition. A purchaser
includes both a transferee and a distributee
of target stock.
(3)Target; S corporation target; old
target; new target.Thetermtargetmeans
any domestic corporation the stock of
which is sold, exchanged, or distributed
in a qualified stock disposition. AnS
corporation targetis a target that is an S
corporation immediately before the dis-
position date; any other target is anon-S
corporation target. Except as the context
otherwise requires, a reference to target
includes a reference to an S corporation
target. In the case of a transaction not de-
scribed in section 355(d)(2) or (e)(2),old
targetrefers to target for periods ending
on or before the close of target’s disposi-
tion date andnew targetrefers to target
for subsequent periods. In the case of a
transaction describedin section 355(d)(2)
or (e)(2),old targetrefers to target for pe-
riods ending on or before the disposition
date as well as for subsequent periods.
(4)S corporation shareholders.Scor-
poration shareholdersare the S corpora-
tion target’s shareholders. Unless other-
wise provided, a reference to S corpora-
tion shareholders refers both to S corpora-
tion shareholders who dispose of and those
who do not dispose of their S corporation
target stock.
(5)Disposed of; disposition—(i)In
general.Thetermdisposed ofrefers to a
transfer of stock in a disposition. The term
dispositionmeans any sale, exchange, or
distribution of stock, but only if —
(A) The basis of the stock in the hands
of the purchaser is not determined in whole
or in part by reference to the adjusted ba-
sis of such stock in the hands of the per-
son from whom the stock is acquired or
under section 1014(a) (relating to property
acquired from a decedent);
(B) Except as provided in paragraph
(b)(5)(ii) of this section, the stock is not
sold, exchanged, or distributed in a trans-
action to which section 351, 354, 355, or
356 applies and is not sold, exchanged,
or distributed in any transaction described
in regulations in which the transferor does
not recognize the entire amount of the gain
or loss realized in the transaction; and
(C) The stock is not sold, exchanged, or
distributedtoarelatedperson.
(ii)Exception for disposition of stock in
certain section 355 transactions. Notwith-
standing paragraph (b)(5)(i)(B) of this sec-
tion, a distribution of stock to a person
who is not a related person in a transac-
tion in which the full amount of stock gain
would be recognized pursuant to section
355(d)(2) or (e)(2) shall be considered a
disposition.
(iii)Transactions with related persons.
In determining whether stock is sold, ex-
changed, or distributed to a related person,
the principles of section 338(h)(3)(C) and
§1.338–3(b)(3) shall apply.
(iv)No consideration paid.Stockin
target may be considered disposed of if,
under general principles of tax law, seller
is considered to sell, exchange, or distrib-
ute stock of target notwithstanding that no
amount may be paid for (or allocated to)
the stock.
(v)Disposed of stock reacquired by cer-
tain persons. Stock disposed of by seller
to another person under this section that is
reacquired by seller or a member of seller’s
consolidated group during the 12-month
disposition period shall not be considered
as disposed of. Similarly, stock disposed
of by an S corporation shareholder to an-
other person under this section that is reac-
quired by the S corporation shareholder
or by a person related (within the mean-
ing of paragraph (b)(12) of this section) to
the S corporation shareholder during the
12-month disposition period shall not be
considered as disposed of.
(6)Qualified stock disposition—(i)In
general.Thetermqualified stock dispo-
sitionmeans any transaction or series of
transactions in which stock meeting the
requirements of section 1504(a)(2) of a
domestic corporation is either sold, ex-
changed, or distributed, or any combina-
tion thereof, by another domestic corpo-
ration or by the S corporation sharehold-
ers in a disposition, within the meaning of
paragraph (b)(5) of this section, during the
12-month disposition period.
(ii)Overlap with qualified stock pur-
chase—(A)In general.Exceptaspro-
vided in paragraph (b)(6)(ii)(B) of this sec-
tion, a transaction satisfying the definition
of a qualified stock disposition under para-
graph (b)(6)(i) of this section, which also
qualifies as a qualified stock purchase (as
defined in section 338(d)(3)), will not be
treated as a qualified stock disposition.
(B)Exception. If, as a result of the
deemed sale of old target’s assets pursuant
to a section 336(e) election, there would
be, but for paragraph (b)(6)(ii)(A) of this
section, a qualified stock disposition of the
stock of a subsidiary of target, then para-
graph (b)(6)(ii)(A) shall not apply to the
disposition of the stock of the subsidiary.
(7)12-month disposition period.The
term12-month disposition periodmeans
the 12-month period beginning with the
date of the first sale, exchange, or distribu-
tion of stock included in a qualified stock
disposition.
(8)Disposition date.Thetermdisposi-
tion datemeans, with respect to any cor-
poration, the first day on which there is a
qualified stock disposition with respect to
the stock of such corporation.
2013–24 I.R.B.1222June 10, 2013

(9)Disposition date assets.Disposition
date assetsare the assets of target held at
the beginning of the day after the dispo-
sition date (but see §1.338–1(d) (regard-
ing certain transactions on the disposition
date)).
(10)Domestic corporation.Theterm
domestic corporationhas the same mean-
ing as in §1.338–2(c)(9).
(11)Section 336(e) election. A section
336(e) election is an election to apply sec-
tion 336(e) to target. A section 336(e) elec-
tion is made by making an election for tar-
get under §1.336–2(h).
(12)Related persons. Two persons are
related if stock of a corporation owned
by one of the persons would be attributed
under section 318(a), other than sec-
tion 318(a)(4), to the other. However,
neither section 318(a)(2)(A) nor section
318(a)(3)(A) apply to attribute stock own-
ership from a partnership to a partner, or
from a partner to a partnership, if such
partner owns, directly or indirectly, inter-
ests representing less than five percent of
the value of the partnership.
(13)Liquidation. Any reference to a
liquidation is treated as a reference to the
transfer described in §1.336–2(b)(1)(iii)
notwithstanding its ultimate characteriza-
tion for Federal income tax purposes.
(14)Deemed asset disposition.The
deemed sale of old target’s assets is, with-
out regard to its characterization for Fed-
eral income tax purposes, referred to as the
deemed asset disposition.
(15)Deemed disposition tax conse-
quences. Deemed disposition tax conse-
quences refers to, in the aggregate, the
Federal income tax consequences (gener-
ally, the income, gain, deduction, and loss)
of the deemed asset disposition. Deemed
disposition tax consequences also refers
to the Federal income tax consequences
of the transfer of a particular asset in the
deemed asset disposition.
(16)80-percent purchaser.An80-per-
cent purchaser is any purchaser that, after
application of the attribution rules of sec-
tion 318(a), other than section 318(a)(4),
owns 80 percent or more of the voting
power or value of target stock.
(17)Recently disposed stock.Theterm
recently disposed stockmeans any stock in
target that is not held by seller, a member
of seller’s consolidated group, or an S cor-
poration shareholder immediately after the
close of the disposition date and that was
disposed of by seller, a member of seller’s
consolidated group, or an S corporation
shareholder during the 12-month disposi-
tion period.
(18)Nonrecently disposed stock.The
termnonrecently disposed stockmeans
stock in target that is held on the dispo-
sition date by a purchaser or a person
related (as described in §1.336–1(b)(12))
to the purchaser who owns, on the dispo-
sition date, with the application of section
318(a), other than section 318(a)(4), at
least 10 percent of the total voting power
or value of the stock of target and that is
not recently disposed stock.
(c)Nomenclature. For purposes of
§§1.336–1 through 1.336–5, except as
otherwise provided, Parent, Seller, Target,
Sub, S Corporation Target, and Target
Subsidiary are domestic corporations and
A, B, C, and D are individuals, none of
whom are related to Parent, Seller, Target,
Sub, S Corporation Target, Target Sub-
sidiary, or each other.
§1.336–2 Availability, mechanics, and
consequences of section 336(e) election.
(a)Availability of election. A section
336(e) election is available if seller or
S corporation shareholder(s) dispose of
stock of another corporation (target) in a
qualified stock disposition (as defined in
§1.336–1(b)(6)). A section 336(e) election
is irrevocable. A section 336(e) election
is not available for transactions described
in section 336(e) that do not constitute
qualified stock dispositions.
(b)Deemed transaction—(1)Disposi-
tions not described in section 355(d)(2)
or (e)(2)—(i)Old target—deemed asset
disposition—(A)In general. This para-
graph (b)(1) provides the Federal income
tax consequences of a section 336(e) elec-
tion made with respect to a qualified stock
disposition not described, in whole or in
part, in section 355(d)(2) or (e)(2). For
the Federal income tax consequences of
a section 336(e) election made with re-
spect to a qualified stock disposition de-
scribed, in whole or in part, in section
355(d)(2) or (e)(2), see paragraph (b)(2)
of this section. In general, if a section
336(e) election is made, seller (or S cor-
poration shareholders) are treated as not
having sold, exchanged, or distributed the
stock disposed of in the qualified stock dis-
position. Instead, old target is treated as
selling its assets to an unrelated person in
a single transaction at the close of the dis-
position date (but before the deemed liqui-
dation described in paragraph (b)(1)(iii) of
this section) in exchange for the aggregate
deemed asset disposition price (ADADP)
as determined under §1.336–3. ADADP
is allocated among the disposition date as-
sets in the same manner as the aggregate
deemed sale price (ADSP) is allocated un-
der §§1.338–6 and 1.338–7 in order to de-
termine the amount realized from each of
the sold assets. Old target realizes the
deemed disposition tax consequences from
the deemed asset disposition before the
close of the disposition date while old tar-
get is owned by seller or the S corpo-
ration shareholders. If old target is an
S corporation target, old target’s S elec-
tion continues in effect through the close
of the disposition date (including the time
of the deemed asset disposition and the
deemed liquidation) notwithstanding sec-
tion 1362(d)(2)(B). Also, if old target is
an S corporation target (but not a quali-
fied subchapter S subsidiary), any direct
or indirect subsidiaries of old target that
old target has elected to treat as quali-
fied subchapter S subsidiaries under sec-
tion 1361(b)(3) remain qualified subchap-
ter S subsidiaries through the close of the
disposition date.
(B)Gains and losses—(1)Gains.Ex-
cept as provided in §1.338(h)(10)–1(d)(8)
(regarding the installment method), old
target shall recognize all of the gains real-
ized on the deemed asset disposition.
(2)Losses—(i)
In general. Except as
provided in paragraphs (b)(1)(i)(B)(2)(ii),
(iii), and (iv) of this section, old target shall
recognize all of the losses realized on the
deemed asset disposition.
(ii)Stock distributions.Notwith-
standing paragraphs (b)(1)(i)(A) and
(b)(1)(iii)(A) of this section, for purposes
of determining the amount of target’s
losses that are disallowed on the deemed
asset disposition, seller is still treated as
selling, exchanging, or distributing its
target stock disposed of in the 12-month
disposition period. If target’s losses real-
ized on the deemed sale of all of its assets
exceed target’s gains realized (a net loss),
the portion of such net loss attributable
to a distribution of target stock during
the 12-month disposition period is disal-
lowed. The total amount of disallowed
loss and the allocation of disallowed loss
June 10, 201312232013–24 I.R.B.

is determined in the manner provided in
paragraphs (b)(1)(i)(B)(2)(iii)and(iv)of
this section.
(iii)Amount and allocation of disal-
lowed loss. The total disallowed loss
pursuant to paragraph (b)(1)(i)(B)(2)(ii)of
this section shall be determined by multi-
plying the net loss realized on the deemed
asset disposition by the disallowed loss
fraction. The numerator of the disallowed
loss fraction is the value of target stock,
determined on the disposition date, dis-
tributed by seller during the 12-month
disposition period, whether or not a part of
the qualified stock disposition (for exam-
ple, stock distributed to a related person),
and the denominator of the disallowed
loss fraction is the sum of the value of
target stock, determined on the disposition
date, disposed of by sale or exchange in
the qualified stock disposition during the
12-month disposition period and the value
of target stock, determined on the disposi-
tion date, distributed by seller during the
12-month disposition period, whether or
not a part of the qualified stock disposi-
tion. The amount of the disallowed loss
allocated to each asset disposed of in the
deemed asset disposition is determined by
multiplying the total amount of the disal-
lowed loss by the loss allocation fraction.
The numerator of the loss allocation frac-
tion is the amount of loss realized with
respect to the asset and the denominator
of the loss allocation fraction is the sum
of the amount of losses realized with re-
spect to each loss asset disposed of in the
deemed asset disposition. To the extent
old target’s losses from the deemed asset
disposition are not disallowed under this
paragraph, such losses may be disallowed
under other provisions of the Internal Rev-
enue Code or general principles of tax law,
in the same manner as if such assets were
actually sold to an unrelated person.
(iv)Tiered targets. Ifanassetoftarget
is the stock of a subsidiary corporation of
target for which a section 336(e) election
is made, any gain or loss realized on the
deemed sale of the stock of the subsidiary
corporation is disregarded in determining
the amount of disallowed loss. For pur-
poses of determining the amount of disal-
lowed loss on the deemed asset disposition
by a subsidiary of target for which a section
336(e) election is made, the amount of sub-
sidiary stock deemed sold in the deemed
asset disposition of target’s assets multi-
plied by the disallowed loss fraction with
respect to the corporation that is deemed
to have disposed of stock of the subsidiary
is considered to have been distributed. In
determining the disallowed loss fraction
with respect to the deemed asset dispo-
sition of any subsidiary of target, disre-
gard any sale, exchange, or distribution of
its stock that was made after the disposi-
tion date if such stock was included in the
deemed asset disposition of the corpora-
tion deemed to have disposed of the sub-
sidiary stock.
(3)Examples. The following examples
illustrate this paragraph (b)(1)(i)(B).
Example 1.(i)Facts. Parentowns60ofthe
100 outstanding shares of the common stock of
Seller, Seller’s only class of stock outstanding. The
remaining 40 shares of the common stock of Seller
are held by shareholders unrelated to Seller or each
other. Seller owns 95 of the 100 outstanding shares
of Target common stock, and all 100 shares of
Target preferred stock that is described in section
1504(a)(4). The remaining 5 shares of Target com-
monstockareownedbyA.OnJanuary1ofYear1,
Seller sells 72 shares of Target common stock to B
for $3,520. On July 1 of Year 1, Seller distributes
12 shares of Target common stock to Parent and 8
shares to its unrelated shareholders in a distribution
described in section 301. Seller retains 3 shares of
Target common stock and all 100 shares of Target
preferred stock immediately after July 1. The value
of Target common stock on July 1 is $60 per share.
The value of Target preferred stock on July 1 is $36
per share. Target has three assets, Asset 1, a Class IV
asset, with a basis of $1,776 and a fair market value
of $2,000, Asset 2, a Class V asset, with a basis of
$2,600 and a fair market value of $2,750, and Asset
3, a Class V asset, with a basis of $3,900 and a fair
market value of $3,850. Seller incurred no selling
costs on the sale of the 72 shares of Target common
stock to B. Target has no liabilities. A section 336(e)
election is made.
(ii)Consequences—Deemed Asset Sale. Because
at least 80 percent ((72 + 8)/100) of Target stock,
other than stock described in section 1504(a)(4), was
disposed of (within the meaning of §1.336–1(b)(5))
by Seller during the 12-month disposition period, a
qualified stock disposition occurred. July 1 of Year
1, the first day on which there was a qualified stock
disposition with respect to Target stock, is the disposi-
tion date. Accordingly, pursuant to the section 336(e)
election, for Federal incometax purposes, Seller gen-
erally is not treated as selling the 72 shares of Target
common stock sold to B or distributing the 8 shares
of Target common stock distributed to its unrelated
shareholders. However, Seller is still treated as dis-
tributing the 12 shares of Target common stock dis-
tributed to Parent because Seller and Parent are re-
lated persons within the meaning of §1.336–1(b)(12)
and accordingly the 12 shares are not part of the qual-
ified stock disposition. Target is treated as if, on July
1, it sold all of its assets to an unrelated person in ex-
change for the ADADP, $8,000, which is allocated
$2,000 to Asset 1, $2,500 to Asset 2, and $3,500 to
Asset 3 (seeExample 1of §1.336–3(g) for the deter-
mination and allocation of ADADP).
(iii)Consequences— Amount and Allocation of
Disallowed Loss. Old Target realized a net loss of
$276 on the deemed asset disposition ($224 gain re-
alized on Asset 1, $100 loss realized on Asset 2, and
$400 loss realized on Asset 3). However, 20 shares
of Target common stock were distributed by Seller
during the 12-month disposition period (8 shares dis-
tributed to Seller’s unrelated shareholders in the qual-
ified stock disposition plus 12 shares distributed to
Parent that were not part of the qualified stock dis-
position). Therefore, because there was a net loss
realized on the deemed asset disposition and a por-
tionofthestockofTargetwasdistributedduringthe
12-month disposition period, a portion of the loss on
the deemed sale of each of Target’s loss assets is dis-
allowed. The total amount of disallowed loss equals
$60 ($276 net loss realized on the deemed disposition
of Assets 1, 2, and 3 multiplied by the disallowed loss
fraction, the numerator of which is $1,200, the value
on July 1, the disposition date, of the 20 shares of Tar-
get common stock distributed during the 12-month
disposition period, and the denominator of which is
$5,520, the sum of $4,320, the value on July 1 of
the 72 shares of Target common stock sold to B and
$1,200, the value on July 1 of the 20 shares of Target
common stock distributed during the 12-month dis-
position period). The portion of the disallowed loss
allocated to Asset 2 is $12 ($60 total disallowed loss
multiplied by the loss allocation fraction, the numer-
ator of which is $100, the loss realized on the deemed
disposition of Asset 2 and the denominator of which
is $500, the sum of the losses realized on the deemed
disposition of Assets 2 and 3). The portion of the dis-
allowed loss allocated to Asset 3 is $48 ($60 total dis-
allowed loss multiplied by the loss allocation fraction,
the numerator of which is $400, the loss realized on
the deemed disposition of Asset 3 and the denomina-
tor of which is $500, the sum of the losses realized on
the deemed disposition of Assets 2 and 3). Accord-
ingly, Old Target recognizes $224 of gain on Asset
1, recognizes $88 of loss on Asset 2 (realized loss of
$100 less allocated disallowed loss of $12), and rec-
ognizes $352 of loss on Asset 3 (realized loss of $400
less allocated disallowed loss of $48) or a recognized
net loss of $216 on the deemed asset disposition.
Example 2.(i)Facts. The facts are the same as in
Example 1except that Asset 2 is the stock of Target
Subsidiary, a corporation of which Target owns 100
of the 110 shares of common stock, the only outstand-
ing class of Target Subsidiary stock. The remaining
10 shares of Target Subsidiary stock are owned by
D. The value of Target Subsidiary stock on July 1 is
$27.50 per share. Target Subsidiary has two assets,
Asset 4, a Class IV asset, with a basis of $800 and a
fair market value of $1,000, and Asset 5, a Class IV
asset, with a basis of $2,200 and a fair market value
of $2,025. Target Subsidiary has no liabilities. A sec-
tion 336(e) election with respect to Target Subsidiary
is also made.
(ii)Consequences—Target. The ADADP on the
deemed sale of Target’s assets is determined and al-
located in the same manner as inExample 1.How-
ever, Target’s loss realized on the deemed sale of
Target Subsidiary is disregarded in determining the
amount of disallowed loss on the deemed asset dis-
position of Target’s assets. Thus, the net loss is only
$176 ($224 gain realized on Asset 1 and $400 loss
2013–24 I.R.B.1224June 10, 2013

