Internal Revenue Bulletin 2008-25 (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
8-25
June 23, 2008
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 2008–30, page 1156.
Accounting methods; contributions to capital; public util-
ity.This ruling provides that a public utility’s change from treat-
ing certain payments received from customers as nontaxable
contributions to capital under section 118(c) of the Code to
treating the payments as taxable customer connection fees is
a change in method of accounting under sections 446(e) and
481.
T.D. 9399, page 1157.
Final regulations under section 7874 of the Code provide for
determining whether a foreign corporation is a surrogate for-
eign corporation when the foreign corporation is part of an ex-
panded affiliated group.
REG–106897–08, page 1175.
Proposed regulations under section 274(i) of the Code provide
guidance relating to qualified nonpersonal use vehicles. The
regulations also add clearly marked public safety officer vehi-
cles as a new type of qualified nonpersonal use vehicle.
Notice 2008–51, page 1163.
This notice provides guidance on qualified Health Savings Ac-
count (HSA) funding distributions from an Individual Retirement
Account (IRA) to an HSA.
Notice 2008–52, page 1166.
This notice provides guidance on the contribution limits for
Health Savings Accounts (HSAs) for 2007 and later years.
Notices 2004–2 and 2004–50 modified.
EXEMPT ORGANIZATIONS
Announcement 2008–55, page 1178.
The IRS has revoked its determination that Texas Reinvest-
ment Corporation II of San Antonio, TX; Zebra Project, Inc., of
Atlanta, GA; Alliance for Science Health and Environment, Inc.,
of Melbourne Beach, FL; Gymfest, Inc., of West Seneca, NY;
Estrellas Nacientes, Inc., of New York, NY; Dunardry Heritage
Association of Rickman, TN; and Students Are For Education,
Inc., of Tallahassee, FL, qualify as organizations described in
sections 501(c)(3) and 170(c)(2) of the Code.
GIFT TAX
REG–143716–04, page 1170.
Proposed regulations under section 7477 of the Code provide
rules for determining whether a donor may petition the Tax
Court for a declaratory judgment with respect to the value of
a gift, for gift tax purposes, where the gift does not generate
any current gift tax liability. A public hearing is scheduled for
October 16, 2008.
ADMINISTRATIVE
REG–143716–04, page 1170.
Proposed regulations under section 7477 of the Code provide
rules for determining whether a donor may petition the Tax
Court for a declaratory judgment with respect to the value of
a gift, for gift tax purposes, where the gift does not generate
any current gift tax liability. A public hearing is scheduled for
October 16, 2008.
(Continued on the next page)
Finding Lists begin on page ii.

REG–106897–08, page 1175.
Proposed regulations under section 274(i) of the Code provide
guidance relating to qualified nonpersonal use vehicles. The
regulations also add clearly marked public safety officer vehi-
cles as a new type of qualified nonpersonal use vehicle.
June 23, 20082008–25 I.R.B.

The IRS Mission
Provide Americ
a’s taxpayers top quality service by helping them
understand an
d meet their tax responsibilities and by applying
the tax law with
integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
2008–25 I.R.B.June 23, 2008

June 23, 20082008–25 I.R.B.
Place missing child here.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 446.—
General Rule
for Methods of
Accounting
26 CFR 1.446–1: General rule for methods of ac-
counting.
(Also § 118.)
Accounting methods; contributions
to capital; public utility.This ruling pro-
vides that a public utility’s change from
treating certain payments received from
customers as nontaxable contributions to
capital under section 118(c) of the Code to
treating the payments as taxable customer
connection fees is a change in method of
accounting under sections 446(e) and 481.
Rev. Rul. 2008–30
ISSUE
Does the change from (1) treating cer-
tain payments received from customers as
contributions to capital under § 118(c) of
the Internal Revenue Code to (2) treating
the payments as taxable customer connec-
tion fees constitute a change in method of
accounting within the meaning of §§ 446
and 481 and the regulations thereunder?
FACTS
Ucorp
oration is a regulated public util-
ity th
at operates and maintains sanitary
sewer
lines and sewerage disposal plants.
Uchar
ges a “customer connection fee” to
certa
in customers whenUmust build lines
to ex
tend its existing infrastructure to the
cust
omer in order to start sewerage dis-
posa
l services. These customer connection
fees
financeU’s construction of sewer line
exte
nsions to the customer.
In Ye
ars 1, 2 and 3,Utreats the cus-
tome
r connection fees as contributions in
aid o
f construction (CIACs) within the
mea
ning of § 118(c) and excludes the
cus
tomer connection fees fromU’s gross
inc
ome as contributions to capital under
§11
8(a). As required by § 118(c)(4),U
tak
es an adjusted basis of zero in the sewer
li
ne extensions that it constructs and fi-
na
nces with the customer connection fees.
In
Year 4,Uconcludes that its customer
co
nnection fees are properly includible in
gr
oss income because the exclusion pro-
vi
ded by § 118(c) does not apply. Begin-
ning in Year 4,
Uincludes customer con-
nection fees i
n gross income and capital-
izes the cost o
f the sewer line extensions
constructed
and financed with these fees.
Uclaims depr
eciation deductions for the
capitalized
cost of these sewer line exten-
sions over th
e recovery period prescribed
under § 168.
LAW
Section 61(
a) and the regulations there-
under defi
ne gross income to mean, except
as otherwi
se provided, all income from
whatever s
ource derived.
Section 11
8(a) provides that, in the case
of a corpor
ation, gross income does not
include an
y contribution to the capital of
the taxpa
yer.
Section 1
18(c)(1) provides that the
term “con
tribution to the capital of the
taxpayer
” includes certain amounts re-
ceived by
regulated public water and
sewerage
disposal utilities as a CIAC.
Under § 11
8(c)(4), the adjusted basis of
any prop
erty acquired with a CIAC that
is exclu
dable from gross income under
§118(c)
is zero.
Section
446(e) requires a taxpayer who
changes
its method of accounting to secure
the cons
ent of the Commissioner before
comput
ing its taxable income under the
new met
hod. Under § 1.446–1(e)(2)(ii)(a)
of the I
ncome Tax Regulations, a change
in a met
hod of accounting includes a
change
in the overall plan of account-
ing fo
r gross income or deductions or
achan
ge in the treatment of any ma-
teria
l item used in the overall plan of
accou
nting. A material item is any item
the tr
eatment of which affects the proper
time
for including income or taking a de-
duct
ion. § 1.446–1(e)(2)(ii)(a). The key
char
acteristic of a material item “is that it
dete
rmines the timing of income or deduc-
tion
s.”Knight-Ridder Newspapers, Inc. v.
Unit
ed States, 743 F.2d 781, 798 (11th Cir.
198
4).
The r
elevant question is generally
whe
ther the treatment of the item per-
man
ently changes the amount of taxable
inc
ome over the taxpayer’s lifetime. If
the
treatment does not permanently affect
the
taxpayer’s lifetime taxable income,
but does or cou
ld change the taxable year
in which taxab
le income is reported, the
treatment aff
ects timing and is therefore a
method of acc
ounting.See Knight-Ridder
Newspapers,
Inc., 743 F.2d at 799;Peoples
Bank & Trust C
o. v. Commissioner,415
F.2d 1341, 13
44 (7th Cir. 1969);Primo
Pants Co. v.
Commissioner, 78 T.C. 705,
723 (1982);
Rev. Proc. 91–31, 1991–1
C.B. 566, § 3
.02.
A change in m
ethod of accounting
does not inc
lude an adjustment of any
item of inco
me or deduction that does
not affect
the proper time for including
the item in
income or taking a deduction.
§ 1.446–1(
e)(2)(ii)(b). For example, cor-
rections o
f items that are deducted as inter-
est or sala
ry, but that are in fact payments
of divide
nds, and corrections of items that
are deduc
tedasbusinessexpenses,but
that are i
n fact personal expenses, are not
changes i
n method of accounting.Id.
Section 4
81(a) requires a taxpayer to
take into
account any adjustment to taxable
income ne
cessary to prevent amounts from
being du
plicated or omitted as a result of a
change i
n method of accounting.
InSalin
eSewerCo.v.Commissioner,
T.C. Mem
o. 1992–236, the Tax Court
held tha
t a change from excluding cus-
tomer co
nnection fees from gross income,
as nont
axable CIACs under § 118, to in-
cludin
g the customer connection fees in
gross i
ncome was not a change in method
of acco
unting because, according to the
court,
“no timing issue [wa]s involved.”
63 T.C
.M. (CCH) 2834. The taxpayer in
Salin
eSewertreated customer connection
fees a
s an excludable CIAC under § 118,
which
requiredanadjustedbasisofzeroin
the im
provements constructed with these
fees
. Upon examination of the taxpayer’s
inco
me tax return, the Service determined
that
the customer connection fees did not
qual
ify for the exclusion under § 118. The
Serv
ice proposed to change the taxpayer’s
meth
od of accounting to include customer
con
nection fees in income and increase
the
depreciable basis of the improvements
con
structed with these fees.
In r
eaching its conclusion that the
cha
nge imposed by the Service did not
con
stitute a change in method of account-
ing
, the court analyzed the receipt of the
2008–25 I.R.B.1156June 23, 2008

customer connection fees independently
from the effect on depreciable basis of
the improvements constructed with those
fees. The court concluded that a change
from excluding customer connection fees
from income to including them in income
gives rise to a permanent difference in
lifetime income, not a timing difference,
and therefore is not a change in accounting
method. Similarly, the court concluded
that a change in the depreciable basis of
the improvements results in a permanent
difference in the amount of depreciation
deductions allowed, and that this change
is not a change in accounting method. The
court did not consider the effect of the
combined changes in income, basis, and
depreciation on the taxpayer’s lifetime
taxable income.See also Florida Progress
Corp. v. United States, 156 F.Supp.2d
1265, 1276 (M.D. Fla. 1999) (relying
uponSaline Sewerand holding that the
change in treatment of customer connec-
tion fees was not a change in method of
accounting),aff’d per curiam on other
issues, 264 F.3d 1313 (11th Cir. 2001).
ANALYSIS
WhetherU’s change to the treatment of
its customer connection fees is a change
in method of accounting depends upon
whether the change permanently affects
U’s lifetime taxable income. IfU’s change
has no effect on its lifetime taxable in-
come, but affects only the timing of that
income, then it is a change in method of
accounting. “Taxable income,” as defined
in § 63, means gross income minus allow-
able deductions. Therefore, an analysis
of the effect ofU’s change on lifetime
taxable income must consider the effect
on both income and deductions.
Section 118 affects both the gross
income and the deduction of CIACs qual-
ifying under § 118(c). Section 118(c)(1)
excludes the customer connection fees
from gross income, and § 118(c)(4) man-
dates a depreciable basis of zero for the
improvements constructed with these cus-
tomer connection fees, resulting in no
depreciation or other deduction. The net
effect of § 118(c) is to deny depreciation
deductions for infrastructure developed
with funds previously excluded from in-
come.SeeSmall Business Job Protection
Act of 1996, H.R. Rep. No. 104–737, at
316 (1996) (indicating that the designa-
tion “contributions in aid of construction”
impacts both gross income and basis).
U’s lifetime taxable income with re-
spect to its customer connection fees is
the same whether those fees are treated
as (1) gross income followed by allow-
able depreciation deductions or (2) non-
taxable CIACs resulting in zero basis and
no depreciation deductions. Under its ex-
isting treatment,Uexcludes the customer
connection fees from gross income and
can take no depreciation deductions be-
cause the customer connection fees are
not included in the depreciable basis of
the assets constructed with the fees.See
§ 118(c). Under its contemplated treat-
ment,Uincludes the customer connection
fees in gross income and may take depre-
ciation deductions (over the assets’ recov-
ery periods) because the customer connec-
tion fees create depreciable basis in the as-
sets constructed with the fees. Thus,U’s
lifetimetaxableincomewillbethesame
under either treatment because there are
corresponding and offsetting changes in
U’s gross income and deductions. Accord-
ingly,U’s change from treating customer
connection fees as nontaxable CIACs un-
der § 118(c) to treating the payments as
includible in gross income constitutes a
change in method of accounting within the
meaning of §§ 446 and 481 and the regula-
tions thereunder.See Johnson v. Commis-
sioner, 108 T.C. 448, 495 (1997) (both in-
come and related offsetting deductions are
considered when determining if lifetime
income is affected),aff’dinpart,rev’din
part,184 F.3d 786, 790 (8th Cir. 1999);
Rankin v. Commissioner, 138 F.3d 1286,
1289 (9th Cir. 1998) (combined effect of
current-year deductions and offsetting in-
come in future years must be considered in
determining whether a change in method
of accounting occurs);see alsoRev. Proc.
2002–9, 2002–1 C.B. 327, §§ 1.01, 1A.01
of the APPENDIX.
The legislative history of § 118 supports
this conclusion. When originally enacted,
§ 118 functioned much as it does today:
it allowed certain regulated public utilities
to exclude CIACs from gross income (and
required a reduction in depreciable basis).
The legislative history is clear that Con-
gress viewed the exclusion as a method of
accounting.SeeS. Rept. No. 94–938,
at 436 (1976) (“If a taxpayer wishes to
change its present practice of treating con-
tributions in aid of construction to a prac-
tice which is consistent with this provi-
sion, such change constitutes a change in
method of accounting”). The exclusion
for CIACs was repealed but reenacted in
1996. In reenacting the exclusion, Con-
gress did not address or revisit the question
of whether a change to or from § 118 treat-
ment is a change in method of account-
ing.SeeH.R. Rep. No. 104–737, at 316
(1996).
HOLDING
A change from treating certain pay-
ments received from customers as non-
taxable contributions to capital under
§ 118(c) to treating the payments as tax-
able customer connection fees is a change
in method of accounting under §§ 446 and
481. Similarly, a change from treating cus-
tomer connection fees as taxable customer
connection fees to nontaxable contribu-
tions to capital under § 118(c) constitutes
a change in method of accounting under
§§ 446 and 481.
For the foregoing reasons, the Service
does not acquiesce in the holdings on
this issue inSaline Sewer Co. v. Com-
missioner, T.C. Memo. 1992–236, and
Florida Progress Corp. v. United States,
156 F.Supp.2d 1265 (M.D. Fla. 1999).
DRAFTING INFORMATION
The principal author of this revenue rul-
ing is Karla M. Meola of the Office of As-
sociate Chief Counsel (Income Tax & Ac-
counting). For further information regard-
ing this revenue ruling, contact Ms. Meola
at (202) 622–4930 (not a toll-free call).
Section 7874.—Rules
Relating to Expatriated
Entities and Their Foreign
Parents
26 CFR 1.7874–1: Disregard of affiliate-owned
stock.
T.D. 9399
DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Guidance Under Section 7874
for Determining the Ownership
June 23, 200811572008–25 I.R.B.

Percentage in the Case of
Expanded Affiliated Groups
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final regulation.
SUMMARY: This document contains final
regulations under section 7874 of the Inter-
nal Revenue Code (Code) relating to the
disregard of certain affiliate-owned stock
in determining whether a corporation is a
surrogate foreign corporation under sec-
tion 7874(a)(2)(B) of the Code.
DATES:Effective Date:These regulations
are effective on May 20, 2008.
Applicability Date:For the date of ap-
plicability, see §1.7874–1(g).
FOR FURTHER INFORMATION
CONTACT: Milton Cahn, 202–622–3860
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 7874 provides rules for expa-
triated entities and their surrogate foreign
corporations. An expatriated entity is de-
fined in section 7874(a)(2)(A) as a do-
mestic corporation or partnership with re-
spect to which a foreign corporation is
a surrogate foreign corporation, and any
U.S. person related (within the meaning
of section 267(b) or section 707(b)(1)) to
such domestic corporation or partnership.
Generally, a foreign corporation is a sur-
rogate foreign corporation under section
7874(a)(2)(B) if, pursuant to a plan or a se-
ries of related transactions, certain condi-
tions are met. One such condition depends
on the percentage of owner continuity in
the foreign corporation after the acquisi-
tion. This condition is satisfied if, after the
acquisition, at least 60 percent of the stock
(byvoteorvalue)oftheforeigncorpora-
tion is held (in the case of an acquisition
with respect to a domestic corporation) by
former shareholders of the domestic cor-
poration by reason of holding stock in the
domestic corporation, or (in the case of an
acquisition with respect to a domestic part-
nership) by former partners of the domes-
tic partnership by reason of holding a cap-
ital or profits interest in the domestic part-
nership. See section 7874(a)(2)(B)(ii).
The treatment of expatriated entities
and surrogate foreign corporations varies
depending on this percentage (ownership
fraction). If the ownership fraction is 80
percent or more, the surrogate foreign
corporation is treated as a domestic corpo-
ration for all purposes of the Code. If the
ownership fraction is 60 percent or more
(but less than 80 percent), the surrogate
foreign corporationis treated as a foreign
corporation, but certain income or gain
recognized by the expatriated entity gen-
erally cannot be offset by net operating
losses or credits from the first date prop-
erties are acquired pursuant to the plan
through the end of the 10-year period fol-
lowing the completion of the acquisition.
Section 7874(c)(2)(A) provides that
stock held by members of the “expanded
affiliated group” which includes the for-
eign corporation is not taken into account
for purposes of the ownership fraction
(affiliate-owned stock rule). Section
7874(c)(1) defines the term expanded
affiliated group (EAG) as an affiliated
group defined in section 1504(a), but
without regard to the exclusion of foreign
corporations in section 1504(b)(3) and
with a reduction of the 80 percent own-
ership threshold of section 1504(a) to a
more-than-50 percent threshold.
Section 7874(g) provides that “[t]he
Secretary shall provide such regulations
as are necessary to carry out this sec-
tion, including regulations providing for
such adjustments to the application of this
section as are necessary to prevent the
avoidance of the purposes of this section,
including the avoidance of such purposes
through . . . the use of related persons,
pass-through or other noncorporate enti-
ties, or other intermediaries . . . .” Section
7874(c)(6) provides that “[t]he Secretary
shall prescribe such regulations as may be
appropriate to determine whether a corpo-
ration is a surrogate foreign corporation,
including regulations . . . to treat stock as
not stock.”
On December 28, 2005, a temporary
regulation (T.D. 9238, 2006–1 C.B. 408)
was published in the Federal Register (70
FR 76685) that related to the disregard
of affiliate-owned stock under section
7874(c)(2)(A). A notice of proposed rule-
making (REG–143244–05, 2006–1 C.B.
419) cross-referencing the temporary
regulation was published in the Federal
Register for the same day (70 FR 76732).
No public hearing was requested or held.
Written and electronic comments respond-
ing to the notice of proposed rulemaking
were received. After consideration of all
the comments, the proposed regulation
is adopted, as amended by this Treasury
decision, as final, and the corresponding
temporary regulation is removed. The
revisions are discussed below.
Summary of Comments and Revisions
A.Temporary and Proposed Regulations
Treasury regulation §1.7874–1T pro-
vides guidance under the affiliated-owned
stock rule. Generally, §1.7874–1T pro-
vides that stock owned by members of an
EAG is excluded from both the numer-
ator and denominator of the ownership
fraction. However, affiliate-owned stock
is excluded from the numerator of the
ownership fraction, but is included in the
denominator of the ownership fraction,
in two instances: (1) certain transactions
occurring as part of an internal group re-
structuring involving a domestic entity;
and (2) certain acquisitive business trans-
actions between unrelated parties where
the former shareholders or partners of the
domestic entity have aminority interest in
the acquired properties after the acquisi-
tion.
With respect to internal group restruc-
turings, the special rule applies where the
common parent of the EAG after the acqui-
sition owns directly orindirectly at least 80
percent of the domestic entity before the
acquisition, and non-members of the EAG
hold, by reason of holding an interest in the
domestic entity, no more than 20 percent of
the stock (by vote or value) of the foreign
corporation after the acquisition. With
respect to transactions between unrelated
parties, the special rule applies where, after
the acquisition, the former owners of the
domestic entity do not own, in the aggre-
gate, directly or indirectly, more than 50
percent of the stock (by vote or value) of
any member of the EAG.
Section 1.7874–1T also provides guid-
ance regarding the treatment of certain
“subsidiary-owned” interests (which in-
clude so-called “hook stock”) for purposes
of the exceptions to the general application
of the ownership fraction. These rules ap-
ply to stock or partnership interests owned
by an entity in which at least 50 percent
2008–25 I.R.B.1158June 23, 2008

