Internal Revenue Bulletin 2007-46 (PDF rendition): IRS Announcements

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

Bulletin No. 200
7-46
November 13, 200
7
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.
SPECIAL ANNOUNCEMENT
Announcement 2007–106, page 1021.
The announcement for the 2008 IRS Individual e-file Partner-
ship Program will solicit applications from potential partners
for participation in the program. The partnership opportuni-
ties are a result of RRA 98, which authorized the IRS Commis-
sioner to promote the benefits of and encourage the use of
e-file products and services through partnerships with various
entities that offer low-cost tax preparation and electronic filing
of individual income tax returns for qualified taxpayers. Those
applicants that are accepted into the program will have a link(s)
and offer description(s) for their products and services posted
to IRS.gov (Partners Page).
INCOME TAX
Ct. D. 2083, page 986.
Levies upon third party property to collect taxes owed by
another; wrongful levy action.The Supreme Court holds
that the Trust missed section 7426(a)(1)’s deadline for chal-
lenging a levy, and may not bring the challenge as a tax refund
claim under section 1346(a)(1).
REG–140206–06, page 1006.
Proposed regulations under section 1441 of the Code provide
guidance regarding the withholding and reporting obligations
of a withholding agent in the case of a self tender by a pub-
licly traded corporation, when a determination is required un-
der section 301 as to whether the distribution is treated as a
dividend or a distribution in part or full payment in exchange
for stock. A public hearing is scheduled for February 6, 2008.
REG–114125–07, page 1012.
Proposed regulations under section 861 of the Code contain
changes to existing final regulations regarding the source of
compensation for labor or personal services.
Notice 2007–86, page 990.
This notice provides additional transition relief, under section
409A of the Code, that was scheduled to expire on December
31, 2007. Generally, this notice extends relief to December
31, 2008, except that reliance on the proposed regulations un-
der section 409A is not permitted after December 31, 2007.
Notice 2007–78 modified. Section 3 of Notice 2006–79 mod-
ified and superseded.
Notice 2007–88, page 993.
This notice requests public comment on a proposal to change
the process by which taxpayers obtain the consent of the Com-
missioner of Internal Revenue to change a method of account-
ing for federal income tax purposes.
EMPLOYEE PLANS
Notice 2007–86, page 990.
This notice provides additional transition relief, under section
409A of the Code, that was scheduled to expire on December
31, 2007. Generally, this notice extends relief to December
31, 2008, except that reliance on the proposed regulations un-
der section 409A is not permitted after December 31, 2007.
Notice 2007–78 modified. Section 3 of Notice 2006–79 mod-
ified and superseded.
(Continued on the next page)
Announcements of Disbarments and Suspensions begin on page 1015.
Fi
nding Lists begin on page ii.

ESTATE TAX
Notice 2007–90, page 1003.
This notice provides interim guidance and describes a change
in IRS policy regarding section 6166 of the Code, Extension of
time for payment of estate tax where estate consists largely of
interest in closely held business. The IRS will now determine
on a case-by-case basis whether security will be required when
a qualifying estate elects under section 6166 to pay all or a
part of the estate tax in installments. This notice also informs
taxpayers, tax practitioners, executors and other persons who
represent estates of what factors the IRS will consider in de-
termining whether an estate making the section 6166 election
will be required to provide security.
TAX CONVENTIONS
Announcement 2007–107, page 989.
The competent authorities of the United States and the United
Kingdom hereby enter into the following agreement (“the Agree-
ment”) regarding the definition of “first notification” under para-
graph 1 of Article 26 (Mutual Agreement Procedure) of the Con-
vention between the United States of America and the United
Kingdom of Great Britain and Northern Ireland for the avoidance
of double taxation with respect to taxes on income signed at
London on July 24, 2001 (“the Treaty”). The Agreement is en-
tered into under paragraph 3 of Article 26 (Mutual Agreement
Procedure).
ADMINIST
RATIVE
Ct. D. 208
3, page 986.
Levies up
on third party property to collect taxes owed by
another;
wrongful levy action.The Supreme Court holds
that the
Trust missed section 7426(a)(1)’s deadline for chal-
lenging
a levy, and may not bring the challenge as a tax refund
claim un
der section 1346(a)(1).
Notice 2007–89, page 998.
This notice provides interim guidance to employers and pay-
ers on their reporting and wage withholding requirements for
calendar year 2007 with respect to deferrals of compensation
and amounts includible in gross income under section 409A of
the Code. The notice also provides interim rules on calculating
amounts includible in gross income under section 409A. No-
tice 2005–1 modified.
November 13, 20072007–46 I.R.B.

The IRS Mission
Provide America’s taxpayers top quality service by helping
them understand and meet their tax responsibilities and by
applying the tax law with integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Sec-
retary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2007–46 I.R.B.November 13, 2007

Place missing child here.
November 13, 20072007–46 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Code
of 1986
Section 1346.—Recovery
of Unconstitutional Federal
Taxes
The Supreme Court holds that the Trust missed
section 7426(a)(1)’s deadline for challenging a levy,
and may not bring the challenge as a tax refund claim
under section 1346(a)(1). See Court Decision 2083,
page 986.
Section 7426.—Civil
Actions by Persons Other
Than Taxpayers
Ct. D. 2083
SUPREME COURT OF THE
UNITED STATES
No. 05–1541 (2007)
EC TERM OF YEARS
TRUSTv.UNITED STATES
CERTIORARI TO THE UNITED
STATES COURT
OF APPEALS FOR THE FIFTH
CIRCUIT
April 30, 2007
Syllabus
Under 26 U.S.C. §7426(a)(1), if the In-
ternal Revenue Service (IRS) levies upon a
third party’s property to collect taxes owed
by another, the third party may bring a
wrongful levy action against the United
States, so long as such action is brought
before “the expiration of 9 months from
the date of the levy,” §6532(c)(1). In con-
trast, the limitations period for a tax re-
fund action under 28 U.S.C. §1346(a)(1)
begins with an administrative claim that
may be filed within at least two years, and
may be brought to court within another two
years after an administrative denial. The
IRS levied on a bank account in which
petitioner (Trust) had deposited funds be-
cause the IRS assumed that the Trust’s cre-
ators had transferred assets to the Trust to
evade taxes. The bank responded with a
check to the Treasury. Almost a year later,
the Trust and others brought a §7426(a)(1)
action claiming wrongful levies, but the
District Court dismissed the complaint be-
cause it was filed after the 9-month limi-
tations period had expired. After unsuc-
cessfully pursing a tax refund at the ad-
ministrative level, the Trust filed a refund
action under §1346(a)(1). The District
Court held that a wrongful levy claim un-
der §7426(a)(1) was the sole remedy pos-
sible and dismissed, and the Fifth Circuit
affirmed.
Held: The Trust missed §7426(a)(1)’s
deadline for challenging a levy, and
may not bring the challenge as a tax
refund claim under §1346(a)(1). Section
7426(a)(1) provides the exclusive remedy
for third-party wrongful levy claims. “[A]
precisely drawn, detailed statute pre-empts
more general remedies,”Brown v. GSA,
425 U.S. 820, 834, and it braces the pre-
emption claim when resort to a general
remedy would effectively extend the limi-
tations period for the specific one, seeid.
at 833. If third parties could avail them-
selves of §1346(a)(1)’s general tax refund
jurisdiction, they could effortlessly evade
§7426(a)(1)’s much shorter limitations
period. The Trust argues that because
United States v. Williams, 514 U.S. 527,
construed §1346(a)(1)’s general jurisdic-
tional grant expansively enough to cover
third parties’ wrongful levy claims, treat-
ing §7426(a)(1) as the exclusive avenue
for these claims would amount to a disfa-
vored holding that §7426(a)(1) implicitly
repealed §1346(a)(1)’s pre-existing juris-
dictional grant. But this readsWilliams
too broadly.Williamsinvolved a lien and
was decided on the specific understand-
ing that no other remedy was open to the
plaintiff. Here, the Trust challenges a
levy and could have made a timely claim
under §7426(a)(1). Even if the presump-
tion against implied repeals applied here,
§7426(a)(1)’s 9-month limitations period
cannot be reconciled with the notion that
thesamechallengewouldbeopenunder
§1346(a)(1) for up to four years. Nor can
the two statutory schemes be harmonized
by construing §7426(a)(1)’s filing dead-
line to cover only those actions seeking
pre-deprivation remedies unavailable un-
der §1346(a)(1). On its face, §7426(a)(1)
applies to pre-deprivation and post-depri-
vation claims alike. Pp. 4–7.
434 F.3d 807 affirmed.
STEVENS, J., delivered the opinion for
a unanimous Court.
SUPREME COURT OF THE
UNITED STATES
No. 05–1541 (2007)
EC TERM OF YEARS
TRUSTv.UNITED STATES
On WRIT OF CERTIORARI TO THE
UNITED STATES COURT
OF APPEALS FOR THE FIFTH
CIRCUIT
April 30, 2007
JUSTICE STEVENS delivered the
opinion of the Court.
This is a challenge to the Internal Rev-
enue Service’s levy upon the property of a
trust, to collect taxes owed by another, an
action specifically authorized by 26 U.S.C.
§7426(a)(1), but subject to a statutory fil-
ing deadline the trust missed. The question
is whether the trust may still challenge the
levy through an action for tax refund un-
der 28 U.S.C. §1346(a)(1). We hold that it
may not.
I
The Internal Revenue Code provides
that “[i]f any person liable to pay any tax
neglects or refuses to pay the same after
demand,theamount...shallbealienin
favor of the United States upon all prop-
erty and rights to property, whether real
or personal, belonging to such person.” 26
U.S.C. §6321. “A federal tax lien, how-
ever, is not self-executing,” and the IRS
must take “[a]ffirmative action . . . to
enforce collection of the unpaid taxes.”
United States v. National Bank of Com-
merce, 472 U.S. 713, 720 (1985). One of
its “principal tools,”ibid.,isalevy,which
is a “legally sanctioned seizure and sale
of property,” Black’s Law Dictionary 926
(8th ed. 2004); see also §6331(b) (“The
term ‘levy’ as used in this title includes
the power of distraint and seizure by any
means”).
2007–46 I.R.B.986November 13, 2007

To protect against a “‘wrongful’” im-
position upon “property which is not the
taxpayer’s,” S. Rep. No. 1708, 89th
Cong., 2d Sess., 30 (1966), the Federal
Tax Lien Act of 1966 added §7426(a)(1),
providing that “[i]f a levy has been made
on property . . . any person (other than the
person against whom is assessed the tax
out of which such levy arose) who claims
an interest in . . . such property and that
such property was wrongfully levied upon
may bring a civil action against the United
States in a district court. 80 Stat. 1143.
The action must, however, be brought
before “the expiration of 9 months from
thedateofthelevy.”
1
§6532(c)(1). This
short limitations period contrasts with its
counterpart in a tax refund action under
28 U.S.C. §1346(a)(1), which begins with
an administrative claim that may be filed
within at least two years, and may be
brought to court within another two after
an administrative denial.
2
The demand for
greater haste when a third party contests a
levy is no accident; as the Government ex-
plained in the hearings before passage of
the Act, “[s]ince after seizure of property
for nonpayment of taxes [an IRS] district
director is likely to suspend further col-
lection activities against the taxpayer, it is
essential that he be advised promptly if he
has seized property which does not belong
to the taxpayer. Hearings on H.R. 11256
and H.R. 11290 before the House Com-
mittee on Ways and Means, 89th Cong., 2d
Sess., 57–58 (1966) (written statement of
Stanley S. Surrey, Assistant Secretary of
the Treasury); see alsoid.at 72 (statement
of Laurens Williams, Chairman, Special
Committee on Federal Liens, American
Bar Association) (“A short (9-month)
statute of limitations is provided, because
it is important to get such controversies
decided quickly so the Government may
pursue the taxpayer’s own property if it
made a mistake the first time”).
II
After Elmer W. Cullers, Jr., and
Dorothy Cullers established the EC Term
of Years Trust in 1991, the IRS assessed
federal tax liabilities against them for
what the Government claimed (and the
Trust does not dispute, see Tr. of Oral
Arg. 7) were unwarranted income tax
deductions in the 1980s. The Government
assumed that the Cullerses had transferred
assets to the Trust to evade taxes, and so
filed a tax lien against the Trust in August
1999. The Trust denied any obligation,
but for the sake of preventing disruptive
collection efforts by the IRS, it deposited
funds in a bank account, against which the
IRS issued a notice of levy to the bank
in September 1999. In October, the bank
responded with a check for over $3 million
to the United States Treasury.
Almost a year after that, the Trust
(joined by several other trusts created by
the Cullerses) brought a civil action under
26 U.S.C. §7426(a)(1) claiming wrongful
levies, but the District Court dismissed it
because the complaint was filed after the
9-month limitations period had expired,
see §6532(c)(1). The court also noted
that tax refund claims under 28 U.S.C.
§1346(a)(1) were not open to the plaintiff
trusts because §7426 “‘affords the exclu-
sive remedy for an innocent third party
whose property is confiscated by the IRS
to satisfy another person’s tax liability.’”
BSC Term of Years Trust v. United States,
2001–1 USTC ¶50,174, p. 87,237, n. 1,
87 AFTR 2d ¶2001–390, p. 2001–547, n.
1 (WD Tex., 2000) (quotingTexas Comm.
Bank Fort Worth, N.A. v. United States,
896 F.2d 152, 156 (CA5 1990); emphasis
deleted). At first the Trust sought review
by the Court of Appeals for the Fifth
Circuit, but then voluntarily dismissed
its appeal.BSC Term of Years Trust v.
United States, 87 AFTR 2d ¶2001–1039,
p. 2001–2532 (2001).
After unsuccessfully pursuing a tax re-
fund at the administrative level, the Trust
filed a second action, this one for a refund
under §1346(a)(1). The District Court
remained of the view that a claim for a
wrongful levy under §7426(a)(1) had been
the sole remedy possible and dismissed.
3
The Court of Appeals for the Fifth Circuit
affirmed.
Because the Ninth Circuit, on the con-
trary, has held that §7426(a)(1) is not the
exclusive remedy forthird parties chal-
lenging a levy, seeWWSM Investors v.
United States, 64 F.3d 456 (1995), we
granted certiorari to resolve the conflict,
549 U.S.
(2006). We affirm.
III
“In a variety of contexts, the Court
has held that a precisely drawn, detailed
statute pre-empts more general remedies.”
Brown v. GSA, 425 U.S. 820, 834 (1976);
seeBlock v. North Dakota ex rel. Board
of Univ. and School Lands,461U.S.
273, 284–286 (1983) (adverse claimants
to real property of the United States may
not rely on “officer’s suits” or on other
general remedies because the Quiet Title
Act of 1972 is their exclusive recourse);
see alsoStonite Products Co. v. Melvin
Lloyd Co., 315 U.S. 561 (1942) (venue in
patent infringement cases is governed by
a statute dealing specifically with patents,
not a general venue provision). It braces
the preemption claim when resort to a
general remedy would effectively extend
the limitations period for the specific one.
SeeBrown v. GSA,supra, at 833 (rejecting
an interpretation that would “driv[e] out
of currency” a narrowly aimed provision
“with its rigorous . . . time limitations”
by permitting “access to the courts under
other, less demanding statutes”); see also
Rancho Palos Verdes v. Abrams,544U.S.
113, 122–123 (2005) (concluding that 47
U.S.C. §332(c) precludes resort to the
general cause of action under 42 U.S.C.
§1983, in part because §332 “limits relief
in ways that §1983 does not” by requiring
judicial review to be sought within 30
days); 544 U.S. at 130, n. (STEVENS, J.,
concurring in judgment) (same).
Resisting the force of the better-fit-
ted statute requires a good countervailing
reason, and none appears here. Con-
gress specifically tailored §7426(a)(1) to
third-party claims of wrongful levy, and
if third parties could avail themselves
of the general tax refund jurisdiction of
§1346(a)(1), they could effortlessly evade
1
This period can be extended for up to 12 months if the third party makes an administrative request for the return of the property wrongfully levied upon.See 26 U.S.C. §6532(c)(2).
2
Title 28 U.S.C. §1346(a)(1) gives district courts “jurisdiction, concurrent with the United States Court of Federal Claims,” over “[a]ny civil action against the United States for the recovery
of,” among other things, “any internal revenue tax alleged to have been erroneously or illegally assessed or collected.” A taxpayer may bring such an action within two years after the IRS
disallows the taxpayer’s administrative refund claim. See 26 U.S.C. Secs. 6532(a)(1)–(2); see also §7422(a) (requiring a taxpayer to file the administrative claim before seeking a refund in
court). An administrative refund claim must, in turn, be filed within two years from the date the tax was paid or three years from the time the tax return was filed, whichever is later. See
§6511(a).
3
The District Court declined to dismiss the Trust’s claim on res judicata grounds, and the Government does not argue claim or issue preclusion in this Court, see Brief for United States 5, n. 2.
November 13, 20079872007–46 I.R.B.

the levy statute’s 9-month limitations pe-
riod thought essential to the Government’s
tax collection.
The Trust argues that inUnited States
v. Williams, 514 U.S. 527 (1995), we con-
strued the general jurisdictional grant of
§1346(a)(1) expansively enough to cover
third parties’ wrongful levy claims. So, ac-
cording to the Trust, treating §7426(a)(1)
as the exclusive avenue for these claims
would amount to a disfavored holding that
§7426(a)(1) implicitly repealed the pre-ex-
isting jurisdictional grant of §1346(a)(1).
SeeRadzanower v. Touche Ross & Co.,
426 U.S. 148 (1976);Morton v. Mancari,
417 U.S. 535 (1974).
But the Trust readsWilliamstoo
broadly. Although we decided that
§1346(a)(1) authorizes a tax-refund claim
by a third party whose property was sub-
jected to an allegedly wrongful tax lien,
we so held on the specific understanding
that no other remedy, not even a timely
claim under §7426(a)(1), was open to the
plaintiff in that case. SeeWilliams,supra,
at 536–538. Here, on the contrary, the
Trust challenges a levy, not a lien, and
could have made a timely claim under
§7426(a)(1) for the relief it now seeks
under §1346(a)(1).
4
And even if the canon against implied
repeals applied here, the Trust still could
not prevail. We simply cannot recon-
cile the 9-month limitations period for a
wrongful levy claim under §7426(a)(1)
with the notion that the same challenge
would be open under §1346(a)(1) for up to
four years. SeePosadas v. National City
Bank, 296 U.S. 497, 503 (1936) (“[W]here
provisions in the two acts are in irrecon-
cilable conflict, the later act to the extent
of the conflict constitutes an implied re-
peal of the earlier one”). On this point,
the Trust proposes that the two statutory
schemes can be “harmonized” by con-
struing the deadline for filing §7426(a)(1)
claims to cover only those actions seeking
“pre-deprivation” remedies unavailable
under §1346(a)(1). See Reply Brief for
Petitioner 6. But this reading would vio-
late the clear text of §7426(a)(1), which
on its face applies to pre-deprivation and
post-deprivation claims alike. See 26
U.S.C. §7426(a)(1) (“Such action may be
brought without regard to whether such
property has been surrendered to or sold
by the Secretary”).
***
The Trust missed the deadline for chal-
lenging a levy under §7426(a)(1), and may
not bring the challenge as a tax refund
claim under §1346(a)(1). The judgment
of the Court of Appeals is accordingly af-
firmed.
It is so ordered.
4
It has been commonly understood that Williams did not extend §1346(a)(1) to parties in the Trust’s position. See 434 F.3d 807, 810 (CA5 2006) (case below) (“To construe Williams to allow
an alternative remedy under §1346, with its longer statute of limitations period, would undermine the surety provided by the clear avenue to recoveryunder §7426” (citation omitted)); Dahn
v. United States, 127 F.3d 1249, 1253 (CA10 1997) (“[T]here were no tax levies involved in [Williams]. Thus, the Court was concerned solely with the reach of §1346 per se; the exclusivity
of a concurrent §7426 claim was never in issue. Indeed, the Court specifically emphasized the inapplicability of §7426 (or any other meaningful remedy) to reinforce its broad reading of
§1346”); WWSM Investors v. United States, 64 F.3d 456, 459 (CA9 1995) (Brunetti, J., dissenting) (“The Supreme Court recognized Williams as a refund,not a wrongful levy, case, and [did
not] even hint that §7426 was not the exclusive remedy for a claimed wrongful levy”); Rev.Rul. 2005–49, 2005–2 Cum.Bull. 126 (“The rationale in Williams is inapplicable to wrongful levy
suits because, Congress created an exclusive remedy under section 7426 for third persons claiming an interest in property levied upon by the [IRS]”);but see WWSM Investors, supra, at 459
(majority opinion) (“[S]eizing money from WWSM’s bank account is functionally equivalent to what the IRS did in Williams — placing a lien on property in escrow under circumstances
which compelled Mrs. Williams to pay the IRS and discharge the lien”).
2007–46 I.R.B.988November 13, 2007

Part II. Treaties and Tax Legislation
Subpart A.—Tax Conventions and Other Related Items
US-UK Agreement Defining
the Term “First Notification”
Under Treaty Article 26(1)
Announcement 2007–107
The following is a copy of the Com-
petent Authority Agreement (“the Agree-
ment”) entered into by the Competent
Authorities of the United States and the
United Kingdom regarding the definition
of “first notification” under paragraph 1 of
Article 26 (Mutual Agreement Procedure)
of the Convention between the United
States of America and the United King-
dom of Great Britain and Northern Ireland
for the avoidance of double taxation with
respect to taxes on income.
The text of the Agreement is as follows:
COMPETENT AUTHORITY AGREEMENT
The competent authorities of the United States and the United Kingdom hereby enter into the following agreement (“the
Agreement”) regarding the definition of “first notification” under paragraph 1 of Article 26 (Mutual Agreement Procedure) of
the Convention between the United States of America and the United Kingdom of Great Britain and Northern Ireland for the
avoidance of double taxation with respect to taxes on income signed at London on July 24, 2001 (“the Treaty”). The Agreement is
entered into under paragraph 3 of Article 26 (Mutual Agreement Procedure).
It is understood that for the purposes of the Agreement the term “Article” refers to an Article of the Treaty.
Definition of “First Notification” under Article 26(1)
Paragraph 1 of Article 26 provides that
Where a person considers that the actions of one or both of the Contracting States result or will result for him in
taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by
the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a
resident or national. The case must be presented within three years from thefirst notificationof the action resulting
in taxation not in accordance with the provisions of this Convention or, if later, within six years from the end of the
taxable year or chargeable period in respect of which that taxation is imposed or proposed. [Emphasis added].
The competent authorities of the United States and the United Kingdom have agreed that paragraph 1 of Article 26 of the
Convention shall be interpreted in the way most favourable tothe taxpayer, consistent with the approach set out in the OECD
commentary on the Model Tax Convention on Income and on Capital. In order to provide certaintyfor taxpayers and to ensure
consistent application of the provision, the date of “first notification of the action resulting in taxation notin accordance with the
Convention” shall be treated asthe date when all domestic remedies have been exhausted.
In the United Kingdom, this will be either the date of issue of a statutory notice required to conclude an assessment and/or any
related appeal procedures for the period of assessment in question, or a letter of acceptance by an officer of the Board of HM
Revenue & Customs to settlement terms for the period in question.
In the United States, this will be the date of the later of: (1) an assessment pursuant to a notice of proposed adjustment or a
statutory notice of deficiency; (2) when aclosing agreement is accepted by the Secretary of the Treasury or his delegate; or (3)
if the taxpayer is a party in an action in a US court regarding a redetermination of tax liability or requesting a refund of tax,
when such action is finally resolved, including any appeal.
Upon signature by both Competent Authorities, this agreement shall have effect from the date of entry into force of the
Convention, without regard to the taxable or chargeable period to which the matter relates.
Agreed to by the Undersigned competent authorities:
DateDate
Frank Y. Ng
U.S. Competent Authority
Diane Hay
U.K. Competent Authority
November 13, 20079892007–46 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Notice of Additional 2008
Transition Relief under
Section 409A
Notice 2007–86
SECTION 1. PURPOSE
This notice provides additional tran-
sition relief regarding the application of
section 409A of the Internal Revenue
Code to nonqualified deferred compensa-
tion plans. Generally, this notice extends
to December 31, 2008, the transition relief
that was scheduled to expire on December
31, 2007, as provided in Notice 2006–79,
2006–43 I.R.B. 763, and the preamble to
the final regulations under section 409A
(72 Fed. Reg. 19234 (April 17, 2007))
(the final regulations preamble). This
transition relief revokes and supersedes
thetransitionreliefprovidedin§IIIof
Notice 2007–78, 2007–41 I.R.B. 780, and
modifies the relief provided in § IV of
Notice 2007–78 related to employment
agreements, as described below. This
transition relief does not affect the guid-
ance provided in § IV of Notice 2007–78
related to predetermined cashout features,
or the guidance provided in § VI of Notice
2007–78, related to the application of sec-
tion 409A(b) (restrictions on certain trusts
and other arrangements).
SECTION 2. BACKGROUND
Section 409A provides certain require-
ments applicable to nonqualified deferred
compensation plans. If a plan does not
meet those requirements, participants in
the plan are required to immediately in-
clude amounts deferred under the plan in
income and pay additional taxes on such
income. Beginning with Notice 2005–1,
2005–1 C.B. 274 , the Treasury Depart-
ment and the IRS have issued several no-
tices and other guidance providing transi-
tion relief intended to permit and promote
compliance with the requirements of sec-
tion 409A. The Treasury Department and
the IRS also issued proposed regulations
under section 409A (70 Fed. Reg. 57930
(Oct. 4, 2005)) (the proposed regulations),
and final regulations under section 409A in
April 2007 (the final regulations).
On September 10, 2007, the Treasury
Department and the IRS issued Notice
2007–78, granting certain transition re-
lief intended to facilitate compliance with
the written plan requirements set forth in
the final regulations. See §1.409A–1(c).
Commentators stated that although the No-
tice 2007–78 transition relief was helpful,
the transition relief in that notice did not
adequately address the need for additional
time for service recipients and service
providers to analyze all of their plans and
make informed and reasoned decisions
regarding the changes that would be nec-
essary to bring existing arrangements into
compliance with the final regulations.
This notice addresses these concerns by
generally extending the transition relief
currently scheduled to expire on Decem-
ber 31, 2007 through December 31, 2008.
Section III of Notice 2007–78 is revoked
and superseded by this notice.
SECTION 3. EXTENSION OF
TRANSITION RELIEF
.01 Extension of Transition Relief
Provided in Notice 2006–79
Section 3 of Notice 2006–79 is mod-
ified and superseded in accordance with
paragraphs (A) and (B) of this § 3.01.
(A)General rule. During 2008, tax-
payers are not required to comply with the
requirements of the final regulations. In-
stead, they are required to operate a non-
qualifieddeferredcompensationplanin
compliance with the plan’s terms, to the
extent consistent with section 409A and
the applicable guidance (including Notice
2005–1). Where a provision of Notice
2005–1 is inconsistent with the final regu-
lations, taxpayers may rely upon either No-
tice 2005–1 or the final regulations. To the
extent an issue is not addressed in Notice
2005–1 or other applicable guidance, tax-
payers must apply a reasonable, good faith
interpretation of the statute. Reliance upon
the final regulations is treated as applying
a reasonable, good faith interpretation of
the statute.
Taxpayers may not rely upon the provi-
sions of the proposed regulations for peri-
ods after December 31, 2007, except that
taxpayers may continue to rely on sec-
tions II.E and VI.E of the preamble to the
proposed regulations (relating to the ap-
plication of section 409A to partners and
partnerships) until further guidance is is-
sued and sections XI.C (relating to changes
in payment elections or conditions) and
XI.H (relating to substitutions of non-dis-
counted stock options and stock apprecia-
tion rights for discounted stock options and
stock appreciation rights) of the preamble
to the proposed regulations continue to ap-
ply to the extent provided in § 3 of Notice
2006–79, as modified and superseded by
paragraph (B) of this § 3.01.
(B)Section 3 of Notice 2006–79 modi-
fied and superseded.
(1) Paragraphs .01, .02, .03 and .04 of
§ 3 of Notice 2006–79 are modified and
superseded to reflect the general rule pro-
vided in paragraph (A) and to read as fol-
lows:
.01.Amendment and operation of plans
adopted on or before December 31, 2008
A plan adopted on or before December
31, 2008 will not be treated as violat-
ing section 409A(a)(2), (3) or (4) on or
before December 31, 2008 if the plan is
operated through December 31, 2008 in
compliance with the provisions of section
409A and applicable provisions of Notice
2005–1 and any other generally applicable
guidance published with an effective date
prior to January 1, 2008, and the plan is
amended on or before December 31, 2008
to conform to the provisions of section
409A and the final regulations under sec-
tion 409A (70 Fed. Reg. 19234 (April
17, 2007)) with respect to amounts subject
to section 409A. For such periods, to the
extent an issue is not addressed in an appli-
cable provision of Notice 2005–1 or other
generally applicable guidance published
with an effective date prior to January 1,
2008, the plan must be operated consistent
with a good faith, reasonable interpreta-
tion of section 409A, and, to the extent not
inconsistent therewith, the plan’s terms.
For purposes of this notice, “generally
applicable guidance published with an ef-
fective date prior to January 1, 2008” does
not include the final regulations.
Compliance with the proposed regu-
lations is not required and compliance
with the final regulations before January
1, 2009 is not required. However, for pe-
riods before January 1, 2008, compliance
2007–46 I.R.B.990November 13, 2007