realized on Asset 3), and the amount of disallowed
loss equals $38.26 ($176 net loss multiplied by the
disallowed loss fraction with respect to Target stock,
$1,200/$5,520). The entire disallowed loss is allo-
catedtoAsset3.
(iii)Consequences—Target Subsidiary.The
deemed sale of the stock of Target Subsidiary is
disregarded and instead Target Subsidiary is deemed
to sell all of its assets to an unrelated person. The
ADADP on the deemed asset disposition of Target
Subsidiary is $2,750, which is allocated $909 to
Asset 4 and $1,841 to Asset 5 (seeExample 2of
§1.336–3(g) for the determination and allocation of
ADADP). Old Target Subsidiary realized $109 of
gain on Asset 4 and realized $359 of loss on Asset
5 in the deemed asset disposition. Although Old
Target Subsidiary realized a net loss of $250 on
the deemed asset disposition ($109 gain on Asset
4 and $359 loss on Asset 5), a portion of this net
loss is disallowed because a portion of Target stock
was distributed during the 12-month disposition
period. For purposes of determining the amount
of disallowed loss on the deemed sale of the assets
of Target Subsidiary, the portion of the 100 shares
of Target Subsidiary stock deemed sold by Target
pursuant to the section 336(e) election for Target
Subsidiary multiplied by the disallowed loss fraction
with respect to Target stock is treated as having been
distributed. Thus, for purposes of determining the
amount of disallowed loss on the deemed asset dis-
position of Target Subsidiary’s assets, 21.74 shares
of Target Subsidiary stock (100 shares of Target
Subsidiary stock owned by Target multiplied by the
disallowed loss fraction with respect to Target stock,
$1,200/$5,520) are treated as having been distributed
by Target during the 12-month disposition period.
The total amount of disallowed loss with respect to
the deemed asset disposition of Target Subsidiary’s
assets equals $54 ($250 net loss realized on the
deemed disposition of Assets 4 and 5 multiplied by
the disallowed loss fraction with respect to Target
Subsidiary, the numerator of which is $598, the
value on July 1, the disposition date, of the 21.74
shares of Target Subsidiary stock deemed distributed
during the 12-month disposition period (21.74 shares
x $27.50) and the denominator of which is $2,750
(the sum of $2,152, the value on July 1 of the 78.26
shares of Target Subsidiary stock deemed sold in the
qualified stock disposition pursuant to the section
336(e) election for Target Subsidiary (78.26 shares
x $27.50) and $598, the value on July 1 of the 21.74
shares of Target Subsidiary stock deemed distributed
during the 12-month disposition period)). (The 10
shares of Target Subsidiary owned by D are not part
of the qualified stock disposition and therefore are
not included in the denominator of the disallowed
loss fraction.) All of the disallowed loss is allocated
to Asset 5, the only loss asset. Accordingly, Old
Target Subsidiary recognizes $109 of gain on Asset
4 and recognizes $305 of loss on Asset 5 (realized
loss of $359 less disallowed loss of $54) or a net loss
of $196 on the deemed asset disposition.
Example 3.(i)Facts. The facts are the same as in
Example 2except that on August 1 of Year 1, Target
sells 50 of its shares of Target Subsidiary stock and
distributes the remaining 50 shares.
(ii)Consequences. Because the 100 shares of Tar-
get Subsidiary stock that were sold and distributed on
August 1 were deemed disposed of on July 1 in the
deemed asset disposition of Target, the August 1 sale
and distribution of Target Subsidiary stock are disre-
garded in determining the amount of disallowed loss.
Accordingly, the consequences are the same as inEx-
ample 2.
(C)Tiered targets. In the case of par-
ent-subsidiary chainsof corporations mak-
ing section 336(e) elections, the deemed
asset disposition of a higher-tier subsidiary
is considered to precede the deemed asset
disposition of a lower-tier subsidiary.
(ii)New target—deemed purchase.
New target is treated as acquiring all of its
assets from an unrelatedpersoninasingle
transaction at the close of the disposition
date (but before the deemed liquidation)
in exchange for an amount equal to the
adjusted grossed-up basis (AGUB) as
determined under §1.336–4. New target
allocates the consideration deemed paid
in the transaction in the same manner as
new target would under §§1.338–6 and
1.338–7 in order to determine the basis in
each of the purchased assets. If new target
qualifies as a small business corporation
within the meaning of section 1361(b) and
wants to be an S corporation, a new elec-
tion under section 1362(a) must be made.
Notwithstanding paragraph (b)(1)(iii) of
this section (deemed liquidation of old
target), new target remains liable for the
tax liabilities of old target (including the
tax liability for the deemed disposition tax
consequences). For example, new target
remains liable for thetax liabilities of
the members of any consolidated group
that are attributable to taxable years in
which those corporations and old target
joined in the same consolidated return.
See §1.1502–6(a).
(iii)Old target and seller—deemed liq-
uidation—(A)In general. If old target is
an S corporation, S corporation sharehold-
ers (whether or not they sell or exchange
their stock) take theirpro ratashare of the
deemed disposition tax consequences into
account under section 1366 and increase or
decrease their basis in target stock under
section 1367. Old target and seller (or S
corporation shareholders) are treated as if,
before the close of the disposition date, af-
ter the deemed asset disposition described
in paragraph (b)(1)(i)(A) of this section,
and while target is owned by seller or S
corporation shareholders, old target trans-
ferred all of the consideration deemed re-
ceived from new target in the deemed asset
disposition to seller or S corporation share-
holders, any S corporation election for old
target terminated, and old target ceased to
exist. The transfer from old target to seller
or S corporation shareholders is character-
ized for Federal income tax purposes in the
same manner as if the parties had actually
engaged in the transactions deemed to oc-
cur because of this section and taking into
account other transactions that actually oc-
curred or are deemed to occur. For exam-
ple, the transfer may be treated as a distri-
bution in pursuance of a plan of reorgani-
zation, a distribution in complete cancella-
tion or redemption of all of its stock, one
of a series of distributions in complete can-
cellation or redemption of all of its stock
in accordance with a plan of liquidation,
or part of a circular flow of cash. In most
cases, the transfer will be treated as a dis-
tribution in complete liquidation to which
sections 331 or 332 and sections 336 or
337 apply.
(B)Tiered targets. In the case of parent-
subsidiary chains ofcorporations making
section 336(e) elections, the deemed liqui-
dation of a lower-tier subsidiary corpora-
tion is considered to precede the deemed
liquidation of a higher-tier subsidiary.
(iv)Seller—distribution of target stock.
In the case of a distribution of target stock
in a qualified stock disposition, seller (the
distributor) is deemed to purchase from an
unrelated person, on the disposition date,
immediately after the deemed liquidation
of old target, the amount of stock dis-
tributed in the qualified stock disposition
(new target stock) and to have distributed
such new target stock to its shareholders.
Seller recognizes no gain or loss on the dis-
tribution of such stock.
(v)Seller—retention of target stock.
If seller or an S corporation shareholder
retains any target stock after the dispo-
sition date, seller or the S corporation
shareholder is treated as purchasing the
stock so retained from an unrelated person
(new target stock) on the day after the
disposition date for its fair market value.
The holding period for the retained stock
starts on the day after the disposition date.
For purposes of this paragraph (b)(1)(v),
the fair market value of all of the target
stock equals the grossed-up amount real-
ized on the sale, exchange, or distribution
of recently disposed stock of target (see
§1.336–3(c)).
(2)Dispositions described in sec-
tion 355(d)(2) or (e)(2)—(i)Old tar-
June 10, 201312252013–24 I.R.B.

get—deemed asset disposition—(A)In
general. This paragraph (b)(2) provides
the Federal income tax consequences of a
section 336(e) election made with respect
to a qualified stock disposition resulting,
in whole or in part, from a disposition
describedinsection355(d)(2)or(e)(2).
Old target is treated as selling its assets
to an unrelated person in a single transac-
tion at the close of the disposition date in
exchange for the ADADP as determined
under §1.336–3. ADADP is allocated
among the disposition date assets in the
same manner as ADSP is allocated under
§§1.338–6 and 1.338–7 in order to deter-
mine the amount realized from each of the
sold assets. Old target realizes the deemed
disposition tax consequences from the
deemed asset disposition before the close
of the disposition date while old target is
ownedbyseller.
(1)Old target not deemed to liquidate.
In general, unlike a section 338(h)(10)
election or a section 336(e) election made
with respect to a qualified stock disposi-
tion not described, in whole or in part, in
section 355(d)(2) or (e)(2), old target is
not deemed to liquidate after the deemed
asset disposition.
(2)Exception. If an election is made
under §1.1502–13(f)(5)(ii)(E), then solely
for purposes of §1.1502–13(f)(5)(ii)(C),
immediately after the deemed asset dispo-
sition of old target, old target is deemed to
liquidate into seller.
(B)Gains and losses—(1)Gains.Ex-
cept as provided in §1.338(h)(10)–1(d)(8)
(regarding the installment method), old
target shall recognize all of the gains real-
ized on the deemed asset disposition.
(2)Losses—(i)In general. Except as
provided in paragraphs (b)(2)(i)(B)(2)(ii),
(iii), and (iv) of this section, old target shall
recognize all of the losses realized on the
deemed asset disposition.
(ii)Stock distributions.Iftarget’slosses
realized on the deemed sale of all of its as-
sets exceed target’s gains realized (a net
loss), the portion of such net loss attribut-
able to a distribution of target stock dur-
ing the 12-month disposition period is dis-
allowed. The total amount of disallowed
loss and the allocationofdisallowedloss
is determined in the manner provided in
paragraphs (b)(2)(i)(B)(2)(iii)and(iv)of
this section.
(iii)Amount and allocation of disal-
lowed loss. The total disallowed loss
pursuant to paragraph (b)(2)(i)(B)(2)(ii)of
this section shall be determined by multi-
plying the net loss realized on the deemed
asset disposition by the disallowed loss
fraction. The numerator of the disallowed
loss fraction is the value of target stock,
determined on the disposition date, dis-
tributed by seller during the 12-month
disposition period, whether or not a part of
the qualified stock disposition (for exam-
ple, stock distributed to a related person),
and the denominator of the disallowed
loss fraction is the sum of the value of
target stock, determined on the disposition
date, disposed of by sale or exchange in
the qualified stock disposition during the
12-month disposition period and the value
of target stock, determined on the disposi-
tion date, distributed by seller during the
12-month disposition period, whether or
not a part of the qualified stock disposi-
tion. The amount of the disallowed loss
allocated to each asset disposed of in the
deemed asset disposition is determined by
multiplying the total amount of the disal-
lowed loss by the loss allocation fraction.
The numerator of the loss allocation frac-
tion is the amount of loss realized with
respect to the asset and the denominator
of the loss allocation fraction is the sum
of the amount of losses realized with re-
spect to each loss asset disposed of in the
deemed asset disposition. To the extent
old target’s losses from the deemed asset
disposition are not disallowed under this
paragraph, such losses may be disallowed
under other provisions of the Internal Rev-
enue Code or general principles of tax law,
in the same manner as if such assets were
actually sold to an unrelated person.
(iv)Tiered targets. Ifanassetoftarget
is the stock of a subsidiary corporation of
target for which a section 336(e) election
is made, any gain or loss realized on the
deemed sale of the stock of the subsidiary
corporation is disregarded in determining
the amount of disallowed loss. For pur-
poses of determining the amount of disal-
lowed loss on the deemed asset disposition
by a subsidiary of target for which a sec-
tion 336(e) election is made, see paragraph
(b)(1)(i)(B)(2) of this section.
(3)Examples. The following examples
illustrate this paragraph (b)(2)(i)(B).
Example 1.(i)Facts. Sellerowns90ofthe100
outstanding shares of Target common stock, the only
class of Target stock outstanding. The remaining 10
shares of Target common stock are owned by C. On
January 1 of Year 1, Seller sells 10 shares of Tar-
get common stock to D for $910. On July 1, in an
unrelated transaction, Seller distributes its remain-
ing80sharesofTargetcommonstocktoitsunre-
lated shareholders in a distribution described in sec-
tion 355(d)(2) or (e)(2). On July 1, the value of Target
common stock is $100 per share. Target has three as-
sets, Asset 1 with a basis of $1,220, Asset 2 with a
basis of $3,675, and Asset 3 with a basis of $5,725.
Seller incurred no selling costs on the sale of the 10
shares of Target common stock to D. Target has no
liabilities. A section 336(e) election is made.
(ii)Consequences. Because at least 80 percent of
Target stock ((10 + 80)/100) was disposed of (within
the meaning of §1.336–1(b)(5)) by Seller during the
12-month disposition period, a qualified stock dispo-
sition occurred. July 1 of Year 1, the first day on
which there was a qualified stock disposition with
respect to Target, is the disposition date. Accord-
ingly, pursuant to the section 336(e) election, for Fed-
eral income tax purposes, Target is treated as if, on
July 1, it sold all of its assets to an unrelated per-
son in exchange for the ADADP, $9,900, as deter-
mined under §1.336–3. Assume that the ADADP is
allocated $2,000 to Asset 1, $3,300 to Asset 2, and
$4,600 to Asset 3 under §1.336–3. Old Target real-
ized a net loss of $720 on the deemed asset disposi-
tion ($780 gain realized on Asset 1, $375 loss real-
ized on Asset 2, and $1,125 loss realized on Asset 3).
However, because a portion of Target stock was dis-
tributed during the 12-month disposition period and
there was a net loss on the deemed asset disposition,
a portion of the loss on each of the loss assets is dis-
allowed. The total amount of disallowed loss equals
$640 ($720 net loss realized on the deemed disposi-
tion of Assets 1, 2, and 3 multiplied by the disallowed
loss fraction, the numerator of which is $8,000, the
value on July 1, the disposition date, of the 80 shares
of Target common stock distributed by Seller during
the 12-month disposition period, and the denomina-
tor of which is $9,000, the sum of $1,000, the value
on July 1 of the 10 shares of Target common stock
sold to D, and $8,000, the value on July 1 of the 80
shares of Target common stock distributed by Seller
during the 12-month disposition period). The portion
of the disallowed loss allocated to Asset 2 is $160
($640 total disallowed loss on the deemed asset dis-
position multiplied by the loss allocation fraction, the
numerator of which is $375, the loss realized on the
deemed disposition of Asset 2, and the denominator
of which is $1,500, the sum of the losses realized on
the deemed disposition of Assets 2 and 3). The por-
tion of the disallowed loss allocated to Asset 3 is $480
($640 total disallowed loss on the deemed asset dis-
position multiplied by the loss allocation fraction, the
numerator of which is $1,125, the loss realized on the
deemed disposition of Asset 3, and the denominator
of which is $1,500, the sum of the losses realized on
the deemed disposition of Assets 2 and 3). Accord-
ingly, Old Target recognizes $780 of gain on Asset
1, recognizes $215 of loss on Asset 2 (realized loss
of $375 less allocated disallowed loss of $160), and
recognizes $645 of loss on Asset 3 (realized loss of
$1,125 less allocated disallowed loss of $480) or a
recognized net loss of $80 on the deemed asset dis-
position.
Example 2.(i)Facts. The facts are the same as
inExample 1except that Asset 2 is 100 shares of
common stock of Target Subsidiary, a wholly-owned
2013–24 I.R.B.1226June 10, 2013

subsidiary of Target. The value of Target Subsidiary
common stock on July 1 is $40 per share. Target Sub-
sidiary has two assets, Asset 4 with a basis of $500
and Asset 5 with a basis of $3,000. Target Subsidiary
has no liabilities. A section 336(e) election is also
made with respect to Target Subsidiary.
(ii)Consequences—Target. The ADADP on the
deemed sale of Target’s assets is determined and al-
located in the same manner as inExample 1.How-
ever, Old Target’s loss realized on the deemed sale of
Target Subsidiary is disregarded in determining the
amount of the disallowed loss on the deemed asset
disposition of Old Target’s assets. Thus, the real-
izednetlossisonly$345($780gainonAsset1and
$1,125 loss on Asset 3), and the amount of disallowed
loss equals $307, the $345 realized net loss multiplied
by the disallowed loss fraction with respect to Target
stock, $8,000/$9,000. The entire disallowed loss is
allocated to Asset 3. Accordingly, Old Target recog-
nizes $780 of gain on Asset 1 and recognizes $818 of
loss on Asset 3 (realized loss of $1,125 less allocated
disallowed loss of $307) or a recognized net loss of
$38 on the deemed asset disposition.
(iii)Consequences—Target Subsidiary. Because
the deemed sale of Target Subsidiary is not a trans-
action described in section 355(d)(2) or (e)(2), the
tax consequences of the deemed sale of Target Sub-
sidiary are determined under paragraph (b)(1) of this
section and not this paragraph (b)(2). The deemed
sale of the stock of Target Subsidiary is disregarded
and instead Target Subsidiary is deemed to sell all of
its assets to an unrelated person. The ADADP on the
deemed asset disposition of Target Subsidiary as de-
termined under §1.336–3 is $3,300. Assume that the
ADADP is allocated $900 to Asset 4 and $2,400 to
Asset 5 under §1.336–3. Old Target Subsidiary real-
ized a net loss of $200 on the deemed asset disposition
($400 gain realized on Asset 4 and $600 loss realized
on Asset 5). However, because a portion of Target
stock was distributed during the 12-month disposi-
tion period, for purposes of determining the amount
of disallowed loss on the deemed sale of the assets
of Target Subsidiary, the portion of the 100 shares of
Target Subsidiary stock deemed sold pursuant to the
section 336(e) election for Target Subsidiary multi-
plied by the disallowed loss fraction with respect to
Target stock are treated as having been distributed.
Thus, for purposes of determining the amount of dis-
allowed loss on the deemed asset disposition of Target
Subsidiary’s assets, 88.89 shares of Target Subsidiary
common stock (100 shares owned by Target multi-
plied by the disallowed loss fraction with respect to
Target stock, $8,000/$9,000) are treated as distributed
during the 12-month disposition period. The total
amount of disallowed loss with respect to the deemed
asset disposition of Target Subsidiary’s assets equals
$177.78 ($200 net loss realized on the deemed dispo-
sition of Assets 4 and 5 multiplied by the disallowed
loss fraction with respect to Target Subsidiary, the nu-
merator of which is $3,556, the value on July 1, the
disposition date, of the 88.89 shares of Target Sub-
sidiary common stock deemed distributed during the
12-month disposition period (88.89 shares x $40) and
the denominator of which is $4,000 (the sum of $444,
the value on July 1 of the 11.11 shares of Target Sub-
sidiary common stock deemed sold in the qualified
stock disposition pursuant to the section 336(e) elec-
tion for Target Subsidiary (11.11 shares x $40) and
$3,556, the value on July 1 of the 88.89 shares of
Target Subsidiary common stock deemed distributed
during the 12-month disposition period)). All of the
disallowed loss is allocated to Asset 5, the only loss
asset. Accordingly, Old Target Subsidiary recognizes
$400 of gain on Asset 4 and recognizes $422.22 of
loss on Asset 5 (realized loss of $600 less allocated
disallowed loss of $177.78) or a recognized net loss
of $22.22 on the deemed asset disposition.
(C)Tiered targets. In the case of par-
ent-subsidiary chainsof corporations mak-
ing section 336(e) elections, the deemed
asset disposition of a higher-tier subsidiary
is considered to precede the deemed asset
disposition of a lower-tier subsidiary.
(ii)Old target—deemed purchase—(A)
In general. Immediately after the deemed
asset disposition described in paragraph
(b)(2)(i)(A) of this section, old target is
treated as acquiring all of its assets from
an unrelated person in a single, separate
transaction at the close of the disposition
date (but before the distribution described
in paragraph (b)(2)(iii)(A) of this section)
in exchange for an amount equal to the
AGUB as determined under §1.336–4.
Old target allocates the consideration
deemed paid in the transaction in the
same manner as new target would under
§§1.338–6 and 1.338–7 in order to deter-
mine the basis in each of the purchased
assets.
(B)Tiered targets. In the case of par-
ent-subsidiary chainsof corporations mak-
ing section 336(e) elections with respect
to a qualified stock disposition described,
in whole or in part, in section 355(d)(2)
or (e)(2), old target’s deemed purchase of
all its assets is considered to precede the
deemed asset disposition of a lower-tier
subsidiary.
(C)Application of section 197(f)(9),
section 1091, and other provisions to old
target. Solely for purposes of section
197(f)(9), section 1091, and any other pro-
vision designated in the Internal Revenue
Bulletin by the Internal Revenue Service
(see §601.601(d)(2)(ii) of this chapter),
old target, in its capacity as seller of assets
in the deemed asset disposition described
in paragraph (b)(2)(i)(A) of this section,
shall be treated as a separate and distinct
taxpayer from, and unrelated to, old target
in its capacity as acquirer of assets in the
deemed purchase described in paragraph
(b)(2)(ii)(A) of this section and for subse-
quent periods.
(iii)Seller—distribution of target
stock—(A)In general. Immediately after
old target’s deemed purchase of its assets
described in paragraph (b)(2)(ii) of this
section, seller is treated as distributing
the stock of old target actually distributed
to its shareholders in the qualified stock
disposition. No gain or loss is recognized
by seller on the distribution. Addition-
ally, if stock of target is sold, exchanged,
or distributed outside of the section 355
transaction but still as part of a qualified
stock disposition described, in whole or
in part, in section 355(d)(2) or (e)(2), no
gain or loss is recognized by seller on such
sale, exchange, or distribution.
(B)Tiered targets. In the case of par-
ent-subsidiary chains of corporations mak-
ing section 336(e) elections with respect
to a qualified stock disposition described,
in whole or in part, in section 355(d)(2)
or (e)(2), the Federal income tax conse-
quences of the section336(e) election for
a subsidiary of target shall be determined
under paragraph (b)(1) of this section
unless the stock of the subsidiary of tar-
get is actually disposed of in a qualified
stock disposition described, in whole or in
part, in section 355(d)(2) or (e)(2). The
deemed liquidation of a lower-tier sub-
sidiary pursuant to paragraph (b)(1)(iii)
of this section is considered to precede
the deemed liquidation of a higher-tier
subsidiary. The deemed liquidation of
the highest tier subsidiary of target is
considered to precede the distribution of
old target stock described in paragraph
(b)(2)(iii)(A) of this section.
(iv)Seller—retention of target stock.If
seller retains any target stock after the dis-
position date, seller is treated as having
disposed of the old target stock so retained,
on the disposition date, in a transaction in
which no gain or loss is recognized, and
then, on the day after the disposition date,
purchasing the stock so retained from an
unrelated person for its fair market value.
The holding period for the retained stock
starts on the day after the disposition date.
For purposes of this paragraph (b)(2)(iv),
the fair market value of all of the target
stock equals the grossed-up amount real-
ized on the sale, exchange, or distribution
of recently disposed stock of target (see
§1.336–3(c)).
(v)Qualification under section 355.
Old target’s deemed sale of all its assets
to an unrelated person and old target’s
deemed purchase of all its assets from an
unrelated person will not cause the distri-
bution of old target to fail to satisfy the
June 10, 201312272013–24 I.R.B.