of the stock (by vote or value), or at least
50 percent of the capital or profits inter-
est, is owned directly or indirectly by the
issuer of such stock or by the partnership
in question.
These rules are included in the final reg-
ulations, with revisions as noted below.
B.Section 1504(a)(4) Preferred Stock
Both the numerator and denominator of
the ownership fraction take into account
stock described in section 1504(a)(4) (so-
called “plain vanilla preferred stock”). For
purposes of determining whether an af-
filiated group constitutes an EAG, how-
ever, such stock is not treated as stock
because of the reference to the rules of
section 1504(a). See section 7874(c)(1).
Commentators have noted the inconsistent
treatment of plain vanilla preferred stock
in section 7874. In addition, they point
out that, due to the debt-like nature of such
stock, it should not be treated as stock for
any purpose of section 7874, including the
ownership fraction.
The Treasury Department and the IRS
note that Congress has expressly stated
that section 1504(a)(4) preferred stock is
not treated as stock in several Code pro-
visions, including certain provisions of
section 7874, as noted above. See, for
example, sections 243(c)(1), 246A(c)(4),
and 355(g)(2)(B)(iv)(III). In contrast,
Congress specifically chose not to ex-
clude plain vanilla preferred stock from
the ownership fraction. Although sec-
tion 7874 grants the Treasury Department
and the IRS the authority to treat stock
as not stock when such treatment would
further the purposes of section 7874, the
legislative history to section 7874 does
not suggest that the treatment of plain
vanilla preferred stock in the ownership
fraction is inconsistent with the purposes
of section 7874. The Treasury Department
and the IRS therefore decline to exercise
the regulatory authority to exclude plain
vanilla preferred stock in the calculation
of the ownership fraction. Accordingly,
all classes of stock, including plain vanilla
preferred stock, areincluded in the own-
ership fraction and treated as stock for
purposes of section 7874, other than for
purposes of determining the EAG.
The Treasury Department and the IRS
considered whether the treatment of plain
vanilla preferred stock in the EAG defi-
nition should be made consistent with the
treatment of plain vanilla preferred stock
in the ownership fraction. After study-
ing the issue, the Treasury Department and
the IRS believe that taking plain vanilla
preferred stock into account for purposes
of the definition of an EAG may facili-
tate the avoidance of the rules regarding
EAGs. Consequently, the Treasury De-
partmentandtheIRSalsodeclinetoex-
ercise regulatory authority to amend the
treatment of plain vanilla preferred stock
for purposes of defining an EAG.
The Treasury Department and the IRS
will, however, continue to monitor the use
of vanilla preferred stock and its treatment
under section 7874.
C.Internal Restructuring Exception
Treasury regulation §1.7874–1T(c)(1)
provides that stock held by a member of an
EAG is included in the denominator, but
not the numerator, of the ownership frac-
tion if two conditions are satisfied. First,
the common parent of the EAG must own
directly or indirectly at least 80 percent of
the stock (by vote or value) or the capital or
profits interest in the domestic entity prior
to the acquisition. Second, following the
acquisition non-members of the EAG, by
reason of holding stock or a capital or prof-
its interest in the domestic entity, must not
ownmorethan20percentofthestock(by
vote or value) of the foreign corporation.
One commentator suggested that the re-
quirement should merely look to the stock
ownership of the common parent of the
EAG both before and after the acquisi-
tion. The Treasury Department and the
IRS agree with this suggestion. In addi-
tion, the Treasury Department and the IRS
have determined that the rule should be
modified to consider the stock by vote and
value held by the common parent of the
EAG. Consequently, stock of a member of
an EAG is included in the denominator, but
not the numerator of the ownership frac-
tion, if the common parent of the EAG held
directly or indirectly at least 80 percent of
the stock (by vote and value) or the capi-
tal and profits interest, as applicable, of the
domestic entity before the acquisition, and
holds at least 80 percent of the stock (by
vote and value) of the foreign acquiring
corporation after theacquisition. Corre-
sponding revisions have been made to the
examples.
D.Hook Stock
One commentator requested clarifica-
tion of the wording of §1.7874–1T(d) re-
garding the treatment of hook stock. In re-
sponse to this comment, the provision is
clarified to exclude hook stock from both
the numerator and denominator of the frac-
tions that are used to determine whether
the exceptions to the general rule apply
(that is, the determination of whether the
acquisition resulted in an internal group re-
structuring or a loss of control of the do-
mestic entity).
Regulations Addressing Avoidance of
the Purposes of Section 7874
The Treasury Department and the IRS
understand that taxpayers may be taking
the position that a foreign corporation that
acquires substantiallyall of the properties
of a domestic corporation in a title 11 or
similar case may not be a surrogate foreign
corporation because it fails to satisfy the
stock ownership requirement described in
section 7874(a)(2)(B)(ii). These taxpayers
maintain that creditors of the domestic
corporation, which typically receive all of
the stock of the acquiring foreign corpora-
tion issued in the title 11 or similar case,
are not considered former shareholders
of the domestic corporation for purposes
of section 7874(a)(2)(B)(ii). Thus, they
take the position that the creditors do not
hold the stock of the foreign acquiring
corporation received by reason of holding
stock in the domestic corporation. Under
this position, there often would be little
or no continuity of ownership for pur-
poses of section 7874(a)(2)(B)(ii) and, as
a result, the foreign corporation would
not be a surrogate foreign corporation.
Taxpayers take this position even though
the creditors, in substance, are the equity
owners of the domestic corporation at the
time of the title 11 or similar case and
acquire the stock issued by the acquir-
ing foreign corporation by reason of their
status as creditors of the domestic corpo-
ration.Helvering v. Alabama Asphaltic
Limestone Co., 315 U.S. 179 (1942).
The Treasury Department and the IRS
disagree with this characterization under
current law and are considering issuing
regulations to clarify the proper applica-
tion of the rules to such transactions. Sec-
tion 7874(c)(6) provides that the Secretary
June 23, 200811592008–25 I.R.B.

shall prescribe such regulations as may be
appropriate to determine whether a corpo-
ration is a surrogate foreign corporation,
including regulations: (i) to treat warrants,
options, contracts to acquire stock, con-
vertible debt interests, and other similar in-
terests as stock, and (ii) to treat stock as
not stock. These regulations would pro-
vide, as appropriate, that for purposes of
section 7874(a)(2)(B)(ii), creditors of a do-
mestic corporation emerging from a title
11 or similar case are treated as former
shareholders of such corporation. The reg-
ulations would further provide, as appro-
priate, that for this purpose, stock issued by
the foreign acquiring corporation to such
creditors is held by reason of holding stock
in the domestic corporation. Similar rules
may apply to acquisitions of substantially
all the properties constituting a trade or
business of a domestic partnership.
The Treasury Department and the IRS
also understand that some taxpayers may
be taking the position that, where two or
more domestic entities described in section
7874(a)(2)(B)(i) are acquired pursuant to
an overall plan, section 7874(a)(2)(B) is
applied separately to each such domestic
entity. For example, taxpayers may take
this position where a foreign corporation
is formed to acquire, in exchange for its
stock, 100 percent of the stock of two
domestic corporations that have approxi-
mately the same value. In such a case, af-
ter the acquisition the former sharehold-
ers of the two domestic corporations, in
the aggregate, would hold 100 percent of
the stock of the foreign acquiring corpo-
ration by reason of holding stock in the
domestic corporations. However, the tax-
payers may claim that the ownership frac-
tion applies separately to each acquisition
such that the ownership fraction would
be approximately 50 percent, rather than
100 percent. Under this interpretation,
the acquiring foreign corporation would
not be a surrogate foreign corporation be-
cause the condition described in section
7874(a)(2)(B)(ii) would not be satisfied.
The Treasury Department and the IRS
disagree with this interpretation under
current law and are considering issuing
regulations to clarify the proper appli-
cation of the rules. These regulations
would clarify that the references in section
7874(a)(2)(B) to “a domestic corporation”
shall, as appropriate, mean “one or more
domestic corporations” where the proper-
ties of such corporations are, directly or
indirectly, acquired pursuant to the same
plan. Similar clarifications will be made
with respect to acquisitions involving
properties of domestic partnerships.
Finally, the Treasury Department and
the IRS understand that some taxpayers
may be attempting to avoid the applica-
tion of section 7874 by structuring acquisi-
tions of domestic entities by foreign corpo-
rations through the use of intervening part-
nerships. For example, a foreign acquir-
ing corporation may issue new shares to a
newly formed domestic partnership in ex-
change for a 99 percent interest in the part-
nership. The shares transferred to the do-
mestic partnership constitute 70 percent of
the outstanding stock of the foreign acquir-
ing corporation. An affiliate of the foreign
acquiring corporation would transfer cash
or other property to the partnership for the
remaining one percent interest. The for-
eign acquiring corporation then transfers
its 99 percent interest in the domestic part-
nership to the shareholders of a domestic
corporation in exchange for 100 percent of
the stock of the domestic corporation.
The taxpayers take the position that this
transaction is not subject to section 7874
even though, in substance, the foreign ac-
quiring corporation acquired 100 percent
of the stock of the domestic corporation
and the former shareholders of the domes-
tic corporation, through their 99 percent
interest in the domestic partnership, hold
more than 60 percent of the stock of the
foreign acquiring corporation by reason of
holding stock in the domestic corporation.
Under this interpretation, which relies on
treating the partnership as an entity (rather
than as an aggregate of its partners), the
ownership fraction would be zero because
none of the foreign acquiring corporation
stock held by the partnership was held by
former shareholders of the domestic cor-
poration. Thus, section 7874 would not ap-
ply to the transaction.
The Treasury Department and the IRS
disagree with this characterization under
current law and are considering issuing
regulations to clarify the proper applica-
tion of the rules to these transactions. The
regulations would provide, as appropri-
ate, that for purposes of applying section
7874(a)(2)(B)(i) to these structures, the ex-
change of an interest in a domestic en-
tity for an interest in a partnership shall be
treated as an exchange of the interest in the
domestic entity for apro ratashare of the
assets of the partnership.
The regulations described above, which
may be issued in conjunction with the fi-
nalization of the §1.7874–2T regulations,
may be effective as of May 20, 2008.
However, no inference is intended as to
the potential applicability of other Code or
regulatory provisions, or judicial doctrines
(including substance over form) to the
transactions described above.
Effective/Applicability date
Section 1.7874–1 applies to acquisi-
tions completed on or after May 20, 2008,
subject to transition relief for certain ac-
quisitions entered into pursuant to binding
commitments. In addition, taxpayers may
elect to apply this sectiontoprioracquisi-
tions, but must apply it consistently to all
acquisitions within its scope.
Special Analyses
It has been determined that this Trea-
sury decision is not asignificant regula-
tory action as defined in Executive Order
12866. Therefore, a regulatory assessment
is not required. It has also been deter-
mined that section 553(b) of the Admin-
istrative Procedure Act (5 U.S.C. chapter
5) does not apply to these regulations and
because these regulations do not impose a
collection of information on small entities,
the provisions of the Regulatory Flexibil-
ity Act (5 U.S.C. chapter 6) do not apply.
Pursuant to section 7805(f) of the Inter-
nal Revenue Code, the notice of proposed
rulemaking preceding this regulation has
been submitted to the Chief Counsel for
Advocacy of the Small Business Admin-
istration for comments on its impact on
small business.
Drafting Information
The principal author of this regulation
isMiltonCahn,OfficeofAssociateChief
Counsel (International). However, other
personnel from the IRS and the Treasury
Department participated in its develop-
ment.
*****
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
2008–25 I.R.B.1160June 23, 2008

PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry in
numerical order to read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.7874–1 also issued under 26
U.S.C. 7874(c)(6) and (g).
§1.7874–1T [Removed]
Par. 2. Section 1.7874–1T is removed.
Par. 3. Section 1.7874–1 is added to
read as follows:
§1.7874–1 Disregard of affiliate-owned
stock.
(a)Scope. Section 7874(c)(2)(A) pro-
vides that stock of the foreign corpora-
tion referred to in section 7874(a)(2)(B)
held by members of the expanded af-
filiated group (EAG) that includes such
foreign corporation shall not be taken
into account in determining ownership
for purposes of section 7874(a)(2)(B)(ii).
This section provides rules under sec-
tion 7874(c)(2)(A). The rules provided
in this section are also subject to section
7874(c)(4).
(b)General rule. Except as provided in
paragraph (c) of this section, for purposes
of the ownership percentage determina-
tion required by section 7874(a)(2)(B)(ii),
stock held by one or more members of
the EAG is not included in either the nu-
merator or the denominator of the fraction
that determines such percentage (owner-
ship fraction).
(c)Exceptions to general rule—(1)
Overview. Stock held by one or more
members of the EAG shall be included
in the denominator, but not in the nu-
merator, of the ownership fraction, if the
acquisition qualifies as aninternal group
restructuringor results in aloss of control,
as described in paragraph (c)(2) and (c)(3)
of this section.
(2)Internal group restructuring.For
purposes of paragraph (c)(1) of this sec-
tion, an acquisition qualifies as an internal
group restructuring if:
(i) Before the acquisition, 80 percent or
more of the stock (by vote and value) or
the capital and profits interest, as appli-
cable, of the domestic entity was held di-
rectly or indirectly by the corporation that
is the common parent of the EAG after the
acquisition; and
(ii) After the acquisition, 80 percent or
more of the stock (by vote and value) of
the acquiring foreign corporation is held
directly or indirectly by such common par-
ent.
(3)Loss of control. For purposes of
paragraph (c)(1) of this section, the ac-
quisition results in a loss of control if af-
ter the acquisition, the former sharehold-
ers or partners of the domestic entity do
not hold, in the aggregate, directly or in-
directly, more than 50 percent of the stock
(by vote or value) of any member of the
EAG.
(d)Treatment of certain hook stock.
This paragraph applies to stock of a cor-
poration that is held by an entity in which
at least 50 percent of the stock (by vote or
value) or at least 50 percent of the capital
or profits interest, as applicable, in such
entity, is held directly or indirectly by
the corporation. The stock to which this
paragraph applies shall not be included
in either the numerator or denominator of
any fraction for the following purposes:
(1) For applying paragraph (c)(1) of this
section; and
(2) For determining whether the acqui-
sition qualifies as an internal group re-
structuring (described in paragraph (c)(2)
of this section) or results in a loss of con-
trol (described in paragraph (c)(3) of this
section).
(e)Stock held by a partnership.For
purposes of section 7874, stock held by
a partnership shall be considered as held
proportionately by its partners.
(f)Examples. The application of this
section is illustratedby the following ex-
amples. It is assumed that all transactions
in the examples occur after March 4, 2003.
In all the examples, if an entity or other
person is not described as either domestic
or foreign, it may be either domestic or for-
eign. In addition, each entity has only a
single class of equityoutstanding. Finally,
the analysis of the following examples is
limited to a discussion of issues under sec-
tion 7874, even though the examples may
raise other issues (for example, under sec-
tion 367).
Example 1. Disregard of hook stock—(i)Facts.
USS, a domestic corporation, has 100 shares of stock
outstanding. USS’s stock is held by a group of indi-
viduals. Pursuant to a plan, USS forms FS, a foreign
corporation, and transfers to FS the stock of several
wholly owned foreign corporations, in exchange for
90 shares of FS stock. FS then forms Merger Sub,
a domestic corporation. Under a merger agreement
and state law, Merger Sub merges into USS, with
USS surviving the merger. In exchange for their USS
stock, the former shareholders of USS receive, in the
aggregate, 100 shares of newly issued FS stock. As a
result of the merger FS holds 100 percent of the USS
stock. USS continues to hold 90 shares of FS stock.
(ii)Analysis. FS has indirectly acquired substan-
tially all the properties held directly or indirectly by
USS pursuant to a plan. After the acquisition, the for-
mer shareholders of USS hold 100 shares of FS stock
by reason of holding stock in USS, and USS holds 90
shares of FS stock. Under paragraph (b) of this sec-
tion, the 90 shares of FS stock held by USS, a member
of the EAG, are not included in either the numerator
or the denominator of the ownership fraction. Ac-
cordingly, the ownership fraction is 100/100. If the
condition in section 7874(a)(2)(B)(iii) is satisfied, FS
is a surrogate foreign corporation which is treated as
a domestic corporation under section 7874(b).
Example 2. Internal group restructuring; wholly
owned corporation—(i)Facts. P, a corporation, owns
all 100 outstanding shares of USS, a domestic cor-
poration. USS forms FS, a foreign corporation, and
transfers all its assets to FS in exchange for all 100
shares of the stock of FS, in a reorganization de-
scribed in section 368(a)(1). P exchanges its USS
stock for FS stock under section 354.
(ii)Analysis. FS has directly acquired substan-
tially all the properties held directly or indirectly by
USS pursuant to a plan. The acquisition is an inter-
nal group restructuring described in paragraph (c)(2)
of this section because P, the common parent of the
EAG after the acquisition, held directly or indirectly
80 percent or more of the stock (by vote and value)
of USS before the acquisition, and after the acquisi-
tion, P holds directly or indirectly 80 percent or more
of the stock (by vote and value) of FS. Accordingly,
under paragraph (c)(1) of this section, the FS stock
held by P is included in the denominator, but not in
the numerator of the ownership fraction. Therefore,
the ownership fraction is 0/100. FS is not a surrogate
foreign corporation.
Example 3. Internal group restructuring; wholly
owned corporation—(i)Facts. The facts are the same
as inExample 2, except that USS does not transfer
any of its assets to FS. Instead, P transfers all 100
shares of USS stock to FS in exchange for all 100
shares of FS stock.
(ii)Analysis. FS has indirectly acquired substan-
tially all the properties held directly or indirectly by
USS pursuant to a plan. The acquisition is an inter-
nal group restructuring described in paragraph (c)(2)
of this section because P, the common parent of the
EAG after the acquisition, held directly or indirectly
80 percent or more of the stock (by vote and value) of
USS before the acquisition, and after the acquisition,
P holds directly or indirectly 80 percent or more of
the stock (by vote and value) of FS. Accordingly, un-
der paragraph (c)(1) of this section, the FS stock held
by P is included in the denominator, but not in the nu-
merator of the ownership fraction. Accordingly, the
ownership fraction is 0/100. FS is not a surrogate for-
eign corporation.
Example 4. Internal group restructuring; less
than wholly owned corporation—(i)Facts. The facts
are the same as inExample 3,exceptthatPholds85
shares of USS stock. The remaining 15 shares of USS
stock are held by A, a person unrelated to P. P and A
June 23, 200811612008–25 I.R.B.