with the proposed regulations or the fi-
nal regulations will constitute reasonable,
good faith compliance with the statute.
For periods after December 31, 2007 and
before January 1, 2009, compliance with
the final regulations (but not the proposed
regulations) will constitute reasonable,
good faith compliance with the statute.
To the extent that a provision of either
the proposed regulations or the final reg-
ulations is inconsistent with a provision
of Notice 2005–1, or a provision of the
proposed regulations is inconsistent with a
provision of the final regulations, for peri-
ods before January 1, 2008, the plan may
comply with the provision of the proposed
regulations, the final regulations or Notice
2005–1. To the extent that a provision of
the final regulations is inconsistent with a
provision of Notice 2005–1, after Decem-
ber 31, 2007 and before January 1, 2009,
the plan may comply with the provision of
the final regulations or Notice 2005–1.
A plan will not be operating in good
faith compliance if discretion provided un-
der the terms of the plan is exercised in a
manner that causes the plan to fail to meet
the requirements of section 409A. For ex-
ample, if an employer retains the discretion
under the terms of the plan to delay or ex-
tend payments under the plan in a manner
that violates section 409A and exercises
such discretion, the plan will not be con-
sidered to be operated in good faith com-
pliance with section 409A with regard to
any plan participant. However, an exercise
of a right under the terms of the plan by a
participant solely with respect to that par-
ticipant’s benefits under the plan, in a man-
ner that causes the plan to fail to meet the
requirements of section 409A, will not be
considered to result in the plan failing to
be operated in good faith compliance with
respect to other participants. For example,
the request for and receipt of an immediate
payment permitted under the terms of the
plan if the participant forfeits 20 percent of
the participant’s benefits (a haircut) will be
considered a failure of the plan to meet the
requirements of section 409A with respect
to that participant, but not with respect to
all other participants under the plan.
.02.Change in payment elections or
conditions on or before December 31,
2008
The transition relief provided in sec-
tion XI.C of the preamble to the proposed
regulations generally continues to apply
through December 31, 2008, with certain
clarifications described below, and subject
to limitations for certain discounted stock
rights also described below. Accordingly,
with respect to amounts subject to section
409A, a plan may provide, or be amended
to provide, for new payment elections on
or before December 31, 2008, with respect
to both the time and form of payment of
such amounts and theelection or amend-
ment will not be treated as a change in
the time or form of payment under section
409A(a)(4) or an acceleration of a pay-
ment under section 409A(a)(3), provided
that the plan is so amended and elections
are made on or before December 31, 2008.
With respect to an election or amendment
to change a time and form of payment
made on or after January 1, 2006 and on
or before December 31, 2006, the election
or amendment may apply only to amounts
that would not otherwise be payable in
2006 and may not cause an amount to
be paid in 2006 that would not otherwise
be payable in 2006. With respect to an
election or amendment to change a time
and form of payment made on or after
January 1, 2007 and on or before Decem-
ber 31, 2007, the election or amendment
may apply only to amounts that would
not otherwise be payable in 2007 and
may not cause an amount to be paid in
2007 that would not otherwise be payable
in 2007. With respect to an election or
amendment to change a time and form of
payment made on or after January 1, 2008
and on or before December 31, 2008, the
election or amendment may apply only
to amounts that would not otherwise be
payable in 2008 and may not cause an
amount to be paid in 2008 that would not
otherwise be payable in 2008. So, for ex-
ample, where an amount would otherwise
be payable upon an event, such as a sep-
aration from service, an election in 2008
cannot change the amount that would be
payable in 2008 if the service provider
separated from service in 2008. In addi-
tion, a deferral election may be made with
respect to an amount that is a short-term
deferral within the meaning of proposed
§1.409A–1(b)(4), provided that the elec-
tion is made before January 1, 2008 and
before the year in which the amount would
otherwise have been paid. Also, a deferral
election may be made with respect to an
amount that is a short-term deferral within
the meaning of final §1.409A–1(b)(4),
provided that the election is made before
January 1, 2009 and before the year in
which the amount would otherwise have
been paid.
This provision applies to elections or
amendments by a service provider, a ser-
vice recipient, or both a service provider
and a service recipient. A service provider
or service recipient may make more than
one change or amendment under this relief,
provided that each such change or amend-
ment is made in accordance with the dead-
lines and conditions set forth in the ap-
plicable transition relief. For example, a
service provider that in 2005 elected to
change the time and form of payment of
deferred compensation to a lump sum pay-
ment in 2010, may elect again in 2006,
2007 or 2008 to change the time and form
of payment in accordance with this para-
graph. However, a service provider that in
2005 elected to be paid an amount in 2008
(and that did not change such election in
2006 or 2007) may not in 2008 change the
time and form of payment to be paid in a
later year.
Similarly, except as provided below
with respect to certain discounted stock
rights, an outstanding stock right that
provides for a deferral of compensation
subject to section 409A may be amended
to provide for fixed payment terms con-
sistent with section 409A, or to permit
holders of such rights to elect fixed pay-
ment terms consistent with section 409A,
and such amendment or election will not
be treated as a change in the time and form
of payment under section 409A(a)(4) or
an acceleration of a payment under section
409A(a)(3), provided that the option or
right is so amended, and any elections are
made, on or before December 31, 2008.
For this purpose, a stock right will not be
treated as payable in a year solely because
the stock right is exercisable during that
year, if the stock right is also reasonably
expected to be exercisable in a subsequent
year.
.03Payments linked to qualified plans
and certain other plans
The ability to link a payment election
under a nonqualified deferred compensa-
tion plan to an election under a qualified
plan is extended through 2008. In addition,
this relief is extended to payment elections
under nonqualified deferred compensation
plans that are linked to certain additional
employer plans, including section 403(b)
November 13, 20079912007–46 I.R.B.

annuities, section 457(b) eligible plans,
and certain foreign broad-based plans.
Accordingly, (i) for periods ending on or
before December 31, 2007, an election
astothetimeandformofapayment
under a nonqualified deferred compensa-
tion plan that is controlled by a payment
election made by the service provider or
beneficiary of the service provider un-
der a qualified employer plan described
in proposed or final §1.409A–1(a)(2), a
plan that includes a trust described in sec-
tion 402(d), a plan described in section
1022(i)(1) or (2) of the Employee Retire-
ment Income Security Act, or a foreign
broad-based plan described in proposed or
final §1.409A–1(a)(3)(v), will not violate
the requirements of section 409A, pro-
vided that the determination of the time
and form of the payment is made in accor-
dance with the terms of the nonqualified
deferred compensation plan that govern
payment elections, as in effect on October
3, 2004 and (ii) for periods ending after
December 31, 2007 and before January
1, 2009, the rules discussed in (i) will be
applied by reference to the provisions of
the final regulations only. For example,
where a nonqualified deferred compensa-
tion plan provides as of October 3, 2004,
that the time and form of payment to a
service provider or beneficiary will be the
same time and form of payment elected by
the service provider or beneficiary under
a qualified plan, it will not be a violation
of section 409A for the plan administrator
to make or commence payments under
the nonqualified deferred compensation
plan on or after January 1, 2005, and on or
before December 31, 2008, pursuant to the
payment election under the qualified plan.
Notwithstanding the foregoing, other pro-
visions of the Internal Revenue Code and
common law tax doctrines continue to
apply to any election as to the time and
form of a payment under a nonqualified
deferred compensation plan.
.04Substitutions of non-discounted
stock options and stock appreciation rights
for discounted stock options and stock ap-
preciation rights
Notice 2005–1, Q&A–18(d) provides
that it will not be a material modification
to replace a stock option or stock appre-
ciation right otherwise providing for a de-
ferral of compensation under section 409A
with a stock option or stock appreciation
right that would not have constituted a de-
ferral of compensation under section 409A
if it had been granted upon the original
date of grant of the replaced stock option
or stock appreciation right, provided that
the cancellation and reissuance occurs on
or before December 31, 2005. Section
XI.H of the preamble to the proposed reg-
ulations extended the period during which
the cancellation and reissuance may oc-
cur until December 31, 2006, but only to
the extent a cancellation and reissuance
in 2006 does not result in the cancella-
tion of a deferral in exchange for cash or
vested property in 2006. Except with re-
spect to certain discounted stock rights de-
scribed in § 3.07 of Notice 2006–79, the
period during which the cancellation and
reissuance may occur is extended until De-
cember 31, 2008, but only to the extent
such cancellation and reissuance in 2007
does not result in the cancellation of a de-
ferral in exchange for cash or vested prop-
erty in 2007 and only to the extent such
cancellation and reissuance in 2008 does
not result in the cancellation of a deferral
in exchange for cash or vested property in
2008. For example, a discounted option
generally may be replaced through De-
cember 31, 2008 with an option that would
not have provided for a deferral of com-
pensation, although the exercise of such
a discounted option after 2005 and before
the cancellation and replacement generally
would result in a violation of section 409A
unless such exercise complied in operation
with the requirements of section 409A and
the applicable guidance.
Where replacement stock options or
stock appreciation rights that would not
constitute deferred compensation subject
to section 409A are issued in accordance
with the conditions set forth in Notice
2005–1, Q&A–18(d), the preamble to the
proposed regulations and this notice, such
replacement stock options or stock appre-
ciation rights will be treated for purposes
of section 409A as if granted on the grant
date of the original stock option or stock
appreciation right. For a discussion of cer-
tain methods that commentators proposed
to use to compensate option holders for
the value of a lost discount, see section
XI.H of the preamble to the proposed reg-
ulations.
(2) Paragraph .06 of § 3 of Notice
2006–79 is modified and superseded to
read as follows:
.06Other transition issues
Notice 2005–1, Q&A–21 provided re-
lief with respect to certain initial deferral
elections, generally providing that cer-
tain requirements would not be applicable
to elections made on or before March
15, 2005. One of the conditions of the
relief was that the plan be amended to
comply with the requirements of section
409A in accordance with Notice 2005–1,
Q&A–19. Notice 2005–1, Q&A–19 gen-
erally required that plans be amended
by December 31, 2005. The March 15,
2005 deadline for initial deferral elections
was not extended in the preamble to the
proposed regulations; however, the plan
amendment requirement generally was ex-
tended to December 31, 2006. Although
the initial deferral election relief contained
in Notice 2005–1, Q&A–21 only referred
to the requirements of Notice 2005–1,
Q&A–19, the Treasury Department and
the IRS have become aware that many
taxpayers interpreted the extension of
the plan amendment deadlines as flow-
ing through to the requirements of Notice
2005–1, Q&A–21. To avoid unintentional
noncompliance in this area, the deadline
for a plan to be amended to reflect use
of the relief provided in Notice 2005–1,
Q&A–21 is extended to December 31,
2008. However, taxpayers retain the bur-
den of demonstrating satisfaction of the
requirement by showing that the defer-
ral election was made by the March 15,
2005 deadline, in accordance with the plan
terms in effect on or before December 31,
2005 (other than a requirement to make a
deferral election on or before March 15,
2005). See Notice 2005–1, Q&A–21.
(3) Paragraphs .05 and .07 of § 3 of
Notice 2006–79 are not affected by this
notice.
.02 Modification of Transition Relief
Provided in the Final Regulations
Preamble
ThereliefprovidedinsectionsXIIand
XIII of the final regulations preamble is
modified to reflect the extension of the No-
tice 2006–79 transition relief through De-
cember 31, 2008, and the guidance pro-
videdinsectionXIVofthefinalregula-
tions preamble is modified with respect to
periods after December 31, 2007, as fol-
lows:
(A)General rule. Sections XII and XIII
of the final regulations preamble are ap-
2007–46 I.R.B.992November 13, 2007

plied by substituting references to Decem-
ber 31, 2008 for references to December
31, 2007, and substituting references to
January 1, 2009 for references to January
1, 2008. However, references to April 10,
2007 (the date of issuance of the final reg-
ulations) and October 3, 2004 (the enact-
ment date of the statute) are not modified.
(B)Section XII.C. With respect to the
determination of the fair market value of
stock, the last sentence of the second para-
graph of section XII.C of the final regu-
lations preamble is modified to delete the
words “proposed or” so as to eliminate re-
liance on the provisions of the proposed
regulations.
(C)Section XII.D. With respect to pro-
grams established before April 10, 2007
where initial deferral elections have not
been made by January 1, 2008, the tran-
sition relief provided in the second para-
graph of section XII.D of the final regu-
lations preamble remains unchanged (that
is, no further transition relief is provided
by this notice).
(D)Section XIV. The guidance pro-
vided in section XIV of the final regula-
tions preamble (Calculation and Timing
of Income Inclusion Amounts, Reporting
and Withholding) on the application of
section 409A before January 1, 2008 is
extended to apply before January 1, 2009
except that paragraph A of such section is
not changed.
SECTION 4. EFFECT ON OTHER
DOCUMENTS
Nothing in this notice is intended to
limit the scope or applicability of the tran-
sition relief provided in Notice 2005–1, the
proposed regulations or Notice 2006–79
for periods before January 1, 2008. This
notice does not affect the guidance pro-
vided in Notice 2006–33, 2006–1 C.B.
754 (relating to the application of section
409A(b)), Notice 2005–94, 2005–2 C.B.
1208 (relating to reporting and wage with-
holding for 2005) and Notice 2006–100,
2006–51 I.R.B. 1109 (relating to reporting
and wage withholding for 2006). Notwith-
standing the section of the final regulations
preamble entitled “Effect on Other Docu-
ments”, Notice 2005–1 is obsoleted only
for taxable years beginning on or after
January 1, 2009, except for the following
sections of Notice 2005–1, which remain
effective after that date as modified by
any other applicable guidance: Q&A–6
(application to arrangements covered by
section 457); Q&A–7 (application to ar-
rangements between a partnership and a
partner of the partnership); and Q&A–24
through Q&A–38 (information reporting
and withholding guidance).
Pursuant to this notice, Notice 2006–4,
2006–3 C.B. 307 (relating to the applica-
tion of section 409A to certain outstanding
stock rights), is superseded by the final
regulations with respect to stock rights
issued in taxable years of the service
provider beginning after December 31,
2008. Notice 2006–64, 2006–29 I.R.B. 88
(relating to the acceleration of payments
to comply with certain conflict of interest
rules), is superseded by the final regu-
lations effective for taxable years of the
service provider beginning after Decem-
ber 31, 2008.
Section III of Notice 2007–78 is re-
voked and superseded by this notice. Pur-
suant to this notice, the penultimate para-
graph and the first sentence of the final
paragraph of § IV.A of Notice 2007–78 are
modified by substituting references to De-
cember 31, 2008 for references to Decem-
ber 31, 2007. The guidance otherwise pro-
vided in § IV of Notice 2007–78 is not
affected by this notice. Section 3 of No-
tice 2006–79 is modified and superseded
as provided in this notice. The guidance
and relief provided in the final regulations
preamble is modified as provided in this
notice.
The Treasury Department and the IRS
anticipate issuing guidance as soon as pos-
sible with respect to the correction pro-
gramandothermattersdiscussedin§V
of Notice 2007–78 and this notice does not
affect that section. In addition, this notice
does not affect the guidance provided in
§ VI of Notice 2007–78.
SECTION 5. DRAFTING
INFORMATION
The principal authors of this notice
are Stephen Tackney and Bill Schmidt of
the Office of Division Counsel/Associate
Chief Counsel (Tax Exempt and Govern-
ment Entities), although other Treasury
Department and IRS officials participated
in its development. For further infor-
mation on the provisions of this notice,
contact Stephen Tackney or Bill Schmidt
at (202) 927–9639 (not a toll-free num-
ber).
Proposed Changes to the
Process for Obtaining the
Commissioner’s Consent
to Change a Method of
Accounting
Notice 2007–88
PURPOSE
This notice requests comments from
the public regarding a proposal to change
the process by which taxpayers obtain the
consent of the Commissioner of Internal
Revenue to change a method of account-
ing for federal income tax purposes. The
proposal described in this notice is one
possible approach. The Internal Revenue
Service (IRS) is interested in consider-
ing other possible approaches. Therefore,
changes to the process, including any pilot
program, will not become effective until
the IRS considers public comments and
suggestions received in response to this
notice and publishes guidance announcing
changes to the process.
BACKGROUND
A.The Existing Accounting Method
Change Process
Section 446(e) of the Internal Revenue
Code requires taxpayers to obtain the con-
sent of the Commissioner before changing
a method of accounting for federal income
tax purposes. A change in a method of ac-
counting includes a change in the overall
plan of accounting for gross income or de-
ductions or a change in the treatment of
any item that involves the proper time for
the inclusion of the item in income or the
taking of the item as a deduction. Taxpay-
ers request the Commissioner’s consent to
change a method ofaccounting by filing
aForm3115,Application for Change in
Accounting Method, that describes the cur-
rent and new methods of accounting, iden-
tifies items that will be treated differently
under the new method of accounting, and
includes a computation of any adjustment
required by section 481(a).
The Commissioner has issued admin-
istrative procedures instructing taxpayers
November 13, 20079932007–46 I.R.B.

how and when to file Form 3115, and
prescribing the terms and conditions nec-
essary to obtain consent to change an
accounting method. These procedures
are contained principallyinRev. Proc.
2002–9, 2002–1 C.B. 327, as modified
and clarified by Announcement 2002–17,
2002–1 C.B. 561, modified and amplified
by Rev. Proc. 2002–19, 2002–1 C.B.
696, and amplified, clarified and modified
by Rev. Proc. 2002–54, 2002–2 C.B.
432 (“automatic consent process”) and
Rev. Proc. 97–27, 1997–1 C.B. 680, as
modified and amplified by Rev. Proc.
2002–19, as amplified and clarified by
Rev. Proc. 2002–54 (“nonautomatic con-
sent process”).
1.The automatic consent process
Under the existing process, the Com-
missioner grants eligible taxpayers auto-
matic consent to change to certain methods
of accounting, most of which are described
in the Appendix to Rev. Proc. 2002–9.
A taxpayer that seeks to change to one of
these methods must attach Form 3115 to its
timely filed (including extensions) original
income tax return for the requested year of
change and send a copy of the Form 3115
to the IRS national office no later than the
date that the original Form 3115 is filed
with the federal income tax return for the
year of change. In general, a taxpayer, not
under audit, complying with all the appli-
cable provisions of Rev. Proc. 2002–9 has
obtained the consent of the Commissioner
to change its method of accounting and or-
dinarily receives both “audit protection”
and “ruling protection.” That is, the IRS
will not require the taxpayer to change its
method of accounting for the same item for
a taxable year prior to the year of change
(“audit protection”). The IRS also will not
require the taxpayer to change or modify
the new method of accounting except in
certain circumstances specifically enumer-
ated in section 8 of Rev. Proc. 2002–9
and, if the IRS does require the taxpayer
to change or modify the new method of
accounting, the required change or modi-
fication to the new method of accounting
generally will not be applied retroactively
(“ruling protection”). In other words, the
taxpayer receives protection with respect
to the use of the new method of account-
inginfutureyears.
Rev. Proc. 2002–9 is the exclusive
procedure for a taxpayer within the scope
of Rev. Proc. 2002–9 to obtain the con-
sent of the Commissioner before changing
a method of accounting. Accordingly, a
taxpayer that qualifies to make a change
through the automatic consent process
may not opt to make the change under the
nonautomatic consent process described
below. A user fee is not charged in the
automatic consent process.
The IRS national office reviews Forms
3115 filed through the automatic consent
process to determine whether the form
is properly completed and whether the
taxpayer qualifies for automatic consent.
If the IRS national office reviews a Form
3115 and determines that the form is not
properly completed, or if supplemental
information is needed, the IRS national
office notifies the taxpayer, specifies the
information that is needed, and permits the
taxpayer 30 days to furnish the necessary
information. If the IRS national office
tentatively determines that the taxpayer
has changed its method of accounting
without complying with all the applicable
provisions of Rev. Proc. 2002–9, the IRS
national office notifies the taxpayer of its
tentative adverse determination and offers
the taxpayer a conference of right, if the
taxpayer has requested such a conference.
In cases where the IRS national office
remains adverse after the conference of
right, it notifies the taxpayer that consent
to make the change in method of account-
ing is not granted.
2.The nonautomatic consent process
Changes that do not qualify for auto-
matic consent must be requested under the
nonautomatic consent process described in
Rev. Proc. 97–27. A taxpayer that seeks
the Commissioner’s consent to change a
method of accounting through the nonau-
tomatic consent process must file Form
3115 with the IRS national office during
the taxable year in which the taxpayer de-
sires to make the proposed change. There
is a user fee for a nonautomatic consent re-
quest (in general, the current fee is $2,500
per request).
In processing a request for a change in
method of accounting made through the
nonautomatic consent process, the IRS
national office considers, among other
factors, whether the requested method of
accounting is legally permissible for the
taxpayer, whether the requested method
clearly reflects the taxpayer’s income, and
whether the taxpayer has appropriately
computed any adjustment required by
section 481(a). The processing of a tax-
payer’s request for an accounting method
change may involve requests for supple-
mental information from the taxpayer,
including requests for additional facts and
clarification of howthe taxpayer intends
to apply the requested method to particu-
lar types of transactions. If supplemental
information is needed, the IRS national of-
fice notifies the taxpayer and the taxpayer
generally is permitted 21 days to furnish
the necessary information.
If the taxpayer’s requested accounting
method change is approved by the IRS na-
tional office, the taxpayer receives a let-
ter ruling granting the taxpayer consent to
make the change subject to certain terms
and conditions. The taxpayer also gen-
erally receives audit protection and ruling
protection. In cases where the IRS na-
tional office is tentatively adverse to the
taxpayer’s requested change in method of
accounting, the IRS national office notifies
the taxpayer of its tentative adverse deter-
mination and offers the taxpayer a confer-
ence of right, if the taxpayer has requested
such a conference. If the IRS national of-
fice remains adverseafter the conference
of right, it notifies the taxpayer that con-
sent to make the change in method of ac-
counting is denied.
B.Reasons for Change
The IRS is concerned that certain as-
pects of the existing accounting method
change process make it a complex and
inefficient means for taxpayers to obtain
consent to change an accounting method.
These complexities and inefficiencies of-
ten result in significant delays in the pro-
cessing of accounting method change re-
quests. The IRS believes that an effi-
cient process that provides taxpayers with
a means of obtaining timely consent to
change to a proper method of accounting
is crucial to ensuring that taxpayers com-
ply with the consent requirement of sec-
tion 446(e). Accordingly, the IRS is con-
sidering proposals to modify the account-
ing method change process. In considering
any modifications to the existing process,
the IRS will balance taxpayers’ need for
timely consent with the Commissioner’s
responsibility to ensure that the process
comports with the purpose underlying sec-
tion 446(e).
2007–46 I.R.B.994November 13, 2007