requirements of section 355. Similarly,
any deemed transactions under paragraph
(b)(1) or (b)(2) of this section that a sub-
sidiary of target is treated as engaging
in will not cause the distribution of old
target to fail to satisfy the requirements
of section 355. For purposes of applying
section 355(a)(1)(D), seller is treated as
having disposed of any stock disposed of
in the qualified stock disposition on the
date seller actually sold, exchanged, or
distributed such stock. Further, seller’s
deemed disposition of retained old target
stock under paragraph (b)(2)(iv) of this
section is disregarded for purposes of ap-
plying section 355(a)(1)(D).
(vi)Earnings and profits. The earn-
ings and profits of seller and target shall
be determined pursuant to §1.312–10 and,
if applicable, §1.1502–33(e). For this pur-
pose, target will not be treated as a newly
created controlled corporation and any in-
crease or decrease in target’s earnings and
profits pursuant to the deemed asset dispo-
sition will increase or decrease, as the case
may be, target’s earnings and profits im-
mediately before the allocation described
in §1.312–10.
(c)Purchaser. Generally, the making
of a section 336(e) election will not affect
the Federal income tax consequences to
which purchaser would have been sub-
ject with respect to the acquisition of
target stock if a section 336(e) election
was not made. Thus, notwithstanding
§§1.336–2(b)(1)(i)(A), 1.336–2(b)(1)(iv),
and 1.336–2(b)(2)(iii)(A), purchaser will
still be treated as having purchased, re-
ceived in an exchange, or received in a
distribution, the stock of target so acquired
on the date actually acquired. However,
see section 1223(1)(B) with respect to the
holding period for stock acquired pursuant
to a distribution qualifying under section
355 (or so much of section 356 that relates
to section 355). The Federal income tax
consequences of the deemed asset dispo-
sition and liquidation of target may affect
purchaser’s consequences. For example,
if seller distributes the stock of target to its
shareholders in a qualified stock disposi-
tion for which a section 336(e) election is
made, any increase in seller’s earnings and
profits as a result of old target’s deemed
asset disposition and liquidation into seller
may increase the amount of a distribution
to the shareholders constituting a dividend
under section 301(c)(1).
(d)Minority shareholders—(1)In gen-
eral. This paragraph (d) describes the
treatment of shareholders of old target
other than seller, a member of seller’s
consolidated group,and S corporation
shareholders (whether or not they sell or
exchange their stock of target). A share-
holder to which this paragraph (d) applies
is referred to as a minority shareholder.
(2)Sale, exchange, or distribution of
target stock by a minority shareholder.A
minority shareholder recognizes gain or
loss (as permitted under the general prin-
ciples of tax law) on its sale, exchange, or
distribution of target stock.
(3)Retention of target stock by a minor-
ity shareholder. A minority shareholder
who retains its target stock does not recog-
nize gain or loss under this section with re-
spect to its shares of target stock. The mi-
nority shareholder’s basis and holding pe-
riod for that target stock are not affected by
the section 336(e) election. Notwithstand-
ing this treatment of the minority share-
holder, if a section 336(e) election is made,
target will still be treated as disposing of
all of its assets in the deemed asset dispo-
sition.
(e)Treatment consistent with an actual
asset disposition. Except as otherwise pro-
vided, no provision in this section shall
produce a Federal income tax result under
subtitle A of the Internal Revenue Code
that would not occur if the parties had ac-
tually engaged in the transactions deemed
to occur because of this section, taking
into account other transactions that actu-
ally occurred or are deemed to occur. See
§1.338–1(a)(2) regarding the application
of other rules of law.
(f)Treatmentoftargetunderotherpro-
visions of the Internal Revenue Code.The
provisions §1.338–1(b) apply with respect
to the treatment of new target after a sec-
tion 336(e) election, treating any reference
to section 338 or 338(h)(10) as a reference
to section 336(e).
(g)Special rules—(1)Target as two
corporations. Although target is a single
corporation under corporate law, if a sec-
tion 336(e) election is made, then, except
with respect to a distribution described in
section 355(d)(2) or (e)(2) and as provided
in §1.338–1(b)(2), two separate corpora-
tions, old target and new target, generally
are considered to exist for purposes of sub-
title A of the Internal Revenue Code.
(2)Treatment of members of a consol-
idated group. For purposes of §§1.336–1
through 1.336–5, all members of seller’s
consolidated group are treated as a sin-
gle seller, regardless of which member or
members actually dispose of any stock.
Accordingly, any dispositions of stock
made by members of the same consoli-
dated group shall be treated as made by
one corporation, and any stock owned by
members of the same consolidated group
and not disposed of will be treated as stock
retained by seller.
(3)International provisions—(i)
Source and foreign tax credit.Theprinci-
ples of section 338(h)(16) apply to section
336(e) elections for targets with foreign
operations to ensure that the source and
foreign tax credit limitation are properly
determined.
(ii)Allocation of foreign taxes—(A)
General rule. Except as provided in para-
graph (g)(3)(ii)(B) of this section, if a
section 336(e) election is made for target
and target’s taxable year under foreign law
(if any) does not close at the end of the dis-
position date, foreign tax paid or accrued
by new target with respect to such foreign
taxable year is allocated between old tar-
get and new target. If there is more than
one section 336(e) election with respect to
target during target’s foreign taxable year,
foreign tax paid or accrued with respect
to that foreign taxable year is allocated
among all old targets and new targets. The
allocation is made based on the respective
portions of the taxable income (as deter-
mined under foreign law) for the foreign
taxable year that are attributable under the
principles of §1.1502–76(b) to the period
of existence of each old target and new
target during the foreign taxable year.
(B)Taxesimposedonpartnershipsand
disregarded entities. If a section 336(e)
election is made for target and target holds
an interest in a disregarded entity or part-
nership, the rules of §1.901–2(f)(4) apply
to determine the person who is considered
for U.S. Federal income tax purposes to
pay foreign tax imposed at the entity level
on the income of the disregarded entity or
partnership.
(iii)Disallowance of foreign tax credits
under section 901(m). For rules that may
apply to disallow foreign tax credits with
respect to income not subject to United
States taxation by reason of a covered asset
acquisition, see section 901(m).
2013–24 I.R.B.1228June 10, 2013

(h)Making the section 336(e) elec-
tion—(1)Consolidated group.Ifseller(s)
and target are members of the same con-
solidated group, a section 336(e) election
is made by completing the following re-
quirements:
(i) Seller(s) and target must enter into
a written, binding agreement, on or before
the due date (including extensions) of the
consolidated group’s consolidated Federal
income tax return for the taxable year that
includes the disposition date, to make a
section 336(e) election;
(ii) The common parent of the consoli-
dated group must retain a copy of the writ-
ten agreement;
(iii) The common parent of the con-
solidated group must attach the section
336(e) election statement, described in
paragraphs (h)(5) and (6) of this section,
to the group’s timely filed (including ex-
tensions) consolidated Federal income tax
return for the taxable year that includes
the disposition date; and
(iv) The common parent of the consol-
idated group must provide a copy of the
section 336(e) election statement to target
on or before the due date (including exten-
sions) of the consolidated group’s consoli-
dated Federal income tax return.
(2)Non-consolidated/non-S corpora-
tion target. If target is neither a member of
the same consolidated group as seller nor
an S corporation, a section 336(e) elec-
tion is made by completing the following
requirements:
(i) Seller and target must enter into
a written, binding agreement, on or be-
fore the due date (including extensions)
of seller’s or target’s Federal income tax
return for the taxable year that includes
the disposition date, whichever is earlier,
to make a section 336(e) election;
(ii) Seller and target each must retain a
copy of the written agreement; and
(iii) Seller and target each must attach
the section 336(e) election statement, de-
scribed in paragraphs (h)(5) and (6) of
this section, to its timely filed (includ-
ing extensions) Federal income tax return
for the taxable year that includes the dis-
position date. However, seller’s section
336(e) election statement may disregard
paragraph (h)(6)(xii) of this section (con-
cerning a gain recognition election).
(3)S corporation target. A section
336(e) election for an S corporation target
is made by completing the following re-
quirements:
(i) All of the S corporation sharehold-
ers, including those who do not dispose of
any stock in the qualified stock disposition,
and the S corporation target must enter into
a written, binding agreement, on or before
the due date (including extensions) of the
Federal income tax return of the S corpo-
ration target for the taxable year that in-
cludes the disposition date, to make a sec-
tion 336(e) election;
(ii) S corporation target must retain a
copy of the written agreement; and
(iii) S corporation target must attach
the section 336(e) election statement, de-
scribed in paragraphs (h)(5) and (6) of this
section, to its timely filed (including ex-
tensions) Federal income tax return for the
taxable year that includes the disposition
date.
(4)Tiered targets. In the case of parent-
subsidiary chains of corporations making
section 336(e) elections, in order to make
a section 336(e) election for a lower-tier
target (target subsidiary), the requirements
described in paragraph (h)(1) or (h)(2) of
this section, whichever is applicable to the
qualified stock disposition of target sub-
sidiary, must be satisfied. The written
agreement described in paragraph (h)(1) or
(h)(2) of this section for the section 336(e)
election with respect to target subsidiary
may be either a separate written agreement
between target subsidiary and the corpora-
tion deemed to dispose of the stock of tar-
get subsidiary or may be included in the
written agreement between seller(s) (or the
S corporation shareholders) and target.
(5)Section 336(e) election state-
ment—(i)In general. The section 336(e)
election statement must be entitled “THIS
IS AN ELECTION UNDER SECTION
336(e) TO TREAT THE DISPOSITION
OF THE STOCK OF [insert name and
employer identification number of target]
AS A DEEMED SALE OF SUCH COR-
PORATION’S ASSETS.” The section
336(e) election statement must include the
information describedin paragraph (h)(6)
of this section. The relevant information
for each S corporation shareholder and,
notwithstanding paragraph (g)(2) of this
section, each consolidated group member
that disposes of or retains target stock
must be set forth individually, not in the
aggregate.
(ii)Target subsidiaries. In the case of
a section 336(e) election for a target sub-
sidiary, a separate statement must be filed
for each target subsidiary. In preparing the
section 336(e) election statement with re-
spect to a target subsidiary, any reference
to seller in paragraph (h)(6) of this section
should be considered a reference to the cor-
poration deemed to dispose of the stock of
the target subsidiary and any reference to
target in paragraphs (h)(5)(i) and (h)(6) of
this section should beconsidered a refer-
ence to the target subsidiary.
(6)Contents of section 336(e) election
statement. The section 336(e) election
statement must include:
(i) The name, address, taxpayer identi-
fying number (TIN), taxable year, and state
of incorporation (if any) of the seller(s) or
the S corporation shareholder(s);
(ii) The name, address, employer iden-
tification number (EIN), taxable year, and
state of incorporation of the common par-
ent, if any, of seller(s);
(iii) The name, address, EIN, taxable
year, and state of incorporation of target;
(iv) The name, address, TIN, taxable
year, and state of incorporation (if any) of
any 80-percent purchaser;
(v) The name, address, TIN, taxable
year, and state of incorporation (if any)
of any purchaser that holds nonrecently
disposed stock within the meaning of
§1.336–1(b)(18);
(vi) The disposition date;
(vii) The percentage of target stock that
was disposed of by each seller or S cor-
poration shareholder in the qualified stock
disposition;
(viii) The percentage of target stock that
was disposed of by each seller or S cor-
poration shareholder in the qualified stock
disposition on or before the disposition
date;
(ix) A statement regarding whether tar-
get realized a net loss on the deemed asset
disposition;
(x) If target realized a net loss on the
deemed asset disposition, a statement re-
garding whether any stock of target or that
of any higher-tier corporation up through
the highest-tier corporation for which a
section 336(e) election was made by any
seller(s) or S corporation shareholder(s)
was distributed during the 12-month dis-
position period. If so, also provide a
statement regarding whether any stock of
target or that of any higher-tier corporation
June 10, 201312292013–24 I.R.B.

up through the highest-tier corporation for
which a section 336(e) election was made
was actually sold or exchanged (rather
than deemed sold in a deemed asset dis-
position) by any seller(s) or S corporation
shareholder(s) in a qualified stock dispo-
sition;
(xi) The percentage of target stock that
was retained by each seller or S corpora-
tion shareholder after the disposition date;
(xii) The name, address, and TIN of
any purchaser that made a gain recognition
election pursuant to §1.336–4(c). A copy
of the gain recognition election statement
must be retained by the filer of the section
336(e) election statement designated as the
appropriate party in §1.336–4(c)(3); and
(xiii) A statement that each of the
seller(s) or S corporation shareholder(s)
(as applicable) and target have executed
a written, binding agreement to make a
section 336(e) election.
(7)Asset Allocation Statement. Old tar-
get and new target must report informa-
tion concerning the deemed sale of tar-
get’s assets on Form 8883,Asset Alloca-
tion Statement Under Section 338, (mak-
ing appropriate adjustments to report the
results of the section 336(e) election), or
on any successor form prescribed by the
Internal Revenue Service, in accordance
with forms, instructions, or other appropri-
ate guidance provided by the Internal Rev-
enue Service. In addition, in the case of
a section 336(e) election as the result of a
transaction describedin section 355(d)(2)
or (e)(2), old target should file two Forms
8883 (or successor forms), one in its capac-
ity as the seller of the assets in the deemed
asset disposition described in paragraph
(b)(2)(i) of this section and one in its ca-
pacity as the purchaser of the assets in the
deemed purchase described in paragraph
(b)(2)(ii) of this section.
(8)Examples. The following examples
illustrate the provisions of paragraph (h) of
this section.
Example 1.(i)Facts. Seller owns all of the stock
of Target and Target owns all of the stock of Target
Subsidiary. Seller is the common parent of a consol-
idated group that includes Target. However, Target
Subsidiary is not included in the consolidated group
pursuant to section 1504(a)(3). On Date 1, Seller sells
80 percent of its Target stock to A and distributes the
remaining 20 percent of Target stock to Seller’s unre-
lated shareholders.
(ii)Making of election for Target. Because Seller
and Target are members of a consolidated group, in
order to make a section 336(e) election for the qual-
ified stock disposition of Target, the requirements of
paragraph (h)(1) of this section must be satisfied. On
or before the due date of Seller group’s consolidated
Federal income tax return that includes Date 1, Seller
and Target must enter into a written, binding agree-
ment to make a section 336(e) election; Seller must
retain a copy of the written agreement; Seller must
attach the section 336(e) election statement to the
group’s timely filed consolidated return for the tax-
able year that includes Date 1; and Seller must pro-
vide a copy of the section 336(e) election statement
to Target on or before the due date (including exten-
sions) of the consolidated return.
(iii)Making of election for Target Subsidiary.Be-
cause Target and Target Subsidiary do not join in the
filing of a consolidated Federal income tax return and
Target Subsidiary is not an S corporation, in order
to make a section 336(e) election for the qualified
stock disposition of Target Subsidiary, the require-
ments of paragraph (h)(2) of this section must be sat-
isfied. OnorbeforetheduedateofSellergroup’s
consolidated Federal income tax return that includes
Date 1, or Target Subsidiary’s Federal income tax re-
turn that includes Date 1, whichever is earlier, either
Target Subsidiary must join in the written agreement
described in paragraph (ii) of thisExample 1to make
a section 336(e) election with respect to the quali-
fied stock disposition of Target Subsidiary or Tar-
get and Target Subsidiary must enter into a separate
written, binding agreement to make a section 336(e)
election with respect to the qualified stock disposi-
tion of Target Subsidiary; Seller (as agent of the con-
solidated group that includes Target) and Target Sub-
sidiary each must retain a copy of the written agree-
ment; and Seller (as agent of the consolidated group
that includes Target) and Target Subsidiary each must
attach the section 336(e) election statement with re-
spect to the qualified stock disposition of Target Sub-
sidiary to its timely filed Federal income tax return for
the taxable year that includes Date 1. In preparing the
section 336(e) election statement, paragraph (i) of the
statement should include the relevant information for
Target, paragraph (ii) of the statement should include
the relevant information for Seller, paragraph (iii) of
the statement should include the relevant information
for Target Subsidiary, paragraphs (vii) through (xi)
of the statement should provide information for both
Seller’s actual sale and distribution of Target stock
as well as information for Target’s deemed sale of
Target Subsidiary stock, and paragraph (xiii) of the
statement should include a statement that Seller, Tar-
get, and Target Subsidiary, or Target and Target Sub-
sidiary, whichever is appropriate, have executed a
written, binding agreement to make a section 336(e)
election with respect to the qualified stock disposition
of Target Subsidiary.
Example 2.(i)Facts. A and B each own 45 per-
cent and C owns the remaining 10 percent of the stock
of S Corporation Target, an S corporation. S Corpo-
rationTargetowns80percentofthestockofTarget
Subsidiary and D owns the remaining 20 percent. On
Date 1, A and B each sell all of their S Corporation
Target stock to an unrelated individual. C retains his
10 percent of the stock of S Corporation Target.
(ii)Making of election for S Corporation Target.
Because S Corporation Target is an S corporation, in
order to make a section 336(e) election for the qual-
ified stock disposition of S Corporation Target, the
requirements of paragraph (h)(3) of this section must
be satisfied. On or before the due date of S Corpora-
tion Target’s Federal incometax return that includes
Date 1, A, B, C, and S Corporation Target must en-
ter into a written, binding agreement to make a sec-
tion 336(e) election; S Corporation Target must retain
a copy of the written agreement; and S Corporation
Target must attach the section 336(e) election state-
ment to its timely filed Federal income tax return for
the taxable year that includes Date 1.
(iii)Making of election for Target Subsidiary.Be-
cause Target Subsidiary is neither a member of the
same consolidated group as S Corporation Target nor
is an S corporation, in order to make a section 336(e)
election for the qualified stock disposition of Target
Subsidiary, the requirements of paragraph (h)(2) of
this section must be satisfied. On or before the due
date of S Corporation Target’s Federal income tax re-
turn that includes Date 1, or Target Subsidiary’s Fed-
eral income tax return that includes Date 1, whichever
is earlier, either Target Subsidiary must join in the
written agreement described in paragraph (ii) of this
Example 2to make a section 336(e) election with
respect to the qualified stock disposition of Target
Subsidiary or S Corporation Target and Target Sub-
sidiary must enter into a separate written, binding
agreement to make a section 336(e) election with re-
spect to the qualified stock disposition of Target Sub-
sidiary; S Corporation Target and Target Subsidiary
each must retain a copy of the written agreement;
and S Corporation Target and Target Subsidiary each
must attach the section 336(e) election statement to its
timely filed Federal incometax return for the taxable
year that includes Date 1. In preparing the section
336(e) election statement, paragraph (i) of the state-
ment should include the relevant information for S
Corporation Target, paragraph (iii) of the statement
should include the relevant information for Target
Subsidiary, paragraphs (vii) through (xi) of the state-
ment should provide information for both A’s and B’s
actual sale and C’s actual retention of S Corporation
Target stock as well as information for S Corpora-
tion Target’s deemed sale of Target Subsidiary stock,
and paragraph (xiii) of the statement should include
a statement that A, B, C, S Corporation Target, and
Target Subsidiary, or S Corporation Target and Target
Subsidiary, whichever is appropriate, have executed
a written, binding agreement to make a section 336(e)
election with respect to the qualified stock disposition
of Target Subsidiary.
(i) [Reserved]
(j)Protective section 336(e) election.
Taxpayers may make a protective election
under section 336(e) in connection with a
transaction. Such an election will have no
effect if the transaction does not constitute
a qualified stock disposition, as defined
in §1.336–1(b)(6), but will otherwise be
binding and irrevocable.
(k)Examples. The following examples
illustrate the provisions of this section.
Example 1.Sale of 100 percent of Target stock.
(i)Facts. Parent owns all 100 shares of Target’s only
class of stock. Target’s only assets are two parcels of
land. Parcel 1 has a basis of $5,000 and Parcel 2 has a
basis of $4,000. Target has no liabilities. On July 1 of
Year 1, Parent sells all 100 shares of Target stock to A
for $100 per share. Parent incurs no selling costs and
A incurs no acquisition costs. On July 1, the value of
2013–24 I.R.B.1230June 10, 2013