transfer their shares of USS stock to FS in exchange
for 85 and 15 shares of FS stock, respectively.
(ii)Analysis. FS has indirectly acquired substan-
tially all the properties held directly or indirectly by
USS pursuant to a plan. The acquisition is an inter-
nal group restructuring described in paragraph (c)(2)
of this section because P, the common parent of the
EAG after the acquisition, held directly or indirectly
80 percent or more of the stock (by vote and value) of
USS before the acquisition, and after the acquisition
P holds directly or indirectly 80 percent or more of
the stock (by vote and value) of FS. Therefore, under
paragraph (c)(1) of this section, the FS stock held by
P is included in the denominator, but not in the nu-
merator of the ownership fraction. Accordingly, the
ownership fraction is 15/100. FS is not a surrogate
foreign corporation.
Example 5. Internal group restructuring excep-
tion not applicable; less than 80 percent owned cor-
poration—(i)Facts. The facts are the same as inEx-
ample 2, except that P owns 55 shares of USS stock,
and A, a person unrelated to P, holds 45 shares of USS
stock. P and A exchange their shares of USS stock for
55 shares and 45 shares of FS stock, respectively.
(ii)Analysis. FS has acquired substantially all the
properties held directly or indirectly by USS pursuant
to a plan. P, the common parent of the EAG after the
acquisition, did not hold directly or indirectly 80 per-
cent or more of the stock (by vote and value) of USS
before the acquisition, and after the acquisition P does
not hold directly or indirectly 80 percent or more of
the stock (by vote and value) of FS. Thus, the acquisi-
tion is not an internal group restructuring described in
paragraph (c)(1) of this section, and the general rule
of paragraph (b) of this section applies. Under para-
graph (b) of this section, the FS stock held by P, a
member of the EAG, is not included in either the nu-
merator or the denominator of the ownership fraction.
Accordingly, the ownership fraction is 45/45. If the
condition in section 7874(a)(2)(B)(iii) is satisfied, FS
is a surrogate foreign corporation which is treated as
a domestic corporation under section 7874(b).
Example 6. Internal group restructuring; hook
stock—(i)Facts. USS, a domestic corporation, has
100 shares of stock outstanding. P, a corporation,
holds 80 shares of USS stock. The remaining 20
shares of USS stock are held by A, a person unre-
lated to P. USS owns all 30 outstanding shares of
FS, a foreign corporation. Pursuant to a plan, FS
forms Merger Sub, a domestic corporation. Under a
merger agreement and state law, Merger Sub merges
into USS, with USS surviving the merger as a sub-
sidiary of FS. In exchange for their USS stock, P and
A, the former shareholders of USS, respectively re-
ceive 56 and 14 shares of FS stock. USS continues to
hold 30 shares of FS stock.
(ii)Analysis. FS has indirectly acquired substan-
tially all the properties held directly or indirectly by
USS pursuant to a plan. Under paragraph (b) of this
section, the shares of FS stock held by P and USS,
both of which are members of the EAG, are not in-
cluded in either the numerator or denominator of the
ownership fraction, unless the acquisition results in
an internal group restructuring or loss of control of
USS such that the exception of paragraph (c)(1) of
this section applies. In determining whether the ac-
quisition of USS is an internal group restructuring,
under paragraph (d)(2) of this section, the FS stock
held by USS is disregarded. Because P held directly
or indirectly 80 percent or more of the stock (by vote
and value) of USS before the acquisition, and after
the acquisition P holds directly or indirectly 80 per-
cent or more of the stock (by vote and value) of FS
(whendisregardingtheFSstockheldbyUSS),the
acquisition is an internal group restructuring and the
exception of paragraph (c)(1) of this section applies.
Accordingly, when determining whether FS is a sur-
rogateforeigncorporation,theFSstockheldbyPis
included in the denominator, but not the numerator
of the ownership fraction. However, under paragraph
(b) of this section, the FS stock held by USS is not in-
cluded in either the numerator or denominator of the
ownership fraction. Accordingly, the ownership frac-
tionis14/70,or20percent,sinceonlythestockheld
by A is included in the numerator, and the stock held
by both P and A is included in the denominator. Ac-
cordingly, FS is not a surrogate foreign corporation.
Example 7. Loss of control—(i)Facts. P, a corpo-
ration, holds all the outstanding stock of USS, a do-
mestic corporation. B, a corporation unrelated to P,
holds all 60 outstanding shares of FS, a foreign cor-
poration. P transfers to FS all the outstanding stock
of USS in exchange for 40 newly issued shares of FS.
(ii)Analysis. FS has indirectly acquired substan-
tially all the properties held directly or indirectly by
USS pursuant to a plan. After the acquisition, B holds
60 percent of the outstanding shares of the FS stock.
Accordingly, B, FS and USS are members of an EAG.
After the acquisition, P does not hold directly or in-
directly more than 50 percent of the stock (by vote
or value) of any member of the EAG and, thus, the
acquisition results in a loss of control described in
paragraph (c)(3) of this section. Accordingly, under
paragraph (c)(1) of this section, the FS stock owned
by B is included in the denominator, but not in the
numerator, of the ownership fraction. Therefore, the
ownership fraction is 40/100. FS is not a surrogate
foreign corporation.
Example 8. Internal group restructuring; part-
nership—(i)Facts. LLC, a Delaware limited liabil-
ity company, is engaged in the conduct of a trade or
business. P, a corporation, holds 90 percent of the in-
terests of LLC. A, a person unrelated to P, holds 10
percent of the interests of LLC. LLC has not elected
to be treated as an association taxable as a corpora-
tion. P and A transfer their interests in LLC to FS,
a newly formed foreign corporation, in exchange for
90 shares and 10 shares, respectively, of FS’s stock,
which are all of the outstanding shares of FS. Accord-
ingly, LLC becomes a disregarded entity.
(ii)Analysis. Prior to the FS’s acquisition of the
interests of LLC, LLC was a domestic partnership
for Federal income tax purposes. FS has acquired
substantially all the properties constituting a trade or
business of LLC pursuant to a plan. After the acqui-
sition, P holds 90 percent of FS’s stock (by vote and
value) by reason of holding a capital and profits in-
terest in LLC, and A holds 10 percent of FS’s stock
(by vote and value) by reason of holding a capital and
profits interest in LLC. The internal group restructur-
ing exception under paragraph (c)(2) of this section
applies, because before the acquisition, P held 80 per-
cent or more of the capital and profits interest in LLC,
and after the acquisition, P holds 80 percent or more
of the stock (by vote and value) of FS. Under para-
graph (c)(1) of this section, the FS stock held by P is
included in the denominator, but not the numerator,
of the ownership fraction. Accordingly, the owner-
ship fraction is 10/100. FS is not a surrogate foreign
corporation.
(g)Effective/applicability date. Except
as otherwise provided in this paragraph,
this section shall apply to acquisitions
completed on or after May 20, 2008. This
section shall not, however, apply to an
acquisition that was completed on or after
May 20, 2008, provided such acquisition
was entered into pursuant to a written
agreement which was (subject to custom-
ary conditions) binding prior to May 20,
2008, and at all times thereafter (binding
commitment). For purposes of the pre-
ceding sentence, a binding commitment
shall include entering into options and
similar interests in connection with one
or more written agreements described in
the preceding sentence. Notwithstanding
the general application of this paragraph,
taxpayers may elect to apply this section
to prior acquisitions, but must apply it
consistently to all acquisitions within its
scope.
LindaE.Stiff,
Deputy Commissioner for
Services and Enforcement.
Approved May 8, 2008.
Eric Solomon,
Assistant Secretary of
theTreasury(TaxPolicy).
(Filed by the Office of the Federal Register on May 19, 2008,
8:45 a.m., and published in the issue of the Federal Register
for May 20, 2008, 73 F.R. 29054)
2008–25 I.R.B.1162June 23, 2008

Part III. Administrative, Procedural, and Miscellaneous
Health Savings Accounts
Notice 2008–51
Section 307 of the Health Opportunity
Patient Empowerment Act of 2006 (the
Act) added § 408(d)(9) to the Internal Rev-
enue Code. The Act is part of the Tax Re-
lief and Health Care Act of 2006, enacted
December 20, 2006, Pub. L. No. 109–432.
This notice provides guidance on a quali-
fied HSA funding distribution from an in-
dividual’s Individual Retirement Account
(IRA) or Roth IRA to a Health Savings
Account (HSA). The qualified HSA fund-
ing distribution is a one-time transfer from
an individual’s IRA to his or her HSA and
generally excluded from gross income and
is not subject to the 10 percent additional
taxunder§72(t).
BACKGROUND
Eligible individuals
Generally, only eligible individuals (as
defined in § 223(c)(1)) may contribute to
HSAs. Maximum annual HSA contribu-
tions are based on an individual’s eligibil-
ity, age, and health plan coverage.
General rules on taxation of distributions
from IRAs
A distribution from an IRA under § 408
generally is included in gross income. If an
IRA owner made nondeductible contribu-
tions to the IRA, those contributions are re-
coveredonapro-ratabasis and the distri-
bution is partly included in and partly ex-
cluded from gross income under the rules
of § 408(d) and § 72(e)(8).
A nonqualified distribution from a Roth
IRA under § 408A is included in gross in-
come only to the extent that earnings are
distributed. A qualified Roth IRA distribu-
tion (as defined in § 408A(d)) is excluded
from gross income.
If a distribution from an IRA or Roth
IRA is made before the IRA or Roth IRA
account owner attains age 59½, the distri-
bution also is subject to a 10 percent addi-
tional tax under § 72(t) unless an exception
applies. These exceptions include distri-
butions made on account of death or dis-
ability, and distributions made as part of a
series of substantially equal periodic pay-
ments for the life expectancy of the IRA
holder.
HEALTH OPPORTUNITY PATIENT
EMPOWERMENT ACT OF 2006
Tax treatment of qualified HSA funding
distributions
Section 408(d)(9) provides, in general,
that a qualified HSA funding distribution
from an individual’s IRA or Roth IRA to
that individual’s HSA is not included in
gross income, if the individual is an eli-
gible individual under § 223(c)(1). More-
over, notwithstanding thepro-ratabasis
recovery rules under § 72, for purposes of
determining the basis in any amount re-
maining in an IRA or Roth IRA follow-
ing a qualified HSA funding distribution,
the qualified HSA funding distribution is
treated as included in gross income to the
extent that such amount does not exceed
the aggregate amount which would have
been so included if there were a total distri-
bution from the IRA or Roth IRA owner’s
accounts. For example, suppose an indi-
vidual who has $200 of basis in an IRA
with a fair market value of $2,000 makes
a qualified HSA funding distribution of
$1,500 from the IRA. Immediately after
the qualified HSA funding distribution, the
individual retains $200 of basis in an IRA
that has a fair market value of $500.
If a qualified HSA funding distribution
from an individual’s IRA or Roth IRA ex-
ceeds the aggregate amount which would
have been included in gross income if there
were a total distribution from that indi-
vidual’s IRA or Roth IRA accounts, the
individual’s basis in the excess amount
(i.e., the amount that would have been ex-
cluded from gross income in a distribution
to which § 408(d)(9) did not apply) does
not carry over to the HSA.
A qualified HSA funding distribution
is not subject to the 10 percent additional
tax under § 72(t). However, if the qual-
ified HSA funding distribution results in
a modification of a series of substantially
equal periodic payments that, prior to the
modification, qualify for the exception
to the 10 percent additional tax under
§ 72(t)(2)(A)(iv), and such modification
results in the imposition of the recapture
tax under the rules of § 72(t)(4), the re-
capture tax applies to the payments made
before the date of the qualified HSA fund-
ing distribution.
The amount contributed to the HSA
through a qualified HSA funding dis-
tribution is not allowed as a deduction
and counts against the individual’s max-
imum annual HSA contribution for the
taxable year of the distribution. In addi-
tion, the taxability of these distributions
is subject to the testing period rules in
§ 408(d)(9)(D), discussed below.
Qualified HSA funding distribution only
from certain types of IRAs
A qualified HSA funding distribution
may be made from a traditional IRA under
§ 408 or a Roth IRA under § 408A, but
not from an ongoing SIMPLE IRA under
§ 408(p) or an ongoing SEP IRA under
§ 408(k). For this purpose, a SIMPLE
IRA or SEP IRA is treated as ongoing if
an employer contribution is made for the
plan year ending with or within the IRA
owner’s taxable year in which the qualified
HSA funding distribution would be made.
AfterthedeathofanIRAorRothIRA
account owner, a qualified HSA funding
distribution may be made from an IRA or
Roth IRA maintained for the benefit of an
IRA or Roth IRA beneficiary. This dis-
tribution will be taken into account in de-
termining whether the required minimum
distribution requirements of §§ 408(a)(6),
408(b)(3), and 408A(c)(5) have been sat-
isfied.
Maximum amount of qualified HSA
funding distribution
For purposes of § 408(d)(9)(C)(i), a
qualified HSA funding distribution from
the IRA or Roth IRA of an eligible individ-
ual to that individual’s HSA must be less
than or equal to the IRA or Roth IRA ac-
count owner’s maximum annual HSA con-
tribution. The maximum annual HSA con-
tribution is based on (1) the individual’s
age as of the end of the taxable year and
(2) the individual’s type of high deductible
health plan (HDHP) coverage (self-only or
family HDHP coverage) at the time of the
distribution. For example, in 2008, an IRA
owner who is an eligible individual with
June 23, 200811632008–25 I.R.B.

family HDHP coverage at the time of the
distribution and who is age 55 or over by
the end of the year is allowed a qualified
HSA funding distribution of $5,800, plus
the $900 catch-up contribution. An IRA
or Roth IRA owner who is an eligible indi-
vidual with self-only HDHP coverage, and
who is under age 55 as of the end of the
taxable year, is allowed a qualified HSA
funding distribution of $2,900 for 2008.
One-time qualified HSA funding
distribution
Generally, only one qualified HSA
funding distribution is allowed during the
lifetime of an individual. If, however, the
distribution occurs when the individual
has self-only HDHP coverage, and later in
the same taxable year the individual has
family HDHP coverage, the individual is
allowed a second qualified HSA funding
distribution in that taxable year. Both dis-
tributions count against the individual’s
maximum HSA contribution for that tax-
able year. The distributions must be from
an IRA or Roth IRA to an HSA owned by
the individual who owns the IRA or Roth
IRA or, in the case of an inherited IRA, for
whom the IRA or Roth IRA is maintained
(i.e., a qualified HSA funding distribution
cannot be made to an HSA owned by any
other person, including the individual’s
spouse). IRA or Roth IRA owners are not
required to make the maximum qualified
HSA funding distribution or to make any
qualified HSA funding distribution.
If an individual owns two or more
IRAs, and wants to use amounts in multi-
ple IRAs to make a qualified HSA funding
distribution, the individual must first make
an IRA-to-IRA transfer of the amounts to
be distributed into a single IRA, and then
make the one-time qualified HSA funding
distribution from that IRA.
No deemed distribution date
A qualified HSA funding distribution
relates to the taxable year in which the dis-
tribution is actually made. The rules in
§ 223(d)(4)(B) and § 219(f)(3) (contribu-
tions made before the deadline for filing
the individual’s federal income tax return
are deemed to be made on the last day of
the preceding taxable year) do not apply to
qualified HSA funding distributions.
Procedures for making the transfer from
an IRA to an HSA
An individual must be an eligible indi-
vidual (as defined in § 223(c)(1)) at the
time of the qualified HSA funding distri-
bution. The distribution must be a direct
transfer from an IRA or Roth IRA to an
HSA. For example, if a check from an IRA
or Roth IRA is made payable to an HSA
trustee or custodian and delivered by the
IRA or Roth IRA account owner to the
HSA trustee or custodian, the payment to
the HSA will be considered a direct pay-
ment by the IRA or Roth IRA trustee, cus-
todian or issuer to the HSA for purposes of
§ 408(d)(9).
Testing period rules
If a qualified HSA funding distribu-
tion is made from the individual’s IRA or
Roth IRA to the individual’s HSA under
§ 408(d)(9) and the individual remains an
eligible individual during the entire testing
period, the amount of the qualified HSA
funding distribution is excluded from the
individual’s gross income and the 10 per-
cent additional tax under § 408(d)(9)(D)
does not apply. The testing period begins
with the month in which the qualified HSA
funding distribution is contributed to the
HSA and ends on the last day of the 12
th
month following that month. Each qual-
ified HSA funding distribution allowed in
§ 408(d)(9)(C)(ii)(II) has a separate testing
period. For testing period purposes, an eli-
gible individual who changes from family
HDHP coverage to self-only HDHP cov-
erage during the testing period remains an
eligible individual. If at any time during
the testing period the individual ceases to
meet all requirements to be an eligible in-
dividual, the amount of the qualified HSA
funding distribution is included in the indi-
vidual’s gross income. The qualified HSA
funding distribution is included in gross in-
come in the taxable year of the individual
in which the individual first fails to be an
eligible individual. This amount is subject
to the 10 percent additional tax (unless the
failure is due to disability, as defined in
§ 72(m)(7), or death). See § 408(d)(9)(D).
Earnings on the amount of the qualified
HSA funding distribution are not included
in gross income. Amounts included in the
IRA or Roth IRA owner’s gross income
under § 408(d)(9)(D) are not also included
in gross income under §§ 408(d)(1) or (2),
nordothe§72rulesapply(includingthe
additional tax under § 72(t)).
No interaction between testing periods
Section 223(b)(8)(B) provides gener-
ally that if an individual fails to remain an
eligible individual during the § 223(b)(8)
testing period, an amount is included in
the individual’s gross income (computed
by subtracting the sum of the monthly
contribution limits that the individual
would otherwise have been entitled to un-
der §§ 223(b)(1) and (2) from the amount
actually contributed). The testing period
rules in § 223(b)(8)(B) do not apply to
amounts contributed to an HSA through a
qualified HSA funding distribution. Thus,
if an individual remains an eligible indi-
vidual during the entire § 408(d)(9) testing
period, then no amount of the qualified
HSA funding distribution is included in
income and the 10 percent additional tax
under § 223(b)(8)(B) does not apply.
Application of § 223(b)(8)(B) testing
period to contributions which are not
qualified HSA funding distributions
If an HSA account beneficiary’s con-
tributions to his or her HSA in a taxable
year include both a qualified HSA funding
distribution (or distributions) and other
contributions subject to § 223(b)(8), the
§ 408(d)(9)(D) testing period rules apply
to the qualified HSA funding distribution
(or distributions) and the § 223(b)(8)(B)
testing period rules apply to the other
contributions. If the individual fails to
remain an eligible individual during the
§ 223(b)(8)(B) testing period, but does
remain a qualified individual during the
§ 408(d)(9)(D) testing period, the amount
included in the individual’s gross income
is the lesser of:
(1) the amount that would otherwise be
included under the § 223(b)(8)(B) rules; or
(2) the amount of contributions to the
HSA for the taxable year other than the
amount contributed through qualified
HSA funding distributions.
HSA distributions not used for qualified
medical expenses
An HSA distribution not used for qual-
ified medical expenses (as defined in
§ 223(d)(2)) is included in gross income
2008–25 I.R.B.1164June 23, 2008