Prior to the codification of sections
446(e) and 481 in 1954, the regulations
imposed a “consent” requirement on tax-
payers seeking a change in accounting
method, the purpose of which was to give
the Commissioner the opportunity to insist
on compensating adjustments to eliminate
the omissions and duplications of income
and deductions that can result from a
change in accounting method. Today, sec-
tion 481(a) provides for such adjustments,
thereby diminishing the role of the consent
requirement as a means for the Commis-
sioner to mandate these adjustments. The
consent requirement is recognized today
as serving broader policy aims, such as
promoting consistent accounting practices
and easing the administrative burden on
the Commissioner of detecting accounting
method changes.
The IRS believes that the proposal con-
tained in this notice fulfills the broad pol-
icy aims of section 446(e). As under the
existing automatic consent and nonauto-
matic consent processes, the IRS intends
to review all accounting method change
requests, and to focus on those that raise
novel or controversial accounting method
change issues. The IRS expects that the
proposal contained in this notice will sim-
plify the consent process and reduce de-
lays for most taxpayers, while preserving
the ability of the IRS to effectively moni-
tor changes of accounting methods.
PROPOSAL
The IRS is considering whether to
modify the accounting method change
process so that the existing “automatic
consent” process and “nonautomatic con-
sent” process are replaced with a system
under which a taxpayer requests “standard
consent,” “specific consent” or “letter rul-
ing consent.”
A.Standard Consent Process
1.In general
The IRS anticipates that, under this pro-
posal, the majority of accounting method
change requests would be made through
the standard consent process. The pro-
posed standard consent process is expected
to operate in a manner similar to the ex-
isting automatic consent process — a tax-
payer that timely files Form 3115 with
its tax return and complies with the pro-
cedures governing the process is granted
the Commissioner’s consent to change its
method of accounting. A change made
under the standard consent process must
be made under the published terms and
conditions applicable to the standard con-
sent process. No letter ruling would be is-
sued by the IRS, and no user fee would be
charged.
All changes in method of accounting
that are specifically identified in Rev.
Proc. 2002–9 (or any successor), or other
automatic consent guidance, would be
eligible for consent under the standard
consent process. As is the case under
the existing automatic consent process,
taxpayers changing to one of these specif-
ically identified methods of accounting
would ordinarily obtain audit protection
and ruling protection. The IRS antici-
pates that Rev. Proc. 2002–9 (or any
successor), and other automatic consent
guidance, would be incorporated into the
administrative procedures that govern the
standard consent process. Consequently,
the standard consent process would be the
exclusive process available to taxpayers
changing to methods of accounting specif-
ically identified in Rev. Proc. 2002–9
(or any successor) and other automatic
consent guidance.
This proposal contemplates that the
standard consent process would be avail-
able even for changes that are not identi-
fied in Rev. Proc. 2002–9 (or any succes-
sor), or other automatic consent guidance.
That is, except for changes required to be
made under the proposed specific con-
sent process (described below), a taxpayer
that timely files Form 3115 with its tax
return and complies with the procedures
governing the standard consent process
would have the Commissioner’s consent
to change to any permissible method of ac-
counting for the requested year of change,
including changes to methods of account-
ing not specifically identified in Rev.
Proc. 2002–9 (or any successor) or other
automatic consent guidance. However,
unlike the consent applicable to method
changes specifically identified in Rev.
Proc. 2002–9 (or any successor), or other
automatic consent guidance, a taxpayer’s
change of its method of accounting to a
method other than a method specifically
identified in Rev. Proc. 2002–9 (or any
successor), or other automatic consent
guidance, would receive only audit pro-
tection for years prior to the requested year
of change and wouldnot receive ruling
protection.
Although the proposal contemplates
that taxpayers would file Form 3115 with
their returns for the requested year of
change, the IRS is considering an alter-
native approach under which taxpayers
wouldberequiredtofileForm3115
for changes to methods of accounting
not specifically identified in Rev. Proc.
2002–9 (or any successor) or other au-
tomatic guidance, by the last day of the
ninth month of the requested taxable year
of change. Requiring Form 3115 to be
filed during the requested taxable year
of change, rather than with the tax return
for the requested taxable year of change,
would provide the IRS with time to con-
sider the request before the taxpayer files
its return for the requested taxable year of
change. The IRS requests comments on
this alternative approach.
The IRS expects that the standard con-
sent process would give taxpayers who
seek consent under section 446(e) without
ruling protection the opportunity to obtain
this consent in a timely and efficient man-
ner. The taxpayer’s filing of Form 3115
would give the IRS adequate notice of the
change in accounting method. Further, the
lack of ruling protection for changes that
are not specified in Rev. Proc. 2002–9 (or
any successor), or other automatic consent
guidance, puts the taxpayer in no worse a
position with regard to the new method of
accounting as the taxpayer is in with re-
gard to other items of income or deduction
reported on the return. That is, the tax-
payer’s use of the new method of account-
ing is an issue that may be considered upon
examination.
2.IRS review of Forms 3115
Under the proposal, the IRS would
screen accounting method change requests
for completeness and for compliance with
the procedures governing the standard
consent process. Requests that are not
substantially complete would be denied
consent and the taxpayer would be notified
that consent is not granted. In contrast to
the procedures contained in section 10.02
of Rev. Proc. 2002–9, under the pro-
posal, the IRS does not intend to permit
taxpayers to perfect requests that are not
substantially complete prior to denying
consent. As a consequence, a taxpayer
who submits a form that is not substan-
tially complete would not receive consent
November 13, 20079952007–46 I.R.B.

to change its method of accounting for
the proposed year of change and, thus,
would not receive ruling protection or
audit protection. The IRS plans to issue
guidelines and examples of what consti-
tutes a substantially complete Form 3115.
For example, a Form 3115 must include
sufficient information about the current
and new methods of accounting to permit
the IRS to understand how the methods
work, and must identify legal authority
(including any contrary authority) gov-
erning the new method of accounting.
However, minor omissions or errors on
Form 3115 would not result in the denial
of consent.
In addition to screening accounting
method change requests for complete-
ness, the IRS would review Forms 3115
filed under the standard consent process
to determine whether the new accounting
method is permissible. In cases where
the IRS agrees that the new method is
permissible, ordinarily no further action
would be taken and the taxpayer would
not be advised that the review has taken
place. In cases where the IRS questions
the propriety of the new method, the IRS
may correspond with the taxpayer to re-
solve the matter. In some cases, resolution
may require the taxpayer to provide addi-
tional information about the change. If the
IRS tentatively determines that the new
method of accounting is impermissible,
the IRS would notify the taxpayer of the
tentative adverse determination and will
ordinarily offer the taxpayer a conference.
In cases where the IRS remains adverse
after the conference,it would notify the
taxpayer that consent to make the change
in method of accounting is not granted.
Under the existing accounting method
change process, the IRS provides audit
protection for changes in method of ac-
counting only if the request for change is
granted. The IRS is considering whether it
would be appropriate to provide audit pro-
tection even in cases where consent is not
granted. Providing audit protection in such
cases may encourage taxpayers to seek
consent to change from improper methods
of accounting.
B.Specific Consent Process
The specific consent process is pro-
posed to be available for only two cat-
egories of accounting method changes:
(1) accounting method changes specifi-
cally identified in published guidance as
required to be made under the specific
consent process, and (2) changes that oth-
erwise qualify under the standard consent
process, but for which the taxpayer seeks
different terms and conditions or a waiver
of certain scope limitations that apply to
the standard consent process. Each of
these categories is discussed in further
detail below. The IRS expects that under
this proposal a user fee would apply to a
change requiring specific consent.
1.Changes identified in published
guidance
Under the proposal, the IRS would
publish guidance in the Internal Rev-
enue Bulletin that lists specific accounting
method changes that must be made using
the specific consent process. The spe-
cific accounting method changes listed
in this published guidance would include
the types of changes that the IRS wants
to review in more depth and prior to the
taxpayer implementing the accounting
method on its tax return. The IRS would
update the proposed published list as
necessary to add or remove specific ac-
counting method changes that are required
to be made under the specific consent
process. The IRS expects that, in gen-
eral, the process for requesting specific
consent would be similar to the existing
advance consent process described in Rev.
Proc. 97–27. That is, a taxpayer files a
Form 3115 that is substantially complete
(as discussed above in the description of
the standard consent process) and awaits
a ruling from the IRS granting consent
to the change. To give the IRS adequate
time to consider the request prior to the
due date of the taxpayer’s tax return for
the requested taxable year of change, the
IRS expects to require taxpayers to file
Form 3115 by the last day of the ninth
month of the requested taxable year of
change, without the possibility of relief
for late requests under section 301.9100
of the Regulations on Procedure and Ad-
ministration. However, the IRS intends
to consider an otherwise qualified request
filed after the last day of the ninth month
of a taxable year and before the beginning
of the succeeding taxable year a timely
filed request for the succeeding taxable
year.
If a taxpayer’s consent request is
granted, audit protection would apply
and ruling protection would usually apply.
However, the IRS, in its discretion, may
decline to grant ruling protection in a par-
ticular case.
2.Changes seeking modified terms and
conditions or a waiver of certain scope
limitations
The specific consent process would also
apply to any change that otherwise quali-
fies for the standard consent process (in-
cluding a change specifically identified in
Rev. Proc. 2002–9, or any successor, or
other automatic consent guidance), but for
the fact that the taxpayer seeks a term and
condition different from those that apply
to standard consent requests, or seeks a
waiver of certain scope limitations that ap-
ply to standard consent requests. For ex-
ample, a taxpayer that filed a Form 3115
under the standard consent process and
seeks to make a subsequent change to the
same item within five years would be re-
quired to request consent under this spe-
cific consent process to make the subse-
quent change. As provided in section 8.02
of Rev. Proc. 97–27, the IRS may de-
termine that, based on the unique facts
of a particular case and in the interest of
sound tax administration, terms and con-
ditions that differ from those that ordinar-
ily apply are more appropriate for a par-
ticular accounting method change. It is
not intended that under this proposal the
IRS would change its policy concerning
the circumstances in which it will approve
a request for modified terms and condi-
tions. Taxpayers should be aware that it is
only in rare situations that the IRS agrees
to a taxpayer’s request for terms and con-
ditions different from those prescribed in
published guidance.
To give the IRS adequate time to con-
sider the request prior to the due date of
the taxpayer’s tax return for the requested
taxable year of change, the IRS expects to
require taxpayers to file Form 3115 by the
last day of the ninth month of the requested
taxable year of change, without the possi-
bility of relief for late requests under sec-
tion 301.9100 of the Regulations on Pro-
cedure and Administration. However, the
IRS intends to consider an otherwise qual-
ified request filed after the last day of the
ninth month of a taxable year and before
the beginning of the succeeding taxable
year a timely filed request for the succeed-
ing taxable year.
2007–46 I.R.B.996November 13, 2007

Under the proposal, in cases where the
IRS agrees to the modified term and con-
dition or the waiver of certain scope limi-
tations, any consent would be granted un-
der the standard consent process, gener-
ally with audit protection and without rul-
ing protection. That is, no ruling letter
would be issued; the IRS would simply
issue a waiver that permits the taxpayer
to utilize the standard consent process to
make the change with the modified term
and condition or with a waiver of the scope
limitation. In appropriate cases, the IRS
would limit audit protection where the tax-
payer previously received audit protection
for the same item under the standard con-
sent process.
C.Letter Ruling Consent Process
The IRS recognizes that some taxpayers
who seek to change an accounting method
may want the certainty of a letter ruling is-
sued by the IRS national office concern-
ing the propriety of a requested method
of accounting. Under the proposal, a tax-
payer that seeks a change in accounting
method other than a change that is specif-
ically identified in Rev. Proc. 2002–9 (or
any successor), or other automatic consent
guidance, may request a letter ruling un-
der Rev. Proc. 2007–1, 2007–1 I.R.B. 1,
(or its successor). The IRS would apply
Rev. Proc. 2007–1 (or its successor) and
Rev. Proc. 2007–3, 2007–1 I.R.B. 108,
(or its successor) in determining whether
to rule on a request filed under the letter
ruling consent process.
The IRS is concerned that requests for
accounting method changes made under
the existing advance consent process of-
ten are not as well developed as requests
for letter rulings generally. Under this pro-
posal, a taxpayer utilizing the letter ruling
consent process must submit a fully devel-
oped request, and that request would be
subject to the same standard of factual and
legal development as a request for a let-
ter ruling generally. Under this proposal, a
letter ruling request would include, among
other information, a complete statement of
facts, copies of documents pertinent to the
transaction, statements of supporting and
contrary authorities,examples of the appli-
cation of the new method to the taxpayer’s
transaction and a completed Form 3115 as
an attachment to the letter ruling request.
As provided in Rev. Proc. 2007–1, taxpay-
ers must provide any additional informa-
tion requested by the IRS and, if a taxpayer
does not submit the information within 21
calendar days from the date of the request,
the letter ruling request would be closed
and the taxpayer would be notified in writ-
ing.
Requests made under this letter ruling
consent process would be subject to the
generally applicable user fee imposed on
letter ruling requests, and not the user fee
currently imposed in the existing advance
consent process. Further, the IRS intends
to require taxpayers to submit letter rul-
ing consent requests by the last day of the
ninth month of the requested taxable year
of change, without the possibility of relief
for late requests under section 301.9100
of the Regulations on Procedure and Ad-
ministration. However, the IRS intends to
consider an otherwise qualified letter rul-
ing request filed after the last day of the
ninth month of a taxable year and before
the beginning of the succeeding taxable
year a timely filed letter ruling request for
the succeeding taxable year.
If the IRS national office rules favor-
ably on the letter ruling request, it also
would grant the taxpayer consent under
section 446(e) to change its method of ac-
counting for the item that is the subject of
the letter ruling request. Audit protection
and ruling protection would apply.
D.Pilot Program
The IRS intends to implement any
changes to the accounting method change
process on a pilot basis before making
permanent changes to the process. The
IRS expects to open the pilot program
to all taxpayers making an accounting
method change withina specified pilot
period. During the pilot period, the IRS
will continue to evaluate the process. The
IRS emphasizes that this notice does not
establish a pilot program. The IRS will
consider public comments received in re-
sponse to this notice before establishing
a pilot program in separate guidance. In
the meantime, taxpayers must continue to
follow the existing procedures (e.g.,Rev.
Proc. 97–27 and Rev. Proc. 2002–9) for
obtaining consent to change an accounting
method.
REQUEST FOR COMMENTS
The proposal contained in this notice is
one way, but not the only way, that the
accounting method change process could
be modified to improve efficiencies and
reduce delays both for taxpayers and the
IRS. The IRS requests public comments
on this proposal and any other suggestions
for modifying and improving the account-
ing method change process. Any modi-
fication to the accounting method change
process will not become effective until the
IRS considers any public comments re-
ceived and publishes additional guidance
announcing changes to the process.
Written submissions in response to
this notice should be submitted no later
than January 18, 2008, to Internal Rev-
enue Service, CC:PA:LPD:RU (Notice
2007–88), room 5203, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
Submissions may be hand delivered be-
tween the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:RU (Notice 2007–88),
Courier’s Desk, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC 20224. Alternatively, submis-
sions may be submitted via the Internet at
Notice.Comments@irscounsel.treas.gov
in which case “Notice 2007–88” should
be in the subject line. All submissions
will be available for public inspection and
copying in their entirety. Therefore, sub-
missions received by the IRS should not
include taxpayer-specific information of a
confidential nature. Submissions should
include the name and telephone number of
a person to contact.
DRAFTING INFORMATION
The principal authors of this notice are
Andrew J. Keyso and Brenda D. Wilson
oftheOfficeofAssociateChiefCoun-
sel (Income Tax & Accounting). For fur-
ther information regarding this notice, con-
tact Mr. Keyso or Ms. Wilson at (202)
622–4800 (not a toll-free call).
November 13, 20079972007–46 I.R.B.

Reporting and Wage
Withholding Under Internal
Revenue Code § 409A
Notice 2007–89
I. PURPOSE
This notice provides guidance to em-
ployers and payers on their reporting and
wage withholding requirements for calen-
dar year 2007 with respect to amounts in-
cludible in gross income under § 409A
of the Internal Revenue Code. This no-
tice also provides guidance to employers
and payers on their reporting requirements
with respect to all deferrals of compen-
sation under § 409A of the Internal Rev-
enue Code for 2007. This notice does
not affect the application of § 3121(v)(2)
or an employer’s reporting obligations un-
der § 31.3121(v)(2)–1 of the Employment
Tax Regulations. In addition, this notice
provides guidance to service providers on
their income tax reporting and tax pay-
ment requirements with respect to amounts
includible in gross income under § 409A
for 2007. Generally, these requirements
for 2007 reflect an extension to 2007 tax
years of the guidance provided in Notice
2006–100 applicable to 2005 and 2006 tax
years.
II. BACKGROUND
A. The American Jobs Creation Act of
2004
Section 885 of the American Jobs
Creation Act of 2004, Pub. Law No.
108–357, 118 Stat. 1418 (the Act), added
§ 409A, which provides,inter alia,that
all amounts deferred under a nonquali-
fied deferred compensation plan for all
taxable years are currently includible in
gross income to the extent not subject
to a substantial risk of forfeiture and not
previously included in gross income, un-
less certain requirements are met. Section
885(b) of the Act amended the Code to
impose the following reporting and wage
withholding requirements with respect
to deferrals of compensation within the
meaning of § 409A.
•The Act amended §§ 6041 and 6051
to require that an employer or payer
report all deferrals for the year under
a nonqualified deferred compensation
plan on a Form W–2(Wage and Tax
Statement)or a Form 1099–MISC
(Miscellaneous Income), regardless of
whether such deferred compensation
is includible in gross income under
§ 409A(a).
•The Act amended § 3401(a) to pro-
vide that the term “wages” includes
any amount includible in the gross in-
come of an employee under § 409A.
•The Act amended § 6041 to require
that a payer report amounts includible
in gross income under § 409A that are
not treated as wages under § 3401(a).
B. Notice 2005–1
On December 20, 2004, the IRS issued
Notice 2005–1, 2005–1 C.B. 274, which
provides guidance with respect to the ap-
plication of § 409A. Additionally, in ac-
cordance with the amendments made by
§ 885(b) of the Act, Notice 2005–1 pro-
vides the following with respect to report-
ing and wage withholding requirements
for deferred amounts:
•An employer reports to an employee
the total amount of deferrals for the
year under a nonqualified deferred
compensation plan in box 12 of Form
W–2 using code Y. See Q&A–29.
•An employer reports amounts includi-
ble in gross income under § 409A and
in wages under § 3401(a) in box 1
of Form W–2 as wages paid to the
employee during the year and subject
to income tax withholding. An em-
ployer also reports such amounts in
box 12 of Form W–2 using code Z. See
Q&A–33.
•A payer reports to a nonemployee the
total amount of deferrals for the year
under a nonqualified deferred com-
pensationplaninbox15aofForm
1099–MISC. See Q&A–30.
•A payer reports amounts includible in
gross income under § 409A and not
treated as wages under § 3401(a) as
nonemployee compensation in box 7
of Form 1099–MISC. A payer also re-
ports such amounts in box 15b of Form
1099–MISC. See Q&A–35.
C. Final Regulations
On April 10, 2007, the IRS issued fi-
nal regulations (T.D. 9321, 2007–14 I.R.B.
865) regarding the application of § 409A,
applicable for taxable years beginning on
or after January 1, 2008. See 72 Fed. Reg.
19234 (April 17, 2007). The regulations
generally incorporate and expand on the
guidance provided in Notice 2005–1. Un-
der Notice 2007–86, 2007–46 I.R.B. 990
(November 13, 2007), taxpayers generally
are not required to comply with the fi-
nal regulations until January 1, 2009, but
taxpayers may rely on the final regula-
tions for periods before January 1, 2009.
The final regulations generally supersede
Notice 2005–1 for periods beginning af-
ter 2008. However, the regulations do
not address reporting and withholding re-
quirements, and accordingly do not su-
persede Notice 2005–1, Q&A–24 through
Q&A–38, which address those issues. See
Preamble to the Final Regulations, Effect
on Other Documents, 72 Fed. Reg. 19275.
D. Notice 2006–100
On November 30, 2006, the IRS is-
sued Notice 2006–100, 2006–51 I.R.B.
1109, which provided guidance to em-
ployers and payers on their reporting and
withholding obligations with respect to
deferrals of compensation and amounts
includible in gross income under § 409A
during calendar years 2005 and 2006. The
notice permanently waived employers’
and payers’ reporting requirements under
§§ 6041 and 6051 for calendar years 2005
and 2006 with respect to annual deferrals
of compensation within the meaning of
§ 409A (Form W–2, Box 12, Code Y and
Form 1099, Box 15a). The notice also
provided guidance regarding the calcu-
lation of amounts includible in income
under § 409A, and the application of the
employer and payer reporting and with-
holding requirements for such amounts
under § 409A (Form W–2, Box 12, Code
Z and Form 1099, Box 15b).
III. INTERIM EMPLOYER AND
PAYER REPORTING AND WAGE
WITHHOLDING PROVISIONS
This section provides guidance on em-
ployers’ and payers’ reporting and wage
withholding requirements for calendar
year 2007.
2007–46 I.R.B.998November 13, 2007

A. 2007 Annual Deferrals
1. Amounts Reportable on Form W–2
For calendar year 2007, an employer
is not required to report amounts deferred
during the year under a nonqualified
deferred compensation plan subject to
§ 409A in box 12 of Form W–2 using code
Y.
2. Amounts Reportable on Form
1099–MISC
For calendar year 2007, a payer is not
required to report amounts deferred dur-
ing the year under a nonqualified deferred
compensation plan subject to § 409A in
box 15a of Form 1099–MISC.
B. 2007 Reporting and Withholding on
Amounts Includible in Gross Income
under § 409A
Section 3401(a) provides that for in-
come tax withholding purposes the term
“wages” includes any amount includible
in gross income of an employee under
§ 409A, and payment of such amount is
treated as having been made in the taxable
year in which the amount is includible
in gross income. Thus, for calendar year
2007, an employer must treat amounts
includible in gross income under § 409A
as wages for income tax withholding pur-
poses. An employer is required to report
such amounts as wages paid on line 2
of Form 941,Employer’s QUARTERLY
Federal Tax Return,andinbox1ofForm
W–2. An employer must also report such
amounts as § 409A income in box 12 of
Form W–2 using code Z. Amounts includi-
ble in gross income under section § 409A
are supplemental wages for purposes of
determining the amount of income tax
required to be deducted and withheld un-
der § 3402(a), regardless of whether the
employer has paid the employee any reg-
ular wages during the calendar year of
the payment.SeePublication15forthe
withholding rules with respect to supple-
mental wages. The amount required to
be withheld is not increased on account
of the additional income taxes imposed
under § 409A(a)(1)(B). Employees should
thus be aware that estimated tax payments
mayberequiredtoavoidpenaltiesunder
§ 6654.
For nonemployees, § 6041(g)(2) re-
quires a payer to report to a nonemployee
any amount that is includible in gross in-
come under § 409A that is not treated as
wages under § 3401(a). Thus, for calendar
year 2007, a payer must report amounts
includible in gross income under § 409A
and not treated as wages under § 3401(a)
as nonemployee compensation in box 7
of Form 1099–MISC. A payer must also
report such amounts as § 409A income in
box 15b of Form 1099–MISC.
1. Calculation of Amounts Includible in
Income under § 409A(a) — In General
Section 409A(a)(1)(A)(i) provides that
if at any time during a taxable year a non-
qualified deferred compensation plan fails
to meet the requirements of § 409A(a)(2),
(3) or (4), all compensation deferred un-
der the plan for the taxable year and all
preceding taxable years shall be includible
in gross income for the taxable year to the
extent not subject to a substantial risk of
forfeiture and not previously included in
gross income. Accordingly, for purposes
of this notice, the amount includible in
gross income under § 409A(a) and re-
quired to be reported by the employer
or payer equals the portion of the total
amount deferred under the plan that, as
of December 31, 2007, is not subject to
a substantial risk of forfeiture as defined
in Notice 2005–1, Q&A–6, or the final
regulations, and has not been included
in income in a previous year, plus any
amounts of deferred compensation paid
or made available to the service provider
under the plan during the calendar year
2007. For purposes of this paragraph, an
employer or payer may treat an amount
as previously included in income if prop-
erly reported by the employer or payer
on a 2005 or 2006 Form W–2, Form
1099–MISC, or Form W–2c or corrected
Form 1099–MISC. Thus, amounts prop-
erly reported on a 2005 or 2006 Form W–2
or Form 1099–MISC, or Form W–2c or
corrected Form 1099–MISC should not
be reported again on a 2007 Form W–2
or Form 1099–MISC. For the definition
of a plan, including the plan aggregation
rules, see Notice 2005–1, Q&A–9, and
§ 1.409A–1(c).
Amounts includible in gross income un-
der § 409A(a) include only amounts de-
ferred that are subject to § 409A. Accord-
ingly, for purposes of this section III.B.1.,
references to amounts deferred under a
plan, including references to account bal-
ances, refer solely to amounts deferred that
are subject to § 409A and not, for exam-
ple, to amounts deferred that were earned
and vested prior to January 1, 2005 and
that are not otherwise subject to § 409A
due to the application of the effective date
provisions. For rules regarding the appli-
cation of the effective date provisions of
§ 409A to nonqualified deferred compen-
sation plans, see § 1.409A–6.
The provisions of this notice address-
ing the calculation of the amounts includi-
ble in income are intended as interim guid-
ance only. The Treasury Department and
the IRS are currentlyformulating general
guidance with respectto the calculation of
the amounts includible in income, as well
as other related issues. For information
regarding the submission of comments on
these topics, see section V. of this notice.
2. Wage Payment Date of Amounts
Includible in Income under § 409A(a)
Amounts includible in gross income
under § 409A(a) in 2007 that are either
actually or constructively received (disre-
garding the application of § 409A) by an
employee during the calendar year 2007,
are considered a payment of wages by the
employer when received by the employee
for purposes of withholding, depositing,
and reporting the income tax at source on
wages under § 3401(a).
Amounts includible in gross income
under § 409A(a) in 2007 that are neither
actually nor constructively received (dis-
regarding the application of § 409A) by
the employee during the calendar year
2007, are treated as a payment of wages
on December 31, 2007 for purposes of
withholding, depositing, and reporting
the income tax at source on wages under
§ 3401(a). If as of December 31, 2007
the employer does not withhold income
tax from the employee on such wages,
or withholds less than the amount of in-
come taxes required to be withheld under
§ 3402 from the employee, the employee
will receive credit under § 31 for 2007 if
the employer follows one of two possible
options. Under the first option, notwith-
standing § 31.6205–1(c)(4), the employer
withholds or recovers from the employee
the amount of the undercollection after
November 13, 20079992007–46 I.R.B.