Parcel 1 is $7,000 and the value of Parcel 2 is $3,000.
A section 336(e) election is made.
(ii)Consequences. The sale of Target stock con-
stitutes a qualified stock disposition. July 1 of Year 1
is the disposition date. Accordingly, pursuant to the
section 336(e) election, for Federal income tax pur-
poses, rather than treating Parent as selling the stock
of Target to A, the following events are deemed to
occur. Target is treated as if, on July 1, it sold all
of its assets to an unrelated person in exchange for
the ADADP of $10,000, which is allocated $7,000 to
Parcel 1 and $3,000 to Parcel 2 (see §§1.336–3 and
1.338–6 for determination of amount and allocation
of ADADP). Target recognizes gain of $2,000 on Par-
cel 1 and loss of $1,000 on Parcel 2. New Target is
then treated as acquiring all its assets from an unre-
lated person in a single transaction in exchange for
the amount of the AGUB of $10,000, which is allo-
cated $7,000 to Parcel 1 and $3,000 to Parcel 2 (see
§§1.336–4, 1.338–5, and 1.338–6 for determination
of amount and allocation of AGUB). Old Target is
treated as liquidating into Parent immediately there-
after, distributing the$10,000 deemed received in ex-
change for Parcel 1 and Parcel 2 in a transaction quali-
fying under section 332. Parent recognizes no gain or
loss on the liquidation. A’s basis in New Target stock
is $100 per share, the amount paid for the stock.
Example 2.Sale of 80 percent of Target stock.(i)
Facts. The facts are the same as inExample 1except
that Parent only sells 80 shares of its Target stock to
A and retains the other 20 shares.
(ii)Consequences. The results are the same as in
Example 1except that Parent also is treated as pur-
chasing from an unrelated person on July 2, the day
after the disposition date, the 20 shares of Target stock
(New Target stock) not sold to A, for their fair mar-
ket value as determined under §1.336–2(b)(1)(v) of
$2,000 ($100 per share).
Example 3.Distribution of 100 percent of Target
stock.(i)Facts.ThefactsarethesameasinExample
1except that instead of on July 1 Parent selling 100
shares of Target stock to A, Parent distributes 100
shares to its shareholders, all of whom are unrelated
to Parent, in a transaction that does not qualify under
section355. ThevalueofTargetstockonJuly1is
$100 per share.
(ii)Consequences. The distribution of Target
stock constitutes a qualified stock disposition. July
1 of Year 1 is the disposition date. Accordingly,
pursuant to the section 336(e) election, for Federal
income tax purposes, rather than treating Parent as
distributing the stock of Target to its shareholders,
the following events are deemed to occur. Target
is treated as if, on July 1, it sold all of its assets to
an unrelated person in exchange for the ADADP of
$10,000, which is allocated $7,000 to Parcel 1 and
$3,000 to Parcel 2 (see §§1.336–3 and 1.338–6 for
determination of amount and allocation of ADADP).
Target recognizes gain of $2,000 on Parcel 1 and loss
of $1,000 on Parcel 2. Because Target’s losses real-
ized on the deemed asset disposition do not exceed
Target’s gains realized on the deemed asset disposi-
tion, Target can recognize all of the losses from the
deemed asset disposition (see §1.336–2(b)(1)(i)(B)).
New Target is then treated as acquiring all its assets
from an unrelated person in a single transaction in
exchange for the amount of the AGUB of $10,000,
which is allocated $7,000 to Parcel 1 and $3,000 to
Parcel 2 (see §§1.336–4, 1.338–5, and 1.338–6 for
determination of amount and allocation of AGUB).
Old Target is treated as liquidating into Parent imme-
diately thereafter, distributing the $10,000 deemed
received in exchange for Parcel 1 and Parcel 2 in
a transaction qualifying under section 332. Parent
recognizes no gain or loss on the liquidation. On July
1, immediately after the deemed liquidation of Tar-
get, Parent is deemed to purchase from an unrelated
person 100 shares of New Target stock and distribute
those New Target shares to its shareholders. Parent
recognizes no gain or loss on the deemed distribution
of the shares under §1.336–2(b)(1)(iv). The share-
holders receive New Target stock as a distribution
pursuant to section 301 and their basis in New Target
stock received is its fair market value pursuant to
section 301(d).
Example 4.Distributionof80percentofTarget
stock.(i)Facts. The facts are the same as inExam-
ple 3except that Parent distributes only 80 shares of
Target stock to its shareholders and retains the other
20 shares.
(ii)Consequences. The results are the same as in
Example 3except that Parent is treated as purchasing
onJuly1only80sharesofNewTargetstockandas
distributingonly80sharesofNewTargetstocktoits
shareholders and then as purchasing (and retaining)
on July 2, the day after the disposition date, 20 shares
of New Target stock at their fair market value as de-
termined under §1.336–2(b)(1)(v), $2,000 ($100 per
share).
Example 5.Part sale, part distribution.(i)Facts.
Parent owns all 100 shares of Target’s only class of
stock. Target has two assets, both of which are build-
ings used in its business. Building 1 has a basis of
$6,000 and Building 2 has a basis of $5,100. Tar-
get has no liabilities. On January 1 of Year 1, Parent
sells 50 shares of Target to A for $88 per share. Par-
ent incurred no selling costs with respect to the sale of
Target stock and A incurred no acquisition costs with
respecttothepurchase. OnJuly1ofYear1,when
the value of Target stock is $120 per share, Parent dis-
tributes 30 shares of Targetstock to Parent’s unrelated
shareholders. Parent retains the remaining 20 shares.
On July 1, the value of Building 1 is $7,800 and the
value of Building 2 is $4,200. A section 336(e) elec-
tion is made.
(ii)Consequences. Because the sale of the 50
shares and the distribution of the 30 shares occurred
within a 12-month disposition period, the 80 shares
of Target stock sold and distributed were disposed of
in a qualified stock disposition. July 1 of Year 1 is
the disposition date. On July 1, Target is treated as
if it sold its assets to an unrelated person in exchange
for the ADADP, $10,000 ($8,000 ((50 shares x $88) +
(30 shares x $120)) / .80 ($9,600 (80 shares x $120)
/ $12,000 (100 shares x $120))), which is allocated
to Buildings 1 and 2 in proportion to their fair mar-
ket values, $6,500 to Building 1 and $3,500 to Build-
ing 2 (see §§1.336–3 and 1.338–6 for determination
of amount and allocation of ADADP). Target real-
izes a gain of $500 on the deemed sale of Building
1 ($6,500 - $6,000). Target realizes a loss of $1,600
on the deemed sale of Building 2 ($3,500 - $5,100).
Target recognizes all of its gains on the deemed as-
set disposition. However, because 30 shares of Tar-
get stock were distributed during the 12-month dis-
position period and there was a net loss of $1,100
realized on the deemed disposition of Buildings 1
and 2, $413 of the loss on the deemed sale is disal-
lowed (see §1.336–2(b)(1)(i)(B)(2) for the determi-
nation of the disallowed loss amount). New Target is
then treated as acquiring all its assets from an unre-
lated person in a single transaction in exchange for the
amount of the AGUB, $10,000 ($8,000 ((50 shares x
$88) + (30 shares x $120)) x 1.25 ((100 - 0) / 80)),
which is allocated to Buildings 1 and 2 in propor-
tion to their fair market values, $6,500 to Building
1 and $3,500 to Building 2 (see §§1.336–4, 1.338–5,
and 1.338–6 for determination of amount and alloca-
tion of AGUB). Old Target is treated as liquidating
into Parent immediately after the deemed asset dis-
position, distributing the $10,000 deemed received in
exchange for its assets in a transaction qualifying un-
der section 332. Parent recognizes no gain or loss
on the liquidation. Parent is then deemed to pur-
chase 30 shares of New Target stock from an un-
related person on July 1, and to distribute those 30
New Target shares to its shareholders. Parent rec-
ognizes no gain or loss on the deemed distribution
of the 30 shares under §1.336–2(b)(1)(iv). Parent
is then deemed to purchase (and retain) on July 2,
the day after the disposition date, 20 shares of New
Target stock at their fair market value as determined
under §1.336–2(b)(1)(v), $2,000 ($100 per share (20
shares multiplied by $100 fair market value per share
($10,000 grossed-up amount realized on the sale and
distribution of 80 shares of target stock divided by
100 shares)). A is treated as having purchased the 50
shares of New Target stock on January 1 of Year 1
at a cost of $88 per share, the same as if no section
336(e) election had been made. Parent’s sharehold-
ers are treated as receiving New Target stock on July
1ofYear1asadistributionpursuanttosection301
and their basis in New Target stock received is $120
per share, its fair market value, pursuant to section
301(d), the same as if no section 336(e) election had
been made.
Example 6.Sale of Target stock by consolidated
group members.(i)Facts. Parent owns all of the
stockofSuband50ofthe100outstandingsharesof
Target stock. Sub owns the remaining 50 shares of
Target stock. Target’s assets have an aggregate basis
of $9,000. Target has no liabilities. Parent, Sub, and
Target file a consolidated Federal income tax return.
On February 1 of Year 1, Parent sells 30 shares of its
TargetstocktoAfor$2,400. OnMarch1ofYear
1,Subsellsall50sharesofitsTargetstocktoBfor
$5,600. Neither Parent nor Sub incurred any selling
costs. Neither A nor B incurred any acquisition costs.
A section 336(e) election is made.
(ii)Consequences. Because Parent and Sub are
members of the same consolidated group, their sale of
Target stock is treated as made by one seller (see para-
graph(g)(2)ofthissection), and the sales of Target
stock constitute a qualified stock disposition. March
1 of Year 1 is the disposition date. For Federal in-
come tax purposes, Parentand Sub are not treated as
selling the stock of Target to A and B, respectively.
Instead, the following events are deemed to occur.
Old Target is treated as if, on March 1, it sold all
its assets to an unrelated person in exchange for the
ADADP, $10,000 (see §1.336–3 for determination of
ADADP), recognizing a net gain of $1,000. New Tar-
get is then treated as acquiring all its assets from an
unrelated person in a single transaction in exchange
for the amount of the AGUB, $10,000 (see §§1.336–4
and 1.338–5 for the determination of AGUB). Old
Target is treated as liquidating into Parent and Sub im-
June 10, 201312312013–24 I.R.B.

mediately thereafter, distributing the $10,000 deemed
received in exchange for its assets in a transaction
qualifying under section 332 (see §1.1502–34). Nei-
ther Parent nor Sub recognizes gain or loss on the liq-
uidation. Parent is then treated as purchasing from an
unrelated person on March 2, the day after the dispo-
sition date, the 20 shares of Target stock (New Tar-
get stock) retained for their fair market value as de-
termined under §1.336–2(b)(1)(v), $2,000 ($100 per
share). A is treated as having purchased 30 shares of
New Target stock on February 1 of Year 1 at a cost
of $2,400 ($80 per share), the same as if no section
336(e) election had been made. B is treated as having
purchased 50 shares of New Target stock on March 1
of Year 1 at a cost of $5,600 ($112 per share), the
same as if no section 336(e) election had been made.
Example 7.Sale of Target stock by non-consol-
idated group members.(i)Facts. The facts are the
same as inExample 6except that Parent, Sub, and
Target do not join in the filing of a consolidated Fed-
eral income tax return.
(ii)Consequences. Because Parent and Sub do
not join in the filing of a consolidated Federal in-
come tax return and no single seller sells, exchanges,
or distributes Target stock meeting the requirements
of section 1504(a)(2), the transaction does not consti-
tute a qualified stock disposition. The section 336(e)
election made with respect to the disposition of Tar-
get stock has no effect.
Example 8.Distributionof80percentofTarget
stock in complete redemption of a greater-than–50-
percent shareholder.(i)Facts.AandBown51and
49 shares, respectively, of Seller’s only class of stock.
Seller owns all 100 shares of Target’s only class of
stock. Seller distributes 80 shares of Target stock to
AincompleteredemptionofA’s51sharesofSellerin
a transaction that does not qualify under section 355.
A section 336(e) election is made.
(ii)Consequences. Prior to the redemption,
Seller and A would be related persons because, under
section 318(a)(2)(C), any stock of a corporation that
is owned by Seller would be attributed to A because
Aowns50percentormoreofthevalueofthestock
of Seller. However, for purposes of §§1.336–1
through 1.336–5, the determination of whether Seller
and A are related is made immediately after the
redemption of A’s stock. See §§1.336–1(b)(5)(iii)
and 1.338–3(b)(3)(ii)(A). After the redemption, A
no longer owns any stock of Seller. Accordingly,
A and Seller are not related persons, as defined in
§1.336–1(b)(12), and the distribution of Target stock
constitutes a qualified stock disposition. For Federal
income tax purposes, rather than Seller distributing
the stock of Target to A, the following is deemed to
occur. Old Target is treated as if it sold its assets to
an unrelated person. New Target is then treated as
acquiring all its assets from an unrelated person in a
single transaction. Immediately thereafter, Old Tar-
get is treated as liquidating into Seller in a transaction
qualifying under section 332. Seller recognizes no
gain or loss on the liquidation. Seller is then treated
as purchasing 80 shares of New Target stock from an
unrelated person and then distributing the 80 shares
of New Target stock to A in exchange for A’s 51
shares of Seller stock. Seller recognizes no gain or
loss on the distribution of New Target stock pursuant
to §1.336–2(b)(1)(iv). Seller is then treated as pur-
chasing from an unrelated person on the day after the
disposition date the 20 shares of Target stock (New
Target stock) retained for their fair market value as
determined under §1.336–2(b)(1)(v). The Federal
income tax consequences to A are the same as if no
section 336(e) election had been made.
Example 9.Pro-rata distribution of 80 percent
of Target stock.(i)Facts. AandBown60and40
shares, respectively, of Seller’s only class of stock.
Seller owns all 100 shares of Target’s only class of
stock. Seller distributes 48 shares of Target stock to
A and 32 shares of Target stock to B in a transaction
that does not qualify under section 355. A section
336(e) election is made.
(ii)Consequences. Any stock of a corporation
that is owned by Seller would be attributed to A under
section 318(a)(2)(C) because, after the distribution, A
owns 50 percent or more of the value of the stock of
Seller. Therefore, after the distribution, A and Seller
are related persons, as defined in §1.336–1(b)(12),
and the distribution of Target stock to A is not a dispo-
sition. Because only 32 percent of Target stock was
sold, exchanged, or distributed to unrelated persons,
there has not been a qualified stock disposition. Ac-
cordingly, the section 336(e) election made with re-
spect to the distribution of Target stock has no effect.
§1.336–3 Aggregate deemed asset
disposition price; various aspects of
taxation of the deemed asset disposition.
(a)Scope. This section provides rules
under section 336(e) to determine the ag-
gregate deemed asset disposition price
(ADADP) for target. ADADP is the
amount for which old target is deemed to
have sold all of its assets in the deemed
asset disposition. ADADP is allocated
among target’s assets in the same man-
ner as the aggregate deemed sale price
(ADSP) is allocated under §1.338–6 to de-
termine the amount for which each asset is
deemed to have been sold. If a subsequent
increase or decrease is required under gen-
eral principles of tax law with respect to
an element of ADADP, the redetermined
ADADP is allocated among target’s assets
in the same manner as redetermined ADSP
is allocated under §1.338–7.
(b)Determination of ADADP—(1)
General rule. ADADP is the sum of—
(i) The grossed-up amount realized on
the sale, exchange, or distribution of re-
cently disposed stock of target; and
(ii) The liabilities of old target.
(2)Time and amount of ADADP—(i)
Original determination. ADADP is ini-
tially determined at the beginning of the
day after the disposition date of target.
General principles of tax law apply in de-
termining the timing and amount of the el-
ements of ADADP.
(ii)Redetermination of ADADP.
ADADP is redetermined at such time
andinsuchamountasanincreaseorde-
crease would be required, under general
principles of tax law, for the elements of
ADADP. For example, ADADP is redeter-
mined because of an increase or decrease
in the amount realized on the sale or ex-
change of recently disposed stock of target
or because liabilities not originally taken
into account in determining ADADP are
subsequently taken into account. Increases
or decreases with respect to the elements
of ADADP result in the reallocation of
ADADP among target’s assets in the same
manner as ADSP under §1.338–7.
(c)Grossed-up amount realized on the
disposition of recently disposed stock of
target—(1)Determination of amount.The
grossed-up amount realized on the dispo-
sition of recently disposed stock of target
is an amount equal to—
(i)Thesumof—
(A) With respect to recently disposed of
stock of target that is not distributed in the
qualified stock disposition, the amount re-
alized on the sale or exchange of such re-
cently disposed stock of target, determined
as if seller or S corporation shareholders
were required to use old target’s account-
ing methods and characteristics and the in-
stallment method were not available and
determined without regard to the selling
costs taken into account under paragraph
(c)(1)(iii) of this section, and
(B) With respect to recently disposed
of stock of target that is distributed in the
qualified stock disposition, the fair market
value of such recently disposed stock of
target determined on the date of each dis-
tribution;
(ii) Divided by the percentage of target
stock (by value, determined on the dispo-
sition date) attributable to the recently dis-
posed stock;
(iii) Less the selling costs incurred by
seller or S corporation shareholders in
connection with the sale or exchange of
recently disposed stock that reduce its
amount realized on the sale or exchange
of the stock (for example, brokerage com-
missions and any similar costs to sell the
stock).
(2)Example. The following example
illustrates this paragraph (c):
Example. Target has two classes of stock out-
standing, voting common stock and preferred stock
described in section 1504(a)(4). Seller owns all 100
shares of each class of stock. On March 1 of Year
1, Seller sells 10 shares of Target voting common
stock to A for $75. On April 1 of Year 2, Seller
2013–24 I.R.B.1232June 10, 2013

distributes 15 shares of Target voting common stock
with a fair market value of $120 to B. On May 1 of
Year 2, Seller distributes 10 shares of Target voting
common stock with a fair market value of $110 to C.
On July 1 of Year 2, Seller sells 55 shares of Target
voting common stock to D for $550. On July 1 of
Year 2, the fair market value of all the Target voting
common stock is $1,000 ($10 per share) and the fair
market value of all the preferred stock is $600 ($6
per share). Seller incurs $20 of selling costs with re-
spect to the sale to A and $60 of selling costs with
respect to the sale to D. The grossed-up amount real-
ized on the sale, exchange, or distribution of recently
disposed stock of Target is calculated as follows: The
sum of the amount realized on the sale or exchange of
recently disposed stock sold or exchanged (without
regard to selling costs) and the fair market value of
the recently disposed stock distributed is $780 ($120
+ $110 + $550) (the 10 shares sold to A on March
1 of Year 1 is not recently disposed stock because
it was not disposed of during the 12-month dispo-
sition period). The percentage of Target stock by
value on the disposition date attributable to recently
disposed stock equals 50% ($800 (80 shares of re-
cently disposed stock x $10, the fair market value of
each share of Target common stock on the disposi-
tion date) / $1,600 ($1,000 (the total value of Target’s
common stock on the disposition date) + $600 (the
total value of Target’s preferred stock on the disposi-
tion date))). The grossed-up amount realized equals
$1,500 (($780/.50) - $60 selling costs).
(d)Liabilities of old target—(1)In gen-
eral. In general, the liabilities of old tar-
get are measured as of the beginning of the
day after the disposition date. However,
if a target for which a section 336(e) elec-
tion is made engages in a transaction out-
side the ordinary course of business on the
disposition date after the event resulting in
the qualified stock disposition of target or a
higher-tier corporation, target and all per-
sons related thereto (either before or after
the qualified stock disposition) under sec-
tion 267(b) or section 707 must treat the
transaction for all Federal income tax pur-
poses as occurring at the beginning of the
day following the transaction and after the
deemed disposition by old target. In order
to be taken into account in ADADP, a li-
ability must be a liability of target that is
properly taken into account in amount re-
alized under general principles of tax law
that would apply if old target had sold its
assets to an unrelated person for consider-
ation that included the discharge of its li-
abilities. See §1.1001–2(a). Such liabili-
ties may include liabilities for the tax con-
sequences resulting from the deemed asset
disposition.
(2)Time and amount of liabilities.The
time for taking into account liabilities of
old target in determining ADADP and the
amount of the liabilities taken into account
is determined as if old target had sold its
assets to an unrelated person for consider-
ation that included the discharge of the li-
abilities by the unrelated person. For ex-
ample, if no amount of a target liability is
properly taken into account in amount re-
alized as of the beginning of the day af-
ter the disposition date, the liability is not
initially taken intoaccount in determining
ADADP, but it may be taken into account
at some later date.
(e)Deemed disposition tax conse-
quences. Gain or loss on each asset in
the deemed asset disposition is computed
by reference to the ADADP allocated to
that asset. ADADP is allocated in the
same manner as is ADSP under §1.338–6.
Although deemed disposition tax conse-
quences may increase or decrease ADADP
by creating or reducing a tax liability, the
amount of the tax liability itself may be
a function of the size of the deemed dis-
position tax consequences. Thus, these
determinations may require trial and error
computations.
(f)Other rules apply in determining
ADADP. ADADP may not be applied in
such a way as to contravene other appli-
cable rules. For example, a capital loss
cannot be applied to reduce ordinary in-
come in calculating the tax liability on the
deemed asset disposition for purposes of
determining ADADP.
(g)Examples. The following examples
illustrate this section.
Example 1.(i)Facts. The facts are the same as in
Example 1of §1.336–2(b)(1)(i)(B)(3), that is, Parent
owns 60 of the 100 outstanding shares of the common
stock of Seller, Seller’s only class of stock outstand-
ing. The remaining 40 shares of the common stock
of Seller are held by shareholders unrelated to Seller
or each other. Seller owns 95 of the 100 outstanding
shares of Target common stock, and all 100 shares
of Target preferred stock that is described in section
1504(a)(4). The remaining 5 shares of Target com-
monstockareownedbyA.OnJanuary1ofYear1,
Seller sells 72 shares of Target common stock to B
for $3,520. On July 1 of Year 1, Seller distributes
12 shares of Target common stock to Parent and 8
shares to its unrelated shareholders in a distribution
described in section 301. Seller retains 3 shares of
Target common stock and all 100 shares of Target
preferred stock immediately after July 1. The value
of Target common stock on July 1 is $60 per share.
The value of Target preferred stock on July 1 is $36
per share. Target has three assets, Asset 1, a Class IV
asset, with a basis of $1,776 and a fair market value
of $2,000, Asset 2, a Class V asset, with a basis of
$2,600 and a fair market value of $2,750, and Asset 3,
a Class V asset, with a basis of $3,900 and a fair mar-
ket value of $3,850. Seller incurred no selling costs
on the sale of the 72 shares of Target common stock
to B. Target has no liabilities. A section 336(e) elec-
tion is made.
(ii)Determination of ADADP. The ADADP on
the deemed asset disposition of Target is determined
as follows. The grossed-up amount realized on the
sale, exchange, or distribution of recently disposed
stock of Target is $8,000, the sum of $3,520, the
amount realized on the sale to B of the 72 shares of
Target common stock and $480, the fair market value
on the date distributed of the 8 shares of Target com-
mon stock distributed to Seller’s unrelated sharehold-
ers in the qualified stock disposition, divided by .50,
the percentage of Target stock by value, determined
on the disposition date, attributable to the recently
disposed stock ($4,800 (80 shares of Target common
stock disposed of in the qualified stock disposition x
$60, the value of a share of Target common stock on
the disposition date) divided by $9,600 ((100, the to-
tal number of shares of Target common stock x $60,
the value of a share of Target common stock on the
disposition date) + (100, the total number of shares of
Target preferred stock x $36, the value of a share of
Target preferred stock on the disposition date))), mi-
nus $0, Seller’s selling costs in connection with the
sale of the 72 shares of Target common stock sold
to B. The $8,000 grossed-up amount realized on the
sale, exchange, or distribution of recently disposed
stock of Target is then added to the liabilities of Old
Target, $0, to arrive at the ADADP, $8,000.
(iii)Allocation of ADADP. The ADADP of
$8,000 is allocated first to Asset 1, the Class IV
asset, but not in excess of Asset 1’s fair market
value, $2,000. The remaining ADADP of $6,000
is allocated between Assets 2 and 3, both Class V
assets, in proportion to their fair market values, but
not in excess of their fair market values. Because
the total fair market value of Assets 2 and 3, $6,600,
exceeds the ADADP remaining after allocation of
a portion of the ADADP to Asset 1, the $6,000
remaining ADADP is allocated to Assets 2 and 3
in proportion to their respective fair market values.
Accordingly, $2,500 is allocated to Asset 2 ($6,000 x
($2,750/($2,750 + $3,850))) and $3,500 is allocated
to Asset 3 ($6,000 x ($3,850/($2,750 + $3,850))).
Example 2.(i)Facts. The facts are the same as in
Example 1except that Asset 2 is the stock of Target
Subsidiary, a corporation of which Target owns 100
of the 110 shares of common stock, the only outstand-
ing class of Target Subsidiary stock. The remaining
10 shares of Target Subsidiary stock are owned by
D. The value of Target Subsidiary stock on July 1 is
$27.50 per share. Target Subsidiary has two assets,
Asset 4, a Class IV asset, with a basis of $800 and a
fair market value of $1,000, and Asset 5, a Class IV
asset, with a basis of $2,200 and a fair market value
of $2,025. Target Subsidiary has no liabilities. A sec-
tion 336(e) election with respect to Target Subsidiary
is also made.
(ii)Determination of ADADP. The ADADP on
the deemed asset disposition of Target Subsidiary is
determined as follows. The grossed-up amount re-
alized on the sale, exchange, or distribution of re-
cently disposed stock of Target Subsidiary is $2,750,
($2,500 ADADP allocable to Asset 2, the 100 shares
of the stock of Target Subsidiary owned by Target,
divided by .909, the percentage of Target Subsidiary
stock by value, determined on the disposition date, at-
tributable to the recently disposed stock ($2,750 (100
shares of the stock of Target Subsidiary deemed dis-
June 10, 201312332013–24 I.R.B.