under § 223(f)(2) and subject to the 10
percent additional tax under § 223(f)(4)
(with certain exceptions), regardless of
whether the amount contributed to the
HSA under the qualified HSA funding
distribution is included in the account
beneficiary’s income and subject to the
additional tax under § 408(d)(9)(D). See
Notice 2007–22, 2007–10 I.R.B. 670, re-
garding the consequences of distributions
from HSAs.
EXAMPLES
The following examples illustrate these
rules. It is assumed in the examples that
no previous qualified HSA funding distri-
butions have been made by the individual,
and that all distributions are from IRAs and
are otherwise included in the IRA owner’s
gross income. None of the IRAs are on-
going SEP IRAs described in § 408(k),
or ongoing SIMPLE IRAs described in
§ 408(p). For purposes of § 223(f)(4) and
§ 408(d)(9)(D)(ii), none of the IRA owners
or HSA account beneficiaries are disabled.
None of the exceptions to the 10 percent
tax under § 72(t) apply.
Example 1. Individual A, age 45, enrolls in fam-
ily HDHP coverage on January 1, 2008, is otherwise
an eligible individual (as defined in § 223(c)(1)) as of
that date and through December 31, 2009. A’s max-
imum annual HSA contribution for 2008 is $5,800.
A owns an IRA with a balance of $2,000. A direct
trustee-to-trustee transfer of $2,000 is made from A’s
IRA trustee to A’s HSA trustee on April 2, 2008.
The $2,000 distribution is a qualified HSA fund-
ing distribution, and accordingly is not included in
A’s gross income and is not subject to the additional
tax under § 72(t). A’s testing period with respect
to the qualified HSA funding distribution begins in
April 2008 and ends on April 30, 2009. After the
qualified HSA funding distribution of $2,000, $3,800
of A’s 2008 HSA maximum annual contribution re-
mains.
Example 2. Same facts asExample 1, except that
A ceases to be an eligible individual on January 1,
2009. Under § 408(d)(9)(D), in 2009 A must include
$2,000 in gross income, the amount of the qualified
HSA funding distribution, plus an additional tax of
$200 (10 percent of the amount included in income).
Example 3. Individual B, age 57, enrolls in self-
only HDHP coverage effective January 1, 2008, is
otherwise an eligible individual as of that date and
through December 31, 2009. B’s maximum annual
HSA contribution for 2008 is $3,800 ($2,900 plus the
$900 catch-up contribution). B owns an IRA with a
balance of $13,550. A directtrustee-to-trustee trans-
fer of $3,800 is made from B’s IRA trustee to B’s
HSA trustee on June 4, 2008.
The $3,800 distribution is a qualified HSA fund-
ing distribution. The distribution from B’s IRA is not
included in B’s gross income and is not subject to the
additional tax under § 72(t). The qualified HSA fund-
ing distribution of $3,800 equals B’s 2008 maximum
annual HSA contribution. B’s testing period with re-
spect to the qualified HSA funding distribution be-
gins in June 2008 and ends on June 30, 2009.
Example 4. Individual C, age 38, enrolls in self-
only HDHP coverage on January 1, 2008, is other-
wise an eligible individual on January 1, and remains
an eligible individual through December 31, 2009. C
owns an IRA with a balance of $12,550. A qualified
HSA funding distribution of $2,800 is made from C’s
IRA trustee directly to C’s HSA trustee on June 4,
2008.
On August 1, C enrolls in family HDHP coverage.
A transfer of $3,000 is made from C’s IRA trustee
directly to C’s HSA trustee on August 15, 2008.
The $2,800 and $3,000 distributions are qualified
HSA funding distributions. The distributions from
the IRA are not included in C’s gross income and
are not subject to the additional tax under § 72(t).
The qualified HSA funding distributions of $5,800
($2,800 + $3,000) equal C’s 2008 maximum annual
HSA contribution. C’s testing period for the first
qualified HSA funding distribution begins in June
2008 and ends on June 30, 2009 and the testing period
for the second qualified HSA funding distribution be-
gins in August 2008 and ends on August 31, 2009.
Example 5. Individual D, age 43, enrolls in fam-
ily HDHP coverage on January 1, 2008, is otherwise
an eligible individual on January 1, and remains an
eligible individual through December 31, 2009. D
owns an IRA with a balance of $17,500. A qualified
HSA funding distribution of $5,800 is made from D’s
IRA trustee directly to D’s HSA trustee on March 18,
2008.
On June 1, D changes from family HDHP cov-
erage to self-only HDHP coverage. The $5,800 dis-
tribution from the IRA is not included in D’s gross
income and is not subject to the additional tax un-
der § 72(t). The qualified HSA funding distribution
of $5,800 equals D’s maximum annual HSA contri-
bution at the time the transfer occurred. D’s testing
period begins in March 2008 and ends on March 31,
2009.
Example 6. Individual E, age 50, begins fam-
ily HDHP coverage and is first an eligible individual
on June 1, 2008. E owns an IRA with a balance of
$20,000. A direct trustee-to-trustee transfer of $3,500
is made from E’s IRA trustee to E’s HSA trustee on
June 4, 2008. On June 4, 2008 E also contributes
$2,300 in cash to his HSA for a total contribution of
$5,800. On July 1, 2009, E ceases to be an eligible
individual.
The $3,500 distribution is a qualified HSA fund-
ing distribution, is not included in E’s gross income,
and is not subject to the additional tax under § 72(t).
E’s testing period with respect to the qualified HSA
funding distribution begins in June 2008 and ends on
June 30, 2009. E remains an eligible individual dur-
ing the qualified HSA funding distribution testing pe-
riod. No amount of the $3,500 distribution is included
in E’s gross income.
The testing period for the $2,300 contribution be-
gins in December 2008 and ends on December 31,
2009. E’s full contribution limit under § 223(b)(8)
for 2008 is $5,800. E’s sum of the monthly contribu-
tion limits is $3,383 (7/12 x $5,800). E’s maximum
annual contribution for 2008 is $5,800, the greater of
$5,800 or $3,383.
The amount included in E’s gross income and
subject to the 10 percent additional tax under
§ 223(b)(8)(B) in 2009 is $2,417 ($5,800 - $3,383).
The cash contribution to E’s HSA is $2,300. The
amount included in E’s gross income and subject
to additional tax is $2,300, the lesser of $2,417 or
$2,300.
Example 7. Same facts asExample 6, except that
the distribution from E’s IRA to E’s HSA is $1,000
and E contributes $4,800 in cash for a total HSA con-
tribution of $5,800 in 2008.
E remains an eligible individual during the qual-
ified HSA funding distribution testing period. No
amount of the $1,000 distribution is included in E’s
gross income.
E’s full contribution limit under § 223(b)(8) for
2008 is $5,800. E’s sum of the monthly contribution
limits is $3,383 (7/12 x $5,800). E’s maximum an-
nual contribution limit for 2008 is $5,800, the greater
of $5,800 or $3,383. The amount included in E’s
gross income and subject to the 10 percent additional
tax under § 223(b)(8)(B) is $2,417 ($5,800 - $3,383).
The cash contribution to E’s HSA is $4,800. The
amount included in E’s gross income and subject to
the additional tax in 2009 is $2,417, the lesser of
$2,417 or $4,800.
Example 8. Same facts asExample 6, except that
E ceases to be an eligible individual on May 1, 2009.
The $3,500 distribution is a qualified HSA fund-
ing distribution, is not included in E’s gross income
in the year of the distribution, and is not subject to
the additional tax under § 72(t). E’s testing period
with respect to the qualified HSA funding distribu-
tion begins in June 2008 and ends on June 30, 2009.
E ceases to be an eligible individual during the qual-
ified HSA funding distribution testing period. The
$3,500 distribution is included in E’s gross income.
In addition, the 10 percent additional tax ($350) un-
der § 408(d)(9)(D)(II) applies to the amount.
The testing period for the $2,300 contribution be-
gins in December 2008 and ends on December 31,
2009. E’s full contribution limit under § 223(b)(8) for
2008 is $5,800. E’s sum of the monthly contribution
limits is $3,383 (7/12 x $5,800). E’s maximum an-
nual contribution limit for 2008 is $5,800, the greater
of $5,800 or $3,383.
The amount included in E’s gross income and
subject to the 10 percent additional tax in 2009 un-
der § 223(b)(8) is $2,417 ($5,800 - $3,383). The cash
contribution to E’s HSA is $2,300. The amount in-
cluded in E’s gross income and subject to additional
tax is $2,300, the lesser of $2,417 or $2,300.
Example 9. Individual F, age 47, has family
HDHP coverage and is first an eligible individual
on January 1, 2008. F’s maximum annual HSA
contribution for 2008 is $5,800. F owns an IRA
with a balance of $10,000. A direct trustee-to-trustee
transfer of $10,000 is made from F’s IRA trustee to
F’s HSA trustee on September 26, 2008.
The $10,000 contribution exceeds F’s $5,800
contribution limit. In 2008, $4,200 ($10,000 -
$5,800) is included in F’s gross income under § 408
as a taxable IRA distribution. The $4,200 is also
subject to additional tax under § 72(t), as well as
an excise tax on excess HSA contributions under
§ 4973.
Example 10. Individual G, age 32, has self-only
HDHP coverage and is first an eligible individual on
January 1, 2007. G remains an eligible individual
June 23, 200811652008–25 I.R.B.

through December 31, 2009. G’s maximum annual
HSA contribution for 2007 is $2,850 and $2,900 for
2008. G owns an IRA with a balance of $4,500. A
direct trustee-to-trustee transfer of $1,000 from G’s
IRA trustee to G’s HSA trustee is made on September
6, 2007.
Another direct trustee-to-trustee transfer of
$1,500 from G’s IRA trustee to G’s HSA trustee is
made on April 28, 2008. G makes no other contribu-
tions to his HSA for 2008.
The$1,000contributiontoG’sHSAinSeptember
2007 is a qualified HSA funding distribution, is not
included in G’s gross income, and is not subject to the
additional tax under § 72(t). G’s testing period with
respect to this contribution begins in September 2007
and ends on September 30, 2008.
The $1,500 contribution to G’s HSA in April 2008
is not a qualified HSA funding distribution, is in-
cluded in G’s gross income for 2008 under § 408 as
a taxable IRA distribution, and is subject to the ad-
ditional tax under § 72(t). However, the $1,500 con-
tribution to G’s HSA is allowed as a deduction under
§ 223(a) in 2008, because G remains an eligible indi-
vidual in 2008 and has not otherwise made contribu-
tions to the HSA or had contributions on G’s behalf
made to an HSA in excess of $1,400 for 2008. No
testing period under § 408 applies to the $1,500 con-
tribution.
REPORTING AND WITHHOLDING
Employers are not responsible for re-
porting whether an employee remains an
eligible individual during the testing pe-
riod.
A qualified HSA funding distribution
is not subject to withholding under § 3405
because an IRA or Roth IRA owner that
requests such a distribution is deemed
to have elected out of withholding under
§ 3405(a)(2). For purposes of determin-
ing whether a distribution requested by
an IRA or Roth IRA owner satisfies the
requirements of § 408(d)(9), the IRA or
Roth IRA trustee may rely upon reason-
able representations made by the account
owner.
EFFECTIVE DATE
Sections 408(d)(9) and 223(b)(4)(C),
allowing qualified HSA funding distribu-
tions from IRAs to HSAs, are effective for
taxable years beginning after December
31, 2006.
DRAFTING INFORMATION
The principal author of this notice is
Leslie R. Paul of the Office of Division
Counsel/Associate Chief Counsel (Tax Ex-
empt and Government Entities). For fur-
ther information regarding this notice, con-
tact Ms. Paul at (202) 622–6080 (not a
toll-free call). For information regard-
ing the rules applicable to IRAs, contact
Cathy V. Pastor at (202) 622–6090 (not a
toll-free call).
Health Savings Accounts
Notice 2008–52
This notice provides guidance on con-
tributions to Health Savings Accounts
(HSAs) under amendments to the Internal
Revenue Code by §§ 303 and 305 of the
Health Opportunity Patient Empowerment
Act of 2006 (the Act) included in the Tax
Relief and Health Care Act of 2006, en-
acted December 20, 2006, Pub. L. No.
109–432.
ANNUAL HSA CONTRIBUTION
LIMIT
HDHP deductible limit on annual HSA
contributions repealed
For 2004 through 2006, the maximum
annual HSA contribution was the lesser of
(1) the annual deductible under the high
deductible health plan (HDHP) or (2) the
statutory maximum under § 223(b)(2)(B).
See Notice 2004–2, 2004–1 C.B. 269,
Q&A–12. Section 303 of the Act repeals
the limit on annual HSA contributions
based on the amount of the deductible
under the HDHP. For 2007 and later years,
the indexed maximum HSA contribution
under § 223(b)(2)(A) (for self-only HDHP
coverage) and § 223(b)(2)(B) (for family
HDHP coverage) determines the contribu-
tion limit, without regard to an individual’s
HDHP deductible. Thus, for 2008, the
maximum annual HSA contribution is
$2,900 for individuals who have self-only
HDHP coverage and $5,800 for individu-
als who have family HDHP coverage.
Annual HSA contribution limits for 2007
and later years
Section 305 of the Act adds § 223(b)(8),
which provides that if an individual is an
eligible individual on the first day of the
last month of the individual’s taxable year
(December 1 for calendar year taxpayers),
the individual’s maximum HSA contribu-
tion for the year is the greater of the fol-
lowing:
(1) The sum of the limits deter-
mined separately for each month under
§ 223(b)(2), based on eligibility and
HDHP coverage on the first day of each
month, plus catch-up contributions for
each month, if applicable (see sum of
the monthly contribution limits discus-
sion below), or
(2) The maximum annual HSA
contribution under § 223(b)(2)(A) or
§ 223(b)(2)(B) based on the individ-
ual’s HDHP coverage (self-only or
family) on the first day of the last
month of the individual’s taxable
year, plus catch-up contributions un-
der § 223(b)(3), if applicable (see full
contribution rule under § 223(b)(8) dis-
cussion below).
A testing period applies to the full contri-
bution rule (see discussion of the testing
period below). If an individual is not an
eligible individual on the first day of the
last month of the individual’s taxable year
(December 1 for calendar year taxpayers),
the individual’s maximum HSA contribu-
tion for the year is determined under the
sum of the monthly contribution limits rule
under § 223(b)(2). See Example 6 below.
Sum of the monthly contribution limits
Eligible individuals (as defined in
§ 223(c)(1)) may contribute to HSAs. See
Notice 2004–2, Q&A–2; Notice 2004–50,
2004–2 C.B. 196, Q&A–2, 3. Under
§§ 223(b)(1) and (2), the maximum annual
contribution to an HSA is the sum of the
monthly contribution limits determined
separately for each month, based on eli-
gibility and health plan coverage on the
first day of the month. For this purpose,
the monthly limit is 1/12 of the indexed
amount provided under § 223(b)(2)(A) for
self-only coverage ($2,900 for 2008) and
under § 223(b)(2)(B) for family coverage
($5,800 for 2008). In addition, the maxi-
mum HSA contribution is increased by an
additional contribution amount (catch-up
amount) for individuals age 55 or older
as of the last day of the calendar year
who are not enrolled in Medicare. The
catch-up contribution is also computed on
a monthly basis. Section 223(b)(2).
Full contribution rule
New § 223(b)(8)(A) treats an individ-
ual who is an eligible individual on the first
day of the last month of the taxable year as
2008–25 I.R.B.1166June 23, 2008

having been an eligible individual for the
entire year and may increase, but not de-
crease, the contribution limit for such an
individual. Thus, in order to make a full
contribution for the year under § 223(b)(8),
a taxpayer must be an eligible individual
on the first day of the last month of his or
her taxable year (December 1 for calendar
year taxpayers). The eligible individual is
also treated as enrolled in the same HDHP
coverage (i.e., self-only or family cover-
age) as he or she has on the first day of the
last month of the year. For example, if an
individual first becomes HSA-eligible on
December 1, 2008, and has family HDHP
coverage, he or she is treated as an eligi-
ble individual and having family HDHP
coverage for all twelve months in 2008.
This full contribution rule also applies to
catch-up contributions. The full contribu-
tion rule applies without regard to whether
the individual was an eligible individual
for the entire year, had HDHP coverage
for the entire year, or had disqualifying
non-HDHP coverage for part of the year.
However, a testing period applies for pur-
poses of the full contribution rule.
The testing period
Thetestingperiodappliestoanindivid-
ual who is an eligible individual on the first
day of the last month of the taxable year.
The testing period begins on the first day of
the last month of the taxable year and ends
on the last day of the 12
th
month following
that month. Thus, for a calendar year tax-
payer, the testing period is from December
1 of the current year to December 31 of the
following year. Section 223(b)(8)(B)(iii).
For 2008 HSA contributions, the testing
period for calendar year taxpayers begins
on December 1, 2008 and ends on Decem-
ber 31, 2009.
Failure to remain an eligible individual
during the testing period
If an individual who is an eligible in-
dividual on the first day of the last month
of the taxable year contributes an amount
to his or her HSA greater than the sum
of the monthly contribution limits under
§§ 223(b)(1) and (2), and at any time dur-
ing the testing period the individual ceases
to meet all requirements to be an eligi-
ble individual, an amount is included in
the individual’s gross income and subject
to an additional 10 percent tax, unless the
failure is due to disability (as defined in
§ 72(m)(7)) or death.
The amount that is included in the in-
dividual’s gross income is computed by
subtracting the sum of the monthly con-
tribution limits that the individual would
otherwise have been entitled to under
§§ 223(b)(1) and (2) from the amount ac-
tually contributed. Section 223(b)(8)(B).
It is not necessary to distribute this amount
from the HSA, and there may be additional
adverse tax consequences from such a
distribution. See discussion below on dis-
tributions not used for qualified medical
expenses. Withdrawing this amount from
the HSA will not prevent the inclusion of
the amount in income or the additional
10 percent tax. However, earnings on the
amount are not included in gross income
or subject to the 10 percent additional tax,
so long as the earnings remain in the HSA
or are used for qualified medical expenses.
Unlike the additional 10 percent tax un-
der § 223(f)(4)(A), the additional 10 per-
cent tax under § 223(b)(8)(B)(i)(II) applies
regardless of the age of the account bene-
ficiary (i.e., even after age 65).
To remain an eligible individual during
the testing period, an individual is not
required to keep the same level of HDHP
coverage during the testing period. Thus,
changing from family HDHP coverage to
single HDHP coverage during the test-
ing period does not result in inclusion of
amounts in gross income or an additional
10 percent tax. See Examples 8 and 14
below.
Excise tax on excess contributions
Section 4973 imposes a six percent ex-
cise tax for each taxable year on HSA con-
tributions in excess of the maximum con-
tribution limit for the year (excess contri-
butions). If the excess contributions for
the year and the net income attributable to
such excess contributions are withdrawn
from the HSA before the last day (with ex-
tensions) for filing the federal income tax
return for the taxable year, the amount is
not subject to the excise tax for that year.
However, an amount included in gross in-
come under § 223(b)(8)(B) because an in-
dividual failed to remain an eligible indi-
vidual during the testing period is not an
excess contribution and § 4973 does not
apply to this amount. For this reason, the
amount cannot be withdrawn under the ex-
cess contribution rules.
HSA distributions not used for qualified
medical expenses
An HSA distribution not used for qual-
ified medical expenses (as defined in
§ 223(d)(2)) is included in gross income
under § 223(f)(2) and is subject to the ad-
ditional 10 percent tax under § 223(f)(4)
(with certain exceptions), regardless of
whether the amount contributed to the
HSA under the full contribution rule is in-
cluded in the account beneficiary’s income
and subject to the additional tax under
§ 223(b)(8)(B)(i). See Notice 2007–22,
2007–10 I.R.B. 670, regarding conse-
quences of distributions from HSAs. See
Example 9 below.
Establishing HSAs
AnindividualmayestablishanHSA
at any time on or after the date the indi-
vidual becomes HSA-eligible. Contribu-
tions for the taxable year can be made in
one or more payments, at any time prior
to the time (without extensions) for filing
the individual’s federal income tax return
for the taxable year. An individual who
becomes an eligible individual after Jan-
uary 1 may make the maximum contribu-
tion to an HSA on the first day he or she
is an eligible individual. Notice 2004–2,
Q&A–21. In that case, the individual’s
contribution is based on the individual’s
expected coverage on the first day of the
last month of his or her taxable year. But
see testing period rules above.
EXAMPLES
The following examples illustrate these
rules. It is assumed in the examples that
the taxable year of all individuals is the
calendar year, and that, for purposes of
§ 223(b)(8)(B)(ii), no individuals are dis-
abled within the meaning of § 72(m)(7) un-
less otherwise stated.
Example 1. Individual A, age 53, enrolls in family
HDHP coverage on December 1, 2008 and is other-
wise an eligible individual on that date. A is not an
eligible individual in any other month in 2008.
A is an eligible individual with family HDHP
coverage on December 1, 2008. A’s full contribution
limit under § 223(b)(8) for 2008 is $5,800. The sum
of the monthly contribution limits is $483.33 (1/12
x $5,800). A’s annual contribution limit for 2008 is
$5,800, the greater of $5,800 or $483.33
June 23, 200811672008–25 I.R.B.