December 31, 2007 and before Febru-
ary 1, 2008, and reports as wages for the
quarter ending December 31, 2007 such
amounts that were neither actually nor
constructively received but are includible
in income under § 409A on Form 941
for that quarter and in box 1 of the em-
ployee’s Form W–2 for 2007. Under the
second option, the employer pays the in-
come tax withholding liability on behalf
of the employee (without deduction from
the employee’s wages or other reimburse-
ment by the employee), and reports the
gross amount of wages and the income tax
withholding liability for the quarter end-
ing December 31, 2007 as including such
amounts that were neither actually nor
constructively received but are includible
in income under § 409A, as well as the
Federal Insurance Contributions Act, Fed-
eral Unemployment Tax Act, and income
tax withholding wages resulting from
paying the income tax on the employee’s
behalf, on Form 941 and Form 940,Em-
ployer’s Annual Federal Unemployment
(FUTA) Tax Return, and in box 1 of the
employee’s Form W–2 for 2007. See
Rev. Rul. 58–113, 1958–1 C.B. 362 and
Rev. Rul. 86–14, 1986–1 C.B. 304, for
methods of computing gross wages when
paying employment taxes on behalf of an
employee. In addition, for purposes of
the deposit requirements associated with
such wages, if the income tax withholding
liability with respect to such wages is paid
to the IRS by the due date of the Form 941
for the quarter ending December 31, 2007
on which the wages are reported, then
the amount of income tax withholding
liability will be considered to have been
deposited in accordance with the rules of
§ 31.6302–1(c). Thus, penalties for failure
to deposit taxes under § 6656 will not be
imposed with respect to such amount.
3. 2007 Amounts Includible in Income
under § 409A(a)
The following sections provide guid-
ance for calculating the total amount
deferred under the plan as of December
31, 2007 for purposes of determining the
amount required to be included in gross
income under § 409A(a) in accordance
with the rules described in section III.B.1.
of this notice.
a. Account Balance Plans
For a plan that is an account balance
plan as defined in § 1.409A–1(c)(2)(i)(A)
or (B), the amount deferred as of Decem-
ber 31, 2007 equals the amount that would
be treated as an amount deferred under
§ 31.3121(v)(2)–1(c)(1) on December 31,
2007 if the entire account balance under
such plan (including all principal amounts,
adjusted for income, gain or loss cred-
ited to the service provider’s account) as
of December 31, 2007 were treated as a
principal amount credited to the service
provider’s account on December 31, 2007.
These same calculation rules apply for pur-
poses of determining the amount reported
on Form 1099–MISC for calendar year
2007 with respect to a nonemployee par-
ticipating in an account balance plan. For
purposes of this section, a plan described in
§ 1.409A–1(c)(2)(i)(A) (elective account
balance plan) is not aggregated with a plan
described in § 1.409A–1(c)(2)(i)(B) (non-
elective account balance plan).
b. Nonaccount Balance Plans —
Amounts that are Reasonably
Ascertainable
For a plan that is a nonaccount balance
plan as defined in § 1.409A–1(c)(2)(i)(C),
where the amount deferred is reason-
ably ascertainable within the meaning of
§ 31.3121(v)(2)–1(e)(4), the amount de-
ferred as of December 31, 2007 equals
the present value of all future payments to
which the service provider has obtained
a legally binding right as of December
31, 2007, calculated in accordance with
§ 31.3121(v)(2)–1(c)(2) as if the ser-
vice provider had obtained all of such
rights on December31, 2007. Section
31.3121(v)(2)–1(e)(4)(i)(B) provides that
an amount deferred is considered rea-
sonably ascertainable on the first date
on which the amount, form, and com-
mencement date of the benefit payments
attributable to the amount deferred are
known, and the only actuarial or other
assumptions regarding future events or
circumstances needed to determine the
amount deferred are interest and mortality.
An amount does not fail to be reason-
ably ascertainable if alternative forms or
commencement dates are available that
provide an actuarially equivalent benefit
to the normal benefit commencing at the
normal commencement date. In addition,
an amount deferred does not fail to be
reasonably ascertainable on a date merely
because the exact amount of the bene-
fit payable cannot readily be calculated
on that date or merely because the exact
amount of the benefit payable depends
on future changes in the cost of living. If
the exact amount of the benefit payable
depends on future changes in the cost of
living, the amount deferred must be deter-
mined using a reasonable assumption as
to the future changes in the cost of living.
These same rules apply for purposes of
determining the amount reported on Form
1099–MISC for calendar year 2007 with
respect to a nonemployee participating in
a nonaccount balance plan.
c. Amounts Deferred Under Stock
Rights Covered by § 409A
For a plan that provides stock rights
as defined in § 1.409A–1(c)(2)(i)(H), the
amount deferred as of December 31, 2007
equals the amount that the service provider
would be required to include in income if
the stock rights were immediately exercis-
able and exercised on December 31, 2007.
In general, this will mean with respect to a
stock right outstanding as of December 31,
2007, the amount deferred as of December
31, 2007 equals the fair market value of the
underlying stock less the sum of the exer-
cise price and any amount paid by the ser-
vice provider for the stock right.
d. Other Deferred Amounts
For all deferred amounts not addressed
in section III.B.2.a., b., or c. of this no-
tice, the amount deferred as of December
31, 2007 must be determined under a rea-
sonable, good faith application of a rea-
sonable, good faith method. For this pur-
pose, a reasonable, good faith application
of a reasonable, good faith method gener-
ally must reflect reasonable, good faith as-
sumptions with respect to any contingen-
cies as to the timing or amount of any pay-
ment. Generally, the use of an assumption
with respect to a contingency that results in
the amount deferred being the lowest po-
tential value of the future payment will be
presumed not to be a reasonable, good faith
assumption unless clear and convincing
evidence demonstratesthat the assumption
is reasonable. For example, where a pay-
ment may be made in more than one form,
2007–46 I.R.B.1000November 13, 2007

the assumption that the payment will be
made in the least valuable form will be
presumed not to be a reasonable, good
faith assumption unless clear and convinc-
ing evidence demonstrates otherwise. The
assumptions concerning time and form of
payment set out in § 1.409A–6(a)(3)(i) (re-
lating to calculation of the grandfathered
benefit in a nonaccount balance plan) will
constitute reasonable, good faith assump-
tions for this purpose. If a portion of a de-
ferred amount can be calculated under sec-
tion III.B.2.a., b., or c. of this notice, a rea-
sonable, good faith method of calculation
will in fact be a combination of two meth-
ods. The method applicable under section
III.B.2.a., b., or c. of this notice must be
applied to the portion, and the balance of
the deferred amount must be determined
under a reasonable good faith method.
4. Amounts Includible in Income under
§ 409A(b)
Section 409A(b)(1) provides generally
that in the case of assets set aside (directly
or indirectly) in a trust (or other arrange-
ment determined by the Secretary) for pur-
poses of paying deferred compensation un-
der a nonqualified deferred compensation
plan, such assets shall be treated as prop-
erty transferred in connection with the per-
formance of services for purposes of § 83
whether or not such assets are available to
satisfy claims of general creditors at the
time set aside if such assets (or such trust
or other arrangement) are located outside
of the United States, or at the time trans-
ferred if such assets (or such trust or other
arrangement) are subsequently transferred
outside of the United States.
Section 409A(b)(2) provides that in the
case of compensation deferred under a
nonqualified deferred compensation plan,
there is a transfer of property within the
meaning of § 83 with respect to such com-
pensation as of the earlier of the date on
which the plan first provides that assets
will become restricted to the provision
of benefits under the plan in connection
with a change in the employer’s financial
health, or the date on which assets are
so restricted, whether or not such assets
are available to satisfy claims of general
creditors.
Section 409A(b)(3) provides that if,
during a restricted period with respect to
a single-employer defined benefit pension
plan, assets are set aside or reserved in, or
transferred to, a trust or other arrangement
for purposes of paying deferred compen-
sation for an applicable covered employee
under a nonqualified deferred compensa-
tion plan of the plan sponsor or a member
of its controlled group, or a nonqualified
deferred compensation plan of the plan
sponsor or a member of its controlled
group provides that assets will become
restricted to the provision of benefits, or
assets are so restricted, in connection with
such restricted period (or similar financial
measure determined by the Secretary), the
assets are treated as a transfer of property
forpurposesof§83whetherornotsuch
assets are available to satisfy claims of
general creditors.
Section 409A(b)(4) provides that for
each taxable year that assets treated as
transferred under § 409A(b) remain set
aside in a trust or other arrangement sub-
ject to § 409A(b)(1) or (2), any increase
in value in, or earnings with respect to,
such assets shall be treated as an additional
transfer of property under this subsection
(to the extent not previously included in in-
come).
Notice 2006–33, 2006–1 C.B. 754,
April 10, 2006, provides transition
guidance related to the application of
§ 409A(b) to certain arrangements out-
standing as of March 21, 2006. Under that
relief, amounts transferred to trusts under
the arrangement on or before March 21,
2006 that triggered the income inclusion
and additional taxes under § 409A(b),
or arrangements that otherwise triggered
the income inclusion and additional taxes
under § 409A(b) on or before March 21,
2006, generally are treated as not having
triggered the inclusion or additional tax
provisions of § 409A(b), provided that
the arrangements become compliant with
§ 409A(b) by January 1, 2008. Section VI
of Notice 2007–78, 2007–41 I.R.B. 780,
and Notice 2007–86 provide that such re-
lief is not extended beyond December 31,
2007 and nothing in this notice is intended
to modify or extend that relief.
However, where amounts have been
transferred to a trust under an arrange-
ment that triggers the income inclusion
and additional taxes under § 409A(b), or
the arrangement otherwise triggers the in-
come inclusion and additional taxes under
§ 409A(b), and the transfer is not eligible
for the relief in Notice 2006–33 (for ex-
ample because the transfer occurred after
March 21, 2006 or the arrangement is not
made compliant with § 409A(b) by Jan-
uary 1, 2008), employers and payers must
make a reasonable, good faith application
of a reasonable, good faith method to de-
termine the amount includible in income
for purposes of reporting. In addition, em-
ployers must treat the amount as wages for
purposes of § 3401. Amounts includible
in income under § 409A(b) that are not
eligible for the relief in Notice 2006–33
are treated as wages paid on the date the
deemed transfer of property under § 83
described in § 409A(b) would be required
to be included in income under the rules of
§ 83, for purposes of withholding, deposit-
ing and reporting the income tax at source
on wages under § 3401(a). For amounts
includible in income under § 409A(b)
that were eligible for the relief in Notice
2006–33 (“grace period assets”) but are
includible in income under § 409A(b)
because the arrangement is not made
compliant with § 409A(b) on or before
December 31, 2007, Notice 2007–78 pro-
vides that the date of the deemed transfer
of property is January 1, 2008.
C. Protection from Future Additional
Reporting or Withholding for 2007
An employer or payer who complies
with the rules of this notice regarding com-
puting amounts includible in gross income
under § 409A and withholding and report-
ing for calendar year 2007 will not be li-
able for additional income tax withholding
or penalties, or be required to file a subse-
quent corrected information return or fur-
nish a corrected payee statement, as a re-
sult of future published guidance with re-
spect to the computation of amounts in-
cludible in gross income under § 409A. If
it is subsequently determined that the em-
ployer did not apply the rules of this notice
in determining amounts includible in gross
income under § 409A and in wages un-
der § 3401(a) for calendar year 2007, any
recalculation of these amounts will result
in additional liability for income tax with-
holding under § 3403 for these years, plus
any applicable penalties. In addition, an
employer or payer who does not apply the
rules of this notice in determining amounts
includible in gross income under § 409A
and in wages under § 3401(a) for calen-
dar year 2007 will be required to file an
November 13, 200710012007–46 I.R.B.

original or a correctedinformation return
and furnish an original or a corrected payee
statement. For purposes of determining
any amount includible in income under
§ 409A in a subsequent year, an amount
will not be treated as previously included
in income unless the amount has been re-
ported appropriately on an information re-
turn and payee statement, or has been in-
cluded in income by the service provider
in a previous year.
IV. SERVICE PROVIDER
REQUIREMENTS WITH RESPECT
TO AMOUNTS INCLUDIBLE IN
GROSS INCOME UNDER § 409A
This section provides guidance on ser-
vice providers’ income tax reporting and
tax payment requirements for calendar
year 2007 with respect to deferrals of
compensation that are includible in gross
income under § 409A.
A. Amounts Required to be Included
in Income
A service provider must report as in-
come and pay any taxes due relating to
amounts includible in gross income under
§ 409A for calendar year 2007. For pur-
poses of determining the amount required
to be included in income under § 409A,
the same standards apply to a service
provider as apply to an employer or payer
when calculating the amount required to
be reported as income, provided that an
amount is treated as previously included
in income only if the amount has been
included in the service provider’s income
in a previous taxable year (regardless
of whether reported on a Form W–2 or
1099–MISC). Accordingly, an employee
or other service provider must calculate
the amounts required to be included in
gross income under the same methods
and standards as set forth in section III.
Whether a service provider has complied
with the requirements of this notice is
determined independently of whether the
employer or payer has complied with the
requirements of this notice. Thus, if the
service provider includes in income the
same amount reported by the employer or
payer, the service provider has not nec-
essarily complied with the terms of this
notice.
If the service provider does not report
and pay taxes due with respect to amounts
includible in gross income under § 409A
for calendar year 2007 in accordance with
the guidance contained in this notice, the
IRS may assert additional income taxes
and penalties under §§ 6651(a)(1) and (2),
6654, and 6662 if it is determined that the
amount of taxes reported and paid for cal-
endar year 2007 was underreported or un-
derpaid. Interest imposed under Chapter
67 of the Code will apply to any under-
payments of tax resulting from a service
provider’s failure to include amounts in-
cludible in gross income under § 409A for
calendar year 2007. For purposes of de-
termining the amount includible in income
under § 409A in a subsequent year, the ser-
vice provider may treat an amount as pre-
viously included in income only if the ser-
vice provider has actually and properly in-
cluded the amount in gross income in a
previous year.
B. Calculation of Additional Tax under
§ 409A(a)(1)(B)(i)(I)
Section 409A(a)(1)(B)(i)(I) pro-
vides that if compensation is required
to be included in gross income under
§ 409A(a)(1)(A), the tax imposed on
such income is increased by the sum
of two additional taxes equal to the
amount of interest determined under
§ 409A(a)(1)(B)(ii) plus an amount equal
to 20% of the compensation which is re-
quired to be included in gross income.
Section 409A(a)(1)(B)(ii) provides that
the amount of interest is the amount of
interest at the underpayment rate plus 1
percentage point on the underpayments
that would have occurred had the deferred
compensation been includible in gross
income for the taxable year in which first
deferred or, if later, the first taxable year in
which such deferred compensation is not
subject to a substantialrisk of forfeiture.
Section 885(d)(1) of the Act provides
that § 409A generally applies to amounts
deferred after December 31, 2004. Sec-
tion 885(d)(2)(B) of the Act provides that
amounts deferred in taxable years be-
ginning before January 1, 2005, shall be
treated as amounts deferred in a taxable
year beginning on or after such date if
the plan under which the deferral is made
is materially modified after October 3,
2004. Accordingly, for purposes of the
calculation of the additional tax under
§ 409A(a)(1)(B)(ii), taxpayers may treat
amounts deferred under a plan that were
originally deferred on or before January 1,
2005 but became subject to § 409A due to
the material modification of the plan after
October 3, 2004 as deferred on January 1,
2005.
V. REQUEST FOR COMMENTS
The provisions of this notice are in-
tended as interim guidance only. The
Treasury Department and the IRS are
currently formulating general guidance
with respect to the income inclusion re-
quirements, the additional taxes, and the
reporting and withholding requirements of
§ 409A. The Treasury Department and the
IRS request comments on all aspects of
these requirements, including but not lim-
ited to the topics addressed in this notice.
Comments must be submitted by Feb-
ruary 13, 2008. All materials submitted
will be available for public inspection and
copying.
Comments may be submitted to In-
ternal Revenue Service, CC:PA:LPD:RU
(Notice 2007–89), Room 5203, PO Box
7604, Ben Franklin Station, Washing-
ton, DC 20044. Submissions may also
be hand-delivered Monday through Fri-
day between the hours of 8 a.m. and
4 p.m. to the Courier’s Desk at 1111
Constitution Avenue, NW, Washington,
DC 20224, Attn: CC:PA:LPD:RU (No-
tice 2007–89), 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
2007–89) in the subject line.
VI. EFFECT ON OTHER
DOCUMENTS
Notice 2005–1 is modified. Notice
2006–100 is not affected by this notice.
VII. EFFECTIVE DATE
This notice is effective with respect
to employers’ and payers’ reporting and
wage withholding requirements and with
respect to service providers’ filing re-
quirements and tax payment obligations
relating to amounts includible in gross
income under § 409A for calendar year
2007.
2007–46 I.R.B.1002November 13, 2007

VIII. DRAFTING INFORMATION
The principal author of this notice is
Don M. Parkinson of the Office of Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities),
although other Treasury and IRS offi-
cials participated in its development. For
further information on the provisions
of this notice addressing the calculation
of the amount includible in income un-
der § 409A, contact Stephen Tackney
at (202) 927–9639; for further informa-
tion on other provisions of this notice,
including the reporting and withholding
provisions contained in this notice, con-
tact Mr. Parkinson at (202) 622–6040 (not
toll-free numbers).
Security Under Section 6166
Elections
Notice 2007–90
PURPOSE
The purpose of this notice is to alert
taxpayers, tax practitioners, executors and
other persons who represent estates, that,
in light of a recent Tax Court decision,
the Internal Revenue Service is changing
its policy and now will determine on a
case-by-case basis whether security will
be required when a qualifying estate elects
under Internal Revenue Code section 6166
to pay all or a part of the estate tax in in-
stallments. This notice invites comments
from the public regarding the relevant fac-
tors and appropriate standards for deter-
mining whether security is deemed to be
necessary (and thus will be required) to
protect the government’s interest in ob-
taining full payment of the estate tax and
interest thereon when that liability is de-
ferred under section 6166.
BACKGROUND
Under section 6166, an estate that meets
all of the requirements of the statute may
elect to pay the estate tax attributable to the
decedent’s interest in a closely held busi-
ness in up to 10 equal, annual installments.
The first of those annual payments must
be made by the 5
th
anniversary of the due
date (determined without regard to any ex-
tension) of the estate tax liability that is
not deferred under section 6166. An es-
tate qualifies for a section 6166 election
if the value of the decedent’s interest in
the closely held business exceeds 35 per-
cent of the adjusted gross estate, the dece-
dent was a United States citizen or resi-
dent at the time of his or her death, and
the estate made the election by attaching a
full and complete notice of election with a
timely filed federal estate tax return. I.R.C.
§ 6166(a) and (d). If the estate qualifies for
the election, the estate pays a reduced rate
of interest on the portion of estate tax de-
ferred under section 6166; that interest is
payable annually during the entire defer-
ral period, and in most instances, interest
only is paid during the first four years of
the deferral period. I.R.C. §§ 6166(f) and
6601(j). The deferred tax is payable in no
more than ten equal annual installments,
beginning on a date that is not more than
five years after the due date of the Fed-
eral estate tax return, which is generally
nine months from the date of death. I.R.C.
§§ 6166(a)(1) and (3).
Under section 6324(a), a general fed-
eral estate tax lien arises upon the dece-
dent’s date of death and attaches for ten
years to all assets of the gross estate (ex-
cept those used to pay certain expenses).
This general federal estate tax lien may
not be extended beyond the ten-year period
following the date of death. As a result,
when an estate qualifies and elects under
section 6166 to pay estate tax over a period
of up to 14 years, thegovernment’s inter-
est in the deferred estate tax is secured by
the general federal estate tax lien for only
the first nine years and three months of the
installment payment period. (Although the
lien runs from the date of death, the install-
ment payment period generally runs from
the normal payment due date, nine months
after the date of death, thus reducing the
time the general lien protects the govern-
ment to nine years and three months). Dur-
ing the final four years and nine months
of the 14-year installment payment period,
the government’s interest is no longer se-
cured by the general estate tax lien. In
most cases, approximately one-half of the
total deferred estate tax still remains to be
paid during that final, unsecured portion of
the deferral period.
Sections 6166(k)(1) and 6165, how-
ever, permit the IRS to require a surety
bond (not exceedingdouble the amount
with respect to which the extension is
granted) from an estate to ensure payment
of the deferred estate tax to be paid in
installments under section 6166. In lieu of
the requirement to post a surety bond, the
executor may elect to grant the IRS a spe-
cial extended estate tax lien (in the amount
of the deferred amount plus any interest,
additional amount, addition to tax, assess-
able penalty, and costs attributable to the
deferred amount) to secure the govern-
ment’s interest. I.R.C. §§ 6166(k)(2) and
6324A. This special lien does not expire
until the earlier of the date the estate tax
is paid in full or the tax becomes uncol-
lectible. I.R.C. §§ 6324A(d)(2), 6502, and
6503(d).
In March 2000, the Treasury Inspec-
tor General for Tax Administration recom-
mended, in report 2000–30–059 “The In-
ternal Revenue Service Can Improve the
Estate Tax Collection Process,” that the
IRS protect the government’s interest in
estate tax deferred under section 6166. In
2002 in response to that report, the IRS
implemented a policy requiring a surety
bond, or in the alternative, a section 6324A
special lien, as a prerequisite to making the
section 6166 election. On April 12, 2007,
inEstate of Roski v. Commissioner,128
T.C. 113 (2007), the Tax Court held that the
IRS had abused its discretion by requiring
that all estates electing to pay the estate tax
in installments under section 6166 must
provide a bond (or alternatively a special
lien). The court found that it was Con-
gress’s intent that the IRS determine, on a
case-by-case basis, that the government’s
interest is at risk prior to requiring security
from an estate electing to pay the estate tax
in installments under section 6166.
INTERIM PROVISIONS
The Treasury Department and the IRS
are in the process of establishing standards
to be applied on a case-by-case basis in the
future to identify those estates making an
election under section 6166 in which the
government’s interest in the deferred es-
tate tax and the interest thereon is deemed
to be sufficiently at risk to justify the re-
quirement of a bond or special lien. The
Treasury Department and the IRS intend to
issue regulations implementing those stan-
dards and related procedures. Until those
regulations are issued, however, the IRS
will evaluate the factors described below
and all other relevant facts to determine on
November 13, 200710032007–46 I.R.B.