posed in the qualified stock disposition x $27.50, the
value of a share of Target Subsidiary stock on the dis-
position date) divided by $3,025 (110, the total num-
ber of shares of Target Subsidiary stock x $27.50, the
value of a share of Target Subsidiary stock on the
disposition date)), minus $0, Seller’s selling costs in
connection with the deemed sale of the 100 shares
of Target Subsidiary stock). The $2,750 grossed-up
amount realized on the sale, exchange, or distribution
of recently disposed stock of Target Subsidiary is then
added to the liabilities of Old Target Subsidiary, $0,
to arrive at the ADADP of Target Subsidiary, $2,750.
(iii)Allocation of ADADP. Because Assets 4 and
5 are each assets of the same class, and the total fair
market value of Assets 4 and 5 exceeds the $2,750
ADADP of Target Subsidiary, the $2,750 ADADP
is allocated to Assets 4 and 5 in proportion to their
respective fair market values. Accordingly, $909
is allocated to Asset 4 ($2,750 x ($1,000/($1,000 +
$2,025))) and $1,841 is allocated to Asset 5 ($2,750
x ($2,025/($1,000 + $2,025))).
Example 3. (i) Seller owns all 100 of the out-
standing shares of the common stock of Target, the
only class of Target stock outstanding. On January
1 of Year 1, Seller sells 10 shares of Target stock to
A for $6,000 ($600 per share). On August 1 of Year
1, Seller distributes the remaining 90 shares of Tar-
get stock to its unrelated shareholders in a transaction
described in section 355(d)(2) or (e)(2). The value of
Target stock on August 1 is $560 per share. Target has
two assets, Asset 1, which is stock in trade of Target,
a Class IV asset, with a basis of $15,000 and a value
of $50,000, and Asset 2, which is stock in a publicly
traded, unrelated corporation, a Class II asset, with a
basis of $38,000 and a value of $16,000. Target has
no liabilities other than any liabilities for Federal tax
on account of the deemed asset disposition. Assume
Target’s Federal tax rate for any gain or income on
the deemed asset disposition is 34 percent. Seller had
no selling costs in connection with its sale of the 10
shares of Target stock. A section 336(e) election is
made.
(ii) Because at least 80 percent of Target stock was
disposed of (within the meaning of §1.336–1(b)(5))
by Seller during the 12-month disposition period, a
qualified stock disposition occurred. August 1 of
Year 1 is the disposition date. Accordingly, pursuant
to the section 336(e) election, for Federal income tax
purposes, Target is treated as if, on August 1, it sold
all of its assets to an unrelated person in exchange for
the ADADP.
(iii) Under these facts, although a portion of
the qualified stock disposition was the result of a
stock distribution, because the grossed-up amount
realized on the disposition of recently disposed stock
of Target, $56,400 (($6,000 + ($560 x 90))/1) ex-
ceeds Target’s total basis in its assets, none of the
losses realized on the deemed asset disposition are
disallowed under §1.336–2(b)(2)(i)(B)(2). Because
the grossed-up amount realized on the disposition of
recently disposed stock of Target exceeds the value
of Asset 2, the ADADP allocated to Asset 2 equals
the value of Asset 2, $16,000, and Target realizes a
$22,000 loss on the deemed disposition of Asset 2.
None of this loss is disallowed under section 1091.
See §1.336–2(b)(2)(ii)(C). Accordingly, Target rec-
ognizes a $22,000 loss on the deemed disposition of
Asset 2.
(iv) The ADADP allocated to Asset 1 is deter-
mined as follows (for purposes of thisExample 3,
TotADADP is the total ADADP for the deemed asset
disposition, A1ADADP is the tentative amount of the
total ADADP allocated to Asset 1, A2ADADP is the
amount of the total ADADP allocated to Asset 2, G
is the grossed-up amount realized on the disposition
of recently disposed stock of Target, L is Target’s lia-
bilities other than Target’s tax liability for the deemed
disposition tax consequences, T
R
is the applicable tax
rate, B1 is the adjusted basis of Asset 1, and B2 is the
adjusted basis of Asset 2):
TotADADP=G+L+(T
R
x(TotADADP-B1-B2))
A1ADADP = TotADADP - A2ADADP
A2ADADP = $16,000
A1ADADP = TotADADP - $16,000
G = ($6,000 + ($560 x 90))/ 1
G = $56,400
TotADADP = $56,400 + 0 + (.34 x (TotADADP - $15,000 - $38,000))
TotADADP = $56,400 + .34TotADADP - $18,020
.66TotADADP = $38,380
TotADADP = $58,152
A1ADADP = $42,152
(v) Because A1ADADP, $42,152, does not
exceed the value of Asset 1, $50,000, the entire
A1ADADP is allocated to Asset 1. Old Target thus
realizes and recognizes a gain of $27,152 on the
deemed disposition of Asset 1 ($42,152 - $15,000).
§1.336–4 Adjusted grossed-up basis.
(a)Scope. Except as provided in para-
graphs(b)and(c)ofthissectionoras
the context otherwise requires, the prin-
ciples of paragraphs (b) through (g) of
§1.338–5 apply in determining the ad-
justed grossed-up basis (AGUB) for target
and the consequences of a gain recognition
election. AGUB is the amount for which
new target is deemed to have purchased all
of its assets in the deemed purchase under
§1.336–2(b)(1)(ii) or the amount for which
old target is deemed to have purchased
all of its assets in the deemed purchase
under §1.336–2(b)(2)(ii). AGUB is allo-
cated among target’s assets in accordance
with §1.338–6 to determine the price at
which the assets are deemed to have been
purchased. If a subsequent increase or
decrease with respect to an element of
AGUB is required under general princi-
ples of tax law, redetermined AGUB is
allocated among target’s assets in accor-
dance with §1.338–7.
(b)Modifications to the principles in
§1.338–5. Solely for purposes of applying
§§1.336–1 through 1.336–4, the principles
of §1.338–5 are modified as follows—
(1)Purchasing corporation; purchaser.
Any reference to thepurchasing corpora-
tionshall be treated as a reference to a pur-
chaser, as definedin §1.336–1(b)(2).
(2)Acquisition date; disposition date.
Any reference to theacquisition dateshall
be treated as a reference to the disposition
date, as defined in §1.336–1(b)(8).
(3)Section 338 election; section
338(h)(10) election; section 336(e) elec-
tion. Any reference to asection 338 elec-
tionor asection 338(h)(10) electionshall
be treated as a reference to a section 336(e)
election, as defined in §1.336–1(b)(11).
(4)New target; old target.Inthe
case of a disposition described in section
355(d)(2) or (e)(2), any reference tonew
targetshall be treated as a reference to
old targetin its capacity as the purchaser
of assets pursuant to the section 336(e)
election.
(5)Recently purchased stock; recently
disposed stock. Any reference torecently
purchased stockshall be treated as a ref-
erence to recently disposed stock, as de-
fined in §1.336–1(b)(17). In the case of a
2013–24 I.R.B.1234June 10, 2013

distribution of stock, for purposes of de-
termining the purchaser’s grossed-up ba-
sis of recently disposed stock, the pur-
chaser’s basis in recently disposed stock
shall be deemed to be such stock’s fair mar-
ket value on the date it was acquired.
(6)Nonrecently purchased stock;
nonrecently disposed stock.Anyref-
erence tononrecently purchased stock
shall be treated as a reference to non-
recently disposed stock, as defined in
§1.336–1(b)(18).
(c)Gain recognition election—(1)In
general. Any holder of nonrecently dis-
posed stock of target may make a gain
recognition election. The gain recogni-
tion election is irrevocable. Each owner
of nonrecently disposed stock determines
its basis amount, and therefore the gain
recognized pursuant to the gain recogni-
tion election, by applying §§1.338–5(c)
and 1.338–5(d)(3)(ii) by reference to its
own recently disposed stock and nonre-
cently disposed stock, and not by reference
to all recently disposed stock and nonre-
cently disposed stock.
(2)80-percent purchaser. If a sec-
tion 336(e) election is made for target,
any 80-percent purchaser and all persons
related to the 80-percent purchaser are
automatically deemed to have made a gain
recognition election for its nonrecently
disposed target stock.
(3)Non–80-percent purchaser.Ifnot
automatically deemed made under para-
graph (c)(2) of this section, a gain recog-
nition election ismade by a non–80-per-
cent purchaser providing, on or before the
due date for filing the section 336(e) elec-
tion statement by the appropriate party,
a gain recognition election statement, as
described in paragraph (c)(4) of this sec-
tion, to the appropriate party. If seller and
target are members of the same consoli-
dated group, seller is the appropriate party
and the common parent of the consoli-
dated group must retain the gain recogni-
tion election statement. If seller and target
are members of the same affiliated group
but do not join in the filing of a consoli-
dated Federal income tax return, or if tar-
get is an S corporation, target is the ap-
propriate party and target must retain the
gain recognition election statement. If a
non–80-percent purchaser makes a gain
recognition election, all related persons to
the non–80-percent purchaser must also
make a gain recognition election. Other-
wise, the gain recognition election for the
non–80-percent purchaser will have no ef-
fect.
(4)Gain recognition election statement.
A gain recognition election statement must
include the following declarations (or sub-
stantially similar declarations):
(i) [Insert name, address, and taxpayer
identifying number of person for whom
gain recognition election is actually being
made] has elected to recognize gain under
§1.336–4(c) with respect to [his, her, or its]
nonrecently disposed stock.
(ii) [Insert name of person for whom
gain recognition election is actually being
made] agrees to report any gain under the
gain recognition election on [his, her, or
its] Federal income tax return (including
an amended return, if necessary) for the
taxable year that includes the disposition
date of [insert name and employer identi-
fication number of target].
(d)Examples. The following examples
illustrate the provisions of this section.
Example 1.OnJanuary1ofYear1,Sellerowns
85 shares of Target stock, A owns 8 shares, B owns
4 shares, and C owns the remaining 3 shares. Each
of A’s 8 shares, B’s 4 shares, and C’s 3 shares have
a $5 basis. Assume that Target has no liabilities.
On July 1 of Year 2, Seller sells 70 shares of Tar-
get stock to A for $10 per share. On September 1
of Year 2, Seller sells 5 shares of Target stock to B
and 5 shares of Target stock to C for $14 per share.
A section 336(e) election is made. A does not make
a gain recognition election. A incurs $25 of acqui-
sition costs and B and C each incur $10 of acquisi-
tion costs in connection with their respective Year 2
purchases. These costs are capitalized in the basis of
Target stock. September 1 of Year 2 is the disposi-
tion date. Because A owns at least 10 percent of Tar-
get stock on September 1, the disposition date, and
A’s original 8 shares of Target stock owned on Jan-
uary 1 of Year 1 were not disposed of in the qualified
stock disposition, A’s original 8 shares of Target stock
are nonrecently disposed stock. Although B’s origi-
nal 4 shares and C’s original 3 shares were not dis-
posed of in the qualified stock disposition, because
neither B nor C owns, with the application of section
318(a), other than section 318(a)(4), at least 10 per-
cent of the total voting power or value of Target stock
on the disposition date, their original shares are not
nonrecently disposed stock.The grossed-up basis of
recently disposed Target stock is $1,011, determined
as follows: The purchasers’ (A, B, and C) aggre-
gate basis in the recently disposed Target stock, de-
termined without regard to acquisition costs, is $840
((70 x $10) + (5 x $14) + (5 x $14)). This amount
is multiplied by a fraction, the numerator of which is
100 minus 8, the percentage of Target stock that is
nonrecently disposed stock, and the denominator of
which is 80, the percentage of Target stock attribut-
able to recently disposed stock ($840 x 92/80 = $966).
This amount is then increased by the $45 of acqui-
sition costs incurred by A, B, and C to arrive at the
$1,011 grossed-up basis of recently disposed Target
stock ($966 + $45 = $1,011). New Target’s AGUB
is $1,051, the sum of $1,011, the grossed-up basis of
recently disposed Target stock and $40 (8 x $5), A’s
basis in his nonrecently disposed Target stock.
Example 2. The facts are the same as inExam-
ple 1except that A makes a gain recognition elec-
tion. Pursuant to the gain recognition election, A is
treated as if he sold on September 1 of Year 2, the
disposition date, his 8 shares of nonrecently disposed
Target stock for the basis amount, and A’s basis in
nonrecently disposed Target stock immediately after
the deemed sale is the basis amount. A’s basis amount
equals his basis in his recently disposed Target stock
without regard to acquisition costs, $700 (70 x $10),
multiplied by a fraction, the numerator of which is
100 minus 8, the percentage of Target stock, by value,
determined on the disposition date, which is A’s non-
recently disposed Target stock, and the denominator
of which is 70, the percentage of Target stock, by
value, determined on the disposition date, which is
A’s recently disposed stock, which is then multiplied
by a fraction, the numerator of which is 8, the per-
centage of Target stock, by value, determined on the
disposition date, attributable to A’s nonrecently dis-
posed Target stock and the denominator of which is
100 minus the numerator amount. Accordingly, A’s
basis amount is $80 ($700 x 92/70 x 8/92). A there-
fore recognizes gain of $40 under the gain recognition
election ($80 basis amount minus A’s $40 basis in his
nonrecently disposed stock prior to the gain recog-
nition election). New Target’s AGUB is $1,091, the
sum of $1,011, the grossed-up basis of all recently
disposed Target stock and $80, A’s basis in his non-
recently disposed Target stock pursuant to the gain
recognition election.
Example 3. (i) The facts are the same as inExam-
ple 3of §1.336–3(g), that is, Seller owns all 100 of
the outstanding shares of the common stock of Tar-
get, the only class of Target stock outstanding. On
January 1 of Year 1, Seller sells 10 shares of Target
stock to A for $6,000 ($600 per share). On August 1
of Year 1, Seller distributes the remaining 90 shares of
Target stock to its unrelated shareholders in a trans-
action described in section 355(d)(2) or (e)(2). The
value of Target stock on August 1 is $560 per share.
Target has two assets, Asset 1, which is stock in trade
of Target, a Class IV asset, with a basis of $15,000
and a value of $50,000, and Asset 2, which is stock
in a publicly traded, unrelated corporation, a Class II
asset, with a basis of $38,000 and a value of $16,000.
Target has no liabilities other than any liabilities for
Federal tax on account of the deemed asset disposi-
tion. Assume Target’s Federal tax rate for any gain
or income on the deemed asset disposition is 34 per-
cent. Seller had no selling costs in connection with its
sale of the 10 shares of Target stock. A section 336(e)
election is made. In addition, A incurred $100 of ac-
quisition costs with respect to the purchase of the 10
shares of Target stock. Target’s AGUB in the assets
deemed acquired pursuant to §1.336–2(b)(2)(ii)(B) is
determined as follows (for purposes of thisExample
3, GRD is the grossed-up basis of recently disposed
stock, BND is the basis in nonrecently disposed stock,
TotL is Target’s total liabilities, including Target’s tax
liability, and X is A’s total acquisition costs):
June 10, 201312352013–24 I.R.B.

AGUB=GRD+BND+TotL
GRD = ($6,000 + ($560 x 90)) x ((100 - 0) / 100) + X
GRD = ($6,000 + $50,400) x (100/100) + $100
GRD = $56,500
BND = $0
TotL = .34 x ($27,152 (Target’s gain recognized on deemed disposition of Asset 1) - $22,000 (Target’s loss recognized on deemed disposition of Asset 2))(see
Example 3of §1.336–3(g) for determination of Target’s gain and loss recognized on deemed disposition of Assets 1 and 2)
TotL = $1,752
AGUB = $56,500
+ $0 + $1,752
AGUB = $58,252
(ii) The AGUB allocated to Asset 2 is $16,000,
the value of Asset 2. Because the excess of the total
AGUB, $58,25
2, over the portion of the AGUB allo-
cated to Asset 2, $16,000, does not exceed the value
ofAsset1,theAGUBallocatedtoAsset1issuchex-
cess, $42,2
52.
§1.336–5 Effective/applicability date.
The provisions of §§1.336–1 through
1.336–4 apply to any qualified stock dis-
position for which the disposition date is
on or after May 15, 2013.
Par. 3. Section 1.338–0 is amended
by adding entries for §§1.338–1(e) and
1.338–5(h) to read as follows:
§1.338–0 Outline of topics.
*****
§1.338–1 General principles; status of old
target and new target.
*****
(e)Effective/applicability date.
*****
§1.338–5 Adjusted grossed-up basis.
*****
(h)Effective/applicability date.
*****
Par. 4. Section 1.338–1 is amended by
adding three new sentences after the par-
enthetical thatfollows the third sentence of
paragraph (a)(1), by revising the first sen-
tence in paragraph (c)(1), and adding a new
paragraph (e) to read as follows:
§1.338–1 General principles; status of old
target and new target.
(a) * * *
(1)***
However, if, as a result of
the dee
med purchase of old target’s assets
pursua
nt to a section 336(e) election, there
would be both a qualified stock purchase
and a qualified stock disposition (as de-
fined in §1.336–1(b)(6)) of the stock of
a subsidiary of target, neither a section
338(g) election nor a section 338(h)(10)
election may be made with respect to the
qualified stock purchase of the subsidiary.
Instead, a section 336(e) election may be
made with respect to such purchase. See
§1.336–1(b)(6)(ii). * * *
*****
(c) * * *
(1)In general. The rules of this para-
graph (c) apply for purposes of applying
the regulations under sections 336(e), 338,
and1060. ***
*****
(e)Effecti
ve/applicability date. Para-
graphs (a)
(1) and (c)(1) of this section are
applicabl
e to any qualified stock disposi-
tion for wh
ich the disposition date (as de-
fined in §1
.336–1(b)(8)) is on or after May
15, 2013.
Par. 5. Sec
tion 1.338–5 is amended
by revisi
ng the first sentence in paragraph
(d)(3)(i
i) and by adding a new paragraph
(h) to rea
dasfollows:
§1.338–5
Adjusted grossed-up basis.
*****
(d) * * *
(3) * * *
(ii)Basis
amount. The basis amount is
equal to t
he amount in paragraphs (c)(1)
and (2) of
this section (the purchasing
corporat
ion’s grossed-up basis in recently
purchase
d target stock at the beginning of
the day af
ter the acquisition date deter-
mined wi
thout regard to the acquisition
costs ta
ken into account in paragraph
(c)(3) o
f this section) multiplied by a frac-
tion the
numerator of which is the percent-
age of ta
rget stock (by value, determined
on the a
cquisition date) attributable to the
purchasing corporation’s nonrecently pur-
chased target stock and the denominator of
which is 100 percent minus the numerator
amount. * * *
*****
(h)Effective/applicability date. Para-
graph (d)(3)(ii) of this section is appli-
cable to any qualified stock purchase or
qualified stock disposition (as defined in
§1.336–1(b)(6)) for which the acquisi-
tion date or disposition date (as defined
in §1.336–1(b)(8)), respectively, is on or
after May 15, 2013.
Par. 6. Section 1.901–2 is amended
by redesignating paragraph (f)(5) as para-
graph (f)(6), adding a new paragraph
(f)(5), and revising the first sentence in
paragraph (h)(4) to read as follows:
§1.901–2 Income, war profits, or excess
profits tax paid or accrued.
*****
(f) * * *
(5)Allocation of foreign taxes in con-
nection with elections under section 336(e)
or 338. For rules relating to the allocation
of foreign taxes in connection with elec-
tions made pursuant to section 336(e), see
§1.336–2(g)(3)(ii). For rules relating to
the allocation of foreign taxes in connec-
tion with elections made pursuant to sec-
tion 338, see §1.338–9(d).
*****
(h) * * *
(4) Para
graphs (f)(3), (f)(4), and (f)(6)
of this s
ection apply to foreign taxes paid
or accru
ed in taxable years beginning after
Februa
ry 14, 2012. * * *
Par. 7. S
ection 1.1502–13 is amended
by:
1. Revis
ing the heading of paragraph
(f)(5)
(ii)(C).
2. Revi
sing the first sentence in para-
graph (
f)(5)(ii)(C)(1).
2013–24 I.R.B.1236June 10, 2013