Example 2. Same facts asExample 1, except that
A contributes $5,800 to his HSA on December 1,
2008 and ceases to be an eligible individual in June
2009.
The testing period for 2008 HSA contributions
ends on December 31, 2009. In 2009, A ceases to
be an eligible individual during the testing period. In
2009, A must include in gross income $5,316.67, the
amount contributed to the HSA for 2008 minus the
sum of the monthly contribution limits ($5,800.00 -
$483.33). In addition, the 10 percent additional tax
($531.67) in § 223(b)(8)(B)(i) applies to the amount
included in gross income.
Example 3. Individual B, age 39, enrolls in self-
only HDHP coverage on January 1, 2008 and is an
eligible individual on that date. B’s coverage changes
to family HDHP coverage on November 1, 2008 and
B retains family HDHP coverage through December
31, 2008. B is an eligible individual from January
1, 2008 through December 31, 2008 and remains an
eligible individual through December 31, 2009.
B is an eligible individual with family HDHP cov-
erage on December 1, 2008. B’s full contribution
limit under § 223(b)(8) for 2008 is $5,800. B’s sum
of the monthly contribution limits is $3,383.34 ((2/12
x $5,800) + (10/12 x $2,900)). B’s annual contribu-
tion limit for 2008 is $5,800, the greater of $5,800 or
$3,383.34.
Example 4. In 2007, Individual C, age 47, is cov-
ered by a general purpose health FSA with a grace
period ending March 15, 2008. C enrolls in family
HDHP coverage on January 1, 2008. C becomes an
eligible individual on April 1, 2008 and remains an
eligible individual through December 31, 2009. On
April 2, 2008, C contributes $5,800 to his HSA for
2008.
C is an eligible individual with family HDHP cov-
erage on December 1, 2008. C’s full contribution
limit under § 223(b)(8) for 2008 is $5,800. C’s sum
of the monthly contribution limits is $4,350 (9/12 x
$5,800). C’s annual contribution limit for 2008 is
$5,800, the greater of $5,800 or $4,350. The testing
period for 2008 ends on December 31, 2009. Because
C is an eligible individual during the testing period,
no amount of the $5,800 contribution is included in
C’s gross income and C is not subject to the 10 per-
cent additional tax.
Example 5. Individual D, age 57, enrolls in fam-
ily HDHP coverage on December 1, 2008 and is an
eligible individual on that date. D was not an eligible
individual in any other month in 2008. D contributes
$6,700 to his HSA on December 1, 2008 and remains
an eligible individual through December 31, 2009.
D is an eligible individual with family HDHP
coverage on December 1, 2008 and remains an el-
igible individual through December 31, 2009. D’s
full contribution limit under § 223(b)(8) for 2008 is
$6,700 ($5,800 family coverage contribution + $900
catch-up contribution). The sum of the monthly con-
tribution limits is $558.33 ((1/12 x $5,800) + (1/12
x $900)). D’s annual contribution limit for 2008 is
$6,700, the greater of $6,700 or $558.33.
Example 6. Individual E, age 35, has self-only
HDHP coverage and is an eligible individual for the
months of May, June, and July 2008.
The full contribution limit under § 223(b)(8) does
not apply to E for 2008 because E is not an eligible
individual on December 1, 2008. E’s contribution
limit for 2008 is $725 (3/12 x $2,900).
Example 7. Individual F, age 46, enrolls in fam-
ily HDHP coverage on January 1, 2008 and is an el-
igible individual on that date. F contributes $5,800
to an HSA on January 1, 2008. F ceases to be cov-
ered by an HDHP on August 1, 2008. On Decem-
ber 15, 2008, F withdraws from the HSA $2,416.67
($5,800.00 - $3,383.33), plus $45 earnings attribut-
able to the $2,416.67.
F ceases to be an eligible individual on August
1, 2008. The full contribution limit does not apply
to F for 2008 because F is not an eligible individ-
ual on December 1, 2008, and the testing period in
§ 223(b)(8)(B)(i) does not apply to F. F’s HSA con-
tribution limit for 2008 is $3,383.33 (7/12 x $5,800).
The $2,416.67 is an excess contribution for purposes
of § 4973, but is not subject to the six percent excise
tax under § 4973 because F withdrew the excess con-
tribution and earnings attributable to the excess con-
tribution by the due date, with extensions, for filing
her 2008 federal income tax return. F reports the $45
withdrawn earnings as gross income on her 2008 fed-
eral income tax return. The gross income inclusion
and 10 percent tax in § 223(f)(3) for distributions not
used for qualified medicalexpenses in § 223(f)(2) do
not apply because F withdrew an excess contribution.
Example 8. Individual G, age 38, enrolls in family
HDHP coverage on January 1, 2008 and is an eligi-
ble individual on that date. G’s coverage changes to
self-only HDHP coverage on September 1, 2008 and
he retains that coverage through December 31, 2008.
G is an eligible individual for all 12 months in 2008.
G contributes $4,833.33 ((8/12 x $5,800) + (4/12 x
$2,900)) to an HSA for 2008. G ceases to be an eli-
gible individual on January 1, 2009.
G is an eligible individual with self-only HDHP
coverage on December 1, 2008. G’s full contribution
limit under § 223(b)(8) for 2008 is $2,900. G’s sum
of the monthly contribution limits is $4,833.33 ((8/12
x $5,800) + (4/12 x $2,900)). G’s annual contribution
limit is $4,833.33, the greater of $2,900 or $4,833.33.
The testing period for 2008 HSA contributions ends
on December 31, 2009. G ceases to be an eligible in-
dividual during the testing period. Because G’s con-
tribution of $4,833.33 is not greater than the sum of
the monthly contribution limits, there is no inclusion
or additional tax when G ceases to be an eligible in-
dividual during the testing period.
Example 9. Individual H, age 25, enrolls in self-
only HDHP coverage on June 1, 2008 and is an eligi-
ble individual on that date. H is not an eligible indi-
vidual prior to June 1, 2008. H contributes $2,900 to
an HSA on July 1, 2008. H is an eligible individual
on December 1, 2008, and continues to be an eligi-
ble individual until February 1, 2009. On February
2, 2009, H withdraws $1,208.33 from his HSA. The
$1,208.33 distribution is not used for H’s qualified
medical expenses (as defined in § 223(d)(2)).
H is an eligible individual with self-only HDHP
coverage on December 1, 2008. H’s full contribution
limit under § 223(b)(8) for 2008 is $2,900. H’s sum of
the monthly contribution limits is $1,691.67 (7/12 x
$2,900). H’s annual contribution limit is $2,900, the
greater of $2,900 or $1,691.67. The testing period
for 2008 HSA contributions ends on December 31,
2009. In 2009, H ceases to be an eligible individual
during the testing period. In 2009, H must include in
gross income $1,208.33, the amount contributed to
the HSA minus the sum of the monthly contribution
limits ($2,900.00 - $1,691.67). In addition, the 10
percent additional tax ($120.83) in § 223(b)(8)(B)(i)
applies to the amount.
The $1,208.33 withdrawn from the HSA is not
used for qualified medical expenses and is not a
withdrawal of an excess contribution. Therefore,
under § 223(f)(2), $1,208.33 is also included in H’s
gross income and is also subject to the 10 percent
additional tax in § 223(f)(4). As a result, H includes
$2,416.66 ($1,208.33 with respect to § 223(f)(4)
and $1,208.33 with respect to § 223(b)(8)) in gross
income in 2009 and an additional tax of $241.66
($120.83 with respect to § 223(f)(4) and $120.83
with respect to § 223(b)(8)).
Example 10. Individual J, age 27, is eligible for
medical benefits through the Department of Veterans
Affairs (VA). As a result of medical care (other than
disregarded coverage or preventive care) that J re-
ceived from the VA in January 2008, he is not an eligi-
ble individual in January, February, March, or April
2008. J has self-only HDHP coverage and is other-
wise an eligible individual from May 1, 2008 through
December 31, 2009.
J is an eligible individual with self-only HDHP
coverage on December 1, 2008. J’s full contribution
limit under § 223(b)(8) for 2008 is $2,900. J’s sum
of the monthly contribution limits is $1,933.33 (8/12
x $2,900). J’s annual contribution limit for 2008 is
$2,900, the greater of $2,900 or $1,933.33.
Example 11. Same facts asExample 10, except
that J also receives medical care (other than disre-
garded coverage or preventive care) from the VA
in October 2008. J is an eligible individual with
self-onlyHDHPcoverageinMaythroughSeptember
2008.
The full contribution limit does not apply to J for
2008 because J is not an eligible individual on De-
cember 1, 2008. J’s 2008 contribution limit is deter-
mined under the sum of the monthly contribution lim-
its and is $1,208.33 (5/12 x $2,900).
Example 12. Individual K, age 64, enrolls in fam-
ily HDHP coverage on April 1, 2008 and is an eligible
individual from April 1, 2008 through December 31,
2008. K was not an eligible individual prior to April
1, 2008. K contributes $6,700 to his HSA for 2008 on
April 1, 2008. K attains age 65 and enrolls in Medi-
care on March 24, 2009 and ceases to be an eligible
individual.
K is an eligible individual with family HDHP
coverage on December 1, 2008. K’s full contribution
limit under § 223(b)(8) for 2008 is $6,700 ($5,800
family coverage contribution + $900 catch-up contri-
bution). K’s sum of the monthly contribution limits is
$5,025 ((9/12 x $5,800) + (9/12 x $900)). K’s annual
contribution limit for 2008 is $6,700, the greater of
$6,700 or $5,025. The testing period for 2008 HSA
contributions ends on December 31, 2009. In 2009,
K ceases to be an eligible individual during the testing
period. In 2009, K must include $1,675, the amount
contributed to the HSA minus the sum of the monthly
contribution limits ($6,700.00 - $5,025.00) in gross
income. In addition, the 10 percent additional tax
($167.50) in § 223(b)(8)(B)(i) applies to the amount.
Example 13.Same facts asExample 12, except
that before enrolling in Medicare, K ceases to be an
eligible individual during the testing period as a re-
sult of becoming disabled. Because K ceases to be
an eligible individual due to becoming disabled, no
amount is required to be included in income in 2009
or is subject to the additional tax in § 223(b)(8).
2008–25 I.R.B.1168June 23, 2008

Example 14. Individuals L and M, both age 40,
are a married couple. L and M enroll in family HDHP
coverage on December 1, 2008 and are otherwise el-
igible individuals on that date. L and M are not eligi-
ble individuals in any other month in 2008. L and M
divide the contribution limit equally between them.
On or after December 1, 2008, L contributes $2,900
to his HSA and M contributes $2,900 to her HSA. On
June 1, 2009, M switches to self-only HDHP cover-
age and remains an eligible individual through De-
cember 31, 2009. L ceases to be an eligible individ-
ual in June 2009.
L and M are eligible individuals with family
HDHP coverage on December 1, 2008. L and M’s
combined full contribution limit for 2008 is $5,800.
L and M’s combined sum of the monthly contribution
limits is $483.33 (1/12 x $5,800), or $241.67 each
((1/12 x $5,800)/2). L and M’s combined annual
contribution limit under § 223(b)(8) is $5,800, the
greater of $5,800 or $483.33. The testing period
for 2008 HSA contributions ends on December 31,
2009. During the testing period for 2008, M remains
an eligible individual but L ceases to be an eligi-
ble individual. Because M is an eligible individual
during the testing period, no amount of M’s $2,900
contribution is included in M’s gross income and M
is not subject to the 10 percent additional tax. In
2008, L must include $2,658.33 in gross income, the
amount contributed to the HSA minus the sum of the
monthly contribution limits ($2,900 - $241.67). In
addition, the 10 percent additional tax ($265.83) in
§ 223(b)(8)(B)(i) applies to that amount.
Example 15. Same facts asExample 14, except
M contributes $5,800 to M’s HSA and L contributes
$0 to L’s HSA. No amount is taxable to either L or M.
NO EFFECT ON HSA
ESTABLISHMENT DATE
Expenses incurred before an HSA is
established are not qualified medical ex-
penses. Notice 2004–2, Q&A–26. Al-
though § 223(b)(8) and this notice provide
that certain individuals are treated as el-
igible individuals on the first day of the
taxable year in determining the contribu-
tion amount, an HSA is not established be-
fore the date that the HSA is actually estab-
lished. See also Notice 2007–22, 2007–10
I.R.B. 670.
REPORTING
Neither employers nor trustees are re-
sponsible for reporting whether an individ-
ual remains an eligible individual during
the testing period.
EFFECTIVE DATE
Sections 223(b)(2)(A) and (B) and
§ 223(b)(8), allowing full contributions
for months preceding the month that an
individual is an eligible individual, are
effective for taxable years beginning after
December 31, 2006.
INTERACTION WITH § 408(d)(9)
See Notice 2008–51, also published in
2008–25 I.R.B.
EFFECT ON OTHER DOCUMENTS
Notice 2004–2 and Notice 2004–50 are
modified.
DRAFTING INFORMATION
The principal author of this notice is
Leslie R. Paul of the Office of Division
Counsel/Associate Chief Counsel (Tax Ex-
empt and Government Entities). For fur-
ther information regarding this notice, con-
tact Ms. Paul at (202) 622–6080 (not a
toll-free call).
June 23, 200811692008–25 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Declaratory J
udgments — Gift
Tax Determin
ations
REG–143716–04
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Noti
ce of proposed rulemaking
and notice o
f public hearing.
SUMMARY: This document contains pro-
posed regulations under section 7477 of
the Internal Revenue Code (Code) regard-
ing petitions filed with the United States
Tax Court for declaratory judgments as
to the valuation of gifts. Changes to the
applicable law were made by section
506(c)(1) of the Taxpayer Relief Act of
1997 (TRA). The proposed regulations pri-
marily affect individuals who are donors
of gifts. The proposed regulations provide
rules for determining whether a donor
may petition the Tax Court with respect
to the value of a gift, including guidance
regarding the definition of “exhaustion of
administrative remedies.” This document
also provides a notice of a public hearing
on these proposed regulations.
DATES: Written and electronic comments
must be received by September 8, 2008.
Outlines of topics to be discussed at the
public hearing scheduled for October 16,
2008, must be received by September 11,
2008.
ADDRES
SES: Send submissions to:
CC:PA:
LPD:PR (REG–143716–04), room
5203,
Internal Revenue Service, P.O. Box
7604,
Ben Franklin Station, Washing-
ton, D
C 20044. Submissions may be
hand d
elivered Monday through Friday
betwe
en the hours of 8 a.m. and 4 p.m.
to: C
C:PA:LPD:PR (REG–143716–04),
Cour
ier’s Desk, Internal Revenue
Serv
ice, 1111 Constitution Avenue,
NW, W
ashington, DC. Alternatively,
taxp
ayers may submit electronic
com
ments via the Federal eRulemaking
Por
tal atwww.regulations.gov(IRS
REG–143716–0
4). The public hearing
will be held in
the auditorium of
the Internal R
evenue Building, 1111
Constitution
Avenue, NW, Washington,
DC.
FOR FURTHER IN
FORMATION
CONTACT: Con
cerning the proposed reg-
ulations, Ju
li Ro Kim or George Masnik,
(202) 622–30
90; concerning submissions
of comments,
the hearing, and/or to be
placed on th
e building access list to at-
tend the hea
ring, Kelly Banks at (202)
622–7180 (n
ot toll-free numbers).
SUPPLEMENT
ARY INFORMATION:
Background
Gift tax is c
omputed by determining a
tax on the to
tal of the gifts deemed made
by the dono
r in the year for which the re-
turn is fil
ed (the current calendar year) plus
the total o
f that donor’s gifts in prior years
(prior tax
able gifts). The tax so computed
is then red
uced by the tax that would have
been paya
ble on the prior taxable gifts, had
the tax ra
te for the current taxable year ap-
pliedtot
he prior taxable gifts. The re-
sult (aft
er taking into account the applica-
ble cred
it amount under section 2505) is
the gift
tax on the gifts in the current calen-
dar year
. Similarly, the estate tax is com-
puted by
determining a tax on the sum of
the valu
e of the decedent’s taxable estate
and the
value of certain taxable gifts (ad-
justed
taxable gifts) made by the decedent
prior t
o death. The tax computed is then re-
duced b
y the gift tax that would have been
payabl
e on the adjusted taxable gifts, had
the es
tate tax rate applied to the adjusted
taxab
le gifts. The result (after allowing for
vario
us credits) is the estate tax on the tax-
able e
state.
The Ta
xpayer Relief Act of 1997 (TRA)
(Publ
ic Law 105–34, 111 Stat. 855), the
Inter
nal Revenue Service Restructuring
and R
eform Act of 1998 (Public Law
105–
206, 112 Stat. 685), and the Tax and
Trad
e Relief Extension Act of 1998 (Pub-
lic L
aw 105–277, 112 Stat. 2681–909),
(col
lectively, the 1998 Acts), enacted
or am
ended sections 2001(f), 2504(c),
650
1(c)(9), and 7477, effective in the
cas
e of gifts made after August 5, 1997,
to p
rovide a degree of finality regarding
the valuation
of lifetime gifts for gift and
estate tax pur
poses. Congress was con-
cerned that th
e prior regime resulted in the
resolution of
controversies based on stale
evidence, and
necessitated the retention of
records for u
nduly long periods of time.
H.R. Rep. No.
105–148 at 359 (1997).
Under sectio
ns 6501(a) and (c)(9) as
amendedbyTR
A and the 1998 Acts, and
the applicab
le regulations, if a transfer of
property is a
dequately disclosed on a gift
tax return,
then the period of limitations for
assessment
of gift tax with regard to that
transfer wi
ll commence to run on the date
the return i
s filed. Once the time for as-
sessment o
f gift tax has expired for a trans-
fer made af
ter August 5, 1997, the value
of the gift
as “finally determined” for gift
tax purpos
es, as defined in section 2001(f),
is the valu
e to be used for purposes of de-
terminin
g prior taxable gifts in computing
the gift t
ax liability in subsequent years
under sec
tion 2504(c), and for purposes
of determ
ining adjusted taxable gifts in
computi
ng the estate tax liability under
section
2001(f). Under §§20.2001–1(b)
and 25.2
504–2(b), this finality rule applies
with res
pect to all issues that might be
raised w
ith respect to the transfer, includ-
ing val
uation issues and legal issues. The
amount
of a gift is finally determined if:
(1) the
amountisshownonagifttaxreturn
and the
IRS does not contest the amount
before
the period for assessing gift tax ex-
pires
; (2) before the period for assessing
gift t
ax expires, the amount is adjusted by
the IR
S and the taxpayer does not contest
the ad
justed amount; or, (3) the amount is
deter
mined by a court or pursuant to a set-
tlem
ent agreement between the taxpayer
and t
he IRS.
Sect
ion 7477 was enacted as part of
TRA i
n conjunction with these other pro-
visi
ons to provide a declaratory judgment
proc
edure pursuant to which taxpayers
may c
ontest in the United States Tax Court
an I
RS determination regarding the value
of a
gift. See H.R. CONF. REP. NO.
105
–220, at 407–408 (1997). In the ab-
sen
ce of section 7477, without an actual
gif
t tax deficiency, a taxpayer would be
una
ble to petition the Tax Court to contest
th
e determination or, without an overpay-
me
nt of tax, file a claim for refund or
br
ing suit for refund in Federal court. This
2008–25 I.R.B.1170June 23, 2008

could occur, for example, if an increase in
gift tax determined under section 2502 is
offset by the taxpayer’s applicable credit
amount under section 2505(a), so that no
additional tax would be assessed as a result
of the valuation increase. Thus, without
section 7477, such a taxpayer would be
left without any way to challenge the IRS
determination, even though, upon the ex-
piration of the statute of limitations, that
determinationwouldbecomebindingfor
purposes of calculating the cumulative gift
tax on all future gifts of that taxpayer, as
well as the taxpayer’s estate tax liability.
Explanation of Provisions
Under section 7477(a), the donor
may contest an IRS determination of
the amount of a gift. Specifically, the
donor may petition the Tax Court for a
declaratory judgment, provided that cer-
tain requirements are met. Section 7477(a)
applies in the case of an actual controversy
involving a determination by the IRS re-
garding the value of a gift that is shown
on the gift tax return or disclosed on the
gift tax return or in a statement attached to
that return.
These proposed regulations provide a
procedure for pursuing a declaratory judg-
ment in the Tax Court pursuant to section
7477 in situations where, prior to the en-
actment of that section, the taxpayer would
havehadnoremedytochallengetheIRS
determination. Specifically, the procedure
provided by these proposed regulations ap-
plies only in those situations where an ad-
justment by the IRS does not result in a
gift tax deficiency or refund. In situations
where the IRS adjustment results in a pro-
posed tax deficiency or a potential refund,
taxpayers should not follow the procedures
in these proposed regulations but should
continue to follow the procedures already
in place to dispute a deficiency or claim a
refund. These procedures more efficiently
address and resolve disputes involving a
deficiency or refund.
The first requirement for eligibility for
relief under section 7477 is that the trans-
fer must be shown or disclosed “on the re-
turn of tax imposed by chapter 12,” that is,
a Federal gift tax return, or on a statement
attached to the return. Under the proposed
regulations, the return of tax imposed by
chapter 12 is defined as the last gift tax re-
turn for the calendar year filed on or before
the due date of the return, including exten-
sions granted (if any), or if a timely return
is not filed, the first gift tax return for the
calendar year filed after the due date.
If the transfer is not shown or disclosed
on the gift tax return, or on a statement
attached to the return, a declaratory judg-
ment under section 7477 is not available.
If, however, a transfer is disclosed on the
return or on a statement attached to the
return, this eligibility requirement for the
section 7477 procedure is satisfied, even if
the transfer is disclosed in a manner that
does not satisfy the requirements of sec-
tion 6501(c)(9) and §301.6501(c)–1(e) or
(f) pertaining to adequate disclosure suffi-
cient to commence the running of the pe-
riod of limitations on assessment. There
may be no compelling reason for the IRS
to examine a transaction that is disclosed
on the return but not in a manner suffi-
cient to trigger the running of the statute
of limitations, because the time period for
adjusting the value of the gift is not lim-
ited by the statute of limitations for as-
sessments. The Treasury Department and
the IRS, however, recognize that in many
cases the IRS may prefer to contempora-
neously resolve the transfer tax treatment
of that transaction, even though the stan-
dards for adequate disclosure with regard
to that transaction have not been satisfied
by the donor. Thus, the IRS in its discre-
tion may make a determination regarding
the transfer and place the transfer in con-
troversy by mailing a notice of determina-
tion of value used in unagreed cases (Let-
ter 3569) with regard to that transfer. The
ability to place a transfer that is not ad-
equately disclosed in controversy is con-
sistent with the Congressional purpose in
enacting the TRA provisions, noted pre-
viously, to promote the early resolution of
gift tax controversies based on contempo-
raneous evidence. The IRS and Treasury
Department emphasize that the issuance of
a Letter 3569 with regard to such a trans-
fer does not constitute a determination by
the IRS that the transfer was adequately
disclosed or otherwise cause the period of
limitations on assessment to commence to
run with respect to that transfer.
Alternatively, the IRS may in its discre-
tion decide not to put a transfer in contro-
versy at that time (whether or not any other
transfer reported on a gift tax return is then
put into controversy). If the IRS decides
not to put the transfer into controversy at
that time, the IRS will not issue a Letter
3569 (described in this preamble) (or the
Letter 3569 issued will not address that
transfer), the declaratory judgment proce-
dure will not be available for that trans-
fer, and the limitations period applicable to
that transfer will remain open.
Section7477alsorequiresanactual
controversy with respect to a determi-
nation by the IRS of the value of the
disclosed transfer. Thus, the donor is
not permitted to bypass the examination
process and unilaterally seek a declara-
tory judgment. Generally, the IRS must
propose adjustments with which the donor
disagrees. Accordingly, the proposed
regulations provide that, in order for the
section 7477 declaratory judgment proce-
dure to be available to a donor, the IRS
must first make a determination regarding
the gift tax treatment of the transfer that
results in an actual controversy in a situ-
ation where the adjustments do not result
in a gift tax deficiency or refund. This
IRS determination is deemed to be made
by the mailing of a Letter 3569 to notify
the taxpayer of the adjustments proposed
by the IRS. The mailing of this letter to
the donor is the prerequisite for filing a
petition with the Tax Court requesting a
declaratory judgment under section 7477.
Section 7477 also requires that the
donor’s pleading seeking a declaratory
judgment under section 7477 must be filed
with the Tax Court before the 91
st
day
after the mailing of the Letter 3569 by the
IRS. The pleading must be in the form of a
petition subject to Tax Court Rule 211(d).
Finally, section 7477(b)(2) provides
that the Tax Court may not issue a declara-
tory judgment under section 7477 unless
it first determines that the donor has ex-
hausted all administrative remedies avail-
able to the donor within the IRS with
respect to the controversy. Tax Court Rule
211(d) requires that the petition in an ac-
tion under section 7477 must contain a
statement that the petitioner has exhausted
all administrative remedies within the
IRS. See also Tax Court Rule 210(c)(4).
Accordingly, the proposed regulations set
forth the administrative remedies available
to the donor with respect to a determina-
tion by the IRS of the amount of a gift,
and the circumstances in which the IRS
will not contest the donor’s allegation that
administrative remedies have been ex-
hausted. The administrative remedies are
June 23, 200811712008–25 I.R.B.