a case-by-case basis whether, at any time
andfromtimetotimeduringthedeferral
period, the government’s interest in the es-
tate tax deferred under section 6166 and in-
terest thereon is sufficiently at risk to jus-
tify the requirement of a bond or special
lien.
In order to determine whether the gov-
ernment’s interest in the deferred tax is
adequately secured up to the amount al-
lowed under sections 6165 and 6324A, the
IRS will consider information contained in
the estate tax return, attachments to the re-
turn, information obtained during exami-
nation in audited cases, and any other rel-
evant information described in paragraphs
1 through 3 of the discussion of the factors
to be considered. Estates that have filed
returns that do not contain adequate in-
formation to make this determination may
be contacted and required to provide ad-
ditional financial information to the IRS
for purposes of making this determination.
The IRS may terminate an estate’s elec-
tion for failure to respond to such requests
within a reasonable timeframe. If, after
this individual evaluation and analysis, the
IRS determines there is a sufficient credit
risk regarding the government’s collection
of the estate tax payments deferred under
section 6166 and the interest thereon, the
IRS will notify the estate that it must pro-
vide a bond or elect to provide a section
6324A special lien in lieu of a bond. If
the estate then refuses to provide a bond or
a section 6324A special lien, the IRS will
terminate the estate’s section 6166 elec-
tion. The estate may then seek reconsid-
eration of the termination by the Office
of Appeals and, if the Office of Appeals
upholds the IRS’s determination, the es-
tate then will have the opportunity to pe-
tition the Tax Court under section 7479
for a declaratory judgment with regard to
whether its section 6166 election may be
continued. I.R.C. § 7479; Rev. Proc.
2005–33, 2005–1 C.B. 1231.
The factors the IRS will consider in
determining whether deferred installment
payments of estate tax under section 6166
pose a sufficient credit risk to the govern-
ment to justify the requirement of a bond or
special lien are described below. In mak-
ing this determination, the IRS will con-
sider all relevant facts and circumstances,
in addition to the factors identified in the
following, non-exclusive list. No single
factor will be determinative, and not all
factors may be relevant to every estate.
1.Duration and stability of the busi-
ness. This factor considers the nature of
the closely held business on which the es-
tate tax is deferred under section 6166 and
of the assets of that business, the relevant
market factors that will impact the busi-
ness’s future success, its recent financial
history, and the experience of its manage-
ment, in an effort to predict the likelihood
of its success and survival through the de-
ferred payment period. Facts relevant to
this factor are likely to appear primarily in
the appraisal and the financial statements
that accompany the estate tax return. In-
formation regarding any outstanding liens,
judgments, or pending or anticipated law-
suits or other claims against the business,
if any, that are not disclosed in that doc-
umentation should be provided by the es-
tate with the election. The estate may be
requiredtofurnishsuchinformationinre-
sponse to an inquiry by the IRS.
2.Ability to pay the installments of tax
and interest timely. This factor considers
how the estate expects to be able to make
the annual payments of tax and interest as
due, and the objective likelihood of real-
izing that expectation. Facts relevant to
this factor may include the nature of the
business’s significant assets and liabilities,
and the business’s cash flow (both histori-
cal and anticipated). If not sufficiently dis-
closed in the documents attached to the es-
tate tax return, the estate should submit rel-
evant information with the election under
section 6166. The estate may be required
to furnish such information in response to
an inquiry by the IRS.
3.Compliance history. This factor
addresses the business’s history regarding
compliance with all federal tax payment
and tax filing requirements, in an effort
to determine whether the business and its
management respect and comply with all
tax requirements on a regular basis. This
factor also addresses the estate’s compli-
ance history with respect to federal tax
payment and filing requirements. The es-
tate may use a sworn affidavit or other pro-
bative documents to provide this informa-
tion.
This notice is applicable to each estate:
(1) that timely elects to pay the estate tax
in installments under section 6166 and that
timely files a return on or after November
13, 2007; (2) whose return was being clas-
sified, surveyed or audited by the IRS as of
April 12, 2007; or (3) that is currently in
the deferred payment period but that has
not yet provided a bond or special lien if
(a) the general federal estate tax lien will
expire within two years from November
13, 2007 or (b) the IRS reasonably believes
that the government’s interest in collecting
the deferred estate tax and interest thereon
in full is sufficiently at risk to require a
bond or special lien.
REQUEST FOR COMMENTS
The Treasury Department and the IRS
intend to issue regulations regarding the
appropriate standards to be applied by the
IRS in exercising its discretion with regard
to whether a bond or special lien will be
requiredinordertoavoidanIRStermi-
nation of an estate’s election under sec-
tion 6166, and invite interested persons
to submit comments regarding such stan-
dards and possible alternatives to a bond
or special lien for providing security under
section 6166.
In particular, comments are requested
with regard to the following issues:
1. What factors, in addition to or in
place of those stated above, should the IRS
use in determining whether to require se-
curity from an estate electing to pay the es-
tate tax in installments under section 6166?
2. How often during the section 6166
installment payment period (or on what
occurrences) should the IRS reevaluate
whether the estate poses a sufficient credit
risk to the government’s collection of the
deferred estate tax and related interest to
justify the requirement of a bond or special
lien?
3. What facts evident from a review of
the estate tax return are likely to be reason-
ably accurate predictors of either a future
default in or full payment of the deferred
tax payments and related interest?
4. What additional financial informa-
tion should the IRS require from an estate
to assist in making the determination as to
whether the estate poses a sufficient credit
risk to the government with regard to the
deferred estate tax and interest thereon to
justify requiring a bond or special lien?
5. For purposes of sections 6165 and
6166(k), should the IRS define a surety
bond under section 7101 to also include
other forms of security, and, if so, what
other forms of security, such as certain ir-
2007–46 I.R.B.1004November 13, 2007

revocable letters of credit from reputable
financial institutions or United States Trea-
sury Bonds, should be so included?
Comments are encouraged to be sub-
mitted by January 14, 2008, to: Internal
Revenue Service, CC:PA:LPD:PR (Notice
2007–90), room 5203, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20224.
Submissions may be hand delivered Mon-
day through Friday between the hours of
8 a.m. and 4 p.m. to: CC:PA:LPD:PR (No-
tice 2007–90), Courier’s Desk, Internal
Revenue Service, 1111 Constitution Av-
enue, NW, Washington, DC. Alternatively,
taxpayers may submit electronic com-
ments directly to the IRS e-mail address:
notice.comments@irscounsel.treas.gov.
Please include “Notice 2007–90” in the
subject line of any electronic communica-
tion.
DRAFTING INFORMATION
The principal author of this notice
is Laura Urich Daly of the Office of
Associate Chief Counsel (Procedure
and Administration). For further infor-
mation regarding this notice, contact
Laura Urich Daly at (202) 622–3600 (not
a toll-free call).
November 13, 200710052007–46 I.R.B.

Part IV. Items of General Interest
Notice of Proposed
Rulemaking and Notice of
Public Hearing
Withholding Procedures Under
Section 1441 for Certain
Distributions to Which Section
302 Applies
REG–140206–06
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains pro-
posed regulations regarding a withholding
agent’s obligation to withhold and report
tax under Chapter 3 of the Internal Rev-
enue Code when there is a distribution in
redemption of stock of a corporation that is
actively traded on an established financial
market. Specifically, the proposed regula-
tions provide an escrow procedure that a
withholding agent must apply while mak-
ing the determination under section 302 as
to whether the distribution in redemption
of the stock held by a foreign shareholder
is treated as a dividend subject to withhold-
ing, or a distribution in part or full pay-
ment in exchange for stock. These regu-
lations would affect corporations that are
actively traded on an established financial
market and their shareholders. This docu-
ment also provides a notice of public hear-
ing on these proposed regulations.
DATES: Written or electronic comments
must be received by January 16, 2008.
Outlines of topics to be discussed at the
public hearing scheduled for February 6,
2008 at 10 a.m. must be received by Jan-
uary 16, 2008.
ADDRESSES: Send submissions to
CC:PA:LPD:PR(REG–140206–06),
room 5203, Internal Revenue Ser-
vice, PO Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Submis-
sions may be hand delivered Monday
through Friday between the hours of
8a.m. and4p.m.toCC:PA:LPD:PR
(REG–140206–06), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC, or sent
electronically, via the Federal eRulemak-
ing Portal atwww.regulations.gov(IRS
REG–140206–06). The public hearing
will be held in room 2140, Internal Rev-
enue Building, 1111 Constitution Avenue,
NW, Washington, DC.
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, Kathryn Holman, (202)
622–3440 (not a toll-free number); con-
cerning submissions of comments, the
hearing, and/or to beplaced on the build-
ing access list to attend the hearing, email
Richard.A.Hurst@irscounsel.treas.gov.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information con-
tained in this notice of proposed rulemak-
ing have been submitted to the Office of
Management and Budget for review in
accordance with the Paperwork Reduc-
tion Act of 1995 (44 U.S.C. 3507(d)).
Comments on the collections of infor-
mation should be sent to theOffice of
Management and Budget,Attn: Desk
Office for the Department of the Treasury,
Office of Information and Regulatory
Affairs, Washington, DC 20503, with
copies to theInternal Revenue Service,
Attn: IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of
information should be received by Jan-
uary 16, 2008. Comments are specifically
requested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service, including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information;
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collections of information may
be minimized, including through the appli-
cation of automated collection techniques
or other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance and
purchase of service to provide information.
The collection of information
in these proposed regulations is in
§1.1441–3(c)(5)(iii). This information is
required to allow a U.S. financial institu-
tion that is applying the escrow procedure
to properly comply with its withholding
and reporting obligations under sections
1441, 1442 and 1443 in the case of a
distribution made by acorporation with
respect to its stock that is actively traded
on an established financial market and that
requires a determination under section 302
as to whether the distribution is treated
as a dividend or a distribution in part or
full payment in exchange for stock. The
collection of information is mandatory and
the respondents are nonresident aliens and
foreign corporations.
Estimated total annual reporting bur-
den: 1400 hours.
The estimated annual burden per re-
spondent: 2 hours.
Estimated number of respondents: 700.
Estimated annual frequency of re-
sponses: 5 times.
An agency may not conduct or sponsor,
and a person is not required to respond to, a
collection of information unless it displays
a valid control number assigned by the Of-
fice of Management and Budget.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential as required by
26 U.S.C. 6103.
Background
Theseproposedregulations,
REG–140206–06, provide guidance
regarding the withholding and reporting
obligations of a withholding agent under
Chapter 3 of the Internal Revenue Code
(Code) in the case of a distribution in
redemption of the stock of a corporation
that is actively traded on an established
financial market within the meaning of
§1.1092(d)–1 (publicly traded). In general
the proposed regulations contemplate
2007–46 I.R.B.1006November 13, 2007

a transaction where a publicly traded
corporation offers to purchase stock from
its shareholders (a self tender), where
the amount of stock purchased and the
shareholders involved in the transaction
(the participating shareholders) depend
on a number of factors, including each
shareholder’s willingness to sell some or
all of its stock, and the terms set forth
in the offer. The regulations would also
apply to transactions described in section
304(a)(2).
In the case of a self-tender, a corpora-
tion may purchase stock from some or all
of its shareholders and, as a result, each
participating shareholder’s percentage
ownership interest in the corporation may
increase, decrease, or remain the same.
Although the corporation’s self tender of-
fer is denominated as an offer to purchase
shares, the tax consequences to the corpo-
ration and any participating shareholder
of the payment to such a shareholder, as
described in this preamble, depend on
several factors. Further, where the par-
ticipating shareholder is a foreign person,
withholding under Chapter 3 of the Code
may or may not be required.
Sections 1441 and 1442 and
§1.1441–1(b)(1) generally require a per-
son that makes a payment of an “amount
subject to withholding” to a beneficial
ownerthatisaforeignpersontodeduct
and withhold 30 percent of the payment
unless the payor can reliably associate the
payment with documentation upon which
the payor can rely to treat the payment as
made to a beneficial owner that is a U.S.
person or as made to a beneficial owner
that is a foreign person entitled to a re-
duced rate of withholding under the Code,
regulations or an income tax treaty.
Section 1.1441–2(a) provides that
the termamounts subject to withhold-
ingmeans amounts from sources within
the United States that constitute fixed
or determinable annual or periodical in-
come (FDAP) described in §1.1441–2(b)
or other amounts subject to withholding
described in §1.1441–2(c).
Section 1.1441–2(b)(1) provides that
FDAP includes all income described in
section 61 of the Code, unless the item of
income is described in §1.1441–2(b)(2).
Section 1.1441–2(b)(2)(i) generally ex-
cludes from FDAP gains derived from the
sale of property. Thus, a distribution to
a shareholder that is treated as gain from
the sale of stock is excluded from FDAP.
Further, to the extent a distribution is a re-
turn of capital, it is not gross income under
section61,andthusalsoisnotFDAP.
Section 302 provides rules for deter-
mining when a distribution in redemption
of stock is treated as a distribution in part
or full payment in exchange for stock.
That section generally requires a com-
parison of a shareholder’s overall interest
in the corporation before the distribution
and its overall interest in such corporation
after the distribution. See section 302(b).
In conducting the comparison, the con-
structive ownership rules of section 318
generally apply. If the shareholder’s inter-
est in the corporation has been sufficiently
reduced, then the distribution is treated as a
payment in exchange for the shareholder’s
stock under section 302(a). If the share-
holder’s interest in the corporation has not
been sufficiently reduced, the tax conse-
quences of the distribution are determined
under section 301, and such distribution is
a dividend to the shareholder to the extent
the distribution is out of the distributing
corporation’s earnings and profits, then
applied against and reduce the adjusted
basis of the stock, and finally treated as
gain from the sale or exchange of property.
See section 301(c).
When a publicly held corporation
makes a distribution in redemption of
its stock, a determination must be made
under section 302 with respect to each
shareholder as to whether the redemption
is treated as a distribution of property to
which section 301 applies (potentially
constituting a dividend in whole or in part)
or as a distribution in part or full payment
in exchange for stock. However, the in-
formation necessary for each shareholder
to make such a determination generally
is not available until after the transaction
is completed because the redemption of
stock held by other shareholders must be
taken into account. Further, because of the
application of the constructive ownership
rules of section 318, when a distribution
is made to a foreign shareholder, a with-
holding agent will often not be in the
best position to make a determination as
to whether the distribution to the foreign
shareholder should be treated as a payment
in exchange for the shareholder’s stock or
a dividend.
There are two revenue rulings that con-
sider the issue of whether the interest of a
shareholder in a publicly held corporation
has been sufficiently reduced as a result of
a distribution to effect exchange treatment
under section 302(a).
In Rev. Rul. 76–385, 1976–2 C.B.
92, see §601.601(d)(2)(ii)(b), the IRS
ruled that a shareholder who actually and
constructively owned 0.0001118% of a
publicly traded corporation’s stock be-
fore a redemption, but only constructively
owned 0.0001081% after the redemption,
had experienced a “meaningful reduction
in proportionate interest” in the corpora-
tion under the principles ofUnited States
v. Davis, 397 U.S. 301 (1970), rehearing
denied, 397 U.S. 107 (1970). The share-
holder’s interest in the corporation after
the redemption therefore was approxi-
mately 96.7% of the shareholder’s interest
before the redemption, taking constructive
ownership into account. Nevertheless, the
reduction was considered meaningful, and
so the distribution to the shareholder was
treated as not essentially equivalent to a
dividend under section 302(b)(1) and as a
payment in exchange for the shareholder’s
stock under section 302(a).
Consistent with Rev. Rul. 76–385, in
Rev. Rul. 81–289, 1981–2 C.B. 82, see
§601.601(d)(2)(ii)(b), the IRS ruled that a
shareholder who owned 0.2% of the com-
mon stock of a publicly traded company
before a redemption,and 0.2% of the com-
mon stock in the company after the re-
demption, did not satisfy the “meaning-
ful reduction” standard ofUnited States
v. Davis,and that the redemption did not
qualify for exchangetreatment under sec-
tion 302(a).
Under the analysis adopted in these rev-
enue rulings, each minority shareholder
who participates in a self tender must com-
pute its percentage ownership of the to-
tal outstanding stock of the corporation
before and after the transaction. If af-
ter the transaction the shareholder’s per-
centage ownership is less than it was be-
fore the transaction, the shareholder gener-
ally has experienced a “meaningful reduc-
tion” in the shareholder’s proportionate in-
terest in the corporation, and the transac-
tion, at least with respect to that share-
holder, is considered a distribution in ex-
change for the stock under section 302(a)
and not a distribution of property to which
section 301 applies. This result occurs
even if another participating shareholder in
the same self tender experiences no change
November 13, 200710072007–46 I.R.B.

or an increase in its percentage ownership
of the corporation, and, therefore, is con-
sidered to receive a distribution of property
to which section 301 applies. See also sec-
tion 302(b)(2), (3), and (4).
Section 1.1441–3(c) requires a cor-
poration making a distribution with re-
spect to its stock to a foreign shareholder,
as well as any intermediary (such as
a broker) making a payment of such
a distribution, to withhold on the en-
tire amount of the distribution, unless
it elects to reduce the amount of with-
holding under §1.1441–3(c). Section
1.1441–3(c)(2)(i)(B) provides that a dis-
tributing corporation or intermediary may
elect to not withhold on a distribution
to the extent it represents a distribution
in part or full payment in exchange for
stock. Section 1.1441–3(c)(2)(i) provides
that a corporation or intermediary makes
the election by reducing the amount of
withholding at the time that the payment
is made. However, a withholding agent
cannot avail itself of this election unless
it knows the extent to which a distribu-
tion represents a payment in exchange for
stock under section 302(a). As previously
noted, in the context of a distribution in
redemption of stock held in a publicly
traded corporation,the withholding agent
generally will not have this information
unless, at the time of the redemption, it
has obtained information from each par-
ticipating shareholder regarding actual
and constructive ownership of stock for
purposes of the foregoing analysis.
The Treasury Department and the IRS
are aware that, in the context of transac-
tions involving distributions in redemption
of stock held by foreign persons where
such stock is actively traded on an es-
tablished financial market, the means of
compliance with sections 1441, 1442, and
1443 is varied. The Treasury Department
and the IRS believe that the discretion
permitted by the current regulations, and
the resulting different treatment of similar
transactions is not appropriate. Accord-
ingly, these proposed regulations provide
the procedure (“escrow procedure”) to
be followed by U.S. withholding agents
to satisfy the withholding, reporting and
deposit requirements of the regulations
under sections 1441, 1442, and 1443 with
respect to any payment of a corporate dis-
tribution in redemption of stock made to
a foreign account holder with respect to
certain self tenders.
Explanation of Provisions
The proposed regulations set forth an
escrow procedure for withholding agents
to follow in the case of a payment made
after December 31, 2008 of a corporate
distribution in redemption of stock that
is actively traded on an established fi-
nancial market within the meaning of
§1.1092(d)–1 (section 302 payment).
In general, the proposed regulations
require a U.S. financial institution (with-
holding agent) to set aside in an escrow
account 30 percent (or the applicable div-
idend rate provided under a treaty) of the
amount of the section 302 payment. The
withholding agent is then required to pro-
vide information to the foreign beneficial
owner regarding the distribution, includ-
ing the total number of the distributing
corporation’s shares outstanding before
and after the distribution. The withhold-
ing agent must also provide a written
statement explaining the conditions under
which the section 302 payment will be
treated as a dividend or a payment in ex-
change for stock (including an explanation
of the constructive ownership rules under
section 318). In the written explanation
provided to the foreign beneficial owner,
the withholding agent must request that
the beneficial owner provide a written cer-
tification to the withholding agent within
60 days as to whether the distribution is
either a dividend or a payment in exchange
for stock.
Thecertificationtobeprovidedbythe
foreign beneficial owner must contain,
among other requirements, the beneficial
owner’s name and account number, a cer-
tification that the distribution is a payment
in exchange for stock or is a dividend,
and the number of shares actually and
constructively owned by the beneficial
owner before and after the distribution.
The beneficial owner’s certification must
be signed under penalties of perjury.
A withholding agent may generally rely
on a certification received from a foreign
beneficial owner in determining its section
1441 obligations with respect to payments
for such beneficial owner’s stock. How-
ever, if the withholding agent knows or
has reason to know that the certification is
unreliable or incorrect, or the withholding
agent does not receive a certification from
a foreign beneficial owner, the withhold-
ing agent is required to treat the amount set
aside in escrow as tax withheld on the 61
st
day, and deposit that amount pursuant to
the applicable regulations.
Although a qualified intermediary (QI)
may, and a withholding foreign part-
nership and a withholding foreign trust
(WP/WT) must, assume primary with-
holding responsibility under section 1441
and receive payments without any with-
holding by the U.S. financial institution,
under the proposed regulations, in the
case of a section 302 payment, the QI or
WP/WT cannot assume primary withhold-
ing responsibility and receive the payment
in gross. The QI or WP/WT must apply
the procedure described in this preamble
and provide the U.S. financial institution
with a withholding statement that details
the appropriate rate of withholding and
information reporting for amounts paid
to the QI or WP/WT. In addition, if there
is a chain of QIs or WPs/WTs this pro-
cedure must be followed at each level in
the chain. The U.S. financial institution
shall treat beneficial owners that are U.S.
non-exempt recipients, and that hold stock
in the distributing corporation through
QIs, WPs/WTs, NQIs and flow-throughs,
in accordance with the section 302 pay-
ment certifications obtained from those
U.S. non-exempt recipients and shall in-
struct foreign intermediaries and foreign
flow-through entities to do the same.
These proposed regulations would ap-
ply for redemptions of stock that are made
after December 31, 2008. However, a
withholding agent may, at its option, rely
on these proposed regulations for a re-
demption of stock that occurs before Jan-
uary 1, 2009.
The Treasury Department and the IRS
are aware that withholding agents serve
various customer bases: some may main-
tain accounts for a small number of ac-
count holders, others may maintain ac-
counts for a much greater number of ac-
count holders. Comments are requested
on alternatives to the escrow procedure
described in this proposed regulation for
withholding agents that maintain accounts
for large numbers of customers.
2007–46 I.R.B.1008November 13, 2007

Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required.
It has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply to
these regulations.
These regulations impose a collection
of information on small entities, and the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) applies. This rule regulates secu-
rities brokerages that have foreign cus-
tomers that respond to a tender offer by
a U.S. publicly tradedcorporation to pur-
chase some of its stock from its share-
holders. The Small Business Administra-
tion (SBA) has established size standards
for types of economic activities which are
classified based on the North American In-
dustry ClassificationCodes(NAICS).The
regulations specifying size standards are
set forth in Title 13, Code of Federal Regu-
lations, part 121 (13 CFR part 121), Small
Business Size Regulations. The NAICS
Code for a small securities brokerage is
specified at 13 CFR 121.201. Pursuant to
subsector 523120 of the NAICS, a small
securities brokerage is one with receipts
of less than 6.5 million dollars. Accord-
ing to NAICS 523120, U.S. Census Bu-
reau, Statistics of U.S. Business (2002),
there are a total of 7,886 securities bro-
kerages of which 7,113 generate revenue
less than $5 million and 224 generate rev-
enue between $5 million and $10 million.
It is estimated that 7,213 of the securi-
ties brokerages are considered small busi-
nesses. The IRS requests information re-
garding the number of transactions these
small securities brokerages engage in each
year involving self tenders by public cor-
porations. In the case of a tender offer by
a publicly held corporation, it is estimated
that a brokerage clerk would spend two
hours preparing the paperwork and veri-
fying the computations required to accu-
rately withhold with respect to foreign cus-
tomers. According to the Bureau of Labor
Statistics, the mean hourly wage of a bro-
kerage clerk is $18.34, so it is estimated
that it will cost a small securities broker-
age $36.68 per transaction. This cost is
not significant when compared to the an-
nual revenue of the small securities broker-
age. Pursuant to section 605(b) of the Reg-
ulatory Flexibility Act, 5 U.S.C. §605, the
Chief Counsel certifies that this rule will
not have a significant economic impact on
a substantial number of small entities. The
IRS invites specific comments on the eco-
nomic impact of compliance from mem-
bers of the public who believe there will
be a significant economic impact on small
businesses that are regulated by this rule.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, this regulation has been
submitted to the Chief Counsel for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
nesses.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, consideration
will be given to any written (a signed origi-
nal and eight (8) copies) or electronic com-
ments that are submitted timely to the IRS.
The IRS and the Treasury Department re-
quest comments on the clarity of the pro-
posed rules and how they can be made eas-
ier to understand. All comments will be
available for public inspection and copy-
ing.
A public hearing has been scheduled for
February 6, 2008, beginning at 10 a.m. in
room 2140 of the Internal Revenue Build-
ing, 1111 Constitution Avenue, NW, Wash-
ington, DC. Due to building security pro-
cedures, visitors must enter at the 12
th
street entrance. In addition, all visitors
must present photo identification to enter
the building. Because of access restric-
tions, visitors will not be admitted beyond
the immediate entrance area more than 30
minutes before the hearing starts. For in-
formation about having your name placed
on the building access list to attend the
hearing, see the “FOR FURTHER INFOR-
MATION CONTACT” section of this pre-
amble.
The rules of 26 CFR 601.601(a)(3) ap-
ply to the hearing. Persons who wish
to present oral comments at the hearing
must submit electronic or written com-
ments, and an outline of the topics to be
discussed, and the time to be devoted to
each topic (signed original and eight (8)
copies) by January 16, 2008. A period of
10 minutes will be allotted to each person
for making comments. An agenda show-
ing the scheduling of the speakers will be
prepared after the deadline for receiving
outlines has passed. Copies of the agenda
will be available free of charge at the hear-
ing.
Drafting Information
The principal author of these proposed
regulations is Kathryn Holman, Office of
Associate Chief Counsel (International).
However, other personnel from the IRS
and Treasury Department participated in
their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR Part 1 is proposed
to be amended as follows:
Part 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.1441–3 is amended as
follows:
1. A sentence is added at the end of
paragraph (c)(2)(i)(B).
2. Paragraph (c)(5) is added.
3. A sentence is added at the end of
paragraph (d)(1).
The additions read as follows.
§1.144
1–3 Determination of amounts to
be with
held.
*****
(c) * * *
(2) * * *
(i) * * *
(B) * * * The preceding sentence shall
not apply to a public section 302 distribu-
tion to which paragraph (c)(5) applies.
*****
(5)Special rules for certain distribu-
tions to which section 302 applies—(i)
Withholding responsibility—(A)General
rule. A corporation that makes a public
section 302 distribution, or any inter-
mediary (described in §1.1441–1(c)(13))
making a payment of such a distribution, is
required to withhold under section 1441,
1442 or 1443 on the entire amount of
the distribution unless the provisions of
paragraph (c)(5)(iii) of this section have
been applied. The provisions of paragraph
November 13, 200710092007–46 I.R.B.