3. Adding a new sentence at the end of
paragraph (m).
The revisions and addition read as fol-
lows:
§1.1502–13 Intercompany transactions.
*****
(f) * * *
(5) * * *
(ii) * * *
(C)Section 338(h)(10) and section
336(e)—(1)In general. This paragraph
(f)(5)(ii)(C) applies to a deemed liquida-
tion of T under section 332 as the result
of an election under section 338(h)(10) or
section 336(e). * * *
*****
(m)Effective/applicability date.***
Paragraph (f)(5)(ii)(C) of this section is
applicable to any qualified stock dispo-
sition (as defined in §1.336–1(b)(6)) for
which the disposition date (as defined in
§1.336–1(b)(8)) is on or after May 15,
2013.
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved May 9, 2013
Mark J. Mazur,
Assistant Secretary
oftheTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on May 10, 2013,
4:15 p.m., and published in the issue of the Federal Register
for May 15, 2013, 78 FR 28467)
Section 338.—Certain
Stock Purchases Treated
as Asset Acquisitions
Final regulations under section 336(e) of the Code
provide for an election to treat the sale, exchange,
or distribution of at least 80 percent of the stock of
a domestic subsidiary corporation or a subchapter S
corporation as a sale of the corporation’s assets, rather
than a sale of its stock. See T.D. 9619, page 1212.
Section 382.—Limitation
on Net Operating Loss
Carryforwards and Certain
Built-In Losses Following
Ownership Change
The adjusted applicable federal long-term rate is
set forth for the month of June 2013. See Rev. Rul.
2013-12, page 1237.
Section 412.—Minimum
Funding Standards
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 467.—Certain
Payments for the Use of
Property or Services
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 482.—Allocation
of Income and Deductions
Among Taxpayers
Federal short-term, mid-term, and long-term rates
are set forth for the month of June 2013. See Rev.
Rul. 2013-12, page 1237.
Section 483.—Interest on
Certain Deferred Payments
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 642.—Special
Rules for Credits and
Deductions
Federal short-term, mid-term, and long-term rates
are set forth for the month of June 2013. See Rev.
Rul. 2013-12, page 1237.
Section 807.—Rules for
Certain Reserves
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 846.—Discounted
Unpaid Losses Defined
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 901.—
Taxes
of Foreign Cou
ntries
and of Possessions of
United States
Final regulations under section 336(e) of the Code
provideforanelectiontotreat the sale, exchange,
or distribution of at least 80 percent of the stock of
a domestic subsidiary corporation or a subchapter S
corporation as a sale of the corporation’s assets, rather
than a sale of its stock. See T.D. 9619, page 1212.
Section 1274.—Determi-
nation of Issue Price in the
Case of Certain Debt Instru-
ments Issued for Property
(Also Sections 42, 280G, 382, 412, 467, 468, 482,
483, 642, 807, 846, 1288, 7520, 7872.)
Federal rates; adjusted federal rates; ad-
justed federal long-term rate and the long-
term exempt rate. For purposes of sections
382, 642, 1274, 1288, and other sections of
the Code, tables set forth the rates for June
2013.
Rev. Rul. 2013–12
This revenue ruling provides vari-
ous prescribed rates for federal income
tax purposes for June 2013 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable fed-
eral rates (AFR) for the current month
for purposes of section 1274(d) of the
Internal Revenue Code. Table 2 contains
the short-term, mid-term, and long-term
adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the ap-
propriate percentages for determining the
June 10, 201312372013–24 I.R.B.

low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. How-
ever, under section 42(b)(2), the applicable
percentage for non-federally subsidized
new buildings placed in service after July
30, 2008, with respect to housing credit
dollar amount allocations made before
January 1, 2014, shall not be less than 9%.
Finally, Table 5 contains the federal rate
for determining the present value of an
annuity, an interest for life or for a term
of years, or a remainder or a reversionary
interest for purposes of section 7520.
REV. RUL. 2013–12 TABLE 1
Applicable Federal Rates (AFR) for June 2013
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term
AFR.18%.18%.18%.18%
110% AFR.20%.20%.20%.20%
120% AFR.22%.22%.22%.22%
130% AFR.23%.23%.23%.23%
Mid-term
AFR
.95%.95%.95%.95%
110% AFR
1.05%1.05%1.05%1.05%
120% AFR1.14%1.14%1.14%1.14%
130% AFR1.24%1.24%1.24%1.24%
150% AFR
1.44%1.43%1.43%1.43%
175% AFR
1.67%1.66%1.66%
1.65%
Long-term
AFR2.47%
2.45%
2.44%2.44%
110% AFR2.72%2.70%2.69%2.68%
120% AFR2.96%2.94%2.93%2.92%
130% AFR3.22%3.19%3.18%3.17%
REV. RUL. 2
013–12 TABLE 2
Adjusted AFR for June 2013
Period for Compounding
AnnualSemiannualQuarterlyMonthly
Short-term adjusted
AFR
.18%.18%.18%.18%
Mid-term adjusted AFR
.95%.95%.95%.95%
Long-te
rm adjusted
AFR
2.47%
2.45%
2.44%2.44%
REV. RUL. 2013–12 TABLE 3
Rates Under Section 382 for June 2013
Adjust
ed federal long-term rate for the current month
2.47%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted
federal long-term rates for the current month and the prior two months.)2.70%
2013–24 I.R.B.1238June 10, 2013

REV. RUL. 2013–12 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for June 2013
Note: Under Section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July
30, 2008, with respect to housing credit dollar amount allocations made before January 1, 2014, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit7.39%
Appropriate percentage for the 30% present value low-income housing credit3.17%
REV. RUL. 2013–12 TABLE 5
Rate Under Section 7520 for June 2013
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years,
or a remainder or reversionary interest1.2%
Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 1502.—Regulations
Final regulations under section 336(e) of the Code
provide for an election to treat the sale, exchange,
or distribution of at least 80 percent of the stock of
a domestic subsidiary corporation or a subchapter S
corporation as a sale of the corporation’s assets, rather
than a sale of its stock. See T.D. 9619, page 1212.
Section 7520.—Valuation
Tables
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
Section 7872.—Treatment
of Loans With Below-Market
Interest Rates
The adjusted applicable federal short-term, mid-
term, and long-term rates are set forth for the month
of June 2013. See Rev. Rul. 2013-12, page 1237.
June 10, 201312392013–24 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Conclusive Presumption of
Worthlessness of Debts
Notice 2013–35
SECTION 1. PURPOSE
This notice requests public comments
on Treas. Reg. § 1.166–2(d)(1) and (3)
(the “Conclusive Presumption Regula-
tions”). In particular, comments are sought
on whether 1) changes that have occurred
in bank regulatory standards and processes
since adoption of the Conclusive Pre-
sumption Regulationsrequire amendment
of those regulations, and 2) application of
the Conclusive Presumption Regulations
continues to be consistent with the prin-
ciples of section 166. Comments are also
sought on the types of entities that are per-
mitted, or should be permitted, to apply a
conclusive presumption of worthlessness.
SECTION 2. LAW
Section 166(a)(1) permits a deduction
for any debt that becomes worthless in the
taxable year. Section 166(a)(2) authorizes
the Secretary to issue guidance on deduct-
ing debt that becomes partially worthless
within the taxable year, with the deduction
not to exceed the amount charged off.
Generally, whether a debt has become
worthless within the taxable year is de-
termined by examining all pertinent evi-
dence, including objective circumstances
such as the value of the collateral and the
financial condition of the debtor. Sec-
tion 1.166–2(a). Additionally, worthless-
ness is generally associated with identifi-
able events demonstrating the worthless-
ness of the debt and justifying the aban-
donment of hope of recovery.Cole v.
Commissioner, 871 F.2d 64, 67 (7th Cir.
1989).
Section 1.166–2 includes two alterna-
tive rules that, if met, provide banks and
other regulated corporations with a conclu-
sive presumption that a debt is worthless.
Section 1.166–2(d)(1) provides that
[i]f a bank or othercorporation which
is subject to supervision by Federal
authorities, or by State authorities
maintaining substantially equivalent
standards, charges off a debt in whole
or part, either—
(i) In obedience to the specific order
of such authorities, or
(ii) In accordance with established
policies of such authorities, and, upon
their first audit of the bank or other cor-
poration subsequent to the charge-off,
such authorities confirm in writing that
the charge-off would have been subject
to such specific orders if the audit had
been made on the date of the charge-off,
then the debt shall, to the extent charged
off during the taxable year, be conclu-
sively presumed to have become worth-
less, or worthless only in part, as the
case may be, during such taxable year.
The conclusive presumption rule set forth
in section 1.166–2(d)(1) is referred to
herein as the “Specific Order Method.”
Section 1.166–2(d)(3) provides an al-
ternative method of accounting for banks
that make a conformity election (the
“Book Conformity Method”). If a bank
regulator issues an express determination
letter stating that a bank electing to use the
Book Conformity Method maintains and
applies loan loss classification standards
that are consistent with the regulatory loan
loss classification standards of the bank
regulator, then loans classified by the bank
as loss assets and charged off are conclu-
sively presumed to have become worthless
in whole or in part. The regulations define
a loss asset as one that is classified as such
under the standards set forth in
the “Uniform Agreement on the Clas-
sification of Assets and Securities Held
by Banks” (See Attachment to Comp-
troller of the Currency Banking Circu-
lar No. 127, Rev. 4–26–91...) or simi-
lar guidance issued by the Office of the
Comptroller of the Currency, the Fed-
eral Deposit Insurance Corporation, the
Board of Governors of the Federal Re-
serve, or the Farm Credit Administra-
tion; or for institutions under the super-
vision of the Office of Thrift Supervi-
sion, 12 CFR 563.160(b)(3).
Section 1.166–2(d)(3)(ii)(C).
SECTION 3. DISCUSSION
A. Bank Regulatory Standards and Debt
Asset Review Process
The Conclusive Presumption Regula-
tions reflect a policy that when there is
sufficient similarity between the standards
a tax administrator uses to permit a de-
duction for a bad debt and the standards a
regulator uses to identify a loan that should
be charged off, in whole or in part, the
tax administrator should accept the deter-
mination of the regulator for purposes of
section 166. This policy provides admin-
istrative convenience in that a debt asset
is treated consistently for regulatory and
tax purposes and only one agency needs to
analyze the debt assets in a regulated en-
tity’s loan portfolio. In view of the “large
volume of loans charged off annually for
regulatory purposes,” administrative con-
venience alone is not a sufficient reason
for the Conclusive Presumption Regula-
tions.SeeTreasury Department, Report
to the Congress on the Tax Treatment of
Bad Debts by Financial Institutions 19
(September 1991)(“Treasury Report”).
Rather, the standards and processes ap-
plied by a regulator must result in loan
classifications that are “similar enough
to the criteria for worthlessness under
section 166 to make regulatory criteria
and examination by regulatory authorities
an acceptable surrogate for independent
investigation by the Internal Revenue Ser-
vice.” Treasury Report, 19–22. Although
the Treasury Department and the Internal
Revenue Service believed that this simi-
larity existed at the time of the adoption of
the Conclusive Presumption Regulations,
subsequent changes in the standards or
processes that bank regulators use to de-
termine worthlessness of a debt may have
undermined the assumptions underlying
the Conclusive Presumption Regulations.
Since adoption of the Conclusive Pre-
sumption Regulations, there have been
a number of significant changes to the
regulatory standards for loan charge-offs.
For example, bank regulators rarely order
banks to charge off particular loans or
provide written confirmation that a bank
took an appropriate charge-off on a loan
as required by the Specific Order Method.
Bank regulators also have changed the
2013–24 I.R.B.1240June 10, 2013

standards that are used for charge-offs,
and they no longer classify a loss asset
using the April 26, 1991, version of the
Uniform Agreement on the Classification
of Assets and Appraisal of Securities Held
by Banks that is referenced in the Conclu-
sive Presumption Regulations.
In 2004, the bank regulators adopted
the 2004 Uniform Agreement on the
Classification of Assets and Appraisal
of Securities Held by Banks and Thrifts
(the “2004 Classification and Appraisal
Agreement”), rescinding the prior 1991
agreement. The 2004 Classification and
Appraisal Agreement classified applicable
debt securities by relying on Financial
Accounting Standards Board (“FASB”)
pronouncements. Under the 2004 Classi-
fication and Appraisal Agreement, a debt
security is consideredimpaired if its fair
value is less than its amortized cost, and
the standards mandate recognizing a loss
equal to the full difference between the
debt’s fair value and its amortized cost
if the reduction in value (impairment) is
other than temporary.
Additional changes to bank regulatory
standards were made in 2009, when FASB
issued additional guidance.SeeO.C.C.
Bulletin 2009–11, Other-Than-Temporary
Impairment Accounting (April 17, 2009).
That guidance changed how the impair-
ment should be reported on financial state-
ments for held-to-maturity debt securities.
For a held-to-maturity debt security, the
portion of loss related to credit loss is to
be recognized in earnings (on the income
statement), while the portion of loss re-
lated to all other factors is to be reported
directly on the balance sheet as other com-
prehensive income (thereby bypassing the
income statement). Financial Accounting
Standards Board Staff Positions, FSP FAS
115–2 and 124–2, Recognition and Presen-
tation of Other-Than-Temporary Impair-
ments (later codified as part of Account-
ing Standards Codification 320). Thus, be-
ginning in 2009, the portion of the loss
on held-to-maturity debt securities associ-
ated with credit impairment, as defined in
regulatory standards, could be separately
identified. These standards continue to be
subject to future change, and they are cur-
rently under active review by FASB with a
view, in part, to creating a uniform impair-
ment model.SeeExposure Draft,Finan-
cial Instruments—Credit Losses (Subtopic
825–15)(December 20, 2012).
In light of these changes to the regula-
tory standards relevant to loan charge-offs,
the Treasury Department and the Internal
Revenue Service are evaluating the Con-
clusive Presumption Regulations.
B. Entities Subject to the Conclusive
Presumption Regulations
The Book Conformity Method under
the Conclusive Presumption Regulations
is expressly available only to banks. The
Specific Order Method, in contrast, ap-
plies to a bank “...or other corporation
whichissubjecttosupervisionbyFed-
eral authorities, orby State authorities
maintaining substantially equivalent stan-
dards.” The Treasury Department and the
Internal Revenue Service have received
questions about which taxpayers may
qualify as “other corporations” for this
purpose, particularly with respect to in-
surance companies and government-spon-
sored enterprises.
SECTION 4. REQUEST FOR
COMMENTS
The Treasury Department and Internal
Revenue Service request public comments
on the matters described in Section 3 of
this Notice. While comments on any as-
pect of these matters are welcome, we re-
quest comments on the following ques-
tions in particular:
1. Which corporations are regulated by
a Federal or State entity that reviews
and makes determinations about
worthlessness of debt assets in a man-
ner consistent with the tax standards
for worthlessness under section 166,
and which of these entities should be
covered by revised conclusive pre-
sumption rules?
2. Should the Conclusive Presumption
Regulations be modified to reflect the
changes in bank regulatory standards
and processes since adoption of the
regulations, and if so, how?
3. Are the current bank regulatory
standards incorporating generally
accepted accounting principles
(“GAAP”) sufficiently similar to the
standard of worthlessness under sec-
tion 166 that they may appropriately
be used in formulating revised con-
clusive presumption rules?
4. Should § 1.166–2(d)(1) and (3) be re-
placed with a single rule or should
the regulations retain more than one
conclusive presumption of worthless-
ness?
5. What process should be required by
any new conclusive presumption reg-
ulations to verify that the regulated
entity applied appropriate regulatory
standards in taking a charge-off?
6. Are there limits that should be placed
on the extent to which the timing of
a deduction under section 166 may
vary from the time when the regula-
tory standards mandate a charge-off?
7. Are there impediments to the uniform
application of a loss standard across
different GAAP debt classifications?
Comments must be submitted by Oc-
tober 8, 2013. All materials submitted
will be available for public inspection and
copying. Comments may be submitted to
Internal Revenue Service, CC:PA:LPD:PR
(Notice 2013–35), Room 5203, PO Box
7604, Ben Franklin Station, Washing-
ton, D.C. 20044. Submissions may also
be hand-delivered Monday through Fri-
day between the hours of 8:00 a.m. and
4:00 p.m. to the Courier’s Desk, In-
ternal Revenue Service, 1111 Consti-
tution Avenue, NW, Washington, DC
20224, Attn: CC:PA:LPD:PR (Notice
2013–35), Room 5203. Submissions
may also be sent electronically via the
internet to the following email address:
Notice.Comments@irscounsel.treas.gov.
Include the notice number (Notice
2013–35) in the subject line.
SECTION 5. DRAFTING
INFORMATION
The principal authors of this no-
tice are Matthew P. Howard and
John W. Rogers III of the Office of
the Associate Chief Counsel (Financial
Institutions & Products). For further
information regarding this notice, contact
Mr. Howard or Mr. Rogers at (202)
622–4695 (not a toll-free call).
June 10, 201312412013–24 I.R.B.

PerCapitaPaymentsfrom
Proceeds of Settlements of
Indian Tribal Trust Cases
Notice 2013–36
BACKGROUND
Notice 2013–1, 2013–3 I.R.B. 281, pro-
vides guidance on the federal tax treatment
of per capita payments that members of In-
dian tribes receive from proceeds of cer-
tain settlements of tribal trust cases be-
tween the United States and those Indian
tribes. Additional tribes have settled tribal
trust cases against the United States since
publication of Notice 2013–1. This notice
provides an updated Appendix that reflects
the additional settlement agreements.
EFFECT ON OTHER DOCUMENTS
Notice 2013–1 Appendix is modified
and superseded.
FURTHER INFORMATION
For further information regarding this
notice, please contact Telly Meier at phone
number (202) 283–8877 (not a toll-free
call).
Appendix
Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases
1. Assiniboine and Sioux Tribes of the Fort Peck Reservation
2. Bad River Band of Lake Superior Chippewa Indians
3. Blackfeet Tribe of the Blackfeet Indian Reservation
4. Bois Forte Band of Chippewa
5. Cachil Dehe Band of Wintun Indians of the Colusa Rancheria
6. Chippewa Cree Tribe of the Rocky Boy’s Reservation
7. Coeur d’Alene Tribe
8. Confederated Salish and Kootenai Tribes
9. Confederated Tribes of Siletz Indians
10. Confederated Tribes ofthe Colville Reservation
11. Confederated Tribes of the Goshute Reservation
12. Crow Creek Sioux Tribe
13. Eastern Shawnee Tribe of Oklahoma
14. Hualapai Indian Tribe
15. Iowa Tribe of Kansas and Nebraska
16. Kaibab Band of Paiute Indians of Arizona
17. Kickapoo Tribe of Kansas
18. Lac Courte Oreilles Band of Lake Superior Chippewa Indians
19. Lac du Flambeau Band of Lake Superior Chippewa Indians
20. Leech Lake Band of Ojibwe
21. Lower Brule Sioux Tribe
22. Makah Indian Tribe of the Makah Reservation
23. Mescalero Apache Tribe
24. Minnesota Chippewa Tribe
25. Nez Perce Tribe
26. Nooksack Indian Tribe
27. Northern Cheyenne Tribe of Indians
28. Omaha Tribe of Nebraska
29. Passamaquoddy Tribe of Maine
30. Pawnee Nation
31. Prairie Band of Potawatomi Nation
32. Pueblo of Zia
33. Quechan Tribe of the Fort Yuma Reservation
34. Red Cliff Band of Lake Superior Chippewa Indians
35. Rincon Luiseño Band of Indians
36. Rosebud Sioux Tribe
37. Round Valley Indian Tribes
38. Salt River Pima-Maricopa Indian Community
39. Santee Sioux Tribe of Nebraska
40. Sault Ste. Marie Tribe
41. Shoshone-Bannock Tribes of the Fort Hall Reservation
42. Soboba Band of Luiseño Indians
43. Spirit Lake Dakotah Nation
44. Spokane Tribe of Indians
45. Standing Rock Sioux Tribe
46. Stillaguamish Tribe of Indians
47. Summit Lake Paiute Tribe
48. Swinomish Indian Tribal Community
2013–24 I.R.B.1242June 10, 2013

Appendix
Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases
49. Te-Moak Tribe of Western Shoshone Indians
50. Tohono O’odham Nation
51. Tulalip Tribes
52. Tule River Indian Tribe
53. Ute Indian Tribe of the Uintah and Ouray Reservation
54. Ute Mountain Ute Tribe
55. Winnebago Tribe of Nebraska
56. Qawalangin Tribe of Unalaska
57. Tlingit & Haida Tribes of Alaska
58. Northwestern Band of Shoshone Indians
59. Hoopa Valley Tribe
60. Ak-Chin Indian Community
61. Oglala Sioux Tribe
62. Yoruk Tribe
63. Cheyenne River Sioux Tribe
64. Paiute-Shoshone Indians of the Bishop Community of the Bishop Colony
65. Seminole Nation of Oklahoma
66. Otoe-Missouria Tribe of Oklahoma
26 CFR 601.601: Rules and Regulations.
(Also Part I, §§ 25, 103, 143; 1.25–4T, 1.103–1,
6a.103A–2.)
Rev. Proc. 2013–27
SECTION 1. PURPOSE
This revenue procedure provides guid-
ance with respect to the United States and
area median gross income figures that are
to be used by issuers of qualified mortgage
bonds, as defined in § 143(a) of the Inter-
nal Revenue Code, and issuers of mortgage
credit certificates, as defined in § 25(c),
in computing the income requirements de-
scribed in § 143(f).
SECTION 2. BACKGROUND
.01 Section 103(a) provides that, ex-
cept as provided in § 103(b), gross income
does not include interest on any state or
local bond. Section 103(b)(1) provides
that § 103(a) shall not apply to any pri-
vate activity bond that is not a qualified
bond (within the meaning of § 141). Sec-
tion 141(e) provides that the term “qual-
ified bond” includes any private activity
bond that (1) is a qualified mortgage bond,
(2) meets the applicable volume cap re-
quirements under § 146, and (3) meets the
applicable requirements under § 147.
.02 Section 143(a)(1) provides that the
term “qualified mortgage bond” means a
bond that is issued as part of a “qualified
mortgage issue”. Section 143(a)(2)(A)
provides that the term “qualified mort-
gage issue” means an issue of one or more
bonds by a state or political subdivision
thereof, but only if (i) all proceeds of the
issue (exclusive of issuance costs and a
reasonably required reserve) are to be used
to finance owner-occupied residences; (ii)
the issue meets the requirements of sub-
sections (c), (d), (e), (f), (g), (h), (i), and
(m)(7) of § 143; (iii) the issue does not
meet the private business tests of para-
graphs(1)and(2)of§141(b);and(iv)
with respect to amounts received more
than 10 years after the date of issuance,
repayments of $250,000 or more of prin-
cipal on financing provided by the issue
are used not later than the close of the first
semi-annual period beginning after the
date the prepayment (or complete repay-
ment) is received to redeem bonds that are
part of the issue.
.03 Section 143(f) imposes eligibility
requirements concerning the maximum
income of mortgagors for whom financing
may be provided by qualified mortgage
bonds. Section 25(c)(2)(A)(iii)(IV) pro-
vides that recipients of mortgage credit
certificates must meet the income re-
quirements of § 143(f). Generally, under
§§ 143(f)(1) and 25(c)(2)(A)(iii)(IV),
these income requirements are met only
if all owner-financing under a qualified
mortgage bond and all certified indebt-
edness amounts under a mortgage credit
certificate program are provided to mort-
gagors whose family income is 115 percent
or less of the applicable median family
income. Under § 143(f)(6), the income
limitation is reduced to 100 percent of the
applicable median family income if there
are fewer than three individuals in the
family of the mortgagor.
.04 Section 143(f)(4) provides that the
term “applicable median family income”
means the greater of (A) the area median
grossincomefortheareainwhichtheres-
idence is located, or (B) the statewide me-
dian gross income for the state in which the
residence is located.
.05 Section 143(f)(5) provides for an
upward adjustment of the income limita-
tions in certain high housing cost areas.
Under § 143(f)(5)(C), a high housing
cost area is a statistical area for which
the housing cost/income ratio is greater
than 1.2. The housing cost/income ratio
is determined under § 143(f)(5)(D) by
dividing (a) the applicable housing price
ratio by (b) the ratio that the area median
gross income bears to the median gross
income for the United States. The applica-
ble housing price ratio is the new housing
price ratio (new housing average purchase
price for the area divided by the new hous-
ing average purchase price for the United
States) or the existinghousing price ratio
(existing housing average area purchase
price divided by the existing housing aver-
age purchase price for the United States),
whichever results in the housing cost/in-
come ratio being closer to 1. This income
adjustment applies only to bonds issued,
and nonissued bond amounts elected, after
June 10, 201312432013–24 I.R.B.