intended to parallel those applicable in the
case of an asserted gift tax deficiency.
Specifically, the proposed regulations
provide that the IRS will not contest the
donor’s allegation that the donor’s admin-
istrative remedies have been exhausted if:
(1) the donor requests Appeals consider-
ation in writing within 30 calendar days
after the mailing date of a notice of pre-
liminary determination of value (Prelimi-
nary Determination Letter) from the IRS,
or by such later date for responding to the
Preliminary Determination Letter as de-
termined pursuant to IRS procedures; (2)
the donor participates fully in the Appeals
consideration process, including without
limitation timely submitting all additional
information related to the amount of the
giftthatisrequestedbytheIRSincon-
nection with (or as a follow-up to) the Ap-
peals consideration process; and (3) the
IRS mails to the donor the Letter 3569,
which will notify the donor of the proposed
adjustments and of the donor’s right to
contest the determination by filing a peti-
tion for declaratory judgment with the Tax
Court before the 91
st
day after the date of
mailing the Letter 3569. The Letter 3569
usually will be issued by the Appeals of-
fice. However, because section 7477 re-
quires that the Tax Court, rather than the
IRS, determine whether the donor has ex-
hausted all administrative remedies, the
donor generally will be sent a Letter 3569
in those situations where the donor does
not respond to the Preliminary Determina-
tion Letter, or expressly declines to partic-
ipate in the Appeals process. If a donor
does not respond to a Preliminary Deter-
mination Letter, or if a donor does not par-
ticipate in the Appeals process, the IRS
will consider the donor to have failed to
exhaust administrative remedies. In such
cases, the IRS may challenge any allega-
tion in the donor’s petition for a section
7477 declaratory judgment that the donor
has exhausted all administrative remedies.
The proposed regulations also provide
that the IRS will not contest the donor’s
allegation that all administrative remedies
have been exhausted in certain circum-
stances where the above-described process
is not followed by the IRS. (For example,
the IRS might mail a Letter 3569 to the
donor in the absence of these other pre-
liminary steps where, because of the im-
minent expiration of the applicable statute
of limitations, the IRS believes there is not
sufficient time to issue a Preliminary De-
termination Letter to allow Appeals con-
sideration). If the IRS’s decision not to
issue a Preliminary Determination Letter
is not due to the donor’s actions or fail-
ure to act, the IRS will not contend that
the donor failed to exhaust all adminis-
trative remedies, provided that the donor
fully participates in the Appeals consid-
eration process offered by the IRS during
the pendancy of the Tax Court proceeding.
In this regard, the IRS and Treasury De-
partment do not view the reference to sec-
tion 7477 contained in §601.106(a)(2)(iv)
of the Statement of Procedural Rules as
currently in effect and Rev. Proc. 87–24,
1987–1 C.B. 720, as prohibiting Appeals’
jurisdiction to consider docketed cases un-
der current section 7477. The version of
section 7477 referenced in those items was
repealed prior to the enactment of the cur-
rent section 7477 as part of the TRA.
The proposed regulations confirm that
the donor is not required to consent to an
extension of the time within which gift
tax with respect to the transfer at issue
maybeassessedinordertoexhaustthe
donor’s administrative remedies, and that
the failure to consent to such an extension
will not be taken into account for this pur-
pose. See section 7430(b)(1) andMinahan
v. Commissioner, 88 T.C. 492 (1987), con-
sidering this issue in the context of section
7430(b)(1) prior to amendment by Public
Law 104–168 (110 Stat. 1452).
Under the proposed regulations, a
donor may petition for a declaratory judg-
ment with respect to disputes regarding
valuation and/or other related issues. This
is consistent with §§20.2001–1(b) and
25.2504–2(b) providing that, once the
gift tax statute of limitations has expired
with respect to a transfer, the IRS is pre-
cluded from making any adjustments with
respect to that transfer for purposes of
determining prior taxable gifts or adjusted
taxable gifts, regardless of whether the
adjustment involves a valuation issue or
a legal issue pertaining to the proper in-
terpretation of the gift tax law. See also
§301.6501(c)–1(f)(5) providing a similar
rule regarding transfers that are incom-
plete gifts but are reported as completed
gifts. Accordingly,even if a gift tax ad-
justment does not generate any additional
gift tax liability, the IRS nevertheless is
required to propose the adjustment (and
to take all other necessary steps) in order
to challenge the return as filed within the
statutory limitationsperiod, regardless of
the nature of the issue presented. Sections
2001(f), 2504(c), 6501(c)(9) and 7477,
as enacted or amended by TRA and the
1998 Acts, provide an integrated statu-
tory regime pursuant to which taxpayers
are accorded finality with respect to ad-
equately disclosed transfers (except for
transfers that are reported as incomplete
gifts), while the IRS is afforded the rea-
sonable opportunity to identify in a timely
manner returns that present issues that
merit further examination. The section
7477 declaratory judgment procedure is
a necessary part of this regime because it
provides a mechanism to finally resolve
any disputed adjustments in circumstances
where there is no tax assessment and thus
the donor would otherwise be unable to
satisfy the jurisdictional requirements for
any judicial resolution. The IRS and Trea-
sury Department believe it is appropriate
for the declaratory judgment mechanism
under section 7477, when available in cir-
cumstances where there is no deficiency or
refund, to be available for all adjustments
regardless of whether the basis for those
adjustments is factual, legal, or both.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant
regulatory action as defined in Executive
Order 12866. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regu-
lations and, because these regulations do
not impose a collection of information
on small entities, the Regulatory Flexi-
bility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the
Code, this regulation has been submitted
to the Small Business Administration
for comment on their impact on small
business.
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)orelectroniccom-
ments that are submitted timely to the IRS.
The IRS and the Treasury Department re-
quest comments on the clarity of the pro-
2008–25 I.R.B.1172June 23, 2008

posed regulations and how they may be
made easier to understand. All comments
will be available for public inspection and
copying.
A public hearing has been scheduled
for October 16, 2008 at 10:00 a.m. in
the auditorium of the Internal Revenue
Building, 1111 Constitution Avenue, NW,
Washington, DC. In addition, all visi-
tors must present photo identification to
enter the building. Because of access re-
strictions, visitors will not be admitted
beyond the immediate entrance area more
than 30 minutes before the hearing starts.
For information about having your name
placed on the building access list to attend
the hearing, see the “FOR FURTHER
INFORMATION CONTACT” section
of this preamble. The rules of 26 CFR
601.601(a)(3) apply to the hearing. Per-
sons who wish to present oral comments
at the hearing must submit comments by
September 8, 2008, and submit an outline
of the topics to be discussed and the time
to be devoted to each topic (signed origi-
nal and eight (8) copies) by September 11,
2008.
A period of 10 minutes will be allot-
ted to each person for making comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has passed.
Copies of the agenda will be available free
of charge at the hearing.
Drafti
ng Information
The principal author of these proposed
regulations is Juli Ro Kim, Office of the
Associate Chief Counsel (Passthroughs
and Special Industries), IRS. Other per-
sonnel from the IRS and the Treasury
Department participated in their develop-
ment.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 301 is pro-
posedtobeamendedasfollows:
PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as fol-
lows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7477–1 is revised
to read as follows:
§301.7477–1 Declaratory Judgments
relating to the value of certain gifts for
gift tax purposes.
(a)In general. If the requirements
contained in paragraph (d) of this section
are satisfied, a donor may petition the
United States Tax Court under section
7477 for a declaratory judgment regarding
the amount of one or more of the donor’s
gifts during the calendar year for Federal
gift tax purposes, if the adjustment(s) pro-
posed by the Internal Revenue Service
(IRS) will not result in any deficiency in
or refund of the donor’s gift tax liability
for that calendar year.
(b)Declaratory judgment proce-
dure—(1)In general. If a donor does not
resolve a dispute with the IRS concerning
the value of a transfer for gift tax purposes
at the Examination level, the donor will be
sent a notice of preliminary determination
of value, or such other document as may
be utilized by the IRS for this purpose
from time to time, but referred to in this
section as a Preliminary Determination
Letter, inviting the donor to file a formal
protest and to request consideration by
the appropriate IRS Appeals office. See
§§601.105 and 601.106 of this chapter.
Subsequently, the donor will be sent a
notice of determination of value (Letter
3569, or such other document as may be
utilized from time to time by the IRS for
this purpose in cases where no deficiency
or refund would result, but referred to in
this section as Letter 3569) if—
(i) The donor requests Appeals consid-
eration in writing within 30 calendar days
after the mailing date of the Preliminary
Determination Letter, or by such later date
as determined pursuant to IRS procedures,
and the matter is not resolved by Appeals;
(ii) The donor does not request Appeals
consideration within the time provided in
paragraph (b)(1)(i) of this section; or
(iii) The IRS does not issue a Prelim-
inary Determination Letter in circum-
stances described in paragraph (d)(3)(ii)
of this section.
(2)Notice of determination of value.
The Letter 3569 will notify the donor of
the adjustment(s) proposed by the IRS, and
will advise the donor that the donor may
contest the determination made by the IRS
by filing a petition with the Tax Court be-
fore the 91
st
day after the date on which the
Letter 3569 was mailed to the donor by the
IRS.
(3)Tax Court petition. If the donor
does not file a timely petition with the Tax
Court, the IRS determination as set forth
in the Letter 3569 will be considered the
final determination of value, as defined in
sections 2504(c) and 2001(f). If the donor
files a timely petition with the Tax Court,
the Tax Court will determine whether the
donor has exhausted available administra-
tive remedies. Under section 7477, the Tax
Court is not authorized to issue a declara-
tory judgment unless the Tax Court finds
that the donor has exhausted all adminis-
trative remedies within the IRS. See para-
graph (d)(3) of this section regarding the
exhaustion of administrative remedies.
(c)Adjustments subject to declara-
tory judgment procedure. The declaratory
judgment procedures set forth in this sec-
tion apply to adjustments involving all
issues relating to the transfer, including
without limitation valuation issues and
legal issues involving the interpretation
and application of the gift tax law.
(d)Requirements for declaratory judg-
ment procedure. The declaratory judgment
procedure provided in this section is avail-
able to a donor with respect to a trans-
fer only if the requirements of paragraphs
(d)(1) through (4) of this section with re-
gard to that transfer are satisfied.
(1)Reporting. The transfer is shown
or disclosed on the return of tax imposed
by chapter 12 for the calendar year dur-
ing which the transfer was made or on a
statement attached tosuch return. For pur-
poses of this paragraph, the term return of
tax imposed by chapter 12 means the last
gift tax return (Form 709, “United States
Gift (and Generation-Skipping Transfer)
Tax Return,” or such other form as may
be utilized for this purpose from time to
time by the IRS) for the calendar year
filedonorbeforetheduedateofthe
return, including extensions granted if
any, or, if a timely return is not filed, the
first gift tax return for that calendar year
filed after the due date. For purposes of
satisfying this requirement, the transfer
need not be reported in a manner that
constitutes adequate disclosure within the
meaning of §301.6501(c)–1(e) or (f) (and
thus for which, under §§20.2001–1(b) and
25.2504–2(b) of this chapter, the period
June 23, 200811732008–25 I.R.B.

will not expire during which the IRS may
adjust the value of the gift). The issuance
of a Letter 3569 with regard to a transfer
disclosed on a return does not constitute a
determination by the IRS that the transfer
was adequately disclosed, or otherwise
cause the period of limitations on assess-
ment to commence to run with respect to
that transfer. In addition, in the case of a
transfer that is shown on the return, the
IRS may in its discretion choose to defer
until a later time making a determination
with regard to such transfer. If the IRS
exercises its discretion to defer such deter-
mination in that case, the transfer will not
be addressed in the Letter 3569 (if any)
sent to the donor currently, and the donor
is not yet eligible for a declaratory judg-
ment with regard to that transfer under
section 7477.
(2)IRS determination and actual con-
troversy. The IRS makes a determina-
tion regarding the gift tax treatment of the
transfer that results in an actual contro-
versy. The IRS makes a determination
that results in an actual controversy with
respect to a transfer by mailing a Letter
3569 to the donor, thereby notifying the
donor of the adjustment(s) proposed by the
IRS with regard to that transfer and of the
donor’s rights under section 7477.
(3)Exhaustion of administrative reme-
dies—(i)In general — Appeals office con-
sideration. The Tax Court determines that
the donor has exhausted all administrative
remedies available within the IRS for re-
solving the controversy. For purposes of
this section, the IRS will consider a donor
to have exhausted all administrative reme-
dies if, prior to filing a petition in Tax
Court (except as provided in paragraph
(d)(3)(ii) of this section), the donor, or a
qualified representative of the donor de-
scribed in §601.502 of this chapter, timely
requests consideration by Appeals and par-
ticipates fully in the Appeals considera-
tion process, including, without limitation,
timely submitting all information related
to the transfer that is requested by the IRS
in connection with the Appeals considera-
tion. A timely request for consideration by
Appeals is a written request from the donor
for Appeals consideration made within 30
days after the mailing date of the Prelimi-
nary Determination Letter, or by such later
date for responding to the Preliminary De-
termination Letter as is agreed to between
the donor and the IRS.
(ii)No Preliminary Determination Let-
ter issued. If the IRS does not issue a Pre-
liminary Determination Letter to the donor
prior to the issuance of Letter 3569, the
IRS nevertheless will consider the donor
to have exhausted all administrative reme-
dies within the IRS for purposes of section
7477 upon the issuance of the Letter 3569,
provided that—
(A) The IRS decision not to issue the
Preliminary Determination Letter was not
due to actions or inactions of the donor
(such as a failure to supply requested in-
formation or a current mailing address to
the Area Director having jurisdiction over
the tax matter); and
(B) The donor, or a qualified represen-
tative of the donor described in §601.502
of this chapter, after the filing of a peti-
tion in Tax Court for a declaratory judg-
ment pursuant to section 7477, fully par-
ticipates (within the meaning of paragraph
(d)(3)(i) of this section) in the Appeals of-
fice consideration when offered by the IRS
whilethecaseisindocketedstatus.
(iii)Failure to agree to extension of time
for assessment. The donor has the right to
agree (or to decline to agree) to an exten-
sion of the time under section 6501 within
which gift tax with respect to the transfer
at issue may be assessed. For purposes of
section 7477, the donor’s refusal to agree
to such an extension will not be considered
by the IRS to constitute a failure by the
donor to exhaust all administrative reme-
dies available to the donor within the IRS.
(4)Timely petition in Tax Court.The
donor files a pleading with the Tax Court
requesting a declaratory judgment under
section 7477. This pleading must be filed
with the Tax Court before the 91st day after
the date of mailing of the Letter 3569 by
the IRS to the donor. The pleading must
be in the form of a petition subject to Tax
Court Rule 211(d).
(e)Examples. The following exam-
ples illustrate the provisions of this section.
These examples, however, do not address
any other situations that might affect the
Tax Court’s jurisdiction over the proceed-
ing. The examples read as follows:
Example 1.Exhaustion of administrative reme-
dies. The donor (D) timely files a Form 709, “United
States Gift (and Generation-Skipping Transfer) Tax
Return,” on which D reports D’s completed gift of
closely held stock. After conducting an examination,
the IRS concludes that the value of the stock on the
date of the gift is greater than the value reported on the
return. Because the amount of D’s available applica-
ble credit amount under section 2505 is sufficient to
cover any resulting tax liability, no gift tax deficiency
will result from the adjustment. D is unable to resolve
the matter with the IRS examiner. The IRS sends a
notice of preliminary determination of value (Prelim-
inary Determination Letter) to D informing D of the
proposed adjustment. D, within 30 calendar days af-
ter the mailing date of the letter, submits a written re-
quest for Appeals consideration. During the Appeals
process, D provides to the Appeals office all addi-
tional information (if any) requested by Appeals rele-
vant to the determination of the value of the stock in a
timely fashion. The Appeals office and D are unable
to reach an agreement regarding the value of the stock
as of the date of the gift. The Appeals office sends D
a notice of determination of value (Letter 3569). For
purposes of section 7477, the IRS will consider D to
have exhausted all available administrative remedies
within the IRS, and thus will not contest the allegation
in D’s petition that D has exhausted all such adminis-
trative remedies.
Example 2.Exhaustion of administrative reme-
dies. Assume the same facts as inExample 1, except
that D does not timely request consideration by Ap-
peals after receiving the Preliminary Determination
Letter. A Letter 3569 is mailed to D more than 30
days after the mailing of the Preliminary Determina-
tion Letter and prior to the expiration of the period of
limitations for assessment of gift tax. D timely files
a petition in Tax Court pursuant to section 7477. Af-
ter the case is docketed, D requests Appeals consid-
eration. In this situation, because D did not respond
timely to the Preliminary Determination Letter with
a written request for Appeals consideration, the IRS
will not consider D to have exhausted all administra-
tive remedies available within the IRS for purposes of
section 7477 prior to filing the petition in Tax Court,
and thus may contest any allegation in D’s petition
that D has exhausted all such administrative reme-
dies.
Example 3.Exhaustion of administrative reme-
dies. D timely files a Form 709 on which D reports
D’s completed gifts of interests in a family limited
partnership. After conducting an examination, the
IRS proposes to adjust the value of the gift as reported
on the return. No gift tax deficiency will result from
the adjustments, however, because D has a sufficient
amount of available applicable credit amount under
section 2505. D declines to consent to extend the time
for the assessment of gift tax with respect to the gifts
at issue. Because of the pending expiration of the pe-
riod of limitation on assessment with respect to the
gifts, the IRS determines that there is not adequate
time for Appeals consideration. Accordingly, the IRS
mails to D a Letter 3569, even though a Preliminary
Determination Letter had not first been issued to D.
D timely files a petition in Tax Court pursuant to sec-
tion 7477. After the case is docketed in Tax Court, D
is offered the opportunity for Appeals to consider any
dispute regarding the determination and participates
fully in the Appeals consideration process. However,
the Appeals office and D are unable to resolve the
issue. The IRS will consider D to have exhausted all
administrative remedies available within the IRS, and
thus will not assert that D has not exhausted all such
administrative remedies.
Example 4.Legal issue. In 2006, D transfers non-
vested stock options to a trust for the benefit of D’s
child. D timely files a Form 709 reporting the trans-
2008–25 I.R.B.1174June 23, 2008