(c)(2)(i)(B) or (d)(1) of this section do not
apply to a public section 302 distribution.
(B)Effective/applicability date.The
rules of this paragraph (c)(5) apply to pub-
lic section 302 distributions made after De-
cember 31, 2008.
(ii)Definitions. Solely for purposes of
this paragraph (c)(5), the following defini-
tions shall apply:
(A)Public section 302 distribution
means a distribution by a corporation in
redemption of its stock for which there is
an established financial market within the
meaning of §1.1092(d)–1.
(B)Section 302 paymentmeans pay-
ment of a public section 302 distribution.
(C)Distributing corporationmeans a
corporation making or treated as making a
public section 302 distribution.
(iii)Escrow procedure—(A)Applica-
tion—(1)In general. The escrow proce-
dure in this paragraph (c)(5)(iii) may be
applied only by an intermediary (described
in §1.1441–1(c)(13)) that is a U.S. finan-
cial institution. A U.S. financial institu-
tion making a section 302 payment to a for-
eign account holder, and applying this es-
crow procedure, is not required to withhold
on the entire amount of a section 302 pay-
ment under the general rule of paragraph
(c)(5)(i).
(B)Escrow account—(1)In general.A
U.S. financial institution shall set aside in
an escrow account on the date it receives
a section 302 payment from a distribut-
ing corporation with respect to stock of
a foreign account holder 30 percent (or
the applicable dividend rate provided by a
tax treaty for a qualifying foreign account
holder) of the amount and shall credit the
foreign account holder’s account with the
balance of the section 302 payment.
(2)Qualified intermediaries.The
amount set aside, under paragraph
(c)(5)(iii)(B)(1)ofthissectionshallin-
clude 30 percent (or the applicable div-
idend rate provided by a treaty) of the
amount paid to any qualified intermediary
(QI) (whether or not the QI has assumed
primary withholding responsibility) and
to any withholding foreign partnership or
withholding foreign trust (WP/WT).
(C)Request for section 302 payment
certification. On or before the date it re-
ceives the section 302 payment, the U.S.
financial institution shall provide the fol-
lowing information and instructions, in
writing, to the foreign beneficial owner—
(1) The total number of distributing cor-
poration’s shares outstanding before and
after the public section 302 distribution;
(2) An explanation of the conditions un-
der which the section 302 payment will be
treated as a dividend or a payment in ex-
change for stock for Federal income tax
purposes (including an explanation of any
applicable constructive ownership rules);
and
(3) A request that the beneficial owner
of the account provide a certification (sec-
tion 302 payment certification), within 60
days of the section 302 payment, stating
whether the section 302 payment is either
a dividend or a payment in exchange for
stock under the Internal Revenue Code.
(D)Content of section 302 payment cer-
tification. The section 302 payment certi-
fication must include the following infor-
mation:
(1) The beneficial owner’s name and
account number.
(2) The distributing corporation’s
name.
(3) The total shares of the distributing
corporation outstanding immediately be-
fore and immediately after the public sec-
tion 302 distribution.
(4) A certification from the beneficial
owner that either—
(i) The section 302 payment is a pay-
ment in exchange for stock because the
beneficial owner’s proportionate interest
has been reduced but not completely ter-
minated;
(ii) The section 302 payment is a pay-
ment in exchange for stock because the
beneficial owner’s interest in the distribut-
ing corporation is completely terminated;
or
(iii) The section 302 payment is a divi-
dend.
(5) With respect to the certifications
in paragraph (c)(5)(iii)(D)(4)(i)and(ii)of
this section,the number of shares actually
and constructively owned by the beneficial
owner before and after the distribution and
the beneficial owner’s percentage owner-
ship before and after the distribution.
(6) A penalties of perjury statement.
(7) The signature of the beneficial
owner and date of signature.
(E)Receipt of section 302 payment
certification—(1) Payment in exchange
for stock. If, within the 60-day period
described in paragraph (c)(5)(iii)(C)(3),
the U.S. financial institution receives from
the foreign beneficial owner a section
302 payment certification stating that the
section 302 payment is a payment in ex-
change for stock, and if the U.S. financial
institution does not know or have reason
to know that the information in the section
302 payment certification is unreliable
or incorrect, the U.S. financial institution
shall credit the account with the amount
set aside with respect to the beneficial
owner who provides the certification. The
entire amount paid (including the amount
initially set aside) shall be reported as
capital gains on Form 1042–S,Foreign
Person’s U.S. Source Income Subject to
Withholding.
(2)Unreliable or incorrect exchange
certification. If the U.S. financial institu-
tion knows or has reason to know that the
information in the section 302 payment
certification is unreliable or incorrect, the
U.S. financial institution shall treat the
payment as a payment for which no sec-
tion 302 payment certification has been
received and shall follow the withholding
and reporting procedures in paragraph
(c)(5)(iii)(E)(4)ofthissection.
(3)Dividend. If, within the 60-day pe-
riod, the U.S. financial institution receives
a section 302 payment certification from
the foreign beneficial owner stating that
the section 302 payment is a dividend,
the U.S. financial institution shall treat the
amount set aside as tax withheld as of the
time it receives the section 302 payment
certification, and shall deposit that amount
pursuant to the applicable regulations. The
entire amount paid shall be reported on
Form 1042–S as dividends.
(4)No timely certification received.If,
within the 60-day period, the U.S. finan-
cial institution does not receive a section
302 payment certification, or is treated un-
der paragraph (c)(5)(iii)(E)(2)ofthissec-
tion as not receiving a section 302 payment
certification, the U.S. financial institution
shall treat the amount set aside as tax with-
held as of the 61st day, and shall deposit
that amount pursuant to the applicable reg-
ulations. The entire amount paid shall be
reported on Form 1042–S as dividends.
(5)Late certification.If,afterthe
60-day period has expired, the U.S. fi-
nancial institution receives a section 302
payment certification from a foreign ben-
eficial owner that the section 302 payment
is a payment in exchange for stock and
the conditions stated in §1.1461–2(a) are
2007–46 I.R.B.1010November 13, 2007

satisfied, the U.S. financial institution may
apply the refund or offset procedures of
that paragraph.
(6)Determination of incorrect treat-
ment. If, after the 60-day period has
expired, the U.S. financial institution de-
termines that the section 302 payment
was incorrectly treated as a distribution
in exchange for stock, the procedures
set forth regarding underwithholding in
§1.1461–2(b) are applicable.
(7)Undocumented beneficial owners.
The U.S. financial institution shall with-
hold at 30 percent on the entire amount
paid to a beneficial owner that is not
properly documented under §§1.1441–1,
1.1441–5, etc. and that is presumed to
be a foreign person, whether or not the
U.S. financial institution has received a
section 302 payment certification from
such beneficial owner. The U.S. financial
institution shall report the entire amount
paid on Form 1042–S as dividends.
(F)Amounts in excess of section 302
payment. If the amount the U.S. financial
institution credits to the account of the for-
eign beneficial owner from the escrow ac-
count includes an amount in excess of the
section 302 payment, such as interest ac-
crued on the escrowed funds, the U.S. fi-
nancial institution shall report and with-
hold on such excess amount in accordance
with the rules under Chapter 3 of the Inter-
nal Revenue Code.
(G)U.S. non-exempt recipients.The
U.S. financial institution shall treat ben-
eficial owners that are U.S. non-exempt
recipients, and that hold stock in the
distributing corporation through QIs,
WPs/WTs, NQIs and flow-throughs, in
accordance with the section 302 pay-
ment certifications obtained from those
U.S. non-exempt recipients and shall in-
struct foreign intermediaries and foreign
flow-through entities to do the same.
(H)Notice to distributing corporation.
The U.S. financial institution shall notify
the distributing corporation, in writing, by
the filing date of Form 1042–S, of the ag-
gregate amount of the section 302 payment
that the U.S. financial institution has re-
ported on Forms 1042–S as capital gains,
and the aggregate amount of the section
302 payment that it has reported on Forms
1042–S as dividends.
(I)Application of Escrow Procedure
to Qualified Intermediaries. As provided
in paragraph (c)(5)(iii)(A) of this sec-
tion, only the U.S. financial institution
may establish an escrow account and the
amounts set aside in the escrow account
shall include 30 percent (or the applica-
ble treaty rate applicable to dividends)
on payments made to a direct account
holder that is a QI (including a QI that
has assumed primary withholding respon-
sibility). Under theprocedure described
in paragraph (c)(5)(iii)(I)(3), a QI shall
provide the U.S. financial institution with
a withholding statement as required in
the QI Agreement. If there is a chain of
QIs, each QI in the chain shall apply the
procedure. The procedures described in
this paragraph (I) shall be applied to with-
holding foreign partnerships and with-
holding foreign trusts within the meaning
of §§1.1441–5(c)(2) and (e)(5)(v), re-
spectively, in the same manner as the
procedures apply to a QI.
(1)Request for section 302 payment
certification. The U.S. financial institution
shall provide the information and instruc-
tions described in paragraph (c)(5)(iii)(C)
of this section to the QI, and the QI shall
provide the same information and instruc-
tions to its account holders including ac-
count holders that are U.S. non-exempt re-
cipients.
(2)Content of section 302 payment
certification. The content of the section
302 payment certification shall include
the information described in paragraph
(c)(5)(iii)(D) of this section.
(3)Receipt of section 302 payment
certification—(i) Payment in exchange
for stock. If, within the 60-day period
described in paragraph (c)(5)(iii)(C), the
QI receives from the beneficial owner a
section 302 paymentcertification stating
that the section 302 payment is a payment
in exchange for stock and if the QI does
not know or have reason to know that the
information in the section 302 payment
certification is unreliable or incorrect, the
QI shall reflect such treatment in its with-
holding statement provided to the U.S.
financial institution, and, based upon the
withholding statement, the U.S. financial
institution shall release payment from its
escrow and the QI shall credit the benefi-
cial owner’s account with the amount set
aside by the U.S. financial institution with
respect to the beneficial owner who pro-
vided the certification. The entire amount
paid (including the amount initially set
aside) shall be reported on the QI’s pooled
basis Form 1042–S as capital gains.
(ii)Unreliable or incorrect exchange
certification. If the QI knows or has rea-
son to know that the information in the
section 302 payment certification is unre-
liable or incorrect, the QI shall treat the
payment as a payment for which no sec-
tion 302 payment certification has been
received and shall follow the withhold-
ing and reporting procedures in paragraph
(c)(5)(iii)(I)(3)(iv)ofthissection.
(iii)Dividend. If, within the 60-day pe-
riod, QI receives a section 302 payment
certification stating that the section 302
payment is a dividend, the QI shall reflect
such treatment in its withholding statement
and shall treat the payment as a dividend
for purposes of its reporting and withhold-
ing responsibilities under the QI agree-
ment. The entire amount paid shall be re-
ported on its pooled basis Form 1042–S as
dividends.
(iv)No timely certification received.
If, within the 60-day period, the QI does
not receive a section 302 payment cer-
tification, or is treated under paragraph
(c)(5)(iii)(I)(3)(
ii)ofthissectionasnot
receiving a section 302 payment certifica-
tion, the QI shall reflect such treatment in
its withholding statement provided to the
U.S. financial institution and shall treat
the payment as a dividend for purposes
of its reporting and withholding respon-
sibilities under the QI agreement. The
entire amount paid shall be reported on its
pooled basis Form 1042–S as dividends.
(v)Late certification.If,afterthe
60-day period has expired, the QI receives
a section 302 payment certification from
a beneficial owner that the section 302
payment is a payment in exchange for
stock and the conditions stated in the QI
agreement regarding the refund and offset
procedures are satisfied, the QI may apply
such refund or offset procedures.
(vi)Determination of incorrect treat-
ment. If, after the 60-day period has ex-
pired, the QI determines that the section
302 payment was incorrectly treated as a
distribution in exchange for stock, the pro-
cedures set forth regarding adjustments for
underwithholding in the QI agreement are
applicable.
(vii)Undocumented beneficial owners.
The QI shall withhold at 30 percent on the
entire amount paid to a beneficial owner
that is not properly documented and that is
November 13, 200710112007–46 I.R.B.

presumed to be a foreign person, whether
or not the QI has received a section 302
payment certification from such benefi-
cial owner. The QI shall report the en-
tire amount paid on its pooled basis Form
1042–S as dividends.
(4)U.S. non-exempt recipients.The
QI shall treat directaccount holders that
are U.S. non-exempt recipients, and that
hold stock in the distributing corporation,
in accordance with the section 302 pay-
ment certifications obtained from those
U.S. non-exempt recipients and shall in-
struct foreign intermediaries and foreign
flow-through entities to do the same.
(J)Intermediaries that are not qualified
intermediaries. If the U.S. financial insti-
tution has an account holder that is an inter-
mediary that is not a QI (“NQI”), the U.S.
financial institution shall apply the rules
of paragraph (c)(5)(iii)(J)(1) through (4)of
this section. Where the provisions of this
paragraph (J) refer only to the U.S. finan-
cial institution, they shall apply in the same
manner to a QI or WP/WT and where they
refer to an NQI, they shall apply in the
same manner to a flow-through that is not
aWPorWT.
(1) The U.S. financial institution shall
provide the information and instructions
described in paragraph (c)(5)(iii)(C) of this
section to the NQI and the NQI shall pro-
vide the same information and instructions
to its account holders.
(2) The content of the section 302
payment certification shall include the
information described in paragraph
(c)(5)(iii)(D) of this section.
(3) The NQI shall provide the sec-
tion 302 payment certification to the U.S.
financial institution together with the
otherwise required documentation and a
withholding statement made in accordance
with the section 302 payment certification.
(4) The U.S. financial institution shall
treat the section 302 payment as a dividend
or a payment in exchange for stock based
on the information and documentation pro-
vided to it under paragraph (c)(5)(iii)(J)(3)
of this section. The U.S. financial institu-
tion shall withhold and report on a specific
payee basis in accordance with this infor-
mation.
(d)***(1)***Thisparagraphdoes
not apply to a public section 302 distribu-
tion to which paragraph (c)(5) applies.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on October 16,
2007, 8:45 a.m., and published in the issue of the Federal
Register for October 17, 2007, 72 F.R. 58781)
Notice of Proposed
Rulemaking
Compensation for Labor or
Personal Services: Artists and
Athletes
REG–114125–07
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed changes to existing final regulations
regarding the source of compensation for
labor or personal services. The proposed
changes are needed to clarify the determi-
nation of source of compensation of a per-
son, including an artist or athlete, who is
compensated for labor or personal services
performed at specific events. These pro-
posed regulations affect such an individ-
ual.
DATE: Written or electronic comments
and requests for a public hearing must be
received by January 14, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–114125–07),
room 5203, Internal Revenue Ser-
vice, PO Box 7604, Ben Franklin Sta-
tion, Washington, DC 20044. Submis-
sions may be hand-delivered Monday
through Friday between the hours of
8 a.m. and 4 p.m. to: CC:PA:LPD:PR
(REG–114125–07), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC, or sent
electronically via the Federal eRulemak-
ing Portal athttp://www.regulations.gov
(IRS–REG–114125–07).
FOR FURTHER INFORMATION
CONTACT: Concerning the proposed
regulations, David Bergkuist at (202)
622–3850; concerning the submissions
of comments and requests for a hearing,
Regina Johnson at (202) 622–7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments under 26 CFR part 1 un-
der section 861 of the Internal Revenue
Code (Code). On July 14, 2005, final
regulations that revised and amended
§1.861–4 were published in theFederal
Register(70 FR 40663) as T.D. 9212,
2005–2 C.B. 429. In these final reg-
ulations, §1.861–4(b)(2)(ii)(C)(3)was
reserved with respect to compensation
for labor or personal services performed
partly within and partly without the United
States by an artist or an athlete who is an
employee.
Section 861(a)(3) of the Internal Rev-
enue Code provides that, subject to certain
exceptions, compensation for labor or per-
sonal services performed in the United
States is gross income from sources within
the United States. See also §1.861–4(a) of
the regulations. Section 862(a)(3) of the
Code provides that compensation for labor
or personal services performed without
the United States is gross income from
sources without the United States. Section
1.861–4(b) provides rules for determining
the source of compensation for labor or
personal services performed partly within
and partly without the United States. Sec-
tion 1.861–4(b)(2)(i) provides rules for
determining the source of compensation
for labor or personal services performed
partly within and partly without the United
States by an individual other than as an
employee. Section 1.861–4(b)(2)(ii) pro-
vides rules for determining the source of
compensation for labor or personal ser-
vices performed partly within and partly
without the United States by an individual
as an employee.
Under §1.861–4(b)(2)(ii), if an individ-
ual performs labor or personal services as
an employee, the source of the individual’s
compensation is generally determined on
a time basis, with certain fringe benefits
sourced on a geographic basis. An indi-
vidual may determine the source of his or
her compensation as an employee for la-
bor or personal services performed partly
within and partly without the United States
2007–46 I.R.B.1012November 13, 2007

under an alternative basis if the individ-
ual establishes to the satisfaction of the
Commissioner that, under the facts and cir-
cumstances of the particular case, the al-
ternative basis more properly determines
the source of the compensation than the
general rules of §1.861–4(b)(2)(ii). See
§1.861–4(b)(2)(ii)(C)(1)(i). In addition,
the Commissioner may, under the facts and
circumstances of the particular case, deter-
mine the source of compensation that is re-
ceivedbyanindividualasanemployeeun-
der an alternative basis if such compensa-
tion is not for a specific time period, pro-
vided that the Commissioner’s alternative
basis determines the source of compensa-
tion in a more reasonable manner than the
basis used by the individual.
Thefinalregulationsat
§1.861–4(b)(2)(ii)(C)(3)provideda
reservation with respect to the source of
compensation for labor or personal ser-
vices performed partly within and partly
without the United States by an artist or
athlete who is an employee. The preamble
of T.D. 9212 indicated that it was intended
that the rule for artists and athletes who are
employees, when issued, would require
such individuals to determine the proper
source of their compensation for labor or
personal services on the basis that most
correctly reflects the proper source of
income under the facts and circumstances
of the particular case, consistent with
current law.
Explanation of Provisions
The proposed regulations would
set forth a new “events basis” rule in
§1.861–4(b)(2)(ii)(G) and make cer-
tain other clarifying changes to the
existing final regulations. The pro-
posed regulations also would remove
§1.861–4(b)(2)(ii)(C)(3), which reserved
with respect to artists and athletes.
The amount of income received by a
person, including an individual who is
an artist or an athlete, that is properly
treated as compensation from the perfor-
mance of labor or personal services is
determined based on all of the facts and
circumstances of the particular case. Pro-
posed §1.861–4(b)(2)(ii)(G) specifies that
the amount of compensation for labor or
personal services determined on an event
basis is the amount of the person’s com-
pensation which, based on the facts and
circumstances, is attributable to the labor
or personal services performed at the lo-
cation of a specific event.
The IRS and the Treasury Department
have determined that the proper source of
compensation received by a person, in-
cluding an individual who is an artist or
athlete, specificallyfor performing labor
or personal services at an event is the lo-
cation of the event. A basis that purports
to determine the source of compensation
from the performance of labor or personal
services at a specific event, whether on
a time basis or otherwise, by taking into
account the location of labor or personal
services performed in preparation for the
performance of labor or personal services
at the specific event will generally not be
the basis that most correctly determines the
source of the compensation. This rule ap-
plies to situations covered by §1.861–4(a)
and (b).
Under §1.861–4(a), the source of com-
pensation for labor or personal services
performed wholly within the United States
is generally from sources within the United
States. Therefore, if a person, including
an individual who is an artist or an athlete,
is specifically compensated for performing
labor or personal services at an event in the
United States, the source of such compen-
sation is wholly within the United States
because the labor or personal services were
performedwhollyataneventwithinthe
United States. The proposed regulations
state that a basis that purports to deter-
mine the source of such income on a time
basis by taking into account the location
of labor or personal services performed in
preparation for the performance of labor or
personal services at the specific event will
generally not be a more reasonable basis
for determining source of the compensa-
tion. The proposed regulations add an ex-
ample to §1.861–4(c) to illustrate the ap-
plication of this rule.
Section 1.861–4(b) applies to instances
in which a person is compensated for per-
forming labor or personal services at mul-
tiple events, only some of which are within
the United States, and at least a portion
of the person’s compensation cannot be
specifically attributed to the person’s per-
formance of labor or personal services at
a specific location. If the person is not an
individual who is compensated as an em-
ployee, the source of compensation for la-
bor or personal services is determined on
the basis that most correctly reflects the
proper source of that income under the
facts and circumstances of the particular
case. See §1.861–4(b)(1) and (2)(i). If a
person is compensated specifically for la-
bor or personal services performed at mul-
tiple events, the basis that most correctly
reflects the proper source of that income
under the facts and circumstances of the
particular case will generally be the loca-
tion of the events. In addition, a basis
that purports to determine the source of
such income on a time basis by taking into
account the location of labor or personal
services performed in preparation for the
performance of labor or personal services
at the specific event will generally not be
the basis that most correctly reflects the
proper source of the compensation under
proposed §1.861–4(b)(2)(ii)(G).
The Commissioner may, under the facts
and circumstances of the particular case,
determine the source of compensation that
is received by an individual as an em-
ployee under an alternative basis if such
compensation is not for a specific time
period, provided that the Commissioner’s
alternative basis determines the source of
compensation in a more reasonable man-
ner than the basis used by the individual.
Compensation specifically for labor or
personal services performed at a specific
event is not compensation for a specific
time period. The basis that most correctly
reflects the proper source of that income
will generally be the location of the event
under proposed §1.861–4(b)(2)(ii)(G).
In addition, a basis that purports to de-
termine the source of such income on a
facts and circumstances basis by taking
into account the location of labor or per-
sonal services performed in preparation
for the performance of labor or personal
services at the specific event will gen-
erally not more properly determine the
source of the compensation under pro-
posed §1.861–4(b)(2)(ii)(G).
These proposed regulations provide ex-
amples to illustrate the event basis for de-
termining the source of compensation of
an individual, including an artist or ath-
lete, who is compensated specifically for
performing labor or personal services at an
event.
The revisions to §1.861–4(b)(1),
(b)(2)(i), and (b)(ii)(C)(1)(i)and(ii)which
refer to the event basis; the revisions in
§1.861–4(b)(2)(ii)(C)(3), (b)(2)(ii)(E),
November 13, 200710132007–46 I.R.B.

and (b)(2)(ii)(F), (b)(2)(ii)(G), and (c); and
newExamples 7through11of §1.861–4(c)
would be effective for taxable years be-
ginning after the date final regulations are
published in theFederal Register.
Special Analysis
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory as-
sessment is not required. It has also been
determined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C. chap-
ter 5) does not apply to these regulations.
Because these regulations do not impose
a collection of information on small enti-
ties, the provisions of the Regulatory Flex-
ibility Act (5 U.S.C. chapter 6) do not ap-
ply. Pursuant to section 7805(f) of the In-
ternal Revenue Code, this notice of pro-
posed rulemaking has been submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for com-
ment on its impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comment that is submitted timely to the
IRS. The Treasury Department and the
IRS request comments on the clarity of
the proposed rules and how they can be
made easier to understand. All comments
will be available for public inspection and
copying. A hearing will be scheduled if
requested in writing by any person that
timely submits written comments. If a
public hearing is scheduled, notice of the
date, time, and place for a public hearing
will be published in theFederal Register.
Drafting Information
The principal author of these proposed
regulations is David Bergkuist, Office
of the Associate ChiefCounsel (Interna-
tional). However, other personnel from
the IRS and the Treasury Department par-
ticipated in their development.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.861–4 is amended by:
1. Removing the heading for paragraph
(b)(1)(i).
2. Redesignating paragraph (b)(1)(i) as
paragraph (b)(1).
3. In the last sentence of newly des-
ignated paragraph (b)(1), adding the lan-
guage “or on the event basis as defined in
paragraph (b)(2)(ii)(G) of this section,” af-
ter the language “paragraph (b)(2)(ii)(E) of
this section,”.
4. In the last sentence of paragraph
(b)(2)(i), adding the language “or on
the event basis as defined in paragraph
(b)(2)(ii)(G) of this section,” after the
language “paragraph (b)(2)(ii)(E) of this
section,”.
5. In the first sentence of paragraph
(b)(2)(ii)(C)(1)(i), adding the language “,
including an event basis as defined in para-
graph (b)(2)(ii)(G) ofthis section,” after
the language “alternative basis” wherever
the language “alternative basis” appears in
the sentence.
6. In the first sentence of paragraph
(b)(2)(ii)(C)(1)(ii), adding the language
“event basis as defined in paragraph
(b)(2)(ii)(G) of this section or other” after
the language “partly without the United
States under an”.
7.Removing paragraph
(b)(2)(ii)(C)(3).
8. In the first sentence of paragraph
(b)(2)(ii)(E), removing the language “in-
dividual’s” and adding the language “per-
son’s” in its place, removing the language
“individual” and adding the language “per-
son” in its place, and removing the lan-
guage “his or hers” and adding the lan-
guage “such person’s” in its place.
9. In the second sentence of paragraph
(b)(2)(ii)(F), removing the language “an
individual” and adding the language “a
person” in its place.
10. Redesignating paragraphs (c) and
(d) as new paragraphs (d) and (e), respec-
tively.
11.Redesignating paragraph
(b)(2)(ii)(G) as new paragraph (c).
12.Adding a new paragraph
(b)(2)(ii)(G).
13. In the introductory language of
newly-designated paragraph (c), remov-
ing the language “paragraph (b)(2)(ii)” and
adding the language “section” in its place.
14. Adding newExamples 7, 8, 9, and
10to newly-designated paragraph (c).
15. Redesignating paragraph (b)(1)(ii)
Example,asnewExample 11in
newly-designated paragraph (c), revis-
ing the paragraph heading and removing
paragraph (b)(1)(ii).
16. Adding a new sentence at the end
of newly-designated paragraph (e) and re-
vising the paragraph heading.
The additions read as follows:
§1.861–4 Compensation for labor or
personal services.
*****
(b) * * *
(2) * * *
(ii) * * *
(G)Event basis. The amount of com-
pensation for labor or personal services
determined on an event basis is the amount
of the person’s compensation which, based
on the facts and circumstances, is attrib-
utable to the labor or personal services
performed at the location of a specific
event. The source of compensation for la-
bor or personal services determined on an
event basis is the location of the specific
event. A basis that purports to determine
the source of compensation from the per-
formance of labor or personal services at
aspecificevent,whetheronatimebasis
or otherwise, by taking into account the
location of labor or personal services per-
formed in preparation for the performance
of labor or personal services at the specific
event will generally not be the basis that
most correctly determines the source of
the compensation.
(c)Examples.***
Example 7. P, a citizen and resident of Country
A, is paid by Company Z to make a presentation in
the United States in 2009. In 2010, Company Z pays
P to make 10 presentations, four of which are in the
United States and six of which are outside the United
States. P is compensated separately by Company Z
for each presentation. For some presentations P re-
ceives a flat fee from Company Z. For the remaining
presentations P receives compensation that is based
on a formula. Under the facts and circumstances of
the particular case, the source of the compensation
2007–46 I.R.B.1014November 13, 2007