December 31, 1988. See § 4005(h) of the
Technical and Miscellaneous Revenue Act
of 1988, 1988–3 C.B. 1, 311 (1988).
.06 The Department of Housing and
Urban Development (HUD) has com-
puted the median gross income for
the United States, the states, and sta-
tistical areas within the states. The
income information was released to
the HUD regional offices on Decem-
ber 11, 2012, and may be obtained by
calling the HUD reference service at
1–800–245–2691. The income informa-
tion is also available at HUD’s World Wide
Web site,http://www.huduser.org/por-
tal/datasets/il.html, which provides a
menu from which you may select the year
and type of data of interest.
.07 The most recent nationwide aver-
age purchase prices and average area pur-
chase price safe harbor limitations were
published on May 14, 2012, in Rev. Proc.
2012–25, 2012–20 I.R.B. 914.
SECTION 3. APPLICATION
.01 When computing the income re-
quirements of § 143(f), issuers of quali-
fied mortgage bonds and mortgage credit
certificates must use either (1) the me-
dian gross income for the United States,
the states, and statistical areas within the
states, as released to the HUD regional of-
fices on December 01, 2011, or (2) the me-
dian gross income for the United States,
the states, and statistical areas within the
states, as released to the HUD regional of-
fices on December 11, 2012.
.02 If an issuer uses the median gross
income for the United States, the states,
and statistical areas within the states, as
released to the HUD regional offices on
December 01, 2011, to compute the hous-
ing cost/income ratio under § 143(f)(5),
the issuer must use the median gross in-
come for the United States, the states, and
statistical areas within the states, as re-
leased to the HUD regional offices on De-
cember 01, 2011, for all purposes under
§ 143(f). Likewise, if an issuer uses the
median gross income for the United States,
the states, and statistical areas within the
states, as released to the HUD regional
offices on December 11, 2012, to com-
pute the housing cost/income ratio under
§ 143(f)(5), the issuer must use the me-
dian gross income for the United States,
the states, and statistical areas within the
states, as released to the HUD regional of-
fices on December 11, 2012, for all pur-
poses under § 143(f).
SECTION 4. EFFECT ON OTHER
REVENUE PROCEDURES
.01 Rev. Proc. 2012–16, 2012–10
I.R.B. 452, is obsolete except as provided
in §§ 3.01, 3.02, or 5.01 of this revenue
procedure.
.02 This revenue procedure does not af-
fect the effective date provisions of Rev.
Rul. 86–124, 1986–2 C.B. 27. Those ef-
fective date provisions will remain opera-
tive at least until the Service publishes a
new revenue ruling that conforms the ap-
proach to effective dates set forth in Rev.
Rul. 86–124 to the general approach taken
in this revenue procedure.
SECTION 5. EFFECTIVE DATES
.01 Issuers must use the United States
and area median gross income figures
specified in § 3.01 of this revenue proce-
dure for commitments to provide financing
that are made, or (if the purchase precedes
the financing commitment) for residences
that are purchased, in the period that be-
gins on December 11, 2012, and ends on
the date when these United States and area
median gross income figures are rendered
obsolete by a new revenue procedure.
DRAFTING INFORMATION
The principal authors of this rev-
enue procedure are David White and
James Polfer of the Office of Associate
Chief Counsel (Financial Institutions
& Products). For further information
regarding this revenue procedure contact
Mr. White or Mr. Polfer at (202)
622–3980 (not a toll-free call).
2013–24 I.R.B.1244June 10, 2013

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Computation o
f, and Rules
Relating to,
Medical Loss
Ratio
REG–126633–12
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains pro-
posed regulations that provide guidance to
Blue Cross and Blue Shield organizations,
and certain other health care organizations,
on computing and applying the medical
loss ratio added to the Internal Revenue
Code by the Patient Protection and Afford-
able Care Act. This document also con-
tains a request for comments and provides
notice of a public hearing on these pro-
posed regulations.
DATES: Comments must be received by
August 12, 2013. Requests to speak and
outlines of topics to be discussed at the
public hearing scheduled for Tuesday,
September 17, 2013, at 10 a.m. must be
received by August 12, 2013.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–126633–12), In-
ternal Revenue Service, PO Box 7604, Ben
Franklin Station, Washington DC 20044.
Submissions may be hand-delivered Mon-
day through Friday between the hours of
8a.m. and4p.m. toCC:PA:LPD:PR
(REG–126633–12), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, N.W., Washington, DC, or sent
electronically via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–126633–12). The public hearing
will be held in the IRS Auditorium of
the Internal Revenue Building, 1111
Constitution Avenue, N.W., Washington,
DC.
FOR
FURTHER INFORMATION
CON
TACT: Concerning the proposed
reg
ulations, Graham R. Green, (202)
622–3970; con
cerning the submission of
comments, the
public hearing, and/or to be
placed on the b
usiness access list to attend
the hearing, O
luwafunmilayo Taylor,
(202) 622–718
0 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
Section 833 o
f the Internal Revenue
Code (Code) p
rovides that Blue Cross
and Blue Shie
ld organizations, and certain
other health
care organizations, are enti-
tled to: (1)
treatment as stock insurance
companies;
(2) a special deduction; and
(3) computa
tion of unearned premium re-
serves base
d on 100 percent, and not 80
percent, of
unearned premiums under sec-
tion 832(b
)(4). This document contains
proposed a
mendments to 26 CFR part 1
(Income Ta
x Regulations) under section
833(c)(5)
. Section 833(c)(5) was added to
the Code b
ysection9016ofthePatient
Protecti
on and Affordable Care Act (Af-
fordable
Care Act), Public Law 111–148
(124 Stat
. 119 (2010)), effective for tax-
able year
s beginning after December 31,
2009. Se
ction 833(c)(5) provides that sec-
tion 833
does not apply to any organization
unless t
he organization’s percentage of
total pr
emium revenue expended on reim-
burseme
nt for clinical services provided
to enro
llees under its policies during such
taxabl
e year (as reported under section
2718 of
the Public Health Service Act),
a ratio
referred to for this purpose as the
medica
l loss ratio (MLR), is not less than
85 per
cent.
Sectio
n 2718 of the Public Health Ser-
vice A
ct (42 U.S.C. 300gg–18) (PHSA)
was ad
dedbysection1001andamended
by sec
tion 10101 of the Affordable Care
Act an
d was incorporated into the Code
by sec
tion 9815(a)(1). Section 2718 of the
PHSA
is administered bythe Department
of He
alth and Human Services. Section
2718
(a) of the PHSA requires a health in-
sura
nce issuer to submit a report for each
plan
year to the Secretary of the Depart-
ment
of Health and Human Services con-
cer
ning the percentage of total premium
rev
enue, after accounting for collections or
rec
eipts for risk adjustment and risk corri-
dor
s and payments of reinsurance, that the
iss
uer expends: (1) on reimbursement for
clinical serv
ices provided to enrollees un-
der such cover
age; (2) for activities that
improve healt
h care quality; and (3) on all
other non-cla
ims costs, excluding Federal
and State taxe
s and licensing or regulatory
fees.
Section 2718(
b) of the PHSA requires
that a health
insurance issuer offering
group or indi
vidual health insurance cov-
erage, with r
espect to each plan year,
provide an an
nual rebate to each enrollee
under such c
overage, on apro rataba-
sis, if the r
atio of the amount of premium
revenue the
issuer expends on costs for re-
imbursemen
t for clinical services provided
to enrolle
es under such coverage and for
activitie
s that improve health care quality
to the tota
l amount of premium revenue
(excludin
g Federal and State taxes and
licensing
or regulatory fees and after ac-
counting
for payments or receipts for risk
adjustme
nt, risk corridors, and reinsurance
under sec
tions 1341, 1342, and 1343 of
the Affor
dable Care Act (42 U.S.C. 18061,
18062, a
nd 18063)) for the plan year is
less tha
n a prescribed percentage. Section
2718(b)
(1)(B)(ii) provides that beginning
on Janua
ry 1, 2014, the medical loss ratio
compute
d under section 2718(b) of the
PHSA sh
all be based on expenses and pre-
mium re
venues for each of the previous
three y
ears of the plan.
The Dep
artment of Health and Human
Servic
es issued interim final regulations
on Dece
mber 1, 2010, effective January
1, 2011
, and December 7, 2011, effective
Janua
ry 3, 2012, that were subject to tech-
nical
corrections on December 30, 2010,
and Ma
y 16, 2012, and final regulations
on Dec
ember 7, 2011, effective January
3, 201
2, May 16, 2012, effective June 15,
2012
, and March 11, 2013, effective April
30, 2
013 under section 2718 of the PHSA
that
are codified at 45 CFR part 158 (HHS
Regu
lations). Relevant portions of these
HHS R
egulations are described in this pre-
amb
le.
Pri
or Guidance
On No
vember 23, 2010, the Treasury
Dep
artment and the IRS issued Notice
201
0–79, 2010–49 I.R.B. 809, which
pro
vided interim guidance and transi-
tio
nal relief to organizations under section
833
(c)(5). The interim guidance applied
June 10, 201312452013–24 I.R.B.

to an organization’s first taxable year be-
ginning after December 31, 2009.
The interim guidance provided that for
purposes of determining whether an or-
ganization’s percentage of total premium
revenue expended on reimbursement for
clinical services provided to enrollees was
at least 85 percent (and thus satisfied the
requirement of section 833(c)(5)), orga-
nizations were required to use the defi-
nition of “reimbursement for clinical ser-
vices provided to enrollees” set forth in the
HHS Regulations. In addition, the interim
guidance provided that for purposes of de-
termining whether the 85-percent require-
ment of section 833(c)(5) was satisfied, the
IRS would not challenge the inclusion of
amounts expended for “activities that im-
prove health care quality” as described in
the HHS Regulations.
Notice 2010–79 also stated that the
consequences for an organization with
an MLR of less than 85 percent (an in-
sufficient MLR) were as follows: (1) the
organization would not be taxable as a
stock insurance company by reason of sec-
tion 833(a)(1) (but may have been taxable
as an insurance company if it otherwise
met the requirements of section 831(c));
(2) the organization would not be allowed
the special deduction set forth in section
833(b); and (3) the organization would
only take into account 80 percent, rather
than 100 percent, of its unearned premi-
ums for purposes of computing premiums
earned on insurance contracts under sec-
tion 832(b)(4). However, Notice 2010–79
provided that solely for the first taxable
year beginning after December 31, 2009,
the IRS would not treat an organization
as losing its status as a stock insurance
company by reason of section 833(c)(5)
provided the following conditions were
met: (1) the organization was described
in section 833(c) in the immediately pre-
ceding taxable year; (2) the organization
would have been taxed as a stock insur-
ance company for the current taxable year
but for the enactment of section 833(c)(5);
and (3) the organization would have met
the requirements of section 831(c) to be
taxed as an insurance company for the cur-
rent taxable year but for its activities in the
administration, adjustment, or settlement
of claims under cost-plus or administrative
services-only contracts.
Notice 2010–79 further provided in-
terim guidance on whether the application
of section 833 in a taxable year followed
by nonapplication of that provision in the
subsequent taxable year (or vice versa)
could result in one or more changes in
accounting method.
Notice 2010–79 invited comments
on: (1) what further guidance, if any,
was needed under section 833(c)(5); (2)
whether specific guidance was needed
on accounting method issues that would
arise if an organization lost its status as
an insurance company; (3) whether guid-
ance would be needed in the future on
the appropriate Subchapter L treatment of
rebates that are paid under section 2718
of the PHSA; and (4) how guidance could
coordinate the medical loss ratio computa-
tion under section 2718 of the PHSA with
the computation of MLR under section
833(c)(5).
In Notice 2011–4, 2011–2 I.R.B. 282,
and Rev. Proc. 2011–14, 2011–4 I.R.B.
330, the Treasury Department and the IRS
provided proceduresfor an organization
to obtain automatic consent to change its
method of accounting for unearned premi-
ums by reason of the application of section
833(c)(5).
On June 12, 2011, the Treasury Depart-
ment and the IRS issued Notice 2011–51,
2011–27 I.R.B. 36, extending the interim
guidance and transitional relief provided in
Notice 2010–79 to an organization’s first
taxable year beginning after December
31, 2010. On May 26, 2012, the Treasury
Department and the IRS issued Notice
2012–37, 2012–24 I.R.B. 1014 extending
the interim guidance and transitional relief
provided in Notice 2010–79 and Notice
2011–51, as clarified by Notice 2011–4
and Rev. Proc. 2011–14, through an or-
ganization’s first taxable year beginning
after December 31, 2012. Notice 2012–37
indicated that proposed regulations would
be issued and requested comments on all
aspects of section 833(c)(5), including
how the proposed regulations might ac-
count for the specific reporting required
under section 2718 of the PHSA and co-
ordinate the computations under section
2718 of the PHSA and section 833(c)(5).
The Treasury Department and the IRS
received four comments in response to No-
tice 2010–79 and two comments in re-
sponse to Notice 2012–37 and have con-
sidered all comments in drafting these pro-
posed regulations. The comments are dis-
cussed in more detail in this preamble.
Explanation of Provisions
1.Determining the MLR
In describing the MLR computation un-
der section 833(c)(5), the statute provides
that the elements in the computation are
to be “as reported under section 2718 of
the Public Service Health Act.” As more
specifically discussed below, commenters
argued that this cross reference indicates
that the MLR computation under section
833(c)(5) should be the same as the med-
ical loss ratio computation under section
2718(b) of the PHSA. The Treasury De-
partment and IRS have concluded that this
cross reference indicates that Congress in-
tended that, to the extent consistent with
the express language in section 833(c)(5),
the meaning of terms and the methodol-
ogy used in the MLR computation under
section 833(c)(5) should be consistent with
the definition of those same terms and the
methodology under section 2718 of the
PHSA.
a.MLR numerator
Commenters suggested that the term
“reimbursement for clinical services pro-
vided to enrollees” in section 833(c)(5)
has the same meaning as provided under
section2718ofthePHSA.Bothsec-
tion 833(c)(5) and section 2718 of the
PHSA include “reimbursement for clinical
services provided to enrollees” in the nu-
merator. Through the phrase “as reported
under section 2718 of the Public Health
Service Act,” section 833(c)(5) suggests
that the meaning of “reimbursement for
clinical services provided to enrollees”
should be the same as the meaning of that
phrase for section 2718 of the PHSA and
the regulations issued under that section.
Accordingly, the proposed regulations
adopt this suggestion.
Commenters suggested that in addition
to amounts expended for reimbursement
for clinical services provided to enrollees,
the MLR numerator include amounts ex-
pended for “activities that improve health
care quality” as reported under section
2718 of the PHSA. The proposed regula-
tions do not adopt this suggestion. Unlike
the phrase “reimbursement for clinical
services provided toenrollees” that ap-
pears in the description of the numerator in
both section 833(c)(5) and section 2718 of
the PHSA, “activities that improve health
2013–24 I.R.B.1246June 10, 2013

care quality” appears only in the descrip-
tion of the numerator in section 2718 of
the PHSA; it does not appear in section
833(c)(5). Accordingly, the Treasury De-
partment and IRS have concluded that
the MLR numerator in section 833(c)(5)
does not include costs for “activities that
improve health care quality.”
b.MLR denominator
Commenters suggested that term total
premium revenue in the MLR denomina-
tor under section 833(c)(5) should have the
same exclusions as provided for under sec-
tion 2718(b) of the PHSA. The proposed
regulations adopt this suggestion. Sec-
tion 833(c)(5) refers to total premium rev-
enue in describing the denominator. Sec-
tion 2718(b) of the PHSA, which sets forth
the rules for computing medical loss ra-
tio for that section, also refers to total pre-
mium revenue and lists specific exclusions
that should be taken from total premium
revenue, including taxes and regulatory
fees. These proposed regulations provide
that the same exclusions that are permit-
ted from total premium revenue under sec-
tion 2718(b) of the PHSA are permitted ex-
clusions from total premium revenue un-
der section 833(c)(5) because, while these
exclusions are not expressly included in
the references to total premium revenue in
section 833(c)(5) or section 2718(a) of the
PHSA, both section 833(c)(5) and section
2718(b) of the PHSA use the term “total
premium revenue.” Under the HHS Reg-
ulations, these exclusions include assess-
ments and fees imposed by the Afford-
able Care Act (see 45 CFR 158.221(c) and
158.240(c)). However, an organization’s
operating costs or any administrative costs
associated with taxes or fees are not part of
a State or Federal assessment and therefore
may not be deducted from total premium
revenue for purposes of the MLR calcula-
tion.
Accordingly, the proposed regulations
provide that the term “total premium rev-
enue” for purposes of section 833(c)(5)
means the total amount of premium rev-
enue (excluding Federal and State taxes
and licensing or regulatory fees and af-
ter accounting for payments or receipts
for risk adjustment, risk corridors, and
reinsurance under sections 1341, 1342,
and 1343 of the Affordable Care Act (42
U.S.C. 18061, 18062, and 18063)) as those
terms are used for purposes of section
2718(b) of the PHSA and the regulations
issued under that section.
c.Computation of MLR
For purposes of section 2718(b) of the
PHSA, section 2718(b)(1)(B)(ii) of the
PHSA and the HHS Regulations use a
three-year period to compute the medical
loss ratio, allowing certain limited adjust-
ments after the end of the year to determine
expenses and premium revenue. (See 45
CFR 158.220(b) and 158.140.) Although
section 2718(b) of the PHSA provides that
the medical loss ratio is computed for each
“plan year,” the HHS Regulations inter-
pret the term “plan year” as referring to
the “MLR reporting year.” The HHS reg-
ulations further define the MLR reporting
year as the calendar year for medical loss
ratio reporting and rebating purposes un-
der section 2718(a) and (b) of the PHSA.
(See 45 CFR 158.103.) Section 833(c)(5)
refers to expenses and revenues for a tax-
able year, which is generally a calendar
year for the organizations described in
section 833(c). See section 843.
The Treasury Department and the IRS
have concluded that, for administrative
convenience and to be consistent with
the medical loss ratio calculation under
section 2718(b)(1)(B)(ii) of the PHSA, it
is appropriate to compute the MLR for a
taxable year under section 833(c)(5) using
the same three-year period used under
section 2718(b) of the PHSA. Therefore,
beginning with the effective date of these
regulations, amounts used for purposes
of section 833(c)(5) (that is, total pre-
mium revenue and total premium revenue
expended on reimbursement for clinical
services provided to enrollees) for each
taxable year should be determined based
on amounts reported under section 2718(a)
of the PHSA for that taxable year and
the two preceding taxable years, subject
to the same adjustments that apply for
purposes of section 2718 of the PHSA.
Comments are requested as to whether
organizations should, instead of using the
three-year period used for purposes of
section 2718(b)(1)(B)(ii) of the PHSA,
compute their expenses and total premium
revenue only for the taxable year for which
the computation is being made under sec-
tion 833(c)(5), and whether adoption of
the proposed approachwould create diffi-
culties with respect to the computation of
the MLR for the 2014 taxable year.
2.Nonapplication of Section 833 in Case
of an Insufficient MLR
Commenters requested that the conse-
quences of having an insufficient MLR un-
der section 833(c)(5) be limited to losing
certain benefits of section 833. Specifi-
cally, commenters posited that an organi-
zation that fails the MLR requirement un-
der section 833(c)(5) should not lose its
status as an insurance company under sec-
tion 833(a)(1). Rather, the commenters ar-
gued that the organization should only suf-
fer the loss of eligibility for the special de-
duction in section 833(b) and the less fa-
vorable computation of unearned premium
reserves based on 80 percent, and not 100
percent, of its unearned premiums under
section 832(b)(4).
The proposed regulations do not adopt
this recommendation. Section 833(c)(5)
provides that “this section [833]” shall not
apply to any organization unless the organ-
ization satisfies the MLR requirement in
section 833(c)(5). This language does not
contemplate disallowance of some, but not
all, of the benefits associated with treat-
ment under section 833. Accordingly, the
proposed regulations provide that for an
organization described in section 833(c)
that fails to satisfy the MLR requirement
under section 833(c)(5): (1) the organi-
zation is not taxable as a stock insurance
company by reason of section 833(a)(1),
but may be taxable as an insurance com-
pany if it otherwise meets the requirements
of section 831(c); (2) the organization is
not allowed the specialdeduction set forth
in section 833(b); and (3) if the organi-
zation qualifies as an insurance company
under section 831(c), it must take into ac-
count 80 percent, rather than 100 percent,
of its unearned premiums under section
832(b)(4) as it applies to other non-life in-
surance companies.
The determination of whether an or-
ganization’s MLR under section 833(c)(5)
is at least 85 percent is made annually.
Accordingly, an organization’s MLR may
be sufficient in one year, but not another.
For this reason, the Treasury Department
and the IRS have concluded that an or-
ganization described in section 833(c) that
has an insufficient MLR under section
833(c)(5) will lose the benefits of section
June 10, 201312472013–24 I.R.B.