fer as a completed gift for Federal gift tax purposes
and complies with the adequate disclosure require-
ments for purposes of triggering the commencement
of the applicable statute of limitations. Pursuant to
§301.6501(c)–1(f)(5), adequate disclosure of a trans-
fer that is reported as a completed gift on the Form
709 will commence the running of the period of lim-
itations for assessment of gift tax on D, even if the
transfer is ultimately determined to be an incomplete
gift for purposes of §25.2511–2 of this chapter. Af-
ter conducting an examination, the IRS concurs with
the reported valuation of the stock options, but con-
cludes that the reported transfer is not a completed
gift for Federal gift tax purposes. D is unable to re-
solve the matter with the IRS examiner. Assuming
that the IRS mails to D a Letter 3569 with regard to
this transfer, and that D complies with the adminis-
trative procedures set forth in this section, including
the exhaustion of all administrative remedies avail-
able within the IRS, then D may file a petition for
declaratory judgment with the Tax Court pursuant to
section 7477.
Example 5.Transfers in controversy.OnApril
16, 2007, D timely files a Form 709 on which D re-
ports gifts made in 2006 of fractional interests in cer-
tain real property and of interests in a family limited
partnership (FLP). However, although the gifts are
disclosed on the return, the return does not contain
information sufficient to constitute adequate disclo-
sure under §301.6501(c)–1(e) or (f) for purposes of
the application of the statute of limitations on assess-
ment of gift tax with respect to the reported gifts. The
IRS conducts an examination and concludes that the
value of both the interests in the real property and
the FLP interests on the date(s) of the transfers are
greater than the values reported on the return. No
gift tax deficiency will result from the adjustments
because D has a sufficient amount of remaining ap-
plicable credit amount under section 2505. However,
D does not agree with the adjustments. The IRS sends
a Preliminary Determination Letter to D informing D
of the proposed adjustments in the value of the re-
ported gifts. D, within 30 calendar days after the
mailing date of the letter, submits a written request
for Appeals consideration. The Appeals office and D
are unable to reach an agreement regarding the value
of any of the gifts. In the exercise of its discretion,
the IRS decides to resolve currently only the value
of the real property interests, and to defer the resolu-
tion of the value of the FLP interests. On May 28,
2009, the Appeals office sends D a Letter 3569 ad-
dressing only the value of the gifts of interests in the
real property. Because none of the gifts reported on
the return filed on April 16, 2007, were adequately
disclosed for purposes of §301.6501(c)–1(e) or (f),
the period of limitations during which the IRS may
adjust the value of those gifts has not begun to run.
Accordingly, the Letter 3569 is timely mailed. If D
timely files a petition in Tax Court pursuant to section
7477 with regard to the value of the interests in the
real property, then, assuming the other requirements
of section 7477 are satisfied with regard to those in-
terests, the Tax Court’s declaratory judgment, once it
becomes final, will determine the value of the gifts of
the interests in the real property. Because the IRS has
not yet put the gift tax value of the interests in the FLP
into controversy, the procedure under section 7477 is
not available with regard to those gifts.
(d)Effective/applicability date.This
section applies to civil proceedings de-
scribed in section 7477 filed in the United
States Tax Court on or after the date these
regulations are published as final regula-
tions in theFederal Register.
Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Reg
ister on June 6, 2008,
8:45 a.m., and published in the issue of the Federal Register
for June 9, 2008, 73 F.R. 32503)
Notice of Proposed
Rulemaking
Qualified Nonpersonal Use
Vehicles
REG–106897–08
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains pro-
posed regulations relating to qualified non-
personal use vehicles as defined in section
274(i). Qualified nonpersonal use vehi-
cles are excepted from the substantiation
requirements of section 274(d)(4) that ap-
ply to listed property as defined in section
280F(d)(4). These proposed regulations
would add clearly marked public safety
officer vehicles as a new type of quali-
fied nonpersonal use vehicle. These pro-
posed regulations would affect employers
that provide their employees with qualified
nonpersonal use vehicles and the employ-
ees who use such vehicles.
DATES: Written or electronic comments
and requests for a public hearing must be
received by September 8, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR(REG–106897–08),
Room 5203, Internal Revenue Service,
P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may
be hand-delivered between the hours of
8:00 a.m. and 4 p.m. to CC:PA:LPD:PR
(REG–106897–08), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Addi-
tionally, taxpayers may submit electronic
comments directly via the Federal eRule-
making Portal atwww.regulations.gov
(IRS REG–106897–08).
FOR FURTHER INFORMATION
CONTACT: Concerning the pro-
posed regulations, Don Parkinson or
Selvan Boominathan at (202) 622–6040;
concerning the submission of comments
or requests for a hearing, Kelly Banks at
(202) 622–3628 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
Income Tax Regulations under section
274(i) added by section 2(b) of Pub-
lic Law 99–44 (May 24, 1985), which
provides a definition of qualified nonper-
sonal use vehicle. Temporary Regulation
§1.274–5T(k), identifying categories of
qualified nonpersonal use vehicles, was
issued in T.D. 8061, 1985–2 C.B. 93
(1985). A notice of proposed rulemak-
ing (LR–145–84, 1985–2 C.B. 809) was
issued by cross-reference to Temporary
Regulation §1.274–5T(k) (50 FR 46088,
1985–2 C.B. 809 (1985)). These pro-
posed regulations incorporate the text of
§1.274–5T(k) and add clearly marked
public safety officer vehicles as a new
type of qualified nonpersonal use vehicle,
listed along with clearly marked police
and fire vehicles at §1.274–5(k)(2)(ii)(A).
Clearly marked public safety officer
vehicles are added to the definition of
clearly marked police and fire vehi-
cles at §1.274–5(k)(3), and an exam-
ple is added at §1.274–5(k)(8). (See
§601.601(d)(2)(ii)(b).)
Explanation of Provisions
Section 274(d) provides that a taxpayer
is not allowed a deduction or credit for cer-
tain expenses unless the expense is sub-
stantiated. These substantiation require-
ments apply to expenses incurred in the
use of any listed property (defined in sec-
tion 280F(d)(4)), which includes any pas-
senger automobile and any other property
used as a means of transportation. Section
274(d) does not apply to any qualified non-
personal use vehicle as defined in section
274(i).
June 23, 200811752008–25 I.R.B.

Section 274(i) provides that a quali-
fied nonpersonal use vehicle is any vehi-
cle which by reason of its nature is not
likely to be used more than ade minimis
amount for personal uses. The legisla-
tivehistorytosection274(i)provideda
list of qualified nonpersonal use vehicles
and identified a number of examples of
qualified nonpersonal use vehicles such as
school buses, qualified specialized utility
repair trucks, and qualified moving vans.
The legislative history indicated that Con-
gress wanted the Commissioner to expand
the list to include other vehicles appropri-
ate for listing because by their nature it is
highly unlikely that they will be used more
than a very minimal amount for personal
purposes. H.R. Rep. No. 99–34, at 11
(1985).
Passenger automobiles such as sedans
and sport utility vehicles are generally not
exempt from taxation as qualified nonper-
sonal use vehicles because by design they
can easily be used for personal purposes.
However, unmarked law enforcement ve-
hicles and clearly marked police and fire
vehicles are included in the list of quali-
fied nonpersonal use vehicles set forth in
the legislative history to section 274(i) and
incorporated into the proposed and tempo-
rary regulations.
The IRS and the Treasury Department
have become aware of a need for an addi-
tional category of vehicles to be included
in the list of qualified nonpersonal use
vehicles. Clearly marked vehicles pro-
vided to Federal, state and local govern-
ment workers who respond to emergency
situations do not satisfy the current reg-
ulations governing qualified nonpersonal
use vehicles if the individual workers are
not employed by either the fire department
or police department. Accordingly, the
proposed regulations add clearly marked
public safety officer vehicles to the list of
qualified nonpersonal use vehicles so that
emergency responders receive the same
treatment whether they work for the police
department, fire department or another de-
partment of state or local government.
A clearly marked public safety officer
vehicle is a vehicle owned or leased by
a governmental unit or any agency or in-
strumentality thereof, that is required to
be used for commuting by a public safety
officer as defined in section 402(l)(4)(C)
who, when not on a regular shift, is on
call at all times, provided that any personal
use (other than commuting) of the vehicle
outside the limit of the public safety of-
ficer’s obligation to respond to an emer-
gency is prohibited by such governmen-
tal unit. A public safety officer vehicle is
clearly marked if, through painted insignia
or words, it is readily apparent that the ve-
hicle is a public safety officer vehicle.
Section 402(l)(4)(C) provides that the
term “public safety officer” shall have
the same meaning given such term by the
Omnibus Crime Control and Safe Streets
Act of 1968, as codified at 42 U.S.C.
section 3796b(9)(A). 42 U.S.C. Section
3796b(9)(A) defines public safety officer
as “an individual serving a public agency
in an official capacity, with or without
compensation, as a law enforcement of-
ficer, a firefighter, a chaplain, or as a
member of a rescue squad or ambulance
crew.”
Proposed §1.274–5(k) and (l) provide
a list of qualified nonpersonal use ve-
hicles and related definitions. Section
1.274–5(k) and (l) were originally pro-
posed in 1985 (LR–145–84, 50 FR 46088,
November 6, 1985) and simultaneously
issued as a temporary regulation (T.D.
8061, 50 FR 46006, November 6, 1985).
Paragraph (k) of LR–145–84 is being
re-proposed, with amendments, as part of
these proposed regulations. Paragraph (l)
provides definitions of the terms “automo-
bile,” “vehicle,” “employer,” “employee,”
and “personal use.” Paragraph (l) is be-
ing re-proposed, with no changes, as part
of these proposed regulations. The cor-
responding provisions of the proposed
regulations in LR–145–84 are withdrawn
upon publication of this notice. The cor-
responding provisions of the temporary
regulations in T.D. 8061 will be withdrawn
once these proposed regulations are pub-
lished as final regulations in theFederal
Register.
Special Analyses
It has been determined that this Trea-
sury decision is not a significant regula-
tory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It is hereby certified
that these regulations will not have a sig-
nificant economic impact on a substantial
number of small entities. This certification
is based upon the fact that these regulations
do not require a collection of information
and do not impose any new or different re-
quirements on small entities. Therefore, a
Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) is not required. Pursuant to section
7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking has been
submitted to the Chief Council for Advo-
cacy of the Small Business Administration
for comment on its impact on small busi-
ness.
Comments and Requests for Public
Hearings
Before these proposed amendments are
adopted, consideration will be given to any
written comments that are submitted to
CC:PA:LPD:PR (REG–106897–08). All
comments will be available for public in-
spection and copying. A public hearing
will be scheduled and held upon written
request by any person who submits writ-
ten comments on the proposed regulation.
Notice of the time and place for the hearing
will be published in theFederal Register.
Drafting Information
The principal authors of these reg-
ulations are Don E. Parkinson and
Selvan V. Boominathan, Office of the
Associate Chief Counsel (Tax Exempt
and Government Entities). 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 1.132–5 paragraph (h)
is amended to read as follows:
§1.132–5 Working condition fringes.
*****
(h)Qualified nonpersonal use vehi-
cles—(1)In general. Except as provided
in paragraph (h)(2) of this section, 100
2008–25 I.R.B.1176June 23, 2008

percent of the value of the use of a quali-
fied nonpersonal use vehicle (as described
in §1.274–5(k)) is excluded from gross
income as a working condition fringe,
provided that, in the case of a vehicle de-
scribed in §1.274–5(k)(3) through (8), the
use of the vehicle conforms to the require-
ments of that paragraph.
(2)Shared usage of qualified nonper-
sonal use vehicles.In general, a working
condition fringe under this paragraph (h) is
available to the driver and all passengers of
a qualified nonpersonal use vehicle. How-
ever, a working condition fringe under this
paragraph (h) is available only with respect
to the driver and not with respect to any
passengers of a qualified nonpersonal use
vehicle described in §1.274–5(k)(2)(ii)(L)
or (P).
*****
Par. 3. Section 1.274–5 paragraphs (k)
and (l) and the last sentence of paragraph
(m) are revised to read as follows:
§1.274–5 Substantiation Requirements.
*****
(k)Exceptions for qualified nonper-
sonal use vehicles—(1)In general.The
substantiation requirements of section
274(d)andthissectiondonotapplytoany
qualified nonpersonal use vehicle (as de-
fined in paragraph (k)(2) of this section).
(2)Qualified nonpersonal use vehi-
cle—(i)In general.For purposes of section
274(d) and this section, the termqualified
nonpersonal use vehiclemeans any ve-
hicle which, by reason of its nature (that
is,design),isnotlikelytobeusedmore
than ade minimisamount for personal
purposes.
(ii)List of vehicles.Vehicles which are
qualified nonpersonal use vehicles include
the following:
(A) Clearly marked police, fire, and
public safety officer vehicles (as defined
and to the extent provided in paragraph
(k)(3) of this section).
(B) Ambulances used as such or hearses
used as such.
(C) Any vehicle designed to carry cargo
with a loaded gross vehicle weight over
14,000 pounds.
(D) Bucket trucks (cherry pickers).
(E) Cement mixers.
(F) Combines.
(G) Cranes and derricks.
(H) Delivery trucks with seating only
for the driver, or only for the driver plus
a folding jump seat.
(I) Dump trucks (including garbage
trucks).
(J) Flatbed trucks.
(K) Forklifts.
(L) Passenger buses used as such with a
capacity of at least 20 passengers.
(M) Qualified moving vans (as defined
in paragraph (k)(4) of this section).
(N) Qualified specialized utility repair
trucks (as defined in paragraph (k)(5) of
this section).
(O) Refrigerated trucks.
(P) School buses (as defined in section
4221(d)(7)(c).
(Q) Tractors and other special purpose
farm vehicles.
(R) Unmarked vehicles used by law en-
forcement officers (as defined in paragraph
(k)(6) of this section) if the use is officially
authorized.
(S) Such other vehicles as the Commis-
sioner may designate.
(3)Clearly marked police, fire, or pub-
lic safety officer vehicles.A police, fire, or
public safety officer vehicle is a vehicle,
owned or leased by a governmental unit,
or any agency or instrumentality thereof,
that is required to be used for commuting
by a police officer, fire fighter, or public
safety officer (as defined in §402(l)(4)(C))
of this chapter who, when not on a regu-
lar shift, is on call at all times, provided
that any personal use (other than commut-
ing) of the vehicle outside the limit of the
police officer’s arrest powers or the fire
fighter’s or public safety officer’s obliga-
tion to respond to an emergency is pro-
hibited by such governmental unit. A po-
lice, fire, or public safety officer vehicle is
clearly marked if, through painted insignia
or words, it is readily apparent that the ve-
hicle is a police, fire, or public safety offi-
cer vehicle. A marking on a license plate
is not a clear marking for purposes of this
paragraph (k).
(4)Qualified moving van.The term
qualified moving vanmeans any truck or
vanusedbyaprofessionalmovingcom-
pany in the trade or business of moving
household or business goods if—
(i) No personal use of the van is allowed
other than for travel to and from a move
site (or forde minimispersonal use, such
asastopforlunchonthewaybetweentwo
move sites);
(ii) Personal use for travel to and from
a move site is an irregular practice (that
is, not more than five times a month on
average); and
(iii) Personal use is limited to situations
in which it is more convenient to the em-
ployer, because of the location of the em-
ployee’s residence in relation to the loca-
tion of the move site, for the van not to be
returned to the employer’s business loca-
tion.
(5)Qualified specialized utility repair
truck.The termqualified specialized util-
ity repair truckmeans any truck (not in-
cluding a van or pickup truck) specifically
designed and used to carry heavy tools,
testing equipment, or parts if—
(i) The shelves, racks, or other perma-
nent interior construction which has been
installed to carry and store such heavy
items is such that it is unlikely that the
truck will be used more than ade minimis
amount for personal purposes; and
(ii) The employer requires the em-
ployee to drive the truck home in order to
be able to respond in emergency situations
for purposes of restoring or maintaining
electricity, gas, telephone, water, sewer, or
steam utility services.
(6)
Unmarked law enforcement vehi-
cles—(i)In general. The substantiation re-
quirements of section 274(d) and this sec-
tion do not apply to officially authorized
uses of an unmarked vehicle by a “law en-
forcement officer”. To qualify for this ex-
ception, any personal use must be autho-
rized by the Federal, State, county, or local
governmental agency or department that
owns or leases the vehicle and employs
the officer, and must be incident to law-en-
forcement functions, such as being able to
report directly from home to a stakeout or
surveillance site, or to an emergency situ-
ation. Use of an unmarked vehicle for va-
cation or recreation trips cannot qualify as
an authorized use.
(ii)Law enforcement officer.The term
law enforcement officermeans an individ-
ual who is employed on a full-time basis
by a governmental unit that is responsible
for the prevention or investigation of crime
involving injury to persons or property (in-
cluding apprehension or detention of per-
sons for such crimes), who is authorized
by law to carry firearms, execute search
warrants, and to make arrests (other than
merely a citizen’s arrest), and who regu-
larly carries firearms (except when it is not
June 23, 200811772008–25 I.R.B.

possible to do so because of the require-
ments of undercover work). The term “law
enforcement officer” may include an ar-
son investigator if the investigator other-
wise meets the requirements of this para-
graph (k)(6)(ii), but does not include Inter-
nal Revenue Service special agents.
(7)Trucks and vans.The substantiation
requirements of section 274(d) and this
section apply generally to any pickup truck
or van, unless the truck or van has been
specially modified with the result that it is
notlikelytobeusedmorethanade min-
imisamount for personal purposes. For ex-
ample, a van that has only a front bench
for seating, in which permanent shelving
that fills most of the cargo area has been
installed, that constantly carries merchan-
dise or equipment, and that has been spe-
cially painted with advertising or the com-
pany’s name, is a vehicle not likely to be
used more than ade minimisamount for
personal purposes.
(8)Examples.The following exam-
ples illustrate the provisions of paragraph
(k)(3) and (6) of this section:
Example 1. Detective C, who is a “law enforce-
ment officer” employed by a state police department,
headquartered in City M, is provided with an un-
marked vehicle (equipped with radio communica-
tion) for use during off-duty hours because C must be
able to communicate with headquarters and be avail-
able for duty at any time (for example, to report to
a surveillance or crime site). The police department
generally has officially authorized personal use of
the vehicle by C but has prohibited use of the vehicle
for recreational purposes or for personal purposes
outside the state. Thus, C’s use of the vehicle for
commuting between headquarters or a surveillance
site and home and for personal errands is authorized
personal use as described in paragraph (k)(6)(i) of
this section. With respect to these authorized uses,
the vehicle is not subject to the substantiation re-
quirements of section 274(d) and the value of these
uses is not included in C’s gross income.
Example 2.Detective T is a “law enforcement of-
ficer” employed by City M. T is authorized to make
arrests only within M’s city limits. T, along with all
other officers of the force, is ordinarily on duty for
eight hours each work day and on call during the other
sixteen hours. T is provided with the use of a clearly
marked police vehicle in which T is required to com-
mute to his home in City M. The police department’s
official policy regarding marked police vehicles pro-
hibits personal use (other than commuting) of the ve-
hicles outside the city limits. When not using the
vehicle on the job, T uses the vehicle only for com-
muting, personal errands on the way between work
and home, and personal errands within City M. All
use of the vehicle by T conforms to the requirements
of paragraph (k)(3) of this section. Therefore, the
value of that use is excluded from T’s gross income
as a working condition fringe and the vehicle is not
subject to the substantiation requirements of section
274(d).
Example 3. Director C is employed by City M as
the director of the City’s rescue squad and is provided
with a vehicle for use in responding to emergencies.
The city’s rescue squad is not a part of City M’s po-
lice or fire departments. The director’s vehicle is a
sedan which is painted with insignia and words iden-
tifying the vehicle as a being owned by the City’s
rescue squad. C, when not on a regular shift, is on
call at all times. The City’s official policy regard-
ing clearly marked public safety officer vehicles pro-
hibits personal use (other than for commuting) of the
vehicle outside of the limits of the public safety of-
ficer’s obligation to respond to an emergency. When
not using the vehicle to respond to emergencies, City
M authorizes C to use the vehicle only for commut-
ing, personal errands on the way between work and
home, and personal errands within the limits of C’s
obligation to respond to emergencies. With respect
to these authorized uses, the vehicle is not subject to
the substantiation requirements of section 274(d) and
the value of these uses is not includable in C’s gross
income.
(l)Definitions. For purposes of section
274(d) and this section, the termsauto-
mobileandvehiclehave the same mean-
ings as prescribed in §§1.61–21(d)(1)(ii)
and 1.61–21(e)(2), respectively. Also, for
purposes of section 274(d) and this sec-
tion, the termsemployer,employeeand
personal usehave the same meanings as
prescribed in §1.274–6T(e).
(m)***However,paragraph(j)(3)of
this section applies to expenses paid or in-
curred after September 30, 2002, and para-
graph (k) applies to clearly marked pub-
lic safety officer vehicles, as defined in
§1.274–5(k)(3), only with respect to uses
occurring after January 1, 2009.
Par. 4. Section 1.274–5T is revised by
amending paragraph (k) and (l) as follows:
§1.274–5T Substantiation requirements
(temporary).
*****
(k) and (l) [Reserved]. For further guid-
ance, see §§1.274–5(k) and (l).
*****
Par. 5. Section 1.280F–6 is amended
by revising paragraph (b)(2)(ii) to read:
§1.280F–6 Special rules and definitions.
*****
(b) * * *
(2) * * *
(ii)Exception. The term “listed prop-
erty” does not include any vehicle that is
a qualified nonpersonal use vehicle as de-
fined in section 274(i) and §1.274–5(k).
*****
Steven Miller,
Acting Deputy Commissioner
for Services and Enforcement.
(Filed by the Office of the Federal Register on June 6, 2008,
8:45 a.m., and published in the issue of the Federal Register
for June 9, 2008, 73 F.R. 32500)
Deletions From Cumulative
List of Organizations
Contributions to Which
are Deductible Under Section
170 of the Code
Announcement 2008–55
The Internal Revenue Service has re-
voked its determination that the organi-
zations listed below qualify as organiza-
tions described in sections 501(c)(3) and
170(c)(2) of the Internal Revenue Code of
1986.
Generally, the Service will not disallow
deductions for contributions made to a
listed organization on or before the date
of announcement in the Internal Revenue
Bulletinthatanorganizationnolonger
qualifies. However, the Service is not
precluded from disallowing a deduction
for any contributions made after an or-
ganization ceases to qualify under section
170(c)(2) if the organization has not timely
filed a suit for declaratory judgment under
section 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.
If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on June 23, 2008, and
would end on the date the court first deter-
mines that the organization is not described
in section 170(c)(2) as more particularly
set forth in section 7428(c)(1). For indi-
vidual contributors, the maximum deduc-
tion protected is $1,000, with a husband
and wife treated as one contributor. This
benefit is not extended to any individual, in
wholeorinpart,fortheactsoromissions
2008–25 I.R.B.1178June 23, 2008

of the organization that were the basis for
revocation.
Texas Reinvestment Corporation II
San Antonio, TX
Zebra Project, Inc.
Atlanta, GA
Alliance for Science Health and
Environment, Inc.
Melbourne Beach, FL
Gymfest, Inc.
West Seneca, NY
Estrellas Nacientes, Inc.
New York, NY
Dunardry Heritage Association
Rickman, TN
Students Are For Education, Inc.
Tallahassee, FL
June 23, 200811792008–25 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 rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2008–25 I.R.B.iJune 23, 2008