for each presentation is most correctly reflected on
an event basis, as defined inparagraph (b)(2)(ii)(G)
of this section. Because P is compensated separately
for each presentation, the source of P’s compensation
from Company Z for the 2009 presentation within
the United States and the four 2010 presentations in
the United States will be from sources in the United
States. The amounts will be determined based on the
flat fee or the formula as contractually determined.
Example 8.(i)Facts. Group B, a Country N cor-
poration, is a musical group. All of the members
of Group B are citizens and residents of Country N.
Group B has an employment arrangement with Corp
Y, a Country N corporation, to perform as directed by
Corp Y. Corp Y and a tour promoter enter into a con-
tract to provide the services of Group B to perform
in musical concerts in the United States and Country
M during a 45-day period. Under the contract, Group
B performs concerts in 15 cities, 10 of which are in
the United States. Prior to entering the United States,
Group B spends 60 days rehearsing and preparing in
Country N. Under the contract with Corp Y, Group B
receives a flat fee of $10,000,000 for performing in all
15 cities. The fee is based on expected revenues from
the musical concerts. Each concert is expected to re-
quire a similar amount and type of labor or personal
services by Group B. At the end of the tour, an analy-
sis of the revenues from all of the concerts shows that
80% of the total revenues from the tour were from the
performances within the United States.
(ii)Analysis. Under the facts and circumstances
basis of paragraph (b)(1) of this section, the source of
the compensation received under the contract is most
correctly reflected on an event basis, as defined in
paragraph (b)(2)(ii)(G) of this section, with amounts
determined based on the relative gross receipts at-
tributable to the performances within and without
the United States. Thus, of the $10,000,000 of
compensation included in Group B’s gross income,
$8,000,000 ($10,000,000 X .80) is attributable to la-
bor or personal services performed by Group B within
the United States and $2,000,000 ($10,000,000 X
.20) is attributable to the labor or personal services
performed by Group B without the United States.
Example 9.(i)Facts. A, a citizen and resident
ofCountryM,isanemployeeofCorpX,aCountry
M corporation. During 2008, Corp X is contractually
obligated to provide A’s services to perform in a spe-
cific athletic event in the United States. Under A’s
employment contract with Corp X, A is required to
perform at a professional level that requires training
and other preparation prior to the event. A undertakes
all of this preparation in Country M.Solely as a result
of A’s performance at the athletic event in the United
States, A receives $2,000,000 from Corp X.
(ii)Analysis. The entire $2,000,000 received by
A for performing labor or personal services at the ath-
letic event in the United States is income from sources
within the United States on an event basis as defined
in paragraph (b)(2)(ii)(G) of this section. A’s com-
pensation is attributable entirely to labor or personal
services performed within the United States at the
athletic event. It is inappropriate to conclude that the
source of A’s compensation for labor or personal ser-
vices is performed partly within and partly without
the United States simply because A’s preparation for
the athletic event involved activities in Country M.
Example 10.(i)Facts. X, a citizen and resident
of Country M, is employed under a standard player’s
contract by a professional sports team (Team) that
plays its games both within and without the United
States during its season. The term of the contract is
for twelve months beginning on October 1. Under the
contract, X’s salary could be paid in semi-monthly in-
stallments beginning with the first game of the regu-
lar season and ending with the final game played by
the Team. Alternatively, because the regular playing
season was shorter than the one-year period covered
by the contract, X had the option to receive his salary
over a twelve-month period. X elected this option. In
addition, during the period of this employment con-
tract, X, as an employee of Team, was required to
practice at the direction of the Team as well as to par-
ticipate in games. During 2008, X participated in all
practices and games of Team and received a salary.
Team qualified for postseason games in 2008. X also
received in 2008 additionalamounts for playing in
preseason and postseason games for the Team.
(ii)Analysis. The salary paid to X by the Team is
considered to be personalservices compensation of
X that X received as an employee of the Team. The
source of this compensation within the United States
is determined under the time basis method described
in paragraph (b)(2)(ii)(A) of this section and accord-
ingly is determined based upon the number of days
X performed services for the Team within the United
States during 2008 over the total number of days that
X performed services for the Team during 2008. The
source of the additional amounts X received for play-
ing in preseason and postseason games is determined
under the event basis method described in paragraph
(b)(2)(ii)(G) of this section and accordingly is deter-
mined based on the location where each such presea-
son or postseason game was played.
Example 11.***
*****
(e)Effective/applicability date.
***Therevisionsinparagraphs(b)(1),
(b)(2)(i), and (b)(2)(ii)(C)(1)(i)and
(ii) of this section which refer to the
event basis; the revisions of paragraphs
(b)(2)(ii)(C)(3), (b)(2)(ii)(E), (b)(2)(ii)(F),
(b)(2)(ii)(G), and (c) of this section; and
Examples 7through11of paragraph (c)
of this section apply to taxable years be-
ginning after the date final regulations are
published in theFederal Register.
LindaE.Stiff,
Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on October 16,
2007, 8:45 a.m., and published in the issue of the Federal
Register for October 17, 2007, 72 F.R. 58787)
Announcement of Disciplinary Actions Involving
Attorneys, Certified Public Accountants, Enrolled Agents,
and Enrolled Actuaries — Reinstatements, Suspensions,
Censures, Disbarments, and Resignations
Announcement 2007-104
Under Title 31, Code of Federal Regu-
lations, Part 10, attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries may not accept assistance from,
or assist, any person who is under disbar-
ment or suspension from practice before
the Internal Revenue Service if the assis-
tance relates to a matter constituting prac-
tice before the Internal Revenue Service
and may not knowingly aid or abet another
person to practice before the Internal Rev-
enue Service during a period of suspen-
sion, disbarment, or ineligibility of such
other person.
To enable attorneys, certified public
accountants, enrolled agents, and enrolled
actuaries to identify persons to whom
these restrictions apply, the Director, Of-
fice of Professional Responsibility, will
announce in the Internal Revenue Bulletin
their names, their city and state, their pro-
fessional designation, the effective date
of disciplinary action, and the period of
suspension. This announcement will ap-
pear in the weekly Bulletin at the earliest
practicable date after such action and will
November 13, 200710152007–46 I.R.B.

continue to appear in the weekly Bulletins
for five successive weeks.
Reinstatement To Practice Before the Internal Revenue
Service
Under Title 31, Code of Federal Reg-
ulations, Part 10, The Director, Office of
Professional Responsibility, may entertain
a petition for reinstatement for any attor-
ney, certified public accountant, enrolled
agent, or enrolled actuary censured, sus-
pended, or disbarred, from practice before
the Internal Revenue Service.
The following individuals’ eligibility to
practice before the Internal Revenue Ser-
vice has been restored:
NameAddressDesignationDate of Reinstatement
Dotson, Lewis S.Mattoon, ILAttorneyApril 8, 2007
Adams, Jr., Joseph T.Philadelphia, PAEnrolled AgentJuly 30, 2007
Cramer, George C.Chicago, ILCPAJuly 30, 2007
Garlikov, Mark B.Dayton, OHAttorneyJuly 30, 2007
Grant, Elaine C.Woodway, WAEnrolled AgentJuly 30, 2007
Rubesh, LelandGillette, WYCPAJuly 30, 2007
Schawe, Rudolph B.Brenham, TXEnrolled AgentJuly 30, 2007
Sobel, Herbert L.Elkins Park, PACPAJuly 30, 2007
Welch, Frank G.Stamford, CTCPAJuly 30, 2007
Ferguson, Charles E.Naples, FLCPAJuly 31, 2007
Lim, Edgar E.St. Louis, MOAttorneyJuly 31, 2007
Sneathen, Lowell D.Orange, CACPAAugust 30, 2007
Smith, David B.Kettering, OHEnrolled AgentSeptember 9, 2007
Young, Ronald B.Fairfield, CTCPASeptember 9, 2007
Sheiman, Alan P.Sherman Oaks, CAEnrolled AgentSeptember 14, 2007
DiSiena, Frank E.Somers, NYCPASeptember 19, 2007
Leggio, Joseph J.Katonah, NYCPASeptember 24, 2007
2007–46 I.R.B.1016November 13, 2007

Consent Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, an attorney, certified pub-
lic accountant, enrolled agent, or enrolled
actuary, in order to avoid the institution
or conclusion of a proceeding for his or
her disbarment or suspension from prac-
tice before the Internal Revenue Service,
may offer his or her consent to suspension
from such practice. The Director, Office
of Professional Responsibility, in his dis-
cretion, may suspend an attorney, certified
public accountant, enrolled agent, or en-
rolled actuary in accordance with the con-
sent offered.
The following individuals have been
placed under consent suspension from
practice before the Internal Revenue Ser-
vice:
NameAddressDesignationDate of Suspension
Hunter, RichardMoweaqua, ILEnrolled AgentIndefinite
from
July 16, 2007
Sheehy, William J.Northville, MIAttorneyIndefinite
from
July 16, 2007
Szwyd, Edward R.Housatonic, MACPAIndefinite
from
July 16, 2007
Lettieri, Louis E.Red Bank, NJCPAIndefinite
from
August 1, 2007
Stein, Jerold A.Alpharetta, GACPAIndefinite
from
August 1, 2007
Tutino, Philip R.East Hampton, NYCPAIndefinite
from
August 1, 2007
Dorr, Mark A.Gillette, WYCPAIndefinite
from
August 7, 2007
Nelson, Carole S.Riverside, CAEnrolled AgentIndefinite
from
August 8, 2007
Siegel, HerbertNew City, NYCPAIndefinite
from
August 10, 2007
Taylor, Linda W.Las Vegas, NVCPAIndefinite
from
August 15, 2007
Finkelstein, MeyerStaten Island, NYCPAIndefinite
from
August 15, 2007
Schenck, Thomas M.Tampa, FLCPAIndefinite
from
August 20, 2007
November 13, 200710172007–46 I.R.B.

NameAddressDesignationDate of Suspension
Shah, Sudhir P.Richardson, TXCPAIndefinite
from
August 20, 2007
Bender, Elmer P.Missoula, MTCPAIndefinite
from
August 31, 2007
Tselepis, JohnJarrettsville, MDCPAIndefinite
from
September 5, 2007
Perez, Ricardo L.Cedar Lake, INCPAIndefinite
from
September 10, 2007
Golden, Roberta A.Framington, MAAttorneyIndefinite
from
September 13, 2007
Ward, Thomas R.St. Louis Park, MNAttorneyIndefinite
from
September 13, 2007
Expedited Suspensions From Practice Before the Internal
Revenue Service
Under Title 31, Code of Federal Regu-
lations, Part 10, the Director, Office of Pro-
fessional Responsibility, is authorized to
immediately suspend from practice before
the Internal RevenueService any practi-
tioner who, within five years from the date
the expedited proceeding is instituted (1)
has had a license to practice as an attor-
ney, certified public accountant, or actuary
suspended or revoked for cause or (2) has
been convicted of certain crimes.
The following individuals have been
placed under suspension from practice be-
fore the Internal Revenue Service by virtue
of the expedited proceeding provisions:
NameAddressDesignationDate of Suspension
Murphy, John F.Wellsboro, PAAttorneyIndefinite
from
June 28, 2007
Aakre, Steven K.Hawley, MNAttorneyIndefinite
from
July 11, 2007
Brogan, Jane K.York, NEAttorneyIndefinite
from
July 11, 2007
Clark, Clifford A.Raleigh, NCCPAIndefinite
from
July 11, 2007
Downing, Jr., Eugene W.Arlington, MAAttorneyIndefinite
from
July 11, 2007
2007–46 I.R.B.1018November 13, 2007

NameAddressDesignationDate of Suspension
Kahn, Arthur M.Woodstock, NYAttorneyIndefinite
from
July 11, 2007
Kossmeyer, Carl F.Town andCountry, MOCPAIndefinite
from
July 11, 2007
Lee, John C.Charlotte,NCAttorneyIndefinite
from
July 11, 2007
McAvoy, Donald L.Windermere, FLCPAIndefinite
from
July 11, 2007
McCabe, Edwin A.Gloucester, MAAttorneyIndefinite
from
July 11, 2007
O’Donnell, Judith R.Westborough, MAAttorneyIndefinite
from
July 11, 2007
Taylor, John G.Lincoln, NEAttorneyIndefinite
from
July 11, 2007
Turner, D. ScottMooresville, NCAttorneyIndefinite
from
July 11, 2007
Csaszar, James J.Columbus, OHCPAIndefinite
from
July 13, 2007
Fischer, Mark W.Boulder, COAttorneyIndefinite
from
July 16, 2007
Behunin, Michael N.Sandy, UTAttorneyIndefinite
from
August 8, 2007
Carpenter, Jr., Darwin R.Melbourne, FLCPAIndefinite
from
August 23, 2007
Gresham, James L.Broken Arrow, OKCPAIndefinite
from
August 23, 2007
Krezminski, Allen D.Milwaukee, WIAttorneyIndefinite
from
August 23, 2007
Neary, Hugh M.Ottumwa, IAAttorneyIndefinite
from
August 23, 2007
November 13, 200710192007–46 I.R.B.

NameAddressDesignationDate of Suspension
Weiss, Randy A.Potomac, MDAttorneyIndefinite
from
August 23, 2007
Whiddon, Edward L.Houston, TXCPAIndefinite
from
August 23, 2007
Hazen, Robert D.Lindon, UTCPAIndefinite
from
August 29, 2007
Schafer, III, Harry J.Edmond, OKCPAIndefinite
from
September 6, 2007
Pullin, Wendy F.San Antonio, TXCPAIndefinite
from
September 24, 2007
Suspensions From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Reg-
ulations, Part 10, after notice and an op-
portunity for a proceeding before an ad-
ministrative law judge, the following indi-
viduals have been placed under suspension
from practice before the Internal Revenue
Service:
NameAddressDesignationEffective Date
Newton, Douglas M.Fernandina Beach, FLCPAIndefinite
from
June 4, 2007
Snell, Barry A.Santa Monica, CACPAIndefinite
from
June 6, 2007
Khoury, Naif S.Fort Smith, ARAttorneyIndefinite
from
June 14, 2007
Bukovac, JaneAlexandria, VAEnrolled AgentIndefinite
from
June 29, 2007
Kreke, David J.Bartelso, ILEnrolled AgentIndefinite
from
July 12, 2007
Dunkley, John D.San Antonio, TXEnrolled AgentIndefinite
from
July 27, 2007
2007–46 I.R.B.1020November 13, 2007

Disbarments From Practice Before the Internal Revenue
Service After Notice and an Opportunity for a Proceeding
Under Title 31, Code of Federal Regu-
lations, Part 10, after notice and an oppor-
tunity for a proceeding before an adminis-
trative law judge, the following individu-
als have been disbarred from practice be-
fore the Internal Revenue Service:
NameAddressDesignationEffective Date
Ruocchio, RobertHavertown, PACPAJune 11, 2007
Turner, John S.Paradise, CAEnrolled AgentJune 15, 2007
Johnson, Ted R.Frankfort, INAttorneyJuly 30, 2007
Ayers, Dani D.Kelseyville, CAEnrolled AgentAugust 6, 2007
Requ
est for Applications to
Part
icipate in the 2008 IRS
Ind
ividuale-filePartnership
Pro
gram
Announcement 2007–106
The Stakeholder Partnerships, Educa-
tion and Communication (SPEC) organ-
ization within the Internal Revenue Ser-
vice (IRS) is continuing its efforts to es-
tablish IRSe-filepartnerships with vari-
ous entities. The IRS is seeking non-mon-
etary e-file partnerships for Filing Season
2008. No applications for funding (mone-
tary compensation) will be considered. A
commercial business, non-profit organiza-
tion, state government or local government
may submit applications. Applications are
not solicited from other Federal govern-
ment agencies. The program is an annual
program and covers the periodJanuary
through October 15, 2008.All prior
year partners must reapply for Filing
Season 2008.
BACKGROUND
The IRS Restructuring and Reform
Actof1998(RRA98)authorizedthe
IRS Commissioner to promote the ben-
efits of and encourage the use of e-file
services. RRA 98 enables the IRS to en-
ter into non-monetary partnerships with
businesses to offer low cost income tax
preparation and electronic filing for quali-
fied taxpayers.
Continued opportunities for growth in
electronic tax administration are evident.
For Filing Season 2007, the IRS received
80 million electronically filed returns, an
increase of 9% over the previous year.
Visit the IRS web site,http://www.irs.gov,
for the most current results from market
research on individual taxpayers, includ-
ing demographic data and psychographic
studies. This research includes attitudinal
surveys, customer satisfaction surveys,
Public Service communications, tracking
studies and any focus group results.
The IRS accepts many forms and sched-
ules for electronic filing. Visit the IRS.gov
for a complete listing of accepted forms
and schedules.
FILING SEASON 2008
For Filing Season 2008, the IRS will
continue to focus on the 1040 series in-
come tax returns covering “IRSe-fileUs-
ingaTaxPreparer”and“IRSe-fileUs-
ing a Personal Computer.” Additional em-
phasis continues to be placed on the fol-
lowing features: electronic signature op-
tions, Federal/State e-file, and electronic
payment options for balance due and esti-
mated payment options.
A major area of emphasis is to reach
those taxpayers who continue to file com-
puter prepared paper returns (v-code). Re-
search indicates that the number of v-code
returns continues to increase (76% of all
v-code returns are prepared by paid prepar-
ers). Emphasis should be placed on con-
verting v-code filers to electronically file
their returns through advertising the bene-
fits of e-file.
Participants should also reach those in-
dividuals eligible for the Earned Income
Tax Credit (EITC). It’s important to note
that military families may qualify for EITC
since supplemental payments and combat
pay are exempt from the income calcula-
tions.
Participants are encouraged to focus on
reducing the number of errors made on
electronically filed returns, including those
returns claiming EITC. The “EITC Assis-
tant” is an interactive web-based tool de-
signed to help tax professionals determine
whether or not their clients are eligible for
EITC, and why. The “EITC Assistant” is
a step taken by the IRS to maximize tax-
payer participation, minimize EITC errors
while increasing compliance. You can find
the “EITC Assistant” on the IRS web site
athttp://www.irs.gov/eitc.
The Hispanic population is the fastest
growing minority segment in the U.S. Par-
ticipants are encouraged to market their
e-file services to this segment of the pop-
ulation and offer the Spanish versions for
online filing and/or downloadable soft-
ware.
The IRS expects all accepted partners
to market, promote and offer e-file product
and services through October 15, 2008.
The IRS will supply the partners with
the key marketing messages that support
electronic filing during the Filing Sea-
son (January through April 15, 2008) and
post-Filing Season (April through Octo-
ber 15, 2008). These messages should be
used in your promotion of electronic filing
and displayed on the web sites of Partici-
pants. Utilization of these messages will
ensure uniformity and maximize public
awareness. For additional information on
the various e-file programs, features, and
market research, visit the IRS web site at
http://www.irs.gov.
Participants willreceive hyperlinks
from IRS.gov (Partners Page) — to the
November 13, 200710212007–46 I.R.B.

Participant’s web site. Potential Partici-
pants may request links for the following
categories:
•IRSe-filePartners for Taxpayers
•IRSe-filePartners for Tax Profession-
als
•IRSe-filePartners for Financial Insti-
tutions/Employers
•IRSe-filePartners for Credit Card Pay-
ment Options
Safeguarding Taxpayer Data
The security of taxpayer accounts and
personal information is a top priority for
the IRS. Tax professionals must imple-
ment safeguards to protect taxpayer’s
data. It is not only the law, but it is good
business practice, as it increases customer
confidence and trust. Refer to Publica-
tion 4557,Safeguarding Taxpayer Data,
A Guide for Your Business,whichde-
scribes the various security provisions
and rules that impact tax professionals.
The document assists tax professionals in
understanding their requirements for pro-
tecting the privacy and confidentiality of
taxpayer data, and provides guidance on
the implementing the necessary security
controls within their business to satisfy
these requirements.Publication 4557 can
be accessed athttp://www.irs.gov.
PARTICIPATION STANDARDS &
REQUIREMENTS
Participants will abide by the following
standards and requirements, if applicable:
•The Participant was actively engaged
in the electronic tax preparation and
filing industry in 2006 and 2007.
•The Participant will offer their tax
preparation and e-file services to the
individual taxpayer. The IRS will not
post advertisements offering both free
tax preparation and free e-file on the
IRS.gov Partners Page. Promotion
on IRS.gov of free services, services
that include both free tax preparation
and free e-filing, is reserved for Free
File Alliance members only. Visit
www.freefilealliance.orgto find out
how to become a member of the Free
File Alliance or visitwww.irs.govfor
more details on free file.
•The Participant will market, promote
and offer e-file services through Octo-
ber 15, 2008. The Participant should
use the key marketing messages, pro-
vided by the IRS, for the promotion
of Filing Season and Post Filing Sea-
son electronic filing and place them on
your web site.
•The Participant (Electronic Return
Originator, Intermediate Service
Provider, Software Developer, and
Transmitter) must be in good standing
with the IRS, comply with the e-file
requirements stated in the IRS Rev-
enue Procedure 2007–40 (announced
in IR Bulletin 2007–26 dated June
25, 2007), current versions of Publi-
cations 1345, 1345A, 3112, and pass
the annual Suitability and Participants
Acceptance Testing (PATS) conducted
bytheIRS.YoucanfindtheIRSe-file
technical publications on the IRS web
site athttp://www.irs.gov.
•The Participant will comply with the
privacy provisions of 26 U.S.C. § 7216
and U.S.C.§ 6103.
•The Participant will be required to
prove and display third-party certifica-
tions for the privacy/security/authen-
ticity of its online service. The Par-
ticipant’s web site should display the
third-party certification and privacy
seals. Participants must use software
that will enable their web sites to state
their privacy practices in a standard
machine-readable format that can be
retrieved automatically and interpreted
easily by users.
•Participants will comply with the se-
curity provisions in applicable De-
partment of Treasury/IRS rules in-
cluding, but not limited to, 31 C.F.R.
Part 10, IRS Rev. Proc. 2005–60,
current versions of IRS Publications
1345, 1345A, and 3112, and 26 U.S.C.
§ 7216. In addition, Participants must
comply with the Federal Trade Com-
mission’s Gramm-Leach-Bliley Act
to protect the security of taxpayer
information. Refer to Publication
4557,Safeguarding Taxpayer Data,
A Guide for Your Business,for guid-
ance on various security rules and
provisions that impact tax profession-
als. The document can be accessed at
http://www.irs.gov.
•The Participant will offer their prod-
ucts and services to filers of the indi-
vidual 1040 Series returns, including
complex returns, balance due returns,
Federal/State returns, and 1040EZ re-
turns.
•The Participant will clearly disclose its
customer service support options (in-
cluding associated fees, if any) and pri-
vacy policy on the landing page of its
web site. Participants must provide
taxpayers with a business contact point
by on-line form, email, mail, facsimile
or telephone number which the Partic-
ipant maintains and reviews.
•The Participant is encouraged to
offer the Spanish versions for online
filing and/or downloadable software.
The Participant who offers Spanish
versions for online filing and/or down-
loadable software will have customer
service support to assist Hispanic tax-
payers.
•The Participant will target v-coders
and individuals eligible for EITC.
•The Participant will focus on reduc-
ing the number of errors on electroni-
cally prepared returns, including those
returns claiming EITC.
•The Participant will offer a variety of
e-file features including the Self-Se-
lect PIN, Electronic Payment Options,
Federal/State e-file, Direct Deposit of
Refunds, etc.
•The Participant will be permitted only
one (1)hyperlink on the IRSe-file
Partners Page per category:
•IRSe-filePartners for Taxpayer
•IRSe-filePartners for Tax Profes-
sionals
•IRSe-filePartners for Financial In-
stitutions/Employers
•IRSe-filePartners for Electronic
Payment Options
•The Participant will provide the IRS
with a description (not to exceed 200
characters including spaces) for each
hyperlink placed on the IRSe-filePart-
ners Page. The hyperlink description
may describe multiple offers/services.
•The Participant will not have a URL(s)
containing the word “IRS.”
•The Participant will be required to sup-
plytheIRSwithalinktotheirwebsite
in their application orno less than ten
(10) business daysbefore the site is
expected to go live (start date of elec-
tronic filing). All sites must be exam-
ined before they can be posted on the
IRSe-filePartners Page. The purpose
2007–46 I.R.B.1022November 13, 2007

of the review is to ensure each Partici-
pant’s web site complies with the stan-
dards and requirements set forth in this
announcement.
•The Participant will adhere to the
IRSe-filerule for registration of
websiteswhichenablesIRStomore
quickly identify fraud schemes, in-
cluding phishing. Failure to do so
could result in suspension or ex-
pulsionfromparticipationinIRS
e-file. For more information, visit
http://www.irs.gov/efile/index.html.
•The Participant will adhere to industry
best practices to ensure the taxpayer re-
turn information entrusted to them is
secure and the privacy of such infor-
mation is maintained. In any instance
where a Participant contracts with a
service provider to obtain technology
services,itwilladhere to this standard.
To the extent multiple Participants rely
on a single service provider for front
or back office services (not ISP ser-
vices), it is even more critical that such
taxpayer security and privacy be main-
tained with respect to others who share
these services.
•A Participant’s web site will be func-
tionally adequate and consistent with
the Participant’s offer in permitting a
taxpayer to complete their return. Fail-
ure to comply may result in the Partici-
pant’s removal from the Partners Page.
•Whenever taxpayers are requested or
required to provide their SSN, it must
be part of a secure session. Participants
are not permitted to use SSNs as a re-
quested field for registration purposes
or for establishing a taxpayer account
on-line.
•The Participant will display the IRS
e-filelogo on the landing page of its
web site.The e-file logo should be a
click-through to the IRS e-file land-
ing pagewww.irs.gov/efile.Ifthe
e-file logo is displayed on other web
pages in addition to the landing page
of the Participant, the logo(s) should
be a click-through to the IRS e-file
landing page. The e-file logo and
guidelines can be downloaded from
http://www.irs.gov.
•The Participant’s web site will not con-
tain inappropriate content. Participant
web sites must meet the following cri-
teria:
•The site clearly relates to and com-
plements existing information,
products and services on IRS.gov.
•The site contains relevant and use-
ful content that will benefit our
customers.
•The site contains accurate and
timely information.
•The site provides information at no
cost. The Participant will not link
to sites whose primary purpose is
to sell products or services (unless
it is part of an approved agreement
with IRS).
•The site has an excellent overall
quality and professional image.
•The site is easy to navigate.
•The site is a credible source for
information. The site must be free
of typos and errors so that it does
not detract from the readability of
the site.
•The site does not exhibit hate, bias,
or discrimination.
•The site does not contain mislead-
ing or unsubstantiated claims or
conflict with the mission of the
IRS.
•The Participant must provide taxpay-
ers a method to obtain the status of
their tax return. Taxpayers can be di-
rected to“Where’s My Tax Refund?”
located on the Homepage of the IRS
web site athttp://www.irs.gov.
•The Participant will prominently dis-
play on the landing page of its web site
the promotion of income tax prepara-
tion and electronic filing for individu-
als eligible for EITC.
•The Participant is encouraged to offer
a monetary incentive (reduced return
preparation and electronic filing costs)
to attract taxpayers.
•The Participant will disclose limita-
tions in the forms and schedules that
are likely to be needed to support
their offerings. The Participant should
clearly display a listing of the forms
and schedules that will be offered
either visible or accessible from the
Participant’s landing page.
•The Participant willclearly disclose a
listing of the States that their software
supports either visible or accessible
from the Participant’s landing page.
•The Participant is permitted to of-
fer commercial products and services
consistent with obtaining the positive
consent of the user as described in 26
U.S.C. 7616 before offering fee-based
products and services not related to tax
preparation.
•The Participant will include a feature
in their tax preparation software that
will “time out” the session after no
changes are made for a period of time
consistent with best practices approved
by privacy seal certification programs.
•The Participant that learns of an in-
appropriate disclosure of a taxpayer’s
return information to an unauthorized
Person must report the unauthorized
disclosure to the IRS immediately but
no later than five (5) hours after de-
tection; and immediately shut down its
program at the time of detection.
•The Participant will submit written
notification (e.g.,email)totheIRS
of changes, additions and deletions to
URLs, link descriptions, etc.
•The Participant will submit Perfor-
mance Reports to the IRS Point of
covering Filing Season and post Filing
Season activity. The reports will cover
information such as e-file statistics,
web site activity and anything else the
IRS deems necessary. The IRS Point
of Contact will provide written report-
ing instructions and requirements to
accepted Participants.
PERFORMANCE STANDARDS
•The IRS will have the accepted Par-
ticipant’s hyperlink(s) available on the
IRS web site for the start of electronic
filing, subject to the participant’s pass-
ing of the annual Suitability, PATS test-
ing, and web site review. Hyperlinks
will remain on the IRSe-filePartners
Page throughOctober 15, 2008, or at
the discretion of the IRS.
•The IRS will randomize on a daily ba-
sis the offers of the Participants listed
on the IRSe-filePartners Page.
•The IRS may establish a link from the
IRSe-filePartners Page to the Free File
web page andvice versa.
•The IRS will accept,if appropriate,
the Participant’s written request for
changes/additions/deletions to a URL,
link description, etc.
•The IRS will review the Participant’s
web site(s) at any time to ensure that
participation requirements are met.
November 13, 200710232007–46 I.R.B.