833 only for the taxable year or years for
which the organization’s MLR is insuffi-
cient. If the same organization meets the
MLR standard for a later taxable year, the
organization would be entitled to claim
the benefits of section 833 for that tax-
able year and subsequent taxable years for
which its MLR is sufficient. Comments
are requested on whether further guid-
ance is needed for an organization that is
described in section 833 for only some
taxable years because of section 833(c)(5).
Commenters requested that the Trea-
sury Department and the IRS establish a
regime under which an organization that
hasfailedtosatisfytheMLRratiobyade
minimisamount would have an opportu-
nity to pay an amount to the IRS to prevent
loss of treatment under section 833. The
proposed regulations do not adopt this
suggestion. The Treasury Department and
the IRS understand that the consequences
under section 833(c)(5) may be severe
if an organization’s MLR is insufficient.
However, the statutory framework does
not contemplate a penalty or other pay-
ment to the IRS. The Treasury Department
and the IRS request comments on whether
there are other possible means consistent
with the statute of mitigating these conse-
quences.
3.Other Comments
Commenters requested that the Trea-
sury Department and the IRS permit cer-
tain nondeductible fees and taxes imposed
by the Affordable Care Act to be taken
into account for purposes of calculating an
organization’s special deduction for items
attributable to the health-related business
of the organization under section 833(b).
Commenters also submitted comments re-
garding the treatment of MLR rebates as
return premiums under section 832(b)(4),
and the income andemployment tax con-
sequences of MLR rebates. The proposed
regulations do not address these issues be-
cause they are not within the scope of the
proposed regulations.
Proposed Effective Date
These proposed regulations are pro-
posed to apply to taxable years beginning
after December 31, 2013.
Availability of IRS Documents
The IRS notices and revenue procedure
cited in this preamble are published in the
Internal Revenue Cumulative Bulletin and
are available athttp://www.irs.gov.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866, as supplemented by Execu-
tive Order 13563. Therefore, a regulatory
assessment is not required. It also has been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these proposed reg-
ulations and because the regulations do not
impose an information collection on small
entities, the Regulatory Flexibility Act (5
U.S.C. chapter 6) does not apply. Pursuant
to section 7805(f) of the Code, this no-
tice of proposed rulemaking has been sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comments on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submittedtimelytotheIRSasprescribed
in this preamble under the “Addresses”
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed rules. Comments are
specifically requested on the relationship
between section 833(c)(5) and section
2718 of the PHSA. All comments will be
available atwww.regulations.govor upon
request.
A public hearing has been scheduled for
Tuesday, September 17, 2013, at 10 a.m.,
in the IRS Auditorium of the Internal Rev-
enue Building, 1111 Constitution Avenue,
N.W., Washington, DC. Due to building
security procedures, visitors must enter at
the Constitution Avenue entrance. In addi-
tion, all visitors mustpresent photo iden-
tification to enter the building. Because
of access restrictions, visitors will not be
admitted beyond the immediate entrance
more than 30 minutes before the hearing
starts. For information about having your
name placed on the building access list to
attend the hearing, see the “FOR FUR-
THER INFORMATION CONTACT” sec-
tion of this preamble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish to
present oral comments at the hearing must
submit written (signed original and eight
(8) copies) or electronic comments and an
outline of the topics to be discussed and
the time to be devoted to each topic by Au-
gust 12, 2013. A period of 10 minutes will
be allotted to each person for making com-
ments. An agenda showing the scheduling
of the speakers will be prepared after the
deadline for receivingoutlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafting Information
The principal author of these reg-
ulations is Graham R. Green, Office
of Associate Chief Counsel (Financial
Institutions & Products).However,
other personnel from the Treasury
Department and the IRS participated in
their development.
*****
Proposed Amendment to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.833–1 is added to read
as follows:
§1.833–1 Medical loss ratio under section
833(c)(5).
(a)In general. Section 833 does not ap-
ply to an organization unless the organiza-
tion’s medical loss ratio (MLR)foratax-
able year is at least 85 percent. Paragraph
(b) of this section provides definitions that
apply for purposes of section 833(c)(5) and
this §1.833–1. Paragraph (c) of this sec-
tion provides rules for computing an or-
ganization’s MLR under section 833(c)(5).
Paragraph (d) of this section addresses the
treatment under section 833 of an organi-
zation that has an MLR of less than 85 per-
cent. Paragraph (e) of this section provides
the effective/applicability date.
2013–24 I.R.B.1248June 10, 2013

(b)Definitions. The following def-
initions apply for purposes of section
833(c)(5) and §1.833–1.
(1)Reimbursement for clinical services
provided to enrollees.Thetermreimburse-
ment for clinical services provided to en-
rolleeshas the same meaning as that term
has in 42 U.S.C. 300gg–18 and the regula-
tions issued under that section (see 45 CFR
158.140).
(2)Total premium revenue.Theterm
total premium revenuemeans the total
amount of premium revenue (excluding
Federal and State taxes and licensing or
regulatory fees and after accounting for
payments or receipts for risk adjustment,
risk corridors, and reinsurance under sec-
tions 1341, 1342, and 1343 of the Patient
Protection and Affordable Care Act, Pub-
lic Law 111–148 (124 Stat. 119 (2010))
(42 U.S.C. 18061, 18062, and 18063)) as
those terms are used for purposes of 42
U.S.C. 300gg–18(b) and the regulations
issued under that section (see 45 CFR Part
158).
(c)Computation of MLR under section
833(c)(5)—(1)In general. An organiza-
tion’s MLR with respect to a taxable year is
the ratio, expressed as a percentage, of the
MLR numerator, as described in paragraph
(c)(2) of this section, to the MLR denom-
inator, as described in paragraph (c)(3) of
this section.
(2)MLR numerator.Thenumerator
of an organization’s MLR is the total
premium revenue expended on reim-
bursement for clinical services provided
to enrollees under its policies for the
taxable year, computed in the same man-
ner as those expenses are computed for
the plan year for purposes of 42 U.S.C.
300gg–18(b) and regulations issued under
that section (see 45 CFR Part 158).
(3)MLR denominator. The denomina-
tor of an organization’s MLR is the organi-
zation’s total premium revenue for the tax-
able year, computed in the same manner
as the total premium revenue is computed
fortheplanyearforpurposesof42U.S.C.
300gg–18(b) and regulations issued under
that section (see 45 CFR Part 158).
(d)Failure to qualify under section
833(c)(5). If, for any taxable year, an or-
ganization’s MLR is less than 85 percent,
then beginning in that taxable year and for
each subsequent taxable year for which the
organization’s MLR remains less than 85
percent, paragraphs (d)(1) through (d)(3)
of this section apply.
(1)Automatic stock insurance company
status. The organization is not taxable as
a stock insurance company by reason of
section 833(a)(1), but may be taxable as
an insurance company if it otherwise meets
the requirements of section 831(c);
(2)Special deduction. The organization
is not allowed the special deduction set
forthinsection833(b);and
(3)Premiums earned. The organization
must take into account80 percent, rather
than 100 percent, of its unearned premi-
ums under section 832(b)(4) as it applies
to other non-life insurance companies, pro-
vided the organization qualifies as an in-
surance company by meeting the require-
ments of section 831(c).
(e)Effective/applicability date.This
section applies to taxable years beginning
after December 31, 2013.
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on May 10, 2013,
8:45 a.m., and published in the issue of the Federal Register
for May 13, 2013, 78 FR 27873)
Notice of Dispositions of
Declaratory Judgment
Proceedings under Section
7428
Announcement 2013–24
This announcement serves notice to
donors that on January 29, 2013, the
United States Tax Court entered a stipu-
lated decision. Effective December 22,
2000, the organization listed below is not
qualified as an organization described in
I.R.C. § 501(c)(3), as amended, is not ex-
empt from taxation under I.R.C. § 501(a),
and is not an organization described in
I.R.C. § 170(c)(2).
The Hope and Dreams Foundation,
Palo Alto, CA
This announcement serves notice to
donors that on February 27, 2013, the
United States Tax Court entered a stipu-
lated decision that, effective for the taxable
year ending August 31, 2006 and all sub-
sequent taxable years, the organization
listed below is not qualified as an organi-
zation described in section 501(c)(3).
A Family Budget Counseling, Inc
Huntington Station, NY
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2013–25
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletinthatanorganizationnolonger
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on June 10, 2013, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
of the organization that were the basis for
revocation.
June 10, 201312492013–24 I.R.B.

Life Extension Foundation Inc.
Ft. Lauderdale, FL
Mustard Seed Housing, Inc.
Petaluma, CA
Northwest Regional Emergency Medical
Services and Trauma Care Council
Bremerton, WA
2013–24 I.R.B.1250June 10, 2013

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
June 10, 2013i2013–24 I.R.B.

Numerical Finding List
1
Bulletins 2013–1 through 2013–24
Announcements:
2013-1, 2013-1 I.R.B.251
2013-2, 2013-2 I.R.B.271
2013-3, 2013-2 I.R.B.271
2013-4, 2013-4 I.R.B.440
2013-5, 2013-3 I.R.B.306
2013-6, 2013-3 I.R.B.307
2013-7, 2013-3 I.R.B.308
2013-8, 2013-4 I.R.B.440
2013-9, 2013-4 I.R.B.441
2013-10, 2013-3 I.R.B.311
2013-11, 2013-6 I.R.B.483
2013-12, 2013-11 I.R.B.651
2013-13, 2013-9 I.R.B.532
2013-14, 2013-11 I.R.B.651
2013-15, 2013-11 I.R.B.652
2013-16, 2013-14 I.R.B.738
2013-17, 2013-16 I.R.B.911
2013-19, 2013-14 I.R.B.760
2013-20, 2013-14 I.R.B.761
2013-21, 2013-17 I.R.B.980
2013-22, 2013-17 I.R.B.981
2013-23, 2013-16 I.R.B.940
2013-24, 2013-24 I.R.B.1249
2013-25, 2013-24 I.R.B.1249
2013-26, 2013-16 I.R.B.940
2013-27, 2013-17 I.R.B.981
2013-28, 2013-17 I.R.B.982
2013-29, 2013-18 I.R.B.1024
2013-30, 2013-21 I.R.B.1134
2013-31, 2013-21 I.R.B.1135
2013-32, 2013-22 I.R.B.1192
2013-33, 2013-20 I.R.B.1098
2013-34, 2013-23 I.R.B.1207
Notices:
2013-1, 2013-3 I.R.B.281
2013-2, 2013-6 I.R.B.473
2013-3, 2013-7 I.R.B.484
2013-4, 2013-9 I.R.B.527
2013-5, 2013-9 I.R.B.529
2013-6, 2013-10 I.R.B.540
2013-7, 2013-6 I.R.B.477
2013-8, 2013-7 I.R.B.486
2013-9, 2013-9 I.R.B.529
2013-10, 2013-8 I.R.B.503
2013-11, 2013-11 I.R.B.610
2013-12, 2013-10 I.R.B.543
2013-13, 2013-12 I.R.B.659
2013-14, 2013-13 I.R.B.712
2013-15, 2013-14 I.R.B.739
2013-16, 2013-14 I.R.B.740
Notices— Continued:
2013-17, 2013-20 I.R.B.1082
2013-18, 2013-14 I.R.B.742
2013-19, 2013-14 I.R.B.743
2013-20, 2013-15 I.R.B.902
2013-21, 2013-15 I.R.B.903
2013-22, 2013-15 I.R.B.904
2013-23, 2013-16 I.R.B.906
2013-24, 2013-16 I.R.B.909
2013-25, 2013-17 I.R.B.978
2013-26, 2013-18 I.R.B.984
2013-27, 2013-18 I.R.B.985
2013-28, 2013-19 I.R.B.1039
2013-29, 2013-20 I.R.B.1085
2013-30, 2013-21 I.R.B.1099
2013-31, 2013-21 I.R.B.1099
2013-32, 2013-22 I.R.B.1137
2013-33, 2013-22 I.R.B.1140
2013-34, 2013-23 I.R.B.1198
2013-35, 2013-24 I.R.B.1240
2013-36, 2013-24 I.R.B.1242
Proposed Regulations:
REG-160873-04, 2013-20 I.R.B.1089
REG-155929-06, 2013-11 I.R.B.650
REG-106918-08, 2013-13 I.R.B.714
REG-141066-09, 2013-3 I.R.B.289
REG-148873-09, 2013-7 I.R.B.494
REG-102966-10, 2013-10 I.R.B.579
REG-120391-10, 2013-18 I.R.B.1005
REG-132702-10, 2013-19 I.R.B.1042
REG-140649-11, 2013-12 I.R.B.666
REG-106499-12, 2013-21 I.R.B.1111
REG-106796-12, 2013-22 I.R.B.1164
REG-118315-12, 2013-14 I.R.B.746
REG-122706-12, 2013-19 I.R.B.1043
REG-122707-12, 2013-5 I.R.B.450
REG-125398-12, 2013-23 I.R.B.1199
REG-126633-12, 2013-24 I.R.B.1245
REG-148500-12, 2013-13 I.R.B.716
REG-154563-12, 2013-20 I.R.B.1097
Revenue Procedures:
2013-1, 2013-1 I.R.B.1
2013-2, 2013-1 I.R.B.92
2013-3, 2013-1 I.R.B.113
2013-4, 2013-1 I.R.B.126
2013-5, 2013-1 I.R.B.170
2013-6, 2013-1 I.R.B.198
2013-7, 2013-1 I.R.B.233
2013-8, 2013-1 I.R.B.237
2013-9, 2013-2 I.R.B.255
2013-10, 2013-2 I.R.B.267
2013-11, 2013-2 I.R.B.269
2013-12, 2013-4 I.R.B.313
2013-13, 2013-6 I.R.B.478
Revenue Procedures— Continued:
2013-14, 2013-3 I.R.B.283
2013-15, 2013-5 I.R.B.444
2013-16, 2013-7 I.R.B.488
2013-17, 2013-11 I.R.B.612
2013-18, 2013-8 I.R.B.503
2013-19, 2013-11 I.R.B.648
2013-20, 2013-14 I.R.B.744
2013-21, 2013-12 I.R.B.660
2013-22, 2013-18 I.R.B.985
2013-23, 2013-17 I.R.B.978
2013-24, 2013-22 I.R.B.1142
2013-25, 2013-21 I.R.B.1110
2013-26, 2013-22 I.R.B.1160
2013-27, 2013-24 I.R.B.1243
Revenue Rulings:
2013-1, 2013-2 I.R.B.252
2013-2, 2013-10 I.R.B.533
2013-3, 2013-8 I.R.B.500
2013-4, 2013-9 I.R.B.520
2013-5, 2013-9 I.R.B.525
2013-6, 2013-13 I.R.B.701
2013-7, 2013-11 I.R.B.608
2013-8, 2013-15 I.R.B.763
2013-9, 2013-15 I.R.B.764
2013-11, 2013-20 I.R.B.1059
2013-12, 2013-24 I.R.B.1237
Tax Conventions:
2013-16, 2013-14 I.R.B.738
Treasury Decisions:
9601, 2013-10 I.R.B.535
9603, 2013-3 I.R.B.273
9605, 2013-11 I.R.B.587
9606, 2013-11 I.R.B.586
9607, 2013-6 I.R.B.469
9608, 2013-3 I.R.B.274
9609, 2013-12 I.R.B.655
9610, 2013-15 I.R.B.765
9611, 2013-13 I.R.B.699
9612, 2013-13 I.R.B.678
9613, 2013-15 I.R.B.900
9614, 2013-17 I.R.B.947
9615, 2013-19 I.R.B.1026
9616, 2013-20 I.R.B.1061
9617, 2013-23 I.R.B.1195
9618, 2013-23 I.R.B.1194
9619, 2013-24 I.R.B.1212
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin
2012–52, dated December 27, 2012.
2013–24 I.R.B.iiJune 10, 2013

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2013–1 through 2013–24
Announcements:
2012-42
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2013-12
Supplemented by
Ann. 2013-22, 2013-17 I.R.B.981
Notices:
87-64
Obsoleted by
T.D. 9614, 2013-17 I.R.B.947
2000-45
Modified and superseded by
Notice 2013-18, 2013-14 I.R.B.742
2006-87
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2007-25
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2007-77
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2008-10
Obsoleted by
T.D. 9615, 2013-19 I.R.B.1026
2008-107
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2010-8
Obsoleted by
T.D. 9618, 2013-23 I.R.B.1194
2010-27
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2010-60
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2011-8
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2011-14
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
Notices— Continued:
2011-34
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2011-38
Obsoleted by
REG-148873-09, 2013-7 I.R.B.494
2011-53
Obsoleted by
T.D. 9610, 2013-15 I.R.B.765
2012-19
Superseded by
Notice 2013-31, 2013-21 I.R.B.1099
2012-60
Superseded by
Notice 2013-1, 2013-3 I.R.B.281
2013-1
Superseded by
Notice 2013-36, 2013-24 I.R.B.1242
Modified and superseded by
Notice 2013-16, 2013-14 I.R.B.740
2013-16
Modified and superseded by
Notice 2013-36, 2013-24 I.R.B.1242
Proposed Regulations:
REG-140668-07
Corrected by
Ann. 2013-6, 2013-3 I.R.B.307
Revenue Procedures:
87-57
Modified by
Rev. Proc. 2013-13, 2013-6 I.R.B.478
2004-66
Modified and superseded by
Rev. Proc. 2013-11, 2013-2 I.R.B.269
2008-35
Modified and superseded by
Rev. Proc. 2013-14, 2013-3 I.R.B.283
2008-50
Modified and superseded by
Rev. Proc. 2013-12, 2013-4 I.R.B.313
2011-14
Modified by
Rev. Proc. 2013-26, 2013-22 I.R.B.1160
Rev. Proc. 2013-24, 2013-22 I.R.B.1142
Rev. Proc. 2013-20, 2013-14 I.R.B.744
2011-49
Modified by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
Revenue Procedures— Continued:
2011-52
Modified and partly superseded by
Rev. Proc. 2013-15, 2013-5 I.R.B.444
2011-55
Amplified and supplemented by
Notice 2013-7, 2013-6 I.R.B.477
2011-61
Superseded by
Rev. Proc. 2013-17, 2013-11 I.R.B.612
2011-62
Superseded by
Rev. Proc. 2013-18, 2013-8 I.R.B.503
2012-1
Superseded by
Rev. Proc. 2013-1, 2013-1 I.R.B.1
2012-2
Superseded by
Rev. Proc. 2013-2, 2013-1 I.R.B.92
2012-3
Superseded by
Rev. Proc. 2013-3, 2013-1 I.R.B.113
2012-4
Superseded by
Rev. Proc. 2013-4, 2013-1 I.R.B.126
2012-5
Superseded by
Rev. Proc. 2013-5, 2013-1 I.R.B.170
2012-6
Superseded by
Rev. Proc. 2013-6, 2013-1 I.R.B.198
2012-7
Superseded by
Rev. Proc. 2013-7, 2013-1 I.R.B.233
2012-8
Superseded by
Rev. Proc. 2013-8, 2013-1 I.R.B.237
2012-9
Superseded by
Rev. Proc. 2013-9, 2013-2 I.R.B.255
2012-10
Superseded by
Rev. Proc. 2013-10, 2013-2 I.R.B.267
2012-16
Obsoleted by
Rev. Proc. 2013-27, 2013-24 I.R.B.1243
2012-30
Corrected and clarified by
Ann. 2013-3, 2013-2 I.R.B.271
Updated by
Ann. 2013-10, 2013-3 I.R.B.311
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–27 through 2012–52 is in Internal Revenue Bulletin 2012–52, dated December 27,
2012.
June 10, 2013iii2013–24 I.R.B.

Revenue Procedures— Continued:
2012-46
Corrected by
Ann. 2013-11, 2013-6 I.R.B.483
2013-1
Corrected by
Ann. 2013-9, 2013-4 I.R.B.441
2013-4
Modified by
Rev. Proc. 2013-22, 2013-18 I.R.B.985
2013-6
Revised by
Ann. 2013-15, 2013-11 I.R.B.652
Corrected by
Ann. 2013-13, 2013-9 I.R.B.532
2013-8
Modified by
Rev. Proc. 2013-22, 2013-18 I.R.B.985
2013-14
Modified by
Rev. Proc. 2013-19, 2013-11 I.R.B.648
Revenue Rulings:
92-19
Supplemented in part by
Rev. Rul. 2013-4, 2013-9 I.R.B.520
Treasury Decisions:
9564
Corrected by
Ann. 2013-4, 2013-4 I.R.B.440
Amended by
Ann. 2013-7, 2013-3 I.R.B.308
9604
Corrected by
Ann. 2013-19, 2013-14 I.R.B.760
2013–24 I.R.B.ivJune 10, 2013

Internal Revenue Service
W
ashington,DC20224
Official Business
Penalty for Private Use, $300
INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available atwww.irs.gov/irb/.
CUMULATIVE BULLETINS
The contents of the weekly Bulletins were consolidated semiannually into permanent, indexed, Cumulative Bulletins through the
2008–2 edition.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as partof Publication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS)on the Internet atwww.irs.gov/cdorders(discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BUL
LETIN
If you have c
omments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be ple
ased to hear from you. You can email us your suggestionsor comments through the IRS Internet Home Page (www.irs.gov)
or write to
the IRS Bulletin Unit, SE:W:CAR:MP:P:SPA, Washington, DC 20224.