Numerical Finding List
1
Bulletins 2008–1 through 2008–25
Announcements:
2008-1, 2008-1 I.R.B.246
2008-2, 2008-3 I.R.B.307
2008-3, 2008-2 I.R.B.269
2008-4, 2008-2 I.R.B.269
2008-5, 2008-4 I.R.B.333
2008-6, 2008-5 I.R.B.378
2008-7, 2008-5 I.R.B.379
2008-8, 2008-6 I.R.B.403
2008-9, 2008-7 I.R.B.444
2008-10, 2008-7 I.R.B.445
2008-11, 2008-7 I.R.B.445
2008-12, 2008-7 I.R.B.446
2008-13, 2008-8 I.R.B.480
2008-14, 2008-8 I.R.B.481
2008-15, 2008-9 I.R.B.511
2008-16, 2008-9 I.R.B.511
2008-17, 2008-9 I.R.B.512
2008-18, 2008-12 I.R.B.667
2008-19, 2008-11 I.R.B.624
2008-20, 2008-11 I.R.B.625
2008-21, 2008-13 I.R.B.691
2008-22, 2008-13 I.R.B.692
2008-23, 2008-14 I.R.B.731
2008-24, 2008-13 I.R.B.692
2008-25, 2008-14 I.R.B.732
2008-26, 2008-13 I.R.B.693
2008-27, 2008-15 I.R.B.751
2008-28, 2008-14 I.R.B.733
2008-29, 2008-15 I.R.B.786
2008-30, 2008-16 I.R.B.825
2008-31, 2008-15 I.R.B.787
2008-32, 2008-16 I.R.B.826
2008-33, 2008-16 I.R.B.826
2008-34, 2008-17 I.R.B.849
2008-35, 2008-17 I.R.B.849
2008-36, 2008-16 I.R.B.827
2008-37, 2008-17 I.R.B.850
2008-38, 2008-17 I.R.B.851
2008-39, 2008-18 I.R.B.867
2008-40, 2008-19 I.R.B.941
2008-41, 2008-19 I.R.B.943
2008-42, 2008-19 I.R.B.943
2008-43, 2008-19 I.R.B.944
2008-44, 2008-20 I.R.B.982
2008-45, 2008-20 I.R.B.982
2008-46, 2008-20 I.R.B.983
2008-47, 2008-20 I.R.B.983
2008-48, 2008-20 I.R.B.983
2008-49, 2008-21 I.R.B.1024
2008-50, 2008-21 I.R.B.1024
2008-51, 2008-22 I.R.B.
1040
2008-52, 2008-22 I.R.B.1040
Announcements— Continued:
2008-53, 2008-23 I.R.B.1137
2008-54, 2008-24 I.R.B.1155
2008-55, 2008-25 I.R.B.1178
Court Decisions:
2085, 2008-17 I.R.B.828
2086, 2008-19 I.R.B.905
Notices:
2008-1, 2008-2 I.R.B.251
2008-2, 2008-2 I.R.B.252
2008-3, 2008-2 I.R.B.253
2008-4, 2008-2 I.R.B.253
2008-5, 2008-2 I.R.B.256
2008-6, 2008-3 I.R.B.275
2008-7, 2008-3 I.R.B.276
2008-8, 2008-3 I.R.B.276
2008-9, 2008-3 I.R.B.277
2008-10, 2008-3 I.R.B.277
2008-11, 2008-3 I.R.B.279
2008-12, 2008-3 I.R.B.280
2008-13, 2008-3 I.R.B.282
2008-14, 2008-4 I.R.B.310
2008-15, 2008-4 I.R.B.313
2008-16, 2008-4 I.R.B.315
2008-17, 2008-4 I.R.B.316
2008-18, 2008-5 I.R.B.363
2008-19, 2008-5 I.R.B.366
2008-20, 2008-6 I.R.B.406
2008-21, 2008-7 I.R.B.431
2008-22, 2008-8 I.R.B.465
2008-23, 2008-7 I.R.B.433
2008-24, 2008-8 I.R.B.466
2008-25, 2008-9 I.R.B.484
2008-26, 2008-9 I.R.B.487
2008-27, 2008-10 I.R.B.543
2008-28, 2008-10 I.R.B.546
2008-29, 2008-12 I.R.B.637
2008-30, 2008-12 I.R.B.638
2008-31, 2008-11 I.R.B.592
2008-32, 2008-11 I.R.B.593
2008-33, 2008-12 I.R.B.642
2008-34, 2008-12 I.R.B.645
2008-35, 2008-12 I.R.B.647
2008-36, 2008-12 I.R.B.650
2008-37, 2008-12 I.R.B.654
2008-38, 2008-13 I.R.B.683
2008-39, 2008-13 I.R.B.684
2008-40, 2008-14 I.R.B.725
2008-41, 2008-15 I.R.B.742
2008-42, 2008-15 I.R.B.747
2008-43, 2008-15 I.R.B.748
2008-44, 2008-16 I.R.B.799
2008-45, 2008-17 I.R.B.835
2008-46, 2008-18 I.R.B.868
Notices— Continued:
2008-47, 2008-18 I.R.B.869
2008-48, 2008-21 I.R.B.1008
2008-49, 2008-20 I.R.B.979
2008-50, 2008-21 I.R.B.1010
2008-51, 2008-25 I.R.B.1163
2008-52, 2008-25 I.R.B.1166
Proposed Regulations:
REG-208199-91, 2008-21 I.R.B.1017
REG-168745-03, 2008-18 I.R.B.871
REG-143716-04, 2008-25 I.R.B.1170
REG-147290-05, 2008-10 I.R.B.576
REG-100798-06, 2008-23 I.R.B.1135
REG-141998-06, 2008-19 I.R.B.911
REG-147775-06, 2008-19 I.R.B.916
REG-153589-06, 2008-14 I.R.B.730
REG-104713-07, 2008-6 I.R.B.409
REG-104946-07, 2008-11 I.R.B.596
REG-110136-07, 2008-17 I.R.B.838
REG-111583-07, 2008-4 I.R.B.319
REG-112196-07, 2008-21 I.R.B.1021
REG-114126-07, 2008-6 I.R.B.410
REG-114942-07, 2008-18 I.R.B.901
REG-119518-07, 2008-17 I.R.B.844
REG-124590-07, 2008-16 I.R.B.801
REG-127391-07, 2008-13 I.R.B.689
REG-136020-07, 2008-24 I.R.B.1154
REG-136701-07, 2008-11 I.R.B.616
REG-137573-07, 2008-15 I.R.B.750
REG-139236-07, 2008-9 I.R.B.491
REG-141399-07, 2008-8 I.R.B.470
REG-143468-07, 2008-17 I.R.B.848
REG-147832-07, 2008-8 I.R.B.472
REG-149475-07, 2008-9 I.R.B.510
REG-151135-07, 2008-16 I.R.B.815
REG-106897-08, 2008-25 I.R.B.1175
REG-108508-08, 2008-19 I.R.B.923
Revenue Procedures:
2008-1, 2008-1 I.R.B.1
2008-2, 2008-1 I.R.B.90
2008-3, 2008-1 I.R.B.110
2008-4, 2008-1 I.R.B.121
2008-5, 2008-1 I.R.B.164
2008-6, 2008-1 I.R.B.192
2008-7, 2008-1 I.R.B.229
2008-8, 2008-1 I.R.B.233
2008-9, 2008-2 I.R.B.258
2008-10, 2008-3 I.R.B.290
2008-11, 2008-3 I.R.B.301
2008-12, 2008-5 I.R.B.368
2008-13, 2008-6 I.R.B.407
2008-14, 2008-7 I.R.B.435
2008-15, 2008-9 I.R.B.489
2008-16, 2008-10 I.R.B.547
1
A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin
2007–52, dated December 26, 2007.
June 23, 2008ii2008–25 I.R.B.

Revenue Procedures— Continued:
2008-17, 2008-10 I.R.B.549
2008-18, 2008-10 I.R.B.573
2008-19, 2008-11 I.R.B.594
2008-20, 2008-20 I.R.B.980
2008-21, 2008-12 I.R.B.657
2008-22, 2008-12 I.R.B.658
2008-23, 2008-12 I.R.B.664
2008-24, 2008-13 I.R.B.684
2008-25, 2008-13 I.R.B.686
2008-26, 2008-21 I.R.B.1014
2008-27, 2008-21 I.R.B.1014
2008-28, 2008-23 I.R.B.1054
2008-29, 2008-22 I.R.B.1039
2008-30, 2008-23 I.R.B.1056
2008-31, 2008-23 I.R.B.1133
Revenue Rulings:
2008-1, 2008-2 I.R.B.248
2008-2, 2008-2 I.R.B.247
2008-3, 2008-2 I.R.B.249
2008-4, 2008-3 I.R.B.272
2008-5, 2008-3 I.R.B.271
2008-6, 2008-3 I.R.B.271
2008-7, 2008-7 I.R.B.419
2008-8, 2008-5 I.R.B.340
2008-9, 2008-5 I.R.B.342
2008-10, 2008-13 I.R.B.676
2008-11, 2008-10 I.R.B.541
2008-12, 2008-10 I.R.B.520
2008-13, 2008-10 I.R.B.518
2008-14, 2008-11 I.R.B.578
2008-15, 2008-12 I.R.B.633
2008-16, 2008-11 I.R.B.585
2008-17, 2008-12 I.R.B.626
2008-18, 2008-13 I.R.B.674
2008-19, 2008-13 I.R.B.669
2008-20, 2008-14 I.R.B.716
2008-21, 2008-15 I.R.B.734
2008-22, 2008-16 I.R.B.796
2008-23, 2008-18 I.R.B.852
2008-24, 2008-18 I.R.B.861
2008-25, 2008-21 I.R.B.986
2008-26, 2008-21 I.R.B.985
2008-28, 2008-22 I.R.B.1029
2008-29, 2008-24 I.R.B.1149
2008-30, 2008-25 I.R.B.1156
Tax Conventions:
2008-8, 2008-6 I.R.B.403
2008-39, 2008-18 I.R.B.867
Treasury Decisions:
9368, 2008-6 I.R.B.382
9369, 2008-6 I.R.B.394
9370, 2008-7 I.R.B.428
9371, 2008-8 I.R.B.447
9372, 2008-8 I.R.B.462
Treasury Decisions— Continued:
9373, 2008-8 I.R.B.463
9374, 2008-10 I.R.B.521
9375, 2008-5 I.R.B.344
9376, 2008-11 I.R.B.587
9377, 2008-11 I.R.B.578
9378, 2008-14 I.R.B.720
9379, 2008-14 I.R.B.715
9380, 2008-14 I.R.B.718
9381, 2008-14 I.R.B.694
9382, 2008-9 I.R.B.482
9383, 2008-15 I.R.B.738
9384, 2008-16 I.R.B.792
9385, 2008-15 I.R.B.735
9386, 2008-16 I.R.B.788
9387, 2008-16 I.R.B.789
9388, 2008-17 I.R.B.832
9389, 2008-18 I.R.B.863
9390, 2008-18 I.R.B.855
9391, 2008-20 I.R.B.945
9392, 2008-19 I.R.B.903
9393, 2008-20 I.R.B.975
9394, 2008-21 I.R.B.988
9395, 2008-22 I.R.B.1031
9396, 2008-22 I.R.B.1026
9397, 2008-22 I.R.B.1025
9398, 2008-24 I.R.B.1143
9399, 2008-25 I.R.B.1157
9400, 2008-24 I.R.B.1139
2008–25 I.R.B.iiiJune 23, 2008

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2008–1 through 2008–25
Announcements:
2006-88
Clarified and superseded by
Notice 2008-35, 2008-12 I.R.B.647
Notice 2008-36, 2008-12 I.R.B.650
2008-6
Superseded by
Ann. 2008-19, 2008-11 I.R.B.624
Notices:
2001-16
Modified by
Notice 2008-20, 2008-6 I.R.B.406
2001-60
Modified and superseded by
Notice 2008-31, 2008-11 I.R.B.592
2002-44
Superseded by
Notice 2008-39, 2008-13 I.R.B.684
2003-51
Superseded by
Rev. Proc. 2008-24, 2008-13 I.R.B.684
2004-2
Modified by
Notice 2008-52, 2008-25 I.R.B.1166
2004-50
Modified by
Notice 2008-52, 2008-25 I.R.B.1166
2006-27
Clarified and superseded by
Notice 2008-35, 2008-12 I.R.B.647
2006-28
Clarified and superseded by
Notice 2008-36, 2008-12 I.R.B.650
2006-52
Clarified and amplified by
Notice 2008-40, 2008-14 I.R.B.725
2006-77
Clarified and amplified by
Notice 2008-25, 2008-9 I.R.B.484
2006-85
Obsoleted by
T.D. 9400, 2008-24 I.R.B.1139
2006-107
Modified by
Notice 2008-7, 2008-3 I.R.B.276
Notices— Continued:
2007-30
Modified and superseded by
Notice 2008-14, 2008-4 I.R.B.310
2007-45
Modified by
Notice 2008-49, 2008-20 I.R.B.979
2007-48
Obsoleted by
T.D. 9400, 2008-24 I.R.B.1139
2007-54
Clarified by
Notice 2008-11, 2008-3 I.R.B.279
2008-13
Supplemented by
Notice 2008-46, 2008-18 I.R.B.868
2008-27
Clarified, amended, supplemented, and
superseded by
Notice 2008-41, 2008-15 I.R.B.742
Proposed Regulations:
REG-209020-86
Corrected by
Ann. 2008-11, 2008-7 I.R.B.445
REG-107592-00
Partial withdrawal by
Ann. 2008-25, 2008-14 I.R.B.732
REG-149856-03
Hearing scheduled by
Ann. 2008-26, 2008-13 I.R.B.693
REG-143397-05
Corrected by
Ann. 2008-53, 2008-23 I.R.B.1137
REG-147290-05
Hearing scheduled by
Ann. 2008-43, 2008-19 I.R.B.944
REG-109367-06
Withdrawn by
Ann. 2008-41, 2008-19 I.R.B.943
REG-104946-07
Hearing scheduled by
Ann. 2008-47, 2008-20 I.R.B.983
REG-113891-07
Hearing scheduled by
Ann. 2008-4, 2008-2 I.R.B.269
REG-114126-07
Corrected by
Ann. 2008-36, 2008-16 I.R.B.827
Proposed Regulations— Continued:
REG-127770-07
Hearing scheduled by
Ann. 2008-24, 2008-13 I.R.B.692
REG-133300-07
Hearing scheduled by
Ann. 2008-34, 2008-17 I.R.B.849
REG-139236-07
Hearing scheduled by
Ann. 2008-42, 2008-19 I.R.B.943
REG-141399-07
Hearing cancelled by
Ann. 2008-31, 2008-15 I.R.B.787
Revenue Procedures:
97-36
Modified by
Rev. Proc. 2008-23, 2008-12 I.R.B.664
2001-23
Modified by
Rev. Proc. 2008-23, 2008-12 I.R.B.664
2002-9
Modified by
Rev. Proc. 2008-18, 2008-10 I.R.B.573
Modified and amplified by
Rev. Proc. 2008-25, 2008-13 I.R.B.686
2006-9
Modified by
Rev. Proc. 2008-31, 2008-23 I.R.B.1133
2007-1
Superseded by
Rev. Proc. 2008-1, 2008-1 I.R.B.1
2007-2
Superseded by
Rev. Proc. 2008-2, 2008-1 I.R.B.90
2007-3
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-4
Superseded by
Rev. Proc. 2008-4, 2008-1 I.R.B.121
2007-5
Superseded by
Rev. Proc. 2008-5, 2008-1 I.R.B.164
2007-6
Superseded by
Rev. Proc. 2008-6, 2008-1 I.R.B.192
2007-7
Superseded by
Rev. Proc. 2008-7, 2008-1 I.R.B.229
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2007–27 through 2007–52 is in Internal Revenue Bulletin 2007–52, dated December 26,
2007.
June 23, 2008iv2008–25 I.R.B.

Revenue Procedures— Continued:
2007-8
Superseded by
Rev. Proc. 2008-8, 2008-1 I.R.B.233
2007-26
Obsoleted in part by
Rev. Proc. 2008-17, 2008-10 I.R.B.549
2007-31
Obsoleted in part by
Rev. Proc. 2008-19, 2008-11 I.R.B.594
2007-39
Superseded by
Rev. Proc. 2008-3, 2008-1 I.R.B.110
2007-51
Superseded by
Rev. Proc. 2008-30, 2008-23 I.R.B.1056
2007-52
Superseded by
Rev. Proc. 2008-9, 2008-2 I.R.B.258
2008-13
Corrected by
Ann. 2008-15, 2008-9 I.R.B.511
Revenue Rulings:
56-127
Obsoleted by
T.D. 9391, 2008-20 I.R.B.945
58-612
Clarified and amplified by
Rev. Rul. 2008-15, 2008-12 I.R.B.633
64-250
Amplified by
Rev. Rul. 2008-18, 2008-13 I.R.B.674
66-294
Obsoleted by
Rev. Rul. 2008-29, 2008-24 I.R.B.1149
67-131
Obsoleted by
Rev. Rul. 2008-29, 2008-24 I.R.B.1149
89-42
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
92-19
Supplemented in part by
Rev. Rul. 2008-19, 2008-13 I.R.B.669
97-31
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
2001-48
Modified and superseded by
Rev. Rul. 2008-17, 2008-12 I.R.B.626
Revenue Rulings— Continued:
2005-28
Clarified and superseded by
Rev. Rul. 2008-26, 2008-21 I.R.B.985
2007-4
Supplemented and superseded by
Rev. Rul. 2008-3, 2008-2 I.R.B.249
2008-22
Modified by
Ann. 2008-46, 2008-20 I.R.B.983
Treasury Decisions:
8697
Corrected by
Ann. 2008-38, 2008-17 I.R.B.851
9273
Corrected by
Ann. 2008-33, 2008-16 I.R.B.826
9362
Corrected by
Ann. 2008-9, 2008-7 I.R.B.444
Ann. 2008-12, 2008-7 I.R.B.446
9363
Corrected by
Ann. 2008-10, 2008-7 I.R.B.445
9368
Corrected by
Ann. 2008-29, 2008-15 I.R.B.786
Ann. 2008-30, 2008-16 I.R.B.825
9375
Corrected by
Ann. 2008-16, 2008-9 I.R.B.511
9386
Corrected by
Ann. 2008-35, 2008-17 I.R.B.849
2008–25 I.R.B.vJune 23, 2008

June 23, 20082008–25 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletin is sold on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superin-
tendent of Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis andare notincluded as part of the subscription to the Internal Revenue Bulletin. Subscribers to the weekly
Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
ACCESS THE INTERNAL REVENUE BULLETIN ON THE INTERNET
You may view the Internal Revenue Bulletin on the Internet at www.irs.gov. Under information for: select Businesses. Under
related topics, select More Topics. Then select Internal Revenue Bulletins.
INTERNAL REVENUE BULLETINS ON CD-ROM
Internal Revenue Bulletins are available annually as part ofPublication 1796 (Tax Products CD-ROM). The CD-ROM can be
purchased from National Technical Information Service (NTIS) on the Internet at www.irs.gov/cdorders (discount for online orders)
or by calling 1-877-233-6767. The first release is available in mid-December and the final release is available in late January.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, P.O. Box 371954, Pittsburgh PA, 15250–7954. Please allow two to
six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE INTERNAL
REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it,
we would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.gov) or write to the IRS Bulletin Unit, SE:W:CAR:MP:T:T:SP, Washington, DC 20224
Internal Revenue Service
W
ashington,DC20224
Official Business
Penalty for Private Use, $300