•The IRS will not endorse specific of-
ferings or products, but will promote
the IRSe-filePartners Page. A “Site
Disclaimer” will be displayed upon ex-
iting the IRS web site before the user
enters the Participant’s web site.
PARTICIPATION TERMS
The IRS Individuale-filePartnership
Program is an annual program, and all
prospective Participants, including re-
turning Participants, must reapply each
year following the guidelines in the In-
ternal Revenue Bulletin announcement
advertised onhttp://www.irs.gov.Ifthe
IRS determines that the Participant is not
meeting the “Participation Standards &
Requirements,” the IRS may terminate its
partnership with the Participant and re-
move the participant’s hyperlink(s) from
the IRSe-filePartners Page.
•The Participant will notify the IRS im-
mediately if it wishes to terminate its
partnership with the IRS. The notifica-
tion should be submitted through email
to the IRS Point of Contact or sent
to the Point of Contact’s address in-
dicated below in “IRS Point of Con-
tact/Application Submission.”
APPLICATION PROCESS
Applications should contain the follow-
ing information,if applicable:
•Provide Primary and Secondary Points
of Contact (name, title, address,
cell/telephone number, fax number
and email address) for discussion of
your application and program partici-
pation.
•Identify the Applicant’s secure web
site.
•Identify the Applicant’s tax prepara-
tion software and the States it will sup-
port.
•Identify the IRS forms and schedules
that support your offering(s).
•Include the Applicant’s Electronic
Filer Identification Number(s) (EFIN)
and/or Electronic Transmitter Identifi-
cation Number (ETIN).
•Indicate if the Applicant will offer
the Spanish versions for online filing
and/or downloadable software. De-
scribe customer service support for
assisting Hispanic taxpayers.
•Identify the Applicant’s hyperlink(s)
and provide a short description(not
to exceed 200 characters including
spaces)of the services and products
to be promoted on the IRSe-filePart-
ners Page. In addition, the Applicant
should provide the associated URL(s).
The URL(s) cannot contain the word
“IRS.”Indicate the category for each
hyperlink:
•IRSe-filePartners for Taxpayers
•IRSe-filePartners for Tax Profes-
sionals
•IRSe-filePartners for Financial In-
stitutions/Employers
•IRSe-filePartners for Electronic
Payment Options
•Identify the Applicant’s third party
administrators (i.e., VeriSign, Thawte,
Truste) that certify the privacy/secu-
rity/authenticity of its online service
and provide certification that the Ap-
plicant’s current status is active and in
good standing.
•Identify the Applicant’s communica-
tion vehicle(s) (i.e., web site, market-
ing/promotional products, etc.) to mar-
ket and promote your products and ser-
vices and IRSe-file. Describe the in-
centives, discounts, offers, benefits to
taxpayers or other specific approaches
to increasee-filevolumes.
•Describe steps the Applicant will take
to reach taxpayers that claim EITC.
This can include marketing/promo-
tional efforts, monetary incentives
(reduced return preparation and elec-
tronic filing costs).
•Describe steps the Applicant will take
to reduce errors on electronically filed
returns, including those returns claim-
ing EITC.
•Certify the Applicant’s compliance
with the privacy and disclosure provi-
sions of 26 U.S.C. 7216 and 26 U.S.C.
6103.
•Certify the Applicant’s compliance
with the Federal Trade Commission’s
Gramm-Leach-Bliley (GLB) Act of
1999, FinancialPrivacy Rule and
Safeguard Rules.
IRS POINT OF
CONTACT/APPLICATION
SUBMISSION
Applications to participate in the
IRS Individuale-filePartnership
Program should be submitted as a
Word document through email at
*WIe-filepartners@irs.gov.(Please make
sure there is an asterisk (*) before the WI
(Wage and Investment) when submitting
an application.) An application may also
be sent to:
Internal Revenue Service
5000 Ellin Road
Lanham, MD 20706
Attention: Karen Bradley C4–132
SE:W:CAR:SPEC:FO:IMS
Ifyouwishtohaveahyperlink(s)
on the IRSe-filePartners Page for the
start of electronic filing, your applica-
tion must be submitted by December 13,
2007.If your application is received after
the deadline, there is no guarantee that it
will be accepted by the IRS.
Any questions regarding the devel-
opment of applications, the submis-
sion of Performance Reports, or any
other type of contact for this program
should be directed to Karen Bradley
at (202) 283–7034 or through email to
*WIe-filepartners@irs.gov.Please make
sure there is an asterisk (*) before the WI
(Wage and Investment) for any type of
email contact.
APPLICATION EVALUATION
All applications will be evaluated based
on the required information provided to
the IRS and the applicant’s ability to ful-
fill their responsibilities. Prior year perfor-
mance will also be considered when evalu-
ating applications fromreturning partners.
ACCEPTANCE/DENIAL OF
APPLICATION
If your application is accepted, you
will receive written notification from the
IRS. If your application is denied, you will
receive written notification from the IRS
with an explanation of the denial.
e-Help
If you have any questions related to
e-products/electronic filing, you can
2007–46 I.R.B.1024November 13, 2007

contact the e-Help Desk toll-free at
1–866–255–0654. The e-Help desk assis-
tors are ready to respond to non-account
related questions and issues. You can also
go tohttp://www.irs.govwhere the IRS
houses a variety of information which im-
pacts the tax professional.
November 13, 200710252007–46 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations
to show that the previous published rul-
ings will not be applied pending some
future action such as the issuance of new
or amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2007–46 I.R.B.iNovember 13, 2007

Numerical Finding List
1
Bulletins 2007–27 through 2007–46
Announcements:
2007-61, 2007-28 I.R.B.84
2007-62, 2007-29 I.R.B.115
2007-63, 2007-30 I.R.B.236
2007-64, 2007-29 I.R.B.125
2007-65, 2007-30 I.R.B.236
2007-66, 2007-31 I.R.B.296
2007-67, 2007-32 I.R.B.345
2007-68, 2007-32 I.R.B.348
2007-69, 2007-33 I.R.B.371
2007-70, 2007-33 I.R.B.371
2007-71, 2007-33 I.R.B.372
2007-72, 2007-33 I.R.B.373
2007-73, 2007-34 I.R.B.435
2007-74, 2007-35 I.R.B.483
2007-75, 2007-36 I.R.B.540
2007-76, 2007-36 I.R.B.560
2007-77, 2007-38 I.R.B.662
2007-78, 2007-38 I.R.B.663
2007-79, 2007-40 I.R.B.749
2007-80, 2007-38 I.R.B.667
2007-81, 2007-38 I.R.B.667
2007-82, 2007-40 I.R.B.749
2007-83, 2007-40 I.R.B.752
2007-84, 2007-41 I.R.B.797
2007-85, 2007-39 I.R.B.719
2007-86, 2007-39 I.R.B.719
2007-87, 2007-40 I.R.B.753
2007-88, 2007-42 I.R.B.801
2007-89, 2007-41 I.R.B.798
2007-90, 2007-42 I.R.B.856
2007-91, 2007-42 I.R.B.857
2007-92, 2007-42 I.R.B.857
2007-93, 2007-42 I.R.B.858
2007-94, 2007-42 I.R.B.858
2007-95, 2007-43 I.R.B.894
2007-96, 2007-42 I.R.B.859
2007-97, 2007-43 I.R.B.895
2007-98, 2007-43 I.R.B.896
2007-99, 2007-43 I.R.B.896
2007-100, 2007-44 I.R.B.922
2007-101, 2007-43 I.R.B.898
2007-102, 2007-44 I.R.B.922
2007-103, 2007-44 I.R.B.923
2007-104, 2007-44 I.R.B.924
2007-105, 2007-45 I.R.B.984
2007-106, 2007-46 I.R.B.1021
2007-107, 2007-46 I.R.B.989
Court Decisions:
2083, 2007-46 I.R.B.986
Notices:
2007-54, 2007-27 I.R.B.12
2007-55, 2007-27 I.R.B.13
2007-56, 2007-27 I.R.B.15
2007-57, 2007-29 I.R.B.87
2007-58, 2007-29 I.R.B.88
2007-59, 2007-30 I.R.B.135
2007-60, 2007-35 I.R.B.466
2007-61, 2007-30 I.R.B.140
2007-62, 2007-32 I.R.B.331
2007-63, 2007-33 I.R.B.353
2007-64, 2007-34 I.R.B.385
2007-65, 2007-34 I.R.B.386
2007-66, 2007-34 I.R.B.387
2007-67, 2007-35 I.R.B.467
2007-68, 2007-35 I.R.B.468
2007-69, 2007-35 I.R.B.468
2007-70, 2007-40 I.R.B.735
2007-71, 2007-35 I.R.B.472
2007-72, 2007-36 I.R.B.544
2007-73, 2007-36 I.R.B.545
2007-74, 2007-37 I.R.B.585
2007-75, 2007-39 I.R.B.679
2007-76, 2007-40 I.R.B.735
2007-77, 2007-40 I.R.B.735
2007-78, 2007-41 I.R.B.780
2007-79, 2007-42 I.R.B.809
2007-80, 2007-43 I.R.B.867
2007-81, 2007-44 I.R.B.899
2007-82, 2007-44 I.R.B.904
2007-83, 2007-45 I.R.B.960
2007-84, 2007-45 I.R.B.963
2007-85, 2007-45 I.R.B.965
2007-86, 2007-46 I.R.B.990
2007-87, 2007-45 I.R.B.966
2007-88, 2007-46 I.R.B.993
2007-89, 2007-46 I.R.B.998
2007-90, 2007-46 I.R.B.1003
Proposed Regulations:
REG-107592-00, 2007-44 I.R.B.908
REG-121475-03, 2007-35 I.R.B.474
REG-128274-03, 2007-33 I.R.B.356
REG-114084-04, 2007-33 I.R.B.359
REG-149036-04, 2007-33 I.R.B.365
REG-149036-04, 2007-34 I.R.B.411
REG-101001-05, 2007-36 I.R.B.548
REG-119097-05, 2007-28 I.R.B.74
REG-128843-05, 2007-37 I.R.B.587
REG-142695-05, 2007-39 I.R.B.681
REG-143326-05, 2007-43 I.R.B.873
REG-143397-05, 2007-41 I.R.B.790
REG-147171-05, 2007-32 I.R.B.334
REG-148951-05, 2007-36 I.R.B.550
REG-163195-05, 2007-33 I.R.B.366
Proposed Regulations— Continued:
REG-118886-06, 2007-37 I.R.B.591
REG-128224-06, 2007-36 I.R.B.551
REG-138707-06, 2007-32 I.R.B.342
REG-139268-06, 2007-34 I.R.B.415
REG-140206-06, 2007-46 I.R.B.1006
REG-142039-06, 2007-34 I.R.B.415
REG-144540-06, 2007-31 I.R.B.296
REG-148393-06, 2007-39 I.R.B.714
REG-103842-07, 2007-28 I.R.B.79
REG-106143-07, 2007-43 I.R.B.881
REG-113891-07, 2007-42 I.R.B.821
REG-114125-07, 2007-46 I.R.B.1012
REG-116215-07, 2007-38 I.R.B.659
REG-118719-07, 2007-37 I.R.B.593
REG-129916-07, 2007-43 I.R.B.891
REG-138637-07, 2007-45 I.R.B.977
Revenue Procedures:
2007-42, 2007-27 I.R.B.15
2007-43, 2007-27 I.R.B.26
2007-44, 2007-28 I.R.B.54
2007-45, 2007-29 I.R.B.89
2007-46, 2007-29 I.R.B.102
2007-47, 2007-29 I.R.B.108
2007-48, 2007-29 I.R.B.110
2007-49, 2007-30 I.R.B.141
2007-50, 2007-31 I.R.B.244
2007-51, 2007-30 I.R.B.143
2007-52, 2007-30 I.R.B.222
2007-53, 2007-30 I.R.B.233
2007-54, 2007-31 I.R.B.293
2007-55, 2007-33 I.R.B.354
2007-56, 2007-34 I.R.B.388
2007-57, 2007-36 I.R.B.547
2007-58, 2007-37 I.R.B.585
2007-59, 2007-40 I.R.B.745
2007-60, 2007-39 I.R.B.679
2007-61, 2007-40 I.R.B.747
2007-62, 2007-41 I.R.B.786
2007-63, 2007-42 I.R.B.809
2007-64, 2007-42 I.R.B.818
2007-65, 2007-45 I.R.B.967
2007-66, 2007-45 I.R.B.970
Revenue Rulings:
2007-42, 2007-28 I.R.B.44
2007-43, 2007-28 I.R.B.45
2007-44, 2007-28 I.R.B.47
2007-45, 2007-28 I.R.B.49
2007-46, 2007-30 I.R.B.126
2007-47, 2007-30 I.R.B.127
2007-48, 2007-30 I.R.B.129
2007-49, 2007-31 I.R.B.237
2007-50, 2007-32 I.R.B.311
2007-51, 2007-37 I.R.B.573
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin
2007–26, dated June 25, 2007.
November 13, 2007ii2007–46 I.R.B.

Revenue Rulings— Continued:
2007-52, 2007-37 I.R.B.575
2007-53, 2007-37 I.R.B.577
2007-54, 2007-38 I.R.B.604
2007-55, 2007-38 I.R.B.604
2007-56, 2007-39 I.R.B.668
2007-57, 2007-36 I.R.B.531
2007-58, 2007-37 I.R.B.562
2007-59, 2007-37 I.R.B.582
2007-60, 2007-38 I.R.B.606
2007-61, 2007-42 I.R.B.799
2007-62, 2007-41 I.R.B.767
2007-63, 2007-41 I.R.B.778
2007-64, 2007-45 I.R.B.953
2007-65, 2007-45 I.R.B.949
2007-66, 2007-45 I.R.B.956
Tax Conventions:
2007-75, 2007-36 I.R.B.540
2007-88, 2007-42 I.R.B.801
2007-107, 2007-46 I.R.B.989
Treasury Decisions:
9326, 2007-31 I.R.B.242
9327, 2007-28 I.R.B.50
9328, 2007-27 I.R.B.1
9329, 2007-32 I.R.B.312
9330, 2007-31 I.R.B.239
9331, 2007-32 I.R.B.298
9332, 2007-32 I.R.B.300
9333, 2007-33 I.R.B.350
9334, 2007-34 I.R.B.382
9335, 2007-34 I.R.B.380
9336, 2007-35 I.R.B.461
9337, 2007-35 I.R.B.455
9338, 2007-35 I.R.B.463
9339, 2007-35 I.R.B.437
9340, 2007-36 I.R.B.487
9341, 2007-35 I.R.B.449
9342, 2007-35 I.R.B.451
9343, 2007-36 I.R.B.533
9344, 2007-36 I.R.B.535
9345, 2007-36 I.R.B.523
9346, 2007-37 I.R.B.570
9347, 2007-38 I.R.B.624
9348, 2007-37 I.R.B.563
9349, 2007-39 I.R.B.668
9350, 2007-38 I.R.B.607
9351, 2007-38 I.R.B.616
9352, 2007-38 I.R.B.621
9353, 2007-40 I.R.B.721
9354, 2007-41 I.R.B.759
9355, 2007-37 I.R.B.577
9356, 2007-39 I.R.B.675
9357, 2007-41 I.R.B.773
9358, 2007-41 I.R.B.769
9359, 2007-45 I.R.B.931
9360, 2007-43 I.R.B.860
2007–46 I.R.B.iiiNovember 13, 2007

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2007–27 through 2007–46
Announcements:
84-26
Obsoleted by
T.D. 9336, 2007-35 I.R.B.461
84-37
Obsoleted by
T.D. 9336, 2007-35 I.R.B.461
Notices:
89-110
Modified by
REG-142695-05, 2007-39 I.R.B.681
99-6
Obsoleted as of January 1, 2009 by
T.D. 9356, 2007-39 I.R.B.675
2002-45
Modified by
REG-142695-05, 2007-39 I.R.B.681
2003-81
Modified and supplemented by
Notice 2007-71, 2007-35 I.R.B.472
2005-1
Modified by
Notice 2007-89, 2007-46 I.R.B.998
2006-1
Modified by
Notice 2007-70, 2007-40 I.R.B.735
2006-43
Modified by
T.D. 9332, 2007-32 I.R.B.300
2006-56
Clarified by
Notice 2007-74, 2007-37 I.R.B.585
2006-79
Section 3 modified and superseded by
Notice 2007-86, 2007-46 I.R.B.990
2006-89
Modified by
Notice 2007-67, 2007-35 I.R.B.467
2007-3
Modified by
Notice 2007-69, 2007-35 I.R.B.468
2007-26
Modified by
Notice 2007-56, 2007-27 I.R.B.15
2007-78
Modified by
Notice 2007-86, 2007-46 I.R.B.990
Proposed Regulations:
EE-16-79
Withdrawn by
REG-142695-05, 2007-39 I.R.B.681
EE-130-86
Withdrawn by
REG-142695-05, 2007-39 I.R.B.681
REG-243025-96
Withdrawn by
REG-142695-05, 2007-39 I.R.B.681
REG-105964-98
Withdrawn by
REG-107592-00, 2007-44 I.R.B.908
REG-117162-99
Withdrawn by
REG-142695-05, 2007-39 I.R.B.681
REG-157711-02
Corrected by
Ann. 2007-74, 2007-35 I.R.B.483
REG-119097-05
Hearing location change by
Ann. 2007-81, 2007-38 I.R.B.667
REG-142695-05
Hearing location change by
Ann. 2007-91, 2007-42 I.R.B.857
REG-148951-05
Corrected by
Ann. 2007-94, 2007-42 I.R.B.858
REG-109367-06
Hearing scheduled by
Ann. 2007-66, 2007-31 I.R.B.296
REG-128224-06
Hearing location change by
Ann. 2007-92, 2007-42 I.R.B.857
Corrected by
Ann. 2007-95, 2007-43 I.R.B.894
REG-138707-06
Corrected by
Ann. 2007-79, 2007-40 I.R.B.749
Cancellation of hearing by
Ann. 2007-101, 2007-43 I.R.B.898
REG-143601-06
Corrected by
Ann. 2007-71, 2007-33 I.R.B.372
REG-143797-06
Cancellation of hearing by
Ann. 2007-85, 2007-39 I.R.B.719
REG-148393-06
Corrected by
Ann. 2007-98, 2007-43 I.R.B.896
Proposed Regulations— Continued:
REG-103842-07
Corrected by
Ann. 2007-77, 2007-38 I.R.B.662
REG-116215-07
Corrected by
Ann. 2007-97, 2007-43 I.R.B.895
Revenue Procedures:
90-12
Modified by
Rev. Proc. 2007-66, 2007-45 I.R.B.970
90-27
Superseded by
Rev. Proc. 2007-52, 2007-30 I.R.B.222
95-28
Superseded by
Rev. Proc. 2007-54, 2007-31 I.R.B.293
97-14
Modified and superseded by
Rev. Proc. 2007-47, 2007-29 I.R.B.108
98-48
Modified by
T.D. 9353, 2007-40 I.R.B.721
2002-9
Modified and amplified by
Rev. Proc. 2007-48, 2007-29 I.R.B.110
Rev. Proc. 2007-53, 2007-30 I.R.B.233
2002-41
Modified by
Rev. Proc. 2007-66, 2007-45 I.R.B.970
2003-43
Supplemented by
Rev. Proc. 2007-62, 2007-41 I.R.B.786
2004-42
Superseded by
Notice 2007-59, 2007-30 I.R.B.135
2004-48
Supplemented by
Rev. Proc. 2007-62, 2007-41 I.R.B.786
2005-16
Modified by
Rev. Proc. 2007-44, 2007-28 I.R.B.54
2005-27
Superseded by
Rev. Proc. 2007-56, 2007-34 I.R.B.388
2005-66
Clarified, modified, and superseded by
Rev. Proc. 2007-44, 2007-28 I.R.B.54
2006-25
Superseded by
Rev. Proc. 2007-42, 2007-27 I.R.B.15
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–1 through 2007–26 is in Internal Revenue Bulletin 2007–26, dated June 25, 2007.
November 13, 2007iv2007–46 I.R.B.

Revenue Procedures— Continued:
2006-27
Modified by
Rev. Proc. 2007-49, 2007-30 I.R.B.141
2006-33
Superseded by
Rev. Proc. 2007-51, 2007-30 I.R.B.143
2006-41
Superseded by
Rev. Proc. 2007-63, 2007-42 I.R.B.809
2006-45
Modified and clarified by
Rev. Proc. 2007-64, 2007-42 I.R.B.818
2006-53
Modified by
Rev. Proc. 2007-60, 2007-39 I.R.B.679
2006-55
Superseded by
Rev. Proc. 2007-43, 2007-27 I.R.B.26
2007-4
Modified by
Notice 2007-69, 2007-35 I.R.B.468
2007-15
Superseded by
Rev. Proc. 2007-50, 2007-31 I.R.B.244
Revenue Rulings:
54-378
Clarified by
Rev. Rul. 2007-51, 2007-37 I.R.B.573
67-93
Obsoleted by
T.D. 9347, 2007-38 I.R.B.624
69-141
Modified by
REG-142695-05, 2007-39 I.R.B.681
74-299
Amplified by
Rev. Rul. 2007-48, 2007-30 I.R.B.129
75-425
Obsoleted by
Rev. Rul. 2007-60, 2007-38 I.R.B.606
76-278
Obsoleted by
T.D. 9354, 2007-41 I.R.B.759
76-288
Obsoleted by
T.D. 9354, 2007-41 I.R.B.759
76-450
Obsoleted by
T.D. 9347, 2007-38 I.R.B.624
Revenue Rulings— Continued:
78-257
Obsoleted by
T.D. 9347, 2007-38 I.R.B.624
78-369
Revoked by
Rev. Rul. 2007-53, 2007-37 I.R.B.577
89-96
Amplified by
Rev. Rul. 2007-47, 2007-30 I.R.B.127
92-17
Modified by
Rev. Rul. 2007-42, 2007-28 I.R.B.44
94-62
Supplemented by
Rev. Rul. 2007-58, 2007-37 I.R.B.562
2001-48
Modified by
T.D. 9332, 2007-32 I.R.B.300
2002-41
Modified by
REG-142695-05, 2007-39 I.R.B.681
2003-102
Modified by
REG-142695-05, 2007-39 I.R.B.681
2005-24
Modified by
REG-142695-05, 2007-39 I.R.B.681
2006-36
Modified by
REG-142695-05, 2007-39 I.R.B.681
2006-57
Modified by
Notice 2007-76, 2007-40 I.R.B.735
2007-54
Suspended by
Rev. Rul. 2007-61, 2007-42 I.R.B.799
2007-59
Amplified by
Notice 2007-74, 2007-37 I.R.B.585
Treasury Decisions:
8073
Removed by
T.D. 9349, 2007-39 I.R.B.668
9321
Corrected by
Ann. 2007-68, 2007-32 I.R.B.348
Ann. 2007-78, 2007-38 I.R.B.663
9330
Corrected by
Ann. 2007-80, 2007-38 I.R.B.667
Treasury Decisions— Continued:
9332
Corrected by
Ann. 2007-83, 2007-40 I.R.B.752
Ann. 2007-84, 2007-41 I.R.B.797
9334
Corrected by
Ann. 2007-93, 2007-42 I.R.B.858
9340
Corrected by
Ann. 2007-102, 2007-44 I.R.B.922
9353
Corrected by
Ann. 2007-103, 2007-44 I.R.B.923
2007–46 I.R.B.vNovember 13, 2007

November 13, 20072007–46 I.R.B.

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